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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2008

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: 000-26223

TUMBLEWEED COMMUNICATIONS CORP.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 94-3336053                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|700 Saginaw Drive Redwood City, CA       |  | 94063     
|(Address of principal executive offices) |  | (Zip Code)

(650) 216-2000

(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   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ̈            Accelerated filer  x            Non-accelerated filer   ̈            Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

The number of shares of common stock outstanding as of April 30, 2008 was 51,183,875.









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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, which are subject to the safe harbor created by those sections. The forward-looking statements are based on our current expectations and projections about future events.
Discussions containing such forward-looking statements may be found in Managements Discussion and Analysis of Financial Condition and Results of Operations. In some cases, forward-looking statements can be identified by terminology
such as may, will, should, could, predicts, projects, potential, continue, expects, anticipates, future,
intends, plans, believes, estimates, or the negative of these terms and other comparable terminology, including, but not limited to, the following:



| |  |  | any projections of revenues, earnings, cash balances or cash flow, synergies, or other financial items;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | any revenue expected to be realized from backlog;
| | - |  | -------------------------------------------------



| |  |  | any statements of the plans, strategies and objectives of management for future operations;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | any statements regarding future economic conditions or performance;
| | - |  | -------------------------------------------------------------------



| |  |  | any statements regarding implementing our business strategy;
| | - |  | ------------------------------------------------------------



| |  |  | any statements regarding attracting and retaining customers;
| | - |  | ------------------------------------------------------------



| |  |  | any statements regarding obtaining and expanding market acceptance of the products and services we offer;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | any statements regarding competition in, or size of, our market; and
| | - |  | --------------------------------------------------------------------



| |  |  | any statements of assumptions underlying any of the foregoing.
| | - |  | --------------------------------------------------------------

These forward-looking statements are only predictions, not historical facts. These forward-looking statements involve certain risks and uncertainties, as well as assumptions. Actual results, levels of activity,
performance, achievements and events could differ materially from those stated, anticipated or implied by such forward-looking statements. The factors that could contribute to such differences include those discussed under the caption Risk
Factors in Part II, Item 1A contained herein, as well as those discussed in our Form 10-K and other filings with the Securities and Exchange Commission. These risks should be considered carefully, among other things, in evaluating our
prospects and future financial performance. The occurrence of the events described in the risk factors could harm our business, results of operations and financial condition. These forward-looking statements are made as of the date of this Quarterly
Report on Form 10-Q. We disclaim any obligation to update or alter these forward-looking statements.



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TUMBLEWEED COMMUNICATIONS CORP. AND SUBSIDIARIES

INDEX



|               |  |                                                                                                              |  |     
|-------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|               |  |                                                                                                              |  | Page
|               |  | Part I                                                                                                       |  |     
|Item 1         |  | Financial Statements (unaudited)                                                                             |  | 4   
|               |  | Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007                             |  | 4   
|               |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2008 and March 31, 2007 |  | 5   
|               |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and March 31, 2007 |  | 6   
|               |  | Notes to Condensed Consolidated Financial Statements                                                         |  | 7   
|Item 2         |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 12  
|Item 3         |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 18  
|Item 4         |  | Controls and Procedures                                                                                      |  | 18  
|               |  |                                                                                                             
|               |  | Part II                                                                                                      |  |     
|Item 1         |  | Legal Proceedings                                                                                            |  | 20  
|Item 1A        |  | Risk Factors                                                                                                 |  | 21  
|Item 2         |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                  |  | 27  
|Item 3         |  | Defaults Upon Senior Securities                                                                              |  | 27  
|Item 4         |  | Submission of Matters to a vote of Security Holders                                                          |  | 27  
|Item 5         |  | Other Information                                                                                            |  | 27  
|Item 6         |  | Exhibits                                                                                                     |  | 27  
|Signatures     |  | 28                                                                                                          
|Certifications |  |                                                                                                              |  |     

TRADEMARKS

The following are registered trademarks of Tumbleweed Communications Corp. or its subsidiaries in
the United States and/or other countries: Tumbleweed®, Tumbleweed Communications®, the Arrows logo, MailGate®, Secure Envelope®, Secure Inbox®, Tumbleweed Email Firewall®, Messaging Management System (MMS)®, Valicert®, and Corvigo®. The following are other trademarks and service marks of Tumbleweed Communications Corp. or its subsidiaries in the United States and/or other countries: MailGate Appliance, Secure
Messenger, Tumbleweed Secure Messenger, Desktop Messenger, Tumbleweed Desktop Messenger, Dynamic Anti-Spam Service (DAS), Edge Defense, Tumbleweed Edge Defense, Intelligent Edge Defense,
SecureTransport, Tumbleweed SecureTransport, Validation Authority, Tumbleweed Validation Authority, Server Validator, Desktop Validator, Tumbleweed FTP Analyzer, and WorldSecure. All other trademarks
and service marks are the property of their respective owners.



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PART IFINANCIAL INFORMATION

ITEM 1FINANCIAL STATEMENTS

TUMBLEWEED COMMUNICATIONS CORP. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)



|                                                                                                                    |  |               |          |   |                  |   |          |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                    |  | March 31,2008 |          |   | December 31,2007 |  
|Assets                                                                                                              |  |               |          |   |                  |   |          |  
|Current Assets:                                                                                                     |  |               |          |   |                  |   |          |  
|Cash and cash equivalents                                                                                           |  | $             | 28,517   |   |                  | $ | 26,299   |  
|Accounts receivable, net of allowance for doubtful accounts of $366 at March 31, 2008 and $368 at December 31, 2007 |  |               | 9,273    |   |                  |   | 13,074   |  
|Other current assets                                                                                                |  |               | 2,750    |   |                  |   | 1,733    |  
|                                                                                                                    |  |               |          |   |                  |   |          |  
|Total current assets                                                                                                |  |               | 40,540   |   |                  |   | 41,106   |  
|Goodwill                                                                                                            |  |               | 48,074   |   |                  |   | 48,074   |  
|Intangible assets, net                                                                                              |  |               |         |   |                  |   | 233      |  
|Property and equipment, net                                                                                         |  |               | 2,096    |   |                  |   | 2,038    |  
|Other assets                                                                                                        |  |               | 392      |   |                  |   | 385      |  
|                                                                                                                    |  |               |          |   |                  |   |          |  
|Total assets                                                                                                        |  | $             | 91,102   |   |                  | $ | 91,836   |  
|                                                                                                                    |  |               |          |   |                  |   |          |  
|Liabilities and Stockholders Equity                                                                                |  |               |          |   |                  |   |          |  
|Current liabilities:                                                                                                |  |               |          |   |                  |   |          |  
|Accounts payable                                                                                                    |  | $             | 288      |   |                  | $ | 820      |  
|Accrued liabilities                                                                                                 |  |               | 6,189    |   |                  |   | 6,795    |  
|Deferred revenue                                                                                                    |  |               | 21,674   |   |                  |   | 20,996   |  
|                                                                                                                    |  |               |          |   |                  |   |          |  
|Total current liabilities                                                                                           |  |               | 28,151   |   |                  |   | 28,611   |  
|Deferred revenue, excluding current portion                                                                         |  |               | 4,814    |   |                  |   | 5,401    |  
|Other long-term liabilities                                                                                         |  |               | 13       |   |                  |   | 13       |  
|                                                                                                                    |  |               |          |   |                  |   |          |  
|Total long-term liabilities                                                                                         |  |               | 4,827    |   |                  |   | 5,414    |  
|                                                                                                                    |  |               |          |   |                  |   |          |  
|Total liabilities                                                                                                   |  |               | 32,978   |   |                  |   | 34,025   |  
|Stockholders equity:                                                                                               |  |               |          |   |                  |   |          |  
|Common stock                                                                                                        |  |               | 52       |   |                  |   | 52       |  
|Additional paid-in capital                                                                                          |  |               | 366,514  |   |                  |   | 365,155  |  
|Treasury stock                                                                                                      |  |               | (796     | ) |                  |   | (796     | )
|Accumulated other comprehensive income                                                                              |  |               | 183      |   |                  |   | 94       |  
|Accumulated deficit                                                                                                 |  |               | (307,829 | ) |                  |   | (306,694 | )
|                                                                                                                    |  |               |          |   |                  |   |          |  
|Total stockholders equity                                                                                          |  |               | 58,124   |   |                  |   | 57,811   |  
|                                                                                                                    |  |               |          |   |                  |   |          |  
|Total liabilities and stockholders equity                                                                          |  | $             | 91,102   |   |                  | $ | 91,836   |  
|                                                                                                                    |  |               |          |   |                  |   |          |  

See accompanying Notes to Condensed Consolidated Financial Statements



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Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)



|                                          |  |                             |        |   |      |   |        |  
|----------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                          |  | Three Months EndedMarch 31, |       
|                                          |  | 2008                        |        |   | 2007 |  
|Revenue:                                  |  |                             |        |   |      |   |        |  
|Product revenue                           |  | $                           | 4,998  |   |      | $ | 5,897  |  
|Service revenue                           |  |                             | 8,212  |   |      |   | 9,022  |  
|Intellectual property revenue             |  |                             | 2,050  |   |      |   | 96     |  
|                                          |  |                             |        |   |      |   |        |  
|Total revenue                             |  |                             | 15,260 |   |      |   | 15,015 |  
|Cost of revenue:                          |  |                             |        |   |      |   |        |  
|Cost of product revenue                   |  |                             | 1,370  |   |      |   | 1,756  |  
|Provision for excess inventory            |  |                             |       |   |      |   | 164    |  
|Cost of service revenue                   |  |                             | 1,746  |   |      |   | 1,899  |  
|Amortization of intangible assets         |  |                             | 201    |   |      |   | 234    |  
|                                          |  |                             |        |   |      |   |        |  
|Total cost of revenue                     |  |                             | 3,317  |   |      |   | 4,053  |  
|Gross profit                              |  |                             | 11,943 |   |      |   | 10,962 |  
|Operating expenses:                       |  |                             |        |   |      |   |        |  
|Research and development                  |  |                             | 3,857  |   |      |   | 3,896  |  
|Sales and marketing                       |  |                             | 6,595  |   |      |   | 6,617  |  
|General and administrative                |  |                             | 2,793  |   |      |   | 2,487  |  
|Amortization of intangible assets         |  |                             | 32     |   |      |   | 183    |  
|                                          |  |                             |        |   |      |   |        |  
|Total operating expenses                  |  |                             | 13,277 |   |      |   | 13,183 |  
|                                          |  |                             |        |   |      |   |        |  
|Operating loss                            |  |                             | (1,334 | ) |      |   | (2,221 | )
|Other income, net                         |  |                             | 224    |   |      |   | 339    |  
|                                          |  |                             |        |   |      |   |        |  
|Net loss before income taxes              |  |                             | (1,110 | ) |      |   | (1,882 | )
|Income taxes                              |  |                             | 25     |   |      |   | 13     |  
|                                          |  |                             |        |   |      |   |        |  
|Net loss                                  |  | $                           | (1,135 | ) |      | $ | (1,895 | )
|                                          |  |                             |        |   |      |   |        |  
|Net loss per sharebasic and diluted      |  | $                           | (0.02  | ) |      | $ | (0.04  | )
|                                          |  |                             |        |   |      |   |        |  
|Weighted average sharesbasic and diluted |  |                             | 51,150 |   |      |   | 50,841 |  

See accompanying Notes to Condensed Consolidated Financial Statements



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Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



|                                                                                |  |                             |        |   |      |   |        |  
|------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                |  | Three months endedMarch 31, |       
|                                                                                |  | 2008                        |        |   | 2007 |  
|Cash flows from operating activities:                                           |  |                             |        |   |      |   |        |  
|Net loss                                                                        |  | $                           | (1,135 | ) |      | $ | (1,895 | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                             |        |   |      |   |        |  
|Stock-based compensation expense                                                |  |                             | 1,347  |   |      |   | 1,110  |  
|Depreciation and amortization expenses                                          |  |                             | 584    |   |      |   | 754    |  
|Bad debt credit                                                                 |  |                             |       |   |      |   | (47    | )
|Loss on disposal of property and equipment                                      |  |                             | (3     | ) |      |   | 40     |  
|Changes in operating assets and liabilities:                                    |  |                             |        |   |      |   |        |  
|Accounts receivable                                                             |  |                             | 3,801  |   |      |   | 3,736  |  
|Other current assets and other assets                                           |  |                             | (1,024 | ) |      |   | 27     |  
|Accounts payable, accrued liabilities, and other long-term liabilities          |  |                             | (927   | ) |      |   | (2,006 | )
|Accrued merger-related and other costs                                          |  |                             |       |   |      |   | (71    | )
|Deferred revenue                                                                |  |                             | 91     |   |      |   | (849   | )
|                                                                                |  |                             |        |   |      |   |        |  
|Net cash provided by operating activities                                       |  |                             | 2,734  |   |      |   | 799    |  
|                                                                                |  |                             |        |   |      |   |        |  
|Cash flows from investing activitiespurchases of property and equipment        |  |                             | (617   | ) |      |   | (717   | )
|                                                                                |  |                             |        |   |      |   |        |  
|Cash flows from financing activitiesproceeds from issuance of common stock     |  |                             | 12     |   |      |   | 1,283  |  
|                                                                                |  |                             |        |   |      |   |        |  
|Effect of exchange rate on cash and cash equivalents                            |  |                             | 89     |   |      |   | 17     |  
|                                                                                |  |                             |        |   |      |   |        |  
|Net increase in cash and cash equivalents                                       |  |                             | 2,218  |   |      |   | 1,382  |  
|Cash and cash equivalents, beginning of period                                  |  |                             | 26,299 |   |      |   | 30,511 |  
|                                                                                |  |                             |        |   |      |   |        |  
|Cash and cash equivalents, end of period                                        |  | $                           | 28,517 |   |      | $ | 31,893 |  
|                                                                                |  |                             |        |   |      |   |        |  
|Supplemental disclosure of cash flow information:                               |  |                             |        |   |      |   |        |  
|Cash paid during the period for income taxes                                    |  | $                           |       |   |      | $ | 2      |  
|                                                                                |  |                             |        |   |      |   |        |  

See accompanying Notes to Condensed Consolidated Financial Statements



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Notes to Condensed Consolidated Financial Statements

(1) Organization

The condensed consolidated financial statements included herein have been prepared by Tumbleweed Communications Corp. (Tumbleweed) without
audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with Tumbleweeds audited financial statements and notes thereto included in its
Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed with the SEC on March 17, 2008.

The unaudited
condensed consolidated financial statements included herein reflect all adjustments which are, in the opinion of management, necessary to state fairly the financial position of Tumbleweed and its subsidiaries as of March 31, 2008 and
December 31, 2007, respectively, the results of operations for the three months ended March 31, 2008 and 2007, respectively, and cash flows for the three months ended March 31, 2008 and 2007, respectively. Such adjustments are of a
normal recurring nature, unless otherwise indicated. The results for the three months ended March 31, 2008 are not necessarily indicative of the results expected for the full fiscal year ending December 31, 2008.

The accompanying condensed consolidated financial statements include the accounts of Tumbleweed and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.

(2) Stock-Based Compensation

Tumbleweeds stock-based compensation program is a broad-based, long-term retention program that is intended to attract and retain employees and
align stockholder and employee interests. The stock-based compensation program includes awards of stock options and restricted stock.

Tumbleweed recognizes stock-based compensation expense for the unvested portion of stock-based compensation awards granted prior to, but not yet vested, as of January 1, 2006 on an accelerated basis over the vesting period of the
individual award consistent with its methodology prior to the adoption of Statement of Financial Accounting Standards (SFAS) 123 revised (2004), Share-Based Payment (SFAS 123R) and consistent with the method
described in Financial Accounting Standards Board Interpretation 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans. Stock-based compensation expense for all stock-based compensation awards granted
after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R and compensation cost for these awards is recognized on a straight-line basis over the requisite service period of the
award, which is generally the option vesting term.

Tumbleweed estimates the fair value of stock options granted using the
Black-Scholes-Merton option-pricing model that uses the assumptions noted in the following table. The expected life of the options is based on the weighted average period of time that options granted are expected to be outstanding, giving
consideration to vesting schedules and Tumbleweeds historical exercise patterns. Tumbleweeds expected volatility is based on the daily historical volatility of Tumbleweeds common stock, over the expected life of the option. The
risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term to the expected life of the option. When the expected term of Tumbleweeds stock-based awards does
not correspond with the terms for which interest rates are quoted, Tumbleweed performs a straight-line interpolation to determine the rate from the available term maturities. Tumbleweed has not historically paid dividends, thus the expected dividend
yield is zero. Tumbleweed issues new shares of common stock upon the exercise of stock options. The assumptions for the three months ended March 31, 2008 and March 31, 2007 are as follows:



|                                      |  |                             |      |   |      |   |      |  
|------------------------------------- |  | --------------------------- | ---- | - | ---- | - | ---- | -
|                                      |  | Three Months EndedMarch 31, |     
|                                      |  | 2008                        |      |   | 2007 |  
|Stock options:                        |  |                             |      |   |      |   |      |  
|Weighted average fair value of grants |  | $                           | 0.86 |   |      | $ | 2.03 |  
|Expected life (in years)              |  |                             | 4.5  |   |      |   | 4.5  |  
|Volatility                            |  |                             | 69   | % |      |   | 78   | %
|Risk-free interest rate               |  |                             | 2.60 | % |      |   | 4.66 | %
|Dividend yield                        |  |                             | 0    | % |      |   | 0    | %
|                                      |  |                             |      |   |      |   |      |  



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The aggregate intrinsic value of options exercised under Tumbleweeds stock option plans for the
three months ended March 31, 2008 was approximately $1,000, determined as of the date of option exercise.

The cost of restricted
stock awards is determined using the fair value of Tumbleweeds common stock on the date of the grant, and compensation expense is recognized over the related vesting or performance period. The weighted average grant date fair value of
restricted stock granted during the three months ended March 31, 2008 and the three months ended March 31, 2007 was $1.40 and $3.28, respectively.

There is no tax benefit recorded for this expense due to full valuation allowances in the jurisdictions for which these options are deductible for tax purposes. Stock-based compensation expense is included in
Tumbleweeds condensed consolidated statement of operations as follows (in thousands):



|                                       |  |                             |       |      |   |      
|-------------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                       |  | Three Months EndedMarch 31,
|                                       |  | 2008                        |       | 2007
|Cost of service revenue                |  | $                           | 38    |      | $ | 26   
|Research and development               |  |                             | 275   |      |   | 303  
|Sales and marketing                    |  |                             | 400   |      |   | 220  
|General and administrative             |  |                             | 634   |      |   | 561  
|                                       |  |                             |       |      |   |      
|Total stock-based compensation expense |  | $                           | 1,347 |      | $ | 1,110
|                                       |  |                             |       |      |   |      

(3) Net Loss Per Share

Tumbleweed excludes potentially dilutive securities from its diluted net loss per share computation when their effect would be antidilutive to net loss per share amounts. The following potential common shares were
excluded from the net loss per share computation (in thousands):



|                                                                                                                                  |  |                             |  |      
|--------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- |  | -----
|                                                                                                                                  |  | Three Months EndedMarch 31,
|                                                                                                                                  |  | 2008                        |  | 2007 
|Warrants and options excluded due to the exercise price exceeding the average fair market value of common stock during the
period |  | 13,744                      |  | 5,339
|                                                                                                                                  |  |                             |  |      
|Total potential shares of common stock excluded from diluted net loss per share                                                   |  | 13,744                      |  | 5,339
|                                                                                                                                  |  |                             |  |      

(4) Concentrations of Credit Risk

Financial instruments, which potentially subject Tumbleweed to concentrations of credit risk, consist primarily of cash equivalents and accounts
receivable. Tumbleweeds cash equivalents generally consist of money market funds with qualified financial institutions. To analyze accounts receivable, Tumbleweed performs periodic evaluations of its customers financial condition and,
when necessary, records bad debt expense or credit. No single customer comprised 10% or more of Tumbleweeds accounts receivable balance, net of allowance for doubtful accounts, at either March 31, 2008 or March 31, 2007. One customer
comprised 13% of Tumbleweeds revenue during the three months ended March 31, 2008. No customer comprised 10% or more of Tumbleweeds revenue during the three months ended March 31, 2007.

(5) Intangible Assets and Goodwill

Intangible assets
consist of the fair value of core/developed technology, customer base and reseller agreements, maintenance agreements, and trademarks and trade names, all net of accumulated amortization, acquired during the acquisitions of Valicert, Inc.
(Valicert), Tumbleweed Communications Limited (formerly Incubator Limited), and Corvigo, Inc.

A summary of intangible assets
as of March 31, 2008 follows (in thousands):



|                                      |  |                              |  |                     |        |                         |   |         |     |  |   |  
|------------------------------------- |  | ---------------------------- |  | ------------------- | ------ | ----------------------- | - | ------- | --- |  | - | -
|                                      |  | Amortizationperiod(in
years) |  | Grosscarryingamount |        | Accumulatedamortization |   |         | Net
|Core/developed technology             |  | 3 to 4                       |  | $                   | 5,850  |                         | $ | (5,850  | )   |  | $ | 
|Customer base and reseller agreements |  | 3                            |  |                     | 3,700  |                         |   | (3,700  | )   |  |   | 
|Maintenance agreements                |  | 3 to 4                       |  |                     | 1,200  |                         |   | (1,200  | )   |  |   | 
|Trademarks and trade names            |  | 4                            |  |                     | 350    |                         |   | (350    | )   |  |   | 
|                                      |  |                              |  |                     |        |                         |   |         |     |  |   |  
|                                      |  |                              |  | $                   | 11,100 |                         | $ | (11,100 | )   |  | $ | 
|                                      |  |                              |  |                     |        |                         |   |         |     |  |   |  



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A summary of intangible assets as of December 31, 2007 is as follows (in thousands):



|                                      |  |                              |  |                     |        |                         |   |         |     |  |   |    
|------------------------------------- |  | ---------------------------- |  | ------------------- | ------ | ----------------------- | - | ------- | --- |  | - | ---
|                                      |  | Amortizationperiod(in
years) |  | Grosscarryingamount |        | Accumulatedamortization |   |         | Net
|Core/developed technology             |  | 3 to 4                       |  | $                   | 5,850  |                         | $ | (5,675  | )   |  | $ | 175
|Customer base and reseller agreements |  | 3                            |  |                     | 3,700  |                         |   | (3,676  | )   |  |   | 24 
|Maintenance agreements                |  | 3 to 4                       |  |                     | 1,200  |                         |   | (1,174  | )   |  |   | 26 
|Trademarks and trade names            |  | 4                            |  |                     | 350    |                         |   | (342    | )   |  |   | 8  
|                                      |  |                              |  |                     |        |                         |   |         |     |  |   |    
|                                      |  |                              |  | $                   | 11,100 |                         | $ | (10,867 | )   |  | $ | 233
|                                      |  |                              |  |                     |        |                         |   |         |     |  |   |    

Intangible assets were amortized in full during the three months ended March 31, 2008. No
amortization of intangible assets is to be incurred subsequent to March 31, 2008.

Goodwill represents the excess of the purchase
price over the fair value of acquired net tangible and identified intangible assets. In accordance with the provisions of SFAS 142, Goodwill and Other Intangible Assets, goodwill is not amortized, but instead, is tested for impairment at
least annually and more frequently if certain impairment conditions exist. Tumbleweed completed its annual assessment of goodwill in the three months ended June 30, 2007 and no impairment of goodwill was determined as a result of this
assessment. Any future impairment loss related to the goodwill recorded in connection with acquisitions will not be deductible by Tumbleweed for federal income tax purposes.

(6) Comprehensive Loss

Comprehensive loss includes Tumbleweeds net loss as well as foreign
currency translation adjustments. Comprehensive loss for the three months ending March 31, 2008 and 2007, respectively, is as follows (in thousands):



|                                                   |  |                             |        |   |      |   |        |  
|-------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                   |  | Three Months EndedMarch 31, |       
|                                                   |  | 2008                        |        |   | 2007 |  
|Net loss                                           |  | $                           | (1,135 | ) |      | $ | (1,895 | )
|Other comprehensive incometranslation adjustments |  |                             | 89     |   |      |   | 17     |  
|                                                   |  |                             |        |   |      |   |        |  
|Comprehensive loss                                 |  | $                           | (1,046 | ) |      | $ | (1,878 | )
|                                                   |  |                             |        |   |      |   |        |  

(7) Segment Information

As defined by SFAS 131, Disclosure About Segments of an Enterprise and Related Information, Tumbleweeds chief operating decision-maker is its Chief Executive Officer. This officer reviews financial
information presented on a consolidated basis accompanied by disaggregated information about revenue by geographic region for purposes of making operating decisions and assessing financial performance. The consolidated financial information reviewed
is the information presented in the accompanying condensed consolidated statement of operations. Tumbleweed operates in a single reporting segment providing managed file transfer, e-mail security, and identity validation solutions that are developed
and sold in similar ways to enterprise and government customers of all sizes.



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Revenue information regarding operations in the different geographic regions is as follows (in
thousands):



|                                |  |                             |        |      |   |       
|------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                |  | Three Months EndedMarch 31,
|                                |  | 2008                        |        | 2007
|North America                   |  | $                           | 13,690 |      | $ | 13,075
|Europe, Middle East, and Africa |  |                             | 966    |      |   | 1,426 
|Asia Pacific                    |  |                             | 480    |      |   | 478   
|Latin America                   |  |                             | 124    |      |   | 36    
|                                |  |                             |        |      |   |       
|Total                           |  | $                           | 15,260 |      | $ | 15,015
|                                |  |                             |        |      |   |       

Revenue information by product area is as follows (in thousands):



|                                         |  |                             |        |      |   |       
|---------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                         |  | Three Months EndedMarch 31,
|                                         |  | 2008                        |        | 2007
|Managed file transfer and email security |  | $                           | 11,780 |      | $ | 13,140
|Identity validation                      |  |                             | 1,430  |      |   | 1,779 
|Intellectual property                    |  |                             | 2,050  |      |   | 96    
|                                         |  |                             |        |      |   |       
|Total                                    |  | $                           | 15,260 |      | $ | 15,015
|                                         |  |                             |        |      |   |       

Tumbleweeds property and equipment located in the different geographic regions as of
March 31, 2008 and December 31, 2007 are as follows (in thousands):



|                        |  |               |       |                  |   |      
|----------------------- |  | ------------- | ----- | ---------------- | - | -----
|                        |  | March 31,2008 |       | December 31,2007
|North America           |  | $             | 1,729 |                  | $ | 1,659
|Bulgaria                |  |               | 360   |                  |   | 361  
|Other                   |  |               | 7     |                  |   | 18   
|                        |  |               |       |                  |   |      
|Total long-lived assets |  | $             | 2,096 |                  | $ | 2,038
|                        |  |               |       |                  |   |      

(8) Contingencies

In December 2001, certain plaintiffs filed a class action lawsuit in the United States District Court for the Southern District of New York (the District Court) on behalf of purchasers of the common stock
of Valicert, Inc. (which was later acquired by Tumbleweed) alleging violations of federal securities laws. In re Valicert, Inc. Initial Public Offering Securities Litigation, No. 01-CV-10889 (SAS) (S.D.N.Y.), related to In re Initial
Public Offering Securities Litigation, No. 21 MC 92 (SAS). The operative amended complaint is brought on purported behalf of all persons who purchased Valicert common stock from the date of its July 27, 2000 initial public offering
(IPO) through December 6, 2000. It names as defendants Valicert, its former Chief Executive Officer, and its Chief Financial Officer (the Valicert Defendants), as well as an investment banking firm that served as an
underwriter for the IPO. The complaint alleges liability under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, on the grounds that the registration statement for the IPO did not
disclose that: (1) the underwriter agreed to allow certain customers to purchase shares in the IPO in exchange for excess commissions to be paid to the underwriter; and (2) the underwriter arranged for certain customers to purchase
additional shares in the aftermarket at predetermined prices. The complaint also appears to allege that false or misleading analyst reports were issued. The complaint does not claim any specific amount of damages. Similar allegations have been made
in lawsuits relating to more than 300 other initial public offerings conducted in 1999 and 2000, all of which have been consolidated for pretrial purposes. In February 2003, the Court issued a ruling on all defendants motions to dismiss,
denying Valicerts motion to dismiss the claims under the Securities Act of 1933, but granting Valicerts motion to dismiss the claims under the Securities Exchange Act of 1934.

In June 2003, shortly before being acquired by Tumbleweed, Valicert accepted a settlement proposal presented to all issuer defendants in this case. Under
the proposed settlement, the plaintiffs will dismiss and release all claims against the Valicert Defendants in exchange for a contingent payment guaranty by the insurance companies collectively responsible for insuring the issuers in all the
consolidated cases, and the assignment or surrender of control to the plaintiffs of certain claims the issuer defendants may have against the underwriters. Under the guaranty, the insurers will be required to pay the amount,



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if any, by which $1 billion exceeds the aggregate amount ultimately collected by the plaintiffs from the underwriter defendants in all of the cases. If the
plaintiffs fail to recover $1 billion and payment is required under the guaranty, Valicert would be responsible to pay its pro rata portion of the shortfall, up to the amount of the deductible retention under its insurance policy, which is $500,000.
The timing and amount of payments that Valicert could be required to make under the proposed settlement will depend on several factors, principally the timing and amount of any payment required by the insurers pursuant to the $1 billion guaranty.
The proposed settlement is subject to approval of the Court, which cannot be assured.

In April 2006, the District Court held a hearing on
the proposed settlement but has not yet issued a ruling on the issue. Subsequently, the Court of Appeals for the Second Circuit (the Court of Appeals) vacated the class certification of plaintiffs claims against the
underwriters in six cases designated as focus or test cases. Miles v. Merrill Lynch & Co. (In re Initial Public Offering Securities Litigation, 471 F.3d 24 (2d Cir. 2006). Thereafter, the District Court ordered a stay of all
proceedings in all of the lawsuits pending the outcome of plaintiffs petition to the Court of Appeals for rehearing en banc and resolution of the class certification issue. On April 6, 2007, the Court of Appeals denied plaintiffs
petition for rehearing, but clarified that the plaintiffs may seek to certify a more limited class in the District Court.

Accordingly, the
stay remains in place and the plaintiffs and issuers have stated that they are prepared to discuss how the settlement might be amended or renegotiated to comply with the ruling of the Court of Appeals. Failure of the District Court to approve
the settlement (or an amended or renegotiated settlement) followed by an adverse outcome could harm Tumbleweeds business and operating results. Moreover, the costs in defending this lawsuit could harm future operating
results. The accompanying condensed consolidated financial statements do not include a reserve for any potential loss, as Tumbleweed does not consider a loss to be probable at this time. All costs incurred as a result of this legal proceeding
are charged to expense as incurred.

Tumbleweed indemnifies its customers from third party claims of intellectual property infringement
relating to the use of its products. Historically, costs related to these guarantees have not been significant. Tumbleweed is unable to estimate the potential impact of these guarantees on its future results of operations.

Tumbleweed is engaged in other legal actions arising in the ordinary course of business. Although there can be no assurance as to the outcome of such
litigation, Tumbleweed believes it has adequate legal defenses and it believes that the ultimate outcome of any of these actions will not have a material effect on its consolidated financial positions or results of operations.

(9) Recent Accounting Pronouncements

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities. It also responds to investors
requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 applies whenever
other standards require or permit assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances. In February 2008, the FASB issued FASB Staff Position No. 157-2, which delays the
effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning
after November 15, 2008, and interim periods within those fiscal years. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and
liabilities assumed in a business combination. Tumbleweed adopted SFAS 157 effective January 1, 2008 and the adoption had no material impact on its financial statements. Tumbleweed cash equivalents include investments in money market mutual
funds, which are stated at net asset value. Tumbleweed believes that all of its cash and cash equivalents, including investments in money market mutual funds, are Level 1 in the SFAS 157 fair value hierarchy as detailed below:

Level 1  quoted prices in active markets for identical assets or liabilities;

Level 2  inputs other than Level 1 quoted prices that are directly or indirectly observable;

Level 3  significant unobservable inputs that are supported by little or no market activity.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R), and SFAS
No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51 (SFAS 160). SFAS 141R changes how business acquisitions are accounted for and
impacts financial statements both on the acquisition date and in subsequent periods. SFAS 160 changes the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of
equity. SFAS 141R and SFAS 160 are effective for fiscal years beginning after December 15, 2008 and will be adopted by Tumbleweed beginning in the first quarter of 2009. Although Tumbleweed will continue to evaluate the application of SFAS 141R
and SFAS 160, it does not currently believe adoption will have a material impact on its financial condition or operating results.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion should be read in conjunction with the condensed consolidated financial statements and the accompanying notes to this
Quarterly Report on Form 10-Q and Tumbleweeds Annual Report on Form 10-K for 2007 filed with the Securities and Exchange Commission (SEC), as well as Managements Discussion and Analysis of Financial Condition and Results of
Operations included therein. The following discussion contains forward-looking statements that reflect Tumbleweeds plans, estimates and beliefs. Tumbleweeds actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and at Part II, Item 1A, Risk Factors to this Quarterly Report.

Overview

Tumbleweed Communications Corp.
(Tumbleweed or we) is a recognized expert in providing managed file transfer, email security, and identity validation products for enterprise and government customers of all sizes. We provide comprehensive solutions that
enable organizations to safely and confidently conduct business over the Internet, protecting data in motion and at rest with intuitive, pragmatic solutions that promote collaboration, prevent data loss, and reduce the cost of doing business. Our
customers deploy our security products between their network and the Internet to effectively protect against inbound threats and outbound vulnerabilities, and to automatically encrypt and securely deliver data to third parties. In addition, all of
our products are designed to integrate with existing business and email systems, requiring no significant change in existing firewall or system infrastructures. Our products can be used independently or in combination to create a comprehensive,
secure Internet communications solution for our customers. All of our products offer multi-level security using industry standards, universal access, and proven scalability for high volume data traffic. Our suite is comprised of four products:



| |  |  | Tumbleweed SecureTransport is a managed file transfer product that enables customers to securely manage the exchange of large files and transactions
without having to change internal infrastructure.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Tumbleweed Secure Messenger is a policy-based email encryption product that enables deep-content inspection of incoming and outgoing mail, and dynamic
application of user-defined encryption and routing preferences.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Tumbleweed MailGate® is a comprehensive email
security product that provides inbound and outbound protection with protection against virus outbreaks, spam, and denial of service attacks, eliminating illegitimate email traffic before it can penetrate corporate firewalls.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Tumbleweed Validation Authority is a leading product for determining the validity of digital certificates.
| | - |  | -----------------------------------------------------------------------------------------------------------

We are trusted by more than 3,300 enterprise and government customers who use our products to securely connect with employees, partners, and
customers. Our traditional market focus has been in the financial services, healthcare, and government markets, but we are expanding into other market sectors, such as retail, manufacturing, energy, transportation and technology. Many of the
worlds most security conscious organizations use our products to safely exchange data, protect information assets, block email security threats, and ensure identity validation.

Revenue for the three months ended March 31, 2008 was $15.3 million as compared to $15.0 million for the same three months in 2007, and our net loss
was $1.1 million as compared to $1.9 million during the same periods. The increase in revenue and reduction in net loss were both due to a single large patent license agreement during the three months ended March 31, 2008 that accounted for 13%
of our total revenue during that period, with no comparable transaction recorded during the three months ended March 31, 2007. Cash flow from operations increased to $2.7 million during the three months ended March 31, 2008 from $752,000
for the same three months in 2007 due to a decrease in our net loss of $760,000 and an increase in cash receipts from our customers.

Backlog

Our backlog consists of deferred revenue as well as contractual commitments that are not due and payable as of the balance sheet date,
or for which the product or service has not yet been delivered, and/or for which collectibility is not considered probable. Our backlog excludes all items relating to consulting and training services. Backlog was $28.3 million and $26.7 million at
March 31, 2008 and December 31, 2007, respectively. We believe that $21.7 million of the backlog at March 31, 2008 will be recognized as revenue in the next 12 months in accordance with our revenue recognition policy, with the balance
to be recognized thereafter.



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Outlook

We believe that our success in the remainder of 2008 will depend on our ability to continue to effectively manage the transition from being primarily a direct sales organization to having a greater portion of our business come through
reseller partners, to expand our international revenue, to introduce competitive products while transitioning from our historic waterfall engineering practices to an agile product development model, and to maintain control
over expenses and cash. We believe that key risks include overall economic conditions and the overall level of information technology spending; economic and business conditions within our customers vertical markets, including the financial
services, healthcare, and government industries; timing of the closure of customer contracts; operational execution in growing our sales internationally; and competitive factors in our rapidly changing industry. Our prospects must be considered in
light of the risks, expenses and difficulties encountered by companies of a similar size and industry, particularly given that we operate in rapidly evolving markets, have completed several acquisitions and face an uncertain economic environment. We
may not be successful in addressing such risks and difficulties. Please refer to the Risk Factors section at Part II, Item 1A for additional information.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition
and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments in determining the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We regularly evaluate our estimates, including those related
to revenue recognition, customer arrangements, collectibility of accounts receivable, valuation of assets, and contingencies and litigation. When making estimates, we consider our historical experience, our knowledge of economic and market factors
and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies represent areas where significant judgments and estimates have been used in the preparation of
our condensed consolidated financial statements.

Revenue Recognition

We derive our revenue from three sources: (i) product revenue, which includes license fees and appliance fees (for products that are delivered on an appliance platform), and subscription-based license fees;
(ii) service revenue, which consists of support and maintenance fees, consulting fees, and training fees; and (iii) intellectual property revenue, which consists of patent license agreement fees. As described below, significant management
judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of our revenue for any period based on the judgments and estimates made by our
management.

We recognize revenue in accordance with Statement of Position (SOP) 97-2, Software Revenue Recognition
(SOP 97-2), as amended by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition With Respect to Certain Transactions (SOP 98-9). We make significant judgments related to revenue
recognition. Specifically, as set forth in paragraph 8 of SOP 97-2 in connection with each transaction involving our products, we must evaluate whether: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred,
(iii) the fee is fixed or determinable, and (iv) collectibility is probable. We apply these criteria as discussed below.



| |  |  | Persuasive evidence of an arrangement exists.We require a written contract, signed by both the customer and us, or a purchase order from those customers
that have previously negotiated a standard license arrangement or volume purchase agreement with us prior to recognizing revenue on an arrangement.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Delivery has occurred. We deliver software to our customers physically or electronically. For physical deliveries, our transfer terms are typically free on
board, or FOB, shipping point. For electronic deliveries, delivery occurs when we provide the customer access codes or keys that allow the customer to take immediate possession of the software.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The fee is fixed or determinable.Our determination that an arrangement fee is fixed or determinable depends principally on the arrangements payment
terms. Our standard payment terms require the arrangement fee to be due within a maximum of 90 days. Where these terms apply, we regard the fee as fixed or determinable, and we recognize revenue upon delivery pursuant to the terms of the
arrangement, assuming all other revenue recognition criteria are met. If the payment terms do not meet this standard, which we refer to as extended payment terms, we do not consider the fee to be fixed or determinable and generally
recognize revenue when customer installments are due and payable.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Collectibility is probable. To recognize revenue, we must judge collectibility of the arrangement fees, which we do on a customer-by-customer basis pursuant
to our credit review policy. We typically sell to customers with whom we have a history of successful collection. For new customers, we evaluate the customers financial position and ability to pay. If we determined that collectibility is not
probable based upon our credit review process or the customers payment history, we recognize revenue when payment is received.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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We allocate revenue on software transactions (referred to as arrangements in the accounting
literature) involving multiple elements to each undelivered element based on their respective fair values. Specifically, in a multi-element arrangement we allocate revenue first to undelivered elements such as support and maintenance, consulting
services, and training based on each elements fair value and the residual is allocated to the product license as product revenue. The fair value of support and maintenance fees is recognized ratably over the contractual term of the
maintenance, typically one year. The fair value of services not considered essential to the functionality of the product or technology delivered is initially deferred and recognized as revenue as the services are performed. Our determination of
the fair value of each element in multiple element arrangements is based on vendor-specific objective evidence (VSOE). We limit our assessment of the VSOE of fair value for each element to the price charged when that element is sold
separately.

Arrangements that include consulting services are evaluated to determine whether those services are essential to the
functionality of the other elements of the arrangement. When services are not considered essential, the revenue allocable to the services is recognized separately from the software, provided VSOE of the fair value of these services exists. If we
provide consulting services that are considered essential to the functionality of the software products, both the product revenue and service revenue are recognized under contract accounting in accordance with the provisions of SOP 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type Contracts. Revenue from these arrangements is recognized under the percentage of completion method based on the ratio of direct labor hours incurred to date to total
projected labor hours except in limited circumstances where completion status cannot be reasonably estimated, in which case the completed contract method is used.

Our software products are typically fully functional upon delivery and do not require significant modification or alteration. For arrangements where services are not essential to the functionality of the software,
customers typically purchase consulting services to facilitate the adoption of our technology, but they may also decide to use their own resources or appoint other professional service organizations to perform these services. Software products and
related support and maintenance services may be billed separately and independently from professional services, which are typically billed on either a time-and-materials basis or a fixed fee basis. For time-and-materials contracts, we recognize
revenue as the services are performed. For fixed fee engagements with milestones or acceptance provisions, revenue is recognized upon the completion of a milestone or acceptance, if applicable.

We recognize revenue from patent license agreements when (i) the patent license agreement is executed, (ii) the amounts due are fixed,
determinable, and billable, and (iii) collection of the resulting receivable is probable.

We recognize revenue from indirect channels
such as resellers using the same criteria as is used for arrangements obtained through our direct sales team.

We typically grant our
customers a warranty which guarantees that our products will substantially conform to our current specifications for 90 days from the delivery date pursuant to the terms of the arrangement. We account for the estimated cost of product and service
warranties in accordance with Statement of Financial Accounting Standards (SFAS 5), Accounting for Contingencies, provided that it is probable that a liability exists, and provided the cost to repair or otherwise satisfy the claim
can be reasonably estimated. The amount of the reserve recorded is equal to the costs to repair or otherwise satisfy the claim. Costs related to warranty claims were $202,000 and $115,000 for the three months ended March 31, 2008 and 2007,
respectively.

Stock-based Compensation Expense

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123R, using the modified prospective transition method. Under this transition method, stock-based compensation expense includes compensation
expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, Accounting for Stock-Based
Compensation (SFAS 123). We recognize stock-based compensation expense for the unvested portion of stock-based compensation awards granted prior to, but not yet vested, as of January 1, 2006 on an accelerated basis over the
vesting period of the individual award consistent with our methodology prior to the adoption of SFAS 123R and consistent with the method described in Financial Accounting Standards Board Interpretation 28, Accounting for Stock Appreciation Rights
and Other Variable Stock Option or Award Plans. Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of
SFAS 123R and compensation cost for these awards is recognized on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. In accordance with the provisions of SFAS 123R, we recognize
stock-based compensation expense net of an estimated forfeiture rate and recognize the compensation expense for only those shares expected to vest over the requisite service period of the award, which is generally the option vesting term. We
estimate the forfeiture rate based on our historical experience during the preceding term that equals the expected life of the options. The expected life of the options is based on the weighted-average period of time that options granted are
expected to be



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outstanding giving consideration to vesting schedules and our historical exercise patterns. Our expected volatility is based on the daily historical
volatility of our common stock, over the expected life of the option. The risk-free rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term to the expected life of the option.
Where the expected term of our stock-based awards does not correspond with the terms for which interest rates are quoted, we perform a straight-line interpolation to determine the rate from the available term maturities. Determining the fair value
of stock based awards at the grant date requires judgment, including estimating the expected life of stock options, the expected volatility of our stock and the amount of stock options expected to be forfeited. To the extent actual results or
updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. Actual results, and future changes in estimates, may differ substantially from our current estimates
and our results of operations could be materially impacted.

Valuation of Allowance for Doubtful Accounts

We must make estimates of the collectibility of our accounts receivable. We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. A considerable amount of judgment is required when we assess the realization of receivables, including assessing the probability of collection and the current credit-worthiness of each
customer. We specifically analyze accounts receivable, including review of historical bad debts, customer credit-worthiness, current economic trends, aging of the balance, estimated collectibility percentages for different aging ranges, and changes
in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of certain of our customers were to deteriorate, resulting in an impairment of their ability to make payments, we may
record a specific allowance against amounts owed to us by those customers, and thereby reduce the value of the receivable to the amount we reasonably believe will be collected. If all collection efforts have been exhausted, we would write off the
receivable against the allowance.

Valuation of Long-Lived Assets and Goodwill

We assess the impairment of identifiable intangibles, long-lived assets and goodwill whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors we consider important, which could trigger an impairment review, include the following:



| |  |  | significant underperformance relative to historical or projected future operating results;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | significant changes in the manner or our use of the acquired assets or the strategy for our overall business;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | significant negative industry or economic trends;
| | - |  | -------------------------------------------------



| |  |  | significant decline in our stock price for a sustained period; and
| | - |  | ------------------------------------------------------------------



| |  |  | our market capitalization relative to our net book value.
| | - |  | ---------------------------------------------------------

We evaluate whether goodwill is impaired on at least an annual basis in accordance with SFAS 142, Goodwill and Other Intangible Assets(SFAS 142) or more frequently if certain indicators are
present. If this evaluation indicates that the value of the goodwill may be impaired, we make an assessment of the impairment of the goodwill using the two-step method prescribed by SFAS 142. Any such impairment charge could be significant and have
a material adverse effect on our reported financial statements. We did not record any impairment charges on our goodwill during the three months ended March 31, 2008 or 2007, respectively. Any future impairment loss related to the goodwill
recorded in connection with acquisitions will not be deductible by us for federal income tax purposes. As of March 31, 2008 we had goodwill of $48.1 million.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2008 and 2007

Revenue. Revenue, which consists of product revenue, service revenue, and intellectual property revenue, results from new contracts and backlog. We
define backlog as deferred revenue, contractual commitments that are not due and payable as of the balance sheet date, or for which the product or service has not yet been delivered and/or for which collectibility is not considered probable. Product
revenue consists of license fees and appliance fees (for products that are delivered on an appliance platform), and subscription-based license fees. Service revenue includes support and maintenance fees, consulting fees, and training fees.
Intellectual property revenue consists of patent license agreement fees. Total revenue for the three months ended March 31, 2008 was $15.3 million as compared to $15.0 million for the same three months in 2007. The increase in total revenue was
due to a $2.0 million increase in intellectual property revenue, partially offset by an $899,000 decrease in product revenue, and an $810,000 decrease in service revenue.



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Product revenue decreased to $5.0 million for the three months ended March 31, 2008 from $5.9
million for the same three months in 2007. The decrease was due to a number of arrangements entered into during the three months ended December 31, 2006 for which product delivery was not completed, and the related revenue not recognizable,
until the three months ended March 31, 2007. This delay in the delivery of our products was significantly impacted by our transition to a new appliance manufacturer at that time.

Service revenue decreased to $8.2 million for the three months ended March 31, 2008 from $9.0 million for the same three months in 2007. The
decrease in service revenue was primarily due to a decrease in consulting revenue of $708,000. The decrease in consulting revenue was due to the timing of customer acceptance of services performed by us in 2007, which had a positive impact on
revenue during the three months ended March 31, 2007.

Intellectual property revenue increased to $2.1 million for the three months
ended March 31, 2008 from $96,000 for the same three months in 2007. The increase in intellectual property revenue was due to a single large transaction during the three months ended March 31, 2008 that accounted for 13% of our total
revenue during that period, with no comparable transaction recorded during the three months ended March 31, 2007.

Cost of
revenue. Cost of revenue is comprised of costs for product revenue, service costs, provision for excess inventory, and the amortization of intangible assets for core/developed technology and maintenance agreements relating to corporate
acquisitions by us. Cost of product revenue is primarily comprised of royalties paid to third parties for software licensed by us for inclusion in our products, and the cost of our products sold on appliances including related shipping and warranty
costs. Service costs are comprised primarily of employee and employee-related costs, including stock-based compensation expense, for customer support, consulting and customer-facing training, and contract development projects with third parties.
Provision for excess inventory is comprised of costs associated with excess inventory resulting from our transitions to new appliance manufacturers. Total cost of revenue decreased to $3.3 million, or 22% of total revenue, for the three months ended
March 31, 2008 from $4.1 million, or 27% of total revenue, for the same three months in 2007. The decrease in total cost of revenue was primarily due to a $386,000 decrease in product costs, a $153,000 decrease in service costs, and a $164,000
decrease in provision for excess inventory.

Cost of product revenue decreased to $1.4 million, or 9% of total revenue, for the three
months ended March 31, 2008 from $1.8, or 12% of total revenue, for the same three months in 2007. The decrease in product cost was primarily due to a decrease in the number of appliances shipped to our customers. The decrease in the number of
appliances shipped was due to our transition to a new appliance manufacturer during the three months ended December 31, 2006 that resulted in a number of appliances ordered by customers in that quarter being delivered during the three months
ended March 31, 2007.

Provision for excess inventory is the estimated loss for excess inventory and purchase commitments associated
with transitioning our hardware products to new appliance manufacturers. Provision for excess inventory for the three months ended March 31, 2007 was $164,000, or 1% of total revenue. There was no such expense during the three months ended
March 31, 2008.

Service costs decreased to $1.7 million, or 11% of total revenue, for the three months ended March 31, 2008 from
$1.9 million, or 13% of total revenue, for the same three months in 2007. The decrease in service costs was primarily due to a decrease in employee and employee-related costs, including stock-based compensation expense, of $169,000. The decrease in
employee and employee-related costs was due to a decrease in average services headcount to 67 employees for the three months ended March 31, 2008 from 78 employees for the same three months in 2007 primarily due to our efforts to control
expenses.

Amortization of intangible assets included in cost of revenue decreased to $201,000, or 1% of total revenue, for the three
months ended March 31, 2008 from $234,000, or 2% of total revenue, for the same three months in 2007 due to the amortization in full during the three months ended March 31, 2007 of the intangible assets for core/developed technology and
maintenance agreements acquired during the acquisitions of Corvigo, Inc. and Tumbleweed Communications Limited (formerly Incubator Limited). All intangible assets, including those for which amortization is included in cost of revenue, were amortized
in full in the three months ended March 31, 2008.

Research and development expenses. Research and development expenses are
primarily comprised of employee and employee-related costs, including stock-based compensation expense and other costs required for the development and quality assurance of our products. Research and development expenses were $3.9 million for both
the three months ended March 31, 2008 and the three months ended March 31, 2007, respectively.

Sales and marketing
expenses. Sales and marketing expenses are primarily comprised of employee and employee-related costs, including stock-based compensation expense, travel expenses, and costs associated with marketing program costs. Sales and marketing expenses
were $6.6 million for each of the three months ended March 31, 2008 and March 31, 2007, or 43% and 44% of the total revenues for the three months ended March 31, 2008 and March 31, 2007, respectively.



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General and administrative expenses. General and administrative expenses consist primarily of
employee and employee-related costs, including stock-based compensation expense, for our administrative, finance, legal, and human resources departments, as well as public reporting costs and professional fees including intellectual property
enforcement and protection costs. General and administrative expenses for the three months ended March 31, 2008 increased to $2.8 million, or 18% of total revenue, from 2.5 million, or 17% of total revenue, for the same three months in
2007. The increase in general and administrative expenses was primarily due to an increase of $181,000 in intellectual property incentive compensation due to an increase in our intellectual property revenue and an increase of $73,000 in stock-based
compensation expense. Stock-based compensation expense increased due to a change in the compensation structure of certain executive officers in 2008 whereby those executives would be paid their incentive compensation in shares of restricted stock as
opposed to cash.

Amortization of intangible assets. Amortization of intangible assets included in operating expenses consists of
the amortization of intangible assets for customer base and reseller agreements and trademarks and tradenames recorded as a result of the Valicert, Tumbleweed Communications Limited (formerly Incubator Limited), and Corvigo, Inc. acquisitions.
Amortization of intangible assets included in operating decreased to $32,000, or 0% of total revenue, for the three months ended March 31, 2008 from $183,000, or 1% of total revenue, for the same three months in 2007. The decrease in the
amortization of intangible assets included in operating expenses was due to completing the amortization of the customer base and reseller agreements acquired during the acquisitions of Corvigo, Inc. and Tumbleweed Communications Limited (formerly
Incubator Limited) during the three months ended March 31, 2007. All intangible assets, including those for which amortization is included in operating expense, were amortized in full during the three months ended March 31, 2008.

Other income, net. Other income, net, is generally comprised of interest income earned on investment securities. Other income, net,
decreased to $224,000 for the three months ended March 31, 2008 from $339,000 for the same three months in 2007. The decrease in other income, net was primarily due to a decrease in interest income caused by a decrease in our cash balance
during the three months ended March 31, 2008 as compared to the same three months in 2007 and a decrease in interest rates.

LIQUIDITY AND CAPITAL
RESOURCES

Since inception, we have financed our operations primarily through the issuance of equity securities. As of March 31,
2008, we had approximately $28.5 million in cash and cash equivalents.

Net cash provided by operating activities for the three months
ended March 31, 2008 was $2.7 million, which was primarily the result of a $3.8 million reduction in our accounts receivable balance, partially offset by our $1.1 million net loss. Our accounts receivable balance decreased due to an increase in
cash collections from our customers.

Net cash provided by operating activities for the three months ended March 31, 2008 increased to
$2.7 million compared to net cash provided by operating activities for the three months ended March 31, 2007 of $799,000. The increase in net cash provided by operating activities was due to a $760,000 decrease in our net loss and an increase
in cash receipts from our customers.

Net cash used in investing activities for the three months ended March 31, 2008 decreased to
$617,000 from $717,000 for the same three months in 2007. Net cash used in investing activities for both the three months ended March 31, 2008 and March 31, 2007 was comprised of purchases of property and equipment. Purchases of property
and equipment for the three months ended March 31, 2008 decreased as compared to the three months ended March 31, 2007 due to significant investments made in the three months ended March 31, 2007 to strengthen our information
technology infrastructure with minor comparable expenditure during the three months ended March 31, 2008.

Net cash provided by
financing activities for the three months ended March 31, 2008 decreased to $12,000 from $1.3 million for the same three months in 2007. Net cash provided by financing activities for both the three months ended March 31, 2008 and
March 31, 2007 was due to the proceeds from the issuance of common stock as a result of the exercises of stock options. The decrease in proceeds was due to a significant reduction in the number of stock options exercised during the three months
ended March 31, 2008 as compared to the same three months in 2007.

As of March 31, 2008, our principal commitments consisted of
obligations related to outstanding operating leases and unconditional purchase obligations. We do not anticipate a substantial increase in operating lease obligations in the immediate future.

We have an operating lease covering approximately 40,000 square feet of office space in Redwood City, California. This lease expires in July 2008 with
current monthly rent payments of approximately $88,000. In April 2008, we entered into an operating lease covering approximately 37,000 square feet of office space in Redwood City, California. The base monthly rent payments will be approximately
$86,000.



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Our capital requirements depend on numerous factors, including revenue generated from operations and
market acceptance of our products and services, and the resources devoted to the development of our products and services and to sales and marketing and other operating activities. We believe that our existing capital resources should enable us to
maintain our current and planned operations for at least the next twelve months. Our current cash reserves, however, may be insufficient if we experience either lower than expected revenues or extraordinary or unexpected cash expenses, or for other
reasons. Funding, if pursued, may not be available on acceptable terms or at all. If adequate funds are not available, we may be required to curtail significantly or defer one or more of our operating goals or programs, or take other steps that
could harm our business or future operating results. We may consider future financing alternatives, which may include the incurrence of debt, additional public or private equity offerings or an equity investment by a strategic partner.

OFF-BALANCE SHEET ARRANGEMENTS

At March 31,
2008, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

Future cash payments for contractual obligations and commercial commitments as of March 31, 2008, are as follows (in thousands):



|                                   |  |                 |       |            |   |            |  |                  |     |       |   |   |  |   |      
|---------------------------------- |  | --------------- | ----- | ---------- | - | ---------- |  | ---------------- | --- | ----- | - | - |  | - | -----
|                                   |  | Less Than1 Year |       | 1  3Years |   | 3  5Years |  | More Than5 Years |     | Total
|Operating leases                   |  | $               | 795   |            | $ | 823        |  | $                | 792 |       | $ |  |  | $ | 2,410
|Unconditional purchase obligations |  |                 | 997   |            |   | 1,579      |  |                  |    |       |   |  |  |   | 2,576
|                                   |  |                 |       |            |   |            |  |                  |     |       |   |   |  |   |      
|Total                              |  | $               | 1,792 |            | $ | 2,402      |  | $                | 792 |       | $ |  |  | $ | 4,986
|                                   |  |                 |       |            |   |            |  |                  |     |       |   |   |  |   |      



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

We currently do not use financial instruments to hedge operating expenses in Australia, Bulgaria, Japan, the Netherlands, Singapore, Switzerland, or the United Kingdom denominated in the respective local currency. We assess the need to
utilize financial instruments to hedge currency exposures on an ongoing basis.

We do not use derivative financial instruments for
speculative trading purposes, nor do we hedge our foreign currency exposure in a manner that entirely offsets the effects of changes in foreign exchange rates. We have evaluated our need for a hedging program n the past and will continue to do so in
the future.

Interest Rate Sensitivity

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. 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 fair value of the investment to fluctuate. For example, if we hold a security that was issued with a fixed rate equal to the then-prevailing interest
rate and the prevailing interest rate later rises, the fair value of our investment will decline. To minimize this risk, we maintain our portfolio of cash equivalents in commercial paper and money market funds. In general, our investments are not
subject to market risk because the interest paid on these funds fluctuates with the prevailing interest rate. As of March 31, 2008, none of our cash equivalents were subject to market risk.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

(a) Evaluation of disclosure controls and
procedures.

Tumbleweeds management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of March 31, 2007. Based on such
evaluation, Tumbleweeds Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2008, Tumbleweeds disclosure controls and procedures are effective in recording, processing, summarizing and reporting,
on a timely basis, information required to be disclosed by Tumbleweed in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by Tumbleweed in the reports that it files
or submits under the Exchange Act are accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



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(b) Changes in internal controls.

No changes in Tumbleweeds internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended March 31, 2008
that have materially affected, or are reasonably likely to materially affect, Tumbleweeds internal control over financial reporting.



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PART IIOTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

In December 2001, certain
plaintiffs filed a class action lawsuit in the United States District Court for the Southern District of New York (the District Court) on behalf of purchasers of the common stock of Valicert, Inc. (which was later acquired by Tumbleweed)
alleging violations of federal securities laws. In re Valicert, Inc. Initial Public Offering Securities Litigation, No. 01-CV-10889 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, No. 21 MC
92 (SAS). The operative amended complaint is brought on purported behalf of all persons who purchased Valicert common stock from the date of its July 27, 2000 initial public offering (IPO) through December 6, 2000. It names as
defendants Valicert, its former Chief Executive Officer, and its Chief Financial Officer (the Valicert Defendants), as well as an investment banking firm that served as an underwriter for the IPO. The complaint alleges liability under
Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, on the grounds that the registration statement for the IPO did not disclose that: (1) the underwriter agreed to allow certain
customers to purchase shares in the IPO in exchange for excess commissions to be paid to the underwriter; and (2) the underwriter arranged for certain customers to purchase additional shares in the aftermarket at predetermined prices. The
complaint also appears to allege that false or misleading analyst reports were issued. The complaint does not claim any specific amount of damages. Similar allegations have been made in lawsuits relating to more than 300 other initial public
offerings conducted in 1999 and 2000, all of which have been consolidated for pretrial purposes. In February 2003, the Court issued a ruling on all defendants motions to dismiss, denying Valicerts motion to dismiss the claims under the
Securities Act of 1933, but granting Valicerts motion to dismiss the claims under the Securities Exchange Act of 1934.

In June 2003,
shortly before being acquired by Tumbleweed, Valicert accepted a settlement proposal presented to all issuer defendants in this case. Under the proposed settlement, the plaintiffs will dismiss and release all claims against the Valicert Defendants
in exchange for a contingent payment guaranty by the insurance companies collectively responsible for insuring the issuers in all the consolidated cases, and the assignment or surrender of control to the plaintiffs of certain claims the issuer
defendants may have against the underwriters. Under the guaranty, the insurers will be required to pay the amount, if any, by which $1 billion exceeds the aggregate amount ultimately collected by the plaintiffs from the underwriter defendants in all
of the cases. If the plaintiffs fail to recover $1 billion and payment is required under the guaranty, Valicert would be responsible to pay its pro rata portion of the shortfall, up to the amount of the deductible retention under its insurance
policy, which is $500,000. The timing and amount of payments that Valicert could be required to make under the proposed settlement will depend on several factors, principally the timing and amount of any payment required by the insurers pursuant to
the $1 billion guaranty. The proposed settlement is subject to approval of the Court, which cannot be assured.

In April 2006, the District
Court held a hearing on the proposed settlement but has not yet issued a ruling on the issue.Subsequently, the Court of Appeals for the Second Circuit (the Court of Appeals) vacated the class certification of
plaintiffs claims against the underwriters in six cases designated as focus or test cases. Miles v. Merrill Lynch & Co. (In re Initial Public Offering Securities Litigation, 471 F.3d 24 (2d Cir. 2006). Thereafter, the District
Court ordered a stay of all proceedings in all of the lawsuits pending the outcome of plaintiffs petition to the Court of Appeals for rehearing en banc and resolution of the class certification issue.

In April 2007, the Court of Appeals Circuit denied plaintiffs petition for rehearing, but clarified that the plaintiffs may seek to certify a
more limited class in the District Court. Accordingly, the stay remains in place and the plaintiffs and issuers have stated that they are prepared to discuss how the settlement might be amended or renegotiated to comply with the ruling of the Court
of Appeals.

Failure of the District Court to approve the settlement (or an amended or renegotiated settlement) followed by an adverse
outcome could harm our business and operating results. Moreover, the costs in defending this lawsuit could harm future operating results. The accompanying condensed consolidated financial statements do not include a reserve for any
potential loss, as we do not consider a loss to be probable at this time. All costs incurred as a result of this legal proceeding are charged to expense as incurred.

We indemnify our customers from third party claims of intellectual property infringement relating to the use of our products. Historically, costs related to these guarantees have not been significant and we are unable
to estimate the potential impact of these guarantees on our future results of operations.

We are engaged in other legal actions arising in
the ordinary course of business. Although there can be no assurance as to the outcome of such litigation, we believe we have adequate legal defenses and we believe that the ultimate outcome of any of these actions will not have a material effect on
our consolidated financial positions or results of operations.



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|ITEM 1A. | RISK FACTORS
|-------- | ------------

We have a history of losses and may experience
losses in the future.

We have a history of losses and may experience losses in the future. Our prospects must be considered in light of
the risks, expenses, delays and difficulties frequently encountered by companies engaged in rapidly evolving technology markets like ours. We incurred net losses of $10.8 million and $4.9 million in 2007 and 2006, respectively. As of March 31,
2008, we had incurred cumulative net losses of $307.8 million.

Our success may depend in large part upon the adoption and use of our
products and technology, as well as our ability to effectively maintain existing relationships and develop new relationships with customers, both in new vertical markets and new segments, and via direct sales, channel sales partners, and strategic
partners. In particular, we intend to expend significant financial and management resources on product development, sales and marketing, strategic relationships, technology, and operating infrastructure. As a result, we may incur additional losses
and continued negative cash flow from operations for the foreseeable future and may not achieve or maintain profitability.

Fluctuations in our
quarterly operating results may not be predictable and may result in significant volatility in our stock price.

Our revenue and our
operating results have fluctuated and may continue to fluctuate based on, among other things, the timing of the execution and termination of customer agreements in a given quarter. We have experienced, and expect to continue to experience,
fluctuations in revenue and operating results from quarter to quarter for other reasons, including the timing of our target customers election to adopt and implement our products and services, the election of our customers to delay their
purchase commitments or purchase in smaller amounts, and the timing of and our ability to continue to license our patents. Further, we have experienced and may continue to experience difficulty in managing the amount and timing of operating costs
and capital expenditures relating to our business, operations and infrastructure as well as collecting fees owed by customers. Finally, any acquisitions or divestitures we complete as well as the announcement or introduction of new or enhanced
products and services may create additional volatility in our results.

As a result of these factors, we believe that quarter-to-quarter
comparisons of our revenue and operating results are not necessarily meaningful, and that these comparisons may not be accurate indicators of future performance. Because our staffing and operating expenses are based on anticipated revenue levels,
and because a high percentage of our costs are fixed, small variations in the timing of the recognition of specific revenue could cause significant variations in our operating results from quarter to quarter. In addition, many of our customers delay
purchases of our products until the end of each quarter. If we are unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall, any significant revenue shortfall would likely have an immediate negative effect on
our operating results. Moreover, we believe the challenges and difficulties that we face, as outlined above with respect to financial forecasts, also apply to securities analysts that may publish estimates of our financial results. Our operating
results in the past have, and in future quarters may, fail to meet our expectations or those of securities analysts or our investors due to any of a wide variety of factors, including fluctuations in our performance as measured by any of a variety
of metrics employed by such persons. If this occurs, we would expect to experience an immediate and significant decline in the trading price of our stock.

Competitive pricing, sales volume, mix and product costs could materially adversely affect our revenue and gross margins.

Our gross margins are impacted by a variety of factors, including competitive pricing, product costs (including in-licensed software appliance costs), as well as changes in the revenue levels of the elements comprising our total product and
service revenue. Increased product costs, increased pricing pressures, the relative and varying rates of increases or decreases in product costs and product prices, changes in product and service revenue mixture or decreased volume could each have a
material adverse effect on our revenues, gross margins or ability to make a profit.

The costs of third-party components comprise a
significant portion of our product costs. While we generally have been able to manage our component costs, we may have difficulty managing such costs if supplies of certain components become limited or component prices increase. Any such limitation
could result in an increase in our component costs, and an increase in product costs relative to our product prices could have a material adverse effect on our gross margins and earnings.

We may have difficulty in executing our business operations.

Our future operating results will depend on our overall ability to manage operations, which includes, among other things:



| |  |  | maintaining a strong balance sheet and positive or neutral cash flow;
| | - |  | ---------------------------------------------------------------------



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| |  |  | retaining and hiring, as required, the appropriate number of qualified employees, in both domestic and international offices;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | transitioning from our historical distribution model, which emphasized direct sales, to a distribution model that emphasizes sales through channel partners such as
value added resellers and system integrators, especially with respect to our managed file transfer products;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | growing our international sales;
| | - |  | --------------------------------



| |  |  | building an adequate pipeline of prospective sales;
| | - |  | ---------------------------------------------------



| |  |  | accurately forecasting revenues;
| | - |  | --------------------------------



| |  |  | training our sales force and channel partners, particularly its newer members, to sell more products and services;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | developing products with strong market appeal;
| | - |  | ----------------------------------------------



| |  |  | transitioning from our historical waterfall engineering practices to an agile product development model;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | managing inventory levels, including minimizing excess and obsolete inventory, while maintaining sufficient inventory to meet customer demands;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | controlling expenses, particularly sales, product development, and general and administrative expenses;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | managing, protecting and enhancing, as appropriate, our infrastructure, including but not limited to, our information systems and internal controls; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | otherwise executing on our strategic plans.
| | - |  | -------------------------------------------

An
unexpected decline in revenues without a corresponding and timely reduction in expenses or a failure to manage other aspects of our operations could have a material adverse effect on our business, results of operations or financial condition.

If we lose the services of executive officers or other key employees, or our new employees, our ability to develop our business and secure customer
relationships will suffer.

We are substantially dependent on the continued services and performance of our executive officers and
other key personnel and do not have long-term employment agreements with any of our key personnel. The loss of the services of any of our executive officers or other key employees, including experienced and/or highly skilled members of our sales
force, our product development team, and our product management team, could significantly delay or prevent the achievement of the goals of our strategic and operating plan.

If we have elected an ineffective strategy, or do not execute our strategy well, our business could be harmed.

Our objective is to leverage and expand our core products of managed file transfer and email security to be a leading provider of a broad platform of secure content delivery solutions. We believe there is substantial
growth opportunity in the emerging secure content delivery market, which combines both secured email exchanges and managed file transfers. We have developed a strategic and operating plan based on what we believe to be critical success factors for
growing our business in secure content delivery solutions. The plan includes four key initiatives: continuing to build our channel or indirect distribution model, leveraging our channel partnerships to address mid-sized enterprises and new vertical
industries, expanding our international sales, and focusing on our core secure email and managed file transfer products. If the strategy we have elected to pursue turns out to be ineffective, it could significantly limit our ability to compete
successfully against current and future competitors and otherwise negatively impact our business.

If on the other hand we have elected to
pursue an effective strategy, but we do not execute our strategy well by optimizing our methods of producing, marketing, and selling our products, it could significantly limit our ability to compete successfully against current and future
competitors and otherwise negatively impact our business.

If we do not develop our products, marketing and distribution channels more successfully than
our competitors, our business could be harmed.

Larger companies, such as Cisco Systems, Google, Microsoft, Secure Computing, Sterling
Commerce, Inc. (a unit of AT&T Corp.), Axway, Inc. (as subsidiary of Sopra Group, SA), Symantec, and Websense are concentrating an increasing amount of their substantially greater financial and other resources on the markets in which we
participate, which represents a serious competitive threat to Tumbleweed.

The markets in which we compete are intensely competitive and
rapidly changing, through consolidation and otherwise. In particular, the inbound email security market has been exhibiting significant pricing pressures. Vendors in our markets use different methods of marketing and distribution in order to meet
expected customer demand. For example, our



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competitors include multiple software-only vendors, appliance-only vendors, and service providers, as well as vendors that offer a combination of some or all
of the foregoing. Moreover, our competitors offerings range from single-function point products and services to more sophisticated and scalable multi-functional offerings. In addition, pricing and other terms and conditions of sales contracts
also vary considerably among our competition. Because it is difficult to predict demand in our rapidly changing markets, we may not be able to manage our product development, marketing, and sales efforts in an optimal way, which may disadvantage our
business in comparison to competitors.

Competitors may develop new technologies or products in advance of us or establish business models
or technologies disruptive to us. Our business may be materially adversely affected by the announcement or introduction of new products, including hardware and software products and services by our competitors, and the implementation of effective
marketing or sales strategies by our competitors. We may experience product performance challenges, especially with our core products, namely, our managed file transfer products and our email security products, that create negative publicity or
otherwise inhibit our ability to maintain or increase our sales, which may also adversely affect our business. The material adverse effect to our business in any of the foregoing scenarios could include a decrease in demand for our products and
services and an increase in the length of our sales cycle due to customers taking longer to compare products and services and to complete their purchases.

Competitive factors in our industry include customer-driven requirements such as high quality, additional functionality, improved product performance, ease of use, integration capacity, platform coverage, and the
quality of each vendors global technical support. Some of our competitors have greater financial, technical, sales, marketing and other resources than we do, as well as greater name recognition and a larger installed customer base.
Additionally, some of these competitors have research and development capabilities that may allow them to develop new or improved products that may compete with product lines we market and distribute. Increased competition, including increased
competition from Cisco Systems with respect to our Tumbleweed MailGate product, may result in price reductions, reduced gross margins and loss of market share, any of which could harm our business.

We expect that the market for messaging security products and especially inbound email security products will continue to become more consolidated with
larger companies being better positioned to compete in such an environment in the long term. As this market has continued to develop, a number of companies with greater resources than ours have increased their presence in this market and others
could attempt to increase their presence in this market by acquiring or forming strategic alliances with our competitors or business partners.

Our success will depend on our ability to adapt our strategy to these competing forces, to develop and successfully launch more effective products more rapidly and less expensively than our competitors, and to educate potential customers as
to the benefits of licensing our products rather than developing their own products or licensing our competitors products. In particular our product development team is transitioning to an agile software development process, a transition that
may cause delays, attrition, and near-term inefficiencies with respect to product development.

In particular, our success depends on our
ability to grow and develop our indirect distribution channels, both in the United States and internationally, and the inability to do so could adversely affect future operating results. We must continue to increase the number of strategic and other
third-party relationships with vendors of Internet-related systems and application software, resellers and systems integrators. Our existing or future channel partners may choose to devote greater resources to marketing and supporting the products
of other companies, which could have a negative impact on our company.

In addition, our success depends in part on our ability to sell our
appliance-based products. In comparison to several of our leading competitors, we have less experience in managing the product development, marketing, and sales of appliance-based products. Historically most of our revenue has been derived from
software-based products, not appliance-based products, and our business could be harmed if we do not successfully execute our plans with respect to our appliance-based products.

We may be unable to keep pace with rapid industry, technological and market changes.

The markets in
which we compete are characterized by rapid technological change, frequent new product introductions, evolving industry standards and changing needs of customers. There can be no assurance that our existing products will be properly positioned in
the market or that we will be able to introduce new or enhanced products into the market on a timely basis, or at all. We spend a considerable amount of money on research and development and introduce new products from time to time. There can be no
assurance that enhancements to existing products and solutions or new products and solutions will receive customer acceptance. As competition in the information technology industry increases, it may become increasingly difficult for us to maintain a
technological advantage and to leverage that advantage toward increased revenues and profits.



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Risks associated with the development and introduction of new products include delays in development and
changes in information security and operating system technologies that could require us to modify existing products.

Risks inherent in the
transition to new products include:



| |  |  | the difficulty in forecasting customer preferences or demand accurately;
| | - |  | ------------------------------------------------------------------------



| |  |  | the inability to expand production capacity to meet demand for new products;
| | - |  | ----------------------------------------------------------------------------



| |  |  | the impact of customers demand for new products on the products being replaced, thereby causing a decline in sales of existing products and an excessive,
obsolete supply of inventory; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | delays in initial shipments of new products.
| | - |  | --------------------------------------------

Further risks inherent in new product introductions include the uncertainty of price-performance relative to products of competitors, competitors responses to the introductions and the desire by customers to evaluate new products for
extended periods of time. Our failure to introduce new or enhanced products on a timely basis, keep pace with rapid industry, technological or market changes or effectively manage the transitions to new products or new technologies could have a
material adverse effect on our business, results of operations, or financial condition.

Contractual issues may arise during the negotiation of license
agreements that may delay the anticipated closure of a transaction and our ability to recognize revenue as anticipated.

Because we
focus on selling enterprise-wide software products to enterprises and government entities, the process of contractual negotiation is critical and may be lengthy. Additionally, many factors may require us to defer recognition of license revenue for a
significant period of time after entering into a license agreement.

Many customers negotiate software licenses near the end of each
quarter. In part, this is because customers are able, or believe that they are able, to negotiate lower prices and more favorable terms at that time. Our reliance on a large portion of software license revenue occurring at the end of the quarter and
the increase in the dollar value of transactions that occur at the end of a quarter can result in increased uncertainty relating to quarterly revenues. Due to end of period variances, forecasts may not be achieved, either because expected sales do
not occur or because they occur at lower prices or on terms that are less favorable to us.

A limited number of customers and vertical markets have
accounted for a high percentage of our revenue, and either the failure to maintain or expand these customer relationships or the failure to penetrate new vertical markets could adversely affect our future 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 revenue associated with
existing or proposed customers would harm our future revenue and prospects. For the three months ended March 31, 2008, one customer comprised approximately 13% of our revenue. No single customer comprised 10% or more of our revenue during the
three months ended March 31, 2007. No single customer comprised 10% or more of our accounts receivable balance, net of allowance for doubtful accounts, at March 31, 2008, or December 31, 2007, respectively. For the three months ended
March 31, 2008 and 2007, five customers comprised approximately 22% and 12% of our revenue, respectively.

In addition, a significant
amount of our past business has been in three vertical markets: financial services, healthcare, and government. This concentration, especially with respect to the financial services market, which has constituted approximately 30% of our business,
poses risks, particularly the risk that adverse conditions within the vertical market could result in reduced information technology spending in that vertical, which in turn could adversely impact our operating results.

Our appliance products may not be adopted in the market and expose us to hardware costs and supply chain issues.

Over time, we have expanded our portfolio of products sold on appliances, which are manufactured by a single third party. The inclusion of these hardware
appliances in our product portfolio subjects us to additional risks, including, but not limited to:



| |  |  | increased marginal costs relative to software-only transactions which may reduce our gross profits, particularly with respect to lower-priced appliances, which may
represent a greater percentage of our sales than in the past;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the inability of the appliance manufacturer to perform in accordance with our expectations, including our expectations regarding the hardware appliances
compliance with any applicable regulations;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the inability to deliver appliance products to customers in a timely manner, harming our ability to win time-sensitive customer contracts and/or recognize revenue;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | product or component shortages that could result in increased product costs;
| | - |  | ----------------------------------------------------------------------------



| |  |  | price increases from suppliers that may not be able to be passed on to customers;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | oversupply or obsolescence of inventory, which may result in the need to reduce our prices and/or reduce the value of our inventory; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | product quality issues.
| | - |  | -----------------------

The
occurrence of any of these events could adversely affect our business and operating results.

Economic conditions that result in a decrease in
information technology spending could adversely affect our business.

An important factor affecting our ability to generate revenue is
the impact of general economic conditions on our customers willingness to spend on information technology. Variability in employment, corporate profit growth, interest rates, energy prices and other factors in specific markets could impact
customers willingness to spend on information technology in the near term. In addition, country-to-country variability in economic conditions could significantly impact our business as our reliance on international sales as a percentage of our
overall revenue increases.

We may be unable to adequately protect our intellectual property rights or may be subject to claims of patent infringement,
either of which could result in substantial costs to us.

We currently rely on a combination of patents, trade secrets, copyrights,
trademarks and licenses, together with non-disclosure and confidentiality agreements, to establish and protect our proprietary rights in our products. We hold certain patent rights with respect to some of our products. Our existing patents or
trademarks, as well as any future patents or trademarks obtained by us, may be challenged, invalidated or circumvented, or our competitors may independently develop or patent technologies that are substantially equivalent or superior to our
technology. We also rely on unpatented trade secrets and other unpatented proprietary information. Although we take precautionary measures to maintain our unpatented proprietary information, others may acquire equivalent information or otherwise
gain access to or disclose our proprietary information, and we may be unable to meaningfully protect our rights to our proprietary information. As a result, our operating results could suffer.

Third parties could assert patent or other intellectual property infringement claims against us and the cost of responding to such assertions, regardless
of their validity, could be significant. We may increasingly be subject to claims of intellectual property infringement as the number of our competitors grows and the functionality of their products and services increasingly overlap with ours. In
addition, we may infringe upon patents that may be issued to third parties in the future. It may be time consuming and costly to defend ourselves against any of these claims and we may not prevail. Furthermore, parties making such claims may be able
to obtain injunctive or other equitable relief that could block our ability to further develop or commercialize some or all of our products in the United States and abroad. In the event of a claim of infringement, we may be required to obtain one or
more licenses from or pay royalties to third parties. We may be unable to obtain any such licenses at a reasonable cost, if at all. Defense of any lawsuit or failure to obtain such license could harm our business.

The enforcement of our intellectual property rights, especially through patent infringement lawsuits we may initiate, could result in substantial litigation costs and
ultimately may not result in additional revenue to us or a favorable judicial determination.

Since 1999 we have aggressively pursued
cases of potential infringement by third parties of our patents and other intellectual property rights. The enforcement process is costly and requires significant management attention. These costs are expensed during the period incurred, and the
costs of pursuing the litigation may not be directly matched with the related patent license agreement revenue, if any. In addition, our enforcement of our rights may increase the risk of adverse claims, with or without merit, which could be time
consuming to defend, result in costly litigation, divert managements attention and our resources, limit the use of our services, or require us to enter into royalty or license agreements. In addition, such counter-claims asserted by these
third parties may be found to be valid and could result in an injunction or damages against us. Our ability to prevail in this litigation is inherently uncertain, and if we were subject to an adverse judicial determination, our ability to protect
our products and to secure related licensing or settlement revenue could be lost.

Failure to license necessary third party software incorporated in our
products could cause delays or reductions in our sales.

We license third party software that we incorporate into our products. These
licenses may not continue to be available on commercially reasonable terms, or at all. Some of this technology would be difficult to replace. The loss of any such license could result in delays or reductions of our applications until we identify,
license and integrate, or develop equivalent



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software. If we are required to enter into license agreements with third parties for replacement technology, we could face higher royalty payments and our
products may lose certain attributes or features. In the future, we might need to license other software to enhance our products and meet evolving customer needs. If we are unable to do this, we could experience reduced demand for our products.

Our international business exposes us to additional risks that may result in future additional costs or limit the market for product sales.

Products and services provided to our international customers accounted for 10% and 13% of our revenues for the three months ended
March 31, 2008 and 2007, respectively. Conducting business outside of the United States subjects us to additional risks, including:



| |  |  | changes in regulatory requirements and any resulting costs of compliance, for example, the introduction by the European Union of its Restrictions on Hazardous
Substances;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reduced protection of intellectual property rights; evolving privacy laws; tariffs and other trade barriers;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | difficulties in staffing and managing foreign operations;
| | - |  | ---------------------------------------------------------



| |  |  | increased income tax expenses;
| | - |  | ------------------------------



| |  |  | problems in collecting accounts receivable; and
| | - |  | -----------------------------------------------



| |  |  | difficulties in authenticating customer information.
| | - |  | ----------------------------------------------------

Managing these risks may subject us to additional costs that may not be justified in light of the market opportunity, and the inability to comply with or manage foreign laws and related risks may preclude or limit
sales in foreign jurisdictions.

Fluctuations in foreign currency exchange rates could affect our financial results.

We earn revenues, pay expenses, acquire assets and incur liabilities in countries using currencies other than the U.S. dollar. Because our consolidated
financial statements are presented in U.S. dollars, we must translate revenues, income and expenses as well as assets and liabilities into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, increases
or decreases in the value of the U.S. dollar against other currencies affect our revenues, net income or loss, and the value of balance sheet items denominated in foreign currencies. We do not use derivative financial instruments to reduce our net
exposure to currency exchange rate fluctuations, and we cannot provide assurance that fluctuations in foreign currency exchange rates would not materially affect our financial results. We have evaluated the use of such instruments in the past and
will continue to do so in the future.

We rely on public key cryptography and other security techniques that could be breached, resulting in reduced
demand for our products and services.

A requirement for the continued growth of electronic commerce is the secure transmission of
confidential information over public networks. We rely on public key cryptography, an encryption method that utilizes two keys, a public and a private key, for encoding and decoding data, and on digital certificate technology, to provide the
security and authentication necessary for secure transmission of confidential information. Regulatory and export restrictions may prohibit us from using the strongest and most secure cryptographic protection available, and thereby may expose us or
our customers to a risk of data interception. A party who is able to circumvent our security measures could misappropriate proprietary information or interrupt our or our customers operations. Any compromise or elimination of our security
could result in risk of loss or litigation and possible liability and reduce demand for our products and services.

Our stock price could be adversely
affected if we are unable to continue to favorably assess the effectiveness of our internal control over financial reporting.

In the
future, we may encounter problems or delays in completing the implementation of any changes necessary to make a favorable assessment of our internal controls over financial reporting. If we cannot favorably assess the effectiveness of our internal
controls over financial reporting, investor confidence and our stock price could be adversely affected.

If our goodwill or intangible assets become
impaired we may be required to record a significant charge to earnings.

We assess the impairment of intangible assets and goodwill
whenever events or changes in circumstances indicate the carrying value of those assets may not be recoverable, and also test goodwill for impairment at least annually. Factors that may be considered a change in circumstances indicating that the
carrying value of our goodwill or intangible assets may not be recoverable include a decline in our stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in our industry. We may be required to record a
significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or intangible assets is determined, negatively impacting our results of operations.



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A principal stockholder of the Company could disrupt operations or increase our operating costs if it seeks influence
or control of the Company in a manner that is not supported by our Board of Directors.

A principal stockholder of the Company, Empire
Capital Partners (Empire) and its affiliates, has announced it is considering alternative courses of action to maximize its investment in the Company. This action may include seeking representation of the Board of Directors, making
recommendations to management concerning business strategies, strategic partnerships, dividend policies and other matters, or seeking to acquire control of the Company through a merger, proxy solicitation, tender offer, exchange offer, or otherwise.
Although members of our management and our Board of Directors have met and may continue to meet with representatives of Empire with a view to soliciting, and when appropriate, incorporating their views, the Company may be unwilling or unable to
satisfy Empires expectations, and in any event the Companys operations may suffer because management is distracted by its dealings with the stockholder. If Empire were to initiate a proxy solicitation to elect its own slate of directors
or to seek to acquire control of the Company in a manner that was opposed by the Board of Directors, the Company would be required to aggressively respond, which could disrupt operations and have a material adverse effect on operating results.
According to their public filings, Empire Capital Partners and its affiliates beneficially own 6,613,894 shares of common stock, or 12.9% of the Companys outstanding shares as of April 30, 2008.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

Not
applicable.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

Not applicable.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

Not
applicable.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

Not applicable.



|ITEM 6. | EXHIBITS
|------- | --------

a. Exhibits are incorporated herein by reference or are
filed with this report as indicated below (numbered in accordance with Item 601 of Regulation S-K):



|              |  |                                                                                                                                                                      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                          
|              | 
|3.1(1)        |  | Amended and Restated Certificate of Incorporation of Registrant                                                                                                      
|              | 
|3.2(1)        |  | Amended and Restated Bylaws of Registrant                                                                                                                            
|              | 
|10.1          |  | 1999 Omnibus Stock Incentive Plan Restricted Stock Agreement                                                                                                         
|              | 
|10.2          |  | Amendment to employment agreement between Nicholas W. Hulse and Tumbleweed, dated February 22, 2007                                                                  
|              | 
|31.1          |  | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|              | 
|31.2          |  | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|              | 
|32.1          |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                    
|              | 
|32.2          |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                    



|(1) | Incorporated by reference to our Registration Statement on Form S-4 (File No. 333-92589), filed December 10, 1999.
|--- | ------------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, hereunto duly authorized:



|                   |  |  |  |                                 |  |                       |  |                                     
|------------------ |  |  |  | ------------------------------- |  | --------------------- |  | ------------------------------------
|                   |  |  |  | TUMBLEWEED COMMUNICATIONS CORP.
|                   |  |  | 
|Date: May 12, 2008 |  |  |  | By:                             |  | /s/ JAMES P. SCULLION
|                   |  |  |  |                                 |  |                       |  | James P. Scullion                   
|                   |  |  |  |                                 |  |                       |  | Chairman and Chief Executive Officer
|                   |  |  |  |                                 |  |                       |  | (Principal Executive Officer)       



|                   |  |  |  |     |  |                       |  |                                     
|------------------ |  |  |  | --- |  | --------------------- |  | ------------------------------------
|                   |  |  | 
|Date: May 12, 2008 |  |  |  | By: |  | /s/ TIMOTHY G. CONLEY
|                   |  |  |  |     |  |                       |  | Timothy G. Conley                   
|                   |  |  |  |     |  |                       |  | Senior Vice President of Finance and
|                   |  |  |  |     |  |                       |  | Chief Financial Officer             
|                   |  |  |  |     |  |                       |  | (Principal Financial Officer and    
|                   |  |  |  |     |  |                       |  | Principal Accounting Officer)       



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INDEX TO EXHIBITS



|               |  |                                                                                                                                                                      
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                          
|               | 
|3.1(1)         |  | Amended and Restated Certificate of Incorporation of Registrant                                                                                                      
|               | 
|3.2(1)         |  | Amended and Restated Bylaws of Registrant                                                                                                                            
|               | 
|10.1           |  | 1999 Omnibus Stock Incentive Plan Restricted Stock Agreement                                                                                                         
|               | 
|10.2           |  | Amendment to employment agreement between Nicholas W. Hulse and Tumbleweed, dated February 22, 2007                                                                  
|               | 
|31.1           |  | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|               | 
|31.2           |  | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|               | 
|32.1           |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                    
|               | 
|32.2           |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                    



|(1) | Incorporated by reference to our Registration Statement on Form S-4 (File No. 333-92589), filed December 10, 1999.
|--- | ------------------------------------------------------------------------------------------------------------------



29