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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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

For the quarterly period ended December 31, 2006

or



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

For the transition period from  to

Commission File Number: 001-16073



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OPENWAVE SYSTEMS INC.

(Exact name of registrant as specified in its charter)



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



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

(650) 480-8000

(Registrants telephone number, including area code)



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

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

Large accelerated
filer  x    Accelerated filer ̈Non-accelerated filer ̈

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

As of
January 31, 2006 there were 94,556,763 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 |  | 19
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 31
|Item 4.                       |  | Controls and Procedures                                                               |  | 32
|                              | 
|PART II.
OTHER INFORMATION    |  |                                                                                      
|                              |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 33
|Item 1A.                      |  | Risk Factors                                                                          |  | 34
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 35
|Item 3.                       |  | Defaults Upon Senior Securities                                                       |  | 35
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                   |  | 35
|Item 5.                       |  | Other Information                                                                     |  | 35
|Item 6.                       |  | Exhibits                                                                              |  | 36
|                              | 
|SIGNATURES                    |  | 37                                                                                   



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)



|                                                          |  |                   |            |   |               |   |            |  
|--------------------------------------------------------- |  | ----------------- | ---------- | - | ------------- | - | ---------- | -
|                                                          |  | December 31, 2006 |            |   | June 30, 2006 |  
|                                                          | 
|Assets                                                    |  |                   |            |   |               |   |            |  
|Current Assets:                                           |  |                   |            |   |               |   |            |  
|Cash and cash equivalents                                 |  | $                 | 170,937    |   |               | $ | 175,431    |  
|Short-term investments                                    |  |                   | 222,130    |   |               |   | 256,420    |  
|Restricted cash                                           |  |                   | 1,250      |   |               |   |           |  
|Accounts receivable, net                                  |  |                   | 149,043    |   |               |   | 152,547    |  
|Prepaid expenses and other current assets                 |  |                   | 24,893     |   |               |   | 18,564     |  
|                                                          |  |                   |            |   |               |   |            |  
|Total current assets                                      |  |                   | 568,253    |   |               |   | 602,962    |  
|                                                          |  |                   |            |   |               |   |            |  
|Property and equipment, net                               |  |                   | 21,710     |   |               |   | 20,784     |  
|Long-term investments and restricted cash and investments |  |                   | 83,374     |   |               |   | 81,140     |  
|Deposits and other assets                                 |  |                   | 10,229     |   |               |   | 9,169      |  
|Goodwill                                                  |  |                   | 151,711    |   |               |   | 148,807    |  
|Intangible assets, net                                    |  |                   | 53,833     |   |               |   | 55,727     |  
|                                                          |  |                   |            |   |               |   |            |  
|Total assets                                              |  | $                 | 889,110    |   |               | $ | 918,589    |  
|                                                          |  |                   |            |   |               |   |            |  
|Liabilities and Stockholders Equity                      |  |                   |            |   |               |   |            |  
|Current Liabilities:                                      |  |                   |            |   |               |   |            |  
|Accounts payable                                          |  | $                 | 11,468     |   |               | $ | 14,951     |  
|Accrued liabilities                                       |  |                   | 72,647     |   |               |   | 59,077     |  
|Accrued restructuring costs                               |  |                   | 16,617     |   |               |   | 18,542     |  
|Deferred revenue                                          |  |                   | 55,452     |   |               |   | 58,964     |  
|                                                          |  |                   |            |   |               |   |            |  
|Total current liabilities                                 |  |                   | 156,184    |   |               |   | 151,534    |  
|                                                          |  |                   |            |   |               |   |            |  
|Accrued restructuring costs, less current portion         |  |                   | 55,822     |   |               |   | 60,922     |  
|Deferred revenue, less current portion                    |  |                   | 7,245      |   |               |   | 6,814      |  
|Deferred rent obligations                                 |  |                   | 1,306      |   |               |   | 1,055      |  
|Deferred tax liabilities, less current portion            |  |                   | 7,046      |   |               |   | 11,417     |  
|Convertible subordinated notes and other, net             |  |                   | 148,605    |   |               |   | 148,494    |  
|                                                          |  |                   |            |   |               |   |            |  
|Total liabilities                                         |  |                   | 376,208    |   |               |   | 380,236    |  
|                                                          |  |                   |            |   |               |   |            |  
|Commitments and contingencies                             |  |                   |            |   |               |   |            |  
|                                                          |  |                  
|Stockholders equity:                                     |  |                   |            |   |               |   |            |  
|Common stock                                              |  |                   | 95         |   |               |   | 95         |  
|Additional paid-in capital                                |  |                   | 3,361,453  |   |               |   | 3,347,195  |  
|Accumulated other comprehensive loss                      |  |                   | (1,120     | ) |               |   | (1,724     | )
|Accumulated deficit                                       |  |                   | (2,847,526 | ) |               |   | (2,807,213 | )
|                                                          |  |                   |            |   |               |   |            |  
|Total stockholders equity                                |  |                   | 512,902    |   |               |   | 538,353    |  
|                                                          |  |                   |            |   |               |   |            |  
|Total liabilities and stockholders equity                |  | $                 | 889,110    |   |               | $ | 918,589    |  
|                                                          |  |                   |            |   |               |   |            |  

See accompanying notes to condensed consolidated financial statements



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##### Table of Contents

OPENWAVE SYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------ |  | ------------------------------- | ------- | - | ----------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                             |  | Three Months Ended December 31, |         |   | Six Months Ended December 31, |  
|                                                             |  | 2006                            |         |   | 2005                          |   |         | 2006 |  |   | 2005    |  
|Revenues:                                                    |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|License                                                      |  | $                               | 24,789  |   |                               | $ | 50,033  |      |  | $ | 54,359  |   |  | $ | 98,747  |  
|Maintenance and support                                      |  |                                 | 22,833  |   |                               |   | 24,259  |      |  |   | 45,646  |   |  |   | 48,647  |  
|Services                                                     |  |                                 | 25,990  |   |                               |   | 28,282  |      |  |   | 51,291  |   |  |   | 50,208  |  
|Projects/ Systems                                            |  |                                 | 2,080   |   |                               |   | 1,914   |      |  |   | 8,207   |   |  |   | 10,228  |  
|Content                                                      |  |                                 | 8,212   |   |                               |   |        |      |  |   | 15,852  |   |  |   |        |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total revenues                                               |  |                                 | 83,904  |   |                               |   | 104,488 |      |  |   | 175,355 |   |  |   | 207,830 |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Cost of revenues:                                            |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|License                                                      |  |                                 | 2,666   |   |                               |   | 2,855   |      |  |   | 5,968   |   |  |   | 6,635   |  
|Maintenance and support                                      |  |                                 | 8,091   |   |                               |   | 8,161   |      |  |   | 15,920  |   |  |   | 15,956  |  
|Services                                                     |  |                                 | 19,522  |   |                               |   | 19,351  |      |  |   | 39,498  |   |  |   | 36,039  |  
|Projects/ Systems                                            |  |                                 | 1,278   |   |                               |   | 1,092   |      |  |   | 3,676   |   |  |   | 5,867   |  
|Content                                                      |  |                                 | 3,478   |   |                               |   |        |      |  |   | 7,604   |   |  |   |        |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total cost of revenues *                                     |  |                                 | 35,035  |   |                               |   | 31,459  |      |  |   | 72,666  |   |  |   | 64,497  |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Gross profit                                                 |  |                                 | 48,869  |   |                               |   | 73,029  |      |  |   | 102,689 |   |  |   | 143,333 |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Operating expenses:                                          |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Research and development                                     |  |                                 | 19,554  |   |                               |   | 21,186  |      |  |   | 39,871  |   |  |   | 45,341  |  
|Sales and marketing                                          |  |                                 | 26,458  |   |                               |   | 28,978  |      |  |   | 54,067  |   |  |   | 58,484  |  
|General and administrative                                   |  |                                 | 18,302  |   |                               |   | 17,392  |      |  |   | 35,150  |   |  |   | 35,055  |  
|Stock option review costs                                    |  |                                 | 750     |   |                               |   |        |      |  |   | 6,242   |   |  |   |        |  
|Restructuring and other related costs                        |  |                                 | 2,024   |   |                               |   | (1,370  | )    |  |   | 12,984  |   |  |   | 6,905   |  
|Amortization of intangible assets                            |  |                                 | 2,453   |   |                               |   | 714     |      |  |   | 4,907   |   |  |   | 1,428   |  
|Gain on sale of technology and other                         |  |                                 |        |   |                               |   | (3,250  | )    |  |   | (1,287  | ) |  |   | (7,549  | )
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total operating expenses *                                   |  |                                 | 69,541  |   |                               |   | 63,650  |      |  |   | 151,934 |   |  |   | 139,664 |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Operating income (loss)                                      |  |                                 | (20,672 | ) |                               |   | 9,379   |      |  |   | (49,245 | ) |  |   | 3,669   |  
|Interest income                                              |  |                                 | 5,966   |   |                               |   | 2,916   |      |  |   | 12,271  |   |  |   | 4,817   |  
|Interest expense                                             |  |                                 | (1,283  | ) |                               |   | (1,311  | )    |  |   | (2,570  | ) |  |   | (2,542  | )
|Other income (expense), net                                  |  |                                 | 230     |   |                               |   | (606    | )    |  |   | 1,072   |   |  |   | (1,606  | )
|Impairment of non-marketable equity securities               |  |                                 |        |   |                               |   | (104    | )    |  |   |        |   |  |   | (104    | )
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Income (loss) before provision for income taxes              |  |                                 | (15,759 | ) |                               |   | 10,274  |      |  |   | (38,472 | ) |  |   | 4,234   |  
|Income tax expense                                           |  |                                 | 17      |   |                               |   | 1,830   |      |  |   | 1,841   |   |  |   | 3,466   |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss)                                            |  | $                               | (15,776 | ) |                               | $ | 8,444   |      |  | $ | (40,313 | ) |  | $ | 768     |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Basic net income (loss) per share                            |  | $                               | (0.17   | ) |                               | $ | 0.11    |      |  | $ | (0.43   | ) |  | $ | 0.01    |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Diluted net income (loss) per share                          |  | $                               | (0.17   | ) |                               | $ | 0.11    |      |  | $ | (0.43   | ) |  | $ | 0.01    |  
|                                                             |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Shares used in computing basic net income (loss) per share   |  |                                 | 93,352  |   |                               |   | 75,003  |      |  |   | 93,189  |   |  |   | 72,542  |  
|                                                             |  |                                 |         |  
|Shares used in computing diluted net income (loss) per share |  |                                 | 93,352  |   |                               |   | 79,433  |      |  |   | 93,189  |   |  |   | 77,224  |  
|                                                             |  |                                 |         |  
|*  Stock-based compensation by
category:                     |  |                                 |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Maintenance and support                                      |  | $                               | 423     |   |                               | $ | 605     |      |  | $ | 605     |   |  | $ | 1,006   |  
|Services                                                     |  |                                 | 541     |   |                               |   | 512     |      |  |   | 824     |   |  |   | 899     |  
|Research and development                                     |  |                                 | 684     |   |                               |   | 2,116   |      |  |   | 1,269   |   |  |   | 4,144   |  
|Sales and marketing                                          |  |                                 | 2,233   |   |                               |   | 4,203   |      |  |   | 4,911   |   |  |   | 8,768   |  
|General and administrative                                   |  |                                 | 2,664   |   |                               |   | 3,875   |      |  |   | 4,642   |   |  |   | 6,698   |  
|Restructuring and other related costs                        |  |                                 | 1,687   |   |                               |   |        |      |  |   | 2,798   |   |  |   |        |  

See accompanying notes to condensed consolidated financial statements



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##### Table of Contents

OPENWAVE SYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                               |  |                              |          |   |      |   |          |  
|---------------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                               |  | Six Months EndedDecember 31, |         
|                                                                                               |  | 2006                         |          |   | 2005 |  
|Cash flows from operating activities:                                                          |  |                              |          |   |      |   |          |  
|Net income (loss)                                                                              |  | $                            | (40,313  | ) |      | $ | 768      |  
|Adjustments to reconcile net income (loss) to net cash used for operating activities:          |  |                              |          |   |      |   |          |  
|Depreciation and amortization of intangibles                                                   |  |                              | 14,253   |   |      |   | 9,346    |  
|Stock-based compensation                                                                       |  |                              | 12,251   |   |      |   | 21,515   |  
|Noncash restructuring charges                                                                  |  |                              | 4,158    |   |      |   | 414      |  
|Provision for doubtful accounts                                                                |  |                              | 1,978    |   |      |   | 718      |  
|Amortization of discount on convertible debt and debt issuance costs                           |  |                              | 506      |   |      |   | 503      |  
|Loss on disposal of property and equipment                                                     |  |                              | 51       |   |      |   | 104      |  
|Deferred tax liability, net                                                                    |  |                              | (4,371   | ) |      |   | (1,523   | )
|Gain on sale of technology and other                                                           |  |                              | (1,287   | ) |      |   | (7,549   | )
|Impairment of non-marketable securities                                                        |  |                              |         |   |      |   | 104      |  
|Changes in operating assets and liabilities, net of effect of acquired assets and liabilities: |  |                              |          |   |      |   |          |  
|Accounts receivable                                                                            |  |                              | 2,733    |   |      |   | (2,582   | )
|Prepaid assets, deposits, and other assets                                                     |  |                              | (7,279   | ) |      |   | (403     | )
|Accounts payable                                                                               |  |                              | (3,533   | ) |      |   | 1,549    |  
|Accrued liabilities                                                                            |  |                              | 12,199   |   |      |   | 4,603    |  
|Accrued restructuring costs                                                                    |  |                              | (7,025   | ) |      |   | (6,031   | )
|Deferred revenue                                                                               |  |                              | (4,076   | ) |      |   | (15,585  | )
|                                                                                               |  |                              |          |   |      |   |          |  
|Net cash provided by (used for) operating activities                                           |  |                              | (19,755  | ) |      |   | 5,951    |  
|                                                                                               |  |                              |          |   |      |   |          |  
|Cash flows from investing activities:                                                          |  |                              |          |   |      |   |          |  
|Purchases of property and equipment                                                            |  |                              | (7,807   | ) |      |   | (6,005   | )
|Acquisition, net of cash acquired                                                              |  |                              | (8,532   | ) |      |   |         |  
|Restricted cash related to acquisition                                                         |  |                              | (1,250   | ) |      |   |         |  
|Net proceeds from sale of technology and other                                                 |  |                              | 1,287    |   |      |   | 7,549    |  
|Purchases of short-term investments                                                            |  |                              | (128,433 | ) |      |   | (247,947 | )
|Proceeds from sales and maturities of short-term investments                                   |  |                              | 186,286  |   |      |   | 111,437  |  
|Purchases of long-term investments                                                             |  |                              | (31,158  | ) |      |   | (5,442   | )
|Proceeds from sales and maturities of long-term investments                                    |  |                              | 4,663    |   |      |   | 4        |  
|Restricted cash and investments                                                                |  |                              | 1,182    |   |      |   | 2,116    |  
|                                                                                               |  |                              |          |   |      |   |          |  
|Net cash provided by (used for) investing activities                                           |  |                              | 16,238   |   |      |   | (138,288 | )
|                                                                                               |  |                              |          |   |      |   |          |  
|Cash flows from financing activities:                                                          |  |                              |          |   |      |   |          |  
|Payment on note payable                                                                        |  |                              | (305     | ) |      |   |         |  
|Proceeds from issuance of common stock, net of repurchases                                     |  |                              | (792     | ) |      |   | 299,587  |  
|                                                                                               |  |                              |          |   |      |   |          |  
|Net cash (used for) provided by financing activities                                           |  |                              | (1,097   | ) |      |   | 299,587  |  
|                                                                                               |  |                              |          |   |      |   |          |  
|Effect of exchange rates on cash and cash equivalents                                          |  |                              | 120      |   |      |   |         |  
|                                                                                               |  |                              |          |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents                                           |  |                              | (4,494   | ) |      |   | 167,250  |  
|Cash and cash equivalents at beginning of period                                               |  |                              | 175,431  |   |      |   | 126,462  |  
|                                                                                               |  |                              |          |   |      |   |          |  
|Cash and cash equivalents at end of period                                                     |  | $                            | 170,937  |   |      | $ | 293,712  |  
|                                                                                               |  |                              |          |   |      |   |          |  
|Supplemental disclosures of cash flow information:                                             |  |                              |          |   |      |   |          |  
|Cash paid for income taxes                                                                     |  | $                            | 4,376    |   |      | $ | 3,418    |  
|                                                                                               |  |                              |          |   |      |   |          |  
|Cash paid for interest                                                                         |  | $                            | 2,570    |   |      | $ | 1,538    |  
|                                                                                               |  |                              |          |   |      |   |          |  
|Noncash investing and financing activities:                                                    |  |                              |          |   |      |   |          |  
|Common stock issued for acquisitions                                                           |  | $                            |         |   |      | $ | 6,696    |  
|                                                                                               |  |                              |          |   |      |   |          |  
|Transfers among short-term and long-term investments                                           |  | $                            | 23,312   |   |      | $ | 2,553    |  

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. 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 (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 December 31, 2006 and June 30, 2006, and the results of operations for the three and six months ended December 31, 2006 and 2005
and cash flows for the six months ended December 31, 2006 and 2005. 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, 2006.

The Company corrected its income tax expense for the quarter ended September 30, 2006 by
reducing such expense by approximately $1.0 million in the quarter ended December 31, 2006. There is no impact to the income tax expense for the six months ended December 31, 2006.

Use of Estimates

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 of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results for the full fiscal year or any future period could differ from those estimates.

Revenue Recognition

There have been no material changes to
the Companys revenue recognition policy from the information provided in Note 1 to the consolidated financial statements included in the Companys Annual Report on Form 10K for the year ended June 30, 2006.

Stock Based Compensation

The Company accounts for its stock
options under the Financial Accounting Standards Boards (FASB) Statement of Financial Accounting Standards (FAS) No. 123R, Share-Based Payment, (FAS 123R) for all share based payments and awards
granted.

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



|                                                                                 |  |                                |       |                              |   |        |  |      |        |  |   |       
|-------------------------------------------------------------------------------- |  | ------------------------------ | ----- | ---------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                                                                                 |  | Three Months EndedDecember 31, |       | Six Months EndedDecember 31,
|                                                                                 |  | 2006                           |       | 2005                         |   | 2006   |  | 2005
|Stock-based compensation related to:                                             |  |                                |       |                              |   |        |  |      |        |  |   |       
|Grants of nonvested stock                                                        |  | $                              | 994   |                              | $ | 3,021  |  | $    | 2,179  |  | $ | 5,543 
|Awards accelerated in relation to restructuring                                  |  |                                | 1,687 |                              |   |       |  |      | 2,798  |  |   |      
|Stock options granted to employees and directors                                 |  |                                | 5,551 |                              |   | 8,290  |  |      | 10,072 |  |   | 14,242
|Issuance of common stock related to retention agreements                         |  |                                |      |                              |   |       |  |      |       |  |   | 1,730 
|                                                                                 |  |                                |       |                              |   |        |  |      |        |  |   |       
|Stock-based compensation recognized in the consolidated statements of operations |  | $                              | 8,232 |                              | $ | 11,311 |  | $    | 15,049 |  | $ | 21,515
|                                                                                 |  |                                |       |                              |   |        |  |      |        |  |   |       

During the six months ended December 31, 2006 and 2005, the Company recorded a $0.3 million and $0.2 million
tax benefit related to stock option expense recognized during the respective periods.

During the quarter ended September 30, 2005, the Company
accelerated the vesting of 77,780 share options held by the former CEO and director of the Company. As a result of that modification, the Company recognized additional compensation expense of $0.2 million for the quarter ended September 30,
2005.

During the quarter ended December 31, 2006, the Company modified the vesting of 140,975 share options and 88,426 shares of restricted stock
held by the former COO of the Company. The modification caused these grants to vest on November 30, 2006 to coincide with his final date of employment, as opposed to the previously agreed-upon vesting date of December 31, 2006. As a result
of that modification of the share options, the Company recorded a reduction of compensation expense of $1.6 million for the quarter ended December 31, 2006, due to the reversal of previously recognized compensation expense related to options
expected to be forfeited, off-set in part by compensation expense resulting from the modification. Additionally, the Company recorded $0.8 million in restructuring expense related to this acceleration, as this was accelerated based on the
termination agreement entered into in connection with the FY 2007 Restructuring Plan.



6



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##### Table of Contents

The Company elected to amortize stock-based compensation for awards granted on or after the adoption of FAS 123R on
July 1, 2005 on a straight-line basis over the requisite service (vesting) period for the entire award. For awards granted prior to July 1, 2005, compensation costs are amortized in a manner consistent with Financial Accounting Standards
Board Interpretation (FIN) No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans. This is the same manner applied in the pro forma disclosures under FAS 123, Accounting for
Stock-Based Compensation, (FAS 123) for periods prior to the adoption of FAS 123R.

(a) Summary of Plans

On October 16, 2005, the Companys 1995 Plan (formerly the Software.com, Inc. 1995 Stock Option Plan) (the 1995 Stock Plan) expired, and,
accordingly, options can no longer be granted from the 1995 Stock Plan. A total of 17,743,215 shares of common stock had previously been authorized for issuance under the 1995 Stock Plan. As of December 31, 2006, options to purchase a total of
5,123,878 shares were outstanding under the 1995 Stock Plan. Additionally, options to purchase 7,968 shares under several other plans from which options are no longer granted are outstanding as of December 31, 2006.

On September 25, 2006, the Companys 1996 Stock Plan (formerly the Phone.com, Inc. 1996 Stock Plan) (the 1996 Stock Plan) expired, and,
accordingly, options can no longer be granted from the 1996 Stock Plan. A total of 12,531,282 shares of common stock had previously been authorized for issuance under the 1996 Stock Plan. As of December 31, 2006, options to purchase a total of
4,494,217 shares were outstanding under the 1996 Plan.

The Openwave Systems Inc. 1999 Directors Stock Option Plan (the Directors Stock
Plan) provides for the grant of non-statutory stock options to non-employee directors (Outside Directors). Under the Directors Stock Plan, a total of 650,000 shares of the Companys common stock have been reserved for
issuance. Options and awards granted to new or existing Outside Directors under the Directors Stock Plan vest ratably over a period of three years. The Directors Stock Plan also provides for the acceleration of options upon the dismissal
of the Outside Director from the Board upon or within twenty-four months following a change in control of the Company. The exercise price of options granted under the Directors Stock Plan is equal to the fair market value of the Companys
common stock on the date of grant. The exercise price of nonvested shares granted under the Directors Stock Plan is $0.00. Under the Directors Stock Plan, stock option grants have a term of ten years. As of December 31, 2006, the
Company had a total of 305,000 shares of common stock available for grant, and options for a total of 309,500 shares were outstanding under the Directors Stock Plan.

The Openwave Systems Inc. 2001 Stock Compensation Plan (2001 Stock Plan) provides for the issuance of non-statutory stock options, nonvested stock bonus awards and nonvested stock purchase awards to
directors, employees and consultants of the Company. The 2001 Stock Plan serves as the successor to certain plans of the Company and plans acquired by the Company. No further grants will be made under the predecessor plans; however, each outstanding
option granted under a predecessor plan shall continue to be governed by the terms and conditions of the predecessor plan under which it was granted. A total of 4,068,128 shares of common stock have been reserved for issuance under the 2001 Stock
Plan. Under the 2001 Stock Plan, the exercise price for nonstatutory options is determined by the plan administrator and may be above or below the fair market value of the Companys common stock on the date of grant. Options issued under the
2001 Stock Plan generally expire ten years from the date of grant. Vesting periods are determined by the plan administrator and generally provide for shares to vest ratably over a period of three to four years, with options for new employees
generally including a one-year cliff period. As of December 31, 2006, the Company had a total of 329,917 shares of common stock available for grant, and options for a total of 629,911 shares were outstanding under the 2001 Stock Plan.

The Company held its annual meeting of stockholders on January 17, 2007. At the meeting, the stockholders approved the Companys 2006 Stock Incentive
Plan (2006 Plan).

Certain outstanding stock purchase rights are subject to a restricted stock purchase agreement whereby the Company has the
right to repurchase the stock upon the voluntary or involuntary termination of the purchasers employment with the Company at the purchasers exercise price. The Companys repurchase right lapses at a rate determined by the stock plan
administrator but at a minimum rate of 20% per year. Through December 31, 2006, the Company has issued 4,892,552 shares under restricted stock purchase agreements, of which 901,964 shares have been repurchased and 1,035,949 shares remain
subject to repurchase at a weighted-average purchase price of $0.00 per share.



7



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##### Table of Contents

(b) Assumptions and Activity

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model that uses the assumptions noted in the following table. Expected volatilities are based on the
historical volatility of the Companys common stock. Expected terms (in years) are derived from the average midpoint between vesting and the contractual term, as described in the SECs Staff Accounting Bulletin No. 107,
Share-Based Payment. 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 EndedDecember 31, |   |  | Six Months EndedDecember 31, |  
|                         |  | 2006                           |   |  | 2005                         |   |  | 2006        |   |  | 2005*       |  
|Expected volatility      |  | 81.8                           | % |  | 91.6                         | % |  | 88.5        | % |  | 94.8        | %
|Expected dividends       |  | 0                              | % |  | 0                            | % |  | 0           | % |  | 0           | %
|Expected term (in years) |  | 5.75 - 6.06                    |   |  | 5.75 - 6.06                  |   |  | 5.75 - 6.06 |   |  | 5.75 - 6.06 |  
|Risk-free rate           |  | 4.6                            | % |  | 4.4                          | % |  | 4.8         | % |  | 4.3         | %

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

A summary of option activity from July 1, 2006 to December 31, 2006 is presented below (in thousands except per share amounts):



|                                                 |  |        |   |  |                                 |       |                                                     |      |                           |   |      
|------------------------------------------------ |  | ------ | - |  | ------------------------------- | ----- | --------------------------------------------------- | ---- | ------------------------- | - | -----
|Options                                          |  | Shares |   |  | Weighted Average Exercise Price |       | Weighted Average Remaining Contractual Term (years) |      | Aggregate Intrinsic Value
|                                                 |  |        |  
|                                                 |  |        |  
|                                                 |  |        |  
|                                                 |  |        |  
|Outstanding at July 1, 2006                      |  | 10,557 |   |  | $                               | 14.82 |                                                     | 8.40 |                           | $ | 6,380
|Options granted                                  |  | 1,484  |   |  |                                 | 8.36  |                                                     |      |                           |   |      
|Exercised                                        |  | (43    | ) |  |                                 | 3.43  |                                                     |      |                           |   |      
|Forfeited, canceled or expired                   |  | (1,439 | ) |  |                                 | 14.97 |                                                     |      |                           |   |      
|                                                 |  |        |   |  |                                 |       |                                                     |      |                           |   |      
|Outstanding at December 31, 2006                 |  | 10,559 |   |  | $                               | 13.94 |                                                     | 8.11 |                           | $ | 3,645
|                                                 |  |        |   |  |                                 |       |                                                     |      |                           |   |      
|Vested and expected to vest at December 31, 2006 |  | 9,338  |   |  | $                               | 13.94 |                                                     | 8.02 |                           | $ | 3,291
|                                                 |  |        |   |  |                                 |       |                                                     |      |                           |   |      
|Exercisable at December 31, 2006                 |  | 5,205  |   |  | $                               | 13.86 |                                                     | 7.40 |                           | $ | 2,380
|                                                 |  |        |   |  |                                 |       |                                                     |      |                           |   |      

The weighted average grant date fair values of options granted during the six months ended December 31, 2006
and 2005 were $6.28 and $13.33. The total intrinsic value of options exercised during the six months ended December 31, 2006 and 2005 were $0.2 million and $16.9 million. 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 shares from July 1, 2006 to December 31, 2006 is presented
below (in thousands except per share amounts):



|                               |  |        |   |  |                                                  |      
|------------------------------ |  | ------ | - |  | ------------------------------------------------ | -----
|Nonvested Shares               |  | Shares |   |  | Weighted Average Grant Date Fair Value Per Share
|                               | 
|                               | 
|                               | 
|                               | 
|Nonvested at July 1, 2006      |  | 1,618  |   |  | $                                                | 15.06
|Nonvested shares granted       |  | 260    |   |  |                                                  | 8.09 
|Vested                         |  | (681   | ) |  |                                                  | 13.50
|Forfeited                      |  | (161   | ) |  |                                                  | 15.50
|                               |  |        |   |  |                                                  |      
|Nonvested at December 31, 2006 |  | 1,036  |   |  | $                                                | 14.60



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##### Table of Contents

As of December 31, 2006, there was $10.5 million of total unrecognized compensation cost related to nonvested
share-based compensation arrangements. That cost is expected to be recognized on a declining basis over the next 4 years. The total fair value of shares vested during the six months ended December 31, 2006 and 2005 was $9.2 million and $2.3
million.

Recently Issued Accounting Pronouncements

In
July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109, which clarifies the accounting for
uncertainty in income taxes recognized in an entitys financial statements in accordance with SFAS No. 109,  Accounting for Income Taxes. The Interpretation prescribes a recognition threshold and measurement attribute
for financial statement disclosure of tax positions taken or expected to be taken on a tax return. The Interpretation is effective beginning in the first quarter of fiscal 2008. The Company is currently analyzing the requirements of this
Interpretation and has not yet determined its impact on the consolidated financial statements.

In September 2006, the SEC Staff released Staff Accounting
Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB No. 108 provides guidance on the process of quantifying
materiality of financial statement misstatements. SAB No. 108 is effective for fiscal years ending after November 15, 2006, with early application for the first interim period ending after November 15, 2006. The Companys current
policy to evaluate errors on a rollover basis. The Company intends to adopt SAB No. 108 by the end of fiscal year 2007 and is currently in the process of evaluating the effect of SAB No. 108 on its financial position and results of
operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair Value
Measurements, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates
inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, provided the company has not yet issued financial statements,
including for interim periods, for that fiscal year. The Company is currently evaluating the impact of SFAS 157, but does not expect the adoption of SFAS 157 to have a material impact on its consolidated financial position, results of
operations or cash flows.

(2) Net Income (Loss) Per Share

In accordance with SFAS No. 128, Earnings 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 following table reconciles the number of shares used in the basic and diluted net income (loss) per share computations for the periods presented (in thousands):



|                                                                                     |  |                                 |  |                               |  |        |  |       
|------------------------------------------------------------------------------------ |  | ------------------------------- |  | ----------------------------- |  | ------ |  | ------
|                                                                                     |  | Three Months Ended December 31, |  | Six Months Ended December 31,
|                                                                                     |  | 2006                            |  | 2005                          |  | 2006   |  | 2005  
|Weighted average shares used in computing basic net income (loss) per common share   |  | 93,352                          |  | 75,003                        |  | 93,189 |  | 72,542
|Dilutive effect of restricted stock subject to repurchase                            |  |                                |  | 1,738                         |  |       |  | 1,587 
|Dilutive effect of employee stock options                                            |  |                                |  | 2,124                         |  |       |  | 2,453 
|Dilutive effect of contingently issuable shares related to a business combination    |  |                                |  | 568                           |  |       |  | 642   
|                                                                                     |  |                                 |  |                               |  |        |  |       
|Weighted average shares used in computing diluted net income (loss) per common share |  | 93,352                          |  | 79,433                        |  | 93,189 |  | 77,224
|                                                                                     |  |                                 |  |                               |  |        |  |       

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



|                                                                                                                                                                                                    |  |                                 |  |                               |  |        |  |      
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------- |  | ----------------------------- |  | ------ |  | -----
|                                                                                                                                                                                                    |  | Three Months Ended December 31, |  | Six Months Ended December 31,
|                                                                                                                                                                                                    |  | 2006                            |  | 2005                          |  | 2006   |  | 2005 
|Weighted average effect of potential common stock:                                                                                                                                                  |  |                                 |  |                               |  |        |  |      
|Unvested common stock subject to repurchase                                                                                                                                                         |  | 1,310                           |  |                              |  | 1,441  |  |     
|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                                  |  | 408                             |  |                              |  | 410    |  |     
|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 period |  | 10,510                          |  | 5,369                         |  | 10,350 |  | 4,332
|Shares resulting from an as-if conversion of the convertible debt                                                                                                                                 |  | 8,154                           |  | 8,154                         |  | 8,154  |  | 8,154



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##### Table of Contents

(3) Geographic, Segment and Significant Customer Information

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

The Company has organized its operations based on a single operating segment. The disaggregated revenue information reviewed on a product category basis by the CEO
includes: 1) server software and services; 2) client software and related services; and 3) content.

Server software and services includes, but is not
limited to: software which enables end users to exchange electronic mail, and multimedia messages from PCs, wireline telephones and mobile phones; software that contains the foundation software required to enable Internet connectivity to mobile
devices and to build a set of applications for mobile users; our system solutions software and services and third-party hardware. Server software and services products includes the following: email, IP Voicemail, Messaging Anti-Abuse products
and services, other messaging products, Openwave Mobile Access Gateway, Openwave Location Products, Multimedia Messaging Services (MMS), Openwave Provisioning Manager, and packaged solution elements which include software licenses,
professional services, third-party software and hardware.

Client software and related services primarily include the Openwave Mobile Browser, which is a
microbrowser that is designed and optimized for wireless devices, Openwave Mobile Messaging Client, and Openwave Phone Suite.

Content relates to revenues
generated by Musiwave, which was acquired on January 13, 2006. Musiwave provides wireless telecommunications operators with content for the client handset, such as music and other downloadable entertainment. Musiwave also provides the related
hosting, implementation, and maintenance and support services to these wireless telecommunications operators.

The disaggregated revenue information
reviewed by the CEO is as follows (in thousands):



|                      |  |                                 |        |                               |   |         |  |      |         |  |   |        
|--------------------- |  | ------------------------------- | ------ | ----------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                      |  | Three Months Ended December 31, |        | Six Months Ended December 31,
|                      |  | 2006                            |        | 2005                          |   | 2006    |  | 2005
|Disaggregated revenue |  |                                 |        |                               |   |         |  |      |         |  |   |        
|Server                |  | $                               | 65,330 |                               | $ | 81,388  |  | $    | 129,446 |  | $ | 161,659
|Client                |  |                                 | 10,362 |                               |   | 23,100  |  |      | 30,057  |  |   | 46,171 
|Content               |  |                                 | 8,212  |                               |   |        |  |      | 15,852  |  |   |       
|                      |  |                                 |        |                               |   |         |  |      |         |  |   |        
|Total revenues        |  | $                               | 83,904 |                               | $ | 104,488 |  | $    | 175,355 |  | $ | 207,830
|                      |  |                                 |        |                               |   |         |  |      |         |  |   |        

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 (EMEA). Information regarding the Companys revenue in different geographic regions was as follows (in thousands):



|                                      |  |                                 |        |                               |   |         |  |      |         |  |   |        
|------------------------------------- |  | ------------------------------- | ------ | ----------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                                      |  | Three Months Ended December 31, |        | Six Months Ended December 31,
|                                      |  | 2006                            |        | 2005                          |   | 2006    |  | 2005
|United States                         |  | $                               | 33,918 |                               | $ | 40,885  |  | $    | 72,134  |  | $ | 86,106 
|Americas, excluding the United States |  |                                 | 7,022  |                               |   | 6,965   |  |      | 11,663  |  |   | 11,817 
|Europe, Middle East, and Africa       |  |                                 | 21,104 |                               |   | 26,469  |  |      | 41,544  |  |   | 49,573 
|Japan                                 |  |                                 | 8,897  |                               |   | 13,732  |  |      | 19,321  |  |   | 26,513 
|Asia Pacific, excluding Japan         |  |                                 | 12,963 |                               |   | 16,437  |  |      | 30,693  |  |   | 33,821 
|                                      |  |                                 |        |                               |   |         |  |      |         |  |   |        
|Total revenues                        |  | $                               | 83,904 |                               | $ | 104,488 |  | $    | 175,355 |  | $ | 207,830
|                                      |  |                                 |        |                               |   |         |  |      |         |  |   |        

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

Significant customer revenue as a percentage of total revenue for the three and six months ended December 31, 2006 and
2005 was as follows:



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##### Table of Contents

|              |  |                                                    |   |  |                                                  |   |  |      |   |  |      |  
|------------- |  | -------------------------------------------------- | - |  | ------------------------------------------------ | - |  | ---- | - |  | ---- | -
|              |  | % of Total Revenue Three Months Ended December 31, |   |  | % of Total Revenue Six Months Ended December 31, |  
|              |  | 2006                                               |   |  | 2005                                             |   |  | 2006 |   |  | 2005 |  
|Customer:     |  |                                                    |   |  |                                                  |   |  |      |   |  |      |  
|Sprint Nextel |  | 20                                                 | % |  | 21                                               | % |  | 21   | % |  | 23   | %

(4) Balance Sheet Components

(a) Accounts Receivable, net

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



|                                |  |                   |         |   |               |   |         |  
|------------------------------- |  | ----------------- | ------- | - | ------------- | - | ------- | -
|                                |  | December 31, 2006 |         |   | June 30, 2006 |  
|Accounts receivable             |  | $                 | 121,012 |   |               | $ | 105,988 |  
|Unbilled accounts receivable    |  |                   | 35,706  |   |               |   | 52,966  |  
|Allowance for doubtful accounts |  |                   | (7,675  | ) |               |   | (6,407  | )
|                                |  |                   |         |   |               |   |         |  
|                                |  | $                 | 149,043 |   |               | $ | 152,547 |  
|                                |  |                   |         |   |               |   |         |  

Significant customer accounts receivable balances as a percentage of total gross accounts receivable at
December 31, 2006 and June 30, 2006 were as follows:



|              |  |                                |   |  |               |  
|------------- |  | ------------------------------ | - |  | ------------- | -
|              |  | % of Total Accounts Receivable |  
|              |  | December 31, 2006              |   |  | June 30, 2006 |  
|Customer:     |  |                                |   |  |               |  
|Sprint Nextel |  | 21                             | % |  | 15            | %

(b) Goodwill and Intangible Assets, net

The following table presents a roll-forward of the goodwill and intangible assets from June 30, 2006 to December 31, 2006 (in thousands):



|                                |  |                             |         |           |   |              |  |   |                                 |   |  |   |        
|------------------------------- |  | --------------------------- | ------- | --------- | - | ------------ |  | - | ------------------------------- | - |  | - | -------
|                                |  | Balance as of June 30, 2006 |         | Additions |   | Amortization |  |   | Balance as of December 31, 2006
|Goodwill                        |  | $                           | 148,807 |           | $ | 2,904        |  | $ |                                |   |  | $ | 151,711
|Intangibles assets:             |  |                             |         |           |   |              |  |   |                                 |   |  |   |        
|Developed and core technology   |  |                             | 15,832  |           |   | 6,010        |  |   | (3,283                          | ) |  |   | 18,559 
|Customer contracts - licenses   |  |                             | 71      |           |   | 650          |  |   | (143                            | ) |  |   | 578    
|Customer contracts - support    |  |                             | 37      |           |   | 180          |  |   | (59                             | ) |  |   | 158    
|Content                         |  |                             | 3,780   |           |   |             |  |   | (342                            | ) |  |   | 3,438  
|Customer relationships          |  |                             | 28,545  |           |   |             |  |   | (3,432                          | ) |  |   | 25,113 
|Internal use software and other |  |                             | 7,462   |           |   |             |  |   | (1,475                          | ) |  |   | 5,987  
|                                |  |                             |         |           |   |              |  |   |                                 |   |  |   |        
|                                |  | $                           | 204,534 |           | $ | 9,744        |  | $ | (8,734                          | ) |  | $ | 205,544
|                                |  |                             |         |           |   |              |  |   |                                 |   |  |   |        

Total amortization expense related to intangible assets during the three and six months ended December 31,
2006 and 2005 was as follows (in thousands):



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##### Table of Contents

|                                |  |                    |       |                  |   |       |  |      |       |  |   |      
|------------------------------- |  | ------------------ | ----- | ---------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                |  | Three Months Ended |       | Six Months Ended
|                                |  | December 31,       |       | December 31,    
|                                |  | 2006               |       | 2005             |   | 2006  |  | 2005
|Developed and core technology   |  | $                  | 1,792 |                  | $ | 1,505 |  | $    | 3,283 |  | $ | 3,059
|Customer contracts - licenses   |  |                    | 137   |                  |   | 6     |  |      | 143   |  |   | 12   
|Customer contracts - support    |  |                    | 38    |                  |   | 21    |  |      | 59    |  |   | 42   
|Content                         |  |                    | 171   |                  |   |      |  |      | 342   |  |   |     
|Customer relationships          |  |                    | 1,716 |                  |   | 687   |  |      | 3,432 |  |   | 1,374
|Internal use software and other |  |                    | 737   |                  |   | 27    |  |      | 1,475 |  |   | 54   
|                                |  |                    |       |                  |   |       |  |      |       |  |   |      
|                                |  | $                  | 4,591 |                  | $ | 2,246 |  | $    | 8,734 |  | $ | 4,541
|                                |  |                    |       |                  |   |       |  |      |       |  |   |      

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 content is included in Cost of Revenue  Content. Amortization of acquired customer
relationships and internal use software and other is included in Operating expenses.

The following tables set forth the carrying amount of intangible
assets, net as of December 31, 2006 and June 30, 2006 (in thousands):



|                                |  |                   |        |               |          |         |          |  |        |          |              |   |        |        |   |         |   |  |   |       
|------------------------------- |  | ----------------- | ------ | ------------- | -------- | ------- | -------- |  | ------ | -------- | ------------ | - | ------ | ------ | - | ------- | - |  | - | ------
|                                |  | December 31, 2006 |        | June 30, 2006
|                                |  | Gross             |        | Accumulated   |          |         | Net      |  | Gross  |          | Accumulated  |   |        | Net   
|                                |  | Carrying          |        |               | Carrying |         | Carrying |  |        | Carrying
|                                |  | Amount            |        | Amortization  |          |         | Amount   |  | Amount |          | Amortization |   |        | Amount
|Developed and core technology   |  | $                 | 36,745 |               | $        | (18,186 | )        |  | $      | 18,559   |              | $ | 30,735 |        | $ | (14,903 | ) |  | $ | 15,832
|Customer contracts - licenses   |  |                   | 4,992  |               |          | (4,414  | )        |  |        | 578      |              |   | 4,342  |        |   | (4,271  | ) |  |   | 71    
|Customer contracts - support    |  |                   | 377    |               |          | (219    | )        |  |        | 158      |              |   | 197    |        |   | (160    | ) |  |   | 37    
|Content                         |  |                   | 4,100  |               |          | (662    | )        |  |        | 3,438    |              |   | 4,100  |        |   | (320    | ) |  |   | 3,780 
|Cusomer relationships           |  |                   | 36,502 |               |          | (11,389 | )        |  |        | 25,113   |              |   | 36,502 |        |   | (7,957  | ) |  |   | 28,545
|Internal use software and other |  |                   | 8,944  |               |          | (2,957  | )        |  |        | 5,987    |              |   | 8,944  |        |   | (1,482  | ) |  |   | 7,462 
|                                |  |                   |        |               |          |         |          |  |        |          |              |   |        |        |   |         |   |  |   |       
|                                |  | $                 | 91,660 |               | $        | (37,827 | )        |  | $      | 53,833   |              | $ | 84,820 |        | $ | (29,093 | ) |  | $ | 55,727
|                                |  |                   |        |               |          |         |          |  |        |          |              |   |        |        |   |         |   |  |   |       

The following table presents the estimated future amortization of intangible assets, based upon the intangible
assets recorded as of December 31, 2006, (in thousands):



|                 |  |              |       
|---------------- |  | ------------ | ------
|Fiscal Year      |  | Amortization
|2007 (remaining) |  | $            | 9,119 
|2008             |  |              | 17,917
|2009             |  |              | 11,884
|2010             |  |              | 6,048 
|2011             |  |              | 6,001 
|2012             |  |              | 2,864 
|                 |  |              |       
|                 |  | $            | 53,833
|                 |  |              |       

(c) Deferred Revenue

As of December 31, 2006 and June 30, 2006, the Company had deferred revenue of $62.7 million and $65.8 million, respectively, consisting of deferred license fees, new version coverage, maintenance and
support fees, and professional services fees. Deferred 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------



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Amounts in accounts receivable that have corresponding balances included in deferred revenue aggregated to approximately
$42.6 million and $34.5 million as of December 31, 2006 and June 30, 2006, respectively.

(d) Accumulated Other Comprehensive
Loss

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



|                                                       |  |                   |       |               |   |      
|------------------------------------------------------ |  | ----------------- | ----- | ------------- | - | -----
|                                                       |  | December 31, 2006 |       | June 30, 2006
|                                                       | 
|Unrealized loss on marketable securities, net of taxes |  | $                 | 373   |               | $ | 857  
|Cumulative translation adjustments, net of taxes       |  |                   | 747   |               |   | 867  
|                                                       |  |                   |       |               |   |      
|Accumulated other comprehensive loss                   |  | $                 | 1,120 |               | $ | 1,724
|                                                       |  |                   |       |               |   |      

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



|                                                                             |  |                                |         |                              |      |   |       |  |   |         |   |  |   |    
|---------------------------------------------------------------------------- |  | ------------------------------ | ------- | ---------------------------- | ---- | - | ----- |  | - | ------- | - |  | - | ---
|                                                                             |  | Three Months EndedDecember 31, |         | Six Months EndedDecember 31,
|                                                                             |  | 2006                           |         |                              | 2005 |   | 2006  |  |   | 2005   
|Net income (loss)                                                            |  | $                              | (15,776 | )                            |      | $ | 8,444 |  | $ | (40,313 | ) |  | $ | 768
|Other comprehensive income (loss):                                           |  |                                |         |                              |      |   |       |  |   |         |   |  |   |    
|Change in unrealized loss on marketable securities, net of taxes             |  |                                | (100    | )                            |      |   | 76    |  |   | 484     |   |  |   | 121
|Change in accumulated foreign currency translation adjustments, net of taxes |  |                                | 99      |                              |      |   |      |  |   | 120     |   |  |   |   
|                                                                             |  |                                |         |                              |      |   |       |  |   |         |   |  |   |    
|Total comprehensive income (loss)                                            |  | $                              | (15,777 | )                            |      | $ | 8,520 |  | $ | (39,709 | ) |  | $ | 889
|                                                                             |  |                                |         |                              |      |   |       |  |   |         |   |  |   |    

In January 2006, the Company acquired Musiwave, which is a Euro functional entity. As such, foreign currency
translation adjustments for Musiwave are recognized in accumulated other comprehensive income on the condensed consolidated balance sheet.

(5)
Acquisitions

Acquisition of SoloMio

On
October 2, 2006, the Company acquired all of the outstanding issued share capital of SoloMio Corporation (SoloMio), for initial aggregate consideration of approximately $9.8 million (the Initial Consideration). The
Initial Consideration consists of the payment of cash consideration of $9.5 million and transaction costs of $0.3 million, consisting primarily of professional fees.

The Initial Consideration does not include $1.25 million held in an escrow account for indemnification claims which has been reflected as restricted cash. If the escrowed amounts are released to the selling
shareholders, the amounts currently recorded as restricted cash will be reclassified to goodwill on the consolidated balance sheet at the time of release.

Pursuant to the terms of the merger agreement, in addition to the Initial Consideration, Openwave may pay contingent consideration (SoloMio Earn Out) of up to an additional $5.5 million. The actual amount of the SoloMio Earn Out
payments is determined based upon the achievement of revenue-related targets by the SoloMio product line over various periods between closing and December 31, 2007. No SoloMio Earn Out was achieved for the quarter ended December 31, 2006.
The remaining potential SoloMio Earn Out pursuant to the merger agreement is $4.4 million as of December 31, 2006, which has the potential to be earned up to $1.1 million per quarter through December 31, 2007.

The Initial Consideration has been allocated as follows (in thousands):



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|                                         |  |   |        |  
|---------------------------------------- |  | - | ------ | -
|Tangible assets:                         |  |   |        |  
|Cash and cash equivalents                |  | $ | 1,282  |  
|Accounts receivable                      |  |   | 1,207  |  
|Prepaid and other current assets         |  |   | 200    |  
|Property, plant and equipment            |  |   | 48     |  
|                                         |  |   |        |  
|Total tangible assets                    |  |   | 2,737  |  
|                                         |  |   |        |  
|Intangible assets:                       |  |   |        |  
|Identifiable intangibles                 |  |   | 6,840  |  
|Goodwill                                 |  |   | 2,904  |  
|                                         |  |   |        |  
|Total intangible assets                  |  |   | 9,744  |  
|                                         |  |   |        |  
|Liabilities assumed:                     |  |   |        |  
|Accounts payable and accrued liabilities |  |   | (1,672 | )
|Deferred revenue                         |  |   | (995   | )
|                                         |  |   |        |  
|Total liabilities assumed                |  |   | (2,667 | )
|                                         |  |   |        |  
|Net assets acquired                      |  | $ | 9,814  |  
|                                         |  |   |        |  

Acquisition of Musiwave

On January 13, 2006, the Company acquired all of the outstanding issued share capital of Musiwave, a leading provider of mobile music entertainment services to operators and media companies primarily in Europe
for the initial aggregate consideration of approximately $116.6 million (the Initial Consideration). The Initial Consideration consists of the payment of cash consideration of $114.2 million and transaction costs of $2.4 million,
consisting primarily of professional fees incurred related to attorneys, accountants and valuation advisors, and transfer taxes.

In addition to the
Initial Consideration, Openwave may pay contingent consideration relating to a retention agreement (Holdback Amount). The maximum amount potentially payable for the Holdback Amount is approximately 2.3 million, or
approximately $3.0 million, using the exchange rate as of December 31, 2006, for the retention of certain key employees of Musiwave for an 18-month period beginning January 13, 2006. Sixty percent of the Holdback Amount also secures
against potential claims and litigation under the Amended Agreement. The Holdback Amount is being amortized over the 18 month period as compensation expense. As of December 31, 2006, .6 million, or $0.8 million, of the Holdback
Amount had been paid and 1.7 million, or $2.2 million using the exchange rate as of December 31, 2006 remained available for payment.

In
addition to the Initial Consideration, the merger agreement contained a performance-based earn out (Earn Out) of up to 15.0 million contingent upon meeting certain financial targets during calendar year 2006. This Earn Out was
not achieved and no amounts were payable as of December 31, 2006.

(6) Convertible Subordinated Notes

On September 9, 2003, the Company issued $150.0 million of 2 3/4% convertible subordinated notes (the Notes), due September 9, 2008. The Notes are
recorded on the Companys consolidated balance sheet net of a $4.1 million discount, which is being amortized over the term of the Notes using the straight-line method, which approximates the effective interest rate method. Approximately
$207,000 and $416,000 of the discount has been amortized during the three and six months ended December 31, 2006, respectively, compared to approximately $207,000 and $413,000 in the corresponding periods of the prior year. The Company has made
a policy election to classify the issuance costs as a reduction to the Notes. The Company incurred $900,000 of costs in connection with the issuance of the Notes, which were deferred and included in Deposits and other assets. The finance costs are
being recognized as interest expense over the term of the notes using the straight-line method, which approximates the effective interest rate method. Approximately $45,000 and $90,000 of debt issuance costs has been amortized during the three and
six months ended December 31, 2006, equal to $45,000 and $90,000 for the corresponding periods of the prior fiscal year.

The Notes are subordinated
to all existing and future senior debt and are convertible into shares of the Companys common stock at the option of the holder at a conversion price of $18.396 per share, or approximately 8.2 million shares in aggregate. The Company may
redeem some or all of the Notes for cash at any time on or after September 9, 2006, at a redemption price equal to $1,000 per $1,000 principal amount of Notes to be redeemed, plus accrued and unpaid interest, if any, on such Notes until, but
not including, the redemption date, if the closing price of the Companys common stock has exceeded 150% of the conversion price then in effect for at least 20 trading days within a period of 30 consecutive trading days ending on the trading
day before the mailing date of the optional redemption notice. Each holder may require the Company to purchase all or a portion of such holders Notes upon occurrence of specified change in control events.



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The Company evaluated the embedded conversion option as though it was a freestanding instrument in accordance with SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities and EITF No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock and concluded that
embedded conversion option would not be accounted for separately by the Company. The Company concluded the holders right to demand repurchase of the debt in the event of a change in control does not create an embedded derivative since it does
not create substantial premium or discount on redemption (the Notes are issued at par and the redemption is at par). The Companys option to redeem the Notes for cash after September 9, 2006, based on a contingent event does not create an
embedded derivative, since it is within the control of the Company and there is no substantial premium or discount on redemption. Further, the Company evaluated the terms of the Notes for a beneficial conversion feature in accordance with EITF 98-5,
Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratiosand EITF 00-27,Application of Issue No. 98-5 to Certain Convertible Instrumentsand concluded there was no
beneficial conversion feature, at the commitment date based on the allocated value of the Notes.

Interest on the Notes began accruing in September 2003
and is payable semi-annually in March and September. The Company used approximately $12.1 million of the net proceeds to purchase a portfolio of U.S. government securities that was pledged to secure the payment of the first six scheduled semi-annual
interest payments on the Notes. The Notes are otherwise unsecured obligations. At June 30, 2006, the balance of the pledged securities was $2.1 million. Upon the sixth interest payment in September 2006, amounts are no longer required to be
pledged with respect to the Notes.

Pursuant to the issuance of the Notes, the Company agreed to maintain certain covenants. These covenants include, among
others, (1) the timely payment of principal, premium, if any, and interest on the Notes; (2) the filing of our periodic and other reports we are required to file with the SEC pursuant to the Exchange Act with the trustee within 15 days
after we file such reports with the SEC; and (3) the delivery to the trustee of a compliance certificate within 120 days of the end of each fiscal year.

If the Company fails to observe or correct certain covenants for a period of 60 days after receipt of a notice of default from the trustee, such failure will constitute an event of default under the Notes. Upon an event of default, the
trustee or holders of at least 25% in aggregate principal amount of the Notes may accelerate the Notes such that the entire principal amount and any accrued and unpaid interest shall become immediately due and payable. Holders of a majority in
aggregate principal amount of the Notes may rescind or annul acceleration and its consequences if all events of default have been cured or waived, except nonpayment of the principal and any accrued and unpaid cash interest that have become due
solely because of the acceleration. As of December 31, 2006 the Company is in compliance with all debt covenants.

(7) Commitments and
Contingencies

Litigation

IPO
securities class action. On November 5, 2001, a purported 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. (sic) 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 the Companys
common stock from June 11, 1999 through December 6, 2000. The defendants are Openwave and five of the Companys 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 an agreement extending the statute of limitations, through December 31, 2003. The
complaint alleges liability as under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, on the grounds that the registration statement for the 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. No specific damages are claimed. Similar allegations were made in over 300 lawsuits challenging public offerings conducted
in 1999 and 2000, and the cases were consolidated for pretrial purposes.

The Company has accepted a settlement proposal presented to all issuer
defendants. Under such settlement proposal, plaintiffs will dismiss and release 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 will 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 will require approval of the Court, which cannot be assured, after class



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##### Table of Contents

members are given the opportunity to object to the settlement or opt out of the settlement. The Court held a hearing on April 24, 2006 to consider
whether final approval should be granted and the Company is awaiting a ruling. On December 5, 2006, the Second Circuit Court of Appeals reversed the district courts ruling certifying the cases as class actions. It is unclear what effect
the Second Circuit reversal will have on the settlement or the Court ruling. In essence, the Court has stayed all proceedings, including consideration of the proposed settlement, pending a decision from the Second Circuit on whether it will hear
further arguments on the class certification issue. The Company believes a loss is not probable or estimable. Therefore no amount has been accrued as of December 31, 2006.

Shareholder Derivative Lawsuit. On May 16, 2006, a report published by the Center for Financial Research and Analysis (CFRA) identified Openwave as a company at risk for having engaged
in backdating of stock options granted to our officers and directors. On May 22, 2006, the Company announced that it had received a letter of informal inquiry from the Securities Exchange Commission requesting documents related to the
Companys stock option grants and options granting practices. Following that announcement, seven substantially similar shareholder derivative actions were filed in California state and federal court, purportedly on behalf of the Company,
against various of the Companys current and former directors and officers. The plaintiffs allege that the individual defendants mismanaged corporate assets and breached their fiduciary duties between 1999 and 2005 by authorizing or failing to
halt the backdating of certain stock options. The plaintiffs also allege that certain defendants were unjustly enriched by the receipt and retention of backdated stock options and that certain of the defendants sold Openwave stock for a profit while
in possession of material, non-public information. Certain of the plaintiffs also allege that the Company issued false and misleading financial disclosures and proxy statements from 1999 through 2005 and that the individual defendants engaged in a
fraudulent scheme to divert money to themselves via improper option grants. The complaints seek various forms of equitable relief (including, among other things, disgorgement of profits, rescission of options contracts, accounting and certain
corporate governance reforms) as well as unspecified money damages. The Company is named as a nominal defendant in all of the actions. However, because the plaintiffs purport to bring these claims on the Companys behalf, no relief is sought
against the Company. The Company is required under contracts with the individual defendants to indemnify them under certain circumstances for attorneys fees and expenses.

The state court actions, which are pending in the Superior Court for the County of San Mateo are captioned:

Hertz v. Black
et al., Case No. CIV 455265

Smith v. Black et al., Case No. 455266

Busse v. Puckett et al., Case No. CIV 456226

On September 5, 2006, the state court consolidated the three actions
pending before it and appointed a lead plaintiff and lead counsel. On September 29, 2006, the lead plaintiff filed a consolidated amended shareholder derivative complaint. On August 21, 2006, the individual defendants, joined by Openwave,
filed a motion to stay the state court actions pending resolution of the federal actions. On September 29, 2006, the lead plaintiff filed a consolidated amended shareholder derivative complaint. On December 4, 2006, the state court granted
the motion to stay. The state court actions will remain pending and Openwave and the individual defendants will be required to attend periodic status conferences until the federal actions are resolved. The plaintiffs in the state court actions
have the right to ask the court to lift the stay if circumstances change.

The federal court actions, which are pending in the United States District Court
for the Northern District of California, are captioned:

Hacker v. Peterschmidt et al., Civ. No. 3:06-cv-03468-SI;

Bowie v. Black et al., Civ. No. 3:2006-cv-04479-WHA;

Sherupski v.
Puckett et al., Civ. No. 3:06-cv-04524-WHA;

Koning v. Puckett et al., Civ. No. 3:06-cv-04509-MJJ.

On October 11, 2006, the district court entered an order consolidating the four actions pending before it and appointed lead plaintiffs and lead counsel. On
December 29, 2006, plaintiffs filed an amended and consolidated complaint. A motion to dismiss has been scheduled for late March, 2007. The consolidated federal court action is in its very early stages. No amount is accrued as of
December 31, 2006 as a loss is not considered probable or estimable.

Delaware Litigation. On December 28, 2006, Harbinger Capital
Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund, L.P. (collectively, Harbinger) filed a preliminary proxy that claimed that it purportedly had nominated two directorsJames L. Zucco
(Zucco) and Andrew Breen (Breen)for election at Openwaves January 17, 2007, annual shareholders meeting.

On
that same day, Harbinger filed a complaint against the Company in the Delaware Court of Chancery, seeking an order from the Court that: (i) enjoins the Company from taking any steps to prevent or interfere with the nominations of Messrs. Zucco
and Breen at the Companys annual meeting of stockholders on January 17, 2007; (ii) declares the nominations of Messrs. Zucco and Breen as effective; and (iii) awards reasonable attorneys fees, and such other relief as just and
equitable.



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On January 17, 2007, the Company held its annual meeting of stockholders and determined that Harbinger failed to
comply with the Companys advance notice bylaws, and therefore their nominations for Messrs. Zucco and Breen were invalid. Nevertheless, the Openwave board determined to permit Zucco and Breen to be placed in nomination at the annual meeting on
a provisional basis only, pending the final adjudication by the Court on whether Harbingers nominees were validly before the shareholders at the annual meeting.

On January 22, 2007, the Company responded to Harbingers complaint by filing a motion to dismiss. The Company also filed its own verified complaint in the Delaware Court of Chancery seeking, among other
remedies, declarations that Harbinger did not comply with the Companys bylaws and therefore its candidates were not properly nominated at the Annual Meeting, that Messrs. Peterschmidt and Held were rightfully elected to serve on the
Companys board of directors, and that Messrs. Zucco and Breen were not validly elected to the Companys Board of Directors. Harbinger responded to the Companys motion to dismiss by amending and restating its complaint seeking, among
other remedies, a declaration that Mr. Zucco has been validly elected as a member of the Companys board of directors and that a new election be held between Messrs. Peterschmidt, Held, and Breen for one board seat. Additionally, Harbinger
filed a motion for a status quo order. The court has denied Harbingers motion for a status quo order, and the Companys motion to dismiss is scheduled for March 2, 2007. If the Companys motion to dismiss is denied, a trial on
the matter has been scheduled for March 12-13, 2007.

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 SFAS No. 5, Accounting
for Contingencies. As of December 31, 2006, no amount is accrued for indemnifications.

(8) 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 six separate restructurings
during the years ending June 30, 2007, 2006, 2005, 2003 and 2002. These restructurings included the fiscal year 2007 restructuring (FY2007 Restructuring), the fiscal year 2006 restructuring (FY2006 Restructuring), the 2005 restructuring (FY2005
Restructuring), the 2003 fourth quarter restructuring (FY2003 Q4 Restructuring), the fiscal year 2003 first quarter restructuring (FY2003 Q1 Restructuring), and the fiscal year 2002 restructuring (FY2002 Restructuring).

During the quarter ended September 30, 2006, the Company implemented the FY2007 Restructuring to better align the Companys resources among its operational
groups and reduce the numbers of layers of management between customers and field and product organizations. As such, the Company incurred $11.8 million in pre-tax restructuring and related charges associated with this Restructuring Plan and
accelerated depreciation of abandoned assets in the six months ended December 31, 2006. Included in the restructuring and other charges are approximately $7.6 million related to employee termination benefits, $2.8 million in stock compensation
expense related to employee termination benefits and $1.4 million related to accelerated depreciation of abandoned assets. Additionally, $0.6 million was recorded as restructuring expense which relates to facilities restructured under previous
restructuring plans implemented prior to fiscal year 2007.

During the quarter ended September 30, 2005, the Company implemented the FY2006
Restructuring to better distribute the Companys resources among its client and server product groups. In addition, the Company incurred further facilities-related charges under the FY2005 Restructuring as it ceased using information technology
labs in the prior headquarters during the quarter ended September 30, 2005. Restructuring and related expense during the quarter ended September 30, 2005 totaled $8.3 million, which included $3.7 million in facilities and accretion-related
charges, $4.2 million in severance and relocation costs, and $0.4 million in accelerated depreciation related to a revision in the estimated useful life of leasehold improvements and furniture in the sites exited under the FY2006 Restructuring. The
accelerated depreciation was a non-cash charge and is not included in the restructuring liability table below. The associated restructuring expense for excess facilities was recorded in the quarter ended September 30, 2005 upon the
cease-use dates in accordance with FAS 146 Accounting for Costs Associated with Exit or Disposal Activities.

The following table
sets forth the restructuring liability activity from June 30, 2006 through December 31, 2006 (in thousands):



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##### Table of Contents

|                                  |  |                                  |      |   |          |   |        |          |  |   |          |   |  |          |        |   |           |   |      |           |  |   |           |   |  |   |        |   |  |   |        |  
|--------------------------------- |  | -------------------------------- | ---- | - | -------- | - | ------ | -------- |  | - | -------- | - |  | -------- | ------ | - | --------- | - | ---- | --------- |  | - | --------- | - |  | - | ------ | - |  | - | ------ | -
|                                  |  | Restructuring Plan initiated in: |     
|                                  |  | FY 02                            |      |   | FY 03 Q1 |   |        | FY 03 Q4 |  |   | FY 05    |   |  | FY 06    |        |   | FY 07     |   |      | Total Net | 
|                                  |  | Facility                         |      |   | Facility |   |        | Facility |  |   | Facility |   |  | Facility |        |   | Severance |   |      | Severance |  |   | Liability |  
|Balance as of June 30, 2006       |  | $                                | 933  |   |          | $ | 30,966 |          |  | $ | 162      |   |  | $        | 46,162 |   |           | $ | 998  |           |  | $ | 243       |   |  | $ |       |   |  | $ | 79,464 |  
|New charges(1)                    |  |                                  |      |   |          |   |        |          |  |   |          |   |  |          |        |   |           |   |      |           |  |   |           |   |  |   | 7,843  |   |  |   | 7,843  |  
|Accretion expense                 |  |                                  |      |   |          |   |        |          |  |   | 5        |   |  |          | 627    |   |           |   | 14   |           |  |   |           |   |  |   |        |   |  |   | 646    |  
|Cash paid, net of sublease income |  |                                  | (137 | ) |          |   | (2,083 | )        |  |   | (29      | ) |  |          | (3,605 | ) |           |   | (219 | )         |  |   | (83       | ) |  |   | (146   | ) |  |   | (6,302 | )
|                                  |  |                                  |      |   |          |   |        |          |  |   |          |   |  |          |        |   |           |   |      |           |  |   |           |   |  |   |        |   |  |   |        |  
|Balance as of September 30, 2006  |  | $                                | 796  |   |          | $ | 28,883 |          |  | $ | 138      |   |  | $        | 43,184 |   |           | $ | 793  |           |  | $ | 160       |   |  | $ | 7,697  |   |  | $ | 81,651 |  
|                                  |  |                                  |      |   |          |   |        |          |  |   |          |   |  |          |        |   |           |   |      |           |  |   |           |   |  |   |        |   |  |   |        |  
|New charges (reversals)(2)        |  |                                  |     |   |          |   |       |          |  |   |         |   |  |          |       |   |           |   |     |           |  |   |          |   |  |   | (273   | ) |  |   | (273   | )
|Accretion expense                 |  |                                  |     |   |          |   |       |          |  |   | 5        |   |  |          | 594    |   |           |   | 11   |           |  |   |          |   |  |   |       |   |  |   | 610    |  
|Cash paid, net of sublease income |  |                                  | (137 | ) |          |   | (1,558 | )        |  |   | (29      | ) |  |          | (2,623 | ) |           |   | (129 | )         |  |   | (73       | ) |  |   | (5,000 | ) |  |   | (9,549 | )
|                                  |  |                                  |      |   |          |   |        |          |  |   |          |   |  |          |        |   |           |   |      |           |  |   |           |   |  |   |        |   |  |   |        |  
|Balance as of December 31, 2006   |  | $                                | 659  |   |          | $ | 27,325 |          |  | $ | 114      |   |  | $        | 41,155 |   |           | $ | 675  |           |  | $ | 87        |   |  | $ | 2,424  |   |  | $ | 72,439 |  
|                                  |  |                                  |      |   |          |   |        |          |  |   |          |   |  |          |        |   |           |   |      |           |  |   |           |   |  |   |        |   |  |   |        |  

---

|(1) | Total charges do not include $1.4 million of accelerated depreciation on fixed assets, as well as $1.1 million in stock based compensation expense charged to restructuring during
the period.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Total new charges do not include $1.7 million of stock based compensation expense charged to restructuring during the period.
|--- | -----------------------------------------------------------------------------------------------------------------------------

As of December 31, 2006, the Company has contracts in place for approximately $42.2 million of sublease income from third parties on exited facilities. The
following table sets forth the components of the estimated future cash flows relating to restructured facilities, prior to discounting for future accretion expense, at December 31, 2006 (in thousands):



|                     |  |                            |         |                           |   |         |                                 |  |   |       
|-------------------- |  | -------------------------- | ------- | ------------------------- | - | ------- | ------------------------------- |  | - | ------
|Year ending June 30, |  | ContractualCash Obligation |         | ContractualSubleaseIncome |   |         | EstimatedFuture NetCash Outflow
|2007 (remaining)     |  | $                          | 12,107  |                           | $ | (3,426  | )                               |  | $ | 8,681 
|2008                 |  |                            | 19,247  |                           |   | (7,165  | )                               |  |   | 12,082
|2009                 |  |                            | 17,602  |                           |   | (6,414  | )                               |  |   | 11,188
|2010                 |  |                            | 18,079  |                           |   | (6,671  | )                               |  |   | 11,408
|2011                 |  |                            | 19,119  |                           |   | (6,546  | )                               |  |   | 12,573
|2012                 |  |                            | 19,035  |                           |   | (6,568  | )                               |  |   | 12,467
|Thereafter           |  |                            | 15,483  |                           |   | (5,436  | )                               |  |   | 10,047
|                     |  |                            |         |                           |   |         |                                 |  |   |       
|                     |  | $                          | 120,672 |                           | $ | (42,226 | )                               |  | $ | 78,446
|                     |  |                            |         |                           |   |         |                                 |  |   |       

(9) Gain on Sale of Technology and Other

During the quarter ended December 31, 2005, the Company sold an intangible asset to a third party for $3.25 million in cash. This amount was received by the Company in December 2005 and was recorded in operating
income under gain on sale of technology and other.

During the quarter ended September 30, 2005, the Company sold certain intellectual property
relating to a non-core product. The gain of $4.3 million relates to the initial sale proceeds of $5.0 million less the associated legal and professional fees totaling $0.7 million. The Company will continue to provide services to its customers who
have purchased the product from the Company under a reseller agreement entered into with the buyer of the technology. Additional sale proceeds of $1.3 million, which was previously held in escrow, were received by the Company in September 2006 and
recorded as a gain on sale of technology and other.

(10) Subsequent Event

On January 4, 2007, the Company announced that it intends to repurchase up to $100 million of the Companys common stock. On January 30, 2007, the Company entered into an agreement with Merrill Lynch to effect
the stock repurchase whereby the Company agreed to purchase shares of its common stock from Merrill Lynch for an aggregate price of $100 million. Under the terms of the agreement Merrill Lynch will purchase shares in the open market and deliver
those shares to the Company from time to time during the Companys third and fourth fiscal quarters of 2007.



18



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##### Table of Contents

|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 certain risks and uncertainties, including economic and market variables that may cause actual events, results or performance to differ materially from those indicated by such statements.
Words such as anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such 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, not historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. These risks and uncertainties 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 below in Part II, Item 4, under the subheading Risk Factors and elsewhere in this report. The
occurrence of the events described in Part II, Item 4, under the subheading 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 Companys public statements and reports filed with the Securities and Exchange Commission.

The following
discussion and analysis of the Companys financial condition and results of operations should be read in conjunction with the Companys consolidated financial statements and related notes included in our Annual Report on Form 10-K for the
fiscal year ended June 30, 2006, which was filed with the Securities and Exchange Commission on December 1, 2006, 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 Inc. (Openwave) is the leading independent provider of open standards software solutions for the communications and media industries. We provide our customers with software and services designed to enable them to launch new
revenue generating content and communications services such as messaging, location, browsing and music and entertainment content delivery rapidly.

We have
three categories of products:



| |  |  | Server products that are integrated at the edge and core of operator networks to enable the delivery of voice and video communication, messaging, location,
and content services to mobile handsets and personal computers;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Client softwarethat is embedded in mobile phones that allows handset manufacturers and operators to create and render rich service interfaces for mobile
browsing, messaging, and content services; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Content productswhich consist of music and other downloadable entertainment for the client handset.
| | - |  | ---------------------------------------------------------------------------------------------------

For further detail regarding our products, please see our Annual Report on Form 10-K for our fiscal year ended June 30, 2006.

We were incorporated in 1994 as a Delaware corporation and completed our initial public offering in June 1999. Our principal executive offices are located at 2100
Seaport Boulevard, Redwood City, CA 94063. Our telephone number is (650) 480-8000. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to the
Securities Exchange Act of 1934, as amended, are available free of charge through our website at www.openwave.com or the SEC website at www.sec.gov, as soon as reasonably practicable after we file or furnish such material with the SEC.
Information contained on our website is not incorporated by reference to this report.



19



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##### Table of Contents

Overview of Financial Results During the Three and Six Months Ended December 31, 2006

The following table represents a summary of our operating results for our second quarter of fiscal 2007 compared to the second quarter of fiscal 2006 (in thousands):



|                                         |  |                                 |         |                |      |   |                               |      |                |   |      |   |         |   |  |   |         |  |       |  
|---------------------------------------- |  | ------------------------------- | ------- | -------------- | ---- | - | ----------------------------- | ---- | -------------- | - | ---- | - | ------- | - |  | - | ------- |  | ----- | -
|                                         |  | Three Months Ended December 30, |         | Percent Change |      |   | Six Months Ended December 30, |      | Percent Change |  
|                                         |  | 2006                            |         |                | 2005 |   |                               | 2006 |                |   | 2005 |  
|                                         |  | (unaudited)                     |         |                |      |   | (unaudited)                   |      |                |  
|Revenues                                 |  | $                               | 83,904  |                |      | $ | 104,488                       |      | -20            | % |      | $ | 175,355 |   |  | $ | 207,830 |  | -16   | %
|Cost of revenues                         |  |                                 | 35,035  |                |      |   | 31,459                        |      | 11             | % |      |   | 72,666  |   |  |   | 64,497  |  | 13    | %
|                                         |  |                                 |         |                |      |   |                               |      |                |   |      |   |         |   |  |   |         |  |       |  
|Gross profit                             |  |                                 | 48,869  |                |      |   | 73,029                        |      | -33            | % |      |   | 102,689 |   |  |   | 143,333 |  | -28   | %
|Operating expenses                       |  |                                 | 69,541  |                |      |   | 63,650                        |      | 9              | % |      |   | 151,934 |   |  |   | 139,664 |  | 9     | %
|                                         |  |                                 |         |                |      |   |                               |      |                |   |      |   |         |   |  |   |         |  |       |  
|Operating income (loss)                  |  |                                 | (20,672 | )              |      |   | 9,379                         |      | -320           | % |      |   | (49,245 | ) |  |   | 3,669   |  | -1442 | %
|Interest and other income (expense), net |  |                                 | 4,913   |                |      |   | 895                           |      | 449            | % |      |   | 10,773  |   |  |   | 565     |  | 1807  | %
|Income tax expense                       |  |                                 | 17      |                |      |   | 1,830                         |      | -99            | % |      |   | 1,841   |   |  |   | 3,466   |  | -47   | %
|                                         |  |                                 |         |                |      |   |                               |      |                |   |      |   |         |   |  |   |         |  |       |  
|Net income (loss)                        |  | $                               | (15,776 | )              |      | $ | 8,444                         |      | -287           | % |      | $ | (40,313 | ) |  | $ | 768     |  | -5349 | %
|                                         |  |                                 |         |                |      |   |                               |      |                |   |      |   |         |   |  |   |         |  |       |  

Revenues decreased 20% and 16% during the three and six months ended December 31, 2006 compared to the
corresponding periods of the prior year. The decrease was primarily in license revenues, which declined by 50%. The decrease in license revenues was due to a decrease in demand from several of our largest mobile operator customers who are
experiencing restructuring and internal reorganization, often as a result of a recent merger. The decrease in revenues was partially offset by an increase in revenues from our acquisition of Musiwave in January 2006, which generated content-related
revenue of $8.2 million in the quarter ended December 31, 2006. In addition, we are in the midst of a product transition that we anticipate will continue until we introduce new solutions and products, which we currently expect to launch in late
fiscal 2007.

Operating expenses increased 9% during both the three and six months ended December 31, 2006 compared to the corresponding periods of
the prior year. Operating expenses were impacted by the following during the six months ended December 31, 2006:



| |  |  | $6.2 million of costs associated with our internal stock option practices review announced in May 2006 which concluded in November 2006 and resulted in a
restatement of stock-based compensation for all fiscal periods of fiscal 2000 through 2005;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $6.3 million decrease in the gain on the sale of technology related to a non-core product and other technology; and
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | $3.5 million increase in amortization of intangible assets acquired in our acquisition of Musiwave in January 2006 and SoloMio in October 2006; offset by
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | $8.8 million decrease in stock-based compensation, which reflects a $1.7 million decrease in expense related to shares released from escrow in connection with the
acquisition of Magic 4 in the prior year, $1.6 million reduction in expense related to a modification of grants held by our former COO in connection with his termination on November 30, 2006, a $1.0 million reduction in expense during the six
months ended December 31, 2006 related to cancellations of unvested restricted stock associated with our FY 2007 Restructuring Plan, as well as decreases in stock-compensation expense related to cancellations and declining amortization related
to awards being amortized on an accelerated basis under the methodology applied to awards granted prior to July 1, 2005. Awards granted after June 30, 2005 are amortized on a straight-line basis, as elected upon our adoption of FAS 123R.
Assuming consistency in all other factors, the expense associated with awards amortized on a straight-line basis is expected to increase over the next three years, until the fair value of awards becoming fully vested approximates the fair value of
awards granted during a fiscal period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See Summary of Operating Resultsimmediately following Critical
Accounting Policies and Judgments below for more detailed explanations of the operating results, as well as the Notes to the Consolidated Financial Statements in Item 1 above.

Operating Environment During the Three and Six Months Ended December 31, 2006

Openwave continues to work with
carriers and handset manufacturers to enable the successful delivery of personalized content and communications. We are benefiting from the following events and developments on the network software side of our business:



| |  |  | In October 2006, Openwave announced the completion of its acquisition of SoloMio Corporation, a leading provider of integrated subscriber call management services.
The acquisition extends Openwaves Adaptive Messaging suite of products and services with real-time messaging functionality. Smart Call has been commercially deployed at global and tier one operators since 2003 and supports both pre-IMS and IMS
architectures.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20



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##### Table of Contents

| |  |  | We also announced that TELUS, a leading Canadian telecommunications company, has selected Openwave Location Manager, Commercial Edition to help power its TELUS
Navigator and TELUS Kid Find services, extending a well established relationship between the two companies.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Also in the quarter, we announced that we are now working with a new messaging anti-abuse partner, Commtouch, which has over 15 years of experience developing
messaging software and is a global developer and provider of proprietary anti-spam, Zero-Hour virus protection and IP Reputation solutions. Openwave and Commtouch will work together to combat spam and malware for service providers worldwide.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Late in the second fiscal quarter of 2007 we signed a major systems deal and also disclosed that we have received two trial commitments for our new, Smart On Device
Portal solution.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On the client side of our business, during the second quarter of fiscal 2007, we continue to service our handset
manufacturer and OEM customers, and enable access to the latest content and services.



| |  |  | During the quarter we announced that Openwave Mobile Browser, Mercury Edition has been chosen to power KDDIs EZweb services. The browser will be the third
generation of Openwave software on KDDI handsets and further strengthens the commitment from KDDI and Openwave to deliver the most compelling mobile services available in the Japan market today.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We secured two new design wins for MIDAS, which is an extension of our client offering, with two large handset manufacturers.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

In the content business, we continue to experience traction in the global mobile music market during the second quarter of fiscal 2007 with Musiwave.



| |  |  | Musiwave is working closely with key European operators including Vodafone UK and SFR. Musiwave products are supporting Vodafone UKs hosted music services for
music video downloads as well as music and video ringtones and artist wallpapers on Vodafone live! With SFR, Frances leading operator and affiliate of Vivendi and Vodafone, Musiwave implemented the Advanced Audio Coding format (AAC+) to
enhance music offerings to their subscribers including reducing per-track download times by approximately 50%.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We also announced that Musiwave is working with TELUS, a leading national telecommunications company in Canada, to deliver North Americas first music
subscription service for mobile phone users. The TELUS Mobile Music storefront is powered by Musiwave.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21



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##### Table of Contents

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



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

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 audited consolidated financial statements and accompanying notes thereto
included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2006.

Stock-based compensation

Effective July 1, 2005, we adopted FAS 123R using the modified prospective method, in which compensation cost was recognized based on the requirements of FAS 123R
for (a) all share-based payments granted after the effective date and (b) for all awards granted to employees prior to the effective date of FAS 123R that remain unvested on the effective date. FAS 123R requires the use of judgment and
estimates in performing multiple calculations. We have estimated the expected volatility as an input into the Black-Scholes-Merton valuation formula when assessing the fair value of options granted. Our estimate of volatility was based upon the
historical volatility experienced in our stock price. To the extent volatility of our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation
expense in future periods. For instance, an estimate in volatility ten percentage points higher would have resulted in a $0.1 million increase in the fair value of options granted during the quarter ended December 31, 2006. In addition, we
apply an expected forfeiture rate when amortizing stock-based compensation expense. Our estimate of the forfeiture rate was based primarily upon historical experience of employee turnover. To the extent we revise this estimate in the future, our
stock-based compensation expense could be materially impacted in the quarter of revision, as well as in following quarters. An estimated forfeiture rate of one percentage point lower since adoption of FAS 123R would have resulted in a change of $0.1
million in stock-based compensation expense for the quarter ended December 31, 2006. Our expected term of options granted was derived from the average midpoint between vesting and the contractual term, as described in the SEC Staff Accounting
Bulletin No. 107, Share-Based Payment.In the future, as information regarding post vesting termination becomes more accessible, we may change our method of deriving the expected term. This change could impact our fair value of options
granted in the future.

Summary of Operating Results

Three and Six Months Ended December 31, 2006 and 2005

Revenues

We generate five different types of revenues. License revenues are primarily associated with the licensing of our software products to communication service providers and
wireless device manufacturers; maintenance and support revenues are derived from providing support services to communication service providers and wireless device manufacturers; services revenues are primarily a result of providing deployment and
integration consulting services to communication service providers; project/systems revenues are derived from a porting services project and systems revenues which are comprised of packaged solution elements which may include our software licenses,
professional services, third-party software and hardware; and content revenues which are derived from downloaded music and entertainment content.

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 three and six months ended December 31, 2006 and 2005 we had one significant customer, as shown in the
following table:



|              |  |                                                   |   |  |                                                 |   |  |      |   |  |      |  
|------------- |  | ------------------------------------------------- | - |  | ----------------------------------------------- | - |  | ---- | - |  | ---- | -
|              |  | % of Total RevenueThree Months Ended December 31, |   |  | % of Total RevenueSix Months
Ended December 31, |  
|              |  | 2006                                              |   |  | 2005                                            |   |  | 2006 |   |  | 2005 |  
|Customer:     |  |                                                   |   |  |                                                 |   |  |      |   |  |      |  
|Sprint Nextel |  | 20                                                | % |  | 21                                              | % |  | 21   | % |  | 23   | %



22



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##### Table of Contents

The following table presents the key revenue information for the three and six months ended December 31, 2006 and
2005, respectively (in thousands):



|                        |  |                                 |        |   |                |   |         |                               |      |     |                |      |   |         |   |  |   |         |   |  |     |  
|----------------------- |  | ------------------------------- | ------ | - | -------------- | - | ------- | ----------------------------- | ---- | --- | -------------- | ---- | - | ------- | - |  | - | ------- | - |  | --- | -
|                        |  | Three Months Ended December 31, |        |   | Percent Change |   |         | Six Months Ended December 31, |      |     | Percent Change |     
|                        |  | 2006                            |        |   | 2005           |   |         |                               | 2006 |     |                | 2005 |   |        
|Revenues:               |  |                                 |        |   |                |   |         |                               |      |     |                |      |   |         |   |  |   |         |   |  |     |  
|License                 |  | $                               | 24,789 |   |                | $ | 50,033  |                               |      | -50 | %              |      | $ | 54,359  |   |  | $ | 98,747  |   |  | -45 | %
|Maintenance and support |  |                                 | 22,833 |   |                |   | 24,259  |                               |      | -6  | %              |      |   | 45,646  |   |  |   | 48,647  |   |  | -6  | %
|Services                |  |                                 | 25,990 |   |                |   | 28,282  |                               |      | -8  | %              |      |   | 51,291  |   |  |   | 50,208  |   |  | 2   | %
|Project/ Systems        |  |                                 | 2,080  |   |                |   | 1,914   |                               |      | 9   | %              |      |   | 8,207   |   |  |   | 10,228  |   |  | -20 | %
|Content                 |  |                                 | 8,212  |   |                |   |        |                               |      | N/A |                |      |   | 15,852  |   |  |   |        |   |  | N/A |  
|                        |  |                                 |        |   |                |   |         |                               |      |     |                |      |   |         |   |  |   |         |   |  |     |  
|Total Revenues          |  | $                               | 83,904 |   |                | $ | 104,488 |                               |      | -20 | %              |      | $ | 175,355 |   |  | $ | 207,830 |   |  | -16 | %
|                        |  |                                 |        |   |                |   |         |                               |      |     |                |      |   |         |   |  |   |         |   |  |     |  
|Percent of revenues:    |  |                                 |        |   |                |   |         |                               |      |     |                |      |   |         |   |  |   |         |   |  |     |  
|License                 |  |                                 | 30     | % |                |   | 48      | %                             |      |     |                |      |   | 31      | % |  |   | 48      | % |  |     |  
|Maintenance and support |  |                                 | 27     | % |                |   | 23      | %                             |      |     |                |      |   | 26      | % |  |   | 23      | % |  |     |  
|Services                |  |                                 | 31     | % |                |   | 27      | %                             |      |     |                |      |   | 29      | % |  |   | 24      | % |  |     |  
|Project/ Systems        |  |                                 | 2      | % |                |   | 2       | %                             |      |     |                |      |   | 5       | % |  |   | 5       | % |  |     |  
|Content                 |  |                                 | 10     | % |                |   |        |                               |      |     |                |      |   | 9       | % |  |   |        |   |  |     |  
|                        |  |                                 |        |   |                |   |         |                               |      |     |                |      |   |         |   |  |   |         |   |  |     |  
|Total Revenues          |  |                                 | 100    | % |                |   | 100     | %                             |      |     |                |      |   | 100     | % |  |   | 100     | % |  |     |  
|                        |  |                                 |        |   |                |   |         |                               |      |     |                |      |   |         |   |  |   |         |   |  |     |  

License Revenues

License revenues decreased by 50% and 45% during the three and six months ended December 31, 2006 as compared to the corresponding periods of the prior year. The decrease was due to a decrease in demand from
several of our largest mobile operator customers who are experiencing restructuring and internal reorganization, often as a result of a recent merger. This is particularly true in the United States and EMEA, which has lengthened the selling cycle
for new projects during this time of reorganization. In addition, we are in the midst of a product transition that we anticipate will continue until we introduce new solutions and products, which we currently expect to launch in late fiscal 2007.

Maintenance and Support Revenues

Maintenance and support revenues decreased by 6% for both the three and six months ended December 31, 2006 compared to the corresponding periods of the prior year. This decrease is related to the decrease in License Revenues as discussed
above, which impacted maintenance revenues, particularly in the client product line in EMEA.

Services Revenues

Services revenue decreased by 8% for the three months and increased by 2% for the six months ended December 31, 2006, as compared to the corresponding periods of the
prior year. The decrease in the three months ended December 31, 2006, was primarily related to the decrease in License revenues in the quarter. Overall for the six months ended December 31 2006, the slight increase in Services revenue was
primarily attributed to increased interest in Openwave providing not only our software and support, but also integrating third party elements including hardware and related services as part of larger project base deals.

Project/Systems Revenues

Project/Systems revenues
increased by 9% during the three months and decreased by 20% during the six months ended December 31, 2006, as compared to the corresponding periods of the prior year. In the prior year, there were two ongoing projects which generated
project/systems revenues, whereas the project/systems revenues relate primarily to one new project for the three and six months ended December 31, 2006.

Content Revenues

Content revenues are a result of the acquisition of Musiwave in January 2006. Musiwave provides
downloadable music and other entertainment, which comprised the $8.2 million and $15.9 million of content revenue in the three and six months ended December 31, 2006. Content revenues are associated with the variable amounts charged to
customers for downloads of Musiwave products, as well as implementation services and customer support related to content products.



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Other Key Revenue Metrics

The other key revenue metrics reviewed by our CEO for purposes of making operating decisions and assessing financial performance include our disaggregated revenues by product groups. The disaggregated revenues by
product group for the three and six months ended December 31, 2006 and 2005 were as follows (in thousands):



|                       |  |                                |        |                |   |         |                              |     |                |  |   |         |  |   |         |  |     |  
|---------------------- |  | ------------------------------ | ------ | -------------- | - | ------- | ---------------------------- | --- | -------------- |  | - | ------- |  | - | ------- |  | --- | -
|                       |  | Three Months EndedDecember 31, |        | Percent Change |   |         | Six Months EndedDecember 31, |     | Percent Change | 
|                       |  | 2006                           |        | 2005           |   |         | 2006                         |     | 2005           | 
|Disaggregated revenue: |  |                                |        |                |   |         |                              |     |                |  |   |         |  |   |         |  |     |  
|Server                 |  | $                              | 65,330 |                | $ | 81,388  |                              | -20 | %              |  | $ | 129,446 |  | $ | 161,659 |  | -20 | %
|Client                 |  |                                | 10,362 |                |   | 23,100  |                              | -55 | %              |  |   | 30,057  |  |   | 46,171  |  | -35 | %
|Content                |  |                                | 8,212  |                |   |        |                              | N/A |                |  |   | 15,852  |  |   |        |  | N/A |  
|                       |  |                                |        |                |   |         |                              |     |                |  |   |         |  |   |         |  |     |  
|Total Revenues         |  | $                              | 83,904 |                | $ | 104,488 |                              | -20 | %              |  | $ | 175,355 |  | $ | 207,830 |  | -16 | %
|                       |  |                                |        |                |   |         |                              |     |                |  |   |         |  |   |         |  |     |  

The decrease in our total revenues, as discussed above, impacted server revenues less than the client revenues due
to the higher mix of service revenues in the server product line.

Cost of Revenues

The following table presents cost of revenues as a percentage of related revenue type for the three and six months ended December 31, 2006 and 2005, respectively (in
thousands):



|                        |  |                                |        |                |   |        |                              |     |                |  |   |        |  |   |        |  |     |  
|----------------------- |  | ------------------------------ | ------ | -------------- | - | ------ | ---------------------------- | --- | -------------- |  | - | ------ |  | - | ------ |  | --- | -
|                        |  | Three Months EndedDecember 31, |        | Percent Change |   |        | Six Months EndedDecember 31, |     | Percent Change | 
|                        |  | 2006                           |        | 2005           |   |        | 2006                         |     | 2005           | 
|Cost of revenues:       |  |                                |        |                |   |        |                              |     |                |  |   |        |  |   |        |  |     |  
|License                 |  | $                              | 2,666  |                | $ | 2,855  |                              | -7  | %              |  | $ | 5,968  |  | $ | 6,635  |  | -10 | %
|Maintenance and support |  |                                | 8,091  |                |   | 8,161  |                              | -1  | %              |  |   | 15,920 |  |   | 15,956 |  | 0   | %
|Services                |  |                                | 19,522 |                |   | 19,351 |                              | 1   | %              |  |   | 39,498 |  |   | 36,039 |  | 10  | %
|Projects/ Systems       |  |                                | 1,278  |                |   | 1,092  |                              | 17  | %              |  |   | 3,676  |  |   | 5,867  |  | -37 | %
|Content                 |  |                                | 3,478  |                |   |       |                              | N/A |                |  |   | 7,604  |  |   |       |  | N/A |  
|                        |  |                                |        |                |   |        |                              |     |                |  |   |        |  |   |        |  |     |  
|Total Cost of Revenues  |  | $                              | 35,035 |                | $ | 31,459 |                              | 11  | %              |  | $ | 72,666 |  | $ | 64,497 |  | 13  | %
|                        |  |                                |        |                |   |        |                              |     |                |  |   |        |  |   |        |  |     |  



|                                           |  |                                |   |  |                              |   |  |      |   |  |      |  
|------------------------------------------ |  | ------------------------------ | - |  | ---------------------------- | - |  | ---- | - |  | ---- | -
|                                           |  | Three Months EndedDecember 31, |   |  | Six Months EndedDecember 31, |  
|                                           |  | 2006                           |   |  | 2005                         |   |  | 2006 |   |  | 2005 |  
|Gross margin per related revenue category: |  |                                |   |  |                              |   |  |      |   |  |      |  
|License                                    |  | 89                             | % |  | 94                           | % |  | 89   | % |  | 93   | %
|Maintenance and support                    |  | 65                             | % |  | 66                           | % |  | 65   | % |  | 67   | %
|Services                                   |  | 25                             | % |  | 32                           | % |  | 23   | % |  | 28   | %
|Projects/ Systems                          |  | 39                             | % |  | 43                           | % |  | 55   | % |  | 43   | %
|Content                                    |  | 58                             | % |  |                             |   |  | 52   | % |  |     |  
|                                           |  |                                |   | 
|Total Gross Margin                         |  | 58                             | % |  | 70                           | % |  | 59   | % |  | 69   | %

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 7% and 10% during the three and six months ended December 31, 2006, compared to the corresponding periods of the prior year.
The decrease is attributable to the decrease in license revenues of 50%, and 45%, respectively, offset by expenses related to certain royalties which are amortized at a minimum amount over the period licensed to us, regardless of the associated
revenues we record.



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##### Table of Contents

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 wireless device manufacturers
and communication service providers.

Cost of maintenance and support was generally consistent during the three and six months ended December 31,
2006, as compared to the corresponding periods of the prior year. Over longer periods of time we expect that our cost of maintenance and support would either increase or decrease in relation to the associated revenues.

Cost of Services Revenues

Cost of services revenues
consists 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 1% and 10% during the three and six months ended December 31, 2006, as compared to the corresponding periods of the prior year. The increase during the six months ended
December 31, 2006 was related to a $5.1 million increase in third party hardware costs.

Cost of Project/Systems Revenues

Cost of project/systems revenues consists of direct costs in fulfilling requirements under projects which comprise packaged solution elements which may
include our software licenses, our professional services, and third-party software and hardware.

Cost of project/systems revenues increased by 17% during
the three months and decreased by 37% during the six months ended December 31, 2006, as compared to the corresponding periods of the prior year. The increase during the three months ended December 31, 2006 was primarily related to a
project that began in fiscal year 2007. The decrease during the six months ended December 31, 2006 was primarily related to a large project with Sprint Nextel (formerly Sprint) which was completed during the six months ended December 31,
2005.

Cost of Content Revenues

Cost
of content revenues consist primarily of royalties associated with customer downloads of Musiwave products, as well as the cost of implementation services and customer support associated with content products.

Cost of content revenues increased during the three and six months ended December 31, 2006 due to the acquisition of Musiwave in January 2006.

Operating Expenses

Operating expenses increased by 9% for
both the three and six months ended December 31, 2006, as compared to the corresponding periods of the prior year.

The following table represents
operating expenses for the three and six months ended December 31, 2006 and 2005, respectively (in thousands):



|                                      |  |                                 |        |   |                |   |        |                               |      |      |                |      |   |         |   |  |   |         |   |  |     |  
|------------------------------------- |  | ------------------------------- | ------ | - | -------------- | - | ------ | ----------------------------- | ---- | ---- | -------------- | ---- | - | ------- | - |  | - | ------- | - |  | --- | -
|                                      |  | Three Months Ended December 31, |        |   | Percent Change |   |        | Six Months Ended December 31, |      |      | Percent Change |     
|                                      |  | 2006                            |        |   | 2005           |   |        |                               | 2006 |      |                | 2005 |   |        
|Operating expenses:                   |  |                                 |        |   |                |   |        |                               |      |      |                |      |   |         |   |  |   |         |   |  |     |  
|Research and development              |  | $                               | 19,554 |   |                | $ | 21,186 |                               |      | -8   | %              |      | $ | 39,871  |   |  | $ | 45,341  |   |  | -12 | %
|Sales and marketing                   |  |                                 | 26,458 |   |                |   | 28,978 |                               |      | -9   | %              |      |   | 54,067  |   |  |   | 58,484  |   |  | -8  | %
|General and administrative            |  |                                 | 18,302 |   |                |   | 17,392 |                               |      | 5    | %              |      |   | 35,150  |   |  |   | 35,055  |   |  | 0   | %
|Stock option review costs             |  |                                 | 750    |   |                |   |       |                               |      | N/A  |                |      |   | 6,242   |   |  |   |        |   |  | N/A |  
|Restructuring and other related costs |  |                                 | 2,024  |   |                |   | (1,370 | )                             |      | 248  | %              |      |   | 12,984  |   |  |   | 6,905   |   |  | 88  | %
|Amortization of intangible assets     |  |                                 | 2,453  |   |                |   | 714    |                               |      | 244  | %              |      |   | 4,907   |   |  |   | 1,428   |   |  | 244 | %
|Gain on sale of technology            |  |                                 |       |   |                |   | (3,250 | )                             |      | -100 | %              |      |   | (1,287  | ) |  |   | (7,549  | ) |  | -83 | %
|                                      |  |                                 |        |   |                |   |        |                               |      |      |                |      |   |         |   |  |   |         |   |  |     |  
|Total Operating Expenses              |  | $                               | 69,541 |   |                | $ | 63,650 |                               |      | 9    | %              |      | $ | 151,934 |   |  | $ | 139,664 |   |  | 9   | %
|                                      |  |                                 |        |   |                |   |        |                               |      |      |                |      |   |         |   |  |   |         |   |  |     |  
|Percent of Revenues:                  |  |                                 |        |   |                |   |        |                               |      |      |                |      |   |         |   |  |   |         |   |  |     |  
|Research and development              |  |                                 | 23     | % |                |   | 20     | %                             |      |      |                |      |   | 23      | % |  |   | 22      | % |  |     |  
|Sales and marketing                   |  |                                 | 32     | % |                |   | 28     | %                             |      |      |                |      |   | 31      | % |  |   | 28      | % |  |     |  
|General and administrative            |  |                                 | 22     | % |                |   | 17     | %                             |      |      |                |      |   | 20      | % |  |   | 17      | % |  |     |  



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##### Table of Contents

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 December 31, 2006, research and development costs decreased 8% compared to the corresponding
period in the prior year. This decrease is a result of our continuing efforts to streamline our business, including through our restructuring plan announced in August 2006. Contingent worker expense decreased by $0.5 million, and we experienced a
decline of $1.4 million in stock based compensation expense as compared to the corresponding period of the prior year.

During the six months ended
December 31, 2006, research and development costs decreased 12% compared to the corresponding period in the prior year. This decrease is a result of our continuing efforts to streamline our business, primarily through the prior years
restructuring plan. In particular, contingent worker expense decreased by $1.2 million over the prior year, primarily due to the former MAG development team having moved from the research and development to the services department since the prior
years period. Additionally, we experienced a decline of $2.9 million in stock based compensation expense as compared to the corresponding period of the prior year.

Research and development expenses as a percentage of revenues remained relatively consistent, increasing by 3% to 23% of revenues for the three months ended December 30, 2006 compared to 20% in the corresponding
period of the prior year.

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 December 31, 2006, sales and marketing costs decreased by 9% compared to the corresponding period in the prior year. The decrease is
primarily attributable to a reduction in the average labor cost per head within the group, as several sales executives have left the Company due to the restructuring that was implemented during the first quarter of fiscal year 2007. Additionally,
stock based compensation expense decreased by $2.0 million over the same period in the prior year.

During the six months ended December 31, 2006,
sales and marketing costs decreased by 8% compared to the corresponding period in the prior year. The decrease is primarily attributable to a reduction in the average labor cost per head within the group, as several sales executives have left the
Company due to the restructuring that was implemented during the first quarter of fiscal year 2007. Additionally, stock based compensation expense decreased by $3.9 million over the same period in 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 December 31, 2006, general and administrative costs increased 5% compared to the corresponding period in the prior year. The majority of this increase can be attributed to the
amortization of the Holdback for Musiwave, which was approximately $0.6 million in the quarter.

During the six months ended December 31, 2006,
general and administrative costs remained fairly consistent compared to the corresponding period in the prior year.

Stock Option Review
Costs

During the fourth quarter of fiscal year 2006, the Board of Directors formed a Special Committee to investigate an informational request the
Company received from the Securities and Exchange Commission regarding our historical stock option practices. As a result of the findings of the Special Committee, we remeasured certain stock option grants which resulted in additional stock-based
compensation and associated payroll tax expense for fiscal years 2000 through 2005. During this process, we incurred $6.2 million in additional professional fees, in particular related to legal and audit expenses during the six months ended
December 31, 2006.



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##### Table of Contents

Restructuring and Other Related Costs

Restructuring and other related costs for the three months ended December 31, 2006, increased by 248% over the same period in the prior year. This increase can be
attributed to the fact that during the second quarter of fiscal year 2006, the Company entered into a non-binding sublease agreement, which resulted in a reduction in estimated restructuring charges as the Company reassessed its estimated obligation
and sublease income related to these properties. Additionally, during the quarter ended December 31, 2006, the Company incurred approximately $1.7 million in charges related to stock based compensation for employees that were part of the Q1
FY07 Restructuring plan.

Restructuring and other related costs for the six months ended December 31, 2006, increased by 88% over the same period in
the prior year. This increase can primarily be attributed to the Q1 FY07 Restructuring plan, which has resulted in restructuring charges of approximately $11.8 million through December 31, 2006.

Refer to Note 8 in the notes to the condensed consolidated financial statements for more information.

Amortization of Intangible Assets

The following
table presents the total amortization of intangible assets (in thousands):



|                                |  |                                |       |                              |   |       |  |      |       |  |   |      
|------------------------------- |  | ------------------------------ | ----- | ---------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                |  | Three Months EndedDecember 31, |       | Six Months EndedDecember 31,
|                                |  | 2006                           |       | 2005                         |   | 2006  |  | 2005
|Developed and core technology   |  | $                              | 1,792 |                              | $ | 1,505 |  | $    | 3,283 |  | $ | 3,059
|Customer contractslicenses     |  |                                | 137   |                              |   | 6     |  |      | 143   |  |   | 12   
|Customer contractssupport      |  |                                | 38    |                              |   | 21    |  |      | 59    |  |   | 42   
|Content                         |  |                                | 171   |                              |   |      |  |      | 342   |  |   |     
|Customer relationships          |  |                                | 1,716 |                              |   | 687   |  |      | 3,432 |  |   | 1,374
|Internal use software and other |  |                                | 737   |                              |   | 27    |  |      | 1,475 |  |   | 54   
|                                |  |                                |       |                              |   |       |  |      |       |  |   |      
|                                |  | $                              | 4,591 |                              | $ | 2,246 |  | $    | 8,734 |  | $ | 4,541
|                                |  |                                |       |                              |   |       |  |      |       |  |   |      

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. The increase in amortization in fiscal year 2007 reflects the increase due to the acquisition of Musiwave in January 2006 and the acquisition of SoloMio in October 2006. 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 two years.

Amortization of content is included
in Cost of revenuesContent. These assets are being amortized over an approximate useful life of three years.

Amortization of acquired customer
relationships and internal use software and other is included in Operating expenses. These assets are being amortized over an average useful life of six years.

Gain on Sale of Technology and Other

During the quarter ended September 30, 2005, we sold certain intellectual
property relating to a non-core product. The gain relates to the $5.0 million in initial sale proceeds less the associated legal and professional fees totaling $0.7 million. We will continue to provide services to our customers who have purchased
the product from us in the past under a reseller agreement entered into with the buyer of the technology. The proceeds of $1.3 million which were previously held in escrow were received by us in September 2006 and recorded in Gain on sale of
technology and other when received.



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##### Table of Contents

Interest Income

Interest income was approximately $6.0 and $12.3 million for the three and six months ended December 31, 2006, as compared to $2.9 and $4.8 million for the corresponding periods of the prior year. The increase in
interest income is due to interest earned on the proceeds from our equity offering in December 2005 which yielded $277.8 million in net proceeds, as well as higher interest rates earned on our investments during the period ended December 31,
2006, as compared to the corresponding period of the prior year.

Interest Expense

Interest expense related primarily to our convertible subordinated notes was approximately $1.3 million and $2.6 million for the three and six months ended
December 31, 2006, which was relatively consistent with the corresponding periods in the prior year when interest expense was $1.3 million and $2.5 million.

Other Income (Expense), net

Other income (expense), net was approximately $0.2 million and $1.1 million during the
three and six months ended December 31, 2006, as compared to $(0.6) million and $(1.6) million for the corresponding periods of the prior year. These amounts primarily related to foreign exchange gains and losses on foreign denominated assets
and liabilities.

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.

Income tax expense decreased by 99% and 47% for the three and six months ended December 31, 2006
compared to the corresponding periods in the prior fiscal year due to increased tax benefits related to the periodic amortization of deferred tax liabilities related to the acquisition of Musiwave in January 2006. The Company corrected its income
tax expense for the quarter ended September 30, 2006 by reducing such expense by approximately $1.0 million in the quarter ended December 31, 2006. There is no impact to the income tax expense for the six months ended December 31, 2006.

In light of our history of operating losses we recorded 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 December 31, 2006, we have foreign deferred tax assets recorded of
approximately $8.8 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 December 31, 2006, we have approximately $14.6 million of deferred tax liabilities recorded with respect to acquisitions for which the amortization expense of acquired intangibles is not deductible for tax purposes,
of which $9.2 million relates to the acquisition of Musiwave.

Operating Lease Obligations and Contractual Obligations

There has been no material change to our contractual obligations during the first quarter of fiscal year 2007. As such, see our Annual Report on Form 10-K for the fiscal
year ended June 30, 2006 for a description of our facility leases. We currently have subleased a portion of our unused facilities which will generate sublease income in aggregate of approximately $42.2 million through our fiscal year 2012.

On January 13, 2006, in connection with our acquisition of Musiwave, in addition to the original consideration paid for the purchase, we agreed to
additional contingent consideration consisting of amounts relating to a performance-based earn out (Earn Out) and a retention agreement (Holdback Amount). The maximum amount potentially payable for the Holdback Amount is
approximately €2.3 million, or approximately $3.0 million, using the exchange rate as of December 31, 2006, for the retention of certain key employees of Musiwave for an 18-month period beginning January 13, 2006. Sixty percent of the Holdback
Amount also secures against potential claims and litigation under the Amended Agreement. The Holdback Amount is being amortized over the 18 month period as compensation expense. As of December 31, 2006, .6 million, or $0.8 million, of the
Holdback Amount had been paid and 1.7 million, or $2.2 million using the exchange rate as of December 31, 2006 remained available for payment.

In
addition to the Initial Consideration, the merger agreement contained a performance-based earn out (Earn Out) of up to 15.0 million contingent upon meeting certain financial targets during calendar year 2006. This Earn Out was not
achieved and no amounts were payable as of December 31, 2006.

On October 2, 2006, in connection with our acquisition of SoloMio, in addition to the
original consideration paid for the purchase, we may pay contingent consideration (SoloMio Earn Out) of up to an additional $5.5 million. The actual amount of the SoloMio Earn Out payments will be determined based upon the achievement of
revenue-related targets by the SoloMio product line over various periods between closing and December 31, 2007. No SoloMio Earn Out was achieved for the quarter ended December 31, 2006. The remaining potential SoloMio Earn Out pursuant to the merger
agreement is $4.4 million as of December 31, 2006, which has the potential to be earned up to $1.1 million per quarter through December 31, 2007.



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Off-Balance Sheet Arrangements

As of December 31, 2006, we have no off-balance sheet arrangements.



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##### Table of Contents

Liquidity and Capital Resources

Working Capital and Cash Flows

The following table presents selected financial information and statistics as
of December 31 and June 30, 2006, respectively (in thousands):



|                                                 |  |                              |         |   |               |   |          |                |  |     |  
|------------------------------------------------ |  | ---------------------------- | ------- | - | ------------- | - | -------- | -------------- |  | --- | -
|                                                 |  | December 31, 2006            |         |   | June 30, 2006 |   |          | Percent Change | 
|                                                 |  |                             
|Working capital                                  |  | $                            | 412,069 |   |               | $ | 451,428  |                |  | -9  | %
|                                                 |  |                              |        
|Cash and cash investments:                       |  |                              |         |   |               |   |          |                |  |     |  
|Cash and cash equivalents                        |  | $                            | 170,937 |   |               | $ | 175,431  |                |  | -3  | %
|Short-term investments                           |  |                              | 222,130 |   |               |   | 256,420  |                |  | -13 | %
|Long-term investments                            |  |                              | 64,450  |   |               |   | 61,034   |                |  | 6   | %
|Restricted cash and investments                  |  |                              | 18,924  |   |               |   | 20,106   |                |  | -6  | %
|                                                 |  |                              |         |   |               |   |          |                |  |     |  
|Total cash and cash investments                  |  | $                            | 476,441 |   |               | $ | 512,991  |                |  | -7  | %
|                                                 |  |                              |         |   |               |   |          |                |  |     |  
|                                                 |  |                             
|                                                 |  | Six Months EndedDecember 31, |         |   |               |  
|                                                 |  | 2006                         |         |   | 2005          |   |          |                | 
|Cash provided by (used for) operating activities |  | $                            | (19,755 | ) |               | $ | 5,951    |                |  |     |  
|Cash provided by (used for) investing activities |  | $                            | 16,238  |   |               | $ | (138,288 | )              |  |     |  
|Cash provided by (used for) financing activities |  | $                            | (1,097  | ) |               | $ | 299,587  |                |  |     |  

We obtained a majority of our cash and investments through prior public offerings, including a common stock
offering in December 2005 which raised $277.8 million in net proceeds. We intend to use the cash provided by such financing activities for general corporate purposes, including potential future acquisitions or other transactions. In addition, we
received approximately $145.7 million from the issuance of our $150 million convertible subordinated notes during the fiscal year ended June 30, 2004. While we believe that our current working capital and anticipated cash flows from operations
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, obtain a credit facility 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 portfolios in a manner designed to ensure that we have adequate cash and cash equivalents to fund our operations as well as future acquisitions, if any.

Working capital

Our working capital decreased by
approximately $39.9 million, or 9%, from June 30, 2006 to December 31, 2006. The decrease was primarily attributable to a $19.8 million use of cash for operations, $8.5 million used for the acquisition of SoloMio (net of cash acquired of
$1.3 million) and $7.8 million in purchases of fixed assets.

Cash provided by (used for) operating activities

Cash used for operating activities was $19.8 million during the six months ended December 31, 2006, compared with cash provided by operating activities of $6.0
million in the corresponding period of the prior year. This increase in the use of cash from operations was primarily attributable to the net loss, net of non-cash items, which was $11.5 million during the six months ended December 31,
2006 versus net income of $31.9 million, net of non-cash items, during the six months ended December 31, 2005 as a result of the decline in revenues during the same period. Other changes relate to the timing in payment and receipts of working
capital.



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##### Table of Contents

Cash provided by (used for) investing activities

Net cash provided by investing activities during the six months ended December 31, 2006 was $16.2 million, up $154.5 million from ($138.3) million used in investing
activities during the six months ended December 31, 2005. This change was primarily due to the $173.3 million decrease in purchases of short-term and long-term investments, net of proceeds from maturities during the same timeframe, as well as a
$6.3 million decrease in gain on sale of technology and the acquisition of SoloMio for $8.5 million, net of cash received, during the second quarter of fiscal year 2007.

Cash flows provided by (used for) financing activities

Net cash provided by financing activities decreased by $300.7
million during the six months ended December 31, 2006 as compared to the corresponding period of the prior fiscal year. The decrease was attributable to a common stock offering in December 2005 which raised $277.8 million in net proceeds, as
well as fewer stock option exercises in the six months ended December 31, 2006.



|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 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 gains included in Other expense, net in the accompanying condensed consolidated
statements of operations totaled $0.5 million and $1.4 million for the three and six months ended December 31, 2006. As of December 31, 2006, we have the following forward contracts (in $000s):



|                   |  |                 |  |                          |  |                 
|------------------ |  | --------------- |  | ------------------------ |  | ----------------
|Currency           |  | Notional Amount |  | Foreign Currency per USD |  | Date of Maturity
|Forward contracts: |  |                 |  |                          |  |                 
|                   |  |                 | 
|AUD                |  | 750             |  | 1.27                     |  | 1/31/2007       
|CAD                |  | 4,000           |  | 1.16                     |  | 1/31/2007       
|CAD                |  | 2,000           |  | 1.13                     |  | 3/30/2007       
|EUR                |  | 2,000           |  | 0.76                     |  | 1/31/2007       
|EUR                |  | 3,500           |  | 0.76                     |  | 3/30/2007       
|EUR                |  | 5,500           |  | 0.76                     |  | 3/30/2007       
|GBP                |  | 2,000           |  | 0.51                     |  | 3/30/2007       
|JPY                |  | 700,000         |  | 117.99                   |  | 2/28/2007       

(b) Interest Rate Risk

As of December 31, 2006, we had cash and cash equivalents, short-term and long-term investments, and restricted cash and investments of $476.4 million. 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 & Poors 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 December 31, 2006 (in thousands):



|                               |  |                                                |         |            |   |            |            |  |                        |        |                        |   |         |  |   |        
|------------------------------ |  | ---------------------------------------------- | ------- | ---------- | - | ---------- | ---------- |  | ---------------------- | ------ | ---------------------- | - | ------- |  | - | -------
|                               |  | Expected maturity for the year ending June 30, |         | Cost Value |   | Fair Value
|                               |  | 2007                                           |         | 2008       |   |            | Thereafter |  | December 31,2006 Total |        | December 31,2006 Total
|Certificate of Deposit         |  | $                                              | 9,319   |            | $ |           |            |  | $                      |       |                        | $ | 9,319   |  | $ | 9,313  
|Commercial Paper               |  |                                                | 7,930   |            |   |           |            |  |                        |       |                        |   | 7,930   |  |   | 7,925  
|Corporate Bonds                |  |                                                | 80,523  |            |   | 34,487     |            |  |                        | 32,700 |                        |   | 147,710 |  |   | 147,632
|Auction Rate Securities        |  |                                                | 83,904  |            |   |           |            |  |                        |       |                        |   | 83,904  |  |   | 83,905 
|Asset Backed Securities        |  |                                                |        |            |   | 1,869      |            |  |                        | 6,310  |                        |   | 8,179   |  |   | 8,170  
|Federal Agencies               |  |                                                | 9,570   |            |   | 20,000     |            |  |                        |       |                        |   | 29,570  |  |   | 29,502 
|                               |  |                                                |         |            |   |            |            |  |                        |        |                        |   |         |  |   |        
|Total                          |  | $                                              | 191,246 |            | $ | 56,356     |            |  | $                      | 39,010 |                        | $ | 286,612 |  | $ | 286,447
|                               |  |                                                |         |            |   |            |            |  |                        |        |                        |   |         |  |   |        
|Weighted-average interest rate |  |                                                | 5.1     | %          |   |            |            |  |                        |        |                        |   |        

Additionally, we had $18.9 million of restricted investments that were included within long-term restricted cash
and investments on the consolidated balance sheet as of December 31, 2006, $18.1 million is comprised of certificate of deposits to collateralize letters of credit for facility leases. The remaining balance of $0.8 million comprises a
restricted investment to secure a warranty bond pursuant to a customer contract. The weighted average interest rate on our restricted investments was 2.7% at December 31, 2006. There have been no significant changes in risk exposure since June
30, 2006.



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

(a) Evaluation of
Disclosure Controls and Procedures

The Companys management, with the participation of the Companys Chief Executive Officer (CEO)
and Chief Financial Officer (CFO) has evaluated the effectiveness of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the Exchange Act)), as of the end of the period covered by this report (the Evaluation Date). Based on such evaluation, the Companys CEO and CFO have concluded that, as of the Evaluation Date, the Companys
disclosure controls and procedures are not effective as a result of the material weaknesses in internal control over financial reporting disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2006. Specifically, we had
insufficient internal technical expertise and ineffective policies and procedures to ensure proper accounting for income taxes, including deferred income taxes. As a result of the aforementioned material weakness, certain of our income tax balances
contained errors which were, in the aggregate, material. These errors were corrected prior to the filing of our fiscal year 2006 consolidated financial statements.

(b) Changes in Internal Control Over Financial Reporting

As disclosed in our 2006 Annual Report on Form 10-K, management
identified a material weakness in our internal control over financial reporting as of June 30, 2006 related to our accounting for income taxes. Specifically, we had insufficient internal technical expertise and ineffective policies and
procedures to ensure proper accounting for income taxes, including deferred income taxes. The following actions were taken during the first half of fiscal 2007 to begin remediation of the material weakness:

(i) we initiated a new procedural requirement of the completion of a comprehensive checklist to help ensure compliance with Statement of Financial Accounting Standards
(FAS) No. 109, Accounting for Income Taxes, FAS No. 5, Accounting for Contingencies; and other relevant literature; and

(ii) modified our internal control over financial reporting to require a review of our quarterly and annual tax accounting by an independent accounting firm.



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PART II Other Information



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

Shareholder derivative lawsuits.

On May 16, 2006, a report published by the Center for Financial Research and Analysis (CFRA) identified Openwave as a company at risk
for having engaged in backdating of stock options granted to our officers and directors. On May 22, 2006, we announced that we had received a letter of informal inquiry from the Securities Exchange Commission requesting documents related to our
stock option grants and options granting practices. Following that announcement, seven substantially similar shareholder derivative actions were filed in California state and federal court, purportedly on behalf of the Company, against various of
the Companys current and former directors and officers. The plaintiffs allege that the individual defendants mismanaged corporate assets and breached their fiduciary duties between 1999 and 2005 by authorizing or failing to halt the
back-dating of certain stock options. The plaintiffs also allege that certain defendants were unjustly enriched by the receipt and retention of backdated stock options and that certain of the defendants sold Openwave stock for a profit while in
possession of material, non-public information. Certain of the plaintiffs also allege that the Company issued false and misleading financial disclosures and proxy statements from 1999 through 2005 and that the individual defendants engaged in a
fraudulent scheme to divert money to themselves via improper option grants. The complaints seek various forms of equitable relief (including, among other things, disgorgement of profits, rescission of options contracts, accounting and certain
corporate governance reforms) as well as unspecified money damages. The Company is named as a nominal defendant in all of the actions. However, because the plaintiffs purport to bring these claims on the Companys behalf, no relief is sought
against the Company. The Company is required under contracts with the individual defendants to indemnify them under certain circumstances for attorneys fees and expenses.

The state court actions, which are pending in the Superior Court for the County of San Mateo are captioned:

Hertz v. Black
et al., Case No. CIV 455265

Smith v. Black et al., Case No. 455266

Busse v. Puckett et al., Case No. CIV 456226

On September 5, 2006, the state court consolidated the three actions
pending before it and appointed a lead plaintiff and lead counsel. On September 29, 2006, the lead plaintiff filed a consolidated amended shareholder derivative complaint. On August 21, 2006, the individual defendants, joined by Openwave,
filed a motion to stay the state court actions pending resolution of the federal actions. On September 29, 2006, the lead plaintiff filed a consolidated amended shareholder derivative complaint. On December 4, 2006, the state court granted
the motion to stay. The state court actions will remain pending and Openwave and the individual defendants will be required to attend periodic status conferences until the federal actions are resolved. The plaintiffs in the state court actions
have the right to ask the court to lift the stay if circumstances change.

The federal court actions, which are pending in the United States District Court
for the Northern District of California, are captioned:

Hacker v. Peterschmidt et al., Civ. No. 3:06-cv-03468-SI;

Bowie v. Black et al., Civ. No. 3:2006-cv-04479-WHA;

Sherupski v.
Puckett et al., Civ. No. 3:06-cv-04524-WHA;

Koning v. Puckett et al., Civ. No. 3:06-cv-04509-MJJ.

On October 11, 2006, the district court entered an order consolidating the four actions pending before it and appointed lead plaintiffs and lead counsel. On
December 29, 2006, plaintiffs filed an amended and consolidated complaint. A motion to dismiss has been scheduled for late March, 2007. The consolidated federal court action is in its very early stages.

IPO securities class action.

On November 5, 2001, a purported
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 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 and Sections 10(b) and 20(a) of the Securities



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Exchange Act of 1934, 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. 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 has accepted a settlement proposal presented to all issuer defendants. Under such settlement proposal,
plaintiffs will dismiss and release 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 will 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 requires approval of the Court, which cannot be assured, after class members are 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 and the Company is awaiting a ruling. On December 5, 2006, the Second Circuit Court of Appeals reversed the district courts ruling certifying the cases as class
actions. It is unclear what effect the Second Circuit reversal will have on the settlement or the Court ruling. In essence, the Court has stayed all proceedings, including consideration of the proposed settlement, pending a decision from the Second
Circuit on whether it will hear further arguments on the class certification issue. We believe a loss is not probable or estimable. Therefore no amount has been accrued as of December 31, 2006.

Delaware Litigation.

On December 28, 2006, Harbinger Capital
Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund, L.P. (collectively, Harbinger) filed a preliminary proxy that claimed that it purportedly had nominated two directors James L. Zucco
(Zucco) and Andrew Breen (Breen)for election at Openwaves January 17, 2007, annual shareholders meeting.

On
that same day, Harbinger filed a complaint against the Company in the Delaware Court of Chancery, seeking an order from the Court that: (i) enjoins the Company from taking any steps to prevent or interfere with the nominations of Messrs. Zucco
and Breen at the Companys annual meeting of stockholders on January 17, 2007; (ii) declares the nominations of Messrs. Zucco and Breen as effective; and (iii) awards reasonable attorneys fees, and such other relief as just and
equitable.

On January 17, 2007, the Company held its annual meeting of stockholders and determined that Harbinger failed to comply with the
Companys advance notice bylaws, and therefore their nominations for Messrs. Zucco and Breen were invalid. Nevertheless, the Openwave board determined to permit Zucco and Breen to be placed in nomination at the annual meeting on a provisional
basis only, pending the final adjudication by the Court on whether Harbingers nominees were validly before the shareholders at the annual meeting.

On January 22, 2007, the Company responded to Harbingers complaint by filing a motion to dismiss. The Company also filed its own verified complaint in the Delaware Court of Chancery seeking, among other remedies, declarations
that Harbinger did not comply with the Companys bylaws and therefore its candidates were not properly nominated at the Annual Meeting, that Messrs. Peterschmidt and Held were rightfully elected to serve on the Companys board of
directors, and that Messrs. Zucco and Breen were not validly elected to the Companys Board of Directors. Harbinger responded to the Companys motion to dismiss by amending and restating its complaint seeking, among other remedies, a
declaration that Mr. Zucco has been validly elected as a member of the Companys board of directors and that a new election be held between Messrs. Peterschmidt, Held, and Breen for one board seat. Additionally, Harbinger filed a motion
for a status quo order. The court has denied Harbingers motion for a status quo order, and the Companys motion to dismiss is scheduled for March 2, 2007. If the Companys motion to dismiss is denied, a trial on the matter has
been scheduled for March 12-13, 2007.



|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 the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2006, which could materially affect the
Companys business, financial condition or future results. The risks described in the Companys Annual Report on Form 10-K are not the only risks facing the Company; additional risks and uncertainties may not be currently known to
management but could materially adversely affect the Companys business, financial condition, and/or operating results.

There have been no material
changes in the risk factors disclosed under Part I, Item 1A, Risk Factors contained in our 2006 Form 10-K for the period ended June 30, 2006, with the exception of the following risk factors entitled:



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| |  |  | Our 1996 Stock Option Plan expired in September 2006 and the failure to approve a new equity plan could adversely affect the recruitment and retention of key
management and employees, and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Because of the delayed filing of our periodic reports, we face delisting from NASDAQ which would adversely affect the trading price of our common stock.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, the following risk factor has been updated as follows:

If we fail to deliver periodic reports to the trustee under the indenture governing our 2 3/4% convertible subordinated notes due September 2008, we could be deemed to be in default, which could result in
acceleration of the notes.

On September 23, 2003, we issued $150 million of 2 3/4% convertible subordinated notes. Pursuant to the issuance of those notes, we agreed to maintain certain covenants.
These covenants include, among others, (1) the timely payment of principal, premium, if any, and interest on the notes; (2) the timely filing of the Companys annual and quarterly reports with the SEC and providing copies of such
reports to the trustee within 15 days; and (3) the delivery to the trustee of a compliance certificate within 120 days of the end of each fiscal year.

If we fail to observe or correct a covenant for a period of 60 days after receipt of a notice of default from the trustee, such failure will constitute an event of default under the Convertible Notes. Upon an event of default, holders of at
least 25% of the aggregate principal amount of the Convertible Notes may accelerate the Convertible Notes such that the entire principal amount and any accrued and unpaid interest shall become immediately due and payable. Holders of a majority of
the aggregate principal amount of the Convertible Notes may rescind or annul an acceleration if all events of default have been cured or waived, except nonpayment of the principal and any accrued and unpaid cash interest that have become due solely
because of the acceleration.

The acceleration of our debt obligations, along with any fines or payments in connection with the SEC investigation, and the
pending stockholder litigation could adversely affect our cash and cash flow from operations. If these expenses are of such significance that we are unable to meet our cash requirement, there can be no assurance that we will be able to obtain
alternative funding on commercially reasonable terms, or at all. In the absence of such financing, our ability to respond to changing business and economic conditions, to make future acquisitions, to absorb adverse results of operations or to fund
capital expenditures or increased working capital requirements would be significantly reduced.

As well, the notes are convertible into shares of our
common stock at the option of the holder at any time on or prior to the business day prior to maturity. The notes are currently convertible at a conversion price of $18.396 per share. In addition, each holder may require us to purchase all or a
portion of such holders notes upon the occurrence of specified change in control events. We may not have enough cash or cash resources to repay the notes in cash on a change of control or at maturity. In any event, the repurchase of our notes
with shares of our common stock or the conversion of the notes into shares of our common stock may result in dilution of our earnings per share.



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

None.



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

None.



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

None.



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

None.



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##### Table of Contents

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



|              |  |                                                                                                                                                                                                                                       
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                           
|10.1          |  | Severance and Release Agreement by and between Openwave Systems Inc. and Steve Peters, effective August 24, 2006 (incorporated herein by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed August 31, 2006).
|              | 
|10.2          |  | Agreement and Plan of Merger among Syntax Acquisition, Inc. and Solomio Corporation dated as of September 18, 2006 (incorporated by reference to Exhibit 2.1 to the Companys current
report on Form 8-K filed October 2, 2006).      
|              | 
|10.3          |  | Amended and Restated Bylaws of Openwave Systems Inc. as amended on November 1, 2006 (incorporated by reference to Exhibit 3.01 to the Companys current report on Form 8-K filed November
1, 2006).                                   
|              | 
|10.4          |  | Form of Change of Control Severance Agreement, as amended on November 1, 2006 (incorporated by reference to Exhibit 10.1 to the Companys current report on Form 8-K filed November 1,
2006).                                         
|              | 
|10.5          |  | Severance and Release Agreement between Allen Snyder and Openwave Systems Inc. effective November 28, 2006 (incorporated by reference to Exhibit 10.1 to the Companys current report on
Form 8-K filed November 28, 2006).           
|              | 
|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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##### Table of Contents

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: February 9, 2007



OPENWAVE SYSTEMS INC.By:

/s/ Harold L. CovertHarold L. CovertExecutive Vice President; Chief Financial Officer(Principal Financial and Accounting Officer And Duly Authorized Officer)




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INDEX TO EXHIBITS



|              |  |                                                                                                                                                                                                                                       
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                           
|10.1          |  | Severance and Release Agreement by and between Openwave Systems Inc. and Steve Peters, effective August 24, 2006 (incorporated herein by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed August 31, 2006).
|              | 
|10.2          |  | Agreement and Plan of Merger among Syntax Acquisition, Inc. and Solomio Corporation dated as of September 18, 2006 (incorporated by reference to Exhibit 2.1 to the Companys current
report on Form 8-K filed October 2, 2006).      
|              | 
|10.3          |  | Amended and Restated Bylaws of Openwave Systems Inc. as amended on November 1, 2006 (incorporated by reference to Exhibit 3.01 to the Companys current report on Form 8-K filed November
1, 2006).                                   
|              | 
|10.4          |  | Form of Change of Control Severance Agreement, as amended on November 1, 2006 (incorporated by reference to Exhibit 10.1 to the Companys current report on Form 8-K filed November 1,
2006).                                         
|              | 
|10.5          |  | Severance and Release Agreement between Allen Snyder and Openwave Systems Inc. effective November 28, 2006 (incorporated by reference to Exhibit 10.1 to the Companys current report on
Form 8-K filed November 28, 2006).           
|              | 
|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.                                                    



38