SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended October 31, 2001 or

[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ___ to ___

Commission File Number: 001-15010

CERTICOM CORP.
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Yukon Territory, Canada Not Applicable
- ----------------------- ----------------------
(Province or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)

25821 Industrial Boulevard
Hayward, California 94545
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

(510) 780-5400
-----------------------------------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No ___

As of November 30, 2001, there were 31,429,557 of registrant's common shares, no
par value, outstanding.

TABLE OF CONTENTS

Page

Exchange Rate Information ................................................. 1

Special Note Regarding Forward-Looking Statements ......................... 1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements .............................................. 2

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 13

Factors That May Affect Operating Results ......................... 22

Item 3. Quantitative and Qualitative Disclosure About Market Risk ......... 33

PART II. OTHER INFORMATION

Item 1. Legal Proceedings ................................................. 34

Item 4. Submission of matters to a vote of Security Holders ............... 34

Item 6. Exhibits and Reports on Form 8-K .................................. 36

Signatures ................................................................ 37

Unless otherwise indicated, all information in this Form 10-Q gives effect
to the 2-for-1 split of the Company's outstanding common shares, which occurred
on July 12, 2000.

Certicom(R) and Security Builder(R) are our registered trademarks, and
certicom encryption(TM), SSL Plus(TM), WTLS Plus(TM), Certilock(TM),
Certifax(TM), MobileTrust(TM), Trustpoint(TM), movian(TM), movianVPN(TM) and
movianCrypt(TM) are our trademarks.

In this Form 10-Q, the terms "Certicom", "the Company", "we", "us", and
"our" refer to Certicom Corp., a Yukon Territory, Canada corporation, and/or its
subsidiaries.

EXCHANGE RATE INFORMATION

Unless otherwise indicated, all dollar amounts in this Form 10-Q are
expressed in United States dollars. References to "$" or "U.S.$" are to United
States dollars, and references to "Cdn.$" are to Canadian dollars. The following
table sets forth, for each period indicated, information concerning the exchange
rates between U.S. dollars and Canadian dollars based on the inverse of the noon
buying rate in the City of New York on the last business day of each month
during the period for cable transfers as certified for customs purposes by the
Federal Reserve Bank of New York (the "Noon Buying Rate"). The table illustrates
how many U.S. dollars it would take to buy one Canadian dollar. On October 31,
2001, the Noon Buying Rate was U.S. $0.6287 per Cdn.$1.00.

U.S.$ per Cdn.$ Noon Buying Rate
-----------------------------------------------------
Average Low High Period End

-------------- ---------- ---------- -------------
Fiscal year ended
-----------------
April 30, 2001 0.6616 0.6831 0.6333 0.6510

Six months ended
----------------
October 31, 2000 0.6717 0.6831 0.6531 0.6548
October 31, 2001 0.6468 0.6622 0.6287 0.6287

Three months ended
------------------
October 31, 2000 0.6694 0.6793 0.6531 0.6548
October 31, 2001 0.6411 0.6547 0.6287 0.6287

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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 22 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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CERTICOM CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except common share amounts)

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

ASSETS

Current assets:
Cash and cash equivalents $ 610 $ 1,942
Marketable securities, available for sale 28,292 50,310
Accounts receivable, net 3,385 7,149
Prepaid expenses and other current assets 1,984 3,428
--------- ---------
Total current assets 34,271 62,829

Property and equipment, net 17,991 18,288
Intangibles, net 13,753 26,348
Other assets, net 710 --
Restricted cash 1,956 2,009
--------- ---------
Total assets $ 68,681 $ 109,474
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 5,055 $ 9,240
Accrued liabilities 2,455 3,106
Accrued restructuring charges 5,165 --
Deferred revenue 2,736 2,168
--------- ---------
Total current liabilities 15,411 14,514

Long term liabilities:
Other payables 510 510
Accrued restructuring charges 797 --
Lease inducements and deposits 672 1,093
Convertible debenture 8,488 --
--------- ---------
Total liabilities 25,878 16,117

Shareholders' equity:
Common shares, no par value; shares authorized: unlimited; shares issued
and outstanding: 31,425,000 and 30,542,000, at October 31, 2001
and April 30, 2001, respectively 183,875 175,151
Additional paid-in capital 13,088 19,945
Deferred compensation expense (688) (4,314)
Accumulated other comprehensive loss (2,713) (2,460)
Retained deficit (150,759) (94,965)
--------- ---------
Total shareholders' equity 42,803 93,357
--------- ---------
Total liabilities and shareholders' equity $ 68,681 $ 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 per share data)
(Unaudited)

Three months ended Six months ended
October 31, October 31,
2001 2000 2001 2000
------------ ---------- ---------- ----------

Revenues:
Products $ 1,052 $ 5,052 $ 2,002 $ 9,015
Services 1,656 1,249 3,250 2,339
------------ ---------- ---------- ----------
Total revenues 2,708 6,301 5,252 11,354

Cost of revenues:
Products 557 223 633 455
Services (including deferred compensation amortization
expense of $516 and $860 for the three months, respectively, and
$1,290 and $860 for the six months, respectively) 2,021 2,341 4,504 3,360
------------ ---------- ---------- ----------
Total cost of revenues 2,578 2,564 5,137 3,815

------------ ---------- ---------- ----------
Gross profit 130 3,737 115 7,539

Operating expenses:
Sales and marketing 3,546 4,340 9,156 7,479
Product development and engineering 1,888 3,020 4,414 5,448
General and administrative (including stock compensation
amortization expense of $0 and $499 for the three months,
respectively, a credit of $311 and an expense of $610 for the six
months, respectively) 2,673 3,258 5,339 5,840
Depreciation and amortization 3,190 2,986 6,779 5,735
Impairment of goodwill and other intangibles - - 9,352 -
Restructuring costs 12,047 - 21,580 -
------------ ---------- ---------- ----------
Total operating expenses 23,344 13,604 56,620 24,502

Loss from operations (23,214) (9,867) (56,505) (16,963)

Other income (expense):
Interest income 150 833 866 1,785
Interest expense (171) - (171) (423)
Other income and expense 61 - 61 -
------------ ---------- ---------- ----------
Total other income 40 833 756 1,362

------------ ---------- ---------- ----------
Loss before provision for income taxes (23,174) (9,034) (55,749) (15,601)

Provision for income taxes 45 55 45 135

------------ ---------- ---------- ----------
Net loss $ (23,219) $ (9,089) $ (55,794) $ (15,736)
============ ========== ========== ==========

Basic and diluted net loss per share $ (0.74) $ (0.35) $ (1.80) $ (0.61)
============ ========== ========== ==========

Shares used in basic and diluted net loss per share calculations 31,346 25,974 31,059 25,770
============ ========== ========== ==========

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)

Six Months Ended October 31,
2001 2000
------------- -------------

Cash flows from operating activities:
Net loss $ (55,794) $ (15,736)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 6,779 5,735
Non-cash restructuring costs 13,141 -
Goodwill impairment 9,352 -
Stock compensation expense 979 1,629
Non-cash interest expense 42 423

Changes in operating assets and liabilities:
Accounts receivable, net 3,764 (790)
Prepaid and other assets 438 (159)
Account payable (4,188) 1,842
Accrued liabilities (651) 80
Accrued restructuring payable 5,962 -
Deferred revenue 568 1,194
--------- ---------
Net cash used in operating activities (19,608) (5,782)

Cash flows from investing activities:
Purchase of property and equipment (13,101) (3,127)
Purchase of patents and other long term assets (270) (362)
Sales and maturities of investments 175,991 990
Purchase of investments (153,973) (995)
--------- ---------
Net cash provided by (used) investing activities 8,647 (3,494)

Cash flows from financing activities:
Proceeds from issuance of common stock, net 2,192 53,525
Leasehold inducements (149) (83)
Repayment of notes payable - (10,000)
Sale of convertible debt 7,736 -
--------- ---------
Net cash provided by financing activities 9,779 43,442

Effect of exchange rate on cash and cash equivalents, net (150) -

--------- ---------
Net increase in cash and cash equivalents (1,332) 34,166

Cash and cash equivalents, beginning of period 1,942 10,508
Cash and cash equivalents, end of period $ 610 $ 44,674
========= =========

See accompanying notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements
include the accounts of Certicom Corp., and it's wholly owned subsidiaries
(Certicom or the Company). Intercompany transactions and balances are eliminated
upon consolidation.

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. Certain
reclassifications have been made to the prior year consolidated financial
statements to conform to the current year's presentation. Such reclassifications
had no effect on previously reported results of operations. The accompanying
condensed consolidated financial statements have been prepared pursuant to the
rules and regulations of Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and 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 and six
months ended October 31, 2001 are not necessarily indicative of the results
expected for the entire fiscal year ending April 30, 2002.

Revenue Recognition and Deferred 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.

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 have 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 (PCS), or 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.

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 services are deferred and recognized ratably over the
term of the support period. Revenues from professional services are recognized
when the services are performed.

In June 2001, we began to offer our enabling technologies products using
primarily subscription-based licenses. In addition, our trust services and
enterprise application software 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. 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.

Deferred revenues generally result from the following: subscription
licenses for which we have invoiced our customers and we are recognizing revenue
ratably over the license term, deferred maintenance and support services, 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 when there are indications that the carrying value of those assets may
not be recoverable. We recognize impairment of long-lived assets when 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 sixty patent applications in various
jurisdictions. These patent filings relate to Elliptic Curve Cryptography (ECC),
various mathematical computational methodologies, security protocols and other
cryptographic inventions. After the patent is 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 to the fiscal year 2001 financial
statement presentation to conform to the fiscal year 2002 presentation.

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
materially from those estimates and could materially affect future operating
results.

Note 2. 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 or conversation of debentures,
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:

Six months ended October 31,
------------------------------
2001 2000
----------- ----------

Shares issuable under stock options 2,033,133 5,763,330
Shares of restricted stock subject to repurchase 26,503 198,797
Shares issuable pursuant to warrants 50,000 50,000
Shares issuable upon conversion of debentures 3,506,494 -

The weighted average exercise price of stock options was $1.52 and $10.16
at October 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 ($23.97 based on the exchange rate on October 31, 2001). The conversion
price of the convertible debentures was Cdn.$3.85 ($2.42 based on the exchange
rate on October 31, 2001).

The following table sets forth the computation of basic and diluted net
loss per common share (in thousands of U.S. dollars except per share data)

Three months ended Six months ended
------------------- ----------------
October 31, October 31,
----------- -----------
2001 2000 2001 2000
-------- -------- --------- ---------

Numerator:
Net loss $(23,219) $ (9,089) $ (55,794) $ (15,736)
======== ======== ========= =========
Denominator:
Denominator for basic net loss per share -
weighted-average shares outstanding 31,346 25,974 31,059 25,770
-------- -------- --------- ---------

Effect of dilutive potential common shares -- -- -- --
-------- -------- --------- ---------

Denominator for diluted net loss per share 31,346 25,974 31,059 25,770
======== ======== ========= =========

Basic and diluted net loss per share $ (0.74) $ (0.35) $ (1.80) $ (0.61)
======== ======== ========= =========

Note 3. Comprehensive Income (Loss)

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

Three months ended Six months ended
------------------- -----------------
October 31, October 31,
----------- -----------

2001 2000 2001 2000
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Net loss $ (23,219) $ (9,089) $ (55,794) $ (15,736)

Other comprehensive income:
Unrealized gain (loss) on marketable securities, (162) 85 (253) 118
available for sale
---------- ---------- --------- ----------

Comprehensive loss $ (23,381) $ (9,004) $ (56,047) $ (15,618)
========== ========== ========= ==========

Note 4. Impairment of Goodwill and Other Intangibles

In connection with our restructuring program announced on June 4, 2001, we
identified indicators of possible impairment of goodwill and other acquired
intangible assets relating to previous acquisitions. These indicators included
the deterioration in the business climate, changes in sales and cash flow
forecasts, revised strategic plans for certain acquired business and significant
declines in the market values of companies in the security, wireless and general
technology industries. As a result, we performed an impairment assessment of the
identifiable intangible assets and goodwill recorded in connection with the
acquisitions of DRG Resources Group, Inc. and Uptronics, Inc. Accordingly,
Certicom compared the undiscounted cash flows associated with the acquired
intangible assets and goodwill with the respective carrying amounts and
determined that an impairment of certain assets existed. As a result, we
recorded an impairment of intangible assets and goodwill of $9.4 million,
measured as the amount by which the carrying amount exceeded the present value
of the estimated future cash flows associated with goodwill and intangible
assets. 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 intangible assets 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 developing
product and services, 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, including a consolidation of distribution channels and a
redeployment of product development to focus on our enabling technologies. On
August 16, 2001 and November 9, 2001, we announced additional workforce
reductions as part of our restructuring program.

As a result of the restructuring program, we recorded restructuring costs
of approximately $9.5 million for the three months ended July 31, 2001 and $12.0
million for three months ended October 31, 2001. We recorded restructuring
expenses in the following areas: 1) reduction in workforce; 2) consolidation of
excess facilities and non-productive property and equipment; and 3) elimination
of deferred compensation. In addition, we recorded a non-cash charge of $0.5
million to write-down non-software product inventory related to businesses we
are exiting.

Since June 4, 2001, we have announced reductions in our work force of
approximately 63% across all business functions and geographic regions. During
the six months ended October 31, 2001, we recorded an estimated charge of
approximately $3.3 million relating primarily to severance and fringe benefits.

During the six months ended October 31, 2001, we recorded a restructuring
charge of approximately $14.1 million for property and equipment that will be
disposed of or removed from operations and excess facilities including computer
equipment and software no longer in use due to the reduction in workforce and
downsizing of infrastructure, leasehold improvements and lease inducements
related to facilities we no longer plan to occupy. Included in the $14.1 million
restructuring charge is a $2.8 million accrued restructuring charge for future
leasehold improvements that we are contractually obligated to pay.

For the six months ended October 31, 2001 we also wrote off $1.1 million of
lease inducements related to these leasehold improvements. Lease inducements are
reimbursements received from the landlord for certain leasehold improvements.

During the six months ended October 31, 2001, we recorded a charge of $4.2
million for non-cancelable lease costs, of which we have paid $0.4 million,
under the assumption that we will not be able to sublease certain of our excess
facilities in the next two years. The term of this lease extends to April 2011
and the total lease payments for the full term of this lease are approximately
$9.5 million based on the exchange rate as of October 31, 2001.

with certain sub-tenants of our facilities for which agreements were entered
into subsequent to July 31, 2001. The restructuring adjustment related to these
sub-tenant agreements was a $1.4 million reduction.

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 announced 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 termination of the
employees. As a result, approximately $2.3 million of deferred compensation
charges were recorded in the first quarter of fiscal 2002.

For the three and six months ended October 31, 2001, the Company recorded
charges for restructuring activities and the write-down of inventory, goodwill
and other intangible assets. There were no such charges for the three and six
months ended October 31, 2000. The following table summarizes these charges (in
thousands of U.S. dollars):

October 31, 2001 Cumulative Drawdown
------------------------- -------------------
Provision
Three months Six months Cash Non-Cash Balance at
ended ended Payments Charges October 31, 2001
------------ ---------- -------- -------- ----------------

Restructuring cost:
Severance: $ 1,144 $ 3,266 $ 2,596 $ -- $ 670
Property and equipment: 11,346 14,142 -- 11,318 2,824

Write down of lease
Inducements: (1,105) (1,105) -- (1,105) --
Future lease commitments and
lease exit costs: 1,872 4,165 359 -- 3,806
Sub tenant lease adjustment: (1,413) (1,413) -- -- (1,413)
Deferred compensation: -- 2,322 -- 2,322 --
Other items: 203 203 8 120 75
----------- --------- --------- -------- ----------------
Total restructing costs 12,047 21,580 2,963 12,655 5,962
----------- --------- --------- -------- ----------------

Write down of inventory included in
cost of products revenue 486 486 -- 486 --

Impairment of goodwill and
other intangible assets: -- 9,352 -- 9,352 --
----------- --------- --------- -------- ----------------
Total charges $ 12,533 $ 31,418 $ 2,963 $ 22,493 $ 5,962
=========== ========= ========= ======== ================

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 Six months ended
October 31, October 31,
---------------------- -----------------------
2001 2000 2001 2000
-------- --------- -----------------------
U.S. $ 2,312 $ 4,317 $ 4,211 $ 8,706
Canadian 126 730 674 760
International 270 1,254 367 1,888
-------- --------- --------- ----------
Total revenue $ 2,708 $ 6,301 $ 5,252 $ 11,354
======== ========= ========= ==========

For the three months ended October 31, 2001, one of our professional
services customers accounted for approximately 12% of our total revenue. For the
three months ended October 31, 2000, two customers each accounted for more then
10% of our total revenue. For the six month period ended October 31, 2001, one
of our professional services customer accounted for more than 10% of our total
revenue. For the six month period ended October 31, 2000, two of our customers
each accounted for more than 10% of our total revenue.

Note 7. Public Offering and Stock Split

In May 2000, we completed a public offering of 2,500,000 of our 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.

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 $499,000
was recorded for the three months ended October 31, 2000. As of July 31, 2001,
the price of our common shares was less than the exercise price of the repriced
stock options. As a result, a credit of approximately $311,000 was recorded to
stock compensation amortization expense in the first quarter of fiscal 2002.
Deferred compensation expense related to this repricing of options was $0 for
the second quarter of fiscal 2002. As of October 31, 2001, the price of our
common shares was less than the exercise price of the repriced options and
therefore no compensation expense was recorded during the second quarter of
fiscal 2002.

On July 6, 2001, we announced a voluntary stock option exchange program to
be offered to employees in which employees were 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 received one new option for each two
options tendered for exchange. For options with exercise prices between $10.00
and $22.99, program participants received two new options for each three options
tendered for exchange. Options with exercise prices below $10.00 could not be
voluntarily tendered for exchange under this 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. The stock
option exchange period ended on October 25, 2001. Employees tendered
approximately 902,346 stock options and, in exchange for such options, Certicom
intends to issue approximately 530,900 new stock options no sooner than April
29, 2002. Because no stock options have been issued to these employees since
cancellation and the strike price of the stock options issued to these employees
in the six months preceding the cancellations are above the fair market value of
Certicom's common stock at October 31, 2001, Certicom has not recorded stock
compensation expense related to the cancellation of these stock options.

Note 9. Convertible Debentures

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. Subsequently, the Notes were converted by the holders
thereof, without payment of additional consideration, into an equal principal
amount of 7.25% senior convertible unsecured subordinated debentures (the
Debentures). 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 ($2.42 based on
the exchange rate at October 31, 2001) per common share. Certicom can redeem the
Debentures at any time after August 30, 2003 at a price per Debenture equal to
the principal amount thereof to be redeemed, together with accrued and unpaid
interest on the principal amount of the Debenture so redeemed if the price of
the Company's common shares is not less than 125% of the conversion price. The
Debentures provide for semi-annual payments of interest beginning February 28,
2002. The debt issuance costs are being amortized over the term of the
Debentures using the interest method. After deducting underwriting commissions
and offering expenses, the net proceeds of this offering were Cdn.$12.3 million
(approximately $7.7 million based on the exchange rate on October 31, 2001). The
net proceeds from the offering will be used for working capital and general
corporate purposes.

Note 10. Contingencies

The nature of our business subjects us to numerous regulatory
investigations, claims, lawsuits and other proceedings in the ordinary course of
our business. The results of these legal proceedings cannot be predicted with
certainty. There can be no assurance that these matters will not have a material
adverse effect on our results of operations in any future period, depending
partly on the results for that period, and a substantial judgment could have a
material adverse impact on our financial condition.

In April 2000, we received a letter on behalf of Carnegie Mellon University
asserting that it owns the trademark "CERT", and that it believes our use of the
stock symbol "CERT" will cause confusion with and/or dilute its purported
trademark. Although we intend to defend our use of the stock symbol "CERT"
vigorously, there can be no assurance that we will be successful in doing so, or
that this dispute with the University will not have a material adverse impact on
us.

We have also received a letter on behalf of Geoworks Corporation asserting
that it holds a patent on certain aspects of technology that are part of the WAP
standard. Our WTLS Plus(TM) toolkit may be used to implement WAP-compliant
technology. After an internal investigation based upon the description of
Geoworks' purportedly patented technology provided by Geoworks, it is our belief
that our toolkits do not include implementation of the Geoworks technology. We
have also become aware of a letter circulated on behalf of a Mr. Bruce Dickens
asserting that he holds a patent on certain aspects of technology that are
implemented within certain portions of the SSL standard. After an internal
investigation, it is our belief that we do not implement any validly patented
technology. We have received a letter on behalf of eSignX (eSignX) Corporation
drawing our attention to a patent which it purports to hold on certain aspects
of technology related to the use of WAP-enabled portable electronic
authorization devices for approving transactions. The letter states that, based
upon a review of a press release announcing our Trustpoint(TM) PKI product, that
our product may be covered by eSignX's patent. We have conducted an initial
investigation and due to the vague description of the suggested infringement by
our products, we were unable to determine the validity of such suggestions. We
requested further elaboration from eSignX, and while a response was recently
provided, this matter is complex in nature and we have not had an opportunity to
perform an appropriate analysis. Although we intend to vigorously defend any
litigation that may arise in connection with these matters, 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.

On October 18 2001, we were served with a lawsuit commenced by Mr. Leon
Stambler against several companies, asserting that Mr. Stambler holds
enforceable patents on certain aspects of technology related to online
transactions, and seeking unspecified damages (U.S. District Court- Delaware/
Case # 01-0065-SLR). We have retained counsel and filed an answer to that
complaint. Although we intend to vigorously defend our right to the use the
indicted technology, there can be no assurance that we will be successful in
doing so. Continued litigation is likely to be expensive and time-consuming. In
general, there can be no assurance that such asserted patents will not have a
material adverse impact on us.

In addition, one of our former employees retained counsel and demanded
payment of approximately $375,000 in settlement of a claim for discrimination
and wrongful termination. Although we intend to vigorously defend any litigation
that may arise in connection with these matters, 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.

The Company has not set aside any financial reserves related to the actions
discussed above.

Note 11. Recent Accounting Pronouncement

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 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.

In October, 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of certain long lived
assets. This statement is effective for fiscal years beginning after December
15, 2001. The impact of adopting SFAS No. 144 has not been determined.

Note 12. Subsequent Events

On November 9, 2001, we announced that we would further reduce our
workforce by 30% by the end of the third quarter of fiscal 2002 such that total
workforce reductions since June 4, 2001 are approximately 63%. As of November
30, 2001 the number of active employees was 194.

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

Overview

We are a leading provider of information security software and services,
specializing in solutions for mobile e-business and the mobile workforce. 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
and the mobile workforce.

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 100 companies.

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 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
are being amortized over a three to five year period. As of October 31, 2001, we
have approximately $6.2 million of recorded goodwill and other intangible
assets.

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 and employees of DRG Resources Group, Inc. left our company and we
wrote-off all goodwill and intangible assets and decreased deferred compensation
expense such that, as of October 31, 2001, only $0.7 million remains.

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

We have incurred substantial operating losses since our inception and we
expect to continue to incur operating losses in the future and we may never
achieve profitability. As of October 31, 2001, we had an accumulated deficit of
approximately $151 million as determined in accordance with U.S. GAAP.

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 Six months ended
------------------ ----------------
October 31, October 31,
---------- ----------

2001 2000 2001 2000
Consolidated Statement of Operations Data: (%) (%) (%) (%)
Revenues:
Products 39 80 38 79
Services 61 20 62 21
------ ------ ------ ------
Total revenues 100 100 100 100

Cost of revenues:
Products 20 4 12 4
Services 75 37 86 30
------ ------ ------ ------
Total cost of revenue 95 41 98 34

Operating expenses:
Sales and marketing 131 69 174 66
Product development and engineering 70 48 84 48
General and administrative 99 52 102 51
Depreciation and amortization 117 47 129 50
Goodwill impairment - - 178 -
Restructuring costs 445 - 411 -
------ ------ ------ ------
Total operating expenses 862 216 1,078 215

Loss from operations (857) (157) (1,076) (149)
Other income:
Interest income expense (1) 14 14 16
Other income and expense 2 -- 1 (4)
------ ------ ------ ------
Total other income (expense) 1 14 15 12

Loss before provision for income taxes (856) (143) (1,061) (137)
Provision for income taxes 1 1 1 2
------ ------ ------ ------
Net loss (857) (144) (1,062) (139)
====== ====== ====== ======

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.

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 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.

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.

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 Six months ended
October 31, October 31,
--------------------- -------------------
2001 2000 2001 2000
------ -------- -------- --------
Products 39% 80% 38% 79%
Services 61 20 62 21
------ -------- -------- --------
Total revenue 100% 100% 100% 100%
====== ======== ======== ========

U.S. 85% 68% 80% 77%
Canadian 5 12 13 7
International 10 20 7 16
------ -------- -------- --------
Total revenue 100% 100% 100% 100%
====== ======== ======== ========

Total revenues for the three months and six month periods ended October 31,
2001 were $2.7 million and $5.3 million, respectively, a 57% and 54% decrease
compared to $6.3 million and $11.4 million for the comparable periods in the
prior fiscal year. The decrease in total revenue was primarily attributable to
our transition from the perpetual license model to the subscription license
model. In addition, due to the economic recession, we experienced a reduction in
the total number of deals sold and the number of large deals sold compared to
the three and six month periods ended October 31, 2000.

For the three months ended October 31, 2001, one of our professional
services customers accounted for approximately 12% of our total revenue. For the
six month period ended October 31, 2001, one of our professional services
customer accounted for more than 10% of our total revenue. For the six month
period ended October 31, 2000, two of our customers each accounted for more than
10% of our total revenue.

Product revenues were $1.1 million and $2.0 million for the three and six
month periods ended October 31, 2001, respectively, a 79% and 78% decrease
compared to $5.1 million and $9.0 million for the same periods in the

prior fiscal year. The decrease was due to a majority of our new license
contracts being recognized using our subscription license. Under our new
subscription license, 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 due to a reduction in the
total number of deals completed including fewer purchases of prepaid royalties
and the number of large deals sold compared to the same periods in the prior
fiscal year. As a result of the downturn in wireless spending and the high
technology sector some Certicom customers have either deferred projects to
future dates or have experienced budget constraints which caused a reduction in
their purchases of Certicom products.

Services revenues were $1.7 million and $3.3 million for the three and six
month periods ended October 31, 2001, respectively, a 33% and 39% increase
compared to $1.2 million and $2.3 million for the three and six month periods
ended October 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.

Deferred revenues result primarily from customer prepayments under
subscription licenses and software maintenance which are recognized ratably over
the life of the agreements; certain royalty agreements which are recognized as
royalty license criteria are met; and professional services contracts, which are
recognized as the services are performed. Deferred revenue is recognized only
when collection of the receivables is reasonably assured.

Revenues from international sales for the three and six month periods ended
October 31, 2001 were $0.3 million and $0.4 million, respectively compared to
$1.3 million and $1.9 million for the same periods in fiscal 2001. International
revenue accounted for 10% and 7% of total revenues for the three and six month
periods October 31, 2001 compared to 20% and 16% for the same periods in fiscal
2001. Certicom expects international sales to continue to remain constant as a
percentage of total revenues in fiscal 2002. We expect to continue to invest in
our international operations as we plan for growth in international markets.

Cost of Revenues

Total cost of revenues increased 1% to $2.6 million and $35% to $5.1
million for the three and six month periods ended October 31, 2001,
respectively, compared to $2.6 million and $3.8 million for the same periods in
the prior fiscal year. Cost of revenues consists of cost of the products and
services.

Cost of product revenues was $0.6 million for each of the three and six
month periods ended October 31, 2001, respectively, a 150% and 39% increase as
compared to $0.2 million and $0.5 million for the same periods of fiscal 2001.
Our cost of products consists primarily of the cost of hardware products
manufactured by third parties to our specifications as well as the costs of
third-party hardware technology. In October 2001, we wrote-down $0.5 million of
inventory related to businesses which we exited.

Cost of services revenue was $2.0 million and $4.5 million for the three
and six month periods ended October 31, 2001 respectively, a 14% decrease and
34% increase compared to $2.3 million and $3.4 million for the same periods in
the prior fiscal year. Services costs of revenues consists primarily of
personnel related costs associated with providing professional services,
customer support and our MobileTrust hosting services to customers and the
infrastructure to manage these organizations as well as costs to recruit,
develop and retain our services employees. In addition, cost of services revenue
includes the amortization of deferred compensation expense in connection with
the acquisition of DRG Resources Group, Inc. The decrease for the three months
ended October 31, 2001 is primarily due to the decrease in deferred compensation
to $516,000 from $860,000, and the reduction in services employees as a result
of the June 4, 2001 and August 9, 2001 restructuring programs. The increase for
the six months ended October 31, 2001 is primarily due to the increase in
services employees for the three months ended July 31, 2001 as compared to the
three months ended July 31, 2000.

Operating Expenses

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

Sales and Marketing

Sales and marketing expenses consist primarily of employee salaries and
commissions, related travel, public relations and corporate communications,
trade shows, marketing programs and market research and related infrastructure
to manage these operations.

Sales and marketing expenses were $3.5 million and $9.2 million for the
three and six month periods ended October 31, 2001, respectively, compared to
$4.3 million and $7.5 million for the same periods in fiscal 2001, a decrease of
18% and an increase of 22%, respectively. The decrease in sales and marketing
expenses for the three months ended October 31, 2001, was primarily due to a
decrease in sales and marketing employees and a reduction in trade shows and
marketing programs. The increase in sales and marketing for the six months ended
October 31, 2001, was primarily due to the increase in sales employees for the
three months ended July 31, 2001 as compared to the three months ended July 31,
2000.

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.

Product development and engineering expenses were $1.9 million and $4.4
million for the three and six month period ended October 31, 2001, respectively,
compared to $3.0 million and $5.4 million for the same periods in fiscal 2001, a
decrease of 37% and 19% respectively. The decrease is due to the cost savings
related to the Company's restructuring efforts.

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, amortization of stock compensation expense and bad
debt expense.

For the three and six month period ended October 31, 2001, general and
administrative expenses were $2.7 million and $5.3 million, respectively, a
decrease of 18% and 9% compared to $3.3 million and $5.8 million for the same
periods in fiscal 2001. The decreases in fiscal 2002, which include $0.4 million
for bad debt expense in the three and six month periods ended October 31, 2001,
respectively, are the result of the implementation of our restructuring program
announced on June 4, 2001. Since that time we have reduced the number of general
and administrative employees and the associated costs.

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 were $3.2 million and $6.8 million for the
three and six month periods ended October 31, 2001, respectively, an increase of
7% and 18% compared to $3.0 million and $5.7 million for the same periods in
fiscal 2001.

Impairment of Goodwill and Other Intangibles

Restructuring Costs

As a result of the restructuring program, we recorded restructuring costs
of approximately $9.5 million for the three months ended July 31, 2001 and $12.0
million for three months ended October, 2001. We recorded restructuring expenses
in the following areas: 1) reduction in workforce; 2) consolidation of excess
facilities and non-productive property and equipment; and 3) elimination of
deferred compensation. In addition, we recorded a non-cash charge of $0.5
million to write-down non-software product inventory related to businesses we
are exiting.

Since June 4, 2001, we have announced reductions in our workforce of
approximately 63% across all business functions and geographic regions. During
the six months ended October 31, 2001, we recorded an estimated charge of
approximately $3.3 million relating primarily to severance and fringe benefits.

During the six months ended October 31, 2001, we recorded a restructuring
charge of approximately $13.0 million for property and equipment that will be
disposed of or removed from operations and excess facilities including computer
equipment and software no longer in use due to the reduction in workforce and
downsizing of infrastructure,leasehold improvements related and lease
inducements to facilities we no longer plan to occupy.

For the six months ended October 31, 2001, we also wrote off $1.1 million
of lease inducements related to these leasehold improvements. Lease inducements
are reimbursements received from the landlord for certain leasehold
improvements.

During the six months ended October 31, 2001, we recorded a charge of $4.2
million for non-cancelable lease costs, of which we have paid $0.4 million under
the assumption that we will not be able to sublease certain of our excess
facilities in the next two years.

During our second fiscal quarter ended October 31, 2001, we made
adjustments to our non-cancelable lease estimates made during our first fiscal
quarter ended July 31, 2001. We made these adjustments to reflect agreements
with certain sub-tenants of our facilities for which agreements were entered
into subsequent to July 31, 2001. The restructuring adjustment related to these
sub tenant agreements was a $1.4 million reduction.

OCTOBER 31, 2001 CUMULATIVE DRAWDOWN
---------------------------- ---------------------------
PROVISION
Three Months Six Months Cash Payments Non-Cash Balance At
Ended Ended Charges October 31, 2001

Restructuring cost:
Severance: $ 1,144 $ 3,266 $ 2,596 $ - $ 670
Property and equipment: 11,346 14,142 - 11,318 2,824

Write down of lease
Inducements: (1,105) (1,105) - (1,105) -
Future lease commitments and
lease exit costs: 1,872 4,165 359 - 3,806
Sub tenant lease adjustment: (1,413) (1,413) - (1,413)
Deferred compensation: - 2,322 - 2,322 -
Other items: 203 203 8 120 75
-------- -------- -------- -------- --------
12,047 21,580 2,963 12,655 5,962
-------- -------- -------- -------- --------
Deferred compensation: - 2,322 - 2,322 -
Other items: 203 203 8 120 75
-------- -------- -------- -------- --------
12,047 21,580 2,963 12,655 5,962
-------- -------- -------- -------- --------

Write down of inventory: 486 486 - 486 -

Impairment of goodwill and
other intangible assets: - 9,352 - 9,352 -
-------- -------- -------- -------- --------
Total charges $ 12,533 $ 31,418 $ 2,963 $ 22,493 $ 5,962
======== ======== ======== ======== ========

As a result of our on-going restructuring program, we expect to realize a
total quarterly expense reduction of approximately $9.3 million as compared to
the fourth quarter of fiscal year 2001, excluding non-cash related expenses such
as depreciation, amortization, and deferred compensation. As discussed above,
expenses include both cost of revenues and operating expenses. The expected
quarterly expense reduction began in our first quarter of fiscal year 2002;
however the full effect will not be realized until our fourth quarter of fiscal
year 2002

Interest and Other Income (Expense)

For the three and six month periods ended October 31, 2001, interest income
was $150,000 and $866,000, respectively, compared to $833,000 and $1.8 million
for the same periods in the prior fiscal year. The decline in interest income is
the result of a decrease in cash and marketable securities invested and the
decline in interest rates on short term investments for the three and six month
periods ended October 31, 2001.

Interest expense for the three and six months ended October 31, 2001, was
$171,000 as compared to no interest expense and $423,000 of interest expense for
the three and six months ended October 31, 2000. In August 2001, Certicom issued
Cdn $13.5 million aggregate principal amount of 7.25% senior unsecured
convertible notes (the Notes) on a private placement basis. The Notes were
subsequently converted by the holders thereof, without payment of additional
consideration into an equal principal amount of 7.25% senior convertible
unsecured subordinated debentures (the Debentures). The Debentures mature on
August 30, 2004 and are convertible into our common shares at the holder's
option at a conversion price of Cdn $3.85 ($2.42 based on the exchange rate on
October 31, 2001) per common share. 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
50,000 of our common shares at an exercise price of Cdn $38.13 ($23.97 based on
the exchange rate on October 31, 2001) per share 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

For each of the three and six month periods ended October 31, 2001, the
provision for income taxes was $45,000 as compared to $55,000 and $135,000 for
the same periods in the prior fiscal year. We pay taxes in accordance with U.S.
federal, state and local tax laws and Canadian federal, provincial and municipal
tax laws. 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 carry forwards 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 50,000 of our common shares at an exercise
price of Cdn.$38.13 ($23.97 based on the exchange rate on October 31, 2001) per
share 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 ($7.86 based on the exchange
rate on October 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 ($31.4 million based on the exchange rate on
October 31, 2001). After deducting underwriting discounts and commissions and
offering expenses, the net proceeds of this offering were Cdn.$47.2 million
($29.7 million based on the exchange rate on October 31, 2001).

At October 31, 2001, total cash and available-for-sale marketable
securities were $28.9 million, excluding $2.0 million of restricted cash.

During the six months ended October 31, 2001, Certicom's operating
activities used net cash of $19.6 million. Net cash used in operating activities
was primarily due to our net loss of $55.8 million, which was offset by non-cash
charges of $30.3 million. The non-cash charges included $6.8 million of
depreciation and amortization, $9.4 million of impairment of goodwill and other
intangibles, $13.1 million of non-cash restructuring costs, and $1.0 million of
stock compensation expense. Net changes in assets and liabilities consisted
primarily of an increase in accrued restructuring charges of $6.0 million and a
decrease in accounts receivable of $3.8 million, offset by a decrease in
accounts payable of $4.2 million.

During the six months ended October 31, 2001, Certicom's investing
activities provided net cash of $8.6 million. Net cash provided by investing
activities was primarily due to $22.0 million of net sales and maturities of
marketable securities. The cash generated from sales and maturities of
marketable securities was offset by $13.4 million of capital expenditures for
property, equipment and patents, net of $0.8 million in lease inducements
received. These consisted primarily of $10.9 million of leasehold improvements
and related costs and $2.5 million of software and hardware cost.

During the six months ended October 31, 2001, Certicom's financing
activities provided net cash of $9.8 million. Net cash provided by financing
activities was primarily due to the issuance of convertible debentures of $7.7
million and the issuance of common shares, including these related to the
exercise of stock options of $2.2 million.

We lease premises totaling approximately 111,000 square feet in Hayward,
California. These leases expire in July, 2007. Through October 31, 2001, we had
capitalized leasehold improvements and related construction costs totaling
approximately $11.5 million for our Hayward facilities of which $2.7 million
have been written-down due to restructuring initiatives which indicate we will
not occupy 43,000 square feet for one of the buildings. We 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.
In addition, we have a ten year lease for a building of approximately 130,000
square feet located in Mississauga, Ontario. At this time, the facility is being
constructed at our expense and we expect the total construction cost will be
approximately $8.1 million. In addition, we anticipate incurring approximately
an additional $2.8 million subsequent to October 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. As a result of our restructuring initiatives, we intend
to sublease the entire

130,000 square feet or structure a transaction to buy-out the lease. The annual
rental fee for the new site varies between approximately Cdn.$10.85 to
Cdn.$13.05 per square foot ($6.82 to $8.20 per square foot based on the exchange
rate on October 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 2007. The total annual base rent
for all facilities is approximately $3.1 million.

In November 2001, we signed two sublease agreements. One sublease was for
one of our buildings in Hayward for approximately 43,000 square feet. The
sublease expires in July 2007 and the sublease rent per square foot exceeds the
rent per square foot we pay to our landlord under our current lease agreement.
The other sublease agreement is for our Herndon facility. The sublease expires
in October 2007 and the sublease rent per square foot is less than the rent per
square foot we pay to the landlord.

In June 2001, we converted our enabling technologies products primarily to
subscription-based licenses. Currently, our trust services and enterprise
application software 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. At this
time, 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 October
31, 2001, we had an accumulated deficit of approximately $150.8 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,
to maintain existing customer relationships and to 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 our facilities consolidation;

. 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.

Because our revenues are difficult to predict, we may not be able to adjust
spending in a timely manner to compensate for a shortfall in revenue

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, stop using or not
renew the subscription license of 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 on a subscription or perpetual basis, 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, a portion of our revenues are
not recurring from period to period, which makes them more difficult to predict.
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 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 and backlog 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 decreases in gross domestic product, reflect a recessionary economy 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 and wireless communications markets. 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 cycle and reduced the dollar amount of
contracts we sign. 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 our workforce of approximately 30% as well as other steps to
reduce expenses. In August 2001 and November 2001, we announced additional
workforce reductions, representing a decrease of approximately 63% of our
workforce from June 2001 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
decrease less quickly than we expect. If we find that our restructuring
activities announced in June, August and November do not sufficiently decrease
our expenses, we may find it necessary to implement further streamlining of our
expenses, to perform further reductions in our workforce 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. For the six months ended October 31, 2001, five
customers accounted for approximately 31% of our revenue. For the three month
ended October, 2001, one of our professional services customers accounted for
approximately 12% of our total revenue. For the three months ended October 31,
2000, two customers each accounted for more then 10% of our total revenue. For
the six month period ended October 31, 2001, one of our professional services
customers accounted for more than 10% of our total revenue. For the six month
period ended October 31, 2000, two of our customers each accounted for more than
10% of our total revenue.

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

In October 2000 we signed a ten-year lease, effective May 2001, for
approximately 130,000 square feet located in Mississauga, Ontario. At this time,
the facility is being constructed at our expense and we expect the total cost
will be approximately $8.7 million. Through October 31, 2001, we have incurred
$5.9 million of the total construction costs. We anticipate incurring
approximately $2.8 million in additional construction costs subsequent to
October 31, 2001 to complete the build-out of the facility. At this time, we do
not plan to occupy the facility. Therefore, we are in the process of subleasing
100% of the facility as well as discussing other alternatives with the landlord
to terminate the lease. We may not be able to find suitable sub-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.

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.
This lease expires in July 2007 and has an initial monthly rent of approximately
$61,000, with 3% annual increases. The lease on our adjacent Hayward facility
expires in July 2007 and has 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 68,000 square foot facility and in November 2001, subleased our 43,000
square foot Hayward office space at a rental rate slightly above our rental
rate. The sub-tenant is a privately financed medical device manufacturer which
was started in 1998. The sub-tenant is not yet profitable and there is no
assurance the sub-tenant will become profitable. If the sub-tenants were to
discontinue paying rent, we would experience greater than planned operating
expenses which could materially adversely affect our financial condition and
operating results.

We signed in October 2001 a ten-year lease for approximately 130,000 square
feet located in 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. The annual rental fee for the new site
varies between approximately Cdn.$10.85 to Cdn.$13.05 per square foot ($6.82 to
$8.20 per square foot based on the exchange rate on October 31, 2001) over the
life of the lease. We began paying rent on this lease in May 2001. At this time
we do plan to occupy this facility.

We are currently searching for tenants to sublease our current Hayward and
new Mississauga spaces. We may not be able to find suitable sub-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, which could reduce the demand for
some of our products and, consequently, our business, financial condition and
results of operations could be materially adversely affected.

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 sell certain products directly to enterprises
other than OEMs. The direct-to-enterprise sales efforts will require that we
attract, hire, train, manage and adequately compensate a larger group of
professionals. We may not be successful in managing our sales effort so 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.

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 debentures and our increased debt may place
restrictions on our operations and limit our growth

On August 30, 2001, we issued and sold Cdn.$13.5 million ($8.7 million
based on exchange rate on August 30, 2001) aggregate principal amount of 7.25%
convertible notes (the Notes) on a private placement basis. The Notes were
subsequently converted by the holders thereof, without payment of additional
consideration, into an equal principal amount of 7.25% senior convertible
unsecured subordinated debentures (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
($2.42 based on the exchange rate on October 31, 2001) per common share. If all
of the Debentures are converted into common shares, holders of our outstanding
common shares could have substantial dilution of their interest in the Company.

Our total liabilities on a consolidated basis as at October 31, 2001 were
approximately $25.9 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 ($615,340 based on the exchange rate on October
31, 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;

. 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

. 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 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

For the six months ended October 31, 2001 and the fiscal year ended April
30, 2001, we derived approximately 7% 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 future 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.

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.

We occasionally receive communications from third parties alleging patent
or copyright infringement, and there is always the chance that third parties may
assert infringement claims against us. Currently, we are defending a claim filed
against us by Leon Stambler. Any such claims, with our without merit, could
result in costly litigation, expense of significant resources to develop
non-infringing technology, cause product shipment delays or require us to enter
into royalty or licensing agreements. We cannot be certain that the necessary
licenses will be available or that they can be obtained on commercially
reasonable terms. If we were to fail to obtain such royalty or licensing
agreements in a timely manner and on reasonable terms, our business, financial
condition and results of operations would 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.

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 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

. 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 terms 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.

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.

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%.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Foreign Exchange Risk

Currency fluctuations may materially adversely affect us. In fiscal 2000,
approximately 33% of our total operating expenses were paid in currencies other
than the U.S. dollars. In fiscal 2001, approximately 29% of our total operating
expenses were paid in currencies other than the U.S. dollar In the first six
months of fiscal 2002, approximately 30% of our total operating expenses were
paid in currencies other than the U.S. dollar. Fluctuations in the exchange rate
between the U.S. dollar and such other currencies may have a material adverse
effect on our business, financial condition and operating results. In
particular, we may be materially adversely affected by a significant
strengthening of the Canadian dollar against the U.S. dollar.

We currently do not use financial instruments to hedge operating expense in
foreign currencies. We intend to assess the need to utilize financial
instruments to hedge currency exposures on an ongoing basis.

Interest Rate Risk

We hold a significant portion of our cash in interest-bearing instruments
and are exposed to the risk of changing interest rates. The primary objective of
our investment activities is to preserve principal while at the same time
maximizing the income we receive from our investments without significantly
increasing risk. We place our investment with high credit quality issuers and,
by policy, limit the amount of the credit exposure to any one issuer.

All highly liquid investments with a maturity of less than three months at
the date of purchase are considered to be cash equivalent. All investments with
maturities of three months or greater are classified as available-for-sale and
considered to be short-term investments. Some of the securities that we have
invested in may be subject to market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. We believe that an immediate 100 basis point move in interest rates
would not materially affect the fair market value of our portfolio. To minimize
this risk, we maintain our portfolio of cash equivalent and short-term
investments in a variety of securities, including commercial paper, medium-term
notes, and corporate bonds. As of October 31, 2001, our interest rate risk was
further limited by the fact that approximately 100% of our investments mature in
less than one year. We do not use any derivative instruments to reduce our
exposure to interest rate fluctuations.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In April 2000 we received a letter on behalf of Carnegie Mellon University
asserting that it owns the trademark "CERT", and that it believes our use of the
stock symbol "CERT" will cause confusion with and/or dilute its purported
trademark. Although we intend to defend our use of the stock symbol "CERT"
vigorously, there can be no assurance that we will be successful in doing so, or
that this dispute with the University will not have a material adverse impact on
us.

We have also received a letter on behalf of Geoworks Corporation asserting
that it holds a patent on certain aspects of technology that are part of the WAP
standard. Our WTLS Plus(TM) toolkit may be used to implement WAP-compliant
technology. After an internal investigation based upon the description of
Geoworks' purportedly patented technology provided by Geoworks, it is our belief
that our toolkits do not include implementation of the Geoworks technology. We
have also become aware of a letter circulated on behalf of a Mr. Bruce Dickens
asserting that he holds a patent on certain aspects of technology that are
implemented within certain portions of the SSL standard. After an internal
investigation, it is our belief that we do not implement any validly patented
technology. We have received a letter on behalf of eSignX Corporation drawing
our attention to a patent which it purports to hold on certain aspects of
technology related to the use of WAP-enabled portable electronic authorization
devices for approving transactions. The letter states that, based upon a review
of a press release announcing our Trustpoint(TM) PKI product, that our product
may be covered by eSignX's patent. We have conducted an initial investigation
and due to the vague description of the suggested infringement by our products,
we were unable to determine the validity of such suggestions. We requested
further elaboration from eSignX, and while a response was recently provided, it
is complex in nature and we have not had an opportunity to perform an
appropriate analysis. Although we intend to vigorously defend any litigation
that may arise in connection with these matters, 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.

On October 18 2001, we were served with a lawsuit commenced by Mr. Leon
Stambler against several companies asserting that Mr. Stambler holds enforceable
patents on certain aspects of technology related to online transactions, and
seeking unspecified damages (U.S. District Court- Delaware/ Case # 01-0065-SLR).
We have retained counsel and filed an answer to that complaint. Although we
intend to vigorously defend our right to the use the indicted technology, there
can be no assurance that we will be successful in doing so. In general, there
can be no assurance that such asserted patent will not have a material adverse
impact on us. Continued litigation is likely to be expensive and time-consuming.
In general, there can be no assurance that such asserted patents will not have a
material adverse impact on us.

Item 4. Submission of Matters to a Vote of Security Holders

At our Annual Meeting of Shareholders held on October 22, 2001, each of
Bernard W. Crotty, William T. Dodds, Louis E. Ryan, William J. Stewart, Scott A.
Vanstone and Robert P. Wiederhold was elected as a Director by the number of
votes set forth in item 1 of the table below. The following proposals were
adopted by the margins required under applicable law:

Number of shares

Votes Votes Votes
For Withheld Excluded
----- --------- --------

1. Election of directors. 12,527,226 37,985 71,343

2. Appointment of KPMG LLP as auditors of the 12,511,979 57,964 66,611
Company to hold office until the next annual
meeting of shareholders at a remuneration to be
fixed by the Board of Directors of the Company.

Item 6. Exhibits and Reports on Form 8-K

(a) Index to Exhibits

Exhibit Number Description
-------------- ---------------------------------------------------
10.1 Sublease Agreement between Certicom Corp. as Sub-
landlord, and Guava Technologies Inc. as Subtenant,
dated November 1, 2001.

10.2 Trust Indenture - Debentures, dated August 30, 2001

10.3 Trust Indenture - Notes, dated August 30, 2001

10.4 First Supplemental Indenture, dated August 30, 2001

(b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 14th day of
December 2001.

Certicom Corp.

/s/ Gregory M. Capitolo
-----------------------
Gregory M. Capitolo
Vice President, Finance, Chief
Financial Officer and Secretary
(Principal Financial and Accounting
Officer)