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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, 2009

or



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

For the transition period from  to

Commission File Number: 001-16073





OPENWAVE SYSTEMS INC.

(Exact name of registrant as specified in its charter)







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

(650) 480-8000

(Registrants telephone number, including area code)





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

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

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



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

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

As of January 31, 2010 there were 83,776,153 shares of the registrants Common Stock outstanding.









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##### Table of Contents

OPENWAVE SYSTEMS INC.

Table of Contents



|                              |  |                                                                                       |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I. FINANCIAL INFORMATION
|                              |  |                                                                                      
|Item 1.                       |  | Financial Statements:                                                                 |  |   
|                              |  | Condensed Consolidated Balance Sheets                                                 |  | 3 
|                              |  | Condensed Consolidated Statements of Operations                                       |  | 4 
|                              |  | Condensed Consolidated Statements of Cash Flows                                       |  | 5 
|                              |  | Notes to Condensed Consolidated Financial Statements                                  |  | 6 
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 25
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 38
|Item 4.                       |  | Controls and Procedures                                                               |  | 40
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                      
|                              |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 42
|Item 1A.                      |  | Risk Factors                                                                          |  | 43
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 55
|Item 3.                       |  | Defaults Upon Senior Securities                                                       |  | 55
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                   |  | 55
|Item 5.                       |  | Other Information                                                                     |  | 55
|Item 6.                       |  | Exhibits                                                                              |  | 56
|                              | 
|SIGNATURES                    |  | 57                                                                                   



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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 31,2009 |            |   | June 30,2009 |  
|ASSETS                                                      |  |                  |            |   |              |   |            |  
|                                                            |  |                 
|Current assets:                                             |  |                  |            |   |              |   |            |  
|Cash and cash equivalents                                   |  | $                | 71,848     |   |              | $ | 91,545     |  
|Short-term investments                                      |  |                  | 33,301     |   |              |   | 17,537     |  
|Accounts receivable, net of allowance for doubtful accounts |  |                  | 30,402     |   |              |   | 31,107     |  
|Prepaid and other current assets                            |  |                  | 22,620     |   |              |   | 26,801     |  
|                                                            |  |                  |            |   |              |   |            |  
|Total current assets                                        |  |                  | 158,171    |   |              |   | 166,990    |  
|Property and equipment, net                                 |  |                  | 8,864      |   |              |   | 11,566     |  
|Long-term investments, and restricted cash and investments  |  |                  | 23,307     |   |              |   | 17,618     |  
|Deposits and other assets                                   |  |                  | 8,090      |   |              |   | 8,313      |  
|Goodwill                                                    |  |                  | 267        |   |              |   |           |  
|Intangible assets, net                                      |  |                  | 3,040      |   |              |   | 3,880      |  
|                                                            |  |                  |            |   |              |   |            |  
|Total assets                                                |  | $                | 201,739    |   |              | $ | 208,367    |  
|                                                            |  |                  |            |   |              |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                        |  |                  |            |   |              |   |            |  
|                                                            |  |                 
|Current liabilities:                                        |  |                  |            |   |              |   |            |  
|Accounts payable                                            |  | $                | 4,223      |   |              | $ | 5,348      |  
|Accrued liabilities                                         |  |                  | 23,562     |   |              |   | 23,079     |  
|Accrued restructuring costs                                 |  |                  | 14,273     |   |              |   | 15,327     |  
|Deferred revenue                                            |  |                  | 36,301     |   |              |   | 38,349     |  
|                                                            |  |                  |            |   |              |   |            |  
|Total current liabilities                                   |  |                  | 78,359     |   |              |   | 82,103     |  
|Accrued restructuring costs, net of current portion         |  |                  | 28,798     |   |              |   | 34,843     |  
|Deferred revenue, net of current portion                    |  |                  | 11,707     |   |              |   | 11,901     |  
|Deferred rent obligations and other                         |  |                  | 4,989      |   |              |   | 6,824      |  
|                                                            |  |                  |            |   |              |   |            |  
|Total liabilities                                           |  |                  | 123,853    |   |              |   | 135,671    |  
|                                                            |  |                  |            |   |              |   |            |  
|Commitments and contingencies                               |  |                  |            |   |              |   |            |  
|                                                            |  |                 
|Stockholders equity:                                       |  |                  |            |   |              |   |            |  
|Common stock                                                |  |                  | 84         |   |              |   | 83         |  
|Additional paid-in capital                                  |  |                  | 3,185,499  |   |              |   | 3,184,263  |  
|Accumulated other comprehensive loss                        |  |                  | (2,681     | ) |              |   | (5,432     | )
|Accumulated deficit                                         |  |                  | (3,105,016 | ) |              |   | (3,106,218 | )
|                                                            |  |                  |            |   |              |   |            |  
|Total stockholders equity                                  |  |                  | 77,886     |   |              |   | 72,696     |  
|                                                            |  |                  |            |   |              |   |            |  
|Total liabilities and stockholders equity                  |  | $                | 201,739    |   |              | $ | 208,367    |  
|                                                            |  |                  |            |   |              |   |            |  

See accompanying notes to condensed consolidated financial statements



3



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OPENWAVE SYSTEMS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---------------------------- | - | ------- | ---- |  | - | ------ | - |  | - | ------- | -
|                                                                                          |  | Three Months EndedDecember 31, |        |   | Six Months EndedDecember 31, |  
|                                                                                          |  | 2009                           |        |   | 2008                         |   |         | 2009 |  |   | 2008   |  
|Revenues:                                                                                 |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|License                                                                                   |  | $                              | 13,283 |   |                              | $ | 13,849  |      |  | $ | 23,708 |   |  | $ | 28,176  |  
|Maintenance and support                                                                   |  |                                | 16,168 |   |                              |   | 15,917  |      |  |   | 31,966 |   |  |   | 32,295  |  
|Services                                                                                  |  |                                | 20,291 |   |                              |   | 18,298  |      |  |   | 43,910 |   |  |   | 38,638  |  
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Total revenues                                                                            |  |                                | 49,742 |   |                              |   | 48,064  |      |  |   | 99,584 |   |  |   | 99,109  |  
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Cost of revenues:                                                                         |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|License                                                                                   |  |                                | 665    |   |                              |   | 1,567   |      |  |   | 1,304  |   |  |   | 3,833   |  
|Maintenance and support                                                                   |  |                                | 4,668  |   |                              |   | 4,518   |      |  |   | 8,995  |   |  |   | 8,776   |  
|Services                                                                                  |  |                                | 15,075 |   |                              |   | 13,439  |      |  |   | 32,848 |   |  |   | 27,886  |  
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Total cost of revenues                                                                    |  |                                | 20,408 |   |                              |   | 19,524  |      |  |   | 43,147 |   |  |   | 40,495  |  
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Gross profit                                                                              |  |                                | 29,334 |   |                              |   | 28,540  |      |  |   | 56,437 |   |  |   | 58,614  |  
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Operating expenses:                                                                       |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Research and development                                                                  |  |                                | 9,667  |   |                              |   | 12,055  |      |  |   | 19,531 |   |  |   | 24,341  |  
|Sales and marketing                                                                       |  |                                | 11,052 |   |                              |   | 10,032  |      |  |   | 21,763 |   |  |   | 20,776  |  
|General and administrative                                                                |  |                                | 6,710  |   |                              |   | 7,808   |      |  |   | 14,635 |   |  |   | 18,428  |  
|Restructuring and other related costs                                                     |  |                                | 1,353  |   |                              |   | 427     |      |  |   | 1,775  |   |  |   | 2,330   |  
|Goodwill impairment and amortization of intangible assets                                 |  |                                |       |   |                              |   | 59,543  |      |  |   |       |   |  |   | 59,569  |  
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Total operating expenses                                                                  |  |                                | 28,782 |   |                              |   | 89,865  |      |  |   | 57,704 |   |  |   | 125,444 |  
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Operating income (loss) from continuing operations                                        |  |                                | 552    |   |                              |   | (61,325 | )    |  |   | (1,267 | ) |  |   | (66,830 | )
|Interest income                                                                           |  |                                | 214    |   |                              |   | 976     |      |  |   | 482    |   |  |   | 2,799   |  
|Interest expense                                                                          |  |                                | (73    | ) |                              |   |        |      |  |   | (175   | ) |  |   | (995    | )
|Other expense, net                                                                        |  |                                | (361   | ) |                              |   | (2,412  | )    |  |   | (1,736 | ) |  |   | (9,736  | )
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Income (loss) from continuing operations before provision for income taxes                |  |                                | 332    |   |                              |   | (62,761 | )    |  |   | (2,696 | ) |  |   | (74,762 | )
|Income tax expense                                                                        |  |                                | 119    |   |                              |   | 1,029   |      |  |   | 617    |   |  |   | 1,532   |  
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Net income (loss) from continuing operations                                              |  |                                | 213    |   |                              |   | (63,790 | )    |  |   | (3,313 | ) |  |   | (76,294 | )
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Discontinued operations:                                                                  |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Net loss from discontinued operations, net of tax                                         |  | $                              |       |   |                              | $ | (371    | )    |  | $ |       |   |  | $ | (371    | )
|Gain on sale of discontinued operation, net of tax                                        |  |                                |       |   |                              |   |        |      |  |   | 4,516  |   |  |   | 2,000   |  
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Net income (loss)                                                                         |  | $                              | 213    |   |                              | $ | (64,161 | )    |  | $ | 1,203  |   |  | $ | (74,665 | )
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Basic net income (loss) per share from:                                                   |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Continuing operations                                                                     |  | $                              | 0.00   |   |                              | $ | (0.77   | )    |  | $ | (0.04  | ) |  | $ | (0.92   | )
|Discontinued operations                                                                   |  | $                              |       |   |                              |   |        |      |  |   | 0.05   |   |  |   | 0.02    |  
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Net income (loss)                                                                         |  | $                              | 0.00   |   |                              | $ | (0.77   | )    |  | $ | 0.01   |   |  | $ | (0.90   | )
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Diluted net income (loss) per share from:                                                 |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Continuing operations                                                                     |  | $                              | 0.00   |   |                              | $ | (0.77   | )    |  | $ | (0.04  | ) |  | $ | (0.92   | )
|Discontinued operations                                                                   |  |                                |       |   |                              | $ |        |      |  | $ | 0.05   |   |  | $ | 0.02    |  
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Net income (loss)                                                                         |  | $                              | 0.00   |   |                              | $ | (0.77   | )    |  | $ | 0.01   |   |  | $ | (0.90   | )
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Shares used in computing basic net income (loss) per share                                |  |                                | 83,408 |   |                              |   | 82,855  |      |  |   | 83,352 |   |  |   | 82,814  |  
|Shares used in computing diluted net income (loss) per share                              |  |                                | 84,910 |   |                              |   | 82,855  |      |  |   | 83,352 |   |  |   | 82,814  |  
|Supplemental disclosures:                                                                 |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Total other-than-temporary impairments                                                    |  | $                              | (202   | ) |                              | $ | (2,536  | )    |  | $ | (2,026 | ) |  | $ | (8,168  | )
|Portion of other-than-temporary impairments included in other comprehensive income (loss) |  |                                |       |   |                              |   |        |      |  |   | 360    |   |  |   |        |  
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Net other-than-temporary impairments                                                      |  |                                | (202   | ) |                              |   | (2,536  | )    |  |   | (1,666 | ) |  |   | (8,168  | )
|Other investment losses                                                                   |  |                                | (449   | ) |                              |   |        |      |  |   | (370   | ) |  |   |        |  
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  
|Total net investment gains (losses) in Other expense, net                                 |  | $                              | (651   | ) |                              | $ | (2,536  | )    |  | $ | (2,036 | ) |  | $ | (8,168  | )
|                                                                                          |  |                                |        |   |                              |   |         |      |  |   |        |   |  |   |         |  

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 Ended |        
|                                                                                               |  | December 31,     |        
|                                                                                               |  | 2009             |         |   | 2008 |  
|Cash flows from operating activities:                                                          |  |                  |         |   |      |   |          |  
|Net income (loss)                                                                              |  | $                | 1,203   |   |      | $ | (74,665  | )
|Gain on sale of discontinued operation                                                         |  |                  | (4,516  | ) |      |   | (2,000   | )
|Adjustments to reconcile net loss to net cash used for operating activities:                   |  |                  |         |   |      |   |          |  
|Depreciation and amortization of intangibles                                                   |  |                  | 3,824   |   |      |   | 5,650    |  
|Stock-based compensation                                                                       |  |                  | 985     |   |      |   | 1,900    |  
|Noncash restructuring charges                                                                  |  |                  | 760     |   |      |   | 876      |  
|Accelerated depreciation on restructured property and equipment                                |  |                  | 181     |   |      |   | 235      |  
|Provision for doubtful accounts                                                                |  |                  | (319    | ) |      |   | (165     | )
|Amortization of discount on convertible debt and debt issuance costs                           |  |                  |        |   |      |   | 158      |  
|(Gain)/loss on disposal of property and equipment                                              |  |                  | 989     |   |      |   | (60      | )
|Amortization/(accretion) of premiums/discounts on investments                                  |  |                  | 224     |   |      |   | 210      |  
|Deferred tax liability, net                                                                    |  |                  |        |   |      |   | (98      | )
|Realized losses and impairment of non-marketable securities                                    |  |                  | 2,036   |   |      |   | 8,168    |  
|Payment of legal settlement                                                                    |  |                  |        |   |      |   | (9,360   | )
|Insurance reimbursement of legal settlement                                                    |  |                  |        |   |      |   | 4,360    |  
|Impairment of goodwill                                                                         |  |                  |        |   |      |   | 59,517   |  
|Changes in operating assets and liabilities, net of effect of acquired assets and liabilities: |  |                  |         |   |      |   |          |  
|Accounts receivable                                                                            |  |                  | 1,024   |   |      |   | 24,097   |  
|Prepaid assets, deposits, and other assets                                                     |  |                  | 4,404   |   |      |   | 4,579    |  
|Accounts payable                                                                               |  |                  | (1,656  | ) |      |   | (800     | )
|Accrued liabilities                                                                            |  |                  | (1,561  | ) |      |   | (23,087  | )
|Accrued restructuring costs                                                                    |  |                  | (7,859  | ) |      |   | (6,658   | )
|Deferred revenue                                                                               |  |                  | (2,242  | ) |      |   | (3,294   | )
|                                                                                               |  |                  |         |   |      |   |          |  
|Net cash used for operating activities                                                         |  |                  | (2,523  | ) |      |   | (10,437  | )
|                                                                                               |  |                  |         |   |      |   |          |  
|Cash flows from investing activities:                                                          |  |                  |         |   |      |   |          |  
|Purchases of property and equipment                                                            |  |                  | (921    | ) |      |   | (500     | )
|Proceeds from sale of discontinued operation, net                                              |  |                  | 4,516   |   |      |   | 11,634   |  
|Purchases of short-term investments                                                            |  |                  | (23,938 | ) |      |   |         |  
|Proceeds from sales and maturities of short-term investments                                   |  |                  | 10,348  |   |      |   | 19,129   |  
|Purchases of long-term investments                                                             |  |                  | (10,379 | ) |      |   |         |  
|Proceeds from sales and maturities of long-term investments                                    |  |                  | 2,541   |   |      |   | 104      |  
|Restricted cash and investments                                                                |  |                  | 409     |   |      |   |         |  
|                                                                                               |  |                  |         |   |      |   |          |  
|Net cash provided by investing activities                                                      |  |                  | (17,424 | ) |      |   | 30,367   |  
|                                                                                               |  |                  |         |   |      |   |          |  
|Cash flows from financing activities:                                                          |  |                  |         |   |      |   |          |  
|Proceeds from issuance of common stock, net                                                    |  |                  | 129     |   |      |   |         |  
|Employee stock purchase plan                                                                   |  |                  | 121     |   |      |   | 73       |  
|Payment on notes payable                                                                       |  |                  |        |   |      |   | (150,000 | )
|                                                                                               |  |                  |         |   |      |   |          |  
|Net cash provided by (used for) financing activities                                           |  |                  | 250     |   |      |   | (149,927 | )
|                                                                                               |  |                  |         |   |      |   |          |  
|Net decrease in cash and cash equivalents                                                      |  |                  | (19,697 | ) |      |   | (129,997 | )
|Cash and cash equivalents at beginning of period                                               |  |                  | 91,545  |   |      |   | 196,150  |  
|                                                                                               |  |                  |         |   |      |   |          |  
|Cash and cash equivalents at end of period                                                     |  | $                | 71,848  |   |      | $ | 66,153   |  
|                                                                                               |  |                  |         |   |      |   |          |  

See accompanying notes to condensed consolidated financial statements



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OPENWAVE SYSTEMS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

(1) Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not contain all of
the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management of Openwave Systems Inc. (the Company or
Openwave), the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Companys financial position as
of December 31, 2009 and June 30, 2009, and the results of operations for the three and six months ended December 31, 2009 and 2008 and cash flows for the six months ended December 31, 2009 and 2008. The following information
should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2009. The Company has evaluated
subsequent events through February 5, 2010, the date which these condensed consolidated financial statements were available to be issued.

Use of Estimates and Business Risks

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

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

Revenue Recognition

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

Stock Based Compensation

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



|                                                                                           |  |                                |     |                              |      |   |      |  |      |     |  |   |      
|------------------------------------------------------------------------------------------ |  | ------------------------------ | --- | ---------------------------- | ---- | - | ---- |  | ---- | --- |  | - | -----
|                                                                                           |  | Three Months EndedDecember 31, |     | Six Months EndedDecember 31,
|                                                                                           |  | 2009                           |     |                              | 2008 |   | 2009 |  | 2008
|Stock-based compensation related to:                                                       |  |                                |     |                              |      |   |      |  |      |     |  |   |      
|Grants of nonvested stock                                                                  |  | $                              | (14 | )                            |      | $ | 369  |  | $    | 38  |  | $ | 500  
|Stock options granted to employees and directors                                           |  |                                | 415 |                              |      |   | 492  |  |      | 844 |  |   | 1,227
|Employee stock purchase plan                                                               |  |                                | 37  |                              |      |   | 68   |  |      | 103 |  |   | 173  
|                                                                                           |  |                                |     |                              |      |   |      |  |      |     |  |   |      
|Stock-based compensation recognized in the condensed consolidated statements of operations |  | $                              | 438 |                              |      | $ | 929  |  | $    | 985 |  | $ | 1,900
|                                                                                           |  |                                |     |                              |      |   |      |  |      |     |  |   |      



6



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##### Table of Contents

OPENWAVE SYSTEMS INC.

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



During the three and six months ended December 31, 2009 and 2008, the tax benefits related to stock
option expense were immaterial.

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

(a) Assumptions and Activity

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



|                         |  |                                |  |                              |  |               |  |              
|------------------------ |  | ------------------------------ |  | ---------------------------- |  | ------------- |  | -------------
|                         |  | Three Months EndedDecember 31, |  | Six Months EndedDecember 31,
|                         |  | 2009                           |  | 2008                         |  | 2009          |  | 2008         
|Expected volatility      |  | 65.8% - 76.4%                  |  | 65.0% - 70.8%                |  | 65.8% - 76.4% |  | 65.0% - 70.8%
|Expected dividends       |  |                               |  |                             |  | 0%            |  | 0%           
|Expected term (in years) |  | 3.66 - 6.01                    |  | 2.73 - 5.98                  |  | 3.52 - 6.01   |  | 2.73 - 5.98  
|Risk-free rate           |  | 1.6% - 2.6%                    |  | 1.5% - 2.2%                  |  | 1.6% - 2.6%   |  | 1.5% - 2.6%  

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

(b) Employee Stock Purchase Plan

Under the Openwave Systems Inc. 1999 Employee Stock Purchase Plan (ESPP), eligible employees may purchase common stock through payroll deductions at a price equal to 85% of the lower of the
fair market value of the Companys common stock as of the beginning and the end of the six month offering periods. The amount of stock-based compensation expense recognized relating to the ESPP during the six months ended December 31, 2009
and 2008 was $0.1 million and $0.2 million, respectively.

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



|                         |  |                                                |   |  |       |  
|------------------------ |  | ---------------------------------------------- | - |  | ----- | -
|                         |  | For the Three and Six Months EndedDecember 31, |  
|                         |  | 2009                                           |   |  | 2008  |  
|Expected volatility      |  | 62.5                                           | % |  | 106.5 | %
|Expected dividends       |  |                                               |   |  |      |  
|Expected term (in years) |  | 0.5                                            |   |  | 0.5   |  
|Risk-free rate           |  | 0.2                                            | % |  | 0.7   | %



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##### Table of Contents

OPENWAVE SYSTEMS INC.

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



A summary of option activity from July 1, 2009 to December 31, 2009 is presented below (in
thousands except per share and year amounts):



|                                                 |  |        |   |  |                              |      |                                                 |      |                         |   |      
|------------------------------------------------ |  | ------ | - |  | ---------------------------- | ---- | ----------------------------------------------- | ---- | ----------------------- | - | -----
|Options                                          |  | Shares |   |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualTerm (years) |      | AggregateIntrinsicValue
|Outstanding at July 1, 2009                      |  | 8,414  |   |  | $                            | 3.91 |                                                 | 8.13 |                         | $ | 4,824
|Options granted                                  |  | 1,034  |   |  |                              | 2.48 |                                                 |      |                         |   |      
|Exercised                                        |  | (86    | ) |  |                              | 1.49 |                                                 |      |                         |   |      
|Forfeited, canceled or expired                   |  | (358   | ) |  |                              | 9.09 |                                                 |      |                         |   |      
|                                                 |  |        |   |  |                              |      |                                                 |      |                         |   |      
|Outstanding at December 31, 2009                 |  | 9,004  |   |  | $                            | 3.57 |                                                 | 8.06 |                         | $ | 4,938
|                                                 |  |        |   |  |                              |      |                                                 |      |                         |   |      
|Vested and expected to vest at December 31, 2009 |  | 7,493  |   |  | $                            | 3.92 |                                                 | 7.84 |                         | $ | 3,976
|                                                 |  |        |   |  |                              |      |                                                 |      |                         |   |      
|Exercisable at December 31, 2009                 |  | 3,702  |   |  | $                            | 6.09 |                                                 | 6.60 |                         | $ | 1,481
|                                                 |  |        |   |  |                              |      |                                                 |      |                         |   |      

The weighted average grant date fair values of options granted during the six months ended
December 31, 2009 and 2008 were $1.37 and $0.48, respectively. The total intrinsic value of options exercised during the six months ended December 31, 2009 was $0.1 million. There were no options exercised in the six months ended
December 31, 2008. Upon the exercise of options, the Company issues new common stock from its authorized shares.

A summary of the
activity of the Companys nonvested share awards from July 1, 2009 to December 31, 2009 is presented below (in thousands except per share amounts):



|                               |  |        |   |  |                                              |     
|------------------------------ |  | ------ | - |  | -------------------------------------------- | ----
|Nonvested Shares               |  | Shares |   |  | WeightedAverageGrant DateFair ValuePer Share
|Nonvested at July 1, 2009      |  | 196    |   |  | $                                            | 2.04
|Nonvested shares granted       |  | 108    |   |  |                                              | 2.29
|Vested                         |  | (42    | ) |  |                                              | 1.76
|Forfeited                      |  |       |   |  |                                              |    
|                               |  |        |   |  |                                              |     
|Nonvested at December 31, 2009 |  | 262    |   |  | $                                            | 2.19
|                               |  |        |   |  |                                              |     

The total fair value of shares vested during the six months ended December 31, 2009 and 2008 was
$0.1 million and $0.2 million, respectively.

As of December 31, 2009, there was $4.1 million of total unrecognized compensation cost
related to all unvested share awards. That cost is expected to be recognized as the awards vest over the next four years.



8



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##### Table of Contents

OPENWAVE SYSTEMS INC.

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



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



|                                      |  |                                |     |                              |   |      |  |      |     |  |   |      
|------------------------------------- |  | ------------------------------ | --- | ---------------------------- | - | ---- |  | ---- | --- |  | - | -----
|                                      |  | Three Months EndedDecember 31, |     | Six Months EndedDecember 31,
|                                      |  | 2009                           |     | 2008                         |   | 2009 |  | 2008
|Stock-based compensation by category: |  |                                |     |                              |   |      |  |      |     |  |   |      
|Maintenance and support services      |  | $                              | 32  |                              | $ | 35   |  | $    | 70  |  | $ | 107  
|Services                              |  |                                | 36  |                              |   | 179  |  |      | 112 |  |   | 345  
|Research and development              |  |                                | 42  |                              |   | 377  |  |      | 140 |  |   | 627  
|Sales and marketing                   |  |                                | 127 |                              |   | 166  |  |      | 273 |  |   | 298  
|General and administrative            |  |                                | 201 |                              |   | 172  |  |      | 390 |  |   | 523  
|                                      |  |                                |     |                              |   |      |  |      |     |  |   |      
|                                      |  | $                              | 438 |                              | $ | 929  |  | $    | 985 |  | $ | 1,900
|                                      |  |                                |     |                              |   |      |  |      |     |  |   |      

Significant Accounting Policies

There have been no material changes to the Companys significant accounting policies as compared to the significant accounting policies described in the
Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2009, except for the adoption during fiscal 2010 of authoritative guidance issued by the FASB related to the factors to consider in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset, the disclosure of the fair value of financial instruments on an interim basis, the new guidelines and numbering system prescribed by the FASB Codification and the
clarification of prescribed techniques to measure the fair value of liabilities. The Companys adoption of this guidance did not have a material impact on its condensed consolidated financial position, results of operations or cash flows.

Recently Issued Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements (Update 2009-13). Update 2009-13
addresses the accounting for multiple-deliverable arrangements to enable vendors to account for non-software products or services (deliverables) separately based on the value allocated to each element using vendor specific objective evidence, third
party evidence, or estimated selling prices determined by management. This standard is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is
currently evaluating the impact of the pending adoption of ASU 2009-13 on its condensed consolidated financial statements.

In October 2009,
the FASB issued Accounting Standards Update 2009-14, Software (Topic 985), Certain Revenue Arrangements that Include Software Elements (Update 2009-14). Update 2009-14 addresses concerns raised by constituents relating to the
accounting for revenue arrangements that contain tangible products and software. This standard is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The
Company is currently evaluating the impact of the pending adoption of ASU 2009-14 on its condensed consolidated financial statements.

In
January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value Measurements (Update 2010-06). Update 2010-06 requires new and
revised disclosures for recurring or non-recurring fair value measurements, specifically related to significant transfers into and out of Levels 1 and 2, and for purchases, sales, issuances, and settlements in the rollforward of activity for Level 3
fair value measurements. Update 2010-06 also clarifies existing disclosures related to the level of disaggregation and the inputs and valuation techniques used for fair value measurements. The new disclosures and



9



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##### Table of Contents

OPENWAVE SYSTEMS INC.

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



clarifications of existing disclosures about fair value measurements are effective for interim and
annual reporting periods beginning after December 15, 2009. However, the disclosures about purchases, sales, issuances, and settlements in the rollforward of activity for Level 3 fair value measurements are effective for financial statements
for annual reporting periods beginning after December 15, 2010. The adoption of Update 2010-06 is not expected to have a material impact on the Companys condensed consolidated financial position, results of operations or cash flows.

(2) Net Income (Loss) Per Share

Basic net income (loss) per common share has been computed using the weighted average number of shares of common stock outstanding during the period, less shares subject to repurchase. The following table reconciles the number of shares
used in the basic and diluted net income (loss) per share computations for the periods presented (in thousands):



|                                                                                   |  |                                |  |                              |  |        |  |       
|---------------------------------------------------------------------------------- |  | ------------------------------ |  | ---------------------------- |  | ------ |  | ------
|                                                                                   |  | Three Months EndedDecember 31, |  | Six Months EndedDecember 31,
|                                                                                   |  | 2009                           |  | 2008                         |  | 2009   |  | 2008  
|Weighted average shares used in computing basic net income (loss) per common share |  | 83,408                         |  | 82,855                       |  | 83,352 |  | 82,814
|Dilutive effect of restricted stock subject to repurchase                          |  | 198                            |  |                             |  |       |  |      
|Dilutive effect of employee stock options                                          |  | 1,304                          |  |                             |  |       |  |      
|                                                                                   |  |                                |  |                              |  |        |  |       
|Weighted average shares used in computing diluted net income (loss) per share      |  | 84,910                         |  | 82,855                       |  | 83,352 |  | 82,814
|                                                                                   |  |                                |  |                              |  |        |  |       

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,
|                                                                                                                                                                                                     |  | 2009                           |  | 2008                         |  | 2009  |  | 2008 
|Weighted average effect of potential common stock:                                                                                                                                                   |  |                                |  |                              |  |       |  |      
|Unvested common stock subject to repurchase                                                                                                                                                          |  |                               |  | 318                          |  | 195   |  | 330  
|Options that would have been included in the computation of dilutive shares outstanding had the Company reported net income,
prior to applying the treasury method                                   |  |                               |  |                             |  | 5,196 |  | 152  
|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 |  | 3,696                          |  | 6,337                        |  | 3,572 |  | 5,638
|Shares resulting from an as-if conversion of the convertible debt                                                                                                                                  |  |                               |  |                             |  |      |  | 7,268

(3) Discontinued Operations

a) Client Operations

During fiscal 2008, the Company sold its Client operations to Purple Labs, a private company based in Chambéry, France. The terms of the agreement include initial consideration of $20.0 million in cash received by the Company in June
2008, and a note receivable of $5.8 million that was paid in July 2008. Additionally, $4.2 million was placed in escrow by Purple Labs until September 30, 2009 to secure indemnification claims made by Purple Labs, if any. The initial
consideration also included warrants to purchase 27,000 shares of Purple Labs common stock. The Company elected not to exercise these warrants and they are no longer outstanding. During the first quarter of fiscal 2009, the Company met the terms of
the earnout provision in the sale agreement, and received $2.0 million, which was recorded as an additional $2.0 million gain on sale of discontinued operation in its condensed consolidated statement of operations. The Company provided transition
services to Purple Labs for six months following the sale. The first $2.0 million of costs relating to the transition services were covered by the initial consideration, and an additional $2.3 million of such costs were reimbursed in the second
quarter of fiscal 2009. The



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##### Table of Contents

OPENWAVE SYSTEMS INC.

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



costs and offsetting related reimbursements of the transition services were recorded in operating
expenses. An immaterial margin on these services was realized. The net impact of the transition services and related reimbursement was immaterial to all categories in the condensed consolidated statement of operations.

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

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

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



|                                         |  |                                |   |                              |   |      |  |      |   |  |   |      
|---------------------------------------- |  | ------------------------------ | - | ---------------------------- | - | ---- |  | ---- | - |  | - | -----
|                                         |  | Three Months EndedDecember 31, |   | Six Months EndedDecember 31,
|                                         |  | 2009                           |   | 2008                         |   | 2009 |  | 2008
|Gain on sale of discontinued operation   |  |                                |  |                              |   |     |  |      |  |  |   | 2,000
|                                         |  |                                |   |                              |   |      |  |      |   |  |   |      
|Total income from discontinued operation |  | $                              |  |                              | $ |     |  | $    |  |  | $ | 2,000
|                                         |  |                                |   |                              |   |      |  |      |   |  |   |      

As of December 31, 2009, there were no operational assets or liabilities attributable to Client
operations due to the sale of the discontinued operation in June 2008.

b) Musiwave

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

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



|                                         |  |                                |   |                              |   |      |  |      |       |  |   |  
|---------------------------------------- |  | ------------------------------ | - | ---------------------------- | - | ---- |  | ---- | ----- |  | - | -
|                                         |  | Three Months EndedDecember 31, |   | Six Months EndedDecember 31,
|                                         |  | 2009                           |   | 2008                         |   | 2009 |  | 2008
|Gain on sale of discontinued operation   |  |                                |  |                              |   |     |  |      | 4,516 |  |   | 
|                                         |  |                                |   |                              |   |      |  |      |       |  |   |  
|Total income from discontinued operation |  | $                              |  |                              | $ |     |  | $    | 4,516 |  | $ | 
|                                         |  |                                |   |                              |   |      |  |      |       |  |   |  

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

(4) Geographic, Segment and Significant Customer Information

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



11



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##### Table of Contents

OPENWAVE SYSTEMS INC.

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



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,
|                                      |  | 2009                           |        | 2008                         |   | 2009   |  | 2008
|United States                         |  | $                              | 26,197 |                              | $ | 22,980 |  | $    | 54,116 |  | $ | 48,437
|Americas, excluding the United States |  |                                | 4,430  |                              |   | 5,449  |  |      | 8,835  |  |   | 12,129
|Europe, Middle East, and Africa       |  |                                | 6,453  |                              |   | 8,285  |  |      | 13,420 |  |   | 14,872
|Japan                                 |  |                                | 10,467 |                              |   | 6,722  |  |      | 18,265 |  |   | 13,313
|Asia Pacific, excluding Japan         |  |                                | 2,195  |                              |   | 4,628  |  |      | 4,948  |  |   | 10,358
|                                      |  |                                |        |                              |   |        |  |      |        |  |   |       
|Total revenues                        |  | $                              | 49,742 |                              | $ | 48,064 |  | $    | 99,584 |  | $ | 99,109
|                                      |  |                                |        |                              |   |        |  |      |        |  |   |       

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

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



|              |  |                                                  |   |  |                                                |   |  |      |   |  |      |  
|------------- |  | ------------------------------------------------ | - |  | ---------------------------------------------- | - |  | ---- | - |  | ---- | -
|              |  | % of Total RevenueThree Months EndedDecember 31, |   |  | % of Total RevenueSix Months EndedDecember 31, |  
|              |  | 2009                                             |   |  | 2008                                           |   |  | 2009 |   |  | 2008 |  
|Customer:     |  |                                                  |   |  |                                                |   |  |      |   |  |      |  
|Sprint Nextel |  | 37                                               | % |  | 26                                             | % |  | 38   | % |  | 26   | %
|AT&T          |  | 7                                                | % |  | 14                                             | % |  | 8    | % |  | 14   | %

As noted in the tables above, the Company has derived approximately half of its revenues from sales
to U.S.-based customers during the six months ended December 31, 2009 and 2008, which itself primarily consists of sales to Sprint Nextel and AT&T. Although the Company intends to broaden its markets, there can be no assurance that this
objective will be achieved.

(5) Balance Sheet Components

(a) Accounts Receivable, net

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



|                                |  |                  |        |   |              |   |        |  
|------------------------------- |  | ---------------- | ------ | - | ------------ | - | ------ | -
|                                |  | December 31,2009 |        |   | June 30,2009 |  
|Accounts receivable             |  | $                | 25,259 |   |              | $ | 19,847 |  
|Unbilled accounts receivable    |  |                  | 6,260  |   |              |   | 12,592 |  
|Allowance for doubtful accounts |  |                  | (1,117 | ) |              |   | (1,332 | )
|                                |  |                  |        |   |              |   |        |  
|                                |  | $                | 30,402 |   |              | $ | 31,107 |  
|                                |  |                  |        |   |              |   |        |  



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##### Table of Contents

OPENWAVE SYSTEMS INC.

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



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



|              |  |                               |   |  |          |  
|------------- |  | ----------------------------- | - |  | -------- | -
|              |  | % of Total AccountsReceivable |  
|              |  | December 31,                  |   |  | June 30, |  
|              |  | 2009                          |   |  | 2009     |  
|Customer:     |  |                               |   |  |          |  
|Sprint Nextel |  | 17                            | % |  | 12       | %
|Time Warner   |  | 17                            | % |  |         |  
|Itochu        |  | 9                             | % |  | 12       | %
|Telstra       |  | 7                             | % |  | 10       | %

(b) Goodwill and Intangible Assets, net

The following table presents activity recorded to goodwill and intangible assets from June 30, 2009 to December 31, 2009 (in thousands):



|                              |  |                            |       |               |   |              |  |   |                                |   |  |   |      
|----------------------------- |  | -------------------------- | ----- | ------------- | - | ------------ |  | - | ------------------------------ | - |  | - | -----
|                              |  | Balance as ofJune 30, 2009 |       | Additions (a) |   | Amortization |  |   | Balance as ofDecember 31, 2009
|Goodwill                      |  | $                          |      |               | $ | 267          |  | $ |                               |   |  | $ | 267  
|Intangible assets:            |  |                            |       |               |   |              |  |   |                                |   |  |   |      
|Developed and core technology |  |                            | 3,823 |               |   |             |  |   | (820                           | ) |  |   | 3,003
|Customer contracts - support  |  |                            | 57    |               |   |             |  |   | (20                            | ) |  |   | 37   
|                              |  |                            |       |               |   |              |  |   |                                |   |  |   |      
|                              |  | $                          | 3,880 |               | $ | 267          |  | $ | (840                           | ) |  | $ | 3,307
|                              |  |                            |       |               |   |              |  |   |                                |   |  |   |      



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

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



|                                                          |  |                                |     |                              |   |        |  |      |     |  |   |       
|--------------------------------------------------------- |  | ------------------------------ | --- | ---------------------------- | - | ------ |  | ---- | --- |  | - | ------
|                                                          |  | Three Months EndedDecember 31, |     | Six Months EndedDecember 31,
|                                                          |  | 2009                           |     | 2008                         |   | 2009   |  | 2008
|Amortization of intangible assets:                        |  |                                |     |                              |   |        |  |      |     |  |   |       
|Developed and core technology                             |  | $                              | 410 |                              | $ | 1,088  |  | $    | 820 |  | $ | 2,194 
|Customer contracts - licenses                             |  |                                |    |                              |   | 4      |  |      |    |  |   | 10    
|Customer contracts - support                              |  |                                | 10  |                              |   | 11     |  |      | 20  |  |   | 28    
|Workforce in place                                        |  |                                |    |                              |   | 26     |  |      |    |  |   | 52    
|                                                          |  |                                |     |                              |   |        |  |      |     |  |   |       
|Total amortization of intangible assets                   |  |                                | 420 |                              |   | 1,129  |  |      | 840 |  |   | 2,284 
|Impairment of goodwill                                    |  |                                |    |                              |   | 59,517 |  |      |    |  |   | 59,517
|                                                          |  |                                |     |                              |   |        |  |      |     |  |   |       
|Goodwill impairment and amortization of intangible assets |  | $                              | 420 |                              | $ | 60,646 |  | $    | 840 |  | $ | 61,801
|                                                          |  |                                |     |                              |   |        |  |      |     |  |   |       

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.



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##### Table of Contents

OPENWAVE SYSTEMS INC.

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



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



|                              |  |                     |        |                         |   |         |                   |  |                     |       |                         |   |        |                   |   |         |   |  |   |      
|----------------------------- |  | ------------------- | ------ | ----------------------- | - | ------- | ----------------- |  | ------------------- | ----- | ----------------------- | - | ------ | ----------------- | - | ------- | - |  | - | -----
|                              |  | December 31, 2009   |        | June 30, 2009          
|                              |  | GrossCarryingAmount |        | AccumulatedAmortization |   |         | NetCarryingAmount |  | GrossCarryingAmount |       | AccumulatedAmortization |   |        | NetCarryingAmount
|Developed and core technology |  | $                   | 19,294 |                         | $ | (16,291 | )                 |  | $                   | 3,003 |                         | $ | 19,294 |                   | $ | (15,471 | ) |  | $ | 3,823
|Customer contracts - support  |  |                     | 220    |                         |   | (183    | )                 |  |                     | 37    |                         |   | 220    |                   |   | (163    | ) |  |   | 57   
|                              |  |                     |        |                         |   |         |                   |  |                     |       |                         |   |        |                   |   |         |   |  |   |      
|                              |  | $                   | 19,514 |                         | $ | (16,474 | )                 |  | $                   | 3,040 |                         | $ | 19,514 |                   | $ | (15,634 | ) |  | $ | 3,880
|                              |  |                     |        |                         |   |         |                   |  |                     |       |                         |   |        |                   |   |         |   |  |   |      

The following table presents the estimated future amortization of intangible assets, based upon the
recorded intangible assets as of December 31, 2009 (in thousands):



|                 |  |              |      
|---------------- |  | ------------ | -----
|Fiscal Year      |  | Amortization
|2010 (remaining) |  | $            | 840  
|2011             |  |              | 1,639
|2012             |  |              | 561  
|                 |  |              |      
|                 |  | $            | 3,040
|                 |  |              |      

(c) Deferred Revenue

As of December 31, 2009 and June 30, 2009, the Company had deferred revenue of $48.0 million and $50.3 million, respectively, consisting of
deferred license fees, new version coverage, maintenance and support fees, and professional services fees. Deferred revenue results from amounts billed to the customer but not yet recognized as revenue as of the balance sheet date, since the billing
related to one or more of the following:



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



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



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



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

Amounts in accounts receivable that have corresponding balances included in deferred revenue aggregated to approximately $16.2 million and $7.5 million as
of December 31, 2009 and June 30, 2009, respectively.

(d) Accumulated Other Comprehensive Loss

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



|                                                                             |  |                  |        |   |              |   |        |  
|---------------------------------------------------------------------------- |  | ---------------- | ------ | - | ------------ | - | ------ | -
|                                                                             |  | December 31,2009 |        |   | June 30,2009 |  
|Net unrealized gains (losses) on marketable securities:                      |  |                  |        |   |              |   |        |  
|Unrealized gain on marketable securities not other-than-temporarily impaired |  | $                | 66     |   |              | $ | 40     |  
|Unrealized loss on marketable securities other-than-temporarily impaired     |  |                  | (1,976 | ) |              |   | (4,701 | )
|                                                                             |  |                  |        |   |              |   |        |  
|Net unrealized loss on marketable securities                                 |  |                  | (1,910 | ) |              |   | (4,661 | )
|Cumulative translation adjustments                                           |  |                  | (771   | ) |              |   | (771   | )
|                                                                             |  |                  |        |   |              |   |        |  
|Total Accumulated other comprehensive loss                                   |  | $                | (2,681 | ) |              | $ | (5,432 | )
|                                                                             |  |                  |        |   |              |   |        |  



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OPENWAVE SYSTEMS INC.

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



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, |        
|                                                          |  | 2009                           |       | 2008 |                              |         | 2009 |  | 2008 |      
|Net income (loss)                                         |  | $                              | 213   |      | $                            | (64,161 | )    |  | $    | 1,203 |  | $ | (74,665 | )
|Other comprehensive income (loss):                        |  |                                |       |      |                              |         |      |  |      |       |  |   |         |  
|Change in unrealized gain (loss) on marketable securities |  |                                | 1,491 |      |                              | (154    | )    |  |      | 2,751 |  |   | (648    | )
|                                                          |  |                                |       |      |                              |         |      |  |      |       |  |   |         |  
|Total comprehensive income (loss)                         |  | $                              | 1,704 |      | $                            | (64,315 | )    |  | $    | 3,954 |  | $ | (75,313 | )
|                                                          |  |                                |       |      |                              |         |      |  |      |       |  |   |         |  

(6) Financial Instruments

Cash and cash equivalents

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

Investments

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



|                         |  |                                               |        |            |   |            |  |                        |        |                        |   |        |  |   |       
|------------------------ |  | --------------------------------------------- | ------ | ---------- | - | ---------- |  | ---------------------- | ------ | ---------------------- | - | ------ |  | - | ------
|                         |  | Expected maturity for theyear ending June 30, |        | Cost Value |   | Fair Value
|                         |  |                                               |       
|                         |  | 2010                                          |        | 2011       |   | Thereafter |  | December 31,2009
Total |        | December 31,2009
Total
|U.S. Government Agencies |  | $                                             | 3,473  |            | $ | 10,597     |  | $                      |       |                        | $ | 14,070 |  | $ | 14,074
|Certificates of Deposit  |  |                                               | 240    |            |   | 1,932      |  |                        |       |                        |   | 2,172  |  |   | 2,172 
|Commercial Paper         |  |                                               | 6,395  |            |   | 1,348      |  |                        |       |                        |   | 7,743  |  |   | 7,743 
|Corporate Bonds          |  |                                               | 7,684  |            |   | 12,922     |  |                        | 1,260  |                        |   | 21,866 |  |   | 21,928
|Auction Rate Securities  |  |                                               |       |            |   |           |  |                        | 14,302 |                        |   | 14,302 |  |   | 12,326
|                         |  |                                               |        |            |   |            |  |                        |        |                        |   |        |  |   |       
|Total                    |  | $                                             | 17,792 |            | $ | 26,799     |  | $                      | 15,562 |                        | $ | 60,153 |  | $ | 58,243
|                         |  |                                               |        |            |   |            |  |                        |        |                        |   |        |  |   |       



|                         |  |                   |        |                 |   |                  |  |   |                     |   |  |   |       
|------------------------ |  | ----------------- | ------ | --------------- | - | ---------------- |  | - | ------------------- | - |  | - | ------
|                         |  | December 31, 2009
|                         |  | Amortizedcost     |        | Unrealizedgains |   | Unrealizedlosses |  |   | Estimatedfair value
|U.S. Government Agencies |  | $                 | 14,070 |                 | $ | 7                |  | $ | (3                  | ) |  | $ | 14,074
|Commercial Paper         |  |                   | 7,743  |                 |   |                 |  |   |                    |   |  |   | 7,743 
|Certificates of Deposit  |  |                   | 2,172  |                 |   |                 |  |   |                    |   |  |   | 2,172 
|Corporate Bonds          |  |                   | 21,866 |                 |   | 92               |  |   | (30                 | ) |  |   | 21,928
|Auction Rate Securities  |  |                   | 14,302 |                 |   |                 |  |   | (1,976              | ) |  |   | 12,326
|                         |  |                   |        |                 |   |                  |  |   |                     |   |  |   |       
|                         |  | $                 | 60,153 |                 | $ | 99               |  | $ | (2,009              | ) |  | $ | 58,243
|                         |  |                   |        |                 |   |                  |  |   |                     |   |  |   |       



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OPENWAVE SYSTEMS INC.

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



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

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

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

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

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

During the first fiscal quarter of 2010, two securities were determined to sustain an OTTI. Both of these securities are auction rate securities (ARS), which are discussed in more detail below. The Company estimated the
projected future cash flows expected to be collected from each of these securities by summing the present value of the future principal and interest payments, and incorporating certain assumptions and judgments regarding the future performance of
the underlying collateral. The Company estimated the fair value of these ARS at December 31, 2009 based on a discounted cash flow model. The assumptions used in preparing the model included estimates with respect to the amount and timing of
future interest and principal payments, forward projections of the interest rate benchmarks, the probability of full repayment of the principal considering the credit quality and guarantees in place, and the rate of return required by investors to
own such securities given the current liquidity risk associated with ARS. Other factors were considered, such as the credit ratings of the issuer, insurers, and parent companies as applicable.

In the second quarter of fiscal 2010, the Company determined it had the intent to sell three ARS securities which resulted in the an OTTI charge of $0.2
million.



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OPENWAVE SYSTEMS INC.

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



In the six months ended December 31, 2009 and 2008, the Company had an OTTI charge in earnings of
$1.7 million and $8.2 million, respectively, recorded in other income (expense).

The following tables show the gross unrealized losses and
fair value of the Companys investments with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):



|                         |  |                         |        |                |                      |     |            |       |                |        |  |            |        |                |  |   |        |  |   |        |  
|------------------------ |  | ----------------------- | ------ | -------------- | -------------------- | --- | ---------- | ----- | -------------- | ------ |  | ---------- | ------ | -------------- |  | - | ------ |  | - | ------ | -
|                         |  | As of December 31, 2009 |       
|                         |  | Less Than 12 Months     |        |                | 12 Months or Greater |     |            | Total |               
|                         |  | Fair Value              |        | UnrealizedLoss |                      |     | Fair Value |       | UnrealizedLoss |        |  | Fair Value |        | UnrealizedLoss | 
|U.S. Government Agencies |  | $                       | 4,314  |                | $                    | (3  | )          |       | $              |       |  | $          |       |                |  | $ | 4,314  |  | $ | (3     | )
|Commercial Paper         |  |                         | 998    |                |                      |    |            |       |                |       |  |            |       |                |  |   | 998    |  |   |       |  
|Corporate Bonds          |  |                         | 12,989 |                |                      | (29 | )          |       |                | 949    |  |            | (1     | )              |  |   | 13,938 |  |   | (30    | )
|Auction Rate Securities  |  |                         |       |                |                      |    |            |       |                | 12,326 |  |            | (1,976 | )              |  |   | 12,326 |  |   | (1,976 | )
|                         |  |                         |        |                |                      |     |            |       |                |        |  |            |        |                |  |   |        |  |   |        |  
|                         |  | $                       | 18,301 |                | $                    | (32 | )          |       | $              | 13,275 |  | $          | (1,977 | )              |  | $ | 31,576 |  | $ | (2,009 | )
|                         |  |                         |        |                |                      |     |            |       |                |        |  |            |        |                |  |   |        |  |   |        |  

As of December 31, 2009, the Company had 29 investments in an unrealized loss position.



|                         |  |                     |       |                |                      |     |            |       |                |        |  |            |        |                |  |   |        |  |   |        |  
|------------------------ |  | ------------------- | ----- | -------------- | -------------------- | --- | ---------- | ----- | -------------- | ------ |  | ---------- | ------ | -------------- |  | - | ------ |  | - | ------ | -
|                         |  | As of June 30, 2009 |      
|                         |  | Less Than 12 Months |       |                | 12 Months or Greater |     |            | Total |               
|                         |  | Fair Value          |       | UnrealizedLoss |                      |     | Fair Value |       | UnrealizedLoss |        |  | Fair Value |        | UnrealizedLoss | 
|U.S. Government Agencies |  | $                   | 1,662 |                | $                    | (3  | )          |       | $              |       |  | $          |       |                |  | $ | 1,662  |  | $ | (3     | )
|Corporate Bonds          |  |                     | 2,440 |                |                      | (14 | )          |       |                | 9,714  |  |            | (43    | )              |  |   | 12,154 |  |   | (57    | )
|Auction Rate Securities  |  |                     |      |                |                      |    |            |       |                | 14,044 |  |            | (4,701 | )              |  |   | 14,044 |  |   | (4,701 | )
|                         |  |                     |       |                |                      |     |            |       |                |        |  |            |        |                |  |   |        |  |   |        |  
|                         |  | $                   | 4,102 |                | $                    | (17 | )          |       | $              | 23,758 |  | $          | (4,744 | )              |  | $ | 27,860 |  | $ | (4,761 | )
|                         |  |                     |       |                |                      |     |            |       |                |        |  |            |        |                |  |   |        |  |   |        |  

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

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



|                                                                 |  |   |        |  
|---------------------------------------------------------------- |  | - | ------ | -
|Cumulative OTTI credit losses recognized as of July 1, 2009      |  | $ | (6,125 | )
|OTTI charges related to securities with previous credit losses   |  |   | (1,666 | )
|                                                                 |  |   |        |  
|Cumulative OTTI credit losses recognized as of December 31, 2009 |  | $ | (7,791 | )
|                                                                 |  |   |        |  

All OTTIs recognized in earnings in the six months ended December 31, 2009 were for securities with previously
recognized credit impairments.

The redemption of an enhanced cash money market fund resulted in proceeds of $1.4 million and the recognition
of realized gains of $0.1 million in the first quarter of fiscal 2010. In December 2009, one of the ARS was tendered. The tender of this ARS resulted in proceeds of $2.3 million and recognition of realized loss of $0.4 million in the second quarter
of fiscal 2010. There were no realized gains or realized losses recorded during the six months ended December 31, 2008 from the sales of available-for-sale securities. Realized gains and losses and interest income are included in interest and
other income (expense) in the condensed consolidated statement of operations.

In January 2010, four of the ARS were sold. The sale of these
ARS will result in proceeds of $3.0 million recognized in the third quarter of fiscal 2010. Three of these ARS resulted in the recognition of an OTTI charge of $0.2 million in December 2009. One of the ARS will result in the recognition of a
realized loss of $0.2 million in the third quarter of fiscal 2010.



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OPENWAVE SYSTEMS INC.

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



Fair Value Measurement

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



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



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



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

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, 2009            
|                         |  | Quoted Prices in ActiveMarkets for IdenticalAssets (Level 1) |         | Significant OtherObservable Inputs (Level 2) |   | SignificantUnobservableInputs (Level 3) |  | Total
|Money Market Funds       |  | $                                                            | 66,249  |                                              | $ |                                        |  | $     |       |  | $ | 66,249 
|Certificates of Deposit  |  |                                                              | 2,172   |                                              |   | 366                                     |  |       |       |  |   | 2,538  
|Corporate Bonds          |  |                                                              | 21,665  |                                              |   |                                        |  |       | 263    |  |   | 21,928 
|Commercial Paper         |  |                                                              | 7,743   |                                              |   |                                        |  |       |       |  |   | 7,743  
|U.S. Government Agencies |  |                                                              | 14,074  |                                              |   |                                        |  |       |       |  |   | 14,074 
|Auction Rate Securities  |  |                                                              |        |                                              |   |                                        |  |       | 12,326 |  |   | 12,326 
|                         |  |                                                              |         |                                              |   |                                         |  |       |        |  |   |        
|                         |  | $                                                            | 111,903 |                                              | $ | 366                                     |  | $     | 12,589 |  | $ | 124,858
|                         |  |                                                              |         |                                              |   |                                         |  |       |        |  |   |        

The table above includes $0.4 million of restricted cash related to
the Level 2 Certificates of Deposit.

Auction Rate Securities

As of December 31, 2009, $12.3 million in auction rate securities, recorded in long-term investments on the consolidated balance sheet, were considered
illiquid based upon a lack of auction results beginning in fiscal 2008.

These ARS were issued by eight different entities and are held by two
investment firms on the Companys behalf. Five of these securities are Triple X structured obligations of special purpose reinsurance entities associated with life insurance companies. Two securities are interest-bearing corporate
debt obligations which, through the course of the issuers business, have some exposure to asset-backed securities. One ARS is related to federal education student loans programs. As of December 31, 2009, these instruments were all rated
AAA, A-, BB-, BBB- or CC by Standard and Poors and Caa2 to Aaa by Moodys and $15.9 million of the $21.6 million par value of these illiquid investments is insured against defaults of principal and interest by third party insurance
companies.



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OPENWAVE SYSTEMS INC.

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



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 six months ended December 31, 2009 (in thousands):



|                                                                   |  |                                                                          |        |  
|------------------------------------------------------------------ |  | ------------------------------------------------------------------------ | ------ | -
|                                                                   |  | Fair Value MeasurementsUsing SignificantUnobservable Inputs(Level 3)
ARS |       
|Balance at June 30, 2009                                           |  | $                                                                        | 14,044 |  
|Sale of ARS                                                        |  |                                                                          | (2,328 | )
|Change in unrealized losses included in other comprehensive income |  |                                                                          | 2,276  |  
|Other-than-temporary impairment                                    |  |                                                                          | (1,666 | )
|                                                                   |  |                                                                          |        |  
|Balance at December 31, 2009                                       |  | $                                                                        | 12,326 |  
|                                                                   |  |                                                                          |        |  

(7) Business Combinations

Acquisition of WiderWeb

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

In addition to the Initial Consideration, Openwave paid consideration relating to a retention agreement (Retention Amount). The Retention Amount was $0.9 million for the retention of four key
employees of WiderWeb for a two-year period which began on February 9, 2007. The Retention Amount was amortized over the two-year period as compensation expense.

The Initial Consideration did not include $0.9 million in additional consideration which was initially placed in escrow but paid during fiscal 2008 and recorded as goodwill in the consolidated balance
sheet at the time of payment.

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

(8) Borrowings

Credit Agreement

On
January 23, 2009, the Company and Silicon Valley Bank entered into a secured revolving credit facility for up to $40.0 million. The revolving credit facility matures on January 23, 2011. The Company may borrow, repay and re-borrow under
the revolving credit facility at any time. As of December 31, 2009, the revolving credit facility bears interest at 4% per annum. Monthly, the Company is required to pay a fee of 0.03% on any undrawn amounts under the revolving credit
facility. For each letter of credit issued, the Company is required to pay 0.75% per annum on the face amount of the letter of credit. Annually, the Company is required to pay a $0.2 million commitment fee to the lender.

As of December 31, 2009, the Company had letters of credit outstanding against the revolving credit facility totaling $17.7 million, reducing the
available borrowings on the revolving credit facility. The



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OPENWAVE SYSTEMS INC.

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



revolving credit facility requires a monthly borrowing base calculation to determine the amount of the
revolving credit facility available for the Company to borrow (Borrowing Base). The Borrowing Base calculation is $20.0 million plus 75% of accounts receivables defined as eligible in the credit agreement. As of
December 31, 2009, the Borrowing Base was $28.7 million and the total available for the Company to borrow on the revolving credit facility was $11.0 million, which is the difference between the Borrowing Base calculation of $28.7 million and
the amount of outstanding letters of credit amount of $17.7 million.

The revolving credit line is secured by a blanket lien on all of the
Companys assets and contains certain financial and reporting covenants customary to these types of credit facilities agreements which the Company is required to satisfy as a condition of the agreement. In particular, the revolving credit
facility requires that the Company meet certain minimum quarterly EBITDA amounts, as well as meet a minimum monthly liquidity ratio. In addition, the revolving credit facility requires the Company to provide to the bank annual financial projections,
promptly report any material legal actions, and timely pay material taxes and file all required tax returns and reports. Further, without the banks consent, the Company cannot take certain material actions, such as change any material line of
business, sell the Companys business, acquire other entities, incur liens, make capital expenditures beyond a certain threshold, engage in transactions with affiliates, or engage in stock repurchases. As of December 31, 2009, the Company
was in compliance with all debt covenants.

(9) Commitments and Contingencies

Litigation

IPO securities class action

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

The Company had accepted a settlement proposal presented to all issuer
defendants. Under such settlement proposal, plaintiffs would have dismissed and released all claims against the Openwave Defendants in exchange for a contingent payment by the insurance companies responsible for insuring the issuers
and for the assignment or surrender of control of certain claims the Company may have against the underwriters. The Openwave Defendants would not be required to make any cash payment in the settlement, unless the pro rata amount paid by
the insurers in the settlement exceeds the amount of insurance coverage, a circumstance which the Company does not believe will occur. The settlement



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OPENWAVE SYSTEMS INC.

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



required approval of the Court, which could not be assured, after class
members were given the opportunity to object to or opt out of the settlement. The Court held a hearing on April 24, 2006 to consider whether final approval should be granted. Subsequently, the United States Court of Appeals for
the Second Circuit vacated the class certification of plaintiffs claims against the underwriters in six cases designated as focus or test cases. Miles v. Merrill Lynch & Co. (In re Initial Public Offering Securities Litigation),
471 F.3d 24 (2d Cir. 2006). Thereafter, the District Court ordered a stay of all proceedings in all of the lawsuits pending the outcome of plaintiffs petition to the Second Circuit for rehearing en banc and resolution of the class
certification issue. On April 6, 2007, the Second Circuit denied plaintiffs petition for rehearing, but clarified that the plaintiffs may seek to certify a more limited class in the District Court. Accordingly, the parties withdrew
the prior settlement, and Plaintiffs submitted amended complaints in designated focus or test cases with a revised class definition, in an attempt to comply with the Second Circuits ruling.

On April 2, 2009, the parties in all the lawsuits submitted a settlement for the Courts approval. Under the settlement, the Openwave Defendants
would not be required to make any cash payment. On October 6, 2009, the Court approved the settlement, under which the Openwave Defendants are not required to contribute any cash. Several notices of appeal have been filed by putative class
members, challenging the settlement. The Company believes a loss is not probable or reasonably estimable. Therefore no amount has been accrued as of December 31, 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.

On March 12, 2009, the Court granted the Issuer
Defendants Joint Motion to Dismiss, dismissing the complaint without prejudice on the grounds that the Plaintiff had failed to make an adequate demand on the Company prior to filing her complaint. In its order, the Court stated it would
not permit the Plaintiff to amend her demand letters while pursuing her claims in the litigation. Because the Court dismissed the case on the ground that it lacked subject matter jurisdiction, it did not specifically reach the issue of whether
Plaintiffs claims were barred by the applicable statute of limitations. However, the Court also granted the Underwriters Joint Motion to Dismiss with respect to cases involving non-moving issuers, holding that the cases were
barred by the applicable statute of limitations because the issuers shareholders had notice of the potential claims more than five years prior to filing suit. On April 10, 2009, the Plaintiff filed a Notice of Appeal, and the
underwriters subsequently filed a Notice of Cross-Appeal, arguing that the dismissal of the claims involving the moving issuers should have been with prejudice because the claims were untimely under the applicable statute of
limitations. The Plaintiffs opening brief on appeal was filed on August 26, 2009; the Issuer and Underwriter Defendants opposition briefs and the Underwriter Defendants brief supporting their
cross-appeals were filed on October 2,



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OPENWAVE SYSTEMS INC.

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



2009; Simmonds reply brief and opposition to the Underwriter Defendants
cross-appeals were filed on November 2, 2009; and the Underwriter Defendants reply brief in support of their cross-appeals was filed on November 17, 2009. No amount has been accrued as of December 31, 2009, as a
loss is not considered probable or reasonably estimable.

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

Indemnification claims

The
Companys software license and services agreements generally include a limited indemnification provision for claims from third parties relating to the Companys intellectual property. Such indemnification provisions are accounted for in
accordance with the Guarantees Topic of the FASB ASC (Topic 460). As of December 31, 2009, no amount is accrued for indemnifications as there were no existing claims where a loss is considered probable. Historically, costs related
to these indemnification provisions have been infrequent and the Company is unable to estimate the maximum potential impact of these indemnification provisions on its future results of operations.

(10) Restructuring and Other Related Costs

As a result of the Companys change in strategy and its desire to improve its cost structure, the Company announced restructurings during fiscal years 2010, 2009, 2008, 2007, and various other restructurings in fiscal years 2002
through 2006.

On October 29, 2009, the Company announced the fiscal year 2010 restructuring (FY2010 Restructuring) to
consolidate the Companys resources, primarily in development, and improve operating efficiencies. As such, during the second quarter of fiscal 2010, the Company incurred approximately $0.8 million in pre-tax restructuring and related charges
associated with the FY2010 Restructuring plans employee termination benefits and $0.2 million in accelerated depreciation on fixed assets associated with a facility identified for restructuring. Additional restructuring charges for facilities
under this plan will be incurred in the period the related facility is no longer occupied or used by the Company for operations, with the associated lease payments being paid over the term of the remaining lease.

On March 16, 2009, the Company announced the fiscal year 2009 restructuring (FY2009 Restructuring) to consolidate the Companys
resources, primarily in development and support, and improve operating efficiencies. As such, during the third quarter of fiscal 2009, the Company incurred approximately $3.1 million in pre-tax restructuring and related charges associated with the
FY2009 Restructuring plans employee termination benefits and $3.4 million in facilities charges associated with a facility identified for restructuring. The Company expects to pay the current accrued charges for employee termination benefits
during the third quarter of fiscal 2010. Additional restructuring charges for future lease payments of the facility under this plan will be incurred in the third fiscal quarter of 2010 upon exiting the facility. The lease payments will be paid over
the term of the remaining lease. Of the remaining $3.1 million facilities related accrual, the Company expects to pay $1.0 million through June 30, 2010 and $2.1 million from July 2010 through April 2011.

The fiscal year 2008 restructuring (FY2008 Restructuring) was implemented to better align the Companys resources among its products,
reduce costs and improve operating efficiencies. As such, during fiscal 2008, the Company incurred $6.9 million in pre-tax restructuring and related charges



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OPENWAVE SYSTEMS INC.

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



associated with the FY2008 Restructuring Plans employee termination benefits and $0.6 million in
accelerated depreciation on fixed assets associated with facilities identified for restructuring. Additionally, during the first quarter of fiscal 2009, the Company incurred $1.5 million in facilities charges upon exiting a building as planned in
the FY2008 Restructuring. During the second quarter of fiscal year 2010, the Company negotiated a buyout of the lease related to this facility, resulting in a $0.2 million reduction of the previously estimated liability. The Company expects to pay
the $0.2 million in December 2010.

The following table sets forth the restructuring liability activity from June 30, 2009 through
December 31, 2009 (in thousands):



|                                     |  |                                  |        |   |                        |   |     |                        |  |   |                        |   |  |                        |       |   |                        |   |        |              |  |   |      |   |  |   |        |  
|------------------------------------ |  | -------------------------------- | ------ | - | ---------------------- | - | --- | ---------------------- |  | - | ---------------------- | - |  | ---------------------- | ----- | - | ---------------------- | - | ------ | ------------ |  | - | ---- | - |  | - | ------ | -
|                                     |  | FY 02 to FY 06RestructuringPlans |        |   | FY 08RestructuringPlan |   |     | FY 08RestructuringPlan |  |   | FY 09RestructuringPlan |   |  | FY 09RestructuringPlan |       |   | FY 10RestructuringPlan |   |        | TotalAccrual | 
|                                     |  | Facility                         |        |   | Severance              |   |     | Facility               |  |   | Facility               |   |  | Severance              |       |   | Severance              |   |       
|Accrual balances as of June 30, 2009 |  | $                                | 43,852 |   |                        | $ | 84  |                        |  | $ | 941                    |   |  | $                      | 3,775 |   |                        | $ | 1,518  |              |  | $ |     |   |  | $ | 50,170 |  
|New charges                          |  |                                  | 16     |   |                        |   |    |                        |  |   |                       |   |  |                        |      |   |                        |   | (5     | )            |  |   |     |   |  |   | 11     |  
|Accretion expense                    |  |                                  | 374    |   |                        |   |    |                        |  |   |                       |   |  |                        | 17    |   |                        |   |       |              |  |   |     |   |  |   | 391    |  
|Cash paid, net of sublease income    |  |                                  | (2,834 | ) |                        |   |    |                        |  |   | (133                   | ) |  |                        | (535  | ) |                        |   | (1,048 | )            |  |   |     |   |  |   | (4,550 | )
|                                     |  |                                  |        |   |                        |   |     |                        |  |   |                        |   |  |                        |       |   |                        |   |        |              |  |   |      |   |  |   |        |  
|Balance as of September 30, 2009     |  | $                                | 41,408 |   |                        | $ | 84  |                        |  | $ | 808                    |   |  | $                      | 3,257 |   |                        | $ | 465    |              |  | $ |     |   |  | $ | 46,022 |  
|                                     |  |                                  |        |   |                        |   |     |                        |  |   |                        |   |  |                        |       |   |                        |   |        |              |  |   |      |   |  |   |        |  
|New charges (a)                      |  |                                  | (3     | ) |                        |   |    |                        |  |   | (211                   | ) |  |                        | 355   |   |                        |   | (152   | )            |  |   | 813  |   |  |   | 802    |  
|Accretion expense                    |  |                                  | 351    |   |                        |   |    |                        |  |   |                       |   |  |                        | 18    |   |                        |   |       |              |  |   |     |   |  |   | 369    |  
|Cash paid, net of sublease income    |  |                                  | (2,826 | ) |                        |   | (44 | )                      |  |   | (390                   | ) |  |                        | (549  | ) |                        |   | (96    | )            |  |   | (217 | ) |  |   | (4,122 | )
|                                     |  |                                  |        |   |                        |   |     |                        |  |   |                        |   |  |                        |       |   |                        |   |        |              |  |   |      |   |  |   |        |  
|Balance as of December 31, 2009      |  | $                                | 38,930 |   |                        | $ | 40  |                        |  | $ | 207                    |   |  | $                      | 3,081 |   |                        | $ | 217    |              |  | $ | 596  |   |  | $ | 43,071 |  
|                                     |  |                                  |        |   |                        |   |     |                        |  |   |                        |   |  |                        |       |   |                        |   |        |              |  |   |      |   |  |   |        |  



|(a) | Total charges do not include $0.2 million of accelerated depreciation as represented on the Companys condensed consolidated statement of operations under
restructuring and other costs for the second quarter of fiscal 2010.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of December 31, 2009, the Company has sublease
contracts in place for all but three of its exited facilities, which provide for approximately $22.5 million of future sublease income from third parties out of total estimated sublease income of $26.7 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, 2009 (in thousands):



|                     |  |                            |        |                         |   |        |                           |  |   |                                |   |  |   |       
|-------------------- |  | -------------------------- | ------ | ----------------------- | - | ------ | ------------------------- |  | - | ------------------------------ | - |  | - | ------
|Year ending June 30, |  | ContractualCash Obligation |        | EstimatedSubleaseIncome |   |        | ContractualSubleaseIncome |  |   | EstimatedFuture NetCashOutflow
|2010 (remaining)     |  | $                          | 10,627 |                         | $ | (224   | )                         |  | $ | (3,482                         | ) |  | $ | 6,921 
|2011                 |  |                            | 21,222 |                         |   | (1,332 | )                         |  |   | (6,885                         | ) |  |   | 13,005
|2012                 |  |                            | 20,441 |                         |   | (775   | )                         |  |   | (6,907                         | ) |  |   | 12,759
|2013                 |  |                            | 17,627 |                         |   | (775   | )                         |  |   | (5,194                         | ) |  |   | 11,658
|2014                 |  |                            | 1,115  |                         |   | (775   | )                         |  |   |                               |   |  |   | 340   
|Thereafter           |  |                            | 464    |                         |   | (324   | )                         |  |   |                               |   |  |   | 140   
|                     |  |                            |        |                         |   |        |                           |  |   |                                |   |  |   |       
|                     |  | $                          | 71,496 |                         | $ | (4,205 | )                         |  | $ | (22,468                        | ) |  | $ | 44,823
|                     |  |                            |        |                         |   |        |                           |  |   |                                |   |  |   |       

Future accretion expense on the restructured facility obligation is $2.6 million, which will be
recorded as restructuring expense over the life of the respective leases.

(11) Income Taxes

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



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OPENWAVE SYSTEMS INC.

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



In light of the Companys history of operating losses, the Company recorded a full valuation
allowance for its U.S. federal and state deferred tax assets. The Company intends to maintain this valuation allowance until there is sufficient evidence to conclude that it is more likely than not that the federal and state deferred tax assets will
be realized. As of December 31, 2009, the Company has net foreign deferred tax assets recorded of approximately $3.6 million, which consists of $3.9 million of realizable deferred tax assets in selected countries based upon the Companys
conclusion that it is more likely than not that these foreign subsidiaries will earn future taxable profit through transfer pricing; this is offset by $0.3 million of deferred tax liabilities recorded with respect to acquisitions for which the
amortization expense of acquired intangibles is not deductible for tax purposes.

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



|                                                             |  |   |       |  
|------------------------------------------------------------ |  | - | ----- | -
|Balance as of July 1, 2009                                   |  | $ | 5,623 |  
|Additions based on tax positions related to the current year |  |   | 162   |  
|Reductions for tax positions of prior years                  |  |   | (213  | )
|Lapse of statute of limitations                              |  |   | (622  | )
|Settlements                                                  |  |   | (785  | )
|Foreign currency fluctuations                                |  |   | (68   | )
|                                                             |  |   |       |  
|Balance as of December 31, 2009                              |  | $ | 4,097 |  
|                                                             |  |   |       |  

The total amount of gross unrecognized tax benefits was $4.1 million as of December 31, 2009. Of
this $4.1 million, $0.9 million would affect the effective tax rate if realized, and $3.2 million would be recorded as net income from discontinued operations if realized. Although timing of the resolution and/or closure on the Companys
unrecognized tax benefits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next 12 months.

The Company has elected to include interest and penalties as a component of tax expense. Accrued interest and penalties was $0.4 million as of both December 31, 2009 and June 30, 2009.

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



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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 risks and uncertainties that may cause actual events, results or performance to differ materially from those
indicated by these statements. Words such as anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify forward-looking
statements. Forward-looking statements include, among other things, statements regarding our ability to attract and retain customers, obtain and expand market acceptance for our products and services, the information and expectations concerning our
future financial performance and potential or expected competition and growth in our markets and markets in which we expect to compete, business strategy, projected plans and objectives, anticipated cost savings from restructurings, our ability to
realize anticipated benefits of our acquisitions on a timely basis, our estimates with respect to future operating results, including, without limitation, earnings, cash flow and revenue and any statements of assumptions underlying the foregoing.
These forward-looking statements are only predictions. Risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements include the limited number of potential customers, the highly
competitive market for our products and services, technological changes and developments, potential delays in software development and technical difficulties that may be encountered in the development or use of our software, patent litigation, our
ability to retain management and key personnel, and the other risks discussed under the subheading Risk Factors in our Annual Report on Form 10-K for the fiscal year ended June 30, 2009, as well as elsewhere in this report. The
occurrence of the events described in Risk Factors could harm our business, results of operations and financial condition. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and we undertake no
obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this section below and other risks identified from time to time in the
Openwaves public statements and reports filed with the Securities and Exchange Commission.

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

Overview of Our Business and Products

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

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

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

Over the past two years, we have streamlined our business by selling non-core operations such as
our prior Content product line, referred to by the entity name Musiwave, in December 2007 and our prior Client operations which provided software for the mobile handset, in June 2008. In fiscal year 2009 and during the second quarter of
fiscal 2010, we also consolidated a number of engineering facilities in order to improve efficiency, coordination, quality, and time-to-market. Although the divestitures of discontinued operations and the cautious capital spending environment have
reduced our revenues over the last two years, we intend to introduce new products to market, expand our customer base in new regions, sell our customers a migration to Openwaves next generation software platforms and tools, and add a new tier
of service provider customers. We see demand building for mobile data as discussed below under



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the heading Operating Environment for the three and six months ended December 31, 2009. The
increase in demand for mobile data may not result in an immediate or direct impact on our financial results, as we are dependent upon how and when the mobile carriers respond to these trends and how, whether, and when they invest in the required
infrastructure.

The key performance measures that we use in assessing our business include bookings, backlog, gross margins, operating cash
flows and disciplined management of operating expenses. Our goal is to maintain, over time, a book-to-bill ratio of 1:1 or better. This in turn builds backlog and therefore predictability of future revenues.

Our gross margins have been impacted by a higher concentration of services revenues and lower concentration of license revenues in the current fiscal year
as compared to the prior year. We also experienced improved operating cash flows and lower operating expenses in the first six months of fiscal 2010, as a result of our streamlining of the business based on our restructuring plan implemented in
fiscal year 2009 which resulted in reductions in operating costs in fiscal year 2010. Additionally, in October 2009, we announced an additional restructuring plan, primarily to consolidate engineering locations, which we expect will assist us in
developing products more efficiently, as the majority of the savings will be re-invested in the business.

Sprint Nextel and AT&T are two
significant customers of Openwave. Over 40% of our revenues were derived, collectively, from these customers during fiscal year 2009. We generally enter into several agreements each quarter with these customers. These agreements relate to purchases
of software licenses and related services for several of our products, as well as third-party hardware and software. The majority of our software licenses with these customers are perpetual licenses. Additional license revenues from these customers
are generated by their purchase of new products, upgrades, or additional licenses of software they already own if their usage increases. In addition, Sprint Nextel and AT&T typically purchase software maintenance and support services from us
related to these licenses, which are periodically subject to renewal, and typically allow for cancellation if the customer provides notice to us 90 days in advance, or less. Several of our agreements with these customers relate to installation and
customization services of our software, which are typically recognized as revenue over the period the services are delivered. Customization services include modifications or additions to the source code of our software in order to enable
compatibility with the customers specific platform or performance and functionality requirements. Payment terms under our agreements with Sprint Nextel and AT&T generally state that payments are due within 45 days of the invoice date.
While we are attempting to grow our customer base in emerging markets and with other large companies, we believe that our relationships with Sprint Nextel and AT&T will continue to make up a significant part of our business in the foreseeable
future, although there is no guarantee of continued business from either of these customers.

For further detail regarding risks relating our
business, see our Item 1A of Part II of this Current Report on Form 10-Q.



26



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##### Table of Contents

Overview of Financial Results During the Three and Six Months Ended December 31,
2009

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



|                                         |  |                                |        |   |               |   |         |                              |      |      |               |      |   |        |   |  |   |         |   |  |     |  
|---------------------------------------- |  | ------------------------------ | ------ | - | ------------- | - | ------- | ---------------------------- | ---- | ---- | ------------- | ---- | - | ------ | - |  | - | ------- | - |  | --- | -
|                                         |  | Three Months EndedDecember 31, |        |   | PercentChange |   |         | Six Months EndedDecember 31, |      |      | PercentChange |     
|                                         |  | 2009                           |        |   | 2008          |   |         |                              | 2009 |      |               | 2008 |   |       
|                                         |  | (unaudited)                    |        |   |               |   |         | (unaudited)                  |      |      |               |     
|                                         |  |                                |        |   |               |  
|Revenues                                 |  | $                              | 49,742 |   |               | $ | 48,064  |                              |      | 3    | %             |      | $ | 99,584 |   |  | $ | 99,109  |   |  | 0   | %
|Cost of revenues                         |  |                                | 20,408 |   |               |   | 19,524  |                              |      | 5    | %             |      |   | 43,147 |   |  |   | 40,495  |   |  | 7   | %
|                                         |  |                                |        |   |               |   |         |                              |      |      |               |      |   |        |   |  |   |         |   |  |     |  
|Gross profit                             |  |                                | 29,334 |   |               |   | 28,540  |                              |      | 3    | %             |      |   | 56,437 |   |  |   | 58,614  |   |  | -4  | %
|                                         |  |                                |        |   |               |  
|Operating expenses                       |  |                                | 28,782 |   |               |   | 89,865  |                              |      | -68  | %             |      |   | 57,704 |   |  |   | 125,444 |   |  | -54 | %
|                                         |  |                                |        |   |               |   |         |                              |      |      |               |      |   |        |   |  |   |         |   |  |     |  
|Operating loss                           |  |                                | 552    |   |               |   | (61,325 | )                            |      | -101 | %             |      |   | (1,267 | ) |  |   | (66,830 | ) |  | -98 | %
|                                         |  |                                |        |   |               |  
|Interest and other income (expense), net |  |                                | (220   | ) |               |   | (1,436  | )                            |      | -85  | %             |      |   | (1,429 | ) |  |   | (7,932  | ) |  | -82 | %
|Income tax expense                       |  |                                | 119    |   |               |   | 1,029   |                              |      | -88  | %             |      |   | 617    |   |  |   | 1,532   |   |  | -60 | %
|                                         |  |                                |        |   |               |   |         |                              |      |      |               |      |   |        |   |  |   |         |   |  |     |  
|Net loss from continuing operations      |  | $                              | 213    |   |               | $ | (63,790 | )                            |      | -100 | %             |      | $ | (3,313 | ) |  | $ | (76,294 | ) |  | -96 | %
|                                         |  |                                |        |   |               |   |         |                              |      |      |               |      |   |        |   |  |   |         |   |  |     |  

Revenues increased slightly during the three and six months ended December 31, 2009 compared to
the corresponding period of the prior year.

Overall, excluding the impact of the goodwill impairment charge of $59.5 million that was
recorded during the second quarter of fiscal 2009, operating expenses decreased $1.6 million and $8.2 million, respectively, during the three and six months ended December 31, 2009 compared with the corresponding periods of the prior year. This
decline can be primarily attributed to lower labor costs and facilities costs, as discussed in further detail under Summary of Operating Results below.

Operating Environment During the Three and Six Months Ended December 31, 2009

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

During the quarter ended December 31,
2009, Openwave worked with mobile and broadband operators to enable the delivery of personalized content and communications. Selected customer and product highlights include:

Service Management

| |  |  | This quarter we announced the next version of Integra, a context-aware mediation and policy management solution designed to provide operators with the
flexibility to select the deployment architecture and features that meet their specific needs, while reducing overall total cost of ownership. Integra is an open, all-IP framework that acts as a single control point for an operator to manage various
forms of traffic, and enables services including content adaptation, web and media optimization, network security, policy control and dynamic charging and campaigning.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We also introduced the Mobile Internet ReadySet, a pre-packaged platform that provides operators in emerging markets with a central point from which to
launch new, mobile internet services at an attractive entry level price point.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We announced Bouygues Telecom, a leading French mobile operator, selected our policy management solution to help manage and optimize their network
traffic. Our solution is designed to enable better insight into network usage patterns and help them to define and anticipate new subscriber behaviors. Based on this information, Bouygues can also more intelligently offer a variety of tiered
subscriber plans that reflect actual usage.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | We closed an Integra deal with a major operator in the Benelux region in collaboration with Alcatel Lucent. The goal for Integra is to help shape and
smooth the operators data traffic and seamlessly address their bandwidth challenge head-on.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We also secured an Integra upgrade with Vodacom South Africa, a leading African communications group providing mobile communications and related
services to more than 40 million customers. In addition to Integra, Vodacom South Africa also purchased Passport. Our Passport service enables mobile operators like Vodacom to offer their subscribers on-demand, pay-as-you-go
mobile internet access, which include targeted data service promotions metered according to time, type of service and consumption levels, among other choices.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Messaging



| |  |  | In our messaging line of business, operators continued to demand our suite of mobile, email and voice solutions that use IP-based, bandwidth-optimized
technologies to simplify the different modes of messaging moving across an operators network. This quarter we signed a deal with Time Warner Cable, for a bundled set of our messaging offerings that include Rich Mail, Network Address Book, and
Notification services.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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;
| | - |  | -------------------------



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



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

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

Summary of Operating Results

Three and Six Months Ended December 31, 2009 and 2008

Revenues

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

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



|              |  |                                                  |   |  |                                                |   |  |      |   |  |      |  
|------------- |  | ------------------------------------------------ | - |  | ---------------------------------------------- | - |  | ---- | - |  | ---- | -
|              |  | % of Total RevenueThree Months EndedDecember 31, |   |  | % of Total RevenueSix Months EndedDecember 31, |  
|              |  | 2009                                             |   |  | 2008                                           |   |  | 2009 |   |  | 2008 |  
|Customer:     |  |                                                  |   |  |                                                |   |  |      |   |  |      |  
|Sprint Nextel |  | 37                                               | % |  | 26                                             | % |  | 38   | % |  | 26   | %
|AT&T          |  | 7                                                | % |  | 14                                             | % |  | 8    | % |  | 14   | %



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##### Table of Contents

We derived approximately half of our revenues from sales to U.S. based customers during the six months ended
December 31, 2009 and 2008, which itself primarily consists of sales to Sprint Nextel and AT&T. Although we intend to broaden our markets, there can be no assurance that this objective will be achieved.

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



|                        |  |                                |        |   |               |   |        |                              |      |    |               |      |   |        |   |  |   |        |   |  |     |  
|----------------------- |  | ------------------------------ | ------ | - | ------------- | - | ------ | ---------------------------- | ---- | -- | ------------- | ---- | - | ------ | - |  | - | ------ | - |  | --- | -
|                        |  | Three Months EndedDecember 31, |        |   | PercentChange |   |        | Six Months EndedDecember 31, |      |    | PercentChange |     
|                        |  | 2009                           |        |   | 2008          |   |        |                              | 2009 |    |               | 2008 |   |       
|Revenues:               |  |                                |        |   |               |   |        |                              |      |    |               |      |   |       
|License                 |  | $                              | 13,283 |   |               | $ | 13,849 |                              |      | -4 | %             |      | $ | 23,708 |   |  | $ | 28,176 |   |  | -16 | %
|Maintenance and support |  |                                | 16,168 |   |               |   | 15,917 |                              |      | 2  | %             |      |   | 31,966 |   |  |   | 32,295 |   |  | -1  | %
|Services                |  |                                | 20,291 |   |               |   | 18,298 |                              |      | 11 | %             |      |   | 43,910 |   |  |   | 38,638 |   |  | 14  | %
|                        |  |                                |        |   |               |   |        |                              |      |    |               |      |   |        |   |  |   |        |   |  |     |  
|Total Revenues          |  | $                              | 49,742 |   |               | $ | 48,064 |                              |      | 3  | %             |      | $ | 99,584 |   |  | $ | 99,109 |   |  | 0   | %
|                        |  |                                |        |   |               |   |        |                              |      |    |               |      |   |        |   |  |   |        |   |  |     |  
|                        |  |                                |        |   |               |  
|Percent of revenues:    |  |                                |        |   |               |   |        |                              |      |    |               |      |   |        |   |  |   |        |   |  |     |  
|License                 |  |                                | 27     | % |               |   | 29     | %                            |      |    |               |      |   | 24     | % |  |   | 28     | % |  |     |  
|Maintenance and support |  |                                | 33     | % |               |   | 33     | %                            |      |    |               |      |   | 32     | % |  |   | 33     | % |  |     |  
|Services                |  |                                | 40     | % |               |   | 38     | %                            |      |    |               |      |   | 44     | % |  |   | 39     | % |  |     |  
|                        |  |                                |        |   |               |   |        |                              |      |    |               |      |   |        |   |  |   |        |   |  |     |  
|Total Revenues          |  |                                | 100    | % |               |   | 100    | %                            |      |    |               |      |   | 100    | % |  |   | 100    | % |  |     |  
|                        |  |                                |        |   |               |   |        |                              |      |    |               |      |   |        |   |  |   |        |   |  |     |  

License Revenues

License revenues decreased by 4% during the three months ended December 31, 2009 as compared with the corresponding period of the prior year. The decrease in license revenues is indicative of the
variability in revenue recognition of current and prior bookings, and is primarily related to a number of large projects that were completed in fiscal 2009, and thus there was no associated revenue on these projects during the second quarter of
fiscal 2010.

License revenues decreased by 16% during the six months ended December 31, 2009 as compared with the corresponding period
of the prior year. The decrease in license revenue was due to the factors listed above.

Maintenance and Support Revenues

Maintenance and support revenues remained relatively consistent during both the three and six months ended December 31, 2009, as
compared with the corresponding periods of the prior year. These revenues were consistent as there was no significant change in the business related to the level of maintenance and support provided to customers.



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Services Revenues

Services revenue increased by 11% for the three months ended December 31, 2009, as compared with the corresponding period of the prior year. The increase in the three months ended December 31,
2009, was primarily due to services revenue related to a customization project for a large customer which began in fiscal year 2010.

Services
revenue increased by 14% for the six months ended December 31, 2009, as compared with the corresponding period of the prior year. The increase in services revenue was due to the customization project discussed above.

Other Key Revenue Metrics

The other key metrics we utilize for purposes of making operating decisions and assessing financial performance include bookings and backlog. Bookings comprise the aggregate value of all new arrangements executed during a period. We define
backlog as the aggregate value of all existing arrangements less revenue recognized to date. For the second quarter of fiscal 2010, bookings were approximately $46.5 million, up $7.2 million, or 18%, from approximately $39.3 million for the second
quarter of fiscal 2009. The second quarter of fiscal 2009 bookings were not representative of the average bookings over the past 24 months, which was $44.2 million. Backlog was approximately $188.5 million as of December 31, 2009, down from
$217.0 million as of December 31, 2008. Bookings related to royalty or usage arrangements are recognized concurrently with the related revenue and therefore do not impact backlog. Revenue resulting from bookings is generally recognized over the
subsequent 12 to 18 months, in accordance with our revenue recognition policy.

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

Cost of Revenues

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



|                                           |  |                                |        |   |               |   |        |                              |      |     |               |      |   |        |   |  |   |        |   |  |     |  
|------------------------------------------ |  | ------------------------------ | ------ | - | ------------- | - | ------ | ---------------------------- | ---- | --- | ------------- | ---- | - | ------ | - |  | - | ------ | - |  | --- | -
|                                           |  | Three Months EndedDecember 31, |        |   | PercentChange |   |        | Six Months EndedDecember 31, |      |     | PercentChange |     
|                                           |  | 2009                           |        |   | 2008          |   |        |                              | 2009 |     |               | 2008 |   |       
|Cost of revenues:                          |  |                                |        |   |               |   |        |                              |      |     |               |      |   |        |   |  |   |        |   |  |     |  
|License                                    |  | $                              | 665    |   |               | $ | 1,567  |                              |      | -58 | %             |      | $ | 1,304  |   |  | $ | 3,833  |   |  | -66 | %
|Maintenance and support                    |  |                                | 4,668  |   |               |   | 4,518  |                              |      | 3   | %             |      |   | 8,995  |   |  |   | 8,776  |   |  | 2   | %
|Services                                   |  |                                | 15,075 |   |               |   | 13,439 |                              |      | 12  | %             |      |   | 32,848 |   |  |   | 27,886 |   |  | 18  | %
|                                           |  |                                |        |   |               |   |        |                              |      |     |               |      |   |        |   |  |   |        |   |  |     |  
|Total Cost of Revenues                     |  | $                              | 20,408 |   |               | $ | 19,524 |                              |      | 5   | %             |      | $ | 43,147 |   |  | $ | 40,495 |   |  | 7   | %
|                                           |  |                                |        |   |               |   |        |                              |      |     |               |      |   |        |   |  |   |        |   |  |     |  
|                                           |  |                                |        |  
|                                           |  | Three Months EndedDecember 31, |        |   |               |   |        | Six Months EndedDecember 31, |      |     |               |     
|                                           |  | 2009                           |        |   | 2008          |   |        |                              |      |     | 2009          |      |   | 2008   |   |  |   |       
|Gross margin per related revenue category: |  |                                |        |   |               |   |        |                              |      |     |               |      |   |        |   |  |   |        |   |  |     |  
|License                                    |  |                                | 95     | % |               |   | 89     | %                            |      |     |               |      |   | 94     | % |  |   | 86     | % |  |     |  
|Maintenance and support                    |  |                                | 71     | % |               |   | 72     | %                            |      |     |               |      |   | 72     | % |  |   | 73     | % |  |     |  
|Services                                   |  |                                | 26     | % |               |   | 27     | %                            |      |     |               |      |   | 25     | % |  |   | 28     | % |  |     |  
|Total Gross Margin                         |  |                                | 59     | % |               |   | 59     | %                            |      |     |               |      |   | 57     | % |  |   | 59     | % |  |     |  



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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 58% during the three months ended December 31, 2009, compared with
the corresponding period of the prior year. Amortization of intangibles related to licenses decreased by $0.7 million from the corresponding period of the prior year due to a number of assets becoming fully amortized. The remainder of the decline is
related to the corresponding 4% decrease in license revenue during the same period, as well as a change in the product mix of third-party software products. This in turn improved our gross margin on license revenues.

Costs of license revenues decreased by 66% during the six months ended December 31, 2009, compared with the corresponding period of the prior year.
Amortization of intangibles related to licenses decreased by $1.4 million from the corresponding period of the prior year due to a number of assets becoming fully amortized. The remainder of the decline is related to the corresponding 16% decrease
in license revenue during the same period, as well as a change in the product mix of third-party software products. This in turn improved our gross margin on license revenues.

Cost of Maintenance and Support Revenues

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

Cost of maintenance and support increased slightly in absolute dollars, relatively consistent with the increase in revenues, and therefore gross margin
remained relatively consistent, during the three and six months ended December 31, 2009, as compared with the corresponding periods of the prior year.

Cost of Services Revenues

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

Cost of services increased by 12% during the three months ended December 31, 2009, as compared with the corresponding period of the prior year. This increase relates primarily to the increase in services revenue of 11% during the same
period.

Cost of services increased by 18% during the six months ended December 31, 2009, as compared with the corresponding period of
the prior year. This increase relates to the increase in services revenue of 14% during the same period, as well as a change in the mix of services and hardware provided to customers.



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##### Table of Contents

Operating Expenses

Operating expenses decreased by 68% and 54%, respectively, during the three and six months ended December 31, 2009, as compared with the corresponding
periods of the prior year.

The following table represents operating expenses for the three and six months ended December 31, 2009 and
2008, respectively (dollars in thousands):



|                                      |  |                                |        |   |               |   |        |                              |      |      |               |      |   |        |   |  |   |         |   |  |      |  
|------------------------------------- |  | ------------------------------ | ------ | - | ------------- | - | ------ | ---------------------------- | ---- | ---- | ------------- | ---- | - | ------ | - |  | - | ------- | - |  | ---- | -
|                                      |  | Three Months EndedDecember 31, |        |   | PercentChange |   |        | Six Months EndedDecember 31, |      |      | PercentChange |     
|                                      |  | 2009                           |        |   | 2008          |   |        |                              | 2009 |      |               | 2008 |   |       
|Operating expenses:                   |  |                                |        |   |               |   |        |                              |      |      |               |      |   |        |   |  |   |         |   |  |      |  
|Research and development              |  | $                              | 9,667  |   |               | $ | 12,055 |                              |      | -20  | %             |      | $ | 19,531 |   |  | $ | 24,341  |   |  | -20  | %
|Sales and marketing                   |  |                                | 11,052 |   |               |   | 10,032 |                              |      | 10   | %             |      |   | 21,763 |   |  |   | 20,776  |   |  | 5    | %
|General and administrative            |  |                                | 6,710  |   |               |   | 7,808  |                              |      | -14  | %             |      |   | 14,635 |   |  |   | 18,428  |   |  | -21  | %
|Restructuring and other related costs |  |                                | 1,353  |   |               |   | 427    |                              |      | 217  | %             |      |   | 1,775  |   |  |   | 2,330   |   |  | -24  | %
|Amortization of intangible assets     |  |                                |       |   |               |   | 59,543 |                              |      | -100 | %             |      |   |       |   |  |   | 59,569  |   |  | -100 | %
|                                      |  |                                |        |   |               |   |        |                              |      |      |               |      |   |        |   |  |   |         |   |  |      |  
|Total Operating Expenses              |  | $                              | 28,782 |   |               | $ | 89,865 |                              |      | -68  | %             |      | $ | 57,704 |   |  | $ | 125,444 |   |  | -54  | %
|                                      |  |                                |        |   |               |   |        |                              |      |      |               |      |   |        |   |  |   |         |   |  |      |  
|                                      |  |                                |        |   |               |  
|Percent of Revenues:                  |  |                                |        |   |               |   |        |                              |      |      |               |      |   |        |   |  |   |         |   |  |      |  
|Research and development              |  |                                | 19     | % |               |   | 25     | %                            |      |      |               |      |   | 20     | % |  |   | 25      | % |  |      |  
|Sales and marketing                   |  |                                | 22     | % |               |   | 21     | %                            |      |      |               |      |   | 22     | % |  |   | 21      | % |  |      |  
|General and administrative            |  |                                | 13     | % |               |   | 16     | %                            |      |      |               |      |   | 15     | % |  |   | 19      | % |  |      |  

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, 2009, research and development costs decreased 20% and 20%, respectively, as compared with the corresponding period in the prior year. This decrease is attributable to a decline in labor costs, primarily related to the reduction in
workforce in connection with the consolidation of facilities as part of the FY2009 Restructuring announced in the third quarter of fiscal year 2009, as described in Note 10 of notes to the condensed consolidated financial statements. As of
December 31, 2009 we had 155 employees engaged in research and development activities, versus 187 employees as of December 31, 2008, which represents a 17% reduction from the prior year. We do not expect our spending on research and
development to continue to decrease over the next several months due to our plan to reinvest our savings from the consolidation of engineering sites into research and development resources driving efficiencies.

Sales and Marketing Expenses

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

During the three months ended December 31, 2009, sales and marketing costs increased by 10%, as compared with the corresponding period of the prior year. Average headcount of employees engaged in
sales and marketing increased from the prior year period by approximately 3%. In addition, we experienced an increase in the overall labor costs per sales and marketing employee due to filling management positions in product marketing and business
development since the prior period. This also led to an increase in corporate incentive plan expense in this department. These changes caused an increase of $0.7 million from the prior quarter. Additionally, travel expenses increased $0.3 million
over the prior period.

During the six months ended December 31, 2009, sales and marketing costs increased by 5%, as compared with the
corresponding period of the prior year. While the average number of employees engaged in sales and marketing remained consistent compared to the prior year period, we experienced an increase in labor costs of $2.0 million due to higher salary costs
and corporate incentive plan expense due to the reasons discussed above. This increase was partially offset by a $1.0 million decrease in third-party commission payments related to payments received from customers in a country which are subject to a
third party agreement.



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General and Administrative Expenses

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

During the three months ended December 31, 2009, general and administrative costs decreased 14% compared
with the corresponding period in the prior year. This decrease is primarily attributed to a reduction in professional fees of $0.9 million due to lower legal costs, audit, and consulting costs.

During the six months ended December 31, 2009, general and administrative costs decreased 21% compared with the corresponding period in the prior year.
This decrease is primarily attributed to a $2.7 million reduction in legal fees related to unusual events in the prior period, as well as a decline in labor costs of $0.7 million related to lower contingent worker expense.

Restructuring and Other Related Costs

Restructuring and other related costs for the three months ended December 31, 2009, increased by 217% over the same period in the prior year. This increase is primarily attributed to restructuring
charges of $0.8 million in labor costs and $0.2 million in accelerated depreciation associated with the FY2010 Restructuring.

Restructuring
and other related costs for the six months ended December 31, 2009, decreased by 24% over the same period in the prior year. This decrease is primarily attributed to $1.0 million in new restructuring charges for the FY2010 Restructuring during
the six months ended December 31, 2009, being lower than $1.5 million of facility charges related to the FY2008 Restructuring taken in the corresponding period of the prior year.

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,
|                                                          |  | 2009                           |     | 2008                         |   | 2009   |  | 2008
|Amortization of intangible assets:                        |  |                                |     |                              |   |        |  |      |     |  |   |       
|Developed and core technology                             |  | $                              | 410 |                              | $ | 1,088  |  | $    | 820 |  | $ | 2,194 
|Customer contracts - licenses                             |  |                                |    |                              |   | 4      |  |      |    |  |   | 10    
|Customer contracts - support                              |  |                                | 10  |                              |   | 11     |  |      | 20  |  |   | 28    
|Workforce in place                                        |  |                                |    |                              |   | 26     |  |      |    |  |   | 52    
|                                                          |  |                                |     |                              |   |        |  |      |     |  |   |       
|Total amortization of intangible assets                   |  |                                | 420 |                              |   | 1,129  |  |      | 840 |  |   | 2,284 
|Impairment of goodwill                                    |  |                                |    |                              |   | 59,517 |  |      |    |  |   | 59,517
|                                                          |  |                                |     |                              |   |        |  |      |     |  |   |       
|Goodwill impairment and amortization of intangible assets |  | $                              | 420 |                              | $ | 60,646 |  | $    | 840 |  | $ | 61,801
|                                                          |  |                                |     |                              |   |        |  |      |     |  |   |       

The decrease in amortization in fiscal 2010 is due to a number of
assets becoming fully amortized.



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

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

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

Interest Income

Interest income was approximately $0.2 million and $0.5 million, respectively, for the three and six months ended December 31, 2009, as compared with $1.0 million and $2.8 million for the corresponding periods of the prior year. The
decrease in interest income is primarily attributed to lower interest rates and lower investment balances due to the utilization of $150.0 million of cash for repayment of our convertible subordinated notes in the first quarter of fiscal 2009.

Interest Expense

Interest expense was approximately $0.1 million and $0.2 million, respectively, for the three and six months ended December 31, 2009, as compared no interest expense and $1.0 million for the three and six months periods of the prior
year. The majority of our interest expense in the first quarter of fiscal 2009 related to our convertible subordinated notes which were repaid on September 9, 2008, causing interest expense to cease in the second quarter of fiscal 2009. The
majority of our interest expense in fiscal year 2010 relates to the line of credit facility entered into during the third quarter of fiscal 2009.

Other Expense, net

Other expense, net was approximately $0.4 million and $1.7 million,
respectively, during the three and six months ended December 31, 2009, and $2.4 million and $9.7 million during the corresponding periods of the prior year. Other expense, net for the three months ended December 31, 2008 includes
other-than-temporary impairments of $2.5 million recorded on some investments, with only an other-than-temporary impairment of $0.2 million and a $0.4 million gross realized loss on the sale of auction rate securities (ARS) in the
current years period. Other expense, net for the six months ended December 31, 2008 includes other-than-temporary impairments of $8.2 million recorded on some investments, with comparable charges of $2.1 million, including the realized
loss on sales of ARS, in the current years period. 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.

The decline in income tax expense for the three and six months ended December 31, 2009,
compared to the three and six months ended December 31, 2008 is the result of the release of unrecognized tax benefits due to the lapse of statute of limitations during the three and six months ended December 31, 2009.

In light of our history of operating losses we continue to maintain a full valuation allowance for our U.S. federal and state deferred tax assets. We intend
to maintain this valuation allowance until there is sufficient evidence to conclude that it is more likely than not that the federal and state deferred tax assets



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will be realized. As of December 31, 2009, we have foreign deferred tax assets recorded of
approximately $3.9 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, 2009, we have approximately $0.3 million of deferred tax liabilities recorded with respect to acquisitions for which the amortization expense of acquired intangibles is not deductible for tax purposes.

Discontinued Operations

During fiscal 2008, we sold our Client operations to Purple Labs, a private company based in Chambéry, France. The terms of the agreement include initial consideration of $20.0 million in cash
received by us on June 27, 2008 and a note receivable of $5.8 million which was due and paid in July 2008. Additionally, $4.2 million was placed in escrow by Purple Labs until September 2009 to secure indemnification claims made by
Purple Labs, if any. The escrowed amounts were scheduled to be released in September 2009, however, on September 23, 2009, Myriad (formerly known as Purple Labs) made claims against the escrow in excess of $4.2 million and therefore the funds
were not released from escrow. We have disputed these escrow claims and are in the early stages of negotiations with Myriad. A gain on the sale of discontinued operations will be recognized if and when funds are distributed from escrow. During the
first quarter of fiscal 2009, we met the terms of the earnout provision in the sale agreement, and received $2.0 million that was recorded as an additional $2.0 million gain on sale of discontinued operation in the condensed consolidated statement
of operations.

In January 2006, we acquired Musiwave and committed to a plan to sell our interest in Musiwave in June 2007. On
December 31, 2007, we sold Musiwave to Microsoft Corporation (Microsoft) for $41.4 million in cash, a note receivable of $5.9 million, and $4.6 million that Microsoft placed in escrow to secure indemnification claims, if any, made
by the purchaser. During the first quarter of fiscal 2010, the escrowed funds were distributed pursuant to recent agreements reached with Microsoft, resulting in a gain on sale of discontinued operations of $4.5 million.

Operating Lease Obligations and Contractual Obligations

There has been no material change to our contractual obligations during the first half of fiscal 2010. As such, see our Annual Report on Form 10-K for the fiscal year ended June 30, 2009 for a
description of our facility leases and Note 10 in the notes to the condensed consolidated financial statements. We currently have subleased a portion of our restructured facilities which will generate sublease income in aggregate of approximately
$22.5 million, resulting in a net future obligation on these properties of approximately $49.0 million, through our fiscal year 2013.

Off-Balance Sheet Arrangements

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

Letter of Credit

As of
December 31, 2009, we had letters of credit outstanding against the revolving credit facility totaling $17.7 million, reducing the available borrowings on the revolving credit facility. Refer to Note 8 in the notes to the condensed
consolidated financial statements for more information.

Line of Credit

On January 23, 2009, we entered into a $40.0 million secured revolving credit facility with Silicon Valley Bank to improve liquidity and working capital
for us. No debt was outstanding under this agreement as of December 31, 2009. Refer to Note 8 in the notes to the condensed consolidated financial statements for more information.



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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, 2009 and June 30, 2009 (dollars in thousands):



|                                |  |                  |         |              |   |               |  |     |  
|------------------------------- |  | ---------------- | ------- | ------------ | - | ------------- |  | --- | -
|                                |  | December 31,2009 |         | June 30,2009 |   | PercentChange | 
|Working capital                 |  | $                | 79,812  |              | $ | 84,887        |  | -6  | %
|                                |  |                  |        
|Cash and cash investments:      |  |                  |         |              |   |               |  |     |  
|Cash and cash equivalents       |  | $                | 71,848  |              | $ | 91,545        |  | -22 | %
|Short-term investments          |  |                  | 33,301  |              |   | 17,537        |  | 90  | %
|Long-term investments           |  |                  | 22,940  |              |   | 16,843        |  | 36  | %
|Restricted cash and investments |  |                  | 367     |              |   | 775           |  | -53 | %
|                                |  |                  |         |              |   |               |  |     |  
|Total cash and cash investments |  | $                | 128,456 |              | $ | 126,700       |  | 1   | %
|                                |  |                  |         |              |   |               |  |     |  



|                                                 |  |                              |         |   |      |   |          |  
|------------------------------------------------ |  | ---------------------------- | ------- | - | ---- | - | -------- | -
|                                                 |  | Six Months EndedDecember 31, |        
|                                                 |  | 2009                         |         |   | 2008 |  
|Cash used for operating activities               |  | $                            | (2,523  | ) |      | $ | (10,437  | )
|Cash provided by (used for) investing activities |  | $                            | (17,424 | ) |      | $ | 30,367   |  
|Cash provided by (used for) financing activities |  | $                            | 250     |   |      | $ | (149,927 | )

We have obtained a majority of our cash and investments through public offerings of common stock and
convertible debt, including a common stock offering in December 2005 which raised $277.8 million in net proceeds. In addition, we received $145.7 million from the issuance of our $150.0 million convertible subordinated notes during fiscal 2004.
Subsequently, in September 2008 we paid all of the outstanding principal and interest due on our convertible subordinated notes totaling approximately $150.0 million, pursuant to the original terms of the agreement. In fiscal 2008, we sold Musiwave
and our Client operations, resulting in $11.6 million of proceeds in fiscal 2009. We also entered into a $40.0 million revolving credit facility on January 23, 2009. As of December 31, 2009 and June 30, 2009, we had letters of credit
outstanding against the revolving credit facility totaling $17.7 million and $17.4 million, respectively, reducing the available borrowings on the revolving credit facility. The revolving credit facility requires a monthly borrowing base
calculation to determine the amount of the revolving credit facility available for us to borrow (Borrowing Base). The Borrowing Base calculation is $20.0 million plus 75% of accounts receivables defined as eligible in the credit
agreement. As of December 31, 2009, the Borrowing Base was $28.7 million and the total available for us to borrow on the revolving credit facility was $11.0 million, which is the difference between the Borrowing Base calculation of $28.7
million and the amount of outstanding letters of credit amount of $17.7 million. As of June 30, 2009, the Borrowing Base was $24.2 million and the total available for the Company to borrow on the revolving credit facility was $6.8 million,
which is the difference between the Borrowing Base calculation of $24.2 million and the amount of outstanding letters of credit of $17.4 million. The revolving credit line is secured by a blanket lien on all of our assets and contains certain
financial and reporting covenants



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customary to these types of credit facilities agreements which we are required to satisfy as a condition of
the agreement. In particular, the revolving credit facility requires that we meet certain minimum quarterly EBITDA amounts, as well as meet a minimum monthly liquidity ratio. In addition, the revolving credit facility requires us to provide to the
bank annual financial projections, promptly report any material legal actions, and timely pay material taxes and file all required tax returns and reports. Further, without the banks consent, we cannot take certain material actions, such as
change any material line of business, sell our business, acquire other entities, incur liens, make capital expenditures beyond a certain threshold, engage in transactions with affiliates, or engage in stock repurchases. As of December 31, 2009,
the Company was in compliance with all debt covenants.

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

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

Working capital

Our working capital, defined as current assets less current liabilities, decreased by approximately $5.1
million, or 6%, from June 30, 2009 to December 31, 2009. The decrease in working capital balances is primarily attributed to the $3.3 million loss from continuing operations as well as a decrease in cash and cash equivalents related to an
increase in purchases of long-term investments, partially offset by the sale of ARS, and liabilities related to restructured properties becoming payable within one year. These decreases were offset in part by the $4.5 million of cash from the
escrow payment made in connection with our sale of Musiwave, recorded as a gain on sale of discontinued operations during the first quarter of fiscal 2010.

Cash used for operating activities

Cash used for operating activities was $2.5 million
during the six months ended December 31, 2009. This use of cash primarily represents $7.9 million of payments on restructuring plans offset by $5.5 million of cash generated by net income adjusted for non-cash items. Changes in other working
capital items primarily offset each other, causing minimal impact on operating cash flows.

Cash used for investing
activities

Net cash used for investing activities during the six months ended December 31, 2009 was $17.4 million due primarily to
the $21.4 million of purchases of short-term and long-term investments, net of proceeds from the sale of investments, partially offset by the payment of the remaining escrowed amount of $4.5 million received from Microsoft from our sale of Musiwave.



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Cash flows provided by financing activities

Net cash provided by financing activities during the six months ended December 31, 2009 was $0.3 million, from the exercise of stock options and the
employee stock purchase plan during the period.



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

(a) Foreign Currency Risk

We operate internationally and are exposed to
potentially adverse movements in foreign currency rate changes. We have entered into foreign exchange derivative instruments to reduce our exposure to foreign currency rate changes on receivables, payables and intercompany balances denominated in a
nonfunctional currency. The objective of these derivatives is to neutralize the impact of foreign currency exchange rate movements on our operating results. These derivatives may require us to exchange currencies at rates agreed upon at the
inception of the contracts. These contracts reduce the exposure to fluctuations in exchange rate movements because the gains and losses associated with foreign currency balances and transactions are generally offset with the gains and losses of the
foreign exchange forward contracts. We do not enter into foreign exchange transactions for trading or speculative purposes, nor do we hedge foreign currency exposures in a manner that entirely offsets the effects of movement in exchange rates. We do
not designate our foreign exchange forward contracts as accounting hedges and, accordingly, we adjust these instruments to fair value through earnings in the period of change in their fair value. Net foreign exchange transaction losses included in
Other expense, net in the accompanying condensed consolidated statements of operations totaled $0.2 million, for both the three and six months ended December 31, 2009. As of December 31, 2009, we have the following forward contracts
(notional amounts in thousands):



|         |  |                |  |                        |  |                
|-------- |  | -------------- |  | ---------------------- |  | ---------------
|Currency |  | NotionalAmount |  | ForeignCurrencyper USD |  | Date ofMaturity
|AUD      |  | 3,600          |  | 1.12                   |  | 1/29/2010      
|CAD      |  | 2,500          |  | 1.04                   |  | 1/29/2010      
|EUR      |  | 2,500          |  | 0.70                   |  | 1/29/2010      
|JPY      |  | 345,000        |  | 91.64                  |  | 1/29/2010      

As of December 31, 2009, the nominal value multiplied by the USD exchange rate of these forward
contracts was $13.0 million.



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In comparison, as of June 30, 2009, we had the following forward contracts (in thousands):



|         |  |                |  |                        |  |                
|-------- |  | -------------- |  | ---------------------- |  | ---------------
|Currency |  | NotionalAmount |  | ForeignCurrencyper USD |  | Date ofMaturity
|AUD      |  | 1,500          |  | 1.25                   |  | 7/31/2009      
|AUD      |  | 4,000          |  | 1.24                   |  | 7/31/2009      
|BRL      |  | 400            |  | 1.96                   |  | 7/31/2009      
|CAD      |  | 500            |  | 1.11                   |  | 7/31/2009      
|CAD      |  | 1,000          |  | 1.15                   |  | 7/31/2009      
|EUR      |  | 1,380          |  | 0.72                   |  | 7/31/2009      
|EUR      |  | 1,300          |  | 0.72                   |  | 7/31/2009      
|EUR      |  | 670            |  | 0.71                   |  | 7/31/2009      
|GBP      |  | 500            |  | 0.61                   |  | 7/31/2009      
|JPY      |  | 72,000         |  | 98.33                  |  | 7/31/2009      
|JPY      |  | 365,000        |  | 95.16                  |  | 7/31/2009      

As of June 30, 2009, the
nominal value multiplied by the USD exchange rate of these forward contracts was $16.0 million.

(b) Interest Rate Risk

As of December 31, 2009, we had cash and cash equivalents, short-term and long-term investments, and restricted cash and
investments of $128.5 million compared to $126.7 million at June 30, 2009. Our exposure to market risks for changes in interest rates relates primarily to corporate debt securities, U.S. Treasury Notes and certificates of deposit. We place our
investments with high credit quality issuers that have a rating by Moodys of A2 or higher and Standard & Poors of A or higher, and, by policy, limit the amount of the credit exposure to any one issuer. Our general policy is to
limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. All highly liquid investments with a maturity of less than three months at the date of purchase are considered to be cash equivalents; all
investments with maturities of three months or greater and less than one year are classified as available-for-sale and considered to be short-term investments; all investments with remaining maturities greater than one year are classified as
available-for-sale and considered to be long-term investments. We do not purchase investments with a maturity date greater than three years from the date of purchase.

The following is a chart of the principal amounts of short-term investments and long-term investments by expected maturity at December 31, 2009 (in thousands):



|                               |  |                                                |        |      |              |            |              |   |            |   |            |   |        |  |   |       
|------------------------------ |  | ---------------------------------------------- | ------ | ---- | ------------ | ---------- | ------------ | - | ---------- | - | ---------- | - | ------ |  | - | ------
|                               |  |                                                |        |      | Cost Value   |            | Fair Value  
|                               |  | Expected maturity for the year ending June 30, |        |      | December 31, |            | December 31,
|                               |  | 2010                                           |        | 2011 |              | Thereafter |              |   | 2009 Total |   | 2009 Total
|U.S. Government Agencies       |  | $                                              | 3,473  |      | $            | 10,597     |              | $ |           |   |            | $ | 14,070 |  | $ | 14,074
|Certificates of Deposit        |  |                                                | 240    |      |              | 1,932      |              |   |           |   |            |   | 2,172  |  |   | 2,172 
|Commercial Paper               |  |                                                | 6,395  |      |              | 1,348      |              |   |           |   |            |   | 7,743  |  |   | 7,743 
|Corporate Bonds                |  |                                                | 7,684  |      |              | 12,922     |              |   | 1,260      |   |            |   | 21,866 |  |   | 21,928
|Auction Rate Securities        |  |                                                |       |      |              |           |              |   | 14,302     |   |            |   | 14,302 |  |   | 12,326
|                               |  |                                                |        |      |              |            |              |   |            |   |            |   |        |  |   |       
|Total                          |  | $                                              | 17,792 |      | $            | 26,799     |              | $ | 15,562     |   |            | $ | 60,153 |  | $ | 58,243
|                               |  |                                                |        |      |              |            |              |   |            |   |            |   |        |  |   |       
|                               |  |                                                |        |      |             
|Weighted-average interest rate |  |                                                |        |      |              |            |              |   | 1.9        | % |            |   |        |  |   |       

Additionally, we had $0.4 million of restricted investments that were included within long-term restricted cash
and investments on the condensed consolidated balance sheet as of December 31, 2009. $0.1 million of the restricted investments comprised a certificate of deposit to collateralize letters of credit for facility leases, $0.1 million comprised a
certificate of deposit for foreign currency denominated restricted investments and $0.2 million comprised a restricted investment to secure a warranty bond pursuant to a customer contract. The weighted average interest rate on our restricted
investments was 0.3% at December 31, 2009. There have been no significant changes in risk exposure since December 31, 2009.



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In comparison, the following is a table of the principal amounts of short-term investments and long-term
investments by expected maturity at June 30, 2009 (in thousands):



|                               |  |                                                    |        |      |                    |            |            |   |                    |   |                    |   |        |  |   |       
|------------------------------ |  | -------------------------------------------------- | ------ | ---- | ------------------ | ---------- | ---------- | - | ------------------ | - | ------------------ | - | ------ |  | - | ------
|                               |  | Expected maturity date for theyear ending June 30, |        |      | AdjustedCost Basis |            | Fair Value
|                               |  | 2010                                               |        | 2011 |                    | Thereafter |            |   | June 30,2009 Total |   | June 30,2009 Total
|Enhanced cash money market     |  | $                                                  | 721    |      | $                  | 617        |            | $ |                   |   |                    | $ | 1,338  |  | $ | 1,399 
|Corporate bonds                |  |                                                    | 13,305 |      |                    | 300        |            |   | 170                |   |                    |   | 13,775 |  |   | 13,749
|Auction rate securities        |  |                                                    |       |      |                    |           |            |   | 13,190             |   |                    |   | 13,190 |  |   | 14,044
|Federal agencies               |  |                                                    | 3,495  |      |                    | 1,665      |            |   |                   |   |                    |   | 5,160  |  |   | 5,165 
|                               |  |                                                    |        |      |                    |            |            |   |                    |   |                    |   |        |  |   |       
|Total                          |  | $                                                  | 17,521 |      | $                  | 2,582      |            | $ | 13,360             |   |                    | $ | 33,463 |  | $ | 34,357
|                               |  |                                                    |        |      |                    |            |            |   |                    |   |                    |   |        |  |   |       
|Weighted-average interest rate |  |                                                    |        |      |                    |            |            |   | 2.2                | % |                    |   |        |  |   |       

Additionally, we had $0.8 million of restricted investments that were included within long term restricted cash
and investments in the condensed consolidated balance sheet as of June 30, 2009. $0.2 million comprised a restricted investment to secure a warranty bond pursuant to a customer contract. Additionally, $0.6 million of the restricted investments
comprised a certificate of deposit to collateralize letters of credit for facility leases. The weighted average interest rate on our restricted investments was 0.3% at June 30, 2009.

As of December 31, 2009, $12.3 million in ARS, recorded in long-term investments on the condensed consolidated balance sheet, were considered illiquid
based upon recent auction results, compared to $14.0 million as of June 30, 2009.

Certain ARS with an estimated fair value of $12.3
million were issued by nine different entities and are held by two investment firms on our behalf. Six of these securities are Triple X structured obligations of special purpose reinsurance entities associated with life insurance
companies. Two securities are interest-bearing corporate debt obligations which, through the course of the issuers business, have some exposure to asset-backed securities. One ARS is related to federal education student loan programs. We
estimated the fair value of these auction rate securities based on probabilities of potential scenarios: 1) successful auction/early redemption, 2) failing auctions until maturity or 3) default and the estimated cash flows for each scenario. Other
factors were considered, such as the value of the investments held by the issuer and the financial condition and credit ratings of the issuer, insurers, and parent companies as applicable. We recorded a $1.7 million and $6.6 million, respectively,
other-than-temporary loss in the condensed consolidated statements of operations during the six months ended December 31, 2009 and 2008 related to these securities. As of December 31, 2009 these instruments were all rated AAA, A-, BB-,
BBB- or CC by Standard and Poors and Caa2 to Aaa by Moodys and $15.9 million par value of these illiquid investments are insured against defaults of principal and interest by third party insurance companies.



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

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive
officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) as
of the end of the period covered by this report, (the Evaluation Date). In designing and evaluating the disclosure



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controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures
relative to their costs. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance
that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that
such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended
December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II Other Information



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

IPO securities class action

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

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

On April 2, 2009, the parties in all the lawsuits submitted a settlement for the Courts approval. Under the settlement, the Openwave Defendants
would not be required to make any cash payment. On October 6, 2009, the Court approved the settlement, under which the Openwave Defendants are not required to contribute any cash. Several notices of appeal have been filed by putative class
members, challenging the settlement. The Company believes a loss is not probable or reasonably estimable. Therefore no amount has been accrued as of December 31, 2009.



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Simmonds v. Credit Suisse Group, et al.,

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

On
March 12, 2009, the Court granted the Issuer Defendants Joint Motion to Dismiss, dismissing the complaint without prejudice on the grounds that the Plaintiff had failed to make an adequate demand on the Company prior to filing her
complaint. In its order, the Court stated it would not permit the Plaintiff to amend her demand letters while pursuing her claims in the litigation. Because the Court dismissed the case on the ground that it lacked subject matter
jurisdiction, it did not specifically reach the issue of whether Plaintiffs claims were barred by the applicable statute of limitations. However, the Court also granted the Underwriters Joint Motion to Dismiss with respect to
cases involving non-moving issuers, holding that the cases were barred by the applicable statute of limitations because the issuers shareholders had notice of the potential claims more than five years prior to filing suit. On
April 10, 2009, the Plaintiff filed a Notice of Appeal, and the underwriters subsequently filed a Notice of Cross-Appeal, arguing that the dismissal of the claims involving the moving issuers should have been with
prejudice because the claims were untimely under the applicable statute of limitations. The Plaintiffs opening brief on appeal was filed on August 26, 2009; the Issuer and Underwriter Defendants opposition
briefs and the Underwriter Defendants brief supporting their cross-appeals were filed on October 2, 2009; Simmonds reply brief and opposition to the Underwriter Defendants cross-appeals were filed on November 2,
2009; and the Underwriter Defendants reply brief in support of their cross-appeals was filed on November 17, 2009. No amount has been accrued as of December 31, 2009, as a loss is not considered probable or reasonably
estimable.

Each of the IPO Securities Litigation and Simmonds matters were reported on in our Annual Report on Form 10-K for the fiscal year
ended June 30, 2009, and in our Quarterly Report on Form 10-Q for the quarter ended December 31, 2009.

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



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

The following risks factors
were set forth in Part I, Item 1A, Risk Factors in Openwaves Annual Report on Form 10-K for the fiscal year ended June 30, 2009, which could materially affect Openwaves business, financial condition or future
results. These risks are not the only risks facing Openwave; additional risks and uncertainties may not be currently known to or may be deemed immaterial by management but could materially adversely affect Openwaves business, financial
condition, and/or operating results. These risks have not changed substantively from those set forth in Openwaves Annual Report on Form 10-K for the fiscal year ended June 30, 2009.



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Risks Related to Our Business

We are in a product transition phase and we may not be able to adequately develop or market products.

We are in the process of selling our customers a migration to Openwaves next generation software platforms and tools, and we may not be able to
adequately develop or market these new products.

The market for our products and services is highly competitive, and the pace of technical
innovation is high. We are expanding the functionality of our core mobile mediation and messaging platforms, and incorporating additional service enablers to sell a complete, integrated solution. Revenues from our legacy products are decreasing, and
the successful customer migration onto our new platforms is critical to our business.

There can be no assurance that we are or will be able
to develop, market, or sell our new products and features in a timely manner. Our new products or services may be delayed, and new products may not be accepted by the market, or may be accepted for a shorter period than anticipated. New product
offerings may not properly integrate into existing or anticipated platforms, or meet existing or anticipated demand and the failure of these offerings to be accepted by the market could have a material adverse effect on our business, operations,
financial condition, or reputation. Our sales and operating results may be adversely affected if we are unable to bring new products to market, if customers delay purchases or if acceptance of the new products is slower than expected or to a smaller
degree than expected, if at all.

We rely upon a small number of customers for a significant portion of our revenues, and the failure to
retain and expand our relationships with these customers could adversely affect our business.

Our customer base consists of a limited
number of large communications service providers, which makes us significantly dependent on their plans and the success of their products. Our success, in turn, depends in large part on our continued ability to introduce reliable and robust products
that meet the demanding needs of these customers and their willingness to launch, maintain and market commercial services utilizing our products. Moreover, consolidation among these service providers further limits the existing and potential pool of
customers for us. Revenue recognized from arrangements with Sprint-Nextel and AT&T accounted for approximately 38% and 8%, respectively, of our total revenues during the first six months of fiscal 2010. By virtue of their size and the
significant portion of our revenue that we derive from these customers, these customers are able to exert significant influence in the negotiation of our commercial arrangements and the conduct of our business with them. If we are unable to retain
and expand our business with key customers on favorable terms, our business and operating results will be adversely affected.

We have a
history of losses and we may not be able to achieve or maintain consistent profitability.

We have a history of losses and may not be able
to maintain consistent profitability. Except for fiscal 2006, we have incurred annual net losses since our inception. As of December 31, 2009, we had an accumulated deficit of approximately $3.1 billion, which includes approximately $2.1
billion of goodwill amortization and impairment. We expect to continue to spend significant amounts to develop, enhance or acquire products, services and technologies and to enhance sales and operational capabilities. Our prospects must be
considered in light of the risks, expenses, delays and difficulties frequently encountered by companies engaged in rapidly evolving technology markets like ours.



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Our industry changes rapidly as a result of technological and product developments, which may quickly
render our products and services less desirable or even obsolete. If we are unable or unsuccessful in supplementing our product offerings, our revenue and operating results may be materially adversely affected.

The industry in which we operate is subject to rapid technological change. The introduction of new technologies in the market, including the delay in the
adoption of these technologies, as well as new alternatives for the delivery of products and services will continue to have a profound effect on competitive conditions in our market. We may not be able to develop and introduce new products, services
and enhancements that respond to technological changes or evolving industry standards on a timely basis.

More generally, while in the past we
have primarily provided specific component sales, in the future we intend to provide more integrated and comprehensive software solutions for our carrier customers. We also intend to develop and license new products and to enter into new product
markets. We may not be able to develop and license new products in accordance with our expectations, or at all, our new products may not be adopted by the primary carriers, or we may be unable to succeed in new product markets which, in any case,
would have a material adverse affect on our business and operating results.

Because of the rapid technological changes of our industry, our
historic product, service, and enhancement offerings may have a shorter life than anticipated. Revenue from such products may decline faster than anticipated, and if our new products, services and enhancements are not accepted by our customers or
the market as anticipated, if at all, our business and operating results may be materially and adversely affected.

Our communications
service provider customers face implementation and support challenges in introducing Internet-based services, which may slow their rate of adoption or implementation of the services our products enable.

Historically, communications service providers have been relatively slow to implement new, complex services. In addition, communications service providers
may encounter greater customer demands to support Internet-based services than they do for their traditional voice services. We have limited or no control over the pace at which communications service providers implement these new Internet-based
services. The failure of communications service providers to introduce and support Internet-based services utilizing our products in a timely and effective manner could have a material adverse effect on our business and operating results.

Our business depends on continued investment and improvement in communication networks by our customers.

Many of our customers and other communication service providers continue to make major investments in next generation networks that are intended to support
more complex applications and to provide end users with a more satisfying user experience. If communication service providers delay their deployment of networks or fail to roll such networks out successfully, there could be less demand for our
products and services, which could adversely affect our business and operating results.

In addition, the communications industry has
experienced significant fluctuations in capital expenditures. Although the capital spending environment may have improved recently, we have recently experienced significant revenue declines from historical peaks as a result of spending contraction
in our industry. If capital spending and technology purchasing by communication service providers do not continue to improve or decline, our revenue would likely decline substantially.



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We depend on recruiting and retaining key management and technical personnel with telecommunications and
Internet software experience who are integral in developing, marketing and selling our products.

Because of the technical nature of our
products and the dynamic market in which we compete, our performance depends on attracting and retaining key management and other employees. In particular, our future success depends in part on the continued service of many of our current employees,
including key executives and key engineers and other technical employees. Competition for qualified personnel in the telecommunications, Internet software and Internet messaging industries is significant, especially in the San Francisco Bay Area in
which we are located. We believe that there are only a limited number of persons with the requisite skills to serve in many of our key positions, and it is generally difficult to hire and retain these persons. Furthermore, it may become more
difficult to hire and retain key persons as a result of our past restructurings, any future restructurings, and our past stock performance. Competitors and others have in the past, and, may in the future, attempt to recruit our employees. In the
event of turnover within key positions, integration of new employees will require additional time and resources, which could adversely affect our business plan. If we are unable to attract or retain qualified personnel, our business could be
adversely affected.

Our market is highly competitive and our inability to compete successfully could adversely affect our operating
results.

The market for our products and services is highly competitive. Many of our existing and potential competitors have substantially
greater financial, technical, marketing and distribution resources than we have. Their resources have enabled them to aggressively price, finance and bundle their product offerings to attempt to gain market adoption or to increase market share. If
our competitors offer deep discounts on certain products in an effort to gain market share or to sell other products or services, we may then need to lower prices of our products and services, change our pricing models, or offer other favorable
terms in order to compete successfully, which would likely reduce our margins and adversely affect operating results.

We expect that we will
continue to compete primarily on the basis of quality, breadth of product and service offerings, functionality, price, strength of customer relationships and time to market. See Item 1.-Business-Competition in Openwaves Annual
Report on Form 10-K for the fiscal year ended June 30, 2009, for more information regarding the competition we face.

Our sales cycles
are long, subjecting us to the loss or deferral of anticipated orders and related revenue.

Our sales cycle is generally long, often in
excess of six months, and unpredictable due to the lengthy evaluation and customer approval process for our products, including internal reviews and capital expenditure approvals. Moreover, the evolving nature of the market for data services via
mobile devices may lead prospective customers to postpone their purchasing decisions pending resolution of standards or adoption of technology by others. Additionally, consolidation among our customer base has led to extended approval reviews and
delayed decisions. Accordingly, we may not close sales as anticipated during a given quarter which may lead to a shortfall in revenue or bookings we or securities analysts anticipated.



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Our business is subject to the risks of international operations since we depend on international sales,
and any decrease in international sales would adversely affect our operating results.

International sales accounted for approximately 46%
and 51% of our total revenues for the first six months of fiscal 2010 and 2009, respectively. As a result, our financial condition and operating results could be significantly affected by risks associated with international activities, including
economic and labor conditions, political instability, tax laws (including U.S. taxes on foreign subsidiaries), differing technology standards and pace of adoption, export restrictions on encryption and other technologies, increased competition by
local, regional, or global companies, difficulties in collecting accounts receivable and longer collection periods, and changes in the value of the U.S. dollar versus local currencies. Margins on sales of our products in foreign countries, and on
sales of products that include components obtained from foreign suppliers, could be materially adversely affected by foreign currency exchange rate fluctuations and by international trade regulations, including tariffs and antidumping penalties.

Our primary exposure to movements in foreign currency exchange rates relate to non-U.S. dollar denominated sales in Europe, Japan, Australia,
Canada, and certain parts of Asia, as well as non-U.S. dollar denominated operating expenses incurred throughout the world. Weakening of foreign currencies relative to the U.S. dollar will adversely affect the U.S. dollar value of our foreign
currency-denominated sales and earnings, and generally will lead us to raise international pricing, potentially reducing demand for our products. In some circumstances, due to competition or other reasons, we may decide not to raise local prices to
the full extent of the dollars strengthening, or at all, which would adversely affect the U.S. dollar value of our foreign currency denominated sales and earnings. Conversely, a strengthening of foreign currencies, while generally beneficial
to our foreign currency-denominated sales and earnings, could cause us to reduce international pricing, thereby limiting the benefit; as strengthening of foreign currencies may also increase our cost of product components denominated in those
currencies.

We have used derivative instruments, such as foreign exchange forward and option positions, to hedge certain exposures to
fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in
place.

Our customer contracts lack uniformity and often are particularly complex, which subjects us to business and other risks.

Our customers are typically large communications service providers. Their substantial purchasing power and negotiating leverage limits our
ability to negotiate uniform business terms. As a result, we typically negotiate contracts on an individual customer-by-customer basis and sometimes determine to accept contract terms not favorable to us in order to close a transaction, including
indemnity, limitation of liability, refund, penalty or other terms that expose us to significant risk. We may need to provide indemnification relating to third party components that we provide, and we may or may not have sufficient indemnification
provisions from the third parties to fully cover for this risk. The lack of uniformity and the complexity of the terms of these contracts may also create difficulties with respect to ensuring timely and accurate accounting and billing under these
contracts. If we are unable to effectively negotiate, enforce and accurately or timely account and bill for contracts with our key customers, our business and operating results may be adversely affected.

We rely on estimates to determine arrangement fee revenue recognition for a particular reporting period. If our estimates change, or our customers do not
accept deliverables, future expected revenues could adversely change.

We apply the percentage-of-completion method to recognize revenue
for certain fixed fee solutions-based arrangements. Applying the percentage-of-completion method requires that we estimate progress on our professional service revenues for a particular period. If, in a particular period, our estimates to project



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completion change or we estimate project overruns, revenue recognition for such projects in the period may be less than expected or even negative, which could cause us to fail to realize
anticipated operating results in a given period. Additionally, a portion of the payments under some of our professional services arrangements are based on customer acceptance of deliverables. If a customer fails to accept the applicable deliverable,
we may not be able to recognize the related revenue or receive payment for work that we have already completed, which could adversely affect our business and operating results.

Demand for our technology depends in part on operators maintaining a central role in the mobile value chain, and not being circumvented by emerging players who offer services directly to subscribers.

Our products and services are currently sold almost exclusively for use by mobile and broadband operators. As the industry moves to
more open standards, services and applications have emerged from content providers that bypass the mobile and broadband operator and are sold directly to consumers. The threat of operators being disintermediated could have a negative impact to
our business, if Openwave does not diversify its customer base beyond the operator community and if the consumer uptake of these new services dilutes operators customer relationship. For Openwave, the loss of operator control over the
subscriber experience could threaten our ability to intermediate and add value, and ultimately, lessen demand for our products and services.

We may not be successful in forming or maintaining strategic alliances with other companies, which could adversely affect our product offerings and sales.

Our business strategy depends in part on forming or maintaining strategic or reseller alliances with other companies. We may not be able to form the alliances that are necessary to ensure that our
products are compatible with third-party products, to enable us to license our software into potential new customers and into potential new markets, and to enable us to continue to enter into new license agreements with our existing customers. We
may be unable to maintain existing relationships with other companies, to identify the best alliances for our business or enter into new alliances with other companies on acceptable terms, or at all. If we cannot form and maintain significant
strategic alliances with other companies as our target markets and technology evolves, our sales opportunities could deteriorate, which could have a material adverse effect on our business and operating results.

Our software products may contain defects or errors, which could result in rejection of our products, delays in shipment of our products, damage to our
reputation, product liability and lost revenues.

The software we develop and the associated professional services we offer are complex and
must meet stringent technical requirements of our customers. We must develop our products quickly to keep pace with the rapidly changing Internet software and telecommunications markets. Our software products and services may contain undetected
errors or defects, especially when first introduced or when new versions are released. We have, in the past, experienced delays in releasing some versions of our products until software problems were corrected. In addition, some of our customer
contracts provide for a period during which our products and services are subject to acceptance testing. Failure to achieve acceptance could result in a delay in, or inability to, receive payment. Our products may not be free from errors or defects
after commercial shipments have begun, which could result in the rejection of our products and damage to our reputation, as well as lost revenues, diverted development resources and increased service and warranty costs, any of which could harm our
business.



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Our intellectual property could be misappropriated, which could force us to become involved in expensive
and time-consuming litigation.

Our ability to compete and continue to provide technological innovation is substantially dependent upon
internally-developed technology. We rely on a combination of patent, copyright and trade secret laws to protect our intellectual property or proprietary rights in such technology, although we believe that other factors such as the technological and
creative skills of our personnel, new product developments, frequent product and feature enhancements and reliable product support and maintenance are more essential to maintaining a technology leadership position. We also rely on trademark law to
protect the value of our corporate brand and reputation.

Despite our efforts to protect our intellectual property and proprietary rights,
unauthorized parties may copy or otherwise obtain and use our products, technology or trademarks. Effectively policing and enforcing our intellectual property is time consuming and costly, and the steps taken by us may not prevent infringement of
our intellectual property or proprietary rights in our products, technology and trademarks, particularly in foreign countries where in many instances the local laws or legal systems do not offer the same level of protection as in the United States.

Our products may infringe the intellectual property rights of others, subjecting us to claims for infringement, payment of license
royalties or other damages.

Our products or solutions, including third party elements, may be alleged to infringe the intellectual
property rights of others, subjecting us to claims for infringement, payment of license royalties or other remedies. As the number of our products, solutions, and services increases and their features and content continue to expand, we may
increasingly become subject to infringement and other intellectual property claims by third parties. From time to time, we and our customers have received and may receive in the future, offers to license or claims alleging infringement of
intellectual property rights, or may become aware of certain third party patents that may relate to our products. For example, a number of parties have asserted to standards bodies such as OMA that they own intellectual property rights which may be
essential for the implementation of specifications developed by those standards bodies. A number of our products are designed to conform to OMA specifications or those of other standards bodies, and have been, and may in the future be, subject to
offers to license or claims of infringement on that basis by individuals, intellectual property licensing entities and other companies, including companies in the telecommunications field with greater financial resources and larger intellectual
property portfolios than our own.

Additionally, our customer agreements require that we indemnify our customers for infringement of our
intellectual property embedded in their products. In the past we have elected, and in the future we may elect, to take a license or otherwise settle claims of infringement at the request of our customers or otherwise. Any litigation regarding
patents or other intellectual property could be costly and time consuming and could divert our management and key personnel from our business operations. The complexity of the technology involved, and the number of parties holding intellectual
property within the wireless industry, increase the risks associated with intellectual property litigation. Moreover, patent litigation has increased due to the increased number of cases asserted by intellectual property licensing entities as well
as increasing competition and overlap of product functionality in our markets. Royalty or licensing arrangements, if required, may not be available on terms acceptable to us, if at all. Any infringement claim successfully asserted against us or
against a customer for which we have an obligation to defend could result in costly litigation as well as the payment of substantial damages or an injunction.

We may be unable to effectively manage future growth, if any, that we may achieve.

As a
result of our efforts to control costs through restructurings and otherwise, our ability to effectively manage and control any future growth may be limited. To manage any growth, our management must continue to improve our operational, information
and financial systems, procedures and controls and expand, train, retain and manage our employees. If our systems, procedures and controls are inadequate to support our operations, any expansion could decrease or stop, and investors may lose
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operations or financial results. If we are unable to manage growth effectively, our business and operating
results could be adversely affected, and any failure to develop and maintain adequate internal controls could cause the trading price of our shares to decline substantially.

We may pursue acquisitions or investments in complementary technologies and businesses, which could harm our operating results and may disrupt our business.

In the future, we may pursue acquisitions of, or investments in, complementary technologies and businesses. Acquisitions present a number of potential risks
and challenges that could, if not met, disrupt our business operations, increase our operating costs and reduce the value to us of the acquired company. Even if we are successful, we may not be able to integrate the acquired businesses, products or
technologies into our existing business and products. Furthermore, potential acquisitions and investments, whether or not consummated, may divert our managements attention and require considerable cash outlays at the expense of our existing
operations. In addition, to complete future acquisitions, we may issue equity securities, incur debt, assume contingent liabilities or have amortization expenses and write-downs of acquired assets, which could adversely affect our profitability.

Foreign acquisitions involve special risks, including those related to integration of operations across different cultures, languages, and
legal systems, currency risks, and the particular economic, political, and regulatory risks associated with specific countries. In addition, we may incur significant transaction fees and expenses, including expenses for transactions that may not be
consummated. In any event, as a result of future acquisitions, we might need to issue additional equity securities, spend our cash, or incur debt or assume significant liabilities, any of which could adversely affect our business and results of
operations.

The security provided by our products could be breached, in which case our reputation, business, financial condition and
operating results could suffer.

A fundamental requirement for online communications is the secure transmission of confidential information
over the Internet. Third-parties may attempt to breach the security provided by our products, or the security of our customers internal systems. If they are successful, they could obtain confidential information about our customers end
users, including their passwords, financial account information, credit card numbers or other personal information. Our customers or their end users may file suits against us for any breach in security, which could result in costly litigation or
harm our reputation. The perception of security risks, whether or not valid, could inhibit market acceptance of our products. Despite our implementation of security measures, our software is vulnerable to computer viruses, electronic break-ins,
intentional overloading of servers and other sabotage, and similar disruptions, which could lead to interruptions, delays, or loss of data. The occurrence or perception of security breaches could harm our business, financial condition and operating
results.

Our business and future operating results may be adversely affected by events outside our control.

Our corporate headquarters are located in Redwood City, California. California in particular has been vulnerable to natural disasters, such as earthquakes,
fires and floods, and other risks which at times have disrupted the local economy and posed physical risks to our property. We presently do not have adequate redundant, multiple site capacity if any of these events were to occur, nor can we be
certain that the insurance we maintain against these events would be adequate.



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Our business in countries with a history of corruption and transactions with foreign governments,
including with government owned or controlled wireless carriers, increase the risks associated with our international activities.

As we
operate and sell internationally, we are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by
the United States and other business entities for the purpose of obtaining or retaining business. We have operations, deal with carriers and make sales in countries known to experience corruption, particularly certain emerging countries in East
Asia, Eastern Europe and Latin America, and further international expansion may involve more of these countries. Our activities in these countries create the risk of unauthorized payments or offers of payments by one of our employees, consultants,
sales agents or distributors that could be in violation of various laws including the FCPA, even though these parties are not always subject to our control. We have attempted to implement safeguards to prevent these practices by our employees,
consultants, sales agents and resellers. However, our existing safeguards and any future improvements may prove to be less than effective, and our employees, consultants, sales agents or distributors may engage in conduct for which we may be held
responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.

We have incurred and will continue to incur increased costs as a result of being a public company.

As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of
2002, as well as new rules subsequently implemented by the SEC and NASDAQ, have required changes in corporate governance practices of public companies. Further, the U.S. Congress is currently contemplating passing additional laws that we believe
will impose further costs upon public companies. We expect these new laws, rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We continue to evaluate and monitor
developments with respect to these new laws and rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

We face litigation risks that could have a material adverse effect on our company.

Several
shareholder derivative lawsuits were filed against our directors, officers, certain former directors and officers, and us as a nominal defendant, as well as a securities class action, relating to our past stock option grants and practices.
Additionally, in the future, we may be the subject of additional private or government actions. Litigation may be time-consuming, expensive and disruptive to normal business operations, and the outcome of litigation is difficult to predict. The
defense of these lawsuits has resulted and may continue to result in significant expense and the continued diversion of managements time and attention from the operation of our business, which could impede our ability to achieve our business
objectives and an unfavorable outcome may have a material adverse effect on our business, financial condition and results of operations. Additionally, any amount that we may be required to pay to satisfy a judgment or settlement of these lawsuits
may not be covered by insurance. Under our charter and the indemnification agreements that we have entered into with our officers and directors, we are required to indemnify, and advance expenses to them in connection with their participation in
proceedings arising out of their service to us. There can be no assurance that any of these payments will not be material.

Our investments
in marketable securities are subject to market risks which may cause losses and affect the liquidity of these investments.

At
December 31, 2009, we had investments totaling approximately $12.3 million in illiquid auction-rate securities. All of these investments carry a credit rating of AAA, A-, BB-, BBB- or CC from one or more of the major credit rating agencies and
all scheduled interest payments to-date have been made by the issuers. None of the auction rate securities held by us are mortgage-backed debt obligations. The securities represent rights to interest and principal paid by the issuer from their cash
flows generated in

conducting business. The majority of these illiquid auction-rate securities are insured against defaults of principal and
interest by third party insurance companies.



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Auction-rate securities are long-term variable rate bonds or money market securities tied to short-term
interest rates. After the initial issuance of the securities, the interest rate on the securities is reset periodically, at intervals established at the time of issuance (e.g., every seven, twenty-eight, or thirty-five days; every six months; etc.).
Auction-rate securities are bought and sold in the marketplace through a competitive bidding process often referred to as a Dutch Auction. If there is insufficient interest in the securities at the time of an auction, the auction may not
be completed and the rates may be reset to predetermined higher rates. Following such a failed auction, we would not be able to access our funds that are invested in the corresponding auction-rate securities until a future auction of these
investments is successful, new buyers express interest in purchasing these securities in between reset dates, issuers establish a different form of financing to replace these securities, or final payments become due according to contractual
maturities.

Given the current illiquid conditions in the global credit markets and the refusal of broker-dealers to continue to support
auctions of auction-rate securities, the auctions failed for these auction-rate securities and, as a result, our ability to liquidate our investment and fully recover the carrying value of our investment in the near term may be limited or not exist.
If the global credit market continues to deteriorate and broker-dealers do not renew their support of auctions for auction rate securities, the liquidity of our investment portfolio may continue to be impacted, and we could determine that some of
our investments are impaired. This could materially adversely impact our results of operations and financial condition. We may similarly be required to record impairment charges if, among other conditions, the ratings on any of these securities are
reduced or if any of the issuers default on their obligations. In addition to impairment charges, any of these events could cause us to lose part or all of our investment in these securities. Any of these events could have a material adverse affect
on our results of operations and our financial condition. We determined that the declines in the fair value of these investments as of September 30, 2008, December 31, 2008 and March 31, 2009, and September 30, 2009 were
other-than-temporary and recorded $4.4 million, $2.2 million, $1.6 million and $1.5 million in impairment charges, respectively, on these illiquid auction rate securities based on our estimate of fair value in our consolidated statement of
operations for the corresponding quarters. There may be further declines in the value of these investments. The market risks associated with our investment portfolio may have a material adverse effect on our results of operations, liquidity and
financial condition.

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.



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Our current credit agreement contains various covenants that limit our discretion in the operation of our
business, which could have a materially adverse effect on our business, financial condition and results of operations.

Our current credit
agreement contains numerous restrictive covenants that require us to comply with and maintain certain financial tests and ratios, thereby restricting our ability to:



| |  |  | Incur debt;
| | - |  | -----------



| |  |  | Incur liens;
| | - |  | ------------



| |  |  | Redeem or prepay subordinated debt;
| | - |  | -----------------------------------



| |  |  | Make acquisitions of businesses or entities to sell certain assets;
| | - |  | -------------------------------------------------------------------



| |  |  | Make investments, including loans, guarantees and advances;
| | - |  | -----------------------------------------------------------



| |  |  | Make capital expenditures beyond a certain threshold;
| | - |  | -----------------------------------------------------



| |  |  | Engage in transactions with affiliates;
| | - |  | ---------------------------------------



| |  |  | Pay dividends or engage in stock repurchases; and
| | - |  | -------------------------------------------------



| |  |  | Enter into certain restrictive agreements
| | - |  | -----------------------------------------

Our ability to comply with covenants contained in our credit agreement may be affected by events beyond our control, including prevailing economic, financial and industry conditions.

Our current credit agreement is secured by a pledge of all of our assets. If we were to default under our current credit agreement and were unable to obtain
a waiver for such a default, the lenders would have a right to foreclose on our assets in order to satisfy our obligations under the current credit agreement. Any such action on the part of the lenders against us could have a materially adverse
impact on our business, financial condition and results of operations.

Risks Related to Owning Our Common Stock

Our operating results are subject to significant fluctuations, and this may cause our stock price to decline in future periods.

Our operating results have fluctuated in the past and may do so in the future. Our revenue, particularly our licensing revenue, is difficult
to forecast and is likely to fluctuate from quarter to quarter. Factors that may lead to significant fluctuation in our operating results include, but are not limited to:



| |  |  | delays in or cancellation of orders from key customers;
| | - |  | -------------------------------------------------------



| |  |  | the introduction of new products or services or changes in pricing policies by us or our competitors;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | delays in development, launch, market acceptance or implementation by our customers of our products and services;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | changes in demand and purchasing patterns of our customers for our products;
| | - |  | ----------------------------------------------------------------------------



| |  |  | changes in our revenue mix among license, maintenance and support and professional services;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | restructuring or impairment charges we may take;
| | - |  | ------------------------------------------------



| |  |  | revenue recognition and other accounting policies; and
| | - |  | ------------------------------------------------------



| |  |  | potential slowdowns or quality deficiencies in the introduction of new telecommunication networks, technologies or handsets for which our solutions are
designed.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



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In particular, our customers often defer execution of our agreements until the last week of the quarter if
they elect to purchase our products. Approximately 75%-80% of our quarterly bookings typically occurs in the last month of a quarter and the pattern for revenue generation during that month is normally not linear. Accordingly, we may not recognize
revenue as anticipated during a given quarter when customers defer orders, delay the timing of our implementation services or ultimately elect not to purchase our products. Therefore, we could be in a position where we do not achieve our financial
targets for a quarter and not determine this until very late in the quarter or after the quarter is over. As a result, our visibility into our revenue to be recognized for future periods is limited.

Our operating results could also be affected by general industry factors, including a slowdown in capital spending or growth in the telecommunications
industry, either temporary or otherwise, disputes or litigation with other parties, and general political and economic factors, including an economic slowdown or recession, acts of terrorism or war, and health crises or disease outbreaks.

In addition, our operating results could be impacted by the amount and timing of operating costs and capital expenditures relating to our
business and our ability to accurately estimate and control costs. Most of our expenses, such as compensation for current employees and lease payments for facilities and equipment, are largely fixed. In addition, our expense levels are based, in
part, on our expectations regarding future revenues. As a result, any shortfall in revenues relative to our expectations could cause significant changes in our operating results from period to period. In this regard, our bookings may not be
indicative of revenue that will be recognized in current or subsequent periods. Due to the foregoing factors, we believe period-to-period comparisons of our historical operating results may be of limited use. In any event, we may be unable to meet
our internal projections or the projections of securities analysts and investors. If we are unable to do so, we expect that, as in the past, the trading price of our stock may fall dramatically.

Provisions of our corporate documents and Delaware law may discourage an acquisition of our business, which could affect our stock price.

Our charter and bylaws may inhibit changes of control that are not approved by our Board of Directors. In particular, our certificate of incorporation
includes provisions for a classified Board of Directors, authorizes the Board of Directors to issue preferred stock without stockholder approval, prohibit cumulative voting in director elections and prohibit stockholders from taking action by
written consent. Further, our bylaws include provisions that prohibit stockholders from calling special meetings and require advance notice for stockholder proposals or nomination of directors. In addition, we have adopted a stockholder rights plan
such that, if a person or group acquires beneficial ownership of 15 % or more of our common stock or commences a tender offer or exchange offer upon consummation of which such person or group would beneficially own 15 percent or more of the
Companys common stock, our stockholder rights plan provides for rights to be distributed as a dividend to certain of our stockholders of record. We are also subject to Section 203 of the Delaware General Corporation Law, which generally
prevents a person who becomes the owner of 15 percent or more of the corporations outstanding voting stock from engaging in specified business combinations for three years unless specified conditions are satisfied. These provisions could have
the effect of delaying or preventing changes in control or management.

Our stock price has been and is likely to continue to be volatile
and you may not be able to resell shares of our common stock at or above the price you paid, if at all.

The trading price of our common
stock has experienced wide fluctuations due to the factors discussed in this risk factors section and elsewhere in this Annual Report. In addition, the stock market in general has, and the NASDAQ Global Market and technology companies in particular
have, experienced extreme price and volume fluctuations. These trading prices and valuations may not be sustainable. These broad



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market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the
overall market and the market price of a companys securities, securities class action litigation has often been instituted against companies that experienced such volatility. This litigation, if instituted against us, regardless of its
outcome, could result in substantial costs and a diversion of our managements attention and resources.



|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 3, 2009, we held our 2009 Annual Meeting of Stockholders. At the meeting, the stockholders elected Gerald D. Held, PhD and David C. Nagel, PhD to serve as Class III directors of Openwave
until the 2012 annual meeting or until their successors are duly elected and qualified. The voting results were as follows:



|          |  |            |  |           
|--------- |  | ---------- |  | ----------
|          |  | For        |  | Withheld  
|Dr. Held  |  | 36,557,492 |  | 34,383,149
|Dr. Nagel |  | 69,314,907 |  | 1,625,734 

The terms of Robin A. Abrams, Kenneth D. Denman, Patrick Jones, Charles Levine and William Morrow
continued after the meeting.

The stockholders approved amendments to our Amended and Restated 1999 Directors Equity Compensation Plan.
The votes cast were as follows:



|           |  |           |  |           |  |                 
|---------- |  | --------- |  | --------- |  | ----------------
|For        |  | Against   |  | Abstained |  | Broker Non-Votes
|46,172,439 |  | 5,315,722 |  | 352,082   |  | 18,965,107      



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

None.



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

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



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SIGNATURES

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

Date: February 5, 2010



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



|               |  |                                                                                                                                                                                                                                                                                              
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                  
|               | 
|3.1            |  | Certificate of Incorporation of Openwave Systems Inc. (the Company), as amended (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on November 13, 2001 (Commission No. 001-16703)).               
|               | 
|3.2            |  | Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on November 14, 2003 (Commission No. 001-16703)).
|               | 
|3.3            |  | Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 30, 2007 (Commission No. 001-16703)).                                                           
|               | 
|10.1           |  | Openwave Systems Inc. Fiscal Year (FY) 2010 Executive Corporate Incentive Plan (incorporated by reference to Exhibit 10.19 to the Companys Annual Report on Form 10-K filed
with the Securities and Exchange Commission on September 9, 2009 (Commission No. 001-16703)).                   
|               | 
|10.2           |  | Employment Offer Letter between the Company and Bruce Posey dated January 14, 2009.                                                                                                                                                                                                          
|               | 
|10.3           |  | Employment Offer Letter between the Company and Martin McKendry dated January 26, 2009.                                                                                                                                                                                                      
|               | 
|10.4           |  | Employment Offer Letter between the Company and John Giere dated June 16, 2009.                                                                                                                                                                                                              
|               | 
|10.5           |  | 1999 Amended and Restated Directors Equity Compensation Plan (incorporated by reference to such Plan as filed with the Securities and Exchange Commission as Definitive
Additional Materials on November 20, 2009 (Commission No. 001-16703)).                                              
|               | 
|10.6           |  | Amendment No. 1 to Loan and Security Agreement between the Company and Silicon Valley Bank dated January 20, 2010.                                                                                                                                                                           
|               | 
|10.7           |  | Amendment No. 2 to Loan and Security Agreement between the Company and Silicon Valley Bank dated January 20, 2010.                                                                                                                                                                           
|               | 
|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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