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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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

For the Quarterly Period Ended June 30, 2006

OR



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

For the transition period from  to

Commission File No. 000-30901



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SUPPORTSOFT, INC.

(Exact Name of Registrant as Specified in Its Charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 94-3282005                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

575 Broadway

Redwood City, CA 94063

(Address of Principal Executive Offices)

(Zip Code)

Registrants
Telephone Number, Including Area Code: (650) 556-9440



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

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



|                         |  |                      |  |                       
|------------------------ |  | -------------------- |  | ----------------------
|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

On July 27, 2006, 44,045,754 shares of the Registrants Common Stock, $0.0001 par value, were outstanding.



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##### Table of Contents

SUPPORTSOFT, INC.

FORM 10-Q

QUARTERLY PERIOD ENDED JUNE 30, 2006

INDEX



|                              |  |                                                                                                           |  |     
|----------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                           |  | Page
|Part I: Financial Information |  |                                                                                                          
|Item 1:                       |  | Financial Statements (Unaudited)                                                                          |  | 3   
|                              |  | Condensed Consolidated Balance Sheets at June 30, 2006 and December 31, 2005                              |  | 3   
|                              |  | Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005 |  | 4   
|                              |  | Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005           |  | 5   
|                              |  | Notes to Condensed Consolidated Financial Statements                                                      |  | 6   
|Item 2:                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                     |  | 15  
|Item 3:                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                |  | 21  
|Item 4:                       |  | Controls and Procedures                                                                                   |  | 21  
|Part II: Other Information    |  | 22                                                                                                       
|Item 1:                       |  | Legal Proceedings                                                                                         |  | 22  
|Item 1A:                      |  | Risk Factors                                                                                              |  | 23  
|Item 4:                       |  | Submission of Matters to a Vote of Security Holders                                                       |  | 33  
|Item 5:                       |  | Other Information                                                                                         |  | 33  
|Item 6:                       |  | Exhibits                                                                                                  |  | 33  
|Signature                     |  | 34                                                                                                       
|Exhibit Index                 |  | 35                                                                                                       



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PART I. FINANCIAL INFORMATION

ITEM 1:
FINANCIAL STATEMENTS

SUPPORTSOFT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                           |  |               |         |   |                   |   |         |  
|------------------------------------------ |  | ------------- | ------- | - | ----------------- | - | ------- | -
|                                           |  | June 30, 2006 |         |   | December 31, 2005 |  
|                                           |  | (Unaudited)   |         |   |                   |  
|ASSETS                                     |  |               |         |   |                   |   |         |  
|Current assets:                            |  |               |         |   |                   |   |         |  
|Cash and cash equivalents                  |  | $             | 24,307  |   |                   | $ | 23,342  |  
|Marketable securities                      |  |               | 98,147  |   |                   |   | 97,321  |  
|Accounts receivable, net                   |  |               | 6,605   |   |                   |   | 17,437  |  
|Prepaids and other current assets          |  |               | 2,535   |   |                   |   | 2,451   |  
|                                           |  |               |         |   |                   |   |         |  
|Total current assets                       |  |               | 131,594 |   |                   |   | 140,551 |  
|Property and equipment, net                |  |               | 1,000   |   |                   |   | 1,211   |  
|Goodwill                                   |  |               | 9,792   |   |                   |   | 9,792   |  
|Intangible assets, net                     |  |               | 3,450   |   |                   |   | 3,994   |  
|Other assets                               |  |               | 509     |   |                   |   | 701     |  
|                                           |  |               |         |   |                   |   |         |  
|Total assets                               |  | $             | 146,345 |   |                   | $ | 156,249 |  
|                                           |  |               |         |   |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY       |  |               |         |   |                   |   |         |  
|Current liabilities:                       |  |               |         |   |                   |   |         |  
|Accounts payable                           |  | $             | 173     |   |                   | $ | 1,030   |  
|Accrued compensation                       |  |               | 1,811   |   |                   |   | 2,669   |  
|Other accrued liabilities                  |  |               | 2,627   |   |                   |   | 2,985   |  
|Deferred revenue, less long-term portion   |  |               | 9,680   |   |                   |   | 14,060  |  
|                                           |  |               |         |   |                   |   |         |  
|Total current liabilities                  |  |               | 14,291  |   |                   |   | 20,744  |  
|Deferred revenuelong-term portion         |  |               | 1,237   |   |                   |   | 969     |  
|Other long-term liabilities                |  |               | 172     |   |                   |   | 142     |  
|Contingencies                              |  |               |         |   |                   |   |         |  
|Stockholders equity:                      |  |               |         |   |                   |   |         |  
|Common stock                               |  |               | 4       |   |                   |   | 4       |  
|Additional paid-in capital                 |  |               | 198,858 |   |                   |   | 195,990 |  
|Accumulated other comprehensive loss       |  |               | (794    | ) |                   |   | (645    | )
|Accumulated deficit                        |  |               | (67,423 | ) |                   |   | (60,955 | )
|                                           |  |               |         |   |                   |   |         |  
|Total stockholders equity                 |  |               | 130,645 |   |                   |   | 134,394 |  
|                                           |  |               |         |   |                   |   |         |  
|Total liabilities and stockholders equity |  | $             | 146,345 |   |                   | $ | 156,249 |  
|                                           |  |               |         |   |                   |   |         |  

See accompanying notes.



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SUPPORTSOFT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



|                                                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                                  |  | Three Months Ended June 30, |        |   | Six Months Ended June 30, |  
|                                                                                                                                  |  | 2006                        |        |   | 2005                      |   |        | 2006 |  |   | 2005   |  
|Revenue:                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|License fees                                                                                                                      |  | $                           | 3,483  |   |                           | $ | 9,325  |      |  | $ | 5,534  |   |  | $ | 18,347 |  
|Services                                                                                                                          |  |                             | 7,281  |   |                           |   | 7,684  |      |  |   | 13,467 |   |  |   | 14,787 |  
|                                                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Total revenue                                                                                                                     |  |                             | 10,764 |   |                           |   | 17,009 |      |  |   | 19,001 |   |  |   | 33,134 |  
|                                                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Costs and expenses:                                                                                                               |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Cost of license fees                                                                                                              |  |                             | 109    |   |                           |   | 127    |      |  |   | 214    |   |  |   | 317    |  
|Cost of services (including stock-based compensation of $60 and $123 for the three and six months ended June 30, 2006)            |  |                             | 3,344  |   |                           |   | 3,814  |      |  |   | 6,487  |   |  |   | 7,110  |  
|Amortization of purchased intangible assets                                                                                       |  |                             | 272    |   |                           |   | 272    |      |  |   | 544    |   |  |   | 544    |  
|Research and development (including stock-based compensation of $113 and $218 for the three and six months ended June 30,
2006)   |  |                             | 2,332  |   |                           |   | 2,902  |      |  |   | 4,856  |   |  |   | 5,835  |  
|Sales and marketing (including stock-based compensation of $188 and $373 for the three and six months ended June 30,
2006)        |  |                             | 5,847  |   |                           |   | 6,223  |      |  |   | 10,981 |   |  |   | 13,065 |  
|General and administrative (including stock-based compensation of $501 and $809 for the three and six months ended June 30,
2006) |  |                             | 2,859  |   |                           |   | 2,119  |      |  |   | 4,989  |   |  |   | 4,327  |  
|                                                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Total costs and expenses                                                                                                          |  |                             | 14,763 |   |                           |   | 15,457 |      |  |   | 28,071 |   |  |   | 31,198 |  
|                                                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Income from operations                                                                                                            |  |                             | (3,999 | ) |                           |   | 1,552  |      |  |   | (9,070 | ) |  |   | 1,936  |  
|Interest income and other, net                                                                                                    |  |                             | 1,557  |   |                           |   | 683    |      |  |   | 2,862  |   |  |   | 1,614  |  
|                                                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) before income taxes                                                                                                 |  |                             | (2,442 | ) |                           |   | 2,235  |      |  |   | (6,208 | ) |  |   | 3,550  |  
|Provision for income taxes                                                                                                        |  |                             | (94    | ) |                           |   | (103   | )    |  |   | (260   | ) |  |   | (185   | )
|                                                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net income (loss)                                                                                                                 |  | $                           | (2,536 | ) |                           | $ | 2,132  |      |  | $ | (6,468 | ) |  | $ | 3,365  |  
|                                                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Basic net income per share                                                                                                        |  | $                           | (0.06  | ) |                           | $ | 0.05   |      |  | $ | (0.15  | ) |  | $ | 0.08   |  
|                                                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Shares used in computing basic net income per share                                                                               |  |                             | 44,009 |   |                           |   | 42,904 |      |  |   | 43,922 |   |  |   | 42,871 |  
|                                                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Diluted net income per share                                                                                                      |  | $                           | (0.06  | ) |                           | $ | 0.05   |      |  | $ | (0.15  | ) |  | $ | 0.08   |  
|                                                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Shares used in computing diluted net income per share                                                                             |  |                             | 44,009 |   |                           |   | 44,471 |      |  |   | 43,922 |   |  |   | 44,655 |  
|                                                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  

See accompanying notes.



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SUPPORTSOFT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                  |  |                           |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Six Months Ended June 30, |        
|                                                                                  |  | 2006                      |         |   | 2005 |  
|Operating Activities:                                                             |  |                           |         |   |      |   |         |  
|Net income (loss)                                                                 |  | $                         | (6,468  | ) |      | $ | 3,365   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |                           | 516     |   |      |   | 548     |  
|Amortization of purchased intangible assets                                       |  |                           | 544     |   |      |   | 544     |  
|Stock-based compensation                                                          |  |                           | 1,522   |   |      |   |        |  
|Other                                                                             |  |                           | (12     | ) |      |   | (27     | )
|Changes in assets and liabilities:                                                |  |                           |         |   |      |   |         |  
|Accounts receivable, net                                                          |  |                           | 10,832  |   |      |   | (567    | )
|Prepaids and other current assets                                                 |  |                           | (84     | ) |      |   | 1,274   |  
|Other long-term assets                                                            |  |                           | 192     |   |      |   | (390    | )
|Accounts payable                                                                  |  |                           | (856    | ) |      |   | 372     |  
|Accrued compensation                                                              |  |                           | (857    | ) |      |   | (316    | )
|Other accrued liabilities                                                         |  |                           | (358    | ) |      |   | (21     | )
|Other long-term liabilities                                                       |  |                           | 30      |   |      |   |        |  
|Deferred revenue                                                                  |  |                           | (4,112  | ) |      |   | (4,433  | )
|                                                                                  |  |                           |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                           | 889     |   |      |   | 349     |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Investing Activities:                                                             |  |                           |         |   |      |   |         |  
|Purchases of property and equipment                                               |  |                           | (305    | ) |      |   | (824    | )
|Purchases of marketable securities                                                |  |                           | (25,029 | ) |      |   | (38,677 | )
|Sales and maturities of marketable securities                                     |  |                           | 24,066  |   |      |   | 52,296  |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Net cash provided by/(used in) investing activities                               |  |                           | (1,268  | ) |      |   | 12,795  |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Financing Activities:                                                             |  |                           |         |   |      |   |         |  
|Proceeds from issuances of common stock                                           |  |                           | 1,344   |   |      |   | 1,264   |  
|Repurchase of common stock                                                        |  |                           |        |   |      |   | (922    | )
|                                                                                  |  |                           |         |   |      |   |         |  
|Net cash provided by financing activities                                         |  |                           | 1,344   |   |      |   | 342     |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Net increase in cash and cash equivalents                                         |  |                           | 965     |   |      |   | 13,486  |  
|Cash and cash equivalents at beginning of period                                  |  |                           | 23,342  |   |      |   | 16,509  |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                        |  | $                         | 24,307  |   |      | $ | 29,995  |  
|                                                                                  |  |                           |         |   |      |   |         |  
|Supplemental schedule of cash flow information:                                   |  |                           |         |   |      |   |         |  
|Income taxes paid                                                                 |  | $                         | 179     |   |      | $ | 112     |  
|                                                                                  |  |                           |         |   |      |   |         |  

See accompanying notes.



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SUPPORTSOFT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Significant Accounting Policies

Basis of Presentation

The accompanying unaudited
condensed consolidated financial statements include the accounts of SupportSoft, Inc. (the Company or SupportSoft) and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated
upon consolidation. The balance sheet as of June 30, 2006 and the statements of operations for the three and six months ended June 30, 2006 and 2005 and cash flows for the six months ended June 30, 2006 and 2005 are unaudited. In the
opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the results for and as of the periods shown. The results of operations for such
periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. The condensed consolidated financial statement information as of December 31, 2005 is derived from audited financial statements as
of that date. These financial statements should be read with the consolidated financial statements and related notes included in the Companys Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 16, 2006.

Use of Estimates and Reclassifications

The
preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the
accompanying notes. Actual results could differ materially from these estimates. In addition, certain amounts that were previously reported have been reclassified to conform to the current period presentation.

Revenue Recognition

We recognize revenue in accordance with the
American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9. License revenue is recognized when all of the following criteria are
met:



| |  |  | Persuasive evidence of an arrangement exists;
| | - |  | ---------------------------------------------



| |  |  | Delivery has occurred;
| | - |  | ----------------------



| |  |  | Collection is considered probable; and
| | - |  | --------------------------------------



| |  |  | The fees are fixed or determinable.
| | - |  | -----------------------------------

SupportSoft considers all
arrangements with payment terms longer than 90 days not to be fixed or determinable. If the fee is determined not to be fixed or determinable, revenue is recognized as payments become due from the customer.

License revenue is comprised of fees for perpetual and term licenses of our software. Perpetual license revenue is recognized using the residual method described in SOP
98-9 for arrangements in which licenses are sold with multiple elements. We allocate revenue on these licenses based upon the fair value of each undelivered element (for example, undelivered maintenance and support, consulting, and training). The
determination of fair value is based upon vendor specific objective evidence (VSOE). VSOE for maintenance and support is determined based upon separate renewals of maintenance and support from customers. VSOE for training and consulting is based
upon separate sales of these services to customers. Assuming all other revenue recognition criteria are met, the difference between the total arrangement fee and the amount deferred for each undelivered element is recognized as license revenue. Our
perpetual arrangements may include contractual obligations such as rights to unspecified future products which require license revenue to be taken ratably over the contract period.

Term licenses are sold with maintenance for which SupportSoft does not have VSOE to determine fair value. As a result, license revenue for term licenses is recognized ratably over the duration of the agreement.
License fees in the accompanying financial statements includes maintenance for term licenses. We do not allocate maintenance revenue from term licenses to services revenue, as we do not believe there is an allocation methodology that provides a
meaningful and supportable allocation between license and maintenance revenue. Consulting revenue associated with the term licenses is recognized ratably over the period associated with the initial payment, generally one year.



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We also recognize license revenue from arrangements with resellers. These arrangements may be either perpetual or term
licenses of our software. When term licensing arrangements with resellers include guaranteed minimum amounts due, revenue is recognized ratably over the term of the arrangement commencing when payments become due. When the arrangements do not
include guaranteed minimum amounts due but are instead based upon the license of our software through to the end user, revenue recognition commences upon persuasive evidence that the products have been sold to an end user; whether the license
revenue is then recognized immediately or ratably depends upon the terms of the arrangements with the reseller. If a reseller is not deemed credit-worthy, revenue is recognized upon cash receipt.

Services revenue is primarily comprised of revenue from professional services, such as maintenance and support, consulting and training. Arrangements that include
services are evaluated to determine whether those services are essential to the functionality of other elements of the arrangement. Revenue from non-essential consulting and training services associated with perpetual licenses is generally
recognized as the services are performed. When non-essential services are bundled in a term licensing arrangement, revenue from the services is recognized ratably over the period associated with the initial payment, generally one year. Maintenance
and support revenue is recognized over the term of the maintenance and support period which is generally one year. In the event services are considered essential to the functionality of other elements of the arrangement, revenue under the
arrangement is recognized using contract accounting.

Cash, Cash Equivalents and Marketable Securities

SupportSoft considers all liquid instruments with an original maturity at the date of purchase of ninety days or less to be cash equivalents. At June 30, 2006, cash
equivalents and marketable securities consisted primarily of money market funds, commercial paper, market auction securities and corporate bonds. Our cash equivalents and marketable securities are classified as available-for-sale as of the
respective balance sheet dates, and are reported at fair value with unrealized gains and losses included in accumulated other comprehensive income within stockholders equity on the consolidated balance sheet. Realized gains and losses and
declines in value judged to be other than temporary on available-for-sale securities are included in other income (expense), net in the consolidated statement of operations.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, both of which are included in interest income. SupportSoft recorded net unrealized losses on
available-for-sale securities of $101,000 and $117,000 at June 30, 2006 and December 31, 2005, respectively.

We monitor our investments for
impairment on a quarterly basis and determine whether a decline in fair value is other-than-temporary by considering factors such as current economic and market conditions, the credit rating of the securitys issuer, the length of time an
investments fair value has been below our carrying value, and our ability and intent to hold investments to maturity. If an investments decline in fair value is deemed to be other-than-temporary, we would reduce its carrying value to its
estimated fair value, as determined based on quoted market prices or liquidation values. Declines in value judged to be other-than-temporary, if any, are recorded in operations as incurred.

The following is a summary of cash and available-for-sale securities at June 30, 2006 (in thousands):



|                          |  |                |         |                         |   |      |            |  |   |        
|------------------------- |  | -------------- | ------- | ----------------------- | - | ---- | ---------- |  | - | -------
|                          |  | Amortized Cost |         | Gross Unrealized Losses |   |      | Fair Value
|Cash                      |  | $              | 6,593   |                         | $ |     |            |  | $ | 6,593  
|Money market funds        |  |                | 4,162   |                         |   |     |            |  |   | 4,162  
|Commercial paper          |  |                | 13,555  |                         |   | (3   | )          |  |   | 13,552 
|Federal agencies          |  |                | 1,000   |                         |   | (6   | )          |  |   | 994    
|Corporate bonds           |  |                | 26,645  |                         |   | (92  | )          |  |   | 26,553 
|Market auction securities |  |                | 70,600  |                         |   |     |            |  |   | 70,600 
|                          |  |                |         |                         |   |      |            |  |   |        
|                          |  | $              | 122,555 |                         | $ | (101 | )          |  | $ | 122,454
|                          |  |                |         |                         |   |      |            |  |   |        
|Classified as:            |  |                |         |                         |   |      |            |  |   |        
|Cash and cash equivalents |  | $              | 24,310  |                         | $ | (3   | )          |  | $ | 24,307 
|Marketable securities     |  |                | 98,245  |                         |   | (98  | )          |  |   | 98,147 
|                          |  |                |         |                         |   |      |            |  |   |        
|                          |  | $              | 122,555 |                         | $ | (101 | )          |  | $ | 122,454
|                          |  |                |         |                         |   |      |            |  |   |        



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Concentrations of Credit Risk

Financial instruments that potentially subject SupportSoft to concentrations of credit risk consist principally of cash equivalents, marketable securities and trade accounts receivable. Our investment portfolio is diversified and consists
of investment grade securities. Our investment policy limits the amount of credit risk exposure to any one issuer and in any single country except the US. The credit risk in our trade accounts receivable is mitigated by our credit evaluation
process, reasonably short collection terms and because the Company sells its products primarily to large organizations in diversified industries.

For the
three and six months ended June 30, 2006, one customer accounted for 18% and 12%, respectively, of our total revenue. For the three months ended June 30, 2005, two customers accounted for 10% or more of our revenue. One of these customers
accounted for 25% and the other accounted for 14% of our total revenue. For the six months ended June 30, 2005, one customer accounted for 14% of our revenue.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount. We perform evaluations of our customers
financial condition and generally do not require collateral. We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Provisions are made based
upon a specific review of all significant outstanding invoices. For those invoices not specifically provided for, provisions are recorded at differing rates, based upon the age of the receivable. In determining these percentages, we analyze our
historical collection experience and current payment trends. If the historical data we use to calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful
accounts may be needed and the future results of operations could be materially affected. At June 30, 2006 and December 31, 2005, the Company had reserves for credit losses of $281,000 and $296,000, respectively. At June 30, 2006
three different customers each accounted for 10% or more of total accounts receivable. These customers accounted for 12%, 12% and 11% individually of our total accounts receivable, net. At December 31, 2005, two customers each accounted for 10%
or more of our total accounts receivable, net. These two customers each accounted for 20% of our total accounts receivable, net.

Stock-Based
Compensation

Adoption of SFAS 123R

On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (SFAS 123R) which requires the measurement and recognition of compensation expense for
all share-based payment awards made to employees and directors including employee stock options and employee stock purchases based on estimated fair values. Prior to January 1, 2006, the Company accounted for share-based payments to employees
using the intrinsic value method under APB Opinion No. 25, as permitted by SFAS 123, and, as such, generally recognized no compensation cost for employee stock options or employees stock purchases in its financial statements.

SupportSoft elected the modified prospective transition method for adopting SFAS 123R which required the application of the accounting standard as of January 1,
2006, the first day of the Companys 2006 fiscal year. Under this transition method, compensation cost recognized in the three and six months ended June 30, 2006, includes the applicable amounts of: (a) compensation cost for all
stock-based payments granted prior to, but not yet vested as of, December 31, 2005 based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123 and previously presented in the pro-forma footnote
disclosures, and (b) compensation cost of all share-based payments granted subsequent to January 1, 2006 based on the grant-date fair value estimated in accordance with the new provisions of SFAS 123R. Prior periods have not been restated
to reflect the impact of SFAS 123R.

Stock Option Plans

During fiscal 1998, SupportSoft adopted the 1998 Stock Option Plan (the Plan). Under this Plan, up to 9,424,434 shares of SupportSofts common stock may be granted as options or sold to eligible participants. Under the
Plan, options to purchase common stock may be granted at no less than 85% of the fair value on the date of the grant (110% of fair value in certain instances), as determined by the Board of Directors. Options under the Plan can be immediately
exercisable in the Board of Directors discretion; however, shares issued are subject to SupportSofts right to repurchase such shares at the original issuance price, which lapses in a series of installments measured from the vesting
commencement date of the option.

In February 2000, the Board of Directors approved the adoption of SupportSofts 2000 Omnibus Equity Incentive Plan
(the 2000 Incentive Plan). A total of 4,000,000 shares of common stock were initially reserved for issuance to eligible participants under the 2000 Incentive Plan. On January 1 of each year, the number of shares reserved
automatically increases by the lesser of 2,000,000 shares, 5% of outstanding shares, or an amount determined by the board of directors. Accordingly, on January 1, 2006, the shares reserved under the 2000 Incentive Plan were automatically
increased by 2,000,000 shares. The exercise price for incentive stock



8



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##### Table of Contents

options may not be less than 100% of the fair market value of SupportSofts common stock on the date of grant (85% for non-statutory options). Under
both of SupportSofts option plans, options generally vest over a 48-month period from the date of grant and have a maximum term of 10 years. In the fourth quarter of 2005, SupportSoft began issuing options with a contractual term of 7 years.
As of June 30, 2006 we had approximately 4.1 million shares of common stock reserved for future issuance under both of these plans.

Employee
Stock Purchase Plan

A total of 2,000,000 shares of common stock were initially reserved for issuance under the 2000 Purchase Plan. On January 1 of
each year, the number of shares reserved automatically increases by the lesser of 2,000,000 shares, 3% of the outstanding shares, or an amount determined by the Board of Directors. For 2006, the Board of Directors elected to have zero shares added
to the 2000 Purchase Plan. The 2000 Purchase Plan permits eligible employees to acquire shares of SupportSofts common stock through periodic payroll deductions of up to 15% of total compensation. Purchases occur on the last day of each January
and July following the end of each six-month purchase period. The price at which the common stock may be purchased is 85% of the lesser of the fair market value of SupportSofts common stock at the beginning of the applicable offering period or
the end of the applicable purchase period. Beginning August 1, 2006, the offering period for all new participants in the Purchase Plan will be six months. Prior to August 1, 2006, all participants were enrolled in offering periods which
could last up to 24 months and contained up to four separate purchase periods. As of June 30, 2006 we had approximately 2.0 million shares of common stock reserved for future issuance under this plan.

Determining Fair Value

Valuation and Attribution Method:
SupportSoft estimates the fair value of stock options granted generally using the Black-Scholes option pricing model. Stock options vest on a graded schedule, however the Company recognizes the expense on a straight-line basis over the requisite
service period of the entire award, net of estimated forfeitures and subject to the minimum expense requirements of SFAS 123R. These limitations require that on any date the compensation cost recognized is at least equal to the portion of the
grant-date fair value of the award that is vested at that date.

Risk-free Interest Rate: The Company bases its risk-free interest rate upon the
yield currently available on US Treasury zero coupon issues for the expected term of the employee stock options.

Expected Term: The Companys
expected term represents the period that the Companys stock options are expected to be outstanding and is determined based on historical experience of similar stock options considering the contractual terms of the stock options, vesting
schedules and expectations of future employee behavior.

Expected Volatility: The Companys expected volatility represents the amount by which
the stock price is expected to fluctuate throughout the period that the stock option is outstanding. The Company bases its expected volatility on a weighted average calculation combining both historical and implied volatilities as it believes that
this combination is more representative of future stock price trends than historical volatility alone. The implied volatility factor included in this computation is based upon traded options on the Companys stock.

Estimated Forfeitures: SFAS 123R requires that the stock option expense recognized be based on awards that are ultimately expected to vest, and therefore a
forfeiture rate should be applied at the time of grant and revised, if necessary, in subsequent periods when actual forfeitures differ from those estimates. Prior to January 1, 2006 the Company accounted for forfeitures only as they occurred.
Commencing with the three month period ended March 31, 2006, the Company has estimated its forfeitures based on historical experience.

Expected
Dividend: The Company uses a dividend yield of zero, as it has never paid cash dividends and currently does not expect to pay dividends in the future.

The fair value of the Companys stock options granted to employees during the three and six months ended June 30, 2006 and 2005 was estimated using the following assumptions:



|                                     |  |                             |                  |   |                           |   |                  |          |  |   |                  |   |  |   |                  |  
|------------------------------------ |  | --------------------------- | ---------------- | - | ------------------------- | - | ---------------- | -------- |  | - | ---------------- | - |  | - | ---------------- | -
|                                     |  | Three months ended June 30, |                  |   | Six months ended June 30, |  
|                                     |  | 2006                        |                  |   | 2005                      |   |                  | 2006 (1) |  |   | 2005 (1)         |  
|Stock Option Plan:                   |  |                             |                  |   |                           |   |                  |          |  |   |                  |   |  |   |                  |  
|Risk-free interest rate              |  |                             | 5.2              | % |                           |   | 3.8              | %        |  |   | 5.2              | % |  |   | 3.7              | %
|                                     |  |                             |                  |  
|Expected term                        |  |                             | 3.9 years        |   |                           |   | 4.0 years        |          |  |   | 3.9 years        |   |  |   | 4.0 years        |  
|Volatility                           |  |                             | 54.6             | % |                           |   | 79.0             | %        |  |   | 55.6             | % |  |   | 80.8             | %
|Estimated forfeitures                |  |                             | 8                | % |                           |   | 0                | %        |  |   | 8                | % |  |   | 0                | %
|Expected dividend                    |  |                             | 0                | % |                           |   | 0                | %        |  |   | 0                | % |  |   | 0                | %
|Weighted average fair value          |  | $                           | 1.94             |   |                           | $ | 2.90             |          |  | $ | 1.98             |   |  | $ | 3.24             |  
|Employee Stock Purchase Plan (ESPP): |  |                             |                  |   |                           |   |                  |          |  |   |                  |   |  |   |                  |  
|Risk-free interest rate              |  |                             | 4.7              | % |                           |   | 3.0              | %        |  |   | 4.7              | % |  |   | 3.0              | %
|Expected term                        |  |                             | 0.5 to 2.0 years |   |                           |   | 0.5 to 2.0 years |          |  |   | 0.5 to 2.0 years |   |  |   | 0.5 to 2.0 years |  
|Volatility                           |  |                             | 54.1             | % |                           |   | 80.0             | %        |  |   | 54.1             | % |  |   | 77.4             | %
|Estimated forfeitures                |  |                             | 8                | % |                           |   | 0                | %        |  |   | 8                | % |  |   | 0                | %
|Expected dividend                    |  |                             | 0                | % |                           |   | 0                | %        |  |   | 0                | % |  |   | 0                | %
|Weighted average fair value          |  | $                           | 1.66             |   |                           | $ | 3.00             |          |  | $ | 1.66             |   |  | $ | 3.00             |  

---

|(1) | The assumptions for the six month period represent weighted averages.
|--- | ---------------------------------------------------------------------

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Tax Effects of Share-Based Payments

On November 10, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. SFAS-123R-3 Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards
which provides for an alternative transition method to calculate the tax effects of stock-based compensation expense pursuant to SFAS 123R. The alternative transition method includes a simplified approach to establish the beginning balance of the
additional paid-in-capital pool related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the additional paid-in-capital pool and cash flows for the tax effects of employee stock-based compensation
awards that are outstanding upon the adoption of SFAS 123R. As of June 30, 2006, the Company was still evaluating which transition method to adopt.

Stock Compensation Expense

The Company recorded the following stock-based compensation expense for the three and six months ended
June 30, 2006 (in thousands):



|                                                                      |  |                                  |     |                               |   |      
|--------------------------------------------------------------------- |  | -------------------------------- | --- | ----------------------------- | - | -----
|                                                                      |  | Three months ended June 30, 2006 |     | Six months endedJune 30, 2006
|Stock option compensation expense recognized in:                      |  |                                  |     |                               |   |      
|Cost of services                                                      |  | $                                | 39  |                               | $ | 85   
|Research and development                                              |  |                                  | 73  |                               |   | 145  
|Sales and marketing                                                   |  |                                  | 144 |                               |   | 294  
|General and administrative                                            |  |                                  | 482 |                               |   | 772  
|                                                                      |  |                                  |     |                               |   |      
|                                                                      |  |                                  | 738 |                               |   | 1,296
|                                                                      |  |                                 
|ESPP compensation expense recognized in:                              |  |                                  |     |                               |   |      
|Cost of services                                                      |  |                                  | 21  |                               |   | 38   
|Research and development                                              |  |                                  | 40  |                               |   | 73   
|Sales and marketing                                                   |  |                                  | 44  |                               |   | 79   
|General and administrative                                            |  |                                  | 19  |                               |   | 37   
|                                                                      |  |                                  |     |                               |   |      
|                                                                      |  |                                  | 124 |                               |   | 227  
|                                                                      |  |                                  |     |                               |   |      
|Stock-based compensation expense included in total costs and expenses |  | $                                | 862 |                               | $ | 1,523
|                                                                      |  |                                  |     |                               |   |      

For the three and the six months ended June 30, 2006, the Company recorded $862,000 and $1.5 million
respectively in stock-based compensation expense. For the three and the six months ended June 30, 2006, $48,000 and $238,000 respectively, of the total stock-based compensation expense relates to the acceleration of the stock options awarded to
the Companys former chief executive officer in connection with a transition agreement dated March 12, 2006. Pursuant to the terms of this agreement, provided the former CEO remained an employee of the Company, on the date the Board of
Directors appointed a new CEO, all then outstanding and unvested options would immediately vest. A new CEO was appointed on April 6, 2006 and vesting of 115,625 options held by the former CEO were accelerated. This acceleration represents a
modification of the original terms of the awards. The cost of this modification was determined to be $238,000, all of which has been recognized by the end of the second quarter of 2006. There was no stock-based compensation expense recognized for
the three and six months ended June 30, 2005.

As a result of adopting SFAS 123R, the Companys loss before income taxes, and net loss for the
three months ended June 30, 2006 was $862,000 higher than if it had continued to account for share-based compensation under APB 25. Basic and diluted loss per share for the three months ended June 30, 2006 would have both been $0.02 lower
if the Company had not adopted SFAS 123R.



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Similarly, the Companys loss before income taxes, and net loss for the six months ended June 30, 2006 are $1.5
million higher than if it had continued to account for share-based compensation under APB 25. Basic and diluted loss per share for the six months ended June 30, 2006 would have both been $0.04 lower if the Company had not adopted SFAS 123R.

Net cash proceeds from the exercise of stock options were $198,000 and $1.1 million for the three and six months ended June 30, 2006 respectively. No
income tax benefit was realized from stock option exercises during the three and six months ended June 30, 2006.

The table below reflects the net
loss and loss per share for the three and six months ended June 30, 2006 compared with the pro-forma information for the three and six months ended June 30, 2005 (in thousands):



|                                                                              |  |                                    |        |     |                                  |   |        |      |  |   |          |     |  |   |        |  
|----------------------------------------------------------------------------- |  | ---------------------------------- | ------ | --- | -------------------------------- | - | ------ | ---- |  | - | -------- | --- |  | - | ------ | -
|                                                                              |  | For the three months endedJune 30, |        |     | For the six months endedJune 30, |  
|                                                                              |  | 2006                               |        |     | 2005 (2)                         |   |        | 2006 |  |   | 2005 (2) |    
|Net income  as reported for the prior period                                 |  |                                    | N/A    | (1) |                                  | $ | 2,132  |      |  |   | N/A      | (1) |  | $ | 3,365  |  
|Stock-based compensation expense relating to:                                 |  |                                    |        |     |                                  |   |        |      |  |   |          |     |  |   |        |  
|Stock options                                                                 |  |                                    | (738   | )   |                                  |   | (2,114 | )    |  |   | (1,296   | )   |  |   | (4,055 | )
|ESPP stock purchases                                                          |  |                                    | (124   | )   |                                  |   | (148   | )    |  |   | (227     | )   |  |   | (313   | )
|Net loss, including the effect of stock-based compensation expense            |  | $                                  | (2,536 | )   |                                  | $ | (130   | )    |  | $ | (6,468   | )   |  | $ | (1,003 | )
|Basic net income per share  as reported for the prior period                 |  |                                    | N/A    | (1) |                                  | $ | 0.05   |      |  |   | N/A      | (1) |  | $ | 0.08   |  
|Basic net loss per share  including the effect of stock-based compensation   |  | $                                  | (0.06  | )   |                                  | $ | 0.00   |      |  | $ | (0.15    | )   |  | $ | (0.02  | )
|Diluted net income per share  as reported for the prior period               |  |                                    | N/A    | (1) |                                  | $ | 0.05   |      |  |   | N/A      | (1) |  | $ | 0.08   |  
|Diluted net loss per share  including the effect of stock-based compensation |  | $                                  | (0.06  | )   |                                  | $ | 0.00   |      |  | $ | (0.15    | )   |  | $ | (0.02  | )

---

|(1) | Net income and net income per share prior to January 1, 2006 did not include stock-based
compensation expense for stock options and employee stock purchases under SFAS 123 because the Company had not adopted the recognition provisions of SFAS 123.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Stock-based compensation expense, net income(loss) and net income(loss) per share prior to
January 1, 2006 is calculated based on the pro-forma application of SFAS 123.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Prior to the adoption of SFAS 123R, our Board of
Directors approved the acceleration of vesting of certain unvested and out-of-money stock options with exercise prices equal or greater than $5.00 per share previously awarded to employees, including executive officers, under our equity compensation
plans. The acceleration of vesting was effective for stock options outstanding as of December 21, 2005. Options to purchase approximately 3.0 million shares of common stock or 32% of our outstanding unvested stock options were subject to
this acceleration. The weighted average price of the options that were accelerated was $7.02. The options accelerated excluded options previously granted to Board of Directors, employees who had terminations pending, and foreign employees who opted
out of the acceleration for tax reasons. For all officers and vice-presidents (non-officers) the acceleration was accompanied by restrictions imposed on any shares that may in the future be purchased through the exercise of accelerated stock
options. Those restrictions prevent the sale of any such shares prior to the date such shares would have originally vested had the optionee been employed on such date (whether or not the optionee is actually an employee at that time). The purpose of
the acceleration was to enable us to avoid recognizing compensation expense associated with these options in our Consolidated Statements of Operations upon the adoption of SFAS 123R on January 1, 2006. The acceleration of the vesting of these
stock options resulted in approximate total savings of $12.0 million of future compensation expense that would have impacted expenses through the third quarter of 2009.



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##### Table of Contents

Stock Option Activity

The following table represents stock option activity for the six months ended June 30, 2006:



|                                                   |  |                  |   |  |                                 |       |                                          |      |                                     |   |          
|-------------------------------------------------- |  | ---------------- | - |  | ------------------------------- | ----- | ---------------------------------------- | ---- | ----------------------------------- | - | ---------
|                                                   |  | Number of Shares |   |  | Weighted Average Exercise Price |       | Weighted AverageRemainingContractualTerm |      | AggregateIntrinsic Value(in 000s)
|Outstanding options at the beginning of the period |  | 9,606,657        |   |  | $                               | 6.304 |                                          |      |                                     |   |          
|Granted                                            |  | 2,436,600        |   |  |                                 | 4.140 |                                          |      |                                     |   |          
|Exercised                                          |  | (70,687          | ) |  |                                 | 2.803 |                                          |      |                                     |   |          
|Forfeited                                          |  | (691,170         | ) |  |                                 | 8.380 |                                          |      |                                     |   |          
|                                                   |  |                  |   |  |                                 |       |                                          |      |                                     |   |          
|Outstanding options at the end of the period       |  | 11,281,400       |   |  | $                               | 5.731 |                                          | 6.85 |                                     | $ | 2,567,547
|                                                   |  |                  |   |  |                                 |       |                                          |      |                                     |   |          
|Options vested and expected to vest                |  | 11,217,695       |   |  | $                               | 5.740 |                                          | 6.85 |                                     | $ | 2,566,900
|                                                   |  |                  |   |  |                                 |       |                                          |      |                                     |   |          
|Outstanding exercisable at the end of the period   |  | 7,653,590        |   |  | $                               | 6.463 |                                          | 6.85 |                                     | $ | 2,424,098
|                                                   |  |                  |   |  |                                 |       |                                          |      |                                     |   |          

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that would have been
received by the option holders had they all exercised their options on June 30, 2006. This amount will change based on the fair market value of the Companys stock. During the three and six months ended June 30, 2006, the aggregate
intrinsic value of options exercised under the Companys stock options plans was $95,000 and $391,000, respectively. Total fair value of options vested during the three and six months ended June 30, 2006 was $943,000 and $1.4 million,
respectively.

At June 30, 2006, there was $7.7 million of unrecognized compensation cost related to existing options outstanding as of June 30,
2006 which is expected to be recognized over a weighted average period of 3.3 years.

Net Income (Loss) Per Share

Basic and diluted net income (loss) per share are presented in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share
(SFAS 128), for all periods presented. In accordance with SFAS 128, basic and diluted net loss per share have been computed using the weighted-average number of common shares outstanding during the period, less shares subject to
repurchase.

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data):



|                                                      |  |                             |        |                           |      |   |        |  |   |        |   |  |   |       
|----------------------------------------------------- |  | --------------------------- | ------ | ------------------------- | ---- | - | ------ |  | - | ------ | - |  | - | ------
|                                                      |  | Three months ended June 30, |        | Six months ended June 30,
|                                                      |  | 2006                        |        |                           | 2005 |   | 2006   |  |   | 2005  
|Net income (loss)                                     |  | $                           | (2,536 | )                         |      | $ | 2,132  |  | $ | (6,468 | ) |  | $ | 3,365 
|Basic:                                                |  |                             |        |                           |      |   |        |  |   |        |   |  |   |       
|Weighted-average shares of common stock outstanding   |  |                             | 44,009 |                           |      |   | 42,904 |  |   | 43,922 |   |  |   | 42,871
|                                                      |  |                             |        |                           |      |   |        |  |   |        |   |  |   |       
|Shares used in computing basic net income per share   |  |                             | 44,009 |                           |      |   | 42,904 |  |   | 43,922 |   |  |   | 42,871
|                                                      |  |                             |        |                           |      |   |        |  |   |        |   |  |   |       
|Basic net income (loss) per share                     |  | $                           | (0.06  | )                         |      | $ | 0.05   |  | $ | (0.15  | ) |  | $ | 0.08  
|                                                      |  |                             |        |                           |      |   |        |  |   |        |   |  |   |       
|Diluted:                                              |  |                             |        |                           |      |   |        |  |   |        |   |  |   |       
|Weighted-average shares of common stock outstanding   |  |                             | 44,009 |                           |      |   | 42,904 |  |   | 43,922 |   |  |   | 42,871
|Add: Common equivalent shares outstanding             |  |                             |       |                           |      |   | 1,567  |  |   |       |   |  |   | 1,784 
|                                                      |  |                             |        |                           |      |   |        |  |   |        |   |  |   |       
|Shares used in computing diluted net income per share |  |                             | 44,009 |                           |      |   | 44,471 |  |   | 43,922 |   |  |   | 44,655
|                                                      |  |                             |        |                           |      |   |        |  |   |        |   |  |   |       
|Diluted net income (loss) per share:                  |  | $                           | (0.06  | )                         |      | $ | 0.05   |  | $ | (0.15  | ) |  | $ | 0.08  
|                                                      |  |                             |        |                           |      |   |        |  |   |        |   |  |   |       

Warranties and Indemnifications

SupportSoft generally provides a warranty for its software products and services to its customers and accounts for its warranties under the FASBs Statement of Financial Accounting Standards No. 5,
Accounting for Contingencies (FAS No. 5). Our standard warranty period is 90 days, but warranty periods can sometimes be longer and vary from customer to customer. In the event there is a failure of the product in breach
of such warranties, SupportSoft generally is obligated to correct the product or service to conform to the warranty provision or, if SupportSoft is unable to do so, the customer is entitled to seek a refund of the purchase price of the product or
service. SupportSoft did not provide for a warranty accrual as of June 30, 2006 or December 31, 2005. To date, SupportSofts product warranty expense has not been significant.

SupportSoft generally agrees to indemnify its customers against legal claims that SupportSofts software products infringe certain third-party intellectual property
rights and accounts for its indemnification obligations under FAS No. 5. To date, SupportSoft has not been required to make any payment resulting from infringement claims asserted against our customers and has not recorded any related accruals.



12



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##### Table of Contents

(2) Comprehensive Income (Loss)

Statement of Financial Accounting No. 130, Reporting Comprehensive Income (SFAS 130) establishes standards for reporting and displaying comprehensive net income and its components in
stockholders equity. However, it has no impact on our net income as presented in our financial statements. SFAS 130 requires foreign currency translation adjustments and changes in the fair value of available-for-sale securities to be included
in comprehensive income.

The following are the components of comprehensive income (loss) (in thousands):



|                                                            |  |                             |        |   |                           |   |       |      |  |   |        |   |  |   |       |  
|----------------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ----- | -
|                                                            |  | Three months ended June 30, |        |   | Six months ended June 30, |  
|                                                            |  | 2006                        |        |   | 2005                      |   |       | 2006 |  |   | 2005   |  
|Net income (loss)                                           |  | $                           | (2,536 | ) |                           | $ | 2,132 |      |  | $ | (6,468 | ) |  | $ | 3,365 |  
|Net unrealized gain (loss) on available-for-sale securities |  |                             | (3     | ) |                           |   | 67    |      |  |   | 16     |   |  |   | 96    |  
|Foreign currency translation loss                           |  |                             | (138   | ) |                           |   | (314  | )    |  |   | (165   | ) |  |   | (443  | )
|                                                            |  |                             |        |   |                           |   |       |      |  |   |        |   |  |   |       |  
|Comprehensive income (loss)                                 |  | $                           | (2,677 | ) |                           | $ | 1,885 |      |  | $ | (6,617 | ) |  | $ | 3,018 |  
|                                                            |  |                             |        |   |                           |   |       |      |  |   |        |   |  |   |       |  

The components of accumulated other comprehensive income (loss) relate entirely to translation adjustment gains
and losses and unrealized gains and losses on available-for-sale securities and are $(693,000) and $(101,000) at June 30, 2006, respectively.

(3)
Income Taxes

We recorded income tax provisions of $94,000 and $260,000 for the three and six months ended June 30, 2006, respectively. For the
three and six months ended June 30, 2005, we recorded a provision for income taxes of approximately $103,000 and $185,000, respectively. The lower income tax provision for the three months ended June 30, 2006 as compared to the same period
in 2005 primarily reflects lower foreign withholding taxes paid during the period in 2006 as compared to 2005.

As of June 30, 2006, our deferred tax
assets are fully offset by a valuation allowance. The Financial Accounting Standards Boards Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes, provides for the recognition of deferred tax assets
if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes SupportSofts historical operating performance, reported cumulative net losses since inception and difficulty in accurately
forecasting our future results, the Company provided a full valuation allowance against its net deferred tax assets. We reassess the need for our valuation allowance on a quarterly basis. If it is later determined that a portion of the valuation
allowance should be reversed it will be a benefit to the income tax provision.

(4) Contingencies

Legal Matters

Between December 9, 2004 and January 21,
2005, several purported securities class action suits were filed in the United States District Court for the Northern District of California against the Company, our CEO, Radha R. Basu, and our former CFO, Brian M. Beattie. These actions were
consolidated on March 22, 2005 asIn re SupportSoft, Inc. Securities Litigation, Civil Action No.: c 04-5222 SI. The consolidated complaint generally alleges violations of certain federal securities laws and seeks unspecified damages on
behalf of a class of purchasers of our common stock between January 20, 2004 and October 1, 2004. Plaintiffs allege, among other things, that defendants made false and misleading statements concerning our business and guidance for the
third quarter 2004, purportedly violating Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On July 15, 2005, the Court granted our motion to dismiss the Complaint with leave to amend the
Complaint. The plaintiffs subsequently filed a Corrected Amended Complaint on August 19, 2005. On November 21, 2005, the Court denied our motion to dismiss the Corrected Amended Complaint. Defendants filed their Answer to
the Complaint on December 14, 2005 and the case is currently in discovery. On May 31, 2006, the action was certified to proceed as a class action on behalf of all persons and entities who purchased or otherwise acquired the securities
of the Company from January 29, 2004 to October 1, 2004 and who were allegedly damaged thereby. Defendants intend to vigorously defend themselves against the consolidated lawsuit. While we cannot predict with certainty the outcome of
the litigation, we believe that we have meritorious defenses to such claims.

On December 19, 2005, a purported derivative shareholder complaint was
filed in the Superior Court of the State of California for the County of San Mateo captionedWhite v. Vase et al. , No. Civ. 451677. This complaint pursues claims  derivatively and on behalf of the Company as a nominal defendant
 against certain of the Companys directors and former directors: Radha R. Basu, Manuel Diaz, Kevin C. Eichler, Edward S. Russell and James Thanos. The derivative complaint alleges, among other things, that the director-defendants
harmed the Company by making or permitting the Company to make false and misleading statements between January 20, 2004 and October 1, 2004 concerning the Companys business and guidance for the third quarter 2004 and by purportedly
exposing



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the Company to liability for securities fraud in violation of their fiduciary duties. On May 1, 2006, the Court granted Defendants demurrer
to the initial Complaint on demand futility grounds and granted Defendants motion to stay discovery. Plaintiff filed a First Amended Complaint on July 10, 2006. Defendants intend to file a demurrer to the First Amended Complaint.

In November 2001, a class action lawsuit was filed against us and two of our officers in the United States District Court for the Southern District of New
York. The lawsuit alleged that our registration statement and prospectus dated July 18, 2000 for the issuance and initial public offering of 4,250,000 shares of our common stock contained material misrepresentations and/or omissions, related to
alleged inflated commissions received by the underwriters of the offering. The defendants named in the lawsuit are SupportSoft, Radha Basu, Brian Beattie, Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc. and FleetBoston
Robertson Stephens Inc. The lawsuit seeks unspecified damages as well as interest, fees and costs. Similar complaints have been filed against 55 underwriters and more than 300 other companies and other individual officers and directors of those
companies. All of the complaints against the underwriters, issuers and individuals have been consolidated for pre-trial purposes before U.S. District Court Judge Scheindlin of the Southern District of New York. On June 26, 2003, the plaintiffs
announced that a proposed settlement between the issuer defendants and their directors and officers had been reached. As a result of the proposed settlement, which is subject to court approval, we anticipate that our insurance carrier will be
responsible for all payments, other than attorneys fees already incurred by SupportSoft through June 1, 2003. On April 24, 2006, the Court held a public hearing on the fairness of the proposed settlement. The Court took the matter
under submission and has not yet ruled. While we cannot predict with certainty the outcome of the litigation or whether the settlement will be approved, we believe that the claims against us and our officers are without merit.

We are also subject to other routine legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business. The
ultimate outcome of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material negative impact. Regardless of outcome, litigation can have an adverse impact on SupportSoft because of defense costs, diversion of
management resources and other factors.

We are required to make periodic filings in the states where we are deemed to have a presence for tax purposes. We
have undergone state audits in the past and have paid assessments arising from these audits. To date, such amounts have not been material. We evaluate estimated losses that could arise from similar assessments in accordance with Statement of
Financial Accounting Standard No. 5, Accounting for Contingencies. We consider such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

(5) Restructuring Obligations and Other Charges

In the fourth
quarter of 2005, SupportSofts management performed a review of its business operations and realigned its resources and go-to-market strategies to help maximize future revenue opportunities. As a result of this business review, the Company
implemented a restructuring plan that included the termination of 27 employees and closure of various offices worldwide. All of the employees included in the restructuring were terminated as of December 31, 2005. As a result of the
restructuring plan, the Company recorded a restructuring charge of $645,000 for severance costs and lease termination-related costs during the fourth quarter of 2005.

In the three and six months ended June 30, 2006, there were no additional restructuring charges, only cash payments against the obligations at December 31, 2005, bringing the obligations to zero at
June 30, 2006 as summarized in the following table (in thousands):



|                                             |  |               |      |   |                |   |      |       |  |   |      |  
|-------------------------------------------- |  | ------------- | ---- | - | -------------- | - | ---- | ----- |  | - | ---- | -
|                                             |  | Severance (1) |      |   | Facilities (2) |   |      | Total | 
|Restructuring costs                          |  | $             | 456  |   |                | $ | 189  |       |  | $ | 645  |  
|Cash payments                                |  |               | (346 | ) |                |   | (34  | )     |  |   | (380 | )
|                                             |  |               |      |   |                |   |      |       |  |   |      |  
|Restructuring obligations, December 31, 2005 |  | $             | 110  |   |                | $ | 155  |       |  | $ | 265  |  
|Cash payments                                |  |               | (110 | ) |                |   | (102 | )     |  |   | (212 | )
|                                             |  |               |      |   |                |   |      |       |  |   |      |  
|Restructuring obligations, March 31, 2006    |  | $             |     |   |                | $ | 53   |       |  | $ | 53   |  
|Cash payments                                |  |               |     |   |                |   | (53  | )     |  |   | (53  | )
|                                             |  |               |      |   |                |   |      |       |  |   |      |  
|Restructuring obligations, June 30, 2006     |  | $             |     |   |                | $ |     |       |  | $ |     |  
|                                             |  |               |      |   |                |   |      |       |  |   |      |  

---

|(1) | Severance costs include those expenses related to severance pay and related employee benefit obligations.
|--- | ---------------------------------------------------------------------------------------------------------

|(2) | Facilities costs include obligations under non-cancelable leases for facilities that we will no longer occupy, as well as penalties associated with early terminations of leases and
disposal of fixed assets. The related leases are short term in nature expiring in less than one year. No sublease income has been included.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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(6) Subsequent Events

In the second quarter of 2006 SupportSoft conducted an evaluation of its business operations and market opportunities. Following this evaluation, in July 2006, the Company announced a plan to (1) strengthen its current business through
more efficient deployment and management of resources and (2) to extend its business by providing consumer technology support services. To balance planned personnel additions, the Company has reduced its workforce by approximately 10%.
Currently, the Company expects to incur approximately $600,000 in costs associated with the restructuring, however, the ultimate costs associated with the restructuring have not yet been determined, and will vary depending on the locations and
individuals involved.

ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Managements
Discussion and Analysis of Financial Condition and Results of Operations should be read together with the unaudited condensed consolidated financial statements and related notes appearing in Item 1 of this report on Form 10-Q and the section
entitled Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes included in SupportSofts Annual Report on Form 10-K for the year ended
December 31, 2005.

This report on Form 10-Q contains forward-looking statements. These statements relate to our future plans, objectives,
expectations, intentions and financial performance. In some cases, you can identify forward-looking statements because we use terms such as anticipates, believes, continue, could, enable, estimates, expects, intends, may, plans, potential, predicts,
should or will or the negative of those terms or other comparable words. These statements involve risks and uncertainties that may cause our actual results, activities or achievements to be materially different from those expressed or implied by
these statements. These risks and uncertainties include those listed under Item 1A, Risk Factors. SupportSoft expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking
statements contained in this report to conform these statements to actual results or changes in our expectations or in events, conditions or circumstances on which any such statement is based. You should not place undue reliance on these
forward-looking statements, which apply only as of the date hereof.

Overview

Since our inception in 1997, we have developed, marketed and distributed software designed to facilitate the identification, diagnosis and resolution of technology-related problems. Our software solutions have been
utilized by:



| |  |  | Digital service providers, to provide automated installation, verification and support of the broadband services they provide to their subscribers; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Corporate enterprises, either directly or as part of an outsourced solution from managed service providers, to automate the management of computing endpoints and to provide service
and support automation to customers, partners and employees.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our revenue to date has consisted of software license fees and fees for
maintenance, consulting and training services. We have licensed our software to customers predominately on a perpetual basis in which we recognize the license revenue upfront, assuming all criteria for revenue recognition under the applicable
accounting rules have been met. Maintenance fees relating to perpetual software licenses result in ratable revenue over the length of the maintenance term, which is generally one year. Consulting and training revenues are generally recognized as the
services are performed or in accordance with predefined project milestones.

Our total revenue increased in the second quarter of 2006 by $2.5 million, or
approximately 31%, over the first quarter of 2006. License revenue in the second quarter of 2006 increased $1.4 million, or approximately 70%, over the prior quarter. Services revenue increased $1.1 million, or approximately 18%, in the second
quarter of 2006 from the prior quarter. Despite the sequential increase in our license and services revenues in the second quarter of 2006 relative to the first quarter of 2006, our total revenue this year has decreased when compared with the three
and six month periods in 2005. For example, total revenue for the three and six months ended June 30, 2006 decreased $6.2 million and $14.1 million, or approximately 37% and 43%, from the same periods in 2005. In addition, our diluted earnings
per share for the three and six months ended June 30, 2006 were $(0.06) and $(0.15) compared to $0.05 and $0.08 for the three and six months ended June 30, 2005, including the impact of stock compensation expense in 2006.

In April of 2006, we named Joshua Pickus as President and Chief Executive Officer of SupportSoft. Mr. Pickus conducted an evaluation of our business operations and
market opportunities which concluded in July 2006. Following this evaluation, we announced a plan to (1) strengthen our current business through more effective deployment and management of resources, and (2) extend our business by
providing consumer technology support services. In addition to continuing to offer our software to service providers and enterprises, we plan to offer technology support services to consumers through call-center based experts using our



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technology. We believe the market for consumer technology support services is large and rapidly growing. We also believe we are well positioned to
participate in this market because of our support automation technology, our expertise in addressing technology support problems and our customer relationships. We expect any revenues for this business to be derived from fees paid by consumers
utilizing our technology support services. We plan to reach consumers primarily through service providers, hardware manufacturers, independent software vendors, portals and other channel partners who will refer consumers to us and receive a referral
fee or revenue share from us. We also plan to acquire customers directly through our support.com website. To balance planned personnel additions, we reduced our workforce by approximately 10%. Currently, we expect to incur approximately $600,000 in
costs associated with the restructuring, however, the ultimate costs associated with the restructuring have not yet been determined, and will vary depending on the locations and individuals involved.

Although we intend to leverage many of our existing resources, we anticipate making significant additional investments in support of this business initiative including
investments in establishment of our expert call center and additional personnel. We expect that theses additional investments will precede any revenue from our new business initiative. See risk factor relating to our new business initiative
under Item 1A, Risk Factors.

We intend the following discussion of our financial condition and results of operations that follows to provide
information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as well as how certain accounting
principles, policies and estimates affect our financial statements.

Critical Accounting Policies and Estimates

In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States, we make assumptions, judgments and
estimates that can have a significant impact on our net revenue, operating results, as well as on the value of certain assets and liabilities on our consolidated balance sheet. We base our assumptions, judgments and estimates on historical
experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis we evaluate our assumptions,
judgments and estimates and make changes accordingly. We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, allowance for doubtful accounts, accounting for income taxes, business combinations
and stock-based compensation have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. We discuss below the critical accounting estimates associated with these policies.
Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. For further information on the critical accounting policies, see Note 1 of our Notes to
Consolidated Financial Statements.

Revenue Recognition

We recognize revenue in accordance with generally accepted accounting principles that have been prescribed for the software industry. Revenue recognition requirements in the software industry are very complex and are subject to change. Our
revenue recognition policy is one of our critical accounting policies because revenue is a key component of our results of operations and is based on complex rules which require us to make judgments. In applying our revenue recognition policy we
must determine which portions of our revenue are recognized currently and which portions must be deferred. In order to determine current and deferred revenue, we make judgments with regard to future services and the appropriate pricing for those
services. We also make judgments as to whether future services are essential to the functionality of other elements of the software arrangement.

We do not
record revenue on sales transactions when the collection of cash is in doubt at the time of sale. Rather, revenue is recognized from these transactions as cash is collected. The determination of collectibility requires significant judgment.

Allowance for Doubtful Accounts

We make judgments as
to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those invoices
not specifically provided for, provisions are recorded at differing rates, based upon the age of the receivable. In determining these percentages, we analyze our historical collection experience and current payment trends. If the historical data we
use to calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected.

Accounting for Income Taxes

We are required to
estimate our income taxes in each of the tax jurisdictions in which we operate. This process involves managements estimation of our actual current tax exposures together with an assessment of temporary differences determined based



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on the difference between the financial statement and tax basis of certain items. These differences result in net deferred tax assets and liabilities, which
are included within the consolidated balance sheet. We must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation
allowance. To the extent we establish a valuation allowance or adjust this allowance in a period, we must include a tax expense or benefit within the tax provision in the statement of operations.

Business Combinations

When we acquire businesses, we allocate the
purchase price to the fair value of tangible assets and liabilities acquired and identifiable intangible assets. Any residual purchase price is recorded as goodwill. We engage independent third-party appraisal firms to assist in determining the fair
values of assets acquired and liabilities assumed. Such a valuation requires management to make significant estimates, especially with respect to intangible assets. These estimates are based on historical experience and information obtained from the
management of the acquired companies. These estimates can include, but are not limited to, the cash flows than an asset is expected to generate in the future, the appropriate weighted average cost of capital, and the cost savings expected to be
derived from acquiring an asset. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates.

At June 30, 2006, goodwill was $9.8 million, and net identifiable intangible assets were $3.5 million. We assess the impairment of goodwill annually or more often
if events or changes in circumstances indicate that the carrying value may not be recoverable. We assess the impairment of acquired product rights and other identifiable intangible assets whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Such
impairment loss would be measured as the difference between the carrying amount of the asset and its fair value. The estimate of cash flow is based upon, among other things, certain assumptions about expected future operating performance and an
appropriate discount rate determined by our management. Our estimates of discounted cash flows may differ from actual cash flows due to, among other things, economic conditions, changes to the business model or changes in operating performance. If
we made different estimates, material differences may result in write-downs of net long-lived and intangible assets, which would be reflected by charges to our operating results for any period presented. At September 30, 2005, management
concluded its annual evaluation for impairment of goodwill and no impairment was recognized. Since then, there have not been any events or changes in circumstances to indicate that the carrying value may not be recoverable. We will test for
impairment during the third quarter of each year, or earlier if indicators of impairment exist.

Stock-based compensation

We account for stock-based compensation in accordance with the provisions of SFAS 123R. We adopted SFAS 123R using the modified prospective transition method which
requires the application of the accounting standard starting from January 1, 2006. Under the fair value recognition provisions of SFAS 123R, stock-based compensation cost is estimated at the grant date based on the fair value of the award and
is recognized as expense ratably over the requisite service period of the award. We estimate the fair value of stock-based awards on the grant date generally using the Black-Scholes-Merton option-pricing model. Determining the appropriate fair value
model and calculating the fair value of stock-based awards requires judgment, including estimating stock price volatility, forfeiture rates and expected life. If any of these assumptions used in the option-pricing models change significantly,
stock-based compensation may differ materially in the future from that recorded in the current period.

RESULTS OF OPERATIONS

The following table sets forth the results of operations for the three and six months ended June 30, 2006 and 2005 expressed as a percentage of total revenue.



|                                  |  |                            |    |  |                          |   |  |      |    |  |      |  
|--------------------------------- |  | -------------------------- | -- |  | ------------------------ | - |  | ---- | -- |  | ---- | -
|                                  |  | Three Months EndedJune 30, |    |  | Six Months EndedJune 30, |  
|                                  |  | 2006                       |    |  | 2005                     |   |  | 2006 |    |  | 2005 |  
|Revenue:                          |  |                            |    |  |                          |   |  |      |    |  |      |  
|License fees                      |  | 32                         | %  |  | 55                       | % |  | 29   | %  |  | 55   | %
|Services                          |  | 68                         |    |  | 45                       |   |  | 71   |    |  | 45   |  
|                                  |  |                            |    | 
|Net revenue                       |  | 100                        |    |  | 100                      |   |  | 100  |    |  | 100  |  
|                                  |  |                            |    |  |                          |   |  |      |    |  |      |  
|Costs and expenses:               |  |                            |    |  |                          |   |  |      |    |  |      |  
|Cost of license fees              |  | 1                          |    |  | 1                        |   |  | 1    |    |  | 1    |  
|Cost of services                  |  | 31                         |    |  | 22                       |   |  | 34   |    |  | 22   |  
|Amortization of intangible assets |  | 3                          |    |  | 2                        |   |  | 3    |    |  | 1    |  
|Research and development          |  | 22                         |    |  | 17                       |   |  | 26   |    |  | 18   |  
|Sales and marketing               |  | 54                         |    |  | 37                       |   |  | 58   |    |  | 39   |  
|General and administrative        |  | 26                         |    |  | 12                       |   |  | 26   |    |  | 13   |  
|                                  |  |                            |    |  |                          |   |  |      |    |  |      |  
|Total costs and expenses          |  | 137                        |    |  | 91                       |   |  | 148  |    |  | 94   |  
|                                  |  |                            |    |  |                          |   |  |      |    |  |      |  
|Income (loss) from operations     |  | (37                        | )  |  | 9                        |   |  | (48  | )  |  | 6    |  
|Interest and other income, net    |  | 14                         |    |  | 4                        |   |  | 15   |    |  | 5    |  
|                                  |  |                            |    |  |                          |   |  |      |    |  |      |  
|Income (loss) before income taxes |  | (23                        | )  |  | 13                       |   |  | (33  | )  |  | 11   |  
|Income tax provision              |  | (1                         | )  |  | (1                       | ) |  | (1   | )  |  | (1   | )
|                                  |  |                            |    |  |                          |   |  |      |    |  |      |  
|Net income (loss)                 |  | (24                        | )% |  | 12                       | % |  | (34  | )% |  | 10   | %
|                                  |  |                            |    |  |                          |   |  |      |    |  |      |  



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Three and Six Months Ended June 30, 2006

Revenue

License fees. License fees decreased to $3.5 million for the three months ended June 30,
2006 from $9.3 million for the three months ended June 30, 2005 and to $5.5 million for the six months ended June 30, 2006 from $18.3 million for the six months ended June 30, 2005. The decrease reflected consummation of fewer large
license transactions in addition to a lower number of total license transactions.

Almost all of our recent customer contracts have been for perpetual
licenses, which generally result in immediate license revenue. The percentage of total revenue from ratable license revenue, therefore, has been decreasing. Additionally, most new license arrangements in the first half of 2006 have resulted in, and
in the future will most likely result in immediate rather than ratable license revenue. As a result, failure to enter into significant new perpetual licenses in any particular period, as we experienced in the first half of 2006, could cause our
license revenue to decline substantially. We currently expect that any revenues from our planned consumer technology support services initiative would consist of service fees from a large number of transactions rather than the large software
licenses upon which we have depended in the past.

Services revenue. Services revenue decreased to $7.3 million for the three months ended
June 30, 2006 from $7.7 million for the three months ended June 30, 2005 and to $13.5 million for the six months ended June 30, 2006 from $14.8 million for the six months ended June 30, 2005. Services revenue decreased primarily
due to lower consulting revenue of $673,000 and $2.1 million for the three and six month periods in 2006 as compared with the same periods in 2005 as a result of a lower level of implementation services primarily for our service provider customers
in North America. This decrease in consulting revenues was partially offset by increases in maintenance revenue of $271,000 and $806,000 in the three and six month periods in 2006 as compared with the same periods in 2005 arising from a larger
number of customers on maintenance contracts.

Revenue from customers outside the United States accounted for approximately 27% and 24% of our total
revenue for the three and six month periods ended June 30, 2006, compared with 16% and 23% for the three and six month periods ended June 30, 2005. Most of our international revenue has come from customers in Europe.

Cost of license fees

Cost of license fees consists primarily
of costs related to third-party royalty fees under license arrangements for technology embedded in or resold with our products. Cost of license fees decreased to $109,000 in the three months ended June 30, 2006 from $127,000 in the three months
ended June 30, 2005. Cost of license fees for the six months ended June 30, 2006 decreased to $214,000 from $317,000 for the same period in 2005. These decreases primarily resulted from the sale of less third-party software in the three
and six months ended June 30, 2006 compared with the same periods in the prior year.

Cost of services

Cost of services consists primarily of compensation costs, travel costs, related overhead expenses for professional services personnel and payments made to third parties
for subcontracted consulting services. Cost of services decreased to $3.3 million for the three months ended June 30, 2006 from $3.8 million for the three months ended June 30, 2005. Cost of services for the six months ended June 30,
2006 decreased to $6.5 million from $7.1 million for the same period in 2005. These decreases were primarily due to decreases in salary and related expenses, and decreases in the use of third party consultants.

Included in the cost of services for the three and six months ended June 30, 2006 was $60,000 and $123,000 of stock-based compensation expense. There were no
comparable expenses in the same periods last year, because we adopted the provisions of 123R effective January 1, 2006.



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Operating Expenses

Research and development. Research and development costs are expensed as incurred. Research and development expense consists primarily of compensation costs, consulting expenses and related overhead costs for research and development
personnel. Research and development expense decreased to $2.3 million for the three months ended June 30, 2006 from $2.9 million for the three months ended June 30, 2005. Research and development expense decreased to $4.9 million for the
six months ended June 30, 2006 from $5.8 million for the same period in 2005.

These decreases were primarily due to decreases in salary and related
expenses as a result of our restructuring in October 2005 and decreases in third-party consulting costs. Included in research and development expense for the three and six months ended June 30, 2006 was $113,000 and $218,000 of stock-based
compensation expense. There were no comparable expenses in the same periods last year, because we adopted the provisions of 123R effective January 1, 2006.

Sales and marketing. Sales and marketing expense consists primarily of compensation costs, including salaries, sales commissions and related overhead costs for sales and marketing personnel and promotional expenses, including public
relations, advertising and trade shows. Sales and marketing expense decreased to $5.8 million for the three months ended June 30, 2006 from $6.2 million for the three months ended June 30, 2005. Sales and marketing expense decreased to
$11.0 million for the six months ended June 30, 2006 from $13.1 million for the same period in 2005. The decrease was primarily due to lower variable compensation expenses, such as sales commissions, a decrease in salary and related expenses as
a result of our restructuring in October 2005, and lower expenses for events and tradeshows. Included in sales and marketing expenses for the three and six months ended June 30, 2006 was $188,000 and $373,000 of stock-based compensation
expense. There were no comparable expenses in the same periods last year, because we adopted the provisions of 123R effective January 1, 2006.

General and administrative. General and administrative expense consists primarily of compensation costs and related overhead costs for administrative personnel and professional fees for legal, accounting and other professional
services. General and administrative expense increased to $2.9 million for the three months ended June 30, 2006 from $2.1 million for the three months ended June 30, 2005. General and administrative expense increased to $5.0 million for
the six months ended June 30, 2006 from $4.3 million for the same period in 2005. This increase was primarily due to increases in salary expense due to executive transition and third-party consulting fees. Also included in general and
administrative expenses for the three and six months ended June 30, 2006 is $501,000 and $809,000 of stock-based compensation expense. There were no comparable expenses in the same periods last year, because we adopted the provisions of 123R
effective January 1, 2006.

Stock-based compensation. On January 1, 2006, we adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment, (SFAS 123R) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and
employee stock purchases based on estimated fair values. Prior to January 1, 2006, we accounted for share-based payments to employees using the intrinsic value method under APB Opinion No. 25, as permitted by SFAS 123, and, as such,
generally recognized no compensation cost for employee stock options or employees stock purchases in our financial statements.

We elected the modified
prospective transition method for adopting SFAS 123R which requires the application of the accounting standard as of January 1, 2006, the first day of our 2006 fiscal year. Under this transition method, compensation cost recognized in the three
and six months ended June 30, 2006, includes the applicable amounts of: (a) compensation cost for all stock-based payments granted prior to, but not yet vested as of, December 31, 2005 based on the grant-date fair value estimated in
accordance with the original provisions of SFAS 123 and previously presented in the pro-forma footnote disclosures, and (b) compensation cost of all stock-based payments granted subsequent to January 1, 2006 based on the grant-date fair
value estimated in accordance with the new provisions of SFAS 123R. Prior periods have not been re-stated to reflect the impact of SFAS 123R.

For the
three and the six months ended June 30, 2006, we recorded $862,000 and $1.5 million respectively in stock-based compensation expense. Of those amounts, $48,000 and $238,000 for the three and the six months ended June 30, 2006 respectively,
relates to the acceleration of the stock options awarded to the former Chief Executive Officer in connection with a transition agreement dated March 12, 2006. Pursuant to the terms of this agreement, provided the former Chief Executive Officer
remained an employee, on the date the Board of Directors appointed a new Chief Executive Officer, all then outstanding and unvested options would immediately vest. A new Chief Executive Officer was appointed on April 6, 2006 and vesting of
115,625 shares were accelerated. This acceleration represents a modification of the original terms of the awards. The cost of this modification was determined to be $238,000, all of which has been recognized by the end of the second quarter of 2006.

Prior to the adoption of SFAS 123R, our Board of Directors approved the acceleration of vesting of certain unvested and out-of-money stock options with
exercise prices equal to or greater than $5.00 per share previously awarded to employees, including our executive officers and directors, under our equity compensation plans. The acceleration of vesting was effective for stock options



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outstanding as of December 21, 2005. Options to purchase approximately 3.0 million shares of common stock or 32% of our outstanding unvested stock
options were subject to this acceleration. The weighted average price of the options that were accelerated was $7.02. The acceleration of the vesting of these stock options will result in approximate total savings of $12.0 million of future
compensation expense that would have impacted expenses through the third quarter of 2009. The options accelerated excluded options previously granted to Board of Directors, employees who have notified or been notified of terminations, and foreign
employees who opted out of the acceleration for tax reasons. For all officers and vice-presidents (non-officers) the acceleration was accompanied by restrictions imposed on any shares that may in the future be purchased through the exercise of
accelerated stock options. Those restrictions prevent the sale of any such shares prior to the date such shares would have originally vested had the optionee been employed on such date (whether or not the optionee is actually an employee at that
time). The purpose of the acceleration was to enable us to avoid recognizing compensation expense associated with these options in our Consolidated Statements of Operations upon the adoption of SFAS 123R on January 1, 2006.

At June 30, 2006, there was $7.7 million of unrecognized compensation expense cost related to existing options outstanding as of June 30, 2006 which is
expected to be recognized over a weighted average period of 3.3 years.

On April 6, 2006, the Board of Directors appointed Joshua Pickus as our new
Chief Executive Officer of the Company. Under the terms of his employment agreement, we granted him an option to purchase 1,300,000 shares of common stock, which vests monthly over 48 months. The agreement further provides that we grant
Mr. Pickus two additional options, each providing for a right to purchase 200,000 shares, vesting monthly over 48 months. These two additional options to purchase 200,000 shares only become exercisable, to the extent vested, following the date
as of which the fair market value of our common stock has first equaled or exceeded $6 per share and $9 per share, respectively, for 20 consecutive trading days.

Interest income and other, net. Interest income and other, net increased to $1.6 million for the three months ended June 30, 2006 from $683,000 for the three months ended June 30, 2005. Interest income and other, net
increased to $2.9 million for the six months ended June 30, 2006 from $1.6 million for the same period in 2005. These increases were primarily due to an increase in interest income due to higher interest rates earned on our marketable
securities partially offset by a decrease in other income as a result of a settlement payment received from a customer in 2005.

Provision for income
taxes. The income tax provision decreased slightly to $94,000 for the three months ended June 30, 2006 from $103,000 for the three months ended June 30, 2005. The income tax provision increased to $260,000 for the six months ended
June 30, 2006 from $185,000 for the same period in 2005. This increase was primarily due to foreign withholding taxes.

Each quarter, we evaluate the
realizability of our deferred tax assets. At June 30, 2006, we had recorded a full valuation allowance against our deferred tax assets based on the realization criteria outlined in the applicable accounting literature. Amongst other important
factors, we have considered and will continue to consider our history of earnings and our ability to generate pre-tax income in the future. Giving appropriate consideration to all the relevant factors and assuming we perform as we expect in the
future, we believe the release of a portion of our valuation allowance will be appropriate at some point in the future. This would result in an income tax benefit within the statement of operations in the period of adjustment.

LIQUIDITY AND CAPITAL RESOURCES

Since our incorporation in December
1997, we have financed our operations primarily through our initial public offering, follow-on public offering, cash flows from operations and, to a lesser extent, from the private placement of our preferred and common stock, bank borrowings and
capital equipment lease financing. In November 2003, we completed our follow-on public offering from which we received net proceeds of approximately $77.7 million. Based on our current financial plan, we expect to use cash of $6 million and $9
million in our operating and investing activities in the second half of 2006. There are many variables that impact our financial plan including the levels of revenue, costs and expenses, and new capital investments. Actual cash usage could differ
from these projections.

Operating Activities

Net cash provided by operating activities was $889,000 and $349,000 for the six months ended June 30, 2006 and 2005, respectively. Net cash provided by operating activities for the six months ended June 30, 2006 was primarily due
to cash collections during the period, which contributed to a reduction in accounts receivable of $10.8 million. The reduction in accounts receivable was offset by a net loss of $6.5 million, adjusted for amounts which did not require the use of
cash of $2.6 million. These non-cash items include depreciation, amortization and stock-based compensation expense. Net cash provided by operating activities for the six months ended June 30, 2005 was primarily the result of net income of $3.4
million for the period and a decrease in prepaids and other current assets of $1.3 million, partially offset by a decrease in deferred revenue of $4.4 million.



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Investing Activities

Net cash provided by/(used in) in investing activities was ($1.3) million and $12.8 million for the six months ended June 30, 2006 and 2005, respectively. Net cash used in investing activities for the six months ended June 30,
2006, was due to the purchases of property and equipment of $(305,000) and by the net purchases in marketable securities of $(963,000). Net cash provided by investing activities for the six months ended June 30, 2005, was due primarily to the
sale and maturity of $52.3 million of short term investments, offset by purchases of $(38.7) million in short term investments and the purchase of property and equipment of $(824,000).

Financing Activities

Net cash generated by financing activities was $1.3 million for the six months ended
June 30, 2006 and $342,000 for the six months ended June 30, 2005. Net cash provided by financing activities was attributable to net proceeds from the purchase of common stock under the employee stock purchase plan and the exercise of
employee stock options.

Working Capital and Capital Expenditure Requirements

At June 30, 2006, we had stockholders equity of $130.6 million and working capital of $117.3 million. Included as a reduction to working capital is deferred revenue of $9.7 million, which will not require
dollar-for-dollar of cash to settle, but will be recognized as revenue in the future. We believe that our existing cash balances will be sufficient to meet our working capital requirements and stock repurchase program, as well as our planned capital
expenditures for at least the next 12 months.

A sustained period of losses, such as the loss we incurred in the first half of 2006, would likely result in
an increased net usage of cash to fund our operating activities. Also, if we require additional capital resources to grow our business internally or to acquire complementary technologies and businesses at any time in the future, we may seek to sell
additional equity or debt securities. The sale of additional equity or debt securities could result in more dilution to our stockholders. Financing arrangements may not be available to us, or may not be available in amounts or on terms acceptable to
us.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have operations in the United States and other
countries and market and sell our products in North America, South America, Asia and Europe. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign
markets. As most sales are currently made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets.

As
of June 30, 2006, we held $24.3 million in cash and cash equivalents consisting of highly liquid investments having original maturity dates of no more than 90 days. Declines of interest rates over time would reduce our interest income from our
highly liquid marketable securities. Based upon our balance of cash and cash equivalents, a decrease in interest rates of 100 basis points would cause a corresponding decrease in our annual interest income of approximately $243,000. Due to the
nature of our highly liquid cash equivalents, a change in interest rates would not materially change the fair market value of our cash and cash equivalents.

As of June 30, 2006, we held $98.1 million in marketable securities, which consisted primarily of corporate bonds, government debt securities maturing in less than eighteen months and market auction securities resetting in less than
forty-five days. The weighted average interest rate of our portfolio was approximately 5.12% at June 30, 2006. A decline in interest rates over time would reduce our interest income from our marketable securities. A decrease in interest rates
of 100 basis points would cause a corresponding decrease in our annual interest income of approximately $981,000. Due to the nature of our highly liquid cash equivalents, a change in interest rates would not materially change the fair market value
of our marketable securities.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

We maintain disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange
Act), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and
Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no



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matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures
are met. Our disclosure controls and procedures have been designed to meet, and management believes they meet, reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Our Chief Executive
Officer and our Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report, have concluded that our disclosure controls and
procedures are effective based on their evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

Changes in internal control over financial reporting.

There were no changes in our internal control over financial
reporting during the quarter ended June 30, 2006 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PAR
T II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Except as noted below, there are no material changes in the status of our legal proceedings
from those described in our Annual Report on Form 10-K for the year ended December 31, 2005, as updated in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.

In re SupportSoft, Inc. Securities Litigation is a consolidated complaint filed in the United Stated District Court of the Northern District of California against the Company, our former CEO and former CFO. The
complaint generally alleges violations of certain federal securities law and seeks unspecified damages. On May 31, 2006, this action was certified to proceed as a class action on behalf of all persons and entities who purchased or otherwise acquired
the securities of the Company from January 29, 2004 to October 1, 2004 and who were allegedly damaged thereby.

White v. Vase et al.is a derivative
shareholder complaint filed in the Superior Court of the State of California for the County of San Mateo. This complaint was filed on behalf of the Company as a nominal defendant against certain of our directors and former directors and alleges that
the director defendants harmed the Company by making or permitting the Company to make false and misleading statements between January 20, 2004 and October 1, 2004. On May 1, 2006, the court granted Defendants demurrer to its initial complaint
on demand futility grounds and granted Defendants motion to stay discovery. The plaintiff filed a First Amended Complaint on July 10, 2006.

We are also subject to other routine legal proceedings, as well as demands, claims and threatened litigation, that arise in the normal course of our business. The ultimate outcome of any litigation is uncertain, and either unfavorable or
favorable outcomes could have a material negative impact. Regardless of outcome, litigation can have an adverse impact on SupportSoft because of defense costs, diversion of management resources and other factors.



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ITEM 1A. RISK FACTORS

Investing in our securities involves a high degree of risk. In addition to the other information
contained in this report, you should consider the following risk factors before investing in our securities.

Our quarterly results may fluctuate, which
may cause our stock price to decline.

Our quarterly revenue and operating results have in the past and may in the future fluctuate from quarter to
quarter. As a result, we believe that quarter-to-quarter and year-to-year comparisons of our revenue and operating results are not necessarily meaningful, and that these comparisons may not be accurate indicators of future performance.

Several factors that have contributed or may in the future contribute to fluctuations in our operating results include:



| |  |  | demand for our software;
| | - |  | ------------------------



| |  |  | size and timing of customer orders and our ability to receive payment and recognize revenue in a given quarter;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | our reliance on a small number of customers for a substantial portion of our revenue;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | the price and mix of products and services we or our competitors offer;
| | - |  | -----------------------------------------------------------------------



| |  |  | our ability to attract and retain customers;
| | - |  | --------------------------------------------



| |  |  | the amount and timing of operating costs and capital expenditures relating to expansion of our business, infrastructure and marketing activities;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the exercise of judgment by our management in making accounting decisions in accordance with our accounting policies, such as when to recognize certain tax assets and the impairment
of goodwill or identifiable intangible assets; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | general economic conditions and their effect on our operations.
| | - |  | ---------------------------------------------------------------

In prior
years, we licensed a significant portion of our software on a term basis in which revenue was recognized ratably over the length of the agreement with the customer. Recently, however, we typically license our software on a perpetual basis in which
we recognize the license revenue upfront, assuming all criteria for revenue recognition have been met. As we shifted to a perpetual licensing model, we have received less ratable revenue and have therefore become dependent on a few customer
contracts with upfront license revenue for a substantial portion of our revenue in any one quarter. In addition, a significant portion of our total revenue each quarter comes from a number of orders received in the last month of a quarter. In
previous quarters, we failed to close expected perpetual licenses with upfront revenue. If we continue to fail to close orders expected to be completed by the end of a quarter, particularly if these orders are for perpetual licenses with upfront
revenue, or if there is any cancellation of or delay in the closing of orders, particularly any large customer orders, our quarterly results would suffer.

Because a small number of customers have historically accounted for and may in future periods account for substantial portions of our revenue, our revenue could decline because of delays or losses of specific customer orders.

A small number of customers have historically accounted for, and may in future periods account for, substantial portions of our revenue. For the
quarter ended June 30, 2006, one customer accounted for 10% or more of our total revenue and for the quarter ended December 31, 2005, two customers accounted for 20% and 15% of our total revenue for the quarter. Our consumer technology
support services initiative, if successful, would reduce our dependence on large transactions, from a small number of customers. However, in the near term we are likely to continue to derive a significant portion of our revenue from large
transactions. Therefore our revenue



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could decline because of the loss or delay of a single customer order. Additionally, we may not obtain new customers. The failure to obtain significant new
customers, particularly customers that purchase perpetual licenses with upfront payments, the loss or delay of significant customer orders and the failure of existing customers to pay ongoing fees when due would harm our operating results.

Our recently announced new business initiative will increase operating expenses without any assurance of yielding increased revenue.

In April of 2006, we named Joshua Pickus as President and Chief Executive Officer of SupportSoft. Mr. Pickus conducted an evaluation of our business operations and
market opportunities which concluded in July 2006. Following this evaluation, we announced a plan to (1)strengthen our current business through more effective deployment and management of resources, and (2)extend our business by providing consumer
technology support services in an effort to achieve sustained long term revenue growth. In addition to continuing to offer our software to technology service providers and enterprises, we plan to offer technology support services to consumers
through call-center based experts using our technology. Although we believe this new business initiative is complementary to our core business, there can be no assurance that we will be able to offer these new services in a cost-effective or timely
manner. We have limited experience in servicing consumers directly and we expect to spend significant cash and incur increased operating expenses to restructure SupportSoft to align with this new initiative, to obtain the human capital necessary to
support this initiative, and to promote our brand directly to consumers. There can be no assurance that these investments will yield increased revenues to offset the expenses. Furthermore, this new business initiative, if not favorably received by
consumers, could damage the reputation of our core business as well as strain our management, financial and operational resources necessary to maintain the core business. The lack of market acceptance of such efforts or our inability to generate
satisfactory revenues from such expanded services to offset their cost could have a material adverse effect on our business, prospects, financial condition and results of operations.

The loss of key personnel and the integration of new management may affect our ability to achieve our business goals.

Our success depends on the skills, experience and performance of our senior management, engineering, sales, marketing and other key personnel. The loss of the services of any of our senior management or other key personnel could harm our
business and our ability to achieve our business goals. To date in 2006, Radha R. Basu, our former President and Chief Executive Officer, John Van Siclen, our former Senior Vice President of Worldwide Field Operations, and Brian Beattie, our former
Chief Financial Officer, resigned. We have also recently implemented reductions in our workforce in connection with the realignment of the Company towards our new business initiative. Reductions in our workforce as well as changes in senior
management could make it difficult to motivate and retain remaining key employees or attract new employees, and provide distractions affecting our ability to manage our business.

In the second quarter of 2006, Joshua Pickus was appointed as our new President and Chief Executive Officer and Michael Sayer was appointed as our new Senior Vice President of Sales. The efforts in integrating new
management may divert attention from other business concerns and disrupt our ongoing business, especially in the short term. Our success will depend to a significant extent on the ability of these executives to function effectively in their new
roles and our ability to retain the services of these new executives. If these executives do not function effectively or if we lose the services of one or more of our executives or key employees, our business could be harmed.

We were not profitable for the first or second quarter of 2006 and are likely to continue to sustain a loss.

Although we have been profitable on an annual basis since 2003, we were not profitable for the first or second quarter of 2006. Our expenditures could continue to exceed
our revenue in future periods, thus preventing us from achieving or maintaining profitability on a quarterly or annual basis. To achieve and maintain profitability, we will need to generate and sustain substantially higher revenue while maintaining
reasonable cost and expense levels. If we fail to achieve profitability, the market price of our common stock will likely decline. We may not achieve profitability if our revenue does not increase or if revenue increases more slowly than we expect.
In addition, our operating expenses are largely fixed in any given quarter and any shortfall in anticipated revenue in any quarter could harm our results for such period. Finally, a sustained period of losses would also likely result in an increased
net usage of cash to fund our operating activities.

Although we intend to leverage many of our existing resources, we anticipate making significant
additional investments in support of our consumer technology support services initiative including investments in establishment of our expert call center and additional personnel. We expect that theses additional investments will precede any
revenue from our new business initiative. See risk factor relating to our new business initiative under Item 1A, Risk Factors.



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Our inability to meet future financial performance targets that we announce or that are published by research analysts
could cause the price of our common stock to decline.

From time to time, we provide guidance related to our future financial performance. In addition,
financial analysts publish their own expectations of our future financial performance. Because our quarterly revenue and our operating results fluctuate, future financial performance is difficult to predict. In the past, we have failed to meet our
guidance. Future negative adjustments of our guidance or the failure to meet our guidance or those expectations of research analysts could likely cause the market price of our common stock to decline.

Managements ability to accurately predict performance is affected in large part by a significant portion of our total revenue being dependant upon the closing of
new large customer orders. In addition, our guidance is based in part upon the expectation of new product sales with which we have a limited history and as a result it is difficult to evaluate our future revenue from these products. In the event we
fail to close orders expected or forecasted to be completed, our results will not meet our guidance or the expectations of securities analysts or investors, which would likely cause the market price of our common stock to decline.

Our product innovations may not achieve the market penetration necessary for us to expand our market share.

If we fail to develop enhanced versions of our software in a timely manner or to provide products and services that achieve rapid and broad market acceptance, we may not
maintain or expand our market share. We may fail to identify new product and service opportunities for our current market or new markets that we enter into in the future. In addition, our existing products may become obsolete if we fail to introduce
new products or product enhancements that meet new customer demands, support new standards or integrate with new or upgraded versions of packaged applications. We have limited control over factors that affect market acceptance of our product and
services, including:



| |  |  | the willingness of companies to transition to automated solutions; and
| | - |  | ----------------------------------------------------------------------



| |  |  | acceptance of competitors solutions or other similar technologies.
| | - |  | -------------------------------------------------------------------

We may engage in investments or acquisitions or other strategic matters that could divert management attention and prove difficult to integrate with our business and technology.

We may engage in acquisitions of other companies, products or technologies or in other strategic initiatives. If we fail to integrate successfully any future
acquisitions, or the technologies associated with such acquisitions, the revenue and operating results of the combined company could decline. The process of integrating businesses, technologies, services or products may result in unforeseen
operating difficulties and expenditures. Acquisitions involve a number of other potential risks to our business, including the following:



| |  |  | potential adverse effects on our operating results, including unanticipated costs and liabilities, unforeseen accounting charges or fluctuations resulting from failure to accurately
forecast the financial impact of an acquisition;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | failure to integrate products or technologies with our existing products, technologies and business model;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | failure to integrate management information systems, personnel, research and development and marketing, sales and support operations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | potential loss of key employees;
| | - |  | --------------------------------



| |  |  | diversion of managements attention from other business concerns and disruption of our ongoing business;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | difficulty in maintaining controls and procedures;
| | - |  | --------------------------------------------------



| |  |  | potential loss of customers;
| | - |  | ----------------------------



| |  |  | uncertainty on the part of our existing customers about our ability to operate on a combined basis;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | failure to realize the potential financial or strategic benefits of the acquisition; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | failure to successfully further develop the combined technology, resulting in the impairment of amounts recorded as goodwill or other intangible assets.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



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If the growth of demand for digital services by subscribers of digital services providers does not continue or if
demand by digital service providers for our software does not continue, our ability to increase our revenue could suffer.

Our ability to increase our
revenue will depend on increased demand for digital services. If this demand does not grow as rapidly or to the extent we anticipate, our business could suffer. The growth of digital services is uncertain and will depend in particular upon the
availability, at a reasonable price, of such digital services, the building of infrastructure to support such services, the availability of competitive products, and the reliability of such services.

Even if the demand and deployment of digital services grows, we may not be able to grow our revenue because our products for new digital services are relatively new and
unproven and have not generated significant revenue to date.

We are becoming increasingly more dependent upon our international operations and if our
revenue from this effort does not exceed the expense of establishing and maintaining international operations, our business could suffer.

We are
becoming increasingly more dependent upon our international operations including the sales and distribution of our products and services and our research and development resources in India and Canada. For the year ended December 31, 2004
international revenue was 11% of total revenues and for the year ended December 31, 2005 international revenue was 21% of total revenue. We have limited experience in international operations and may not be able to compete effectively in
international markets or effectively manage our operations in various countries. If we do not generate enough revenue from international operations to offset the expense of these operations, our business and our ability to increase revenue and
enhance our operating results could suffer. Risks we face in conducting business internationally include:



| |  |  | costs of staffing and managing international operations;
| | - |  | --------------------------------------------------------



| |  |  | smaller customers with less ability to pay United States rates for the solution;
| | - |  | --------------------------------------------------------------------------------



| |  |  | difficulty in reaching geographically dispersed customers;
| | - |  | ----------------------------------------------------------



| |  |  | differing technology standards and legal considerations;
| | - |  | --------------------------------------------------------



| |  |  | longer sales cycles;
| | - |  | --------------------



| |  |  | dependence on local vendors and consultants;
| | - |  | --------------------------------------------



| |  |  | difficulties in staffing and managing international operations, including the difficulty in managing a geographically dispersed workforce in compliance with diverse local laws and
customs and difficulty in motivating and retaining qualified individuals;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | potential adverse tax consequences;
| | - |  | -----------------------------------



| |  |  | changes in currency exchange rates and controls;
| | - |  | ------------------------------------------------



| |  |  | difficulties in maintaining effective internal control over financial reporting as a result of a geographically-dispersed workforce and customers;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | longer collection cycles for accounts receivable; and
| | - |  | -----------------------------------------------------



| |  |  | the effects of external events such as terrorist acts and any related conflicts or similar events worldwide.
| | - |  | ------------------------------------------------------------------------------------------------------------

If we do not expand our professional services organization, especially internationally, our customers may become dissatisfied and our operating results could suffer.
Also, as we expand our professional services organization, it may not operate in a profitable manner.

Clients that license our software typically
engage our professional services organization to assist with installation and implementation of our software and related consulting services. Revenue from professional services represented a substantial portion of our total revenue. We plan to
further increase the number of services personnel, especially internationally, to meet customer needs. We may not be able to recruit the services personnel we need or retain our current services personnel because competition for qualified services
personnel is intense. New services personnel will require training and education and take time to reach full productivity.



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In addition, we cannot be certain that our professional services business will operate in a profitable manner. We have
generally billed our customers for professional services on a time and material basis using an agreed upon daily rate. However, increasingly customers have requested various contract structures, including milestone based contracts and contracts for
a fixed total fee. If unanticipated factors in a project are encountered and the contract structure prevents us from billing additional amounts, the profitably of our professional services business would suffer. Furthermore, an estimated loss on a
contract is generally required to be recorded in the period in which a loss becomes evident. Recording a loss on a services contract could have a material adverse effect on our operating results for the period in which the loss was recorded.

Our failure to establish and expand third-party alliances would harm our ability to sell our software and provide our services.

We have several alliances with third parties that are important to our business. Our existing relationships include those with software and hardware vendors, and
relationships with companies who provide outsourced support and service capabilities to enterprise customers. If these relationships fail, we may have to devote substantially more resources to the sales and marketing of our products and services
than we would otherwise, and our efforts may not be as effective. For example, companies that provide outsourced support and services often have extensive relationships with our existing and potential customers and significant input in the purchase
decisions of these customers. In addition, we may establish relationships with third party resellers and other sales partners as we expand into geographic regions such as Europe and Asia. Our failure to maintain existing relationships, or to
establish new relationships with key third parties, could significantly harm our ability to sell our products and services. In addition, our competitors may have strong alliances with other companies, including hardware providers, which could impact
our ability to obtain greater market share, participate in deals where hardware and software are sold together, or require us to reduce the price of products and services, which could harm our business, financial condition and operating results.

Additionally our consumer technology support services initiative will require us to establish relationships with third parties who will refer customers to
us. Failure to establish these relationships on acceptable terms or al all could materially and adversely affect the success of this initiative.

Our
exposure to the credit risks of our customers and resellers may make it difficult to collect receivables and could adversely affect our operating results and financial condition.

Industry and economic conditions have weakened the financial position of some of our customers in the cable and telecommunications industries, from which we derive a substantial portion of our total revenue, have
traditionally been highly leveraged businesses. To sell to some of these customers, we may be required to take risks of uncollectible accounts. We may be exposed to similar risks relating to third party resellers and other sales partners, as we
intend to increasingly utilize such parties as we expand into new geographic regions. Additionally, as we have expanded our business internationally we have experienced longer payment terms and collection cycles from customers outside the United
States. While we monitor these situations carefully and attempt to take appropriate measures to protect ourselves, it is possible that we may have to write down or write off doubtful accounts. Such write-downs or write-offs would negatively affect
our operating results for the period in which they occur, and, if large, could have a material adverse effect on our operating results and financial condition.

Our products depend on and work with products containing complex software and if our products fail to perform properly due to errors in the software, we may need to devote resources to correct the errors or compensate for losses from
these errors and our reputation could be harmed.

Our products depend on complex software, both internally developed and licensed from third parties.
Also, our customers may use our products with other companies products which also contain complex software. Complex software often contains errors and may not perform properly. These errors could result in:



| |  |  | delays in product shipments;
| | - |  | ----------------------------



| |  |  | unexpected expenses and diversion of resources to identify the source of errors or to correct errors, whether or not the error is later determined to be related to our software;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | damage to our reputation;
| | - |  | -------------------------



| |  |  | lost sales;
| | - |  | -----------



| |  |  | contractual penalties, demands, claims and litigation and related defense costs; and
| | - |  | ------------------------------------------------------------------------------------



| |  |  | warranty claims.
| | - |  | ----------------



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If our products fail to perform properly due to errors, bugs or similar problems in the software, we could be required to
devote valuable resources to correct the errors or compensate for losses from these errors. Furthermore, if our products are found to contain errors or bugs, whether resulting from internally developed or third-party licensed software, our
reputation with our customer base could be harmed and our business could suffer.

Additionally we will be using our own products to diagnose and resolve
consumer technology problems in our new business initiative. If our products fail to perform well in this environment, there would be a material adverse effect on our new business initiative.

Our reported results of operations will continue to be materially and adversely affected by our adoption of SFAS 123R.

Statement of Financial Accounting Standards No. 123 (revised 2004),Share-Based Payment (SFAS 123R), became effective in our first quarter of 2006, and
has resulted in our recognition of substantial compensation expense relating to our employee stock options and employee stock purchase plans. Historically, we generally have not recognized in our statement of operations any compensation expense
related to stock option grants we issue under our stock option plans or the discounts we provide under our employee stock purchase plans. Under the new rules, we are required to adopt a fair value-based method for measuring the compensation expense
related to employee stock awards, which leads to substantial additional compensation expense and a material adverse effect on our reported results of operations.

Our sales cycle is lengthy and if revenue forecasted for a particular quarter is not realized in that quarter, significant expenses incurred may not be offset by corresponding revenue.

Our sales cycle for our software typically ranges from three to nine months or more and may vary substantially from customer to customer. The purchase of our products and
services generally involves a significant commitment of capital and other resources by a customer. This commitment often requires significant technical review, assessment of competitive products and approval at a number of management levels within a
customers organization. In addition, in the wake of Sarbanes-Oxley, companies have enhanced their approval processes making sales more difficult or protracted. While our customers are evaluating our products and services, we may incur
substantial sales and marketing expenses and spend significant management effort to complete these sales. Any delay in completing sales in a particular quarter or the failure to complete a sale after expending resources during the sales cycle could
cause our operating results to suffer.

If we are unable to maintain effective disclosure controls and procedures, including our internal control over
financial reporting, our ability to report our financial results on a timely and accurate basis may be adversely affected.

We have evaluated our
disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as well as our internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of
2002. Our independent registered public accounting firm has performed a similar evaluation of our internal control over financial reporting. Effective controls are necessary for us to provide reliable financial reports and effectively prevent fraud.
If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. As of December 31, 2005, we concluded that our internal control over financial reporting were effective. However, in 2004 we had material
weaknesses in our internal controls and we cannot be certain that we will continue to have adequate controls over our financial processes and reporting in the future. If weaknesses are identified, our ability to report our financial results on a
timely and accurate basis may be adversely affected. In addition, if we cannot maintain internal control over financial reporting and disclosure controls and procedures, investors may lose confidence in our reported financial information, which
could have a negative effect on the trading price of our common stock.

If our existing customers do not renew maintenance services or purchase
additional products, our operating results could suffer.

Historically, we have derived, and expect to continue to derive, a significant portion of our
total revenue from existing customers who purchase additional products or renew maintenance services. Our customers may not renew maintenance services or purchase additional products and may not expand their use of our products. In addition, as we
introduce new products, our current customers may not require or desire the functionality of our new products and may not ultimately purchase these products. If our customers do not renew maintenance services or do not purchase additional products,
our revenue levels and operating results could suffer.

Our software may not operate with the hardware and software platforms that are used by our
customers now or in the future, and as a result our business and operating results may suffer.

We currently serve a customer base with a wide variety
of constantly changing hardware, software and networking platforms. If we



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fail to release versions of our software that are compatible with operating systems, software applications or hardware devices used by our customers, our
business and operating results would suffer. Our future success also depends on:



| |  |  | the continuing ability of our products to inter-operate with multiple platforms and packaged applications used by our customer base; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our management of software being developed by third parties for our customers or for use with our products.
| | - |  | -----------------------------------------------------------------------------------------------------------

We rely on third-party technologies and our inability to use or integrate third-party technologies could delay product or service development.

We intend to continue to license technologies from third parties, including applications used in our research and development activities and technologies such as
third-party search engine technology, which are integrated into our products and services. Our inability to obtain or integrate any of these technologies with our own products could delay product and service development until equivalent technology
can be identified, licensed and integrated. These technologies may not continue to be available to us on commercially reasonable terms or at all. We may fail to successfully integrate any licensed technology into our products or services, which
would harm our business and operating results. Third-party licenses also expose us to increased risks that include:



| |  |  | risks of product malfunction after new technology is integrated;
| | - |  | ----------------------------------------------------------------



| |  |  | the diversion of resources from the development of our own proprietary technology; and
| | - |  | --------------------------------------------------------------------------------------



| |  |  | our inability to generate revenue from new technology sufficient to offset associated acquisition and maintenance costs.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

We must compete successfully in the market for software and services that resolve technical problems or we will lose market share and our business will suffer.

We compete in markets that are highly competitive, subject to rapid change and significantly affected by new product introductions and other market
activities of industry participants. We compete with a number of companies in the market for automated delivery of support and service automation and other vendors who may offer products or services with features that compete with specific elements
of our software products and services. In addition, our customers and potential customers have developed or may develop internally similar software systems. We expect that internally developed applications will continue to be a principal source of
competition in the foreseeable future.

The markets for our products are still rapidly evolving, and we may not be able to compete successfully against
current and potential competitors. Our ability to expand our business will depend on our ability to maintain our technological advantage, introduce timely enhanced products to meet the growing support needs, deliver on-going value to our customers
and scale our business. Our potential competitors may have longer operating histories, significantly greater financial, technical and other resources, stronger strategic alliances or greater name recognition than we do. Competition in our markets
could reduce our market share or require us to reduce the price of products and services, which could harm our business, financial condition and operating results.

In the market for consumer technology support services, we expect to compete against a different set of competitors, including electronics retailers offering on-site technology support services, companies offering online technology support
services and companies offering local technology support services. Certain of these competitors have longer operating histories, significantly greater financial, technical and other resources, stronger strategic alliances or greater name recognition
than we do.

Our system security is important to our customers and we may need to spend significant resources to protect against or correct problems
caused by security breaches.

A fundamental requirement for online communications, transactions and support is the secure transmission of confidential
information. Third parties may attempt to breach our security or that of our customers. We may be liable to our customers for any breach in security and any breach could harm our business and reputation. Also, computers are vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays or loss of data. We may be required to expend significant capital and other resources to further protect against security breaches or to
correct problems caused by any breach.



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Failure to resolve pending securities claims and other lawsuits may lead to continued costs and expenses and divert
managements attention from our business, which could cause our revenue and our stock price to decline.

In the past, securities class action
litigation has often been brought against public companies, including our company, after periods of volatility in the market price of securities. The market price of our common stock has been subject to significant fluctuations and may continue to
fluctuate or decline. In addition, the anti-takeover provisions we have adopted in the past, such as prohibiting stockholder action by written consent, or may adopt in the future may be perceived negatively by the market causing a decline in our
stock price or litigation against us. Securities class action lawsuits were filed against us in November 2001 and again in December 2004. In addition, a derivative shareholder lawsuit was filed against us in December 2005. Should these lawsuits
linger for a long period of time, whether ultimately resolved in our favor or not, or further lawsuits be filed against us, coverage limits of our insurance or our ability to pay such amounts may not be adequate to cover the fees and expenses and
any ultimate resolution associated with such litigation. The size of these payments, if any, individually or in the aggregate, could seriously impair our cash reserves and financial condition. The continued defense of these lawsuits also could
result in continued diversion of our managements time and attention away from business operations, which could cause our financial results to decline. A failure to resolve definitively current or future material litigation in which we are
involved or in which we may become involved in the future, regardless of the merits of the respective cases, could also cast doubt as to our prospects in the eyes of customers, potential customers and investors, which could cause our revenue and
stock price to decline.

Privacy concerns and laws or other domestic or foreign regulations may reduce the effectiveness of our solution or harm our
reputation and cause us to lose customers.

Our software contains features which allow our customers to control, monitor or collect information from
computers running the software. Federal, state and foreign government bodies and agencies, however, have adopted or are considering adopting laws and regulations regarding the collection, use and disclosure of personal information obtained from
consumers and individuals. The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our customers may limit the use and adoption of our solutions and reduce overall demand for it.
Furthermore, privacy concerns may cause our customers customers to resist providing the data necessary to allow our customers to use our solutions effectively. Even the perception of privacy concerns, whether or not valid, may inhibit adoption
of our solutions. In addition, we may face claims about invasion of privacy or inappropriate disclosure, use or loss of this information. Any imposition of liability could harm our reputation, cause us to lose customers and cause our operating
results to suffer.

Any system failure that causes an interruption in our customers ability to use our products or services or a decrease in their
performance could harm our relationships with our customers and result in reduced revenue.

Our software is vulnerable to damage or interruption from
computer viruses, human error, natural disasters, electricity grid failures and intentional acts of vandalism and similar events. These problems could interrupt our customers ability to use our products or services, which could harm our
reputation and cause us to lose customers and revenue.

We may not obtain sufficient patent protection, which could harm our competitive position,
increase our expenses and harm our business.

Our success and ability to compete depend to a significant degree upon the protection of our software and
other proprietary technology. It is possible that:



| |  |  | our pending patent applications may not be issued;
| | - |  | --------------------------------------------------



| |  |  | competitors may independently develop similar technologies or design around any of our patents;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | patents issued to us may not be broad enough to protect our proprietary rights; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | our issued patents could be successfully challenged.
| | - |  | ----------------------------------------------------

We rely upon
patents, trademarks, copyrights and trade secrets to protect our proprietary rights and if these rights are not sufficiently protected, it could harm our ability to compete and to generate revenue.

We rely on a combination of laws, such as patents, copyright, trademark and trade secret laws, and contractual restrictions, such as



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confidentiality agreements and licenses, to establish and protect our proprietary rights. Our ability to compete and grow our business could suffer if these
rights are not adequately protected. Our proprietary rights may not be adequately protected because:



| |  |  | laws and contractual restrictions may not adequately prevent misappropriation of our technologies or deter others from developing similar technologies; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | policing unauthorized use of our products and trademarks is difficult, expensive and time-consuming, and we may be unable to determine the existence or extent of this unauthorized
use.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Also, the laws of other countries in which we market our products may offer little or no protection of our proprietary technologies.
Reverse engineering, unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies without paying us for them, which would harm our competitive position and market share.

We may face intellectual property infringement claims that could be costly to defend and result in our loss of significant rights.

Other parties may assert intellectual property infringement claims against us or our customers and our products may infringe the intellectual property rights of third
parties. Intellectual property litigation is expensive and time-consuming and could divert managements attention from our business. If there is a successful claim of infringement, we may be required to develop non-infringing technology or
enter into royalty or license agreements which may not be available on acceptable terms, if at all. Our failure to develop non-infringing technologies or license the proprietary rights on a timely basis would harm our business.

We have recorded long-lived assets, and our results of operations would be adversely affected if their value becomes impaired.

Goodwill and identifiable intangible assets were recorded as a result of our acquisition of substantially all of the assets of Core Networks Incorporated on
September 2, 2004. We assess the impairment of goodwill annually or more often if events or changes in circumstances indicate that the carrying value may not be recoverable. We assess the impairment of acquired product rights and other
identifiable intangible assets whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. An impairment loss would be recognized when the sum of the discounted future net cash flows expected to result from
the use of the asset and its eventual disposition is less than its carrying amount. Such impairment loss would be measured as the difference between the carrying amount of the asset and its fair value. Material differences may result in write-downs
of net long-lived and intangible assets, which would cause our operating results to suffer.

If securities analysts stop publishing research or reports
about us or our business or if they downgrade our stock, the price of our stock could decline.

The trading market for our common stock relies in part
on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. If one or more of the analysts who currently cover us downgrade our stock, our stock price would likely decline
rapidly. Furthermore, if one or more of these analysts cease coverage of us, we could lose visibility in the market, which in turn could cause our stock price to decline.

Risks Related To Our Industry

We may experience a decrease in market demand due to uncertain economic conditions
in the United States and in international markets, which has been further exacerbated by the concerns of terrorism, war and social and political instability.

The United States and some international economies have in the past, experienced periods of slow economic growth. In addition, the terrorists attacks in the United States and turmoil in the Middle East have increased the uncertainty in the
United States economy and may further exacerbate the decline in economic conditions, both domestically and internationally. Terrorist acts and similar events, or war in general, could contribute further to a slowdown of the market demand for goods
and services, including software solutions. If the economy declines as a result of economic, political and social turmoil, or if there are further terrorist attacks in the United States or elsewhere, we may experience decreases in the demand for our
products and services, which may harm our operating results.

We may be required to change our business practices if there are changes in accounting
regulations and related interpretations and policies.

Accounting standards groups and regulators are actively re-examining various accounting policies,
guidelines and interpretations related to revenue recognition, expensing stock options, income taxes, investments in equity securities, facilities consolidation,



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accounting for acquisitions, allowance for doubtful accounts and other financial reporting matters. These standards groups and regulators could promulgate
interpretations and guidance that could result in material and potentially adverse changes to our business practices and accounting policies.

New rules
and regulations for public companies have increased and may continue to increase our administrative costs.

The Sarbanes-Oxley Act of 2002, as well as
new rules subsequently implemented by the Securities and Exchange Commission and the Nasdaq National Market, have required changes in corporate governance practices of public companies.

These rules and regulations are increasing our legal and financial compliance costs, and making some activities more time-consuming and costly. These rules and regulations make it more difficult and more expensive for
us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These new rules and regulations could also make it more difficult for us to attract and
retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.



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

At our annual meeting of stockholders on
May 23, 2006, the following two proposals were voted on and approved as follows:

1. Our stockholders elected six directors to serve
until our next annual meeting of stockholders, or until their successors are duly elected and qualified.



|                   |  |             |  |          
|------------------ |  | ----------- |  | ---------
|                   |  | Total Votes
|Name               |  | For         |  | Withheld 
|Radha R. Basu      |  | 40,088,926  |  | 1,026,191
|Manuel F. Diaz     |  | 39,999,261  |  | 1,115,856
|Kevin C. Eichler   |  | 40,003,663  |  | 1,111,454
|J. Martin OMalley |  | 40,257,310  |  | 857,807  
|Joshua Pickus      |  | 40,394,034  |  | 721,083  
|James Thanos       |  | 40,266,010  |  | 849,107  

2. Our stockholders ratified the appointment of Ernst & Young LLP as our independent
registered public accounting firm.



|        |  |            
|------- |  | -----------
|        |  | Total Votes
|For     |  | 39,672,830 
|Against |  | 1,308,460  
|Abstain |  | 133,827    

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibits.



|     |  |                                                                                                                                                                                                      
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | SupportSofts Amended and Restated 2000 Employee Stock Purchase Plan                                                                                                                                 
|     | 
|10.2 |  | Employment Agreement between Joshua Pickus and SupportSoft, Inc., dated April 6, 2006 (incorporated by reference to Exhibit 10.1 of SupportSofts current report on Form 8-K filed on
April 12, 2006)
|     | 
|10.3 |  | Employment Agreement between SupportSoft and Michael Sayer, dated April 24, 2006 (incorporated by reference to Exhibit 10.1 of SupportSofts current report on Form 8-K filed on April 27,
2006)     
|     | 
|31.1 |  | Chief Executive Officer Section 302 Certification                                                                                                                                                    
|     | 
|31.2 |  | Chief Financial Officer Section 302 Certification                                                                                                                                                    
|     | 
|32.1 |  | Statement of the Chief Executive Officer under 18 U.S.C. § 13501                                                                                                                                     
|     | 
|32.2 |  | Statement of the Chief Financial Officer under 18 U.S.C. § 13501                                                                                                                                     

---

|1 | The certifications filed as Exhibits 32.1 and 32.2 are not deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Company under the Securities Exchange Act of 1933 or the Securities Exchange Act of 1934, whether made before or
after the date hereof irrespective of any general incorporation by reference language contained in any such filing, except to the extent that the registrant specifically incorporates it by reference.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURE

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

August 4, 2006



SUPPORTSOFT, INC.By:

/s/ KEN OWYANGKen OwyangChief Financial Officer andSenior Vice President of Finance and Administration(Principal Financial Officer, Chief AccountingOfficer and Duly Authorized Signatory)




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EXHIBIT INDEX TO SUPPORTSOFT, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2006



|     |  |                                                                                                                                                                                                      
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | SupportSofts Amended and Restated 2000 Employee Stock Purchase Plan                                                                                                                                 
|10.2 |  | Employment Agreement between Joshua Pickus and SupportSoft, Inc., dated April 6, 2006 (incorporated by reference to Exhibit 10.1 of SupportSofts current report on Form 8-K filed on
April 12, 2006)
|10.3 |  | Employment Agreement between SupportSoft and Michael Sayer, dated April 24, 2006 (incorporated by reference to Exhibit 10.1 of SupportSofts current report on Form 8-K filed on April 27,
2006)     
|31.1 |  | Chief Executive Officer Section 302 Certification                                                                                                                                                    
|31.2 |  | Chief Financial Officer Section 302 Certification                                                                                                                                                    
|32.1 |  | Statement of the Chief Executive Officer under 18 U.S.C. § 13501                                                                                                                                     
|32.2 |  | Statement of the Chief Financial Officer under 18 U.S.C. § 13501                                                                                                                                     

---

|1 | The certifications filed as Exhibits 32.1 and 32.2 are not deemed filed for
purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Company under the Securities Exchange Act of 1933 or the Securities Exchange Act of 1934, whether made before or
after the date hereof irrespective of any general incorporation by reference language contained in any such filing, except to the extent that the registrant specifically incorporates it by reference.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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