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Article by DailyStocks_admin    (10-30-08 04:04 AM)

Phoenix Technologies Ltd. CEO HOBBS WOODSON bought 60000 shares on 10-27-2008 at $3.6

BUSINESS OVERVIEW

Description of Business

Phoenix Technologies Ltd. (“Phoenix” or the “Company”) designs, develops and supports core system software for personal computers and other computing devices. Our products, which are commonly referred to as firmware, support and enable the compatibility, connectivity, security and manageability of the various components and technologies used in such devices. We sell these products primarily to computer and component device manufacturers. We also provide training, consulting, maintenance and engineering services to our customers.

The majority of the Company’s revenue comes from Core System Software (“CSS”), the modern form of BIOS (“Basic Input-Output System”) for personal computers, servers and embedded devices. Our CSS customers are primarily original equipment manufacturers (“OEMs”) and original design manufacturers (“ODMs”), who incorporate CSS products during the manufacturing process. The CSS is typically stored in non-volatile memory on a chip that resides on the motherboard built into the device manufactured by our customer. The CSS is executed during the power-up process in order to test, initialize and manage the functionality of the device’s hardware. We believe that our products are incorporated into over 125 million computing devices each year, making us the global market share leader in the CSS sector.

The Company also designs, develops and supports software products and services that provide the users of personal computers with enhanced device utility, reliability and security. Included among these products and services are offerings which assist users to locate and manage portable devices that have been lost or stolen and offerings which enable certain applications to operate on the device independently of the device’s primary operating system. Although the true consumers of these products and services are enterprises, governments, service providers and individuals, we typically license these products to OEMs and ODMs to assist them in making their products attractive to those end-users.

The Company derives additional revenue from providing development tools and support services such as customization, training, maintenance and technical support to our software customers and to various development partners.

The Company was incorporated in the Commonwealth of Massachusetts in September 1979, and was reincorporated in the State of Delaware in December 1986. The Company’s headquarters is in Milpitas, California. The mailing address of our headquarters is 915 Murphy Ranch Road, Milpitas, CA 95035, the telephone number at that location is +1 (408) 570-1000 and the Company’s website is www.phoenix.com.

Products

Described below are certain selected products sold by the Company.

Phoenix Core Systems Software (CSS )

Phoenix’s CSS products include:

Phoenix SecureCore

Phoenix SecureCore TM is our primary CSS product, and consists of the firmware that, together with its predecessor TrustedCore, runs many of today’s most modern computers. SecureCore supports and enables the compatibility, connectivity, security and manageability of the various components of modern desktop and notebook PCs, PC-based servers and embedded computing systems. The SecureCore product group was released during fiscal year 2007 and includes support for a wide variety of new features developed by semiconductor manufacturers who provide products to the PC industry.

Phoenix TrustedCore

Phoenix TrustedCore TM is the predecessor to SecureCore and was the leading product from our CSS product group until the launch of SecureCore during fiscal year 2007. Customers can continue to purchase TrustedCore object licenses and source code to support older silicon versions in their new and existing products.

Phoenix Award

The Phoenix Award CSS product group supports fast time to market for high volume PC and digital device electronics design and manufacturing companies. Typically these manufacturers operate on short design and product life cycles. The Phoenix Award product group delivers the standards-based features, simplicity and small code size necessary for this dynamic market segment. Our Phoenix Award CSS product group consists of both our AwardCore TM CSS product group and our legacy Award BIOS TM product group. Our customers can continue to purchase Award BIOS object licenses and source code to support older silicon versions in their new and existing products.

Developments in Core System Software

In recent years, the personal computing industry has been migrating to a new overall design concept for the standardization of Core System Software. This standardization concept was initially pioneered by Intel with its Extensible Firmware Interface (“EFI”), created for CSS support of the Itanium processor, and the Platform Innovation Framework. Intel’s initial implementation of EFI has continued to evolve in recent years and this overall design concept is now supported by a wide industry consortium called the Unified EFI Forum, Inc., which includes Microsoft, Intel, AMD, Phoenix and others. Under this design concept, firmware has become more modular and standardized than it had been in the past. As a result, computer silicon providers are now able to deliver hardware drivers that can be easily integrated into the CSS by both independent BIOS vendors and computer OEM’s and ODM’s. In addition, due to the standardization of the interfaces, individual developers can also build add-ons or plug-ins to standard interface specifications and deliver products that may be incorporated with firmware platforms from a variety of vendors. Vendor support of these new design concepts and industry standards eases the burden of continually porting features and customizations to new hardware and personal computer designs.

The current Phoenix SecureCore architecture incorporates these philosophies, and hence supports various device drivers and value-added service offerings known as add-ons and plug-ins that we and others may sell in the future.

Phoenix New Products

Phoenix FailSafe Solution

The Phoenix FailSafe TM solution is an advanced theft-loss protection and prevention solution for mobile PCs. The FailSafe solution consists of an embedded tamper-resistant agent that resides in the mobile device and a network connected secure communications center (“SCC”). The SCC enables users to set policies for their mobile devices and then monitors those devices to detect and prevent violations of those policies. Optional features of this product include the ability for users to encrypt data on the mobile device as well as to retrieve or remove information from the device remotely. This product and the related service offering were developed by Phoenix during fiscal year 2007, and were officially launched in October 2007, so have yet to produce revenue for the Company.

Phoenix HyperSpace

The Phoenix HyperSpace TM family of products provides an environment that enables various Phoenix and third party applications to be installed on a device and to operate independently from the user’s primary operating system. A primary component of this family is a lightweight virtualization engine called Phoenix HyperCore TM , which allows multiple purpose-built applications to operate autonomously alongside the primary operating system. With HyperCore these applications can run at any time, before the primary operating system has been loaded, while it is running or after it has shut down, and users can instantaneously switch between their primary operating system and the HyperSpace environment with a single button or mouse click. Within the HyperSpace environment a specialized kernel provides services, management and security for the purpose-built applications. This product family was developed by Phoenix during fiscal year 2007, and was officially launched in November 2007, so has yet to produce revenue for the Company.

Sales and Marketing

The Company sells its products and services through a global direct sales force with sales offices in North America, Japan and the Asia Pacific region, as well as through a network of regional distributors and sales representatives. We market to OEMs, ODMs, resellers, system integrators, and system builders as well as to independent software vendors.

Significant Customers

Quanta Computer, Inc. accounted for 18% of the Company’s total revenues in fiscal year 2007. Fujitsu Ltd. accounted for 12% of the Company’s total revenues in fiscal year 2006. Lenovo (Singapore) Pte. Ltd. and Quanta Computer, Inc. accounted for 15% and 12%, respectively, of the Company’s total revenues in fiscal year 2005. No other customer accounted for more than 10% of total revenues in fiscal years 2007, 2006 or 2005.

International Sales and Activities

Revenues derived from international sales comprise a majority of total revenues. During fiscal years 2007, 2006 and 2005, $39.4 million, or 84%, $54.1 million, or 89%, and $74.7 million, or 75%, of total revenues for each of the respective years were derived from sales outside of the U.S. See Note 8 to the Consolidated Financial Statements for information relating to revenues by geographic area. We have international sales and engineering offices in Japan, Korea, Taiwan, China and India. Almost all of our license fees and royalty contracts are U.S. dollar denominated; however, we do enter into non-recurring engineering (“NRE”) service contracts in Japan in the local currency.

In addition, an increasing percentage of our labor force, particularly in engineering, is located in China, Taiwan and India. Approximately 71%, or 237, of our employees are located outside of the U.S. as of September 30, 2007.

Competition

The Company competes for sales primarily with in-house research and development (“R&D”) departments of PC and component manufacturers such as Dell, Hewlett Packard, Toshiba and Intel. These manufacturers may have significantly greater financial and technical resources, as well as closer engineering ties and experience with specific hardware platforms, than we do. We believe that OEM and ODM customers often license our CSS products rather than develop these products internally in order to: (1) differentiate their system offerings with advanced features; (2) easily leverage the additional value of our other

software solutions; (3) improve time to market;

(4) reduce product development risks; (5) minimize product development and support costs; and/or (6) enhance compatibility with the latest industry standards.

The Company also competes for sales with other independent suppliers, including American Megatrends Inc., a privately held U.S. company, and Insyde Software Corp., a public company based and listed in Taiwan.

Product Development

The Company constantly seeks to develop new products, maintain and enhance our current product lines, maintain technological competitiveness and meet continually changing customer and market requirements. Our research and development expenditures in fiscal years 2007, 2006 and 2005 were $19.2 million, $22.9 million and $20.4 million, respectively. All of our expenditures for research and development have been expensed as incurred. As of September 30, 2007, the Company’s research and development and customer engineering group included 246 full-time employees, or 74%, of our total workforce.

Intellectual Property and Other Proprietary Rights

The Company relies primarily on U.S. and foreign patents, trade secrets, trademarks, copyrights and contractual agreements to establish and maintain proprietary rights in our technology. We have an active program to file applications for and obtain patents in the U.S. and in selected foreign countries where there is a potential market for our products. As of September 30, 2007, we have been issued 79 patents in the U.S. and have 38 patent applications in process in the U.S. Patent and Trademark Office. On a worldwide basis, we have been issued 155 patents with respect to our product offerings and have 137 patent applications pending with respect to certain products we market. We also hold certain licenses and other rights granted to us by the owners of other patents. There can be no assurance that any of these patents would be upheld as valid if challenged. Of the key patents and copyrights that are most closely tied to our product offerings, none are set to expire within the next eight years.

The Company’s general policy has been to seek patent protection for those inventions and improvements likely to be incorporated in our products or otherwise expected to be of long-term value. We protect the source code of our products as trade secrets and as unpublished copyrighted works. We may also initiate litigation where appropriate to protect our rights in that intellectual property. We license the source code for our products to our customers for limited uses. Wide dissemination of our software products makes protection of our proprietary rights difficult, particularly outside the United States. Although it is possible for competitors or users to make illegal copies of our products, we believe the rate of technology change and the continual addition of new product features lessen the impact of illegal copying.

In recent years, there has been a marked increase in the number of patents applied for and issued with respect to software products. Although we believe that our products do not infringe on any patents, copyright or other proprietary rights of third parties, we have no assurance that third parties will not obtain, or do not have, intellectual property rights covering features of our products, in which event we or our customers might be required to obtain licenses to use such features. If an intellectual property rights holder refuses to grant a license on reasonable terms or at all, we may be required to alter certain products or stop marketing them.

Compliance with Environmental Regulations

The Company’s compliance with federal, state and local provisions enacted or adopted for protection of the environment has had no material effect upon our capital expenditures, earnings or competitive position.

Employees

As of September 30, 2007, we employed 334 full-time employees worldwide, of whom 246 were in research and development and customer engineering, 35 were in sales and marketing, and 53 were in general administration. Other than in Nanjing, China, where our employees have formed a trade union in accordance with local laws and regulations, our employees are not represented by any labor organizations. We have never experienced a work stoppage and we consider our employee relations to be satisfactory.



CEO BACKGROUND


Mr. Hobbs joined the Company as President and Chief Executive Officer and as a member of the Board of Directors of the Company in September 2006. Prior to joining the Company, Mr. Hobbs served as president, chief executive officer and a member of the board of Intellisync Corporation, a provider of platform-independent wireless messaging and mobile software, from 2002 to 2006. Between 1995 and 2002, Mr. Hobbs was a consulting executive for the venture capital community and a strategic systems consultant to large corporations. During this timeframe, he held the position of interim chief executive officer for various periods at the following companies: FaceTime Communications, a provider of instant messaging network-independent business solutions; Tradenable, Inc., an online escrow service company; BigBook, Inc., a provider in the online yellow pages industry; and I/PRO Corporation, a provider of quantitative measurement of Web site usage. From 1993 to 1994, Mr. Hobbs served as chief executive officer of Tesseract Corporation, a human resources outsourcing and software company. Mr. Hobbs spent the early part of his career with Charles Schwab Corporation, a securities brokerage and financial services company, as chief information officer; with Service Bureau, a division of IBM, as a developer; and with Online Focus, an online credit union system, as the director of operations.

Mr. Arnold joined the Company as Executive Vice President, Strategy and Corporate Development in September 2006 and was also appointed Chief Financial Officer in November 2006. In October 2007, Mr. Arnold was named Chief Operating Officer and Chief Financial Officer. Prior to joining the Company, Mr. Arnold served as a member of the board of the Intellisync Corporation from 2004 to 2006. From 2001 to 2006, Mr. Arnold served as a founding partner of Committed Capital Proprietary Limited, a private equity investment company based in Sydney, Australia. From 1999 to 2001, Mr. Arnold served as executive director of Consolidated Press Holdings Limited, also a private investment company based in Sydney. Mr. Arnold has also previously served as managing director of TD Waterhouse Australia, a securities dealer; as chief executive officer of Integrated Decisions and Systems, Inc., an application software company; as managing director of Eagleroo Proprietary Limited, a corporate advisory company; and in various capacities with Charles Schwab Corporation, a securities brokerage and financial services company, including serving as chief financial officer and as executive vice president — strategy and corporate development. Mr. Arnold holds a B.S. degree in psychology from Stanford University.

Dr. Banga joined the Company as Chief Technology Officer in October 2006 and was appointed Senior Vice President, Engineering in November 2006. Prior to joining the Company, he was vice president of product management at Intellisync (and at Nokia Corp., after its acquisition of Intellisync), responsible for all client-side products. Before Intellisync, Dr. Banga was co-founder and chief executive officer of PDAapps, the creator of VeriChat, a mobile instant messaging solution. PDAapps was acquired by Intellisync in 2005. From 1998 to 2005, Dr. Banga was a senior engineer at Network Appliance. Dr. Banga holds a B.Tech. in computer science and engineering from the Indian Institute of Technology, Delhi, as well as M.S. and Ph.D. degrees in computer science from Rice University.

Mr. Gibbs joined the Company as Vice President of Business Development in March 2001, was promoted to Senior Vice President and General Manager of the Information Appliance Division in May 2001, became Senior Vice President and General Manager of the Global Sales and Support Division in October 2001, and then became Senior Vice President and General Manager, Worldwide Field Operations in October 2005. From 1998 to 2001, Mr. Gibbs served as vice president, sales and Asia Pacific strategic accounts manager at FlashPoint Technologies, a company that provides embedded software solutions. From 1997 to 1998, Mr. Gibbs was vice president of sales at DocuMagix, Inc. Mr. Gibbs held a number of executive sales and business development positions with Insignia Solutions from 1993 to 1997. Mr. Gibbs holds a bachelor’s degree in economics from the University of California at Los Angeles.

Mr. Chu joined the Company as Vice President, General Counsel and Secretary in April 2007. Prior to joining the Company, from 2004 to 2007, Mr. Chu served as director of corporate legal affairs at Solectron Corporation, a leading global provider of supply chain and electronics manufacturing solutions, and as senior corporate counsel from 2003 to 2004. From 1999 to 2003, Mr. Chu was an attorney and then a senior attorney at Venture Law Group, a Silicon Valley law firm. From 1997 to 1999, Mr. Chu was an associate in the New York and Helsinki offices of White & Case LLP, an international law firm. Mr. Chu received his B.A. degree in Economics and Chinese Language and Literature from the University of Michigan and his J.D. degree from the University of Michigan Law School.


MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We design, develop and support core system software for personal computers and other computing devices. Our products, which are commonly referred to as firmware, support and enable the compatibility, connectivity, security and manageability of the various components and technologies used in such devices. We sell these products primarily to computer and component device manufacturers. We also provide training, consulting, maintenance and engineering services to our customers.

Phoenix revenue arises from two sources:

1. License fees: revenue arising from agreements that license Phoenix intellectual property rights to a third party. Primary license fee sources include 1) Core System Software, system firmware development platforms, firmware agents and firmware run-time licenses 2) software development kits and software development tools 3) device driver software 4) embedded operating system software and 5) embedded application software 2. Service fees: revenue arising from agreements that provide for the delivery of professional engineering services. Primary service fee sources include software deployment, software support, software development and technical training.

Fiscal Year 2007 Overview

The fiscal year ended September 30, 2007 was the first full fiscal year of the Company’s operations since the arrival of the Company’s new management team led by President and Chief Executive Officer, Woody Hobbs.

The Company’s results for the fiscal year ended September 30, 2007 reflect the continuing implementation of new strategic and tactical plans developed under this new leadership team. Under these plans, the Company has implemented substantial changes to its business, including significant changes to sales practices and pricing policies intended to stabilize the Company’s revenue from its CSS business and to enhance overall operating margins. This was also the first full fiscal year to reflect the Company’s previous decisions to discontinue the marketing and sale of enterprise application software products and to cease the use of fully paid-up licenses in its CSS business, and to rely instead on volume purchase license agreements (“VPAs”) and pay-as-you-go consumption-based license arrangements.

Fully paid-up licenses had accounted for over 50% of the company’s total revenue in fiscal year 2006 and accounted for no revenue in fiscal year 2007. During fiscal year 2007, Company management took several steps which succeeded in restoring recurring revenues from certain major customers who had previously had the benefit of fully paid-up licenses. Principally as a result of these initiatives, the Company’s revenue for the second half of fiscal year 2007 was more than 50% higher than its revenue for the first half of the fiscal year.

During fiscal year 2007, management also took significant steps to reduce overall operating costs and to drive higher efficiencies throughout the Company. These steps included implementing restructuring decisions made in both the first and fourth fiscal quarters as well as completing the implementation of restructuring decisions announced during the second half of fiscal year 2006. The Company’s total workforce decreased 24%, from 439 employees at September 30, 2006 to 334 employees as of September 30, 2007; however, total expenditures (including cost of goods and operating expenses) were reduced by approximately 39% as other cost management initiatives, including those launched in previous periods took their full effect.

The Company’s reported revenues for the fiscal year ended September 30, 2007 reflect a conclusion it reached in April 2007 that it would no longer be appropriate to rely on customer forecasts of consumption of the Company’s products when reporting revenue from VPAs and other similar agreements. The Company based this decision on a detailed analysis of the reliability of such customer forecasts when compared to subsequently received reports of actual consumption of its products. For periods ended on or before December 31, 2006, the Company recognized revenues from VPAs for units estimated to be consumed by the end of the following quarter, provided the customer had been invoiced for such consumption prior to the end of the current quarter and provided all other revenue recognition criteria had been met. These estimates had historically been recorded based on customer forecasts.

Actual consumption that was subsequently reported by these same customers was regularly compared to the previous estimates to confirm the reliability of this method of determining projected consumption. The Company’s examination of reports received from its customers during April 2007 regarding their actual consumption of its products during the three month period ended March 31, 2007, and a comparison of those consumption reports to forecasts previously provided by these customers, led the Company to the view that customer forecasts were no longer a reliable indicator of future consumption. Since the Company no longer considered the associated revenue to be reliably determinable, it was no longer appropriate to include future period consumption in current period revenue. As a result, no revenue associated with consumption of products that is forecasted to occur in future periods has been included in revenue for any quarter ending after December 31, 2006.

Overall total revenue for the fiscal year ended September 30, 2007 decreased to $47.0 million, from $60.5 million (a 22% decrease) in the fiscal year ended September 30, 2006. This decrease in revenue was principally attributable to the Company’s previous practice of selling fully paid-up licenses.

Fully paid-up licenses gave customers unlimited distribution rights of the applicable product over a specific time period or with respect to a specific customer device. In connection with paid-up licenses, the Company

recognized all license fees upon execution of the agreement, provided that all other revenue recognition criteria had been met. Paid-up license agreements may have had the effect of accelerating revenue into the quarter in which the agreement was executed and thereby decreasing recurring revenues in subsequent periods. During the third quarter of fiscal year 2006, the Company began changing its licensing practices away from heavy reliance on paid-up licenses to (i) VPAs for large customers and (ii) pay-as-you-go consumption-based license arrangements for smaller customers. In the fourth quarter of fiscal year 2006, the Company completely ceased entering into paid-up licenses with its customers, and converted to the use of only VPAs and pay-as-you-go consumption-based license arrangements.

The Company’s revenues for the fiscal year ended September 30, 2007 included revenues from certain customers who had entered into fully paid-up licenses in prior periods but who, as a result of the specific terms of those contracts, were no longer authorized to continue to deploy the products covered by those licenses. Additionally, certain customers who had previously had the benefit of fully paid-up licenses entered into new licensing agreements as a result of deploying newer versions of the Company’s products which were not covered by the fully paid-up licenses.

Gross margins for fiscal year 2007 were $37.3 million, a 12% decrease from gross margins of $42.6 million in fiscal year 2006. This decrease resulted from the revenue decline described above offset by: (i) a reduction of license costs associated with discontinued enterprise application products; (ii) a reduction of service costs that resulted from the cost management initiatives described above; and (iii) a reduction in the amortization of purchased technology.

Operating expenses for fiscal year 2007 were $51.9 million, a reduction of 39% from $84.8 million for fiscal year 2006. This reduction was principally associated with restructuring initiatives announced during the second half of fiscal year 2006 and the further cost reductions undertaken during the first half of fiscal year 2007.

The Company incurred a net loss of $16.4 million for fiscal year 2007, compared to a net loss of $44.0 million for fiscal year 2006. This $27.6 million decrease in net loss was principally the result of a $13.5 million reduction in net revenue being offset by the effects of cost control initiatives implemented by the new management team, which generated an $8.2 million reduction in cost of revenues and a $32.9 million reduction in operating expenses.



Results of Operations

The following table includes Consolidated Statements of Operations data for the fiscal years ended September 30, 2007, 2006 and 2005 as a percentage of total revenues

Total revenues in fiscal year 2007 decreased by $13.5 million, or 22%, compared with fiscal year 2006. Revenues for fiscal year 2007 decreased in all geographic areas with the exception of North America. Revenues for North America increased by 19% compared to fiscal year 2006. The increase was attributable to higher VPA and service revenues. The decreases in other regions were primarily due to sales of paid-up licenses in fiscal year 2006, a practice that was discontinued prior to the beginning of fiscal year 2007. The declines for fiscal year 2007 were greatest in Japan, Europe and other Asian countries, with declines of 58%, 45%, and 28%, respectively, primarily due to a number of large paid-up license arrangements which were entered into in fiscal year 2006. Revenues for Taiwan declined only by 6% due to the Company successfully restoring revenue from certain major customers who had previously had the benefit of fully paid-up licenses.

Total revenues in fiscal year 2006 decreased by $39.0 million, or 39%, compared with fiscal year 2005. Revenues for fiscal year 2006 decreased in all geographic areas primarily due to decreased sales of paid-up licenses in fiscal year 2006, as compared to fiscal year 2005 and the effect of earlier sales of fully paid-up licenses on subsequent period revenue. The declines were greatest in North America and Europe, which declined 74% and 73% respectively, primarily due to a number of large paid-up license arrangements which were entered into in fiscal year 2005. The declines incurred in Japan, Taiwan and other Asian countries were 16%, 22%, and 38%, respectively, and related primarily to the use of paid-up licenses in earlier periods.

License fees for fiscal year 2007 were $39.7 million, a decrease of 29% from license fees of $55.9 million in fiscal year 2006. This decrease in license fees was primarily due to the sale of fully paid-up licenses in the earlier period. There were no paid-up license fees for fiscal year 2007 as compared to $30.5 million of revenue from paid- up licenses for fiscal year 2006. Revenues from all other licenses ( i.e ., other than paid-up licenses) were $39.7 million in fiscal year 2007, an increase of $14.2 million, or 56%, from $25.5 million of such revenues in the same period of the previous fiscal year. The increase in other license fees was attributable to higher revenues from VPAs, which typically included higher per unit prices than the Company had achieved in earlier periods.

In fiscal year 2007, the Company executed VPA transactions with certain of its customers with payment terms spread over periods of generally nine to twelve months. Consistent with our policy, only fees due within 90 days are invoiced and recorded as revenue or deferred revenue. VPA fees due beyond 90 days are not invoiced or recorded by the Company. As of the end of fiscal year 2007, the total amount which had not been recorded by the Company from all of its VPA agreements was approximately $7.3 million. The Company expects to invoice and recognize this $7.3 million as revenue over future periods; however, uncertainties such as the timing of customer utilization of our products may impact the timing of invoicing and recognizing this revenue.

As a percentage of total revenue, license fees were 84% for fiscal year 2007 versus 92% in fiscal year 2006. This decrease is principally attributable to the sale of fully paid-up licenses in fiscal year 2006 and the growth in service fees discussed below.

Service fees for fiscal year 2007 were $7.4 million, an increase of $2.8 million, or 62%, from $4.6 million for fiscal year 2006. As a percentage of total revenue, service fees were 16% in fiscal year 2007 versus 8% for fiscal year 2006. The increase in service fees was principally a result of a large engineering contract signed with a single customer as well as overall price increases for engineering and support services, while the increase in service fees as a percentage of total revenue was principally a result of the increased service fee revenues and the sale of fully paid-up licenses in the earlier period.

License fees for fiscal year 2006 were $55.9 million, a decrease of 42% from revenues of $95.8 million in fiscal year 2005. Service revenues for fiscal year 2006 were $4.6 million, an increase of 22% from revenues of $3.7 million in fiscal year 2005. Total revenues for fiscal year 2006 decreased by $39.0 million, or 39%, from $99.5 million in fiscal year 2005 to $60.5 million in fiscal year 2006. A substantial portion of the decline occurred in the second half of fiscal year 2006, when revenues were only $18.8 million, down 59% from $46.3 million in the second half of fiscal year 2005 and 55% from $41.7 million for the first half of fiscal year 2006.

The decrease in revenues was partially attributable to the effect of the Company having sold increasing proportions of its products through the use of fully paid-up licenses during fiscal years 2004 and 2005 and the first half of fiscal year 2006, which may have reduced our revenues in subsequent periods. Total paid-up license revenue for all sectors represented 43% of total revenues (or $43.0 million) in fiscal year 2005 and 62% of total revenues (or $25.7 million) in the first half of fiscal year 2006. During the third quarter of fiscal year 2006, we began changing our licensing practices away from heavy reliance on paid-up licenses to volume purchase agreements for large customers and pay-as-you-go consumption-based arrangements for smaller customers. Paid-up licenses constituted only 25% of total revenues (or $4.8 million) in the second half of fiscal year 2006 and we ended the use of paid-up licenses in September 2006. For all of fiscal year 2006, paid-up licenses amounted to $30.5 million, or 50%, of total revenues.

Cost of Revenues and Gross Margin

Cost of revenues consists of third party license costs, service costs and amortization of purchased technology. License costs are primarily third party royalty fees, electronic product fulfillment costs and the costs of product labels for customer use. During prior periods, including fiscal year 2006, license cost of revenues included additional costs, such as product media, duplication, manuals, packaging supplies, and shipping costs associated with enterprise application software products that are no longer incurred due to a change in our product strategy. Service costs include personnel-related expenses such as salaries and other related costs associated with work performed under professional service contracts, non-recurring engineering agreements and post-sales customer support costs. License costs tend to be variable and based on specific product revenues. Service costs tend to be fixed but can fluctuate with changes in revenue levels.

Cost of revenues decreased by 46%, or $8.2 million, in fiscal year 2007 compared to fiscal year 2006. Costs related to license fees decreased by $3.8 million, primarily due to a change in product strategy which reduced costs associated with enterprise software product revenue. Cost of service revenues decreased by $2.7 million primarily as a result of staffing reductions associated with this new product strategy. Amortization of purchased technology was lower by $1.7 million in fiscal year 2007 as compared to fiscal year 2006, primarily as a result of accelerated intellectual property amortization in fiscal year 2006 as well as certain intellectual property assets becoming fully amortized.

As a percentage of revenue, cost of revenues declined from 30% in fiscal year 2006 to 21% in fiscal year 2007, principally as a result of the cost reductions described above offset by growth in service revenues which have higher costs than license revenues.

Cost of revenues increased by 3%, or $0.5 million, in fiscal year 2006 compared to fiscal year 2005. Cost of license fees increased by $0.4 million in fiscal year 2006 over fiscal year 2005. Cost of revenues also increased due to stock-based compensation expense of approximately $0.3 million, which the Company began expensing in fiscal year 2006 pursuant to SFAS No. 123(R). These increases in cost of revenues were offset by lower amortization of purchased technology of $0.2 million in fiscal year 2006 as compared to fiscal year 2005.

As a percentage of revenues, costs increased to 30% in fiscal year 2006 from 17% in fiscal year 2005, primarily as a result of the cost increases described above combined with the 39% reduction in revenues.

Gross margin as a percentage of revenues was 79%, 70%, and 83% for fiscal years 2007, 2006 and 2005, respectively. Gross margin was $37.3 million for fiscal year 2007 as compared to $42.6 million in fiscal year 2006 and $82.1 million in fiscal year 2005. These variations in gross margin and gross margin as a percentage of revenues are a result of the changes in the cost of revenues and in the cost of revenues as a percentage of revenues described above. The increased margin percentage and decreased dollar amount of gross margin in fiscal year 2007 as compared to fiscal year 2006 was the result of the cost of revenues having being reduced by a greater proportion than the reduction in revenues. The decreased margin percentage and dollar amount of gross margin in fiscal year 2006 as compared to fiscal year 2007 were the result of cost of revenues having remained relatively unchanged while revenues decreased substantially.

Research and Development Expenses

Research and development expenses consist primarily of salaries and other related costs for research and development personnel, quality assurance personnel, product localization expense, fees to outside contractors, facilities and IT support costs, as well as depreciation of capital equipment. Research and development expenses were $19.2 million, $22.9 million and $20.4 million in fiscal years 2007, 2006 and 2005, respectively, and as a percentage of revenues, these expenses represented 41%, 38%, and 20%, respectively.

The $3.7 million, or 16%, decrease in research and development expense in fiscal year 2007 compared to fiscal year 2006 was due to decreases of $2.4 million in payroll and related benefit expenses and $1.2 million in outside support costs, both relating to the discontinuation of development efforts on certain enterprise application software products. The reductions in payroll and benefit spending on research and development were smaller in percentage terms than the reductions in payroll costs in sales and marketing due to our continuation of research and development efforts on our CSS products and our initiation of new development efforts related to our Failsafe solution and Hyperspace platform, the two new product groups we launched early in fiscal year 2008. Other research and development related expenses for fiscal year 2007 were $0.6 million lower than fiscal year 2006 resulting from various other cost management initiatives. These reductions were offset by increased stock-based compensation expenses of $0.5 million pursuant to SFAS No. 123(R).

The $2.5 million, or 12%, increase in research and development expense in fiscal year 2006 compared to fiscal year 2005 was due to a number of factors including: (i) increased payroll and related benefit expenses of approximately $0.6 million, which was primarily related to additional headcount outside the U.S.; (ii) stock-based compensation expense of $0.9 million, which the Company began expensing in fiscal year 2006 pursuant to SFAS No. 123(R); (iii) increased spending for consulting related to new application products of $0.5 million; and (iv) a net increase in other expense items of approximately $0.4 million.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of salaries, commissions, travel and entertainment, facilities and IT support costs, promotional expenses (marketing and sales literature) and marketing programs, including advertising, trade shows and channel development. Sales and marketing expenses also include costs relating to technical support personnel associated with pre-sales activities such as performing product and technical presentations and answering customers’ product and service inquiries.

Sales and marketing expenses were $12.0 million, $35.4 million and $35.6 million in fiscal years 2007, 2006 and 2005, respectively, and as a percentage of revenues, these expenses represented 25%, 58%, and 36% in fiscal years 2007, 2006 and 2005, respectively.

The $23.4 million net decrease in sales and marketing spending in fiscal year 2007 from fiscal year 2006 and the reduction from 58% to 25% of these expenses as a percentage of revenues were primarily due to the Company’s decision to withdraw from the sale of enterprise application software products. In connection with this decision, the Company ceased all spending on marketing programs and sales initiatives aimed at enterprise customers and intermediaries. Payroll and related benefit expenses for sales and marketing personnel were reduced by $12.6 million partly as a result of these decisions and partly as a result of reductions in middle management among the Company’s remaining sales teams. Other savings included (i) lower marketing expenses of $4.6 million; (ii) lower spending on travel and entertainment of $2.5 million; (iii) lower outside support expense of $1.9 million; (iv) lower stock-based compensation expense of $0.9 million due to lower staffing levels; and (v) a net decrease in other expense items of approximately $0.9 million due to various other cost management initiatives.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Fiscal Year 2008 Third Quarter Overview

The quarter ended June 30, 2008 represents the third quarter of the second year of the Company’s execution of new strategic and operational plans developed by the Company’s new management team, led by President and Chief Executive Officer Woody Hobbs. These plans, as discussed regularly by the Company’s management in various public statements, called for restoring the Company to positive cash flow within the first year and announcing major new products early in the second year. Having achieved these objectives, the Company informed investors in various public statements that during the balance of fiscal year 2008, management would focus on building out industry partnerships to integrate its new products with the offerings of other hardware and software vendors and on expanding its research and development efforts to assist in these integration initiatives.

The Company’s results for the quarter reflect the success of these management initiatives and hence reflect a substantial improvement over the equivalent quarter in the prior year with revenues increasing by approximately 53%. Similarly, total expenditures (including operating expenses and costs of goods sold) increased by approximately 54%, reflecting the Company’s support for its new product initiatives and certain expenses associated with the Company’s strategic initiatives.

During the quarter ended June 30, 2008, the Company reported stock compensation expense under SFAS No. 123(R) which included stock options granted to the Company’s four most senior executives as approved by the Company’s stockholders on January 2, 2008 (the “Performance Options”). Amortization of the value of the Performance Options began during the quarter ended March 31, 2008 and there were no similar charges in prior periods. Total expense recognized in the quarter ended June 30, 2008 from the Performance Options was $1.9 million. (Of this total, $1.3 million is classified as general and administrative expense, $0.4 million is classified as research and development expense and $0.2 million is classified as sales and marketing expense.)

The Company achieved strong positive net cash flow from operations during the quarter, bringing cash flow from operations to $17.0 million for the nine months ended June 30, 2008, a substantial improvement from the comparable period in the prior year, when the Company had negative net cash flow from operations of $6.4 million. This improvement is the combined effect of the Company’s improved operating results and its improved terms of trade with customers, which resulted from the Company’s new pricing policies and sales practices.

During the first quarter of fiscal year 2007, the Company had made significant changes in its pricing policies and sales practices and the Company’s revenues for the quarter ended June 30, 2008 reflect the continuing success of these initiatives. During the third quarter of fiscal year 2008, the Company executed additional significant long term volume purchase agreements (“VPAs”) with several of its major customers. Combined with the effect of other similar agreements executed since June 30, 2007, the Company has achieved both a 20% increase in its deferred revenue balances and a 111% increase in its unbilled backlog of VPA agreements. The Company considers these unbilled VPA commitments, along with deferred revenues, as order backlog. The Company’s total order backlog increased by 70% from $26.1 million at June 30, 2007 to $44.4 million at June 30, 2008.

On May 1, 2008, the Company announced the completion of its previously announced acquisition of BeInSync Ltd., an Israeli-based provider of an all-in-one solution that allows users to backup, synchronize, share and access their data online. On April 10, 2008, the Company also announced it had agreed to acquire TouchStone Software Corporation, a US-based provider of computer diagnostics and PC update technology. The transaction was approved by the Touchstone shareholders on June 25, 2008 and was completed on July 1, 2008.

During the quarter ended June 30, 2008 the Company continued its active recruitment of additional personnel, particularly in research and development. As a result, and including the effect of the acquisition of BeInSync, the Company has increased its total workforce from 371 employees at March 31, 2008 to 423 at June 30, 2008.

Total revenues for the third quarter ended June 30, 2008 increased by 53%, or $6.7 million, to $19.3 million, from $12.6 million for the third quarter of fiscal year 2007. The increase in revenues was principally attributable to recurring quarterly revenues associated with VPA and similar licenses, including revenues from customers who had generated little or no revenues in earlier periods as a result of having previously purchased fully paid-up licenses. The Company ceased the use of fully paid-up licenses in favor of VPA licenses in September 2006.

Fully paid-up licenses gave customers unlimited distribution rights of the applicable product over a specific time period or with respect to a specific customer device. In connection with paid-up licenses, the Company recognized all license fees upon execution of the agreement, provided that all other revenues recognition criteria had been met. Paid-up license agreements may have had the effect of accelerating revenues into the quarter in which the agreement was executed and thereby decreasing recurring revenues in subsequent periods. During the third quarter of fiscal year 2006, the Company began changing its licensing practices away from heavy reliance on paid-up licenses to: (i) VPAs for most large customers and (ii) pay-as-you-go consumption-based license arrangements for other customers. In the fourth quarter of fiscal year 2006, the Company completely ceased entering into paid-up licenses with its customers, and converted to the use of only VPAs and pay-as-you-go consumption-based license arrangements.

The Company’s revenues for the third quarter ended June 30, 2008 include revenues from certain customers who had entered into fully paid-up licenses in prior periods but who, as a result of the specific terms of those contracts or amendments thereto, were no longer authorized to continue to deploy the products covered by those licenses.

Gross margins for the third quarter ended June 30, 2008 were $16.5 million, a 62% increase, from gross margins of $10.2 million during the same period in fiscal year 2007. This increase resulted from the increase in revenues described above, combined with a lower rate of growth in the total cost of goods and services, which was principally the result of cost management initiatives in the Company’s customer service activities.

Operating expenses for the third quarter ended June 30, 2008 were $18.4 million, an increase of 62% from $11.4 million for the same period in fiscal year 2007. Of the $7.0 million increase, $1.9 million was due to stock based compensation expense resulting from the grant of the Performance Options approved by the Company’s stockholders on January 2, 2008, $1.7 million was due to increased use of consultants, $2.4 million was due to higher salary and benefits principally as a result of increased headcount, and $1.0 million was due to increased administration and other expenses.

During the third fiscal quarter of 2008, the Company experienced lower interest and other income and higher tax expense as compared to the same period in fiscal year 2007. The $0.2 million lower interest and other income was driven by lower interest rates despite higher average invested cash balances. The increase in tax expense was principally associated with higher revenue and related taxes in Taiwan.

The Company experienced a net loss of $2.8 million for the quarter ended June 30, 2008, compared to a net loss of $1.8 million for the same period in fiscal year 2007. As described above, this $1.0 million increase in net loss was principally the result of the $6.7 million increase in reported revenues offset by a $0.4 million increase in costs of revenues, a $7.0 million increase in operating expenses, a $0.2 million reduction in interest, and other income and a $0.1 million increase in tax expense.

Critical Accounting Policies and Estimates

There have been no significant changes during the three months ended June 30, 2008 to the items that we disclosed as our critical accounting polices and estimates in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007, other than the impact of our adoption of the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (“FIN 48”), which affected the Company’s accounting for income taxes. On October 1, 2007, the Company adopted the provisions of FIN 48 which provides recognition criteria and a related measurement model for tax positions taken by companies. In accordance with FIN 48, a tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions shall be recognized only when it is more likely than not (likelihood of greater than 50%) that the position will be sustained upon examination. Tax positions that meet the more likely than not threshold shall be measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement.

CONF CALL

[Sanjay Houri]

Thank you for joining us to discuss Phoenix Technology's fourth quarter and fiscal year end 2008 financial and operating results. With me on the call this morning are Wood Hobbs, President and Chief Executive Officer, and Richard Arnold, Chief Operating Officer and Chief Financial Officer.

For the convenience of participants on today's call, management has posted slides on the company's web site at phoenix.com. These slides contain many of the financial metrics that will be provided during today's call and are also found under the investor relations section of the Phoenix web site on the webcast and presentations page entitled Phoenix Technology Fourth Quarter and Full Year 2008 earnings call.

On the call today you will hear various forward-looking statements including those relating to the company's products, strategy, businesses and financial goals. The outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties. Please refer to the company's SEC filing at the SEC's web site at SEC.gov or phoenix.com and to the Safe Harbor Statement located in our press release distributed earlier this morning for detailed discussions of these relative risks and uncertainties. The company undertakes no responsibility to update any forward-looking statements made on this morning's call.

The press release distributed this morning announced the company's results is also available at the Phoenix web site at phoenix.com in the investor relations section under the press release tab. The current report on Form 8-K furnished with respect to our press release is also available on the web site under the investor relations section.

Before starting the call, I would like to take this opportunity to inform you that management will once again be in attendance at the AEA Classic Conference in San Diego. Managements' presentations will take place on Monday, November 3 and Tuesday, November 4. Additional details will be issued by a press release in the coming days.

With that, I'd like to turn the call over to Rick Arnold, Phoenix Technology's Chief Operating and Chief Financial Officer.

Richard Arnold

Thanks for joining us today for Phoenix Technology's fourth quarter and fiscal year end 2008 earnings conference call. As indicated in this morning's press release, we are reporting net revenues for the fiscal year end of September 30, 2008 of $73.7 million which represents a 57% increase from the $47 million of net revenues reported in fiscal year 2007.

On a GAAP basis, we reported reduced losses for the 2008 fiscal year of $6.2 million or $0.23 per share. This compares to a GAAP net loss of $16.4 million or $0.63 per share in the prior fiscal year.

Looking at the non-GAAP performance which excludes the accounting impact for stock based compensation expense as well for small amounts of intangibles, amortization and restructuring costs we're reported earnings for the fiscal year of $7.6 million or $0.26 per share. This compares to a loss of $4.7 million or $0.18 per share that we reported for fiscal year 2007.

To remind you, at the beginning of the year we stated that we were targeting non-GAAP earnings of about 10% of revenues and on our last conference call we reiterated this indicating that we were expecting to report non-GAAP earnings of about $7.5 million for the year. Our overall revenues were impacted late in the year by the global credit crisis and the resulting weakening economic environment.

It's a testament to our operating model that we were still able to achieve better than the 10% non-GAAP profits to which we had always guided. More on the economic environment in a moment.

The increase in sales volume we saw during fiscal year 2008 was primarily attributed to recurring revenues in our core BIOS business associated with DPA's and similar licenses, including revenues from major customers that had previously had the benefit of fully paid up licenses.

As many of you are aware, we see these fully paid up licenses in favorable DPA licenses back in September 2006 when we arrived here at Phoenix. Thankfully, this should be the last time I even need to mention that unfortunate aspect of Phoenix's history.

The end of the 2008 fiscal year was approximately $23 million of backlog from DPA's have not been recorded as either revenue or deferred revenue. A $15.7 million or 215% increase over the prior years ending balance of $7.3 million. We also ended the fiscal year with deferred revenues of $15 million an increase of $3.2 million or 27% from the $11.8 million balance a year ago.

The total backlog which has grown in aggregate by $18.9 million or 99% over the year now sits at $38 million, reflecting the combined affect of overall business growth as well as our decision at the beginning of the fiscal year 2008 to enter into certain agreements with our major customers that extend for periods greater than a year. Approximately 88% of our current backlog is expected to be reflected in revenues during fiscal year 2009.

Our license revenue for the fiscal year was $64.4 million which represents a 62% improvement from the $39.7 million reported in fiscal year 2007. Service revenue was $9.2 million an increase of approximately $1.8 million or 25% from $7.4 million in fiscal year 2007.

Subscription fees for the 2008 fiscal year, the result of our acquisition of BeInSync and Touchstone during the year was $0.1 million. Gross margins for the fiscal year ended September 30, 2008 was $63.9 million, a 71% increase from gross margins of $37.3 million in the prior fiscal year. We also saw gross margin percentages expand by 729 basis points from approximately 79.4% in fiscal year 2007 to 86.7% in fiscal year 2008. Our services margin this fiscal year turned to 14.6% positive compared to a negative margin of 0.2% that we reported in fiscal 2007.

Operating expenses for the year ended September was 65.7 million, an increase of 27% from $51.9 million for the same period in fiscal year 2007, also a $13.8 million increase. $5.7 million was due to increased stock based compensation expense. The balance reflecting both R&D investments we're making to support the growth of our new products, and certain G&A spending related to our acquisition strategy and to overall capacity increases.

Our head count on September 30, 2008 was 510 employees, up 176 from the 334 employed at September 30, 2007 and up 87 people from the 423 people we employed at June 30. These increases reflect our ongoing recruitment of additional personnel particularly in R&D and the additional personnel we acquired in connection with our three acquisitions in the year.

Turning to the quarter's results, our performance in the fourth quarter was slightly impacted by weakening economic environment and we are reporting revenues of $20.0 million which compares to our prior guidance of $21.5 million. Our license revenue for the quarter fell short of our expectations but was nevertheless was still very strong, up 27% year over year to $17.2 million from $13.6 million in the same period of fiscal 2007.

Service revenue for the fourth quarter was $2.6 million, an increase of approximately $0.5 million or 24% from $2.1 million from the same period of last year. Subscription fees for the fourth quarter was $0.1 million.

Gross margins for the three months ended September 30 was $16.7 million a 25% increase from gross margins of $13.4 million in the same three months of 2007. Gross margin percentages however declined to 83.7% from 85.2%. September's quarters margins were also down slightly from the 86% we reported in the June 2008 quarter, and both these declines were principally because we commenced amortization of certain technologies that we acquired in the BeInSync and Touchstone transactions.

Operating expenses for the fourth quarter ended September were $20.3 million, an increase of 55% from $13.1 million for the same period in fiscal 2007. After the $2.7 million increase, here too, $1.5 million was due to increased stock based compensation expense and the balance reflects both R&D and marketing investments we're making to support the growth of our new products, and G&A spending related to our acquisition strategy and overall capacity increases.

Turning now to the balance sheet and cash flow statement, our balance sheet principally reflects the acquisitions of BeInSync, Touchstone Software and General Software during the fiscal year. Cash and cash equivalent balances ended at $37.7 million on September 30 as compared to $62.7 million at the end of the 2007 fiscal year.

It should be noted that in spite of our increased spending during the fiscal year, we achieved positive cash flow from operations of $22.5 million, a substantial turn around from the cash burn of $2.4 million during fiscal 2007.

Now a word on our financial guidance. We are providing revised guidance today to reflect the uncertainty generated by the global credit crisis and the resulting weakening economic conditions experienced during our fourth quarter. Many leading companies have reported higher levels of uncertainty in their current near term business forecasts and at any period in recent history and certainly some of the available market data supports this perspective.

We feel it's appropriate to adjust our revenue guidance to reflect this uncertainty and to set expectations at a level in which we have a high degree of comfort in spite of the current market turmoil. Accordingly, our revised guidance for fiscal 2009 revenue is $101.5 million versus prior guidance of $110 million.

We're pleased that our market position and the market reception of our new product offerings is sufficiently strong for us to only be reducing our previous guidance by about 8%, and even more pleased to point out that the regular growth rate implied by our revised guidance is still approximately 38%.

Few long established companies can boast of a revenue growth we intend to deliver this coming year and fewer still also have anything like the enormous long term upside that we believe our new products and services bring us. The response we're experiencing from our major customers and industry partners to these products, indeed to our entire PC vision is so favorable that we believe that it's not only appropriate but necessary to continue to invest heavily in these opportunities despite the market slowdown.

As a result should our revised guidance of $101.5 million prove accurate, we would only expect to report break even non-GAAP results. As we stated in our press release this morning however, should market conditions stabilize and enable us to achieve our original $110 million revenue plan, we would still expect to meet our prior guidance of non-GAAP profits of about 10%.

That completes my comments on the financial results and prospects and I'd now like to hand the call over to Woody for comments on the current state and future direction of the business.

Woodson Hobbs

We are very proud to report that what only be described as an extraordinary year for Phoenix. Strategically, operationally and financially we exceeded very expectation outlined on our year end call this time last year. Furthermore, our performance was firmly in line with our five year plan articulated upon our joining Phoenix in the fall of 2006. Clearly we are on track toward making Phoenix the epicenter of PC 3.0, our vision for a revolutionary transformation of the PC user experience.

Fiscal 2008 was a start up year for our new products. At the same time we expected and achieved strong revenue growth from our core BIOS business. This growth was attributable to the strategic decision to focus our core BIOS business on the faster growing mobile segment of the PC industry.

Our expectations were fully realized with revenues up 57% year over year. This is a clear demonstration of our team's ability to execute and of the dedication of our employees to returning Phoenix to its position as a leader in the global BIOS market.

Our profitable BIOS business and strong cash position are enabling us to internally fund our strategy to transform Phoenix into a multi-product, multi-channel, high growth business. As part of this strategy we launched two major new products early in the fiscal year 2008. The market place reception for these new products, FailSafe and HyperSpace, has been tremendous, and as we said we would, we signed new customers for both products in the fourth quarter.

Subsequent to the close of the quarter, we received the strongest signals to date of the markets acceptance of these offering with the addition of two more key customers in Lenovo and Samsung. As most of you will have already noticed this morning, we have announced yet another top tier OEM customer for FailSafe in a separate press release. Suffice it to say that the validation for FailSafe provided by this particular customer win is substantial.

We also deployed the balance sheet we rebuilt over fiscal 2007 to acquire pillars of our future growth., BeInSync, Touchstone, and General Softtware. These acquisitions not only bring us additional technical expertise to ensure our current and future product plans, but broaden our product offering with the addition of web based services and expand our market opportunity beyond X86 architecture to the risk space as in the case with General Software.

Turning to the fourth quarter, our performance was slightly impacted by the weakening economic environment and by a shift by the OEM's toward lower cost PC platforms such as the notebook. Our license revenue for the quarter fell short of expectations as a result, but we still reported a significant increase in revenue from the previous quarter while exceeding expectations with regard to non-GAAP profits.

Our updated guidance this morning reflects the potential for the current environment to dampen our growth projections for fiscal year 2009 by about 8% relative to prior guidance. Due to weak economic conditions, we expect slower growth in our core BIOS business offset partially but not completely by the sales of new products.

Nevertheless, BIOS will continue to experience significant growth given our continued focus on the faster growing mobile PC market. Above all, we expect this business will continue to be highly profitable and generate strong cash flows. Additionally, we also anticipate growth and positive cash flow from our acquired products embedded BIOS and E-support.

Looking ahead in early calendar 2009, you can expect a major debut of our web downloadable release of HyperSpace. Phoenix's HyperSpace instant on, always connected operation promises to be the best in its class and will create new standards for laptop start up and shut down times, network connectivity and battery life.

Later in the year, we expect major innovations in this platform for both notebooks and net books. We also expect important improvements as well as OEM customers for FailSafe in fiscal 2009.

Our embedded business in also emerging as an exciting new opportunity as more and more devices other than pure computers become internet enabled. Intel has placed a major emphasis on the embedded systems business like consumer electronics and telematics and this is creating great opportunities for us.

As we have stated previously, we expect a double digit millions of revenues from several of our new products from 2010 and our goal is to have double digit revenues from all of our products in 2010.

In conclusion, as we begin fiscal year 2009, Phoenix is well positioned to continue to experience growth and enjoy success. This will be a pivotal year for us as the PC industry begins to deploy our new products and as a new generation of PC users are exposed to PC 3.0.

As always, we thank you for your continued support. This concludes our prepared remarks. Please open the call to questions.

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