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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended December 31, 2008

or



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

For the transition period from  to

Commission File Number: 001-16073

OPENWAVE SYSTEMS INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 94-3219054                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|2100 Seaport Blvd.Redwood City, California                     |  | 94063                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(650) 480-8000

(Registrants telephone number, including area code)

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

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



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

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

As of December 31, 2008 there were 83,299,259 shares of the registrants Common Stock outstanding.









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OPENWAVE SYSTEMS INC.

Table of Contents



|                              |  |                                                                                       |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION |  |                                                                                      
|                              |  |                                                                                      
|Item 1.                       |  | Financial Statements (Unaudited):                                                     |  |   
|                              |  | 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 |  | 24
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 35
|Item 4.                       |  | Controls and Procedures                                                               |  | 36
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                      
|                              |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 38
|Item 1A.                      |  | Risk Factors                                                                          |  | 41
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 41
|Item 3.                       |  | Defaults Upon Senior Securities                                                       |  | 41
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                   |  | 41
|Item 5.                       |  | Other Information                                                                     |  | 42
|Item 6.                       |  | Exhibits                                                                              |  | 43
|                              | 
|SIGNATURES                    |  | 44                                                                                   



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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 31,2008 |            |   | June 30,2008 |  
|ASSETS                                                      |  |                  |            |   |              |   |            |  
|Current assets:                                             |  |                  |            |   |              |   |            |  
|Cash and cash equivalents                                   |  | $                | 66,153     |   |              | $ | 196,150    |  
|Short-term investments                                      |  |                  | 17,238     |   |              |   | 28,659     |  
|Restricted cash                                             |  |                  |           |   |              |   | 42         |  
|Accounts receivable, net of allowance for doubtful accounts |  |                  | 54,618     |   |              |   | 78,550     |  
|Prepaid and other current assets                            |  |                  | 27,930     |   |              |   | 33,404     |  
|Insurance receivable for legal settlement                   |  |                  |           |   |              |   | 15,000     |  
|Amounts receivable from sales of discontinued operations    |  |                  | 75         |   |              |   | 12,294     |  
|                                                            |  |                  |            |   |              |   |            |  
|Total current assets                                        |  |                  | 166,014    |   |              |   | 364,099    |  
|Property and equipment, net                                 |  |                  | 11,003     |   |              |   | 13,941     |  
|Long-term investments, and restricted cash and investments  |  |                  | 35,623     |   |              |   | 52,419     |  
|Deposits and other assets                                   |  |                  | 8,657      |   |              |   | 7,762      |  
|Goodwill                                                    |  |                  |           |   |              |   | 59,281     |  
|Intangible assets, net                                      |  |                  | 4,958      |   |              |   | 7,242      |  
|                                                            |  |                  |            |   |              |   |            |  
|Total assets                                                |  | $                | 226,255    |   |              | $ | 504,744    |  
|                                                            |  |                  |            |   |              |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                        |  |                  |            |   |              |   |            |  
|Current liabilities:                                        |  |                  |            |   |              |   |            |  
|Accounts payable                                            |  | $                | 4,221      |   |              | $ | 4,918      |  
|Accrued liabilities                                         |  |                  | 21,170     |   |              |   | 46,329     |  
|Accrued legal settlement                                    |  |                  |           |   |              |   | 20,000     |  
|Accrued restructuring costs                                 |  |                  | 12,226     |   |              |   | 13,845     |  
|Deferred revenue                                            |  |                  | 42,592     |   |              |   | 48,239     |  
|Convertible subordinated notes, net                         |  |                  |           |   |              |   | 149,842    |  
|                                                            |  |                  |            |   |              |   |            |  
|Total current liabilities                                   |  |                  | 80,209     |   |              |   | 283,173    |  
|Accrued restructuring costs, net of current portion         |  |                  | 37,764     |   |              |   | 41,927     |  
|Deferred revenue, net of current portion                    |  |                  | 20,008     |   |              |   | 17,655     |  
|Other long-term liabilities                                 |  |                  | 7,599      |   |              |   | 7,876      |  
|Deferred tax liabilities, net of current portion            |  |                  |           |   |              |   | 98         |  
|                                                            |  |                  |            |   |              |   |            |  
|Total liabilities                                           |  |                  | 145,580    |   |              |   | 350,729    |  
|                                                            |  |                  |            |   |              |   |            |  
|Commitments and contingencies                               |  |                  |            |   |              |   |            |  
|Stockholders equity:                                       |  |                  |            |   |              |   |            |  
|Common stock                                                |  |                  | 83         |   |              |   | 83         |  
|Additional paid-in capital                                  |  |                  | 3,182,923  |   |              |   | 3,180,949  |  
|Accumulated other comprehensive loss                        |  |                  | (1,768     | ) |              |   | (1,120     | )
|Accumulated deficit                                         |  |                  | (3,100,563 | ) |              |   | (3,025,897 | )
|                                                            |  |                  |            |   |              |   |            |  
|Total stockholders equity                                  |  |                  | 80,675     |   |              |   | 154,015    |  
|                                                            |  |                  |            |   |              |   |            |  
|Total liabilities and stockholders equity                  |  | $                | 226,255    |   |              | $ | 504,744    |  
|                                                            |  |                  |            |   |              |   |            |  

See accompanying notes to condensed consolidated financial statements



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OPENWAVE SYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per
share data)

(Unaudited)



|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|---------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                       |  | Three Months EndedDecember 31, |         |   | Six Months EndedDecember 31, |  
|                                                                       |  | 2008                           |         |   | 2007                         |   |         | 2008 |  |   | 2007    |  
|Revenues:                                                              |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|License                                                                |  | $                              | 13,849  |   |                              | $ | 10,433  |      |  | $ | 28,176  |   |  | $ | 23,052  |  
|Maintenance and support                                                |  |                                | 15,917  |   |                              |   | 17,580  |      |  |   | 32,295  |   |  |   | 36,137  |  
|Services                                                               |  |                                | 18,298  |   |                              |   | 19,415  |      |  |   | 38,638  |   |  |   | 41,209  |  
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Total revenues                                                         |  |                                | 48,064  |   |                              |   | 47,428  |      |  |   | 99,109  |   |  |   | 100,398 |  
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Cost of revenues:                                                      |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|License                                                                |  |                                | 1,567   |   |                              |   | 2,256   |      |  |   | 3,833   |   |  |   | 4,363   |  
|Maintenance and support                                                |  |                                | 4,518   |   |                              |   | 5,630   |      |  |   | 8,776   |   |  |   | 11,992  |  
|Services                                                               |  |                                | 13,439  |   |                              |   | 15,335  |      |  |   | 27,886  |   |  |   | 31,917  |  
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Total cost of revenues                                                 |  |                                | 19,524  |   |                              |   | 23,221  |      |  |   | 40,495  |   |  |   | 48,272  |  
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Gross profit                                                           |  |                                | 28,540  |   |                              |   | 24,207  |      |  |   | 58,614  |   |  |   | 52,126  |  
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Operating expenses:                                                    |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Research and development                                               |  |                                | 12,055  |   |                              |   | 12,459  |      |  |   | 24,341  |   |  |   | 24,773  |  
|Sales and marketing                                                    |  |                                | 10,032  |   |                              |   | 18,123  |      |  |   | 20,776  |   |  |   | 35,543  |  
|General and administrative                                             |  |                                | 7,808   |   |                              |   | 9,915   |      |  |   | 18,428  |   |  |   | 23,634  |  
|Restructuring and other related costs                                  |  |                                | 427     |   |                              |   | 328     |      |  |   | 2,330   |   |  |   | 1,536   |  
|Amortization of intangible assets and goodwill impairment              |  |                                | 59,543  |   |                              |   | 27      |      |  |   | 59,569  |   |  |   | 54      |  
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Total operating expenses                                               |  |                                | 89,865  |   |                              |   | 40,852  |      |  |   | 125,444 |   |  |   | 85,540  |  
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Operating loss from continuing operations                              |  |                                | (61,325 | ) |                              |   | (16,645 | )    |  |   | (66,830 | ) |  |   | (33,414 | )
|Interest income                                                        |  |                                | 976     |   |                              |   | 3,025   |      |  |   | 2,799   |   |  |   | 6,345   |  
|Interest expense                                                       |  |                                |        |   |                              |   | (1,221  | )    |  |   | (995    | ) |  |   | (2,434  | )
|Other income (expense), net                                            |  |                                | (2,412  | ) |                              |   | 675     |      |  |   | (9,736  | ) |  |   | 1,472   |  
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Loss from continuing operations before provision for income taxes      |  |                                | (62,761 | ) |                              |   | (14,166 | )    |  |   | (74,762 | ) |  |   | (28,031 | )
|Income tax expense                                                     |  |                                | 1,029   |   |                              |   | 493     |      |  |   | 1,532   |   |  |   | 1,136   |  
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Net loss from continuing operations                                    |  |                                | (63,790 | ) |                              |   | (14,659 | )    |  |   | (76,294 | ) |  |   | (29,167 | )
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Discontinued operations:                                               |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss) from discontinued operations, net of tax             |  |                                | (371    | ) |                              |   | 3,078   |      |  |   | (371    | ) |  |   | 3,441   |  
|Gain on sale of discontinued operations, net of tax                    |  |                                |        |   |                              |   | 16,455  |      |  |   | 2,000   |   |  |   | 16,455  |  
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss)                                                      |  | $                              | (64,161 | ) |                              | $ | 4,874   |      |  | $ | (74,665 | ) |  | $ | (9,271  | )
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Basic and Diluted net income (loss) per share from:                    |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Continuing operations                                                  |  | $                              | (0.77   | ) |                              | $ | (0.18   | )    |  | $ | (0.92   | ) |  | $ | (0.35   | )
|Discontinued operations                                                |  | $                              | (0.00   | ) |                              | $ | 0.24    |      |  | $ | 0.02    |   |  | $ | 0.24    |  
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss)                                                      |  | $                              | (0.77   | ) |                              | $ | 0.06    |      |  | $ | (0.90   | ) |  | $ | (0.11   | )
|                                                                       |  |                                |         |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Shares used in computing basic and diluted net income (loss) per share |  |                                | 82,855  |   |                              |   | 82,397  |      |  |   | 82,814  |   |  |   | 82,310  |  

See accompanying notes to condensed consolidated financial statements



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OPENWAVE SYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                               |  |                              |          |   |      |   |         |  
|---------------------------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                               |  | Six Months EndedDecember 31, |         
|                                                                                               |  | 2008                         |          |   | 2007 |  
|Cash flows from operating activities:                                                          |  |                              |          |   |      |   |         |  
|Net loss                                                                                       |  | $                            | (74,665  | ) |      | $ | (9,271  | )
|Gain on sale of discontinued operation                                                         |  |                              | (2,000   | ) |      |   | (16,455 | )
|Adjustments to reconcile net loss to net cash used for operating activities:                   |  |                              |          |   |      |   |         |  
|Depreciation and amortization of intangibles                                                   |  |                              | 5,650    |   |      |   | 10,367  |  
|Stock-based compensation                                                                       |  |                              | 1,900    |   |      |   | 6,052   |  
|Noncash restructuring charges                                                                  |  |                              | 1,111    |   |      |   | 1,045   |  
|Recovery of doubtful accounts                                                                  |  |                              | (165     | ) |      |   | (1,419  | )
|Amortization of discount on convertible debt and debt issuance costs                           |  |                              | 158      |   |      |   | 413     |  
|Amortization/(accretion) of premiums/discounts on investments                                  |  |                              | 210      |   |      |   | (473    | )
|Loss on disposal of assets                                                                     |  |                              | (60      | ) |      |   |        |  
|Deferred tax liability, net                                                                    |  |                              | (98      | ) |      |   | (1,371  | )
|Payment of legal settlement                                                                    |  |                              | (5,000   | ) |      |   |        |  
|Impairment of non-marketable securities                                                        |  |                              | 8,168    |   |      |   | 124     |  
|Impairment of goodwill                                                                         |  |                              | 59,517   |   |      |   |        |  
|Changes in operating assets and liabilities, net of effect of acquired assets and liabilities: |  |                              |          |   |      |   |         |  
|Accounts receivable                                                                            |  |                              | 24,097   |   |      |   | 21,394  |  
|Prepaid assets, deposits, and other assets                                                     |  |                              | 4,579    |   |      |   | 2,292   |  
|Accounts payable                                                                               |  |                              | (800     | ) |      |   | (7,076  | )
|Accrued liabilities                                                                            |  |                              | (23,087  | ) |      |   | (9,928  | )
|Accrued restructuring costs                                                                    |  |                              | (6,658   | ) |      |   | (18,605 | )
|Deferred revenue                                                                               |  |                              | (3,294   | ) |      |   | (5,224  | )
|                                                                                               |  |                              |          |   |      |   |         |  
|Net cash used for operating activities                                                         |  |                              | (10,437  | ) |      |   | (28,135 | )
|                                                                                               |  |                              |          |   |      |   |         |  
|Cash flows from investing activities:                                                          |  |                              |          |   |      |   |         |  
|Purchases of property and equipment                                                            |  |                              | (500     | ) |      |   | (3,335  | )
|Net proceeds from sale of technology and other                                                 |  |                              |         |   |      |   | 1,065   |  
|Proceeds from sale of discontinued operations, net                                             |  |                              | 11,634   |   |      |   | 39,382  |  
|Earnout payment related to acquisition                                                         |  |                              |         |   |      |   | (546    | )
|Purchases of short-term investments                                                            |  |                              |         |   |      |   | (44,836 | )
|Proceeds from sales and maturities of short-term investments                                   |  |                              | 19,129   |   |      |   | 118,662 |  
|Reclass of cash equivalents to short-term investments                                          |  |                              |         |   |      |   | (9,796  | )
|Purchases of long-term investments                                                             |  |                              |         |   |      |   | (9,325  | )
|Proceeds from sales and maturities of long-term investments                                    |  |                              | 104      |   |      |   | 983     |  
|Restricted cash and investments                                                                |  |                              |         |   |      |   | 225     |  
|                                                                                               |  |                              |          |   |      |   |         |  
|Net cash provided by investing activities                                                      |  |                              | 30,367   |   |      |   | 92,479  |  
|                                                                                               |  |                              |          |   |      |   |         |  
|Cash flows from financing activities:                                                          |  |                              |          |   |      |   |         |  
|Proceeds from issuance of common stock, net                                                    |  |                              |         |   |      |   | 88      |  
|Cash used to repurchase common stock from employees                                            |  |                              |         |   |      |   | (505    | )
|Payment on notes payable                                                                       |  |                              | (150,000 | ) |      |   | (113    | )
|Employee stock purchase plan                                                                   |  |                              | 73       |   |      |   | 536     |  
|                                                                                               |  |                              |          |   |      |   |         |  
|Net cash provided by (used for) financing activities                                           |  |                              | (149,927 | ) |      |   | 6       |  
|                                                                                               |  |                              |          |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                                           |  |                              | (129,997 | ) |      |   | 64,350  |  
|Cash and cash equivalents at beginning of period                                               |  |                              | 196,150  |   |      |   | 86,099  |  
|                                                                                               |  |                              |          |   |      |   |         |  
|Cash and cash equivalents at end of period                                                     |  | $                            | 66,153   |   |      | $ | 150,449 |  
|                                                                                               |  |                              |          |   |      |   |         |  
|Supplemental disclosures of cash flow information:                                             |  |                              |          |   |      |   |         |  
|Cash paid for income taxes                                                                     |  | $                            | 1,653    |   |      | $ | 505     |  
|                                                                                               |  |                              |          |   |      |   |         |  
|Cash paid for interest                                                                         |  | $                            | 2,267    |   |      | $ | 2,435   |  
|                                                                                               |  |                              |          |   |      |   |         |  

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, 2008 and
June 30, 2008, and the results of operations for the three and six months ended December 31, 2008 and 2007 and cash flows for the six months ended December 31, 2008 and 2007. 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, 2008.

During the fourth quarter of fiscal year 2008, the Company sold its mobile phone software business (Client Operations) to Purple Labs S.A. (Purple Labs), a private company based in
Chambéry, France. In accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 144 (SFAS 144), Accounting for the Impairment or Disposal
of Long Lived Assets, the condensed consolidated financial statements have been revised for all periods presented to reflect the Client Operations as a discontinued operation.

On June 3, 2007, the board of directors approved the disposition of the Musiwave S.A. (Musiwave) business. The Company accounted for the planned sale of Musiwave as a discontinued operation in
accordance with SFAS 144. In accordance with SFAS 144, Musiwaves financial results have been classified as a discontinued operation in the Companys condensed consolidated financial statements for all periods presented. The net assets
associated with Musiwave were classified as held-for-sale from June 30, 2007 until its disposition on December 31, 2007.

Unless
noted otherwise, discussions in the notes to the unaudited condensed consolidated financial statements pertain to continuing operations.

Use of
Estimates and Business Risks

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

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

Revenue Recognition

There have been no material changes to the Companys revenue recognition policies from the information provided in Note 2 to the consolidated financial statements
included in the Companys Annual Report on Form 10K for the year ended June 30, 2008.

Stock Based Compensation

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



6



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##### Table of Contents

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



|                                                                                 |  |                                |     |      |                              |       |      |  |      |       |  |   |      
|-------------------------------------------------------------------------------- |  | ------------------------------ | --- | ---- | ---------------------------- | ----- | ---- |  | ---- | ----- |  | - | -----
|                                                                                 |  | Three Months EndedDecember 31, |     |      | Six Months EndedDecember 31,
|                                                                                 |  | 2008                           |     | 2007 |                              |       | 2008 |  | 2007
|Stock-based compensation related to:                                             |  |                                |     |      |                              |       |      |  |      |       |  |   |      
|Grants of nonvested stock                                                        |  | $                              | 369 |      | $                            | 293   |      |  | $    | 500   |  | $ | 524  
|Stock options granted to employees and directors                                 |  |                                | 492 |      |                              | 3,063 |      |  |      | 1,227 |  |   | 4,782
|Employee stock purchase plan                                                     |  |                                | 68  |      |                              | (119  | )    |  |      | 173   |  |   | 139  
|Stock options granted to employees of discontinued operations                    |  |                                |    |      |                              | 326   |      |  |      |      |  |   | 607  
|                                                                                 |  |                                |     |      |                              |       |      |  |      |       |  |   |      
|Stock-based compensation recognized in the consolidated statements of operations |  | $                              | 929 |      | $                            | 3,563 |      |  | $    | 1,900 |  | $ | 6,052
|                                                                                 |  |                                |     |      |                              |       |      |  |      |       |  |   |      

During the six months ended December 31, 2008 and 2007, the tax benefits related to stock option expense were
immaterial.

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) | Assumptions and Activity
| | --- | ------------------------

The fair value of each option grant is
estimated on the date of grant using the Black-Scholes-Merton option pricing model and assumptions noted in the following table. The Companys expected volatility is based upon the historical volatility experienced in the Companys stock
price when appropriate. The Company estimates the expected term for new grants based upon actual post-vesting option cancellation and exercise experience, as well as the average midpoint between vesting and the contractual term for outstanding
options. The 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, |  
|                         |  | 2008                           |   |  | 2007                         |   |  | 2008         |   |  | 2007        |  
|Expected volatility      |  | 65.0% - 70.8                   | % |  | 70.2                         | % |  | 65.0% - 70.8 | % |  | 61.9        | %
|Expected dividends       |  | 0                              | % |  | 0                            | % |  | 0            | % |  | 0           | %
|Expected term (in years) |  | 2.73 - 5.98                    |   |  | 2.76 - 5.83                  |   |  | 2.73 - 5.98  |   |  | 2.76 - 6.04 |  
|Risk-free rate           |  | 1.5% - 2.2                     | % |  | 3.9                          | % |  | 1.5% - 2.6   | % |  | 4.5         | %

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



7



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##### Table of Contents

A summary of option activity from July 1, 2008 to December 31, 2008 is presented below (in thousands except per
share amounts):



|                                                 |  |        |   |  |                              |       |                                                 |      |                         |   |  
|------------------------------------------------ |  | ------ | - |  | ---------------------------- | ----- | ----------------------------------------------- | ---- | ----------------------- | - | -
|Options                                          |  | Shares |   |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractualTerm (years) |      | AggregateIntrinsicValue
|Outstanding at July 1, 2008                      |  | 4,500  |   |  | $                            | 9.41  |                                                 | 5.13 |                         | $ | 
|Options granted                                  |  | 4,161  |   |  |                              | 1.71  |                                                 |      |                         |   |  
|Exercised                                        |  |       |   |  |                              |      |                                                 |      |                         |   |  
|Forfeited, canceled or expired                   |  | (1,988 | ) |  |                              | 8.26  |                                                 |      |                         |   |  
|                                                 |  |        |   |  |                              |       |                                                 |      |                         |   |  
|Outstanding at December 31, 2008                 |  | 6,673  |   |  | $                            | 4.94  |                                                 | 8.17 |                         | $ | 
|                                                 |  |        |   |  |                              |       |                                                 |      |                         |   |  
|Vested and expected to vest at December 31, 2008 |  | 4,827  |   |  | $                            | 6.01  |                                                 | 7.63 |                         | $ | 
|                                                 |  |        |   |  |                              |       |                                                 |      |                         |   |  
|Exercisable at December 31, 2008                 |  | 2,375  |   |  | $                            | 10.13 |                                                 | 5.59 |                         | $ | 
|                                                 |  |        |   |  |                              |       |                                                 |      |                         |   |  

The weighted average grant date fair values of options granted during the six months ended December 31, 2008
and 2007 were $0.48 and $2.55, respectively. There were no options exercised in the six months ended December 31, 2008. The total intrinsic value of options exercised during the six months ended December 31, 2007 was $0.1 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, 2008 to December 31, 2008 is presented below (in thousands except per share amounts):



|                               |  |        |   |  |                                              |     
|------------------------------ |  | ------ | - |  | -------------------------------------------- | ----
|Nonvested Shares               |  | Shares |   |  | WeightedAverageGrant DateFair ValuePer Share
|Nonvested at July 1, 2008      |  | 373    |   |  | $                                            | 4.58
|Nonvested shares granted       |  | 90     |   |  |                                              | 0.49
|Vested                         |  | (26    | ) |  |                                              | 6.15
|Forfeited                      |  | (65    | ) |  |                                              | 4.98
|                               |  |        |   |  |                                              |     
|Nonvested at December 31, 2008 |  | 372    |   |  | $                                            | 3.41
|                               |  |        |   |  |                                              |     

As of December 31, 2008, there was $1.3 million of total unrecognized compensation cost related to nonvested
share-based compensation arrangements. That cost is expected to be recognized as the restricted shares vest over the next four years. The total fair value of shares vested during the six months ended December 31, 2008 and 2007 was $0.2 million
and $0.8 million, respectively.

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



|                                                    |  |                                |     |                              |   |       |  |      |       |  |   |      
|--------------------------------------------------- |  | ------------------------------ | --- | ---------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                                    |  | Three Months EndedDecember 31, |     | Six Months EndedDecember 31,
|                                                    |  | 2008                           |     | 2007                         |   | 2008  |  | 2007
|Stock-based compensation by category:               |  |                                |     |                              |   |       |  |      |       |  |   |      
|Maintenance and support services                    |  | $                              | 35  |                              | $ | 318   |  | $    | 107   |  | $ | 484  
|Services                                            |  |                                | 179 |                              |   | 509   |  |      | 345   |  |   | 779  
|Research and development                            |  |                                | 377 |                              |   | 757   |  |      | 627   |  |   | 1,079
|Sales and marketing                                 |  |                                | 166 |                              |   | 856   |  |      | 298   |  |   | 1,650
|General and administrative                          |  |                                | 172 |                              |   | 797   |  |      | 523   |  |   | 1,453
|                                                    |  |                                |     |                              |   |       |  |      |       |  |   |      
|Stock-based compensation from continuing operations |  |                                | 929 |                              |   | 3,237 |  |      | 1,900 |  |   | 5,445
|Discontinued operations                             |  |                                |    |                              |   | 326   |  |      |      |  |   | 607  
|                                                    |  |                                |     |                              |   |       |  |      |       |  |   |      
|                                                    |  | $                              | 929 |                              | $ | 3,563 |  | $    | 1,900 |  | $ | 6,052
|                                                    |  |                                |     |                              |   |       |  |      |       |  |   |      



8



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##### Table of Contents

| | (b) | Reinstatement of Employee Stock Purchase Plan
| | --- | ---------------------------------------------

In January 2007, the
Company reinstated and amended the Openwave Systems Inc. 1999 Employee Stock Purchase Plan (ESPP) which it suspended in October 2002. Eligible employees may purchase common stock through payroll deductions at a price equal to 85% of the
lower of the fair market value of the Companys common stock as of the beginning and the end of the six month offering periods. The amount of stock-based compensation expense recognized relating to the ESPP during the six months ended
December 31, 2008 and 2007 was $0.2 million and $0.1 million, respectively.

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



|                         |  |                                            |   |  |                                            |  
|------------------------ |  | ------------------------------------------ | - |  | ------------------------------------------ | -
|                         |  | Three and SixMonths EndedDecember 31, 2008 |   |  | Three and SixMonths EndedDecember 31, 2007 |  
|Expected volatility      |  | 106.5                                      | % |  | 70.2                                       | %
|Expected dividends       |  | 0                                          | % |  | 0                                          | %
|Expected term (in years) |  | 0.5                                        |   |  | 0.5                                        |  
|Risk-free rate           |  | 0.7                                        | % |  | 3.7                                        | %

Recently Issued Accounting Pronouncements

In April 2008, the FASB issued FASB Staff Position FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP FAS 142-3 is effective for fiscal years
beginning after December 15, 2008 and early adoption is prohibited. The adoption of FSP FAS 142-3 is not expected to have a material impact on the Companys consolidated financial position, results of operations or cash flows.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS
161 requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are
accounted for under SFAS 133 and how derivative instruments and related hedged items affect a companys financial position, financial performance and cash flows. SFAS 161 is effective for the Companys fiscal year beginning July 1,
2009. The adoption of SFAS 161 is not expected to have a material impact on the Companys consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51 (SFAS 160). SFAS 160 amends ARB
No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated financial statements. It requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest.
SFAS 160 establishes a single method of accounting for changes in a parents ownership interest in a subsidiary that do not result in deconsolidation. SFAS 160 is effective for the Companys fiscal year beginning July 1, 2009.
The adoption of SFAS 160 is not expected to have a material impact on the Companys consolidated financial position, results of operations or cash flows.



9



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##### Table of Contents

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (SFAS
141(R)). SFAS 141(R) retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations. SFAS 141(R) defines the acquirer as the entity that obtains control of
one or more businesses in the business combination, establishes the acquisition date as the date that the acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities assumed and any noncontrolling interest at
their fair values as of the acquisition date. In addition, SFAS 141(R) requires expensing of acquisition-related and restructure-related costs, remeasurement of earn out provisions at fair value, measurement of equity securities issued for
purchase at the date of close of the transaction and non-expensing of in-process research and development related intangibles. SFAS 141(R) is effective for the Companys business combinations for which the acquisition date is on or after
July 1, 2009.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), 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 the Companys fiscal year beginning July 1, 2008. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157
(FSP 157-2), to partially defer SFAS 157. FSP 157-2 defers the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually), to fiscal years, and interim periods within those fiscal years, beginning after November 15, 2008. The adoption of FSP 157-2 is not expected to have a material impact on the
Companys consolidated financial position, results of operations or cash flows. The Company adopted the portions of SFAS 157 not impacted by FSP 157-2 during the first quarter of fiscal 2009. See Note 6 Financial Instruments.

In October 2008, the FASB issued FASB Staff Position (FSP) FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active (FSP FAS 157-3). FSP FAS 157-3 clarified the application of FAS 157. FSP FAS 157-3 discusses how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP FAS 157-3 was
effective upon issuance, including prior periods for which financial statements had not been issued. The implementation of this standard did not have an impact on our consolidated financial statements.

(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 basic and
diluted net loss per share was the same for all periods presented due to a net loss from continuing operations in all periods.

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 EndedDecember 31, |  | Six Months EndedDecember 31,
|                                                                                                                                                                                                     |  | 2008                           |  | 2007                         |  | 2008  |  | 2007 
|Weighted average effect of potential common stock:                                                                                                                                                   |  |                                |  |                              |  |       |  |      
|Unvested common stock subject to repurchase                                                                                                                                                          |  | 318                            |  | 884                          |  | 330   |  | 773  
|Options that would have been included in the computation of dilutive shares outstanding had the Company reported net income from continuing
operations, prior to applying the treasury method        |  |                               |  | 200                          |  | 152   |  | 219  
|Options that were excluded from the computation of dilutive shares outstanding because the total assumed proceeds exceeded the average market
value of the Companys common stock during the quarter |  | 6,337                          |  | 6,526                        |  | 5,638 |  | 6,826
|Shares resulting from an as-if conversion of the convertible debt                                                                                                                                  |  |                               |  | 9,418                        |  | 7,268 |  | 9,418



10



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##### Table of Contents

(3) Discontinued Operations



| | a) | Client Operations
| | -- | -----------------

During the fourth quarter of fiscal 2008, the
Company sold its Client Operations to Purple Labs, a private company based in Chambéry, France. The terms of the agreement include initial consideration of $20.0 million in cash received by the Company in June 2008, and a note receivable of
$5.8 million that was paid in July 2008. This note receivable is included in Amounts receivable from sales of discontinued operations on the condensed consolidated balance sheet as of June 30, 2008. Additionally, $4.2 million was placed in
escrow by Purple Labs for a period of one year to secure indemnification claims made by Purple Labs, if any. The initial consideration also included warrants to purchase 27,000 shares of Purple Labs common stock. During the first quarter of fiscal
2009, the Company met the terms of the earnout provision in the sale agreement, and received $2.0 million that was recorded as an additional $2.0 million gain on sale of discontinued operation in our condensed consolidated statement of operations.
The Company provided transition services to Purple Labs for six months following the sale. The first $2.0 million of costs relating to the transition services were covered by the initial consideration, and an additional $2.3 million of such costs
were reimbursed in the second quarter of fiscal 2009. The costs and the related reimbursements of the transition services were recorded in operating expenses, which resulted in an immaterial margin on these services. The net impact of the transition
services and related reimbursement was immaterial to all categories in the condensed consolidated statement of operations. An additional $0.1 million, approximately, of transition services costs as of December 31, 2008 are to be reimbursed by
Purple Labs. Transition services costs are recorded in Amounts receivable from sales of discontinued operations on the condensed consolidated balance sheet when incurred.

The Company recognized a gain of $19.7 million in the fourth quarter of fiscal 2008 and $2.0 million in the first quarter of fiscal 2009 related to the sale of the Client Operation. In accordance with SFAS 144, the
Client Operations financial results have been classified as a discontinued operation in the Companys condensed consolidated statements of operations for all periods presented.

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



|                                                            |  |                                |      |                              |      |   |        |  |   |       |   |  |   |       
|----------------------------------------------------------- |  | ------------------------------ | ---- | ---------------------------- | ---- | - | ------ |  | - | ----- | - |  | - | ------
|                                                            |  | Three Months endedDecember 31, |      | Six Months endedDecember 31,
|                                                            |  | 2008                           |      |                              | 2007 |   | 2008   |  |   | 2007 
|Revenue of discontinued operation                           |  | $                              |     |                              |      | $ | 15,754 |  | $ |      |   |  | $ | 25,756
|                                                            |  |                                |      |                              |      |   |        |  |   |       |   |  |   |       
|Income from discontinued operation                          |  |                                |     |                              |      |   | 3,415  |  |   |      |   |  |   | 4,440 
|Income tax expense                                          |  |                                | 371  |                              |      |   | 51     |  |   | 371   |   |  |   | 362   
|                                                            |  |                                |      |                              |      |   |        |  |   |       |   |  |   |       
|Net income (loss) from discontinued operation, net of taxes |  |                                | (371 | )                            |      |   | 3,364  |  |   | (371  | ) |  |   | 4,078 
|Gain on sale of discontinued operation                      |  |                                |     |                              |      |   |       |  |   | 2,000 |   |  |   |      
|                                                            |  |                                |      |                              |      |   |        |  |   |       |   |  |   |       
|Net income (loss) from discontinued operation, net of taxes |  | $                              | (371 | )                            |      | $ | 3,364  |  | $ | 1,629 |   |  | $ | 4,078 
|                                                            |  |                                |      |                              |      |   |        |  |   |       |   |  |   |       

As of June 30, 2008, there were no operational assets or liabilities attributable to Client Operations due to
the sale of the discontinued operation in June 2008. During the second quarter of fiscal 2009, the Company received an inquiry regarding a tax return, which relates to the past Client Operations and has recorded estimated additional tax expense of
$0.4 million.



| | b) | Musiwave
| | -- | --------

In January 2006, the Company acquired Musiwave and
committed to a plan to sell its interest in Musiwave in June 2007. In accordance with SFAS 144, Musiwaves financial results have been classified as a discontinued operation in the Companys condensed consolidated financial statements for
all periods presented. The net assets associated with Musiwave were classified as held-for-sale from June 30, 2007 until its disposition on December 31, 2007.

On December 31, 2007, the Company sold Musiwave to Microsoft Corporation (Microsoft) for $41.4 million in cash, a note receivable of $5.9 million, and $4.6 million that Microsoft placed in escrow for
a period of one year to secure indemnification claims made by the purchaser, if any. The Company received and recorded the payment on the note receivable in July 2008, which had increased in value to $6.5 million due to the loan being denominated in
Euros, and is included in Amounts receivable from sales of discontinued operations on the condensed consolidated balance sheet as of June 30, 2008. In December 2008, Microsoft made claims against the escrow in excess of $4.6 million and
therefore the funds were not released from escrow. The Company has disputed these escrow claims and is in the early stages of negotiations with Microsoft. A gain on the sale of discontinued operation will be recognized if and when funds are
distributed from escrow.



11



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##### Table of Contents

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



|                                                   |  |                                |   |      |                              |       |      |  |      |   |  |   |        |  
|-------------------------------------------------- |  | ------------------------------ | - | ---- | ---------------------------- | ----- | ---- |  | ---- | - |  | - | ------ | -
|                                                   |  | Three Months endedDecember 31, |   |      | Six Months endedDecember 31, |      
|                                                   |  | 2008                           |   | 2007 |                              |       | 2008 |  | 2007 |  
|Revenue of discontinued operation                  |  | $                              |  |      | $                            | 7,063 |      |  | $    |  |  | $ | 14,252 |  
|                                                   |  |                                |   |      |                              |       |      |  |      |   |  |   |        |  
|Loss from discontinued operation                   |  |                                |  |      |                              | (152  | )    |  |      |  |  |   | (447   | )
|Income tax expense                                 |  |                                |  |      |                              | 134   |      |  |      |  |  |   | 190    |  
|                                                   |  |                                |   |      |                              |       |      |  |      |   |  |   |        |  
|Net loss from discontinued operation, net of taxes |  | $                              |  |      | $                            | (286  | )    |  | $    |  |  | $ | (637   | )
|                                                   |  |                                |   |      |                              |       |      |  |      |   |  |   |        |  

As of June 30, 2008, there were no remaining assets or liabilities attributable to Musiwave due to the sale
of the discontinued operation on December 31, 2007.

(4) Geographic, Segment and Significant Customer Information

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

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

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



|                                      |  |                                |        |                              |   |        |  |      |        |  |   |        
|------------------------------------- |  | ------------------------------ | ------ | ---------------------------- | - | ------ |  | ---- | ------ |  | - | -------
|                                      |  | Three Months EndedDecember 31, |        | Six Months EndedDecember 31,
|                                      |  | 2008                           |        | 2007                         |   | 2008   |  | 2007
|United States                         |  | $                              | 22,980 |                              | $ | 24,007 |  | $    | 48,437 |  | $ | 49,202 
|Americas, excluding the United States |  |                                | 5,449  |                              |   | 3,812  |  |      | 12,129 |  |   | 8,352  
|Europe, Middle East, and Africa       |  |                                | 8,285  |                              |   | 9,529  |  |      | 14,872 |  |   | 21,887 
|Japan                                 |  |                                | 6,722  |                              |   | 6,771  |  |      | 13,313 |  |   | 14,255 
|Asia Pacific, excluding Japan         |  |                                | 4,628  |                              |   | 3,309  |  |      | 10,358 |  |   | 6,702  
|                                      |  |                                |        |                              |   |        |  |      |        |  |   |        
|Total revenues                        |  | $                              | 48,064 |                              | $ | 47,428 |  | $    | 99,109 |  | $ | 100,398
|                                      |  |                                |        |                              |   |        |  |      |        |  |   |        

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 was as follows:



|              |  |                                                  |   |  |                                                |   |  |      |   |  |      |  
|------------- |  | ------------------------------------------------ | - |  | ---------------------------------------------- | - |  | ---- | - |  | ---- | -
|              |  | % of Total RevenueThree Months EndedDecember 31, |   |  | % of Total RevenueSix Months EndedDecember 31, |  
|              |  | 2008                                             |   |  | 2007                                           |   |  | 2008 |   |  | 2007 |  
|Customer:     |  |                                                  |   |  |                                                |   |  |      |   |  |      |  
|Sprint Nextel |  | 26                                               | % |  | 28                                             | % |  | 26   | % |  | 27   | %
|AT&T          |  | 14                                               | % |  | 11                                             | % |  | 14   | % |  | 10   | %

As noted above, the Company has derived almost half of its revenues from sales to U.S. based customers, which
itself primarily consists of sales to Sprint Nextel and AT&T. Although the Company intends to broaden its markets, there can be no assurance that this will be achieved. The size and timing of transactions with customers can vary significantly.
The timing of these transactions, especially with regard to large transactions, can cause variability in the Companys revenue and gross margins.



12



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(5) Balance Sheet Components



| | (a) | Accounts Receivable, net
| | --- | ------------------------

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



|                                |  |                  |        |   |              |   |        |  
|------------------------------- |  | ---------------- | ------ | - | ------------ | - | ------ | -
|                                |  | December 31,2008 |        |   | June 30,2008 |  
|Accounts receivable             |  | $                | 35,100 |   |              | $ | 59,764 |  
|Unbilled accounts receivable    |  |                  | 21,843 |   |              |   | 21,533 |  
|Allowance for doubtful accounts |  |                  | (2,325 | ) |              |   | (2,747 | )
|                                |  |                  |        |   |              |   |        |  
|                                |  | $                | 54,618 |   |              | $ | 78,550 |  
|                                |  |                  |        |   |              |   |        |  

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



|          |  |                               |   |  |              |  
|--------- |  | ----------------------------- | - |  | ------------ | -
|          |  | % of Total AccountsReceivable |  
|          |  | December 31,2008              |   |  | June 30,2008 |  
|Customer: |  |                               |   |  |              |  
|AT&T      |  | 30                            | % |  | 21           | %



| | (b) | Goodwill and Intangible Assets, net
| | --- | -----------------------------------

The following table presents
activity recorded to goodwill and intangible assets from June 30, 2008 to December 31, 2008 (in thousands):



|                              |  |                            |        |              |   |        |            |  |   |                           |   |                                |   |     |  |   |      
|----------------------------- |  | -------------------------- | ------ | ------------ | - | ------ | ---------- |  | - | ------------------------- | - | ------------------------------ | - | --- |  | - | -----
|                              |  | Balance as ofJune 30, 2008 |        | Amortization |   |        | Impairment |  |   | Additional TaxContingency |   | Balance as ofDecember 31, 2008
|Goodwill                      |  | $                          | 59,281 |              | $ |       |            |  | $ | (59,517                   | ) |                                |   | 236 |  | $ |     
|Intangibles assets:           |  |                            |        |              |   |        |            |  |   |                           |   |                                |   |     |  |   |      
|Developed and core technology |  |                            | 7,072  |              |   | (2,194 | )          |  |   |                          |   |                                |   |    |  |   | 4,878
|Customer contracts - licenses |  |                            | 21     |              |   | (10    | )          |  |   |                          |   |                                |   |    |  |   | 11   
|Customer contracts - support  |  |                            | 97     |              |   | (28    | )          |  |   |                          |   |                                |   |    |  |   | 69   
|Workforce in place            |  |                            | 52     |              |   | (52    | )          |  |   |                          |   |                                |   |    |  |   |     
|                              |  |                            |        |              |   |        |            |  |   |                           |   |                                |   |     |  |   |      
|                              |  | $                          | 66,523 |              | $ | (2,284 | )          |  | $ | (59,517                   | ) |                                | $ | 236 |  | $ | 4,958
|                              |  |                            |        |              |   |        |            |  |   |                           |   |                                |   |     |  |   |      

The Companys stock price has been negatively impacted by deterioration in the overall economic environment.
This deterioration has contributed to a change in the buying patterns of the Companys customers who have seen a reduction in their capital expenditure budgets. This has increased uncertainty around the levels of anticipated future revenues.
During the three months ended December 31, 2008, the price of the Companys common stock declined 48% from September 30, 2008. This decline was a triggering event which led management to perform an interim analysis, pursuant to SFAS
No. 142, Goodwill and Other Intangible Assets, to determine whether and to what extent the Companys goodwill may have been impaired as of December 31, 2008. The initial step of the analysis was to determine the estimated
fair value of the Company, which has one reporting unit. The estimated fair value of the Company was calculated based on the observable market capitalization with a range of estimated control premiums and an estimated range of discounted future
estimated cash flows. The resulting estimated fair value of the Company was less than stockholders equity at December 31, 2008. This necessitated an analysis to determine whether the carrying amount of goodwill on the Companys balance
sheet exceeded the implied fair value of goodwill. The implied fair value of the Companys goodwill was determined in the same manner as goodwill recognized in a business combination. That is, the estimated fair value of the Company was
allocated to its assets and liabilities, including any unrecognized identifiable intangible assets, as if the Company had been acquired in a business combination with the estimated fair value of the Company representing the price paid to acquire it.
The allocation process performed on the test date was only for purposes of determining the implied fair value of goodwill and no assets or liabilities are written up or down, nor are any additional unrecognized identifiable intangible assets
recorded as part of this process. Based on the analysis, management determined that the implied fair value of the Companys goodwill was zero, resulting in a goodwill impairment charge of $59.5 million. The goodwill impairment charge had no
effect on the Companys cash balances or liquidity.

Also as a result of the Companys market capitalization being less than stockholders
equity at December 31, 2008, the Company also reviewed its acquired intangible assets for potential impairment by analyzing the estimated future cash flows of the associated asset groupings, pursuant to SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144), and did not find any indication of impairment. Given the general current economic environment, it is reasonably possible that the estimated future cash flows of the
asset groupings will be reduced, which may result in an impairment in future periods. The unamortized balance of acquired intangible assets was $5.0 million at December 31, 2008. The Company also reviewed its fixed assets and determined that
the fair value exceeded carrying value, pursuant to SFAS 144, and therefore did not find any indication of impairment.



13



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



|                                                          |  |                                |        |                              |   |       |  |      |        |  |   |      
|--------------------------------------------------------- |  | ------------------------------ | ------ | ---------------------------- | - | ----- |  | ---- | ------ |  | - | -----
|                                                          |  | Three Months EndedDecember 31, |        | Six Months EndedDecember 31,
|                                                          |  | 2008                           |        | 2007                         |   | 2008  |  | 2007
|Amortization of intangible assets:                        |  |                                |        |                              |   |       |  |      |        |  |   |      
|Developed and core technology                             |  | $                              | 1,088  |                              | $ | 1,114 |  | $    | 2,194  |  | $ | 2,248
|Customer contracts - licenses                             |  |                                | 4      |                              |   | 135   |  |      | 10     |  |   | 272  
|Customer contracts - support                              |  |                                | 11     |                              |   | 20    |  |      | 28     |  |   | 38   
|Workforce in place                                        |  |                                | 26     |                              |   | 27    |  |      | 52     |  |   | 54   
|                                                          |  |                                |        |                              |   |       |  |      |        |  |   |      
|Total amortization of intangible assets                   |  |                                | 1,129  |                              |   | 1,296 |  |      | 2,284  |  |   | 2,612
|Impairment of goodwill                                    |  |                                | 59,517 |                              |   |      |  |      | 59,517 |  |   |     
|                                                          |  |                                |        |                              |   |       |  |      |        |  |   |      
|Amortization of intangible assets and goodwill impairment |  | $                              | 60,646 |                              | $ | 1,296 |  | $    | 61,801 |  | $ | 2,612
|                                                          |  |                                |        |                              |   |       |  |      |        |  |   |      

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

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



|                              |  |                     |        |                         |   |         |                   |  |                     |       |                         |   |        |                   |   |         |   |  |   |      
|----------------------------- |  | ------------------- | ------ | ----------------------- | - | ------- | ----------------- |  | ------------------- | ----- | ----------------------- | - | ------ | ----------------- | - | ------- | - |  | - | -----
|                              |  | December 31, 2008   |        | June 30, 2008          
|                              |  | GrossCarryingAmount |        | AccumulatedAmortization |   |         | NetCarryingAmount |  | GrossCarryingAmount |       | AccumulatedAmortization |   |        | NetCarryingAmount
|Developed and core technology |  | $                   | 19,298 |                         | $ | (14,420 | )                 |  | $                   | 4,878 |                         | $ | 19,298 |                   | $ | (12,226 | ) |  | $ | 7,072
|Customer contracts - licenses |  |                     | 105    |                         |   | (94     | )                 |  |                     | 11    |                         |   | 105    |                   |   | (84     | ) |  |   | 21   
|Customer contracts - support  |  |                     | 220    |                         |   | (151    | )                 |  |                     | 69    |                         |   | 220    |                   |   | (123    | ) |  |   | 97   
|Workforce in place            |  |                     | 419    |                         |   | (419    | )                 |  |                     |      |                         |   | 419    |                   |   | (367    | ) |  |   | 52   
|                              |  |                     |        |                         |   |         |                   |  |                     |       |                         |   |        |                   |   |         |   |  |   |      
|                              |  | $                   | 20,042 |                         | $ | (15,084 | )                 |  | $                   | 4,958 |                         | $ | 20,042 |                   | $ | (12,800 | ) |  | $ | 7,242
|                              |  |                     |        |                         |   |         |                   |  |                     |       |                         |   |        |                   |   |         |   |  |   |      

The following table presents the estimated future amortization of intangible assets, based upon the intangible
assets recorded as of December 31, 2008 (in thousands):



|                 |  |              |      
|---------------- |  | ------------ | -----
|Fiscal Year      |  | Amortization
|2009 (remaining) |  |              | 1,097
|2010             |  |              | 1,680
|2011             |  |              | 1,620
|2012             |  |              | 561  
|                 |  |              |      
|                 |  | $            | 4,958
|                 |  |              |      



| | (c) | Deferred Revenue
| | --- | ----------------

As of December 31, 2008 and June 30,
2008, the Company had deferred revenue of $62.6 million and $65.9 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
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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

Amounts in accounts receivable that have corresponding balances included in deferred revenue aggregated to approximately $16.1 million and $31.7 million as of
December 31, 2008 and June 30, 2008, respectively.



| | (d) | Accumulated Other Comprehensive Loss
| | --- | ------------------------------------

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



|                                         |  |                  |        |   |              |   |        |  
|---------------------------------------- |  | ---------------- | ------ | - | ------------ | - | ------ | -
|                                         |  | December 31,2008 |        |   | June 30,2008 |  
|Cumulative translation adjustments       |  | $                | (771   | ) |              | $ | (771   | )
|Unrealized loss on marketable securities |  |                  | (997   | ) |              |   | (349   | )
|                                         |  |                  |        |   |              |   |        |  
|Accumulated other comprehensive loss     |  | $                | (1,768 | ) |              | $ | (1,120 | )
|                                         |  |                  |        |   |              |   |        |  

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



|                                                               |  |                                |         |   |                              |   |        |      |  |   |         |   |  |   |         |  
|-------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                               |  | Three Months EndedDecember 31, |         |   | Six Months EndedDecember 31, |  
|                                                               |  | 2008                           |         |   | 2007                         |   |        | 2008 |  |   | 2007    |  
|Net income (loss)                                              |  | $                              | (64,161 | ) |                              | $ | 4,874  |      |  | $ | (74,665 | ) |  | $ | (9,271  | )
|Other comprehensive income (loss):                             |  |                                |         |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Change in accumulated foreign currency translation adjustments |  |                                |        |   |                              |   | (3,326 | )    |  |   |        |   |  |   | (3,326  | )
|Change in unrealized loss on marketable securities             |  |                                | (154    | ) |                              |   | (827   | )    |  |   | (648    | ) |  |   | (880    | )
|                                                               |  |                                |         |   |                              |   |        |      |  |   |         |   |  |   |         |  
|Total comprehensive income (loss)                              |  | $                              | (64,315 | ) |                              | $ | 721    |      |  | $ | (75,313 | ) |  | $ | (13,477 | )
|                                                               |  |                                |         |   |                              |   |        |      |  |   |         |   |  |   |         |  

(6) Financial Instruments

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

The
Company classifies its investments in debt and marketable equity securities as available-for-sale. Available-for-sale securities are carried at fair value with unrealized gains and losses recorded in accumulated other comprehensive income (loss)
until realized or a loss is considered to be other than temporary. The Company uses the specific-identification method in determining cost in calculating realized gains and losses.

The Company reviews its impairments of investments in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and related guidance issued by the FASB and the
Securities and Exchange Commission (SEC) in order to determine whether an impairment is temporary or other-than-temporary. A temporary impairment charge results in an unrealized loss being recorded in the other
comprehensive income (loss) component of stockholders equity. Such an unrealized loss does not affect net income for the applicable accounting period. An other-than-temporary impairment charge is recorded as a realized loss in the
condensed consolidated statement of operations and increases net loss for the applicable accounting period. The differentiating factors between temporary and other-than-temporary impairment are primarily the extent to which the market value has been
less than cost, the financial condition and near-term prospects of the issuer and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.

The Company adopted SFAS 157 effective July 1, 2008, for all of its financial assets and liabilities that are recognized or disclosed at fair value
on a recurring basis (at least annually). SFAS 157 (as modified by FSP Nos. 157-2 and 157-3) establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques,
are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:



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



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



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##### Table of Contents

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

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



|                                                           |  |                                                              |        |                                             |   |                                         |  |       |        |  |   |        
|---------------------------------------------------------- |  | ------------------------------------------------------------ | ------ | ------------------------------------------- | - | --------------------------------------- |  | ----- | ------ |  | - | -------
|                                                           |  | Fair value of securities as of December 31, 2008            
|                                                           |  | Quoted Prices in ActiveMarkets for IdenticalAssets (Level 1) |        | Significant OtherObservable Inputs(Level 2) |   | SignificantUnobservableInputs (Level 3) |  | Total
|Assets                                                     |  |                                                              |        |                                             |   |                                         |  |       |        |  |   |        
|Cash and cash equivalents                                  |  |                                                              |        |                                             |   |                                         |  |       |        |  |   |        
|Money Market Funds                                         |  | $                                                            | 58,074 |                                             | $ |                                        |  | $     |       |  | $ | 58,074 
|Short-term investments                                     |  |                                                              |        |                                             |   |                                         |  |       |        |  |   |        
|Certificates of Deposit                                    |  |                                                              |       |                                             |   | 243                                     |  |       |       |  |   | 243    
|Corporate Bonds                                            |  |                                                              | 2,928  |                                             |   | 12,446                                  |  |       |       |  |   | 15,374 
|Enhanced Cash Money Market                                 |  |                                                              |       |                                             |   | 1,621                                   |  |       |       |  |   | 1,621  
|Long-term investments, and restricted cash and investments |  |                                                              |        |                                             |   |                                         |  |       |        |  |   |        
|Corporate Bonds                                            |  |                                                              | 2,127  |                                             |   | 1,007                                   |  |       |       |  |   | 3,134  
|Certificates of Deposit                                    |  |                                                              |       |                                             |   | 17,637                                  |  |       |       |  |   | 17,637 
|Enhanced Cash Money Market                                 |  |                                                              |       |                                             |   | 515                                     |  |       |       |  |   | 515    
|Auction Rate Securities                                    |  |                                                              |       |                                             |   |                                        |  |       | 14,337 |  |   | 14,337 
|                                                           |  | $                                                            | 63,129 |                                             | $ | 33,469                                  |  | $     | 14,337 |  | $ | 110,935
|                                                           |  |                                                              |        |                                             |   |                                         |  |       |        |  |   |        

As of December 31, 2008, $14.3 million in auction rate securities (ARS), recorded in long-term
investments on the condensed consolidated balance sheet, were considered illiquid based upon recent auction results.

Certain ARS with an estimated fair
value of $12.6 million were issued by eight different entities and are held by one investment firm on the Companys behalf. Six of these securities are Triple X structured obligations of special purpose reinsurance entities
associated with life insurance companies. The other two securities are interest-bearing corporate debt obligations which, through the course of the issuers business, have some exposure to asset-backed securities. The Company estimated the fair
value of these auction rate securities based on probabilities of potential scenarios: 1) successful auction/early redemption, 2) failing auctions until maturity or 3) default and the estimated cash flows for each scenario. Other factors were
considered, such as the value of the investments held by the issuer and the financial condition and credit ratings of the issuer, insurers, and parent companies as applicable. As discussed below, the Company recorded a $6.6 million
other-than-temporary loss in the condensed consolidated statements of operations during the six months ended December 31, 2008 related to these securities. As of December 31, 2008 these instruments were all rated A or AA by Standard and
Poors and B3 to A1 by Moodys and $17.0 million par value of these illiquid investments are insured against defaults of principal and interest by third party insurance companies. These investments are classified in long term investments
at December 31, 2008.

The Company also holds an investment in an ARS relating to federal education student loans programs, with an estimated fair
value of $1.7 million. The Company estimated the fair value of this security based on a discounted cash flows model, and considered other factors including the receipt of a $0.1 million partial redemption of this instrument at par during the first
quarter of fiscal 2009, and recent performance of the issuer. This security is substantially guaranteed by the U.S. Department of Education, with less than $0.2 million not subject to such guarantee. This instrument is rated AAA by Fitch and
Aaa by Moodys. This investment is classified in long term investments at December 31, 2008.

The Company recorded a $6.6 million
other-than-temporary impairment on ARS during the six months ended December 31, 2008. The loss was considered other-than-temporary given the length of time the ARS have been illiquid, the significant amount of loss incurred, and the
Companys expectation that the ARS will continue to be illiquid given the general economic environment. Additionally, a $1.2 million other-than-temporary loss was recorded in the condensed consolidated statements of operations during the three
months ended September 30, 2008 related to an investment in a corporate instrument which was estimated at fair value based upon recent market quotes.



16



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##### Table of Contents

The following table represents the reconciliation of the beginning and ending balances of the Companys ARS measured
at fair value on a recurring basis using significant unobservable inputs (Level 3) during the first six months of fiscal year 2009 (in thousands):



|                                                                   |  |                                                                          |        |  
|------------------------------------------------------------------ |  | ------------------------------------------------------------------------ | ------ | -
|                                                                   |  | Fair Value MeasurementsUsing SignificantUnobservable Inputs(Level 3) ARS |       
|Balance at June 30, 2008                                           |  | $                                                                        | 21,344 |  
|Change in unrealized losses included in other comprehensive income |  |                                                                          | (67    | )
|Other-than-temporary impairment                                    |  |                                                                          | (4,404 | )
|Partial redemption                                                 |  |                                                                          | (100   | )
|                                                                   |  |                                                                          |        |  
|Balance at September 30, 2008                                      |  |                                                                          | 16,773 |  
|Change in unrealized losses included in other comprehensive income |  |                                                                          | (238   | )
|Other-than-temporary impairment                                    |  |                                                                          | (2,198 | )
|Partial redemption                                                 |  |                                                                          |       |  
|                                                                   |  |                                                                          |        |  
|Balance at December 31, 2008                                       |  | $                                                                        | 14,337 |  
|                                                                   |  |                                                                          |        |  

In December 2007, the investment manager of an enhanced cash money market fund that the Company had invested in
halted demand redemptions and announced its intention to liquidate the fund by the end of June 2008. As of December 31, 2008, the market value of the Companys pro-rata share of investments in the fund was $2.1 million. Due to recent
market conditions, the liquidation schedule has extended beyond the initial estimated redemption date. According to the revised schedule, as of December 31, 2008, $1.6 million is classified in short-term investments and $0.5 million is
classified in long-term investments based on the current planned distribution schedule. The Company received distributions of $0.9 million during the second quarter of fiscal 2009. A $0.1 million loss was recorded by the Company on the
distributions received during the second quarter of fiscal 2009. The Company has no other amounts invested in enhanced cash funds. Also, the Company recorded a $0.3 million other-than-temporary impairment on the enhanced cash money market fund in
the second quarter of fiscal year 2009 due to the reduced market value of the fund.

Additionally, the Company had $17.6 million of restricted investments
that were included within long-term restricted cash and investments in the condensed consolidated balance sheet as of December 31, 2008. $17.4 million of the restricted investments comprises a certificate of deposit to collateralize letters of
credit for facility leases, and $0.2 million comprises a restricted investment to secure a warranty bond pursuant to a customer contract. The weighted average interest rate on the Companys restricted investments was 1.8% at December 31,
2008.

(7) Acquisitions

Acquisition of WiderWeb

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

In addition to the Initial Consideration, Openwave may pay contingent consideration relating
to a retention agreement (Retention Amount). The maximum amount payable for the Retention Amount is $875 thousand for the retention of four key employees of WiderWeb for a two-year period which began on February 9, 2007. The
Retention Amount is being amortized over the two-year period as compensation expense. During fiscal 2008, fifty percent of the Retention Amount was distributed to the four individuals pursuant to the terms of the purchase agreement, each of whom
remains an employee of the Company. The remaining Retention Amount will be payable to the four individuals on February 9, 2009, assuming each individual remains an employee of Openwave. If an individual ceases to be an employee his prorata
portion of the Retention Amount will be forfeited in favor of the Company.

Openwave may also pay contingent consideration (WiderWeb Earn Out)
of up to an additional $4.0 million. The actual amount will be determined based upon the achievement of sales-related targets by the WiderWeb product line over various periods between closing and February 8, 2009. A total of $1.4 million
of the WiderWeb Earn Out has been achieved as of December 31, 2008 and was added to goodwill in the condensed consolidated balance sheet at the time the contingency was resolved. The remaining potential WiderWeb Earn Out pursuant to the merger
agreement is $2.6 million as of December 31, 2008.



17



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##### Table of Contents

(8) Convertible Subordinated Notes

On September 9, 2003, the Company issued $150.0 million of 2 3 / 4 % convertible subordinated notes (the Notes). All of the outstanding principal and interest was paid on September 9, 2008
pursuant to the terms of the Notes.

The Notes were recorded on the Companys condensed consolidated balance sheet net of a $4.1 million discount,
which was amortized over the term of the Notes using the straight-line method, which approximated the effective interest rate method. Approximately $158 thousand and $416 thousand of discount amortization during the first two quarters of fiscal 2009
and 2008, respectively, was included in interest expense in the condensed consolidated statements of operations. The Company made a policy election to classify the issuance costs as a reduction to the Notes. The Company incurred $900 thousand of
costs in connection with the issuance of the Notes, which were deferred and included in deposits and other assets. The debt issuance costs were recognized as interest expense over the term of the Notes using the straight-line method, which
approximated the effective interest rate method. Approximately $34 thousand and $90 thousand of debt issuance costs amortization was incurred during the first two quarters of fiscal 2009 and 2008, respectively, and included in interest expense in
the condensed consolidated statement of operations. As of December 31, 2008, all debt issuance costs have been fully amortized, in accordance with the repayment date in September 2008.

(9) Commitments and Contingencies

Litigation

IPO securities class action.

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

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



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of plaintiffs petition to the Second Circuit for rehearing en banc and resolution of the class certification issue. On April 6, 2007, the
Second Circuit denied plaintiffs petition for rehearing, but clarified that the plaintiffs may seek to certify a more limited class in the District Court. Accordingly, the parties withdrew the prior settlement, and Plaintiffs submitted amended
complaints in designated focus or test cases with a revised class definition, in an attempt to comply with the Second Circuits ruling.

On
March 26, 2008, the District Court issued an order granting in part and denying in part motions to dismiss the amended complaints in the focus cases. In particular, the District Court denied the motions to dismiss as to the Section 10(b)
claims. It also denied the motions to dismiss as to the Section 11 claims except for those claims raised by two different classes of plaintiffs. More specifically, the District Court dismissed the Section 11 claims raised by (1) those
plaintiffs who had no conceivable damages because they sold their securities above the offering price; and (2) those plaintiffs whose claims were time barred because they purchased their securities outside the previously certified class period.
The Company believes a loss is not probable or reasonably estimable. Therefore no amount has been accrued as of December 31, 2008.

Government
Investigations.

On May 18, 2006, the Company received an informal notice from the Securities and Exchange Commission (SEC)
advising that the SEC had commenced an informal inquiry into the Companys stock option grants and options-granting practices. The SECs letter requested that the Company produce documents related to the Companys stock
options-granting practices. In June 2006, the Company received subpoenas from the United States Attorneys for the Northern District of California and the Southern District of New York also requesting documents relating to the Companys stock
options-granting practices. The Company has cooperated with the SEC and the U.S. Attorneys in these matters and intends to continue to do so. These investigations remain open; however, the Company has not received any recent communications from the
SEC or the U.S. Attorneys regarding these matters.

Shareholder Derivative Lawsuits.

Seven substantially similar shareholder derivative actions were filed in California state and federal courts, purportedly on behalf of the Company, against various of the
Companys former and then-current 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.

On September 5, 2006, the California Superior Court for the County of San Mateo consolidated the three actions pending before it
into a single action captioned In re: Openwave Systems Inc. Derivative Litigation (Consolidated Case No. CIV 455265) and appointed a lead plaintiff and lead plaintiffs counsel. On September 29, 2006, the lead plaintiff filed a
consolidated amended shareholder derivative complaint. The action seeks to have the defendants disgorge certain options they received, including the proceeds of the options exercised, treble damages for violations of Sections 25402 and 25403 of the
California Corporations Code, punitive damages as well as certain equitable relief and attorneys fees and costs. On August 21, 2006, the individual defendants, joined by nominal defendant Openwave, filed a motion to stay the state court
actions pending resolution of the federal actions. On December 12, 2006, the state court granted the defendants motion to stay. The court required the parties to attend periodic status conferences until the federal actions are resolved
and permitted the plaintiffs in the state court actions to ask the court to lift the stay if circumstances change. On October 3, 2008, as a result of the judgment of dismissal entered on August 13, 2008 in federal actions, the Company
filed a demurrer on the grounds that they are barred by the federal courts judgment. On January 12, 2009, the court granted the demurrer. The plaintiff has thirty days to appeal the ruling. No amount is accrued as of December 31,
2008 as a loss is not considered probable or reasonably estimable.



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Demand Letter.

On March 12, 2008, the Company received a demand letter from an attorney purporting to represent two shareholders of the Company, Henry Sherupski and Manfred Hacker (the Demand Letter). The litigation proposed by the Demand
Letter is substantially similar to that previously brought by the same and other purported shareholders in the above described federal shareholder derivative litigation in which the Court recently entered a judgment of dismissal. The Demand Letter
requests that the Company commence litigation against certain individuals who currently serve or previously served as directors, officers, or employees of the Company, for alleged breach of fiduciary duty, waste, unjust enrichment, gross
mismanagement, violations of California statute and other misconduct in connection with the Companys stock option practices and public reporting of certain financial results during the periods fiscal 1999 through fiscal 2005. In response to
the Demand Letter, as described above, the Board formed a special litigation committee to consider the plaintiffs demand. Following a thorough review, the special litigation determined, inter alia, that it was not in the Companys best
interest to bring or maintain any of the claims proposed in the Demand Letter or any of the claims pending in the consolidated state litigation. As a result of the special litigation committee investigation, a motion to terminate and dismiss
the state derivative litigation was filed on November 13, 2008. The motion was never addressed and is moot in light of the demurrer of the state court action granted on January 12, 2009. No amount is accrued as of December 31,
2008 as a loss is not considered probable or reasonably estimable.

Securities Class Action.

Between February 21, and March 27, 2007, four substantially similar securities class action complaints were filed in the United States District Court for the
Southern District of New York against Openwave and four current and former officers of the Company. The complaints purport to be filed on behalf of all persons or entities who purchased Openwave stock from September 30, 2002 through
October 26, 2006 (the Class Period), and allege that during the Class Period, the defendants engaged in improper stock options backdating and issued materially false and misleading statements in the Companys public filings and
press releases regarding the manner in which Openwave granted and accounted for the options.

On April 25, 2007, the Company and the individual
defendants filed a joint motion to transfer the actions to the Northern District of California where the related shareholder derivative class actions are pending. On May 18, 2007, the court entered an order consolidating the four securities
class actions into a single action captioned In re: Openwave Systems Securities Litigation (Master File 07-1309 (DLC)), and appointing the lead plaintiff and lead plaintiffs counsel. On June 14, 2007, the court entered an order denying
the motion to transfer.

On June 29, 2007, the plaintiffs filed a consolidated and amended class action complaint. The consolidated and amended
complaint adds 17 additional defendants, including several current and former Openwave officers and directors, KPMG LLP, and Merrill Lynch, Pierce, Fenner & Smith, Inc., Lehman Brothers Inc., J.P. Morgan Securities, Inc., and Thomas Weisel
Partners LLC. The consolidated and amended complaint alleges claims for violation of Sections 10(b), 20(a) and 20(A) of the Exchange Act and Rule 10b-5, as well as claims for violation of Sections 11, 12(a)(2) and 15 of the Securities Act arising
out of the Companys 2005 public offering. The complaint seeks money damages, equitable relief, and attorneys fees and costs.

On
August 10, 2007, the defendants filed motions to dismiss the consolidated and amended class action complaint. On October 31, 2007, the court entered an order granting in part and denying in part the defendants motions
to dismiss. The court granted the motions to dismiss claims asserted under the Securities Act as to all defendants against whom those claims were asserted, and granted the motion to dismiss the Exchange Act claims by
certain of the officer and director defendants, but denied the motion to dismiss the Exchange Act claims asserted against Openwave and certain of the other director and officer defendants. As a result of the courts decision, KPMG LLP,
Merrill Lynch, Pierce, Fenner & Smith, Inc., Lehman Brothers Inc., J.P. Morgan Securities, Inc., and Thomas Weisel Partners LLC were dismissed as defendants from the litigation. The Company and certain of its former officers and former and
current directors remained as defendants.



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The parties commenced discovery with respect to class certification and the merits. On June 23, 2008, the lead
plaintiff filed a motion for class certification. On July 18, 2008, the Company filed its opposition to the lead plaintiffs motion, and all of the individual defendants joined in that opposition.

On October 24, 2008, while the motion for class certification was pending and discovery was ongoing, the lead plaintiff and defendants reached an agreement to
settle the action. On November 5, 2008, the court entered a preliminary order approving the settlement. Pursuant to the terms of the settlement agreement, on December 5, 2008, the Company contributed $5.0 million and the insurance carriers
contributed $15.0 million to the settlement fund. This $20.0 million estimated liability was recorded in the fiscal quarter ending June 30, 2008, with a corresponding $15.0 million recorded in Insurance receivable for legal settlement on the
consolidated balance sheet, and $5.0 million recorded in Legal settlement costs on the consolidate statement of operations. The final settlement hearing is scheduled for February 27, 2009.

Simmonds v. Credit Suisse Group, et al.,

On October 3,
2007, Vanessa Simmonds, a purported stockholder of the Company, filed suit in the U.S. District Court for the Western District of Washington against Credit Suisse Group, Bank of America Corporation, and JPMorgan Chase & Co., the lead
underwriters of the Companys initial public offering in June 1999, alleging violations of Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b). The complaint seeks to recover from the lead underwriters any
short-swing profits obtained by them in violation of Section 16(b). The suit names the Company as a nominal defendant, contains no claims against the Company, and seeks no relief from the Company. Simmonds filed an Amended Complaint
on February 25, 2008 (the Amended Complaint), naming as defendants Credit Suisse Securities (USA), Robertson Stephens, Inc., J.P. Morgan Securities, Inc., and again naming Bank of America Corporation. The Amended Complaint asserts
substantially similar claims as those set forth in the initial complaint. On July 25, 2008, 29 issuers filed the Issuer Defendants Joint Motion to Dismiss. Underwriter Defendants also filed a Joint Motion to Dismiss on July 25,
2008. Plaintiff filed oppositions to both motions on September 8, 2008. All replies in support of the motions to dismiss were filed on October 23, 2008. The Company joined the Issuer Defendants Joint Motion to Dismiss on
December 1, 2008. Oral argument on all motions to dismiss was held on January 16, 2009, and judgment on those motions remains pending. The judge has stayed discovery pursuant to the Private Securities Litigation Reform Act (PSLRA)
until he rules on all motions to dismiss. No amount is accrued as of December 31, 2008, as a loss is not considered probable or reasonably estimable.

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

Indemnification claims.

The Companys software license and services agreements generally include a limited indemnification provision for claims from third parties relating to the Companys intellectual property. Such
indemnification provisions are accounted for in accordance with FIN 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). As of
December 31, 2008, no amount is accrued for indemnifications as there were no existing claims where a loss is considered probable. Historically, costs related to these indemnification provisions have been infrequent and the Company is unable to
estimate the maximum potential impact of these indemnification provisions on its future results of operations.

Contingencies.

We have certain contingent obligations associated with previous acquisitions as discussed in Note 7 Acquisitions.

(10) Restructuring and Other Related Costs

As a result of the
Companys change in strategy and its desire to improve its cost structure, the Company announced restructurings during fiscal years 2008, 2007 and 2006, and various other restructurings in fiscal years 2002 through 2005.



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The fiscal year 2008 restructuring (FY2008 Restructuring) was implemented to better align the Companys resources
among its products, reduce costs and improve operating efficiencies. As such, during fiscal 2008 and the first and second quarters of fiscal 2009, the Company incurred $6.6 million in pre-tax restructuring and related charges associated with the
FY2008 Restructuring Plans employee termination benefits and $0.8 million in accelerated depreciation on fixed assets associated with facilities identified for restructuring. The Company expects to pay the current accrued charges during the
second quarter of fiscal 2009. The restructuring charges for facilities under this plan will be incurred in the period the facility is no longer occupied or used by the Company for operations, with the associated lease payments being paid over the
term of the remaining lease. During the first quarter of fiscal 2009, the Company incurred $1.5 million in facilities charges related to the FY2008 Restructuring. Of the remaining $1.0 million accrual, the Company expects to pay $0.2 million through
June 30, 2009 and $0.8 million from July 2009 through September 2012.

The following table sets forth the restructuring liability activity from
June 30, 2008 through December 31, 2008 (in thousands):



|                                            |  |                                           |        |   |                                 |   |    |                                 |  |   |                                 |   |  |                                 |        |   |              |   |       |   |  |   |        |  
|------------------------------------------- |  | ----------------------------------------- | ------ | - | ------------------------------- | - | -- | ------------------------------- |  | - | ------------------------------- | - |  | ------------------------------- | ------ | - | ------------ | - | ----- | - |  | - | ------ | -
|                                            |  | FY 02 to FY 05RestructuringPlans Facility |        |   | FY 06RestructuringPlan Facility |   |    | FY 07RestructuringPlanSeverance |  |   | FY 08RestructuringPlanSeverance |   |  | FY 08RestructuringPlan Facility |        |   | TotalAccrual |  
|Accrual balances as of June 30, 2008        |  | $                                         | 52,877 |   |                                 | $ | 25 |                                 |  | $ | 261                             |   |  | $                               | 2,609  |   |              | $ |      |   |  | $ | 55,772 |  
|New charges and adjustments to estimates(1) |  |                                           | (37    | ) |                                 |   |   |                                 |  |   |                                |   |  |                                 | (313   | ) |              |   | 1,239 |   |  |   | 889    |  
|Accretion expense                           |  |                                           | 447    |   |                                 |   |   |                                 |  |   |                                |   |  |                                 |       |   |              |   |      |   |  |   | 447    |  
|Cash paid, net of sublease income           |  |                                           | (2,841 | ) |                                 |   | (3 | )                               |  |   | (42                             | ) |  |                                 | (1,908 | ) |              |   |      |   |  |   | (4,794 | )
|                                            |  |                                           |        |   |                                 |   |    |                                 |  |   |                                 |   |  |                                 |        |   |              |   |       |   |  |   |        |  
|Balance as of September 30, 2008            |  | $                                         | 50,446 |   |                                 | $ | 22 |                                 |  | $ | 219                             |   |  | $                               | 388    |   |              | $ | 1,239 |   |  | $ | 52,314 |  
|                                            |  |                                           |        |   |                                 |   |    |                                 |  |   |                                 |   |  |                                 |        |   |              |   |       |   |  |   |        |  
|Adjustments to estimates                    |  |                                           |       |   |                                 |   |   |                                 |  |   |                                |   |  |                                 | (39    | ) |              |   |      |   |  |   | (39    | )
|Accretion expense                           |  |                                           | 429    |   |                                 |   |   |                                 |  |   |                                |   |  |                                 |       |   |              |   |      |   |  |   | 429    |  
|Cash paid, net of sublease income           |  |                                           | (2,226 | ) |                                 |   | (3 | )                               |  |   | (90                             | ) |  |                                 | (180   | ) |              |   | (215  | ) |  |   | (2,714 | )
|                                            |  |                                           |        |   |                                 |   |    |                                 |  |   |                                 |   |  |                                 |        |   |              |   |       |   |  |   |        |  
|Balance as of December 31, 2008             |  | $                                         | 48,649 |   |                                 | $ | 19 |                                 |  | $ | 129                             |   |  | $                               | 169    |   |              | $ | 1,024 |   |  | $ | 49,990 |  
|                                            |  |                                           |        |   |                                 |   |    |                                 |  |   |                                 |   |  |                                 |        |   |              |   |       |   |  |   |        |  



|(1) | These charges do not include $0.2 million of accelerated
depreciation on fixed assets, as well as $0.3 million in facility exit costs paid during the first quarter of fiscal 2009.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of
December 31, 2008, the Company has sublease contracts in place for all but one of its exited facilities, which provides for approximately $31.9 million of future sublease income from third parties out of a total estimated sublease income of
$32.6 million. Future minimum lease payments under non-cancelable operating leases, associated with exited facilities, with terms in excess of one year and future contractual sublease income were as follows at December 31, 2008 (in thousands):



|                    |  |                            |        |                         |   |      |                           |  |   |                                 |   |  |   |       
|------------------- |  | -------------------------- | ------ | ----------------------- | - | ---- | ------------------------- |  | - | ------------------------------- | - |  | - | ------
|Year endingJune 30, |  | ContractualCash Obligation |        | EstimatedSubleaseIncome |   |      | ContractualSubleaseIncome |  |   | EstimatedFuture NetCash Outflow
|2009 (remaining)    |  |                            | 9,501  |                         |   |     |                           |  |   | (3,173                          | ) |  |   | 6,328 
|2010                |  |                            | 19,469 |                         |   |     |                           |  |   | (7,561                          | ) |  |   | 11,908
|2011                |  |                            | 20,436 |                         |   | (213 | )                         |  |   | (7,436                          | ) |  |   | 12,787
|2012                |  |                            | 20,349 |                         |   | (428 | )                         |  |   | (7,458                          | ) |  |   | 12,463
|2013                |  |                            | 16,525 |                         |   | (116 | )                         |  |   | (6,230                          | ) |  |   | 10,179
|                    |  |                            |        |                         |   |      |                           |  |   |                                 |   |  |   |       
|                    |  | $                          | 86,280 |                         | $ | (757 | )                         |  | $ | (31,858                         | ) |  | $ | 53,665
|                    |  |                            |        |                         |   |      |                           |  |   |                                 |   |  |   |       

Future accretion expense on the restructured facility obligation is $4.0 million, which will be recorded as
restructuring expense over the life of the respective lease terms.



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(11) Income Taxes

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

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, 2008, we have net foreign deferred tax assets recorded of approximately $4.6 million, which consists of $5.0 million of realizable deferred tax assets in selected countries based upon our conclusion that it is more likely than not
that these foreign subsidiaries will earn future taxable profit through transfer pricing; offset by $0.4 million of deferred tax liabilities recorded with respect to acquisitions for which the amortization expense of acquired intangibles is not
deductible for tax purposes.

The FIN 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109
(FIN 48) unrecognized tax benefits activity is as follows (in thousands):



|                                    |  |   |        |  
|----------------------------------- |  | - | ------ | -
|Balance as of July 1, 2008          |  | $ | 5,659  |  
|Resolution of various tax positions |  |   | (1,065 | )
|Increase in tax reserves            |  |   | 1,713  |  
|Foreign currency fluctuation        |  |   | (955   | )
|                                    |  |   |        |  
|Balance as of December 31, 2008     |  | $ | 5,352  |  
|                                    |  |   |        |  

The total amount of gross unrecognized tax benefits was $5.4 million as of December 31, 2008. During the six
months ended December 31, 2008, $0.8 million of unrecognized tax benefits were released, resulting in a discrete tax benefit in connection with the close in the statute of limitations associated with withholding tax and transfer pricing
reserves in various countries. The Company also recorded tax expense of $0.4 million related to a UK tax audit (included in results of discontinued operations) and $0.9 million related to a withholding tax audit of one of its customers, including
interest and penalties.

The Company has elected to include interest and penalties as a component of tax expense. Accrued interest and penalties was
$0.1 million and $0.2 million as of December 31, 2008 and December 31, 2007. Other than the issues noted above, the Company does not anticipate that the amount of unrecognized tax benefits will significantly increase or decrease
within the next 12 months.

The Company files U.S. federal, U.S. state and foreign tax returns. For federal returns, the Company is generally no longer
subject to examinations for years prior to fiscal year ended June 30, 2008. Because of net operating loss carryforwards, substantially all of the Companys tax years, from fiscal 1995 through fiscal 2007, remain open to state tax
examinations with the exception of Alabama, Massachusetts and Texas. For taxable years beginning in 2008, California has suspended the utilization of net operating losses for one year, and has also extended the carryforward period for losses
incurred during fiscal year 2009 from 10 years to 20 years. The Company does not expect to be impacted by the suspension. Most of the Companys foreign jurisdictions have three or four open tax years at any point in time.

(12) Subsequent Event

On January 8, 2009, David Nagel was
appointed to serve as a member of the Companys Board of Directors as a Class III Director. On January 22, 2008, Mr. Nagel was appointed to serve as a member of the Companys Compensation Committee.

On January 23, 3009, the Company, and Silicon Valley Bank (the Bank) entered into a $40.0 million secured revolving credit arrangement to improve
liquidity and working capital for the Company. The Company may borrow, repay and re-borrow under the line of credit facility at any time. As of January 27, 2009, the line of credit facility bears interest at 4% per annum. The line of credit is
collateralized by substantially all of the Companys assets and requires the Company to comply with customary affirmative and negative covenants principally relating to use and disposition of assets, and the satisfaction of certain financial
measures. The line of credit and facility expire on January 22, 2011. As of the date of this report, there is no amount outstanding under this revolving credit arrangement.



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|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 1A, under the subheading Risk Factors and elsewhere in this report. The
occurrence of the events described in Part II, Item 1A, 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, 2008, which was filed with the Securities and Exchange Commission on September 15, 2008, 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s products are modular and based on open standards, providing our customers with the ability to mix and match the right products and technologies to create differentiated mobile services. Our technology and products are
designed to work on diverse mobile phones and platforms regardless of the brand or the type of service that operators select to offer to their subscribers.

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

For further detail regarding our products, see our Annual Report on Form 10-K for our fiscal year ended June 30, 2008.

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.



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Overview of Financial Results During the Three and Six Months Ended December 31, 2008

The following table represents a summary of our operating results from continuing operations for our second quarter and first six months of fiscal 2009 compared with the
second quarter and first six months of fiscal 2008 (in thousands):



|                                         |  |                                |         |   |               |   |         |                              |      |      |               |      |   |         |   |  |   |         |   |  |      |  
|---------------------------------------- |  | ------------------------------ | ------- | - | ------------- | - | ------- | ---------------------------- | ---- | ---- | ------------- | ---- | - | ------- | - |  | - | ------- | - |  | ---- | -
|                                         |  | Three Months EndedDecember 31, |         |   | PercentChange |   |         | Six Months EndedDecember 31, |      |      | PercentChange |     
|                                         |  | 2008                           |         |   | 2007          |   |         |                              | 2008 |      |               | 2007 |   |        
|                                         |  | (unaudited)                    |         |   |               |   |         | (unaudited)                  |      |      |               |     
|Revenues                                 |  | $                              | 48,064  |   |               | $ | 47,428  |                              |      | 1    | %             |      | $ | 99,109  |   |  | $ | 100,398 |   |  | -1   | %
|Cost of revenues                         |  |                                | 19,524  |   |               |   | 23,221  |                              |      | -16  | %             |      |   | 40,495  |   |  |   | 48,272  |   |  | -16  | %
|                                         |  |                                |         |   |               |   |         |                              |      |      |               |      |   |         |   |  |   |         |   |  |      |  
|Gross profit                             |  |                                | 28,540  |   |               |   | 24,207  |                              |      | 18   | %             |      |   | 58,614  |   |  |   | 52,126  |   |  | 12   | %
|Operating expenses                       |  |                                | 89,865  |   |               |   | 40,852  |                              |      | 120  | %             |      |   | 125,444 |   |  |   | 85,540  |   |  | 47   | %
|                                         |  |                                |         |   |               |   |         |                              |      |      |               |      |   |         |   |  |   |         |   |  |      |  
|Operating loss                           |  |                                | (61,325 | ) |               |   | (16,645 | )                            |      | 268  | %             |      |   | (66,830 | ) |  |   | (33,414 | ) |  | 100  | %
|Interest and other income (expense), net |  |                                | (1,436  | ) |               |   | 2,479   |                              |      | -158 | %             |      |   | (7,932  | ) |  |   | 5,383   |   |  | -247 | %
|Income tax expense                       |  |                                | 1,029   |   |               |   | 493     |                              |      | 109  | %             |      |   | 1,532   |   |  |   | 1,136   |   |  | 35   | %
|                                         |  |                                |         |   |               |   |         |                              |      |      |               |      |   |         |   |  |   |         |   |  |      |  
|Net loss from continuing operations      |  | $                              | (63,790 | ) |               | $ | (14,659 | )                            |      | 335  | %             |      | $ | (76,294 | ) |  | $ | (29,167 | ) |  | 162  | %
|                                         |  |                                |         |   |               |   |         |                              |      |      |               |      |   |         |   |  |   |         |   |  |      |  

Revenues were consistent during the three and six months ended December 31, 2008 compared to the
corresponding periods of the prior year.

Operating expenses increased $49.0 million and $39.9 million, respectively, during the three and six months ended
December 31, 2008 compared with the corresponding periods of the prior year. Overall, excluding the impact of the goodwill impairment charge of $59.5 million that was taken during the second quarter of fiscal 2009 (see Critical Accounting
Policies and Judgments below), operating expenses continue to decline. This decline can be attributed to lower labor costs and stock based compensation expense as a result of our FY 2008 Restructuring Plan, as discussed in further detail under
Summary of Operating Results below. As of December 31, 2007, we had 791 employees, exclusive of employees related to Client and Musiwave. As of December 31, 2008, we had 627 employees.

Operating Environment During the Three and Six Months Ended December 31, 2008

Data revenues continue to comprise a small, but growing, portion of mobile telecommunications operators total services revenue today, with voice and messaging continuing to serve as primary revenue drivers.
Although data services revenues are growing, the average revenue per user, commonly referred to as ARPU, has remained flat over the last several years for many of Openwaves mobile operator customers. One of the major contributing factors is
that the industry has not made the sharing of communications and content simple enough for the consumer due to the current multi-click and wait environment. Openwaves zero click access approach, found in its OpenWeb,
OpenMedia, OpenStream and Rich Mail products, is designed to simplify access to and sharing of content and communications. These new technologies are designed to promote increased device usage and drive data growth in the industry in the mid-term.
Until then, Openwave sees continued, but reduced, capital equipment spending levels by the operators in the infrastructure market overall. Some of the products Openwave and our competitors sell will continue to be viewed by operators as cost centers
that will maintain, but not grow, monthly ARPU. Other Openwave products and those of our competitors are being viewed as a source for driving revenue by increasing and catering to the needs of mobile internet subscribers. The growth in mobile
internet subscribers is being driven by the rapid rise of smartphones. Openwave believes that operators will have to increase capital expenditures to accommodate capacity and to facilitate managing these increasing data volumes.



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##### Table of Contents

During the quarter ended December 31, 2008, Openwave worked with mobile operators to enable the delivery of
personalized content and communications. Selected customer highlights include:

Service Management



| |  |  | Openwave signed an agreement with Rogers Wireless to license Passport to create a variety of on-demand subscriber services. Passport is a service that enables
mobile operators to tap into new revenue streams by offering a range of time-based internet access options (e.g. day-, hour- and week-passes) to the casual mobile internet user.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Messaging



| |  |  | SoftBank Mobile, one of Japans largest telecommunication companies, selected Openwave Edge Gx Anti-Abuse, a comprehensive carrier-grade, solution that
provides real-time protection against all types of attacks including directory and denial-of-service attacks to spam virus and phishing attacks.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Noteworthy announcements we made in the second quarter of fiscal 2009 include Mobile Analytics, a new service offering that combines the expertise of Openwaves professional services with the rich analytics and reporting capabilities
of Openwaves Mobile Analytics solution. Openwave Mobile Analytics includes the Mobile Business Intelligence (MBI) module, which characterizes mobile internet traffic, including subscriber access to URLs, the duration of website visits and how
frequently subscribers are accessing social networking sites like Facebook and Twitter.

In addition, we also announced a strategic partnership with global
telecommunications firm, Alcatel Lucent, to create pre-configured software solutions for service providers. The solutions will consist of Openwaves open internet, service management products with advanced professional services from
Alcatel-Lucent.

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; and
| | - |  | -----------------------------



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

With the
exception of the following paragraph that updates factors considered in our critical accounting policy for impairment assessments of goodwill and identifiable intangible assets during the second quarter of fiscal 2009, there were no significant
changes in our critical accounting policies and estimates since our fiscal year-end on June 30, 2008. 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, 2008.

Impairment Assessments of Goodwill and Intangible Assets

The
Companys stock price has been negatively impacted by deterioration in the overall economic environment. This deterioration has contributed to a change in the buying patterns of our customers who have seen a reduction in their capital
expenditure budgets. This has increased uncertainty around the levels of anticipated future revenues. During the three months ended December 31, 2008, the price of the Companys common stock declined 48% from September 30, 2008. This decline
was a triggering event which led management to perform an interim analysis, pursuant to SFAS No. 142, Goodwill and Other Intangible Assets, to determine whether and to what extent our goodwill may have been impaired as of December 31,
2008. The initial step of the analysis was to determine the estimated fair value of the Company, which has one reporting unit. The estimated fair value of the Company was calculated based on the observable market capitalization with a range of
estimated control premiums and an estimated range of discounted future estimated cash flows. The resulting estimated fair value of the Company was less than stockholders equity at December 31, 2008. This necessitated an analysis to determine
whether the carrying amount of goodwill on our balance sheet exceeded the implied fair value of goodwill. The implied fair value of our goodwill was determined in the same manner as goodwill recognized in a business combination. That is, the
estimated fair value of the Company was allocated to its assets and liabilities, including any unrecognized identifiable intangible assets, as if the Company had been acquired in a business combination with the estimated fair value of the Company
representing the price paid to acquire it. The allocation process performed on the test date was only for purposes of determining the implied fair value of goodwill and no assets or liabilities are written up or down, nor are any additional
unrecognized identifiable intangible assets recorded as part of this process. Based on the analysis, management determined that the implied fair value of our goodwill was zero, resulting in a goodwill impairment charge of $59.5 million. The goodwill
impairment charge had no effect on our cash balances or liquidity.



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##### Table of Contents

Also as a result of the Companys market capitalization being less than stockholders equity at December 31,
2008, we also reviewed our acquired intangible assets for potential impairment by analyzing the estimated future cash flows of the associated asset groupings, pursuant to FASB 144, SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS 144), and did not find any indication of impairment. Given the general current economic environment, it is reasonably possible that the estimated future cash flows of the asset groupings will be
reduced, which may result in an impairment in future periods. The unamortized balance of acquired intangible assets was $5.0 million at December 31, 2008. We also reviewed our fixed assets and determined that the fair value exceeded carrying value,
pursuant to SFAS 144, and therefore did not find any indication of impairment.

Summary of Operating Results

Three and Six Months Ended December 31, 2008 and 2007

Revenues

We generate three 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; and services revenues
are primarily a result of providing deployment and integration consulting services to communication service providers. Service revenues may include a limited amount of packaged solution elements which may be comprised of our software licenses,
professional services, third-party software and hardware.

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



|              |  |                                                  |   |  |                                                |   |  |      |   |  |      |  
|------------- |  | ------------------------------------------------ | - |  | ---------------------------------------------- | - |  | ---- | - |  | ---- | -
|              |  | % of Total RevenueThree Months EndedDecember 31, |   |  | % of Total RevenueSix Months EndedDecember 31, |  
|              |  | 2008                                             |   |  | 2007                                           |   |  | 2008 |   |  | 2007 |  
|Customer:     |  |                                                  |   |  |                                                |   |  |      |   |  |      |  
|Sprint Nextel |  | 26                                               | % |  | 28                                             | % |  | 26   | % |  | 27   | %
|AT&T          |  | 14                                               | % |  | 11                                             | % |  | 14   | % |  | 10   | %

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



|                        |  |                                |        |   |               |   |        |                              |      |    |               |      |   |        |   |  |   |         |   |  |     |  
|----------------------- |  | ------------------------------ | ------ | - | ------------- | - | ------ | ---------------------------- | ---- | -- | ------------- | ---- | - | ------ | - |  | - | ------- | - |  | --- | -
|                        |  | Three Months EndedDecember 31, |        |   | PercentChange |   |        | Six Months EndedDecember 31, |      |    | PercentChange |     
|                        |  | 2008                           |        |   | 2007          |   |        |                              | 2008 |    |               | 2007 |   |       
|Revenues:               |  |                                |        |   |               |   |        |                              |      |    |               |      |   |        |   |  |   |         |   |  |     |  
|License                 |  | $                              | 13,849 |   |               | $ | 10,433 |                              |      | 33 | %             |      | $ | 28,176 |   |  | $ | 23,052  |   |  | 22  | %
|Maintenance and support |  |                                | 15,917 |   |               |   | 17,580 |                              |      | -9 | %             |      |   | 32,295 |   |  |   | 36,137  |   |  | -11 | %
|Services                |  |                                | 18,298 |   |               |   | 19,415 |                              |      | -6 | %             |      |   | 38,638 |   |  |   | 41,209  |   |  | -6  | %
|                        |  |                                |        |   |               |   |        |                              |      |    |               |      |   |        |   |  |   |         |   |  |     |  
|Total Revenues          |  | $                              | 48,064 |   |               | $ | 47,428 |                              |      | 1  | %             |      | $ | 99,109 |   |  | $ | 100,398 |   |  | -1  | %
|                        |  |                                |        |   |               |   |        |                              |      |    |               |      |   |        |   |  |   |         |   |  |     |  
|Percent of revenues:    |  |                                |        |   |               |   |        |                              |      |    |               |      |   |        |   |  |   |         |   |  |     |  
|License                 |  |                                | 29     | % |               |   | 22     | %                            |      |    |               |      |   | 28     | % |  |   | 23      | % |  |     |  
|Maintenance and support |  |                                | 33     | % |               |   | 37     | %                            |      |    |               |      |   | 33     | % |  |   | 36      | % |  |     |  
|Services                |  |                                | 38     | % |               |   | 41     | %                            |      |    |               |      |   | 39     | % |  |   | 41      | % |  |     |  
|                        |  |                                |        |   |               |   |        |                              |      |    |               |      |   |        |   |  |   |         |   |  |     |  
|Total Revenues          |  |                                | 100    | % |               |   | 100    | %                            |      |    |               |      |   | 100    | % |  |   | 100     | % |  |     |  
|                        |  |                                |        |   |               |   |        |                              |      |    |               |      |   |        |   |  |   |         |   |  |     |  



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##### Table of Contents

License Revenues

License revenues increased by 33% during the three months ended December 31, 2008 as compared with the corresponding period of the prior year. The increase in license revenues partially relates to certain license
deals which are being recognized ratably in fiscal 2009. We are also recognizing license revenues from the introduction of new products whereas our product transitioning was in the early stages in the prior year and resulted in moderately lower
license revenues in the three months ended December 31, 2007.

License revenues increased by 22% during the six months ended December 31, 2008,
as compared to the corresponding period of the prior year. The increase in license revenues was due to the factors discussed above.

Maintenance and Support Revenues

Maintenance and support revenues decreased by 9% for the three months ended December 31, 2008
compared with the corresponding period of the prior year. The decrease is a result of the reduced renewal rates and lower bookings over the past twelve months. In addition, during the second quarter of fiscal 2009, we suspended recognition of
maintenance revenue from a customer due to continued negotiations regarding their contract renewal during the three months ended December 31, 2008. Maintenance revenue associated with this customer was $0.7 million during the three and six months
ended December 31, 2007. We expect to finalize the negotiations during the third quarter of fiscal 2009.

Maintenance and support revenues decreased by 11%
for the six months ended December 31, 2008, as compared to the corresponding period of the prior year. The decrease is a result of the factors discussed immediately above.

Services Revenues

Services revenue decreased by 6%
for the three months ended December 31, 2008, as compared with the corresponding period of the prior year. The decrease in the three months ended December 31, 2008, was primarily related to the decline in bookings from the prior year as a
result of the decline in market demand.

Services revenue decreased by 6% for the six months ended December 31, 2008, as compared to the corresponding
period of the prior year. This decrease is a result of the decline in bookings from the prior year.

Other Key Revenue Metrics

The other key metrics utilized by the Company for purposes of making operating decisions and assessing financial performance include bookings and
backlog. Bookings comprise the aggregate value of all new arrangements executed during a period. We define backlog as the aggregate value of all existing arrangements less revenue recognized to date. For the second quarter of fiscal 2009, bookings
were approximately $39.3 million, down $29.2 million, or 42.6%, from approximately $68.5 million for the second quarter of fiscal 2008. The second quarter fiscal 2009 bookings include a booking for an arrangement with a key customer for $8.0 million
which is in current discussions for amendment and therefore no associated revenue was recognized during the second quarter of fiscal 2009. These bookings resulted in a backlog of approximately $217.0 million as of December 31, 2008, down from
$237.1 million as of December 31, 2007. Bookings related to royalty or usage arrangements are recognized concurrently with the related revenue and therefore do not impact backlog. Revenue resulting from bookings is generally recognized over the
subsequent 12 to 18 months, and is subject to our revenue recognition policies.



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Cost of Revenues

The following table presents cost of revenues as a percentage of related revenue type:



|                        |  |                                |        |               |   |        |                              |     |               |  |   |        |  |   |        |  |     |  
|----------------------- |  | ------------------------------ | ------ | ------------- | - | ------ | ---------------------------- | --- | ------------- |  | - | ------ |  | - | ------ |  | --- | -
|                        |  | Three Months EndedDecember 31, |        | PercentChange |   |        | Six Months EndedDecember 31, |     | PercentChange | 
|                        |  | 2008                           |        | 2007          |   |        | 2008                         |     | 2007          | 
|Cost of revenues:       |  |                                |        |               |   |        |                              |     |               |  |   |        |  |   |        |  |     |  
|License                 |  | $                              | 1,567  |               | $ | 2,256  |                              | -31 | %             |  | $ | 3,833  |  | $ | 4,363  |  | -12 | %
|Maintenance and support |  |                                | 4,518  |               |   | 5,630  |                              | -20 | %             |  |   | 8,776  |  |   | 11,992 |  | -27 | %
|Services                |  |                                | 13,439 |               |   | 15,335 |                              | -12 | %             |  |   | 27,886 |  |   | 31,917 |  | -13 | %
|                        |  |                                |        |               |   |        |                              |     |               |  |   |        |  |   |        |  |     |  
|Total Cost of Revenues  |  | $                              | 19,524 |               | $ | 23,221 |                              | -16 | %             |  | $ | 40,495 |  | $ | 48,272 |  | -16 | %
|                        |  |                                |        |               |   |        |                              |     |               |  |   |        |  |   |        |  |     |  



|                                           |  |                                |   |  |                              |   |  |      |   |  |      |  
|------------------------------------------ |  | ------------------------------ | - |  | ---------------------------- | - |  | ---- | - |  | ---- | -
|                                           |  | Three Months EndedDecember 31, |   |  | Six Months EndedDecember 31, |  
|                                           |  | 2008                           |   |  | 2007                         |   |  | 2008 |   |  | 2007 |  
|Gross margin per related revenue category: |  |                                |   |  |                              |   |  |      |   |  |      |  
|License                                    |  | 89                             | % |  | 78                           | % |  | 86   | % |  | 81   | %
|Maintenance and support                    |  | 72                             | % |  | 68                           | % |  | 73   | % |  | 67   | %
|Services                                   |  | 27                             | % |  | 21                           | % |  | 28   | % |  | 23   | %
|Total Gross Margin                         |  | 59                             | % |  | 51                           | % |  | 59   | % |  | 52   | %

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 31% during the three months ended December 31, 2008, compared with the corresponding period of the prior year. The decrease
is attributable to the mix of products being sold, with a lower percentage of revenue being derived from products which contain third-party software royalty costs during the current year. Additionally, amortization of intangibles related to licenses
decreased by $0.2 million from the corresponding period of the prior year due to certain assets becoming fully amortized. This in turn improved our gross margin on license revenues.

Costs of license revenues decreased by 12% during the six months ended December 31, 2008, compared to the corresponding period of the prior year. The decrease is attributable to the mix of products being sold,
with a lower percentage of revenue being derived from products which contain third-party software royalty costs during the current year. Additionally, amortization of intangibles related to licenses decreased by $0.3 million from the corresponding
period of the prior year due to certain assets becoming fully amortized. This in turn improved our gross margin on license revenues.

Cost of Maintenance and Support Revenues

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

Cost of maintenance and support decreased 20%
during the three months ended December 31, 2008, as compared with the corresponding period of the prior year. The decrease in cost of maintenance and support revenues can be primarily attributed to a decrease in headcount, which resulted in a
decrease in labor costs of $1.0 million.

Cost of maintenance and support decreased 27% during the six months ended December 31, 2008, compared to the
corresponding period of the prior year. The decrease in cost of maintenance and support revenues can be primarily attributed to a decrease in headcount, resulting in a decrease in labor costs.

Maintenance and support gross margins declined during both the three and six months ended December 31, 2008 due to certain fixed costs in maintenance and support
that do not have a corresponding decrease with the decrease in revenues, as discussed above.



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##### Table of Contents

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 decreased by 12% and 13% during the three and six months ended December 31, 2008, respectively, as compared with the corresponding periods of the
prior year. These decreases related to the decrease in services revenue of 6% in each period. Additionally, costs of services included a $0.7 million increase in cost estimates for two customers recorded during the second quarter of fiscal 2008.

Operating Expenses

Operating expenses
increased by 120% and 47%, respectively, during the three and six months ended December 31, 2008, as compared with the corresponding period of the prior year.

The following table represents operating expenses for the three and six months ended December 31, 2008 and 2007, respectively (in thousands):



|                                                          |  |                                |        |   |               |   |        |                              |      |     |               |      |   |         |   |  |   |        |   |  |     |  
|--------------------------------------------------------- |  | ------------------------------ | ------ | - | ------------- | - | ------ | ---------------------------- | ---- | --- | ------------- | ---- | - | ------- | - |  | - | ------ | - |  | --- | -
|                                                          |  | Three Months EndedDecember 31, |        |   | PercentChange |   |        | Six Months EndedDecember 31, |      |     | PercentChange |     
|                                                          |  | 2008                           |        |   | 2007          |   |        |                              | 2008 |     |               | 2007 |   |        
|Operating expenses:                                       |  |                                |        |   |               |   |        |                              |      |     |               |      |   |         |   |  |   |        |   |  |     |  
|Research and development                                  |  | $                              | 12,055 |   |               | $ | 12,459 |                              |      | -3  | %             |      | $ | 24,341  |   |  | $ | 24,773 |   |  | -2  | %
|Sales and marketing                                       |  |                                | 10,032 |   |               |   | 18,123 |                              |      | -45 | %             |      |   | 20,776  |   |  |   | 35,543 |   |  | -42 | %
|General and administrative                                |  |                                | 7,808  |   |               |   | 9,915  |                              |      | -21 | %             |      |   | 18,428  |   |  |   | 23,634 |   |  | -22 | %
|Restructuring and other related costs                     |  |                                | 427    |   |               |   | 328    |                              |      | 30  | %             |      |   | 2,330   |   |  |   | 1,536  |   |  | 52  | %
|Amortization of intangible assets and goodwill impairment |  |                                | 59,543 |   |               |   | 27     |                              |      | N/A |               |      |   | 59,569  |   |  |   | 54     |   |  | N/A |  
|                                                          |  |                                |        |   |               |   |        |                              |      |     |               |      |   |         |   |  |   |        |   |  |     |  
|Total Operating Expenses                                  |  | $                              | 89,865 |   |               | $ | 40,852 |                              |      | 120 | %             |      | $ | 125,444 |   |  | $ | 85,540 |   |  | 47  | %
|                                                          |  |                                |        |   |               |   |        |                              |      |     |               |      |   |         |   |  |   |        |   |  |     |  
|Percent of Revenues:                                      |  |                                |        |   |               |   |        |                              |      |     |               |      |   |         |   |  |   |        |   |  |     |  
|Research and development                                  |  |                                | 25     | % |               |   | 26     | %                            |      |     |               |      |   | 25      | % |  |   | 25     | % |  |     |  
|Sales and marketing                                       |  |                                | 21     | % |               |   | 38     | %                            |      |     |               |      |   | 21      | % |  |   | 35     | % |  |     |  
|General and administrative                                |  |                                | 16     | % |               |   | 21     | %                            |      |     |               |      |   | 19      | % |  |   | 24     | % |  |     |  

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 and six months ended December 31, 2008, research and
development costs decreased 3% and 2% when compared with the corresponding periods in the prior year. This decrease is primarily related to a decline in stock based compensation of $0.4 million and $0.5 million during the three and six months ended
December 31, 2008 over the same periods of the prior fiscal 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.



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During the three and six months ended December 31, 2008, sales and marketing costs decreased by 45% and 42% compared
with the corresponding periods in the prior year. When comparing the three and six months ended December 31, 2008 with the prior years corresponding periods, the decrease is primarily attributable to the decrease in workforce as part of
the FY2008 Restructuring Plan, which collectively resulted in a decrease of $6.2 million and $12.0 million in salary, commissions and associated costs, as well as stock based compensation expense of $0.7 million and $1.4 million.

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 and six months ended December 31, 2008, general and administrative costs decreased 21% and 22% compared with the corresponding periods in the prior year. This decrease from the prior year in both
the three and six months ended December 31, 2008, can be attributed to the reduction in workforce from the FY2008 Restructuring Plan, which resulted in a reduction in labor and related costs of $1.6 million and $4.5 million, and in stock-based
compensation of $0.6 million and $0.9 million.

Restructuring and Other Related Costs

Restructuring and other related costs for the three months ended December 31, 2008, increased by 30% over the same period in the prior year. This can be attributed
to the fact that in the second quarter of fiscal 2008 the Company experienced savings of approximately $0.2 million for the fiscal year 2007 restructuring plan, with no such savings experienced in the current quarter.

Restructuring and other related costs for the six months ended December 31, 2008, increased by 52% over the same period in the prior year. This can be attributed to
an increase in new charges of $0.4 million over the prior year, as well as charges in the first quarter of fiscal 2009 to accelerated depreciation of $0.2 million and facility exit costs of $0.3 million.

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

Amortization of Intangible Assets and Goodwill Impairment

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



|                                                          |  |                                |        |                              |   |       |  |      |        |  |   |      
|--------------------------------------------------------- |  | ------------------------------ | ------ | ---------------------------- | - | ----- |  | ---- | ------ |  | - | -----
|                                                          |  | Three Months EndedDecember 31, |        | Six Months EndedDecember 31,
|                                                          |  | 2008                           |        | 2007                         |   | 2008  |  | 2007
|Amortization of intangible assets:                        |  |                                |        |                              |   |       |  |      |        |  |   |      
|Developed and core technology                             |  | $                              | 1,088  |                              | $ | 1,114 |  | $    | 2,194  |  | $ | 2,248
|Customer contracts - licenses                             |  |                                | 4      |                              |   | 135   |  |      | 10     |  |   | 272  
|Customer contracts - support                              |  |                                | 11     |                              |   | 20    |  |      | 28     |  |   | 38   
|Workforce in place                                        |  |                                | 26     |                              |   | 27    |  |      | 52     |  |   | 54   
|                                                          |  |                                |        |                              |   |       |  |      |        |  |   |      
|Total amortization of intangible assets                   |  |                                | 1,129  |                              |   | 1,296 |  |      | 2,284  |  |   | 2,612
|Impairment of goodwill                                    |  |                                | 59,517 |                              |   |      |  |      | 59,517 |  |   |     
|                                                          |  |                                |        |                              |   |       |  |      |        |  |   |      
|Amortization of intangible assets and goodwill impairment |  | $                              | 60,646 |                              | $ | 1,296 |  | $    | 61,801 |  | $ | 2,612
|                                                          |  |                                |        |                              |   |       |  |      |        |  |   |      

The decrease in amortization in fiscal year 2009 is due to certain assets becoming fully amortized.

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



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

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

As discussed in Critical Accounting Policies and Judgments above, we
recorded a goodwill impairment charge of $59.5 during the second quarter of fiscal 2009.

Interest Income

Interest income was approximately $1.0 million and $2.8 million, respectively, for the three and six months ended December 31, 2008, as compared with $3.0 million
and $6.3 million for the corresponding periods of the prior year. The decrease in interest income in the three and six months ended December 31, 2008 can be attributed to lower interest rates and the utilization of $150.0 million of cash for
repayment of our convertible subordinated notes.

Interest Expense

Interest expense was approximately $1.0 million for the six months ended December 31, 2008, as compared with $2.4 million for the corresponding period of the prior year. The majority of our interest expense
related to our convertible subordinated notes issued in September 2003 and all outstanding principal and interest was paid on September 9, 2008, which accounts for the decrease in interest expense from the prior year.

Other Income (Expense), net

Other income (expense),
net was approximately $(2.4) million and $(9.7) million, respectively, during the three and six months ended December 31, 2008 and $0.7 million and $1.5 million, respectively, during the three and six months ended December 31, 2007. Other
income (expense), net for the three and six months ended December 31, 2008 includes other-than-temporary impairments of $2.5 million and $8.2 million recorded on certain investments during the respective periods. There was no such expense in
the same periods of the prior year. The remaining amounts primarily relate 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 equaled 1.6% and 2.0%, respectively, of loss from continuing operations for the three and six months ended December 31, 2008 compared with 3.5%
and 4.1% in the corresponding periods of the prior fiscal year. The decline is due to lower taxable income in our foreign subsidiaries, due to lower operating costs which in turn reduce taxable profits generated under intercompany cost-plus
arrangements.

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, 2008, we have foreign deferred tax
assets recorded of approximately $4.6 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, 2008, we have approximately $0.4 million of deferred tax liabilities recorded with respect to acquisitions for which the amortization expense of acquired intangibles is not deductible for
tax purposes.



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Discontinued Operations

During the fourth quarter of fiscal 2008, we sold our Client Operations to Purple Labs S.A. (Purple Labs), a private company based in Chambéry, France. The terms of the agreement include initial
consideration of $20.0 million in cash received by the Company on June 27, 2008 and a note receivable of $5.8 million which was paid in July 2008. This note receivable is included in Amounts receivable from sales of discontinued operations
on the condensed consolidated balance sheet as of June 30, 2008. Additionally, $4.2 million was placed in escrow by the purchaser for a period of one year to secure indemnification claims made by the purchaser, if any. The initial consideration also
included warrants to purchase 27,000 shares of Purple Labs common stock. During the first quarter of fiscal 2009, we met the terms of the earnout provision in the sale agreement and received $2.0 million which was recorded as an additional $2.0
million gain on sale of discontinued operation in our condensed consolidated statement of operations. The Company provided transition services to Purple Labs for six months following the sale. The first $2.0 million of costs relating to the
transition services were covered by the initial consideration, and an additional $2.3 million of such costs were reimbursed in the second quarter of fiscal 2009. An additional $0.1 million, approximately, of transition services costs as of
December 31, 2008 are to be reimbursed by Purple Labs. Transition services costs are recorded in Amounts receivable from sales of discontinued operations on the condensed consolidated balance sheet.

In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144), the Client Operations financial results have been classified as a discontinued operation in our condensed consolidated statements of operations for all periods presented.

During the third quarter of fiscal 2006, we acquired Musiwave, S.A. (Musiwave), a leading provider of mobile music entertainment services to operators and media companies primarily in Europe. The Company
committed to a plan to sell its interest in Musiwave in June 2007. In accordance with SFAS 144, Musiwaves financial results were classified as a discontinued operation in our condensed consolidated financial statements for all periods
presented. The net assets associated with Musiwave were classified as held-for-sale from June 30, 2007 until its disposition on December 31, 2007.

On December 31, 2007, the Company sold Musiwave to Microsoft Corporation (Microsoft) for $41.4 million in cash, a note receivable of $5.9 million, and $4.6 million which Microsoft placed in escrow for
a period of one year to secure indemnification claims made by Microsoft, if any. The Company received and recorded the payment on the note receivable in July 2008, which had increased in value to $6.5 million due to the loan being denominated in
Euros, and is included in Amounts receivable from sales of discontinued operations on the condensed consolidated balance sheet as of June 30, 2008. In December 2008, Microsoft made claims against the escrow in excess of $4.6 million and therefore
the funds were not released from escrow. The Company has disputed these escrow claims and is in the early stages of negotiations with Microsoft. A gain on the sale of discontinued operation will be recognized if and when funds are distributed from
escrow.

Operating Lease Obligations and Contractual Obligations

There has been no material change to our contractual obligations during the second quarter of fiscal year 2009. As such, see our Annual Report on Form 10-K for the fiscal year ended June 30, 2008 for a
description of our facility leases and Note 10 in the notes to the condensed consolidated financial statements. We currently have subleased a portion of our unused facilities which will generate sublease income in aggregate of approximately $31.9
million through our fiscal year 2013.

In connection with our acquisition of WiderWeb, in addition to the original consideration paid for the purchase, we
may pay contingent consideration (WiderWeb Earn Out) of up to an additional $4.0 million. The actual amount, if any, will be determined based upon the achievement of revenue-related targets by the WiderWeb product line over various
periods between closing and February 8, 2009. A total of $1.4 million of the WiderWeb Earn Out has been achieved as of December 31, 2008 and was added to goodwill on the condensed consolidated balance sheet at the time the contingency
was resolved. The remaining potential WiderWeb Earn Out pursuant to the merger agreement is $2.6 million as of December 31, 2008.

Off-Balance
Sheet Arrangements

As of December 31, 2008, we have no off-balance sheet arrangements.



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Liquidity and Capital Resources

Working Capital and Cash Flows

The following table presents selected financial information and statistics as
of and for the six months ended December 31, 2008 and June 30, 2008 (in thousands):



|                                |  |                  |         |              |   |               |  |     |  
|------------------------------- |  | ---------------- | ------- | ------------ | - | ------------- |  | --- | -
|                                |  | December 31,2008 |         | June 30,2008 |   | PercentChange | 
|Working capital                 |  | $                | 85,805  |              | $ | 80,926        |  | 6   | %
|Cash and cash investments:      |  |                  |         |              |   |               |  |     |  
|Cash and cash equivalents       |  | $                | 66,153  |              | $ | 196,150       |  | -66 | %
|Short-term investments          |  |                  | 17,238  |              |   | 28,659        |  | -40 | %
|Long-term investments           |  |                  | 17,986  |              |   | 34,782        |  | -48 | %
|Restricted cash and investments |  |                  | 17,637  |              |   | 17,679        |  | 0   | %
|                                |  |                  |         |              |   |               |  |     |  
|Total cash and cash investments |  | $                | 119,014 |              | $ | 277,270       |  | -57 | %
|                                |  |                  |         |              |   |               |  |     |  



|                                                 |  |                              |          |   |      |   |         |  
|------------------------------------------------ |  | ---------------------------- | -------- | - | ---- | - | ------- | -
|                                                 |  | Six Months EndedDecember 31, |         
|                                                 |  | 2008                         |          |   | 2007 |  
|Cash used for operating activities               |  | $                            | (10,437  | ) |      | $ | (28,135 | )
|Cash provided by investing activities            |  | $                            | 30,367   |   |      | $ | 92,479  |  
|Cash provided by (used for) financing activities |  | $                            | (149,927 | ) |      | $ | 6       |  

We have obtained a majority of our cash and investments through public offerings of common stock and convertible
debt, including a common stock offering in December 2005 which raised $277.8 million in net proceeds. In addition, we received approximately $145.7 million from the issuance of our $150.0 million convertible subordinated notes during the fiscal year
ended June 30, 2004. Subsequently, in September 2008 we paid all of the outstanding principal and interest due on the Companys convertible subordinated notes totaling approximately $150.0 million, pursuant to the original terms of the
agreement. In fiscal year 2008, we sold Musiwave and our Client Operations, resulting in $39.4 million of proceeds in fiscal year 2008 and $11.6 million in fiscal year 2009. 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, 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.

The Company recently entered into a $40.0 million revolving credit agreement on January 23, 2009. 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 increased by approximately $4.9 million, or 6%, from June 30, 2008 to
December 31, 2008. Significant cash inflows within working capital include cash provided by accounts receivable in excess of billings of $24.1 million, offset by $23.1 million used to pay down accrued liabilities during fiscal 2009, primarily
accrued legal and accounting fees incurred during the fourth quarter of fiscal 2008, accrued interest paid on the convertible debt, and accrued vacation paid to former employees of the Client Operations.

Cash used for operating activities

Cash used for
operating activities decreased by $17.7 million during the six months ended December 31, 2008, compared with cash used for operating activities in the corresponding period of the prior year. This decline in cash used can primarily be attributed
to improved cash from net loss excluding non-cash items of $5.7 million, as well as an increase in working capital balances within operating assets and liabilities of $12.0 million.



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Cash provided by investing activities

Net cash provided by investing activities during the six months ended December 31, 2008 was $30.4 million, down $62.1 million from $92.5 million provided by
investing activities during the six months ended December 31, 2007. This change was primarily due to the $36.5 million decrease in proceeds from sales of short-term and long-term investments, net of proceeds from maturities of investments
during the same timeframe. Additionally, proceeds from the sale of discontinued operation, net, declined by $27.7 million, as the prior years quarter contained proceeds from the sale of Musiwave of $39.4 million, compared with only $11.6
million of proceeds related to the sale of the Client operation.

Cash flows provided by (used for) financing activities

Net cash used for financing activities during the six months ended December 31, 2008 was $149.9 million, compared with cash provided by financing activities of $6
thousand during the six months ended December 31, 2007. This increase in cash used is due to the payment in September 2008 of the outstanding principal and interest due on the Companys convertible subordinated notes of $150.0 million,
pursuant to the original terms of the agreement.



|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 option contracts as accounting hedges and, accordingly, we adjust these instruments to fair value through earnings in the period of change in their fair value. Net foreign exchange transaction gains (losses)
included in Other expense, net in the accompanying condensed consolidated statements of operations totaled $1.0 million and $(0.8) million, respectively, for the three and six months ended December 31, 2008. As of December 31,
2008, we have the following option contracts (in $000s):



|         |  |                |  |                        |  |                
|-------- |  | -------------- |  | ---------------------- |  | ---------------
|Currency |  | NotionalAmount |  | ForeignCurrencyper USD |  | Date ofMaturity
|AUD      |  | 5,000          |  | 1.61                   |  | 01/28/09       
|AUD      |  | 2,600          |  | 1.50                   |  | 02/28/09       
|CAD      |  | 2,800          |  | 1.25                   |  | 01/28/09       
|EUR      |  | 1,000          |  | 0.72                   |  | 02/28/09       
|EUR      |  | 1,500          |  | 0.80                   |  | 01/28/09       
|JPY      |  | 300,000        |  | 93.00                  |  | 01/28/09       



| | (b) | Interest Rate Risk
| | --- | ------------------

As of December 31, 2008, we had cash and
cash equivalents, short-term and long-term investments, and restricted cash and investments of $119.0 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 & Poors of A or higher, and, by policy, limit the amount of the credit exposure to any
one issuer. Our general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. All highly liquid investments with a maturity of



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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.

The following is a chart of the principal amounts of
short-term investments and long-term investments by expected maturity at December 31, 2008 (in thousands):



|                               |  |                                       |  |        |                                          |            |                                  |  |        |  |   |       
|------------------------------ |  | ------------------------------------- |  | ------ | ---------------------------------------- | ---------- | -------------------------------- |  | ------ |  | - | ------
|                               |  | Expected maturity for the year ending |  |        | AdjustedCost BasisDecember 31,2008 Total |            | Fair ValueDecember 31,2008
Total
|                               |  | 2009                                  |  | 2010   |                                          | Thereafter |                                  |  |       
|Enhanced Cash Money Market     |  | 357                                   |  | 1,779  |                                          |           |                                  |  | 2,136  |  |   | 2,136 
|Certificates of Deposit        |  | 243                                   |  |       |                                          |           |                                  |  | 243    |  |   | 243   
|Corporate Bonds                |  | 7,704                                 |  | 10,167 |                                          | 1,166      |                                  |  | 19,040 |  |   | 18,508
|Auction Rate Securities        |  |                                      |  |       |                                          | 14,802     |                                  |  | 14,802 |  |   | 14,337
|                               |  |                                       |  |        |                                          |            |                                  |  |        |  |   |       
|                               |  | 8,304                                 |  | 11,946 |                                          | 15,968     |                                  |  | 36,221 |  | $ | 35,224
|                               |  |                                       |  |        |                                          |            |                                  |  |        |  |   |       
|Weighted Average Interest Rate |  |                                       |  |        |                                          | 3.2        | %                                |  |        |  |   |       

Additionally, we had $17.6 million of restricted investments that were included within long-term restricted cash
and investments on the condensed consolidated balance sheet as of December 31, 2008. $17.4 million of the restricted investments comprised a certificate of deposit to collateralize letters of credit for facility leases, and $0.2 million
comprised a restricted investment to secure a warranty bond pursuant to a customer contract. The weighted average interest rate on our restricted investments was 1.8% at December 31, 2008. There have been no significant changes in risk exposure
since December 31, 2008.

As of December 31, 2008, $14.3 million in auction rate securities (ARS), recorded in long-term investments
on the condensed consolidated balance sheet, were considered illiquid based upon recent auction results.

Certain ARS with an estimated fair value of $12.6
million were issued by eight different entities and are held by one investment firm on our behalf. Six of these securities are Triple X structured obligations of special purpose reinsurance entities associated with life insurance
companies. The other two securities are interest-bearing corporate debt obligations which, through the course of the issuers business, have some exposure to asset-backed securities. We estimated the fair value of these auction rate securities
based on probabilities of potential scenarios: 1) successful auction/early redemption, 2) failing auctions until maturity or 3) default and the estimated cash flows for each scenario. Other factors were considered, such as the value of the
investments held by the issuer and the financial condition and credit ratings of the issuer, insurers, and parent companies as applicable. We recorded a $6.6 million other-than-temporary loss in the condensed consolidated statements of operations
during the six months ended December 31, 2008 related to these securities. As of December 31, 2008 these instruments were all rated A or AA by Standard and Poors and B3 to A1 by Moodys and $17.0 million par value of these
illiquid investments are insured against defaults of principal and interest by third party insurance companies. These investments are classified in long term investments at December 31, 2008.



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



| | (a) | Evaluation of Disclosure Controls and Procedures
| | --- | ------------------------------------------------

The Companys
management, with the participation of the Companys principal executive officer and principal financial officer 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 Exchange Act) as of the end of the period covered by this report, (the Evaluation Date). Based on such evaluation, the Companys principal executive officer and principal financial officer have concluded
that, as of the Evaluation Date, the Companys disclosure controls and procedures were effective.



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| | (b) | Changes in Internal Control Over Financial Reporting
| | --- | ----------------------------------------------------

There have not been
any changes in the Companys internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the six months ended December 31, 2008 that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II Other Information



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

IPO securities class action

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

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

On March 26, 2008, the District Court issued an order granting in part and denying in part motions to dismiss the amended complaints in the focus cases. In particular, the District Court denied the motions to
dismiss as to the Section 10(b) claims. It also denied the motions to dismiss as to the Section 11 claims except for those claims raised by two different classes of plaintiffs. More specifically, the District Court dismissed the
Section 11 claims raised by (1) those plaintiffs who had no conceivable damages because they sold their securities above the offering price; and (2) those plaintiffs whose claims were time barred because they purchased their
securities outside the previously certified class period. We believe a loss is not probable or reasonably estimable. Therefore no amount has been accrued as of December 31, 2008.

Government Investigations

On May 18, 2006, the Company received an informal notice from the SEC advising
that the SEC had commenced an informal inquiry into the Companys stock option grants and options-granting practices. The SECs letter requested that the Company produce documents related to the Companys stock options-granting
practices. In June 2006, the Company received subpoenas from the United States Attorneys for the Northern District of California and the Southern District of New York also requesting documents relating to the Companys stock options-granting
practices. The Company has cooperated with the SEC and the U.S. Attorneys in these matters and intends to continue to do so. These investigations remain open; however, the Company has not received any recent communications from the SEC or the U.S.
Attorneys regarding these matters.



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Shareholder Derivative Lawsuits

Seven substantially similar shareholder derivative actions were filed in California state and federal courts, purportedly on behalf of the Company, against various of the Companys former and then-current
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.

On September 5, 2006, the California Superior Court for the County of San Mateo consolidated the three actions pending before it into a single action captioned In
re: Openwave Systems Inc. Derivative Litigation (Consolidated Case No. CIV 455265) and appointed a lead plaintiff and lead plaintiffs counsel. On September 29, 2006, the lead plaintiff filed a consolidated amended shareholder derivative
complaint. The action seeks to have the defendants disgorge certain options they received, including the proceeds of the options exercised, treble damages for violations of Sections 25402 and 25403 of the California Corporations Code, punitive
damages as well as certain equitable relief and attorneys fees and costs. On August 21, 2006, the individual defendants, joined by nominal defendant Openwave, filed a motion to stay the state court actions pending resolution of the
federal actions. On December 12, 2006, the state court granted the defendants motion to stay. The court required the parties to attend periodic status conferences until the federal actions are resolved and permitted the plaintiffs in the
state court actions to ask the court to lift the stay if circumstances change. On October 3, 2008, as a result of the judgment of dismissal entered on August 13, 2008 in federal actions, the Company filed a demurrer on the grounds that
they are barred by the federal courts judgment. On January 12, 2009, the court granted the demurrer. The plaintiff has thirty days to appeal the ruling. No amount is accrued as of December 31, 2008 as a loss is not considered
probable or reasonably estimable.

Demand Letter

On March 12, 2008, the Company received a demand letter from an attorney purporting to represent two shareholders of the Company, Henry Sherupski and Manfred Hacker (the Demand Letter). The litigation proposed by the Demand
Letter is substantially similar to that previously brought by the same and other purported shareholders in the above described federal shareholder derivative litigation in which the Court recently entered a judgment of dismissal. The Demand Letter
requests that the Company commence litigation against certain individuals who currently serve or previously served as directors, officers, or employees of the Company, for alleged breach of fiduciary duty, waste, unjust enrichment, gross
mismanagement, violations of California statute and other misconduct in connection with the Companys stock option practices and public reporting of certain financial results during the periods fiscal 1999 through fiscal 2005. In response to
the Demand Letter, as described above, the Board formed a special litigation committee to consider the plaintiffs demand. Following a thorough review, the special litigation determined, inter alia, that it was not in the Companys best
interest to bring or maintain any of the claims proposed in the Demand Letter or any of the claims pending in the consolidated state litigation. As a result of the special litigation committee investigation, a motion to terminate and dismiss
the state derivative litigation was filed on November 13, 2008. The motion was never addressed and is moot in light of the demurrer of the state court action granted on January 12, 2009. No amount is accrued as of December 31,
2008 as a loss is not considered probable or reasonably estimable.

Securities Class Action

Between February 21, and March 27, 2007, four substantially similar securities class action complaints were filed in the United States District Court for the
Southern District of New York against Openwave and four current and former officers of the Company. The complaints purport to be filed on behalf of all persons or entities who purchased Openwave stock from September 30, 2002 through
October 26, 2006 (the Class Period), and allege that during the Class Period, the defendants engaged in improper stock options backdating and issued materially false and misleading statements in the Companys public filings and
press releases regarding the manner in which Openwave granted and accounted for the options.



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On April 25, 2007, the Company and the individual defendants filed a joint motion to transfer the actions to the
Northern District of California where the related shareholder derivative class actions are pending. On May 18, 2007, the court entered an order consolidating the four securities class actions into a single action captioned In re: Openwave
Systems Securities Litigation (Master File 07-1309 (DLC)), and appointing the lead plaintiff and lead plaintiffs counsel. On June 14, 2007, the court entered an order denying the motion to transfer.

On June 29, 2007, the plaintiffs filed a consolidated and amended class action complaint. The consolidated and amended complaint adds 17 additional defendants,
including several current and former Openwave officers and directors, KPMG LLP, and Merrill Lynch, Pierce, Fenner & Smith, Inc., Lehman Brothers Inc., J.P. Morgan Securities, Inc., and Thomas Weisel Partners LLC. The consolidated and
amended complaint alleges claims for violation of Sections 10(b), 20(a) and 20(A) of the Exchange Act and Rule 10b-5, as well as claims for violation of Sections 11, 12(a)(2) and 15 of the Securities Act arising out of the Companys 2005 public
offering. The complaint seeks money damages, equitable relief, and attorneys fees and costs.

On August 10, 2007, the defendants filed motions
to dismiss the consolidated and amended class action complaint. On October 31, 2007, the court entered an order granting in part and denying in part the defendants motions to dismiss. The court granted the motions to
dismiss claims asserted under the Securities Act as to all defendants against whom those claims were asserted, and granted the motion to dismiss the Exchange Act claims by certain of the officer and director defendants, but
denied the motion to dismiss the Exchange Act claims asserted against Openwave and certain of the other director and officer defendants. As a result of the courts decision, KPMG LLP, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Lehman Brothers Inc., J.P. Morgan Securities, Inc., and Thomas Weisel Partners LLC were dismissed as defendants from the litigation. The Company and certain of its former officers and certain former and current directors remained as defendants.

The parties commenced discovery with respect to class certification and the merits. On June 23, 2008, the lead plaintiff filed a motion for class
certification. On July 18, 2008, the Company filed its opposition to the lead plaintiffs motion, and all of the individual defendants joined in that opposition.

On October 24, 2008, while the motion for class certification was pending and discovery was ongoing, the lead plaintiff and defendants reached an agreement to settle the action. On November 5, 2008, the
court entered a preliminary order approving the settlement. Pursuant to the terms of the settlement agreement, on December 5, 2008, the Company contributed $5.0 million and the insurance carriers contributed $15.0 million to the settlement
fund. This $20.0 million estimated liability was recorded in the fiscal quarter ending June 30, 2008, with a corresponding $15.0 million recorded in Insurance receivable for legal settlement on the consolidated balance sheet, and $5.0 million
recorded in Legal settlement costs on the consolidate statement of operations. The final settlement hearing is scheduled for February 27, 2009.

Simmonds v. Credit Suisse Group, et al.

On October 3, 2007, Vanessa Simmonds, a purported stockholder of the Company, filed
suit in the U.S. District Court for the Western District of Washington against Credit Suisse Group, Bank of America Corporation, and JPMorgan Chase & Co., the lead underwriters of the Companys initial public offering in June 1999,
alleging violations of Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b). The complaint seeks to recover from the lead underwriters any short-swing profits obtained by them in violation of
Section 16(b). The suit names the Company as a nominal defendant, contains no claims against the Company, and seeks no relief from the Company. Simmonds filed an Amended Complaint on February 25, 2008 (the Amended Complaint),
naming as defendants Credit Suisse Securities (USA), Robertson Stephens, Inc., J.P. Morgan Securities, Inc., and again naming Bank of America Corporation. The Amended Complaint asserts substantially similar claims as those set forth in the initial
complaint. On July 25, 2008, 29 issuers filed the Issuer Defendants Joint Motion to Dismiss. Underwriter Defendants also filed a Joint Motion to Dismiss on July 25, 2008. Plaintiff filed oppositions to both motions on
September 8, 2008. All replies in support of the motions to dismiss were filed on October 23, 2008. The Company joined the Issuer Defendants Joint Motion to Dismiss on December 1, 2008. Oral argument on all motions to
dismiss was held on January 16, 2009, and judgment on those motions remains pending. The judge has stayed discovery pursuant to the Private Securities Litigation Reform Act (PSLRA) until he rules on all motions to dismiss. No amount is accrued
as of December 31, 2008, as a loss is not considered probable or reasonably estimable.



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



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

In addition to the other information set forth in
this report, you should carefully consider the factors discussed in Part I, Item 1A, Risk Factors in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2008, 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 or may
be deemed immaterial by management but could materially adversely affect the Companys business, financial condition, and/or operating results.

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

Adverse changes in general economic or political
conditions could adversely affect our operating results.

Our business can be affected by a number of factors that are beyond our control such as
general geopolitical and economic conditions, conditions in the financial services markets, the overall demand for our products and services and general political and economic developments. A weakening of the global economy, or economic conditions
in the United States or other key markets, could cause delays in and decreases in demand for our products. For example, there is increasing uncertainty about the direction and relative strength of the United States economy because of the various
challenges that are currently affecting it. If the challenging economic conditions in the United States and other key countries persist or worsen, other customers may delay or reduce spending. This could result in reductions in sales of our products
and services, longer sales cycles, slower adoption of new technologies and increased price competition. Any of these events would likely harm our business, results of operations and financial condition.



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

On
December 4, 2008, we held our 2008 Annual Meeting of Stockholders. At the meeting, the stockholders elected Kenneth D. Denman and Robin A. Abrams to serve as Class I directors of Openwave until the 2011 annual meeting or until their successors
are duly elected and qualified. With respect to Mr. Denman, 59,491,772 shares of common stock were voted in favor of his election and 9,036,553 shares of common stock were withheld. With respect to Ms. Abrams, 63,444,143 shares of common
stock were voted in favor of her election, and 5,084,182 shares were withheld. The terms of Gerald Held, PhD, Patrick Jones, Charles Levine and William Morrow continued after the meeting.

The stockholders approved an amendment to our 2006 Stock Incentive Plan. The votes were cast as follows: 30,722,365 shares of common stock were voted for the amendment;
15,132, 778 shares of common stock were voted against the amendment; 100,531shares of common stock abstained from voting on the amendment; and 22,572,651 shares of common stock were broker non-votes.



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The stockholders ratified the appointment of KPMG LLP as our independent public accountants for the year ending
June 30, 2009. The votes were cast as follows: 67,701,206 shares of common stock were voted for the ratification; 808,420 shares of common stock were voted against the ratification; and 18,695 shares of common stock abstained from voting on the
ratification.



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

None.



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



|              |  |                                                                                                                                                                                                                    
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                        
|              | 
|3.1           |  | Certificate of Incorporation of Openwave Systems Inc. (the Company), as amended (incorporated by reference to Exhibit 3.1 to the Companys quarterly report on Form 10-Q filed
November 13, 2001).               
|              | 
|3.2           |  | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Companys quarterly report on Form 10-Q
filed November 14, 2003).
|              | 
|3.3           |  | Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Companys current report on Form 8-K filed August 2, 2007).                                                            
|              | 
|10.1          |  | Employment Offer Letter (between the Company and Kenneth Denman) dated October 28, 2008 (incorporated by reference to Exhibit 10.1 to the Companys current report on Form 8-K filed November
6, 2008).            
|              | 
|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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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, 2009



OPENWAVE SYSTEMS INC.By:

/s/ Karen J. WillemKaren J. WillemSenior Vice President and Chief Financial Officer(Principal Financial and Accounting OfficerAnd Duly Authorized Officer)




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INDEX TO EXHIBITS



|              |  |                                                                                                                                                                                                                    
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                        
|              | 
|3.3           |  | Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Companys current report on Form 8-K filed August 2, 2007).                                                            
|              | 
|3.1           |  | Certificate of Incorporation of Openwave Systems Inc. (the Company), as amended (incorporated by reference to Exhibit 3.1 to the Companys quarterly report on Form 10-Q filed
November 13, 2001).               
|              | 
|3.2           |  | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Companys quarterly report on Form 10-Q
filed November 14, 2003).
|              | 
|10.1          |  | Employment Offer Letter (between the Company and Kenneth Denman) dated October 28, 2008 (incorporated by reference to Exhibit 10.1 to the Companys current report on Form 8-K filed November
6, 2008).            
|              | 
|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.                                 



45