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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-Q



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



For the quarterly period ended December 31, 2005



OR



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



For the transition period fromto



Commission file number: 0-27544



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OPEN TEXT CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|CANADA                                                         |  | 98-0154400                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



275 Frank Tompa
Drive, Waterloo, Ontario, Canada N2L 0A1

(Address of principal executive offices)



Registrants telephone number, including area code:
(519) 888-7111





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(former name former address and former fiscal year, if changed since last report)



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 ̈No x



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

Large accelerated filer ̈Accelerated filer x        Non-accelerated filer ̈



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



At January 30, 2006 there
were 48,734,796 outstanding Common Shares of the registrant.



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##### Table of Contents

OPEN TEXT CORPORATION



TABLE OF CONTENTS



|                                                                                                                    |  |        
|------------------------------------------------------------------------------------------------------------------- |  | -------
|                                                                                                                    |  | Page No
|PART I Financial Information:                                                                                       |  |        
|                                                                                                                    | 
|Item  1.    Financial Statements                                                                                    |  |        
|                                                                                                                    | 
|Condensed Consolidated Balance Sheets as of December 31, 2005 (Unaudited) and June 30, 2005                         |  | 3      
|                                                                                                                    | 
|Condensed Consolidated Statements of Operations (Unaudited)  Three and Six Months Ended December 31, 2005 and 2004 |  | 4      
|                                                                                                                    | 
|Condensed Consolidated Statements of Deficit (Unaudited)  Three and Six Months Ended December 31, 2005 and 2004    |  | 5      
|                                                                                                                    | 
|Condensed Consolidated Statements of Cash Flows (Unaudited)  Three and Six Months Ended December 31, 2005 and 2004 |  | 6      
|                                                                                                                    | 
|Notes to Condensed Consolidated Financial Statements (Unaudited)                                                    |  | 7      
|                                                                                                                    | 
|Item  2.    Managements Discussion and Analysis of Financial Condition and Results of Operations                   |  | 30     
|                                                                                                                    | 
|Item  3.    Quantitative and Qualitative Disclosures about Market Risk                                              |  | 45     
|                                                                                                                    | 
|Item  4.    Controls and Procedures                                                                                 |  | 46     
|                                                                                                                    | 
|PART II Other Information:                                                                                          |  |        
|                                                                                                                    | 
|Item  1.    Legal Proceedings                                                                                       |  | 47     
|                                                                                                                    | 
|Item  1A. Risk Factors                                                                                              |  | 47     
|                                                                                                                    | 
|Item  4.    Submission of Matters to a Vote of Security Holders                                                     |  | 53     
|                                                                                                                    | 
|Item  6.    Exhibits                                                                                                |  | 54     
|                                                                                                                    | 
|Signatures                                                                                                          |  | 55     
|                                                                                                                    | 
|Index to Exhibits                                                                                                   |  | 56     







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##### Table of Contents

OPEN TEXT CORPORATION



CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands of U.S. dollars, except share data)



|                                                                                                                                      |  |                  |         |   |              |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                      |  | December 31,2005 |         |   | June 30,2005 |  
|                                                                                                                                      |  | (unaudited)      |         |   |              |  
|ASSETS                                                                                                                                |  |                  |         |   |              |   |         |  
|Current assets:                                                                                                                       |  |                  |         |   |              |   |         |  
|Cash and cash equivalents                                                                                                             |  | $                | 87,001  |   |              | $ | 79,898  |  
|Accounts receivablenet of allowance for doubtful accounts of $3,355 as of December 31, 2005 and $3,125 as of June 30,
2005           |  |                  | 78,268  |   |              |   | 81,936  |  
|Income taxes recoverable                                                                                                              |  |                  | 10,957  |   |              |   | 11,350  |  
|Prepaid expenses and other current assets                                                                                             |  |                  | 9,595   |   |              |   | 8,438   |  
|Deferred tax assets (note 6)                                                                                                          |  |                  | 16,930  |   |              |   | 10,275  |  
|                                                                                                                                      |  |                  |         |   |              |   |         |  
|Total current assets                                                                                                                  |  |                  | 202,751 |   |              |   | 191,897 |  
|Capital assets (note 5)                                                                                                               |  |                  | 39,223  |   |              |   | 36,070  |  
|Goodwill (note 11)                                                                                                                    |  |                  | 238,656 |   |              |   | 243,091 |  
|Deferred tax assets (note 6)                                                                                                          |  |                  | 32,417  |   |              |   | 36,499  |  
|Acquired intangible assets (note 12)                                                                                                  |  |                  | 112,264 |   |              |   | 127,981 |  
|Other assets                                                                                                                          |  |                  | 2,976   |   |              |   | 5,398   |  
|                                                                                                                                      |  |                  |         |   |              |   |         |  
|                                                                                                                                      |  | $                | 628,287 |   |              | $ | 640,936 |  
|                                                                                                                                      |  |                  |         |   |              |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                  |  |                  |         |   |              |   |         |  
|Current liabilities:                                                                                                                  |  |                  |         |   |              |   |         |  
|Accounts payable and accrued liabilities (note 3)                                                                                     |  | $                | 78,967  |   |              | $ | 80,468  |  
|Current portion of long-term debt (note 4)                                                                                            |  |                  | 346     |   |              |   |        |  
|Deferred revenues                                                                                                                     |  |                  | 64,492  |   |              |   | 75,227  |  
|Deferred tax liabilities (note 6)                                                                                                     |  |                  | 9,897   |   |              |   | 10,128  |  
|                                                                                                                                      |  |                  |         |   |              |   |         |  
|Total current liabilities                                                                                                             |  |                  | 153,702 |   |              |   | 165,823 |  
|Long-term liabilities:                                                                                                                |  |                  |         |   |              |   |         |  
|Accrued liabilities (note 3)                                                                                                          |  |                  | 23,019  |   |              |   | 25,579  |  
|Long-term debt (note 4)                                                                                                               |  |                  | 12,582  |   |              |   |        |  
|Deferred revenues                                                                                                                     |  |                  | 4       |   |              |   | 103     |  
|Deferred tax liabilities (note 6)                                                                                                     |  |                  | 25,406  |   |              |   | 29,245  |  
|                                                                                                                                      |  |                  |         |   |              |   |         |  
|Total long-term liabilities                                                                                                           |  |                  | 61,011  |   |              |   | 54,927  |  
|Minority interest                                                                                                                     |  |                  | 4,495   |   |              |   | 4,431   |  
|Shareholders equity: (note 8)                                                                                                        |  |                  |         |   |              |   |         |  
|Share capital 48,678,407 and 48,136,932 Common Shares issued and outstanding as of December 31, 2005, and June 30, 2005,
respectively |  |                  | 412,104 |   |              |   | 406,580 |  
|Commitment to issue shares                                                                                                            |  |                  |        |   |              |   | 813     |  
|Additional paid-in capital                                                                                                            |  |                  | 25,737  |   |              |   | 22,341  |  
|Accumulated comprehensive income                                                                                                      |  |                  | 13,488  |   |              |   | 18,124  |  
|Accumulated deficit                                                                                                                   |  |                  | (42,250 | ) |              |   | (32,103 | )
|                                                                                                                                      |  |                  |         |   |              |   |         |  
|Total shareholders equity                                                                                                            |  |                  | 409,079 |   |              |   | 415,755 |  
|                                                                                                                                      |  |                  |         |   |              |   |         |  
|                                                                                                                                      |  | $                | 628,287 |   |              | $ | 640,936 |  
|                                                                                                                                      |  |                  |         |   |              |   |         |  



Commitments and contingencies (note 14)



Subsequent event (note 17)



See accompanying notes to
condensed consolidated financial statements



3



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##### Table of Contents

OPEN TEXT CORPORATION



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands of U.S. dollars, except per share
data)



|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------- | ------- | - | ----------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                           |  | Three months ended December 31, |         |   | Six months ended December 31, |  
|                                                                                                                                           |  | 2005                            |         |   | 2004                          |   |         | 2005 |  |   | 2004    |  
|Revenues:                                                                                                                                  |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|License                                                                                                                                    |  | $                               | 37,131  |   |                               | $ | 42,622  |      |  | $ | 62,074  |   |  | $ | 66,526  |  
|Customer support                                                                                                                           |  |                                 | 46,476  |   |                               |   | 44,542  |      |  |   | 93,122  |   |  |   | 85,334  |  
|Service                                                                                                                                    |  |                                 | 27,164  |   |                               |   | 27,528  |      |  |   | 48,205  |   |  |   | 48,428  |  
|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total revenues                                                                                                                             |  |                                 | 110,771 |   |                               |   | 114,692 |      |  |   | 203,401 |   |  |   | 200,288 |  
|Cost of revenues:                                                                                                                          |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|License (1)                                                                                                                                |  |                                 | 1,811   |   |                               |   | 3,051   |      |  |   | 4,199   |   |  |   | 5,205   |  
|Customer support                                                                                                                           |  |                                 | 7,734   |   |                               |   | 8,062   |      |  |   | 15,386  |   |  |   | 15,556  |  
|Service                                                                                                                                    |  |                                 | 21,393  |   |                               |   | 22,585  |      |  |   | 39,997  |   |  |   | 39,239  |  
|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total cost of revenues                                                                                                                     |  |                                 | 30,938  |   |                               |   | 33,698  |      |  |   | 59,582  |   |  |   | 60,000  |  
|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|                                                                                                                                           |  |                                 | 79,833  |   |                               |   | 80,994  |      |  |   | 143,819 |   |  |   | 140,288 |  
|Operating expenses:                                                                                                                        |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Research and development                                                                                                                   |  |                                 | 14,836  |   |                               |   | 15,842  |      |  |   | 31,386  |   |  |   | 30,525  |  
|Sales and marketing                                                                                                                        |  |                                 | 28,059  |   |                               |   | 30,787  |      |  |   | 54,172  |   |  |   | 56,284  |  
|General and administrative                                                                                                                 |  |                                 | 11,766  |   |                               |   | 9,564   |      |  |   | 22,203  |   |  |   | 21,422  |  
|Depreciation                                                                                                                               |  |                                 | 2,831   |   |                               |   | 2,589   |      |  |   | 5,340   |   |  |   | 4,988   |  
|Amortization of acquired intangible assets                                                                                                 |  |                                 | 6,957   |   |                               |   | 6,146   |      |  |   | 13,810  |   |  |   | 11,575  |  
|Special charges (recoveries) (note 15)                                                                                                     |  |                                 | 8,793   |   |                               |   | (1,449  | )    |  |   | 26,904  |   |  |   | (1,449  | )
|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total operating expenses                                                                                                                   |  |                                 | 73,242  |   |                               |   | 63,479  |      |  |   | 153,815 |   |  |   | 123,345 |  
|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Income (loss) from operations                                                                                                              |  |                                 | 6,591   |   |                               |   | 17,515  |      |  |   | (9,996  | ) |  |   | 16,943  |  
|Other expense                                                                                                                              |  |                                 | (1,240  | ) |                               |   | (1,691  | )    |  |   | (1,764  | ) |  |   | (2,624  | )
|Interest income                                                                                                                            |  |                                 | 246     |   |                               |   | 303     |      |  |   | 316     |   |  |   | 605     |  
|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Income (loss) before income taxes                                                                                                          |  |                                 | 5,597   |   |                               |   | 16,127  |      |  |   | (11,444 | ) |  |   | 14,924  |  
|Provision for (recovery of) income taxes                                                                                                   |  |                                 | 2,740   |   |                               |   | 4,355   |      |  |   | (1,630  | ) |  |   | 4,030   |  
|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Income (loss) before minority interest                                                                                                     |  |                                 | 2,857   |   |                               |   | 11,772  |      |  |   | (9,814  | ) |  |   | 10,894  |  
|Minority interest                                                                                                                          |  |                                 | 136     |   |                               |   | 802     |      |  |   | 333     |   |  |   | 910     |  
|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss) for the period                                                                                                           |  | $                               | 2,721   |   |                               | $ | 10,970  |      |  | $ | (10,147 | ) |  | $ | 9,984   |  
|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Basic net income (loss) per share (note 10)                                                                                                |  | $                               | 0.06    |   |                               | $ | 0.22    |      |  | $ | (0.21   | ) |  | $ | 0.20    |  
|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Diluted income (loss) per share (note 10)                                                                                                  |  | $                               | 0.05    |   |                               | $ | 0.21    |      |  | $ | (0.21   | ) |  | $ | 0.19    |  
|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Weighted average number of Common Shares outstanding (note 10)                                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Basic                                                                                                                                      |  |                                 | 48,569  |   |                               |   | 50,310  |      |  |   | 48,506  |   |  |   | 50,708  |  
|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Diluted                                                                                                                                    |  |                                 | 49,871  |   |                               |   | 52,361  |      |  |   | 48,506  |   |  |   | 53,120  |  
|                                                                                                                                           |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|(1)    Amount excludes amortization of application software technology which is included within Amortization of acquired
intangible assets |  | $                               | 3,653   |   |                               | $ | 2,718   |      |  | $ | 7,184   |   |  | $ | 6,215   |  



See accompanying notes
to condensed consolidated financial statements



4



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##### Table of Contents

OPEN TEXT CORPORATION



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF DEFICIT

(in thousands of U.S. Dollars)



|                                     |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------ |  | ------------------------------- | ------- | - | ----------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                     |  | Three months ended December 31, |         |   | Six months ended December 31, |  
|                                     |  | 2005                            |         |   | 2004                          |   |         | 2005 |  |   | 2004    |  
|Deficit, beginning of period         |  | $                               | (44,971 | ) |                               | $ | (25,537 | )    |  | $ | (32,103 | ) |  | $ | (18,529 | )
|Repurchase of common shares (note 8) |  |                                 |        |   |                               |   | (9,455  | )    |  |   |        |   |  |   | (15,477 | )
|Net income (loss)                    |  |                                 | 2,721   |   |                               |   | 10,970  |      |  |   | (10,147 | ) |  |   | 9,984   |  
|                                     |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Deficit, end of period               |  | $                               | (42,250 | ) |                               | $ | (24,022 | )    |  | $ | (42,250 | ) |  | $ | (24,022 | )
|                                     |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  















See accompanying notes to condensed consolidated financial statements



5



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##### Table of Contents

OPEN TEXT CORPORATION



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. Dollars)



|                                                                                         |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ----------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                         |  | Three months ended December 31, |         |   | Six months ended December 31, |  
|                                                                                         |  | 2005                            |         |   | 2004                          |   |         | 2005 |  |   | 2004    |  
|Cash flows from operating activities:                                                    |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss) for the period                                                         |  | $                               | 2,721   |   |                               | $ | 10,970  |      |  | $ | (10,147 | ) |  | $ | 9,984   |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Depreciation and amortization                                                            |  |                                 | 9,788   |   |                               |   | 8,735   |      |  |   | 19,150  |   |  |   | 16,563  |  
|Share-based compensation                                                                 |  |                                 | 1,330   |   |                               |   |        |      |  |   | 2,743   |   |  |   |        |  
|Excess tax benefits on share-based compensation expense                                  |  |                                 | (644    | ) |                               |   |        |      |  |   | (644    | ) |  |   |        |  
|Undistributed earnings related to minority interest                                      |  |                                 | 136     |   |                               |   | 802     |      |  |   | 333     |   |  |   | 910     |  
|Deferred taxes                                                                           |  |                                 | (687    | ) |                               |   | 290     |      |  |   | (6,045  | ) |  |   | 3,226   |  
|Impairment of capital assets                                                             |  |                                 | 1,654   |   |                               |   |        |      |  |   | 3,667   |   |  |   |        |  
|Changes in operating assets and liabilities:                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Accounts receivable                                                                      |  |                                 | (3,319  | ) |                               |   | (15,274 | )    |  |   | 5,466   |   |  |   | 3,461   |  
|Prepaid expenses and other current assets                                                |  |                                 | 1,103   |   |                               |   | 956     |      |  |   | (928    | ) |  |   | (905    | )
|Income taxes                                                                             |  |                                 | (447    | ) |                               |   | (1,309  | )    |  |   | (1,069  | ) |  |   | (6,691  | )
|Accounts payable and accrued liabilities                                                 |  |                                 | 6,556   |   |                               |   | 7,722   |      |  |   | 11,347  |   |  |   | (2,491  | )
|Deferred revenue                                                                         |  |                                 | (2,708  | ) |                               |   | (1,182  | )    |  |   | (9,204  | ) |  |   | (7,231  | )
|Other assets                                                                             |  |                                 | 865     |   |                               |   |        |      |  |   | 2,003   |   |  |   |        |  
|                                                                                         |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net cash provided by operating activities                                                |  |                                 | 16,348  |   |                               |   | 11,710  |      |  |   | 16,672  |   |  |   | 16,826  |  
|                                                                                         |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Cash flows used in investing activities:                                                 |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Acquisition of capital assets                                                            |  |                                 | (8,160  | ) |                               |   | (4,277  | )    |  |   | (14,097 | ) |  |   | (7,671  | )
|Purchase of Vista, net of cash acquired                                                  |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   | (23,690 | )
|Purchase of Artesia, net of cash acquired                                                |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   | (5,057  | )
|Purchase of Gauss, net of cash acquired                                                  |  |                                 | (6      | ) |                               |   | (57     | )    |  |   | (91     | ) |  |   | (979    | )
|Purchase of IXOS, net of cash acquired                                                   |  |                                 | (1,121  | ) |                               |   | (3,453  | )    |  |   | (4,228  | ) |  |   | (4,275  | )
|Additional purchase consideration for prior period acquisitions                          |  |                                 | (50     | ) |                               |   | (191    | )    |  |   | (3,278  | ) |  |   | (1,194  | )
|Acquisition related costs                                                                |  |                                 | (845    | ) |                               |   | (3,411  | )    |  |   | (1,844  | ) |  |   | (7,174  | )
|                                                                                         |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net cash used in investing activities                                                    |  |                                 | (10,182 | ) |                               |   | (11,389 | )    |  |   | (23,538 | ) |  |   | (50,040 | )
|                                                                                         |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Cash flows from financing activities:                                                    |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Proceeds from issuance of Common Shares                                                  |  |                                 | 1,642   |   |                               |   | 2,701   |      |  |   | 1,885   |   |  |   | 3,069   |  
|Proceeds from exercise of Warrants                                                       |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   | 725     |  
|Repurchase of Common Shares (note 8)                                                     |  |                                 |        |   |                               |   | (17,808 | )    |  |   |        |   |  |   | (28,842 | )
|Repayment of short-term bank loan                                                        |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   | (2,189  | )
|Payment obligations under capital leases                                                 |  |                                 |        |   |                               |   |        |      |  |   |        |   |  |   | (48     | )
|Excess tax benefits on share-based compensation expense                                  |  |                                 | 644     |   |                               |   |        |      |  |   | 644     |   |  |   |        |  
|Proceeds from long-term debt                                                             |  |                                 | 12,928  |   |                               |   |        |      |  |   | 12,928  |   |  |   |        |  
|                                                                                         |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net cash provided by (used in) financing activities                                      |  |                                 | 15,214  |   |                               |   | (15,107 | )    |  |   | 15,457  |   |  |   | (27,285 | )
|                                                                                         |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Foreign exchange gain (loss) on cash held in foreign currencies                          |  |                                 | (1,146  | ) |                               |   | 5,507   |      |  |   | (1,488  | ) |  |   | 5,686   |  
|                                                                                         |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Increase (decrease) in cash and cash equivalents, during the period                      |  |                                 | 20,234  |   |                               |   | (9,279  | )    |  |   | 7,103   |   |  |   | (54,813 | )
|Cash and cash equivalents, beginning of period                                           |  |                                 | 66,767  |   |                               |   | 111,453 |      |  |   | 79,898  |   |  |   | 156,987 |  
|                                                                                         |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Cash and cash equivalents, end of period                                                 |  | $                               | 87,001  |   |                               | $ | 102,174 |      |  | $ | 87,001  |   |  | $ | 102,174 |  
|                                                                                         |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  



Supplementary cash flow disclosure (note 13)



See
accompanying notes to condensed consolidated financial statements



6



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##### Table of Contents

OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended
December 31, 2005



(Tabular dollar amounts in
thousands of U.S. Dollars, except per share data)



NOTE 1BASIS OF PRESENTATION



The accompanying unaudited condensed consolidated financial statements (Interim Financial Statements) include
the accounts of Open Text Corporation and its wholly and partially owned subsidiaries, collectively referred to as Open Text or the Company. All inter-company balances and transactions have been eliminated.



These Interim Financial Statements are expressed in U.S. dollars and are
prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). These financial statements are based upon accounting policies and methods of their application are consistent with those used and described
in the Companys annual consolidated financial statements, except as described in Note 2 New Accounting Policies below. The Interim Financial Statements do not include all of the financial statement disclosures included in the
annual financial statements prepared in accordance with U.S. GAAP and therefore should be read in conjunction with the consolidated financial statements and notes included in the Companys Annual Report on Form 10-K for the fiscal year ended
June 30, 2005.



The information furnished reflects all
adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. The operating results for the three and six months ended December 31, 2005 are not necessarily
indicative of the results expected for any succeeding quarter or the entire fiscal year ending June 30, 2006. Certain prior period comparative figures have been adjusted to conform to current period presentation.



Use of estimates



The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and
assumptions, which are evaluated on an ongoing basis, that affect the amounts reported in the financial statements. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable at that
time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. In particular, significant
estimates, judgments and assumptions include those related to revenue recognition, allowance for doubtful accounts, goodwill and acquired intangible assets, long-lived assets, the recognition of contingencies, facility and restructuring accruals,
acquisition accruals, share-based compensation, income taxes, realization of investment tax credits, and the valuation allowance relating to the Companys deferred tax assets.



Comprehensive net income (loss)



Comprehensive net income (loss) is comprised of net loss and other comprehensive net income (loss), including the effect of foreign currency translation
resulting from the consolidation of subsidiaries where the functional currency is a currency other than the U.S. Dollar. The Companys total comprehensive net income (loss) was as follows:



|                                               |  |                                 |        |                               |      |   |        |  |   |         |   |  |   |       
|---------------------------------------------- |  | ------------------------------- | ------ | ----------------------------- | ---- | - | ------ |  | - | ------- | - |  | - | ------
|                                               |  | Three months ended December 31, |        | Six months ended December 31,
|                                               |  | 2005                            |        |                               | 2004 |   | 2005   |  |   | 2004   
|Other comprehensive net income (loss):         |  |                                 |        |                               |      |   |        |  |   |         |   |  |   |       
|Foreign currency translation adjustment        |  | $                               | (6,799 | )                             |      | $ | 34,494 |  | $ | (4,636  | ) |  | $ | 35,841
|Net income (loss) for the period               |  |                                 | 2,721  |                               |      |   | 10,970 |  |   | (10,147 | ) |  |   | 9,984 
|                                               |  |                                 |        |                               |      |   |        |  |   |         |   |  |   |       
|Comprehensive net income (loss) for the period |  | $                               | (4,078 | )                             |      | $ | 45,464 |  | $ | (14,783 | ) |  | $ | 45,825
|                                               |  |                                 |        |                               |      |   |        |  |   |         |   |  |   |       



7



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##### Table of Contents

OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



NOTE 2NEW ACCOUNTING POLICIES



The following new accounting policies were adopted in the six months ended December 31, 2005:



Share-based payment



On July 1, 2005, the Company adopted the fair value-based method for
measurement and cost recognition of employee share-based compensation arrangements under the provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. (SFAS) 123 (Revised 2004),
Share-Based Payment (SFAS 123R), using the modified prospective application transitional approach. Previously, the Company had elected to account for employee share-based compensation using the intrinsic value method based
upon Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations. The intrinsic value method generally did not result in any compensation cost being recorded
for employee stock options since the exercise price was equal to the market price of the underlying shares on the date of grant.



Under the modified prospective application transitional approach, share-based compensation is recognized for awards granted, modified, repurchased or
cancelled subsequent to the adoption of SFAS 123R. In addition, share-based compensation is recognized, subsequent to the adoption of SFAS 123R, for the remaining portion of the vesting period (if any) for outstanding awards granted prior to the
date of adoption. Prior periods have not been adjusted and the Company continues to provide pro forma disclosure as if it had accounted for employee share-based payments in all periods presented under the fair value provisions of SFAS No. 123,
Accounting for Stock-based Compensation, which is presented below.



The Company measures share-based compensation costs on the grant date, based on the calculated fair value of the award. The Company has elected to treat awards with graded vesting as a single award when estimating
fair value. Compensation cost is recognized on a straight-line basis over the employee requisite service period, which in the Companys circumstances is the stated vesting period of the award, provided that total compensation cost recognized at
least equals the pro rata value of the award that has vested. Compensation cost is initially based on the estimated number of options for which the requisite service is expected to be rendered. This estimate is adjusted in the period once actual
forfeitures are known.



Had the Company adopted the fair
value-based method for accounting for share-based compensation in all prior periods presented, the pro-forma impact on net income and net income per share would be as follows:



|                                                      |  |                                     |        |                                  |   |      
|----------------------------------------------------- |  | ----------------------------------- | ------ | -------------------------------- | - | -----
|                                                      |  | Three months endedDecember 31, 2004 |        | Six months endedDecember 31,2004
|Net income for the period:                            |  |                                     |        |                                  |   |      
|As reported                                           |  | $                                   | 10,970 |                                  | $ | 9,984
|Share-based compensation not recognized in net income |  |                                     | 657    |                                  |   | 2,403
|                                                      |  |                                     |        |                                  |   |      
|Pro forma                                             |  | $                                   | 10,313 |                                  | $ | 7,581
|                                                      |  |                                     |        |                                  |   |      
|Net income per share  basic                          |  |                                     |        |                                  |   |      
|As reported                                           |  | $                                   | 0.22   |                                  | $ | 0.20 
|Pro forma                                             |  | $                                   | 0.20   |                                  | $ | 0.15 
|Net income per share  diluted                        |  |                                     |        |                                  |   |      
|As reported                                           |  | $                                   | 0.21   |                                  | $ | 0.19 
|Pro forma                                             |  | $                                   | 0.20   |                                  | $ | 0.14 



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##### Table of Contents

OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



Refer to Note 9 Share-Based Payments in these condensed consolidated financial statements
for details of stock options and share-based compensation cost recorded during the three and six months ended December 31, 2005.



Amortization period for leasehold improvements



In June 2005, the Emerging Issues Task Force (EITF) issued Abstract No. 05-06, Determining the Amortization Period for
Leasehold Improvements (EITF 05-6). The pronouncement requires that leasehold improvements acquired in a business combination, or purchased subsequent to the inception of the lease and not contemplated at or near the beginning of
the lease term, be amortized over the lesser of the useful life of the asset or the lease term that includes reasonably assured lease renewals as determined on the date of the acquisition of the leasehold improvement. This pronouncement is being
applied by the Company prospectively for leasehold improvements purchased or acquired on or after July 1, 2005. The adoption of EITF 05-6 did not have a material impact on the Companys consolidated results of operations or financial
condition.



Accounting changes and error corrections



In May 2005, the FASB issued SFAS No. 154, Accounting Changes and
Error Corrections (SFAS 154), which replaces Accounting Principles Board Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154
provides guidance on the accounting for, and reporting of, changes in accounting principles and error corrections. SFAS 154 requires retrospective application to prior periods financial statements of voluntary changes in accounting principles
and changes required by new accounting standards when the standard does not include specific transition provisions, unless it is impracticable to do so. Certain disclosures are also required for restatements due to correction of an error. SFAS 154
is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, and will be adopted for the year ended June 30, 2007. The impact that the adoption of SFAS 154 will have on the
Companys results of operations and financial condition will depend on the nature of future accounting changes and the nature of transitional guidance provided in future accounting pronouncements.



NOTE 3ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES



Current liabilities



Accounts payable and accrued liabilities are comprised of the following:



|                                                                            |  |                        |        |                    |   |       
|--------------------------------------------------------------------------- |  | ---------------------- | ------ | ------------------ | - | ------
|                                                                            |  | As of December 31,2005 |        | As of June 30,2005
|Accounts payabletrade                                                      |  | $                      | 13,588 |                    | $ | 18,509
|Accrued salaries and commissions                                            |  |                        | 15,086 |                    |   | 18,976
|Accrued liabilities                                                         |  |                        | 26,810 |                    |   | 33,736
|Amounts payable in respect of restructuring (note 15)                       |  |                        | 14,118 |                    |   | 920   
|Amounts payable in respect of acquisitions and acquisition related accruals |  |                        | 9,365  |                    |   | 8,327 
|                                                                            |  |                        |        |                    |   |       
|                                                                            |  | $                      | 78,967 |                    | $ | 80,468
|                                                                            |  |                        |        |                    |   |       



9



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##### Table of Contents

OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



Long-term accrued liabilities



|                                                                            |  |                        |        |                    |   |       
|--------------------------------------------------------------------------- |  | ---------------------- | ------ | ------------------ | - | ------
|                                                                            |  | As of December 31,2005 |        | As of June 30,2005
|Pension liabilities                                                         |  | $                      | 611    |                    | $ | 625   
|Amounts payable in respect of restructuring (note 15)                       |  |                        | 2,911  |                    |   | 1,125 
|Amounts payable in respect of acquisitions and acquisition related accruals |  |                        | 15,053 |                    |   | 18,694
|Other accrued liabilities                                                   |  |                        | 260    |                    |   | 239   
|Asset retirement obligations                                                |  |                        | 4,184  |                    |   | 4,896 
|                                                                            |  |                        |        |                    |   |       
|                                                                            |  | $                      | 23,019 |                    | $ | 25,579
|                                                                            |  |                        |        |                    |   |       



Pension liabilities



IXOS Software AG (IXOS), in which the Company acquired a
controlling interest in March 2004, has pension commitments to employees as well as to current and previous members of its executive board. The actuarial cost method used in determining the net periodic pension cost, with respect to the IXOS
employees, is the projected unit credit method. The liabilities and annual income or expense of the Companys pension plan are determined using methodologies that involve various actuarial assumptions, the most significant of which are the
discount rate and the long-term rate of return on assets. The Companys policy is to deposit amounts with an insurance company to cover the actuarial present value of the expected retirement benefits. The total held in short-term investments as
of December 31, 2005 was $2.2 million (June 30, 2005  $2.3 million), while the fair value of the pension obligation as of December 31, 2005 was $2.8 million (June 30, 2005  $2.9 million).



Excess facility obligations and accruals relating to acquisitions



The Company has accrued for the cost of excess facilities both in connection
with its fiscal 2004 and fiscal 2006 restructuring, as well as with a number of its acquisitions. These accruals represent the Companys best estimate in respect of future sub-lease income and costs incurred to achieve sub-tenancy. These
liabilities have been recorded using present value discounting techniques and will be discharged over the term of the respective leases. The difference between the present value and actual cash paid for the excess facility will be charged to other
income over the terms of the leases ranging between several months to 17 years.



Transaction-related costs include amounts provided for certain pre-acquisition contingencies.



10



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##### Table of Contents

OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



The following table summarizes the activity with respect to the Companys acquisition accruals
during the six months ended December 31, 2005.



|                           |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|-------------------------- |  | ------------------- | ------ | --------------- | - | -------------------------------------- |  | - | --------------------------------- | - |  | ----------------------- | ------ | - |  | - | ------
|                           |  | BalanceJune 30,2005 |        | InitialAccruals |   | Usage/ForeignExchange/OtherAdjustments |  |   | Subsequent Adjustmentsto Goodwill |   |  | BalanceDecember 31,2005
|IXOS                       |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|Employee termination costs |  | $                   | 338    |                 | $ |                                       |  | $ | (194                              | ) |  | $                       | (64    | ) |  | $ | 80    
|Excess facilities          |  |                     | 17,274 |                 |   |                                       |  |   | 533                               |   |  |                         | (151   | ) |  |   | 17,656
|Transaction-related costs  |  |                     | 2,167  |                 |   |                                       |  |   | (837                              | ) |  |                         | (30    | ) |  |   | 1,300 
|                           |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|                           |  |                     | 19,779 |                 |   |                                       |  |   | (498                              | ) |  |                         | (245   | ) |  |   | 19,036
|Gauss                      |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|Excess facilities          |  |                     | 260    |                 |   |                                       |  |   | (189                              | ) |  |                         | (71    | ) |  |   |      
|Transaction-related costs  |  |                     | 298    |                 |   |                                       |  |   | (394                              | ) |  |                         | 497    |   |  |   | 401   
|                           |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|                           |  |                     | 558    |                 |   |                                       |  |   | (583                              | ) |  |                         | 426    |   |  |   | 401   
|Eloquent                   |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|Transaction-related costs  |  |                     | 487    |                 |   |                                       |  |   | 10                                |   |  |                         | (250   | ) |  |   | 247   
|                           |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|                           |  |                     | 487    |                 |   |                                       |  |   | 10                                |   |  |                         | (250   | ) |  |   | 247   
|Centrinity                 |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|Excess facilities          |  |                     | 3,928  |                 |   |                                       |  |   | 207                               |   |  |                         | (873   | ) |  |   | 3,262 
|Transaction-related costs  |  |                     | 651    |                 |   |                                       |  |   | 61                                |   |  |                         | (196   | ) |  |   | 516   
|                           |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|                           |  |                     | 4,579  |                 |   |                                       |  |   | 268                               |   |  |                         | (1,069 | ) |  |   | 3,778 
|Open Image                 |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|Transaction-related costs  |  |                     | 135    |                 |   |                                       |  |   | 3                                 |   |  |                         | (138   | ) |  |   |      
|                           |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|                           |  |                     | 135    |                 |   |                                       |  |   | 3                                 |   |  |                         | (138   | ) |  |   |      
|Artesia                    |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|Employee termination costs |  |                     | 50     |                 |   |                                       |  |   | (48                               | ) |  |                         | (2     | ) |  |   |      
|Excess facilities          |  |                     | 821    |                 |   |                                       |  |   | (149                              | ) |  |                         | 101    |   |  |   | 773   
|Transaction-related costs  |  |                     | 79     |                 |   |                                       |  |   | (3                                | ) |  |                         | (21    | ) |  |   | 55    
|                           |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|                           |  |                     | 950    |                 |   |                                       |  |   | (200                              | ) |  |                         | 78     |   |  |   | 828   
|Vista                      |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|Transaction-related costs  |  |                     | 121    |                 |   |                                       |  |   | (7                                | ) |  |                         | (102   | ) |  |   | 12    
|                           |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|                           |  |                     | 121    |                 |   |                                       |  |   | (7                                | ) |  |                         | (102   | ) |  |   | 12    
|Optura                     |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|Excess facilities          |  |                     | 172    |                 |   |                                       |  |   | (78                               | ) |  |                         | (20    | ) |  |   | 74    
|Transaction-related costs  |  |                     | 240    |                 |   |                                       |  |   | (47                               | ) |  |                         | (151   | ) |  |   | 42    
|                           |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|                           |  |                     | 412    |                 |   |                                       |  |   | (125                              | ) |  |                         | (171   | ) |  |   | 116   
|                           |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|Totals                     |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|Employee termination costs |  |                     | 388    |                 |   |                                       |  |   | (242                              | ) |  |                         | (66    | ) |  |   | 80    
|Excess facilities          |  |                     | 22,455 |                 |   |                                       |  |   | 324                               |   |  |                         | (1,014 | ) |  |   | 21,765
|Transaction-related costs  |  |                     | 4,178  |                 |   |                                       |  |   | (1,214                            | ) |  |                         | (391   | ) |  |   | 2,573 
|                           |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       
|                           |  | $                   | 27,021 |                 | $ |                                       |  | $ | (1,132                            | ) |  | $                       | (1,471 | ) |  | $ | 24,418
|                           |  |                     |        |                 |   |                                        |  |   |                                   |   |  |                         |        |   |  |   |       



11



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##### Table of Contents

OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



The adjustments to goodwill relate primarily to revisions of the estimates of accrued costs and
contingencies that existed at the acquisition date for employee termination, excess facility and direct costs.



Asset retirement obligations



The Company is required to return certain of its leased facilities to their original state at the conclusion of the lease. At December 31, 2005, the present value of this obligation was $4.2 million with an undiscounted value of $5.8
million. These leases were primarily assumed in connection with the IXOS acquisition.



NOTE 4LONG-TERM DEBT AND CREDIT FACILITIES



Long-term debt



Long-term debt consists
of a 5 year mortgage agreement entered into during December 2005 with a Canadian chartered bank. The principal amount of the mortgage is Canadian Dollars (CDN) $15.0 million. The mortgage has a fixed term of five years, maturing on
January 1, 2011, and is secured by a lien on the Companys building in Waterloo, Ontario. Interest is to be paid monthly at a fixed rate of 5.25% per annum. Principal and interest are payable in monthly installments of CDN $101,000
with a final lump sum principal payment of CDN $12.6 million due on maturity. The mortgage may not be prepaid in whole or in part at anytime prior to the maturity date.



As of December 31, 2005, the carrying value of the building was $15.9 million and that of the mortgage was $12.9
million.



Credit facilities



The Company had, as of December 31, 2005, a CDN $10.0 million line of
credit with a Canadian chartered bank under which no borrowings were outstanding at December 31, 2005 and June 30, 2005. On February 2, 2006, this facility was replaced with a new demand operating facility of CDN $40.0 million.
Borrowings under the line of credit bear interest at varying rates depending upon the nature of the borrowings. The Company has pledged certain of its assets as collateral for this credit facility. There are no stand-by fees for this facility. See
note 17 Subsequent Event.



12



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##### Table of Contents

OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



NOTE 5CAPITAL ASSETS



|                       |  |                         |         |                         |   |        |  |   |       
|---------------------- |  | ----------------------- | ------- | ----------------------- | - | ------ |  | - | ------
|                       |  | As of December 31, 2005
|                       |  | Cost                    |         | AccumulatedDepreciation |   | Net   
|Furniture and fixtures |  | $                       | 8,287   |                         | $ | 5,903  |  | $ | 2,384 
|Office equipment       |  |                         | 4,094   |                         |   | 2,962  |  |   | 1,132 
|Computer hardware      |  |                         | 51,100  |                         |   | 39,532 |  |   | 11,568
|Computer software      |  |                         | 14,085  |                         |   | 10,266 |  |   | 3,819 
|Leasehold improvements |  |                         | 11,021  |                         |   | 6,630  |  |   | 4,391 
|Building               |  |                         | 16,029  |                         |   | 100    |  |   | 15,929
|                       |  |                         |         |                         |   |        |  |   |       
|                       |  | $                       | 104,616 |                         | $ | 65,393 |  | $ | 39,223
|                       |  |                         |         |                         |   |        |  |   |       
|                       | 
|                       |  | As of June 30, 2005    
|                       |  | Cost                    |         | AccumulatedDepreciation |   | Net   
|Furniture and fixtures |  | $                       | 9,635   |                         | $ | 6,998  |  | $ | 2,637 
|Office equipment       |  |                         | 5,158   |                         |   | 3,731  |  |   | 1,427 
|Computer hardware      |  |                         | 52,054  |                         |   | 40,277 |  |   | 11,777
|Computer software      |  |                         | 12,842  |                         |   | 9,514  |  |   | 3,328 
|Leasehold improvements |  |                         | 12,695  |                         |   | 5,473  |  |   | 7,222 
|Building               |  |                         | 9,679   |                         |   |       |  |   | 9,679 
|                       |  |                         |         |                         |   |        |  |   |       
|                       |  | $                       | 102,063 |                         | $ | 65,993 |  | $ | 36,070
|                       |  |                         |         |                         |   |        |  |   |       



The cost of the
building relates to the Companys construction of a building in Waterloo, Ontario. Additions to the building amounted to $651,000 and $6.4 million during the three and six months ended December 31, 2005, respectively. Approximately
$299,000 is included in accrued liabilities and accounts payable as of December 31, 2005. Construction of this building was completed and depreciation commenced in October 2005.



NOTE 6INCOME TAXES



The Company operates in various tax jurisdictions, and accordingly, the Companys income is subject to varying rates of tax. Losses incurred in one
jurisdiction cannot be used to offset income taxes payable in another. The Companys ability to use income tax losses and future income tax deductions is dependent upon the profitable operations of the Company in the tax jurisdictions in which
such losses or deductions arise. As of December 31, 2005 and June 30, 2005, the Company had total net deferred tax assets of $49.3 million and $46.8 million respectively, and total deferred tax liabilities of $35.3 million and $39.4
million, respectively.



Deferred tax assets arise primarily
from available income tax losses and future income tax deductions. The Company provides a valuation allowance if sufficient uncertainty exists regarding the realization of certain deferred tax assets. Based on the reversal of deferred income tax
liabilities, projected future taxable income, the character of the income tax assets and tax planning strategies, a valuation allowance of $140.6 million and $127.6 million was required as of December 31, 2005 and June 30, 2005,
respectively. The majority of the valuation allowance relates to uncertainties regarding the utilization of foreign pre-acquisition losses of Gauss Interprise AG (Gauss) and IXOS. The Company continues to evaluate its taxable position
quarterly and



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



considers factors by taxing jurisdiction such as estimated taxable income, the history of losses for tax purposes and the growth of the Company, among
others. The principal component of the total deferred tax liabilities arises from acquired intangible assets purchased in the Gauss and IXOS transactions.



NOTE 7SEGMENT INFORMATION



SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131) establishes standards for the
reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method of determining what information to report is based on the way that management organizes the
operating segments within the Company for making operational decisions and assessments of financial performance.



The Companys operations fall into one dominant industry segment, enterprise content management software. The Company manages its operations, and
accordingly determines its operating segments, on a geographic basis. The Company has two reportable segments: North America and Europe. The Company evaluates operating segment performance based on revenues and direct operating expenses of each
segment, based on the location of the respective customers. The accounting policies of the operating segments are the same as those of the Company as a whole. No segments have been aggregated.



Included in the following operating results are allocations of certain
operating costs that are incurred in one reporting segment but which relate to all reporting segments. The allocations of these common operating costs are consistent with the manner in which the chief operating decision maker of the Company
allocates them for analysis. For the three and six months ended December 31, 2005, and 2004, the Other category consists of geographic regions other than North America and Europe.



Adjusted income from operating segments, which is the measure used by the
chief operating decision maker to evaluate operating performance, does not include amortization of acquired intangible assets, special charges, share-based compensation, other expense and provision for (recovery of) income taxes. Goodwill and other
acquired intangible assets have been assigned to segment assets based on the relative benefit that the reporting units are expected to receive from the assets, or the location of the acquired business operations to which they relate. These
allocations have been made on a consistent basis.



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



Information about reported segments is as follows:



|                                           |  |                                |         |      |                              |         |      |  |   |         |   |  |   |         |  
|------------------------------------------ |  | ------------------------------ | ------- | ---- | ---------------------------- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                           |  | Three months endedDecember 31, |         |      | Six months endedDecember 31, |        
|                                           |  | 2005                           |         | 2004 |                              |         | 2005 |  |   | 2004    |  
|Revenue                                    |  |                                |         |      |                              |         |      |  |   |         |   |  |   |         |  
|North America                              |  | $                              | 53,785  |      | $                            | 47,915  |      |  | $ | 100,016 |   |  | $ | 82,711  |  
|Europe                                     |  |                                | 51,171  |      |                              | 60,583  |      |  |   | 92,601  |   |  |   | 105,050 |  
|Other                                      |  |                                | 5,815   |      |                              | 6,194   |      |  |   | 10,784  |   |  |   | 12,527  |  
|                                           |  |                                |         |      |                              |         |      |  |   |         |   |  |   |         |  
|Total revenue                              |  | $                              | 110,771 |      | $                            | 114,692 |      |  | $ | 203,401 |   |  | $ | 200,288 |  
|                                           |  |                                |         |      |                              |         |      |  |   |         |   |  |   |         |  
|Adjusted income                            |  |                                |         |      |                              |         |      |  |   |         |   |  |   |         |  
|North America                              |  | $                              | 11,890  |      | $                            | 7,600   |      |  | $ | 17,591  |   |  | $ | 9,014   |  
|Europe                                     |  |                                | 10,226  |      |                              | 13,896  |      |  |   | 14,091  |   |  |   | 16,725  |  
|Other                                      |  |                                | 1,665   |      |                              | 217     |      |  |   | 1,762   |   |  |   | 1,025   |  
|                                           |  |                                |         |      |                              |         |      |  |   |         |   |  |   |         |  
|Total adjusted income                      |  |                                | 23,781  |      |                              | 21,713  |      |  |   | 33,444  |   |  |   | 26,764  |  
|Less:                                      |  |                                |         |      |                              |         |      |  |   |         |   |  |   |         |  
|Amortization of acquired intangible assets |  |                                | 6,957   |      |                              | 6,146   |      |  |   | 13,810  |   |  |   | 11,575  |  
|Special charges (recoveries)               |  |                                | 8,793   |      |                              | (1,449  | )    |  |   | 26,904  |   |  |   | (1,449  | )
|Share-based compensation                   |  |                                | 1,330   |      |                              |        |      |  |   | 2,743   |   |  |   |        |  
|Other expense                              |  |                                | 1,240   |      |                              | 1,691   |      |  |   | 1,764   |   |  |   | 2,624   |  
|Provision for (recovery of) income taxes   |  |                                | 2,740   |      |                              | 4,355   |      |  |   | (1,630  | ) |  |   | 4,030   |  
|                                           |  |                                |         |      |                              |         |      |  |   |         |   |  |   |         |  
|Net income (loss)                          |  | $                              | 2,721   |      | $                            | 10,970  |      |  | $ | (10,147 | ) |  | $ | 9,984   |  
|                                           |  |                                |         |      |                              |         |      |  |   |         |   |  |   |         |  



|                     |  |                        |         |                    |   |        
|-------------------- |  | ---------------------- | ------- | ------------------ | - | -------
|                     |  | As of December 31,2005 |         | As of June 30,2005
|Segment assets       |  |                        |         |                    |   |        
|North America        |  | $                      | 240,494 |                    | $ | 238,979
|Europe               |  |                        | 322,674 |                    |   | 343,421
|Other                |  |                        | 52,694  |                    |   | 53,940 
|                     |  |                        |         |                    |   |        
|Total segment assets |  | $                      | 615,862 |                    | $ | 636,340
|                     |  |                        |         |                    |   |        



A reconciliation of
the totals reported for the operating segments to the applicable line items in the consolidated financial statements as of December 31, 2005 and June 30, 2005 is as follows:



|                                      |  |                        |         |                    |   |        
|------------------------------------- |  | ---------------------- | ------- | ------------------ | - | -------
|                                      |  | As of December 31,2005 |         | As of June 30,2005
|Segment assets                        |  | $                      | 615,862 |                    | $ | 636,340
|Cash and cash equivalents (corporate) |  |                        | 12,425  |                    |   | 4,596  
|                                      |  |                        |         |                    |   |        
|Total assets                          |  | $                      | 628,287 |                    | $ | 640,936
|                                      |  |                        |         |                    |   |        



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



The following table sets forth the distribution of revenues, determined by location of customer and
identifiable assets, by geographic area where the revenue for such location is greater than 10% of total revenue, for the three and six months ended December 31, 2005 and 2004:



|               |  |                                |         |                              |   |         |  |      |         |  |   |        
|-------------- |  | ------------------------------ | ------- | ---------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|               |  | Three months endedDecember 31, |         | Six months endedDecember 31,
|               |  | 2005                           |         | 2004                         |   | 2005    |  | 2004
|Total revenues |  |                                |         |                              |   |         |  |      |         |  |   |        
|Canada         |  | $                              | 8,411   |                              | $ | 6,206   |  | $    | 15,652  |  | $ | 10,004 
|United States  |  |                                | 45,374  |                              |   | 41,709  |  |      | 84,364  |  |   | 72,707 
|United Kingdom |  |                                | 9,110   |                              |   | 11,213  |  |      | 17,892  |  |   | 20,979 
|Germany        |  |                                | 20,174  |                              |   | 24,387  |  |      | 35,280  |  |   | 40,775 
|Rest of Europe |  |                                | 21,887  |                              |   | 24,983  |  |      | 39,429  |  |   | 43,296 
|Other          |  |                                | 5,815   |                              |   | 6,194   |  |      | 10,784  |  |   | 12,527 
|               |  |                                |         |                              |   |         |  |      |         |  |   |        
|Total revenues |  | $                              | 110,771 |                              | $ | 114,692 |  | $    | 203,401 |  | $ | 200,288
|               |  |                                |         |                              |   |         |  |      |         |  |   |        



|                     |  |                        |         |                    |   |        
|-------------------- |  | ---------------------- | ------- | ------------------ | - | -------
|                     |  | As of December 31,2005 |         | As of June 30,2005
|Segment assets:      |  |                        |         |                    |   |        
|Canada               |  | $                      | 106,147 |                    | $ | 78,267 
|United States        |  |                        | 134,347 |                    |   | 160,712
|United Kingdom       |  |                        | 51,731  |                    |   | 61,995 
|Germany              |  |                        | 163,507 |                    |   | 173,312
|Rest of Europe       |  |                        | 107,436 |                    |   | 108,114
|Other                |  |                        | 52,694  |                    |   | 53,940 
|                     |  |                        |         |                    |   |        
|Total segment assets |  | $                      | 615,862 |                    | $ | 636,340
|                     |  |                        |         |                    |   |        



The
Companys goodwill has been allocated to the Companys operating segments as follows:



|              |  |                        |         |                    |   |        
|------------- |  | ---------------------- | ------- | ------------------ | - | -------
|              |  | As of December 31,2005 |         | As of June 30,2005
|North America |  | $                      | 78,732  |                    | $ | 80,220 
|Europe        |  |                        | 126,464 |                    |   | 128,838
|Other         |  |                        | 33,460  |                    |   | 34,033 
|              |  |                        |         |                    |   |        
|              |  | $                      | 238,656 |                    | $ | 243,091
|              |  |                        |         |                    |   |        



NOTE 8SHAREHOLDERS
EQUITY



During the three months ended December 31,
2005, the Company issued Common Shares to employees that exercised their options under the Companys stock option plans. See Note 9 Share-Based Payments.



During the three and six months ended December 31, 2005, the Company did not repurchase any of its Common Shares.



During the three months ended December 31, 2004, the
Company purchased, by way of its stock repurchase program, 999,100 of its Common Shares on the Toronto Stock Exchange (TSX) and the NASDAQ National Market (NASDAQ) at an aggregate cost of $17.8 million. $8.3 million of the
aggregate repurchase cost was



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



charged to Share capital based on the average carrying value of the Common Shares, with the remaining $9.5 million charged to Accumulated deficit. During the
six months ended December 31, 2004, the Company purchased approximately 1.6 million of its Common Shares on the TSX and the NASDAQ at an aggregate cost of $28.8 million. $13.3 million of the aggregate repurchase cost was charged to Share
capital based on the average carrying value of the Common Shares, with the remaining $15.5 million charged to Accumulated deficit.



NOTE 9SHARE-BASED PAYMENTS



Summary of Outstanding Stock Options



As of December 31, 2005, options to purchase an aggregate of 5,370,287 Common Shares are outstanding under all of the Companys stock option
plans. In addition, 934,720 Common Shares are available for issuance under the 1998 Stock Option Plan and the 2004 Stock Option Plan, which are the only plans under which the Company may issue further options. The Companys stock options
generally vest over four to five years and expire ten years from the date of the grant. The exercise price of options granted is equivalent to the fair market value of the stock at the date of grant.



A summary of option activity under the Companys stock option plans for
the six months ending December 31, 2005 is as follows:



|                                 |  |           |   |  |                                |       |                                           |      |                                   |   |       
|-------------------------------- |  | --------- | - |  | ------------------------------ | ----- | ----------------------------------------- | ---- | --------------------------------- | - | ------
|                                 |  | Options   |   |  | Weighted-Average ExercisePrice |       | Weighted-AverageRemainingContractual Term |      | Aggregate Intrinsic Value($000s)
|Outstanding at July 1, 2005      |  | 5,530,274 |   |  | $                              | 11.93 |                                           |      |                                   |   |       
|Granted                          |  | 233,000   |   |  |                                | 14.94 |                                           |      |                                   |   |       
|Exercised                        |  | (239,492  | ) |  |                                | 6.55  |                                           |      |                                   |   |       
|Forfeited or expired             |  | (153,495  | ) |  |                                | 19.60 |                                           |      |                                   |   |       
|                                 |  |           |   |  |                                |       |                                           |      |                                   |   |       
|Outstanding at December 31, 2005 |  | 5,370,287 |   |  | $                              | 12.08 |                                           | 4.97 |                                   | $ | 9,720 
|                                 |  |           |   |  |                                |       |                                           |      |                                   |   |       
|Exercisable at December 31, 2005 |  | 3,973,178 |   |  | $                              | 10.52 |                                           | 4.32 |                                   | $ | 13,429
|                                 |  |           |   |  |                                |       |                                           |      |                                   |   |       



The Company estimates
the fair value of stock options using the Black-Scholes option pricing model, consistent with the provisions of SFAS 123R and United States Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 107. The
Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, while the options issued by the Company are subject to both vesting and
restrictions on transfer. In addition, option-pricing models require input of subjective assumptions including the estimated life of the option and the expected volatility of the underlying stock over the estimated life of the option. The Company
uses historical volatility as a basis for projecting the expected volatility of the underlying stock and estimates the expected life of its stock options based upon historical data.



The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are
appropriate in calculating the fair value of the Companys stock option grants. Estimates of fair value are not intended, however, to predict actual future events or the value ultimately realized by employees who receive equity awards.



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



For the three months ended December 31, 2005, the weighted-average fair value of options
granted, as of the grant date, was $8.10, using the following weighted average assumptions: expected volatility of 55%; risk-free interest rate of 4.4%; expected dividend yield of 0%; and expected life of 5.5 years. No options were granted during
the three months ended September 30, 2005.



For the three
and six months ended December 31, 2004, the weighted-average fair value of options granted, as of the grant date, during the periods was $8.20 and $8.18, respectively, using the following weighted-average assumptions: expected volatility of
60%; risk-free interest rate of 3.5%; expected dividend yield of 0%; and expected life of 3.5 years.



In each of the above periods, no cash was used by the Company to settle equity instruments granted under share-based compensation arrangements.



The fair value of awards granted prior to July 1, 2005 is
not adjusted to be consistent with the provision of SFAS 123R from the amounts disclosed previously, on a pro forma basis, in the audited notes to the consolidated financial statements in the Companys Form 10-Ks or in the notes to the
unaudited condensed consolidated financial statements in the Companys Form 10-Qs. As of December 31, 2005, the total compensation cost related to unvested stock awards not yet recognized in the statement of operations was $10.7 million,
which will be recognized over a weighted average period of approximately 2 years.



Share-based compensation cost included in the statement of operations for the three and six months ended December 31, 2005 was approximately $1.3 million and $2.7 million, respectively. Deferred tax assets of
$155,000 and $324,000 were recorded, for the three and six months ended December 31, 2005, respectively, in relation to the tax effect of certain stock options that are eligible for a tax deduction when exercised. The Company has not
capitalized any share-based compensation costs as part of the cost of an asset. The impact of adoption of SFAS 123R, for the three and six months ended December 31, 2005, was a decrease in net income of $1.2 million and an increase in net loss
of $2.4 million, respectively, net of related tax effects, and a decreased net income per share of $0.02 and $ 0.05, respectively on both a basic and diluted share basis.



For the three and six months ended December 31, 2005, cash in the amount of $1.4 million and $1.6 million,
respectively, was received as the result of the exercise of options granted under share-based payment arrangements. The tax benefit realized by the Company, during the three and six months ended December 31, 2005, from the exercise of options
eligible for a tax deduction was $597,000 and $643,000, respectively, which was recorded as additional paid-in capital.



Employee Share Purchase Plan (ESPP)



Prior to July 1, 2005, the Company offered its employees the opportunity to buy its Common Shares, through and employee stock purchase plan
(ESPP) at a purchase price equal to the lesser of 85% of the weighted-average trading price of the Common Shares based on the Toronto Stock Exchange (TSX) or NASDAQ National Market (NASDAQ) in the period of five
trading days immediately preceding the first business day of the purchase period and 85% of the weighted average trading price of the Common Shares in the period of five trading days immediately preceding the last business day of the purchase
period. The ESPP, under its original terms, qualified as a non-compensatory plan under APB 25 and as such no compensation cost was recorded in relation to the discount offered to employees for purchases made under the ESPP.



The original terms of the ESPP would have resulted in it being treated as a
compensatory plan under the fair value-based method. Effective July 1, 2005, the Company amended the terms of its ESPP to set the amount at which Common Shares may be purchased by employees to 95% of the average market price based on the
Toronto



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



Stock Exchange (TSX) or NASDAQ National Market (NASDAQ) on the last day of the purchase period. The choice of the appropriate market
for determining the average market price is based upon the market that had the greatest volume of trading of Common Shares in that period. As a result of the amendments, the ESPP is no longer considered a compensatory plan under the provisions of
SFAS 123R, and as a result no compensation cost has been recorded in relation to the ESPP for the three and six months ended December 31, 2005.



During the three months ended December 31, 2005, no Common Shares were issued under the ESPP. During the six months ended December 31, 2005,
255,402 Common Shares were issued under the ESPP for cash collected from employees in prior periods totaling $3.1 million. In addition, cash in the amount of $83,000 and $316,000, respectively, was received from employees for the three and six
months ended December 31, 2005, that will be used to purchase Common Shares in future periods.



NOTE 10NET INCOME (LOSS) PER SHARE



Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing
net income (loss) by the number of Common Shares used in the calculation of basic net income (loss) per share plus the dilutive effect of common share equivalents, such as stock options, using the treasury stock method. Common share equivalents are
excluded from the computation of diluted net income (loss) per share if their effect is anti-dilutive.



|                                              |  |                                 |        |                               |   |        |  |   |         |   |  |   |       
|--------------------------------------------- |  | ------------------------------- | ------ | ----------------------------- | - | ------ |  | - | ------- | - |  | - | ------
|                                              |  | Three months ended December 31, |        | Six months ended December 31,
|                                              |  | 2005                            |        | 2004                          |   | 2005   |  |   | 2004   
|Basic net income (loss) per share             |  |                                 |        |                               |   |        |  |   |         |   |  |   |       
|Net income (loss)                             |  | $                               | 2,721  |                               | $ | 10,970 |  | $ | (10,147 | ) |  | $ | 9,984 
|                                              |  |                                 |        |                               |   |        |  |   |         |   |  |   |       
|Basic net income (loss) per share             |  | $                               | 0.06   |                               | $ | 0.22   |  | $ | (0.21   | ) |  | $ | 0.20  
|                                              |  |                                 |        |                               |   |        |  |   |         |   |  |   |       
|Diluted net income (loss) per share           |  |                                 |        |                               |   |        |  |   |         |   |  |   |       
|Net income (loss)                             |  | $                               | 2,721  |                               | $ | 10,970 |  | $ | (10,147 | ) |  | $ | 9,984 
|                                              |  |                                 |        |                               |   |        |  |   |         |   |  |   |       
|Diluted net income (loss) per share           |  | $                               | 0.05   |                               | $ | 0.21   |  | $ | (0.21   | ) |  | $ | 0.19  
|                                              |  |                                 |        |                               |   |        |  |   |         |   |  |   |       
|Weighted average number of shares outstanding |  |                                 |        |                               |   |        |  |   |         |   |  |   |       
|Basic                                         |  |                                 | 48,569 |                               |   | 50,310 |  |   | 48,506  |   |  |   | 50,708
|Effect of dilutive securities**               |  |                                 | 1,302  |                               |   | 2,051  |  |   |        |   |  |   | 2,412 
|                                              |  |                                 |        |                               |   |        |  |   |         |   |  |   |       
|Diluted                                       |  |                                 | 49,871 |                               |   | 52,361 |  |   | 48,506  |   |  |   | 53,120
|                                              |  |                                 |        |                               |   |        |  |   |         |   |  |   |       
|Excluded as anti-dilutive *                   |  |                                 | 1,934  |                               |   | 562    |  |   | 2,250   |   |  |   | 291   
|                                              |  |                                 |        |                               |   |        |  |   |         |   |  |   |       



|* | Excluded from the calculation of diluted net income (loss) per share because the exercise price of the stock options was greater than or equal to the average price of the Common
Shares, and therefore their inclusion would have been anti-dilutive.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|** | Due to the net loss for the six months ended December 31, 2005, diluted net loss per share has been calculated using the basic weighted average number of Common Shares
outstanding, as the inclusion of any potentially dilutive securities would be anti-dilutive.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



NOTE 11GOODWILL



Goodwill is recorded when the consideration paid for an acquisition of a business exceeds the fair value of identifiable net
tangible and intangible assets. The following table summarizes the changes in goodwill since June 30, 2004:



|                                           |  |   |         |  
|------------------------------------------ |  | - | ------- | -
|Balance, June 30, 2004                     |  | $ | 223,752 |  
|Goodwill recorded during fiscal 2005:      |  |   |         |  
|Vista                                      |  |   | 8,714   |  
|Artesia                                    |  |   | 2,136   |  
|Optura                                     |  |   | 2,352   |  
|Adjustments relating to prior acquisitions |  |   | (822    | )
|Adjustments on account of foreign exchange |  |   | 6,959   |  
|                                           |  |   |         |  
|Balance, June 30, 2005                     |  |   | 243,091 |  
|Adjustments relating to prior acquisitions |  |   | (380    | )
|Adjustments on account of foreign exchange |  |   | (4,055  | )
|                                           |  |   |         |  
|Balance, December 31, 2005                 |  | $ | 238,656 |  
|                                           |  |   |         |  



NOTE 12ACQUIRED INTANGIBLE
ASSETS



|                                                 |  |                  |         |   |                |   |        |       |  |   |         |  
|------------------------------------------------ |  | ---------------- | ------- | - | -------------- | - | ------ | ----- |  | - | ------- | -
|                                                 |  | TechnologyAssets |         |   | CustomerAssets |   |        | Total | 
|Net book value, June 30, 2004                    |  | $                | 76,816  |   |                | $ | 39,772 |       |  | $ | 116,588 |  
|Assets acquired and activity during fiscal 2005: |  |                  |         |   |                |   |        |       |  |   |         |  
|Vista                                            |  |                  | 8,660   |   |                |   | 11,700 |       |  |   | 20,360  |  
|Artesia                                          |  |                  | 3,300   |   |                |   | 1,600  |       |  |   | 4,900   |  
|Optura                                           |  |                  | 1,300   |   |                |   | 700    |       |  |   | 2,000   |  
|Amortization expense                             |  |                  | (16,175 | ) |                |   | (8,234 | )     |  |   | (24,409 | )
|Other, including foreign exchange impact         |  |                  | 2,207   |   |                |   | 6,335  |       |  |   | 8,542   |  
|                                                 |  |                  |         |   |                |   |        |       |  |   |         |  
|Net book value, June 30, 2005                    |  |                  | 76,108  |   |                |   | 51,873 |       |  |   | 127,981 |  
|Activity during fiscal 2006:                     |  |                  |         |   |                |   |        |       |  |   |         |  
|Amortization expense                             |  |                  | (9,283  | ) |                |   | (4,527 | )     |  |   | (13,810 | )
|Other, including foreign exchange impact         |  |                  | (3,838  | ) |                |   | 1,931  |       |  |   | (1,907  | )
|                                                 |  |                  |         |   |                |   |        |       |  |   |         |  
|Net book value, December 31, 2005                |  | $                | 62,987  |   |                | $ | 49,277 |       |  | $ | 112,264 |  
|                                                 |  |                  |         |   |                |   |        |       |  |   |         |  



The range of
amortization periods for intangible assets is from 5-10 years.



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



The following table shows the estimated amortization expense for each of the next five years,
assuming no further adjustments to acquired intangible assets are made:



|      |  |                       |        
|----- |  | --------------------- | -------
|      |  | Years ending June 30,
|2006  |  | $                     | 21,191 
|2007  |  |                       | 26,223 
|2008  |  |                       | 25,576 
|2009  |  |                       | 20,278 
|2010  |  |                       | 8,574  
|      |  |                       |        
|Total |  | $                     | 101,842
|      |  |                       |        



NOTE 13SUPPLEMENTAL CASH FLOW
DISCLOSURE



|                                             |  |                                 |     |                               |   |       |  |      |       |  |   |      
|-------------------------------------------- |  | ------------------------------- | --- | ----------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                             |  | Three months ended December 31, |     | Six months ended December 31,
|                                             |  | 2005                            |     | 2004                          |   | 2005  |  | 2004
|Cash paid during the period for interest     |  | $                               | 35  |                               | $ | 71    |  | $    | 61    |  | $ | 81   
|Cash received during the period for interest |  | $                               | 281 |                               | $ |      |  | $    | 377   |  | $ |     
|Cash paid during the period for taxes        |  | $                               | 447 |                               | $ | 2,418 |  | $    | 1,069 |  | $ | 4,748



NOTE 14COMMITMENTS AND CONTINGENCIES



The
Company has entered into the following contractual obligations with minimum annual payments as follows:



|                              |  |                        |         |                 |   |           |  |           |        |                  |   |        |  |   |       
|----------------------------- |  | ---------------------- | ------- | --------------- | - | --------- |  | --------- | ------ | ---------------- | - | ------ |  | - | ------
|                              |  | Payments due by period
|                              |  | Total                  |         | Less than1 year |   | 13 years |  | 35 years |        | More than5 years
|Long-term debt obligations    |  | $                      | 16,029  |                 | $ | 434       |  | $         | 2,081  |                  | $ | 2,081  |  | $ | 11,433
|Operating lease obligations * |  |                        | 99,857  |                 |   | 8,565     |  |           | 36,584 |                  |   | 32,316 |  |   | 22,392
|Purchase obligations          |  |                        | 2,863   |                 |   | 948       |  |           | 1,590  |                  |   | 299    |  |   | 26    
|                              |  |                        |         |                 |   |           |  |           |        |                  |   |        |  |   |       
|                              |  | $                      | 118,749 |                 | $ | 9,947     |  | $         | 40,255 |                  | $ | 34,696 |  | $ | 33,851
|                              |  |                        |         |                 |   |           |  |           |        |                  |   |        |  |   |       



* Net of $7.5 million
of non-cancelable sublease income to be received by the Company from properties which the Company has subleased to other parties.



The long-term debt obligations comprise of interest and principal payments on the mortgage. See Note 4 Long-term Debt.



In July 2004, the Company entered into a commitment to construct a building
in Waterloo, Ontario with a view of consolidating its existing Waterloo facilities. The construction of the building was completed in October 2005 and the Company has since commenced the use of the building. As of December 31, 2005, a total of
$16.0 million has been capitalized on this project. The Company does not expect to make any significant additional payments in connection with this facility. The Company has financed this investment through its working capital.



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



The land on which the building is located has been leased from the University of Waterloo (U of
W), for a period of 49 years with the option to renew for another 49 years. The option to renew is exercisable with written notice to the U of W on or before the commencement of the 40thanniversary of the lease. The Company is not currently able to determine, with reasonable certainty, whether it will renew the lease of the land for the
second period of 49 years. Accordingly, estimates of the rent payable for the initial period of 49 years are included under Operating lease obligations in the table above.



The Company does not enter into off-balance sheet financing arrangements as a matter of practice except for the use of
operating leases for office space and vehicles. In accordance with U.S. GAAP, neither the lease liability nor the underlying asset is carried on the balance sheet, as the terms of the leases do not meet the criteria for capitalization.



Domination agreements



IXOS domination agreements



On December 1, 2004, the Company announced thatthrough its
wholly-owned subsidiary, 2016091 Ontario, Inc. (Ontario I)it had entered into a domination and profit transfer agreement (the Domination Agreement) with IXOS. The Domination Agreement has been registered in the
commercial register at the local court of Munich in August 2005 and it has therefore come into force. Under the terms of the Domination Agreement, Ontario I has acquired authority to issue directives to the management of IXOS. Also in the Domination
Agreement, Ontario I offers to purchase the remaining Common Shares of IXOS for a cash purchase price of Euro 9.38 per share (Purchase Price) which was the weighted average fair value of the IXOS Common Shares as of December 1,
2004. Pursuant to the Domination Agreement, Ontario I also guarantees a payment by IXOS to the minority shareholders of IXOS of an annual compensation of Euro 0.42 per share (Annual Compensation). The shareholders of IXOS at the
meeting on January 14, 2005 confirmed that IXOS had entered into the Domination Agreement. At the same meeting of the shareholders of IXOS, the shareholders authorized the management board of IXOS to apply for the withdrawal of the listing of
the IXOS shares at the Frankfurt/Germany stock exchange (Delisting). The Delisting was granted by the Frankfurt Stock Exchange on April 12, 2005 and was effective on July 12, 2005.



Certain IXOS shareholders had filed complaints against the approval of the
Domination Agreement and also against the authorization to delist. As a result of an out of court settlement, the complaints have been withdrawn and or settled. The out of court settlement was ratified by the court on August 9, 2005. The
Domination Agreement was registered on August 23, 2005, and thereby became effective. As a result of the Domination Agreement coming into force, the Company commenced, in the quarter ended September 30, 2005, accruing the amount payable to
minority shareholders of IXOS on account of Annual Compensation. This amount is accrued as and has been accounted for as a guaranteed dividend, payable to the minority shareholders, and is recorded as a charge to minority interest in the
periods. Based on the number of minority IXOS shareholders as of December 31, 2005 the estimated amount of Annual Compensation would approximate $523,000 per year. Because the Company is unable to predict, with reasonable accuracy, the number
of IXOS minority shareholders that will be on record in future periods, the Company is unable to predict the amount of Annual Compensation that will be payable in future years.



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##### Table of Contents

OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



Gauss domination agreements



Pursuant to a Domination Agreement dated November 4, 2003 between the
Companythrough its wholly owned subsidiary 2016090 Ontario Inc. (Ontario II)and Gauss, Ontario II has offered to purchase the remaining outstanding shares of Gauss at a price of Euro 1.06 per Gauss share. The original
acceptance period was two months after the signing of the Domination Agreement. As a result of certain shareholders having filed for a special court procedure to reassess the amount of the Annual Compensation that must be payable to minority
shareholders as a result of the Domination Agreement, the acceptance period has been extended pursuant to German law until the end of such proceedings. In addition, in April 2004 Gauss announced that effective July 1, 2004 the shares of Gauss
would cease to be listed on a stock exchange. In connection with this delisting, on July 2, 2004, a second offer by Ontario II to purchase the remaining outstanding shares of Gauss at a price of Euro 1.06 per Gauss share, commenced. This
acceptance period has also been extended pursuant to German law until the end of proceedings to reassess the amount of the consideration offered under German law in the delisting process. The shareholders resolution on the Domination Agreement
and on the delisting was subject to a court procedure in which certain shareholders of Gauss claimed that the resolution by which the shareholders of Gauss approved of the entering into the Domination Agreement and the authorization to the
management board of Gauss to file for a delisting are null and void. While the Court of First Instance rendered a judgment in favor of the plaintiffs, Gauss, as defendant, had appealed and believed that the Court of Second Instance would overturn
the judgment and rule in favor of Gauss. As a result of an out of court settlement, the complaints have been withdrawn. The settlement provides inter alia that an amount of Euro 0.05 per share per annum will be payable as compensation to the
other shareholders of Gauss under certain circumstances, but only after registration of the Squeeze Out as defined hereafter.



On August 25, 2005, at the shareholders meeting of Gauss, upon a motion of Ontario II, it was decided to transfer the shares of the minority
shareholders, which at the time of the shareholders meeting held less than 5% of the shares of Gauss, to Ontario II (Squeeze Out). The resolutions will become effective when registered in the commercial register at the local court of
Hamburg. Registration of these resolutions is currently pending. Certain shareholders of Gauss have filed suits to oppose all or some of the resolutions of the shareholders meeting of August 25, 2005. It is expected that the court of Hamburg
will, within the next few months, decide on the registration of the resolutions.



The Company believes that the registration of these resolutions is a reasonable certainty; accordingly, in pursuance of these resolutions the Company has recorded its best estimate of the amount payable to the
minority shareholders of Gauss. As of December 31, 2005, the Company has accrued $60,000 for such payments and expects that a further amount of approximately $15,000 will be payable to these shareholders by the end of the current fiscal
quarter. The Company is not currently able to determine the final amount payable and is unable to predict the date on which the resolutions will be registered at the local court.



Guarantees and indemnifications



The Company has entered into license agreements with customers that include limited intellectual property indemnification clauses. The Company generally
agrees to indemnify its customers against legal claims that its software products infringe certain third party intellectual property rights. In the event of such a claim, the Company is generally obligated to defend its customers against the claim
and either to settle the claim at the Companys expense or pay damages that the customers are legally required to pay to the third-party claimant. These intellectual property infringement indemnification clauses generally are subject to limits
based upon the amount of the license sale. The Company has not made any significant indemnification payments in relation to these indemnification clauses.



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



In connection with certain facility leases, the Company has guaranteed payments on behalf of its
subsidiaries. This has been done through unsecured bank guarantees obtained from local banks. Additionally, the Companys current end-user license agreement contains a limited software warranty.



The Company has not recorded a liability for guarantees, indemnities or
warranties described above in the accompanying consolidated balance sheet since the maximum amount of potential future payments under such guarantees, indemnities and warranties is not determinable, other than as described above.



Legal Proceedings



The Company is subject from time to time to legal proceedings and claims,
either asserted or unasserted, that arise in the ordinary course of business. While the outcome of these proceedings and claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have
a material adverse effect on its consolidated financial position, results of operations or cash flows.



NOTE 15SPECIAL CHARGES



In the three months ended December 31, 2005, the Company recorded special charges of $8.8 million. This is primarily comprised of $7.1 million, relating to the fiscal 2006 restructuring, $1.7 million related to the impairment of
capital assets and a recovery of $29,000 related to the 2004 restructuring. Details of each component of special charges are discussed below.



In the six months ended December 31, 2005, the Company recorded special charges of $26.9 million. This is primarily comprised of $23.5 million,
relating to the fiscal 2006 restructuring, $3.7 million related to the impairment of capital assets and a recovery of $329,000 related to the 2004 restructuring. Details of each component of special charges are discussed below.



Restructuring charges



Fiscal 2006 Restructuring



In the first quarter of the current fiscal year, the Board approved, and the
Company commenced implementing, restructuring activities to streamline its operations and consolidate its excess facilities. Total costs to be incurred in conjunction with the plan are expected to be in the range of $25 million to $30 million, of
which $16.4 million was recorded within special charges in the three months ended September 30, 2005 and $7.1 million has been recorded within special charges in the three months ended December 31, 2005. These charges consisted primarily
of costs associated with workforce reduction, abandonment of excess facilities, and legal costs incurred related to the termination of facilities. The provision related to workforce reduction is expected to be substantially paid by June 30,
2006 and the provisions relating to the abandonment of excess facilities such as contract settlements and lease costs are expected to be paid by January 2014.



A reconciliation of the beginning and ending liability is shown below:



|                                       |  |                     |        |   |                |   |       |       |  |   |       |   |  |   |        |  
|-------------------------------------- |  | ------------------- | ------ | - | -------------- | - | ----- | ----- |  | - | ----- | - |  | - | ------ | -
|Fiscal 2006 Restructuring Plan         |  | Work forcereduction |        |   | Facility costs |   |       | Other |  |   | Total |  
|Balance as of June 30, 2005            |  | $                   |       |   |                | $ |      |       |  | $ |      |   |  | $ |       |  
|Accruals                               |  |                     | 16,976 |   |                |   | 6,113 |       |  |   | 425   |   |  |   | 23,514 |  
|Cash payments                          |  |                     | (6,820 | ) |                |   | (870  | )     |  |   | (425  | ) |  |   | (8,115 | )
|Foreign exchange and other adjustments |  |                     | 156    |   |                |   | 25    |       |  |   |      |   |  |   | 181    |  
|                                       |  |                     |        |   |                |   |       |       |  |   |       |   |  |   |        |  
|Balance as of December 31, 2005        |  | $                   | 10,312 |   |                | $ | 5,268 |       |  | $ |      |   |  | $ | 15,580 |  
|                                       |  |                     |        |   |                |   |       |       |  |   |       |   |  |   |        |  



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



The following table outlines restructuring charges incurred under the fiscal 2006 restructuring plan,
by segment, for the six months ended December 31, 2005.



|                                                        |  |                     |        |                |   |       |  |       |     |  |   |       
|------------------------------------------------------- |  | ------------------- | ------ | -------------- | - | ----- |  | ----- | --- |  | - | ------
|Fiscal 2006 Restructuring Plan  by Segment             |  | Work forcereduction |        | Facility costs |   | Other |  | Total
|North America                                           |  | $                   | 9,006  |                | $ | 2,849 |  | $     | 149 |  | $ | 12,004
|Europe                                                  |  |                     | 7,317  |                |   | 3,075 |  |       | 270 |  |   | 10,662
|Other                                                   |  |                     | 653    |                |   | 189   |  |       | 6   |  |   | 848   
|                                                        |  |                     |        |                |   |       |  |       |     |  |   |       
|Total charge for the six months ended December 31, 2005 |  | $                   | 16,976 |                | $ | 6,113 |  | $     | 425 |  | $ | 23,514
|                                                        |  |                     |        |                |   |       |  |       |     |  |   |       



Fiscal 2004
Restructuring



In the three months ended March 31,
2004, the Company recorded a restructuring charge of approximately $10 million relating primarily to its North America segment. The charge consisted primarily of costs associated with a workforce reduction, excess facilities associated with the
integration of the IXOS acquisition, write downs of capital assets and legal costs related to the termination of facilities. On a quarterly basis the Company conducts an evaluation of these balances and revises its assumptions and estimates, if and
as appropriate. As part of this evaluation, the Company recorded recoveries to this restructuring charge of $303,000 during the three months ended September 30, 2005 and $26,000 during the three months ended December 31, 2005. These
recoveries primarily represented reductions in estimated employee termination costs and recoveries in estimates relating to accruals for abandoned facilities. The actions relating to employer workforce reduction were substantially complete as of
June 30, 2005. The provision relating to facility costs is expected to be expended by 2014. The activity of the Companys provision for the Companys fiscal year beginning July 1, 2003 and ending June 30, 2004 restructuring
charges are as follows since the beginning of the current fiscal year:



|                                       |  |                     |     |   |                |   |       |       |  |       |   |  |   |       |  
|-------------------------------------- |  | ------------------- | --- | - | -------------- | - | ----- | ----- |  | ----- | - |  | - | ----- | -
|Fiscal 2004 Restructuring Plan         |  | Work forcereduction |     |   | Facility costs |   |       | Other |  | Total |  
|Balance as of June 30, 2005            |  | $                   | 167 |   |                | $ | 1,878 |       |  | $     |  |  | $ | 2,045 |  
|Revisions to prior accruals            |  |                     | (65 | ) |                |   | (264  | )     |  |       |  |  |   | (329  | )
|Cash payments                          |  |                     |    |   |                |   | (372  | )     |  |       |  |  |   | (372  | )
|Foreign exchange and other adjustments |  |                     |    |   |                |   | 105   |       |  |       |  |  |   | 105   |  
|                                       |  |                     |     |   |                |   |       |       |  |       |   |  |   |       |  
|Balance as of December 31, 2005        |  | $                   | 102 |   |                | $ | 1,347 |       |  | $     |  |  | $ | 1,449 |  
|                                       |  |                     |     |   |                |   |       |       |  |       |   |  |   |       |  



Impairment of
capital assets



During the three months ended
September 30, 2005, an impairment charge of $2.0 million was recorded against capital assets that were written down to fair value, various leasehold improvements at vacated premises and redundant office equipment. During the three months ended
December 31, 2005, an impairment charge of $1.7 million was recorded against capital assets to write down to fair value, various leasehold improvements at vacated premises and redundant office equipment. Fair value was determined based on the
Companys estimates of disposal proceeds, net of anticipated costs to sell.



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##### Table of Contents

OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



NOTE 16ACQUISITIONS



Fiscal 2005



Optura



On February 11, 2005, Open Text entered into an agreement to acquire all of the issued and outstanding shares of Optura Inc. (Optura).
This acquisition has been account for as a business combination in accordance with SFAS No. 141 Business Combinations (SFAS 141). Optura offers products and integration services that optimize business processes so that
companies can collaborate across separate organizational functions, dissimilar systems and business partners. Optura products and services enable Open Text customers, who use a SAP-based Enterprise Resource Planning (ERP) system, to
improve the efficiencies of their document-based ERP processes. The results of operations of Optura have been consolidated with those of Open Text beginning February 12, 2005.



Consideration for this acquisition consisted of $3.7 million in cash, of which $2.7 million was paid at closing and $1.0
million was paid into escrow, as provided for in the share purchase agreement.



The purchase price allocation set forth below represents managements best estimate of the allocation of the purchase price and the fair value of net assets acquired. The valuation of the acquired intangible
assets and the assessment of their expected useful lives are preliminary.



The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the Optura acquisition:



|                                                |  |   |        |  
|----------------------------------------------- |  | - | ------ | -
|Current assets, including cash acquired of $315 |  | $ | 1,537  |  
|Long-term assets                                |  |   | 114    |  
|Customer assets                                 |  |   | 700    |  
|Technology assets                               |  |   | 1,300  |  
|Goodwill                                        |  |   | 2,180  |  
|                                                |  |   |        |  
|Total assets acquired                           |  |   | 5,831  |  
|Total liabilities assumed                       |  |   | (2,169 | )
|                                                |  |   |        |  
|Net assets acquired                             |  | $ | 3,662  |  
|                                                |  |   |        |  



The customer assets of $700,000 have
been assigned a life of five years. The technology assets of $1.3 million have been assigned a useful life of five years.



The portion of the purchase price allocated to goodwill was assigned to the Companys North America reportable segment. No amount of the goodwill is
expected to be deductible for tax purposes.



As part of the
purchase price allocation, the Company originally recognized liabilities in connection with this acquisition of $444,000. The liabilities related to severance charges, transaction costs, and costs relating to excess facilities. The purchase price
was subsequently adjusted to reduce acquisition related liabilities by $88,000 due to the refinement of managements original estimates. Remaining liabilities related to transaction-related charges are expected to be paid in fiscal 2006.
Liabilities related to excess facilities will be paid over the term of the lease which expires in September 2006.



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



A director of the Company received approximately $47,000, during the year ended June 30, 2005,
in consulting fees for assistance with the acquisition of Optura. These fees are included in the purchase price allocation. The director abstained from voting on the transaction.



Artesia



On August 19, 2004, Open Text entered into an agreement to acquire all of the issued and outstanding shares of Artesia Technologies, Inc.
(Artesia). This acquisition has been accounted for as a business combination in accordance with SFAS 141. Artesia designs and distributes Digital Asset Management software. It has a customer base of over 120 companies and provides these
customers and their marketing and distribution partners the ability to easily access and collaborate around a centrally managed collection of digital media elements. The results of operations of Artesia have been consolidated with those of Open Text
beginning September 1, 2004.



This acquisition expands
Open Texts media integration and management capabilities as part of its Enterprise Content Management (ECM) suite, and provides a platform from which Open Text can address the content management needs of media and marketing
professionals worldwide.



Consideration for this acquisition
consisted of $5.2 million in cash, of which $3.2 million was paid at closing and $2.0 million was paid into escrow, as provided for in the share purchase agreement. At June 30, 2005, there was a holdback in the amount of $581,000 remaining to
be paid. In the three months ended September 30, 2005 it was determined and agreed that the holdback would not be paid. Accordingly, the purchase price allocation has been adjusted.



The purchase price allocation set forth below represents managements best estimate of the allocation of the purchase
price and the fair value of net assets acquired.



The following
table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the Artesia acquisition:



|                                                |  |   |        |  
|----------------------------------------------- |  | - | ------ | -
|Current assets, including cash acquired of $773 |  | $ | 2,165  |  
|Long-term assets                                |  |   | 2,714  |  
|Customer assets                                 |  |   | 1,700  |  
|Technology assets                               |  |   | 3,300  |  
|Goodwill                                        |  |   | 1,367  |  
|                                                |  |   |        |  
|Total assets acquired                           |  |   | 11,246 |  
|Total liabilities assumed                       |  |   | (5,996 | )
|                                                |  |   |        |  
|Net assets acquired                             |  | $ | 5,250  |  
|                                                |  |   |        |  



The customer assets of
$1.7 million have been assigned a life of five years. The technology assets of $3.3 million have been assigned useful lives of three to five years.



The portion of the purchase price allocated to goodwill was assigned to the Companys North America reporting segment. No amount of the goodwill is
expected to be deductible for tax purposes.



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



As part of the purchase price allocation, the Company originally recognized liabilities in connection
with this acquisition of $1.8 million. The liabilities related to severance charges, transaction costs, and costs relating to excess facilities. The purchase price was subsequently adjusted to reduce acquisition related liabilities by $241,000 due
to the refinement of managements estimates. Remaining liabilities related to severance and transaction-related charges are expected to be paid in fiscal 2006. Liabilities related to excess facilities will be paid over the term of the lease
which expires in May 2010.



A director of the Company received
$112,000, during the year ended June 30, 2005, in consulting fees for assistance with the acquisition of Artesia. These fees are included in the purchase price allocation. The director abstained from voting on the transaction.



Vista



On August 31, 2004, Open Text entered into an agreement to acquire the Vista Plus (Vista) suite of products
and related assets from Quest Software Inc. (Quest). In accordance with SFAS 141 this acquisition has been accounted for as a business combination. As part of this transaction certain Quest employees that developed, sold and supported
Vista were employed by Open Text. The revenues and costs related to the Vista product suite have been consolidated with those of Open Text beginning September 16, 2004.



The Vista technology captures and stores business critical information from ERP applications. This acquisition expands Open
Texts integration and report management capabilities as part of its ECM suite, and provides a platform from which Open Text can address report content found in ERP applications, and business intelligence software.



Consideration for this acquisition consisted of $23.7 million in cash, of
which $21.7 million was paid at closing and $2.0 million was held in escrow until it was released to the vendor on November 30, 2005, as provided for in the purchase agreement.



The purchase price allocation set forth below represents managements best estimate of the allocation of the purchase
price and the fair value of net assets acquired.



The following
table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the Vista acquisition:



|                          |  |   |        |  
|------------------------- |  | - | ------ | -
|Current assets            |  | $ | 263    |  
|Long-term assets          |  |   | 63     |  
|Customer assets           |  |   | 10,900 |  
|Technology assets         |  |   | 8,430  |  
|Goodwill                  |  |   | 9,535  |  
|                          |  |   |        |  
|Total assets acquired     |  |   | 29,191 |  
|Total liabilities assumed |  |   | (5,501 | )
|                          |  |   |        |  
|Net assets acquired       |  | $ | 23,690 |  
|                          |  |   |        |  



The customer assets of
$10.9 million and the technology assets of $8.4 million have been assigned useful lives of five years.



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OPEN TEXT CORPORATION



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

For the Three and Six Months Ended December 31, 2005



(Tabular dollar amounts in thousands of U.S. Dollars, except per share data)



The portion of the purchase price allocated to goodwill was assigned to the Companys North
America reportable segment. The goodwill is expected to be deductible for tax purposes.



As part of the purchase price allocation, the Company recognized transaction costs in connection with this acquisition of $480,000. The purchase price was subsequently adjusted to reduce acquisition related
liabilities by $102,000 due to the refinement of managements estimates. Remaining costs are expected to be paid within fiscal 2006.



A director of the Company received $126,000, during the year ended June 30, 2005, in consulting fees for assistance with the acquisition of Vista.
These fees are included in the purchase price allocation. The director abstained from voting on the transaction.



Fiscal 2004



IXOS



The
Company increased its ownership of IXOS to approximately 95% during the six months ended December 31, 2005. This was done by way of open market purchases of IXOS shares. As of June 30, 2005, Open Text held approximately 94% of the
outstanding shares of IXOS. Total consideration paid for the purchase of shares of IXOS during the three and six months ended December 31, 2005 was $1.1 million and $4.2 million, respectively. The Company increased its share of the fair value
increments of the assets acquired and the liabilities assumed of IXOS to the extent of the increased ownership of IXOS. The minority interest in IXOS has been adjusted to reflect the reduced minority interest ownership in IXOS.



NOTE 17SUBSEQUENT EVENT



As of December 31, 2005, the Company had a CDN $10.0 million line of
credit with a Canadian chartered bank under which no borrowings were outstanding at December 31, 2005 and 2004. On February 2, 2006, this facility was replaced with a new demand operating facility of CDN $40.0 million. A copy of the
agreement is attached as an Exhibit under Item 6 of Part II of this document.



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|Item  2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|-------- | -------------------------------------------------------------------------------------



Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance or the outcome of
litigation (often, but not always, using words or phrases such as believes, expects or does not expect, is expected, anticipates or does not anticipate or intends or
stating that certain actions, events or results may, could, would, might or will be taken or achieved) are not statements of historical fact and may be forward-looking
statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements or developments in our business or industry, to differ materially from
the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Such risks and uncertainties include the factors set forth in Risk Factors in this Quarterly Report on Form 10-Q.
Readers should not place undue reliance on any such forward-looking statements, which speak only as at the date they are made. Forward-looking statements are based on our managements current plans, estimates, opinions and projections, and we
assume no obligation to update forward-looking statements if assumptions regarding these plans, estimates, opinions or projections should change. This discussion should be read in conjunction with the condensed consolidated financial statements and
related notes for the periods specified. Further reference should be made to our Annual Report on Form 10-K for the fiscal year ended June 30, 2005.



OVERVIEW



About Open Text



Open Text is one of the market leaders in providing Enterprise Content Management (ECM) solutions that bring together people, processes and information. Our software combines collaboration with content management, transforming
information into knowledge that provides the foundation for innovation, compliance and accelerated growth.



The Information technology (IT) Environment



We are not seeing much change in the IT environment as customers appear to be holding onto their legacy systems longer. However, in the past several
quarters, we are seeing our customers utilize their existing IT budgets to spend on ECM solutions that assist in meeting regulatory and compliance requirements. This purchasing pattern of our customers has generally evolved in response to the
heightened regulatory and compliance requirements in many industries as a result of government policy and legislation such as the Sarbanes-Oxley Act of 2002. However, we have also witnessed lengthening customer sales cycles that are characteristic
of compliance-based sales.



Alliances



We intend to continue to work more closely with partners that heavily
influence our customers computing architecture and strategy. Namely, those partners include system integrators like Deloitte and Touche LLP, Accenture, and Atos Origin S.A., independent software vendors like Microsoft Corporation
(Microsoft) and SAP, and storage vendors like Hitachi Limited, EMC Corporation and Hewlett Packard Company.



Open Text has been certified by Microsoft as a Microsoft Gold Partner with a track record for delivering powerful ECM solutions that extend Microsoft
applications. Microsofts desktop and business platforms match well with our solutions, which meet the document management, archiving and compliance requirements of large companies and government agencies. In addition, on November 14,
2005, we announced enhancements in our relationship with Microsoft to become a worldwide ECM partner with Microsoft.



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We are seeing increased interest from customers in our email archiving products. We continue to work with
partners that provide specialized products and expertise that complement our own. Those partners include Microsoft and IBM, as the dominant email vendors, Vedder Price, Kaufman & Kammholz, P.C., a legal firm specializing in records and
retention policies, with Technology Concepts and Design Inc. (TCDI), a litigation technology software and service specialist, and with Trusted Edge Inc., providing desktop information classification and control software.



Customers



Our customer base is diversified by industry and geography which is the result of a continued focus on the 2,000 largest
global organizations as our primary target market. We continue to see regulatory requirements as a key business driver and the majority of new customer licenses in the first two quarters of fiscal 2006 were driven by our customers
compliance-based requirements. Industries such as Government, Pharmaceutical and Life Sciences, Oil and Gas, and Financial Services have greater demand for specific software solutions to solve compliance-based business problems. We have created
specific ECM software solutions to address this demand and continue to work closely with customers and their strategic partners to ensure maximization of their software investments.



Notable customer announcements during the second quarter of fiscal 2006 included:



| |  |  | On October 19, 2005, we announced the formation of the Artesia Digital Media Group as part of an overall solutions strategy to better focus our domain expertise and rich-media
solution efforts for customers such as HBO, 20thCentury Fox, DreamWorks, and U.S. News & World Report.
Subsequently, on November 7, 2005, we announced our plans for rich-media and Digital Asset Management capabilities that leverage Microsoft technologies.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On November 15, 2005, we announced that Sasol, Ltd., a South African chemical and energy company, has deployed Open Texts Livelink ECM solution for internal controls.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On December 5, 2005, we announced that LANXESS Corporation, a manufacturer of high-quality chemicals, synthetic rubber and plastics, selected Open Texts Vendor Invoice
Management (VIM) solution to optimize Accounts Payable within its implementation of SAP solutions. VIM is part of Open Texts Livelink ECM Suite for SAP Solutions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On December 14, 2005, we announced that Distell Group Limited, a producer and marketer of wines and spirits, successfully completed the first phase of its intended
enterprise-wide Livelink ECM implementation. The system is designed to help ensure compliance with International Organization for Standardization (ISO) and International Food Standards regulations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Special Charges



During the three months ended December 31, 2005, we recorded special charges of $8.8 million which consist primarily of
$7.1 million relating to the fiscal 2006 restructuring and $1.7 million relating to the write down of capital assets.



During the six months ended December 31, 2005, we recorded special charges of $26.9 million which consist primarily of $23.5 million relating to the
fiscal 2006 restructuring, $3.7 million relating to the write down of capital assets and a recovery of $329,000 relating to the fiscal 2004 restructuring.



The fiscal 2006 restructuring relates primarily to a reduction in our workforce and abandonment of excess facilities. The restructuring has impacted both
our North American and European operations. The restructuring is being done primarily with a view to streamline our operations. Overall we expect the total restructuring charge to be in the range of approximately $25 to $30 million, of which $23.5
million has been taken to date. All significant actions in relation to the restructuring are expected to be completed by the end of the fiscal 2006 year.



The asset write-downs relate to capital assets that were written down to fair value, various leasehold improvements at vacated premises and redundant
office equipment. Fair value was determined based on our estimate of disposal proceeds, net of anticipated costs to sell.



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Further details relating to special charges are provided in the Operating Expenses section of
this Quarterly Report on Form 10-Q and Note 15 Special Charges to the condensed consolidated financial statements.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES



Our interim condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (U.S.
GAAP). These accounting principles were applied on a basis consistent with those of the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended June 30, 2005 filed with the United States Securities
and Exchange Commission (SEC), with the exception of our adoption on July 1, 2005 of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004)
Share-Based Payment (SFAS 123R) as described below.



The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenues, bad debts, investments, intangible assets, income taxes, special charges, contingencies and litigation. We base
our estimates on historical experience and on various other assumptions that are believed at the time to be reasonable under the circumstances. Under different assumptions or conditions, the actual results will differ, potentially materially, from
those previously estimated. Many of the conditions impacting these assumptions and estimates are outside of our control.



The critical accounting policies affecting significant judgments and estimates used in the preparation of our condensed consolidated financial statements
have been applied as outlined in our Annual Report on Form 10-K for the fiscal year ended June 30, 2005 filed with the SEC. Under different assumptions or conditions, the actual results will differ, potentially materially, from those previously
estimated. Many of the conditions impacting these assumptions and estimates are outside of our control.



Adoption of SFAS 123R



On July 1, 2005, we adopted the fair value-based method for measurement and cost recognition of employee share-based compensation under the provisions of FASB SFAS 123R, using the modified prospective application transitional approach.
Previously, we had been accounting for employee share-based compensation using the intrinsic value method, which generally did not result in any compensation cost being recorded for stock options since the exercise price was equal to the market
price of the underlying shares on the date of grant.



Our stock
options are now accounted for under SFAS 123R. The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option-pricing model.



For the three months ended December 31, 2005, the fair value of each option was estimated using the following
weightedaverage assumptions: expected volatility of 55%; risk-free interest rate of 4.4%; expected dividend yield of 0%; and expected life of 5.5 years. Expected option lives and volatilities are based on our historical data. No options were
granted during the three months ended September 30, 2005.



For the three and six months ended December 31, 2004, the fair value of each option was estimated using the following weightedaverage assumptions: expected volatility of 60%; risk-free interest rate of 3.5%; expected dividend
yield of 0%; and expected life of 3.5 years.



Share-based
compensation cost included in the statement of operations for the three and six months ended December 31, 2005 was approximately $1.2 million and an increase in net loss of $2.4 million, respectively, net of related tax effects. Additionally,
deferred tax assets of $155,000 and $324,000 were recorded, for the three and six months ended December 31, 2005 respectively, in relation to the tax effect of certain stock options that are eligible for a tax deduction when exercised. As of
December 31, 2005, the total compensation cost related to unvested awards not yet recognized is $10.7 million which will be recognized over a weighted average period of approximately 2 years.



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We made no modifications to the terms of our outstanding share options in anticipation of the adoption of
SFAS 123R. Also, we made no changes in either the quantity or type of instruments used in our share option plans or the terms of our share option plans.



Additionally, effective July 1, 2005, we amended the terms of our Employee Share Purchase Plan (ESPP) to set the amount at which Common
Shares may be purchased by employees to 95% of the average market price on the Toronto Stock Exchange (TSX) or the NASDAQ National Market (NASDAQ) on the last day of the purchase period. As a result of the amendments, the
ESPP is no longer considered a compensatory plan under the provisions of SFAS 123R, and as a result no compensation cost is recorded related to the ESPP.



RESULTS OF OPERATIONS



Overview



The following
table presents an overview of the results of our operations for the three and six months ended December 31, 2005 and 2004:



|                                           |  |                                |         |   |      |   |         |             |  |   |          |   |  |        |   
|------------------------------------------ |  | ------------------------------ | ------- | - | ---- | - | ------- | ----------- |  | - | -------- | - |  | ------ | --
|                                           |  | Three months endedDecember 31, |         |   |      |   |         |             | 
|(in thousands)                             |  | 2005                           |         |   | 2004 |   |         | Change in $ |  |   | % Change |  
|Total revenues                             |  | $                              | 110,771 |   |      | $ | 114,692 |             |  | $ | (3,921   | ) |  | (3.4   | %)
|Cost of revenues *                         |  |                                | 30,938  |   |      |   | 33,698  |             |  |   | (2,760   | ) |  | (8.2   | %)
|Gross profit                               |  |                                | 79,833  |   |      |   | 80,994  |             |  |   | (1,161   | ) |  | (1.4   | %)
|Amortization of acquired intangible assets |  |                                | 6,957   |   |      |   | 6,146   |             |  |   | 811      |   |  | 13.2   | % 
|Special charges (recoveries)               |  |                                | 8,793   |   |      |   | (1,449  | )           |  |   | 10,242   |   |  | (706.8 | %)
|Total remaining operating expenses         |  |                                | 57,492  |   |      |   | 58,782  |             |  |   | (1,290   | ) |  | (2.2   | %)
|Income from operations                     |  |                                | 6,591   |   |      |   | 17,515  |             |  |   | (10,924  | ) |  | (62.4  | %)
|                                           |  |                                |         |  
|Net income                                 |  | $                              | 2,721   |   |      | $ | 10,970  |             |  | $ | (8,249   | ) |  | (75.2  | %)
|Gross margin                               |  |                                | 72.1    | % |      |   | 70.6    | %           |  |   |          |   |  |        |   
|Operating margin                           |  |                                | 6.0     | % |      |   | 15.3    | %           |  |   |          |   |  |        |   



|                                           |  |                              |         |    |      |   |         |             |  |   |          |   |  |          |   
|------------------------------------------ |  | ---------------------------- | ------- | -- | ---- | - | ------- | ----------- |  | - | -------- | - |  | -------- | --
|                                           |  | Six months endedDecember 31, |         |    |      |   |         |             | 
|(in thousands)                             |  | 2005                         |         |    | 2004 |   |         | Change in $ |  |   | % Change |  
|Total revenues                             |  | $                            | 203,401 |    |      | $ | 200,288 |             |  | $ | 3,113    |   |  | 1.6      | % 
|Cost of revenues *                         |  |                              | 59,582  |    |      |   | 60,000  |             |  |   | (418     | ) |  | (0.7     | %)
|Gross profit                               |  |                              | 143,819 |    |      |   | 140,288 |             |  |   | 3,531    |   |  | 2.5      | % 
|Amortization of acquired intangible assets |  |                              | 13,810  |    |      |   | 11,575  |             |  |   | 2,235    |   |  | 19.31    | % 
|Special charges (recoveries)               |  |                              | 26,904  |    |      |   | (1,449  | )           |  |   | 28,353   |   |  | (1,956.7 | %)
|Total remaining operating expenses         |  |                              | 113,101 |    |      |   | 113,219 |             |  |   | (118     | ) |  | (0.1     | %)
|Income (loss) from operations              |  |                              | (9,996  | )  |      |   | 16,943  |             |  |   | (26,939  | ) |  | (159.0   | %)
|                                           |  |                              |         |   
|Net income (loss)                          |  | $                            | (10,147 | )  |      | $ | 9,984   |             |  | $ | (20,131  | ) |  | (201.6   | %)
|Gross margin                               |  |                              | 70.7    | %  |      |   | 70.0    | %           |  |   |          |   |  |          |   
|Operating margin                           |  |                              | (4.9    | %) |      |   | 8.5     | %           |  |   |          |   |  |          |   



|* | Amount excludes amortization of acquired application software technology which is included within Amortization of acquired intangible assets.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------



For the three months ended December 31, 2005, our
results were impacted by a decrease in revenues by $3.9 million, or 3.4% compared to the same period in the prior fiscal year. This decrease was due to fewer license deals greater than one million dollars in the second quarter of fiscal 2006,
relative to the same period in the prior fiscal year, adverse foreign exchange impacts due to weakening European currencies relative to the United States Dollar, and a general weakening of our European results. These items were partially offset by
our strong growth in our North American operations.



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For the six months ended, December 31, 2005, our results were impacted by an overall increase in
total revenues by $3.1 million or 1.6% compared to the same period in the prior fiscal year. This increase was due primarily to growth in our customer support revenues in the first quarter of fiscal 2006 and as a result of the full impact of our
fiscal 2004 acquisitions. This was partially offset by foreign exchange impacts and weaker license revenues particularly in Europe.



Revenues



Revenue by Type



The
following tables set forth the increase in revenues by product and as a percentage of the related product revenue for the periods indicated:



|                     |  |                                 |         |   |                               |   |         |          |  |   |          |   |  |       |    |      |   |          |  |   |          |  |   |        |   |  |      |   
|-------------------- |  | ------------------------------- | ------- | - | ----------------------------- | - | ------- | -------- |  | - | -------- | - |  | ----- | -- | ---- | - | -------- |  | - | -------- |  | - | ------ | - |  | ---- | --
|                     |  | Three months ended December 31, |         |   | Six months ended December 31, |  
|(in thousands)       |  | 2005                            |         |   | 2004                          |   |         | Change $ |  |   | Change % |   |  | 2005  |    | 2004 |   | Change $ |  |   | Change % | 
|License              |  | $                               | 37,131  |   |                               | $ | 42,622  |          |  | $ | (5,491   | ) |  | (12.9 | %) |      | $ | 62,074   |  | $ | 66,526   |  | $ | (4,452 | ) |  | (6.7 | %)
|Customer support     |  |                                 | 46,476  |   |                               |   | 44,542  |          |  |   | 1,934    |   |  | 4.3   | %  |      |   | 93,122   |  |   | 85,334   |  |   | 7,788  |   |  | 9.1  | % 
|Service              |  |                                 | 27,164  |   |                               |   | 27,528  |          |  |   | (364     | ) |  | (1.3  | %) |      |   | 48,205   |  |   | 48,428   |  |   | (223   | ) |  | (0.5 | %)
|                     |  |                                 |         |   |                               |   |         |          |  |   |          |   |  |       |    |      |   |          |  |   |          |  |   |        |   |  |      |   
|Total                |  | $                               | 110,771 |   |                               | $ | 114,692 |          |  | $ | (3,921   | ) |  | (3.4  | %) |      | $ | 203,401  |  | $ | 200,288  |  | $ | 3,113  |   |  | 1.6  | % 
|                     |  |                                 |         |   |                               |   |         |          |  |   |          |   |  |       |    |      |   |          |  |   |          |  |   |        |   |  |      |   
|                     |  |                                 |         |   |                               |  
|                     |  | Three months endedDecember 31,  |         |   | Six months endedDecember 31,  |   |         |          |  |   |          |   |  |       |    |     
|(% of total revenue) |  | 2005                            |         |   | 2004                          |   |         | 2005     |  |   | 2004     |   |  |       |    |      |   |          |  |   |          | 
|License              |  |                                 | 33.5    | % |                               |   | 37.2    | %        |  |   | 30.5     | % |  | 33.2  | %  |      |   |          |  |   |          |  |   |        |   |  |      |   
|Customer support     |  |                                 | 42.0    | % |                               |   | 38.8    | %        |  |   | 45.8     | % |  | 42.6  | %  |      |   |          |  |   |          |  |   |        |   |  |      |   
|Service              |  |                                 | 24.5    | % |                               |   | 24.0    | %        |  |   | 23.7     | % |  | 24.2  | %  |      |   |          |  |   |          |  |   |        |   |  |      |   
|                     |  |                                 |         |   |                               |   |         |          |  |   |          |   |  |       |    |      |   |          |  |   |          |  |   |        |   |  |      |   
|Total                |  |                                 | 100.0   | % |                               |   | 100.0   | %        |  |   | 100.0    | % |  | 100.0 | %  |      |   |          |  |   |          |  |   |        |   |  |      |   
|                     |  |                                 |         |   |                               |   |         |          |  |   |          |   |  |       |    |      |   |          |  |   |          |  |   |        |   |  |      |   



License Revenue



License revenue consists of fees earned from the
licensing of our software products to customers.



For the three
months ended December 31, 2005, license revenues decreased 12.9% or $5.5 million compared to the same period in the prior fiscal year. This was because in the second quarter of fiscal 2006 we had only 3 licensing transactions that were greater
than $1 million compared to 5 such transactions in the second quarter of fiscal 2005. In addition, we had 5 licensing transactions which were greater than $500,000 in the second quarter of fiscal 2006 compared to 9 such transactions in the same
quarter of the prior fiscal year. Excluding the impact of foreign exchange rates, license revenue declined approximately 6% year over year. Although our North American operations are experiencing significant license revenue growth year over year,
this has been offset by a slow down in license revenue in Europe and the rest of the world.



For the six months ended December 31, 2005, license revenue decreased 6.7% or $4.5 million compared to the same period in the prior fiscal year. Excluding the impact of foreign exchange, license revenue declined
approximately 3% comparable over the period in the prior fiscal year for the same reasons set forth above.



Customer Support Revenue



Customer support revenue consists of revenue from our customer support and maintenance agreements. Typically the term of these maintenance contracts is twelve months with customer renewal options, and we have historically experienced a
renewal rate greater than 90%. New license revenue drives additional customer support contracts which accounts for substantially all the increase in our customer support revenue.



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For the three months ended December 31, 2005, customer support revenue increased 4.3% or $1.9
million compared to the same period in the prior fiscal year. The increase in customer support revenue was attributable to new licenses and strong retention rates with existing customers. Excluding the impact of foreign exchange, comparable over the
period in the prior fiscal year, growth in customer support revenue was approximately 7%.



For the six months ended December 31, 2005, customer support revenues increased by 9.1% or $7.8 million compared to the same period in the prior fiscal year. The increase in customer support revenue was
attributable to new licenses and strong retention rates and the full quarter impact of acquisitions made at the end of the first quarter of fiscal 2005.



Service Revenue



Service revenue consists of revenues from consulting contracts and contracts to provide training and integration services.



For the three months ended December 31, 2005, service revenues remained
relatively stable with a slight decrease of approximately 1.3% or $364,000 compared to the same period in the prior fiscal year. Excluding the impact of weakening European currencies, service revenue increased approximately 4% with increases in
service revenue in North America more than compensating for decreases in Europe.



For the six months ended December 31, 2005, service revenue remained relatively stable, decreasing slightly by 0.5% or $223,000 compared to the same period of the prior fiscal year. However, excluding the impact
of foreign exchange rates, service revenue grew by approximately 2%. North American service revenue presented strong revenue growth with an offsetting decrease in Europe.



Revenue and Operating Margin by Segment



The following table sets forth information regarding our revenue by geography:



Revenue by Geography



|                   |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|------------------ |  | ------------------------------ | ------- | - | ---------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                   |  | Three months endedDecember 31, |         |   | Six months endedDecember 31  |  
|(In thousands)     |  | 2005                           |         |   | 2004                         |   |         | 2005 |  |   | 2004    |  
|North America      |  | $                              | 53,785  |   |                              | $ | 47,915  |      |  | $ | 100,016 |   |  | $ | 82,711  |  
|Europe             |  |                                | 51,171  |   |                              |   | 60,583  |      |  |   | 92,601  |   |  |   | 105,050 |  
|Other              |  |                                | 5,815   |   |                              |   | 6,194   |      |  |   | 10,784  |   |  |   | 12,527  |  
|                   |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Total              |  | $                              | 110,771 |   |                              | $ | 114,692 |      |  | $ | 203,401 |   |  | $ | 200,288 |  
|                   |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|                   |  |                               
|                   |  | Three months endedDecember 31, |         |   | Six months endedDecember 31, |  
|% of Total Revenue |  | 2005                           |         |   | 2004                         |   |         | 2005 |  |   | 2004    |  
|North America      |  |                                | 48.6    | % |                              |   | 41.8    | %    |  |   | 49.2    | % |  |   | 41.3    | %
|Europe             |  |                                | 46.2    | % |                              |   | 52.8    | %    |  |   | 45.5    | % |  |   | 52.4    | %
|Other              |  |                                | 5.2     | % |                              |   | 5.4     | %    |  |   | 5.3     | % |  |   | 6.3     | %
|                   |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Total              |  |                                | 100.0   | % |                              |   | 100.0   | %    |  |   | 100.0   | % |  |   | 100.0   | %
|                   |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  



The overall increase
in revenue in North America in the second quarter of fiscal 2006 compared to the prior year period represents our strengthened sales management, improved focus on sales force/process management, implementation of effective lead generation processes
and a focus on our key partnerships and verticals that represent our greatest opportunities. Declines in European license revenue reflect weakening European currencies and a period of structural re-alignment of our European sales force commensurate
with our re-organization activities.



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In the context of license and services revenues, North America has had strong revenue growth, while
Europe has declined due to the effects of foreign exchange rates and restructuring activities in Europe that we believe were necessary to position us for future continued success.



The North America geographic segment includes Canada, the United States and Mexico. The Europe geographic segment includes
Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Spain, Sweden, and the United Kingdom, while the Other geographic segment includes Australia, Japan, Malaysia, and the Middle East region.



Adjusted Operating Margin by Significant Segment



The following table provides a summary of our adjusted operating margins by
significant segment.



|              |  |                                |   |  |                             |   |  |      |   |  |      |  
|------------- |  | ------------------------------ | - |  | --------------------------- | - |  | ---- | - |  | ---- | -
|              |  | Three months endedDecember 31, |   |  | Six months endedDecember 31 |  
|              |  | 2005                           |   |  | 2004                        |   |  | 2005 |   |  | 2004 |  
|North America |  | 22.1                           | % |  | 15.9                        | % |  | 17.6 | % |  | 10.9 | %
|Europe        |  | 20.0                           | % |  | 22.9                        | % |  | 15.2 | % |  | 15.9 | %



The above adjusted
operating margins are calculated based on GAAP net income (loss) including where applicable, the impact of amortization, interest, share-based compensation, other expense, special charges and income taxes.



Adjusted operating margins have declined in Europe and are higher in North
America for the three months ended December 31, 2005. On a year to date basis, Europe is relatively constant while North America has increased approximately 6.7% year over year.



The changes in operating margin in Europe were primarily due to a reduction of revenues in Europe, weakening of European
currencies, and the impact of the 2006 restructuring on Europe. North America margins increased due to realigned sales management efforts in North America.



Cost of Revenue by Type



The following tables set forth the changes in cost of revenues and gross margin by product type for the periods indicated:



Cost of Revenue:



|                          |  |                                 |        |   |                               |   |        |          |  |   |          |   |  |       |    |      |   |          |  |   |          |  |   |        |   |  |       |   
|------------------------- |  | ------------------------------- | ------ | - | ----------------------------- | - | ------ | -------- |  | - | -------- | - |  | ----- | -- | ---- | - | -------- |  | - | -------- |  | - | ------ | - |  | ----- | --
|                          |  | Three months ended December 31, |        |   | Six months ended December 31, |  
|(in thousands)            |  | 2005                            |        |   | 2004                          |   |        | Change $ |  |   | Change % |   |  | 2005  |    | 2004 |   | Change $ |  |   | Change % | 
|License                   |  | $                               | 1,811  |   |                               | $ | 3,051  |          |  | $ | (1,240   | ) |  | (40.6 | %) |      | $ | 4,199    |  | $ | 5,205    |  | $ | (1,006 | ) |  | (19.3 | %)
|Customer support          |  |                                 | 7,734  |   |                               |   | 8,062  |          |  |   | (328     | ) |  | (4.1  | %) |      |   | 15,386   |  |   | 15,556   |  |   | (170   | ) |  | (1.1  | %)
|Service                   |  |                                 | 21,393 |   |                               |   | 22,585 |          |  |   | (1,192   | ) |  | (5.3  | %) |      |   | 39,997   |  |   | 39,239   |  |   | 758    |   |  | 1.9   | % 
|                          |  |                                 |        |   |                               |   |        |          |  |   |          |   |  |       |    |      |   |          |  |   |          |  |   |        |   |  |       |   
|Total                     |  | $                               | 30,938 |   |                               | $ | 33,698 |          |  | $ | (2,760   | ) |  | (8.2  | %) |      | $ | 59,582   |  | $ | 60,000   |  | $ | (418   | ) |  | (0.7  | %)
|                          |  |                                 |        |   |                               |   |        |          |  |   |          |   |  |       |    |      |   |          |  |   |          |  |   |        |   |  |       |   
|                          |  |                                 |        |   |                               |  
|                          |  | Three months endedDecember 31,  |        |   | Six months endedDecember 31,  |   |        |          |  |   |          |   |  |       |    |     
|Gross margin by type %    |  | 2005                            |        |   | 2004                          |   |        | 2005     |  |   | 2004     |   |  |       |    |      |   |          |  |   |          | 
|License                   |  |                                 | 95.1   | % |                               |   | 92.8   | %        |  |   | 93.2     | % |  | 92.2  | %  |      |   |          |  |   |          |  |   |        |   |  |       |   
|Customer support          |  |                                 | 83.4   | % |                               |   | 81.9   | %        |  |   | 83.5     | % |  | 81.8  | %  |      |   |          |  |   |          |  |   |        |   |  |       |   
|Service                   |  |                                 | 21.2   | % |                               |   | 18.0   | %        |  |   | 17.1     | % |  | 17.0  | %  |      |   |          |  |   |          |  |   |        |   |  |       |   
|Consolidated gross margin |  |                                 | 72.1   | % |                               |   | 70.6   | %        |  |   | 70.7     | % |  | 70.1  | %  |      |   |          |  |   |          |  |   |        |   |  |       |   



For the three months
ended December 31, 2005, overall gross margin improved to 72.1%, compared to 70.6% in the three months ended December 31, 2004. The margin improvement was due to improved expense management in services and customer support, primarily as a
result of our restructuring activities. This was partially offset by a lower proportion of higher profitability license revenue.



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For the six months ended, December 31, 2005, overall gross margin was relatively stable compared to
the six months ended December 31, 2005.



Cost of license revenue



Cost of license revenue consists primarily of
royalties payable to third parties for related software, and royalties we pay on software embedded within our core products.



For the three months ended December 31, 2005, cost of license revenues decreased by 40.6% or $1.2 million compared to same period in the prior fiscal
year. This was driven by a product mix which included less third party products, royalties and reseller fees.



For the six months ended December 31, 2005, cost of license revenues decreased by 19.3% or $1.0 million compared to the same period in the prior
fiscal year for the same reasons set forth above.



Cost of customer
support revenues



Cost of customer support revenues is
comprised primarily of technical support personnel and their related costs.



For the three months ended, December 31, 2005, cost of customer support revenues decreased by 4.1% or $328,000 compared to the same period in the prior fiscal year. The decrease is primarily attributable to the
weakening of European currencies and operating efficiencies as a result of our global restructuring efforts.



For the six months ended, December 31, 2005, cost of customer support revenues remained relatively stable compared to same period in the prior fiscal
year.



Cost of service revenues



Cost of service revenues consists primarily of the costs of providing
integration, customization and training with respect to our various software products. The most significant component of these costs is personnel related expenses. The other components include travel costs and third party subcontracting.



For the three months ended, December 31, 2005, cost of service
revenues decreased by 5.3% or $1.2 million compared to the same period in the prior fiscal year. The weakening of European currencies, an acquisition made in the third quarter of fiscal 2005 and operational efficiencies as a result of our
restructuring efforts have allowed for better utilization of our resources, which has resulted in the decrease.



For the six months ended December 31, 2005, cost of service revenue increased slightly by 1.9% or $758,000 compared to the same period in the prior
fiscal year. The increase, is primarily attributable to the timing of acquisitions made late in the first and third quarter of fiscal 2005, offset by weakening European currencies and operational efficiencies as a result of our restructuring
efforts.



Operating Expenses



The following table sets forth total operating expenses by function and as a
percentage of total revenue for the periods indicated:



|                                           |  |                                 |        |      |                               |        |          |  |   |          |   |  |        |    |      |   |         |          |   |         |          |  |   |        |   |  |          |   
|------------------------------------------ |  | ------------------------------- | ------ | ---- | ----------------------------- | ------ | -------- |  | - | -------- | - |  | ------ | -- | ---- | - | ------- | -------- | - | ------- | -------- |  | - | ------ | - |  | -------- | --
|                                           |  | Three months ended December 31, |        |      | Six months ended December 31, |       
|(in thousands)                             |  | 2005                            |        | 2004 |                               |        | Change $ |  |   | Change % |   |  | 2005   |    | 2004 |   |         | Change $ |   |         | Change % | 
|Research and development                   |  | $                               | 14,836 |      | $                             | 15,842 |          |  | $ | (1,006   | ) |  | (6.4   | %) |      | $ | 31,386  |          | $ | 30,525  |          |  | $ | 861    |   |  | 2.8      | % 
|Sales and marketing                        |  |                                 | 28,059 |      |                               | 30,787 |          |  |   | (2,728   | ) |  | (8.9   | %) |      |   | 54,172  |          |   | 56,284  |          |  |   | (2,112 | ) |  | (3.8     | %)
|General and administrative                 |  |                                 | 11,766 |      |                               | 9,564  |          |  |   | 2,202    |   |  | 23.0   | %  |      |   | 22,203  |          |   | 21,422  |          |  |   | 781    |   |  | 3.6      | % 
|Depreciation                               |  |                                 | 2,831  |      |                               | 2,589  |          |  |   | 242      |   |  | 9.3    | %  |      |   | 5,340   |          |   | 4,988   |          |  |   | 352    |   |  | 7.1      | % 
|Amortization of acquired intangible assets |  |                                 | 6,957  |      |                               | 6,146  |          |  |   | 811      |   |  | 13.2   | %  |      |   | 13,810  |          |   | 11,575  |          |  |   | 2,235  |   |  | 19.3     | % 
|Special charges (recoveries)               |  |                                 | 8,793  |      |                               | (1,449 | )        |  |   | 10,242   |   |  | (706.8 | %) |      |   | 26,904  |          |   | (1,449  | )        |  |   | 28,353 |   |  | (1,956.7 | %)
|                                           |  |                                 |        |      |                               |        |          |  |   |          |   |  |        |    |      |   |         |          |   |         |          |  |   |        |   |  |          |   
|Total                                      |  | $                               | 73,242 |      | $                             | 63,479 |          |  | $ | 9,763    |   |  | 15.4   | %  |      | $ | 153,815 |          | $ | 123,345 |          |  | $ | 30,470 |   |  | 24.7     | % 
|                                           |  |                                 |        |      |                               |        |          |  |   |          |   |  |        |    |      |   |         |          |   |         |          |  |   |        |   |  |          |   



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|                                           |      |                                 |   |      |                               |    |      |      |   |      |      |   
|------------------------------------------ | ---- | ------------------------------- | - | ---- | ----------------------------- | -- | ---- | ---- | - | ---- | ---- | --
|% of Total Revenue                         |      | Three months ended December 31, |   |      | Six months ended December 31, |   
|                                           | 2005 |                                 |   | 2004 |                               |    | 2005 |      |   | 2004 |     
|Research and development                   |      | 13.3                            | % |      | 13.8                          | %  |      | 15.4 | % |      | 15.2 | % 
|Sales and marketing                        |      | 25.2                            | % |      | 26.8                          | %  |      | 26.6 | % |      | 28.1 | % 
|General and administrative                 |      | 10.6                            | % |      | 8.3                           | %  |      | 10.9 | % |      | 10.7 | % 
|Depreciation                               |      | 2.5                             | % |      | 2.3                           | %  |      | 2.6  | % |      | 2.5  | % 
|Amortization of acquired intangible assets |      | 6.3                             | % |      | 5.4                           | %  |      | 6.8  | % |      | 5.8  | % 
|Special charges (recoveries)               |      | 8.0                             | % |      | (1.3                          | %) |      | 13.2 | % |      | (0.7 | %)
|                                           |      |                                 |   |      |                               |    |      |      |   |      |      |   
|Total                                      |      | 65.9                            | % |      | 55.3                          | %  |      | 75.5 | % |      | 61.6 | % 
|                                           |      |                                 |   |      |                               |    |      |      |   |      |      |   



Research and development
expenses



Research and development
(R&D) expenses consist primarily of engineering personnel expenses, contracted research and development expenses, and facilities and equipment costs.



For the three months ended December 31, 2005, R&D expenses decreased by 6.4% or $1.0 million compared to the same
period in the prior fiscal year. The decrease in R&D costs is attributable to specific targeted reductions in traditional R&D products and staff as a result of our restructuring activities. Partially offsetting these reductions are more
focused expenditures in solutions and packaged service offerings, which allows us to quickly develop the products customers most value.



For the six months ended December 31, 2005, R&D expenses increased slightly because of investments in solutions and packaged service offerings.
We expect the declines seen in the second quarter of fiscal 2006 to continue going forward.



Sales and marketing expenses



Sales and marketing expenses consist primarily of costs related to sales and marketing personnel, as well as costs associated with trade shows, seminars, and other marketing programs.



For the three months ended December 31, 2005, sales and marketing
expenses decreased by 8.9% or $2.7 million compared to the same period in the prior fiscal year. Sales and marketing expenses have decreased as a result of reductions in staff, which is directly related to the restructuring program that included a
consolidation of management structures, reduction of administrative staff and a reduction of selling staff in low growth geographies and/or products. These actions are expected to allow redeployment to markets with better opportunities. We have
reduced our investments in marketing programs, and the staff who administers these programs, until growth in the ECM market profitably supports those investments. We also continue to make significant investments in sales and marketing, spending more
than 25% of our revenues on sales and marketing activities.



For the six months ended December 31, 2005, sales and marketing expenses decreased by 3.8% or $2.1 million compared to the same period in the prior fiscal year. Sales and marketing expenses have decreased as a result of reductions in
staff, which is directly related to the restructuring program that included a consolidation of management structures, reduction of administrative staff and a reduction of selling staff in low growth geographies/products. These actions are expected
to allow redeployment to markets with better opportunities. We have reduced our investments in marketing programs, and the staff who administers these programs, until growth in the ECM market profitably supports those investments. We also continue
to make significant investments in sales and marketing, spending more than 25% of our revenues on sales and marketing activities.



General and administrative expenses



General and administrative expenses consist primarily of salaries of administrative personnel, related overhead, facility expenses, audit fees, consulting
expenses and public company costs.



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For the three months ended December 31, 2005, general and administrative expenses increased by 23.0%
or $2.2 million compared to the same period in the prior fiscal year. As a percentage of total revenues, in the second quarter of fiscal 2006 general and administrative expenses increased to 10.6% from 8.3% or $2.2 million in the same quarter of the
prior fiscal year. The majority of the absolute dollar increase is due to a onetime legal recovery made in the second quarter of fiscal 2005, of $785,000. The remainder of the increase is due to the inclusion of share-based compensation expense of
$487,000 and ongoing accretion charges, in the amount of $376,000, related to facilities which were vacated.



For the six months ended December 31, 2005, general and administrative expenses increased 3.6% or $781,000 compared to the same period in the prior
fiscal year. As a percentage of total revenues, general and administrative expenses remained constant at just under 11% for the three and six months ended, December 31, 2005. The absolute dollar increase is due to increased legal costs, the
inclusion of share-based compensation expense and on-going facilities-based accretion charges.



Depreciation expenses



For the three months ended December 31, 2005, depreciation expenses increased slightly by $242,000 or 9.3% compared to the same period in the prior fiscal year. For the six months ended December 31, 2005, depreciation expenses
increased by $352,000 or 7.1% compared to the same period in the prior fiscal year. These increases are a direct result of the depreciation of capital assets acquired during the second quarter of fiscal 2006 and the commencement of the depreciation
on the Waterloo building.



Amortization of acquired intangible assets



Amortization of acquired intangible assets includes
the amortization of acquired technology and customer assets.



For the three months ended December 31, 2005, amortization of acquired intangible assets increased $811,000 or 13.2% compared to the same period in the prior fiscal year. For the six months ended December 31, 2005, amortization of
acquired intangible assets increased $2.2 million or 19.3% compared to the same period in the prior fiscal year. These increases are due to the impact of our fiscal 2005 acquisitions, in particular the acquisition of Vista.



Special Charges



In the six months ended December 31, 2005, we recorded special charges of $26.9 million. This is primarily comprised of
$23.5 million relating to the fiscal 2006 restructuring, $3.7 million related to the impairment of capital assets and a recovery of $329,000 related to the fiscal 2004 restructuring charge. Details of each component of special charges are discussed
below.



Restructuring charges



Fiscal 2006 Restructuring



During the three months ended September 30, 2005, our Board approved,
and we commenced implementing, restructuring activities to streamline our operations and consolidate our excess facilities. Total costs to be incurred in conjunction with the plan are expected to be in the range of $25 million to $30 million, of
which $16.4 million was recorded within special charges in the three months ended September 30, 2005 and $7.1 million has been recorded within special charges in the three months ended December 31, 2005. These charges consisted primarily
of costs associated with workforce reduction, abandonment of excess facilities, and legal costs incurred related to the termination of facilities. The provision related to workforce reduction is expected to be substantially paid by June 30,
2006 and the provisions relating to the abandonment of excess facilities, such as contract settlements and lease costs are expected to be paid by January 2014.



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A reconciliation of the beginning and ending liability is shown below:



|                                       |  |                     |        |   |                |   |       |       |  |   |       |   |  |   |        |  
|-------------------------------------- |  | ------------------- | ------ | - | -------------- | - | ----- | ----- |  | - | ----- | - |  | - | ------ | -
|Fiscal 2006 Restructuring Plan         |  | Work forcereduction |        |   | Facility costs |   |       | Other |  |   | Total |  
|Balance as of June 30, 2005            |  | $                   |       |   |                | $ |      |       |  | $ |      |   |  | $ |       |  
|Accruals                               |  |                     | 16,976 |   |                |   | 6,113 |       |  |   | 425   |   |  |   | 23,514 |  
|Cash payments                          |  |                     | (6,820 | ) |                |   | (870  | )     |  |   | (425  | ) |  |   | (8,115 | )
|Foreign exchange and other adjustments |  |                     | 156    |   |                |   | 25    |       |  |   |      |   |  |   | 181    |  
|                                       |  |                     |        |   |                |   |       |       |  |   |       |   |  |   |        |  
|Balance as of December 31, 2005        |  | $                   | 10,312 |   |                | $ | 5,268 |       |  | $ |      |   |  | $ | 15,580 |  
|                                       |  |                     |        |   |                |   |       |       |  |   |       |   |  |   |        |  



The following table
outlines restructuring charges incurred under the fiscal 2006 restructuring plan, by segment, for the six months ended December 31, 2005.



|                                                        |  |                     |        |                |   |       |  |       |     |  |   |       
|------------------------------------------------------- |  | ------------------- | ------ | -------------- | - | ----- |  | ----- | --- |  | - | ------
|Fiscal 2006 Restructuring Plan  by Segment             |  | Work forcereduction |        | Facility costs |   | Other |  | Total
|North America                                           |  | $                   | 9,006  |                | $ | 2,849 |  | $     | 149 |  | $ | 12,004
|Europe                                                  |  |                     | 7,317  |                |   | 3,075 |  |       | 270 |  |   | 10,662
|Other                                                   |  |                     | 653    |                |   | 189   |  |       | 6   |  |   | 848   
|                                                        |  |                     |        |                |   |       |  |       |     |  |   |       
|Total charge for the six months ended December 31, 2005 |  | $                   | 16,976 |                | $ | 6,113 |  | $     | 425 |  | $ | 23,514
|                                                        |  |                     |        |                |   |       |  |       |     |  |   |       



Fiscal 2004
Restructuring



In the three months ended March 31,
2004, we recorded a restructuring charge of approximately $10 million relating primarily to our North America segment. The charge consisted primarily of costs associated with a workforce reduction, excess facilities associated with the integration
of the IXOS acquisition, write downs of capital assets and legal costs related to the termination of facilities. On a quarterly basis we conduct an evaluation of these balances and revise our assumptions and estimates, if and as appropriate. As part
of this evaluation, we recorded recoveries to this restructuring charge of $303,000 during the three months ended September 30, 2005 and $26,000 during the three months ended December 31, 2005. These recoveries primarily represented
reductions in estimated employee termination costs and recoveries in estimates relating to accruals for abandoned facilities. The actions relating to employer workforce reduction were substantially complete as of June 30, 2005. A reconciliation
of the beginning and ending liability is shown below:



|                                       |  |                     |     |   |                |   |       |       |  |       |   |  |   |       |  
|-------------------------------------- |  | ------------------- | --- | - | -------------- | - | ----- | ----- |  | ----- | - |  | - | ----- | -
|Fiscal 2004 Restructuring Plan         |  | Work forcereduction |     |   | Facility costs |   |       | Other |  | Total |  
|Balance as of June 30, 2005            |  | $                   | 167 |   |                | $ | 1,878 |       |  | $     |  |  | $ | 2,045 |  
|Revisions to prior accruals            |  |                     | (65 | ) |                |   | (264  | )     |  |       |  |  |   | (329  | )
|Cash payments                          |  |                     |    |   |                |   | (372  | )     |  |       |  |  |   | (372  | )
|Foreign exchange and other adjustments |  |                     |    |   |                |   | 105   |       |  |       |  |  |   | 105   |  
|                                       |  |                     |     |   |                |   |       |       |  |       |   |  |   |       |  
|Balance as of December 31, 2005        |  | $                   | 102 |   |                | $ | 1,347 |       |  | $     |  |  | $ | 1,449 |  
|                                       |  |                     |     |   |                |   |       |       |  |       |   |  |   |       |  



Impairment of capital assets



During the three months ended September 30, 2005, an
impairment charge of $2.0 million was recorded against capital assets that were written down to fair value, various leasehold improvements at vacated premises and redundant office equipment. During the three months ended December 31, 2005, an
impairment charge of $1.7 million was recorded against capital assets to write down to fair value, various leasehold improvements at vacated premises and redundant office equipment. Fair value was determined based on our estimates of disposal
proceeds, net of anticipated costs to sell.



Income taxes



We operate in various tax jurisdictions, and
accordingly, our income is subject to varying rates of tax. Losses incurred in one jurisdiction cannot be used to offset income taxes payable in another. Our ability to use these income tax losses and future income tax deductions is dependent upon
the profitability of our operations in



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the tax jurisdictions in which such losses or deductions arise. As of December 31, 2005 and June 30, 2005, we had total net deferred tax assets of
$49.3 million and $46.8 million and total deferred tax liabilities of $35.3 million and $39.4 million, respectively.



The principal component of the total net deferred tax assets are temporary differences associated with net operating loss carry forwards. The deferred tax
assets as of December 31, 2005 arise primarily from available income tax losses and future income tax deductions. We provide a valuation allowance if sufficient uncertainty exists regarding the realization of certain deferred tax assets. Based
on the reversal of deferred income tax liabilities, projected future taxable income, the character of the income tax assets and tax planning strategies, a valuation allowance of $140.6 million and $127.6 million was required as of December 31,
2005 and June 30, 2005, respectively. The majority of the valuation allowance relates to uncertainties regarding the utilization of foreign pre-acquisition losses of Gauss and IXOS. We continue to evaluate our taxable position quarterly and
consider factors by taxing jurisdiction such as estimated taxable income, the history of losses for tax purposes and our growth, among others. The principal component of the total deferred tax liabilities arises from acquired intangible assets
purchased on the Gauss and IXOS transactions.



During the three
months ended December 31, 2005, we recorded a tax expense of $2.7 million compared to a tax expense of $4.4 million during the three months ended December 31, 2004. This decrease in tax expense corresponds to the decrease in income between
the periods.



Liquidity and Capital Resources



Cash and Cash Equivalents



As of December 31, 2005 we held $87.0 million in cash and cash
equivalents, an increase of $7.1 million from June 30, 2005. The increase in cash was attributable to positive operating cash flows for the six months ended December 31, 2005 of $17.3 million and cash provided by financing activities of
$14.8 million, offset by cash used in investing activities of $23.5 million and the impact of foreign exchange rates on non-U.S dollar currencies of $1.5 million.



The following table summarizes the changes in our cash flows over the periods indicated:



|                               |  |                                 |         |                               |      |   |         |          |  |      |        |  |      |         |   |          |   |         |   |  |   |        |  
|------------------------------ |  | ------------------------------- | ------- | ----------------------------- | ---- | - | ------- | -------- |  | ---- | ------ |  | ---- | ------- | - | -------- | - | ------- | - |  | - | ------ | -
|                               |  | Three months ended December 31, |         | Six months ended December 31, |     
|(in thousands)                 |  | 2005                            |         |                               | 2004 |   |         | Change $ |  | 2005 |        |  | 2004 |         |   | Change $ |  
|Net cash provided by (used in) |  |                                 |         |                               |      |   |         |          |  |      |        |  |      |         |   |          |   |         |   |  |   |        |  
|Operating activities           |  | $                               | 16,348  |                               |      | $ | 11,710  |          |  | $    | 4,638  |  | $    | 16,672  |   |          | $ | 16,826  |   |  | $ | (154   | )
|Investing activities           |  | $                               | (10,182 | )                             |      | $ | (11,389 | )        |  | $    | 1,207  |  | $    | (23,538 | ) |          | $ | (50,040 | ) |  | $ | 26,502 |  
|Financing activities           |  | $                               | 15,214  |                               |      | $ | (15,107 | )        |  | $    | 30,321 |  | $    | 15,457  |   |          | $ | (27,285 | ) |  | $ | 42,742 |  



Net Cash Provided by Operating
Activities



Net cash provided by operating activities
was $16.3 million and $16.7 million for the three and six months ended December 31, 2005 respectively, compared to $11.7 million and $16.8 million in the corresponding periods in the prior fiscal year. These increases are due to stronger
accounts receivable collections, and changes in accounts payable and accrued liabilities, partially offset by reduced net income.



Net Cash Used in Investing Activities



Net cash used in investing activities was $10.2 million and $23.5 million for the three and six months ended December 31, 2005 respectively compared
to $11.4 million and $50.0 million in the corresponding periods in the prior fiscal year.



Net cash used in investing activities for the three months ended December 31, 2005, related primarily to $8.1 million of purchases of capital assets and $2.1 million relating to acquisitions and acquisition
related activities and costs. During the corresponding period in the prior fiscal year, we spent $4.3 million on capital



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assets and $7.1 million relating to acquisitions and acquisition related activities and costs. The increased spending on capital assets in the three months
ended December 31, 2005 reflects the impact of the construction of the Waterloo building. The decreased spending on acquisition costs in the current quarter relates to lower levels of purchases of Gauss and IXOS shares and lower usage of
acquisition related accruals.



Net cash used in investing
activities for the six months ended December 31, 2005, related primarily to $14.1 million relating to purchases of capital assets and $9.4 million relating to acquisitions and acquisition related activities and costs. During the corresponding
period in the prior fiscal year, we spent $7.7 million on capital assets and $42.3 million relating to acquisitions and acquisition related activities and costs. The decreased spending on acquisition costs in the current period is primarily a result
of no acquisitions having been done in the six months ended December 31, 2005 compared to two acquisitions having been completed in the corresponding period in the prior fiscal year, fewer purchases of IXOS and Gauss shares and lower usage of
acquisition related accruals.



Net Cash Provided by (Used in) Financing
Activities



Net cash provided by financing activities
was $15.2 million and $15.5 million in the three and six months ended December 31, 2005 compared to net cash used in financing activities of $15.1 million and $27.3 million in the three and six months ended December 31, 2004. The
significant increase of cash provided by financing activities in the three months ended December 31, 2005 was primarily due to the fact that we secured a mortgage on our Waterloo property and we did not re-purchase any of our Common Shares in
fiscal 2006.



Financing of $15.0 million CDN was provided by
way of a mortgage provided by a Canadian chartered bank secured by a lien on the newly constructed building in Waterloo. The mortgage has a fixed term of five years, maturing on January 1, 2011. Interest is to be paid monthly at a fixed rate of
5.25% per annum. Principal and interest are payable in monthly installments of CDN $101,000 with a final lump sum principal payment of CDN $12.6 million due on maturity. The mortgage may not be prepaid in whole or in part at anytime prior to
the maturity date.



As of December 31, 2005, the carrying
value of the building was $15.9 million and that of the mortgage was $12.9 million.



As of December 31, 2005, we had a CDN $10.0 million demand line of credit with a Canadian chartered bank under which no borrowings were outstanding at December 31, 2005 and 2004. On February 2, 2006 we
replaced this line of credit with a new demand operating facility of CDN $40.0 million. Borrowings under this facility bear interest at varying rates depending upon the nature of the borrowing. We have pledged certain assets as collateral for this
demand operating facility. There are no stand-by fees for this facility.



We financed our operations and capital expenditures during the three and six months ended December 31, 2005 primarily with cash flows generated from operations. We anticipate that our cash and cash equivalents
and available credit facilities will be sufficient to fund our anticipated cash requirements for working capital, contractual commitments and capital expenditures for at least the next 12 months.



Commitments and contingencies



We have entered into the following contractual obligations
with minimum annual payments as follows:



|                              |  |                        |         |                 |   |           |  |           |        |                  |   |        |  |   |       
|----------------------------- |  | ---------------------- | ------- | --------------- | - | --------- |  | --------- | ------ | ---------------- | - | ------ |  | - | ------
|                              |  | Payments due by period
|                              |  | Total                  |         | Less than1 year |   | 13 years |  | 35 years |        | More than5 years
|Long-term debt obligations    |  | $                      | 16,029  |                 | $ | 434       |  | $         | 2,081  |                  | $ | 2,081  |  | $ | 11,433
|Operating lease obligations * |  |                        | 99,857  |                 |   | 8,565     |  |           | 36,584 |                  |   | 32,316 |  |   | 22,392
|Purchase obligations          |  |                        | 2,863   |                 |   | 948       |  |           | 1,590  |                  |   | 299    |  |   | 26    
|                              |  |                        |         |                 |   |           |  |           |        |                  |   |        |  |   |       
|                              |  | $                      | 118,749 |                 | $ | 9,947     |  | $         | 40,255 |                  | $ | 34,696 |  | $ | 33,851
|                              |  |                        |         |                 |   |           |  |           |        |                  |   |        |  |   |       



* Net of $7.5 million
of non-cancelable sublease income to be received by Open Text from properties which we have sub-leased to other parties.



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The long-term debt obligations comprise of interest and principal payments on the mortgage. See Note 4
Long-term Debt.



In July 2004, we entered into a
commitment to construct a building in Waterloo, Ontario with a view of consolidating our existing Waterloo facilities. The construction of the building was completed in October 2005 and we have since commenced the use of the building. As of
December 31, 2005, a total of $16.0 million has been capitalized on this project. We do not expect to make any significant additional payments in connection with this facility. We have financed this investment through our working capital.



Domination agreements



IXOS domination agreements



On December 1, 2004, we announced thatthrough our wholly-owned
subsidiary, 2016091 Ontario, Inc. (Ontario I)it had entered into a domination and profit transfer agreement (the Domination Agreement) with IXOS. The Domination Agreement has been registered in the commercial register
at the local court of Munich in August 2005 and it has therefore come into force. Under the terms of the Domination Agreement, Ontario I has acquired authority to issue directives to the management of IXOS. Also in the Domination Agreement, Ontario
I offers to purchase the remaining Common Shares of IXOS for a cash purchase price of Euro 9.38 per share (Purchase Price) which was the weighted average fair value of the IXOS Common Shares as of December 1, 2004. Pursuant to
the Domination Agreement, Ontario I also guarantees a payment by IXOS to the minority shareholders of IXOS of an annual compensation of Euro 0.42 per share (Annual Compensation). The shareholders of IXOS at the meeting on
January 14, 2005 confirmed that IXOS had entered into the Domination Agreement. At the same meeting of the shareholders of IXOS, the shareholders authorized the management board of IXOS to apply for the withdrawal of the listing of the IXOS
shares at the Frankfurt/Germany stock exchange (Delisting). The Delisting was granted by the Frankfurt Stock Exchange on April 12, 2005 and was effective on July 12, 2005.



Certain IXOS shareholders had filed complaints against the approval of the
Domination Agreement and also against the authorization to delist. As a result of an out of court settlement, the complaints have been withdrawn and or settled. The out of court settlement was ratified by the court on August 9, 2005. The
Domination Agreement was registered on August 23, 2005, and thereby became effective. As a result of the Domination Agreement coming into force, we commenced, in the quarter ended September 30, 2005, accruing the amount payable to minority
shareholders of IXOS on account of Annual Compensation. This amount is accrued as and has been accounted for as a guaranteed dividend, payable to the minority shareholders, and is recorded as a charge to minority interest in the periods.
Based on the number of minority IXOS shareholders as of December 31, 2005 the estimated amount of Annual Compensation would approximate $523,000 per year. Because we are unable to predict, with reasonable accuracy, the number of IXOS minority
shareholders that will be on record in future periods, we are unable to predict the amount of Annual Compensation that will be payable in future years.



Gauss domination agreements



Pursuant to a Domination Agreement dated November 4, 2003 between Open Text -through our wholly owned subsidiary 2016090 Ontario Inc. (Ontario
II)and Gauss, Ontario II has offered to purchase the remaining outstanding shares of Gauss at a price of Euro 1.06 per Gauss share. The original acceptance period was two months after the signing of the Domination Agreement. As a
result of certain shareholders having filed for a special court procedure to reassess the amount of the Annual Compensation that must be payable to minority shareholders as a result of the Domination Agreement, the acceptance period has been
extended pursuant to German law until the end of such proceedings. In addition, in April 2004 Gauss announced that effective July 1, 2004 the shares of Gauss would cease to be listed on a stock exchange. In connection with this delisting, on
July 2, 2004, a second offer by Ontario II to purchase the remaining outstanding shares of Gauss at a price of Euro 1.06 per Gauss share, commenced. This acceptance period has also been extended pursuant to



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German law until the end of proceedings to reassess the amount of the consideration offered under German law in the delisting process. The shareholders
resolution on the Domination Agreement and on the delisting was subject to a court procedure in which certain shareholders of Gauss claimed that the resolution by which the shareholders of Gauss approved of the entering into the Domination Agreement
and the authorization to the management board of Gauss to file for a delisting are null and void. While the Court of First Instance rendered a judgment in favor of the plaintiffs, Gauss, as defendant, had appealed and believed that the Court of
Second Instance would overturn the judgment and rule in favor of Gauss. As a result of an out of court settlement, the complaints have been withdrawn. The settlement provides inter alia that an amount of Euro 0.05 per share per annum will be
payable as compensation to the other shareholders of Gauss under certain circumstances, but only after registration of the Squeeze Out as defined hereafter.



On August 25, 2005, at the shareholders meeting of Gauss, upon a motion of Ontario II, it was decided to transfer the shares of the minority
shareholders, which at the time of the shareholders meeting held less than 5% of the shares of Gauss, to Ontario II (Squeeze Out). The resolutions will become effective when registered in the commercial register at the local court of
Hamburg. Registration of these resolutions is currently pending. Certain shareholders of Gauss have filed suits to oppose all or some of the resolutions of the shareholders meeting of August 25, 2005. It is expected that the court of Hamburg
will, within the next few months, decide on the registration of the resolutions.



We believe that the registration of these resolutions is a reasonable certainty; accordingly, in pursuance of these resolutions the Company has recorded its best estimate of the amount payable to the minority
shareholders of Gauss. As of December 31, 2005, we have accrued $60,000 for such payments and expect that a further amount of approximately $15,000 will be payable to these shareholders by the end of the current fiscal quarter. We are not
currently able to determine the final amount payable and we are unable to predict the date on which the resolutions will be registered at the local court.



Guarantees and indemnifications



We have entered into license agreements with customers that include limited intellectual property indemnification clauses. We generally agree to indemnify
our customers against legal claims that our software products infringe certain third party intellectual property rights. In the event of such a claim, we are generally obligated to defend our customers against the claim and either to settle the
claim at our expense or pay damages that our customers are legally required to pay to the third-party claimant. These intellectual property infringement indemnification clauses generally are subject to limits based upon the amount of the license
sale. We have not made any significant indemnification payments in relation to these indemnification clauses.



In connection with certain facility leases, we have guaranteed payments on behalf of our subsidiaries. This has been done through unsecured bank
guarantees obtained from local banks. Additionally, our current end-user license agreement contains a limited software warranty.



We have not recorded a liability for guarantees, indemnities or warranties described above in the accompanying consolidated balance sheet since the
maximum amount of potential future payments under such guarantees, indemnities and warranties is not determinable, other than as described above.



Litigation



We are subject from time to time to legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. While the
outcome of these proceedings and claims cannot be predicted with certainty, our management does not believe that the outcome of any of these legal matters will have a material adverse effect on our consolidated financial position, results of
operations or cash flows.



Off-Balance Sheet Arrangements



We do not enter into off-balance sheet financing as a
matter of practice except for the use of operating leases for office space, and vehicles. In accordance with U.S. GAAP, neither the lease liability nor the underlying asset is carried on the balance sheet, as the terms of the leases do not meet the
thresholds for capitalization.



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|Item  3. | Quantitative and Qualitative Disclosures about Market Risk
|-------- | ----------------------------------------------------------



We are primarily exposed to market risks associated with fluctuations in interest rates and foreign currency exchange rates.



Interest rate risk



Our exposure to interest rate fluctuations relates to our investment portfolio and our mortgage. We primarily invest our
cash in short-term high-quality securities with reputable financial institutions. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without
significantly increasing risk. We do not use derivative financial instruments in our investment portfolio. The interest income from our investments is subject to interest rate fluctuations, which we believe would not have a material impact on our
financial position.



All highly liquid investments with a
maturity of less than three months at the date of purchase are considered to be cash equivalents. We do not have investments with maturities of three months or greater. Some of the investments that we have invested in may be subject to market risk.
This means that a change in the prevailing interest rates may cause the principal amount of the investment to fluctuate. The impact on net interest income of a 100 basis point adverse change in interest rates for the quarter ended December 31,
2005 would have been a decrease of approximately $75,000.



Foreign currency
risk



Businesses generally conduct transactions in their
local currency which is also known as their functional currency. Additionally, balances that are denominated in a currency other than the entitys reporting currency must be adjusted to reflect changes in foreign exchange rates during the
reporting period.



As we operate internationally, a substantial
portion of our business is also conducted in currencies other than the U.S. dollar. Accordingly, our results are affected, and may be affected in the future, by exchange rate fluctuations of the U.S. dollar relative to the Canadian dollar, to
various European currencies, and, to a lesser extent, other foreign currencies. Revenues and expenses generated in foreign currencies are translated at exchange rates during the month in which the transaction occurs. We cannot predict the effect of
foreign exchange rate fluctuations in the future; however, if significant foreign exchange losses are experienced, they could have a material adverse effect on our results of operations. Moreover, in any given quarter, exchange rates can impact
revenue adversely.



We have net monetary asset and liability
balances in foreign currencies other than the U.S. Dollar, including primarily the Canadian Dollar (CDN), the Pound Sterling (GBP), the Japanese Yen (JPY), the Swiss Franc (CHF), the Danish
Kroner (DKK), and the Euro (EUR). Our cash and cash equivalents are primarily held in U.S. Dollars. We do not currently use financial instruments to hedge operating expenses in foreign currencies.



The following tables provide a sensitivity analysis on our exposure to
changes in foreign exchange rates. For foreign currencies where we engage in material transactions, the following table quantifies the absolute impact that a 10% increase/decrease against the U.S. dollar would have had on our total revenues,
operating expenses, and net income for the three months ended December 31, 2005. This analysis is presented in both functional and transactional currency. Functional currency represents the currency of measurement for each of an entitys
domestic and foreign operations. Transactional currency represents the currency in which the underlying transactions take place in. The impact of changes in foreign exchange rates for those foreign currencies not presented in these tables is not
material.



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|                |  |                                                   |       |                   |   |           |  |   |      
|--------------- |  | ------------------------------------------------- | ----- | ----------------- | - | --------- |  | - | -----
|                |  | 10% Change inFunctional Currency(in thousands)   
|                |  | TotalRevenue                                      |       | OperatingExpenses |   | NetIncome
|Euro            |  | $                                                 | 3,358 |                   | $ | 2,286     |  | $ | 1,072
|British Pound   |  |                                                   | 920   |                   |   | 626       |  |   | 294  
|Canadian Dollar |  |                                                   | 653   |                   |   | 1,642     |  |   | 990  
|Swiss Franc     |  |                                                   | 696   |                   |   | 368       |  |   | 328  
|                | 
|                |  | 10% Change inTransactional Currency(in thousands)
|                |  | TotalRevenue                                      |       | OperatingExpenses |   | NetIncome
|Euro            |  | $                                                 | 3,368 |                   | $ | 2,751     |  | $ | 617  
|British Pound   |  |                                                   | 895   |                   |   | 613       |  |   | 282  
|Canadian Dollar |  |                                                   | 481   |                   |   | 1,617     |  |   | 1,136
|Swiss Franc     |  |                                                   | 618   |                   |   | 367       |  |   | 251  



|Item  4. | Controls and Procedures
|-------- | -----------------------



Evaluation of disclosure controls and procedures



As of December 31, 2005, our management, with the participation of the Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rule 13a-15 (e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of
December 31, 2005, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that material information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.



Changes in internal control over financial reporting



Based on the evaluation completed by our management, in which our Chief Executive Officer and Chief Financial Officer participated, our management has concluded that there were no changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------



See Note 14 to Condensed Consolidated Financial Statements.



|Item 1A. | Risk Factors
|-------- | ------------



Risk Factors



Certain
statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are made pursuant to the safe harbor provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, including those set forth in the following
cautionary statements and elsewhere in this Quarterly Report on Form 10-Q, that may cause the actual results, performance or achievements or developments in our industry to differ materially from the anticipated results, performance, achievements or
developments expressed or implied by such forward-looking statements. The following factors, as well as all of the other information set forth herein, should be considered carefully in evaluating us and our business. If any of the following risks
were to occur, our business, financial condition and results of operations would likely suffer. In that event, the trading price of our Common Shares would likely decline. Such risks are further discussed from time to time in our filings filed from
time to time with the SEC.



If we do not continue to develop new
technologically advanced products, future revenues will be negatively affected



Our success depends upon our ability to design, develop, test, market, license and support new software products and enhancements of current products on a timely basis in response to both competitive products and
evolving demands of the marketplace. In addition, new software products and enhancements must remain compatible with standard platforms and file formats. We continue to enhance the capability of our Livelink software to enable users to form
workgroups and collaborate on intranets and the Internet. We increasingly must integrate software licensed or acquired from third parties with our own software to create or improve our products. These products are important to the success of our
strategy, and we may not be successful in developing and marketing these and other new software products and enhancements. If we are unable to successfully integrate the technologies licensed or acquired from third parties, to develop new software
products and enhancements to existing products, or to complete products currently under development, or if such integrated or new products or enhancements do not achieve market acceptance, our operating results will materially suffer. In addition,
if new industry standards emerge that we do not anticipate or adapt to, our software products could be rendered obsolete and our business would be materially harmed.



If our products and services do not gain market acceptance, we may not be able to increase our revenues



We intend to pursue our strategy of growing the capabilities of our ECM
software offerings through the in-house research and development of new product offerings. We continue to enhance Livelink and many of our optional components to continue to set the standard for ECM capabilities, in response to customer requests.
The primary market for our software and services is rapidly evolving. As is typical in the case of a rapidly evolving industry, demand for and market acceptance of products and services that have been released recently or that are planned for future
release are subject to a high level of uncertainty. If the markets for our products and services fail to develop, develop more slowly than expected or become saturated with competitors, our business will suffer. We may be unable to successfully
market our current products and services, develop new software products, services and enhancements to current products and services, complete customer installations on a timely basis, or complete products and services currently under development. If
our products and services or enhancements do not achieve and sustain market acceptance, our business and operating results will be materially harmed.



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Current and future competitors could have a significant impact on our ability to generate future revenue and
profits



The markets for our products are intensely
competitive, subject to rapid technological change and are evolving rapidly. We expect competition to increase and intensify in the future as the markets for our products continue to develop and as additional companies enter each of our markets.
Numerous releases of products that compete with us are continually occurring and can be expected to continue in the near future. We may not be able to compete effectively with current and future competitors. If competitors were to engage in
aggressive pricing policies with respect to competing products, or significant price competition was to otherwise develop, we would likely be forced to lower our prices. This could result in lower revenues, reduced margins, loss of customers, or
loss of market share for us.



Acquisitions, investments, joint ventures
and other business initiatives may negatively affect our operating results



We continue to seek out opportunities to acquire or invest in businesses, products and technologies that expand, complement or are otherwise related to our current business. We also consider from time to time,
opportunities to engage in joint ventures or other business collaborations with third parties to address particular market segments. These activities create risks such as the need to integrate and manage the businesses and products acquired with our
own business and products, additional demands on our management, resources, systems, procedures and controls, disruption of our ongoing business, and diversion of managements attention from other business concerns. Moreover, these transactions
could involve substantial investment of funds and/or technology transfers and the acquisition or disposition of product lines or businesses. Also, such activities could result in one-time charges and expenses and have the potential to either dilute
the interests of existing shareholders or result in the assumption of debt. Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and other resources of our company. Any such
activity may not be successful in generating revenue, income or other returns to us, and the financial or other resources committed to such activities will not be available to us for other purposes. Our inability to address these risks could
negatively affect our operating results.



Businesses we acquire may have
disclosure controls and procedures and internal controls over financial reporting that are weaker than or otherwise not in conformity with ours



We have a history of acquiring complementary businesses with varying levels of organizational size and complexity. Upon consummating an acquisition, we
seek to implement our disclosure controls and procedures and internal controls over financial reporting at the acquired company as promptly as possible. Depending upon the size and complexity of the business acquired, the implementation of our
disclosure controls and procedures and internal controls over financial reporting at an acquired company may be a lengthy process. Typically we conduct due diligence prior to consummating an acquisition, however, our integration efforts may
periodically expose deficiencies in the disclosure controls and procedures and internal controls over financial reporting of an acquired company. We expect that the process involved in completing the integration of our own disclosure controls and
procedures and internal controls over financial reporting at an acquired business will sufficiently correct any identified deficiencies. However, if such deficiencies exist, we may not be in a position to comply with our periodic reporting
requirements and our business and financial condition may be materially harmed.



The length of our sales cycle can fluctuate significantly which could result in significant fluctuations in license revenue being recognized from quarter to quarter



Because the decision by a customer to purchase our products often involves
relatively large-scale implementation across our customers network or networks, licenses of these products may entail a significant commitment of resources by prospective customers, accompanied by the attendant risks and delays frequently
associated with significant expenditures and lengthy sales cycle and implementation procedures. Given the significant investment and commitment of resources required by an organization in order to implement our



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software, our sales cycle tends to take considerable time to complete. Over the past fiscal year, we have experienced a lengthening of our sales cycle as
customers include more personnel in the decision-making process and focus on more enterprise-wide licensing deals. In an economic environment of reduced information technology spending, it can take several months, or even quarters, for sales
opportunities to translate into revenue. If a customers decision to license our software is delayed and the installation of our products in one or more customers takes longer than originally anticipated, the date on which revenue from these
licenses could be recognized would be delayed. Such delays could cause our revenues to be lower than expected in a particular period.



Our international operations expose us to business risks that could cause our operating results to suffer



We intend to continue to make efforts to increase our international
operations and anticipate that international sales will continue to account for a significant portion of our revenue. We have increased our presence in the European market, especially since our acquisition of IXOS. These international operations are
subject to certain risks and costs, including the difficulty and expense of administering business and compliance abroad, compliance with both domestic and foreign laws, compliance with domestic and international import and export laws and
regulations, costs related to localizing products for foreign markets, and costs related to translating and distributing products in a timely manner. International operations also tend to expose us to a longer sales and collection cycle, as well as
potential losses arising from currency fluctuations, and regulatory limitations regarding the repatriation of earnings. Significant international sales may also expose us to greater risk from political and economic instability, unexpected changes in
Canadian, United States or other governmental policies concerning import and export of goods and technology, regulatory requirements, tariffs and other trade barriers. In addition, international earnings may be subject to taxation by more than one
jurisdiction, which could also materially adversely affect our effective tax rate. Also, international expansion may be more difficult, time consuming, and costly. As a result, if revenues from international operations do not offset the expenses of
establishing and maintaining foreign operations, our operating results will suffer. Moreover, in any given quarter, foreign exchange rates can impact revenue adversely.



Our expenses may not match anticipated revenues



We incur operating expenses based upon anticipated revenue trends. Since a high percentage of these expenses are relatively
fixed, a delay in recognizing revenue from license transactions could cause significant variations in operating results from quarter to quarter and could result in operating losses. If these expenses are not subsequently followed by revenues, our
business, financial condition, or results of operations could be materially and adversely affected. In addition, in July 2005, we announced an initiative to restructure our operations with the intention of streamlining our operations. We will
continue to evaluate our operations, and may propose future restructuring actions as a result of changes in the marketplace, including the exit from less profitable operations or services no longer demanded by our customers. Any failure to
successfully execute these initiatives, including any delay in effecting these initiatives, may have a material adverse impact on our results of operations.



Our products may contain defects that could harm our reputation, be costly to correct, delay revenues, and expose us to litigation



Our products are highly complex and sophisticated and, from time to time, may
contain design defects or software errors that are difficult to detect and correct. Errors may be found in new software products or improvements to existing products after commencement of commercial shipments, and, if discovered, we may not be able
to successfully correct such errors in a timely manner, or at all. In addition, despite the tests we carry out on all our products, we may not be able to fully simulate the environment in which our products will operate and, as a result, we may be
unable to adequately detect design defects or software errors inherent in our products and which only become apparent when the products are installed in an end-users network. The occurrence of errors and failures in our products could result
in loss of, or delay in market acceptance of our products, and



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alleviating such errors and failures in our products could require us to make significant expenditure of capital and other resources. The harm to our
reputation resulting from product errors and failures would be damaging. We regularly provide a warranty with our products and the financial impact of these warranty obligations may be significant in the future. Our agreements with our strategic
partners and end-users typically contain provisions designed to limit our exposure to claims, such as exclusions of all implied warranties and limitations on the availability of consequential or incidental damages. However, such provisions may not
effectively protect us against claims and related liabilities and costs. Although we maintain errors and omissions insurance coverage and comprehensive liability insurance coverage, such coverage may not be adequate and all claims may not be
covered. Accordingly, any such claim could negatively affect our financial condition.



Other companies may claim that we infringe their intellectual property, which could result in significant costs to defend and if we are not successful it could have a significant impact on our ability to generate future revenue and
profits



Although we do not believe that our products
infringe on the rights of third-parties, third-parties may assert infringement claims against us in the future, and any such assertions may result in costly litigation or require us to obtain a license for the intellectual property rights of
third-parties. Such licenses may not be available on reasonable terms, or at all. In particular, as software patents become more prevalent, it is possible that certain parties will claim that our products violate their patents. Such claims could be
disruptive to our ability to generate revenue and may result in significantly increased costs as we attempt to license the patents or rework our products to ensure that they are not in violation of the claimants patents or dispute the claims.
Any of the foregoing could have a significant impact on our ability to generate future revenue and profits.



The loss of licenses to use third party software or the lack of support or enhancement of such software could adversely affect our business



We currently depend on certain third-party software, the lack of availability of which could result in increased costs of,
or delays in, licenses of our products. For a limited number of product modules, we rely on certain software that we license from third-parties, including software that is integrated with internally developed software and which is used in our
products to perform key functions. These third-party software licenses may not continue to be available to us on commercially reasonable terms, and the related software may not continue to be appropriately supported, maintained, or enhanced by the
licensors. The loss of license to use, or the inability of licensors to support, maintain, and enhance any of such software, could result in increased costs, delays, or reductions in product shipments until equivalent software is developed or
licensed, if at all, and integrated with internally developed software, and could adversely affect our business.



A reduction in the number or sales efforts by distributors could materially impact our revenues



A significant portion of our revenue is derived from the license of our
products through third parties. Our success will depend, in part, upon our ability to maintain access to existing channels of distribution and to gain access to new channels if and when they develop. We may not be able to retain a sufficient number
of our existing or future distributors. Distributors may also give higher priority to the sale of products other than ours (which could include products of competitors) or may not devote sufficient resources to marketing our products. The
performance of third party distributors is largely outside of our control and we are unable to predict the extent to which these distributors will be successful in marketing and licensing our products. A reduction in sales efforts, a decline in the
number of distributors, or the discontinuance of sales of our products by our distributors could lead to reduced revenue.



Our success depends on our relationships with strategic partners



We rely on close cooperation with partners for product development, optimization, and sales. If any of our partners should decide for any reason to
terminate or scale back their cooperative efforts with us, our business, operating results, and financial condition may be adversely affected.



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We must continue to manage our growth or our operating results could be adversely affected



Over the past several years, we have experienced growth in revenues,
operating expenses, and product distribution channels. In addition, our markets have continued to evolve at a rapid pace. Moreover, we have grown significantly through acquisitions in the past and continue to review acquisition opportunities as a
means of increasing the size and scope of our business. Finally, we have been subject to increased regulation, including various NASDAQ rules and Section 404 of the Sarbanes-Oxley Act of 2002 (Sarbanes), which has necessitated a
significant use of our resources to comply with the increased level of regulation on a timely basis. Our growth, coupled with the rapid evolution of our markets and the new heightened regulations, have placed, and are likely to continue to place,
significant strains on our administrative and operational resources and increased demands on our internal systems, procedures and controls. Our administrative infrastructure, systems, procedures and controls may not adequately support our operations
or compliance with such regulations, and our management may not be able to achieve the rapid, effective execution of the product and business initiatives necessary to successfully penetrate the markets for our products and services and to
successfully integrate any business acquisitions in the future to comply with all regulatory rules. If we are unable to manage growth effectively, or comply with such new regulations, our operating results will likely suffer and we may not be in a
position to comply with our periodic reporting requirements or listing standards, which could result in our delisting from the NASDAQ stock market.



Recently enacted and proposed changes in securities laws and related regulations could result in increased costs to us



Recently enacted and proposed changes in the laws and regulations affecting
public companies, including the provisions of Sarbanes and recent rules enacted and proposed by the SEC and NASDAQ, have resulted in increased costs to us as we respond to the new requirements. In particular, complying with the internal control over
financial reporting requirements of Section 404 of Sarbanes is resulting in increased internal costs and higher fees from our independent accounting firm and external consultants. The new rules also could make it more difficult for us to obtain
certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage and/or incur substantially higher costs to obtain the same or similar coverage. The impact of these
events could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, on committees of our Board of Directors, or as executive officers.



Our products rely on the stability of various infrastructure software that, if not
stable, could negatively impact the effectiveness of our products, resulting in harm to our reputation and business



Our developments of Internet and Intranet applications depend and will depend on the stability, functionality and scalability of the infrastructure
software of the underlying intranet, such as that of Sun Microsystems Inc., Hewlett Packard Company, Oracle Corp., Microsoft Inc. and others. If weaknesses in such infrastructure software exist, we may not be able to correct or compensate for such
weaknesses. If we are unable to address weaknesses resulting from problems in the infrastructure software such that our products do not meet customer needs or expectations, our business and reputation may be significantly harmed.



Our quarterly revenues and operating results are likely to fluctuate which could
materially impact the price of our Common Shares



We
experience, and we are likely to continue to experience, significant fluctuations in quarterly revenues and operating results caused by many factors, including changes in the demand for our products, the introduction or enhancement of products by us
and our competitors, market acceptance of enhancements or products, delays in the introduction of products or enhancements by us or our competitors, customer order deferrals in anticipation of upgrades and new products, lengthening sales cycles,
changes in our pricing policies or those of our competitors, delays involved in installing products with customers, the mix of distribution channels through which products are licensed, the mix of products and services sold, the timing of
restructuring charges taken in connection with acquisitions completed by us, the mix of international and North American revenues, foreign currency exchange rates, acquisitions and general economic conditions.



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A cancellation or deferral of even a small number of licenses or delays in installations of our products
could have a material adverse effect on our results of operations in any particular quarter. Because of the impact of the timing of product introductions and the rapid evolution of our business and the markets we serve, we cannot predict whether
seasonal patterns experienced in the past will continue. For these reasons, reliance should not be placed upon period-to-period comparisons of our financial results to forecast future performance. It is likely that our quarterly revenue and
operating results could always vary significantly and if such variances are significant, the market price of our Common Shares could materially decline.



Failure to protect our intellectual property could harm our ability to compete effectively



We are highly dependent on our ability to protect our proprietary technology. Our efforts to protect our intellectual
property rights may not be successful. We rely on a combination of copyright, patent, trademark and trade secret laws, non-disclosure agreements and other contractual provisions to establish and maintain our proprietary rights. Although we hold
certain patents and have other patents pending, we generally have not sought patent protection for our products. While U.S. and Canadian copyright laws, international conventions and international treaties may provide meaningful protection against
unauthorized duplication of software, the laws of some foreign jurisdictions may not protect proprietary rights to the same extent as the laws of Canada or the United States. Software piracy has been, and can be expected to be, a persistent problem
for the software industry. Enforcement of our intellectual property rights may be difficult, particularly in some nations outside of the United States and Canada in which we seek to market our products. Despite the precautions we take, it may be
possible for unauthorized third parties, including competitors, to copy certain portions of our products or to reverse engineer or to obtain and use information that we regard as proprietary.



If we are not able to attract and retain top employees, our ability to compete may be
harmed



Our performance is substantially dependent on
the performance of our executive officers and key employees. The loss of the services of any of our executive officers or other key employees could significantly harm our business. We do not maintain key person life insurance policies on
any of our employees. Our success is also highly dependent on our continuing ability to identify, hire, train, retain and motivate highly qualified management, technical, sales and marketing personnel. Specifically, the recruitment of top research
developers, along with experienced salespeople, remains critical to our success. Competition for such personnel is intense, and we may not be able to attract, integrate or retain highly qualified technical and managerial personnel in the future.



The volatility of our stock price could lead to losses by shareholders



The market price of our Common Shares has been
volatile and subject to wide fluctuations. Such fluctuations in market price may continue in response to quarterly variations in operating results, announcements of technological innovations or new products by us or our competitors, changes in
financial estimates by securities analysts or other events or factors. In addition, financial markets experience significant price and volume fluctuations that particularly affect the market prices of equity securities of many technology companies
and these fluctuations have often been unrelated to the operating performance of such companies or have resulted from the failure of the operating results of such companies to meet market expectations in a particular quarter. Broad market
fluctuations or any failure of our operating results in a particular quarter to meet market expectations may adversely affect the market price of our Common Shares, resulting in losses to shareholders. In the past, following periods of volatility in
the market price of a companys securities, securities class action litigation have often been instituted against such a company. Due to the volatility of our stock price, we could be the target of similar securities litigation in the future.
Such litigation could result in substantial costs and a diversion of managements attention and resources, which would have a material adverse effect on our business and operating results.



We may have exposure to greater than anticipated tax liabilities



We are subject to income taxes and non-income taxes in a variety of
jurisdictions and our tax structure is subject to review by both domestic and foreign taxation authorities. The determination of our worldwide



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provision for income taxes and other tax liabilities requires significant judgment. Although we believe our estimates are reasonable, the ultimate tax
outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.



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



The Company held its annual and special meeting of shareholders on December 15, 2005. The following actions were voted upon at the meeting:



|1. | The following individuals were elected to the Companys Board of Directors, to hold office until the next annual meeting of shareholders. There were 32,929,902 Common Shares
voted in favor of the motion (representing 99.9% of votes) and there were 28,275 votes withheld.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Name

P. Thomas Jenkins

Randy Fowlie

Peter J. Hoult

Brian J. Jackman

Carol Coghlan Gavin

Ken Olisa

Stephen J. Sadler

John Shackleton

Michael Slaunwhite



|2. | The shareholders approved the re-appointment of KPMG LLP as the Companys independent auditors until the next annual meeting of shareholders and that the Companys Board
of Directors be authorized to fix the auditors remuneration. There were 32,716,565 Common Shares voted in favor of the motion (representing 99.4% of votes) and there were 195,056 votes withheld.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | The shareholders approved a special resolution authorizing the continuance of the Company as a corporation under the Canada Business Corporations Act(CBCA).
There were 28,590,976 Common Shares voted in favor of the motion (representing 99.9% of votes) and there were 17,104 voted against the motion. (See exhibit 3.1 under Item 6 Exhibits).
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. | The shareholders approved the adoption of a new general by-law which conforms to the CBCA. There were 28,579,662 Common Shares voted in favor of the motion (representing 99.9% of
votes) and there were 22,804 voted against the motion. (See exhibit 3.2 under Item 6 Exhibits).
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|Item  6. | Exhibits
|-------- | --------



The following exhibits are filed with this Report.



|           |  |                                                                                                                                                                                    
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No |  | Description                                                                                                                                                                        
|           | 
|3.1        |  | Articles of continuance, dated December 29, 2005                                                                                                                                   
|           | 
|3.2        |  | Open Text Corporation by-laws, dated December 15, 2005                                                                                                                             
|           | 
|10.1       |  | Demand operating credit facility agreement between Open Text Corporation and Royal Bank of Canada, dated February 2, 2006                                                          
|           | 
|31.1       |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|           | 
|31.2       |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|           | 
|32.1       |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).        
|           | 
|32.2       |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).        



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SIGNATURES



Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



OPEN TEXT CORPORATIONDate: February 3, 2006

By:

/S/    JOHN SHACKLETONJohn ShackletonPresident and Chief Executive Officer/S/    ALAN HOVERDAlan HoverdChief Financial Officer




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Index to Exhibits



|           |  |                                                                                                                                                                                    
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No |  | Description                                                                                                                                                                        
|           | 
|3.1        |  | Articles of continuance, dated December 29, 2005                                                                                                                                   
|           | 
|3.2        |  | Open Text Corporation by-laws, dated December 15, 2005                                                                                                                             
|           | 
|10.1       |  | Demand operating credit facility agreement between Open Text Corporation and Royal Bank of Canada, dated February 2, 2006                                                          
|           | 
|31.1       |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|           | 
|31.2       |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
|           | 
|32.1       |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).        
|           | 
|32.2       |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).        



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