##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)



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

For the quarterly period ended September 30, 2009

or



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

For the transition period from
 to

Commission File Number: 001-16073





OPENWAVE SYSTEMS
INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 94-3219054                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|2100 Seaport Blvd.                       |  |           
|Redwood City, California                 |  | 94063     
|(Address of principal executive offices) |  | (Zip Code)

(650) 480-8000

(Registrants telephone number, including area code)





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

Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).    Yes   ̈    No   ̈

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



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

As of October 31, 2009 there were 83,520,228 shares of the registrants Common Stock outstanding.









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##### Table of Contents

OPENWAVE SYSTEMS INC.

Table of Contents



|                              |  |                                                                                       |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION |  |                                                                                      
|                              |  |                                                                                      
|Item 1.                       |  | Financial Statements:                                                                 |  |   
|                              |  | Condensed Consolidated Balance Sheets                                                 |  | 3 
|                              |  | Condensed Consolidated Statements of Operations                                       |  | 4 
|                              |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5 
|                              |  | Notes to Condensed Consolidated Financial Statements                                  |  | 6 
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 23
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 35
|Item 4.                       |  | Controls and Procedures                                                               |  | 36
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                      
|                              |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 38
|Item 1A.                      |  | Risk Factors                                                                          |  | 39
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 39
|Item 3.                       |  | Defaults Upon Senior Securities                                                       |  | 39
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                   |  | 40
|Item 5.                       |  | Other Information                                                                     |  | 40
|Item 6.                       |  | Exhibits                                                                              |  | 41
|                              | 
|SIGNATURES                    |  | 42                                                                                   



2



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##### Table of Contents

PART 1. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

OPENWAVE SYSTEMS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)



|                                                            |  |                   |            |   |              |   |            |  
|----------------------------------------------------------- |  | ----------------- | ---------- | - | ------------ | - | ---------- | -
|                                                            |  | September 30,2009 |            |   | June 30,2009 |  
|ASSETS                                                      |  |                   |            |   |              |   |            |  
|                                                            |  |                  
|Current assets:                                             |  |                   |            |   |              |   |            |  
|Cash and cash equivalents                                   |  | $                 | 86,465     |   |              | $ | 91,545     |  
|Short-term investments                                      |  |                   | 18,369     |   |              |   | 17,537     |  
|Accounts receivable, net of allowance for doubtful accounts |  |                   | 36,397     |   |              |   | 31,107     |  
|Prepaid and other current assets                            |  |                   | 19,119     |   |              |   | 26,801     |  
|                                                            |  |                   |            |   |              |   |            |  
|Total current assets                                        |  |                   | 160,350    |   |              |   | 166,990    |  
|Property and equipment, net                                 |  |                   | 10,487     |   |              |   | 11,566     |  
|Long-term investments, and restricted cash and investments  |  |                   | 16,798     |   |              |   | 17,618     |  
|Deposits and other assets                                   |  |                   | 8,459      |   |              |   | 8,313      |  
|Goodwill                                                    |  |                   | 267        |   |              |   |           |  
|Intangible assets, net                                      |  |                   | 3,461      |   |              |   | 3,880      |  
|                                                            |  |                   |            |   |              |   |            |  
|Total assets                                                |  | $                 | 199,822    |   |              | $ | 208,367    |  
|                                                            |  |                   |            |   |              |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                        |  |                   |            |   |              |   |            |  
|                                                            |  |                  
|Current liabilities:                                        |  |                   |            |   |              |   |            |  
|Accounts payable                                            |  | $                 | 3,427      |   |              | $ | 5,348      |  
|Accrued liabilities                                         |  |                   | 19,325     |   |              |   | 23,079     |  
|Accrued restructuring costs                                 |  |                   | 13,929     |   |              |   | 15,327     |  
|Deferred revenue                                            |  |                   | 39,968     |   |              |   | 38,349     |  
|                                                            |  |                   |            |   |              |   |            |  
|Total current liabilities                                   |  |                   | 76,649     |   |              |   | 82,103     |  
|Accrued restructuring costs, net of current portion         |  |                   | 32,093     |   |              |   | 34,843     |  
|Deferred revenue, net of current portion                    |  |                   | 9,881      |   |              |   | 11,901     |  
|Deferred rent obligations and other                         |  |                   | 5,625      |   |              |   | 6,824      |  
|                                                            |  |                   |            |   |              |   |            |  
|Total liabilities                                           |  |                   | 124,248    |   |              |   | 135,671    |  
|                                                            |  |                   |            |   |              |   |            |  
|Commitments and contingencies                               |  |                   |            |   |              |   |            |  
|                                                            |  |                  
|Stockholders equity:                                       |  |                   |            |   |              |   |            |  
|Common stock                                                |  |                   | 84         |   |              |   | 83         |  
|Additional paid-in capital                                  |  |                   | 3,184,892  |   |              |   | 3,184,263  |  
|Accumulated other comprehensive loss                        |  |                   | (4,172     | ) |              |   | (5,432     | )
|Accumulated deficit                                         |  |                   | (3,105,230 | ) |              |   | (3,106,218 | )
|                                                            |  |                   |            |   |              |   |            |  
|Total stockholders equity                                  |  |                   | 75,574     |   |              |   | 72,696     |  
|                                                            |  |                   |            |   |              |   |            |  
|Total liabilities and stockholders equity                  |  | $                 | 199,822    |   |              | $ | 208,367    |  
|                                                            |  |                   |            |   |              |   |            |  

See accompanying notes to condensed consolidated financial statements



3



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OPENWAVE SYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                                                          |  |                                 |        |   |      |   |         |  
|----------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                          |  | Three Months EndedSeptember 30, |       
|                                                                                          |  | 2009                            |        |   | 2008 |  
|Revenues:                                                                                 |  |                                 |        |   |      |   |         |  
|License                                                                                   |  | $                               | 10,425 |   |      | $ | 14,327  |  
|Maintenance and support                                                                   |  |                                 | 15,798 |   |      |   | 16,378  |  
|Services                                                                                  |  |                                 | 23,619 |   |      |   | 20,340  |  
|                                                                                          |  |                                 |        |   |      |   |         |  
|Total revenues                                                                            |  |                                 | 49,842 |   |      |   | 51,045  |  
|                                                                                          |  |                                 |        |   |      |   |         |  
|Cost of revenues:                                                                         |  |                                 |        |   |      |   |         |  
|License                                                                                   |  |                                 | 639    |   |      |   | 2,266   |  
|Maintenance and support                                                                   |  |                                 | 4,327  |   |      |   | 4,258   |  
|Services                                                                                  |  |                                 | 17,773 |   |      |   | 14,447  |  
|                                                                                          |  |                                 |        |   |      |   |         |  
|Total cost of revenues                                                                    |  |                                 | 22,739 |   |      |   | 20,971  |  
|                                                                                          |  |                                 |        |   |      |   |         |  
|Gross profit                                                                              |  |                                 | 27,103 |   |      |   | 30,074  |  
|                                                                                          |  |                                 |        |   |      |   |         |  
|Operating expenses:                                                                       |  |                                 |        |   |      |   |         |  
|Research and development                                                                  |  |                                 | 9,864  |   |      |   | 12,286  |  
|Sales and marketing                                                                       |  |                                 | 10,711 |   |      |   | 10,744  |  
|General and administrative                                                                |  |                                 | 7,925  |   |      |   | 10,620  |  
|Restructuring and other related costs                                                     |  |                                 | 422    |   |      |   | 1,903   |  
|Amortization of intangible assets                                                         |  |                                 |       |   |      |   | 26      |  
|                                                                                          |  |                                 |        |   |      |   |         |  
|Total operating expenses                                                                  |  |                                 | 28,922 |   |      |   | 35,579  |  
|                                                                                          |  |                                 |        |   |      |   |         |  
|Operating loss from continuing operations                                                 |  |                                 | (1,819 | ) |      |   | (5,505  | )
|Interest income                                                                           |  |                                 | 268    |   |      |   | 1,823   |  
|Interest expense                                                                          |  |                                 | (102   | ) |      |   | (995    | )
|Other expense, net                                                                        |  |                                 | (1,375 | ) |      |   | (7,324  | )
|                                                                                          |  |                                 |        |   |      |   |         |  
|Loss from continuing operations before provision for income taxes                         |  |                                 | (3,028 | ) |      |   | (12,001 | )
|Income tax expense                                                                        |  |                                 | 498    |   |      |   | 503     |  
|                                                                                          |  |                                 |        |   |      |   |         |  
|Net loss from continuing operations                                                       |  |                                 | (3,526 | ) |      |   | (12,504 | )
|                                                                                          |  |                                 |        |   |      |   |         |  
|Discontinued operations:                                                                  |  |                                 |        |   |      |   |         |  
|Gain on sale of discontinued operation, net of tax                                        |  |                                 | 4,516  |   |      |   | 2,000   |  
|                                                                                          |  |                                 |        |   |      |   |         |  
|Net income (loss)                                                                         |  | $                               | 990    |   |      | $ | (10,504 | )
|                                                                                          |  |                                 |        |   |      |   |         |  
|Basic and Diluted net income (loss) per share from:                                       |  |                                 |        |   |      |   |         |  
|Continuing operations                                                                     |  | $                               | (0.04  | ) |      | $ | (0.15   | )
|Discontinued operations                                                                   |  | $                               | 0.05   |   |      | $ | 0.02    |  
|                                                                                          |  |                                 |        |   |      |   |         |  
|Net income (loss)                                                                         |  | $                               | 0.01   |   |      | $ | (0.13   | )
|                                                                                          |  |                                 |        |   |      |   |         |  
|Shares used in computing basic and diluted net income (loss) per share                    |  |                                 | 83,295 |   |      |   | 82,773  |  
|                                                                                          |  |                                
|Supplemental disclosures:                                                                 |  |                                 |        |   |      |   |         |  
|Total other-than-temporary impairments                                                    |  | $                               | (1,824 | ) |      | $ | (5,632  | )
|Portion of other-than-temporary impairments included in other comprehensive income (loss) |  |                                 | 360    |   |      |   |        |  
|                                                                                          |  |                                 |        |   |      |   |         |  
|Net other-than-temporary impairments                                                      |  |                                 | (1,464 | ) |      |   | (5,632  | )
|Other investment gains (losses)                                                           |  |                                 | 79     |   |      |   |        |  
|                                                                                          |  |                                 |        |   |      |   |         |  
|Total net investment gains (losses) in Other expense, net                                 |  | $                               | (1,385 | ) |      | $ | (5,632  | )
|                                                                                          |  |                                 |        |   |      |   |         |  

See accompanying notes to condensed consolidated financial statements



4



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OPENWAVE SYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                               |  |                                 |        |   |      |   |          |  
|---------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | -------- | -
|                                                                                               |  | Three Months EndedSeptember 30, |       
|                                                                                               |  | 2009                            |        |   | 2008 |  
|Cash flows from operating activities:                                                          |  |                                 |        |   |      |   |          |  
|Net income (loss)                                                                              |  | $                               | 990    |   |      | $ | (10,504  | )
|Gain on sale of discontinued operation                                                         |  |                                 | (4,516 | ) |      |   | (2,000   | )
|Adjustments to reconcile net loss to net cash used for operating activities:                   |  |                                 |        |   |      |   |          |  
|Depreciation and amortization of intangibles                                                   |  |                                 | 1,901  |   |      |   | 2,799    |  
|Stock-based compensation                                                                       |  |                                 | 547    |   |      |   | 971      |  
|Noncash restructuring charges                                                                  |  |                                 | 391    |   |      |   | 447      |  
|Accelerated depreciation on restructured property and equipment                                |  |                                 |       |   |      |   | 235      |  
|Provision for doubtful accounts                                                                |  |                                 | 31     |   |      |   | 37       |  
|Amortization of discount on convertible debt and debt issuance costs                           |  |                                 |       |   |      |   | 158      |  
|Amortization/(accretion) of premiums/discounts on investments                                  |  |                                 | 64     |   |      |   | 87       |  
|Deferred tax liability, net                                                                    |  |                                 |       |   |      |   | (98      | )
|Impairment of non-marketable securities                                                        |  |                                 | 1,464  |   |      |   | 5,632    |  
|Changes in operating assets and liabilities, net of effect of acquired assets and liabilities: |  |                                 |        |   |      |   |          |  
|Accounts receivable                                                                            |  |                                 | (5,321 | ) |      |   | 21,117   |  
|Prepaid assets, deposits, and other assets                                                     |  |                                 | 7,536  |   |      |   | (1,541   | )
|Accounts payable                                                                               |  |                                 | (1,717 | ) |      |   | (655     | )
|Accrued liabilities                                                                            |  |                                 | (5,219 | ) |      |   | (10,837  | )
|Accrued restructuring costs                                                                    |  |                                 | (4,539 | ) |      |   | (3,905   | )
|Deferred revenue                                                                               |  |                                 | (401   | ) |      |   | (4,866   | )
|                                                                                               |  |                                 |        |   |      |   |          |  
|Net cash used for operating activities                                                         |  |                                 | (8,789 | ) |      |   | (2,923   | )
|                                                                                               |  |                                 |        |   |      |   |          |  
|Cash flows from investing activities:                                                          |  |                                 |        |   |      |   |          |  
|Purchases of property and equipment                                                            |  |                                 | (607   | ) |      |   | (477     | )
|Proceeds from sale of discontinued operation, net                                              |  |                                 | 4,516  |   |      |   | 9,718    |  
|Purchases of short-term investments                                                            |  |                                 | (7,016 | ) |      |   |         |  
|Proceeds from sales and maturities of short-term investments                                   |  |                                 | 8,498  |   |      |   | 8,867    |  
|Purchases of long-term investments                                                             |  |                                 | (2,395 | ) |      |   |         |  
|Proceeds from sales and maturities of long-term investments                                    |  |                                 | 213    |   |      |   | 102      |  
|Restricted cash and investments                                                                |  |                                 | 419    |   |      |   |         |  
|                                                                                               |  |                                 |        |   |      |   |          |  
|Net cash provided by investing activities                                                      |  |                                 | 3,628  |   |      |   | 18,210   |  
|                                                                                               |  |                                 |        |   |      |   |          |  
|Cash flows from financing activities:                                                          |  |                                 |        |   |      |   |          |  
|Proceeds from issuance of common stock, net                                                    |  |                                 | 81     |   |      |   |         |  
|Payment on notes payable                                                                       |  |                                 |       |   |      |   | (150,000 | )
|                                                                                               |  |                                 |        |   |      |   |          |  
|Net cash provided by (used for) financing activities                                           |  |                                 | 81     |   |      |   | (150,000 | )
|                                                                                               |  |                                 |        |   |      |   |          |  
|Net decrease in cash and cash equivalents                                                      |  |                                 | (5,080 | ) |      |   | (134,713 | )
|Cash and cash equivalents at beginning of period                                               |  |                                 | 91,545 |   |      |   | 196,150  |  
|                                                                                               |  |                                 |        |   |      |   |          |  
|Cash and cash equivalents at end of period                                                     |  | $                               | 86,465 |   |      | $ | 61,437   |  
|                                                                                               |  |                                 |        |   |      |   |          |  

See accompanying notes to condensed consolidated financial statements



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OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED

(1) Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not contain all of
the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management of Openwave Systems Inc. (the Company or
Openwave), the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Companys financial position as
of September 30, 2009 and June 30, 2009, and the results of operations for the three months ended September 30, 2009 and 2008 and cash flows for the three months ended September 30, 2009 and 2008. The following information should
be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2009. The Company has evaluated subsequent
events through November 6, 2009, the date which these condensed consolidated financial statements were available to be issued. As discussed under Recent Corporate Developments in Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations, the Company consolidated its engineering sites and offshore development centers in October 2009. The Company expects to complete the activities related to the Restructuring Plan by March 31, 2010. The
associated charges, approximating $2.3 million, are expected to be recorded in the Companys second and third quarter results for fiscal year 2010. This estimate may change depending on actual sublease activity over the next several months.

Use of Estimates and Business Risks

The preparation of condensed consolidated financial statements in conformity with the accounting principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts in the Companys condensed consolidated financial statements and the accompanying notes. Actual results could differ significantly from those estimates.

The Company derives more than half of its revenues from U.S. customers, which consist primarily of sales to Sprint Nextel and AT&T. Individual sales to
these customers can be significant and the timing of these transactions can create significant variability in the timing and level of Company revenues and profitability. While the Company continues its efforts to broaden sales to other
geographic markets and customers, the general economic deterioration in the U.S. and other geographic markets served by the Company has resulted in decreased business levels over the past several months and increases in the uncertainty around future
revenues and profitability. This uncertainty may impact estimates made by the Company as to the realizability of deferred tax assets and intangible assets, the valuation and classification of certain investments, the collectibility of accounts
receivable and the related impact of these estimates on the Companys results of operations.

Revenue Recognition

There have been no material changes to the Companys revenue recognition policies from the information provided in Note 2 to the
consolidated financial statements included in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2009.



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OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



Stock Based Compensation

The following table illustrates stock-based compensation recognized in the condensed consolidated statements of operations by category of award (in
thousands):



|                                                                                           |  |                                 |     |      |   |    
|------------------------------------------------------------------------------------------ |  | ------------------------------- | --- | ---- | - | ---
|                                                                                           |  | Three Months EndedSeptember 30,
|                                                                                           |  | 2009                            |     | 2008
|Stock-based compensation related to:                                                       |  |                                 |     |      |   |    
|Grants of nonvested stock                                                                  |  | $                               | 52  |      | $ | 131
|Stock options granted to employees and directors                                           |  |                                 | 429 |      |   | 735
|Employee stock purchase plan                                                               |  |                                 | 66  |      |   | 105
|                                                                                           |  |                                 |     |      |   |    
|Stock-based compensation recognized in the condensed consolidated statements of operations |  | $                               | 547 |      | $ | 971
|                                                                                           |  |                                 |     |      |   |    

During the three months ended September 30, 2009 and 2008, the tax benefits related to stock
option expense were immaterial.

The Company amortizes stock-based compensation for awards granted on a straight-line basis over the requisite
service (vesting) period for the entire award.

(a) Assumptions and Activity

The fair value of each option grant is estimated on the date of grant using the Black-Scholes-Merton option pricing model and assumptions noted in the
following table. The Company estimates the expected term for new grants based upon actual post-vesting option cancellation and exercise experience, as well as the average midpoint between vesting and the contractual term for outstanding options. The
Companys expected volatility for the expected term of the option is based upon the historical volatility experienced in the Companys stock price, as well as implied volatility in the market traded options on Openwave common stock, when
appropriate. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.



|                         |  |                                 |   |  |           |  
|------------------------ |  | ------------------------------- | - |  | --------- | -
|                         |  | Three Months EndedSeptember 30, |  
|                         |  | 2009                            |   |  | 2008      |  
|Expected volatility      |  | 75.4                            | % |  | 65.8      | %
|Expected dividends       |  | 0                               | % |  | 0         | %
|Expected term (in years) |  | 3.5 - 3.6                       |   |  | 3.2 - 3.4 |  
|Risk-free rate           |  | 1.8% - 2.0                      | % |  | 2.6       | %

The Company determines the fair value of nonvested shares based on the NASDAQ closing stock price on
the date of grant.

(b) Employee Stock Purchase Plan

Under the Openwave Systems Inc. 1999 Employee Stock Purchase Plan (ESPP), eligible employees may purchase common stock through payroll deductions at a price equal to 85% of the lower of the
fair market value of the Companys common stock as of the beginning and the end of the six month offering periods. The amount of stock-based compensation expense recognized relating to the ESPP during the three months ended September 30,
2009 and 2008 was $0.1 million and $0.1 million, respectively.

The fair value used in recording the stock-based compensation expense
associated with the ESPP is estimated for each offering period using the Black-Scholes-Merton option pricing model that uses the assumptions noted in the following table. The expected term is six months, coinciding with each offering period.
Expected volatilities are based on the historical volatility experienced in the Companys stock price, as well as implied volatility in the market traded options on Openwave common stock when appropriate. The risk-free rate for the expected
term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.



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OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



|                         |  |                                 |   |  |      |  
|------------------------ |  | ------------------------------- | - |  | ---- | -
|                         |  | Three Months EndedSeptember 30, |  
|                         |  | 2009                            |   |  | 2008 |  
|Expected volatility      |  | 85.7                            | % |  | 67.5 | %
|Expected dividends       |  | 0                               | % |  | 0    | %
|Expected term (in years) |  | 0.5                             |   |  | 0.5  |  
|Risk-free rate           |  | 0.3                             | % |  | 2.0  | %

A summary of option activity from July 1, 2009 to September 30, 2009 is presented below (in
thousands except per share amounts):



|                                                  |  |        |   |  |                              |       |                                                 |      |                         |   |      
|------------------------------------------------- |  | ------ | - |  | ---------------------------- | ----- | ----------------------------------------------- | ---- | ----------------------- | - | -----
|Options                                           |  | Shares |   |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractualTerm (years) |      | AggregateIntrinsicValue
|Outstanding at July 1, 2009                       |  | 8,414  |   |  | $                            | 3.91  |                                                 | 8.13 |                         | $ | 4,824
|Options granted                                   |  | 557    |   |  |                              | 2.44  |                                                 |      |                         |   |      
|Exercised                                         |  | (51    | ) |  |                              | 1.59  |                                                 |      |                         |   |      
|Forfeited, canceled or expired                    |  | (283   | ) |  |                              | 10.15 |                                                 |      |                         |   |      
|                                                  |  |        |   |  |                              |       |                                                 |      |                         |   |      
|Outstanding at September 30, 2009                 |  | 8,637  |   |  | $                            | 3.63  |                                                 | 8.27 |                         | $ | 6,856
|                                                  |  |        |   |  |                              |       |                                                 |      |                         |   |      
|Vested and expected to vest at September 30, 2009 |  | 6,961  |   |  | $                            | 4.08  |                                                 | 8.02 |                         | $ | 5,224
|                                                  |  |        |   |  |                              |       |                                                 |      |                         |   |      
|Exercisable at September 30, 2009                 |  | 2,925  |   |  | $                            | 7.29  |                                                 | 6.35 |                         | $ | 1,307
|                                                  |  |        |   |  |                              |       |                                                 |      |                         |   |      

The weighted average grant date fair values of options granted during the three months ended
September 30, 2009 and 2008 were $1.31 and $0.70, respectively. The total intrinsic value of options exercised during the three months ended September 30, 2009 was $54,000. There were no options exercised in the three months ended
September 30, 2008. Upon the exercise of options, the Company issues new common stock from its authorized shares.

A summary of the
activity of the Companys nonvested share awards from July 1, 2009 to September 30, 2009 is presented below (in thousands except per share amounts):



|                                |  |        |   |  |                                              |     
|------------------------------- |  | ------ | - |  | -------------------------------------------- | ----
|Nonvested Shares                |  | Shares |   |  | WeightedAverageGrant DateFair ValuePer Share
|Nonvested at July 1, 2009       |  | 196    |   |  | $                                            | 2.04
|Nonvested shares granted        |  |       |   |  |                                              |    
|Vested                          |  | (8     | ) |  |                                              | 4.89
|Forfeited                       |  |       |   |  |                                              |    
|                                |  |        |   |  |                                              |     
|Nonvested at September 30, 2009 |  | 188    |   |  | $                                            | 1.92
|                                |  |        |   |  |                                              |     

As of September 30, 2009, there was $3.2 million of total unrecognized compensation cost related
to all unvested share awards. That cost is expected to be recognized as the awards vest over the next four years. The total fair value of shares vested during the three months ended September 30, 2009 and 2008 was $39,000 and $0.1 million,
respectively.



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##### Table of Contents

OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



Stock-based compensation expense impacted the Companys results of operations as follows (in
thousands):



|                                      |  |                                 |     |      |   |    
|------------------------------------- |  | ------------------------------- | --- | ---- | - | ---
|                                      |  | Three Months EndedSeptember 30,
|                                      |  | 2009                            |     | 2008
|Stock-based compensation by category: |  |                                 |     |      |   |    
|Maintenance and support services      |  | $                               | 38  |      | $ | 72 
|Services                              |  |                                 | 76  |      |   | 166
|Research and development              |  |                                 | 98  |      |   | 250
|Sales and marketing                   |  |                                 | 146 |      |   | 132
|General and administrative            |  |                                 | 189 |      |   | 351
|                                      |  |                                 |     |      |   |    
|                                      |  | $                               | 547 |      | $ | 971
|                                      |  |                                 |     |      |   |    

Significant Accounting Policies

There have been no material changes to the Companys significant accounting policies as compared to the significant accounting policies described in the Companys Annual Report on Form 10-K for
the fiscal year ended June 30, 2009, except for the adoption on July 1, 2009 of authoritative guidance issued by the FASB related to the factors to consider in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset, the disclosure of the fair value of financial instruments on an interim basis and the new guidelines and numbering system prescribed by the FASB Codification. The Companys adoption of this guidance did not
have a material impact on its condensed consolidated financial position, results of operations or cash flows.

Recently
Issued Accounting Pronouncements

In August 2009, the FASB issued Accounting Standards Update 2009-05, Fair Value Measurements and
Disclosures (Topic 820), Measuring Liabilities at Fair Value (Update 2009-05). Update 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value of such liability using one or more of the techniques prescribed by the update. The Company adopted Update 2009-05 in the first quarter of fiscal 2010 and it did not have a material impact upon its
condensed consolidated financial position, results of operations or cash flows.

In October 2009, the FASB issued Accounting Standards Update
2009-13, Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements (Update 2009-13). Update 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for non-software
products or services (deliverables) separately based on the value allocated to each element using vendor specific objective evidence, third party evidence, or estimated selling prices determined by management. This standard is effective for
financial statements for interim or annual reporting periods ending after June 15, 2010. The adoption of Update 2009-13 is not expected to have a material impact on the Companys condensed consolidated financial position, results of
operations or cash flows.

In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985), Certain Revenue
Arrangements that Include Software Elements (Update 2009-14). Update 2009-14 addresses concerns raised by constituents relating to the accounting for revenue arrangements that contain tangible products and software. This standard is
effective for financial statements for interim or annual reporting periods ending after June 15, 2010. The adoption of Update 2009-14 is not expected to have a material impact on the Companys condensed consolidated financial position,
results of operations or cash flows.

(2) Net Income (Loss) Per Share

Basic net income (loss) per common share has been computed using the weighted average number of shares of common stock outstanding during the period, less shares subject to repurchase. The basic and
diluted net loss per share was the same for all periods presented due to a net loss from continuing operations in all periods.



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##### Table of Contents

OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



The Company excludes potentially dilutive securities from its diluted net loss per share computation
when their effect would be anti-dilutive to the net loss per share computation. The following table sets forth potential shares of common stock that are not included in the diluted net loss per share calculation because to do so would be
anti-dilutive for the periods indicated below (in thousands):



|                                                                                                                                                                                                     |  |                                 |  |      
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- |  | -----
|                                                                                                                                                                                                     |  | Three Months EndedSeptember 30,
|                                                                                                                                                                                                     |  | 2009                            |  | 2008 
|Weighted average effect of potential common stock:                                                                                                                                                   |  |                                 |  |      
|Unvested common stock subject to repurchase                                                                                                                                                          |  | 193                             |  | 342  
|Options that would have been included in the computation of dilutive shares outstanding had the Company reported net income,
prior to applying the treasury method                                   |  | 5,746                           |  | 2    
|Options that were excluded from the computation of dilutive shares outstanding because the total assumed proceeds exceeded the
average market value of the Companys common stock during the quarter |  | 2,942                           |  | 5,245
|Shares resulting from an as-if conversion of the convertible debt                                                                                                                                  |  |                                |  | 7,268

(3) Discontinued Operations

a) Client Operations

During fiscal 2008, the Company sold its Client operations to Purple Labs, a private company based in Chambéry, France. The terms of the agreement include initial consideration of $20.0 million in cash received by the Company in June
2008, and a note receivable of $5.8 million that was paid in July 2008. The initial consideration also included warrants to purchase 27,000 shares of Purple Labs common stock. The Company elected not to exercise these warrants and they are no
longer outstanding. During the first quarter of fiscal 2009, the Company met the terms of the earnout provision in the sale agreement, and received $2.0 million, which was recorded as an additional $2.0 million gain on sale of discontinued operation
in its condensed consolidated statement of operations. The Company provided transition services to Purple Labs for six months following the sale. The first $2.0 million of costs relating to the transition services were covered by the initial
consideration, and an additional $2.3 million of such costs were reimbursed in the second quarter of fiscal 2009. The costs and offsetting related reimbursements of the transition services were recorded in operating expenses. An immaterial margin on
these services was realized. The net impact of the transition services and related reimbursement was immaterial to all categories in the condensed consolidated statement of operations.

In addition to the initial consideration, $4.2 million was placed in escrow in June 2008 by Purple Labs to secure indemnification claims made by Purple Labs, if any. The escrowed amounts were scheduled to
be released in September 2009, however, on September 23, 2009, Myriad (formerly known as Purple Labs) made claims against the escrow in excess of $4.2 million and therefore the funds were not released from escrow. The Company has disputed these
escrow claims and is in the early stages of negotiations with Myriad. A gain on the sale of discontinued operations will be recognized if and when funds are distributed from escrow.

The Company recognized a gain of $19.7 million in fiscal 2008 and $2.0 million in the first quarter of fiscal 2009 related to the sale of the Client operations. The Client operations financial results
have been classified as a discontinued operation in the Companys condensed consolidated statements of operations for all periods presented.



10



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##### Table of Contents

OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



The financial results of Client operations included in discontinued operations were as follows (in
thousands):



|                                         |  |                                 |   |      |   |      
|---------------------------------------- |  | ------------------------------- | - | ---- | - | -----
|                                         |  | Three Months EndedSeptember 30,
|                                         |  | 2009                            |   | 2008
|Gain on sale of discontinued operation   |  |                                 |  |      |   | 2,000
|                                         |  |                                 |   |      |   |      
|Total income from discontinued operation |  | $                               |  |      | $ | 2,000
|                                         |  |                                 |   |      |   |      

As of September 30, 2009, there were no operational assets or liabilities attributable to Client
operations due to the sale of the discontinued operation in June 2008.

b) Musiwave

On December 31, 2007, the Company sold Musiwave to Microsoft Corporation (Microsoft) for $41.4 million in cash, a note receivable of $5.9
million, and $4.6 million that Microsoft placed in escrow to secure indemnification claims made by the purchaser, if any. The Company received and recorded the payment on the note receivable in July 2008, which had increased in value to $6.5 million
due to the loan being denominated in Euros. During the first quarter of fiscal 2010, the escrowed funds were distributed pursuant to certain agreements reached with Microsoft, resulting in a gain on sale of discontinued operations of $4.5 million.

The financial results of Musiwave included in discontinued operations were as follows (in thousands):



|                                       |  |                                 |       |      |   |  
|-------------------------------------- |  | ------------------------------- | ----- | ---- | - | -
|                                       |  | Three Months EndedSeptember 30,
|                                       |  | 2009                            |       | 2008
|Gain on sale of discontinued operation |  |                                 | 4,516 |      |   | 
|                                       |  |                                 |       |      |   |  
|Total loss from discontinued operation |  | $                               | 4,516 |      | $ | 
|                                       |  |                                 |       |      |   |  

As of September 30, 2009, there were no remaining assets or liabilities attributable to Musiwave
due to the sale of the discontinued operation on December 31, 2007.

(4) Geographic, Segment and Significant Customer Information

The Companys Chief Executive Officer (CEO) is considered to be the Companys chief operating decision maker. The CEO
reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance.

The Company has organized its operations based on a single operating segment.

The Company markets its products primarily from its operations in the United States. International sales are primarily to customers in Asia Pacific and Europe, Middle East and Africa. Information
regarding the Companys revenues in different geographic regions is as follows (in thousands):



|                                      |  |                                 |        |      |   |       
|------------------------------------- |  | ------------------------------- | ------ | ---- | - | ------
|                                      |  | Three Months EndedSeptember 30,
|                                      |  | 2009                            |        | 2008
|United States                         |  | $                               | 27,919 |      | $ | 25,457
|Americas, excluding the United States |  |                                 | 4,405  |      |   | 6,680 
|Europe, Middle East, and Africa       |  |                                 | 6,967  |      |   | 6,587 
|Japan                                 |  |                                 | 7,798  |      |   | 6,591 
|Asia Pacific, excluding Japan         |  |                                 | 2,753  |      |   | 5,730 
|                                      |  |                                 |        |      |   |       
|Total revenues                        |  | $                               | 49,842 |      | $ | 51,045
|                                      |  |                                 |        |      |   |       

The Companys long-lived assets residing in countries other than in the United States are
insignificant and thus have not been disclosed.



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##### Table of Contents

OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



The majority of the Companys revenues have been from a limited number of customers and the
Companys sales are concentrated in a single industry segment. During the periods noted below the Company had two significant customers, as shown in the following table:



|              |  |                                 |   |  |      |  
|------------- |  | ------------------------------- | - |  | ---- | -
|              |  | % of Total RevenueSeptember 30, |  
|              |  | 2009                            |   |  | 2008 |  
|Customer:     |  |                                 |   |  |      |  
|Sprint Nextel |  | 40                              | % |  | 26   | %
|AT&T          |  | 10                              | % |  | 13   | %

As noted above, the Company has derived half of its revenues from sales to U.S.-based customers
during the first quarter of fiscal 2010, which itself primarily consists of sales to Sprint Nextel and AT&T. Although the Company intends to broaden its markets, there can be no assurance that this objective will be achieved.

(5) Balance Sheet Components

(a) Accounts Receivable, net

The following table presents the components of accounts receivable as of the dates noted
(in thousands):



|                                |  |                   |        |   |              |   |        |  
|------------------------------- |  | ----------------- | ------ | - | ------------ | - | ------ | -
|                                |  | September 30,2009 |        |   | June 30,2009 |  
|Accounts receivable             |  | $                 | 29,920 |   |              | $ | 19,847 |  
|Unbilled accounts receivable    |  |                   | 7,835  |   |              |   | 12,592 |  
|Allowance for doubtful accounts |  |                   | (1,358 | ) |              |   | (1,332 | )
|                                |  |                   |        |   |              |   |        |  
|                                |  | $                 | 36,397 |   |              | $ | 31,107 |  
|                                |  |                   |        |   |              |   |        |  

Significant customer accounts receivable balances as a percentage of total gross accounts receivable
were as follows:



|              |  |                               |   |  |              |  
|------------- |  | ----------------------------- | - |  | ------------ | -
|              |  | % of Total AccountsReceivable |  
|              |  | September 30,2009             |   |  | June 30,2009 |  
|Customer:     |  |                               |   |  |              |  
|Sprint Nextel |  | 42                            | % |  | 12           | %
|Itochu        |  | 9                             | % |  | 12           | %
|Telstra       |  | 2                             | % |  | 10           | %



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##### Table of Contents

OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



(b) Goodwill and Intangible Assets, net

The following table presents activity recorded to goodwill and intangible assets from June 30, 2009 to September 30, 2009 (in thousands):



|                              |  |                            |       |               |   |              |  |   |                                 |   |  |   |      
|----------------------------- |  | -------------------------- | ----- | ------------- | - | ------------ |  | - | ------------------------------- | - |  | - | -----
|                              |  | Balance as ofJune 30, 2009 |       | Additions (a) |   | Amortization |  |   | Balance as ofSeptember 30, 2009
|Goodwill                      |  | $                          |      |               | $ | 267          |  | $ |                                |   |  | $ | 267  
|Intangible assets:            |  |                            |       |               |   |              |  |   |                                 |   |  |   |      
|Developed and core technology |  |                            | 3,823 |               |   |             |  |   | (409                            | ) |  |   | 3,414
|Customer contractssupport    |  |                            | 57    |               |   |             |  |   | (10                             | ) |  |   | 47   
|                              |  |                            |       |               |   |              |  |   |                                 |   |  |   |      
|                              |  | $                          | 3,880 |               | $ | 267          |  | $ | (419                            | ) |  | $ | 3,728
|                              |  |                            |       |               |   |              |  |   |                                 |   |  |   |      



|(a) | Additions to goodwill during fiscal year 2010 relate to an earnout payment made in connection with the purchase of WiderWeb. See further details in Note 7,
Business Combinations.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total amortization and impairment charges related to intangible assets including goodwill
were as follows (in thousands):



|                              |  |                                 |     |      |   |      
|----------------------------- |  | ------------------------------- | --- | ---- | - | -----
|                              |  | Three Months EndedSeptember 30,
|                              |  | 2009                            |     | 2008
|Developed and core technology |  | $                               | 409 |      | $ | 1,106
|Customer contractslicenses   |  |                                 |    |      |   | 6    
|Customer contractssupport    |  |                                 | 10  |      |   | 17   
|Workforce in place            |  |                                 |    |      |   | 26   
|                              |  |                                 |     |      |   |      
|                              |  | $                               | 419 |      | $ | 1,155
|                              |  |                                 |     |      |   |      

Amortization of acquired developed and core technology and customer license contracts is included in
Cost of RevenuesLicense. Amortization of acquired customer support contracts is included in Cost of RevenueMaintenance and Support. Amortization of workforce in place and impairment of goodwill is included in operating expenses.

The following tables set forth the carrying amount of intangible assets, net as of the dates noted (in thousands):



|                              |  |                     |        |                         |   |         |                   |  |                     |       |                         |   |        |                   |   |         |   |  |   |      
|----------------------------- |  | ------------------- | ------ | ----------------------- | - | ------- | ----------------- |  | ------------------- | ----- | ----------------------- | - | ------ | ----------------- | - | ------- | - |  | - | -----
|                              |  | September 30, 2009  |        | June 30, 2009          
|                              |  | GrossCarryingAmount |        | AccumulatedAmortization |   |         | NetCarryingAmount |  | GrossCarryingAmount |       | AccumulatedAmortization |   |        | NetCarryingAmount
|Developed and core technology |  | $                   | 19,294 |                         | $ | (15,880 | )                 |  | $                   | 3,414 |                         | $ | 19,294 |                   | $ | (15,471 | ) |  | $ | 3,823
|Customer contractssupport    |  |                     | 220    |                         |   | (173    | )                 |  |                     | 47    |                         |   | 220    |                   |   | (163    | ) |  |   | 57   
|                              |  |                     |        |                         |   |         |                   |  |                     |       |                         |   |        |                   |   |         |   |  |   |      
|                              |  | $                   | 19,514 |                         | $ | (16,053 | )                 |  | $                   | 3,461 |                         | $ | 19,514 |                   | $ | (15,634 | ) |  | $ | 3,880
|                              |  |                     |        |                         |   |         |                   |  |                     |       |                         |   |        |                   |   |         |   |  |   |      

The following table presents the estimated future amortization of intangible assets, based upon the
recorded intangible assets as of September 30, 2009 (in thousands):



|                 |  |              |      
|---------------- |  | ------------ | -----
|Fiscal Year      |  | Amortization
|2010 (remaining) |  | $            | 1,261
|2011             |  |              | 1,639
|2012             |  |              | 561  
|                 |  |              |      
|                 |  | $            | 3,461
|                 |  |              |      

(c) Deferred Revenue

As of September 30, 2009 and June 30, 2009, the Company had deferred revenue of $49.9 million and $50.3 million, respectively, consisting of
deferred license fees, new version coverage, maintenance and support fees, and professional services fees. Deferred



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##### Table of Contents

OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



revenue results from amounts billed to the customer but not yet recognized as revenue as of the balance
sheet date, since the billing related to one or more of the following:



| |  |  | amounts billed prior to acceptance of product or service;
| | - |  | ---------------------------------------------------------



| |  |  | new version coverage and/or maintenance and support elements prior to the time service is delivered;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | subscriber licenses committed in excess of subscribers activated for arrangements being recognized on a subscriber activation basis; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | license arrangements amortized over a specified future period due to the provision of unspecified future products.
| | - |  | ------------------------------------------------------------------------------------------------------------------

Amounts in accounts receivable that have corresponding balances included in deferred revenue aggregated to approximately $13.2 million and $7.5 million
as of September 30, 2009 and June 30, 2009, respectively.

(d) Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss were as follows as of the dates noted (in thousands):



|                                                                             |  |                   |        |   |              |   |        |  
|---------------------------------------------------------------------------- |  | ----------------- | ------ | - | ------------ | - | ------ | -
|                                                                             |  | September 30,2009 |        |   | June 30,2009 |  
|Net unrealized gains (losses) on marketable securities:                      |  |                   |        |   |              |   |        |  
|Unrealized gain on marketable securities not other-than-temporarily impaired |  | $                 | 69     |   |              | $ | 40     |  
|Unrealized loss on marketable securities other-than-temporarily impaired     |  |                   | (3,470 | ) |              |   | (4,701 | )
|                                                                             |  |                   |        |   |              |   |        |  
|Net unrealized loss on marketable securities                                 |  |                   | (3,401 | ) |              |   | (4,661 | )
|Cumulative translation adjustments                                           |  |                   | (771   | ) |              |   | (771   | )
|                                                                             |  |                   |        |   |              |   |        |  
|Total Accumulated other comprehensive loss                                   |  | $                 | (4,172 | ) |              | $ | (5,432 | )
|                                                                             |  |                   |        |   |              |   |        |  

Comprehensive income (loss) is comprised of net income (loss) and changes in accumulated foreign
currency translation and unrealized loss on marketable securities (in thousands):



|                                                          |  |                                 |       |      |   |         |  
|--------------------------------------------------------- |  | ------------------------------- | ----- | ---- | - | ------- | -
|                                                          |  | Three Months EndedSeptember 30, |      
|                                                          |  | 2009                            |       | 2008 |  
|Net income (loss)                                         |  | $                               | 990   |      | $ | (10,504 | )
|Other comprehensive income (loss):                        |  |                                 |       |      |   |         |  
|Change in unrealized gain (loss) on marketable securities |  |                                 | 1,260 |      |   | (494    | )
|                                                          |  |                                 |       |      |   |         |  
|Total comprehensive income (loss)                         |  | $                               | 2,250 |      | $ | (10,998 | )
|                                                          |  |                                 |       |      |   |         |  

(6) Financial Instruments

Cash and cash equivalents

Cash and cash equivalents are comprised of cash and highly liquid investments with remaining maturities of 90 days or less at the date of purchase. Cash equivalents are comprised of short-term investments with an investment rating of any
two of the following: Moodys of A-2 or higher, Standard & Poors of A1 or higher, or Fitch of A or higher. The Company is exposed to credit risk in the event of default by the financial institutions or the issuers of these
investments to the extent the amounts recorded on the balance sheet are in excess of amounts that are insured by the FDIC.



14



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##### Table of Contents

OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



Investments

The Companys investment policy is consistent with the definition of available-for-sale securities. From time to time, the Company may sell certain securities but the objectives are generally not to
generate profits on short-term differences in price. The following tables show the Companys available-for-sale investments (in thousands):



|                         |  |                                                |        |            |   |            |  |                         |        |                         |   |        |  |   |       
|------------------------ |  | ---------------------------------------------- | ------ | ---------- | - | ---------- |  | ----------------------- | ------ | ----------------------- | - | ------ |  | - | ------
|                         |  | Expected maturity for the year ending June 30, |        | Cost Value |   | Fair Value
|                         |  | 2010                                           |        | 2011       |   | Thereafter |  | September 30,2009 Total |        | September 30,2009 Total
|U.S. Government Agencies |  | $                                              | 4,697  |            |   | 6,305      |  |                         |       |                         |   | 11,002 |  |   | 11,018
|Commercial Paper         |  |                                                | 1,397  |            |   |           |  |                         |       |                         |   | 1,397  |  |   | 1,397 
|Corporate Bonds          |  |                                                | 6,649  |            |   | 1,707      |  |                         | 176    |                         |   | 8,532  |  |   | 8,585 
|Auction Rate Securities  |  |                                                |       |            |   |           |  |                         | 17,281 |                         |   | 17,281 |  |   | 13,811
|                         |  |                                                |        |            |   |            |  |                         |        |                         |   |        |  |   |       
|                         |  | $                                              | 12,743 |            | $ | 8,012      |  | $                       | 17,457 |                         | $ | 38,212 |  | $ | 34,811
|                         |  |                                                |        |            |   |            |  |                         |        |                         |   |        |  |   |       



|                         |  |                    |        |                 |   |                  |  |   |                     |   |  |   |       
|------------------------ |  | ------------------ | ------ | --------------- | - | ---------------- |  | - | ------------------- | - |  | - | ------
|                         |  | September 30, 2009
|                         |  | Amortizedcost      |        | Unrealizedgains |   | Unrealizedlosses |  |   | Estimatedfair value
|U.S. Government Agencies |  | $                  | 11,002 |                 | $ | 16               |  | $ |                    |   |  | $ | 11,018
|Commercial Paper         |  |                    | 1,397  |                 |   |                 |  |   |                    |   |  |   | 1,397 
|Corporate Bonds          |  |                    | 8,532  |                 |   | 57               |  |   | (4                  | ) |  |   | 8,585 
|Auction Rate Securities  |  |                    | 17,281 |                 |   |                 |  |   | (3,470              | ) |  |   | 13,811
|                         |  |                    |        |                 |   |                  |  |   |                     |   |  |   |       
|                         |  | $                  | 38,212 |                 | $ | 73               |  | $ | (3,474              | ) |  | $ | 34,811
|                         |  |                    |        |                 |   |                  |  |   |                     |   |  |   |       



|                                |  |               |        |                 |   |                  |  |   |                     |   |  |   |       
|------------------------------- |  | ------------- | ------ | --------------- | - | ---------------- |  | - | ------------------- | - |  | - | ------
|                                |  | June 30, 2009
|                                |  | Amortizedcost |        | Unrealizedgains |   | Unrealizedlosses |  |   | Estimatedfair value
|U.S. Government Agencies        |  | $             | 5,160  |                 | $ | 8                |  | $ | (3                  | ) |  | $ | 5,165 
|Enhanced Cash Money Market Fund |  |               | 1,338  |                 |   | 61               |  |   |                    |   |  |   | 1,399 
|Certificate of Deposit          |  |               | 775    |                 |   |                 |  |   |                    |   |  |   | 775   
|Corporate Bonds                 |  |               | 13,775 |                 |   | 31               |  |   | (57                 | ) |  |   | 13,749
|Auction Rate Securities         |  |               | 18,745 |                 |   |                 |  |   | (4,701              | ) |  |   | 14,044
|                                |  |               |        |                 |   |                  |  |   |                     |   |  |   |       
|                                |  | $             | 39,793 |                 | $ | 100              |  | $ | (4,761              | ) |  | $ | 35,132
|                                |  |               |        |                 |   |                  |  |   |                     |   |  |   |       

Temporary and Other-Than-Temporary Impairments On Available-For-Sale Securities

As of each balance sheet date, the Company reviews its investments in an unrealized loss position for impairment in accordance with
guidance issued by the FASB and the SEC in order to determine whether an impairment is temporary or other-than-temporary (OTTI). When an unrealized loss on a security is considered temporary, the Company records the unrealized loss in
other comprehensive income (loss) and not in earnings.

Prior to adoption of new accounting guidance related to the recognition and
presentation of OTTIs on April 1, 2009, the Company recognized an OTTI on debt securities in an unrealized loss position when it did not expect full recovery of value or did not have the intent and ability to hold such securities until they
had fully recovered their amortized cost. The recognition of an OTTI prior to April 1, 2009 represented the entire difference between the amortized cost and fair value with this difference being recorded in earnings as an adjustment to the amortized
cost of the security. Upon adoption of new accounting guidance, in the fourth quarter of fiscal 2009, the Company reclassified $5.6 million of OTTI charges previously recorded in Other income (expense) to Accumulated other comprehensive income with
an offset to Accumulated deficit as a cumulative-effect adjustment due to the adoption of new accounting guidance related to the recognition and presentation of OTTIs.



15



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##### Table of Contents

Effective April 1, 2009, an OTTI occurs when it is anticipated that the amortized cost will not be recovered
for a security in an unrealized loss position. In such situations, the amount of OTTI recorded in earnings is the entire difference between the securitys amortized cost and its fair value when either: (i) the Company has the intent to sell the
security; or (ii) it is more likely than not that the Company will be required to sell the security before recovery of the decline in fair value below amortized cost. If neither of these two conditions exists, only the difference between the
amortized cost basis of the security and the present value of projected future cash flows expected to be collected is recognized as an OTTI charge in earnings (credit loss). If the fair value is less than the present value of projected
future cash flows expected to be collected, this portion of OTTI relates to other-than credit factors (noncredit loss) and is recorded as other comprehensive income (loss) within stockholders equity.

During the first fiscal quarter of 2010, two securities were determined to sustain an OTTI. Both of these securities are auction rate securities
(ARS), which are discussed in more detail below. The Company estimated the projected future cash flows expected to be collected from each of these securities by summing the present value of the future principal and interest payments, and
incorporating certain assumptions and judgments regarding the future performance of the underlying collateral. The Company estimated the fair value of these ARS at September 30, 2009 based on a discounted cash flow model. The assumptions used in
preparing the model included estimates with respect to the amount and timing of future interest and principal payments, forward projections of the interest rate benchmarks, the probability of full repayment of the principal considering the credit
quality and guarantees in place, and the rate of return required by investors to own such securities given the current liquidity risk associated with ARS. Other factors were considered, such as the credit ratings of the issuer, insurers, and parent
companies as applicable.

In the first quarter of fiscal 2010 and 2009, the Company had a net OTTI charge in earnings of $1.5 million and $5.6
million, respectively, recorded in other income (expense).



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##### Table of Contents

OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



The following tables show the gross unrealized losses, which includes temporary losses as well as the
noncredit component of OTTI losses, and fair value of the Companys investments with unrealized losses. This information is aggregated by investment category and length of time that individual securities have been in a continuous unrealized
loss position (in thousands):



|                        |  |                          |       |                |                      |    |            |       |                |        |  |            |        |                |  |   |        |  |   |        |  
|----------------------- |  | ------------------------ | ----- | -------------- | -------------------- | -- | ---------- | ----- | -------------- | ------ |  | ---------- | ------ | -------------- |  | - | ------ |  | - | ------ | -
|                        |  | As of September 30, 2009 |      
|                        |  | Less Than 12 Months      |       |                | 12 Months or Greater |    |            | Total |               
|                        |  | Fair Value               |       | UnrealizedLoss |                      |    | Fair Value |       | UnrealizedLoss |        |  | Fair Value |        | UnrealizedLoss | 
|Corporate Bonds         |  | $                        | 2,870 |                | $                    | (1 | )          |       | $              | 947    |  | $          | (3     | )              |  | $ | 3,817  |  | $ | (4     | )
|Auction Rate Securities |  |                          |      |                |                      |   |            |       |                | 13,811 |  |            | (3,470 | )              |  |   | 13,811 |  |   | (3,470 | )
|                        |  |                          |       |                |                      |    |            |       |                |        |  |            |        |                |  |   |        |  |   |        |  
|                        |  | $                        | 2,870 |                | $                    | (1 | )          |       | $              | 14,758 |  | $          | (3,473 | )              |  | $ | 17,628 |  | $ | (3,474 | )
|                        |  |                          |       |                |                      |    |            |       |                |        |  |            |        |                |  |   |        |  |   |        |  

As of September 30, 2009, the Company had 15 investments in an unrealized loss position.



|                         |  |                     |       |                |                      |     |            |       |                |        |  |            |        |                |  |   |        |  |   |        |  
|------------------------ |  | ------------------- | ----- | -------------- | -------------------- | --- | ---------- | ----- | -------------- | ------ |  | ---------- | ------ | -------------- |  | - | ------ |  | - | ------ | -
|                         |  | As of June 30, 2009 |      
|                         |  | Less Than 12 Months |       |                | 12 Months or Greater |     |            | Total |               
|                         |  | Fair Value          |       | UnrealizedLoss |                      |     | Fair Value |       | UnrealizedLoss |        |  | Fair Value |        | UnrealizedLoss | 
|U.S. Government Agencies |  | $                   | 1,662 |                | $                    | (3  | )          |       | $              |       |  | $          |       |                |  | $ | 1,662  |  | $ | (3     | )
|Corporate Bonds          |  |                     | 2,440 |                |                      | (14 | )          |       |                | 8,814  |  |            | (43    | )              |  |   | 11,254 |  |   | (57    | )
|Auction Rate Securities  |  |                     |      |                |                      |    |            |       |                | 14,044 |  |            | (4,701 | )              |  |   | 14,044 |  |   | (4,701 | )
|                         |  |                     |       |                |                      |     |            |       |                |        |  |            |        |                |  |   |        |  |   |        |  
|                         |  | $                   | 4,102 |                | $                    | (17 | )          |       | $              | 22,858 |  | $          | (4,744 | )              |  | $ | 26,960 |  | $ | (4,761 | )
|                         |  |                     |       |                |                      |     |            |       |                |        |  |            |        |                |  |   |        |  |   |        |  

As of June 30, 2009, the Company had 24 investments in an unrealized loss position.

The table below presents activity related to the credit loss component recognized in earnings (in thousands):



|                                                                  |  |   |        |  
|----------------------------------------------------------------- |  | - | ------ | -
|Cumulative OTTI credit losses recognized as of July 1, 2009       |  | $ | (6,125 | )
|OTTI charges related to securities with previous credit losses    |  |   | (1,464 | )
|                                                                  |  |   |        |  
|Cumulative OTTI credit losses recognized as of September 30, 2009 |  | $ | (7,589 | )
|                                                                  |  |   |        |  

All OTTIs recognized in earnings in the first quarter of fiscal 2010 were for securities with
previously recognized credit impairments.

The redemption of an enhanced cash money market fund resulted in proceeds of $1.4 million and the
recognition of gross realized gains of $79,000 in the three months ended September 30, 2009. There were no gross realized losses for the three months ended September 30, 2009. There were no gross realized gains or gross realized losses
recorded during the three months ended September 30, 2008 from the sales of available-for-sale securities. Realized gains and losses and interest income are included in interest and other income (expense) in the condensed consolidated statement
of operations.

Fair Value Measurement

The FASB has established a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The
following are the hierarchical levels of inputs to measure fair value:



| |  |  | Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or
liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3: Unobservable inputs reflecting the Companys own assumptions incorporated in valuation techniques used to determine fair value. These
assumptions are required to be consistent with market participant assumptions that are reasonably available.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



The following table summarizes the Companys financial assets and liabilities measured at fair
value on a recurring basis, by level within the fair value hierarchy:



|                         |  |                                                              |         |                                              |   |                                         |  |       |        |  |   |        
|------------------------ |  | ------------------------------------------------------------ | ------- | -------------------------------------------- | - | --------------------------------------- |  | ----- | ------ |  | - | -------
|                         |  | Fair value of securities as of September 30, 2009           
|                         |  | Quoted Prices in ActiveMarkets for IdenticalAssets (Level 1) |         | Significant OtherObservable Inputs (Level 2) |   | SignificantUnobservableInputs (Level 3) |  | Total
|Money Market Funds       |  | $                                                            | 84,544  |                                              | $ |                                        |  | $     |       |  | $ | 84,544 
|Certificates of Deposit  |  |                                                              |        |                                              |   | 356                                     |  |       |       |  |   | 356    
|Corporate Bonds          |  |                                                              | 7,709   |                                              |   | 876                                     |  |       |       |  |   | 8,585  
|Commercial Paper         |  |                                                              | 699     |                                              |   | 698                                     |  |       |       |  |   | 1,397  
|U.S. Government Agencies |  |                                                              | 11,018  |                                              |   |                                        |  |       |       |  |   | 11,018 
|Auction Rate Securities  |  |                                                              |        |                                              |   |                                        |  |       | 13,811 |  |   | 13,811 
|                         |  |                                                              |         |                                              |   |                                         |  |       |        |  |   |        
|                         |  | $                                                            | 103,970 |                                              | $ | 1,930                                   |  | $     | 13,811 |  | $ | 119,711
|                         |  |                                                              |         |                                              |   |                                         |  |       |        |  |   |        

Auction Rate Securities

As of September 30, 2009, $13.8 million in auction rate securities, recorded in long-term investments on the consolidated balance sheet, were considered
illiquid based upon a lack of auction results beginning in fiscal 2008.

These ARS were issued by nine different entities and are held by two
investment firms on the Companys behalf. Six of these securities are Triple X structured obligations of special purpose reinsurance entities associated with life insurance companies. Two securities are interest-bearing corporate
debt obligations which, through the course of the issuers business, have some exposure to asset-backed securities. One ARS is related to federal education student loans programs. As of September 30, 2009, these instruments were all rated
AAA, A-, B, BBB- or CC by Standard and Poors and Caa2 to A1 by Moodys and $17.0 million of the $24.9 million par value of these illiquid investments is insured against defaults of principal and interest by third party insurance
companies.

The following table represents the reconciliation of the beginning and ending balances of the Companys ARS measured at fair
value on a recurring basis using significant unobservable inputs (Level 3) during the first quarter of fiscal 2010 (in thousands):



|                                                                   |  |                                                                          |        |  
|------------------------------------------------------------------ |  | ------------------------------------------------------------------------ | ------ | -
|                                                                   |  | Fair Value MeasurementsUsing SignificantUnobservable Inputs(Level 3)
ARS |       
|Balance at June 30, 2009                                           |  | $                                                                        | 14,044 |  
|Change in unrealized losses included in other comprehensive income |  |                                                                          | 1,231  |  
|Other-than-temporary impairment                                    |  |                                                                          | (1,464 | )
|                                                                   |  |                                                                          |        |  
|Balance at September 30, 2009                                      |  | $                                                                        | 13,811 |  
|                                                                   |  |                                                                          |        |  

(7) Business Combinations

Acquisition of WiderWeb

On February 9, 2007, the Company acquired all of the outstanding issued share capital of WiderWeb Limited (WiderWeb), a developer of mobile web access solutions, for initial aggregate consideration of approximately $3.6
million (the Initial Consideration). The Initial Consideration consists of the payment of cash consideration of $3.3 million and transaction costs of $0.3 million, consisting primarily of professional fees.



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OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



In addition to the Initial Consideration, Openwave paid consideration relating to a retention agreement
(Retention Amount). The Retention Amount was $875,000 for the retention of four key employees of WiderWeb for a two-year period which began on February 9, 2007. The Retention Amount was amortized over the two-year period as
compensation expense.

The Initial Consideration did not include $875,000 in additional consideration which was initially placed in escrow but
paid during fiscal 2008 and recorded as goodwill in the consolidated balance sheet at the time of payment.

The terms of the acquisition
agreement also included contingent consideration (WiderWeb Earn Out) which was determined based upon the achievement of sales-related targets by the WiderWeb product line over various periods between closing and February 8, 2009. A
total of $1.7 million of the WiderWeb Earn Out was achieved and was added to goodwill in the condensed consolidated balance sheet at the time the amounts were determined to meet the criteria. Of this amount, $1.4 million was earned prior to the
impairment of goodwill in December 2008 and $0.3 million was earned pursuant to a determination issued by an independent third party on September 17, 2009.

The Initial Consideration was allocated as follows (in thousands):



|                                         |  |   |       |  
|---------------------------------------- |  | - | ----- | -
|Tangible assets:                         |  |   |       |  
|Cash and cash equivalents                |  | $ | 15    |  
|Accounts receivable                      |  |   | 176   |  
|Property, plant and equipment            |  |   | 15    |  
|                                         |  |   |       |  
|Total tangible assets                    |  |   | 206   |  
|                                         |  |   |       |  
|Intangible assets:                       |  |   |       |  
|Identifiable intangibles                 |  |   | 2,190 |  
|Goodwill                                 |  |   | 2,032 |  
|                                         |  |   |       |  
|Total intangible assets                  |  |   | 4,222 |  
|                                         |  |   |       |  
|Liabilities assumed:                     |  |   |       |  
|Accounts payable and accrued liabilities |  |   | (95   | )
|Deferred tax liability                   |  |   | (657  | )
|Deferred revenue                         |  |   | (103  | )
|                                         |  |   |       |  
|Total liabilities assumed                |  |   | (855  | )
|                                         |  |   |       |  
|Net assets acquired                      |  | $ | 3,573 |  
|                                         |  |   |       |  

(8) Borrowings

Credit Agreement

On January 23, 2009, the Company and Silicon Valley Bank
entered into a secured revolving credit facility for up to $40.0 million. The revolving credit facility matures on January 23, 2011. The Company may borrow, repay and re-borrow under the revolving credit facility at any time. As of
September 30, 2009, the revolving credit facility bears interest at 4% per annum. Monthly, the Company is required to pay a fee of 0.03% on any undrawn amounts under the revolving credit facility. For each letter of credit issued, the
Company is required to pay 0.75% per annum on the face amount of the letter of credit. Annually, the Company is required to pay a $0.2 million commitment fee to the lender.

As of September 30, 2009, the Company had letters of credit outstanding against the revolving credit facility totaling $17.5 million, reducing the available borrowings on the revolving credit
facility. The revolving credit facility requires a monthly borrowing base calculation to determine the amount of the revolving credit facility available for the Company to borrow (Borrowing Base). The Borrowing Base calculation
is $20.0 million plus 75% of accounts receivables defined as eligible in the credit agreement. As of September 30, 2009, the Borrowing Base was $33.6 million and the total available for the Company to borrow on the revolving credit
facility was $16.1 million, which is the difference between the Borrowing Base calculation of $33.6 million and the amount of outstanding letters of credit amount of $17.5 million.



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##### Table of Contents

OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



The revolving credit facility is secured by a blanket lien on all of the Companys assets and
contains certain financial and reporting covenants customary to these types of credit facilities which the Company is required to satisfy as a condition of the revolving credit facility. The credit facility requires the Company to meet a
quarterly minimum EBITDA and monthly liquidity covenants. As of September 30, 2009, the Company was in compliance with all debt covenants.

(9) Commitments and Contingencies

Litigation

IPO securities class action

On November 5, 2001, a securities fraud class action complaint was filed in the United States District Court for the Southern District of New York. In re Openwave Systems Inc. Initial Public Offering Securities Litigation, Civ.
No. 01-9744 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS) (S.D.N.Y.). It is brought purportedly on behalf of all persons who purchased shares of the Companys common stock from
June 11, 1999 through December 6, 2000. The defendants are the Company and five of its present or former officers (the Openwave Defendants), and several investment banking firms that served as underwriters of the Companys
initial public offering and secondary public offering. Three of the individual defendants were dismissed without prejudice, subject to a tolling of the statute of limitations. The complaint alleges liability under Sections 11 and 15 of the
Securities Act of 1933 (the Securities Act) and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the Exchange Act), on the grounds that the registration statements for the offerings did not disclose that:
(1) the underwriters had agreed to allow certain customers to purchase shares in the offerings in exchange for excess commissions paid to the underwriters; and (2) the underwriters had arranged for certain customers to purchase additional
shares in the aftermarket at predetermined prices. The amended complaint also alleges that false analyst reports were issued by Credit Suisse First Boston, Hambrecht & Quist, Robertson Stephens, and Piper Jaffray. No specific damages
are claimed. Similar allegations were made in over 300 other lawsuits challenging public offerings conducted in 1999 and 2000, and the cases were consolidated for pretrial purposes.

The Company had accepted a settlement proposal presented to all issuer defendants. Under such settlement proposal, plaintiffs would have dismissed and released all claims against the
Openwave Defendants in exchange for a contingent payment by the insurance companies responsible for insuring the issuers and for the assignment or surrender of control of certain claims the Company may have against the underwriters. The Openwave
Defendants would not be required to make any cash payment in the settlement, unless the pro rata amount paid by the insurers in the settlement exceeds the amount of insurance coverage, a circumstance which the Company does not believe will
occur. The settlement required approval of the Court, which could not be assured, after class members were given the opportunity to object to or opt out of the settlement. The Court held a hearing on April 24, 2006 to
consider whether final approval should be granted. Subsequently, the United States Court of Appeals for the Second Circuit vacated the class certification of plaintiffs claims against the underwriters in six cases designated as focus or
test cases. Miles v. Merrill Lynch & Co. (In re Initial Public Offering Securities Litigation), 471 F.3d 24 (2d Cir. 2006). Thereafter, the District Court ordered a stay of all proceedings in all of the lawsuits pending the
outcome of plaintiffs petition to the Second Circuit for rehearing en banc and resolution of the class certification issue. On April 6, 2007, the Second Circuit denied plaintiffs petition for rehearing, but clarified that the
plaintiffs may seek to certify a more limited class in the District Court. Accordingly, the parties withdrew the prior settlement, and Plaintiffs submitted amended complaints in designated focus or test cases with a revised class definition, in an
attempt to comply with the Second Circuits ruling.

On April 2, 2009, the parties in all the lawsuits submitted a settlement for
the Courts approval. Under the settlement, the Openwave Defendants would not be required to make any cash payment. On October 6, 2009, the Court approved the settlement. The Company believes a loss is not probable or reasonably estimable.
Therefore no amount has been accrued as of September 30, 2009.



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##### Table of Contents

OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



Simmonds v. Credit Suisse Group, et al.,

On October 3, 2007, Vanessa Simmonds, a purported stockholder of the Company, filed suit in the U.S. District Court for the Western District of
Washington against Credit Suisse Group, Bank of America Corporation, and JPMorgan Chase & Co., the lead underwriters of the Companys initial public offering in June 1999, alleging violations of Section 16(b) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78p(b). The complaint seeks to recover from the lead underwriters any short-swing profits obtained by them in violation of Section 16(b). The suit names the Company as a nominal defendant,
contains no claims against the Company, and seeks no relief from the Company. Simmonds filed an Amended Complaint on February 25, 2008 (the Amended Complaint), naming as defendants Credit Suisse Securities (USA), Robertson Stephens,
Inc., J.P. Morgan Securities, Inc., and again naming Bank of America Corporation. The Amended Complaint asserts substantially similar claims as those set forth in the initial complaint. On July 25, 2008, 29 issuers filed the Issuer
Defendants Joint Motion to Dismiss. Underwriter Defendants also filed a Joint Motion to Dismiss on July 25, 2008. Plaintiff filed oppositions to both motions on September 8, 2008. All replies in support of the motions to dismiss were
filed on October 23, 2008. The Company joined the Issuer Defendants Joint Motion to Dismiss on December 1, 2008.

On
March 12, 2009, the Court granted the Issuer Defendants Joint Motion to Dismiss, dismissing the complaint without prejudice on the grounds that the Plaintiff had failed to make an adequate demand on the Company prior to filing her
complaint. In its order, the Court stated it would not permit the Plaintiff to amend her demand letters while pursuing her claims in the litigation. Because the Court dismissed the case on the ground that it lacked subject matter
jurisdiction, it did not specifically reach the issue of whether Plaintiffs claims were barred by the applicable statute of limitations. However, the Court also granted the Underwriters Joint Motion to Dismiss with respect to
cases involving non-moving issuers, holding that the cases were barred by the applicable statute of limitations because the issuers shareholders had notice of the potential claims more than five years prior to filing suit. On
April 10, 2009, the Plaintiff filed a Notice of Appeal, and the underwriters subsequently filed a Notice of Cross-Appeal, arguing that the dismissal of the claims involving the moving issuers should have been with
prejudice because the claims were untimely under the applicable statute of limitations. The Plaintiffs opening brief on appeal was filed on August 26, 2009; the Issuer and Underwriter Defendants opposition
briefs and the Underwriter Defendants brief supporting their cross-appeals were filed on October 2, 2009; Simmonds reply brief and opposition to the Underwriter Defendants cross-appeals were filed on November 2,
2009; and the Underwriter Defendants reply brief in support of their cross-appeals is due on November 17, 2009. No amount has been accrued as of September 30, 2009, as a loss is not considered probable or reasonably
estimable.

From time to time, the Company may be involved in litigation or other legal proceedings, including those noted above, relating to
or arising out of its day-to-day operations or otherwise. Litigation is inherently uncertain, and the Company could experience unfavorable rulings. Should the Company experience an unfavorable ruling, there exists the possibility of a material
adverse impact on its financial condition, results of operations, cash flows or on its business for the period in which the ruling occurs and/or in future periods.

Indemnification claims

The Companys software license and services agreements
generally include a limited indemnification provision for claims from third parties relating to the Companys intellectual property. Such indemnification provisions are accounted for in accordance with the Guarantees Topic of the FASB ASC
(Topic 460). As of September 30, 2009, no amount is accrued for indemnifications as there were no existing claims where a loss is considered probable. Historically, costs related to these indemnification provisions have been
infrequent and the Company is unable to estimate the maximum potential impact of these indemnification provisions on its future results of operations.

(10) Restructuring and Other Related Costs

As a result of the Companys change in strategy and its desire to improve its
cost structure, the Company announced restructurings during fiscal years 2009, 2008, 2007, and various other restructurings in fiscal years 2002 through 2006.



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##### Table of Contents

OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



On March 16, 2009, the Company announced the fiscal year 2009 restructuring (FY2009
Restructuring) to consolidate the Companys resources, primarily in development and support, and improve operating efficiencies. As such, during the third quarter of fiscal 2009, the Company incurred approximately $3.1 million in pre-tax
restructuring and related charges associated with the FY2009 Restructuring plans employee termination benefits and $3.4 million in facilities charges associated with a facility identified for restructuring. The Company expects to pay the
current accrued charges for employee termination benefits during the second quarter of fiscal 2010. Additional restructuring charges for facilities under this plan will be incurred in the period the related facility is no longer occupied or used by
the Company for operations, with the associated lease payments being paid over the term of the remaining lease. Of the remaining $3.3 million facilities related accrual, the Company expects to pay $1.5 million through June 30, 2010 and $1.8
million from July 2010 through April 2011.

The fiscal year 2008 restructuring (FY2008 Restructuring) was implemented to better
align the Companys resources among its products, reduce costs and improve operating efficiencies. As such, during fiscal 2008, the Company incurred $6.9 million in pre-tax restructuring and related charges associated with the FY2008
Restructuring Plans employee termination benefits and $0.6 million in accelerated depreciation on fixed assets associated with facilities identified for restructuring.

The following table sets forth the restructuring liability activity from June 30, 2009 through September 30, 2009 (in thousands):



|                                     |  |                                  |        |   |                        |   |                        |  |   |                        |   |  |                        |       |   |              |   |        |   |  |   |        |  
|------------------------------------ |  | -------------------------------- | ------ | - | ---------------------- | - | ---------------------- |  | - | ---------------------- | - |  | ---------------------- | ----- | - | ------------ | - | ------ | - |  | - | ------ | -
|                                     |  | FY 02 to FY 06RestructuringPlans |        |   | FY 08RestructuringPlan |   | FY 08RestructuringPlan |  |   | FY 09RestructuringPlan |   |  | FY 09RestructuringPlan |       |   | TotalAccrual |  
|                                     |  | Facility                         |        |   | Severance              |   | Facility               |  |   | Facility               |   |  | Severance              |       |  
|Accrual balances as of June 30, 2009 |  | $                                | 43,852 |   |                        | $ | 84                     |  | $ | 941                    |   |  | $                      | 3,775 |   |              | $ | 1,518  |   |  | $ | 50,170 |  
|New charges                          |  |                                  | 16     |   |                        |   |                       |  |   |                       |   |  |                        |      |   |              |   | (5     | ) |  |   | 11     |  
|Accretion expense                    |  |                                  | 374    |   |                        |   |                       |  |   |                       |   |  |                        | 17    |   |              |   |       |   |  |   | 391    |  
|Cash paid, net of sublease income    |  |                                  | (2,834 | ) |                        |   |                       |  |   | (133                   | ) |  |                        | (535  | ) |              |   | (1,048 | ) |  |   | (4,550 | )
|                                     |  |                                  |        |   |                        |   |                        |  |   |                        |   |  |                        |       |   |              |   |        |   |  |   |        |  
|Balance as of September 30, 2009     |  | $                                | 41,408 |   |                        | $ | 84                     |  | $ | 808                    |   |  | $                      | 3,257 |   |              | $ | 465    |   |  | $ | 46,022 |  
|                                     |  |                                  |        |   |                        |   |                        |  |   |                        |   |  |                        |       |   |              |   |        |   |  |   |        |  

As of September 30, 2009, the Company has sublease contracts in place for all but three of its
exited facilities, which provide for approximately $24.2 million of future sublease income from third parties out of total estimated sublease income of $29.6 million. Future minimum lease payments under non-cancelable operating leases, associated
with exited facilities, with terms in excess of one year and future contractual sublease income were as follows at September 30, 2009 (in thousands):



|                     |  |                            |        |                         |   |        |                           |  |   |                                 |   |  |   |       
|-------------------- |  | -------------------------- | ------ | ----------------------- | - | ------ | ------------------------- |  | - | ------------------------------- | - |  | - | ------
|Year ending June 30, |  | ContractualCash Obligation |        | EstimatedSubleaseIncome |   |        | ContractualSubleaseIncome |  |   | EstimatedFuture NetCash Outflow
|2010 (remaining)     |  |                            | 16,326 |                         |   | (549   | )                         |  |   | (5,240                          | ) |  |   | 10,537
|2011                 |  |                            | 21,340 |                         |   | (1,608 | )                         |  |   | (6,876                          | ) |  |   | 12,856
|2012                 |  |                            | 20,893 |                         |   | (1,243 | )                         |  |   | (6,897                          | ) |  |   | 12,753
|2013                 |  |                            | 17,921 |                         |   | (904   | )                         |  |   | (5,185                          | ) |  |   | 11,832
|2014                 |  |                            | 1,115  |                         |   | (778   | )                         |  |   |                                |   |  |   | 337   
|Thereafter           |  |                            | 464    |                         |   | (324   | )                         |  |   |                                |   |  |   | 140   
|                     |  |                            |        |                         |   |        |                           |  |   |                                 |   |  |   |       
|                     |  | $                          | 78,059 |                         | $ | (5,406 | )                         |  | $ | (24,198                         | ) |  | $ | 48,455
|                     |  |                            |        |                         |   |        |                           |  |   |                                 |   |  |   |       

Future accretion expense on the restructured facility obligation is $3.0 million, which will be
recorded as restructuring expense over the life of the respective leases.



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OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED(Continued)



(11) Income Taxes

Income tax expense consisted of foreign withholding tax, foreign corporate tax and foreign deferred tax. Both foreign withholding tax and foreign corporate tax fluctuate quarterly based on the product and
geographic mix of the Companys revenue, with a resulting fluctuation in the Companys quarterly effective tax rate.

In light of
the Companys history of operating losses, the Company recorded a full valuation allowance for its U.S. federal and state deferred tax assets. The Company intends to maintain this valuation allowance until there is sufficient evidence to
conclude that it is more likely than not that the federal and state deferred tax assets will be realized. As of September 30, 2009, the Company has net foreign deferred tax assets recorded of approximately $3.9 million, which consists of $4.2
million of realizable deferred tax assets in selected countries based upon the Companys conclusion that it is more likely than not that these foreign subsidiaries will earn future taxable profit through transfer pricing; this is offset by $0.3
million of deferred tax liabilities recorded with respect to acquisitions for which the amortization expense of acquired intangibles is not deductible for tax purposes.

The unrecognized tax benefits activity is as follows (in thousands):



|                                    |  |   |       |  
|----------------------------------- |  | - | ----- | -
|Balance as of July 1, 2009          |  | $ | 5,623 |  
|Resolution of various tax positions |  |   | (213  | )
|Increase in tax reserve             |  |   | 76    |  
|Foreign currency fluctuation        |  |   | (70   | )
|                                    |  |   |       |  
|Balance as of September 30, 2009    |  | $ | 5,416 |  
|                                    |  |   |       |  

The total amount of gross unrecognized tax benefits was $5.4 million as of September 30, 2009.
Of this $5.4 million, $2.3 million would affect the effective tax rate if realized, and $3.1 million would be recorded as net income from discontinued operations if realized. Although timing of the resolution and/or closure on the Companys
unrecognized tax benefits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next 12 months.

The Company has elected to include interest and penalties as a component of tax expense. Accrued interest and penalties was $0.4 million and $23,000 as of September 30, 2009 and September 30,
2008, respectively. The Company expects to pay $0.8 million related to a withholding tax audit of one of the Companys customers; otherwise, the Company does not anticipate that the amount of unrecognized tax benefits will significantly
increase or decrease within the next 12 months.

The Company files U.S. federal, U.S. state and foreign tax returns. For federal returns, the
Company is generally no longer subject to examinations for years prior to the fiscal year ended June 30, 2008. Because of net operating loss carryforwards, substantially all of the Companys tax years, from fiscal year 1995 through fiscal
year 2007, remain open to state tax examinations with the exception of Alabama, Massachusetts and Texas. Most of the Companys foreign jurisdictions have three or four tax years open to examinations at any point in time.



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

Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements are based upon current expectations and beliefs of management and are subject to risks and uncertainties that may cause actual events, results or performance to differ materially from those
indicated by these statements. Words such as anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify forward-looking
statements. Forward-looking statements include, among other things, statements regarding our ability to attract and retain customers, obtain and expand market acceptance for our products and services, the information and expectations concerning our
future financial performance and potential or expected competition and growth in our markets and markets in which we expect to compete, business strategy, projected plans and objectives, anticipated cost savings from restructurings, our ability to
realize anticipated benefits of our acquisitions on a timely basis, our estimates with respect to future operating results, including, without limitation, earnings, cash flow and revenue and any statements of assumptions underlying the foregoing.
These forward-looking statements are only predictions Risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements



23



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##### Table of Contents

include the limited number of potential customers, the highly competitive market for our products and
services, technological changes and developments, potential delays in software development and technical difficulties that may be encountered in the development or use of our software, patent litigation, our ability to retain management and key
personnel, and the other risks discussed under the subheading Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 30,2 009, as well as elsewhere in this report. The occurrence of the events described in
Risk Factors could harm our business, results of operations and financial condition. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and we undertake no obligation to revise or publicly
release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this section below and other risks identified from time to time in the Openwaves public statements and
reports filed with the Securities and Exchange Commission.

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial statements and related notes, and Managements Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the
fiscal year ended June 30, 2009, which was filed with the Securities and Exchange Commission on September 9, 2009, and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form
10-Q.

Overview of Our Business and Products

Openwave Systems is one of the worlds leading innovators of software applications and infrastructure designed to enable revenue-generating, personalized services, which converge the mobile and
broadband experience across all devices. Openwave software enables mobile and broadband service providers to increase the value of their networks by accelerating time to market and reducing the cost and complexity associated with new service
deployment. Our unique product portfolio provides a complete range of service management, messaging and location technologies.

Openwaves products are modular and based on open standards, providing our customers with the ability to mix and match the right products and technologies to create differentiated mobile services. Our technology and products are
designed to work on diverse platforms regardless of the brand or the type of service that operators select to offer to their subscribers.

Our
product portfolio includes offerings in the areas of server software which includes mobile infrastructure, converged messaging products for mobile and broadband service providers and location application products for mobile operators. Our
professional services group works with our customers integrating and deploying all Openwave products. For financial information about our operating segment and geographic areas, see Note 4 to our condensed consolidated financial statements.

For further detail regarding our products, see our Annual Report on Form 10-K for our fiscal year ended June 30, 2009.



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##### Table of Contents

Overview of Financial Results During the Three Months Ended September 30, 2009

The following table represents a summary of our operating results from continuing operations for our first quarter of fiscal 2010 compared with the first
quarter of fiscal 2009 (dollars in thousands):



|                                         |  |                                 |        |   |               |   |         |   |  |     |  
|---------------------------------------- |  | ------------------------------- | ------ | - | ------------- | - | ------- | - |  | --- | -
|                                         |  | Three Months EndedSeptember 30, |        |   | PercentChange |  
|                                         |  | 2009                            |        |   | 2008          |   |        
|                                         |  | (unaudited)                     |        |   |               |  
|Revenues                                 |  | $                               | 49,842 |   |               | $ | 51,045  |   |  | -2  | %
|Cost of revenues                         |  |                                 | 22,739 |   |               |   | 20,971  |   |  | 8   | %
|                                         |  |                                 |        |   |               |   |         |   |  |     |  
|Gross profit                             |  |                                 | 27,103 |   |               |   | 30,074  |   |  | -10 | %
|Operating expenses                       |  |                                 | 28,922 |   |               |   | 35,579  |   |  | -19 | %
|                                         |  |                                 |        |   |               |   |         |   |  |     |  
|Operating loss                           |  |                                 | (1,819 | ) |               |   | (5,505  | ) |  | -67 | %
|Interest and other income (expense), net |  |                                 | (1,209 | ) |               |   | (6,496  | ) |  | -81 | %
|Income tax expense                       |  |                                 | 498    |   |               |   | 503     |   |  | -1  | %
|                                         |  |                                 |        |   |               |   |         |   |  |     |  
|Net loss from continuing operations      |  | $                               | (3,526 | ) |               | $ | (12,504 | ) |  | -72 | %
|                                         |  |                                 |        |   |               |   |         |   |  |     |  

Revenues decreased slightly during the three months ended September 30, 2009 compared to the
corresponding period of the prior year.

Operating expenses decreased $6.7 million during the three months ended September 30, 2009
compared with the corresponding period of the prior year. This decline can be attributed primarily to lower labor and restructuring costs, as discussed in further detail under Summary of Operating Results below.

Operating Environment During the Three Months Ended September 30, 2009

Although mobile data services revenues are growing, the average revenue per user, commonly referred to as ARPU, has remained flat over the last several years for many of Openwaves mobile operator
customers. Many operators have moved to flat rate mobile data revenue plans to drive mobile data usage, and the upside is that data usage is on the rise, with many more users accessing the internet via mobile devices. This is in part due to new
technologies, including Openwaves mobile internet services, which are designed to adapt content for the mobile device and improve the user experience. This increased usage poses new challenges for operators. Openwave Integra, our next
generation mobile internet platform, is designed to accommodate capacity and to facilitate the management of these increasing data volumes. In the infrastructure market overall, however, we believe that we will see continued, but cautious, capital
equipment spending levels by the operators. We believe that some of the products Openwave and our competitors sell will continue to be viewed by operators as cost centers that will maintain, but not grow, monthly ARPU. Other Openwave products and
those of our competitors are being viewed as a source for driving revenue by increasing and catering to the needs of mobile internet subscribers.

During the quarter ended September 30, 2009, Openwave worked with mobile and broadband operators to enable the delivery of personalized content and communications. Selected customer and product highlights include:

Service Mediation (formerly known as Service Management)



| |  |  | This quarter we closed two new Integra deals in the US, the first with a tier one operator to manage their mobile internet traffic. In addition to the
Integra platform, this customer also purchased several of our service enablers, including Mobile Analytics, which enables real-time reporting and monitoring of data traffic; Accelerator, which increases data transfer rates while decreasing bandwidth
consumption; Guardian, which protects mobile subscribers against viruses, security threats and unwanted content; Passport, which offers subscribers pay-as-you-go access and targeted promotions for mobile services; and OpenWeb which adapts content
from standard websites into highly compressed, functional mobile phone-compliant Wireless Application Protocol 2, or WAP2, pages. We also closed a deal with another North American carrier that is replacing its Openwave Mobile Access Gateway with
Integra to better manage its mobile internet traffic.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Also in the quarter we closed a deal with a leading service provider in Malaysia that selected our traffic management solution for web
compression, flash and video optimization and operational platform management. The solution is supported by Openwave Mobile Analytics for real-time reporting and monitoring of data traffic. These products are
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | designed to help enable the service provider to proactively manage all forms of data traffic on their networks, including video, which some analysts are predicting will account for 75% of mobile
traffic globally by 2012.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Frost and Sullivan, a leading industry analyst firm recognized Openwaves Accelerator product offering with its 2009 Award for Technology
Innovation in the North American Mobile Data Services Market. Accelerator is core to our total traffic management solution, allowing an operator to predicatively increase data transfer rates over wireless data networks while decreasing bandwidth
consumptioncentral to resolving the operator issues that come with unpredictable, often viral and mobile, internet data demand.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Messaging



| |  |  | In our messaging product line, operators continued to demand our carrier grade infrastructure offerings and our front end communications dashboard.
This quarter we signed a deal with Kansei Multimedia Services, the cable internet access provider for J:COM, the largest multi system operator in Japan, for a messaging bundle that includes our RichMail dashboard and Email Mx platform.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

New Management Appointments

During the quarter ended September 30, 2009, Openwave strengthened its executive staff with the additions of John Giere as Senior Vice President of Products and Marketing and Heikki Makijarvi as Vice
President of Business Development.

John Giere is a seasoned executive with nearly 20 years of experience in management, marketing and
business development. Mr. Giere brings an impressive pedigree to Openwave, having worked at Alcatel Lucent and Ericsson during their respective times of significant growth and change. His role will be critical in defining how we package
and sell our portfolio to new and existing customers, through channels and to new territories in emerging markets.

Heikki Makijarvi brings
more than 25 years of experience in the telecommunications and networking industry with key companies including Nokia, Cisco and Accel Partners. Makijarvi will be responsible for creating new opportunities to leverage our platforms and tools,
evaluating and managing strategic business opportunities, partnerships and alliances, particularly as we look to participate and bring value in the larger internet ecosystem.

Recent Corporate Developments

Recently we consolidated our engineering sites and offshore
development centers. The reason for this consolidation is to drive greater operational efficiency, reduce costs and have greater oversight and collaboration in research and development process. We are closing our Broomfield, Colorado office and
consolidating to two engineering hubs: our headquarters in Redwood City and our operations in Belfast, Northern Ireland. Our Broomfield office primarily focused on location product development, which will now be handled by our remaining corporate
offices and offshore development partners. We will continue to deliver on the location releases we have committed to our valued location customers, and our location-enabling our portfolio is still core to our strategy. Our next-generation platforms
will incorporate location data from a variety of sources. Net cost savings from the consolidation are expected to be minimal since we plan to re-invest the savings in research and development.

Critical Accounting Policies and Judgments

We believe that there are several accounting policies that are critical to understanding our business and prospects for our future performance, as these policies affect the reported amounts of revenue and other significant areas that
involve managements judgment and estimates. These significant accounting policies are:



| |  |  | Revenue recognition;
| | - |  | --------------------



| |  |  | Allowance for doubtful accounts;
| | - |  | --------------------------------



| |  |  | Impairment assessment of goodwill and identifiable intangible assets;
| | - |  | ---------------------------------------------------------------------



| |  |  | Stock-based compensation;
| | - |  | -------------------------



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| |  |  | Valuation of investments; and
| | - |  | -----------------------------



| |  |  | Restructuring-related assessments.
| | - |  | ----------------------------------

There were no significant changes in our critical accounting policies and estimates since our fiscal year end on June 30, 2009. For further discussion of our critical accounting policies and judgments, please refer to the Notes to our
condensed consolidated financial statements included in this Form 10-Q and to our Managements Discussion and Analysis of Financial Condition and Results of Operations and audited consolidated financial statements and accompanying notes thereto
included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2009.

Summary of Operating Results

Three Months Ended September 30, 2009 and 2008

Revenues

We generate three different types of revenues: license revenues are primarily associated with the licensing of our software products to communication service providers; maintenance and support revenues are derived from providing support
services to communication service providers; and services revenues are primarily a result of providing deployment and integration consulting services to communication service providers. Service revenues may include a limited amount of packaged
solution elements which may be comprised of our software licenses, professional services, third-party software and hardware.

The majority of
our revenues have been from a limited number of customers and our sales are concentrated in a single industry segment. During the periods noted below we had two significant customers, as shown in the following table:



|              |  |                                 |   |  |      |  
|------------- |  | ------------------------------- | - |  | ---- | -
|              |  | % of Total RevenueSeptember 30, |  
|              |  | 2009                            |   |  | 2008 |  
|Customer:     |  |                                 |   |  |      |  
|Sprint Nextel |  | 40                              | % |  | 26   | %
|AT&T          |  | 10                              | % |  | 13   | %

We derived half of our revenues from sales to U.S. based customers during the first quarter of fiscal
2010, which itself primarily consists of sales to Sprint Nextel and AT&T. Although we intend to broaden our markets, there can be no assurance that this objective will be achieved.

The following table presents key revenue information (dollars in thousands):



|                        |  |                                 |        |   |               |   |        |   |  |     |  
|----------------------- |  | ------------------------------- | ------ | - | ------------- | - | ------ | - |  | --- | -
|                        |  | Three Months EndedSeptember 30, |        |   | PercentChange |  
|                        |  | 2009                            |        |   | 2008          |   |       
|Revenues:               |  |                                 |        |   |               |   |        |   |  |     |  
|License                 |  | $                               | 10,425 |   |               | $ | 14,327 |   |  | -27 | %
|Maintenance and support |  |                                 | 15,798 |   |               |   | 16,378 |   |  | -4  | %
|Services                |  |                                 | 23,619 |   |               |   | 20,340 |   |  | 16  | %
|                        |  |                                 |        |   |               |   |        |   |  |     |  
|Total Revenues          |  | $                               | 49,842 |   |               | $ | 51,045 |   |  | -2  | %
|                        |  |                                 |        |   |               |   |        |   |  |     |  
|Percent of revenues:    |  |                                 |        |   |               |   |        |   |  |     |  
|License                 |  |                                 | 21     | % |               |   | 28     | % |  |     |  
|Maintenance and support |  |                                 | 32     | % |               |   | 32     | % |  |     |  
|Services                |  |                                 | 47     | % |               |   | 40     | % |  |     |  
|                        |  |                                 |        |   |               |   |        |   |  |     |  
|Total Revenues          |  |                                 | 100    | % |               |   | 100    | % |  |     |  
|                        |  |                                 |        |   |               |   |        |   |  |     |  



27



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##### Table of Contents

License Revenues

License revenues decreased by 27% during the three months ended September 30, 2009 as compared with the corresponding period of the prior year. The decrease in license revenues is indicative of the
variability in revenue recognition of current and prior bookings, and is primarily related to certain large projects that were completed in fiscal 2009, and thus there was no associated revenue on these projects during the first quarter of fiscal
2010.

Maintenance and Support Revenues

Maintenance and support revenues decreased by 4% for the three months ended September 30, 2009 compared with the corresponding period of the prior year. The decrease is mainly as a result of
non-renewals in some cases.

Services Revenues

Services revenue increased by 16% for the three months ended September 30, 2009, as compared with the corresponding period of the prior year. The increase in the three months ended September 30,
2009, was primarily related to services revenue related to a new customization project for a large customer.

Other Key
Revenue Metrics

The other key metrics we utilize for purposes of making operating decisions and assessing financial performance
include bookings and backlog. Bookings comprise the aggregate value of all new arrangements executed during a period. We define backlog as the aggregate value of all existing arrangements less revenue recognized to date. For the first quarter of
fiscal 2010, bookings were approximately $47.3 million, up $18.0 million, or 61%, from approximately $29.3 million for the first quarter of fiscal 2009. Bookings fluctuate from quarter to quarter and do not necessarily create an immediate
corresponding impact to revenues. For example, bookings were $47.3 million, $49.1 million, and $37.6 million during the three months ended September 30, 2009, June 30, 2009 and March 31, 2009, respectively. Total revenues during the
three months ended September 30, 2009, June 30, 2009 and March 31, 2009, were $49.8 million, $47.9 million, and $44.6 million, respectively. Backlog was approximately $192.5 million as of September 30, 2009, down from $225.7
million as of September 30, 2008. Bookings related to royalty or usage arrangements are recognized concurrently with the related revenue and therefore do not impact backlog. Revenue resulting from bookings is generally recognized over the
subsequent 12 to 18 months, in accordance with our revenue recognition policy.

Cancellations of bookings from prior quarters, if any, are
treated as a reduction in backlog.



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Cost of Revenues

The following table presents cost of revenues in dollars, as well as gross margin, by revenue type (dollars in thousands):



|                                           |  |                                 |        |   |               |   |        |   |  |     |  
|------------------------------------------ |  | ------------------------------- | ------ | - | ------------- | - | ------ | - |  | --- | -
|                                           |  | Three Months EndedSeptember 30, |        |   | PercentChange |  
|                                           |  | 2009                            |        |   | 2008          |   |       
|Cost of revenues:                          |  |                                 |        |   |               |   |        |   |  |     |  
|License                                    |  | $                               | 639    |   |               | $ | 2,266  |   |  | -72 | %
|Maintenance and support                    |  |                                 | 4,327  |   |               |   | 4,258  |   |  | 2   | %
|Services                                   |  |                                 | 17,773 |   |               |   | 14,447 |   |  | 23  | %
|                                           |  |                                 |        |   |               |   |        |   |  |     |  
|Total Cost of Revenues                     |  | $                               | 22,739 |   |               | $ | 20,971 |   |  | 8   | %
|                                           |  |                                 |        |   |               |   |        |   |  |     |  
|                                           |  |                                
|                                           |  | Three Months EndedSeptember 30, |        |   |               |  
|                                           |  | 2009                            |        |   | 2008          |   |        |   | 
|Gross margin per related revenue category: |  |                                 |        |   |               |   |        |   |  |     |  
|License                                    |  |                                 | 94     | % |               |   | 84     | % |  |     |  
|Maintenance and support                    |  |                                 | 73     | % |               |   | 74     | % |  |     |  
|Services                                   |  |                                 | 25     | % |               |   | 29     | % |  |     |  
|Total Gross Margin                         |  |                                 | 54     | % |               |   | 59     | % |  |     |  

Cost of License Revenues

Cost of license revenues consists primarily of third-party license fees and amortization of developed technology and customer contract intangible assets
related to our acquisitions.

Costs of license revenues decreased by 72% during the three months ended September 30, 2009, compared with
the corresponding period of the prior year. Amortization of intangibles related to licenses decreased by $0.7 million from the corresponding period of the prior year due to certain assets becoming fully amortized. The remainder of the decline is
related to the corresponding 30% decrease in license revenue during the same period, as well as a change in the product mix of third-party software products. This in turn improved our gross margin on license revenues.

Cost of Maintenance and Support Revenues

Cost of maintenance and support revenues consists of compensation and related overhead costs for personnel engaged in support services to communication service providers.

Cost of maintenance and support, as well as maintenance and support gross margins, remained consistent during the three months ended September 30,
2009, as compared with the corresponding period of the prior year.

Cost of Services Revenues

Cost of services revenues consist of compensation and independent consultant costs for personnel engaged in performing professional services, hardware
purchased for resale, and related overhead.

Cost of services increased by 23% during the three months ended September 30, 2009, as
compared with the corresponding period of the prior year. This increase relates to the increase in services revenue of 16%, as well as a change in the mix of services and hardware provided to customers.

Operating Expenses

Operating expenses decreased by 19% during the three months ended September 30, 2009, as compared with the corresponding period of the prior year.



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The following table represents operating expenses for the three months ended September 30, 2009 and
2008, respectively (dollars in thousands):



|                                      |  |                                 |        |   |               |   |        |   |  |      |  
|------------------------------------- |  | ------------------------------- | ------ | - | ------------- | - | ------ | - |  | ---- | -
|                                      |  | Three Months EndedSeptember 30, |        |   | PercentChange |  
|                                      |  | 2009                            |        |   | 2008          |   |       
|Operating expenses:                   |  |                                 |        |   |               |   |        |   |  |      |  
|Research and development              |  | $                               | 9,864  |   |               | $ | 12,286 |   |  | -20  | %
|Sales and marketing                   |  |                                 | 10,711 |   |               |   | 10,744 |   |  | 0    | %
|General and administrative            |  |                                 | 7,925  |   |               |   | 10,620 |   |  | -25  | %
|Restructuring and other related costs |  |                                 | 422    |   |               |   | 1,903  |   |  | -78  | %
|Amortization of intangible assets     |  |                                 |       |   |               |   | 26     |   |  | -100 | %
|                                      |  |                                 |        |   |               |   |        |   |  |      |  
|Total Operating Expenses              |  | $                               | 28,922 |   |               | $ | 35,579 |   |  | -19  | %
|                                      |  |                                 |        |   |               |   |        |   |  |      |  
|Percent of Revenues:                  |  |                                 |        |   |               |   |        |   |  |      |  
|Research and development              |  |                                 | 20     | % |               |   | 24     | % |  |      |  
|Sales and marketing                   |  |                                 | 21     | % |               |   | 21     | % |  |      |  
|General and administrative            |  |                                 | 16     | % |               |   | 21     | % |  |      |  

Research and Development Expenses

Research and development expenses consist principally of salary and benefit expenses for software developers, contracted development efforts, related
facilities costs and expenses associated with computer equipment used in software development. We believe that investments in research and development, including recruiting and hiring of software developers, are critical to remain competitive in the
marketplace and directly relate to continued development of new and enhanced products.

During the three months ended September 30, 2009,
research and development costs decreased 20% as compared with the corresponding period in the prior year. This decrease is attributable to a decline in labor costs and headcount, primarily related to the reduction in workforce as part of the FY2009
Restructuring described in Note 10 of notes to the condensed consolidated financial statements. As of September 30, 2008 we had 184 employees engaged in research and development activities, versus 164 employees as of September 30, 2009.

Sales and Marketing Expenses

Sales and marketing expenses include salary and benefit expenses, sales commissions, travel expenses, and related facility costs for our sales and marketing personnel, and amortization of customer
relationship intangibles. Sales and marketing expenses also include the costs of trade shows, public relations, promotional materials, redeployed professional service employees and other market development programs.

During the three months ended September 30, 2009, sales and marketing costs remained consistent, as compared with the corresponding period of the prior
year.

General and Administrative Expenses

General and administrative expenses consist principally of salary and benefit expenses, travel expenses, and facility costs for our finance, human resources, legal, information services and executive
personnel. General and administrative expenses also include outside legal and accounting fees, provision for doubtful accounts, and expenses associated with computer equipment and software used in administration of the business.

During the three months ended September 30, 2009, general and administrative costs decreased 25% compared with the corresponding period in the prior
year. This decrease is primarily attributed to a reduction in salary and related expense of $1.3 million, as well as a decline in professional fees of $1.8 million due to legal costs related to certain non-recurring events in the prior year period.



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Restructuring and Other Related Costs

Restructuring and other related costs for the three months ended September 30, 2009, decreased by 78% over the same period in the prior year. This
decrease can be primarily attributed to restructuring charges of $0.9 million and $0.5 million related to facility exit costs and accelerated depreciation in the first quarter of fiscal 2009, with no such comparable charges in the most recently
completed quarter.

Refer to Note 10 in the notes to the condensed consolidated financial statements for more information.

Amortization of Intangible Assets and Goodwill Impairment

The following table presents the amortization of intangible assets and impairment of goodwill (in thousands):



|                              |  |                                 |     |      |   |      
|----------------------------- |  | ------------------------------- | --- | ---- | - | -----
|                              |  | Three Months EndedSeptember 30,
|                              |  | 2009                            |     | 2008
|Developed and core technology |  | $                               | 409 |      | $ | 1,106
|Customer contractslicenses   |  |                                 |    |      |   | 6    
|Customer contractssupport    |  |                                 | 10  |      |   | 17   
|Workforce in place            |  |                                 |    |      |   | 26   
|                              |  |                                 |     |      |   |      
|                              |  | $                               | 419 |      | $ | 1,155
|                              |  |                                 |     |      |   |      

The decrease in amortization in fiscal 2010 is due to certain assets becoming fully amortized.

Amortization of developed and core technology and customer contracts for licenses is included in cost of license revenue in our condensed
consolidated statements of operations. These assets are being amortized over an average useful life of four years.

Amortization of acquired
customer support contracts is included in Cost of revenuesMaintenance and support. These assets are being amortized over an approximate useful life of three years.

Amortization of workforce in place is included in Operating expenses. These assets are being amortized over an average useful life of four years.

Interest Income

Interest income was approximately $0.3 million for the three months ended September 30, 2009, as compared with $1.8 million for the corresponding period of the prior year. The decrease in interest income can be attributed to lower
interest rates and lower investment balances due to the utilization of $150.0 million of cash for repayment of our convertible subordinated notes in the first quarter of fiscal 2009.

Interest Expense

Interest expense was approximately $0.1 million for the three ended September 30, 2009, as compared with $1.0 million for the corresponding period of the prior year. The majority of our interest expense related to our convertible
subordinated notes issued in September 2003. All outstanding principal and interest was paid on September 9, 2008, which accounts for the decrease in interest expense from the prior year.

Other Expense, net

Other expense, net was approximately $1.4 million during the three months ended September 30, 2009 and $7.3 million during the three months ended September 30, 2008. Other expense, net for the three months ended September, 2008
includes other-than-temporary impairments of $5.6 million recorded on certain investments, with comparable charges of $1.5 million in the current years period. The remaining amounts primarily relate to foreign exchange gains and losses on
foreign denominated assets and liabilities.



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Income Taxes

Income tax expense consisted of foreign withholding tax, foreign corporate tax and foreign deferred tax. Both foreign withholding tax and foreign corporate tax fluctuate quarterly based on the product and
geographic mix of our revenue, with a resulting fluctuation in our quarterly effective tax rate.

The increase in the effective tax rate from
continuing operations for the three months ended September 30, 2009 versus the three months ended September 30, 2008 is the result of lower losses from continuing operations reported for the three months ended September 30, 2009 in
jurisdictions for which losses are not benefitable, primarily in the U.S.

In light of our history of operating losses we continue to maintain
a full valuation allowance for our U.S. federal and state deferred tax assets. We intend to maintain this valuation allowance until there is sufficient evidence to conclude that it is more likely than not that the federal and state deferred tax
assets will be realized. As of September 30, 2009, we have foreign deferred tax assets recorded of approximately $4.2 million in selected countries based upon our conclusion that it is more likely than not that the foreign subsidiaries in the
respective countries will earn future taxable profits enabling the realization of their respective deferred tax assets. As of September 30, 2009, we have approximately $0.3 million of deferred tax liabilities recorded with respect to
acquisitions for which the amortization expense of acquired intangibles is not deductible for tax purposes.

Discontinued Operations

During fiscal 2008, we sold our Client operations to Purple Labs, a private company based in
Chambéry, France. The terms of the agreement include initial consideration of $20.0 million in cash received by us on June 27, 2008 and a note receivable of $5.8 million which was due and paid in July 2008. Additionally, $4.2
million was placed in escrow by Purple Labs until September 2009 to secure indemnification claims made by Purple Labs, if any. The initial consideration also included warrants to purchase 27,000 shares of Purple Labs common stock. We elected
not to exercise these warrants and they are no longer outstanding. During the first quarter of fiscal 2009, we met the terms of the earnout provision in the sale agreement, and received $2.0 million that was recorded as an additional $2.0 million
gain on sale of discontinued operation in the condensed consolidated statement of operations. We provided transition services to Purple Labs for six months following the sale. The first $2.0 million of costs relating to the transition services were
covered by the initial consideration, and an additional $2.3 million of such costs were reimbursed in the second quarter of fiscal 2009. The costs and the related reimbursements of the transition services were recorded in operating expenses. An
immaterial margin on these services was realized. The net impact of the transition services and related reimbursement was immaterial to all categories in the condensed consolidated statement of operations for all periods presented.

On September 23, 2009, Myriad (formerly known as Purple Labs) made claims against the escrow in excess of $4.2 million and therefore the funds were not
released from escrow. We have disputed these escrow claims and are in the early stages of negotiations with Myriad. A gain on the sale of discontinued operations will be recognized if and when funds are distributed from escrow.

We recognized a gain of $19.7 million in the fourth quarter of fiscal 2008 and $2.0 million in the first quarter of fiscal 2009 related to the sale of the
Client operations. The Client operations financial results have been classified as a discontinued operation in our condensed consolidated statements of operations for all periods presented.

In January 2006, we acquired Musiwave and committed to a plan to sell its interest in Musiwave in June 2007. Musiwaves financial results have been
classified as a discontinued operation in our condensed consolidated financial statements for all periods presented.

On December 31,
2007, we sold Musiwave to Microsoft Corporation (Microsoft) for $41.4 million in cash, a note receivable of $5.9 million, and $4.6 million that Microsoft placed in escrow secure indemnification claims, if any, made by the purchaser. We
received and recorded the payment on the note receivable in July 2008, which had increased in value to $6.5 million due to the loan being denominated in Euros. During the first quarter of fiscal 2010, the escrowed funds were distributed pursuant to
recent agreements reached with Microsoft, resulting in a gain on sale of discontinued operations of $4.5 million.



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Operating Lease Obligations and Contractual Obligations

There has been no material change to our contractual obligations during the first quarter of fiscal 2010. As such, see our Annual Report on Form 10-K for the
fiscal year ended June 30, 2009 for a description of our facility leases and Note 10 in the notes to the condensed consolidated financial statements. We currently have subleased a portion of our restructured facilities which will generate
sublease income in aggregate of approximately $24.2 million, resulting in a net future obligation on these properties of approximately $53.9 million, through our fiscal year 2013.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Letter of Credit

As of September 30, 2009, we had letters of credit outstanding against the revolving credit facility totaling $17.5 million, reducing the available borrowings on the revolving credit
facility. Refer to Note 8 in the notes to the condensed consolidated financial statements for more information.

Line of Credit

On January 23, 2009, we entered into a $40.0 million secured revolving credit facility with Silicon
Valley Bank to improve liquidity and working capital for us. No debt was outstanding under this agreement as of September 30, 2009. Refer to Note 8 in the notes to the condensed consolidated financial statements for more information.

Liquidity and Capital Resources

Working Capital and Cash Flows

The following table presents selected financial
information and statistics as of and for the three months ended September 30, 2009 and June 30, 2009 (dollars in thousands):



|                                                 |  |                                  |         |   |              |   |          |               |  |     |  
|------------------------------------------------ |  | -------------------------------- | ------- | - | ------------ | - | -------- | ------------- |  | --- | -
|                                                 |  | September 30,2009                |         |   | June 30,2009 |   |          | PercentChange | 
|Working capital                                  |  | $                                | 83,701  |   |              | $ | 84,887   |               |  | -1  | %
|                                                 |  |                                  |        
|Cash and cash investments:                       |  |                                  |         |   |              |   |          |               |  |     |  
|Cash and cash equivalents                        |  | $                                | 86,465  |   |              | $ | 91,545   |               |  | -6  | %
|Short-term investments                           |  |                                  | 18,369  |   |              |   | 17,537   |               |  | 5   | %
|Long-term investments                            |  |                                  | 16,442  |   |              |   | 16,843   |               |  | -2  | %
|Restricted cash and investments                  |  |                                  | 356     |   |              |   | 775      |               |  | -54 | %
|                                                 |  |                                  |         |   |              |   |          |               |  |     |  
|Total cash and cash investments                  |  | $                                | 121,632 |   |              | $ | 126,700  |               |  | -4  | %
|                                                 |  |                                  |         |   |              |   |          |               |  |     |  
|                                                 |  |                                 
|                                                 |  | Three Months Ended September 30, |         |   |              |  
|                                                 |  | 2009                             |         |   | 2008         |   |          |               | 
|Cash used for operating activities               |  | $                                | (8,789  | ) |              | $ | (2,923   | )             |  |     |  
|Cash provided by investing activities            |  | $                                | 3,628   |   |              | $ | 18,210   |               |  |     |  
|Cash provided by (used for) financing activities |  | $                                | 81      |   |              | $ | (150,000 | )             |  |     |  



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We have obtained a majority of our cash and investments through public offerings of common stock and
convertible debt, including a common stock offering in December 2005 which raised $277.8 million in net proceeds. In addition, we received $145.7 million from the issuance of our $150.0 million convertible subordinated notes during fiscal 2004.
Subsequently, in September 2008 we paid all of the outstanding principal and interest due on our convertible subordinated notes totaling approximately $150.0 million, pursuant to the original terms of the agreement. In fiscal 2008, we sold Musiwave
and our Client operations, resulting in $9.7 million of proceeds in the first quarter of fiscal 2009. We also entered into a $40.0 million revolving credit facility on January 23, 2009. As of September 30, 2009, we had letters of credit
outstanding against the revolving credit facility totaling $17.5 million, reducing the available borrowings on the revolving credit facility. The revolving credit facility requires a monthly borrowing base calculation to determine the amount of
the revolving credit facility available for us to borrow (Borrowing Base). The Borrowing Base calculation is $20.0 million plus 75% of accounts receivables defined as eligible in the credit agreement. As of September 30,
2009, the Borrowing Base was $33.6 million and the total available for us to borrow on the revolving credit facility was $16.1 million, which is the difference between the Borrowing Base calculation of $33.6 million and the amount of outstanding
letters of credit amount of $17.5 million. The revolving credit line is secured by a blanket lien on all of our assets and contains certain financial and reporting covenants customary to these types of credit facilities which we are required to
satisfy as a condition of the agreement. The agreement requires that we meet a quarterly minimum EBITDA and monthly liquidity covenant. As of September 30, 2009, we were in compliance with all debt covenants.

While we believe that our current working capital and anticipated cash flows from operations, together with amounts available to us under our credit
facility, will be adequate to meet our cash needs for daily operations and capital expenditures for at least the next 12 months, we may elect to raise additional capital through the sale of additional equity or debt securities, or sell certain
assets. If additional funds are raised through the issuance of additional debt securities, these securities could have rights, preferences and privileges senior to holders of common stock, and the terms of any debt could impose restrictions on our
operations. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders, and additional financing may not be available in amounts or on terms acceptable to us.

If additional financing is necessary and we are unable to obtain the additional financing, we may be required to reduce the scope of our planned product
development and marketing efforts, which could harm our business, financial condition and operating results. In the meantime, we will continue to manage our cash and investment portfolio in a manner designed to facilitate adequate cash and cash
equivalents to fund our operations as well as future acquisitions, if any.

Working capital

Our working capital, defined as current assets less current liabilities, decreased by approximately $1.2 million, or 1%, from
June 30, 2009 to September 30, 2009. The decrease in working capital balances can primarily be attributed to the $3.0 million loss from continuing operations as well as liabilities related to restructured properties becoming payable within
one year. These decreases were offset in part by the $4.5 million gain on sale of discontinued operations during the first quarter of fiscal 2010.

Cash used for operating activities

Cash used for operating activities
was $8.8 million during the three months ended September 30, 2009. This use of cash is attributed to payments of accrued liabilities and restructuring costs during the quarter.

Cash provided by investing activities

Net cash provided by investing activities during the three months ended September 30, 2009 was $3.6 million due primarily to the payment of the remaining escrowed amount of $4.5 million received from
Microsoft from our sale of Musiwave, offset in part by $0.6 million of purchases of property and equipment.



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Cash flows provided by (used for) financing activities

Net cash provided by financing activities during the three months ended September 30, 2009 was $81,000, consisting solely from the
exercise of stock options during the quarter.



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

(a) Foreign Currency Risk

We operate internationally and are exposed to potentially
adverse movements in foreign currency rate changes. We have entered into foreign exchange derivative instruments to reduce our exposure to foreign currency rate changes on receivables, payables and intercompany balances denominated in a
nonfunctional currency. The objective of these derivatives is to neutralize the impact of foreign currency exchange rate movements on our operating results. These derivatives may require us to exchange currencies at rates agreed upon at the
inception of the contracts. These contracts reduce the exposure to fluctuations in exchange rate movements because the gains and losses associated with foreign currency balances and transactions are generally offset with the gains and losses of the
foreign exchange forward contracts. We do not enter into foreign exchange transactions for trading or speculative purposes, nor do we hedge foreign currency exposures in a manner that entirely offsets the effects of movement in exchange rates. We do
not designate our foreign exchange forward contracts as accounting hedges and, accordingly, we adjust these instruments to fair value through earnings in the period of change in their fair value. Net foreign exchange transaction losses included in
Other expense, net in the accompanying condensed consolidated statements of operations totaled $9,000 for the three months ended September 30, 2009. As of September 30, 2009, we have the following forward contracts (notional amounts in
thousands):



|         |  |                |  |                        |  |                
|-------- |  | -------------- |  | ---------------------- |  | ---------------
|Currency |  | NotionalAmount |  | ForeignCurrencyper USD |  | Date ofMaturity
|EUR      |  | 2,400          |  | 0.68                   |  | 10/30/2009     
|CAD      |  | 2,000          |  | 1.09                   |  | 10/30/2009     
|JPY      |  | 265,000        |  | 89.21                  |  | 10/30/2009     
|AUD      |  | 3,700          |  | 1.15                   |  | 10/30/2009     
|GBP      |  | 350            |  | 0.63                   |  | 10/30/2009     

As of September 30, 2009, the notional value multiplied by the USD exchange rate of these
forward contracts was $12.2 million.

(b) Interest Rate Risk

As of September 30, 2009, we had cash and cash equivalents, short-term and long-term investments, and restricted cash and investments of $121.6 million
compared to $126.7 million at June 30, 2009. Our exposure to market risks for changes in interest rates relates primarily to corporate debt securities, U.S. Treasury Notes and certificates of deposit. We place our investments with high credit
quality issuers that have a rating by Moodys of A2 or higher and Standard & Poors of A or higher, and, by policy, limit the amount of the credit exposure to any one issuer. Our general policy is to limit the risk of principal
loss and ensure the safety of invested funds by limiting market and credit risk. All highly liquid investments with a maturity of less than three months at the date of purchase are considered to be cash equivalents; all investments with maturities
of three months or greater and less than one year are classified as available-for-sale and considered to be short-term investments; all investments with remaining maturities greater than one year are classified as available-for-sale and considered
to be long-term investments. We do not purchase investments with a maturity date greater than three years from the date of purchase.



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The following is a chart of the principal amounts of short-term investments and long-term investments by
expected maturity at September 30, 2009 (in thousands):



|                               |  |                                                |        |      |            |            |            |   |                         |  |                         |   |        |  |   |       
|------------------------------ |  | ---------------------------------------------- | ------ | ---- | ---------- | ---------- | ---------- | - | ----------------------- |  | ----------------------- | - | ------ |  | - | ------
|                               |  | Expected maturity for the year ending June 30, |        |      | Cost Value |            | Fair Value
|                               |  | 2010                                           |        | 2011 |            | Thereafter |            |   | September 30,2009 Total |  | September 30,2009 Total
|U.S. Government Agencies       |  | $                                              | 4,697  |      |            | 6,305      |            |   |                        |  |                         |   | 11,002 |  |   | 11,018
|Commercial Paper               |  |                                                | 1,397  |      |            |           |            |   |                        |  |                         |   | 1,397  |  |   | 1,397 
|Corporate Bonds                |  |                                                | 6,649  |      |            | 1,707      |            |   | 176                     |  |                         |   | 8,532  |  |   | 8,585 
|Auction Rate Securities        |  |                                                |       |      |            |           |            |   | 17,281                  |  |                         |   | 17,281 |  |   | 13,811
|                               |  |                                                |        |      |            |            |            |   |                         |  |                         |   |        |  |   |       
|Total                          |  | $                                              | 12,743 |      | $          | 8,012      |            | $ | 17,457                  |  |                         | $ | 38,212 |  | $ | 34,811
|                               |  |                                                |        |      |            |            |            |   |                         |  |                         |   |        |  |   |       
|Weighted-average interest rate |  |                                                |        |      |            | 1.3        | %          |   |                         |  |                         |   |       

Additionally, we had $0.4 million of restricted investments that were included within long-term
restricted cash and investments on the condensed consolidated balance sheet as of September 30, 2009. $0.2 million of the restricted investments comprised a certificate of deposit to collateralize letters of credit for facility leases, and $0.2
million comprised a restricted investment to secure a warranty bond pursuant to a customer contract. The weighted average interest rate on our restricted investments was 0.3% at September 30, 2009. There have been no significant changes in risk
exposure since September 30, 2009.

As of September 30, 2009, $13.8 million in auction rate securities (ARS), recorded
in long-term investments on the condensed consolidated balance sheet, were considered illiquid based upon recent auction results.

Certain ARS
with an estimated fair value of $13.8 million were issued by nine different entities and are held by two investment firms on our behalf. Six of these securities are Triple X structured obligations of special purpose reinsurance entities
associated with life insurance companies. Two securities are interest-bearing corporate debt obligations which, through the course of the issuers business, have some exposure to asset-backed securities. One ARS is related to federal education
student loan programs. We estimated the fair value of these auction rate securities based on probabilities of potential scenarios: 1) successful auction/early redemption, 2) failing auctions until maturity or 3) default and the estimated cash flows
for each scenario. Other factors were considered, such as the value of the investments held by the issuer and the financial condition and credit ratings of the issuer, insurers, and parent companies as applicable. We recorded a $1.5 million and $4.4
million other-than-temporary loss in the condensed consolidated statements of operations during the first quarter of fiscal 2010 and 2009, respectively, related to these securities. As of September 30, 2009 these instruments were all rated AAA,
A-, B, BBB- or CC by Standard and Poors and Caa2 to A1 by Moodys and $17.0 million par value of these illiquid investments are insured against defaults of principal and interest by third party insurance companies.



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

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive
officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) as
of the end of the period covered by this report, (the Evaluation Date). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its
judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the Evaluation Date, our disclosure
controls and procedures were effective to provide reasonable assurance that information we are required to disclose 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.



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(b) Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the three months ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II Other Information



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

IPO securities class action

On November 5, 2001, a securities fraud class action complaint was filed in the United
States District Court for the Southern District of New York. In re Openwave Systems Inc. Initial Public Offering Securities Litigation, Civ. No. 01-9744 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, 21 MC 92
(SAS) (S.D.N.Y.). It is brought purportedly on behalf of all persons who purchased shares of the Companys common stock from June 11, 1999 through December 6, 2000. The defendants are the Company and five of its former officers (the
Openwave Defendants), and several investment banking firms that served as underwriters of the Companys initial public offering and secondary public offering. Three of the individual defendants were dismissed without prejudice,
subject to a tolling of the statute of limitations. The complaint alleges liability under Sections 11 and 15 of the Securities Act of 1933 (the Securities Act) and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the
Exchange Act), on the grounds that the registration statements for the offerings did not disclose that: (1) the underwriters had agreed to allow certain customers to purchase shares in the offerings in exchange for excess
commissions paid to the underwriters; and (2) the underwriters had arranged for certain customers to purchase additional shares in the aftermarket at predetermined prices. The amended complaint also alleges that false analyst reports were
issued by Credit Suisse First Boston, Hambrecht & Quist, Robertson Stephens, and Piper Jaffray. No specific damages are claimed. Similar allegations were made in over 300 other lawsuits challenging public offerings conducted in 1999
and 2000, and the cases were consolidated for pretrial purposes.

The Company had accepted a settlement proposal presented to all issuer
defendants. Under such settlement proposal, plaintiffs would have dismissed and released all claims against the Openwave Defendants in exchange for a contingent payment by the insurance companies responsible for insuring the issuers
and for the assignment or surrender of control of certain claims the Company may have against the underwriters. The Openwave Defendants would not be required to make any cash payment in the settlement, unless the pro rata amount paid by
the insurers in the settlement exceeds the amount of insurance coverage, a circumstance which the Company does not believe will occur. The settlement required approval of the Court, which could not be assured, after class
members were given the opportunity to object to or opt out of the settlement. The Court held a hearing on April 24, 2006 to consider whether final approval should be granted. Subsequently, the United States Court of Appeals for
the Second Circuit vacated the class certification of plaintiffs claims against the underwriters in six cases designated as focus or test cases. Miles v. Merrill Lynch & Co. (In re Initial Public Offering Securities Litigation),
471 F.3d 24 (2d Cir. 2006). Thereafter, the District Court ordered a stay of all proceedings in all of the lawsuits pending the outcome of plaintiffs petition to the Second Circuit for rehearing en banc and resolution of the class
certification issue. On April 6, 2007, the Second Circuit denied plaintiffs petition for rehearing, but clarified that the plaintiffs may seek to certify a more limited class in the District Court. Accordingly, the parties withdrew
the prior settlement, and Plaintiffs submitted amended complaints in designated focus or test cases with a revised class definition, in an attempt to comply with the Second Circuits ruling.

On April 2, 2009, the parties in all the lawsuits submitted a settlement for the Courts approval. Under the settlement, the Openwave Defendants
would not be required to make any cash payment. On October 6, 2009, the Court approved the settlement. The Company believes a loss is not probable or reasonably estimable. Therefore no amount has been accrued as of September 30, 2009.

Simmonds v. Credit Suisse Group, et al.,

On October 3, 2007, Vanessa Simmonds, a purported stockholder of the Company, filed suit in the U.S. District Court for the Western District of Washington against Credit Suisse Group, Bank of America
Corporation, and JPMorgan Chase & Co., the lead underwriters of the Companys initial public offering in June 1999, alleging violations of Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b). The
complaint seeks to recover from the lead underwriters any short-swing profits obtained by them in violation of Section 16(b). The suit names the Company as a nominal defendant, contains no claims against the Company, and seeks no
relief from the Company. Simmonds filed an Amended Complaint on February 25, 2008 (the Amended Complaint), naming as defendants Credit Suisse Securities (USA), Robertson Stephens, Inc., J.P. Morgan Securities, Inc., and again naming
Bank



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of America Corporation. The Amended Complaint asserts substantially similar claims as those set forth in the
initial complaint. On July 25, 2008, 29 issuers filed the Issuer Defendants Joint Motion to Dismiss. Underwriter Defendants also filed a Joint Motion to Dismiss on July 25, 2008. Plaintiff filed oppositions to both motions on
September 8, 2008. All replies in support of the motions to dismiss were filed on October 23, 2008. The Company joined the Issuer Defendants Joint Motion to Dismiss on December 1, 2008.

On March 12, 2009, the Court granted the Issuer Defendants Joint Motion to Dismiss, dismissing the complaint without prejudice on the grounds
that the Plaintiff had failed to make an adequate demand on the Company prior to filing her complaint. In its order, the Court stated it would not permit the Plaintiff to amend her demand letters while pursuing her claims in the
litigation. Because the Court dismissed the case on the ground that it lacked subject matter jurisdiction, it did not specifically reach the issue of whether Plaintiffs claims were barred by the applicable statute of
limitations. However, the Court also granted the Underwriters Joint Motion to Dismiss with respect to cases involving non-moving issuers, holding that the cases were barred by the applicable statute of limitations because
the issuers shareholders had notice of the potential claims more than five years prior to filing suit. On April 10, 2009, the Plaintiff filed a Notice of Appeal, and the underwriters subsequently filed a Notice of
Cross-Appeal, arguing that the dismissal of the claims involving the moving issuers should have been with prejudice because the claims were untimely under the applicable statute of limitations. The Plaintiffs opening
brief on appeal was filed on August 26, 2009; the Issuer and Underwriter Defendants opposition briefs and the Underwriter Defendants brief supporting their cross-appeals were filed on October 2, 2009;
Simmonds reply brief and opposition to the Underwriter Defendants cross-appeals were filed on November 2, 2009; and the Underwriter Defendants reply brief in support of their cross-appeals is due on November 17,
2009. No amount has been accrued as of June 30, 2009, as a loss is not considered probable or reasonably estimable.

Each of the IPO
Securities Litigation and Simmons matters were reported on in our Annual Report on Form 10-K for the fiscal year ended June 30, 2009.

From time to time, the Company may be involved in litigation or other legal proceedings, including those noted above, relating to or arising out of its day-to-day operations or otherwise. Litigation is inherently uncertain, and the Company
could experience unfavorable rulings. Should the Company experience an unfavorable ruling, there exists the possibility of a material adverse impact on its financial condition, results of operations, cash flows or on its business for the period in
which the ruling occurs and/or in future periods.



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

In addition to the other
information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, Risk Factors in Openwaves Annual Report on Form 10-K for the fiscal year ended June 30, 2009, which could
materially affect Openwaves business, financial condition or future results. The risks described in Openwaves Annual Report on Form 10-K are not the only risks facing Openwave; additional risks and uncertainties may not be currently
known to or may be deemed immaterial by management but could materially adversely affect Openwaves business, financial condition, and/or operating results.

Other than as set forth below, there have been no material changes or additions to the Risk Factors.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



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

None.



|Item 5. | Other Information
|------- | -----------------

None.



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

See the Exhibit Index
which follows the signature page of this Quarterly Report on Form 10-Q, which is incorporated here by reference.



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SIGNATURES

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

Date: November 6, 2009

OPENWAVE SYSTEMS INC.By:

/s/    KAREN J.
WILLEMKaren J. Willem Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer And Duly Authorized Officer)




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INDEX TO EXHIBITS



|              |  |                                                                                                                                                                                                                                                                                              
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                  
|              | 
|3.1           |  | Certificate of Incorporation of Openwave Systems Inc. (the Company), as amended (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on November 13, 2001 (Commission No. 001-16703)).               
|              | 
|3.2           |  | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on November 14, 2003 (Commission No. 001-16703)).
|              | 
|3.3           |  | Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 30, 2007 (Commission No. 001-16703)).                                                           
|              | 
|10.1          |  | Openwave Systems Inc. Fiscal Year (FY) 2010 Executive Corporate Incentive Plan (incorporated by reference to Exhibit 10.19 to the Companys Annual Report on Form 10-K filed
with the Securities and Exchange Commission on September 9, 2009 (Commission No. 001-16703)).                   
|              | 
|31.1          |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                      
|              | 
|31.2          |  | Certification of the Chief Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                         
|              | 
|32.1          |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                           



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