EXHIBIT 99.(A)(1)

CERTICOM CORP.

OFFER TO EXCHANGE OUTSTANDING OPTIONS TO PURCHASE
COMMON SHARES OF CERTICOM CORP.
HAVING AN EXERCISE PRICE PER SHARE OF (USD) $10.00 OR MORE

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THE OFFER AND WITHDRAWAL RIGHTS EXPIRE
AT 12:00 MIDNIGHT, EASTERN TIME ON OCTOBER 25, 2001,
UNLESS THE OFFER IS EXTENDED BY CERTICOM CORP.

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Certicom Corp., which we refer to as "we," "the company" or "Certicom," is
offering employees the opportunity to exchange certain outstanding stock options
to purchase our common shares granted under the Certicom Corp. Stock Option Plan
(the "Original Plan"), the Certicom Corp. 1997 Stock Option Plan, as amended as
of October 19, 2000 (the "1997 Plan"), and the Certicom Corp. 2000 United States
Stock Plan, as amended as of October 19, 2000 (the "2000 U.S. Plan," and with
the Original Plan and the 1997 Plan, the "option plans") that have an exercise
price per share of (USD) $10.00 or more, for new options we will grant under the
applicable option plans. We are making this offer upon the terms and subject to
the conditions set forth in this offer to exchange and in the related cover
letter and letter of transmittal (which together, as they may be amended from
time to time, constitute the "offer"). You may participate in this offer if you
are an employee of Certicom or one of our subsidiaries who is otherwise eligible
to receive options under an option plan. Notwithstanding the foregoing,
however, directors and employees who are defined as officers for purposes of
Section 16(b) of the Securities Exchange Act of 1934, as amended, each of whom
is listed on Schedule C to this offer to exchange, are not eligible to
participate.

Options with exercise prices equal to (USD) $23.00 or more will be
exchanged at a ratio of one new option for each two old options tendered for
exchange. Options with exercise prices equal to (USD) $10.00 or more and less
than or equal to (USD) $22.99 will be exchanged at a ratio of two new options
for each three old options tendered for exchange. Options with exercise prices
below (USD) $10.00 may not be tendered for exchange under this offer except as
described below. Options with exercise prices less than (USD) $10.00 that are
required to be tendered as described below will be exchanged at a ratio of one
new option for each old option tendered for exchange. We will grant the new
options to you on the first business day which is at least six months and one
day following the date we cancel the options accepted by us for exchange as long
as you remain an employee of the company from the date you tender options
through the date we grant the new options. You may only tender options for all
or none of the common shares subject to an individual grant, which means that if
you decide to tender any options subject to a specific grant, you must tender
all of the options subject to that grant that remain outstanding. In addition,
if you tender any of your options for exchange, you will be required to also
tender all options granted to you during the six months immediately prior to the
business day after the expiration date (including those options with exercise
prices less than (USD) $10.00, except that you do not have to tender those
certain options that you may have received from the company on July 25, 2001
(the "Supplemental Options"). For example, with the exception of the
Supplemental Options, if you have been granted options with an exercise price of
$11.00 within the period six months prior to the business day after the
expiration date, and you have also been granted options prior to such six month
period with an exercise price of $20.00, then you cannot choose to keep the
options with the $11.00 exercise price and tender for cancellation the options
with the $20.00 exercise price. You must choose to either keep or cancel both
options. If you attempt to tender some of your options but do not include all
of the options granted to you within the past six months (with the exception of
the Supplemental Options), your entire tender will be rejected.

This offer is not conditioned upon a minimum number of options being
tendered. This offer is subject to conditions which we describe in Section 6 of
this offer to exchange.

If you tender options for exchange as described in the offer, we will grant
you new options under the applicable option plan, pursuant to a new option
agreement between us and you. The exercise price of the new options will be
equal to the last reported sale price of our common shares on the Nasdaq
National Market or The Toronto Stock Exchange, as provided for in the applicable
option plan, on the date of grant. Each of the new options will have a vesting
schedule whereby twenty-five percent (25%) of the options shall vest immediately
upon issue, and the remaining options shall vest monthly in an equal amount
until fully vested on the second anniversary of the grant date.

ALTHOUGH OUR BOARD OF DIRECTORS HAS APPROVED THIS OFFER, NEITHER WE NOR OUR
BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS TO WHETHER YOU SHOULD TENDER OR
REFRAIN FROM TENDERING YOUR OPTIONS FOR EXCHANGE. YOU MUST MAKE YOUR OWN
DECISION WHETHER TO TENDER YOUR OPTIONS.

Shares of our common shares are quoted on the Nasdaq National Market under
the symbol "CERT" and on The Toronto Stock Exchange under the symbol "CIC." On
September 20, 2001, the last reported sale price of the common shares was (USD)
$1.72 per share on the Nasdaq National Market and (CD) $2.62 per share on The
Toronto Stock Exchange. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS
FOR OUR COMMON SHARES BEFORE DECIDING WHETHER TO TENDER YOUR OPTIONS.

You should direct questions about this offer or requests for assistance or
for additional copies of the offer to exchange or the letter of transmittal to
Certicom Corp., Attention: Gregory M. Capitolo, 25821 Industrial Boulevard,
Hayward, California 94545 (telephone: (510) 780-5400, fax: (510) 780-5401) or
e-mail: stock_admin@certicom.com).

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IMPORTANT

If you wish to tender your options for exchange, you must complete and sign
the attached letter of transmittal in accordance with its instructions, and
mail, fax or otherwise deliver it and any other required documents to us at
Certicom Corp., Attention: Gregory M. Capitolo, 25821 Industrial Boulevard,
Hayward, California 94545. Delivery by e-mail will not be accepted.

We are not making this offer to, nor will we accept any tender of options
from or on behalf of, option holders in any jurisdiction in which the offer or
the acceptance of any tender of options would not be in compliance with the laws
of such jurisdiction. However, we may, at our discretion, take any actions
necessary for us to make this offer to option holders in any such jurisdiction.

WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF
AS TO WHETHER YOU SHOULD TENDER OR REFRAIN FROM TENDERING YOUR OPTIONS PURSUANT
TO THE OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS
DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO
GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS
OFFER OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT
OR IN THE RELATED LETTER OF TRANSMITTAL. IF ANYONE MAKES ANY RECOMMENDATION OR
REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY

UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN
AUTHORIZED BY US.

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TABLE OF CONTENTS

Page
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SUMMARY TERM SHEET...................................................................... 5
INTRODUCTION............................................................................ 13
THE OFFER............................................................................... 14
1. Number of Options; Expiration Date............................................... 14
2. Purpose of the Offer............................................................. 15
3. Procedures for Tendering Options................................................. 16
4. Withdrawal Rights................................................................ 17
5. Acceptance of Options for Exchange and Issuance of New Options................... 17
6. Conditions of the Offer.......................................................... 18
7. Price Range of Common Shares Underlying the Options.............................. 19
8. Source and Amount of Consideration; Terms of New Options......................... 21
9. Information Concerning Certicom Corp............................................. 24
10. Interests of Directors and Officers; Transactions and Arrangements Concerning
the Options...................................................................... 25
11. Status of Options Acquired by Us in the Offer; Accounting Consequences of the
Offer............................................................................ 25
12. Legal Matters; Regulatory Approvals.............................................. 26
13. Material U.S. Federal Income Tax Consequences.................................... 26
14. Certain Tax Consequences for Canada Based Employees.............................. 27
15. Extension of Offer; Termination; Amendment....................................... 31
16. Fees and Expenses................................................................ 32
17. Additional Information........................................................... 32
18. Forward Looking Statements; Miscellaneous........................................ 33

SCHEDULE A- Consolidated Audited Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations from
Certicom Corp.'s Report for the Fiscal Year Ended April 30, 2001, filed on Form
10-K on July 30, 2001

SCHEDULE B-Condensed Consolidated Financial Statements (Unaudited) and
Management's Discussion and Analysis of Financial Condition and Results of
Operations from Certicom Corp.'s Report for the Quarterly Period Ended July 31,
2001, filed on Form 10-Q on September 14, 2001.

SCHEDULE C-Information Concerning the Directors and Executive Officers of
Certicom Corp.

SUMMARY TERM SHEET

The following are answers to some of the questions that you may have about
this offer. We urge you to read carefully the remainder of this offer to
exchange and the accompanying letter of transmittal because the information in
this summary is not complete, and additional important information is contained
in the remainder of this offer to exchange and the letter of transmittal. We
have included references to the relevant sections in this offer to exchange
where you can find a more complete description of the topics in this summary.

WHAT SECURITIES ARE WE OFFERING TO EXCHANGE?

We are offering to exchange all stock options having an exercise price per
share of (USD) $10.00 or more which are outstanding under our option plans or
any lesser number of options that option holders properly tender in the offer,
for new options under the option plans. (Section 1).

WHY ARE WE MAKING THE OFFER?

Many of our outstanding options, whether or not they are currently
exercisable, have exercise prices that are significantly higher than the current
market price of our common shares. We believe these options are unlikely to be
exercised in the foreseeable future. By making this offer to exchange
outstanding options for new options that will have an exercise price equal to
the fair market value of our common shares on the grant date, we intend to
provide our employees with the benefit of owning options that over time may have
a greater potential to increase in value, create better performance incentives
for employees and thereby maximize stockholder value. (Section 2).

WHY DON'T WE SIMPLY REPRICE THE CURRENT OPTIONS?

"Repricing" existing options would result in variable accounting for such
options, which may require us for financial reporting purposes to record
additional compensation expense each quarter until such repriced options are
exercised, cancelled or expired.

WHY CAN'T I JUST BE GRANTED ADDITIONAL OPTIONS?

Granting large numbers of new options would have a negative impact on our
dilution, outstanding shares and earnings per share.

WOULDN'T IT BE EASIER TO JUST QUIT AND GET REHIRED?

This is not an available alternative because a re-hire and re-grant within
six months of the option cancellation date would be treated the same as a
repricing. Again, such a repricing would cause us to incur a variable
accounting charge against earnings.

WHAT ARE THE CONDITIONS TO THE OFFER?

The offer is not conditioned upon a minimum number of options being
tendered. However, the offer is subject to a number of other conditions with
regard to events that could occur prior to the expiration of the offer. These
events include, among other things, a change in accounting principles, a lawsuit
challenging the tender offer, a third-party tender offer for our common shares
or other acquisition proposal or a change in your employment status with us.
These and various other conditions are more fully described in Section 6.

ARE THERE ANY ELIGIBILITY REQUIREMENTS I MUST SATISFY AFTER THE EXPIRATION DATE
OF THE OFFER TO RECEIVE THE NEW OPTIONS?

To receive a grant of new options pursuant to the offer and under the terms
of the option plans, you must be an employee of Certicom or one of its
subsidiaries from the date you tender options through the date we grant the new
options. As discussed below, we will not grant the new options until the first
business day which is at least six months and one day following the date we
cancel the options accepted for exchange. IF YOU ARE NOT AN EMPLOYEE OF
CERTICOM CORP. OR ONE OF OUR SUBSIDIARIES FROM THE DATE YOU TENDER OPTIONS
THROUGH THE DATE WE GRANT THE NEW OPTIONS, YOU WILL NOT RECEIVE ANY NEW OPTIONS
IN EXCHANGE FOR YOUR TENDERED OPTIONS THAT HAVE BEEN ACCEPTED FOR EXCHANGE. YOU
ALSO WILL NOT RECEIVE ANY OTHER CONSIDERATION FOR THE OPTIONS TENDERED IF YOU
ARE NOT AN EMPLOYEE FROM THE DATE YOU TENDER OPTIONS THROUGH THE DATE WE GRANT
THE NEW OPTIONS. (Section 5).

Our directors and officers are not eligible to participate in this offer.
(Section 1).

HOW MANY NEW OPTIONS WILL I RECEIVE IN EXCHANGE FOR MY TENDERED OPTIONS?

WHAT WILL THE TERMS OF MY NEW OPTIONS BE?

The new options that we grant will be granted under the 1997 Plan for
those option holders residing in Canada on the date of grant of the new options,
and the 2000 U.S. Plan for those option holders residing in the United States on
such date, regardless of whether the option holder's original option was under a
different option plan. For example, if we accept and cancel options granted to
an individual who is residing in Canada on the date of grant of the new options,
the new options will be granted under our 1997 Plan, even if such individual's
original option grant had been made under the 2000 U.S. Plan. In our example,
the terms of the new options will be subject to the terms and conditions of the
1997 Plan and a new option agreement between that individual and us, which will
be substantially in the form of Exhibit (d)(5) to the Tender Offer Statement on
Schedule TO that we filed with the United States Securities and Exchange
Commission on September 27, 2001. We advise you to review the terms and
conditions of the 1997 Plan and 2000 U.S. Plan, as applicable, referenced as
Exhibit (d)(3) and (d)(4) to the Schedule TO we filed on September 27, 2001.
(Section 8).

IF I CHOOSE TO TENDER OPTIONS FOR EXCHANGE, DO I HAVE TO TENDER ALL MY
OPTIONS?

You must tender a full option grant. We are not accepting partial tenders
of an individual option grant. For example, if you hold an option to purchase
3,000 common shares at an exercise price of $20.00 per share, you must either
tender all or none of such options; you cannot tender only part of the option
and retain the remainder of the option. On the other hand, if you have multiple
option grants, you may choose to tender one or more but not all of your grants.
However, if you choose to tender any options, you will be required to tender all
option grants that you received during the six months immediately prior to the
business day following the expiration date, except that you do not have to
tender any Supplemental Options (as defined on page 1 of this Offer to
Exchange). If you attempt to tender some of your options but do not include all
of the options granted to you after six months prior to the business day after
the expiration date (excluding the Supplemental Options),

your entire tender will be rejected. (Section 1) In other words, with the
exception of the Supplemental Options, if you have been granted options with an
exercise price of $11.00 within the period six months before the business day
after the expiration date and have also been granted options prior to such six
month period with an exercise price of $20.00, then you cannot choose to keep
the options with the $11.00 exercise price and cancel the options with the
$20.00 exercise price. You must choose to either keep or cancel both options. In
other words, you cannot pick and choose specific options to cancel in this case.

CAN I TENDER THE REMAINING UNEXERCISED OPTIONS OF A GRANT THAT HAD PREVIOUSLY
BEEN EXERCISED IN PART IF SUCH GRANT OTHERWISE MEETS ALL THE CRITERIA?

Yes. If there remains unexercised options from an option grant that you
have previously exercised in part, you may tender the remaining unexercised
options if those remaining options otherwise meet all the criteria set forth
above.

CAN I TENDER ONLY THE UNVESTED OPTIONS OF A PARTICULAR GRANT?

No. You must tender a full option grant. We are not accepting partial
tenders of an individual option grant, unless you have previously exercised a
portion of such grant.

WHEN WILL I RECEIVE MY NEW OPTIONS?

We will grant the new options on the first business day that is at least
six months and one day after the date that we cancel the options accepted for
exchange. For example, if we cancel the tendered options accepted for exchange
on October 26, 2001, the business day following the scheduled expiration date,
the grant date of the new options will be no sooner than April 29, 2002.
HOWEVER, IF YOU ARE NOT AN EMPLOYEE OF CERTICOM OR ONE OF OUR SUBSIDIARIES FROM
THE DATE YOU TENDER OPTIONS THROUGH THE DATE WE GRANT THE NEW OPTIONS, YOU WILL
NOT RECEIVE ANY NEW OPTIONS IN EXCHANGE FOR YOUR TENDERED OPTIONS THAT HAVE BEEN
ACCEPTED FOR EXCHANGE. YOU ALSO WILL NOT RECEIVE ANY OTHER CONSIDERATION FOR
THE OPTIONS TENDERED IF YOU ARE NOT AN EMPLOYEE FROM THE DATE YOU TENDER OPTIONS
THROUGH THE DATE WE GRANT THE NEW OPTIONS. (Section 5).

WHY WON'T I RECEIVE MY NEW OPTIONS IMMEDIATELY AFTER THE EXPIRATION DATE OF THE
OFFER?

If we were to grant the new options on any date which is earlier than six
months and one day after the date we cancel the options tendered for exchange,
we would be required for financial reporting purposes to record compensation
expense against our earnings. (Section 5).

IF I TENDER OPTIONS IN THE OFFER, WILL I BE ELIGIBLE TO RECEIVE OTHER OPTION
GRANTS BEFORE I RECEIVE MY NEW OPTIONS?

We intend to continue to review the option grants of all employees from
time to time as part of our normal compensation program. As a result of this
review, we may decide to grant you additional options. If we accept and cancel
the options you tender in connection with the offer, however, the grant date and
the pricing of any additional options that we may decide to grant to you will be
deferred until a date that is at least six months and one day from the
expiration of this offer. We have determined that it is necessary for us to
defer the grant date and pricing of any such additional options to avoid
incurring compensation expense against our earnings because of accounting rules
that would apply to these interim option grants as a result of the offer.
(Section 5).

WHAT WILL THE EXERCISE PRICE OF THE NEW OPTIONS BE?

The exercise price of the new options will be equal to the last reported
sale price of our common shares on the Nasdaq National Market or The Toronto
Stock Exchange, as provided for in the applicable option plan, on the date we
grant the new options. Accordingly, we cannot predict the exercise price of the
new options. HOWEVER, BECAUSE WE WILL NOT GRANT NEW OPTIONS UNTIL AT LEAST SIX
MONTHS AND ONE DAY AFTER THE DATE WE CANCEL TENDERED OPTIONS ACCEPTED FOR
EXCHANGE, THE NEW OPTIONS MAY HAVE A HIGHER EXERCISE PRICE THAN SOME OR ALL OF
YOUR CURRENT OPTIONS. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS
FOR OUR COMMON SHARES BEFORE DECIDING WHETHER TO TENDER YOUR OPTIONS. (Section
8).

WHEN WILL THE NEW OPTIONS VEST?

Each of the new options will have a vesting schedule whereby twenty-five
percent (25%) of the options shall vest immediately upon issue, and the
remaining options shall vest monthly in an equal amount until fully vested on
the second anniversary of the grant date.

WILL I HAVE TO PAY TAXES IF I EXCHANGE MY OPTIONS IN THE OFFER?

United States Tax Consequences

If you exchange your current options for new options, we believe that you
will not be required under current law to recognize income for U.S. Federal
income tax purposes at the time of the exchange. We believe that the exchange
will be treated as a non-taxable exchange. Further, at the date of grant of the
new options, we believe that you will not be required under current law to
recognize income for U.S. Federal income tax purposes. However, we recommend
that you consult with your own tax advisor to determine the tax consequences of
this offer. (Section 13)

Canadian Tax Consequences

The exchange of existing options for new options pursuant to this tender
offer by an optionee generally will not give rise to any Canadian tax liability
to the optionee unless the existing options were granted in connection with
employment duties performed by the optionee in Canada.

In respect of any options held by an optionee that were granted in
connection with employment duties performed by the optionee in Canada, the tax
treatment of the exchange of such options for new options will depend on whether
the exchange is treated for purposes of the Income Tax Act (Canada) as giving
rise to a taxable disposition of the options or as a tax-deferred "rollover" of
the options for the new options (a "tax-deferred transaction").

There is the potential for an optionee to realize double tax to the extent
that the fair market value of the new options exceeds the fair market value of
the options.

If you are an employee based outside of the United States (e.g., Canada),
we recommend that you consult with your own tax advisor to determine the tax
consequences of the offer under the laws of the country in which you live and
work.

IF MY CURRENT OPTIONS ARE INCENTIVE STOCK OPTIONS, WILL MY NEW OPTIONS BE
INCENTIVE STOCK OPTIONS?

If you are a United States employee and you tender for cancellation
incentive stock options, the new options we grant will also be incentive stock
options to the extent they qualify under Section 422 of the Internal Revenue
Code and to the extent possible under applicable tax laws. For an option to
qualify as an incentive stock option, the value of the shares subject to an
option that first become exercisable by the option holder in any calendar year
cannot exceed $100,000, as determined by using the exercise price of the option.
To the extent the value of the shares subject to the new option exceeds the
$100,000 per year limitation, the remainder of the option will be treated for
tax purposes as a nonstatutory stock option. If the new option has a higher
exercise price than some or all of your current options, a portion of the new
option may exceed the incentive stock option limitation. Because this is a
grant of a new option, the applicable holding periods for incentive stock option
tax treatment will start over. If your cancelled option is a nonstatutory stock
option, the new option will be a nonstatutory stock option. For non-United
States employees, the new options also will be nonstatutory stock options.

In addition, if you choose not to accept this offer, it is possible that
the Internal Revenue Service would decide that the right to exchange your
incentive stock options under this offer is a "modification" of your incentive
stock options. A successful assertion by the Internal Revenue Service that your
incentive stock options are modified could extend the holding period of the
incentive stock options to qualify for favorable tax treatment and cause a
portion of your incentive stock options to be treated as nonqualified stock
options.

WHAT HAPPENS TO OPTIONS THAT I CHOOSE NOT TO TENDER OR THAT ARE NOT ACCEPTED FOR
EXCHANGE?

Options that you choose not to tender for exchange or that we do not accept
for exchange remain outstanding and retain their current exercise price and
current vesting schedule. However, except for the Supplemental Options, if you
tender any options for exchange, you will be required to also tender all option
grants that you received during the six months immediately prior to the date we
cancel options accepted for exchange. If you do not tender these options, your
entire tender will be rejected.

WHEN DOES THE OFFER EXPIRE? CAN THE OFFER BE EXTENDED, AND IF SO, HOW WILL I BE
NOTIFIED IF IT IS EXTENDED?

The offer expires on October 25, 2001, at 12:00 midnight, Eastern time,
unless we extend it.

Although we do not currently intend to do so, we may, in our discretion,
extend the offer at any time. If the offer is extended, we will make a public
announcement of the extension no later than 9:00 a.m. on the next business day
following the previously scheduled expiration of the offer period. If the offer
is extended, then the grant date of the new options will also be extended.
(Section 15).

WHAT DO I NEED TO DO TO TENDER MY OPTIONS?

If you decide to tender your options, you must deliver, before 12:00
midnight, Eastern time, on October 25, 2001, a properly completed and duly
executed letter of transmittal and any other documents required by the letter of
transmittal to Certicom Corp., Attention: Gregory M. Capitolo, 25821 Industrial
Boulevard, Hayward, California 94545, (fax: (510) 780-5401). We will only
accept a paper copy or a fax copy of your executed letter of transmittal.
Delivery by e-mail will not be accepted.

If the offer is extended by us beyond October 25, 2001, you must deliver
these documents before the extended expiration of the offer.

We reserve the right to reject any or all tenders of options that we
determine are not in appropriate form or that we determine are unlawful to
accept. Otherwise, we expect to accept all properly and timely tendered options
which are not validly withdrawn. Subject to our rights to extend, terminate and
amend the offer, we currently expect that we will accept all such properly
tendered options promptly after the expiration of the offer. (Section 5).

DURING WHAT PERIOD OF TIME MAY I WITHDRAW PREVIOUSLY TENDERED OPTIONS?

You may withdraw your tendered options at any time before 12:00 midnight,
Eastern time, on October 25, 2001. If we extend the offer beyond that time, you
may withdraw your tendered options at any time until the extended expiration of
the offer. To withdraw tendered options, you must deliver to us a written
notice of withdrawal, or a fax thereof, with the required information while you
still have the right to withdraw the tendered options.

Once you have withdrawn options, you may re-tender options only by again
following the delivery procedures described above. (Section 4).

CAN I HAVE AN EXAMPLE OF AN OFFER TO EXCHANGE?

The following is a representative example of an offer to exchange for a
hypothetical employee. Your situation is likely to vary in significant
respects.

Assumptions:

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Original Date of Grant #1 June 1, 1998
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Number of Shares Underlying Grant #1 2,000 Shares
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Exercise Price of Grant #1 (USD) $12.00
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Original Date of Grant #2 August 1, 2000
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Number of Shares Underlying Grant #2 5,000 Shares
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Exercise Price of Grant #2 (USD) $27.50
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Original Vesting Schedule of Grant #2 1,250 shares vest on August 1, 2001 and 104.17
shares vest monthly thereafter until fully
vested on August 1, 2004.
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Original Date of Grant #3 December 5, 2000
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Number of Shares Underlying Grant #3 3,000 Shares
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Exercise Price of Grant #3 (USD) $21.50
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Original Vesting Schedule of Grant #3 750 shares vest on December 5, 2001 and 62.50
shares vest monthly thereafter until fully
vested on December 5, 2004.
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Original Date of Grant #4 June 1, 2001
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Number of Shares Underlying Grant #4 2,000 Shares
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Exercise Price of Grant #4 (USD) $11.00
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Original Vesting Schedule of Grant #4 500 shares vest on June 2, 2002 and 41.67
shares vest monthly thereafter until fully
vested on June 1, 2005.
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Hypothetical Stock Price on Replacement Grant (USD) $5.00
Date on or about April 29, 2002
--------------------------------------------------------------------------------

If you choose to participate in the exchange offer, using the above
assumptions for the sake of illustration, if you choose to tender the options
granted to you in Grant #2, you must tender the options to purchase all 5,000
shares granted to you in Grant #2. You may also choose to tender the options
granted to you in Grant #3, in which case you must tender the options to
purchase all 2,000 shares granted to you in Grant #3. In addition, if you choose
to tender the options granted to you in either Grant #2 or #3, you must also
tender your options granted to you in Grant #4. However, you do not need to
tender your options granted under Grant #1 because that grant was made more than
six months prior to the business day after the expiration date, and you do not
need to tender your options granted to you on July 25, 2001, if any.

If you choose to tender the options that you received in Grants #2, #3 and
#4, on the hypothetical replacement grant date of April 29, 2002, you would
have:

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Number of Shares Underlying New Options to
Replace Grant #2 2,500 Shares
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Exercise Price of New Options (USD) $5.00
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Vesting Schedule of New Options 625 shares would be vested on the replacement
grant date, and 78.13 shares will vest monthly
thereafter until fully vested on the second
anniversary of the grant date (assuming your
employment with us continues throughout that
time.)
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Number of Shares Underlying New Options to
Replace Grant #3 2,000 Shares
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Exercise Price of New Options (USD) $5.00
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Vesting Schedule of New Options 500 shares would be vested on the replacement
grant date, and 62.50 shares will vest monthly
thereafter until fully vested on the second
anniversary of the grant date (assuming your
employment with us continues throughout that
time.)
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Number of Shares Underlying New Options to 1,000 Shares
Replace Grant #4
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Exercise Price of New Options (USD) $5.00
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Vesting Schedule of New Options 250 shares would be vested on the replacement
grant date, and 31.25 shares will vest monthly
thereafter until fully vested on the second
anniversary of the grant date (assuming your
employment with us continues throughout that
time.)
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If you do not participate in the exchange offer, you will continue to hold
the options that you currently have.

WHAT HAPPENS IF WE ARE ACQUIRED DURING THE PERIOD AFTER YOUR OPTIONS ARE
CANCELED BUT BEFORE YOU ARE GRANTED NEW OPTIONS?

While we currently have no plans to enter into any such transaction, it is
possible that prior to the replacement grant we might enter into an agreement
for a merger or other similar transaction. These types of transactions could
have substantial effects on our stock price, including substantial stock price
appreciation. Depending on the structure of a transaction, option holders
participating in this offer might be deprived of any further price appreciation
in the common shares or deprived of the opportunity to participate in the option
exchange program.

We reserve the right, in the event of a merger or similar transaction, to
take any actions we deem necessary or appropriate to complete a transaction that
our board of directors believes is in the best interest of our company and our
stockholders. This could include terminating your right to receive replacement
options under this offer. If we were to terminate your right to receive
replacement options under this offer in connection with such transaction,
employees who tendered options for cancellation pursuant to this offer would not
receive options to purchase our stock, or securities of the acquiror or any
other consideration for their tendered options.

WHAT DO WE AND OUR BOARD OF DIRECTORS THINK OF THE OFFER?

Although our board of directors has approved this offer, neither we nor our
board of directors makes any recommendation as to whether you should tender or
refrain from tendering your options. You must make your own decision whether to
tender options.

WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE OFFER?

For additional information or assistance, you should contact:

Certicom Corp.
Attention: Gregory M. Capitolo
25821 Industrial Boulevard
Hayward, CA 94545
Telephone: (510) 780-5400
Fax: (510) 780-5401
E-mail: stock_admin@certicom.com

INTRODUCTION

Certicom Corp. is offering to exchange all outstanding options to purchase
our common shares granted under the Certicom Corp. Stock Option Plan (the
"Original Plan"), the Certicom Corp. 1997 Stock Option Plan, as amended as of
October 19, 2000 (the "1997 Plan"), and the Certicom Corp. 2000 United States
Stock Plan, as amended as of October 19, 2000 (the "2000 U.S. Plan," and with
the Original Plan and the 1997 Plan, the "option plans") that have an exercise
price per share of (USD) $10.00 or more, for new options that we will grant
under the option plans. We are making this offer upon the terms and subject to
the conditions set forth in this offer to exchange and in the related cover
letter and letter of transmittal (which together, as they may be amended from
time to time, constitute the "offer"). You may participate in this offer if you
are an employee of Certicom or one of our subsidiaries who is otherwise eligible
to receive options under an option plan. Notwithstanding the foregoing, however,
directors and employees who are defined as officers for purposes of Section
16(b) of the Securities Exchange Act of 1934, as amended, each of whom is listed
on Schedule C to this offer to exchange, are not eligible to participate.

Options with exercise prices equal to (USD) $23.00 or more will be
exchanged at a ratio of one new option for each two old options tendered for
exchange. Options with exercise prices equal to (USD) $10.00 or more and less
than or equal to (USD) $22.99 will be exchanged at a ratio of two new options
for each three old options tendered for exchange. Options with exercise prices
below (USD) $10.00 may not be tendered for exchange under this offer except as
described below. Options with exercise prices less than (USD) $10.00 that are
required to be tendered as described below will be exchanged at a ratio of one
new option for each old option tendered for exchange. We will grant the new
options on the first business day which is at least six months and one day
following the date we cancel the options accepted for exchange by us. You may
tender options for all of the common shares subject to your options. If you
tender options for exchange, we will grant you new options under the appropriate
option plan pursuant to a new option agreement between us and you. This offer is
not conditioned upon a minimum number of options being tendered. However, you
may only tender options for all or none of the common shares subject to an
individual grant. In addition, except for the Supplemental Options, if you
tender an option grant for exchange, you will be required to also tender for
exchange all option grants that you received during the six months immediately
prior to the business day after the expiration date. In other words, if you
choose to tender any option grant for exchange, you must also tender all option
grants received after April 26, 2001 (including those options with exercise
prices less than (USD) $10.00), except for the Supplemental Options. If you
attempt to tender some of your options but do not include all of the options
granted to you after April 26, 2001 (except for the Supplemental Options), your
entire tender will be rejected. In addition, this offer is subject to conditions
which we describe in Section 6 of this offer to exchange.

If you tender options for exchange, we will grant you new options under the
applicable option plan pursuant to a new option agreement between us and you.
The exercise price of the new options will be equal to the last reported sale
price of our common shares on the Nasdaq National Market or The Toronto Stock
Exchange, as provided for in the applicable option plan, on the date of grant.
Each of the new options will have a vesting schedule whereby twenty-five percent
(25%) of the options shall vest immediately upon issue, and the remaining
options shall vest monthly in an equal amount until fully vested on the second
anniversary of the grant date.

As of August 31, 2001, options to purchase 6,914,007 shares of our common
shares were issued and outstanding under the option plans. Of these options,
options to purchase 1,232,198 shares of our common shares had an exercise price
per share of (USD) $10.00 or more and were otherwise eligible for exchange in
this offer. The common shares issuable upon exercise of options we are offering
to exchange represent approximately 18% of the total common shares issuable upon
exercise of all options outstanding under the option plans as of August 31,
2001.

All options accepted by us pursuant to this offer will be canceled on the
business day after the expiration date.

THE OFFER

1. NUMBER OF OPTIONS; EXPIRATION DATE.

Upon the terms and subject to the conditions of the offer, we are offering
to exchange new options to purchase common shares under the option plans in
return for all eligible outstanding options under the option plans that are
properly tendered and not validly withdrawn in accordance with Section 4 before
the "expiration date," as defined below. Eligible outstanding options are all
options that have an exercise price per share of (USD) $10.00 or more; however,
members of our board of directors and all employees who are defined as officers
for purposes of Section 16(b) of the Securities Exchange Act of 1934, each of
whom is listed on Schedule C to this offer to exchange, are not eligible to
participate in the offer. We will not accept partial tenders of options for any
portion of the shares subject to your options. Therefore, you may only tender
options for all or none of the common shares subject to a particular option
grant. In addition, if you tender an option grant for exchange, you will be
required to also tender all option grants that you received during the six
months immediately prior to the date we cancel tendered options accepted for
exchange (including those options with exercise prices less than (USD) $10.00),
except that you do not have to tender any Supplemental Options.

If your options are properly tendered and accepted for exchange, you will
be entitled to receive new options to purchase the number of shares of our
common shares in the following ratios: options with exercise prices equal to
(USD) $23.00 or more will be exchanged at a ratio of one new option for each two
old options tendered for exchange, options with exercise prices equal to (USD)
$10.00 or more and less than or equal to (USD) $22.99 will be exchanged at a
ratio of two new options for each three old options tendered for exchange, and
options with exercise prices less than (USD) $10.00 that are required to be
tendered as described above will be exchanged at a ratio of one new option for
each old option tendered for exchange, subject to adjustments for any stock
splits, stock dividends and similar events. The new options that we grant will
be granted under the 1997 Plan for those option holders residing in Canada on
the date of grant of the new options, and the 2000 U.S. Plan for those option
holders residing in the United States on such date, regardless of whether the
option holder's original option was under a different option plan. For example,
if we accept and cancel options granted to an individual who is residing in
Canada on the date of grant of the new options, the new options will be granted
under our 1997 Plan, even if such individual's original option grant had been
made under the 2000 U.S. Plan. IF YOU ARE NOT AN EMPLOYEE OF CERTICOM CORP. OR
ONE OF OUR SUBSIDIARIES FROM THE DATE YOU TENDER OPTIONS THROUGH THE DATE WE
GRANT THE NEW OPTIONS, YOU WILL NOT RECEIVE ANY NEW OPTIONS IN EXCHANGE FOR YOUR
TENDERED OPTIONS THAT HAVE BEEN ACCEPTED FOR EXCHANGE. YOU ALSO WILL NOT RECEIVE
ANY OTHER CONSIDERATION FOR YOUR TENDERED OPTIONS IF YOU ARE NOT AN EMPLOYEE
FROM THE DATE YOU TENDER OPTIONS THROUGH THE DATE WE GRANT THE NEW OPTIONS. This
means that if you die or quit or we terminate your employment prior to the date
we grant the new options for any reason, you will not receive anything for the
options that you tendered and we canceled.

The term "expiration date" means 12:00 midnight, Eastern time, on October
25, 2001, unless and until we, in our discretion, have extended the period of
time during which the offer will remain open, in which event the term
"expiration date" refers to the latest time and date at which the offer, as so
extended, expires. See Section 14 for a description of our rights to extend,
delay, terminate and amend the offer.

For purposes of the offer, a "business day" means any day other than a
Saturday, Sunday or U.S. Federal holiday and consists of the time period from
12:01 a.m. through 12:00 midnight, Eastern time.

2. PURPOSE OF THE OFFER.

We issued or assumed the options outstanding under the option plans for the
following purposes:

. to provide our employees an opportunity to acquire or increase a
proprietary interest in us, thereby allowing us to attract and
motivate our employees and creating a stronger incentive for our
employees to expend maximum effort for our growth and success; and

. to encourage our employees to continue their employment by us.

Many of our outstanding options, whether or not they are currently
exercisable, have exercise prices that are significantly higher than the current
market price of our common shares. We believe these options are unlikely to be
exercised in the foreseeable future. By making this offer to exchange
outstanding options for new options that will have an exercise price equal to
the market value of our common shares on the grant date, we intend to provide
our employees with the benefit of owning options that over time may have a
greater potential to increase in value, create better performance incentives for
employees and thereby maximize stockholder value.

Except as otherwise disclosed in this offer to exchange or in our filings
with the SEC, we presently have no plans or proposals that relate to or would
result in:

(a) any material corporate transaction, such as a material merger,
reorganization or liquidation, involving us or any of our subsidiaries;

(b) any purchase, sale or transfer of a material amount of our assets or
the assets of any of our subsidiaries;

(d) any change in our present board of directors or management, including a
change in the number or term of directors or to fill any existing board
vacancies or to change any executive officer's material terms of employment;

(e) any other material change in our corporate structure or business;

(f) our common shares not being authorized for quotation in an automated
quotation system operated by a national securities association;

(g) our common shares becoming eligible for termination of registration
pursuant to Section 12(g)(4) of the United States Securities Exchange Act of
1934;

(h) the suspension of our obligation to file reports pursuant to Section
15(d) of the United States Securities Exchange Act of 1934;

(i) the acquisition by any person of any material amount of our securities
or the disposition of any material amount of our securities; or

(j) any change in our certificate of incorporation or bylaws, or any
actions which may impede the acquisition of control of us by any person.

Neither we nor our board of directors makes any recommendation as to
whether you should tender your options, nor have we authorized any person to
make any such recommendation. Note that the new options may

have a higher exercise price than some or all of your current options. You are
urged to evaluate carefully all of the information in this offer to exchange and
to consult your own investment and tax advisors.

You must make your own decision whether to tender your options for
exchange.

3. PROCEDURES FOR TENDERING OPTIONS.

Proper Tender of Options.

To validly tender your options pursuant to the offer, you must, in
accordance with the terms of the letter of transmittal, properly complete, duly
execute and deliver to us the letter of transmittal, or a fax thereof, along
with any other required documents. We will only accept a properly executed paper
copy or a fax copy of your letter of transmittal and any other required
documents. We will not accept delivery by e-mail. We must receive all of the
required documents at 25821 Industrial Boulevard, Hayward, California 94545,
Attention: Gregory M. Capitolo (fax: (510) 780-5401), before the expiration
date. Your new options will be granted on a date at least six months and one day
after the date that we cancel the tendered options accepted for exchange.

THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING LETTERS OF TRANSMITTAL
AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION AND RISK OF THE TENDERING
OPTION HOLDER. IF DELIVERY IS BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL
WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO
ENSURE TIMELY DELIVERY. YOUR OPTIONS WILL NOT BE CONSIDERED TENDERED UNTIL WE
RECEIVE THEM. WE WILL NOT ACCEPT DELIVERY BY E-MAIL.

Members of our board of directors and all employees who are defined as
officers for purposes of Section 16(b) of the Securities Exchange Act of 1934,
each of whom is listed on Schedule A to this offer to exchange, are not eligible
to participate in the offer.

Determination of Validity; Rejection of Options; Waiver of Defects; No
Obligation to Give Notice of Defects.

We will determine, in our discretion, all questions as to form of documents
and the validity, form, eligibility, including time of receipt, and acceptance
of any tender of options. Our determination of these matters will be final and
binding on all parties. We may reject any or all tenders of options that we
determine are not in appropriate form or that we determine are unlawful to
accept. Otherwise, we expect to accept all properly and timely tendered options
which are not validly withdrawn. We may also waive any of the conditions of the
offer or any defect or irregularity in any tender with respect to any particular
options or any particular option holder. No tender of options will be deemed to
have been properly made until all defects or irregularities have been cured by
the tendering option holder or waived by us. Neither we nor any other person is
obligated to give notice of any defects or irregularities in tenders, and no one
will be liable for failing to give notice of any defects or irregularities.

Our Acceptance Constitutes an Agreement.

Your tender of options pursuant to the procedures described above
constitutes your acceptance of the terms and conditions of the offer. OUR
ACCEPTANCE FOR EXCHANGE OF YOUR OPTIONS TENDERED BY YOU PURSUANT TO THE OFFER
WILL CONSTITUTE A BINDING AGREEMENT BETWEEN US AND YOU UPON THE TERMS AND
SUBJECT TO THE CONDITIONS OF THE OFFER.

Subject to our rights to extend, terminate and amend the offer, we
currently expect that we will accept promptly after the expiration of the offer
all properly tendered options that have not been validly withdrawn.

4. WITHDRAWAL RIGHTS.

You may only withdraw your tendered options in accordance with the
provisions of this Section 4.

You may withdraw your tendered options at any time before the expiration
date. If the offer is extended by us beyond that time, you may withdraw your
tendered options at any time until the extended expiration of the offer. In
addition, unless we accept your tendered options for exchange before 12:00
midnight, Eastern time, on November 21, 2001, you may withdraw your tendered
options at any time after November 21, 2001.

To validly withdraw tendered options, you must deliver to us at the address
set forth in Section 3 a written notice of withdrawal, or a fax thereof, with
the required information, while you still have the right to withdraw the
tendered options. The notice of withdrawal must specify the name of the option
holder who tendered the options to be withdrawn, the grant date, exercise price
and total number of option shares subject to each option to be withdrawn, and
the number of option shares to be withdrawn. Except as described in the
following sentence, the notice of withdrawal must be executed by the option
holder who tendered the options to be withdrawn exactly as such option holder's
name appears on the option agreement or agreements evidencing such options. If
the signature is by a trustee, executor, administrator, guardian, attorney-in-
fact, officer of a corporation or another person acting in a fiduciary or
representative capacity, the signer's full title and proper evidence of the
authority of such person to act in such capacity must be indicated on the notice
of withdrawal.

You may not rescind any withdrawal, and any options you withdraw will
thereafter be deemed not properly tendered for purposes of the offer, unless you
properly re-tender those options before the expiration date by following the
procedures described in Section 3.

Neither we nor any other person is obligated to give notice of any defects
or irregularities in any notice of withdrawal, nor will anyone incur any
liability for failure to give any such notice. We will determine, in our
discretion, all questions as to the form and validity, including time of
receipt, of notices of withdrawal. Our determination of these matters will be
final and binding.

5. ACCEPTANCE OF OPTIONS FOR EXCHANGE AND ISSUANCE OF NEW OPTIONS.

Upon the terms and subject to the conditions of this offer and as promptly
as practicable following the expiration date, we expect to accept for exchange
and cancel options properly tendered and not validly withdrawn before the
expiration date. If we cancel options accepted for exchange on October 26, 2001,
you will be granted new options no sooner than April 29, 2002, which is the
first business day that is at least six months and one day following the date we
intend to cancel options accepted for exchange. If the offer is extended, then
the grant date of the new options will also be extended.

Your new options will entitle you to purchase the number of shares of our
common shares in the following ratios: options with exercise prices equal to
(USD) $23.00 or more will be exchanged at a ratio of

one new option for each two old options tendered for exchange, options with
exercise prices equal to (USD) $10.00 or more and less than or equal to (USD)
$22.99 will be exchanged at a ratio of two new options for each three old
options tendered for exchange, and options with exercise prices less than (USD)
$10.00 that are required to be tendered by the terms of this offer will be
exchanged at a ratio of one new option for each old option tendered for
exchange, subject to adjustments for any stock splits, stock dividends and
similar events.

PLEASE NOTE, HOWEVER, THAT IF YOU ARE NOT AN EMPLOYEE OF CERTICOM CORP. OR
ONE OF OUR SUBSIDIARIES FROM THE DATE YOU TENDER OPTIONS THROUGH THE DATE WE
GRANT THE NEW OPTIONS, YOU WILL NOT RECEIVE ANY NEW OPTIONS IN EXCHANGE FOR YOUR
TENDERED OPTIONS THAT HAVE BEEN ACCEPTED FOR EXCHANGE. YOU ALSO WILL NOT RECEIVE
ANY OTHER CONSIDERATION FOR YOUR TENDERED OPTIONS IF YOU ARE NOT AN EMPLOYEE
FROM THE DATE YOU TENDER OPTIONS THROUGH THE DATE WE GRANT THE NEW OPTIONS.
Certain employee leaves of absence that are approved by us in advance will not
be deemed to constitute non-employment.

For purposes of the offer, we will be deemed to have accepted for exchange
options that are validly tendered and not properly withdrawn, if and when we
give oral or written notice to the option holders of our acceptance for exchange
of such options, which may be by press release. Subject to our rights to
extend, terminate and amend the offer, we currently expect that we will accept
promptly after the expiration of the offer all properly tendered options that
are not validly withdrawn. Promptly after we accept tendered options for
exchange, we will send each tendering option holder a letter indicating the
number of shares subject to the options that we have accepted for exchange, the
corresponding number of shares that will be subject to the new options and the
expected grant date of the new options.

6. CONDITIONS OF THE OFFER.

We will not be required to accept any options tendered for exchange, and we
may terminate or amend the offer, or postpone our acceptance and cancellation of
any options tendered for exchange, in each case, subject to Rule 13e-4(f)(5)
under the United States Securities Exchange Act of 1934, as amended, if at any
time on or after September 27, 2001, and before the expiration date, we
determine that any of the following events has occurred and, in our reasonable
judgment the occurrence of the event makes it inadvisable for us to proceed with
the offer or to accept and cancel options tendered for exchange:

(a) any threatened, instituted or pending action or proceeding by any
government or governmental, regulatory or administrative agency, authority
or tribunal or any other person, domestic or foreign, before any court,
authority, agency or tribunal that directly or indirectly challenges the
making of the offer, the acquisition of some or all of the tendered options
pursuant to the offer, the issuance of new options, or otherwise relates in
any manner to the offer or that, in our reasonable judgment, could
materially and adversely affect the business, condition (financial or
other), income, operations or prospects of Certicom Corp. or our
subsidiaries, or otherwise materially impair in any way the contemplated
future conduct of our business or the business of any of our subsidiaries
or materially impair the benefits that we believe we will receive from the
offer;

(b) any action is threatened, pending or taken, or any approval is
withheld, or any statute, rule, regulation, judgment, order or injunction
is threatened, proposed, sought, promulgated, enacted, entered, amended,
enforced or deemed to be applicable to the offer or us or any of our
subsidiaries, by any court or any authority, agency or tribunal that, in
our reasonable judgment, would or might directly or indirectly:

(1) make the acceptance for exchange of, or issuance of new
options for, some or all of the tendered options illegal or otherwise
restrict or prohibit consummation of the offer or otherwise relates in
any manner to the offer;

(2) delay or restrict our ability, or render us unable, to accept
for exchange, or issue new options for, some or all of the tendered
options;

(3) materially impair the benefits that we believe we will
receive from the offer; or

(4) materially and adversely affect the business, condition
(financial or other), income, operations or prospects of our
subsidiaries, or otherwise materially impair in any way the
contemplated future conduct of our business or the business of any of
our subsidiaries;

(c) any change in generally accepted accounting standards which could
or would require us for financial reporting purposes to record compensation
expense against our earnings in connection with the offer;

(d) a tender or exchange offer with respect to some or all of our
common shares, or a merger or acquisition proposal for us, is proposed,
announced or made by another person or entity or is publicly disclosed; or

(e) any change or changes occurs in our business, condition (financial
or other), assets, income, operations, prospects or stock ownership or in
that of our subsidiaries that, in our reasonable judgment, is or may be
material to us or our subsidiaries or materially impairs or may materially
impair the benefits that we believe we will receive from the offer.

The conditions to the offer are for our benefit. We may assert them in our
discretion regardless of the circumstances giving rise to them prior to the
expiration date. We may waive them, in whole or in part, at any time and from
time to time prior to the expiration date, in our discretion, whether or not we
waive any other condition to the offer. Our failure at any time to exercise any
of these rights will not be deemed a waiver of any such rights. The waiver of
any of these rights with respect to particular facts and circumstances is not a
waiver with respect to any other facts and circumstances. Any determination we
make concerning the events described in this Section 6 will be final and binding
upon everyone.

7. PRICE RANGE OF COMMON SHARES UNDERLYING THE OPTIONS.

Our common shares are listed and traded on the Nasdaq National under the
symbol "CERT" and on the Toronto Stock Exchange, or the TSE, under the symbol
"CIC". Our high and low sales prices of our common shares on the Nasdaq
National Market for each quarter within the last fiscal year are shown below.

U.S. $
---------------------------
High Low
---- ---
------------- ------------

Fiscal 2002 (ended April 30, 2002)
First Quarter.......................................... $11.75 $ 1.53
Second Quarter (through September 20, 2001)............ $ 4.08 $ 1.50
Fiscal 2001 (ended April 30, 2001)
First Quarter (1)...................................... $37.44 $12.31
Second Quarter......................................... $47.23 $24.75
Third Quarter.......................................... $37.00 $11.94
Fourth Quarter......................................... $20.78 $ 5.01

--------------
Note:

(1) Our common shares commenced trading on the Nasdaq National Market on May 2,
2000.

The high and low sales prices of our common shares on the TSE for each
quarter within our last two fiscal years are shown below, both in Canadian
dollars and U.S. dollars. All currency conversions are based on the prevailing
Cdn. $ to U.S.$ exchange rate on the last day of each respective quarter. For
the Second Quarter of Fiscal 2002, the information concerning the exchange rates
between U.S. dollars and Canadian dollars is based on the inverse of the noon
buying rate in the City of New York on September 20, 2001 as certified for
customs purposes by the Federal Reserve Bank of New York. On September 20, 2001,
the noon buying rate was $0.6366.

Cdn. $ U.S. $
-----------------------------------------------------

High Low High Low
---- --- ---- ---
----------- ----------- ----------- ------------

Fiscal 2002 (ended April 30, 2002)
First Quarter.......................................... $17.28 $ 2.33 $11.29 $ 1.52
Second Quarter (through September 20, 2001)............ $ 6.20 $ 2.33 $ 3.95 $ 1.48
Fiscal 2001 (ended April 30, 2001)
First Quarter.......................................... $56.25 $18.50 $37.80 $12.43
Second Quarter......................................... $69.45 $37.00 $45.48 $24.23
Third Quarter.......................................... $57.00 $17.90 $38.01 $11.94
Fourth Quarter......................................... $31.00 $ 7.75 $20.18 $ 5.05

Fiscal 2000 (ended April 30, 2000)
First Quarter.......................................... $ 7.63 $ 5.18 $ 5.06 $ 3.44
Second Quarter......................................... $ 10.45 $ 5.65 $ 7.10 $ 3.84
Third Quarter.......................................... $ 74.00 $ 9.45 $51.19 $ 6.54
Fourth Quarter......................................... $125.00 $27.65 $84.45 $18.68

As of June 30, 2001, there were 30,981,583 of our common shares issued and
outstanding. Except as otherwise indicated, all of the prices in the preceding
tables, and elsewhere in this Schedule TO and all of the common share numbers in
this document, reflect the 2-for-1 stock split of our outstanding common shares
on July 12, 2000. On September 20, 2001, the last reported sale price of our
common shares on the Nasdaq National Market was $1.72 (Cdn. $2.70 based on the
exchange rate on September 20, 2001) and the TSE was Cdn. $2.62 ($1.67) based on
the exchange rate on September 20, 2001).

WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON SHARES
BEFORE DECIDING WHETHER TO TENDER YOUR OPTIONS.

8. SOURCE AND AMOUNT OF CONSIDERATION; TERMS OF NEW OPTIONS.

Consideration.

We will issue new options to purchase common shares under the applicable
option plan (based on the place of residence of the optionee, as more fully
described in the next section, entitled "Terms of New Options") in exchange for
outstanding eligible options properly tendered and accepted for exchange by us.
You will receive one option for every two options you tender for exchange with
exercise prices equal to (USD) $23.00 or more, you will receive two new options
for every three options you tender for exchange with exercise prices equal to
(USD) $10.00 or more and less than or equal to (USD) $22.99, and you will
receive one new option for each old option you tender for exchange with an
exercise price less than (USD) $10.00 that is required to be tendered by the
terms of this offer, all subject to adjustments for any stock splits, stock
dividends and similar events. If we receive and accept tenders of all
outstanding eligible options, we expect to grant new options to purchase a total
of 727,857 shares of our common shares.

Terms of New Options.

The new options will be issued under the applicable option plan pursuant to
a new option agreement between us and each option holder who has tendered
options in the offer. We will use your residence upon the date of grant of the
new options to determine which option plan will govern your new options. For
those option holders residing in Canada on the date of grant of the new options,
the new options that we grant will be granted under the 1997 Plan. For those
option holders residing in the United States on such date, the new options we
grant will be granted under the 2000 U.S. Plan. The option plan under which
your new options will be granted will not necessarily be the option plan under
which your original options were granted. For example, if we accept and cancel
options granted to an individual who is residing in Canada on the date of grant
of the new options, the new options will be granted under our 1997 Plan, even if
such individual's original option grant had been made under the 2000 U.S. Plan.
The new option agreements under the 2000 U.S. Plan and the 1997 Plan will be
substantially the same as the respective form option agreements attached as
Exhibit (d)(4) and Exhibit (d)(5) to the Tender Offer Statement on Schedule TO
that we filed with the SEC on September 27, 2001.

The issuance of new options under this offer will not create any
contractual or other right of the recipients to receive any future grants of
stock options or benefits in lieu of stock options or any right of continued
employment.

The following description of the option plans and the new option agreements
is only a summary, and may not be complete. For complete information please
refer to the copies of the option plans and the new option agreements that have
been filed with the SEC as exhibits to the Tender Offer Statement on Schedule
TO. You may also contact us at Certicom Corp., Attention: Gregory M. Capitolo,
25821 Industrial Boulevard, Hayward, California 94545 (telephone: (510) 780-
5400, fax: (510) 780-5401) or e-mail: stock_admin@certicom.com) to request
copies of the option plans or the forms of the new option agreements, which will
be provided at our expense.

The following description summarizes the material terms of the option plans
and the options granted under the option plans.

General Information.

The Original Plan provides that the total number of shares reserved and
available for grant under that plan is currently 1,000,000. The compensation
committee of our board of directors may grant options to employees and directors
of the company or of a subsidiary of the company and any other person or
corporation approved by such committee. Each option granted under the plan is
evidenced by an agreement in such form

and contains such provisions as the committee may from time to time approve, and
which will comply with and be subject to the terms and conditions of the plan.

The 1997 Plan provides that the total number of shares reserved and
available for grant under that plan is currently 8,000,000. The compensation
committee of our board of directors may grant options to any director, employee
or any other person or corporation approved by such committee. Each option
granted under the plan is evidenced by an agreement in such form and contains
such provisions as the committee may from time to time approve, and which will
comply with and be subject to the terms and conditions of the plan.

The 2000 U.S. Plan provides that the total number of shares reserved and
available for grant under that plan is currently 3,000,000. The compensation
committee of our board of directors may grant options to directors, officers and
employees of the company and/or any of its subsidiaries and consultants of the
company; provided that, no grant of options may be made to any person who is not
a United States resident on the date such options are approved for grant by such
committee. Each option granted under the plan is evidenced by an agreement in
such form and contains such provisions as the committee may from time to time
approve, and which will comply with and be subject to the terms and conditions
of the plan.

The option plans permit the granting of options intended to qualify as
incentive options under the Internal Revenue Code and the granting of options
that do not qualify as incentive options.

Administration.

The option plans are administered by the compensation committee of our
board of directors consisting of three directors. Subject to the provisions of
the Original Plan, the committee is authorized and empowered to: (i) establish
policies and to adopt rules and regulations for carrying out the purposes,
provisions and administration of the Original Plan; (ii) interpret and construe
the Original Plan and to determine all questions arising out of the Original
Plan and any option granted pursuant to the Original Plan; (iii) determine to
which eligible persons options are granted and to grant options; (iv) determine
the number of shares covered by each option; (v) determine the option price;
(vi) determine the time or times when options will be granted and exercisable;
(vii) determine if the shares that are subject to an option will be subject to
any restrictions upon the exercise of such option; and (viii) prescribe the form
of the instruments relating to the grant, exercise and other terms of options.

Subject to the general purposes, terms and conditions of the 1997 Plan, the
committee has power to (i) establish policies and to adopt rules and regulations
for carrying out the purposes, provisions and administration of the 1997 Plan;
(ii) interpret and construe the 1997 Plan and to determine all questions arising
out of the 1997 Plan and any option granted pursuant to the 1997 Plan; (iii)
determine to which eligible persons options are to be granted and to grant
options; (iv) determine the number of common shares covered by each option; (v)
determine the option price; (vi) determine the time or times when options will
be granted and exercisable; (vii) determine if the common shares that are
subject to an option will be subject to any restrictions upon the exercise of
such options; and (viii) prescribe the form of the instruments relating to the
grant, exercise and other terms of option shares.

Subject to the express terms and conditions of the 2000 U.S. Plan, the
committee is authorized to prescribe, amend and rescind rules and regulations
relating to the 2000 U.S. Plan, and to make all other determinations necessary
or advisable for its administration and interpretation. Specifically, the
committee has full and final authority in its discretion, subject to the
specific limitations on that discretion as are set forth in the 2000 U.S. Plan
and in the organic instruments of the company, at any time: (i) to select and
approve the eligible participants to whom options will be granted from time to
time under the 2000 U.S. Plan; (ii) with respect to each option it decides to
grant, to determine the terms and conditions of that option to be set forth in
the option

agreement evidencing that option (the form of which also being subject to
approval by the committee); and (iii) to delegate all or a portion of the
committee's authority to one or more members of the board of directors of the
company who also are executive officers of the company, subject to such
restrictions and limitations as the committee may decide to impose on such
delegation.

Exercise and Termination of Awards.

The terms and conditions applicable to the exercise of awards and the
events or occurrences which may trigger the acceleration, termination or
forfeiture of the new options under the option plans are set forth in the
applicable option plan and agreements entered into between us and the respective
participant.

Term.

The term of each option under the option plans will be fixed by the
compensation committee and may not exceed ten years from the date of grant for
options granted under the Original Plan and the 1997 Plan and may not exceed
five years from the date of grant for options granted under the 2000 U.S. Plan.

No awards may be made under the Original Plan after the date 10 years from
the date of adoption of the Original Plan. The board of directors may amend or
discontinue the Original Plan at any time; provided, however, that no such
amendment may, without the consent of the optionee, alter or impair any option
previously granted to an optionee under the Original Plan.

Except as otherwise provided in the 1997 Plan, options may be granted only
within the ten-year period from the date such plan was adopted by the board of
directors of the company.

The 2000 U.S. Plan will expire on the tenth anniversary of the date of its
adoption by the shareholders of the company unless it is terminated earlier by
the board of directors of the company, after which no more options may be
granted under the 2000 U.S. Plan, although all outstanding options granted prior
to such expiration or termination will remain subject to the provisions of the
2000 U.S. Plan, and no such expiration or termination of the 2000 U.S. Plan will
result in the expiration or termination of any such option prior to the
expiration or early termination of the applicable option term.

Exercise Price.

The exercise price of the new options to be granted pursuant to the offer
will be equal to the last reported sale price of our common shares on the Nasdaq
National Market or The Toronto Stock Exchange, as provided for in the applicable
option plan, on the date of grant.

Vesting and Exercise.

The compensation committee has the authority to determine at what time or
times each option may be exercised and the period of time, if any, after
retirement, death, disability or termination of employment during which options
may be exercised. The exercisability of options may be accelerated by the
compensation committee. Each of the new options will have a vesting schedule
whereby twenty-five percent (25%) of the options shall vest immediately upon
issue, and the remaining options shall vest monthly in an equal amount until
fully vested on the second anniversary of the grant date.

Payment of Exercise Price.

Exercise of new options under the option plans may be made, in whole or in
part, by delivery of a written notice to us on any business day at our principal
office addressed to the attention of the compensation

committee, which specifies the number of shares for which the option is being
exercised and which is accompanied by payment in full of the applicable exercise
price. Payment of the option exercise price for the new options under the option
plans must be made by delivery of the type of consideration allowed under the
applicable plan.

Amendment and Termination of the Option Plans.

Our board may amend or terminate the option plans at any time and in any
manner, subject to certain restrictions.

No Stockholder Rights and Employment Rights.

A participant shall have no stockholder rights with respect to the shares
of our common shares subject to his or her outstanding awards until such shares
are purchased in accordance with the provisions of the applicable option plan.
Nothing in any of the option plans confers upon the participant any right to
continue in our employ.

Registration of Option Shares.

All common shares issuable upon exercise of options under the option plans,
including the shares that will be issuable upon exercise of all new options to
be granted pursuant to the offer, have been registered under the United States
Securities Act of 1933 on a registration statement on Form S-8 filed with the
SEC. Unless you are one of our affiliates, you will be able to sell your option
shares free of any transfer restrictions under applicable securities laws.

Tax Consequences.

You should refer to Sections 13 and 14 for a discussion of the U.S. Federal
income tax and Canadian tax consequences of accepting or rejecting the new
options under this offer to exchange. Whether you are an employee based inside
or outside of the United States or Canada, we recommend that you consult with
your own tax advisor to determine the tax consequences of this transaction under
the laws of the country in which you live and work.

9. INFORMATION CONCERNING CERTICOM CORP.

We are a leading provider of information security software and services,
specializing in solutions for mobile e-business. Our products and services are
specifically designed to address the challenges imposed by a wireless data
environment. We offer comprehensive solutions that incorporate our efficient
encryption technology and are based on industry standards for information
security that utilize public-key cryptography. We believe that the addition of
our products to wireless infrastructures will help to build the trust and
confidence necessary for the success of mobile e-business.

Historically, we have focused on the development and marketing of
cryptographic and information security protocol toolkits. Today, our
comprehensive product offering includes an enabling technologies suite, which
allows original equipment manufacturers, or OEMs, to develop secure e-business
applications; our trust services, which provide OEMs and enterprises with the
necessary public-key infrastructure, or PKI, management tools and certificate
services to authenticate users and servers; and our enterprise application
software, which provides virtual private network, or VPN, security and strong
personal digital assistant, or PDA, data security for enterprises wanting to
enable a mobile workforce. In addition, we provide consulting and systems
integration services to assist our customers in designing and implementing
efficient security solutions. Our products and services solve difficult
security problems for the world's leading providers of

computing and communication products. OEM customers integrate our enabling
technologies into their hardware and software products, then sell the finished
products to consumers or enterprise customers. In addition, we sell our
enterprise application software directly to Fortune 1000 companies.

Our headquarters are located in Hayward, California. The address of our
principal executive office is 25821 Industrial Boulevard, Hayward, California
94545, where the telephone number is (510) 780-5400. Our Internet address on
the worldwide web is http://www.certicom.com. Information contained on our
website does not constitute a part of this offer to exchange.

Financial Information. Attached as Schedule A and incorporated herein by
reference are Certicom Corp.'s Audited Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Conditions from Certicom
Corp.'s. Report for the Fiscal Year ended April 30, 2001, filed on Form 10-K on
July 30, 2001. Attached as Schedule B and incorporated herein by reference are
Certicom Corp.'s Condensed Consolidated Financial Statements (Unaudited) and
Management's Discussion and Analysis of Financial Condition and Results of
Operations from Certicom Corp.'s Report for the Quarterly Period Ended July 31,
2001, filed on Form 10-Q on September 14, 2001.

See Section 17 ("Additional Information"), beginning on page 30, for
instructions on how you can obtain complete copies of our SEC reports that
contain audited financial statements referenced above.

10. INTERESTS OF DIRECTORS AND OFFICERS; TRANSACTIONS AND ARRANGEMENTS
CONCERNING THE OPTIONS.

A list of our directors and executive officers is attached to this offer to
exchange as Schedule C. As of August 31, 2001, our 13 executive officers and
directors as a group beneficially owned options outstanding under the option
plans to purchase a total of 2,714,680 shares of our common shares, which
represented approximately 39% of the shares subject to all options outstanding
under the plans as of that date. Of the 2,714,680 shares, 1,608,608 shares were
vested and 1,106,072 shares were unvested as of August 31, 2001. Although
certain of these options have an exercise price per share greater than $10.00,
our directors and executive officers are not eligible to participate in this
offer to exchange.

Except for ordinary course grants of stock options to employees who are not
executive officers, there have been no transactions in options to purchase our
common shares or in our common shares which were effected during the past 60
days by Certicom Corp. or, to our knowledge, by any executive officer, director,
affiliate or subsidiary of Certicom Corp.

11. STATUS OF OPTIONS ACQUIRED BY US IN THE OFFER; ACCOUNTING CONSEQUENCES OF
THE OFFER.

Options we acquire pursuant to the offer will be canceled and the common
shares subject to those options will be returned to the pool of shares available
for grants of new options under the applicable option plan and for issuance upon
the exercise of such new options. To the extent such shares are not fully
reserved for issuance upon exercise of the new options to be granted in
connection with the offer, the shares will be available for future awards to
employees and other eligible plan participants without further stockholder
action, except as required by applicable law or the rules of the Nasdaq National
Market, The Toronto Stock Exchange or any other securities quotation system or
any stock exchange on which our common shares is then quoted or listed.

Except for the Supplemental Options, Certicom will also require each option
holder to tender all option grants that he or she received during the six months
immediately prior to the business day after the expiration date.

We have determined that we will also incur compensation expense against our
earnings if we grant any options to a tendering option holder between the date
hereof and the date that we grant the new options. As a result, we will not
grant any new options to a tendering option holder during the period prior to
the date of the grant of the new options.

12. LEGAL MATTERS; REGULATORY APPROVALS.

We are not aware of any license or regulatory permit that appears to be
material to our business that might be adversely affected by our exchange of
options and issuance of new options as contemplated by the offer, or of any
approval or other action by any government or governmental, administrative or
regulatory authority or agency, domestic or foreign, that would be required for
the acquisition or ownership of our options as contemplated herein. Should any
such approval or other action be required, we presently contemplate that we will
seek such approval or take such other action. We are unable to predict whether
we may determine that we are required to delay the acceptance of options for
exchange pending the outcome of any such matter. We cannot assure you that any
such approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that the failure to obtain any such approval
or other action might not result in adverse consequences to our business. Our
obligation under the offer to accept tendered options for exchange and to issue
new options for tendered options is subject to conditions, including the
conditions described in Section 6.

13. MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES.

The following is a general summary of the material U.S. Federal income tax
consequences of the exchange of options pursuant to the offer. This discussion
is based on the Internal Revenue Code, its legislative history, Treasury
Regulations and administrative and judicial interpretations as of the date of
the offer, all of which are subject to change, possibly on a retroactive basis.
This summary does not discuss all of the tax consequences that may be relevant
to you in light of your particular circumstances, nor is it intended to be
applicable in all respects to all categories of option holders.

If you exchange outstanding incentive or nonqualified stock options for new
options, you will not be required to recognize income for U.S. Federal income
tax purposes at the time of the exchange. We believe that the exchange will be
treated as a non-taxable exchange. At the date of grant of the new options, you
will not be required to recognize additional income for U.S. Federal income tax
purposes. The grant of options is not recognized as taxable income.

U.S. Federal Income Tax Consequences for Outstanding Incentive Stock
Options. You will not be subject to any current income tax if you elect to
exchange your incentive stock options in exchange for new options.

Under current law you should not have realized taxable income when the
incentive stock options were granted to you under the option plans. In
addition, you generally will not realize taxable income when you exercise an
incentive stock option. However, your alternative minimum taxable income will
be increased by the amount that the aggregate fair market value of the shares
you purchase under the option, which is generally determined as of the date you
exercise the option, exceeds the aggregate exercise price of the option. Except
in certain circumstances that are described in your option plan and option
agreement, such as your death or disability, if an option is exercised more than
three months after your employment is terminated, the option will not be treated
as an incentive stock option and is subject to taxation under the rules
applicable to nonqualified stock options that are discussed below.

If you sell common shares that you acquired by exercising an incentive
stock option, the tax consequences of the sale depend on whether the disposition
is "qualifying" or "disqualifying." The disposition

of the common shares is qualifying if it is made after the later of: (a) two
years from the date the incentive stock option was granted or (b) at least one
year after the date the incentive stock option was exercised. For purposes of
this rule, the new options you receive in exchange for your existing options
will be treated as granted on the date of issuance of the new options.

If the disposition of the common shares you received when you exercised
incentive stock options is qualifying, any excess of the sale price over the
exercise price of the option will be treated as long-term capital gain taxable
to you at the time of the sale. If the disposition is not qualifying, which we
refer to as a "disqualifying disposition," the excess of the sale price over the
exercise price will be taxable income to you at the time of the sale. Of that
income, the amount up to the excess of the fair market value of the common
shares at the time the option was exercised over the exercise price will be
ordinary income for income tax purposes and the balance, if any, will be long or
short-term capital gain, depending on whether or not the common shares was sold
more than one year after the option was exercised.

If you sell common shares you received when you exercised an incentive
stock option in a qualifying disposition, we will not be entitled to a deduction
equal to the gain you realize when you completed that sale. However, if you
sell, in a disqualifying disposition, common shares you received when you
exercised an incentive stock option, we will be entitled to a deduction equal to
the amount of compensation income taxable to you.

For an option to qualify as an incentive stock option, the value of the
shares subject to the option that first become exercisable in any one calendar
year cannot exceed $100,000, determined by using the fair market value of the
shares on the date the option is granted, which is generally equal to the
exercise price of the option. To the extent the value of the shares subject to
your new option exceeds this $100,000 per year limitation, the remainder of the
option will be treated for tax purposes as a nonqualified option, with the
consequences described below, even if you receive this option in exchange for an
incentive stock option. If your new option has a higher exercise price than
some or all of your old incentive stock options, or if a larger portion of your
new option vests immediately because of the carryover of your vesting schedule,
it is possible that your new option will exceed the incentive stock option
limitation.

U.S. Federal Income Tax Consequences of Nonqualified Stock Options. Under
current law, you will not realize taxable income upon the grant of a non-
incentive or nonqualified stock option. However, when you exercise the option,
the difference between the exercise price of the option and the fair market
value of the shares you purchase pursuant to the exercise of the option on the
date of exercise will be treated as taxable compensation income to you, and you
will be subject to withholding of income and employment taxes at that time. We
will generally be entitled to a deduction equal to the amount of compensation
income taxable to you.

The subsequent sale of the shares acquired pursuant to the exercise of a
non-incentive stock option generally will give rise to capital gain or loss
equal to the difference between the sale price and the sum of the exercise price
paid for the shares plus the ordinary income recognized with respect to the
shares, and these capital gains or losses will be treated as long-term capital
gains or losses if you held the shares for more than one year following exercise
of the option.

WE STRONGLY RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO
COUNTRY, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN THE OFFER.

14. CERTAIN TAX CONSEQUENCES FOR CANADA BASED EMPLOYEES.

If you are a Canada based employee of Certicom or one of our subsidiaries,
there are certain tax consequences and conditions of the offer that may apply
depending on your tax status for Canadian tax

purposes. WE STRONGLY RECOMMEND THAT YOU CONTACT YOUR PERSONAL TAX ADVISOR TO
ASSIST YOU IN DETERMINING YOUR CANADIAN TAX STATUS.

The following is a summary of the principal Canadian federal income tax
consequences generally applicable to certain employees of Certicom or
corporations with which it does not deal at arm's length arising from the
exchange of employee stock options for new options of Certicom, the exercise of
the new options and the holding and disposition of Common Shares acquired on the
exercise of the new options.

The following applies and is limited to optionees who are individuals who,
for purposes of the Act (as defined below) and at all relevant times, deal at
arm's length with and are not affiliated with Certicom, its subsidiaries and
affiliates and will hold any Common Shares acquired on exercise of their
existing options or new options as capital property. The following also assumes
that optionees acquired their options by virtue of their employment and did not
pay anything for their options and that, in respect of each option, the amount
payable pursuant to the option to acquire the Common Shares that are the subject
of the option is not less than the fair market value of such Common Shares on
the date the option was granted.

This summary is based upon the current provisions of the Income Tax Act
(Canada) and the regulations thereunder (the "Act") and the Canada-United States
Income Tax Convention (the "Treaty"), all specific proposals to amend the Act
publicly announced by or on behalf of the Minister of Finance (Canada) prior to
the date hereof (the "Proposals") and the current published administrative and
assessing practices of the Canada Customs and Revenue Agency. This summary is
not exhaustive of all possible Canadian income tax consequences and does not
take into account or anticipate any changes in law (other than the Proposals)
and does not take into account provincial or territorial tax consequences or the
tax laws of any country other than Canada. No assurance can be given that the
Proposals will be enacted in the form proposed or at all.

This summary is not intended to be legal or tax advice to the optionees.
The tax consequences to optionees arising from the exchange of the options is
uncertain. Accordingly, optionees are urged to consult their own advisors about
their particular circumstances.

Non-Residents of Canada

This portion of the summary applies and is limited to optionees who, at all
relevant times, are not resident in Canada for purposes of the Act and are
resident in the United States for purposes of the Treaty.

Exchange. The exchange of existing options for new options pursuant to
this tender offer by an optionee generally will not give rise to any Canadian
tax liability to the optionee unless the existing options were granted in
connection with employment duties performed by the optionee in Canada.

In respect of any options held by an optionee that were granted in
connection with employment duties performed by the optionee in Canada, the tax
treatment of the exchange of such options for new options will depend on whether
the exchange is treated for purposes of the Act as a giving rise to a taxable
disposition of the options (a "taxable transaction") or as a tax-deferred
"rollover" of the options for the new options (a "tax-deferred transaction").

In order for the exchange to qualify as a tax-deferred transaction, it
would have to be considered that no consideration was received on the exchange
other than the new options. In particular, the exchange could not be considered
to have been an exchange of the options for an agreement by Certicom to grant
the new options at a future date. In order for the exchange to qualify as a
tax-deferred transaction, it would also have to be considered that the "value"
of the new options (determined immediately after the disposition of the options)
does not exceed the "value" of the options (determined immediately before the
disposition of the options). The

value of the new options is measured as the excess of the value of the Common
Shares that are the subject of the new options (determined immediately after the
disposition of the options) over the amount payable pursuant to the new options
to acquire such Common Shares. The value of the options is measured as the
excess of the value of the Common Shares that are the subject of the options
(determined immediately before the disposition of the options) over the amount
payable pursuant to the options to acquire such Common Shares.

If the exchange qualifies as a tax-deferred transaction, the exchange will
not give rise to any disposition of the options, and the new options will be
deemed to be the same options as and a continuation of the options tendered
pursuant to this offer. In such circumstances, an optionee's cost of the new
options will be nil.

If the exchange does not qualify as a tax-deferred transaction, and,
therefore, is a taxable transaction, the exchange will give rise to a
disposition of the options. On such disposition, the value of the consideration
received by the optionee for the options will be deemed to be a benefit received
by the optionee and included in computing the optionee's income from employment
for the year in which the options are disposed of. An optionee may be entitled
to a deduction in computing taxable income in an amount equal to one-half of the
amount of such employment income. Such deduction generally will be available
where the amount payable pursuant to the new options to acquire the Common
Shares that are the subject of the new options is not less than the fair market
value of such Common Shares on the date the new options are granted. Where an
optionee would otherwise be subject to tax in Canada on such employment income,
the optionee may be entitled to claim an exemption from Canadian tax in respect
of such employment income under the Treaty. Where an optionee acquires new
options in a taxable transaction, the optionee's cost of the new options will be
equal to the fair market value of the consideration given for the new options
(which may be either the options or the Agreement). There is the potential for
an optionee to realize double tax to the extent that the fair market value of
the new options exceeds the fair market value of the existing options.

Where the exchange is considered to be an exchange of options for
Certicom's agreement to issue new options, the issuance of the new options
pursuant to that agreement may be considered to give rise to a disposition of
such agreement. On such disposition, the value of the consideration received by
the optionee for the options will be deemed to be a benefit received by the
optionee and included in computing the optionee's income from employment for the
year in which such agreement is disposed of. Such employment benefit would be
taxed as described above, but the one-half deduction of the employment benefit
will not be available.

Exercise. The exercise of a new option by an optionee generally will not
give rise to any Canadian tax liability to the optionee unless the new option
was issued in exchange for options that were granted in connection with
employment duties performed by the optionee in Canada.

In respect of a new option held by an optionee that was issued in exchange
for options that were granted in connection with employment duties performed by
the optionee in Canada, where in a taxation year the optionee acquires Common
Shares on the exercise of the new option, the amount, if any, by which the fair
market value of the Common Shares at the time they are acquired by the optionee
exceeds the amount paid or to be paid by the optionee for the Common Shares
(less the cost to the optionee of the new option) will be deemed to be a benefit
received by the optionee and included in computing the optionee's income from
employment for that taxation year. An optionee may be entitled to a deduction
in computing taxable income in an amount equal to one-half of the amount of such
employment income. Such deduction generally will be available where either (a)
the exchange of options for new options was a tax-deferred transaction, or (b)
the exchange of options for new options was a taxable transaction and the amount
payable pursuant to the new options to acquire the Common Shares that are the
subject of the new options is not less than the fair market value of such Common
Shares on the date the new options are granted. Where an optionee would
otherwise be subject to tax in Canada on such employment income, the optionee
may be entitled to claim an exemption from Canadian tax in respect of such
employment income under the Treaty. The adjusted cost base to an optionee of
Common Shares

acquired on the exercise of a new option will be equal to the fair market value
of the Common Shares on the date such shares are acquired by the optionee.

Dividends. Dividends paid by Certicom to an optionee on Common Shares
acquired on exercise of a new option will generally be subject to non-resident
withholding tax at the rate of 15%.

Disposition. Where an optionee disposes of Common Shares acquired on
exercise of a new option, other than to Certicom in a transaction not in the
open market as discussed below, the optionee will generally not be subject to
tax in Canada in respect of the gain, if any, from such disposition unless, at
the time of the disposition, the Common Shares are not listed on a prescribed
stock exchange, or, at any time during the 60 month period ending at the time of
the disposition, the optionee, persons with whom the optionee did not deal at
arm's length or the optionee and such persons together owned or had an interest
in or option in respect of 25% or more of the issued shares of any class or
series of shares of the capital stock of Certicom. A gain realized upon the
disposition of Common Shares by an optionee which is otherwise subject to
Canadian tax may be exempt from Canadian tax under the Treaty.

Where an optionee disposes of Common Shares on an acquisition of such
shares by Certicom, other than a purchase in the open market in the manner in
which shares would normally be purchased by any member of the public in the open
market, the amount paid by Certicom in excess of the paid-up capital of such
Common Shares will be treated as a dividend, and will be subject to non-resident
withholding tax as described above under the heading "Dividends". The optionee
may also realize a capital gain on such a disposition but would be exempt from
tax in Canada on the gain in the circumstances described above.

Residents of Canada

This portion of the summary applies and is limited to optionees who are
resident in Canada for purposes of the Act.

Exchange. The exchange of options for new options by an optionee generally
will give rise to the same tax consequences as described above for non-residents
of Canada in respect of options granted in connection with employment duties
performed by the optionee in Canada. See "Non-residents of Canada - Exchange".

Exercise. Subject to deferral described below, the exercise of a new
option by an optionee generally will give to the same tax consequences as
described above for non-residents of Canada in respect of new options issued in
exchange for options granted in connection with employment duties performed by
the optionee in Canada. See "Non-residents of Canada - Exercise".

Generally, the taxable benefit to an optionee resulting from the exercise
of a new option may be deferred until the time the Common Shares acquired on
exercise of the new option are sold, subject to a limit of $100,000 worth of new
options that vest each year (determined by reference to the fair market value of
the Common Shares at the date the new options are granted). In order to qualify
for the deferral, the optionee must not own 10% or more of Certicom's stock and
must file an election with Certicom by January 15th of the year following the
year in which the Common Shares are acquired. In addition, in order to qualify
for the deferral, either (a) the exchange of options for new options must have
been a tax-deferred transaction, or (b) the exchange of options for new options
was a taxable transaction and the amount payable pursuant to the new options to
acquire the Common Shares that are the subject of the new options must not be
less than the fair market value of such Common Shares on the date the new
options are granted. The optionee and Certicom are jointly liable for reporting
the deferred taxable benefit in a prescribed form.

Dividends. Dividends received or deemed to be received on the Common
Shares must be included in computing an optionee's income and will be subject to
the gross-up and dividend tax credit rules normally applicable to taxable
dividends received from taxable Canadian corporations.

Disposition. Optionees who dispose of Common Shares, other than to
Certicom in a transaction not in the open market as discussed below, will
generally realize a capital gain (or capital loss) equal to the amount by which
the proceeds of disposition exceed the optionee's adjusted cost base of the
Common Shares plus reasonable costs of disposition. One-half of a capital gain
must be include in the optionee's income as a taxable capital gain, and one-half
of a capital loss may be deductible by the optionee as an allowable capital loss
against taxable capital gains to the extent and under the circumstances in the
Act. Capital gains realized by individuals may be subject to alternative
minimum tax. In addition, any employment benefit that has been deferred by an
optionee will be included in the employee's income as income from employment.

Where an optionee disposes of Common Shares on an acquisition of such
shares by Certicom, other than a purchase in the open market in the manner in
which shares would normally be purchased by any member of the public in the open
market, the amount paid by Certicom in excess of the paid-up capital of such
Common Shares will be treated as a dividend, and will be taxed as described
above under the heading "Residents of Canada - Dividends". The optionee may
also realize a capital gain (or a capital loss) on such a disposition, which
would be taxed as described above.

15. EXTENSION OF OFFER; TERMINATION; AMENDMENT.

We may from time to time, extend the period of time during which the offer
is open and delay accepting any options tendered to us by publicly announcing
the extension and giving oral or written notice of the extension to the option
holders and making a public announcement thereof. If the offer is extended,
then the grant date of the new options will also be extended.

We also expressly reserve the right, in our reasonable judgment, prior to
the expiration date to terminate or amend the offer and to postpone our
acceptance and cancellation of any options tendered for exchange upon the
occurrence of any of the conditions specified in Section 6, by giving oral or
written notice of such termination or postponement to the option holders and
making a public announcement thereof. Our reservation of the right to delay our
acceptance and cancellation of options tendered for exchange is limited by Rule
13e-4(f)(5) promulgated under the United States Securities Exchange Act of 1934,
which requires that we must pay the consideration offered or return the options
tendered promptly after termination or withdrawal of a tender offer.

Subject to compliance with applicable law, we further reserve the right, in
our discretion, and regardless of whether any event set forth in Section 6 has
occurred or is deemed by us to have occurred, to amend the offer in any respect,
including, without limitation, by decreasing or increasing the consideration
offered in the offer to option holders or by decreasing or increasing the number
of options being sought in the offer.

Amendments to the offer may be made at any time and from time to time by
public announcement of the amendment. In the case of an extension, the
amendment must be issued no later than 9:00 a.m., Eastern time, on the next
business day after the last previously scheduled or announced expiration date.
Any public announcement made pursuant to the offer will be disseminated promptly
to option holders in a manner reasonably designated to inform option holders of
such change. Without limiting the manner in which we may choose to make a
public announcement, except as required by applicable law, we have no obligation
to publish, advertise or otherwise communicate any such public announcement
other than by making a press release to the Dow Jones News Service.

If we materially change the terms of the offer or the information
concerning the offer, or if we waive a material condition of the offer, we will
extend the offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3)
under the United States Securities Exchange Act of 1934. These rules require
that the minimum period during which an offer must remain open following
material changes in the terms of the offer or information concerning the offer,
other than a change in price or a change in percentage of securities sought,
will depend on the facts and circumstances, including the relative materiality
of such terms or information.

16. FEES AND EXPENSES.

We will not pay any fees or commissions to any broker, dealer or other
person for soliciting tenders of options pursuant to this offer to exchange.

17. ADDITIONAL INFORMATION.

We have filed with the SEC a Tender Offer Statement on Schedule TO, of
which this offer to exchange is a part, with respect to the offer. This offer
to exchange does not contain all of the information contained in the Schedule TO
and the exhibits to the Schedule TO. We recommend that you review the Schedule
TO, including its exhibits, and the following materials which we have filed with
the SEC before making a decision on whether to tender your options:

(a) Our Annual Report on Form 10-K for the year ended April 30, 2001, filed
July 31, 2001;

(b) Our Quarterly Report on Form 10-Q for the quarter ended July 31, 2001,
filed September 14, 2001; and

(File No. 1-15010) filed on March 14, 2000, including all amendments or
reports updating this description.

These filings, our other annual, quarterly and current reports, our proxy
statements and our other SEC filings may be examined, and copies may be
obtained, at the following SEC public reference rooms:

--------------------------------------------------------------------------------
450 Fifth Street, N.W. 500 West Madison Street
Room 1024 Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
--------------------------------------------------------------------------------

You may obtain information on the operation of the public reference rooms by
calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the
public on the SEC's Internet site at http://www.sec.gov.

Our common shares is quoted on the Nasdaq National Market under the symbol
"CERT" and on The Toronto Stock Exchange under the symbol "CIC" and our SEC
filings can be read at the following Nasdaq address:

Nasdaq Operations
1735 K Street, N.W.
Washington, D.C. 20006

We will also provide without charge to each person to whom a copy of this
offer to exchange is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents to which we have referred you,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Requests should be directed to:

Certicom Corp.

Attention: Gregory M. Capitolo
25821 Industrial Boulevard
Hayward, CA 94545
Telephone: (510) 780-5400
Fax: (510) 780-5401
E-mail: stock_admin@certicom.com

between the hours of 9:00 a.m. and 4:00 p.m., Hayward, California local time.
As you read the documents listed in Section 17, you may find some
inconsistencies in information from one document to another. Should you find
inconsistencies between the documents, or between a document and this Offer to
Exchange, you should rely on the statements made in the most recent document.
The information contained in this Offer to Exchange about Certicom Corp. should
be read together with the information contained in the documents to which we
have referred you.

18. FORWARD LOOKING STATEMENTS; MISCELLANEOUS.

This offer to exchange and our SEC reports referred to above include
"forward-looking statements" that involve substantial uncertainties. When used
in this offer to exchange, the words "anticipate," "believe," "estimate,"
"expect," "intend" and "plan" as they relate to Certicom Corp. or our management
are intended to identify these forward-looking statements. All statements by us
regarding our expected future financial position and operating results, our
business strategy, our financing plans and expected capital requirements,
forecasted trends relating to our services or the markets in which we operate
and similar matters are forward- looking statements. Actual results may differ
materially. Due to increasing uncertainties in the our market, our degree of
visibility on future revenues and earnings and associated confidence level in
forecast information is less than in the past. Factors that might cause a
difference include, but are not limited to, the number of options tendered by
employees for exchange under the proposed plan, future stock price fluctuations,
the impact of issuing shares of the company's Common Shares, the acceptance of
mobile and wireless devices and the continued growth of e-commerce and m-
commerce, the increase of the demand for mutual authentication in m-commerce
transactions, the acceptance of Elliptic Curve Cryptography (ECC) technology as
an industry standard, the market acceptance of our principal products and sales
of our customer's products, the impact of competitive products and technologies,
the possibility of our products infringing patents and other intellectual
property of fourth parties, costs of product development, and other risk factors
listed from time to time in the reports and other documents Certicom files with
the United States Securities and Exchange Commission. Certicom assumes no
obligation to revise or update the forward-looking statements contained in this
Offer to Exchange to reflect events or circumstances after the date hereof.

We cannot guarantee future results, performance or achievements. We do not
intend to update this Offer to Exchange to conform any forward-looking
statements to actual results. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this Offer to
Exchange.

We are not aware of any jurisdiction where the making of the offer is not
in compliance with applicable law. If we become aware of any jurisdiction where
the making of the offer is not in compliance with any valid applicable law, we
will make a good faith effort to comply with such law. If, after such good
faith effort, we cannot comply with such law, the offer will not be made to, nor
will tenders be accepted from or on behalf of, the option holders residing in
such jurisdiction.

WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THE INFORMATION AND
REPRESENTATIONS CONTAINED IN THIS DOCUMENT OR IN THE RELATED LETTER OF
TRANSMITTAL. IF ANYONE MAKES ANY RECOMMENDATION OR REPRESENTATION TO YOU OR
GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT RECOMMENDATION,
REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY US.

Certicom Corp.

September 27, 2001.

SCHEDULE A

CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION FROM CERTICOM CORP.'S ANNUAL
REPORT FOR THE FISCAL YEAR ENDED APRIL 30, 2001, FILED
ON FORM 10-K ON JULY 30, 2001.

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders Certicom Corp.:

We have audited the accompanying consolidated balance sheet of Certicom
Corp. and subsidiaries as of April 30, 2001, and the related consolidated
statements of operations, comprehensive loss, shareholders' equity, and cash
flows for the year then ended. In connection with our audit of the consolidated
financial statements, we have also audited the accompanying financial statement
schedule related to the fiscal year ended April 30, 2001. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Certicom
Corp. and subsidiaries as of April 30, 2001, and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the financial statement schedule related to the fiscal year ended April
30, 2001, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

/s/ KPMG LLP
San Francisco, California
June 1, 2001

To the Board of Directors and Shareholders of Certicom Corp.

We have audited the accompanying consolidated balance sheet of Certicom
Corp. and its subsidiaries as at April 30, 2000 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended April 30, 2000. Our audits also included the
financial statement schedules listed in the index at item 14. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Certicom Corp. and its
subsidiaries as at April 30, 2000, and the results of their operations and their
cash flows for each of the two years in the period ended April 30, 2000 in
conformity with accounting

principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

Accounting principles generally accepted in Canada vary in certain
significant respects from accounting principles generally accepted in the United
States of America. We reported separately to the shareholders of the Company on
financial statements for the same period prepared in accordance with accounting
principles generally accepted in Canada.

/s/ Deloitte & Touche LLP
Chartered Accountants
Toronto, Ontario
June 13, 2000

CERTICOM CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except number of shares)

April 30,
-------------------
2001 2000
-------- --------
ASSETS
------

Current assets:
Cash and cash equivalents...................................................... $ 1,942 $ 10,508
Marketable securities, available for sale...................................... 52,319 2,550
Accounts receivable (net of allowance for doubtful
accounts of $1,075 and $161, respectively).................................... 7,149 3,862
Unbilled receivables........................................................... 731 2,115
Inventories.................................................................... 444 218
Prepaid expenses, deposits and other current assets............................ 2,253 1,740
-------- --------
Total current assets......................................................... 64,838 20,993
Property and equipment, net..................................................... 18,288 5,213
Patents......................................................................... 1,156 873
Acquired intangibles (net of accumulated amortization of
$19,994 and $10,586, respectively)............................................ 25,192 24,437
-------- --------
Total assets................................................................. $109,474 $ 51,516
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

Current liabilities:
Accounts payable............................................................... $ 9,240 $ 974
Accrued liabilities............................................................ 3,106 2,107
Other current payables......................................................... 510 430
Deferred revenue............................................................... 2,168 909
Note payable................................................................... -- 10,000
-------- --------
Total current liabilities.................................................... 15,024 14,420
Lease inducements............................................................... 1,093 1,105
-------- --------
Total liabilities............................................................ 16,117 15,525
Shareholders' equity:
Common shares, no par value; shares authorized:
unlimited; shares issued and outstanding: 30,541,876 and
23,087,866 respectively....................................................... 175,151 80,859
Additional paid-in capital..................................................... 19,945 11,922
Deferred compensation expense on expense....................................... (4,314) --
Accumulated other comprehensive loss........................................... (2,460) (2,497)
Deficit........................................................................ (94,965) (54,293)
-------- --------
Total shareholders' equity................................................... 93,357 35,991
-------- --------
Total liabilities and shareholders' equity................................... $109,474 $ 51,516
======== ========

See accompanying notes to consolidated financial statements.

CERTICOM CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except number of shares and per share data)

Years ended April 30,
----------------------------------
2001 2000 1999
---------- ---------- ----------

Revenues....................................................................... $ 26,647 $ 12,040 $ 4,042
---------- ---------- ----------
Costs and expenses:
Cost of hardware.............................................................. 824 579 125
Consulting and systems integration (including deferred compensation
amortization of $3,444, $0, and $0 for fiscal 2001, 2000, and 1999,
respectively)................................................................ 9,624 2,080 587
Selling and marketing......................................................... 19,731 6,616 6,087
Research and development...................................................... 12,838 4,446 3,240
Depreciation and amortization................................................. 12,731 7,861 5,063
General and administrative (including stock compensation amortization of $312,
$318, and $311 for fiscal 2001, 2000, and 1999, respectively)................ 12,183 7,099 4,277
One time secondary offering costs............................................. 1,693 -- --
Purchased in-process research and development................................. -- 535 1,151
---------- ---------- ----------
Total costs and expenses.................................................... 69,624 29,216 20,530
Operating loss................................................................. (42,977) (17,176) (16,488)
Non-cash interest income (expense)............................................. (423) -- --
Interest and other income (expense), net....................................... 2,863 (359) 1,015
---------- ---------- ----------
Loss before income taxes....................................................... (40,537) (17,535) (15,473)
Income taxes................................................................... 135 334 (92)
---------- ---------- ----------
Net loss....................................................................... $ (40,672) $ (17,869) $ (15,381)
========== ========== ==========
Basic and diluted net loss per share........................................... $ (1.54) $ (0.80) $ (0.73)
========== ========== ==========
Weighted average shares used in computing basic and diluted net loss per
share.......................................................................... 26,376,728 22,255,044 21,032,848
========== ========== ==========

See accompanying notes to consolidated financial statements.

CERTICOM CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands of U.S. dollars)

Years ended April 30,
-----------------------------
2001 2000 1999
--------- --------- ---------

Net loss.......................................... $(40,672) $(17,869) $(15,381)
Other comprehensive income:
Unrealized gain (loss) on marketable securities,
available for sale.............................. (118) 14 (18)
Foreign currency translation adjustment.......... 155 -- (1,052)
-------- -------- --------
Comprehensive loss................................ $(40,635) $(17,855) $(16,451)
======== ======== ========

See accompanying notes to consolidated financial statements.

CERTICOM CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended April 30, 2001, 2000 and 1999
(In thousands of U.S. dollars, except number of shares)

Accumulated
Common Stock Additional Deferred Other Total
---------------------- Paid in Compensation Comprehensive Shareholders'
Shares Amount Capital Expense Loss Deficit Equity
---------- ---------- ---------- ------------ ------------- --------- -------------

Balances, April 30, 1998......... 19,363,472 $ 51,215 $ 4,304 $ -- $ (1,441) $ (21,043) $ 33,035
Net loss......................... -- -- -- -- -- (15,381) (15,381)
Shares issued in acquisitions.... 2,325,966 16,091 5,919 -- -- -- 22,010
Exercise of employee options..... 134,316 534 (268) -- -- -- 266
Stock compensation............... -- -- 311 -- -- -- 311
Net unrealized loss on
marketable securities,
available for sale.............. -- -- -- -- (18) -- (18)
Foreign currency translation
adjustment...................... -- -- -- -- (1,052) -- (1,052)
---------- --------- -------- ------- -------- --------- ----------
Balances, April 30, 1999......... 21,823,754 67,840 10,266 -- (2,511) (36,424) 39,171
Net loss......................... -- -- -- -- -- (17,869) (17,869)
Shares issued in acquisitions.... 201,120 7,306 3,080 -- -- -- 10,386
Exercise of employee options..... 1,062,992 5,713 (1,742) -- -- -- 3,971
Stock compensation............... -- -- 318 -- -- -- 318
Net unrealized gain on
marketable securities,
available for sale.............. -- -- -- -- 14 -- 14
---------- --------- -------- ------- -------- --------- ----------
Balances, April 30, 2000......... 23,087,866 80,859 11,922 -- (2,497) (54,293) 35,991
Net loss......................... -- -- -- -- -- (40,672) (40,672)
Exercise of employee options..... 556,415 3,785 (1,503) -- -- -- 2,282
Shares issued in acquisition..... 397,595 9,030 6,452 (7,741) 7,741
Issuance of common shares........ 6,500,000 81,477 -- -- -- 81,477
Fair market value of options
issued for acquisition.......... -- -- 2,322 -- -- 2,322
Deferred stock compensation
expense......................... -- -- 329 (329) -- -- --
Amortization of deferred stock
compensation.................... -- -- -- 3,756 -- -- 3,756
Net unrealized gain (loss) on
marketable securities,
available for sale.............. -- -- -- -- (118) -- (118)
Fair market value of warrants
issued in connection with
loan............................ -- -- 423 -- -- -- 423
Foreign currency translation
adjustment...................... -- -- -- -- 155 -- 155
---------- --------- -------- ------- -------- --------- ----------

Balances, April 30, 2001......... 30,541,876 $ 175,151 $ 19,945 $(4,314) $ (2,460) $ (94,965) $ 93,357
========== ========= ======== ======= ======== ========= ==========

CERTICOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)

Years ended April 30,
----------------------------------
2001 2000 1999
--------- --------- ---------

Cash flows from operating activities:
Net loss.............................................. $ (40,672) $ (17,869) $ (15,381)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization...................... 3,323 1,555 959
Amortization of acquired intangibles............... 9,408 6,306 4,104
Write-off of purchased in-process research
and development.................................. -- 535 1,151
Stock compensation expense......................... 3,756 318 311
Non-cash interest expense.......................... 423 -- --
Changes in non-cash working capital items:
Accounts receivable and unbilled receivables.......... (1,903) (3,901) (1,461)
Inventories........................................... (226) 178 (174)
Investment tax credits receivable..................... -- -- 266
Prepaid and other current assets...................... (734) (1,102) 41
Accounts payable...................................... 8,266 453 32
Accrued liabilities................................... 999 1,084 513
Income taxes payable.................................. 80 210 77
Deferred revenue...................................... 1,259 507 277
--------- --------- ---------
Net cash used in operating activities................. (16,021) (11,726) (9,285)
--------- --------- ---------
Cash flows from investing activities:
Business acquisitions (net of cash acquired).......... -- 182 (4,443)
Purchase of property and equipment.................... (16,328) (3,902) (1,722)
Purchase of patents................................... (353) (355) (217)
Purchase of marketable securities, available
for sale............................................ (69,228) (4,855) (91,445)
Sales and maturities of marketable securities,
available for sale.................................. 19,462 14,983 107,554
--------- --------- ---------
Net cash (used in) provided by investing activities... (66,447) 6,053 9,727
--------- --------- ---------
Cash flows from financing activities:
Proceeds from employee stock option exercise.......... 2,282 3,971 266
Issuance of common shares............................. 81,477 -- --
Notes payable......................................... -- 10,000 --
Repurchase of debenture payable....................... -- -- (22)
Redemption of mandatorily redeemable preferred
shares.............................................. -- -- (209)
Leasehold inducements................................. (12) 931 315
Repayment of note payable............................. (10,000) -- --
--------- --------- ---------
Net cash provided by financing activities............. $ 73,747 $ 14,902 $ 350
--------- --------- ---------
Effect of exchange rate on cash....................... 155 (121) (20)
(Decrease) increase in cash and cash
equivalents......................................... (8,566) 9,108 772
Cash and cash equivalents, beginning of year.......... 10,508 1,400 628
--------- --------- ---------
Cash and cash equivalents, end of year................ $ 1,942 $ 10,508 $ 1,400
========= ========= =========
Supplemental disclosure of cash flow information:
Income taxes paid..................................... $ -- $ -- $ 117
Interest paid......................................... $ -- $ -- $ --
Non-cash investing and financing activities:
Fair market value of common shares and options
issued for business acquisitions.................... $ 10,063 $ 10,386 $ 22,010
Warrant issued in connection with line of
credit.............................................. $ 423 $ -- $ --
Deferred stock compensation........................... $ 8,070 $ -- $ --

See accompanying notes to consolidated financial statements.

CERTICOM CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended April 30, 2001, 2000 and 1999

Note 1: Description of Business

Certicom Corp. and its wholly-owned subsidiaries (the "Company") are
suppliers of digital information security products and services to original
equipment manufacturers (OEMs) of information technology products. The Company's
products and services include enabling technologies, trust services, enterprise
application solutions, consulting and design services, and hardware components.

Note 2: Summary of Significant Accounting Policies

Generally Accepted Accounting Principles. These consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America ("generally accepted accounting
principles" or "U.S. GAAP").

Principles of Consolidation. These consolidated financial statements
include the accounts of Certicom Corp. and its wholly-owned subsidiaries. All
significant inter-company transactions and balances have been eliminated.

Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
and could affect future operating results.

Cash and Cash Equivalents. Cash equivalents consist of highly liquid
investments with remaining maturity at the date of purchase of three months or
less. These investments consist of fixed income securities, which are readily
convertible to cash and are stated at cost, which approximates fair value. Fair
value is determined based upon the quoted market prices of the securities as of
the balance sheet date.

Marketable Securities. The Company follows the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires the Company to
record securities which management has classified as available for sale at fair
market value and to record unrealized gains and losses on securities available
for sale as a separate component of other comprehensive income.

As the Company's management expects to sell a portion of the marketable
securities in the next fiscal year in order to meet its working capital
requirements, it has classified them as current assets.

Inventories. Inventories are recorded at the lower of cost, on a first-in,
first-out basis, or net realizable value.

Property and Equipment. Property and Equipment are stated at cost, less
cumulated depreciation and amortization. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of the
assets at the following annual rates:

Furniture and fixtures -- straight-line over five years
Computer equipment -- straight-line over three years

Software -- straight-line over two years
Leasehold improvements -- straight-line over the term of the lease

Lease Inducements. Lease Inducements represent primarily tenant improvement
allowances provided by our lessors in connection with certain leased properties.
These amounts are being amortized over the term of their respective leases and
are recorded as a reduction in rent expense. The costs associated with these
tenant improvements have been capitalized as leasehold improvements and are
being amortized over the term of the respective lease.

Patents. Patents are recorded at cost and are amortized over three years on
a straight-line basis.

Acquired Intangibles. Acquired Intangible assets resulting from the
acquisitions of entities accounted for using the purchase method of accounting,
are estimated by management based on the fair value of assets received. These
include acquired customer lists, trademarks, workforce, in process research and
development, purchased technology and goodwill arising from business
acquisitions. Acquired intangible assets are amortized on a straight-line basis
over periods ranging from three to five years, except purchased in-process
research and development without alternative future use which is expensed when
acquired.

Impairment of Long-Lived Assets. The Company evaluates the recoverability
of its property and equipment and intangible assets in accordance with SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." SFAS No. 121 prescribes the accounting treatment for long-lived
assets, identifiable intangibles and goodwill related to those assets when there
are indications that the carrying value of those assets may not be recoverable.
SFAS 121 requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. Accordingly, the company evaluates asset
recoverability at each balance sheet date or when an event occurs that may
impair recoverability of the asset.

Revenue Recognition and Deferred Revenues. The Company recognizes software
licensing revenue in accordance with all applicable accounting regulations
including the American Institute of Certified Public Accountants Statement of
Position (SOP) 97-2, "Software Revenue Recognition," as amended by SOP 98-4 and
SOP 98-9.

Following the requirements of SOP 97-2, the company recognizes license
revenues when all of the following have occurred:

. we have signed a non-cancelable license agreement with the customer;

. delivery of the software product to the customer has occurred;

. the amount of the fees to be paid by the customer are fixed or determinable;
and

. collection of these fees is probable.

If an acceptance period is contractually provided, license revenues are
recognized upon the earlier of customer acceptance or the expiration of that
period. In instances where delivery is electronic and all other criteria for
revenue recognition has been achieved, the product is considered to have been
delivered when the customer either takes possession of the software via a
download or the access code to download the software from the Internet has been
provided to the customer. Our software does not require significant production,
customization or modification.

SOP 97-2, as modified, generally requires revenue earned on software
arrangements involving multiple

elements such as software products, upgrades, enhancements, post contract
customer support, or PCS, installation, training, etc. to be allocated to each
element based on the relative fair values of the elements. The fair value of an
element must be based on evidence that is specific to the vendor. If evidence of
fair value does not exist for all elements of a license agreement and PCS is the
only undelivered element, then all revenue for the license arrangement is
recognized ratably over the term of the agreement. If evidence of fair value of
all undelivered elements exists but evidence does not exist for one or more
delivered elements, then revenue is recognized using the residual method. Under
the residual method, the fair value of the undelivered elements is deferred, and
the remaining portion of the arrangement fee is recognized as revenue. When
arrangements require us to deliver specified additional upgrades the entire fee
related to the arrangement is deferred until delivery of the specified upgrade
has occurred, unless we have vendor-specific objective evidence of fair value
for the upgrade. Fees related to contracts that require us to deliver
unspecified additional products are deferred and recognized ratably over the
contract term.

Revenue from consulting and training services are recognized using the
percentage-of-completion method for fixed fee development arrangements or as the
services are provided for time-and-materials arrangements.

The fair value of professional services, maintenance and support services
have been determined using specific objective evidence of fair value based on
the price charged when the elements are sold separately. Revenues for
maintenance and support service are deferred and recognized ratably over the
term of the support period. Revenues from professional services are recognized
when the services are performed.

Deferred revenues generally result from the following: deferred
maintenance and support service, cash received for professional services not yet
rendered and license revenues deferred relating to arrangements where we have
received cash and are required to deliver either unspecified additional products
or specified upgrades for which we do not have vendor-specific objective
evidence of fair value.

Research and Product Development. The Company expenses all research and
development costs as they are incurred. The company has capitalized certain
legal costs associated with the filing of approximately fifty patent
applications in various jurisdictions. These patent filings relate to Elliptic
Curve Cryptography (ECC), various mathematical computational methodologies,
security protocols and other cryptographic inventions. Once granted, the company
amortizes the individual patent cost over three years.

Stock-Based Compensation. The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of According
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
("APB 25") and complies with the disclosure provisions of SFAS 123, "Accounting
for Stock Based Compensation". APB 25 requires compensation cost for stock-based
employee compensation plans to be recognized over the vesting period based on
the difference, if any, on the grant date between the quoted market price of the
company's stock and the amount an employee must pay to acquire the stock.

Foreign Currency Translation. For the period up to April 30, 1999, the
functional currency of the Company was the Canadian dollar. As such, assets and
liabilities of the Company were translated to U.S. dollars at the year-end
exchange rates. Income and expense items were translated at the average rate of
exchange prevailing during the year. Translation adjustment are included in
"accumulated other comprehensive loss", a separate component of stockholders'
equity.

For the period from May 1, 1999, the Company has determined that its
functional currency is the U.S. dollar as it derives a majority of its revenues
and incurs a significant portion of its expenditures in U.S. dollars. As such,
monetary assets and liabilities denominated in currencies other than the U.S.
dollar are translated into

U.S. dollars at the rate of exchange prevailing at year end while other balance
sheet items are translated at historic rates. Revenue and expense items are
translated at the rate of exchange in effect on the transaction dates except for
depreciation and amortization which are translated at historic rates. Realized
foreign exchange gains and losses are included in income or loss in the year in
which they occur. Unrealized foreign currency transaction gains and losses are
included in other comprehensive income or loss in the year in which they occur.

Income Taxes. The Company follows the asset and liability approach to
financial accounting for income taxes. Under SFAS No. 109 "Accounting for Income
Taxes", deferred tax assets and liabilities are determined based on the
difference between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected in reverse. SFAS 109 provides for the
recognition of deferred tax assets if realization of such assets is more likely
than not. Deferred tax assets are reduced, if necessary, by the amount of any
tax benefits that, based on available evidence, are not expected to be realized.

Basic and Diluted Net Loss per Share. The Company follows the provisions
of SFAS No. 128, Earnings Per Share. Basic net loss per common share is based on
the weighted average number of shares outstanding during each period. Stock
options are not included in the computation of the weighted average number of
shares outstanding for dilutive net loss per common share during the period as
the effect would be anti-dilutive.

Comprehensive Income. Comprehensive income is defined as the change in
equity of a company during a period from transactions and other events and
circumstances excluding transactions resulting from investments by owners and
distributions to owners. The primary difference between net income and
comprehensive income, for the company, results from foreign currency translation
adjustments and unrealized gains and losses on available-for-sale securities.

The functional currency of foreign subsidiaries are translated using the
exchange rates in effect at the end of the period, while income and expense
items are translated at average rates of exchange during the period. Gains or
losses from translation of foreign operations where the local currency is the
functional currency are included as other comprehensive income or loss. The net
gains and losses resulting from foreign currency transactions are recorded in
net income in the period incurred and were not significant for any of the
periods presented.

Fair Value of Financial Instruments. For financial assets and liabilities,
including cash and cash equivalents, short-term investments, accounts receivable
and account payable, the carrying values approximate their fair value due to
their short maturities, based on management's estimates.

Concentration of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist of cash, marketable
securities and accounts receivable. Risk associated with cash are mitigated by
banking and creditworthy institutions. Marketable securities consist primarily
of bonds and commercial paper. Credit risk with respect to the trade receivables
is spread over diverse customers who make up the Company's customer base. At
April 30, 2001, no customer accounted for a significant portion of total
accounts receivable.

Certain Significant Risks and Uncertainties. The Company participates in a
dynamic high-technology industry and believes that changes in any of the
following areas could have a material adverse effect on the Company's future
financial position, results of operations or cash flows: advances and trends in
new technologies and industry standards; competitive pressures in the form of
new products and services or price reductions on current products and services;
changes in the overall demand for products and services offered by the Company;
market acceptance of the Company's products and services; development of sales
channels; changes in certain strategic relationships or customers relationships;
litigation or claims against the Company

based on intellectual property, patent, product, regulatory or other factors;
and the Company's ability to attract and retain necessary employees to support
its growth.

Recent Accounting Pronouncements. In July 2001, the FASB issued SFAS No.
141. "Business Combinations". SFAS No. 141 requires that all business
combinations be accounted for under the purchase method for business
combinations initiated after June 30, 2001 for which the date of acquisition is
July 1, 2001 or later. Use of the pooling-of-interest method is no longer
permitted. In July 2001 the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 requires that goodwill no longer be amortized
to earnings, but instead be periodically reviewed for impairment. SFAS No. 142
must be adopted starting with fiscal years beginning after December 15, 2001.
The impact of adopting SFAS 141 and SFAS 142 has not been determined.

In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition", which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met in order to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. In June 2000, the SEC
issued Staff Accounting Bulletin No. 101B (SAB 101B), "Second Amendment: Revenue
Recognition in Financial Statements", which extends the effective date of SAB
101 to the fourth fiscal quarter of fiscal years commencing after December 15,
1999. During the fourth quarter of fiscal 2001, we adopted SAB101. The adoption
of SAB101 did not have a material effect on the company's consolidated financial
position or results of operations.

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
accounting and reporting standards for derivative financial instruments and for
hedging activities. SFAS No. 133 requires us to measure all derivatives at fair
value and to recognize them on the balance sheet as an asset or liability,
depending on our rights or obligations under the applicable derivative contract.
In June 1999, the FASB issued SFAS No. 137, which deferred the effective date of
adoption of SFAS No. 133 for one year. We will adopt SFAS No. 133 no later than
the first quarter of fiscal 2002. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
an amendment of FASB Statement No. 133. SFAS No. 138 amends SFAS No. 133 to
permit use of central treasury offsetting of net exposures of intercompany
derivatives for foreign currency cash flow hedges. SFAS 138 must be adopted
concurrently with SFAS 133.

Liquidity. Historically, we have incurred significant losses and negative
cash flows from operations. As of April 30, 2001, we have an accumulated deficit
of $95.0 million and positive working capital of $49.8 million. We have
primarily funded operations through public offerings and private placements. To
the extent that sources of financing are not available to us, we will reduce
capital expenditures which are not under binding contractual obligations and
reduce other variable costs as necessary to maintain sufficient working capital
to operate our business.

Reclassifications. Certain reclassifications have been made in the 1999
and 2000 financial statement presentation to conform to the 2001 presentation.

Note 3: Net Loss Per Common Share

Basic net loss per common share is computed using the weighted average
number of common shares outstanding during the period. Diluted net loss per
common share is computed using the weighted average number of common shares
outstanding during the period and, when dilutive, potential common shares from
options and warrants to purchase common shares and common shares subject to
repurchase, using the treasury

stock method.

The following potential common shares have been excluded from the
calculation of diluted net loss per share for all periods presented because the
effect would have been anti-dilutive:

Year Ended April 30,
--------------------
2001 2000
--------- ---------

Shares issuable under stock options................... 6,008,688 4,354,864
Shares of restricted stock subject to repurchase...... 165,665 --
Shares issuable pursuant to warrants.................. 30,000 30,000

The weighted average exercise price of stock options, calculated by using
the yearly average exchange rates, was $8.34 and $5.76 at April 30, 2001 and
2000, respectively. The purchase price of restricted stock was $38.94. The
exercise price of outstanding warrants was Cdn. $38.13 per share ($24.82 based
on the exchange rate on April 30, 2001).

Note 4: Acquisitions

During the years ended April 30, 2001 and 2000 the Company made the
acquisitions described in the paragraphs that follow, each of which has been
accounted for as a purchase. The consolidated financial statements include the
operating results of each business from the date of acquisition.

The amounts allocated to purchased research and development were
determined through generally accepted valuation techniques and were expensed
upon acquisition because technological feasibility had not been established and
no future alternative use existed. The fair value of purchased research and
development was estimated by discounting, to present value, the cash flows
attributable to the technology once it has reached technological feasibility.

Acquisition of Trustpoint

On January 26, 2000, the Corporation acquired all of the outstanding
common shares of Trustpoint, a corporation based in Mountain View, California.
Trustpoint is a provider of comprehensive, flexible, cross-platform public key
infrastructure (PKI) products that allow OEM's to develop applications with
built in digital certificate services. Details of the consideration and the fair
values of the net assets acquired are as follows (in thousands of U.S. dollars):

Net assets acquired:
Non-cash working capital (net of cash of $302)................. $ (34)
Capital assets................................................. 29
Other acquired intangibles..................................... 878
Goodwill....................................................... 9,633
-------
$10,506
=======
Consideration:
Common shares (201,120 shares issued).......................... $ 7,306
Options to acquire 98,884 common shares........................ 3,080
Acquisition costs.............................................. 120
-------
$10,506
=======

option valuation model. Other acquired intangibles include the fair value of
workforce, customer base and trademarks and are amortized over 3 years. The
goodwill is amortized over 5 years.

The valuations of purchased in-process research and development, other
acquired intangibles and purchased technology were based upon appraisals
received from third parties. Based upon the valuation, management estimated that
$535,000 of the purchase consideration represents purchased in-process
technology that had not yet reached technological feasibility and had no future
alternative use. Accordingly, this amount was immediately expensed upon
consummation of the acquisition. The purchased in-process research and
development was determined by identifying the ongoing research projects for
which technological feasibility had not been achieved and assessing the
anticipated date of completion of the research and development effort. The state
of completion was determined by estimating the costs and time incurred to date
relative to those costs and time to be incurred to develop the purchased in-
process research and development into commercially viable products. The value of
the in-process research and development was the amount attributable to the
research and development efforts up to the time of acquisition. The amount was
estimated through application of the "stage of completion" calculation by
multiplying the estimated present value of future cash flow expected to result
from the product, excluding estimated cost of completion, by the percentage of
completion of the purchased research and development efforts at the time of
acquisition. The discount rate included a factor that took into account the
uncertainty surrounding the successful development of the purchased in-process
research and development projects.

Acquisition of DRG Resources Group, Inc.

On September 12, 2000, we acquired all of the outstanding common shares of
DRG Resources Group, Inc., a corporation based in Redwood City, California. DRG
Resources Group is an e-commerce security consulting company. Prior to our
acquisition of DRG Resources Group, Digital Resources Group, LLC merged into DRG
Resources Group. At the time these two companies merged, Digital Resources Group
LLC transferred $100,000 in assets into DRG Resources Group. Prior to the merger
of Digital Resources Group, LLC and DRG Resources Group, all other assets and
liabilities of Digital Resource Group LLC were distributed to its members. The
acquisition was completed with the issuance of 397,595 of our common shares. In
connection with the acquisition, we also assumed stock options exercisable to
acquire a total of 103,100 of our common shares. Details of the consideration
and the fair values of the net assets acquired are as follows (in thousands of
U.S. dollars):

Net assets acquired:
Current assets........................................ $ 100
Other acquired intangibles............................ 634
Goodwill.............................................. 9,529
Deferred compensation expense......................... 7,741
-------
$18,004
=======
Consideration:
Common shares (397,595 shares issued)................. $15,482
Options to acquire 103,100 common shares.............. 2,322
Acquisition costs..................................... 200
-------
$18,004
=======

The value of common shares issued in connection with the acquisition was
determined based on the average market price of our common shares near the date
the acquisition was announced. The stock options assumed in connection with the
acquisition were valued at the time of issuance based on the Black- Scholes
option valuation model. Deferred compensation of approximately $7.7 million was
recorded in connection with the acquisition as we issued restricted stock to the
partners of DRG Resources Group, Inc. Such stock is considered compensation for
services to be provided by the partners, and the related expense will be
recognized over the term of them services provided, which is 18 months. Other
acquired intangibles include the fair value

of workforce and customer base and are amortized over 3 years. The goodwill is
amortized over 5 years.

Unaudited Pro Forma Financial Information

The following table represents unaudited consolidated pro forma
information as if the acquisitions of Trustpoint and DRG Resources Group, Inc.
had occurred at the beginning of the years immediately preceding the years in
which they were acquired. The pro forma data is presented for illustrative
purposes only and is not necessarily indicative of the combined results of
operations of future periods or the results that actually would have occurred
had the acquisitions been in effect for the entire specified periods. The pro
forma combined results include the impact of certain adjustments, primarily
amortization of goodwill, deferred compensation, and other intangible assets and
exclude intercompany revenues and expenses (in thousands of U.S. dollars, except
per share data).

Years Ended April 30,
---------------------
2001 2000
-------- --------

Pro forma revenue......................................... $ 27,726 $ 14,398
Pro forma net loss........................................ $(42,989) $(26,879)
Pro forma net loss per share--basic and diluted........... $ (1.62) $ (1.19)
Number of shares used in calculation--basic and diluted
(000's)................................................... 26,477 22,634

Note 5: Marketable Securities, Available for Sale

The following table summarizes the Company's investment in marketable
securities (in thousands of U.S. dollars):

April 30, 2001
-------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- ---------

Bonds................................. $25,523 $ 11 $ -- $25,534
Commercial paper...................... 26,813 26 122 26,717
Other................................. 87 10 29 68
------- ------ ------- -------
Total................................. $52,423 $ 47 $ 151 $52,319
======= ====== ======= =======

April 30, 2000
-------------------------------------------
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
-------- ---------- ---------- ---------

Bonds................................. $ 1,392 $ 6 $ -- $ 1,398
Commercial paper...................... 1,131 8 -- 1,139
Other................................. 13 -- -- 13
------- ------ ------- -------
Total................................. $ 2,536 $ 14 $ -- $ 2,550
======= ====== ======= =======

Note 6: Property and Equipment

Property and equipment consist of the following (in thousands of U.S.
dollars):

April 30,
--------------------
2001 2000
-------- --------

Furniture and fixtures..................................... $ 1,812 $ 724
Computer equipment......................................... 6,775 2,741
Software................................................... 6,445 1,649
Leasehold improvements..................................... 4,523 3,532
Construction in-progress................................... 4,816 --
------- --------
Total cost................................................. 24,371 8,646
Accumulated depreciation and amortization.................. (6,083) (3,433)
------- -------
$18,288 $ 5,213
======= =======

Note 7: Note Payable

On April 27, 2000, we entered into an agreement with Sand Hill Capital II,
LP for a line of credit of $15 million bearing interest at the prime rate of
interest plus 3%. As of the end of fiscal year 2000, we had borrowed $10 million
against this line. In connection with this financing, we issued a warrant which
entitles Sand Hill to purchase up to 30,000 of our common shares for Cdn. $38.13
per share ($24.82 based on the exchange rate on April 30, 2001) until April 27,
2005. The amount borrowed was repaid in May 2000, and the line of credit was
terminated. The warrant was valued at $423,000 at the time of issuance based on
the Black-Scholes option valuation model. The value of the warrant was charged
to interest expense in the first quarter of fiscal 2001 as the note payable was
paid off with proceeds from a public offering completed in May 2000. The warrant
has not been exercised as of April 30, 2001.

Note 8: Common Shares

Authorized capital

As of April 30, 2001, the Company's authorized share capital consists of
an unlimited number of common shares, no par value, and an unlimited number of
preference shares.

In August 1999, the Articles of Continuance of the Company were amended
and restated to (i) remove and cancel the authorized and unissued preferred
shares, (ii) create an unlimited number of preference shares, issuable in
series, and (iii) authorize the directors of the Company from time to time
before the issue thereof to fix the number of shares and determine the
designation, rights, privileges, restrictions and conditions attaching to the
shares of each series of preference shares.

Stock Split

On July 12, 2000, the Company effected a two-for-one stock split of the
outstanding shares of common stock. All share and per share amounts in these
consolidated financial statements have been adjusted to give effect to the stock
split.

Note 9: Stock Incentive Plans

Employee Stock Option Plans

The Company's original plan (its "original plan") is administered by a
committee (the "Committee") of the Board of Directors. Subject to the discretion
of the Committee, options have a term of five years and vest for the purpose of
exercise at a rate of 33% during each twelve-month period following the first
anniversary from the date of the grant of the option. Options become immediately
exercisable in the event that any person acquires ninety percent of the common
shares and may be also exercised for specified periods following the termination
of employment or death of an option holder. No option may be exercisable more
than ten years after its grant. The exercise price for options was determined at
the discretion of the Committee.

The Company's 1997 Stock Option Plan (the "1997 Plan") is administered by
a committee of the Board and was adopted on June 17, 1997. The total number of
common shares reserved for issuance under the 1997 Plan may not exceed
8,000,000. Subject to the discretion of the Board or an option committee,
options granted under the 1997 Plan have a term of 5 years from the date of
grant and vest at a rate of 25% one year after the date of the grant of the
option, and at a rate of 2.0833% each month after such initial one-year period.
Options may become immediately exercisable in the discretion of the Board in the
event of a takeover bid, merger, amalgamation or other reorganization and may
also be exercised for specified periods following the termination or death of
the option holder. Options also become immediately exercisable in the event that
any person acquires ninety percent of the common shares. No option may be
exercisable for more than ten years after its grant. The exercise price for
options is determined on the basis of the closing price of the common shares on
The Toronto Stock Exchange on the trading date immediately preceding the date of
the grant of the option.

On April 27, 2000, the Company's shareholders approved a new stock option
plan (the "2000 Plan") for employees who are residents of the United States. The
total number of common shares reserved for issuance under the 2000 Plan may not
exceed 3,000,000. Subject to the discretion of the Board or an option committee,
options granted under the 2000 Plan have a term of five years from the date of
grant and vest at a rate of 25% one year after the date of the grant of the
option, and at a rate of 2.0833% each month after such initial one-year period.
Options may become immediately exercisable at the discretion of the Board in the
event of a take-over bid, merger, amalgamation or other reorganization and may
also be exercised for specified periods following the termination or death of
the option holder. No option may be exercisable for more than 10 years after its
grant. The exercise price for options is determined on the basis of the closing
price of the common shares on The Nasdaq National Market on the trading date
immediately preceding the date of the grant of the option.

On October 19, 2000, our shareholders adopted our 2000 directors'
incentive plan. The directors' incentive plan permits us to issue our common
shares and options to acquire our common shares to members of our board of
directors who are not also employed by us on a full-time basis. Up to 500,000
common shares may be issued under the directors' incentive plan. The directors'
incentive plan is administered by our board of directors. Subject to the
discretion of the board, options granted under the plan have a term of ten years
from the date of grant and vest at a rate of 25% one year after the date of the
grant of the option, and at a rate of 2.0833% each month after such initial one-
year period. Options may become fully vested in the event of a sale of all or
substantially all of our assets, merger or consolidation in which our
shareholders immediately prior to the merger or consolidation would not hold
more than 50% of the voting power of the surviving corporation, or acquisition
of more than 50% of our voting securities by a single party and its affiliates.
Option can only be exercised while a person remains a director or within one
year after he or she ceases to be a director. The exercise price for options is
determined on the basis of the closing price of the common shares on The Nasdaq
National Market on the trading date immediately preceding the date of the grant
of the option.

The directors' incentive plan also permits the board to directly issue
common shares to our outside directors. Common shares may be issued for reasons
determined by the board, including as payment for services provided to us by a
director. The board will determine the price and terms of any common shares
issued to a director. A director may be eligible to participate in the
directors' incentive plan even if he or she receives fees

or other consideration for services on the board of directors or its committees;
is employed by us for 20 hours or less per week or five months or less in a
calendar year; or provides consulting services to us, but is not eligible to
participate in our Employee Stock Purchase Plan.

The following table summarizes information about stock options outstanding
at April 30, 2001:

Options Outstanding Options Exercisable
--------------------------------------------------------- ---------------------
Weighted Average Weighted Weighted
Remaining Average Average
Number Contractual Life Exercise Number Exercise
Range of Exercise Price Outstanding (Years) Price Exercisable Price
------------------------ --------------------------------------------------------- ---------------------

$0.04-$4.29............ 927,311 2.66 $ 3.01 390,269 $ 2.65
$4.30-$4.99............ 1,569,954 2.73 4.72 727,196 4.74
$5.00-$9.00............ 1,148,226 2.87 7.04 579,296 7.24
$9.01-$14.99........... 1,208,193 4.59 15.37 172,253 13.88
$15.00-$29.99.......... 1,046,268 3.97 20.58 219,554 19.53
$30.00-$72.28.......... 1,060,331 3.95 40.06 241,050 42.83
--------- ---- ------ --------- ------
6,960,283 3.44 $14.49 2,329,618 $11.03
========= ==== ====== ========= ======

At April 30, 2000 and 1999, options to acquire 1,219,976 and 376,618 shares of
our common stock were exercisable at a weighted average exercise price of $4.50
and $4.26, respectively.

Changes for the employee stock option plans during the years ended April 30,
2001, 2000 and 1999 were as follows:

Year Ended April 30,
--------------------------------------------------------------------
2001 2000 1999
---------------------- -------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
----------- --------- ---------- --------- ---------- ---------

Outstanding at beginning
of year............................................. 5,155,300 $ 12.36 3,603,198 $ 4.46 3,512,562 $ 7.11
Granted.............................................. 2,435,501 17.61 2,783,866 19.37 1,681,300 3.89
Exercised............................................ (489,041) (4.30) (850,000) (4.48) (96,678) (2.56)
Canceled............................................. (141,477) (15.10) (381,764) (5.31) (770,660) (7.48)
Canceled for reissuance.............................. -- 0.00 -- -- (2,843,584) (9.74)
Reissued............................................. -- 0.00 -- -- 2,120,258 5.06
---------- --------- --------- --------- ------------ --------
Outstanding at end of year........................... 6,960,283 $ 14.49 5,155,300 $ 12.36 3,603,198 $ 4.46
========== ========= ========= ========= ============ ========
Exercisable at end of year........................... 2,329,618 $ 11.03 1,219,976 $ 4.50 376,618 $ 4.26
========== ========= ========= ========= =========== ========

Weighted average fair
value of options
granted during the
year................................................ $ 14.07 $ 19.71 $ 1.91

Options Assumed in Connection with Acquisitions

On July 29, 1998, January 26, 2000 and September 12, 2000, we acquired
Consensus Development Corporation, Trustpoint and DRG Resources Group, Inc.,
respectively. The outstanding stock options of these three companies were
converted at the time of each acquisition into options to acquire our common
shares. The Consensus Development Corporation options were converted into
options to acquire 799,818 of our common

shares, the Trustpoint options were converted into options to acquire 98,884 of
our common shares, and the DRG Resources Group, Inc. options were converted into
options to acquire 103,100 of our common shares. As of April 30, 2001, remaining
assumed options to acquire 282,312 of our common shares in connection with
acquisition of Consensus Development Corporation were outstanding and
exercisable at a weighted average exercise price of $0.39 per share, remaining
assumed options to acquire 49,096 of our common shares in connection with
acquisition of Trustpoint were outstanding and exercisable at a weighted average
exercise price of $6.38 per share and remaining options to acquire 90,350 and 0
of our common shares in connection with acquisition of DRG Resources Group, Inc.
were outstanding and exercisable respectively at a weighted average exercise
price of $38.94 per share. We will not grant any additional options under the
Consensus Development Corporation, the Trustpoint or the DRG Resources Group,
Inc. option plans.

Accounting for Stock-Based Compensation

As a result of the Company applying APB No. 25, SFAS No. 123, "Accounting
for Stock-Based Compensation," we are required to disclose pro forma
compensation expense arising from the Company's stock compensation plans based
on the fair value of the options granted. The pro forma expense is measured as
the fair value of the award at the date it is granted using an option-pricing
model that takes into account the exercise price and expected term of the
option, the current price of the underlying stock, its expected volatility,
expected dividends on the stock and the expected risk-free rate of return during
the expected term of the option. The compensation cost is recognized over the
service period, usually the period from the grant date to the vesting date.

Had the compensation cost for the Company's plan been determined based on
the fair value at the dates of award under the plan consistent with the method
of SFAS No. 123, the Company's net loss and basic and diluted net loss per
common share would have been increased to the pro forma amounts indicated below
(in thousands of U.S. dollars, except per share data):

Years Ended April 30,
-------------------------------
2001 2000 1999
-------- -------- --------

Net loss:
As reported............................................ $(40,672) $(17,869) $(15,381)
Pro forma.............................................. $(65,672) $(27,913) $(22,395)
Basic and diluted net loss per common share:
As reported............................................ $ (1.54) $ (0.80) $ (0.73)
Pro forma.............................................. $ (2.49) $ (1.25) $ (1.07)

The fair value of the options at the date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:

Years Ended
April 30,
-------------------------
2001 2000 1999
------ ------- ------

Expected life (years)................................................... 4 4 4
Risk free interest rate................................................. 6.14% 6.02% 5.08%
Expected volatility..................................................... 120% 91.00% 60.00%
Dividend yield.......................................................... -- -- --
----- ----- -----

During the year ended April 30, 1997 certain option grants were made at
prices below the market price. The excess of market price over the exercise
price is being amortized over the vesting period of the related options that
ended in fiscal 2000.

Conversion of Stock Options

We assumed certain options in connection with the acquisition of Consensus
Development Corporation and converted these to options to acquire 799,818 of our
common shares at a weighted average exercise price of $0.39 per share. During
the years ended April 30, 2001, 2000 and 1999, 91,844, 204,072 and 49,788 of
such options were exercised. We assumed certain options in connection with the
acquisition of Trustpoint in fiscal 2000 and converted these to options to
acquire 98,884 of our common shares at a weighted average exercise price of
$5.55 per share. During the year ended April 30, 2001 and 2000, 43,520 and 6,134
of such options were exercised at weighted average exercise price $12.30 and
$4.01 per share respectively. The amounts relating to options exercised during
the year were transferred from additional paid-in capital to common shares.

Stock Option Repricing

In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation," an interpretation of APB
Opinion No. 25, "Accounting for Stock Issued to Employees," which, among other
things, requires variable-award accounting for repriced options from the date
the options are repriced until the date of exercise. This interpretation became
effective on July 1, 2000 to cover specific events that occur after December 15,
1998. On March 17, 1999, our Board of Directors approved the exchange of options
to acquire an aggregate of 1,106,240 of our common shares for options having a
right to acquire 382,914 common shares. Because these options were repriced
after December 15, 1998, they are covered by the interpretation. Accordingly,
these options will be accounted for as variable until the date they are
exercised, forfeited or expire unexercised. Additional compensation cost will be
measured for the full amount of any increases in share price after July 1, 2001
and will be recognized over the remaining vesting period. Any adjustment to the
compensation cost for further changes in share price after the options vest will
be recognized immediately. Compensation amortization expense of approximately
$312 thousand was recorded for the fiscal year ended April 30, 2001. Deferred
compensation expense, a contra-equity account, of approximately $329 thousand
was recorded on the balance sheet as of April 30, 2001.

Note 10: Income Taxes

The Company recorded current income tax expense (benefit) of approximately
$135,000, $334,000 and ($92,000) for the years ended April 30, 2001, 2000, and
1999, respectively.

The tax effect of significant temporary differences representing deferred
tax assets is as follows (in thousands of U.S. dollars):

Years Ended April 30,
----------------------------
2001 2000 1999
-------- -------- -------

Deferred tax assets:
Operating loss carryforwards................................................. $ 30,636 $ 14,44 $11,729
Tax credit carryforwards..................................................... 1,895 638 647
Capitalized research expenditures............................................ -- 579 423
Reserve, accruals and allowances............................................. 888 266 270
Fixed assets................................................................. 1,761 653 182
Lease inducement............................................................. -- 164 --
Other........................................................................ -- 279 166
-------- -------- -------
Net deferred tax assets...................................................... 35,180 17,021 13,417
Valuation allowance.......................................................... (33,700) (17,021) (13,417)
------- -------- -------
Total deferred tax liabilities.............................................. $ 1,480 $ -- $ --
======= ======== =======
Deferred tax liabilities:

Intangible assets acquired................................................... (568) -- --
Capitalized software......................................................... (912) -- --
------- ------- -------
Total deferred tax liabilities.............................................. (1,480) -- --
------- ------- -------
Net deferred tax assets (liabilities)....................................... $ -- $ -- $ --
======== ======== =======

The Company has determined that realization is not more likely than not
and therefore a valuation allowance has been recorded against this deferred
income tax asset. A reconciliation between the Company's statutory and effective
tax rates is as follows:

Years Ended April
30,
----------------------
2001 2000 1999
----- ----- ----

Statutory rate.................................... 42.1% 44.6% 44.6%
Permanent differences............................. (0.1) (0.5) (0.2)
Net opening loss
currently not
benefited........................................ (42.0) (44.1) (44.4)
Foreign taxes..................................... -- (1.9) (0.7)
Scientific research
investment tax credit............................ -- -- 1.3
Other............................................. (0.3) -- --
------ ----- -----
Effective tax rate................................ (0.3)% (1.9)% 0.6%
====== ===== =====

Due to the Company's recent history of operating losses, a valuation
allowance had been established against the deferred tax assets because it is
presently unable to conclude that it is more likely than not that deferred tax
assets will be realized.

For the year ended April 30, 2001, approximately $2 million of the
valuation allowance for deferred tax assets is attributable to employee stock
option deductions, the benefit from which will be allocated to paid-in capital
rather than current earnings when utilized.

As of April 30, 2001, the Company had net operating loss carryforwards for
Canadian, U.S. federal and U.S. state income tax purposes of approximately $32.6
million, $38.7 million and $18.5 million, respectively. The Canadian net
operating loss carryforwards, if not utilized, will begin to expire in 2002. The
federal net operating loss carryforwards, if not utilized, will begin to expire
in 2020. The California net operating loss carryforwards, if not utilized, will
begin to expire in 2005.

As of April 30, 2001, the Company had tax credit carryforwards for
Canadian, U.S. federal and U.S. state income tax purposes of approximately $1.5
million, $0.3 million, $0.3 million, respectively. The Canadian credit
carryforwards, if not utilized, will begin to expire in 2002. The U.S. federal
credit carryforwards, if not utilized, will begin to expire in 2020. The U.S.
state credits will carryforward indefinitely.

In addition, at April 30, 2001, the Company had an unclaimed scientific
and research and experimental development expenditure pool balance of
approximately $4.5 million which can be applied against future taxable income.

The U.S. Tax Reform Act of 1986 imposes substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
"ownership change" as defined. Some of the U.S. federal and state net operating
loss carryforwards are subject to limitation as a result of these restrictions.
The ownership change restrictions are not expected to impair the Company's
ability to utilize the affected carryforward items. If there

should be a subsequent ownership change, as defined, of the Company, its ability
to utilize its carryforwards could be reduced.

Note 11: Segment Information

The Company operates in one reportable segment and is a developer,
manufacturer and vendor of digital information security products, technologies
and services within the industry segment of electronic commerce. Information
about the Companies' revenues is as follows (in thousands of U.S. dollars):

Years Ended April 30,
2001 2000 1999
------- ------- -------

Software license.............................................................. $20,571 $ 9,259 $ 2,665
Consulting.................................................................... 4,987 1,988 971
Hardware...................................................................... 1,089 793 406
------- ------- -------
Total revenue................................................................ $26,647 $12,040 $ 4,042
======= ======= =======

Information about the Company's geographic operations is given below (in
thousands of U.S. dollars):

Years Ended April 30,
2001 2000 1999
------- ------- -------

U.S........................................................................... $20,425 $10,971 $ 3,072
Canadian...................................................................... 3,651 494 588
International (non-Canadian/US)............................................... 2,571 575 382
------- ------- -------
Total revenue................................................................ $26,647 $12,040 $ 4,042
======= ======= =======

Years Ended April 30,
---------------------
2001 2000
---------- --------

Total long-lived assets:
United States................................................................. $ 39,865 $ 27,222
Canada........................................................................ 4,771 3,301
---------- --------
Total........................................................................ $ 44,636 $ 30,523
========== ========

Note 12: Significant Customers
One of our customers accounted for approximately 23% of our revenue in
fiscal 2001 while no customer accounted for 10% or more of our revenue in fiscal
2000 or 1999.

Note 13: Commitments and Contingencies

Operating leases

At April 30, 2001 the Company has operating leases for office and
furniture and equipment with the following minimum annual rental payments (in
thousands of U.S. dollars):

Years ended April 30,
---------------------

2002.............................................................. $ 4,117
2003.............................................................. 3,845
2004.............................................................. 3,855
2005.............................................................. 3,948
2006.............................................................. 3,927
Thereafter........................................................ 10,921
-------
Total minimum rental payments.................................... $30,613
=======

Rental expense under operating leases amounted to approximately $2,196,000
in 2001, $1,520,000 in 2000 and $438,000 in 1999.

The Company has an outstanding letter of guarantee of approximately
$2,000,000 in respect of a lease for its office premises.

Through April 30, 2001 we have capitalized leasehold improvements and
related construction costs totaling approximately $7.7 million and $1.7 million
for our U.S. and Canadian facilities, respectively. In addition, we anticipate
incurring approximately an additional $3.6 million and $7.4 million subsequent
to April 30, 2001 to complete the build-out of our Hayward and Canadian
facilities, respectively.

Litigation

We are subject to legal proceedings and claims that arise in the ordinary
course of our business. While management currently believes the amount of
ultimate liability, if any, with respect to these actions will not materially
affect the financial position, results of operations, or liquidity of our
company, the ultimate outcome of any litigation is uncertain. Were an
unfavorable outcome to occur, the impact could be material to us.

One of our suppliers, East West Imports, Inc. dba California Computers,
has filed suit in the Superior Court of the State of California, County of
Alameda, for payment of approximately $230,000 plus costs, attorney fees, and
interest. Among other defenses, the focus of Certicom's dispute is whether or
not a number of personal computers and peripheral items were actually received
by Certicom. At present both parties are attempting to ascertain the proper
amount owed, and we anticipate a settlement on fair and reasonable terms may be
possible in the near future. In the event that no such settlement is reached
within a reasonable time, we intend to vigorously defend any litigation over
disputed amounts. In such case there can be no assurance that we will be
successful in doing so, or that such disputes will not have a material adverse
impact on us.

Note 14: Subsequent Event

1. Restructuring Costs and Other Special Charges (Unaudited)

On June 4, 2001, we announced a restructuring program to prioritize our
initiatives around high-growth areas of our business, reduce discretionary
spending, and improve efficiency. This restructuring program includes a
reduction of our full-time employee headcount, consolidation of excess
facilities, and restructuring of certain business functions.

As a result of the restructuring program, we will, assuming we cannot
sublease our excess facilities, record estimated restructuring costs and other
special charges of approximately $23.1 million described below.

Workforce reduction

The restructuring program will result in the reduction by approximately
30% of our regular employees across all business functions, and geographic
regions. The workforce reductions started and will be substantially completed in
the first quarter of fiscal 2002. We will record an estimated workforce
reduction charge of approximately $2.2 million relating primarily to severance
and fringe benefits.

Consolidation of excess facilities and other special charges

We will record a restructuring charge of approximately $7.9 million for
excess facilities relating primarily to lease terminations and non-cancelable
lease costs under the assumption that we will not be able to sublease our excess
facilities. Property and equipment that will be disposed or removed from
operations will result in an estimated charge of $3.7 million and consisted
primarily of leasehold improvements, and office equipment, furniture, and
fixtures.

Impairment of goodwill and purchased intangible assets

Due to the decline in current business conditions, we have restructured
certain functions and realign resources to focus on high-growth markets and core
opportunities. As a result, we will record a charge of $9.3 million related to
the impairment of goodwill and purchased intangible assets, measured as the
amount by which the carrying amount exceeded the present value of the estimated
future cash flows for goodwill and purchased intangible assets.

Remaining cash expenditures relating to workforce reductions and
termination of agreements will be substantially paid in the second and third
quarter of fiscal 2002. Amounts related to the net lease expense due to the
consolidation of facilities will be paid over the respective lease terms through
fiscal 2007. We expect to substantially complete implementation of our
restructuring program during the next six months.

2. Introduction of Subscription Business Model

In June 2001, we converted our enabling technologies products primarily to
subscription-based licenses. In addition, our trust services and enterprise
application solutions product lines are accounted for under the subscription
model. Subscription licenses provide our customers with rights to use our
software for a specified period of time. Customers are entitled to use the
license and receive certain customer support services over the license term. In
addition, depending on the type of license, our customers will have access to
unspecified upgrades on an "if and when available" basis.

SUPPLEMENTARY FINANCIAL INFORMATION

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(in thousands of U.S. dollars, except per share data)

The following table contains unaudited Statement of Operations information for
each quarter of fiscal 2001 and 2000 (in thousands of U.S. dollars, except per
share data). The operating results for any quarter are not necessarily
indicative of results for any future period.

Year ended April 30, 2001
------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- -------- --------

Revenues................................ $ 5,053 $ 6,301 $ 7,627 $ 7,666
Total costs and expenses................ 12,149 16,168 20,150 21,157
Net loss................................ (6,647) (9,089) (12,042) (12,894)
Basic and diluted net loss per
share(1)............................... $ (0.26) $ (0.35) $ (0.46) $ (0.46)
Shares used in computing basic and
diluted net loss per share (000's)..... 25,572 25,974 26,239 27,773
======= ======= ======== ========

Year ended April 30, 2000
------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- -------- --------

Revenues............................... $ 2,148 $ 2,612 $ 3,309 $ 3,971
Total costs and expenses............... 5,676 6,040 7,248 10,252
Net loss............................... (3,676) (3,435) (3,930) (6,828)
Basic and diluted net loss per
share(1).............................. $ (0.17) $ (0.16) $ (0.18) $ (0.30)
Shares used in computing basic and
diluted net loss per share (000's).... 21,843 21,894 22,348 22,951
======= ======= ======== ========

--------
Note:
(1) the sum of quarterly per share amounts may not equal to per share amounts
reported for year-to-date periods. This is due to changes in the number of
weighted-average shares outstanding and the effects of rounding for each period.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Overview

We are a leading provider of information security software and services,
specializing in solutions for mobile e-business. Our products and services are
specifically designed to address the challenges imposed by a wireless data
environment. We offer solutions that incorporate our proprietary encryption
technology and are based on industry standards for information security that
utilize public key cryptography. We believe that the addition of our products to
wireless infrastructures will help to build the trust and confidence necessary
for the success of mobile e-business.

Historically, we have focused on the development and marketing of
cryptographic and information security protocol toolkits. We have also launched
a line of authentication solutions including PKI software, CA services and VPN
client software for handheld devices. In addition, we provide consulting and
systems integration services to assist our customers in designing and
implementing efficient security solutions. Our customers integrate our
technologies into their hardware and software products, then sell the finished
products to consumers or enterprise customers. We also market and sell our VPN
software product directly to enterprise customers.

We were founded in 1985 and are governed by the laws of the Yukon
Territory, Canada. We determined that commencing May 1, 1999 our functional
currency was the U.S. dollar and, accordingly, we began measuring and reporting
our results of operations in U.S. dollars from that date. We changed our
functional currency as we derive a majority of our revenues and incur a
significant portion of our expenses in U.S. dollars.

On January 26, 2000, we acquired all the outstanding shares of common
stock of Trustpoint, a corporation based in Mountain View, California.
Trustpoint is a private developer of PKI products. OEMs use the PKI products to
develop authentication and certification applications and services. In
connection with this acquisition, we issued 201,120 of our common shares in
exchange for all of the outstanding shares of Trustpoint and we also assumed
Trustpoint's outstanding employee stock options. The transaction was accounted
for as a purchase and, accordingly, the total consideration of approximately
$10.5 million has been allocated to the tangible and intangible assets acquired
based on their respective fair values on the acquisition date. Trustpoint's
results of operations have been included in the consolidated financial
statements from the date of acquisition. As a result of our acquisition of
Trustpoint, we recorded goodwill and other intangible assets of approximately
$10 million. These amounts will be amortized over a three to five year period.

million has been allocated to the tangible and intangible assets acquired
based on their respective fair values on the acquisition date. The results of
operations of DRG Resources Group, Inc. have been included in the consolidated
financial statements from the date of acquisition. As a result of our
acquisition of DRG Resources Group, Inc., we recorded goodwill, deferred
compensation expense, and other intangible assets of approximately $17.9
million. These amounts will be amortized over a period of eighteen months to
five years.

Our consolidated financial statements contained in this Form 10-K are
reported in U.S. dollars and are presented in accordance with U.S. generally
accepted accounting principles, or U.S. GAAP. The following discussion and
analysis relates to our financial statements that have been prepared in
accordance with U.S. GAAP. Results of Operations

Although we have experienced substantial growth in revenues in recent
periods, we have incurred substantial operating losses since our inception and
we expect to incur substantial operating losses for the foreseeable future. As
of April 30, 2001, we had an accumulated deficit of approximately $95.0 million.
We expect to incur additional losses for the foreseeable future, and we may
never achieve profitability. We intend to invest in sales and marketing and the
development and enhancement of our product and service offerings.

The following table sets out, for the periods indicated, selected
financial information from our consolidated financial statements as a percentage
of revenue.

Year Ended
April 30,
---------------------------
2001 2000 1999
---- ---- ----

Consolidated Statement of Operations Data:
Revenues..................................................................... 100% 100% 100%
Costs and expenses:
Cost of hardware............................................................. 3 5 3
Consulting and systems integration........................................... 36(1) 17 15
Selling and marketing........................................................ 74 55 151
Research and development..................................................... 48 37 80
Depreciation and amortization................................................ 48 65 125
General and administrative................................................... 46(2) 59 106
One time secondary offering costs............................................ 6 -- --
Purchased in-process research and development................................ -- 4 28
Interest income (expense)..................................................... 11 (3) 25
Non-cash interest expense..................................................... 2 -- --

Loss before income taxes...................................................... (152) (145) (383)
Income taxes.................................................................. 1 3 (2)
---- ---- ----
Net loss...................................................................... (153)% (148)% (381)%
==== ==== ====

______
Notes:

(1) Includes the amortization of deferred compensation expense in
connection with the acquisition of DRG Resources Group, Inc. for fiscal 2001.

(2) Includes the percentage of non-cash expense related to the repricing
of stock options under FASB Interpretation No. 44 for fiscal 2001.

Revenues

We recognize software licensing revenue in accordance with all applicable
accounting regulations including the American Institute of Certified Public
Accountants Statement of Position (SOP) 97-2, "Software Revenue Recognition," as
amended by SOP 98-4 and SOP 98-9.

Following the requirements of SOP 97-2, we recognize license revenues when
all of the following have occurred:

- we have signed a non-cancelable license agreement with the customer;

- delivery of the software product to the customer has occurred;

- the amount of the fees to be paid by the customer are fixed or determinable;
and

- collection of these fees is probable.

SOP 97-2, as modified, generally requires revenue earned on software
arrangements involving multiple elements such as software products, upgrades,
enhancements, post contract customer support, or PCS, installation and training
to be allocated to each element based on the relative fair values of the
elements. The fair value of an element must be based on evidence that is
specific to the vendor. If evidence of fair value does not exist for all
elements of a license agreement and PCS is the only undelivered element, then
all revenue for the license arrangement is recognized ratably over the term of
the agreement. If evidence of fair value of all undelivered elements exists but
evidence does not exist for one or more delivered elements, then revenue is
recognized using the residual method. Under the residual method, the fair value
of the undelivered elements is deferred, and the remaining portion of the
arrangement fee is recognized as revenue. When arrangements require us to
deliver specified additional upgrades the entire fee related to the arrangement
is deferred until delivery of the specified upgrade has occurred, unless we have
vendor-specific objective evidence of fair value for the upgrade. Fees related
to

contracts that require us to deliver unspecified additional products are
deferred and recognized ratably over the contract term.

We operate in one reportable segment. We derive our revenues from a
variety of sources that we generally classify as software licensing, consulting
and systems integration, and hardware. We earn software licensing revenues from
one-time base license fees or technology access fees, royalties, and annual
maintenance and support fees. In addition, we earn revenues on a transaction
basis through the sale of our authentication service offerings, which are
primarily digital certificates. Some of our license agreements permit the
licensee to sublicense without us receiving any revenue from the sub- licensees.
Consulting and systems integration revenues are derived from the performance of
contracted services for customers. Hardware revenues are derived from sales of
products manufactured by third parties to our specifications and components
procured from third parties and resold by us to our customers.

We negotiate most of our customer contracts on a case-by-case basis.
However, most of our contracts (other than our contracts for consulting and
systems integration or hardware sales) include provisions for us to receive an
up-front license fee and royalties. Our royalties for software licenses for
mobile and wireless devices vary based on a number of factors, including the
size of the contract and the nature of the contract, the customer, the device
and the application.

In June 2001, we converted our enabling technologies products primarily to
subscription-based licenses. In addition, our trust services and enterprise
application solutions product lines are accounted for under the subscription
model. Subscription licenses provide our customers with rights to use our
software for a specified period of time. Customers are entitled to use the
license and receive certain customer support services over the license term. In
addition, depending on the type of license, our customers have access to
unspecified upgrades on an "if and when available" basis. We expect the average
duration of the subscription licenses to be between one and two years. In
addition, we expect a significant percent of customers to renew their licenses
upon license expiration.

The change from perpetual licenses to subscription licenses will impact
our reported quarterly and annual revenues on a going-forward basis as
subscription license revenue will be amortized over the term of the subscription
license. In the past, the majority of our perpetual license revenues have been
recognized in the quarter of product delivery. Therefore, a subscription license
order will result in substantially less current-quarter revenue than an equal-
sized order for a perpetual license. We expect to invoice our customers upfront
for the full amount of a twelve-month subscription license period and collect
the invoice within our standard payment terms. Although we expect that over the
long term our cash flow from operations under the subscription license model
will be equal to or greater than under the perpetual license model, in the near
term we expect our cash flow from operations to decrease and deferred revenue to
increase.

The following table sets forth our revenues by category and by geography
for the periods indicated:

Fiscal Year
Ended
April 30,
---------------------
2001 2000 1999
---- ---- ----

Software licensing......................................... 77.2% 76.9% 65.9%
Consulting and systems integration......................... 18.7 16.5 24.0
Hardware................................................... 4.1 6.6 10.1
---- ---- ----
Total revenue.............................................. 100% 100% 100%
==== ==== ====

U.S. revenue............................................... 76.7% 91.1% 76.0%
Canadian revenue........................................... 13.7 4.1 14.5
International (non-Canadian/US) revenue.................... 9.6 4.8 9.5
---- ---- ----
Total revenue.............................................. 100% 100% 100%
==== ==== ====

Revenue for fiscal 2001 was $26.6 million, a 121% increase from $12.0
million in fiscal 2000. The increase was primarily attributable to increased
software licensing, which grew to approximately $20.6 million in fiscal 2001, a
122% increase over $9.3 million in fiscal 2000. The increase in software
licensing revenue was primarily a result of growing market awareness of our
products and the increased use of wireless applications that require security.
In addition, consulting and systems integration revenue was approximately $5.0
million for fiscal 2001, a 151% increase over $2.0 million for fiscal 2000. The
increase in consulting and systems integration revenue is due to the increase in
personnel providing these services and the increase in consulting services
related to our development licenses and protocols. In fiscal 2001, our increase
in consulting personnel occurred primarily as the result of our acquisition of
DRG Resources Group, Inc., an eleven person professional consulting organization
specializing in security for public-key infrastructure, in the second quarter of
fiscal 2001. Hardware sales for fiscal 2001 grew 37% to $1.1 million compared to
$0.8 million for fiscal 2000. Due to our change to the subscription licensing
model, we expect revenue to decrease in fiscal 2002 compare to fiscal 2001.

Revenue for fiscal 2000 was $12.0 million, a 200% increase from $4.0
million in fiscal 1999. The increase was primarily attributable to increased
software licensing, which grew to approximately $9.3 million, a 247% increase
over $2.7 million in fiscal 1999. The increase in software licensing revenue was
primarily a result of growing market awareness of our products and, to a lesser
extent, an expanded sales force. In addition, consulting and systems integration
revenue grew 105% from fiscal 1999 to 2000, to $2.0 million from $1.0 million.
We added resources in this area and focused our activities on larger scale
projects, thereby contributing to the increase in revenue in fiscal 2000.
Hardware sales grew 95% to $0.8 million for fiscal 2000, but decreased as a
percentage of revenue to 7% compared to 10% in fiscal 1999.

One of our customers accounted for approximately 23% of our revenue in
fiscal 2001 while no customer accounted for 10% or more of our revenue in fiscal
2000 or 1999.

For the fiscal year ended April 30, 2001, approximately 99% of our
revenues were generated in U.S. dollars. In the same period, approximately 29%
of our total operating expenses were incurred in currencies other than the U.S.
dollar.

We expect that a majority of our revenue will continue to be generated in
U.S. dollars for the foreseeable future and that a significant percentage of our
expenses, including labor costs as well as capital and operating expenditures,
will continue to be denominated in Canadian dollars. If the Canadian dollar
appreciates against the U.S. dollar, our results of operations could be
materially adversely affected.

Costs and Expenses

Our costs and expenses consist of cost of hardware, consulting and systems
integration, selling and marketing, research and development, depreciation and
amortization, general and administrative expenses, and non-recurring costs in
connection with special events such as one-time secondary offering costs and
purchased in-process research and development.

Cost of Hardware

Our cost of hardware consists primarily of the component cost of our
hardware products manufactured by third parties to our specifications as well as
the procured costs of third-party hardware technology.

Cost of hardware increased 42% in fiscal 2001 to $0.8 million from $0.6
million the previous year. Cost of hardware sold increased 363% in fiscal 2000
compared to approximately $0.1 million in fiscal 1999. These increases in fiscal
2001 and 2000 were primarily due to higher hardware sales, and a shift in
product mix with a greater proportion of hardware sales being generated by sales
of higher cost third-party procured hardware.

Consulting and Systems Integration

Consulting and systems integration expenses consist primarily of costs
related to consulting and systems integration activities. These expenses include
salaries, travel and related

expenses, and amortization of deferred compensation expense recorded in
connection with the acquisition of DRG Resources Group, Inc.

Consulting and systems integration expenses were $9.6 million for fiscal
2001, a 363% increase over $2.1 million for fiscal 2000. This increase was
primarily a result of increasing the number of professional services providers
in this group to keep up with growing customer and internal demands and the
deferred compensation expense and other costs recorded in connection with the
acquisition of DRG Resources Group, Inc.

Consulting and systems integration expenses were $2.1 million for fiscal
2000, a 254% increase over $0.6 million for fiscal 1999. This was primarily a
result of incurring the full year of expenses associated with our consulting and
systems integration group acquired from Uptronics Incorporated, only five months
of which were recorded in the previous year. In addition, we increased the
number of engineers in this group in order to keep up with the growing demand
from our customers in fiscal 2000.

Selling and Marketing

Selling and marketing expenses consist primarily of employee salaries and
commissions, related travel, public relations and corporate communications
costs, trade shows, marketing programs and market research.

Selling and marketing expenses were $19.7 million for fiscal 2001 compared
to $6.6 million for fiscal 2000, an increase of 198%. Selling and marketing
expenses increased 8% in fiscal 2000 from $6.1 million in fiscal 1999. These
increased expenses in fiscal 2001 were primarily due to an increase in personnel
costs, marketing programs including branding, trade shows and Web-site upgrades,
MobileTrust(TM) launch costs and VPN beta testing and launch costs.

Research and Development

Research and development expenses consist primarily of employee salaries,
sponsorship of cryptographic research activities at various universities,
participation in various cryptographic, wireless and e-business standards
associations and related travel and other costs. We have capitalized certain
costs associated with the filing of patent applications in various
jurisdictions. These patent filings are in the areas of ECC, various
mathematical computational methodologies, security protocols and other
cryptographic inventions. Once granted, we amortize the individual patent cost
over three years. We capitalize patents not yet granted at their cost less a
provision for the possibility of the patent not being granted or abandoned.

Our research and development expenses were $12.8 million for fiscal 2001
compared to $4.4 million for fiscal 2000, an increase of 189%. Research and
development expenses for fiscal 2000 increased 37% relative to $3.2 million in
fiscal 1999. These increases are the result of the addition of personnel and
related costs necessary to support new product development in the PKI area in
both fiscal 2001 and 2000 and the VPN area in fiscal 2001.

Depreciation and Amortization

Depreciation and amortization represent the allocation to income of the
cost of fixed assets and intangibles including patents cost over their estimated
useful lives.

Depreciation and amortization increased 62% to $12.7 million for fiscal
2001 compared to $7.9 million for fiscal 2000. The primary reason for the
increase was that our results for fiscal 2001 included full-year amortization
expense related to our acquisition of Trustpoint, which occurred at the end of
the third quarter of fiscal 2000, and partial year amortization expense related
to our acquisition of DRG Resources Group, Inc., which occurred during the
second quarter of fiscal 2001, while our results for fiscal 2000 included only
partial year amortization expense related to our acquisition of TrustPoint.

Depreciation and amortization increased to $7.9 million in fiscal 2000
compared to $5.1 million in fiscal 1999. The primary reason for the increase was
that our results for fiscal 2000 included full-year amortization expenses
related to our acquisitions of Consensus Development Corporation and Uptronics
Incorporated in fiscal 1999 and partial year amortization expense related to our
acquisition of TrustPoint in fiscal 2000, while our results for fiscal 1999
included only partial year amortization expenses related to our acquisitions of
Consensus Development Corporation and Uptronics Incorporated.

General and Administrative

General and administrative expenses consist primarily of salaries and
other personnel-related expenses for executive, financial, legal, information
services and administrative functions, and amortization of stock compensation
expense.

In fiscal 2001, general and administrative expenses increased 72% to $12.2
million compared to $7.1 million in fiscal 2000. This increase is primarily due
to the growth in personnel and office space in California, Nasdaq reporting
requirements, information system enhancements, and amortization of stock
compensation expense related to the repricing of stock options.

General and administrative expenses increased 66% in fiscal 2000 to $7.1
million from $4.3 million for fiscal 1999. The primary reason for this increase
was the increase in our infrastructure in California.

One Time Secondary Offering Costs

We have recognized certain non-recurring costs in connection with special
events. In the third quarter of fiscal 2001, we incurred $1.7 million in one-
time costs in connection with our unsuccessful efforts toward a secondary
offering.

Purchased In-process Research and Development

In fiscal 2000, $0.5 million of purchased in-process research and
development costs were

recorded in connection with the acquisition of Trustpoint. We used third-party
appraisers' estimates to determine the value of in-process projects under
development for which technological feasibility had not been established. The
total value of these projects at the time of the acquisition was determined to
be approximately $0.5 million. The value of the projects was determined by
estimating the costs to develop the in-process technology into commercially
feasible products, estimating the net cash flows which we believed would result
from the products and discounting these net cash flows back to their present
value. Management estimated that the purchased in-process technology that
represented $0.5 million of purchase consideration had not yet reached
technological feasibility and had no future alternative use. Accordingly, $0.5
million was immediately expensed upon consummation of the acquisition.

In fiscal 1999, $1.2 million of purchased in-process research and
development costs were recorded in connection with the acquisition of Consensus
Development Corporation. We used third-party appraisers' estimates to determine
the value of in-process projects under development for which technological
feasibility had not been established. The total value of these projects at the
time of the acquisition was determined to be approximately $1.2 million and was
expensed in the year ended April 30, 1999. The value of the projects was
determined by estimating the costs to develop the in-process technology into
commercially feasible products, estimating the net cash flows we believed would
result from the products and discounting these net cash flows back to their
present value. The products were substantially completed during fiscal 2000.
However, if they are not successfully completed, there could be a negative
impact on our operating results. Interest and Other Income (Expense)

In fiscal 2001, interest income was $2.4 million compared to interest
expense $0.4 million in fiscal 2000. This increase resulted from an increase in
the amount of cash and marketable securities invested in fiscal 2001, as well as
currency adjustments, primarily Canadian dollars to U.S. dollars. This increase
is net of the one-time, non-cash interest expense of $0.4 million related to the
warrant issued to Sand Hill Capital II, LP, Sand Hill, which is included in our
results for fiscal 2001. As of the end of fiscal year 2000, we had borrowed
$10,000,000 from Sand Hill. In connection with this financing, we issued a
warrant which entitles Sand Hill to purchase 30,000 of our common shares at an
exercise price of Cdn. $38.13 per share (U.S. $24.82 based on the exchange rate
on April 30, 2001) until April 27, 2005. The warrant was valued at $423,000 at
the time of issuance based on the Black-Scholes option valuation model. The
value of the warrant was charged to interest expense in the first quarter of
fiscal 2001 as the note payable was paid off with proceeds from our public
offering in May 2000.

In fiscal 2000, interest expense was $0.4 million compared to interest
income of $1.0 million for fiscal 1999. This decrease resulted from a reduction
in the amount of marketable securities invested during the year as funds were
applied to meet our cash requirements. This decrease also consists of currency
adjustments, primarily Canadian to U.S. dollars.

Income Taxes

We pay taxes in accordance with U.S. federal, state and local tax laws and
Canadian federal, provincial and municipal tax laws. Income tax was $0.14
million in fiscal 2001 compared to $0.33 million in fiscal 2000. In fiscal 1999,
we have a tax recovery of $0.09 million,

which arose due to the receipt of Scientific Research and Experimental
Development Tax Credits in Canada. We do not expect to pay significant corporate
income taxes in both Canada and the United States in the foreseeable future
because we have significant tax credits and net operating loss carryforwards for
Canadian, U.S. federal and U.S. state income tax purposes.

Net Loss

We have incurred significant annual and quarterly net losses and losses
from our operations since our inception, and we expect to incur significant net
losses and losses from operations for the next fiscal year. Furthermore, given
the rapidly evolving nature of our business and fluctuations in the timing of
our sales, our operating results are difficult to forecast and, accordingly, our
historical financial results may not be meaningful assessments of our future
business operations or prospects.

Our net loss increased 128% in fiscal 2001 to $40.7 million ($1.54 per
share basic and diluted) compared to $17.9 million ($0.80 per share basic and
diluted) in the previous fiscal year. The loss before interest income,
depreciation and amortization, deferred compensation amortization, and taxes
amounted to $26.5 million in fiscal 2001, a 184% increase over $9.3 million for
fiscal 2000.

Our net loss increased 16% in fiscal 2000 to $17.9 million ($0.80 per
share basic and diluted) compared to $15.4 million ($0.73 per share basic and
diluted) in the previous fiscal year. This increase was predominately
attributable to the amortization of acquisition-related intangibles. The loss
before interest income, depreciation and amortization, and taxes amounted to
$9.3 million in fiscal 2000, an 18% decrease over $11.4 million for fiscal 1999.

Financial Condition, Liquidity and Capital Resources

In May 2000, we completed a public offering of 2,500,000 common shares at
a per share price of U.S. $23.15 in the United States and Canada for an
aggregate offering price of approximately U.S. $57.9 million. Our net proceeds
from the offering were approximately $51.5 million after deducting underwriting
discounts and commissions and offering expenses. On April 27, 2000, we borrowed
$10 million from Sand Hill, at the prime rate of interest plus 3%. As partial
consideration for making advances to us under this credit facility, we granted
Sand Hill a warrant to purchase up to 30,000 of our common shares at an exercise
price of Cdn. $38.13 per share (U.S. $24.82 based on the exchange rate on April
30, 2001) until April 27, 2005. We repaid the loan and interest on May 5, 2000,
using a portion of the proceeds received from our public offering, and
terminated this facility.

In March 2001, we issued 4,000,000 of our common shares in Canada and the
United States at a per share price of Cdn. $12.50 (approximately U.S. $8.14
based on the exchange rate on April 30, 2001). The common shares have not been
registered under the United States Securities Act of 1933, as amended. The gross
proceeds of this offering were Cdn. $50.0 million (approximately U.S. $32.5
million based on the exchange rate on April 30, 2001). After deducting
underwriting discounts and commissions and offering expenses, the net proceeds
of this offering were Cdn. $47.2 million (approximately U.S. $30.8 million based
on the exchange

rate on April 30, 2001). Total cash and available-for-sale
marketable securities increased $41.2 million in fiscal 2001. Our cash and cash
equivalents and marketable securities at April 30, 2001 were $54.3 million,
including $2.5 million of restricted cash.

In fiscal 2001, net cash used in operating activities was $16.0 million.
Net cash used in operating activities was primarily due to our net loss of $40.7
million, which included total non-cash charges of $16.9 million. The non-cash
charges included $9.4 million of amortization of acquired intangibles, $3.8
million of stock compensation expense, $3.3 million of depreciation and
amortization, and $0.4 million of non-cash interest expense. The cash operating
loss of $23.8 million was offset by changes in non-cash working capital items of
$7.7 million. These consisted primarily of the following items that provided
cash: $8.3 million accounts payable, $1.0 million accrued liabilities and $1.3
million deferred revenue and was offset by the following items that used cash:
$1.9 million accounts receivable and unbilled receivables and $0.7 million
prepaid and other current assets.

In fiscal year 2001, net cash used by investing activities was $66.4
million. Net cash used in investing activities was primarily due to our capital
expenditures for property, equipment and patents and net purchase $49.8 million
of marketable securities, available for sale. The net cash used for purchase of
property, equipment and patents in fiscal 2001 was approximately $16.7 million.

In fiscal year 2001, net cash provided by financing activities was $73.7
million. Net cash provided by financing activities was primarily due to our
issuances of common shares. In May 2000, we received net cash proceeds of
approximately $51.5 million from our public offering in the United States and
Canada. In March 2001, we received net cash proceeds of approximately Cdn. $47.2
million (approximately U.S. $30.8 million based on the exchange rate on April
30, 2001) from our public offering in Canada and related private placement in
the United States.

We lease premises totaling approximately 111,000 square feet in Hayward,
California. These leases expire on July 31, 2007. Through April 30, 2001 we have
capitalized leasehold improvements and related construction costs totaling
approximately $7.7 million for our Hayward facilities. In addition, we
anticipate incurring approximately an additional $3.6 million subsequent to
April 30, 2001 to complete the build-out of our Hayward facilities. We intend to
sublease approximately 43,000 square feet of our Hayward facility in second
quarter of fiscal 2002, although there can be no assurance that we will be able
to do so or at rates equal to our obligations under the lease. We also have a
lease for approximately 30,300 square feet of office space in Mississauga,
Ontario, which expires on December 25, 2009. Currently, our Canadian offices
occupy this space. We recently signed a ten-year lease for approximately 130,000
square feet located at 1980 Matheson Boulevard East, Mississauga, Ontario. At
this time, the facility is being constructed at our expense and we are obligated
to pay approximately $7.8 million of which approximately $7.4 million will be
paid subsequent to April 30, 2001 to complete the build-out of the facility. If
the landlord intends to sell the leased premises, we have a right of first
refusal with respect of any sale of this property on terms to be negotiated. In
the fall of 2001, we intend to relocate our Canadian operations from their
current location to this new facility and to sublease our current Canadian
office space and approximately 40,000 square feet space of new site, although
there is no assurance that we will be able to do so or at rates equal to our
current

obligations under the lease. The annual rental fee for the new site
varies between approximately Cdn. $10.85 to Cdn. $13.05 per square foot (U.S.
$7.06 to U.S. $8.50 per square foot based on the exchange rate on April 30,
2001) over the life of the lease. We began paying rent on this lease in May
2001. We also have a lease for approximately 6,000 square feet in Herndon,
Virginia that expires on October 5, 2007, and we occasionally execute month-to-
month leases for short-term office space. The total annual base rent for all
facilities is approximately $3.1 million.

The change from perpetual licenses to subscription licenses will impact our
reported quarterly and annual revenues on a go-forward basis, as subscription
license revenue will be amortized over the term of the subscription license. In
the past, the majority of our perpetual license revenues have been recognized in
the quarter of product delivery. Therefore, a subscription license order will
result in substantially less current-quarter revenue than an equal- sized order
for a perpetual license. We expect to invoice our customers upfront for the full
amount of a twelve-month subscription license period and collect the invoice
within our standard payment terms. Although we expect cash flow that over the
long term our from operations under the subscription license model will be equal
to or greater than under the perpetual license model, in the near term we expect
our cash flow from operations to decrease and deferred revenue to increase.

In June 2001, we announced a restructuring of our business, which included
a reduction in work force of approximately 30% as well as other steps to reduce
expenses. In connection with the restructuring, we recognized charge of
approximately $2.2 million for workforce reduction, non-cash charge of
approximately $7.9 million for excess facilities relating primarily to lease
terminations and non-cancelable lease costs under the assumption that we will
not be able to sublease our excess facilities, non-cash charge of approximately
$3.7 million for disposed property and equipment, and non-cash charge of $9.3
million related to the impairment of goodwill and purchased intangible assets.
If we find that our restructuring announced in June did not sufficiently
decreases the growth of our expenses, we may find it necessary to implement
further streamlining of our expenses, to perform another reduction in our
headcount or to undertake another restructuring of our business.

In fiscal 2001 we began a company-wide Oracle Enterprise Resource Planning,
or ERP, system implementation. Through April 30, 2001, we have incurred costs
related to the implementation of this system totaling approximately $2.7
million. We anticipate incurring approximately $300,000 in additional costs
subsequent to April 30, 2001 to complete the implementation.

Our future capital requirements will be substantial and will depend on, and
could increase as a result of, many factors, including: costs associated with
facility expansion and construction; new products, such as our MobileTrust(TM)
CA service and our movianVPN client software business; our research and
development programs; acquisitions of companies; purchases of technology from
third parties; the time and costs involved in obtaining regulatory approvals;
costs involved in filing, prosecuting and enforcing patent claims; competing
technological and market developments; our success in entering into
collaborative relationships; and administrative and legal expenses.

We believe our current cash and cash equivalents and marketable securities
position will be sufficient to meet our liquidity needs for the near term. In
the future, we may need to raise additional funds through public or private
financing, strategic partnership, as well as collaborative relationships,
borrowings and other available sources. There can be no assurance that
additional or sufficient financing will be available, or, if available, that it
will be available on acceptable terms. If we raise funds by issuing additional
equity securities, the percentage of our stock owned by our then current
shareholders will be reduced. If adequate funds are not available, we may be
required to significantly curtail one or more of our research and development
programs or commercialization efforts or to obtain funds through arrangements
with collaborative partners or others on less favorable terms.

Recent Accounting Pronouncements

In July 2001, the FASB issued SFAS No. 141, "Business Combinations". SFAS
No. 141 requires that all business combinations be accounted for under the
purchase method for business combinations initiated after June 30, 2001 for
which the date of acquisition is July 1, 2001 or later. Use of the pooling-of-
interest method is no longer permitted. In July 2001 the FASB issued SFAS No.
142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires that goodwill
no longer be amortized to earnings, but instead be periodically reviewed for
impairment. SFAS No. 142 must be adopted starting with fiscal years beginning
after December 15, 2001. The impact of adopting SFAS 141 and SFAS 142 has not
been determined.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition", which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that must be
met in order to recognize revenue and provides guidance for disclosures related
to revenue recognition policies. In June 2000, the SEC issued Staff Accounting
Bulletin No. 101B (SAB 101B), "Second Amendment: Revenue Recognition in
Financial Statements", which extends the effective date of SAB 101 to the fourth
fiscal quarter of fiscal years commencing after December 15, 1999. During the
fourth quarter of fiscal 2001, the company adopted SAB 101. The adoption of
SAB101 did not have a material effect on the company's consolidated financial
position or results of operations.

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and

Hedging Activities." SFAS No. 133 establishes new accounting and reporting
standards for derivative financial instruments and for hedging activities. SFAS
No. 133 requires us to measure all derivatives at fair value and to recognize
them on the balance sheet as an asset or liability, depending on our rights or
obligations under the applicable derivative contract. In June 1999, the FASB
issued SFAS No. 137, which deferred the effective date of adoption of SFAS No.
133 for one year. We will adopt SFAS No. 133 no later than the first quarter of
fiscal 2002. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," an amendment of FASB
Statement No. 133. SFAS No. 138 amends SFAS No. 133 to permit use of central
treasury offsetting of net exposures of intercompany derivatives for foreign
currency cash flow hedges. SFAS 138 must be adopted concurrently with SFAS 133.

SCHEDULE B

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FROM CERTICOM CORP.'S REPORT FOR THE
QUARTERLY PERIOD ENDED JULY 31, 2001, FILED ON FORM 10-Q ON
SEPTEMBER 14, 2001.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CERTICOM CORP. AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except number of shares)

July 31, 2001 April 30, 2001
------------- --------------
(Unaudited)

ASSETS

Current assets:
Cash ............................................... $ 1,675 $ 1,942
Marketable securities, available for sale ........ 31,414 50,310
Accounts receivable (net of allowance for doubtful 5,383 7,149
accounts of $904 and $211, respectively)
Prepaid expenses and deposits .................... 3,074 3,428
------------ ------------
Total current assets .......................... 41,546 62,829

Property and equipment, net ........................ 24,172 18,288
Intangibles, net ................................... 14,597 26,348
Restricted cash .................................... 2,009 2,009
------------ ------------
Total assets .................................. $ 82,324 $ 109,474
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable ................................. $ 7,241 $ 9,240
Accrued liabilities .............................. 2,760 3,106
Accrued restructuring charges .................... 1,716 --
Deferred revenue ................................. 2,343 2,168
------------ ------------
Total current liabilities ..................... 14,060 14,514

Other payables ..................................... 510 510
Accrued restructuring charges ...................... 1,102 --
Lease inducements .................................. 1,649 1,093
------------ ------------
Total liabilities ............................. 17,321 16,117

Shareholders' equity:
Common shares, no par value; shares authorized:
unlimited; shares issued and outstanding: ....... 31,250,343
and 25,747,549, respectively .................... 182,427

Additional paid-in capital ....................... 13,862 19,945
Deferred compensation expense .................... (1,204) (4,314)
Accumulated other comprehensive loss ............. (2,704) (2,615)
Foreign currency translation adjustment .......... 162 155
Retained deficit ................................. (127,540) (94,965)
------------ ------------
Total Shareholders' equity .................... 65,003 93,357
------------ ------------
Total liabilities and Shareholders' equity .... $ 82,324 $ 109,474
============ ============

See accompanying notes to condensed consolidated financial statements.

CERTICOM CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except number of shares and per share data)
(Unaudited)

Three months ended July 31,
2001 2000
------------ ------------

Revenues:
Products .............................................. $ 950 $ 4,396
Services .............................................. 1,594 657
------------ ------------
Total revenues ..................................... 2,544 5,053

Cost of revenues:
Products .............................................. 76 232
Services (including deferred compensation amortization
expense of $774 and $0, respectively) ................ 2,233 1,127
------------ ------------

Total cost of revenues ............................. 2,309 1,359
------------ ------------
Gross margin ............................................ 235 3,694

Operating expenses:
Sales and marketing ................................... 5,610 3,031
Product development and engineering ................... 2,776 2,428
General and administrative (including stock
compensation amortization credit of ($311) and expense
of $111, respectively) ............................... 2,666 2,583

Depreciation and amortization ......................... 3,589 2,748
Impairment of goodwill and other intangibles .......... 9,352 --
Restructuring costs ................................... 9,533 --
------------ ------------
Total operating expenses ........................... 33,526 10,790

Loss from operations .................................... (33,291) (7,096)

Other income (expense):
Interest income and other income and expense, net ..... 716 952
Interest (expense) .................................... -- (423)
------------ ------------
Total other income (expense) ....................... 716 529

Loss before provision for income taxes .................. (32,575) (6,567)

Provision for income taxes .............................. -- 80
------------ ------------
Net loss ................................................ $ (32,575) $ (6,647)
============ ============
Basic and diluted net loss per share .................... $ (1.06) $ (0.26)
============ ============
Shares used in basic and diluted net loss per share
calculations ........................................... 30,772,332 25,571,708
============ ============

See accompanying notes to condensed consolidated financial statements.

CERTICOM CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)

Three months ended July 31,
2001 2000
-------- --------

Cash flows from operating activities:
Net loss ............................................... $(32,575) $ (6,647)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ......................... 3,589 2,748
Write-off of impaired goodwill ........................ 9,352 -
Non-cash restructuring costs .......................... 7,936 -
Stock compensation expense ............................ 463 190
Non-cash interest expense ............................. - 423
Changes in non-cash working capital items:
Accounts receivable, net ............................ 1,766 254
Prepaid and other assets ............................ 354 427
Account payable ..................................... (1,999) 1,456
Accrued liabilities ................................. (346) 721
Deferred revenue .................................... 175 213
-------- --------
Net cash used in operating activities ............... (11,285) (215)
-------- --------
Cash flows from investing activities:
Purchase of equipment and software ..................... (9,314) (1,333)
Purchase of marketable securities, available for sale .. (75,581) (1,035)
Sales and maturities of marketable securities,
available for sale .................................... 94,484 -
-------- --------

Net cash provided by (used in) investing activities . 9,589 (2,368)
-------- --------
Cash flows from financing activities:
Issuance of common stock including the exercise of
stock options, net .................................... 1,519 52,326
Notes payable .......................................... - (10,000)
-------- --------
Net cash provided by financing activities ........... $ 1,519 $ 42,326
-------- --------
Effect of exchange rate on cash and cash equivalents ..... (90) -
-------- --------
Net increase in cash and cash equivalents ........... (267) 39,743
-------- --------
Cash and cash equivalents, beginning of period ........... 1,942 10,508
-------- --------
Cash and cash equivalents, end of period ................. $ 1,675 $ 50,251
======== ========
Supplemental disclosure of cash flow information:
Income taxes paid ...................................... $ - $ -
Interest paid .......................................... $ - $ 33
Non-cash investing and financing activities:
Warrant issued in connection with line of credit ....... $ - $ 423
Deferred stock compensation ............................ $ 463 $ 1,627

See accompanying notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The condensed consolidated financial statements included in this document
are unaudited and reflect all adjustments (consisting only of normal recurring
adjustments, except as noted) which are, in the opinion of our management,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods shown. These condensed
consolidated financial statements should be read in conjunction with our
consolidated financial statements and notes thereto, Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in our
Annual Report on Form 10-K for the fiscal year ended April 30, 2001 and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in Item 2 of this Form 10-Q. The results of operations for
the three months ended July 31, 2001 are not necessarily indicative of the
results for the entire fiscal year ending April 30, 2002.

Revenue Recognition and Deferred Revenues

Following the requirements of SOP 97-2, we recognize license revenues when
all of the following have occurred:

. we have signed a non-cancelable license agreement with the customer;

. delivery of the software product to the customer has occurred;

. the amount of the fees to be paid by the customer are fixed or
determinable; and

. collection of these fees is probable.

is recognized ratably over the term of the agreement. If evidence of fair value
of all undelivered elements exists but evidence does not exist for one or more
delivered elements, then revenue is recognized using the residual method. Under
the residual method, the fair value of the undelivered elements is deferred, and
the remaining portion of the arrangement fee is recognized as revenue. When
arrangements require us to deliver specified additional upgrades the entire fee
related to the arrangement is deferred until delivery of the specified upgrade
has occurred, unless we have vendor-specific objective evidence of fair value
for the upgrade. Fees related to contracts that require us to deliver
unspecified additional products are deferred and recognized ratably over the
contract term.

Deferred revenues generally result from the following: deferred maintenance
and support service, cash received for professional services not yet rendered
and license revenues deferred relating to arrangements where we have received
cash and are required to deliver either unspecified additional products or
specified upgrades for which we do not have vendor-specific objective evidence
of fair value.

Impairment of Long-Lived Assets

We evaluate the recoverability of our property and equipment and intangible
assets in accordance with SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 prescribes the
accounting treatment for long-lived assets, identifiable intangibles and
goodwill related to those assets when there are indications that the carrying
value of those assets may not be recoverable. SFAS 121 requires recognition of
impairment of long-lived assets in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets.
Accordingly, we evaluate

asset recoverability at each balance sheet date or when an event occurs that may
impair recoverability of the asset.

Research and Product Development Cost

We expense all research and development costs as they are incurred.
Scientific research tax credits are recognized at the time the related costs are
incurred and recovery is reasonably assured. We have capitalized certain costs
associated with the filing of approximately fifty patent applications in various
jurisdictions. These patent filings relate to Elliptic Curve Cryptography, or
ECC, various mathematical computational methodologies, security protocols and
other cryptographic inventions. Once granted, we amortize the individual patent
cost over three years. We capitalize patents not yet granted at their cost less
a provision for the possibility of the patent not being granted or abandoned.

Reclassifications

Certain reclassifications have been made in the 2001 financial statement
presentation to conform to the 2002 presentation.

Note 2. Net Loss per Common Share

The following potential common shares have been excluded from the
calculation of diluted net loss per share for all periods presented because the
effect would have been anti-dilutive:
Three months ended July 31,
---------------------------
2001 2000
---- ----
Shares issuable under stock options .............. 3,649,671 5,729,350
Shares of restricted stock subject to repurchase.. 46,384 --
Shares issuable pursuant to warrants ............. 30,000 30,000
--------- ---------

The weighted average exercise price of stock options was $3.47 and $9.04 at
July 31, 2001 and 2000, respectively. The purchase price of restricted stock was
$38.94. The exercise price of outstanding warrants was Cdn. $38.13 per share
($24.91 based on the exchange rate on July 31, 2001).

Note 3. Comprehensive Income (Loss)

Other comprehensive income refers to revenues, expenses, gains and losses
that under U.S. generally accepted accounting principles are recorded as an
element of Shareholders' equity but are excluded from net income. The following
table sets forth the components of comprehensive loss for the three months ended
July 31, 2001 and 2000, respectively (in thousands of U.S. dollars):

Three months ended July 31,
---------------------------
2001 2000
----------- -----------
Revenues: (Unaudited) (Unaudited)
Net loss ....................................... $(32,575) $ (6,647)
Other comprehensive income:
Unrealized gain (loss) on marketable securities,
available for sale ............................ (89) 33
-------- --------
Comprehensive loss ............................. $(32,664) $ (6,614)
======== ========

Note 4. Impairment of Goodwill and Other Intangibles

In connection with our restructuring program announced on June 4, 2001, we
performed an impairment assessment of the identifiable intangibles and goodwill
recorded in connection with the acquisitions of DRG Resources Group, Inc. and
Uptronics, Inc. We performed the assessment primarily due to changes in the
economy, the overall decline in the industry growth rates, and our lower actual
and projected operating results, including those related to our acquisitions of
DRG Resources Group, Inc. and Uptronics Inc. As a result, we recorded an
impairment of goodwill and other intangible assets of $9.4 million, measured as
the amount by which the carrying amount exceeded the present value of the
estimated future cash flows for goodwill. The assumptions supporting the cash
flows, including the discount rate, were determined using our best estimates as
of June 4, 2001. We will continue to assess the recoverability of the remaining
goodwill and other intangible assets periodically in accordance with our policy.

Note 5. Restructuring Costs

On June 4, 2001, we announced a restructuring program to prioritize our
initiatives, reduce costs not directly associated with selling and product
development, decrease discretionary spending and improve efficiency. This
restructuring program includes a reduction of our full-time employee headcount,
consolidation of excess facilities and reengineering of certain business
functions.

As a result of the restructuring program, we recorded restructuring costs
of approximately $9.5 million for the three months ended July 31, 2001. We
recorded restructuring expenses in the following areas: 1) reduction in
workforce; 2) consolidation of excess facilities and non-productive property and
equipments; and 3) elimination of deferred compensation.

We reduced our work force by approximately 30% across all business
functions and geographic regions. We recorded an estimated charge of
approximately $2.1 million relating primarily to severance and fringe benefits.

We recorded a restructuring charge of approximately $5.1 million for
property and equipment that will be disposed of or removed from operations and
excess facilities relating primarily to non-cancelable lease costs under the
assumption that we will not be able to sublease certain of our excess facilities
in next two years.

In connection with the acquisition of DRG Resources Group, Inc., we
recorded approximately $7.7 million of deferred compensation expense in
connection with shares subject to restriction under employment agreements signed
with the former owners of DRG Resources Group, Inc. These amounts are being
amortized over an eighteen months period. As a result of the restructuring
program in June 2001, certain former owners of DRG Resources Group, Inc. left
our company. The unvested shares that were restricted under the terms of these
employment agreements were immediately vested upon terminations of the related
employees. As a result, approximately $2.3 million of deferred compensation
charges were recorded in the first quarter of fiscal 2002.

In the first quarter of fiscal 2002, we paid approximately $1.6 million in
cash for restructuring costs related to certain employee severance and other
employee payments. The accrued restructuring and related expenses during the
three months ended July 31, 2001 were comprised of the following (in thousands
of U.S. dollars):

Accrued
---------------------
Current Non-current
------- -----------
Work force reduction ........................... $ 525 $ --
Consolidation of excess facilities ............. 1,191 1,102
------ ------
Total restructuring expenses ................... $1,716 $1,102
====== ======

As of July 31, 2001, we anticipated paying these balances in the next 24
months.

Note 6. Segment Information and Significant Customer

We operate in one reportable segment. We are a developer, manufacturer and
vendor of digital information security products, technologies and services
within the industry segment of electronic commerce.

Information about our geographic operations is given below (in thousands of
U.S. dollars):

Three months
ended July 31,
------------------
2001 2000
------ ------
U.S. ............................................ $1,899 $4,403
Canadian ........................................ 548 30
International (non-Canadian/US) ................. 97 620
------ ------
Total revenue ................................... $2,544 $5,053
====== ======

One of our customers accounted for approximately 11% of our revenue in the
first quarter of fiscal 2002 and one of our customers accounted for
approximately 24% of our revenue in the first quarter of fiscal 2001.

Note 7. Public Offering and Stock Split

In March 2001, we issued 4,000,000 of our common shares in Canada and the
United States at a per share price of Cdn. $12.50 (approximately $8.14 based on
the exchange rate on April 30, 2001). The common shares have not been registered
under the United States Securities Act of 1933, as amended. The gross proceeds
of this offering were Cdn. $50.0 million (approximately $32.5 million based on
the exchange rate on April 30, 2001). After deducting underwriting discounts and
commissions and offering expenses, the net proceeds of this offering were Cdn.
$47.2 million (approximately $30.8 million based on the exchange rate on April
30, 2001).

On July 12, 2000, we completed a two-for-one split of our outstanding
common shares. All share and per share amounts in this document have been
adjusted to give effect to this split.

Note 8. Stock Option Repricing

In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation," an interpretation of APB
Opinion No. 25, "Accounting for Stock Issued to Employees," which, among other
things, requires variable-award accounting for repriced options from the date
the options are repriced until the date of exercise. This interpretation became
effective on July 1, 2000 to cover specific events that occur after December 15,
1998. On March 17, 1999, our Board of Directors approved the exchange of options
to acquire an aggregate of 1,106,240 of our common shares for options having a
right to acquire 382,914 common shares. Because these options were repriced
after December 15, 1998, they are covered by the interpretation. Accordingly,
these options will be accounted for as variable until the date they are
exercised, forfeited or expire unexercised. Additional compensation cost will be
measured for the full amount of any increases in share price after July 1, 2001
and will be recognized over the remaining vesting period. Any adjustment to the
compensation cost for further changes in share price after the options vest will
be recognized immediately. Stock compensation amortization expense of $111
thousand was recorded for the three months ended July 31, 2000. As of July 31,
2001, price of our common shares was less than the exercise price of the
repriced stock options. As a result, a credit of approximately $311 thousand was
recorded to stock compensation amortization expenses in the first quarter of
fiscal 2002. Deferred compensation expense related to this repricing of options
was $0 at the end of first quarter of fiscal 2002.

On July 6, 2001, we announced voluntary stock option exchange program to be
offered to employees in which employees will be able to exchange current
outstanding options for new options to be issued no sooner than six months and
one day after the end of the exchange period. For existing options with exercise
prices over $23.00, program participants will receive one new option for each
two options tendered for exchange. For options with exercise prices between
$10.00 and $22.99, program participants will receive two new options for each
three options tendered for exchange. Options with exercise prices below $10.00
may not be voluntarily tendered for exchange under this new program. Each of the
new options will have a vesting schedule whereby 25% will vest immediately upon
issue, and the balance will vest monthly on a prorated basis for 24 months. The
new options will be exercisable for a period of 5 years from the date of grant.

Note 9. Contingencies

One of our suppliers, East West Imports, Inc. dba California Computers, has
filed suit against us in the Superior Court of the State of California, County
of Alameda, for payment of approximately $200,000 plus costs, attorney fees, and
interest. The focus of our dispute is whether or not a number of personal
computers and peripheral items were actually received by us. Both parties are
attempting to ascertain the proper amount owed, and we anticipate a settlement
on fair and reasonable terms is likely to occur shortly. In the event that no
such settlement is reached within a reasonable time, we intend to vigorously
defend any litigation over disputed amounts. In such case there can be no
assurance that we will be successful in doing so, or that such disputes will not
have a material adverse impact on us.

Note 10. Recent Accounting Pronouncement

In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations". This statement addresses Financial accounting and
reporting for obligations associated with the retirement of tangible long lived
assets and for the associated asset retirement costs. SFAS No. 143 is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
The impact of adopting SFAS 143 has not been determined.

Note 11. Subsequent Events

On August 17, 2001, we announced that we would further reduce our workforce
by approximately 25% by the end of the second quarter of fiscal 2002. On August
30, 2001, we issued and sold Cdn. $13.5 million (approximately $8.7 million
based on the exchange rate on August 30, 2001) aggregate principal amount of
7.25% senior unsecured convertible notes (the "Notes") on a private placement
basis. The Notes are convertible by the holders thereof, without payment of
additional consideration, into an equal principal amount of 7.25% senior
convertible unsecured subordinated debentures (the "Debentures") at any time and
automatically at 5:00 pm (Toronto time) on the earlier of (i) the fifth business
day after a receipt is issued by the last of the relevant securities regulatory
authorities in Canada for a final prospectus qualifying the issuance of the
Debentures on the conversion of the Notes, and (ii) August 30, 2002. The
Debentures

mature on August 30, 2004 and are convertible into our common shares at the
holder's option at any time before the close of business on the earlier of
August 30, 2004 and the last business day before the date specified for
redemption at a conversion price of Cdn. $3.85 per common share. The net
proceeds from the offering will be used for working capital and general
corporate purposes.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation

Certain statements contained in this Form 10-Q constitute "forward-looking
statements" within the meaning of the United States Private Securities
Litigation Reform Act of 1995. When used in this document, the words "may,"
"would," "could," "will," "intend," "plan," "anticipate," "believe," "estimate,"
"expect" and similar expressions, as they relate to us or our management, are
intended to identify forward-looking statements. Such statements reflect our
current views with respect to future events and are subject to certain risks,
uncertainties and assumptions. Many factors could cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements that may be expressed or implied by such forward-
looking statements, including, among others, those which are discussed in
"Factors That May Affect Operating Results" beginning on page 19 of this Form
10-Q, in our Annual Report on Form 10-K and in other documents that we file with
the Securities and Exchange Commission and Canadian securities regulatory
authorities. Should one or more of these risks or uncertainties materialize, or
should assumptions underlying the forward-looking statements prove incorrect,
actual results may vary materially from those described herein as intended,
planned, anticipated, believed, estimated or expected. We do not intend, and do
not assume any obligation, to update these forward-looking statements.

Overview

Historically, we have focused on the development and marketing of
cryptographic and information security protocol toolkits. Today, our
comprehensive product offering includes an enabling technologies suite, which
allows original equipment manufacturers, or OEMs, to develop secure e-business
applications; our trust services, which provide OEMs and enterprises with the
necessary public-key infrastructure, or PKI, management tools and certificate
services to authenticate users and servers; and our enterprise application
software, which provides virtual private network, or VPN, security and strong
personal digital assistant, or PDA, data security for enterprises wanting to
enable a mobile workforce. In addition, we provide consulting and systems
integration services to assist our customers in designing and implementing
efficient security solutions. Our products and services solve difficult security
problems for the world's leading providers of computing and communication
products. OEM customers integrate our

enabling technologies into their hardware and software products, then sell the
finished products to consumers or enterprise customers. In addition, we sell our
enterprise application software directly to Fortune 1000 companies.

On January 26, 2000, we acquired all the outstanding shares of common stock
of Trustpoint, a corporation based in Mountain View, California. Trustpoint is a
private developer of PKI products. OEMs use PKI products to develop
authentication and certification applications and services. In connection with
this acquisition, we issued 201,120 of our common shares in exchange for all of
the outstanding shares of Trustpoint and we also assumed Trustpoint's
outstanding employee stock options. The transaction was accounted for as a
purchase and, accordingly, the total consideration of approximately $10.5
million has been allocated to the tangible and intangible assets acquired based
on their respective fair values on the acquisition date. Trustpoint's results of
operations have been included in the consolidated financial statements from the
date of acquisition. As a result of our acquisition of Trustpoint, we recorded
goodwill and other intangible assets of approximately $10 million. These amounts
will be amortized over a three to five year period.

On September 12, 2000, we completed our acquisition of DRG Resources Group,
Inc., a corporation based in Redwood City, California. DRG Resources Group, Inc.
is an e-commerce security consulting company. In connection with this
acquisition, we issued 397,595 of our common shares in exchange for all of the
outstanding shares of DRG Resources Group, Inc. and we also assumed DRG
Resources Group, Inc.'s outstanding stock options. The transaction was accounted
for as a purchase and, accordingly, the total consideration of approximately
$18.0 million has been allocated to the tangible and intangible assets acquired
based on their respective fair values on the acquisition date. The results of
operations of DRG Resources Group, Inc. have been included in the consolidated
financial statements from the date of acquisition. As a result of our
acquisition of DRG Resources Group, Inc., we recorded goodwill, deferred
compensation expense, and other intangible assets of approximately $17.9
million. As a result of our restructuring program in June 2001, certain former
owners of DRG Resources Group, Inc. left our company.

Our consolidated financial statements contained in this Form 10-Q are
reported in U.S. dollars and are presented in accordance with U.S. generally
accepted accounting principles, or U.S. GAAP. The following discussion and
analysis relates to our financial statements that have been prepared in
accordance with U.S. GAAP.

Results of Operations

of approximately $127.5 million as determined in accordance with U.S. GAAP. We
expect to incur additional losses for the foreseeable future, and we may never
achieve profitability.

The following table sets out, for the periods indicated, selected financial
information from our consolidated financial statements as a percentage of
revenue.

Three months ended July 31,
2001 2000
---- ----
Consolidated Statement of Operations Data: (%) (%)
Revenues:
Products .............................. 37 87
Services .............................. 63 13
Total revenues ...................... 100 100
Cost of revenues:
Products ............................... 3 5
Services ............................... 88 22
Total costs ......................... 91 27
Operating expenses:
Sales and marketing .................... 220 60
Product development and engineering .... 109 48
General and administrative ............. 105 51
Depreciation and amortization .......... 141 54
Goodwill impairment .................... 368 -
Restructuring costs .................... 375 -
Total operating expenses ............ 1,318 213
Loss from operations ..................... (1,309) (140)
Other income:
Interest income ........................ 28 18
Interest expense ....................... - (8)
Total other income (expense) ........ 28 10
Loss before provision for income taxes ... (1,281) (130)
Provision for income taxes ............... - 2
------ ----
Net loss ................................. (1,281) (132)
====== ====

Note:

(1) Includes the amortization of deferred compensation expense in connection
with the acquisition of DRG Resources Group, Inc. for three months ended
July 31, 2001.

Revenues

Following the requirements of SOP 97-2, we recognize license revenues when
all of the following have occurred:

. we have signed a non-cancelable license agreement with the customer;

. delivery of the software product to the customer has occurred;

. the amount of the fees to be paid by the customer are fixed or
determinable; and

. collection of these fees is probable.

and when available" basis. We expect the average duration of the subscription
licenses to be between one and two years. Under subscription licenses, we bill
our customers for the current year's product and service fees. The billed
product and service fees are recognized as revenues ratably over the billed
period, generally one year.

We operate in one reportable segment. We derive our revenues from a
variety of sources that we generally classify as products and services. We earn
products revenues from one-time base license fees or technology access fees,
royalties, and hardware products. Our hardware products are manufactured by
third parties to our specifications and resold by us to our customers. In
addition, we earn revenues on a transaction basis through the sale of our
authentication service offerings, which are primarily digital certificates.
Services revenues are derived from the performance of contracted services for
customers, maintenance, and support and training fees.

We negotiate most of our customer contracts on a case-by-case basis. Prior
to June 2001, most of our contracts (other than our contracts for professional
services or hardware sales) include provisions for us to receive an up-front
license fee and royalties. Our royalties for software licenses for mobile and
wireless devices vary based on a number of factors, including the size of the
contract and the nature of the contract, the customer, the device and the
application.

In June 2001, we converted our enabling technologies products primarily to
subscription-based licenses. In addition, our trust services and enterprise
application software product lines are accounted for under the subscription
model. Under our subscription license model, we expect a significant percent of
customers to renew their licenses upon license expiration. The change from
perpetual licenses to subscription licenses has impacted our reported quarterly
and annual revenues and will continue to do so on a going-forward basis as
subscription license revenue will be amortized over the term of the subscription
license. In the past, the majority of our perpetual license revenues have been
recognized in the quarter of product delivery. Therefore, a subscription
license order will result in substantially less current-quarter revenue than an
equal- sized order for a perpetual license. We invoice our customers upfront
for the full amount of a twelve-month subscription license period and collect
the invoice within our standard payment terms. Although we expect that over the
long term our cash flow from operations under the subscription license model
will be equal to or greater than under the perpetual license model, in the near
term we expect our cash flow from operations to decrease and deferred revenue to
increase.

The following table sets forth our revenues by category and by geography
for the periods indicated:

Three months ended July 31,
------------------------------
2001 2000
-------------- -------------

Products.................................................. 37% 87%
Services.................................................. 63 13
-------------- -------------
Total revenue............................................. 100% 100%
============== =============
U.S. revenue.............................................. 75% 87%
Canadian revenue.......................................... 21 1
International (non-Canadian/US) revenue................... 4 12
-------------- -------------
Total revenue............................................. 100% 100%
============== =============

Total revenues for the three months ended July 31, 2001 were $2.5 million,
a 50% decrease from $5.1 million for the three months ended July 31, 2000. The
decrease was primarily attributable to our transition from the perpetual license
model to the subscription license model. Under our new subscription license
model, only a fraction of the total value of the contract is recorded as revenue
in the quarter when the contract is signed and products are delivered. The
remainder of the total value is recognized ratably over the term of the
contract. In addition, the decrease was due to decreased sale size as larger
companies deferred their purchases due to capital constraints under the current
difficult economic environment.

Products revenues were $1.0 million for the three months ended July 31,
2001, a 78% decrease compared to $4.4 million for the three months ended July
31, 2000. The decrease was expected due to a portion of our new contracts being
recognized using our subscription license model. Under our new subscription
license model, we recognize revenue ratably over the term of the contract
whereas under the perpetual license model we recognize revenue when the product
is delivered. In addition, the decrease in revenue was also due to a reduction
in the number of deals with large companies as large companies deferred their
purchases due to capital constraints.

Services revenues were $1.6 million for the three months ended July 31,
2001, a 143% increase compared to $0.7 million for the three months ended July
31, 2000. The increase in services revenue was due to an increase in contract
development work by our professional services organization, a larger customer
base, and to a lesser extent, increases in maintenance fees.

Cost of Revenues

Cost of revenues consists of cost of products and services. Our cost of
products consists primarily of the component cost of our hardware products
manufactured by third parties to our specifications as well as the procured
costs of third-party hardware technology. Cost of services consists primarily
of costs related to professional services activities. These expenses include
salaries, travel and related expenses, and amortization of deferred compensation
expense in connection with the acquisition of DRG Resources Group, Inc.

Total cost of revenues increased 70% to $2.3 million for the three months
ended July 31, 2001 compared to $1.4 million for the three months ended July 31,
2000.

Cost of products was $76,000 for the three months ended July 31, 2001, a
67% decrease compared to $232,000 for the same period of fiscal 2001. The
decrease in cost of products in the first quarter of fiscal 2002 was primarily
due to the lower hardware costs as a result of lower hardware sales.

Cost of service was $2.2 million for the three months ended July 31, 2001,
a 98% increase over $1.1 million for the three months ended July 31, 2000. This
increase was primarily a result of the increase in the number of professional
services providers, the deferred compensation expense in connection with the
acquisition of DRG Resources Group, Inc. and launch of our trust services
product offerings.

Operating Expenses

Our operating expenses consist of sales and marketing, product development
and engineering, general and administrative expenses, depreciation and
amortization, and goodwill impairment and restructuring costs.

Sales and Marketing

Sales and marketing expenses consist primarily of employee salaries and
commissions, related travel, public relations and corporate communications
costs, trade shows, marketing programs and market research.

Sales and marketing expenses were $5.6 million for the three months ended
July 31, 2001 compared to $3.0 million for the same period in fiscal 2001, an
increase of 85%. These increased expenses in fiscal 2002 were primarily due to
an increase in personnel costs and sales and marketing programs.

Product Development and Engineering

Product development and engineering expenses consist primarily of employee
salaries, sponsorship of cryptographic research activities at various
universities, participation in various cryptographic, wireless and e-business
standards associations and related travel and other costs. We have capitalized
certain costs associated with the filing of patent applications in various
jurisdictions. These patent filings are in the areas of ECC, various
mathematical computational methodologies, security protocols and other
cryptographic inventions. Once granted, we amortize the individual patent cost
over three years. We capitalize patents not yet granted at their cost less a
provision for the possibility of the patent not being granted or abandoned.

Our product development and engineering expenses were $2.8 million for the
three months ended July 31, 2001 compared to $2.4 million for the same period in
fiscal 2001, an increase of 14%. These increases were the result of the
addition of personnel and related costs necessary to support new and on-going
product development in the first quarter of fiscal 2002.

General and Administrative

General and administrative expenses consist primarily of salaries and other
personnel-related expenses for executive, financial, legal, information services
and administrative functions, and amortization of stock compensation expense.

For the three months ended July 31, 2001, general and administrative
expenses increased 3% to $2.7 million compared to $2.6 million for the same
period in fiscal 2001. This increase was primarily due to the growth in
personnel and office space in California.

Depreciation and Amortization

Depreciation and amortization represent the allocation to income of the
cost of fixed assets and intangibles including patents cost over their estimated
useful lives.

Depreciation and amortization increased 31% to $3.6 million for the three
months ended July 31, 2001 compared to $2.7 million for the three months ended
July 31, 2000. This increase was due to additions to our property and equipment
assets.

Impairment of Goodwill and Other Intangibles

In connection with our restructuring program announced on June 4, 2001, we
performed an impairment assessment of the identifiable intangibles and goodwill
recorded in connection with the acquisitions of DRG Resources Group, Inc. and
Uptronics, Inc. We performed the assessment primarily due to changes in the
economy, the overall decline in the industry growth rates, and our lower actual
and projected operating results, including those related to our acquisitions of
DRG Resources Group, Inc. and Uptronics, Inc. As a result, we recorded
impairment of goodwill and other intangible assets of $9.4 million, measured as
the amount by which the carrying amount exceeded the present value of the
estimated future cash flows for goodwill. The assumptions supporting the cash
flows, including the discount rate, were determined using our best estimates as
of June 4, 2001. We will continue to assess the recoverability of the remaining
goodwill and other intangible assets periodically in accordance with our policy.

Restructuring Costs

On June 4, 2001, we announced a restructuring program. This restructuring
program included a reduction of our full-time employee headcount in most
functional areas, consolidation of excess facilities a reduction in
discretionary expenses and restructuring of certain business processes and
functions.

As a result of the restructuring program, we recorded approximately $9.5
million of restructuring costs for the three months ended July 31, 2001. We
recorded restructuring expenses in the following areas: 1) reduction in
workforce; 2) consolidation of excess facilities and non-productive property and
equipments; and 3) elimination of deferred compensation.

We reduced our workforce by approximately 30% across all business functions
and geographic regions. We recorded an estimated charge of approximately $2.1
million relating primarily to severance and fringe benefits.

We recorded a restructuring charge of approximately $5.1 million for excess
facilities relating primarily to non-cancelable lease costs under the assumption
that we will not be able to sublease certain of our excess facilities in next
two years.

In connection with the acquisition of DRG Resources Group, Inc., we
recorded approximately $7.7 million of deferred compensation expense in
connection with shares subject to restriction under employment agreements signed
with the former owners of DRG Resources Group, Inc. These amounts are being
amortized over an eighteen month period. As a result of the restructuring
program in June 2001, certain former owners of DRG Resources Group, Inc. left
our company. The unvested shares that were restricted under the terms of these
employment agreements were immediately vested upon terminations of the related
employees. As a result, approximately $2.3 million of deferred compensation
charges were recorded in the first quarter of fiscal 2002.

Accrued
-----------------------------
Current Non-current
----------- ---------------

Work force reduction...................................... $ 525 $ -
Consolidation of excess facilities........................ 1,191 1,102
Total restructuring expenses............................ $1,716 $ 1,102

As of July 31, 2001, we anticipated paying these balances in the next 24
months.

Interest and Other Income (Expense)

For the three months ended July 31, 2001, interest income was $0.7 million
compared to interest income of $1.0 million for the same period in fiscal 2001.
This decrease resulted from a decrease in the amount of cash and marketable
securities invested and lower interest rates on the short-term investments for
the quarter ended July 31, 2001 compared to the quarter ended July 31, 2000. As
of the end of fiscal year 2000, we had borrowed $10 million from Sand Hill
Capital II, LP (Sand Hill). In connection with this financing, we issued a
warrant which entitles Sand Hill to purchase 30,000 of our common shares at an
exercise price of Cdn. $38.13 per share (U.S. $24.91 based on the exchange rate
on July 31, 2001) until April 27, 2005. The warrant was valued at $423,000 at
the time of issuance based on the Black-Scholes option valuation model. In the
first quarter of fiscal 2001, we recorded a one-time, non-cash interest expense
of $0.4 million related to the warrant issued to Sand Hill. The value of the
warrant was charged to interest expense in the first quarter of fiscal 2001 as
the loan was re-paid with proceeds from our public offering in May 2000.

Provision for Income Taxes

We pay taxes in accordance with U.S. federal, state and local tax laws and
Canadian federal, provincial and municipal tax laws. Income tax was $80
thousand for the three months ended July 31, 2000. We do not expect to pay
significant corporate income taxes in both Canada and the United States in the
foreseeable future because we have significant tax credits and net operating
loss carryforwards for Canadian, U.S. federal and U.S. state income tax
purposes.

Financial Condition, Liquidity and Capital Resources

In May 2000, we completed a public offering of 2,500,000 common shares at a
per share price of $23.15 in the United States and Canada for an aggregate
offering price of approximately $57.9 million. Our net proceeds from the
offering were approximately $51.5 million after deducting underwriting discounts
and commissions and offering expenses. On April 27, 2000, we borrowed $10
million from Sand Hill, at the prime rate of interest plus 3%. As partial
consideration for making advances to us under this credit facility, we granted
Sand Hill a warrant to purchase up to 30,000 of our common shares at an exercise
price of Cdn. $38.13 per share ($24.91 based on the exchange rate on July 31,
2001) until April 27, 2005. We repaid the loan and interest on May 5, 2000,
using a portion of the proceeds received from our public offering, and
terminated this facility.

In March 2001, we issued 4,000,000 of our common shares in Canada and the
United States at a per share price of Cdn. $12.50 (approximately $8.17 based on
the exchange rate on July 31, 2001). The common shares have not been registered
under the United States Securities Act of 1933, as amended. The gross proceeds
of this offering were Cdn. $50.0 million (approximately $32.7 million based on
the exchange rate on July 31, 2001). After deducting underwriting discounts and
commissions and offering expenses, the net proceeds of this offering were Cdn.
$47.2 million (approximately $30.8 million based on the exchange rate on July
31, 2001).

On August 30, 2001, we issued and sold Cdn. $13.5 million (approximately
U.S. $8.7 million based on the exchange rate on August 30, 2001) aggregate
principal amount of 7.25% senior unsecured convertible notes (the "Notes") on a
private placement basis. The Notes are convertible by the holders thereof,
without payment of additional consideration, into an equal principal amount of
7.25% senior convertible unsecured subordinated debentures (the "Debentures") at
any time and automatically at 5:00 pm (Toronto time) on the earlier of (i) the
fifth business day after a receipt is issued by the last of the relevant
securities regulatory authorities in Canada for a final prospectus qualifying
the issuance of the Debentures on the conversion of the Notes, and (ii) August
30, 2002. The Debentures mature on August 30, 2004 and are convertible into our
common shares at the holder's option at any time before the close of business on
the earlier of August 30, 2004 and the last business day before the date
specified for redemption at a conversion price of Cdn. $3.85 per common share.

At July 31, 2001, total cash and available-for-sale marketable securities
were $33.1 million, excluding $2.0 million of restricted cash.

For the three months ended July 31, 2001, net cash used in operating
activities was $11.3 million. Net cash used in operating activities was
primarily due to our net loss of $32.6 million, which included total non-cash
charges of $21.3 million. The non-cash charges included $3.6 million of
depreciation and amortization, $9.4 million of impairment of goodwill and other
intangibles, $7.9 million of non-cash restructuring costs, and $0.5 million of
stock compensation expense.

For the three months ended July 31, 2001, net cash provided by investing
activities was $9.6 million. Net cash provided by investing activities was
primarily due to $18.9 million of net sales and maturities of marketable
securities, available for sale. The cash generated from sales and maturities of
marketable securities, available for sale, was offset by $9.3 million of capital
expenditures for property, equipment and patents. These consisted primarily of
$7.7 million of leasehold improvements and related costs and $1.1 million of
software.

For the three months ended July 31, 2001, net cash provided by financing
activities was $1.5 million. Net cash provided by financing activities was
primarily due to the issuance of common shares, including these related to the
exercise of stock options.

We lease premises totaling approximately 111,000 square feet in Hayward,
California. These leases expire on July 31, 2007. Through July 31, 2001, we
have capitalized leasehold improvements and related construction costs totaling
approximately $11.5 million for our Hayward facilities. In addition, we do not
anticipate any additional expenses subsequent to July 31, 2001 to complete the
build-out of our Hayward facilities. We also have a lease for approximately
30,300 square feet of office space in Mississauga, Ontario, which expires on
December 25, 2009. Currently, our Canadian offices occupy this space. We
recently signed a ten-year lease for approximately 130,000 square feet located
at 1980 Matheson Boulevard East, Mississauga, Ontario. At this time, the
facility is being constructed at our expense and we expect the total cost will
be approximately $8.1 million. Through July 31, 2001, we have capitalized
leasehold improvements and related construction costs totaling approximately
$2.7 million for the facility. In addition, we anticipate incurring
approximately an additional $5.4 million subsequent to July 31, 2001 to complete
the build-out of the facility. If the landlord intends to sell the leased
premises, we have a right of first refusal with respect of any sale of this
property on terms to be negotiated. In the fall of 2001, we intend to relocate
our Canadian operations from their current location to this new facility and to
sublease our current Canadian office space and approximately 40,000 square feet
space of new site, although there is no assurance that we will be able to do so
or at rates equal to our current obligations under the respective leases. The
annual rental fee for the new site varies between approximately Cdn. $10.85 to
Cdn. $13.05 per square foot ($7.09 to $8.52 per square foot based on the
exchange rate on July 31, 2001) over the life of the lease. We began paying
rent on this lease in May 2001. We also have a lease for approximately 6,000
square feet in Herndon, Virginia that expires on October 5, 2007, and we
occasionally execute month-to-month leases for short-term office space. The
total annual base rent for all facilities is approximately $3.1 million.

license and receive certain customer support services over the license term. In
addition, depending on the type of license, our customers have access to
unspecified upgrades on an "if and when available" basis. We expect the average
duration of the subscription licenses to be between one and two years. In
addition, we expect a significant percent of customers to renew their licenses
upon license expiration.

The change from perpetual licenses to subscription licenses has impacted
our reported quarterly and annual revenues and will continue to do so on a go-
forward basis, as subscription license revenue will be amortized over the term
of the subscription license. In the past, the majority of our perpetual license
revenues have been recognized in the quarter of product delivery. Therefore, a
subscription license order will result in substantially less current-quarter
revenue than an equal-sized order for a perpetual license. We invoice our
customers upfront for the full amount of a twelve-month subscription license
period and collect the invoice within our standard payment terms. Although we
expect that over the long term our cash flow from operations under the
subscription license model will be equal to or greater than under the perpetual
license model, in the near term we expect our cash flow from operations to
decrease and deferred revenue to increase.

We believe our current cash and cash equivalents and marketable securities
position will be sufficient to meet our liquidity needs for the near term. In
the future, we may need to raise additional funds through public or private
financings, strategic partnerships, as well as collaborative relationships,
borrowings and other available sources. There can be no assurance that
additional or sufficient financing will be available, or, if available, that it
will be available on acceptable terms. If we raise funds by issuing additional
equity securities, the percentage of our stock owned by our then current
shareholders will be reduced. If adequate funds are not available, we may be
required to significantly curtail one or more of our research and development
programs or commercialization efforts or to obtain funds through arrangements
with collaborative partners or others on less favorable terms.

Factors That May Affect Operating Results

We operate in a dynamic, rapidly changing environment that involves risks
and uncertainties. You should carefully consider the risks described below and
the other information in this Form 10-Q. These risks and uncertainties are not
the only ones facing us. Additional risks and uncertainties not presently known
to us or that we currently deem immaterial may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially harmed.

Risks Related to Our Company

We have a limited operating history and have incurred losses since
inception and anticipate incurring losses for the foreseeable future.

Although we have been engaged in the cryptographic security industry since
1985, we did not ship our first commercial toolkit or enter the U.S. market
until 1997. Accordingly, our business operations are subject to all of the
risks inherent in a new business enterprise, such as

competition and viable operations management. These risks and uncertainties are
often worse for a company engaged in new and evolving product markets.

Since our inception, we have incurred substantial net losses. As of July
31, 2001, we had an accumulated deficit of approximately $127.5 million (as
determined in accordance with U.S. generally accepted accounting principles).
We expect to incur additional losses for the foreseeable future and we may never
achieve profitability. If we do achieve profitability, we may not be able to
sustain it. You should not consider our historical growth indicative of our
future revenue levels or operating results. Our success will depend in large
part upon our ability to generate sufficient revenue to achieve profitability
and to maintain existing customer relationships and develop new customer
relationships.

Because our quarterly operating results are subject to fluctuations,
period-to- period comparisons of our operating results are not necessarily
meaningful and you should not rely on them as an indication of future
performance.

Our quarterly operating results have historically fluctuated and may
fluctuate significantly in the future. Accordingly, our operating results in a
particular period are difficult to predict and may not meet the expectations of
securities analysts or investors. If this were to occur, our share price would
likely decline significantly. Factors that may cause our operating results to
fluctuate include:

. our transition to a subscription license business model;

. the level of demand for our products and services as well as the timing of
new releases of our products;

. our dependence in any quarter on the timing of a few large sales;

. our ability to maintain and grow a significant customer base;

. the fixed nature of a significant portion of our operating expenses,
particularly personnel, research and development, and leases;

. costs related to the opening or expansion of our facilities;

. unanticipated product discontinuation or deferrals by our OEM customers;

. changes in our pricing policies or those of our competitors;

. currency exchange rate fluctuations; and

. timing of acquisitions, our effectiveness at integrating acquisitions with
existing operations and related costs.

Accordingly, we believe that quarter-to-quarter comparisons of our results of
operations are not necessarily meaningful. You should not rely on the results
of one quarter as an indication of our future performance.

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Our revenues are difficult to predict

We derive our revenue primarily from sales of our products and services to
our OEM customers Our sales vary in frequency, and OEM customers may or may not
purchase our products and services in the future The sale to, and implementation
by, OEMs of our products and services typically involve a lengthy education
process, along with significant technical evaluation and commitment of capital
and other resources by them This process is also subject to the risk of delays
associated with (a) their internal budgeting and other procedures for approving
capital expenditures, (b) deploying new technologies and (c) testing and
accepting new technologies that affect key operations As a result, the sales and
implementation cycles associated with many of our products and services are
generally lengthy, and we may not succeed in closing transactions on a timely
basis, if at all If orders expected from a specific customer for a particular
period are not realized, our revenues could fail to materialize.

In addition, our customers may defer the purchase of, or stop using, our
products and services at any time, and certain license agreements may be
terminated by the customer at any time. We negotiate most of our customer
contracts on a case-by-case basis, which makes our revenues difficult to
predict. Our existing customer contracts typically provide for base license
fees, technology access fees and/or royalties based on a per-unit or per-usage
charge or a percentage of revenue from licensees' products containing our
technology. In June 2001, we converted our enabling technologies products to
primarily subscription-based licenses. Additionally, a number of our large
contracts provide that we will not earn additional royalty revenues from those
contracts until these customers' shipments exceed certain thresholds. As a
result, our revenues are not recurring from period to period, which makes them
more difficult to predict. In addition, estimating future revenue is difficult
because we generally ship our products soon after an order is received and, as
such, we do not have a significant backlog. Our expense levels are based, in
part, on our expectations of future revenues and are largely fixed in the short
term. We may not be able to adjust spending in a timely manner to compensate
for any unexpected shortfall in revenues.

The recent introduction of a subscription business model may result in a
decrease in our reported revenue and cash flow from operations

In June 2001, we converted our enabling technologies products to primarily
subscription-based licenses. In addition, our trust services and enterprise
application solutions product lines are accounted for under the subscription
model. Subscription licenses provide our customers with rights to use our
software for a specified period of time. Customers are entitled to use the
license and receive certain customer support services over the license term. In
addition, depending on the type of license, our customers have access to
unspecified upgrades on an "if and when available" basis. We expect the average
duration of the subscription licenses to be between one and two years. In
addition, we expect a significant percent of our customers to renew their
licenses upon license expiration.

The change from perpetual licenses to subscription licenses will impact our
reported quarterly and annual revenues on a going-forward basis, as subscription
license revenue will be amortized over the term of the subscription license. In
the past, the majority of our perpetual license revenues have been recognized in
the quarter of product delivery. Therefore, a

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subscription license order will result in substantially less current-quarter
revenue than an equal-sized order for a perpetual license. We expect to invoice
our customers upfront for the full amount of a twelve-month subscription license
period and collect the invoice within our standard payment terms. Although we
expect that over the long term our cash flow from operations under the
subscription license model will be equal to or greater than under the perpetual
license model, in the near term we expect our cash flow from operations to
decrease and deferred revenue to increase.

The current economic downturn has reduced demand for our products and services,
increased the average length of our sales cycle and may adversely affect future
revenue

The majority of our revenue has been, and is expected to continue to be,
derived from customers in the United States. Recent economic indicators,
including growth in gross domestic product, reflect a decline in economic
activity in the United States. Some reports have indicated an even more
significant decline in spending by corporations in the area of information
technology, which includes the encryption technology market. While we cannot
specifically correlate the impact of macro-economic conditions on our sales
activities, we believe that the economic conditions in the United States have
resulted in decreased demand in our target markets and, in particular, have
increased the average length of our sales cycles. To the extent that the
current downturn continues or increases in severity, or results in a similar
downturn worldwide, we believe demand for our products and services, and
therefore future revenue, will be reduced.

Our restructuring of operations may not achieve the results we intend and may
harm our business

In June 2001, we announced a restructuring of our business, which included
a reduction in work force of approximately 30% as well as other steps to reduce
expenses. In August 2001, we announced additional workforce reductions to
further reduce costs to a level commensurate with our expected revenues. The
planning and implementation of our restructuring has placed, and may continue to
place, a significant strain on our managerial, operational, financial and other
resources. Additionally, the restructuring may negatively affect our employee
turnover, recruiting and retention of important employees. If we are unable to
implement our restructuring effectively or if we experience difficulties in
effecting the restructuring, our expenses could increase more quickly than we
expect. If we find that our restructuring activities announced in June and
August do not sufficiently decrease the growth of our expenses, we may find it
necessary to implement further streamlining of our expenses, to perform further
reductions in work force or to undertake another restructuring of our business.
If our restructuring activities are not successful in effectively reducing our
expenses or result in the loss of key personnel or employee morale, our
business, financial condition and results of operations would be materially
adversely affected.

A limited number of customers account for a high percentage of our revenue and
the failure to maintain or expand these relationships could harm our business

Five customers comprised approximately 42% of our revenue for the fiscal
year ended April 30, 2001, and approximately 31% of our revenue for the fiscal
year ended April 30, 2000.

102

For the three months ended July 31, 2001, five customers accounted for
approximately 37% of our revenue. One of our customers accounted for
approximately 11% of our revenue in the first quarter of fiscal 2002 and one of
our customers accounted for approximately 24% of our revenue in the first
quarter of fiscal 2001. The loss of one or more of our major customers, the
failure to attract new customers on a timely basis, or a reduction in usage and
revenue associated with the existing or proposed customers would harm our
business and prospects.

We are contractually obligated to complete certain leasehold improvements

We lease premises totaling approximately 111,000 square feet in Hayward,
California. This lease expires on July 31, 2007. Through July 31, 2001, we
have capitalized leasehold improvements and related construction costs totaling
approximately $11.5 million for our Hayward facilities. In addition, we do not
anticipate any additional expenses subsequent to July 31, 2001 to complete the
build-out of our Hayward facilities. In addition, we have signed a ten-year
lease for approximately 130,000 square feet located at 1980 Matheson Boulevard
East, Mississauga, Ontario. At this time, the facility is being constructed at
our expense and we expect the total cost will be approximately $8.1 million.
Through July 31, 2001, we have capitalized leasehold improvements and related
construction costs totaling approximately $2.7 million for the facility. In
addition, we anticipate incurring approximately an additional $5.4 million
subsequent to July 31, 2001 to complete the build-out of the facility.

We may be unable to find sub-tenants to sublease currently leased and vacant
space

In March 2000, we entered into a lease covering 68,000 square feet of
office space adjacent to our then existing 43,000 square foot Hayward facility.
The term of this new lease is seven years at an initial monthly rent of
approximately $61,000, with 3% annual increases. The lease on our prior Hayward
facility expires in July 2007 and provides for current monthly base rent
payments of approximately $54,000, increasing to approximately $57,000 in March
2002 and approximately $60,000 in March 2004. In August 2001, we relocated our
Hayward operations to the new facility. We intend to sublease our prior 43,000
square foot Hayward office space, although there can be no assurance that we
will be able to do so or at rates equal to our current obligations under the
lease.

We recently signed a ten-year lease for approximately 130,000 square feet
located at 1980 Matheson Boulevard East, Mississauga, Ontario. If the landlord
intends to sell the leased premises, we have a right of first refusal with
respect of any sale of this property on terms to be negotiated. In the fall of
2001, we intend to relocate our Canadian operations from their current location
to this new facility and to sublease our current Canadian office space and
approximately 40,000 square feet space located at 1980 Matheson Boulevard East,
Mississauga, Ontario, although there can be no assurance that we will be able to
do so or at rates equal to our current obligations under the lease. The annual
rental fee for the new site varies between approximately Cdn. $10.85 to Cdn.
$13.05 per square foot ($7.09 to $8.52 per square foot based on the exchange
rate on July 31, 2001) over the life of the lease. We began paying rent on this
lease in May 2001.

We are currently searching for tenants to sublease our current Hayward and
Mississauga spaces and portion of our new Mississauga space. We may not be able
to find suitable sub-

103

tenants to occupy this space in a timely manner in the future, if at all, or
otherwise sublease these properties without a loss. If we are unable to find
suitable sub-tenants, we may experience greater than anticipated operating
expenses in the future, which could materially adversely affect our financial
condition and operating results.

Our success depends on an increase in the demand for digital signatures in m-
business transactions and ECC-based technology becoming accepted as an industry
standard

For handheld devices, many of the advantages our ECC-based technology has
over conventional security technology are not applicable to a transaction that
does not involve the creation of a digital signature on a handheld device.
Currently, the vast majority of e-business and m-business transactions do not
involve such digital signatures. Participants in mobile e-business have only
recently begun to require client digital signatures in some applications, such
as enterprise data access and certain high-value transactions. Unless the
number of mobile e-business transactions involving client digital signatures
increases, the demand for our products and services, and consequently, our
business, financial condition and operating results could be materially
adversely affected.

In order for our business to be successful, ECC technology must become
accepted as an industry standard. This has not happened to date, and may never
happen. The technology of our principal competitor, RSA Security Inc., is and
has been for the past several years, the de facto standard for security over
open networks like the Internet. The patent related to this competing
technology expired in September 2000, making this technology freely available.
The free availability of such security technology could significantly delay or
prevent the acceptance of ECC as a security standard.

Some of our products are new, unproven and currently generate little or no
revenue

In late 2000 and early 2001, we launched our PKI products, CA service and
VPN client software product. We continue to invest in and develop future
versions of these products which add features and functionality and to support
our current versions of these products. We cannot predict the future level of
acceptance, if any, of these new products, and we may be unable to generate
significant revenue from these products.

We have only recently begun to sell directly to enterprise customers, and we may
not be successful in developing the products and services necessary to serve
this new customer base

We have recently started to expand our sales efforts to encompass sales of
certain products directly to enterprises other than OEMs. The expansion of our
direct sales efforts will require that we attract, hire, train, manage and
adequately compensate a larger group of professionals. We may not be successful
in expanding and managing our sales effort or that the revenues produced by our
direct sales will offset our increased expenses.

These non-OEM, or enterprise, customers will require different products,
support services and integration services than our existing OEM customer base.
We may not be successful in developing the products and services necessary to
serve this new customer base.

104

Our business depends on continued development of the Internet and the continued
growth of m-business

Our future success is substantially dependent upon continued growth in
Internet usage and the acceptance of mobile and wireless devices and their use
for m-business. The adoption of the Internet for commerce and communications,
particularly by individuals and companies that have historically relied upon
alternative means of commerce and communication, generally requires the
understanding and acceptance of a new way of conducting business and exchanging
information. In particular, companies that have already invested substantial
resources in other means of conducting commerce and exchanging information may
be reluctant or slow to adopt a new, Internet-based strategy that may make their
existing infrastructure obsolete. To the extent that individuals and businesses
do not consider the Internet to be a viable commercial and communications
medium, our business may not grow.

Furthermore, building a wireless-based strategy requires significant
investment. Many companies may not have resources and capital to build the
infrastructure required to support a wireless-based strategy. If this
infrastructure build out does not occur, our revenue may not grow. In addition,
our business may be harmed if the number of users of mobile and wireless devices
does not increase, or if e-business and m-business do not become more accepted
and widespread. The use and acceptance of the Internet and of mobile and
wireless devices may not increase for any number of reasons, including:

. actual or perceived lack of security for sensitive information, such as
credit card numbers;

. traffic or other usage delays on the Internet;

. competing technologies;

. governmental regulation; and

. uncertainty regarding intellectual property ownership.

Capacity constraints caused by growth in the use of the Internet may impede
further development of the Internet to the extent that users experience delays,
transmission errors and other difficulties. If the necessary infrastructure,
products, services and facilities are not developed, if the Internet does not
become a viable and widespread commercial and communications medium, or if
individuals and businesses do not increase their use of mobile and wireless
devices for mobile e-business, our business, financial condition and operating
results could be materially adversely affected.

We have recently issued convertible notes, and our increased debt may place
restrictions on our operations and limit our growth

105

principal amount of 7.25% senior convertible unsecured subordinated debentures
(the "Debentures") at any time and automatically at 5:00 p.m. (Toronto time) on
the earlier of (i) the fifth business day after a receipt is issued by the last
of the relevant securities regulatory authorities in Canada for a final
prospectus qualifying the issuance of the Debentures on the conversion of the
Notes, and (ii) August 30, 2002. The Debentures mature on August 30, 2004 and
are convertible into our common shares at the holder's option at any time before
the close of business on the earlier of August 30, 2004 and the last business
day before the date specified for redemption at a conversion price of Cdn. $3.85
per common share.

Our total liabilities on a consolidated basis as at July 31, 2001 were
approximately $17.3 million. The level of our indebtedness could have important
consequences on our ability to operate and grow our business including the
following: (i) our ability to obtain additional financing in the future could
be restricted: (ii) our cash flow from operations dedicated to the payment of
the principal of, an interest on, our indebtedness will not be available for
other purpose; (iii) our flexibility in planning for, or reacting to, changes in
our business and market conditions could be restricted. In addition, we may be
more highly leveraged than certain of our competitors which might place us at a
competitive disadvantage, and we could be more vulnerable in the event of
further downturns in our business.

We may not generate the required cash flow to service our debt

We will be required to make our first payment of interest on the Debentures
on February 28, 2002. Annual cash interest requirements on the Debentures will
be approximately Cdn. $978,750 (approximately $633,085 based on the exchange
rate on August 30, 2001) There can be no assurance that we will achieve or
sustain profitability or positive cash flow from operating activities, we may
not be able to meet our debt service or working capital requirements or to
obtain additional capital required in order to execute our business plan.

We must manage our growth

Despite our recent workforce reductions, we have experienced a period of
significant growth in our sales and personnel that has placed strain upon our
management systems and resources. Subject to future prevailing economic
conditions, we may pursue potential market opportunities. Our growth has
placed, and will place, demands on our management and operational resources,
particularly with respect to:

. training, supervising and retaining skilled technical, marketing and
management personnel;

. expanding our treasury and accounting functions and information systems to
meet the demands of a growing company;

. strengthening our financial and management controls in a manner appropriate
for a larger enterprise;

. maintaining a cutting edge research and development staff;

. developing and managing a larger, more complex international organization;
and

106

. preserving our culture, values and entrepreneurial environment.

Our revenue may not continue to grow at a pace that will support our
planned costs and expenditures To the extent that our revenue does not increase
at a rate commensurate with these additional costs and expenditures, our results
of operations and liquidity would be materially adversely affected.

Our management has limited experience managing a business of our size and,
in order to manage our growth effectively, we must concurrently develop more
sophisticated operational systems, procedures and controls. If we fail to
develop these systems, procedures and controls on a timely basis, it could
impede our ability to deliver products in a timely fashion and fulfill existing
customer commitments and, as a result, our business, financial condition and
operating results could be materially adversely affected.

Acquisitions could harm our business

We acquired Consensus Development Corporation and Uptronics Incorporated in
fiscal year 1999, Trustpoint in fiscal year 2000, and DRG Resources Group, Inc.
in fiscal year 2001. We may acquire additional businesses, technologies,
product lines or services in the future either in the United States or abroad.
Acquisitions involve a number of risks, potentially including:

. disruption to our business;

. inability to integrate, train, retain and motivate key personnel of the
acquired business;

. diversion of our management from our day-to-day operations;

. inability to incorporate acquired technologies successfully into our
products and services;

. additional expense associated with completing an acquisition and
amortization of any acquired intangible assets;

. impairment of relationships with our employees, customers and strategic
partners; and

. inability to maintain uniform standards, controls, procedures and policies.

In addition, we may not be able to maintain the levels of operating
efficiency that any acquired company achieved or might have achieved separately.
Successful integration of the companies we acquire will depend upon our ability
to eliminate redundancies and excess costs. As a result of difficulties
associated with combining operations, we may not be able to achieve cost savings
and other benefits that we might hope to achieve with these acquisitions.

We may satisfy the purchase price of any future acquisitions through the
issuance of our common shares, which may result in dilution to our existing
shareholders. We may also incur debt or assume liabilities. We cannot assure
you that we will be able to obtain any additional financing on satisfactory
terms, or at all. Incurring debt or assuming additional liabilities would make
us more vulnerable to economic downturns and may limit our ability to withstand
competitive pressures. The terms of any additional indebtedness may include
restrictive

107

financial and operating covenants, which could limit our ability to compete and
expand our business.

Our business strategy also includes entering into strategic investments and
joint ventures with other companies. These transactions are subject to many of
the same risks identified above for acquisitions.

Our success depends on attracting and retaining skilled personnel

Our success is largely dependent on the performance of our management team
and other key employees. Our success also depends on our ability to attract,
retain and motivate qualified personnel. Most of our key technical and senior
management personnel are not bound by employment agreements. Loss of the
services of any of these key employees would harm our business, financial
condition and operating results. We do not maintain key person life insurance
policies on any of our employees.

Competition for qualified personnel in the digital information security
industry is intense, and finding and retaining qualified personnel in the San
Francisco Bay Area and the Greater Toronto Area are difficult. We believe there
are only a limited number of individuals with the requisite skills to serve in
many of our key positions, and it is becoming increasingly difficult to hire and
retain such persons. Competitors and others have in the past and may attempt in
the future to recruit our employees. A major part of our compensation to our
key employees is in the form of stock option grants. A prolonged depression in
our share price could make it difficult for us to retain employees and recruit
additional qualified personnel. In addition, the volatility and current market
price of our common shares may make it difficult to attract and retain
personnel.

We face risks related to our international operations

We are currently in the process of expanding our international operations.
For the three months ended July 31, 2001 and the fiscal year ended April 30,
2001, we derived approximately 4% and 10%, respectively, of our revenue from
international operations. An important component of our long-term strategy is
to further expand into international markets, and we must continue to devote
resources to our international operations in order to succeed in these markets.
To date, we have limited experience in international operations and may not be
able to compete effectively in international markets. This expansion is
expected to involve opening foreign sales offices, which may cause us to incur
substantial costs. International sales and operations may be limited or
disrupted by increased regulatory requirements, the imposition of government and
currency controls, export license requirements, political instability, labor
unrest, transportation delays and interruptions, trade restrictions, changes in
tariffs and difficulties in staffing and coordinating communications among
international operations. In addition, these foreign markets may require us to
develop new products or modify our existing products. There can be no assurance
that we will be able to manage effectively the risks associated with our
international operations or that those operations will contribute positively to
our business, financial condition or operating results.

108

We face risks related to intellectual property rights

We rely on one or more of the following to protect our proprietary rights:
patents, trademarks, copyrights, trade secrets, confidentiality procedures and
contractual provisions. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy and may succeed in copying aspects of
our product designs, products or trademarks, or obtain and use information we
regard as proprietary. Preventing the unauthorized use of our proprietary
technology may be difficult in part because it may be difficult to discover such
use. Stopping unauthorized use of our proprietary technology may be difficult,
time-consuming and costly. In addition, the laws of some countries in which our
products are licensed do not protect our products and services and related
intellectual property to the same extent as the laws of Canada, the United
States and countries of the European Union. While we believe that at least some
of our products are covered by one or more of our patents and these patents are
valid, a court may not agree if the matter is litigated. There can be no
assurance that we will be successful in protecting our proprietary rights and,
if we are not, our business, financial condition and operating results could be
materially adversely affected.

The industry in which we compete has many participants who own, or claim to
own, intellectual property. We indemnify our licensees against third-party
intellectual property claims based on our technology. At this time, we are
defending one of our licensees for a claim filed against them by Leon Stambler.
Claims relating to intellectual property by any third-party business, individual
or university, whether or not with merit, could be time-consuming to evaluate,
result in costly litigation, cause shipment delays for products or the cessation
of the use and sale of products or services, or require us to obtain licenses by
paying license fees and/or royalties to the owners of the intellectual property.
Such licensing agreements, if required, may not be available on royalty or other
terms acceptable to us. Any of these situations could materially adversely
affect our business, financial condition and operating results. We also
currently license third party technology for use in some of our products and
services. These third party technology licenses may not continue to be
available on commercially reasonable terms or may not be available at all. Our
business, financial condition and operating results could be materially
adversely affected if we lose the right to use certain technology.

We are engaged in joint development projects with certain companies. One
of these projects has resulted in the issuance of jointly owned patents. There
is a risk that the companies with which we are working could decide not to
commercialize the joint technology and that we may be unable to commercialize
joint technology without their consent and/or involvement.

We belong to certain organizations that set standards. As part of the
standards process, the participants are requested to file statements identifying
any patents they consider to be essential to implementation of the standard. As
such, we may be required to disclose and license patents that we own which are
necessary for practice of the standard. Further, to provide products that are
compliant with standards that have been adopted or will be adopted in the
future, we may have to license patents owned by others. As a part of some
standards processes, other companies have disclosed patents that they believe
are required to implement those standards. We cannot assure you that we will be
able to gain licenses to these patents, if needed, on terms acceptable to us.
Such licensing requirements may materially adversely affect the value of our
products, and, consequently, our business, financial condition and operating
results.

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Our products could have defects which could delay their shipment, harm our
reputation and increase costs

Our products are highly complex and, from time to time, may contain design
defects that are difficult to detect and correct. Errors, failures or bugs may
be found in our products after commencement of commercial shipments. Even if
these errors are discovered, we may not be able to correct such errors in a
timely manner or at all. The occurrence of errors and failures in our products
could result in damage to our reputation, lost revenue and the loss of, or delay
in achieving, market acceptance of our products, and correcting such errors and
failures in our products could require significant expenditure of capital by us.
The sale and support of these products may entail the risk of product liability
or warranty claims based on damage to such equipment. In addition, the failure
of our products to perform to customer expectations could give rise to warranty
claims. Our insurance may not cover or its coverage may be insufficient to
cover any such claims successfully asserted against us, and therefore the
consequences of such errors, failures and claims could have a material adverse
effect on our business, financial condition and operating results.

System interruptions and security breaches could harm our business

We are in the process of constructing a secure data center for issuing
certificates. We will depend on the uninterrupted operation of that data
center. We will need to protect this center and our other systems from loss,
damage, or interruption caused by fire, power loss, telecommunications failure
or other events beyond our control. In addition, most of our systems and the
data center are located, and most of our customer information is stored, in the
San Francisco Bay Area, which is susceptible to earthquakes. Any damage or
failure that causes interruptions in our data center and our other computer and
communications systems could materially adversely affect our business, financial
condition and operating results.

Our success also depends upon the scalability of our systems. Our systems
have not been tested at the usage volumes that we expect will be required in the
future. As a result, a substantial increase in demand for our products and
services could cause interruptions in our systems. Any such interruptions could
materially and adversely affect our ability to deliver our products and services
and our business, financial condition and operating results.

Although we intend to periodically perform, and retain accredited third
parties to perform, evaluations of our operational controls, practices and
procedures, we may not be able to meet or remain in compliance with our internal
standards or those set by these third parties. If we fail to maintain these
standards, we may have to expend significant time and money to return to
compliance, and our business, financial condition and operating results could be
materially adversely affected.

We will retain certain confidential customer information in our planned
data center. It is important to our business that our facilities and
infrastructure remain secure and be perceived by the marketplace to be secure.
Despite our security measures, our infrastructure may be vulnerable to physical
break-ins, computer viruses, attacks by hackers or other disruptive problems.
It is possible that we may have to expend additional financial and other
resources to address these problems. Any physical or electronic break-ins or
other security breaches or

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compromises of the information stored at our planned data center may jeopardize
the security of information stored on our premises or in the computer systems
and networks of our customers. In such an event, we could face significant
liability and damage to our reputation, and customers could be reluctant to use
our products and services. Such an occurrence could also result in adverse
publicity and adversely affect the market's perception of our products and
services, which could materially adversely affect our business, financial
condition and operating results.

We must continue to develop and maintain strategic and other relationships

One of our business strategies has been to enter into strategic or other
collaborative relationships with many of our OEM customers to develop new
technologies and leverage their sales and marketing organizations. We may need
to enter into additional relationships to execute our business plan. We may not
be able to enter into additional, or maintain our existing, strategic
relationships on commercially reasonable terms. As a result, we may have to
devote substantially more resources to the development of new technology and the
distribution, sales and marketing of our security products and services than we
would otherwise. The failure of one or more of our strategic relationships
could materially adversely affect our business, financial condition and
operating results.

We compete with some of our customers

We regularly license some of our products to customers who compete with us
in other product categories. For example, we license our Security Builder(R)
cryptographic toolkit to Baltimore Technologies for incorporation into its
UniCERT(TM) product, which competes with our Trustpoint(TM) product line. This
potential conflict may deter existing and potential future customers from
licensing some of our component products, most notably our Security Builder(R)
cryptographic toolkit. We expect to compete with a greater number of our
customers as we further expand our product line.

Our share price has been, and will likely continue to be, volatile

The market price of our common shares has declined significantly in recent
months, and we expect that the market price of our common shares may fluctuate
substantially as a result of variations in our quarterly operating results.
These fluctuations may be exaggerated if the trading volume of our common shares
is low. In addition, due to the technology-intensive and emerging nature of our
business, the market price of our common shares may fall dramatically in
response to a variety of factors, including:

. announcements of technological or competitive developments;

. acquisitions or entry into strategic alliances by us or our competitors;

. the gain or loss of a significant customer or strategic relationship;

. changes in estimates of our financial performance;

. changes in recommendations from securities analysts regarding us, our
industry or our customers' industries; and

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. general market or economic conditions.

This risk may be heightened because our industry is new and evolving, is
characterized by rapid technological change and is susceptible to the
introduction of new competing technologies or competitors.

In addition, equity securities of many technology companies have
experienced significant price and volume fluctuations. These price and volume
fluctuations are sometimes unrelated to the operating performance of the
affected companies. Volatility in the market price of our common shares could
result in securities class action litigation. This type of litigation,
regardless of the outcome, could result in substantial costs to us as well as a
diversion of our management's attention and resources.

We have limited financial resources and may require additional financing that
may not be available on acceptable term or at all

We may require additional equity or debt financing in the future. There can
be no assurance that we will be able to obtain on satisfactory terms, or at all,
the additional financing required to compete successfully. Failure to obtain
such financing could result in the delay or abandonment of some or all of our
business plans, which could have a material adverse effect on our business,
financial condition and operating results.

Risks Related to Our Industry

Public key cryptographic technology is subject to risks

Our products and services are largely based on public-key cryptographic
technology. With public-key cryptographic technology, a user has both a public-
key and a private-key. The security afforded by this technology depends on the
integrity of a user's private-key and on it not being stolen or otherwise
compromised. The integrity of private keys also depends in part on the
application of certain mathematical principles such as factoring and elliptic
curve discrete logarithms. This integrity is predicated on the assumption that
solving problems based on these principles is difficult. Should a relatively
easy solution to these problems be developed, then the security of encryption
products using public-key cryptographic technology could be reduced or
eliminated. Furthermore, any significant advance in techniques for attacking
cryptographic systems could also render some or all of our products and services
obsolete or unmarketable. Even if no breakthroughs in methods of attacking
cryptographic systems are made, factoring problems or elliptic curve discrete
logarithm problems can theoretically be solved by computer systems that are
significantly faster and more powerful than those currently available. In the
past, there have been public announcements of the successful decoding of certain
cryptographic messages and of the potential misappropriation of private keys.
Such publicity could also adversely affect the public perception as to the
safety of public-key cryptographic technology. Furthermore, an actual or
perceived breach of security at one of our customers, whether or not due to our
products, could result in adverse publicity for us and damage to our reputation.
Such adverse public perception or any of these other risks, if they actually
occur, could materially adversely affect our business, financial condition and
operating results.

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Our future success will depend upon our ability to anticipate and keep pace with
technological changes

The information security industry is characterized by rapid technological
change. Technological innovation in the marketplace, such as in the areas of
mobile processing power or wireless bandwidth, or the development of new
cryptographic algorithms, may reduce the comparative benefits of our products
and could materially adversely affect our business, financial condition and
operating results. Our inability, for technological or other reasons, to
enhance, develop and introduce products in a timely manner in response to
changing market conditions, industrial standards, customer requirements or
competitive offerings could result in our products becoming obsolete, or could
otherwise have a material adverse effect on our business, financial condition
and operating results. Our ability to compete successfully will depend in large
measure on our ability to maintain a technically competent research and
development staff and to adapt to technological changes and advances in the
industry, including providing for the continued compatibility of our products
with evolving industry standards and protocols.

We face significant competition, which could harm our ability to maintain or
increase sales of our products or reduce the prices we can charge for our
products

We operate in a highly competitive industry. Many of our competitors have
greater name recognition, larger customer bases and significantly greater
financial, technical, marketing, public relations, sales, distribution and other
resources than we do. We anticipate that the quality, functionality and breadth
of our competitors' product offerings will improve, and there can be no
assurance that we will be able to compete effectively with such product
offerings. In addition, we could be materially adversely affected if there were
a significant movement towards the acceptance of open source solutions or other
alternative technologies that compete with our products. We expect that
additional competition will develop, both from existing businesses in the
information security industry and from new entrants, as demand for information
products and services expands and as the market for these products and services
becomes more established. Moreover, as competition increases, the prices that
we charge for our products may decline. If we are not able to compete
successfully, our business, financial condition and operating results could be
materially adversely affected. Our most significant direct competitors include
RSA Security, Inc., VeriSign, Inc., Baltimore Technologies plc, and Entrust Inc.

Our business could be adversely affected by United States and foreign government
regulation

The information security industry is governed by regulations that could
have a material adverse effect on our business. Both the U.S. and Canadian
governments regulate the export of cryptographic equipment and software,
including many of our products. It is also possible that laws could be enacted
covering issues such as user privacy, pricing, content, and quality of products
and services in these markets. Such regulations and laws could cause us to
compromise our source code protection, minimize our intellectual property
protection, negatively impact our plans for global expansion, and consequently
materially adversely affect our business.

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Risks Related to Our Corporate Charter; Limitations on Dividends

The anti-takeover effect of certain of our charter provisions could delay or
prevent our being acquired

Our authorized capital consists of an unlimited number of common shares and
an unlimited number of preferred shares issuable in one or more series. Although
we currently do not have outstanding any preferred shares, our board of
directors has the authority to issue preference shares and determine the price,
designation, rights, preferences, privileges, restrictions and conditions,
including voting and dividend rights, of these shares without any further vote
or action by shareholders. The rights of the holders of common shares will be
subject to, and may be adversely affected by, the rights of holders of any
preferred shares that may be issued in the future. The issuance of preferred
shares, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, or the issuance of additional common
shares could make it more difficult for a third party to acquire a majority of
our outstanding voting shares. This could deprive our shareholders of a control
premium that might otherwise be realized in connection with an acquisition of
our company.

Our shareholder rights plan could delay or prevent our being acquired

We have adopted a shareholder rights plan. The provisions of this plan
could make it more difficult for a third party to acquire a majority of our
outstanding voting shares, the effect of which may be to deprive our
shareholders of a control premium that might otherwise be realized in connection
with an acquisition of our company.

We do not currently intend to pay any cash dividends on our common shares in the
foreseeable future

We have never paid or declared any cash dividends on our common shares and
we currently intend to retain any future earnings to finance the development and
expansion of our business. We do not anticipate paying any cash dividends on
our common shares in the foreseeable future. In addition, any dividends paid to
residents of the United States would be subject to Canadian withholding tax,
generally at the rate of 15%.

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SCHEDULE C

INFORMATION CONCERNING
THE DIRECTORS AND EXECUTIVE OFFICERS
OF CERTICOM CORP.

The directors and executive officers of Certicom Corp. and their positions
and offices as of August 31, 2001, are set forth in the following table:

Name Position and Offices Held
---- -------------------------

Richard P. Dalmazzi ........................ President, Chief Executive Officer
and Director

Scott A. Vanstone. ......................... Founder, Chief Cryptographer and
Director

Gregory M. Capitolo ........................ Vice President, Finance, Chief
Financial Officer and Secretary

Robert L. Williams ......................... Senior Vice President, Product
Development

Timothy M. Dierks. ......................... Chief Technology Officer

Dennis J. Charlebois. ...................... Senior Vice President, Corporate
Development

Pra Kash Panjwani. ......................... Senior Vice President, Sales and
Business Development

Amit Kapor. ................................ Vice President, Marketing

Bernard W. Crotty .......................... Director

William T. Dodds ........................... Director

Louis E. Ryan .............................. Director

William J. Stewart ......................... Director

Robert P. Weiderhold ....................... Director

The address of each Director and Executive Officer is: c/o Certicom Corp.,
25821 Industrial Boulevard, Hayward, California 94545.

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CERTICOM CORP.

OFFER TO EXCHANGE OUTSTANDING OPTIONS TO PURCHASE
COMMON SHARES OF CERTICOM CORP.
HAVING AN EXERCISE PRICE PER SHARE OF (USD) $10.00 OR MORE

----------------

THE OFFER AND WITHDRAWAL RIGHTS EXPIRE
AT 12:00 MIDNIGHT, EASTERN TIME ON OCTOBER 25, 2001,
UNLESS THE OFFER IS EXTENDED BY CERTICOM.

----------------

Any questions or requests for assistance or additional copies of any
documents referred to in the offer to exchange may be directed to:

Certicom Corp.
Attention: Gregory M. Capitolo
25821 Industrial Boulevard
Hayward, CA 94545
Telephone: (510) 780-5400
Fax: (510) 780-5401
E-mail: stock_admin@certicom.com

----------------

September 27, 2001

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