10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended June 30, 2007

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.001 Par Value	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨    No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ¨    No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):

Yes ¨    No x

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $872,943,384 as of December 31, 2006 based upon the closing sale price on the NASDAQ Global Select Market reported for such date. Shares of Common Stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were 82,738,306 shares of the registrant’s Common Stock issued and outstanding as of July 31, 2007.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	24
Item 2.	Properties	24
Item 3.	Legal Proceedings	24
Item 4.	Submission of Matters to a Vote of Security Holders	28
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	29
Item 6.	Selected Financial Data	30
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 8.	Financial Statements and Supplementary Data	53
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	55
Item 9A.	Controls and Procedures	55
Item 9B.	Other Information	56
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	57
Item 11.	Executive Compensation	57
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	57
Item 13.	Certain Relationships and Related Transactions, and Director Independence	58
Item 14.	Principal Accountant Fees and Services	58
PART IV
Item 15.	Exhibits, Financial Statement Schedules	59
Exhibits
Signatures		62

Forward-Looking Statements

In addition to historical information, this Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are based upon current expectations and beliefs of our management and are subject to certain risks and uncertainties, including economic and market variables. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates” and similar expressions identify such forward-looking statements. Forward-looking statements include, among other things, statements regarding our ability to attract and retain customers, obtain and expand market acceptance for our products and services, the information and expectations concerning our future financial performance and potential or expected competition and growth in our markets and markets in which we expect to compete, business strategy, projected plans and objectives, anticipated cost savings from restructurings, our estimates with respect to future operating results, the impact of recognizing material amounts of stock-based compensation expense which were not previously accounted for in previously issued financial statements, including, without limitation, earnings, cash flow and revenue and any statements of assumptions underlying the foregoing. These forward-looking statements are merely predictions, not historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements. These risks and uncertainties include the limited number of potential customers, highly competitive market for our products and services, technological changes and developments, potential delays in software development and technical difficulties that may be encountered in the development or use of our software, patent litigation, our ability to retain management and key personnel, and the other risks discussed below under the subheading “Risk Factors” under Item 1A as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission, or the SEC. The occurrence of the events described under the subheading “Risk Factors” could harm our business, results of operations and financial condition. These forward-looking statements are made as of the date of this Annual Report on Form 10-K 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 any subsequently filed reports.

PART I

Item 1.    Business.

Company Background

Openwave is a leading independent provider of software products and services for the communications industry. We provide our global customer base with software and services that enable them to launch new revenue generating content and communications services, leveraging our technology expertise in our messaging, gateway, client and location businesses.

During fiscal year 2007, the Openwave Board appointed Robert Vrij to serve as President and Chief Executive Officer. The Board also appointed Mr. Vrij to serve on the Board as a Class III director until the 2009 annual meeting of stockholders or until his earlier resignation or removal. Subsequently, Openwave appointed Jean-Yves Dexmier to serve as Chief Financial Officer, Hari Haran to serve as SVP of Worldwide Field Operations, and John Boden to serve as Senior Vice President of Product Management. The Board also appointed a new member, William T. Morrow, to serve as a Class II director until the 2007 annual meeting of stockholders or until his earlier resignation or removal.

During the period from March 23, 2007 through May 15, 2007, Openwave retained Merrill Lynch & Co. as its financial advisor to explore a full range of strategic alternatives and options to enhance stockholder value, including a

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possible sale of the Company. During the process, Merrill Lynch contacted and received preliminary expressions of interest in engaging in exploratory discussions from numerous potential acquirers. The Company made management presentations to, and engaged in discussions with, a number of interested parties. Despite expressions of interest, no binding proposals to acquire the Company were submitted and we ceased soliciting any such proposals.

On May 22, 2007, Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund, L.P. (collectively, “Harbinger”), made an unsolicited partial tender offer to purchase 40,389,560 shares of Openwave common stock, or approximately 49% of the Company’s outstanding shares, for $8.30 per share in cash. In June 2007, the Board, in consultation with its financial and legal advisors, unanimously determined that Harbinger’s unsolicited partial tender offer was inadequate and not in the best interests of Openwave and all of its stockholders. On June 22, 2007, Harbinger’s tender offer expired without attaining the required number of tendered shares.

The Openwave Board and management team are now focused on the implementation of the Company’s stand-alone plan to drive sustainable revenue and profit growth. Openwave streamlined its operations with a restructuring plan announced in the fourth fiscal quarter of 2007, resulting in a $16.8 million restructuring charge, and will continue to implement the restructuring through the first quarter of fiscal 2008.

As part of the Company’s stand-alone plan, management refocused its product portfolio on four core product areas: messaging, gateway, client and location, and announced that the Company is exploring the potential divestiture of non-core assets, primarily its content and music product line which was introduced with the Company’s acquisition of Musiwave S.A. (“Musiwave”) in January 2006. As such, this product line, which consists primarily of Musiwave, is considered an asset held for sale as of June 2007 in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long Lived Assets”. Accordingly, the consolidated financial statements included herein have been revised for all periods presented to reflect this business as discontinued operations. Unless noted otherwise, discussions in this Form 10-K pertain to continuing operations.

Currently, Openwave has two primary categories of products in the product portfolio:

• Server software that is integrated at the edge and core of operator networks. Openwave serves the market with three distinct product lines: gateway, to enable access to content and media; messaging, to enable enhanced, integrated mobile and broadband communications; and location, to enable high accuracy location services; and

• Client software that is embedded in mobile phones that allows handset manufacturers and operators to create and render rich service interfaces for mobile browsing, messaging, and content services.

In addition, our experienced and knowledgeable professional services staff provides a range of services, including support and training, to deliver advanced solutions to our customers that are designed to improve the consumer experience, increase adoption of data services and create differentiation for our customers.

Our global customer base includes more than 70 of the world’s leading operators, more than 40 broadband service providers and over 50 mobile handset manufacturers.

We were incorporated in 1994 as a Delaware corporation and completed our initial public offering in June 1999. Our principal executive offices are located at 2100 Seaport Boulevard, Redwood City, CA 94063. Our telephone number is (650) 480-8000. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and

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amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended, are available free of charge through either our website at www.openwave.com or the SEC website at www.sec.gov, as soon as reasonably practicable after we file or furnish such material with the SEC. Information contained on our website is not incorporated by reference into this report.

Industry

Operating Environment and Trends

Mobile telecommunications operators are experiencing internal reorganization in response to the recent consolidations in the industry. This has shifted the demand from expensive infrastructure-related solutions with long implementation cycles to products and services that are revenue-enhancing products and offer a quick return on investment. During fiscal 2007 Openwave invested in developing new products as well as continued investment in our existing products to build the next generation of core products which we believe are in line with the needs of our global customer base.

We believe our revenues and gross margin throughout fiscal 2008 will continue to be impacted by the following trends:

• We are in the midst of streamlining our product portfolio to focus on core assets of the business in the following four areas: gateway, messaging, client and location. We have increased engineering resources on focused products with the intention of accelerating new product development in those lines of the business with the largest addressable market.

• In addition to continuing to focus on delivering tailored solutions to our Global Top 30 operator customers, We intend to focus on creating more standardized offerings based on market requirements, which can then be sold both directly and indirectly through channel partnerships.

• Many of our largest mobile operator customers continue to experience restructuring and internal reorganization, often as a result of recent mergers. This is particularly true in the US and EMEA, which has lengthened the selling cycle for new projects throughout fiscal 2007. We expect that to persist in fiscal 2008.

In our core markets, we are experiencing these key trends:

Server market

According to the 2007 Wireless Data Forecast from Strategy Analytics, mobile data content revenues will reach $197 billion by 2011. In the server software market, we have witnessed the rise in popularity of both content and communications services, predominantly led by messaging services but increasingly, open Internet browsing and Web 2.0 services.

Our converged communications solutions continue to pave the way for our broadband, wireline, and wireless customers who are looking to simplify and streamline the communications experience. There is also an increased trend towards converged IP messaging applications. According to the 2007 Wireless Data Forecast from Strategy Analytics, the market for mobile data messaging will grow to $111 billion by 2011, driven by network diversity and complexity driving the need towards simplified applications. The market is looking for reduced cost, which can involve a holistic common delivery platform and solutions that support hybrid networks like 3G, 4G, IMS/IP and Fixed-Mobile convergence.

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As more consumers are using their mobile phones to access mobile content and services, we are working with carriers to help them increase overall access to both on and off portal content, as well as to provide a more compelling user experience. The mobile data market continues to experience dramatic growth with the increasing consumer uptake of services such as SMS, email and web browsing. Mobile advertising and contextual merchandising also remain significant areas of opportunity for operators. In mobile advertising, for example, according to several analysts including ABI Research, who published a Mobile Advertising Forecast early this year, Mobile expects mobile phone ad spending during 2011 to reach $14 billion, primarily driven by mobile search, messaging and display advertising.

We experienced the following events and developments relating to our server software business during fiscal 2007:

Gateway

• In the first quarter, Alltel, a leading US operator, extended its commitment to our Mobile Access Gateway product, executing a multi-year contract to support increased demand among its 11 million subscribers for mobile information, communication and entertainment services.

• In the fourth fiscal quarter, we announced the general availability of the second version of our next generation gateway. The next generation gateway is designed to address the needs of our customers who are evolving from a WAP-based content delivery model to a service delivery model that includes HTTP and RTSP protocols, supporting these protocols inherently without the need for costly and time-consuming integration. It also features open internet browsing functionality that enables content adaptation and optimization to deliver full internet content to mobile data-enabled devices in a user friendly and device intelligent format. With the next generation gateway, operators will be able to offer revenue-generating content access and also support emerging service models, such as mobile advertising.

• Also in the fourth quarter, we signed an agreement with Rogers Wireless, Canada’s largest wireless service provider, who selected Openwave’s Real Time Streaming Proxy, or RTSP, to serve as a mediation gateway that provides mobile video streaming service to Rogers’ customers. RTSP is a key component of our next generation gateway’s multi-protocol support and is designed to enable operators to pursue further revenue opportunities with streaming video. Building on our relationship with Vodafone, our new OpenWeb solution for Open Internet Browsing has been selected by Vodafone Spain. This agreement should enable Vodafone Spain to provide subscribers with faster, rich, device-formatted content from websites to any mobile device. Our Open Web technology is a key piece of our next generation gateway’s multi-service support functionality.

Messaging

• Openwave continues to lead the market in converged communications solutions that are designed to help operators capitalize on new market opportunities. In the first quarter, we announced that Telefónica Móviles España, one of the world’s leading mobile telecommunications companies, has launched a mobile email service with our IP-based Adaptive Messaging platform.

• We also continue to maintain our leadership position in messaging anti-abuse with the customer announcement of Cox Communications and a key partnership with Commtouch, which has over 15 years of experience developing messaging software and is a global developer and provider of proprietary anti-spam, Zero-Hour virus protection and IP Reputation solutions.

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

• We also had three key deployments of Rich Mail during fiscal 2007, including Japan-based KDDI and Softbank Telecom, as well as a key North American cable company who will soon bring this new service to their broadband customers.

Location

• We continue to see our location infrastructure support the launches of innovative enterprise and consumer location-based services by customers around the world. TELUS, a leading Canadian telecommunications company, selected Openwave Location Manager, Commercial Edition to help power its TELUS Navigator and TELUS Kid Find services, extending a well established relationship between the two companies. We also announced that Nextel Mexico launched two new services iLocator and iFollow, based on our location manager solution.

• In the fourth quarter we also signed a new product insertion for our location infrastructure with a leading operator in South Africa.

Client software market

In the client software area, end users are demanding broader range of technologies and a more comprehensive and integrated offering. The key drivers for device services include: the increased demand by device manufacturers and operators for complete service delivery and user experience solutions; the rapid evolution of Mobile Web 2.0 accelerating the evolution of Mobile AJAX based applications and the nascent mobile widget economy. In addition, most Web 2.0 services will require downloadable software and custom embedded applications to deliver the required services and end-user experience. According to the Mobile Devices Forecast from Ovum and The Mobile Handset 2007 report from Informa Telecoms & Media, the total available market for mobile devices will reach 1.2 billion by 2010, driven by market penetration of smart phones.

We experienced the following trends in the client software market during fiscal 2007:

• Our software continues to be embedded in the majority of handsets around the world, with more than one billion phones shipped to date, and is being specified by operators across the globe.

• We are also witnessing strong traction with our new client offering, MIDAS (Openwave Mobile Integrated Dynamic Application System)—securing two new design wins for MIDAS with two large handset manufacturers.

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

• In April 2007 at CTIA, one of the largest telecommunications industry events in the United States, we announced our Mobile Widgets solution, which is based on the MIDAS environment. Mobile Widgets marks the latest addition to our client portfolio, and is designed to help operators and handset manufacturers

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simplify access to personalized content. By optimizing their presence on the mobile phone idle screen, mobile widgets will enable operators to drive increased service adoption.

• In the fourth quarter, we signed a license renewal for our browser with Sagem, a major player in the mobile communication industry in EMEA. This license covers the latest available architecture from our browser, which is the basis of our MIDAS application framework. With this browser, Sagem is targeting the mass market with its handsets.

Products and Services

Our products are modular and based on open standards, providing our customers with the ability to mix and match the right products and technologies to create differentiated mobile services. Our technology and products are designed to work on diverse mobile phones and technologies regardless of the brand of mobile phone 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 and adaptive messaging; location application products for the communications industry; and client software for mass-market mobile phones;. Our professional services group works with our customers around the world at all stages of development and implementation of wireless services. For financial information about our operating segment and geographic areas, see Note 6 to our Consolidated Financial Statements.

Server Software Products

Our server software products contain the foundational software required to enable Internet connectivity to mobile phones and allow service providers to build compelling services for their subscribers. These products include:

Gateway

• Openwave Mobile Access Gateway (“MAG”) is a carrier-class infrastructure software for exchanging data between the wireline Internet and wireless mobile phones. Our market-leading gateway software includes advanced features such as Wireless Application Protocol (“WAP”) Push, security, varied billing support and differentiated classes of service. MAG supports the latest generation of multimedia standards and handsets, allowing subscribers to download wallpaper, ring tones and other multimedia content as well as receive messages in real time.

• Openwave’s next generation gateway evolves the Company’s flagship MAG offering to include multi-protocol, multi-service support, meeting the needs of carriers who are evolving from a WAP-based content delivery model to a service delivery model that includes HTTP and RTSP protocols. Specifically, the next generation gateway is designed to help operators capture a greater share of the premium mobile content market and monetize off-portal content, while also simplifying network management and creating a future proof architecture. To capitalize on new revenue opportunities, the next generation gateway offers optional components like, Openwave’s Open Internet Browsing (OpenWeb), Openwave Contextual Merchandising, Mobile Ad Insertion and Mobile Security.

Messaging

• Openwave Converged Communication Solution (CCS) is an integrated client-server solution that simplifies converging messaging and communications services. It breaks traditional voice and messaging silos by combining mobile email, Instant Messaging (IM), SMS, MMS and voice messaging into a single personalized experience that is dramatically easier to use than the fragmented experiences of today. CCS allows users to

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fully and transparently manage their messaging and contacts across Mobile handsets and desktop PCs, and creates new monetization opportunities for mobile and broadband service providers.

• Openwave Rich Mail, one of our latest broadband messaging offerings and a key product in our Converged Communications portfolio, is a PC-based Web 2.0 solution designed for carrier-scale deployment by broadband and mobile operators around the world. Rich Mail enhances the Messaging experience for consumers by offering a dynamic, feature-rich user experience and enables broadband and mobile operators to brand, personalize, and monetize their Messaging offerings.

• Openwave Email Mx is the foundation for our messaging solutions, delivering carrier-class messaging with scalability to serve wireline, wireless and ISP customers from a common platform.

• Openwave Multimedia Messaging Services Center enables operators to offer highly differentiated and robust multimedia services such as integrated photo and text messaging.

• Openwave Edge Gx is designed to prevent messaging abuse before it gets into operators’ networks. Designed specifically for broadband and wireless communications service providers, Openwave Edge Gx delivers protection at the edge of the network for both inbound and outbound traffic.

• Openwave IP Voice Messaging suite of solutions allow mobile and broadband service providers to provide integrated and highly flexible IP Voicemail and Call Management services across networks and devices.

• Openwave Network Address Book is a key element in integrated Messaging services for broadband and mobile service providers, allowing end-users to fully manage their contacts across services, devices and networks.

• Openwave Directory is a proven and highly scalable central user data repository, allowing carriers to fully manage and share user information across applications.

Location

• Openwave Location Manager—Commercial Edition (LM-CE) provides the foundation for all commercial wireless location services. It provides middleware to authorize a location request against business and subscriber privacy rules. It provides low, medium and high accuracy locations. LM-CE supports Control Plane (CDMA, GSM, WCDMA) and User Plane (V1, V2, SUPL) location, with roaming capabilities.

• Openwave Location Manager—Emergency Edition (LM-EE) provides location for emergency voice calls in CDMA, GSM and WCDMA networks.

Client Software Products

We offer a line of client software products that support a broad range of mobile communication devices. The product portfolio is commonly used together as a complete, integrated suite of mobile communication and information applications, although each product can also be used individually. The complete portfolio is used to craft an effective and differentiated device product, service delivery, and user experience.

Our client software portfolio includes:

• The Openwave Mobile Browser, which is designed and optimized for use in mass-market mobile phones and other mainstream mobile communication devices. The Openwave Mobile Browser provides a rich set of capabilities, an easy-to-use experience, and supports the common mobile internet standards and practices.

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Openwave Mobile Browsers have shipped on over one billion mobile phones, support a wide variety of device platforms, networks, market requirements, and languages. We provide several versions of the mobile browser targeted to low-cost mass market mobile phones, as wells as more powerful and feature-rich mainstream mobile phones, and high-end products.

• Openwave MIDAS is a next-generation Mobile AJAX and Widgets environment designed to enable mobile device suppliers with the ability to design products and support a variety of operator service delivery and user experience requirements. It enables mobile operators to quickly create, customize and deploy new service applications and create distinct service scenarios and user experiences on mass market mobile devices.

• Openwave Mobile Widgets is a MIDAS-based solution that enables device suppliers and operators to customize the product, create and deliver new services, and offer users a highly flexible and personalized service portfolio. Openwave Mobile Widgets are much easier to create and deliver than typical mobile device application methods, and provide more flexibility, lower cost, and faster time-to-market.

• Openwave Messaging Clients include support for the common mobile messaging protocols, including SMS, MMS, Email, and Instant Messaging. Openwave messaging clients support a wide range of mobile device platforms and products, support common standards and practices in mobile messaging, and include flexible user interface capabilities to support a variety of operator requirements. In fiscal 2007, we introduced MIDAS Messaging, which provides the ability to create the messaging user experience and use scenarios for messaging products using the MIDAS environment, and allows service differentiation, market segmentation, and user personalization.

Discontinued Operations—Content Products

As discussed under the prior heading “Company Background,” management refocused its product portfolio in June 2007 and decided to pursue divestiture of its content, product and music line. As such, this product line, which consists primarily of Musiwave, is considered an asset held for sale as of June 3, 2007. Musiwave was acquired by the Company in January 2006. The original strategy behind the Musiwave acquisition was to realize synergies in the respective customer base of Openwave and Musiwave and to provide integrated solutions that would allow the customer base to rapidly deploy revenue-generating communication, information and entertainment services to customers. However, the synergies were not realized as the product line was not yet integrated, and our plans had changed based upon the Company’s plan announced in June 2007.

Our content product portfolio includes:

• Music on Demand Service allows fast, full-length, user-friendly and secure downloads of music directly to 2.5G and 3G mobile devices.

• Smart Radio is a personal interactive radio streamed to the mobile handset and allows mobile consumers to access customized and streamed music programming via an embedded application, based on each user’s personal tastes.

• Flat rate All You Can Eat subscription services for streaming radio and full track downloads.

• Discovery Engine is a way to simply and easily discover music on the go while enabling off-line music catalog browsing and recommendations, streaming of previews and catalog updates with every connection.

• Videotones are multimedia ringtones that allow customers to view full motion video while the phone is ringing.

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• Pictones are multimedia ringtones that allow for customers to combine an actual recording of a song with an artistic slide show extracted from a video clip.

• Musitones provide a way for mobile consumers to play excerpts of original music as ringtones on their mobile phones.

• Ring Back Tones allow mobile consumers to choose an audio file that callers will hear while the phone is ringing, instead of traditional ring sounds.

Services and Maintenance and Support Services

Our products and our customers’ networks are complex, requiring experienced and knowledgeable professional services, support, and training to provide advanced solutions to our customers. Our support organization provides both 24-hour maintenance and support services to our customers. In addition, our professional services organization provides training and consulting services to our customers, often to perform integration services relating to commercial launches of our technology, as well as to provide value-added services that are designed to improve the end-to-end consumer experience, increase user adoption of wireless services and create differentiation for operators. As of June 30, 2007, we had 386 employees in our professional services and maintenance and global support organizations, exclusive of Musiwave.

Research and Product Development

Our ability to meet our customer’s expectations for innovation and enhancement depends on a number of factors, including our ability to identify and respond to emerging technological trends in our target markets, develop and maintain competitive products, enhance our existing products by adding features and functionality that differentiate them from those of our competitors and bring products to market on a timely basis and at competitive prices. Consequently, we continue to enhance the features and performance of our existing products and have made, and intend to continue to make, significant investments in research and product development. Our research and development expenses were $71.6 million, $84.1 million and $95.9 million for the fiscal years ended June 30, 2007, 2006 and 2005, respectively, exclusive of Musiwave. As of June 30, 2007, we had 276 employees, compared to 292 employees as of June 30, 2006, engaged in research and product development activities, including the CTO office, product and engineering groups, exclusive of Musiwave.

Technology

Our success is dependent upon continued technological development and innovation. Our messaging products have substantial innovation and technology dedicated to the specific and stringent needs of the service provider marketplace. Our products are based on open standards, and we contribute to the development of such standards in the areas of mobile Internet protocols, messaging, mobile Internet technology and enabling technologies for 2.5G and 3G networks.

Our technology is designed for deployment on very large-scale networks. Our customers require highly scalable systems, tools for monitoring and managing systems and other features specific to the size, scale and performance characteristics of their networks and service offerings.

Standards

We believe the growth and development of standards is key to our success and the success of our industry. Therefore, we take an active role in a number of industry standards organizations including the Open Mobile Alliance (“OMA”),

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the World Wide Web Consortium (“W3C”), CDMA Developer Group, 3G Americas, and Mobile Entertainment Forum among others. In addition, the Third Generation Partnership Projects (“3GPP” and “3GPP2”), which are the 3G standards organizations for the GSM and CDMA, respectively, represent strategic standards for our products.

Sales, Marketing and Customer Support

We sell our products through both a direct sales force and third-party resellers. As of June 30, 2007, we had 247 employees in sales, marketing and customer support worldwide. Our sales and marketing groups focus on selling products by establishing and managing relationships with customers and resellers. Our customer support group focuses on performing maintenance and support. Our third-party resellers are strategic alliance partners including HP, IBM, CTC and NSN.

International sales of products and services accounted for 54%, 55% and 55% of our total revenues for our fiscal years ended June 30, 2007, 2006 and 2005, respectively. Our international sales strategy is to sell directly to large operators and to partner with leading distributors and systems integrators who have strong industry backgrounds and market presence in their respective markets and geographic regions. For further information regarding our segment revenue, geographic areas and significant customers, please refer to Note 6 of our Notes to Consolidated Financial Statements.

We believe that customer service and ongoing technical support are an essential part of the sales process in the telecommunications industry. Senior management and assigned account managers play an important role in ongoing account management and relationships. We believe maintaining focus on these customer relationships will enable us to improve customer satisfaction and develop products to meet specific customer needs.

Partners

We collaborate with companies including HP, IBM, Alcatel-Lucent, McAfee, and others that expand our reach and capabilities and maintain our company-wide focus on increasing customer satisfaction and improving the end user experience.

For fiscal 2008, the Company disclosed plans to expand its reach through channel partnerships, thereby scaling the business to capitalize on emerging market opportunities.

Competition

The market for open standards software products and services for the telecommunications industry continues to be intensely competitive and fragmented. In addition, the widespread and increasing adoption of open industry standards may make it easier for new market entrants and existing competitors to introduce new products that compete with our software products.

We expect that we will continue to compete primarily on the basis of quality, technical capability, breadth of product and service offerings, functionality, price and time to market.

In the client products market, our competitors include Access, Nokia, and Teleca Systems. In the server software products market, our competitors include Comverse, Ericsson, LogicaCMG, NSN, 724 Solutions, Sun Microsystems and Critical Path. In addition, we have competitors within the antispam and antivirus market, such as Ironport.

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Intellectual Property Rights

Our performance depends significantly on our ability to protect our intellectual property and proprietary rights to the technologies used in our products. If we are not adequately protected, our competitors could use the technologies that we have developed to enhance their products and services, which could harm our business.

As a member of several groups involved in setting standards for the industry, such as the OMA, we have agreed to license our intellectual property to other members of those groups on fair and reasonable terms to the extent that the intellectual property is essential to implementing the specifications promulgated by those groups. Each of the other members of the groups has agreed to similar provisions.

Employees and Recent Executive Officer Changes

As of June 30, 2007, we had 1,270 employees, which includes 166 employees of Musiwave. None of our employees are covered by any collective bargaining agreements, except for certain employees located in Europe. On June 3, 2007, the Board of Directors approved a restructuring plan to simplify and better align the Company’s product portfolio with market demand, reduce costs and improve operating efficiencies (the “Restructuring Plan”). The Restructuring Plan contemplates an approximate 20% reduction in the workforce during the four months ending September 30, 2007.

In August 2007, Jean-Yves Dexmier was appointed Chief Financial Officer (“CFO”). Prior to joining the Company, Dr. Dexmier served as Chief Executive Officer and Chair of the Board of Agentis Software from 2001 to 2005, and in roles as Chief Executive Officer, President and Chief Financial Officer of Informix Software from 1997 to 2000.

In July 2007, John Boden was hired as Senior Vice President of Product Management. Prior to joining the Company, Mr. Boden was Chief Technology Officer for GENBAND. Prior to that, Mr. Bodden worked at Nortel, where he led the Product Management and New Product Introduction teams at Nortel for the VoIP and DMS portfolios.

In May 2007, Hari Haran was hired as Senior Vice President, Worldwide Field Operations. Before joining Openwave, Mr. Haran was Chief Executive Officer of LongBoard, and prior to that he was Vice President and General Manager of the EMEA region for Lucent Technologies.

In March 2007, Robert Vrij was appointed President and Chief Executive Officer (“CEO”). Prior to his appointment, Mr. Vrij held the position of Executive Vice President of Worldwide Field Operations in the Company since January 2007. Mr. Vrij joined Openwave from GENBAND, a VOIP and IMS network company, where he held the position of Senior Vice President from 2004 to 2006. Mr. Vrij served as the Senior Vice President of Sales for NextiraOne, LLC, a telecommunications company, from 2003 to 2004. Mr. Vrij was the President of worldwide sales and business development at Voxpath Networks, a software company, from 2002 to 2003. Mr. Vrij has also held a range of executive positions at Lucent Technologies and AT&T, including president and chief executive officer of Lucent’s Europe, Middle East, and Africa operations.

Financial Information about Geographic Areas

For the Company’s financial information about geographic areas, please see Note 6 to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

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Item 1A.    Risk Factors.

You should carefully consider the following risks, as well as the other information contained in this annual report, before investing in our securities. If any of the following risks actually occurs, our business could be harmed. You should refer to the other information set forth or referred to in our annual report, including our consolidated financial statements and the related notes incorporated by reference herein.

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

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. Except for the fiscal year ended June 30, 2006, we incurred annual net losses on a Generally Accepted Accounting Principles (“GAAP”) basis since our inception. As of June 30, 2007, we had an accumulated deficit of approximately $3.0 billion, which includes approximately $2.0 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. We may not achieve or be able to maintain consistent profitability.

Our business faces a number of challenges including:

• our ability to upgrade, develop and maintain our products and effectively respond to the rapid technology changes in wireless and broadband communications;

• our ability to anticipate and respond to the announcement or introduction of new or enhanced products or services by our competitors;

• the rate of growth, if any, in end-user mobile data usage, purchases of data-enabled mobile phones, use of our products, and the growth of wireless data networks generally;

• the volume of sales of our products and services by our strategic partners, distribution partners and resellers; and

• general economic market conditions and their effect on our operations and the operations of our customers.

As a result of the foregoing risks and others, our business strategy may not be successful, and we may not adequately address these challenges to achieve or maintain consistent profitability.

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

The market for our products and services is highly competitive, and the pace of technical innovation is high. We are currently in a product transition phase where we are developing our next generation products and other new products and features. Revenues from our legacy products are decreasing, and the successful product transition 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.

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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.

For example, our business depends upon the mass adoption of mobile phones for delivery of data services. Competing products, such as portable computers, PDAs, and smart phones, currently exist for mobile data delivery. If mobile phones are not widely adopted for delivery of data services or if end-users do not adopt mobile phones containing our browser or other client software, our customers may choose not to widely deploy, maintain or market offerings based on our products, which would adversely affect our business and operating results.

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 be unable 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.

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 and mobile handset manufacturers, 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. In this regard, revenue recognized from arrangements with Sprint-Nextel accounted for approximately 23% of our total revenues during the year ended June 30, 2007. By virtue of their size and the significant portion of our revenue that we derive from this customer, this customer is 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.

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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. 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 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, such as the recent executive turnover, 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. For example, in the third fiscal quarter of 2007, we implemented an employee retention program which lasts through September 30, 2007. If the program is unsuccessful, or if employee turnover increases after the program, our business could be adversely affected.

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;

• 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.

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 30%-40% of our quarterly revenue 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 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.

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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 trends in our business generally or 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.

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. Our current and potential competitors include the following:

• wireless equipment manufacturers, such as Ericsson, Nokia, Nortel and Alcatel-Lucent;

• wireless messaging software providers, such as Comverse, Ericsson and LogicaCMG;

• software providers, such as 724 Solutions, Critical Path, Intrado, and Verisign;

• service providers, such as E-Commerce Solutions;

• client solution providers, such as Access, Qualcomm, Symbian, and Teleca Systems;

• computer system companies such as Microsoft and Sun Microsystems;

• providers of Internet software applications and content, electronic messaging applications and personal information management software solutions; and

• antispam and antivirus providers such as Ironport.

Nokia also competes directly with us by offering WAP servers, client software and messaging (offering end-to-end solutions based on its proprietary smart messaging protocol and on MMS) to communication service providers. Nokia

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markets its WAP servers to corporate customers and content providers, which if successful, could undermine the need of communication service providers to maintain their own WAP gateways (since these WAP servers access applications and services directly rather than through WAP gateways).

Qualcomm’s end-to-end proprietary system called “BREW”^TM does not use our technology and offers wireless handset manufacturers an alternative method for installing applications. Qualcomm’s strong market position in CDMA with its chipsets technology provides them with a position to build the BREW system with CDMA operators. If Qualcomm’s BREW system is widely adopted it could undermine the need for wireless device manufacturers to install our client software and reduce our ability to sell gateways and wireless applications to communications service providers.

Furthermore, the proliferation and evolution of operating system software in smart phones, a market segment backed by companies with resources greater than ours, such as Microsoft and Nokia, may threaten the market position of our client software offerings, as such software becomes more competitive in price.

In addition, Internet search and content providers, such as Google and Yahoo!, recently have launched data services offerings directed at wireless end users. These services may compete directly with services offered by our traditional customer base. As well, in the future Internet search and content providers could directly compete with us by launching wireless data services.

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

Our sales cycle is long, often between six months and twelve months or longer, 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 phones 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.

Because we depend substantially on international sales, any decrease in international sales would adversely affect our operating results.

International sales accounted for approximately 54% and 55% of our total revenues for the years ended June 30, 2007 and 2006. Risks inherent in conducting business internationally include:

• failure by us and/or third-parties to develop localized content and applications that are used with our products;

• fluctuations in currency exchange rates and any imposition of currency exchange controls;

• differing technology standards and pace of adoption;

• export restrictions on encryption and other technologies;

• increased competition by local, regional, or global companies; and

• difficulties in collecting accounts receivable and longer collection periods.

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While we attempt to hedge our currency risk, we may be unable to do so effectively. In addition, international sales could decline due to unexpected changes in regulatory requirements applicable to the Internet or our business, or differences in foreign laws and regulations, including foreign tax, intellectual property, labor and contract law. Any of these factors could harm our international operations and, consequently, our operating results.

We may be unable to integrate acquisitions of other businesses and technologies successfully or to achieve the expected benefits of such acquisitions.

We have acquired a number of businesses and technologies in the past and expect to continue to evaluate and consider potential strategic transactions, including acquisitions and dispositions of businesses, technologies, services, products and other assets. These transactions entail risks that may be material to our business and results of operations. For example, the limited historical revenue and operating history of Solomio, which we acquired in October 2006, subjects us to significant risk that we will be unable to integrate this business and to realize the anticipated benefits in a timely basis, or at all. Also, we acquired Musiwave in January 2006 with the intention of integrating the business but to date have not integrated their products with ours and have decided in June 2007 to pursue selling Musiwave, which resulted in a material impairment charge.

In any event, the process of integrating any acquired business may create difficulties, including:

• significant delay or the inability to realize the anticipated benefits from such transactions, including projected revenue, synergies or other operating results and to effect product integration, development and marketing;

• diversion of management’s attention from other business concerns;

• declining employee morale and retention issues from either our pre-existing or acquired businesses;

• the need to integrate each company’s accounting and other administrative systems to permit effective management;

• impact of any negative customer relationships acquired;

• the need to implement any necessary controls, procedures and policies at companies which, prior to acquisition, lacked such controls, procedures and policies; and

• the need to write-down the goodwill and/or the acquired intangibles of any such transaction in subsequent periods.

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.

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 or handset manufacturers. Their substantial purchasing power and negotiating leverage limits our ability to negotiate uniform business terms. As a result, we

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typically negotiate contracts on an individual customer-by-customer basis and are sometimes required to accept contract terms not favorable to us, including indemnity, limitation of liability, refund, penalty or other terms that expose us to significant risk. We may be asked to indemnify the third party components that we provide, and we may or may not have sufficient indemnification provisions from the third parties. In addition, we may be asked to accommodate requests that are beyond the express terms of our agreements in order to maintain our relationships with our customers. The lack of uniformity and the complexity of the terms of these contracts create difficulties with respect to ensuring timely and accurate accounting and billing under these contracts. Because of this complexity and the limitations of automated accounting software, our invoices often must be prepared manually, which sometimes leads to delays or errors that generally must be corrected before invoices can be paid by our customers and which can lead to delays in processing or collecting payments. Any delay in processing or collecting payments could adversely affect our business. Additionally, 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 may not be successful in obtaining complete license usage reports from our customers on a timely basis, which could impact our reported results.

Although our customers are generally contractually obligated to provide license usage reports, at times we are unable to obtain such reports in a timely manner, if at all, or the results provided may not accurately reflect actual usage. If license usage reports or purchase orders are not received in a timely manner, we do not recognize the associated revenue until received. Therefore, the timing or amount of revenue we recognize may vary significantly from actual or expected customer usage and could impact our reported results.

We rely on estimates to determine arrangement fee revenue recognition for a particular reporting period. If our estimates change, 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, we estimate progress on our professional service revenues for a particular period. If, in a particular period, our estimates to project 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.

Our technology depends on the adoption of open standards, which makes us vulnerable to competition.

Our products are integrated with communication service providers’ systems and mobile phones through the use of open standards. If we are unable to continue to integrate our platform products with third-party technologies because they do not adopt open standards or otherwise, our business will suffer. In addition, large wireless operators sometimes create detailed service specifications and requirements, such as Vodafone Live or DoCoMo iMode, and such operators are not required to share those specifications with us. Failure or delay in the creation of open, global specifications could have an adverse effect on the mobile data market in general and, consequently, our business and operating results. Conversely, the widespread adoption of open industry standards also may make it easier for new market entrants and existing competitors to introduce products that compete with our software products, which could adversely affect our business and operating results.

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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 such as data 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 expenditure. Although the capital spending environment may have improved recently, we have 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.

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 recent restructuring of operations may not achieve the results we expect and may adversely affect our business.

In August 2006, and June 2007, we initiated plans to focus on our core products, streamline operations, and reduce expenses, which included cuts in discretionary spending, reductions in capital expenditures, reductions in the work force and consolidation of certain office locations, as well as other steps to reduce expenses. In connection with the restructurings, we were required to make certain product and product development tradeoffs with limited information regarding the future demand for our various products. Following these restructurings, we may not have elected to

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pursue the correct product offerings to take advantage of future market opportunities. Furthermore, the implementation of our restructuring plans has placed, and may continue to place, a significant strain on our managerial, operational, financial, employee and other resources. Additionally, the restructurings may negatively affect our employee morale which can lead to increased turnover as well as make recruitment and retention of key employees more difficult. These employee reductions could impair our marketing, sales and customer support efforts or alter our product development plans. If we experience difficulties in carrying out the restructuring plans, our expenses could increase more quickly than expected. There can be no assurance that our restructurings will achieve the anticipated results or in the expected timeframe. If we find that our planned restructurings do not achieve our objectives, it may be necessary to implement further reduction of our expenses, to perform additional reductions in our headcount, or to undertake additional restructurings of our business.

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.

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 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.

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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 standard 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 confidence in our 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.

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

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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.

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 percent 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% 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.

Risk Related to the Restatement of Our Prior Financial Results.

The restatement of our consolidated financial statements, the SEC and U.S. Attorney inquiries and related events could have a material adverse effect on us. In May 2006, we received a letter of informal inquiry from the SEC requesting documents related to our stock option grants and stock option practices. In June 2006, our Board of Directors appointed a special committee of three independent directors to conduct a review into past stock option grants and practices. In October 2006, the special committee concluded that the measurement dates for financial accounting purposes for a number of stock option grants differed from the recorded grant dates for such awards. Accordingly, management concluded that our previously issued financial statements should no longer be relied upon. Because the stock prices on the originally stated grant dates were lower than the stock prices on the actual measurement dates, we recognized material amounts of stock-based compensation expense which were not accounted for in our previously issued financial statements and restated our financial results for fiscal years ended June 30, 1999 through 2005, including each of the quarters in fiscal year 2005, in our Form 10-K filed on December 1, 2006, as amended on Form 10-K/A filed on May 11, 2007.

As a result of the events described above, we have become subject to the following significant risks, each of which could have a material adverse effect on our business, financial condition and results of operations.

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We face risks related to the SEC and US Attorney inquiries regarding our historic and current stock option grants and practices, which have required significant management time and attention, caused us to incur significant accounting and legal expense and could require us to pay fines or other penalties.

On May 18, 2006, we received a notice of informal inquiry from the SEC regarding our historic and current stock option grants and stock option practices. While we are fully cooperating with the SEC and intend to continue to do so, we are unable to predict what consequences, if any, the SEC inquiry may have on us. If the SEC were to commence legal action, we could be required to pay significant penalties and/or fines and could become subject to administrative orders. The SEC inquiry remains open, and the resolution of this could require the filing of additional restatements of our prior financial statements or require that we take other actions.

On July 5, 2006, we announced that we had received subpoenas from the United States Attorney for the Eastern District of New York and the Northern District of California, each requesting documents relating to stock option grants. Responsibility for this inquiry between the districts was subsequently assigned to the Northern District of California. The inquiry remains open and we are fully cooperating with the U.S. Attorney. We cannot predict when this inquiry will conclude or its eventual outcome and there is no assurance that other regulatory inquiries will not be commenced against us. The adverse resolution of any inquiry into our stock option practices could have a material adverse effect on our business and financial condition.

We have also incurred significant expenses relating to legal, accounting, tax and other professional services in connection with these matters and expect to continue to incur significant expenses in the future, which may adversely affect our results of operations and cash flows.

We face litigation risks relating to our past practices with respect to equity incentives that could have a material adverse effect on the Company.

Several shareholder derivative lawsuits have been 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. See Part I, Item 3, and “Legal Proceedings” for a more detailed description of these proceedings. 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 will 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. These lawsuits are in the preliminary stages, and an unfavorable outcome could 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.

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Item 1B.    Unresolved Staff Comments.

None.

Item 2.    Properties.

Our principal office is located in Redwood City, California, where we lease approximately 192,000 square feet in adjacent buildings under sublease agreements that terminate on June 29, 2013, with a one time option to terminate one or both of the agreements on July 30, 2009. We also have other facility leases in other locations in the United States and throughout the world, including our former headquarters which comprises approximately 283,000 square feet and which is currently under a sublease that expires in April 2013. The future lease payments, net of sublease income, for our former headquarters is included in accrued restructuring costs on our consolidated balance sheet.

Item 3.    Legal Proceedings.

IPO securities class action.

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

The Company 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 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

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rehearing, but clarified that the plaintiffs may seek to certify a more limited class in the District Court. Accordingly, the stay remains in place and the plaintiffs and issuers have stated that they are prepared to discuss how the settlement might be amended or renegotiated to comply with the Second Circuit decision. Plaintiffs have informed the Court that they intend to submit amended complaints with a revised class definition comporting with the Second Circuit’s decision. We believe a loss is not probable and estimable. Therefore no amount has been accrued as of June 30, 2007.

Government Investigations.

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

Shareholder Derivative Lawsuits.

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

On September 5, 2006, the state court consolidated the three actions pending before it into a single action captioned In re: Openwave Systems Inc. Derivative Litigation (Consolidated Case No. CIV 455265) and appointed a lead plaintiff and lead counsel. On September 29, 2006, the lead plaintiff filed a consolidated amended shareholder derivative complaint. On August 21, 2006, the individual defendants, joined by Openwave, filed a motion to stay the state court actions pending resolution of the federal actions. On September 29, 2006, the lead plaintiff filed a consolidated amended shareholder derivative complaint. On December 4, 2006, the state court granted the motion to stay. The state court actions will remain pending and Openwave and the individual defendants will be required to attend periodic status conferences until the federal actions are resolved. The plaintiffs in the state court actions have the right to ask the court to lift the stay if circumstances change. The consolidated state court action is in its very early stages. No amount is accrued as of June 30, 2007 as a loss is not considered probable and reasonably estimable.

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On October 11, 2006, the federal district court entered an order consolidating the four actions pending before it into a single action captioned In re: Openwave Systems Inc. Shareholder Derivative Litigation (Hacker v. Peterschmidt et. al. Case No. 3:06-cv-03468-SI) and appointed lead plaintiffs and lead counsel. On December 29, 2006, plaintiffs filed an amended and consolidated complaint. On February 9, 2007, the Company filed a motion to dismiss the amended and consolidated complaint based on plaintiffs’ failure to make a pre-suit litigation demand or plead sufficient facts demonstrating that demand is excused as futile. All of the individual defendants who are current or former members of the Company’s Board of Directors joined in the motion. Also on February 9, the individual defendants filed a motion to dismiss the consolidated amended complaint for failure to state a claim. In addition, on February 9, Openwave filed a motion to temporarily stay discovery pending the court’s ruling on the motions to dismiss. On May 17, 2007, the court entered an order granting the Company’s motion to dismiss with leave to amend and granting the Company’s motion to stay discovery.

On June 29, 2007, the plaintiffs filed an amended complaint. On July 29, 2007, Openwave and the individual defendants filed motions to dismiss the amended complaint, and a hearing on the motions to dismiss are scheduled for October 12, 2007. The consolidated federal court shareholder derivative action is in its very early stages. No amount is accrued as of June 30, 2007 as a loss is not considered probable and reasonably estimable.

Delaware Litigation.

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

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

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

On January 22, 2007, the Company responded to Harbinger’s complaint by filing a motion to dismiss. The Company also filed its own verified complaint in the Delaware Court of Chancery seeking, among other remedies, declarations that Harbinger did not comply with the Company’s bylaws and therefore its candidates were not properly nominated at the Annual Meeting, that Messrs. Peterschmidt and Held were rightfully elected to serve on the Company’s board of directors, and that Messrs. Zucco and Breen were not validly elected to the Company’s Board of Directors. Harbinger responded to the Company’s motion to dismiss by amending and restating its complaint seeking, among other remedies, a declaration that Mr. Zucco has been validly elected as a member of the Company’s board of directors and that a new election be held between Messrs. Peterschmidt, Held, and Breen for one board seat. Additionally, Harbinger filed a motion for a status quo order, which the Court denied. The Company filed a motion to dismiss, which the Court denied. A trial on the matter was held on March 12 through 13, 2007. On May 18, 2007, the Court

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of Chancery issued an opinion ruling in favor of Openwave on all claims presented, but denying the Company’s request for attorneys’ fees. Judgment was entered in the Company’s favor on May 31, 2007.

On June 5, 2007, Harbinger filed a notice of appeal from the judgment of the Court of Chancery and filed with the Delaware Supreme Court a motion for expedited proceedings on appeal. On August 1, 2007, Harbinger dismissed the appeal, and the matter is resolved.

Securities Class Actions.

Between February 21, and March 27, 2007, four substantially similar securities class action complaints were filed in the United States District Court for the Southern District of New York against Openwave and four current and former officers of the Company. The complaints purport to be filed on behalf of all persons or entities who purchased Openwave stock from September 30, 2002 through October 26, 2006 (the “Class Period”), and allege that during the Class Period, the defendants engaged in improper stock options backdating and issued materially false and misleading statements in the Company’s public filings and press releases regarding the manner in which Openwave granted and accounted for the options. Based on these allegations, the complaints assert two causes of action—one against all defendants for violation of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and a second against the individual defendants for violation of Section 20(a) of the Exchange Act.

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

On June 29, 2007, the plaintiffs filed a consolidated and amended class action complaint. The consolidated and amended complaint adds 17 additional defendants, including several current and former Openwave officers and directors, KPMG LLP, and Merrill Lynch, Pierce, Fenner & Smith, Inc., Lehman Brothers Inc., J.P. Morgan Securities, Inc., and Thomas Weisel Partners LLC. The consolidated and amended complaint alleges claims for violation of Sections 10(b), 20(a) and 20(A) of the Exchange Act and Rule 10b-5, as well as claims for violation of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 arising out of the Company’s 2005 public offering. The complaint seeks money damages, equitable relief, and attorneys’ fees and costs. The Company is required under contracts with the individual defendants to indemnify them under certain circumstances for attorneys’ fees and expenses.

On August 10, 2007, the defendants filed motions to dismiss the consolidated and amended class action complaint. A hearing on the motions has not yet been set. The securities class action action is in its very early stages. No amount is accrued as of June 30, 2007 as a loss is not considered probable and reasonably estimable.

Tender Offer Litigation.

On May 22, 2007, Openwave announced that it had received an unsolicited partial tender offer by Oreo Acquisition Co., LLC, a Delaware limited liability company (“Oreo”), Harbinger Capital Partners Master Fund I, Ltd., a Cayman Islands corporation (the “Harbinger Master Fund”) and Harbinger Capital Partners Special Situations Fund, L.P., a Delaware limited partnership to purchase 40,389,560 shares of Common Stock (representing approximately 49% of the outstanding shares) at a price of $8.30 per share (the “Offer”). On June 4, 2007, Openwave filed with the SEC a Schedule 14D-9 reflecting, among other things, that the Company’s board of directors had unanimously determined that the Offer is inadequate and not in the best interests of the Company’s stockholders (other than Harbinger and its affiliates).

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On June 4, 2007, Openwave filed an action against Oreo, Harbinger Master Fund and Harbinger Special Situations Fund in Delaware Chancery Court seeking (1) a declaration by that court that Openwave’s directors have fully complied in all respects with their fiduciary duties to Openwave’s stockholders in responding to the Offer and (2) a temporary, preliminary and permanent injunction against Harbinger and its employees, agents, and all persons acting on its behalf from acting to frustrate the Company’s board of directors from fulfilling their fiduciary duties and obligations.

On June 22, 2007, Harbinger announced that the Offer had expired and that Harbinger will not take up the shares tendered and will allow the Offer to expire without extension. Subsequently, on June 26, 2007, defendants filed with the Court of Chancery a motion to dismiss Openwave’s complaint on the ground, among others, that the case is moot. In response to defendants’ motion to dismiss, Openwave offered to enter into a stipulation with defendants for the dismissal of the complaint without prejudice. The parties subsequently entered into stipulation of dismissal, which the court entered on July 31, 2007.

Item 4.    Submission of Matters to a Vote of Security Holders.

During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise.

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PART II

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Price Range of Common Stock

Our common stock is listed for quotation on the Nasdaq Global Select Market under the symbol OPWV. The following table sets forth the reported high and low closing sales prices for our common stock for the fiscal periods indicated.

Stock price by quarter	High		Low
Fiscal year ended June 30, 2007:
First quarter	$	11.62	$	6.09
Second quarter	$	10.25	$	8.21
Third quarter	$	9.47	$	7.96
Fourth quarter	$	10.37	$	6.17
Fiscal year ended June 30, 2006:
First quarter	$	19.67	$	16.18
Second quarter	$	17.95	$	15.29
Third quarter	$	22.48	$	17.62
Fourth quarter	$	22.59	$	11.02

Holders

As of July 31, 2007 there were 579 holders of record of our common stock.

Dividends

On June 4, 2007, we announced a special one-time cash distribution of $1.20 per share which was paid in June 2007 totaling $99.4 million. Our policy has been to retain future earnings for reinvestment in our business, and accordingly, we have not paid cash dividends prior to this special distribution and we do not anticipate paying cash dividends in the foreseeable future.

Stock Buy-Back Plan

On January 4, 2007, the Company announced that it intended to repurchase up to $100.0 million of the Company’s common stock. On January 30, 2007, the Company entered into an agreement with Merrill Lynch to effect the stock repurchase whereby the Company agreed to purchase shares of its common stock from Merrill Lynch for an aggregate price of $100.0 million. Under the agreement, Merrill Lynch purchased shares in the open market and delivered those shares to the Company from February 23 through April 11, 2007. As a result of the completion of this program the Company repurchased and retired 11,843,991 shares of its common stock at an average price of $8.44.

Equity Compensation Plan Information

For equity compensation plan information, please refer to Item 12 in Part III of this Annual Report on Form 10-K.

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Performance Graph

The information contained in the Performance Graph shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act.

The following graph compares the cumulative total stockholder return on our common stock, the NASDAQ Composite Index, and the S&P 500 Information Technology Index. The graph assumes that $100 was invested in our common stock, the NASDAQ Composite Index and the S&P 500 Information Technology Index on June 30, 2002, and calculates the return quarterly through June 30, 2007. The stock price performance on the following graph is not necessarily indicative of future stock price performance.

Item 6.    Selected Financial Data.

The following selected financial data should be read in conjunction with our consolidated financial statements and related notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.

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The following table sets forth selected Consolidated Statements of Operations and Consolidated Balance Sheet data, revised to reflect Musiwave as a discontinued operation, for fiscal years ended June 30, 2007, 2006, 2005, 2004 and 2003 (in thousands, except per share data):

	Fiscal Year ended June 30,
	2007			2006			2005			2004			2003
Selected Consolidated Statements of Operations Data:
Total revenues	$	290,301		$	396,232		$	383,635		$	290,791		$	267,955
Total cost of revenues		126,166			120,994			120,027			81,081			78,311
Gross profit		164,135			275,238			263,608			209,710			189,644
Total operating expenses		278,011			267,993			318,156			230,813			393,001
Operating income (loss) from continuing operations		(113,876	)		7,245			(54,548	)		(21,103	)		(203,357	)
Net income (loss) from continuing operations before cumulative effect of a change in accounting principle		(102,247	)		10,393			(62,774	)		(30,454	)		(212,729	)
Change in accounting principle		—			—			—			—			(14,547	)
Net income (loss) from continuing operations		(102,247	)		10,393			(62,774	)		(30,454	)		(227,276	)
Discontinued operations:
Net loss from discontinued operations, net of tax		(6,422	)		(5,157	)		—			—			—
Impairment on discontinued operations, net of tax		(87,968	)		—			—			—			—
Total loss from discontinued operations		(94,390	)		(5,157	)		—			—			—
Net income (loss)	$	(196,637	)	$	5,236		$	(62,774	)	$	(30,454	)	$	(227,276	)
Basic and diluted net income (loss) per share:
Before cumulative effect of a change in accounting principle and discontinued operations	$	(1.13	)	$	0.12		$	(0.94	)	$	(0.49	)	$	(3.59	)
Cumulative effect of a change in accounting principle	$	—		$	—		$	—		$	—		$	(0.25	)
Discontinued operations	$	(1.05	)	$	(0.06	)	$	—		$	—		$	—
Basic and diluted net income (loss) per share	$	(2.18	)	$	0.06		$	(0.94	)	$	(0.49	)	$	3.83
	As of June 30,
	2007			2006			2005			2004			2003
Selected Consolidated Balance Sheets Data:
Cash, cash equivalents and restricted cash and short-term investments	$	242,705		$	424,424		$	235,804		$	268,950		$	172,010
Long-term investments and restricted cash and investments		37,944			81,140			50,202			72,047			61,466
Total assets		548,287			919,831			543,574			476,508			367,451
Total assets of discontinued operations		53,691			148,598			—			—			—
Convertible subordinated debt, net		149,017			148,193			147,367			146,542			—
Total stockholders’ equity	$	170,252		$	539,595		$	153,911		$	170,606		$	179,899

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Other than under the heading “Discontinued Operations”, the following discussion regards continuing operations only, and should be read in conjunction with the consolidated financial statements and notes included elsewhere in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and those listed in the Risk Factor section contained above in Item 1A.

Our total revenues decreased by $105.9 million, or 27%, from $396.2 million for the fiscal year ended June 30, 2006, to $290.3 million for the fiscal year ended June 30, 2007. The decrease in revenues relates to a decrease of $105.9 million in our license revenues in fiscal 2007 from fiscal 2006.

Our total operating expenses increased by $10.0 million, or 4%, from $268.0 million for the fiscal year ended June 30, 2006, to $278.0 million for the fiscal year ended June 30, 2007. The increase in our operating expenses was primarily due to an increase of $26.0 million in restructuring and related costs associated with the restructuring plans implemented in the first and fourth quarters of fiscal 2007, as well as an increase in stock option review and related costs of $6.4 million incurred during fiscal 2007. Partially offsetting these increases was a $12.6 million decrease in research and development expense following restructurings in fiscal 2005 and early 2006, and a $20.0 million decrease in sales and marketing expense primarily associated with the reduction in stock-based compensation, and also commissions associated with lower bookings in fiscal 2007 versus 2006, as well as a $10.0 million decrease in gain on sales of technology which are infrequent.

Critical Accounting Policies and Judgments

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

• Revenue recognition

• Allowance for doubtful accounts

• Impairment assessment of goodwill and identifiable intangible assets

• Stock-based compensation

• Restructuring-related assessments

These policies, and our procedures related to these policies, are described in detail below. In addition, please refer to the Notes to Consolidated Financial Statements for further discussion of our accounting policies.

Revenue Recognition

We recognize revenue in accordance with Statement of Position (“SOP”) No. 97-2, “Software Revenue Recognition,” as amended by SOP No. 98-9, “Modification of 97-2 Software Revenue Recognition, With Respect to Certain Transactions,” and generally recognize revenue when all of the following criteria are met, as set forth in SOP No. 97-2: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable and (4) collectibility is probable.

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Due to changes in the business environment and to address customer requirements, effective January 1, 2007, the Company amended its policy such that in addition to a signed arrangement, a purchase order from the customer is required in order to satisfy the evidence of an arrangement criteria. Purchase orders received on or prior to the end of quarter would be eligible for revenue recognition. Lack of a valid purchase order from the customer would constitute an incomplete arrangement and revenue on the order that under our prior policy would have been recognized is now deferred until a valid PO is received. Customers who notify the Company that they do not issue purchase orders in their normal course of business, or have previously provided a letter in lieu of a purchase order, are exempt from the PO requirement and would not be subject to revenue deferral.

One of the critical judgments that we make is the assessment that “collectibility is probable.” Our recognition of revenue is based on our assessment of the probability of collecting the related accounts receivable balance on a customer-by-customer basis. As a result, the timing or amount of revenue recognition may have been different if different assessments of the probability of collection had been made at the time the transactions were recorded in revenue. As of the quarter ended December 31, 2005, we revised our policy regarding the determination factor for recognition of previously deferred revenue for arrangements initially deemed not probable for collection. Prior to the quarter ended December 31, 2005, we continued to defer revenue recognition on arrangements originally deemed not probable for collection until the receipt of cash from that arrangement. As of the quarter ended December 31, 2005, we revised our policy such that revenue on arrangements previously deemed not probable for collection which are subsequently deemed probable for collection is recognized in the period of the change in the assessment of collectibility, which is generally when cash is collected but may be earlier, provided all other revenue recognition criteria have been satisfied. This change in policy did not have a material impact for the fiscal year ended June 30, 2006.

Another critical judgment that we make involves the “fixed or determinable” criterion. We consider payment terms where arrangement fees are due within 12 months from delivery to be normal contractual terms. Payment terms beyond 12 months from delivery are considered extended and not fixed or determinable. For arrangements with extended payment terms, arrangement fee revenues are recognized when fees become due, assuming all other revenue recognition criteria have been met. In arrangements where fees are due within one year or less from delivery, we consider the entire arrangement fee as “fixed or determinable.”

For contracts accounted for under SOP No. 81-1, we believe we are able to reasonably estimate, track, and project the status of completion of a project, and therefore use the percentage of completion method as our primary method for recognizing revenue. We also consider customer acceptance our criteria for substantial completion. Use of estimates requires management to make judgments to estimate the progress to completion (see Risk Factors). Certain contracts contain refundability and penalty provisions. In assessing the amount or likelihood of these provisions being triggered, management makes judgments about the status of the related project and considers the customer’s assessment, if communicated.

In certain arrangements that require SOP 81-1 contract accounting, we sell maintenance and support for which there is no Vendor Specific Objective Evidence (“VSOE”) of fair value. In such arrangements, we apply the completed contract method, recognizing all arrangement fee revenue ratably over the maintenance and support period commencing when maintenance and support is the only remaining undelivered revenue element. Certain arrangements permit the customer to pay us maintenance and support fees based only on the number of active subscribers using our software product, rather than the total number of subscribers committed to by the customer under the license agreement. Such arrangements cause an implied maintenance and support obligation for us relating to unactivated subscribers. In these cases, we defer revenue equal to the VSOE of fair value of maintenance and

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support of the total commitment for the estimated life of the software. This additional deferral of maintenance and support revenue results in a smaller amount of residual license revenues to be recognized upon delivery.

In certain arrangements we recognize revenue based on information contained in license usage reports provided by our customers. Consistent with our other revenue arrangements, we require a purchase order in order to recognize revenue related to the usage reports. If either a usage report or a purchase order is not received we do not recognize the associated revenue until received.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the anticipated non-payment of contractual obligations to us.

The total allowance for doubtful accounts is comprised of a specific reserve and a general reserve. We regularly review the adequacy of our allowance for doubtful accounts after considering the size and aging of the accounts receivable portfolio, the age of each invoice, each customer’s expected ability to pay and our collection history with each customer. We review all customer receivables to determine if a specific reserve is needed, based on our knowledge of the customer’s ability to pay. If the financial condition of a customer were to deteriorate, resulting in an impairment of their ability to make payments, a specific allowance would be made. When a customer is specifically identified as uncollectible, the customer receivable is reduced by the customer’s deferred revenue balance resulting in the net specific reserve, and we discontinue recognition of revenue from that customer until and to the extent cash is received from the customer. In addition, we maintain a general reserve for all other receivables not included in the specific reserve by applying specific percentages of projected uncollectible receivables to the various aging categories. In determining these percentages, we analyze our historical collection experience and current economic trends.

If the historical data we use to calculate the allowance provided for doubtful accounts does not reflect our ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected. As of June 30, 2007, the accounts receivable balance was $72.9 million, net of the allowance for doubtful accounts of $4.2 million. Our allowance for doubtful accounts as a percentage of gross accounts receivable was 5%, 4% and 5% in fiscal years 2007, 2006 and 2005, respectively. Based on our results for fiscal year 2007, a one-percentage point deviation in our allowance for doubtful accounts as a percentage of total gross accounts receivable would have resulted in an increase or decrease in expense of $0.8 million.

Impairment Assessments of Goodwill and Intangible Assets

In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”), we review the carrying amount of goodwill for impairment on an annual basis. Additionally, we perform an impairment assessment of goodwill and other intangible assets whenever events or changes in circumstances indicate that the carrying value of goodwill and other intangible assets may not be recoverable. Significant changes in circumstances can be both internal to our strategic and financial direction, as well as changes to the competitive and economic landscape. Past changes in circumstances that were considered important for asset impairment include, but are not limited to, a decrease in our market capitalization, contraction of the telecommunications industry, reduction or elimination of geographic economic growth, reductions in our forecasted growth and significant changes to operating costs.

We record goodwill when consideration paid in a purchase acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired. On July 1, 2002, the Company adopted FAS 142. Prior to the adoption of FAS 142, goodwill and the identified intangible assets were amortized on a straight-line basis over three to five

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years. FAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. We have no intangible assets with indefinite useful lives. Goodwill is tested for impairment in the Company’s fiscal third quarter. FAS 142 also requires that we amortize other intangible assets over their respective finite lives up to their estimated residual values.

With the adoption of FAS 142, we determined that there was a single reporting unit for the purpose of goodwill impairment tests under FAS 142. While goodwill is tested for impairment in our fiscal third quarter, interim impairment tests may be necessary if indicators suggest the carrying value of the goodwill may not be recoverable. For purposes of assessing the impairment of our goodwill, we estimate the value of the reporting unit using our market capitalization as the best evidence of fair value. This fair value is then compared to the carrying value of the reporting unit. During the fiscal years ended June 30, 2006 and 2005 there were no impairments to goodwill.

During the fourth quarter of fiscal 2007 we recorded an impairment charge to goodwill of $81.0 million and an impairment charge to intangible assets of $7.0 million as a result of the planned disposition of Musiwave. This impairment charge is recorded in Impairment of assets of discontinued operations, net of tax, on the consolidated statement of operations The intended sale of Musiwave triggered an evaluation of the carrying value of the goodwill, as well as the carrying value of the associated intangibles. Since Musiwave was never fully integrated with Openwave and the product and sales synergies were never achieved, the carrying amount of the goodwill acquired with Musiwave was allocated solely to Musiwave and evaluated for impairment in connection with the planned sale. After considering the estimated sales price of the assets and liabilities to be sold and the expenses associated with the divestiture, we determined that the carrying value exceeded the implied fair value of the goodwill allocated to Musiwave.

Stock-based Compensation

Effective July 1, 2005, we adopted FAS 123R using the modified prospective method, in which compensation cost was recognized based on the requirements of FAS 123R for (a) all share-based payments granted or modified after the effective date and (b) for all awards granted to employees prior to the effective date of FAS 123R that remain unvested on the effective date. FAS 123R requires the use of judgment and estimates in performing multiple calculations. We have estimated the expected volatility as an input into the Black-Scholes-Merton valuation formula when assessing the fair value of options granted. Our estimate of volatility is based upon the historical volatility experienced in our stock price. To the extent volatility of our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation expense in future periods. For instance, an estimate of volatility ten percentage points higher would have resulted in a $0.8 million increase in the fair value of options granted during the fiscal year ended June 30, 2007. In addition, we apply an expected forfeiture rate when amortizing stock-based compensation expense. Our estimate of the forfeiture rate is based primarily upon historical experience of employee turnover. To the extent we revise this estimate in the future, our stock-based compensation expense could be materially impacted in the quarter of revision, as well as in following quarters. An estimated forfeiture rate of one percentage point lower since adoption of FAS 123R would have resulted in a change of $0.5 million in stock-based compensation expense for the fiscal year ended June 30, 2007. Our estimate of expected term of options granted is derived from the average midpoint between vesting and the contractual term, as described in the SEC Staff Accounting Bulletin No. 107, “Share-Based Payment.” We expect to change our method of deriving the expected term by January 1, 2008 and replace it with a methodology based upon more specific data once available. This change could impact the fair value of our options granted in the future. Stock-based compensation previously recorded for grants that ultimately did not vest is reversed to stock-based compensation expense in the period the grant is canceled. This holds true for employees who terminated in connection with a restructuring or voluntarily. Thus, in periods of high turnover, stock-based compensation may be unusually low and not indicative of future stock-based compensation.

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Restructuring–related Assessments

Our critical accounting policy and judgment as it relates to restructuring-related assessments includes our estimate of facility costs and severance-related costs. To determine the facility costs, which consist of the loss after our cost recovery efforts from subleasing a building, certain estimates were made related to: (1) the time period over which the relevant building would remain vacant, (2) sublease terms and (3) sublease rates, including common area charges. The facility cost is an estimate that may be adjusted in the future upon triggering events (such as changes in estimates of time and rates to sublease, based upon current market conditions, or changes in actual sublease rates). As an example, upon the actual execution of a sublease associated with facilities restructured in fiscal years 2003 and 2005, it was determined that the actual sublease income was higher than estimated by $3.7 million. To determine the severance and employment-related charges, we made certain estimates as they relate to severance benefits including the remaining time employees will be retained and the estimated severance period. When stock-based grants are modified in connection with a restructuring, the amount of stock-based compensation associated with the modified portion of the grant which would not have vested otherwise, is charged to restructuring expense. These modifications are generally an acceleration of vesting which forego the original requirement to vest over future employment. In fiscal 2007 we had $4.5 million charged to restructuring which was associated with modification of grants. See Note 2 to our Consolidated Financial Statements for the breakout of stock-based compensation charge.

Summary of Operating Results for Fiscal Years ended June 30, 2007, 2006 and 2005

Revenues

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

Our total revenues decreased by $105.9 million, or 27%, from $396.2 million for the fiscal year ended June 30, 2006, to $290.3 million for the fiscal year ended June 30, 2007. The decrease in revenues primarily relates to a decrease in our license revenues of $105.9 million due to a reduction in bookings during our product transition, as our revenues are primarily derived from our existing customers who already own many of our legacy products, and we do not expect our license revenues to increase until and if we receive significant orders for the next generation of our existing cored products, or our new products. In addition, we have experienced a general decrease in demand from several of our largest mobile operator customers who are experiencing restructuring and internal reorganization, often as a result of recent mergers.

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The majority of our revenues have been to a limited number of customers and our sales are concentrated in a single industry segment. One customer during the years ended June 30, 2007, 2006 and 2005 accounted for over 10% of revenues; Sprint Nextel. No other customers accounted for 10% or more of total revenues for the fiscal years ended June 30, 2007, 2006 and 2005.

	% of Total Revenue for Fiscal Year ended June 30,
	2007		2006		2005
Customer:
Sprint/Nextel	23	%	20	%	25	%

Sprint and Nextel completed their merger in August 2005, creating Sprint Nextel. Any change in our business relationship with Sprint Nextel could have an adverse impact on our financial results and stock price.

The following table presents the key revenue information for the fiscal years ended June 30, 2007, 2006 and 2005, respectively (in thousands):

	Fiscal Year ended June 30,									Percent Change FY 2007 from FY 2006		Percent Change FY 2006 from FY 2005
	2007			2006			2005
Revenues:
License	$	88,707		$	194,611		$	175,565		-54	%	11	%
Maintenance and support		91,006			93,821			93,295		-3	%	1	%
Services		97,379			93,833			75,422		4	%	24	%
Project/Systems		13,209			13,967			39,353		-5	%	-65	%
Total revenues	$	290,301		$	396,232		$	383,635		-27	%	3	%
Percent of revenues:
License		31	%		49	%		46	%
Maintenance and support		31	%		24	%		24	%
Services		33	%		24	%		20	%
Project/Systems		5	%		3	%		10	%
Total revenues		100	%		100	%		100	%
Disaggregated revenues:
Server	$	242,822		$	296,336		$	294,518		-18	%	1	%
Client		47,479			99,896			89,117		-52	%	12	%
Total revenues	$	290,301		$	396,232		$	383,635		-27	%	3	%
Percent of revenues:
Server		84	%		75	%		77	%
Client		16	%		25	%		23	%
Total revenues		100	%		100	%		100	%

License Revenues

License revenues decreased by $105.9 million, or 54%, during fiscal year 2007 as compared to fiscal year 2006. The overall decrease in fiscal year 2007 as compared to fiscal year 2006 was primarily attributed to a reduction in bookings during our product transition, as our revenues are primarily derived from our existing customers who already own many of our legacy products, and we do not expect our license revenues to increase until we receive significant orders

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for the next generation of our existing cored products, or our new products. In addition, we have experienced a general decrease in demand from several of our largest mobile operator customers who are experiencing restructuring and internal reorganization, often as a result of recent mergers.

License revenues increased by $19.0 million, or 11%, during fiscal year 2006 as compared to fiscal year 2005. The overall increase in fiscal year 2006 as compared to fiscal year 2005 was primarily attributed to two large deals signed during the third quarter of fiscal year 2006, which contained site licenses for our client products and generated recognized license fees totaling $25.6 million during the third quarter. License revenues for site licenses are recognized in the quarter the license is signed, provided other revenue recognition criteria are met, and no future license revenue will result from additional shipments or use of the product under site license.

Maintenance and Support Revenues

Maintenance and support revenues decreased by $2.8 million, or 3% during fiscal year 2007 from the prior year. This decrease was due to the decrease in license bookings during fiscal 2007. This decrease reflects lower renewal amounts on certain contracts during fiscal 2007.

Maintenance and support revenues remained relatively flat during fiscal year 2006 when compared to fiscal year 2005, increasing by $0.5 million, or 1%.

Services Revenues

Services revenue increased $3.5 million, or 4%, during fiscal year 2007 as compared to fiscal year 2006. The increase was primarily attributable to one large deal with a customer which requested deliverables on an accelerated basis in the fourth quarter of fiscal 2007 that resulted in $3.1 million of revenue in excess of the prior quarter’s run rate.

Services revenue increased $18.4 million, or 24%, during fiscal year 2006 as compared to fiscal year 2005. The increase was primarily attributable to a shift in the nature of service engagements, from projects/systems deals in fiscal year 2005 to services in fiscal year 2006. See the corresponding decrease in project/systems revenues discussed below.

Project/Systems Revenues

Project/systems revenues represent revenues which were comprised of managed services, software and systems solutions which may include our software licenses, our professional services, and third-party software and hardware.

Project/Systems revenue decreased by $0.8 million, or 5%, during fiscal year 2007 as compared to fiscal year 2006. Projects/Systems revenues in both fiscal 2007 and 2006 were from various projects with two customers. The decrease was due to timing of various projects beginning and ending.

Project/Systems revenue decreased by $25.4 million, or 65%, during fiscal year 2006 as compared to fiscal year 2005. This was due to a large project with Sprint Nextel (formerly Nextel) which concluded at the end of fiscal year 2005 and yielded $18.2 million in projects/systems revenue in fiscal year 2005. Additionally, a large project with Sprint Nextel (formerly Sprint) concluded in fiscal year 2006, which yielded $20.2 million in projects/systems revenue in fiscal year 2005 compared to $7.1 million in fiscal year 2006.

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Other Key Revenue and Operating Metrics

The other key revenue metrics reviewed by our CEO for purposes of making operating decisions and assessing financial performance include our disaggregated revenues by product groups. The disaggregated revenues by product group for the fiscal years ended June 30, 2007, 2006 and 2005 were as follows (in thousands):

	Fiscal Year ended June 30,									Percent Change FY 2007 from FY 2006		Percent Change FY 2006 from FY 2005
	2007			2006			2005
Disaggregated revenues:
Server	$	242,822		$	296,336		$	294,518		-18	%	1	%
Client		47,479			99,896			89,117		-52	%	12	%
Total revenues	$	290,301		$	396,232		$	383,635		-27	%	3	%
Percent of revenues:
Server		84	%		75	%		77	%
Client		16	%		25	%		23	%
Total revenues		100	%		100	%		100	%

Other key operating metrics 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. Bookings in the three months ended June 30, 2007 were approximately $68 million, a 43% decrease from bookings of approximately $120 million in the three months ended June 30, 2006. For the year ended June 30, 2007, bookings were approximately $298 million, down 36% or $168 million from approximately $466 million for the year ended June 30, 2006. These bookings resulted in a backlog of approximately $269 million as of June 30, 2007, up 3% from $260 million as of June 30, 2006. 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 months, and are subject to our revenue recognition policy as described under Critical Accounting Policies.

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Cost of Revenues

The following table presents cost of revenues as a percentage of related revenue type for the fiscal years ended June 30, 2007, 2006, and 2005, respectively (in thousands):

	Year ended June 30,									Percent Change FY 2007 from FY 2006		Percent Change FY 2006 from FY 2005
	2007			2006			2005
Cost of Revenues:
License	$	12,379		$	13,261		$	8,972		-7	%	48	%
Maintenance and Support		34,190			30,399			31,887		12	%	-5	%
Services		72,576			70,206			55,580		3	%	26	%
Project/Systems		7,021			7,128			23,588		-2	%	-70	%
Total cost of revenues	$	126,166		$	120,994		$	120,027		4	%	1	%
Cost as a percent of related revenues:
License		14	%		7	%		5	%
Maintenance and support		38	%		32	%		34	%
Services		75	%		75	%		74	%
Project/Systems		53	%		51	%		60	%
Gross margin per related revenue:
License		86	%		93	%		95	%
Maintenance and Support		62	%		68	%		66	%
Services		25	%		25	%		26	%
Project/Systems		47	%		49	%		40	%
Total gross margin		57	%		69	%		69	%

Cost of License Revenues

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

Cost of license revenues during fiscal year 2007 decreased by $0.9 million, or 7%, as compared to fiscal year 2006. This decrease was attributable to a $2.3 million decrease in royalties associated with the corresponding decrease in licenses. Cost of license revenue also includes a $1.4 million increase in amortization expense from the prior year, related to the acquisitions of Widerweb and Solomio in fiscal 2007.

Cost of license revenues during fiscal year 2006 increased by $4.3 million, or 48%, as compared to fiscal year 2005. This increase was attributable to an increase in royalties in connection with the increase in license revenue during the same period. In addition, the percentage of royalty expenses for license revenue increased slightly due to the change in the product mix of licenses sold.

Cost of Maintenance and Support Revenues

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

Cost of maintenance and support revenues during fiscal year 2007 increased by $3.8 million, or 12%, as compared to fiscal year 2006. This increase was primarily the result of a $3.7 million increase in labor costs and custom support and consulting costs for two projects that moved into the technical product support phase during the third quarter of fiscal year 2007.

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Cost of maintenance and support revenues remained relatively consistent during fiscal year 2006, decreasing by $1.5 million, or 5%, as compared to fiscal year 2005. This decrease was the result of a reduction of $2.4 million in labor expense based upon a headcount reduction of 29 in this group from the prior year. This decrease was partially offset by a $1.4 million increase in stock based compensation related to the adoption of FAS 123R in fiscal year 2006 (see Note 2 to the consolidated financial statements).

Cost of Services Revenues

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

Services costs increased by $2.4 million, or 3%, in fiscal year 2007 as compared to the prior fiscal year. This increase is consistent with the $3.5 million increase in services revenue discussed above. Gross margin for services in fiscal year 2007 remained consistent with fiscal 2006.

Services costs increased by $14.6 million, or 26%, in fiscal year 2006 as compared to the prior fiscal year. This increase is consistent with the $18.4 million increase in services revenue discussed above. Gross margin for services in fiscal year 2006 decreased by 1% to 25% from the prior fiscal year. This decrease in our services gross margin during fiscal 2006 is due to the adoption of FAS 123R and the resulting $1.5 million stock-based compensation expense recorded in costs of services related to stock option grants.

Cost of Projects/Systems Revenues

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

Cost of projects/systems revenues remained relatively consistent during fiscal year 2007 as compared to the prior fiscal year, decreasing by $0.1 million, or 2%.

Cost of projects/systems revenues decreased by $16.5 million, or 70%, during fiscal year 2006 as compared to the prior fiscal year. This decrease was a result of a large project with Sprint Nextel (formerly Nextel) which concluded at the end of fiscal year 2005 and a large project with Sprint Nextel (formerly Sprint) which concluded in fiscal year 2006, as discussed under projects/systems revenues above. Our gross margin related to project/systems revenues was 49% during fiscal year 2006, compared to 40% in fiscal year 2005 due to the lower mix of hardware in fiscal 2006 compared to the prior year.

Operating Expenses

Our total operating expenses increased by $10.0 million, or 4%, from $268.0 million for the fiscal year ended June 30, 2006, to $278.0 million for the fiscal year ended June 30, 2007. The increase in our operating expenses was primarily due to an increase of $26.0 million in restructuring and related costs associated with the restructuring plans implemented in the first and fourth quarters of fiscal 2007, as well as an increase in stock option review and related costs of $6.4 million incurred during fiscal 2007. Partially offsetting these increases was a $12.6 million decrease in research and development expense following restructurings in fiscal 2005 and early 2006, and a $20.0 million decrease in sales and marketing expense primarily associated with the reduction in stock-based compensation, and also commissions associated with lower bookings in fiscal 2007 versus 2006, as well as a $10.0 million decrease in gain on sales of technology which are infrequent.

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During fiscal year 2006, operating costs decreased by $50.2 million, or 16%, from fiscal year 2005. The primary reason for the decrease in our operating expenses was an $11.7 million decrease in research and development expense, as well as a $65.9 million decrease in restructuring and related costs associated in large part with the relocation of our headquarters during fiscal 2005. Partially offsetting this reduction was a $32.1 million increase in stock-based compensation recorded in operating expenses, which was impacted by the adoption of FAS 123R in fiscal year 2006.

The following table represents operating expenses for the three fiscal years ended June 30, 2007, 2006 and 2005, respectively (in thousands):

	Fiscal Year ended June 30,
	2007			Percent Increase (Decrease)		2006			Percent Increase (Decrease)		2005
Research and development	$	71,580		-15	%	$	84,148		-12	%	$	95,878
Sales and marketing		99,648		-17	%		119,653		20	%		99,390
General and administrative		67,786		0	%		67,725		37	%		49,540
Stock option review and related costs		6,782		1889	%		341		—			—
Restructuring and other costs		30,648		563	%		4,623		-93	%		70,560
Amortization of intangible assets		2,854		0	%		2,852		2	%		2,788
Gain on sale of technology and other		(1,287	)	-89	%		(11,349	)	—			—
Total operating expenses	$	278,011		4	%	$	267,993		-16	%	$	318,156
Percent of revenues
Research and development		25	%				21	%				25	%
Sales and marketing		34	%				30	%				26	%
General and administrative		23	%				17	%				13	%

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.

During fiscal year 2007, research and development costs decreased $12.6 million compared to the prior year. This decrease can be primarily attributed to our continuing efforts to streamline our business, primarily through our restructuring plan in the first quarter of fiscal 2007. In particular, we experienced a decline in labor costs of $3.2 million, as well as associated travel and contingent worker costs of approximately $3.0 million. This was driven by a decrease in headcount of 16 employees from June 30, 2006. Additionally, we experience a reduction of $3.1 million from the prior year related to time spent by research and development employees utilized for customized customer installations which were charged to cost of services revenues. Additionally, stock based compensation expense decreased by $3.4 million which was largely due to shares granted prior to July 1, 2005 becoming fully vested or canceled in fiscal 2006.

During fiscal year 2006, research and development costs decreased $11.7 million, compared to the prior year. This decrease can be primarily attributed to the implementation of the FY06 restructuring plan in the first quarter of fiscal year 2006 which consolidated certain engineering sites and reduced headcount and resulted in an overall decrease of $16.6 million in labor expense and employee and facility related allocation costs. This savings was partially offset by the adoption of FAS 123R in fiscal year 2006, which resulted in an increase in stock based compensation expense of $4.9 million compared to the same period in the prior year.

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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.

Sales and marketing expenses decreased by $20.0 million during fiscal year 2007 as compared with fiscal year 2006. This decrease was primarily attributable to a decline in stock based compensation of $12.3 million which related to reductions in the vesting of older options, escrow releases, and large grants made to a few key sales and marketing employees in fiscal 2006 with special vesting terms in fiscal 2006. Additionally, we experienced a decline in commission and bonus expense of approximately $8.3 million as a result of the decrease in bookings during fiscal 2007.

Sales and marketing expenses increased by $20.3 million during fiscal year 2006 as compared with fiscal year 2005. This increase was primarily attributable to the adoption of FAS 123R in fiscal year 2006, which resulted in an increase in stock based compensation expense of $17.4 million from the prior fiscal year. Additionally, labor costs increased by $2.6 million over the prior year.

General and Administrative Expenses

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

General and administrative expenses remained consistent, increasing by approximately $0.1 million in fiscal year 2007 as compared to fiscal year 2006. Although labor and travel costs decreased by $5.2 million during fiscal 2007, professional fees incurred during our proxy contest with Harbinger as well as costs associated with exploring strategic alternatives offset these savings.

General and administrative expenses increased by approximately $18.2 million in fiscal year 2006 as compared to fiscal year 2005. The majority of the increase related to the adoption of FAS 123R in fiscal year 2006, resulting in an increase of $9.8 million in stock based compensation expense over the prior year period. Additionally, an increase in labor expense of $7.7 million over the prior year occurred due to the increase in department headcount over the prior year.

Stock Option Review and Associated Costs

During the fourth quarter of fiscal year 2006, the Board of Directors formed a special committee to investigate an informal request the Company received from the SEC regarding our historical stock option practices. As a result of the findings of the special committee, we remeasured certain stock option grants which resulted in additional stock-based compensation and associated payroll tax expense for fiscal years 2000 through 2005. During this process, we incurred $6.8 million in additional professional fees, in particular related to legal and audit expenses during the fiscal year ended June 30, 2007 and approximately $0.3 million in during the fiscal year ended June 30, 2006.

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Restructuring and Other Costs

Restructuring and other costs increased by $26.0 million in fiscal year 2007 as compared to fiscal year 2006. Restructuring and other costs during fiscal year 2007 include an $11.4 million charge for the first quarter 2007 restructuring plan, a $16.8 million charge for the fourth quarter 2007 restructuring plan, and $2.4 million relating to accretion expense for the net present value of net obligations related to facilities that were restructured under previous plans implemented prior to fiscal year 2007. The restructurings in fiscal 2007 related primarily to reductions in staff in order to better align our resources with our declining revenues.

In fiscal year 2006 restructuring and other costs included an $8.3 million charge for the first quarter restructuring plan and a $0.4 million charge for accelerated deprecation. These charges were offset by a $2.1 million net reduction in restructuring expense during the second quarter of fiscal year 2006. The fiscal year 2006 charges were also reduced by a change in estimate related to the sublease of restructured property that resulted in a net reduction in the restructuring liability of approximately $3.0 million.

Restructuring and other costs decreased by $65.9 million in fiscal year 2006 as compared to fiscal year 2005. Restructuring expense during fiscal year 2005 included a $54.7 million charge for a restructuring that was announced during the third quarter, as well as $15.6 million in accelerated depreciation related to the revision in useful lives of leasehold improvements and furniture. Fiscal year 2006 restructuring and other costs included an $8.3 million charge related to a restructuring that was announced during the first quarter. In addition, there was a $2.1 million net reduction in restructuring expense during the second quarter of fiscal year 2006. During the fourth quarter of fiscal year 2006, a change in estimate related to the sublease of restructured property resulted in a net reduction in the restructuring liability of approximately $3.0 million. Additionally, during fiscal year 2006 a $0.4 million charge for accelerated depreciation of fixed assets was recorded.

Amortization and Impairment of Goodwill and Intangible Assets

Amortization of intangible assets for the fiscal years ended June 30, 2007, 2006 and 2005 was (in thousands):

	Fiscal Year ended June 30,
	2007		2006		2005
Amortization of developed and core technology (a)	$	7,046	$	6,042	$	5,389
Amortization of customer contracts—licenses (a)		412		24		621
Amortization of customer contracts—support (b)		88		84		76
Amortization of customer relationships (c)		2,746		2,744		2,743
Amortization of internal use software and other (c)		108		108		45
Total amortization of intangible assets	$	10,400	$	9,002	$	8,874

(a) Amortization of developed and core technology and customer contracts for licenses is included in cost of license revenue in our consolidated statements of operations. The increase in fiscal year 2007 from 2006 is due to the acquisitions of Solomio and Widerweb during fiscal year 2007. The increase in fiscal year 2006 from the prior year is due to the inclusion of a full year of amortization expense related to the Magic4 and Cilys acquisitions.

(b) Amortization of customer contracts for support is included in Cost of Revenues—Maintenance and Support. The increase in fiscal year 2006 from the prior year is due to the inclusion of a full year of amortization expense related to the Magic4 acquisition.

(c) Amortization of internal use software and other is included in operating expenses. The increase in amortization for fiscal year 2006 is due to the inclusion of a full year of amortization expense related to the Magic4 and Cilys acquisitions.

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Identified intangible assets are amortized on a straight-line basis over two to six years.

Gain on Sale of Technology and Other

Gain on sale of technology and other totaled $11.3 million during fiscal year ended June 30, 2006. We sold certain intangible assets to a third party for $3.8 million in cash, which was received in March 2006 and was recorded in operating income under gain on sale of technology and other. We also sold rights to use a domain name to a third party for $3.3 million in cash, which was received in December 2005 and recorded under gain on sale of technology and other. During fiscal year 2006, we sold certain intellectual property relating to a non-core product, which resulted in a net gain of $4.3 million. We will continue to provide services to our customers who have purchased the product from us in the past under a reseller agreement with the buyer of the technology.

Interest Income

Interest income totaled $21.9 million, $15.9 million, and $5.5 million for the fiscal years ended June 30, 2007, 2006 and 2005, respectively. The increases in interest income for both fiscal year 2007 and 2006 over their respective prior year, can mainly be attributed to interest earned on the proceeds from our equity offering in December 2005, which yielded $277.8 million in net proceeds, as well as higher interest rates earned on our investments during the period.

Interest Expense

We incurred interest expense during the fiscal years ended June 30, 2007, 2006, and 2005 of $5.0 million, $5.1 million, and $5.2 million, respectively. The majority of our interest expense relates to our convertible subordinated notes issued in September 2003.

Other Income (Expense), net

Other income (expense), net totaled $1.4 million, $(1.8) million, and $0.3 million for the years ended June 30, 2007, 2006 and 2005, respectively. These amounts primarily relate to foreign exchange gains and losses on foreign denominated assets and liabilities.

Income Taxes

Income tax expense totaled $6.5 million, $5.4 million, and $8.8 million for the fiscal years ended June 30, 2007, 2006 and 2005, respectively. Income taxes in all periods consisted primarily of foreign withholding and foreign income taxes. Foreign withholding taxes fluctuate from year to year based on both the geographical mix of our revenue, as well as the timing of the revenue recognized. Fiscal 2007 tax expense was $1.1 million higher than the prior year due to reduced deductions for stock options exercised in the United Kingdom which allows such deductions. The fiscal 2006 tax expense was lower than in the prior year due to tax benefits realized for stock option exercises in the United Kingdom, and net operating losses from certain foreign jurisdictions.

In light of our history of operating losses, we recorded a valuation allowance for substantially all of our net deferred tax assets outside of certain foreign jurisdictions, as we are presently unable to conclude that it is more likely than not that the deferred tax assets in excess of deferred tax liabilities will be realized.

As of June 30, 2007, we had net operating loss carryforwards for federal and state income tax purposes of approximately $1.4 billion and $676.0 million, respectively.

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Discontinued Operations

During the third quarter of fiscal 2006, we acquired Musiwave, S.A. (Musiwave), a leading provider of mobile music entertainment services to operators and media companies primarily in Europe. During June 2007, we committed to a plan to sell Musiwave. In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), Musiwave’s financial results have been classified as discontinued operations in our consolidated financial statements for all periods presented. The net assets associated with Musiwave are currently considered “held-for-sale”and all prior periods have been revised in the consolidated balance sheet and consolidated statement of operations to reflect Musiwave as a discontinued operation.

During the fourth quarter of fiscal 2007, in accordance with SFAS 144, the Company recorded an impairment charge to goodwill of $81.0 million and an impairment charge to intangible assets of $7.0 million related to a reassessment of the carrying value of Musiwave’s long-lived assets. We determined fair values utilizing widely accepted valuation techniques, including discounted cash flows. We based fair values on current expectations for the business in light of the existing environment and expected sales price. See Note 3 to the consolidated financial statements for further information.

Liquidity and Capital Resources

Long-Term Debt Obligations, Restructuring Plans and Operating Lease Obligations

As of June 30, 2007, our principal commitments consisted of obligations outstanding under operating leases, as well as our convertible debt obligations.

Pursuant to the issuance of our Convertible Notes, we agreed to maintain certain covenants. These covenants include, among others, (1) the timely payment of principal, premium, if any, and interest on the Convertible Notes; (2) the timely filing of the Company’s annual and quarterly reports with the SEC and providing copies of such reports to the trustee within 15 days; and (3) the delivery to the trustee of a compliance certificate within 120 days of the end of each fiscal year.

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

On October 3, 2006, we received a notice of default related to the failure to timely provide the trustee with a copy of the Form 10-K for the period ended June 30, 2006. The filing of our fiscal year 2006 Form 10-K on December 1, 2006 cured this default. On November 20, 2006, we received a notice of default related to the failure to timely provide the trustee with a copy of the Form 10-Q for the period ended September 30, 2006. The filing of our first quarter fiscal year 2007 Form 10-Q on December 22, 2006 cured this default.

On June 4, 2007, we announced a restructuring plan to simplify and better align our product portfolio with market demand, reduce costs and improve operating efficiencies. As such, during the fourth quarter of fiscal year 2007, we incurred $16.8 million in pre-tax restructuring and related charges associated with this restructuring plan and

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accelerated depreciation of abandoned assets. Included in the restructuring and other charges are approximately $15.0 million related to employee termination benefits, $1.7 million in stock compensation expense related to employee termination benefits and $0.1 million related to accelerated depreciation on abandoned assets. We expect to pay the current accrued charges of $14.2 million in fiscal 2008.

On August 31, 2006, we announced a restructuring plan to better align our resources among operational groups and reduce the numbers of layers of management between customers and field and product organizations (the “FY2007 Restructuring”). We incurred approximately $11.4 million in pre-tax restructuring and related charges associated with this FY2007 Restructuring during the first quarter of fiscal year 2007 and accelerated depreciation of abandoned assets to be recognized over the four months ending December 31, 2006. Included in the first quarter restructuring and other charges are approximately $7.2 million related to employee termination benefits which were paid in fiscal year 2007.

In July 2006, we finalized a sublease agreement for properties included in the FY 2005 Restructuring and the FY 2003 Q1 Restructuring. As a result of the finalization of sublease terms, we reassessed the estimated obligation, future accretion and sublease income related to these properties, resulting in a net reduction in our restructuring liability of $3.0 million.

On February 28, 2005, we entered into two sublease agreements (the “Sublease Agreements”) to lease office space in adjacent buildings at 2100 Seaport Boulevard and 2000 Seaport Boulevard in Redwood City, California. Collectively, the Sublease Agreements cover approximately 192,000 square feet which serve as our corporate headquarters. We vacated our prior corporate headquarters located at 1400 Seaport Boulevard, Redwood City, California as of June 1, 2005.

The terms of the Sublease Agreements began on May 1, 2005 and end on June 29, 2013, with a one time right to terminate one or both of the Sublease Agreements on July 30, 2009. The Sublease Agreements are triple-net subleases and the Company has a right of first refusal to lease additional space at 2000 Seaport Boulevard. The average base rent expense for the first 4 years will be $1.73 million per year. The average base rent for the remaining term of the leases will be approximately $2.13 million per year. In addition, we expect common area and maintenance pass-through charges, including real estate taxes, to be approximately $1.5 to $1.8 million per year. The rent obligations are being expensed on a straight-line basis, over the term of the lease beginning upon the date the premises became available for entry in February 2005.

Our prior headquarter facility lease was entered into in March 2000 for approximately 283,000 square feet of office space located at 1400 Seaport Boulevard, Redwood City, California. Lease terms that commenced in April 2001 require a base rent of $3.25 per square foot per month as provided by the lease agreement which will increase by 3.5% annually on the anniversary of the initial month of the commencement of the lease. The lease is for a period of 12 years from the commencement date of the lease.

We also have numerous facility operating leases at other locations in the United States and throughout the world.

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Long-term debt obligations and future minimum lease payments under all non-cancelable operating leases with terms in excess of one year and future contractual sublease income were as follows at June 30, 2007 (in thousands):

	Payments due during the Fiscal Year ended June 30,																		Total
	2008			2009			2010			2011			2012			Thereafter
Contractual obligation:
Gross operating lease obligations		23,881			21,688			22,121			22,515			23,010			21,404		$	134,619
Less: contractual sublease income		(4,173	)		(3,170	)		(3,370	)		(3,226	)		(3,226	)		(2,689	)		(19,854	)
Net operating lease obligations		19,708		$	18,518		$	18,751		$	19,289		$	19,784		$	18,715		$	114,765
Interest due on convertible subordinated debt	$	4,125		$	2,063		$	—		$	—		$	—		$	—		$	6,188
Principal payment of convertible subordinated debt	$	—		$	150,000		$	—		$	—		$	—		$	—		$	150,000

The anticipated sale of Musiwave will likely improve our cash flows in future periods. Cash outflows relating to discontinued operations totaled $2.6 million during fiscal 2007. In addition, as of June 30, 2007, $2.2 million was accrued for contingent consideration relating to a retention agreement (“Holdback Amount”) associated with the original acquisition of Musiwave. This consideration was paid in full in July 2007.

Off-Balance Sheet Arrangements

As of June 30, 2007, we had no off-balance sheet arrangements.

Working Capital and Cash Flows

The following table presents selected financial information and statistics as of June 30, 2007, 2006 and 2005, respectively (in thousands):

	As of June 30,
	2007		Percent change			2006			Percent change			2005
Working capital	$	207,191		-54	%	$	451,428			86	%	$	243,287
Cash and cash investments:
Cash and cash equivalents		80,581		-52	%		168,004			34	%		125,711
Short-term investments		160,063		-38	%		256,420			133	%		110,093
Long-term investments		19,658		-68	%		61,034			136	%		25,909
Restricted cash		20,347		1	%		20,106			-17	%		24,293
Total cash and investments	$	280,649		-44	%	$	505,564			77	%	$	286,006
			Fiscal Year ended June 30,
			2007			2006			2005
Cash provided by (used for) operating activities			$	(2,854	)	$	15,986		$	(6,545	)
Cash provided by (used for) investing activities			$	115,307		$	(291,312	)	$	(38,982	)
Cash provided by (used for) financing activities			$	(198,995	)	$	322,254		$	19,176

We obtained a majority of our cash and investments through prior public offerings, totaling $802.7 million. In addition, we received approximately $145.0 million from the issuance of our $150 million convertible subordinated notes during the year-ended June 30, 2004.

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We intend to use cash provided by such financing activities for general corporate purposes, including potential future acquisitions or other transactions. While we believe that our current working capital and anticipated cash flows from operations will be adequate to meet our cash needs for daily operations and capital expenditures for at least the next 12 months, we may elect to raise additional capital through the sale of additional equity or debt securities, obtain a credit facility or sell certain assets. If additional funds are raised through the issuance of additional debt securities, these securities could have rights, preferences and privileges senior to holders of common stock, and 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 mean time, we will continue to manage our cash portfolios in a manner designed to ensure that we have adequate cash and cash equivalents to fund our operations as well as future acquisitions, if any.

Working Capital

Working capital decreased by $244.2 million during the fiscal year ended June 30, 2007, as compared with the prior year. The decrease was primarily attributable to a decline in our cash and short term investments of $183.8 million, as we paid a $99.4 million cash dividend and repurchased $100.0 million in our common stock under our stock buy-back plan in fiscal year 2007. We also experienced a decline in our accounts receivable balance of approximately $66.5 million as a result of improved collections and lower revenue during fiscal 2007 than the prior year.

Cash, cash equivalents, short and long-term investments and restricted cash decreased by $224.9 million as of June 30, 2007 compared to June 30, 2006, primarily as a result of our $100.0 million stock repurchase plan and $99.4 million dividend in fiscal year 2007.

Working capital increased by $208.1 million during the fiscal year ended June 30, 2006, as compared with the prior year. The increase was primarily attributable to proceeds from the issuance of common stock, including the public offering in December 2005 which raised $277.8 million in net proceeds, and the remainder from employees’ exercise of stock options during fiscal year 2006. In addition, the increase in cash included net proceeds of $11.3 million received on sales of technology and domain names during the period. Offsetting the increase in working capital during the period was the acquisition of Musiwave for $113.9 million, net of cash acquired.

Cash, cash equivalents, short and long-term investments and restricted cash increased by $219.6 million as of June 30, 2006 compared to June 30, 2005, primarily as a result of the public offering of common stock discussed above.

Cash Provided by (Used for) Operating Activities

Cash provided by (used for) operating activities totaled $(2.9) million, $16.0 million, and $(6.5) million for the years ended June 30, 2007, 2006 and 2005, respectively.

The $18.8 million increase in cash used for operating activities in fiscal year 2007 is primarily due to lower cash from net income excluding non-cash items and the gain on sale of technology and other of $111.8 million, which includes a $88.0 million impairment to goodwill and other intangibles, partially offset by an increase in working capital balances of $93.0 million.

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The $22.5 million increase in cash provided by operating activities in fiscal year 2006 is primarily due to improved cash from net income excluding non-cash items and the gain on sale of technology and other of $72.9 million, partially offset by a decline in working capital balances of $50.4 million.

Cash Provided by (Used for) Investing Activities

Cash flows provided by (used for) investing activities during the fiscal years ended June 30, 2007, 2006 and 2005 totaled $115.3 million, $(291.3) million and $(39.0) million, respectively.

The $406.6 million increase in our cash flows provided by investing activities for fiscal year 2007 as compared to fiscal year 2006 relates to an increase in net proceeds from maturities of short and long term investments of approximately $318.7 million. Additionally, there was a decline in cash used for acquisitions of $101.8 million, since in fiscal 2006 we spent $113.9 million for the Musiwave acquisition versus only $12.1 million for Widerweb and Solomio. Offsetting these increases to cash provided by investing activities for fiscal 2007 was a decline in proceeds from sale of technology and other of $10.1 million.

The $252.3 million increase in our cash flows used for investing activities for fiscal year 2006 as compared to fiscal year 2005 relates to an increase of $120.8 million in purchases of short term investments, net of proceeds from maturities of short-term investments in the fiscal year 2006 compared to the prior fiscal year. Purchases of long-term investments, net of proceeds from maturities of long-term investments during the current fiscal year increased by $83.5 million over the prior fiscal year. Additionally, cash used for acquisitions was $61.2 million greater during the current fiscal year, related to the acquisition of Musiwave. This increase in cash used for investing activities was partially offset by the $11.3 million of proceeds from the sale of technology and other during fiscal year 2006, with no such comparable activity in the prior fiscal year.

Cash Flows Provided by (Used for) Financing Activities

Cash flow used for financing activities increased by $521.2 million in fiscal year 2007 as compared to the prior fiscal year. This increase was primarily a result of our $100.0 million stock repurchase plan and $99.4 million dividend in fiscal 2007. Additionally, in fiscal 2006, $322.5 million was provided from the issuance of common stock, including the public offering in December 2005 which raised $277.8 million of net proceeds, with no such comparable activity in the prior fiscal year.

Cash flow provided by financing activities increased by $303.1 million in fiscal year 2006 as compared to the prior fiscal year primarily due to proceeds from the issuance of common stock, including the public offering in December 2005 which resulted in $277.8 million of net proceeds, and the remainder from employees’ exercise of stock options during the fiscal year ended June 30, 2006.

Recent Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (“FAS 155”), which amends FASB Statement No. 133 and FASB Statement 140, and improves the financial reporting of certain hybrid financial instruments by requiring more consistent accounting that eliminates exemptions and provides a means to simplify the accounting for these instruments. Specifically, FAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. FAS 155 is effective for all financial

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instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. We are currently assessing the impact of FAS 155 on our consolidated financial position and results of operations.

In June 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 06-03 (“EITF 06-03”), “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation).” EITF 06-03 provides that the presentation of taxes assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer on either a gross basis (included in revenues and costs) or on a net basis (excluded from revenues) is an accounting policy decision that should be disclosed. The provisions of EITF 06-03 became effective for us as of January 1, 2007. We have continued to report taxes collected from customers on a gross presentation basis after adoption of EITF 06-03.

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,” (“FIN 48”) which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. FIN 48 is effective beginning in the first quarter of fiscal 2008. The Company is currently assessing the impact of FIN 48 on its consolidated financial position and results of operations.

In September 2006, the SEC Staff released Staff Accounting Bulletin No. 108 (“SAB 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 provides guidance on the process of quantifying materiality of financial statement misstatements. Under SAB 108, registrants are required to consider both a “rollover” method which focuses primarily on the income statement impact of misstatements and the “iron curtain” method which focuses primarily on the balance sheet impact of misstatements. SAB 108 does not change the requirements within SFAS No. 154, “Accounting Changes and Error Corrections” for the correction of an error on financial statements. Further, SAB 108 does not change the Staff’s previous guidance in SAB No. 99, “Materiality” on evaluating the qualitative materiality of misstatements. The Company adopted SAB 108 in the fourth quarter of fiscal 2007. The adoption of SAB 108 did not have a material impact on our financial position or results of operations.

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

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 159 to have a material impact on our consolidated financial position and results of operations.

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Item 7A.    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 gains (losses) included in “Other income (expense), net” in the accompanying consolidated statements of operations totaled $1.3 million, $(1.7) million, and $0.3 million for the years ended June 30, 2007, 2006 and 2005, respectively. As of June 30, 2007, we have the following forward contracts (in 000’s):

Currency	Notional Amount	Foreign Currency per USD	Date of Maturity
Forward contracts:
AUD	1,000	1.22	7/31/2007
CAD	1,500	1.07	7/31/2007
CAD	2,500	1.07	8/31/2007
EUR	2,500	0.75	7/31/2007
EUR	1,500	0.73	7/31/2007
EUR	2,500	0.74	8/31/2007
EUR	4,500	0.74	9/28/2007
GBP	2,000	0.50	9/28/2007
JPY	150,000	120.63	7/31/2007
JPY	500,000	121.55	9/28/2007

As of June 30, 2007, the fair value of these forward contracts was a net liability of $34 thousand.

(b) Interest Rate Risk

As of June 30, 2007, we had cash and cash equivalents, short-term and long-term investments, and restricted cash and investments of $280.6 million. Our exposure to market risks for changes in interest rates relates primarily to corporate debt securities, U.S. Treasury Notes and certificates of deposit. We place our investments with high credit quality issuers that have a rating by Moody’s of A1 or higher and Standard & Poors of P-1 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 are classified as available-for-sale and considered to be short-term investments; all investments with maturities of greater than one year and less than two years are classified as available-for-sale and considered to be long-term investments. We do not purchase investments with a maturity date greater than two years from the date of purchase.

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The following is a table of the principal amounts of short-term investments and long-term investments by expected maturity at June 30, 2007 (in thousands):

	Expected maturity date for the year ending June 30,							Cost		Fair Value
	2008		2009			2010		June 30, 2007 Total		June 30, 2007 Total
Certificates of deposit	$	7,824	$	—		$	—	$	7,824	$	7,815
Commercial paper		28,080		—			—		28,080		28,070
Corporate bonds		27,764		11,555			7,021		46,340		46,331
Auction rate securities		81,737		—			—		81,737		81,728
Asset backed securities		240		1,075			—		1,315		1,315
Federal agencies		14,488		—			—		14,488		14,462
Total	$	160,133	$	12,630		$	7,021	$	179,784	$	179,721
Weighted-average interest rate				5.3	%

Additionally, we had $20.3 million of restricted investments that were included within restricted cash and investments on the consolidated balance sheet as of June 30, 2007. $17.7 million of the restricted investments comprised a certificate of deposit to collateralize letters of credit for facility leases. $0.8 million comprises a restricted investment to secure a warranty bond pursuant to a customer contract. Additionally, a balance of $0.5 million comprises a trade letter of credit related to a customer contract that required us to purchase hardware from a specific vendor. The remaining balance of $1.3 million relates to amounts held in escrow for indemnification claims related to our acquisition of SoloMio in fiscal year 2007. The weighted average interest rate on our restricted investments was 2.8% at June 30, 2007.

Item 8.    Financial Statements and Supplementary Data.

Our Consolidated Financial Statements, together with related notes and the reports of independent registered public accounting firm KPMG LLP are set forth on the pages indicated in Item 15.

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Quarterly Results of Operations

The following tables set forth a summary of our unaudited quarterly operating results for each of the eight quarters in the period ended June 30, 2007. Prior quarters have been revised to reflect Musiwave as a discontinued operation. The information has been derived from our unaudited consolidated financial statements that, in management’s opinion, have been prepared on a basis consistent with the audited consolidated financial statements contained elsewhere in this annual report and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this information when read in conjunction with our audited consolidated financial statements and notes thereto. The operating results for any quarter are not necessarily indicative of results to be expected for any future period.

	Fiscal Year ended June 30, 2007												Fiscal Year ended June 30, 2006
	Fourth Quarter			Third Quarter			Second Quarter			First Quarter			Fourth Quarter			Third Quarter			Second Quarter		First Quarter
Total revenues	$	68,094		$	62,704		$	75,692		$	83,811		$	83,509		$	104,893		$	104,488	$	103,342
Total cost of revenues		30,767			30,335			31,559			33,505			26,684			29,813			31,459		33,038
Gross profit		37,327			32,369			44,133			50,306			56,825			75,080			73,029		70,304
Total operating expenses		77,073			63,989			62,751			74,198			62,350			65,979			63,650		76,014
Operating income (loss) from continuing operations		(39,746	)		(31,620	)		(18,618	)		(23,892	)		(5,525	)		9,101			9,379		(5,710	)
Net income (loss) from continuing operations	$	(37,058	)	$	(30,132	)	$	(14,992	)	$	(20,065	)	$	(2,175	)	$	11,800		$	8,444	$	(7,676	)
Net loss from discontinued operations		(86,756	)		(2,378	)		(784	)		(4,472	)		(2,927	)		(2,230	)		—		—
Net income (loss)	$	(123,814	)	$	(32,510	)	$	(15,776	)	$	(24,537	)	$	(5,102	)	$	9,570		$	8,444	$	(7,676	)
Basic net income (loss) from continuing operations per share	$	(0.45	)	$	(0.33	)	$	(0.16	)	$	(0.22	)	$	(0.03	)	$	0.13		$	0.11	$	(0.11	)
Basic net income (loss) from discontinued operations per share	$	(1.05	)	$	(0.02	)	$	(0.01	)	$	(0.05	)	$	(0.03	)	$	(0.03	)	$	—	$	—
Basic net income (loss) per share	$	(1.50	)	$	(0.35	)	$	(0.17	)	$	(0.27	)	$	(0.06	)	$	0.10		$	0.11	$	(0.11	)
Diluted net income (loss) from continuing operations per share	$	(0.45	)	$	(0.33	)	$	(0.16	)	$	(0.22	)	$	(0.02	)	$	0.12		$	0.11	$	(0.11	)
Diluted net loss from discontinued operations per share	$	(1.05	)	$	(0.02	)	$	(0.01	)	$	(0.05	)	$	(0.04	)	$	(0.02	)	$	—	$	—
Diluted net income (loss) per share	$	(1.50	)	$	(0.35	)	$	(0.17	)	$	(0.27	)	$	(0.06	)	$	0.10		$	0.11	$	(0.11	)
Shares used in computing:
Basic net income (loss) per share		82,449			92,114			93,352			91,815			91,709			91,442			75,003		70,080
Diluted net income (loss) per share		82,449			92,114			93,352			91,815			91,709			95,044			79,433		70,080

During the quarter ended June 30, 2006, the Company discovered an overstatement of the income tax expense recorded during previous quarters of fiscal 2006. To correct the overstatement the Company recorded a tax benefit related to stock option expenses of $1.6 million and a tax benefit related to net operating losses of $0.2 million in the fourth quarter of fiscal 2006. The tax benefit that should have been recorded in the first, second and third quarters of

54

fiscal 2006 was $0.6 million, $0.2 million and $1.0 million respectively. Additionally, the Company corrected its income tax expense for the quarter ended September 30, 2006 by reducing such expense by approximately $1.0 million in the quarter ended December 31, 2006.

During the quarter ended December 31, 2005, the Company entered into a non-binding agreement with a potential subtenant for properties that are included in the Company’s fiscal year 2005 and fiscal year 2003 restructuring plans. As such, the Company reassessed its estimated obligation and sublease income related to these properties, resulting in a net reduction of $2.1 million in restructuring expense recorded during the quarter ended December 31, 2005, which was partially offset by $0.8 million in accretion expense related to the measurement of restructuring.

Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A.    Controls and Procedures.

(a) Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s internal control over financial reporting as of June 30, 2007. In making this assessment, management used the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.

Based on our assessment, management believes that, as of June 30, 2007, the Company’s internal control over financial reporting is effective.

The Company’s independent registered public accounting firm, KPMG LLP, has audited the financial statements included in this annual report on Form 10-K, and has issued an audit report on management’s assessment of the Company’s internal control over financial reporting as of June 30, 2007. This report appears on page three of the consolidated financial statements.

(b) Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, which is June 30, 2007 (the “Evaluation Date”). Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective.

55

(c) Changes in Internal Control Over Financial Reporting

Our annual report on Form 10-K for the fiscal year ended June 30, 2006 disclosed a material weakness relating to accounting for income taxes. In order to remediate this material weakness, during the third and fourth quarter of fiscal 2007, we:

• hired resources in the tax department with sufficient technical expertise in accounting for income taxes

• and engaged an independent accounting firm to review the fiscal year 2007 income tax calculations

• and added an additional internal layer of internal review of the fiscal year 2007 income tax calculations

• evaluated the Company’s existing tax-related assets and liabilities with increased detail of verification.

As a result of these actions, management has concluded that we have remediated the material weakness related to income taxes as of June 30, 2007.

Our annual report on Form 10-K/A for the fiscal year ended June 30, 2006 disclosed a material weakness relating to the statement of cash flows and related disclosures. In order to remediate this material weakness, during the fourth quarter of fiscal 2007, we:

• added a supplemental checklist related to the statement of cash flows which is completed by the preparer of the statement of cash flows and reviewed by management

• and added the consideration of the impact, if any, that unusual transactions may have on the statement of cash flows in our quarterly review with the Disclosure Committee of the Company.

As a result of these actions, management has concluded that we have remediated the material weakness related to the statement of cash flows as of June 30, 2007.

Other than as described above, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.    Other Information.

None.

56

PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

Incorporated by reference from our Proxy Statement for our 2007 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended June 30, 2007.

Item 11.    Executive Compensation.

Incorporated by reference from our Proxy Statement for our 2007 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended June 30, 2007.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Incorporated by reference from our Proxy Statement for our 2007 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended June 30, 2007.

Equity Compensation Plan Information

	Fiscal Year ended June 30, 2007
	Number of shares to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of shares remaining available for future issuance under equity compensation plans
	(shares in thousands)
Equity compensation plans approved by stockholders	7,886	$	13.98	6,320
Equity compensation plans not approved by stockholders	582	$	9.59	387
Total(1)	8,468	$	13.68	6,707

(1) This table does not include compensation plans from which we are no longer issuing shares, except for the future issuance of shares upon exercise of options that are still outstanding. As of July 31, 2007, there were 4,041 committed shares subject to outstanding options with a weighted average exercise price of $4.18 under such plans. All such outstanding options were assumed in connection with Openwave’s acquisition of certain business entities.

Openwave System’s 2001 Stock Compensation Plan.

This plan provides for the grant of non-qualified stock options, restricted stock bonus awards, and rights to acquire restricted stock to employees, directors (including non-employee directors) and consultants. A maximum of 4,068,128 shares of our common stock may be issued under this plan, of which 533,333 shares are reserved for issuance to non-officer employees. Shares returning to the plan upon cancellation of outstanding options or the unvested portion of restricted stock bonus awards may be made subject to future awards.

This plan is administered by our Board of Directors, which is entitled to delegate this administration at any time to a Board of Directors committee or sub-committee designated to administer it. The Board of Directors or committee that administers this plan has the full power to select the individuals to whom awards will be granted and to make any combination of awards to any participants. The Board of Directors or committee that administers the plan may set

57

the exercise price for options at, above or below the fair market value of our common stock on the date of grant. Options granted under this plan generally have a term of no more than ten years from the date of grant.

The Board of Directors or committee that administers this plan may also determine the terms of the awards granted, including the exercise or purchase price for an option or stock purchase right, the number of shares subject to each award, the term of the award, and the vesting and/or exercisability provisions applicable to the award.

If we merge with, or are acquired by, another company, awards outstanding under this plan may be assumed or equivalent awards substituted by our acquirer. However, if our acquirer does not agree to assume or substitute for outstanding awards, the awards shall terminate upon the closing of the merger or acquisition.

This plan will continue in effect until terminated by the Board of Directors. The Board of Directors may amend, alter or discontinue the plan, but no amendment, alteration or discontinuation of this plan shall be made without the written consent of a participant, if such participant’s rights would be diminished under any previously granted award.

Item 13.    Certain Relationships and Related Transactions, and Director Independence.

Incorporated by reference from our Proxy Statement for our 2007 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended June 30, 2007.

Item 14.    Principal Accountant Fees and Services.

Incorporated by reference from our Proxy Statement for our 2007 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended June 30, 2007.

58

PART IV

Item 15.    Exhibits, Financial Statement Schedules.

(a) The following documents are filed as part of this report:

(1)  Financial Statements. Consolidated Financial Statements and Report of KPMG LLP, independent registered public accounting firm, which are set forth in the Index to Consolidated Financial Statements at page F-1.

(2)  Financial Statement Schedules. See information incorporated in Notes to the Consolidated Financial Statements.

(3)  Exhibits. See below for a list of Exhibits filed or furnished with this annual report on Form 10-K.

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 November 13, 2001).
3.2	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s quarterly report on Form 10-Q filed November 14, 2003).
3.3	Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.01 to the Company’s current report on Form 8-K filed August 1, 2007).
4.1	Rights Agreement dated August 8, 2000, by and between the Company and U.S. Stock Transfer Corporation, as Rights Agent, including the form of Certificate of Designation, Preferences and Rights as Exhibit A, the form of Rights Certificates as Exhibit B, and the Summary of Rights as Exhibit C (incorporated by reference to Exhibit 1 to the Company’s registration statement on Form 8-A (12)(B) filed August 17, 2000).
4.2	Form of the Company’s Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s annual report on Form 10-K filed August 28, 2003).
4.3	Indenture dated September 9, 2003, by and among the Company and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 99.2 to the Company’s current report on Form 8-K filed September 10, 2003).
4.4	Form of 2 3/4% Convertible Subordinated Note due 2008 (incorporated by reference to Exhibit 99.2 to the Company’s current report on Form 8-K filed September 10, 2003).
4.5	Registration Rights Agreement dated September 9, 2003, by and among the Company and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 99.3 to the Company’s current report on Form 8-K filed September 10, 2003).
10.1	Lease Agreement by and between the Company and Pacific Shores Center LLC dated February 4, 2000 for offices at 1400 Seaport Boulevard in Pacific Shores Complex, Redwood City, California (incorporated by reference to Exhibit 10.19 to the Company’s quarterly report on Form 10-Q filed May 15, 2000).
10.2	Two Sublease Agreements by and between the Company and Informatica Corporation, each entered into on February 28, 2005, for the lease of office space in the buildings known as 2100 Seaport Boulevard and 2000 Seaport Boulevard, respectively, in Redwood City, California (incorporated by reference to Exhibit 10.5 to the Company’s quarterly report on Form 10-Q/A filed May 10, 2005).
10.3*	Openwave Systems Inc. 1996 Stock Plan (incorporated by reference to Exhibit 10.2 to the Company’s quarterly report on Form 10-Q filed May 15, 2001).

59

Exhibit Number	Description
10.4*	Openwave Systems Inc. Amended and Restated 1999 Directors’ Equity Compensation Plan, amended and restated effective November 22, 2005 (incorporated by reference to Appendix A to the Company’s proxy statement on Form DEF 14A filed October 24, 2005).
10.5*	Openwave Systems Inc. 1999 Amended and Restated Directors’ Stock Option Plan form of stock option agreement, amended and restated effective January 1, 2002 (incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q filed May 15, 2002).
10.6*	Form of Indemnity Agreement for Officers and Directors (incorporated by reference to Exhibit 10.16 to the Company’s annual report on Form 10-K filed September 28, 2001).
10.7*	Openwave Systems Inc. 1999 Employee Stock Purchase Plan, as amended and restated effective November 1, 2006, (incorporated by reference to Exhibit 99.7 to the Company’s registration statement on Form S-8 filed February 14, 2007).
10.8*	Openwave Systems Inc. 2001 Stock Compensation Plan, amended and restated effective as of August 7, 2002 (incorporated by reference to Exhibit 10.1 to the Company’s annual report on Form 10-K filed September 30, 2002).
10.9*	Form of US Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q filed May 12, 2004).
10.10*	Form of International Stock Option Agreement (incorporated by reference to Exhibit 10.4 to the Company’s quarterly report on Form 10-Q filed May 12, 2004).
10.11*	Amended and Restated Employment Terms Letter Agreement by and between the Company and Allen Snyder, dated October 4, 2004 (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed October 8, 2004).
10.12*	Amended Employment Offer Letter Agreement by and between Openwave Systems Inc. and Allen Snyder, dated February 23, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed February 28, 2006).
10.13*	Employment Agreement by and between Openwave Systems Inc. and David C. Peterschmidt, dated November 1, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed November 5, 2004).
10.14*	Employment Offer Letter Agreement by and between Openwave and Harold (Hal) L. Covert, Jr., dated September 12, 2005 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed September 12, 2005).
10.15*	Openwave Systems Inc. Executive Severance Benefit Policy, amended effective October 6, 2005 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed October 12, 2005).
10.16	Amended and Restated Stock Purchase Agreement, dated as of November 9, 2005, by and among Openwave Systems Inc. and the Sellers named therein (incorporated herein by reference to Exhibit 2.1 to the Company’s current report on Form 8-K/A filed November 14, 2005).
10.17	Underwriting Agreement, dated December 7, 2005 among Openwave Systems Inc. and Merrill Lynch & Co., Lehman Brothers, Inc., JP Morgan Securities, Inc. and Thomas Weisel Partners LLC (incorporated herein by reference to Exhibit 1.1 to the Company’s current report on Form 8-K filed December 8, 2005).
10.18*	Openwave Systems Inc. Executive Compensation Deferral Plan (incorporated herein by reference to Exhibit 10.5 to the Company’s quarterly report on Form 10-Q filed February 8, 2006).
10.19*	Form of Openwave Systems Inc. Executive Compensation Deferral Plan Participation Agreement (incorporated herein by reference to Exhibit 10.6 to the Company’s quarterly report on Form 10-Q filed February 8, 2006).

60

Exhibit Number	Description
10.20*	Form of Executive Change of Control Severance Agreement (incorporated herein by reference to Exhibit 10.01 to the Company’s current report on Form 8-K filed November 7, 2006).
10.21*	Openwave Systems Inc. 2006 Stock Incentive Plan (incorporated herein by reference to Exhibit 99.1 to the Company’s registration statement on Form S-8 filed February 14, 2007).
10.22*	Form of Subscription Agreement for 1999 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.2 to the Company’s quarterly report on Form 10-Q filed May 15, 2002).
10.23*	Severance and Release Agreement between the Company and Steve Peters effective August 25, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed August 31, 2006).
10.24*	Severance and Release Agreement between the Company and Allen Snyder effective November 28, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed December 4, 2006).
10.25	Master Confirmation letter agreement between the Company and Merrill Lynch International dated January 30, 2007 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed February 5, 2007).
10.26	Supplemental Confirmation between the Company and Merrill Lynch International dated January 30, 2007 (incorporated herein by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed February 5, 2007).
10.27*	Severance & Release Agreement between the Company and David Peterschmidt effective June 11, 2007 (incorporated herein by reference to Exhibit (e)(15) to the Company’s Solicitation/Recommendation Statement on Schedule 14D-9 filed June 4, 2007).
10.28*	Severance & Release Agreement between the Company and Harold L. Covert dated July 31, 2007 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed August 2, 2007).
10.29*	Summary of At-Will Employment Arrangement between the Company and Robert Vrij as of March 22, 2007 (incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q filed May 11, 2007).
10.30*	Employment Agreement between the Company and Hari Haran dated April 10, 2007 (incorporated herein by reference to Exhibit (e)(11) to the Company’s Solicitation/Recommendation Statement on Schedule 14D-9 filed June 4, 2007).
10.31*	Employment Agreement between the Company and John Boden dated June 28, 2007.
10.32*	Employment Agreement between the Company and Jean-Yves Dexmier dated August 2, 2007 (incorporated herein by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed August 2, 2007).
10.33*	Openwave Systems Inc. Fiscal Year 2008 Corporate Incentive Plan.
21.1	Subsidiaries of the Company.
23.1	Consent of Independent Registered Public Accounting Firm.
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 to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications 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.

* Indicates a management contract or compensatory plan or arrangement

61

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

OPENWAVE SYSTEMS INC.
By:	/S/    ROBERT VRIJ
	Robert Vrij President, Chief Executive Officer and Director

Date:  August 29, 2007

By:	/S/    JEAN-YVES DEXMIER
	Jean-Yves Dexmier Chief Financial Officer

Date:  August 29, 2007

Power of Attorney

Each person whose signature appears below constitutes and appoints Robert Vrij and Jean-Yves Dexmier, jointly and severally, his or her attorneys-in-fact and agents, each with the power of substitution, for him or her and in his or her name, place or stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission, granting to each attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as he or she might or could do in person, and ratifying and confirming all that the attorneys-in-fact and agents, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/S/    BERNARD PUCKETT         Bernard Puckett	Chairman of the Board	August 29, 2007
/S/    BO HEDFORS         Bo Hedfors	Director	August 29, 2007
/S/    MASOOD JABBAR         Masood Jabbar	Director	August 29, 2007
/s/    KEN DENMAN         Ken Denman	Director	August 29, 2007
/s/    JERRY HELD         Jerry Held	Director	August 29, 2007
/S/    WILLIAM MORROW         William Morrow	Director	August 29, 2007

62

OPENWAVE SYSTEMS INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of June 30, 2007 and 2006	F-5
Consolidated Statements of Operations for the fiscal years ended June 30, 2007, 2006 and 2005	F-6
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss for the fiscal years ended June 30, 2007, 2006 and 2005	F-7
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2007, 2006 and 2005	F-10
Notes to Consolidated Financial Statements	F-12

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Openwave Systems Inc.:

We have audited the accompanying consolidated balance sheets of Openwave Systems Inc. and subsidiaries as of June 30, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years in the three-year period ended June 30, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Openwave Systems Inc. and subsidiaries as of June 30, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2007, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, effective July 1, 2005, the Company adopted the provisions of Statement of Financial Accounting Standard No. 123(R), Share Based Payments.”

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the internal control over financial reporting of Openwave Systems Inc. as of June 30, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 29, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Mountain View, California

August 29, 2007

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Openwave Systems Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting (Item 9A(a)), that Openwave Systems Inc. (“Openwave”) maintained effective internal control over financial reporting as of June 30, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Openwave’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of Openwave’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Openwave maintained effective internal control over financial reporting as of June 30, 2007 is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by COSO. Also, in our opinion, Openwave maintained, in all material respects, effective internal control over financial reporting as of June 30, 2007, based on criteria established in Internal Control—Integrated Framework issued by COSO.

F-3

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Openwave Systems Inc. and subsidiaries as of June 30, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2007, and our report dated August 29, 2007 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Mountain View, California

August 29, 2007

F-4

OPENWAVE SYSTEMS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	June 30,
	2007			2006
ASSETS
Current assets:
Cash and cash equivalents	$	80,581		$	168,004
Short-term investments		160,063			256,420
Restricted cash		2,061			—
Accounts receivable, net of allowance for doubtful accounts of $4,214 and $6,163 as of June 30, 2007 and 2006, respectively		72,894			139,353
Prepaid and other current assets		30,482			18,377
Current assets of discontinued operations		19,039			20,808
Total current assets		365,120			602,962
Property and equipment, net		19,834			18,381
Long-term investments, and restricted cash and investments		37,944			81,140
Deposits and other assets		4,575			7,162
Goodwill		65,560			60,424
Intangible assets, net		20,602			21,972
Noncurrent assets of discontinued operations		34,652			127,790
Total assets	$	548,287		$	919,831
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,288		$	6,044
Accrued liabilities		56,344			46,747
Accrued restructuring costs		26,118			18,542
Deferred revenue		46,342			58,394
Current liabilities of discontinued operations		18,837			21,807
Total current liabilities		157,929			151,534
Accrued restructuring costs, net of current portion		51,140			60,922
Deferred revenue, net of current portion		11,917			5,016
Deferred rent obligations		1,649			1,055
Deferred tax liabilities, net of current portion		1,349			3,275
Convertible subordinated notes, net		149,017			148,193
Noncurrent liabilities of discontinued operations		5,034			10,241
Total liabilities		378,035			380,236
Commitments and contingencies (see Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000 shares authorized and zero outstanding		—			—
Common stock, $0.001 par value; 1,000,000 shares authorized; 82,835 and 94,546 issued and outstanding as of June 30, 2007 and 2006, respectively		83			95
Additional paid-in capital		3,171,534			3,347,195
Accumulated other comprehensive income (loss)		2,485			(482	)
Accumulated deficit		(3,003,850	)		(2,807,213	)
Total stockholders’ equity		170,252			539,595
Total liabilities and stockholders’ equity	$	548,287		$	919,831

See accompanying notes to consolidated financial statements.

F-5

OPENWAVE SYSTEMS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Fiscal Year ended June 30,
	2007			2006			2005
Revenues:
License	$	88,707		$	194,611		$	175,565
Maintenance and support		91,006			93,821			93,295
Services		97,379			93,833			75,422
Project/Systems		13,209			13,967			39,353
Total revenues		290,301			396,232			383,635
Cost of revenues:
License		12,379			13,261			8,972
Maintenance and support		34,190			30,399			31,887
Services		72,576			70,206			55,580
Project/Systems		7,021			7,128			23,588
Total cost of revenues		126,166			120,994			120,027
Gross profit		164,135			275,238			263,608
Operating expenses:
Research and development		71,580			84,148			95,878
Sales and marketing		99,648			119,653			99,390
General and administrative		67,786			67,725			49,540
Stock option review and related costs		6,782			341			—
Restructuring and other costs		30,648			4,623			70,560
Amortization of intangible assets		2,854			2,852			2,788
Gain on sale of technology and other		(1,287	)		(11,349	)		—
Total operating expenses		278,011			267,993			318,156
Operating income (loss) from continuing operations		(113,876	)		7,245			(54,548	)
Interest income		21,908			15,930			5,510
Interest expense		(4,995	)		(5,123	)		(5,233	)
Other income (expense), net		1,380			(1,750	)		305
(Impairment)/gain on non-marketable equity securities, net		(120	)		(532	)		—
Income (loss) from continuing operations before provision for income taxes		(95,703	)		15,770			(53,966	)
Income taxes		(6,544	)		(5,377	)		(8,808	)
Net income (loss) from continuing operations		(102,247	)		10,393			(62,774	)
Discontinued operations:
Net loss from discontinued operations, net of tax		(6,422	)		(5,157	)		—
Impairment of assets of discontinued operations, net of tax		(87,968	)		—			—
Net loss from discontinued operations		(94,390	)		(5,157	)		—
Net income (loss)	$	(196,637	)	$	5,236		$	(62,774	)
Basic net income (loss) per share from:
Continuing operations	$	(1.13	)	$	0.12		$	(0.94	)
Discontinued operations	$	(1.05	)	$	(0.06	)	$	—
Net income	$	(2.18	)	$	0.06		$	(0.94	)
Diluted net income (loss) per share from:
Continuing operations	$	(1.13	)	$	0.12		$	(0.94	)
Discontinued operations	$	(1.05	)	$	(0.06	)	$	—
Net income	$	(2.18	)	$	0.06		$	(0.94	)
Shares used in computing:
Basic net income (loss) per share		90,246			82,231			66,650
Diluted net income (loss) per share		90,246			85,316			66,650

See accompanying notes to consolidated financial statements.

F-6

OPENWAVE SYSTEMS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE (LOSS) INCOME

Fiscal Year ended June 30, 2005

(In thousands)

	Common stock					Additional paid-in Capital			Deferred Stock-based compensation			Accumulated other comprehensive income (loss)			Notes receivable from stockholders			Accumulated deficit			Total stockholders’ equity			Comprehensive (Loss) Income
	Shares			Amount
																								Restated1
Balances as of June 30, 2004	$	64,558		$	64	$	2,923,504		$	(2,347	)	$	(736	)	$	(204	)	$	(2,749,675	)	$	170,606
Issuance of common stock related to stock option exercises		3,088		$	3	$	22,978		$	—		$	—		$	—					$	22,981
Issuance of common stock related to acquisitions		1,563			2		18,123			(339	)		—			—			—			17,786
Write-off of notes receivable from stockholders		—			—		—			—			—			204			—			204
Reclassification of note receivable and unrecognized compensation		—			—		(450	)		90			—			—			—			(360	)
Restricted stock grants		1,425			1		17,421			(17,422	)		—			—			—			—
Stock-based compensation		—			—		684			5,096			—			—			—			5,780
Repurchase of unvested shares of restricted stock		(139	)		—		(1,297	)		1,297			—			—			—			—
Comprehensive loss:
Net loss		—			—		—			—			—			—			(62,774	)		(62,774	)	$	(62,774	)
Unrealized gain on available-for-sale securities		—			—		—			—			277			—			—			277			277
Foreign currency translation adjustment		—			—		—			—			(589	)		—			—			(589	)		(589	)
Total comprehensive loss		—			—		—			—			—			—			—			—		$	(63,086	)
Balances as of June 30, 2005- Restated(1)		70,495		$	70	$	2,980,963		$	(13,625	)	$	(1,048	)	$	—		$	(2,812,449	)	$	153,911

See accompanying notes to consolidated financial statements.

F-7

OPENWAVE SYSTEMS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE (LOSS) INCOME—(CONTINUED)

Fiscal Year ended June 30, 2006

(In thousands)

	Common stock			Additional paid-in Capital			Deferred Stock-based compensation		Accumulated other comprehensive income (loss)			Accumulated deficit			Total stockholders’ equity			Comprehensive (Loss) Income
	Shares	Amount
Issuance of common stock related to stock option exercises	4,414	$	5	$	44,637		$	—	$	—		$	—		$	44,642
Issuance of common stock related to acquisitions	809		1		16,350			—		—			—			16,351
Issuance of common stock related to equity offerings	17,940		18		277,842			—		—			—			277,860
Restricted stock grants	871		1													1
Stock-based compensation	17		—		41,028			—		—			—			41,028
Transfer of deferred stock compensation upon adoption of SFAS 123R	—		—		(13,625	)		13,625		—			—			—
Comprehensive income:																5,236
Net income	—		—		—			—		—			5,236					$	5,236
Unrealized loss on available-for-sale securities	—		—		—			—		(584	)		—			(584	)		(584	)
Foreign currency translation adjustment	—		—		—			—		1,150			—			1,150			1,150
Total comprehensive income	—		—		—			—		—			—			—		$	5,802
Balances as of June 30, 2006	94,546	$	95	$	3,347,195		$	—	$	(482	)	$	(2,807,213	)	$	539,595

See accompanying notes to consolidated financial statements.

F-8

OPENWAVE SYSTEMS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE (LOSS) INCOME—(CONTINUED)

Fiscal Year ended June 30, 2007

(In thousands)

	Common stock					Additional paid-in Capital			Accumulated other comprehensive income (loss)		Accumulated deficit			Total stockholders’ equity			Comprehensive (Loss) Income
	Shares		Amount
Issuance of common stock related to stock option exercises	157		$	—		$	623		$	—	$	—		$	623
Issuance of common stock related to ESPP	149			—			1,070			—		—		$	1,070
Restricted stock grants	608			1			—			—		—			1
Repurchases of restricted stock from employees	(781	)		(1	)		(988	)		—		—			(989	)
Stock buy-back	(11,844	)		(12	)		(99,988	)		—		—			(100,000	)
Dividend paid	—			—			(99,394	)		—		—			(99,394	)
Stock-based compensation	—			—			23,016			—		—			23,016
Comprehensive income:															(196,637	)
Net loss	—			—			—			—		(196,637	)				$	(196,637	)
Unrealized gain on available-for-sale securities	—			—			—			788		—			788			788
Foreign currency translation adjustment	—			—			—			2,179		—			2,179			2,179
Total comprehensive loss	—			—			—					—					$	(193,670	)
Balances as of June 30, 2007	82,835		$	83		$	3,171,534		$	2,485	$	(3,003,850	)	$	170,252

See accompanying notes to consolidated financial statements.

F-9

OPENWAVE SYSTEMS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Fiscal Year ended June 30,
	2007			2006			2005
Cash flows from operating activities:
Net income (loss)	$	(196,637	)	$	5,236		$	(62,774	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation and amortization of intangibles		29,168			22,879			19,736
Amortization of discount on convertible debt and debt debt issuance costs		1,008			1,081			1,005
Stock-based compensation		23,016			41,028			5,780
Noncash restructuring charges and other		2,641			3,036			310
Accelerated depreciation on restructured property and equipment		1,438			414			15,608
(Gain)/loss on disposal of property and equipment		51			(111	)		(77	)
Amortization/(accretion) of premiums/discounts on investments		(804	)		(1,164	)		1,003
Impairment of non-marketable securities		1,185			532			—
Provision for (recovery of) doubtful accounts		3,238			(280	)		1,990
Deferred taxes		(7,785	)		(6,271	)		(3,510	)
Proceeds from sale of technology and other		(1,287	)		(11,349	)		—
Impairment of goodwill and other intangibles		87,968			—			—
Changes in operating assets and liabilities, net of effect of acquired assets and liabilities:
Accounts receivable		68,043			(550	)		(61,849	)
Prepaid assets, deposits, and other assets		(12,051	)		1,532			(7,353	)
Accounts payable		(1,422	)		(4,006	)		5,392
Accrued liabilities		9,669			(6,526	)		20,497
Accrued restructuring costs		(4,589	)		(21,069	)		43,420
Deferred revenue		(5,704	)		(8,426	)		14,277
Net cash provided by (used for) operating activities		(2,854	)		15,986			(6,545	)
Cash flows from investing activities:
Purchases of property and equipment		(12,450	)		(12,962	)		(12,416	)
Proceeds from sale of property and equipment		—			—			124
Purchase of intangible assets		—			—			(450	)
Proceeds from sale of technology and other		1,287			11,349			—
Restricted cash and investments		1,009			4,094			2,895
Acquisitions, net of cash acquired in continuing operations		(12,090	)		(113,916	)		(52,755	)
Restricted cash related to acquisition		(1,250	)		—			—
Investment in non-marketable securities		—			—			(809	)
Purchases of short-term investments		(241,666	)		(401,681	)		(124,647	)
Proceeds from sales and maturities of short-term investments		383,190			310,050			153,836
Purchases of long-term investments		(36,702	)		(108,933	)		(4,798	)
Proceeds from sales and maturities of long-term investments		33,979			20,687			38
Net cash provided by (used for) investing activities		115,307			(291,312	)		(38,982	)
Cash flows from financing activities:
Payment on note payable		(305	)		(249	)		(3,805	)
Proceeds from issuance of common stock		622			322,503			22,981
Cash used to repurchase common stock from employees		(988	)		—			—
Employee stock purchase plan		1,070			—			—
Stock buy back plan		(100,000	)		—			—
Dividends paid		(99,394	)		—			—
Net cash provided by (used for) financing activities		(198,995	)		322,254			19,176
Effect of exchange rate on cash and cash equivalents		95			(93	)		(586	)
Net increase (decrease) in cash and cash equivalents		(86,447	)		46,835			(26,937	)
Cash and cash equivalents at beginning of year		172,546			125,711			152,648
Cash and cash equivalents at end of year		86,099			172,546			125,711
Cash and cash equivalents included in discontinued operations		(5,518	)		(4,542	)		—
Cash and cash equivalents at end of year	$	80,581		$	168,004		$	125,711

F-10

OPENWAVE SYSTEMS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(In thousands)

	Fiscal Year ended June 30,
	2007			2006			2005
Supplemental disclosures of cash flow information:
Cash flows from discontinued operations:
Net cash (used in) provided by operating activities	$	(276	)	$	465		$	—
Net cash used in investing activities		(1,943	)		(1,157	)		—
Net cash used in financing activities		(305	)		(132	)		—
Effect of exchange rate on cash and cash equivalents		(99	)		(104	)		—
Net cash used in discontinued operations	$	(2,623	)	$	(928	)	$	—
Cash paid for income taxes	$	6,659		$	8,479		$	5,134
Cash paid for interest	$	5,136		$	5,222		$	5,153
Non-cash investing and financing activities:
Common stock issued related to acquisitions	$	—		$	16,350		$	18,123
Transfers among short-term and long-term investments	$	44,760		$	52,878		$	23,527

See accompanying notes to consolidated financial statements.

F-11

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2007, 2006 and 2005

(1)    Organization

Openwave Systems Inc. (the “Company”), was incorporated in Delaware in 1994 and is a leading independent provider of software solutions for the communications and media industries. The Company provides software and services to mobile and wireline operators, broadband service providers, and handset manufacturers. Anchored by Open Mobile Alliance (“OMA”) standards, Openwave’s broad range of IP-based handset-to-network solutions enable the launch of services across networks and devices and include handset software, content delivery, adaptive messaging, location, music and video services.

(2)    Significant Accounting Policies

(a)    Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. On June 3, 2007, the board of directors approved the disposition of Musiwave business. Accordingly, the Company accounted for the planned sale of the Musiwave S.A. (“Musiwave”) business as a discontinued operation in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long Lived Assets.” Accordingly, the consolidated financial statements have been revised for all periods presented to reflect Musiwave as discontinued operations. Unless noted otherwise, discussions in the Notes to Consolidated Financial Statements pertain to continuing operations.

(b)    Use of Estimates

The preparation of consolidated financial statements in conformity with the accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(c)    Cash, Cash Equivalents and Short- and Long-Term Investments

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

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

F-12

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(d)    Accounts Receivable

The Company makes judgments as to its ability to collect outstanding receivables and provides allowances for receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are made at differing rates, based upon the age of the receivable. In determining these provisions, the Company analyzes several factors, including: its historical collection experience, customer concentrations, customer credit-worthiness and current economic trends. If the historical data used to calculate the allowance for doubtful accounts does not reflect the Company’s ability to collect outstanding receivables in the future, the Company may record additional provisions for doubtful accounts. The Company records the provision for doubtful accounts in general and administrative expense in the consolidated statement of operations.

(e)     Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the lease term.

(f)    Restricted Cash and Investments

Restricted cash and investments comprise certificates of deposit and investments in federal agencies. The restricted cash and investments secure letters of credit required by landlords to meet rent deposit requirements for certain leased facilities and certain customer contract requirements. Additionally, in fiscal year 2007, an escrow account was established for indemnification claims related to an acquisition and is recorded in short-term restricted cash (see Notes 5, 8 and 9 (a)).

(g)    Goodwill and intangible assets

The Company records goodwill when consideration paid in a purchase acquisition exceeds the fair value of the net tangible assets and the identified intangible assets acquired. Goodwill is not amortized, but rather is tested for impairment annually in the Company’s fiscal third quarter. In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), the carrying amount of goodwill is tested for impairment annually, or more frequently if facts and circumstances warrant a review. With the adoption of SFAS 142, the Company determined that there was a single reporting unit for the purpose of goodwill impairment tests under SFAS 142. For purposes of assessing the impairment of goodwill, the Company estimates the value of the reporting unit using its market capitalization as the best evidence of fair value. This fair value is then compared to the carrying value of the reporting unit. During the fiscal years ended June 30, 2006 and 2005 there were no impairments to goodwill.

During the fourth quarter of fiscal 2007 the Company recorded an impairment charge to goodwill of $81.0 million and an impairment charge to intangible assets of $7.0 million as a result of the planned disposition of Musiwave. The intended sale of Musiwave triggered an evaluation of the carrying value of the goodwill, as well as the carrying value of the associated assets. Since Musiwave was never fully integrated with Openwave, the benefits of the acquired

F-13

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

goodwill were never realized. Thus, in accordance with SFAS 142, the current carrying amount of the goodwill acquired with Musiwave was allocated solely to Musiwave and evaluated for impairment in connection with our planned sale. After considering the estimated sales price of the assets and liabilities to be sold and the expenses associated with the divestiture, the Company determined that the carrying value exceeded the implied fair value of the goodwill allocated to Musiwave.

The Company continually monitors events and changes in circumstances that could indicate carrying amounts of the long-lived assets, including intangible assets, may not be recoverable. When such events or changes in circumstances occur, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flow. If the future undiscounted cash flow is less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. The Company did not recognize any intangible asset impairment charges in fiscal 2006 or 2005.

(h)    Revenue Recognition

The Company’s four primary revenue categories are comprised of license, maintenance and support, services, and project/systems revenues. The Company licenses its server software primarily to communication service providers through its direct sales force and channel partners. The Company licenses its client software products primarily to wireless device manufacturers through its direct sales force.

As part of its license arrangements with communication service providers, the Company offers new version coverage, which is an optional program that grants licensees the right to receive minor and major version releases of the product made during the applicable new version coverage term. Customers receive error and bug fix releases as part of their license maintenance and support arrangements.

The Company recognizes revenue in accordance with Statement of Position (“SOP”) No. 97-2, “Software Revenue Recognition”, as amended by SOP No. 98-9, “Modification of SOP No. 97-2 Software Revenue Recognition, With Respect to Certain Transactions”, and generally recognizes revenue when all of the following criteria are met as set forth in SOP No. 97-2: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the fee is fixed or determinable and (4) collectibility is probable. The Company defines each of the above four criteria as follows:

Persuasive evidence of an arrangement exists.    The Company’s customary practice is to have a written contract, which is signed by both the customer and the Company and a purchase order from those customers which must be received prior to the end of the period. Due to changes in the business environment and to address customer requirements, effective January 1, 2007, the Company amended its policy such that in addition to a signed arrangement, a purchase order from the customer is required in order to satisfy the evidence of an arrangement criteria. Purchase orders received on or prior to the end of quarter would be eligible for revenue recognition. Lack of a valid purchase order from the customer would constitute an incomplete arrangement and revenue on the order that under our prior policy would have been recognized is now deferred until a valid PO is received. Customers who notify the Company that they do not issue purchase orders in their normal course of business, or have previously provided a letter in lieu of a purchase order, are exempt from the PO requirement and would not be subject to revenue deferral.

F-14

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Delivery has occurred.    The Company’s software may be either physically or electronically delivered to the customer. For those products that are delivered physically, the Company’s standard transfer terms are freight on board shipping point. For electronic delivery of software, delivery is considered to have occurred when the customer has been provided with the access codes that allow the customer to take immediate possession of the software on its hardware via the Company’s file transfer protocol server. If the Company’s contracts include customer acceptance criteria that the Company has not reliably satisfied at the time of delivery of its software, delivery, for purposes of related license revenue, occurs when such acceptance criteria is satisfied.

The fee is fixed or determinable.    Arrangement fees are generally due within one year or less from delivery. Arrangements with payment terms extending beyond these customary payment terms are considered not to be fixed or determinable. Revenue from such arrangements is recognized as payments become due, assuming all other revenue recognition criteria have been met. The Company’s communication service provider customers generally pay a per-subscriber fee or a fee for pre-purchased capacity usage of the Company’s products, which is negotiated at the outset of an arrangement. In these arrangements, the communication service provider generally licenses the right to activate a specified minimum number of licenses to use the Company’s software products and fees are therefore fixed and determinable at the outset. As the communication service providers activate customers beyond the minimum number specified in the arrangement, additional per-subscriber fees become due.

Collectibility is probable.    Collectibility is assessed on a customer-by-customer basis. The Company typically sells to customers for which a history of successful collections exist. New and existing customers go through an ongoing credit review process which evaluates the customers’ financial positions, their historical payment history, and ultimately their ability to pay. If it is determined prior to revenue recognition that the collection of an arrangement fee is not probable, arrangement revenue is deferred and not recognized until the period a change in the assessment of collectibility is made or cash is collected, assuming all other revenue recognition criteria are satisfied.

The Company recognizes revenue using the residual method pursuant to the requirements of SOP No. 97-2, as amended by SOP No. 98-9. Under the residual method, revenue is recognized in a multiple element arrangement when Company-specific objective evidence of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one or more of the delivered elements in the arrangement. The Company allocates revenue to each undelivered element in a multiple element arrangement based on its respective fair value. The Company’s determination of the fair value of each element in a multi-element arrangement is based on vendor-specific objective evidence (“VSOE”). The Company limits its assessment of VSOE of fair value for each element to the price charged when the same element is sold separately. In its multiple-element arrangements for perpetual software licenses, assuming all other revenue recognition criteria are met and the Company has VSOE of fair value for all undelivered elements, the Company recognizes revenue as follows: license revenue is recognized upon delivery using the residual method in accordance with SOP No. 98-9; revenue from new version coverage and maintenance and support services is recognized ratably over the period the element is provided; and revenue from services is recognized as services are proportionately performed. New version coverage revenue is classified as license revenue in the Company’s consolidated statements of operations.

For its new version coverage and maintenance and support services elements, sufficient VSOE of fair value exists when a substantive renewal rate exists in the arrangement. For its multiple-element arrangements where a substantive renewal rate does not exist for its new version coverage and/or maintenance and support elements, the Company

F-15

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

determined that it does not have sufficient VSOE of fair value to allocate revenue to these undelivered elements. In this case, provided that these elements are the only remaining undelivered elements in the arrangement, arrangement fees are recognized ratably over the expected period that maintenance and support and/or new version coverage is provided, assuming all other revenue recognition criteria are satisfied.

Arrangements that include services are evaluated to determine whether those services are essential to the functionality of other elements of the arrangement. In a multiple element arrangement when services are not considered essential, the revenue allocable to the services is recognized separately from the software, provided VSOE of fair value exists for the services and the services are described in the arrangement such that the total price of the arrangement would be expected to vary as a result of the inclusion or exclusion of the services. If VSOE of fair value does not exist for the services, then services are not accounted for separately. If the Company provides services that are considered essential to the functionality of the software products, both the software product revenue and service revenue are recognized by applying contract accounting in accordance with the provisions of SOP No. 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Revenues from these arrangements are recognized under the percentage of completion method using an input method based on the ratio of direct labor hours incurred to date to total projected direct labor hours except in circumstances where completion status cannot be reasonably estimated or inherent hazards exist, in which case the completed contract method is used.

In multiple element arrangements where the Company does not have VSOE of fair value for either services or maintenance and support, or both, the Company classifies revenue in its consolidated statement of operations based on derived fair value. This classification methodology does not affect the timing of revenue recognition on an aggregated arrangement fee basis and revenue derived is recognized ratably in the respective revenue classifications. Specifically, the Company classifies revenue first to either services or maintenance and support based on these respective element’s derived fair value and then the residual arrangement fee is classified as license revenue. Derived fair value for services or maintenance and support is considered to be the median rate determined in the Company’s analysis of separately sold services and maintenance and support in the applicable geographical region. This derived fair value for services or maintenance and support is then multiplied by the unit measure in the arrangement and the revenue is classified accordingly to services and maintenance and support, respectively, and any residual arrangement fee is classified as license revenue. Assuming all other revenue recognition criteria are satisfied, the derived services revenue, maintenance and support revenue, and any residual license revenue are recognized ratably over the longer of the maintenance and support period or services delivery period commencing when there is only one remaining undelivered element without VSOE of fair value.

For arrangements where services are not essential to the functionality of the software, the Company’s software products are typically fully functional upon delivery and do not require significant modification or alteration. In these arrangements, customers typically purchase services from the Company to facilitate the adoption of the Company’s technology, but they may also decide to use their own resources or appoint other professional service organizations to provide these services. Services are generally billed on a time-and-materials or milestone-achieved basis. The Company may also bill the customer one flat fee for licenses and services. In these flat fee contracts, if services are described in the contract such that the total price of the arrangement would be expected to vary as a result of the inclusion or exclusion of the services, services are accounted for separately, assuming all other revenue recognition criteria are satisfied. For time-and-materials contracts, the Company recognizes revenue as the services are performed. For

F-16

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

fixed-fee arrangements, the Company recognizes revenue as the agreed upon activities are proportionately performed. On these fixed fee service arrangements, the Company measures progress to completion based on the ratio of hours incurred to total estimated project hours, an input method. If, however, the fixed fee arrangements include substantive customer specified progress milestones, the Company recognizes revenue as such progress milestones are achieved, an output method, as the Company believes this is a more accurate measure of revenue recognition. The Company believes it is able to reasonably estimate, track, and project the status of completion of a project, and considers customer acceptance as the Company’s criteria for substantial completion. As of June 30, 2007 there were no losses estimated on existing fixed price arrangements.

The Company also licenses its client software to wireless device manufacturers through its direct sales force and certain third parties. These license arrangements generally give the customer rights to receive product releases for porting to an unlimited unspecified number of devices for a specified period. In addition, the Company provides technical support services and compliance verification. In these arrangements, all arrangement fees are generally recognized ratably over the contract period, assuming all revenue criteria are satisfied.

In certain arrangements we recognize revenue based on information contained in license usage reports provided by our customers. For all other arrangements that are not estimable, we recognize revenue related to usage fees on a consistent quarterly lag basis. Consistent with our other revenue arrangements, we require a purchase order in order to recognize revenue related to the usage reports. If either a usage report or a purchase order is not received in a timely manner, we record the revenue on a consistent lag basis.

The Company also enters into certain perpetual license arrangements where the license revenue is not recognized upon delivery, but rather is recognized as follows, assuming that all other revenue recognition criteria have been met:

• Contracts where the arrangement fee is not considered fixed or determinable. As discussed above, fees from such arrangements are recognized as revenue as the payments become due or when cash is received, if cash is received in advance of the due date.

• Certain arrangements where the Company agrees to provide the customer with unspecified additional products for a specified term which are not covered by the Company’s new version coverage offering. License revenue from such arrangements is recognized ratably over the term the Company is committed to provide such additional products. If such arrangements also provide for fee terms that are not considered to be fixed or determinable, revenue is recognized in an amount that is the lesser of aggregate amounts due or the aggregate ratable amount that would have been recognized had the arrangement fees been considered fixed or determinable.

• Certain multiple-element arrangements in which license fees are sold on a committed basis, but maintenance and support and/or new version coverage fees are payable based on contingent usage. For these arrangements, the Company recognizes license revenue ratably over the period the Company expects to provide maintenance and support and/or new version coverage, and recognizes the contingent usage-based fees for maintenance and support fees and/or new version coverage fees at the time such fees become fixed or determinable.

In certain arrangements that require SOP 81-1 contract accounting, the Company sells maintenance and support for which there is no VSOE of fair value. In such arrangements, the Company applies the completed contract method,

F-17

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

recognizing all arrangement fee revenue ratably over the maintenance and support period commencing when maintenance and support is the only remaining undelivered revenue element.

The Company includes taxes collected from customers on a gross presentation basis.

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. Cost of maintenance and support revenues consists of compensation and related overhead costs for personnel engaged in support services to wireless device manufacturers and communication service providers. Cost of services revenues consists of compensation and independent consultant costs for personnel engaged in performing professional services, hardware purchased for resale and related overhead.

(i)    Product Development Costs

The Company begins capitalizing software product development costs only after establishing technological feasibility, defined as a working model, and capitalization of costs ceases when the product is available for general release to customers. Amortization of these costs begins upon general release and represents the greater of the amount computed using (i) the ratio of current period’s gross revenues for the products to the total of revenue to date plus anticipated future gross revenues for the products, or (ii) the straight-line method over the remaining estimated economic lives of the products. To date, the Company’s software has been available for general release concurrent with or immediately following the establishment of technological feasibility and, accordingly, no product development costs have been capitalized.

(j)    Advertising expense

Advertising and promotion costs are charged to expense as incurred. Advertising costs totaled $3.9 million, $3.5 million and $3.8 million, for the years ended June 30, 2007, 2006 and 2005, respectively.

(k)    Stock-based Compensation

Change in Accounting Principle

Effective July 1, 2005, the Company adopted the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards No. 123R. “Share-Based Payment” (“FAS 123R”) using the modified prospective method, in which compensation cost was recognized beginning with the effective date (a) based on the requirements of FAS 123R for all share-based payments granted or modified after the effective date and (b) based on the requirements of FAS 123R for all awards granted to employees prior to the effective date of FAS 123R that remained unvested on the effective date.

As a result of adopting FAS 123R on July 1, 2005, the Company’s income from continuing operations before income taxes and net income for the fiscal year ended June 30, 2006 was lower by $25.9 million and $26.1 million, respectively, than if it had continued to account for share-based compensation under APB 25. The impact to diluted net income per share for the fiscal year ended June 30, 2006 was $0.31 due to the adoption of FAS 123R.

As permitted under FASB Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“FAS 123”), the Company elected to follow Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations in accounting for stock-based awards to employees through June 30, 2005. Accordingly, the compensation cost for stock options and nonvested stock grants was

F-18

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

measured as the excess, if any, of the market price of the Company’s common stock at the date of grant over the exercise price. The majority of stock-based compensation expense prior to the adoption of FAS 123R related to options granted with a strike price below the fair market value on the date of grant, nonvested stock grants which have an exercise price (typically $0.00) below market price, or to common stock issued to employees under retention agreements (refer to Note 10). The following table illustrates stock-based compensation recognized in the consolidated statements of operations by category of award (in thousands):

	Fiscal Year ended June 30,
	2007		2006		2005
Stock-based compensation related to:
Grants of nonvested stock	$	409	$	10,416	$	5,202
Awards accelerated in relation to restructuring		4,489		—		—
Stock options granted to employees and directors		17,047		26,085		578
Employee stock purchase plan		433		—		—
Issuance of common stock related to retention agreements		—		4,313		—
Stock options granted to employees of discontinued operations		638		214		—
Stock-based compensation recognized in the statements of operations	$	23,016	$	41,028	$	5,780

During the fiscal year ended June 30, 2007, the Company recorded $0.3 million in tax benefits related to stock option expense recognized on exercised options during the period in jurisdictions where this expense is deductible for tax purposes.

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

Pro-forma disclosure for the fiscal year ended June 30, 2005

If the fair value based method prescribed by SFAS 123 had been applied in measuring employee stock compensation expense for the fiscal year ended June 30, 2005 the pro-forma effect on net loss and net loss per share would have been as follows (in thousands, except per share amounts):

	Fiscal Year ended June 30, 2005
Net loss	$	(62,774	)
Add: Stock-based compensation included in net loss, zero tax effect		5,780
Deduct: Stock-based compensation expense determined under the fair value method for all awards, zero tax effect		(26,936	)
Pro-forma net loss	$	(83,930	)
Basic and diluted net loss per share attributable to common stockholders:
As reported	$	(0.94	)
Pro forma	$	(1.26	)

F-19

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(l)    Foreign Currency Translation and Derivative Financial Instruments

The functional currency of the Company’s foreign subsidiaries has been either the United States Dollar (“USD”) for subsidiaries that are an extension of the operations in the United States, or the local currency for other subsidiaries, such as Musiwave, S.A. until June 2007, when it was determined to be “held for sale”. Until June 30, 2005, the Company’s UK subsidiary acquired in conjunction with the Magic 4 acquisition had a functional currency that was pound sterling. As of June 30, 2007, the functional currency of all the Company’s foreign subsidiaries is the USD.

Current assets and current liabilities recorded in foreign currencies whose functional currency is the USD are translated into USD at year-end exchange rates; non-monetary assets and liabilities are translated at historic exchange rates; revenues and expenses are translated at average exchange rates during the year. The effects of foreign currency translation adjustments for subsidiaries with a USD functional currency are included in other income (expense), net in the consolidated statements of operations. The effects of foreign currency translation adjustments for subsidiaries with a local functional currency were included in accumulated other comprehensive income (loss) within equity in the consolidated balance sheet. All transactional gains or losses on foreign currency transactions are recognized in other income (expense), net in the consolidated statements of operations.

The Company operates internationally and is exposed to foreign currency rate changes. The Company has entered into foreign exchange forward contracts to reduce its exposure to foreign currency rate changes on receivables, payables and intercompany balances denominated in a nonfunctional currency. The objective of these contracts is to neutralize the impact of foreign currency exchange rate movements on the Company’s operating results. The Company manages its foreign currency exchange rate risk by entering into contracts to sell or buy foreign currency to reduce its exposure to currency fluctuations involving anticipated and current foreign currency exposures. These contracts require the Company 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. The Company does not designate its foreign exchange forward contracts as accounting hedges as defined by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and, accordingly, adjusts these instruments to fair value through operations. Net foreign exchange gains (losses) included in “Other income (expense), net” in the accompanying consolidated statements of operations totaled $1.3 million, $(1.7) million, and $0.5 million for the years ended June 30, 2007, 2006 and 2005, respectively. As of June 30, 2007, the Company had the following forward contracts (in 000’s):

Currency	Notional Amount	Foreign Currency per USD	Date of Maturity
Forward contracts:
AUD	1,000	1.22	7/31/2007
CAD	1,500	1.07	7/31/2007
CAD	2,500	1.07	8/31/2007
EUR	2,500	0.75	7/31/2007
EUR	1,500	0.73	7/31/2007
EUR	2,500	0.74	8/31/2007
EUR	4,500	0.74	9/28/2007
GBP	2,000	0.50	9/28/2007
JPY	150,000	120.63	7/31/2007
JPY	500,000	121.55	9/28/2007

As of June 30, 2007, the fair value of these forward contracts was a net liability of $34 thousand dollars.

F-20

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(m)    Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary in order to reduce deferred tax assets to the amounts expected to be recovered.

(n)    Comprehensive Loss

Comprehensive loss includes net loss, unrealized gains (losses) on available for sale securities, and foreign currency translation adjustments for subsidiaries whose functional currency is not the USD. Tax effects of comprehensive loss have not been material. The Company reports the components of comprehensive loss on its Consolidated Statements of Stockholders’ Equity and Comprehensive Loss. The balance of foreign currency translation adjustments at June 30, 2007 and 2006 was $2.6 million and $0.4 million, respectively, which includes $3.3 million related to Musiwave at June 30, 2007. The foreign currency translation adjustment related to Musiwave was considered in the net book value used in the impairment analysis of long-lived assets. Upon a sale of Musiwave in the future, the balance of foreign currency translation adjustment associated with Musiwave will be eliminated. The amount of unrealized loss on available-for-sale securities at June 30, 2007 and 2006 was $0.1 million and $0.9 million, respectively.

The following table sets forth the components of other comprehensive income for fiscal 2007, 2006 and 2005 (in thousands):

	Unrealized Gain (Loss) on						Total
	Available for Sale Securities			Foreign Currency Translation
Balance at June 30, 2004	$	(551	)	$	(185	)	$	(736	)
Unrealized gain on marketable securities		277			—			277
Translation adjustments		—			(589	)		(589	)
Balance at June 30, 2005		(274	)		(774	)		(1,048	)
Unrealized loss on marketable securities		(584	)		—			(584	)
Translation adjustments		—			1,150			1,150
Balance at June 30, 2006		(858	)		376			(482	)
Unrealized gain on marketable securities		788			—			788
Translation adjustments		—			2,179			2,179
Balance at June 30, 2007	$	(70	)	$	2,555		$	2,485

(o)    Financial Instruments and Concentration of Risk

The carrying value of financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, restricted cash and investments, and accounts payable, approximates fair value due to the short-term nature of these financial instruments. The fair value of the Company’s 2  ³/4% convertible subordinated notes was

F-21

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

approximately $147.0 million at June 30, 2007, based on quoted market information. Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, marketable investments, and trade accounts receivable.

Cash and cash equivalents, short and long term investments, and restricted cash and investments are held with large and established financial institutions. Accounts receivable is comprised of sales of products and services principally to leading communication service providers and prominent wireless device manufacturers. Credit risk is concentrated primarily in North America, Europe and Asia. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers. The Company maintains allowances for estimated credit losses based on management’s assessment of the likelihood of collection.

A significant portion of the Company’s revenues are received from wireless mobile operators. There is a limited number of companies providing these services, which makes the Company susceptible to a concentration of risk if the demand for wireless mobile services were to decline. In addition, some of these wireless mobile operators have merged recently, including Sprint and Nextel in August 2005. The combined entity, Sprint Nextel, accounted for 23%, 20%, and 25% of our fiscal year 2007, 2006, and 2005 revenues, respectively and 19% and 15% of accounts receivable at June 30, 2007 and 2006, respectively. Any changes in the Company’s business relationship with Sprint Nextel could have an adverse impact on the consolidated financial statements.

F-22

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(p)    Net Income (Loss) Per Share

Basic and diluted net income (loss) per share are presented in conformity with SFAS No. 128, “Earnings Per Share”, for all periods presented. In accordance with SFAS No. 128, basic net income (loss) per 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 presents the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts):

	Fiscal Year ended June 30,
	2007			2006			2005
Net income (loss):
Net income (loss) from continuing operations	$	(102,247	)	$	10,393		$	(62,774	)
Net loss from discontinued operations, net of tax		(94,390	)		(5,157	)		—
Net income (loss)	$	(196,637	)	$	5,236		$	(62,774	)
Weighted average shares:
Weighted average shares of common stock outstanding		91,414			83,901			67,410
Weighted average shares of restricted stock subject to repurchase		(1,168	)		(1,670	)		(760	)
Weighted average shares used in computing basic net income (loss) per common share		90,246			82,231			66,650
Dilutive effect of restricted stock subject to repurchase		—			578			—
Dilutive effect of employee stock options		—			2,135			—
Dilutive effect of employee stock purchase plan		—			—			—
Dilutive effect of contingently issuable shares related to a business combination		—			372			—
Weighted average shares used in computing diluted net income (loss) per share		90,246			85,316			66,650
Net income per share:
Basic:
Net income (loss) from continuing operations	$	(1.13	)	$	0.12		$	(0.94	)
Net loss from discontinued operations	$	(1.05	)	$	(0.06	)	$	—
Net income (loss)	$	(2.18	)	$	0.06		$	(0.94	)
Diluted:
Net income (loss) from continuing operations	$	(1.13	)	$	0.12		$	(0.94	)
Net loss from discontinued operations	$	(1.05	)	$	(0.06	)	$	—
Diluted net income (loss) per share	$	(2.18	)	$	0.06		$	(0.94	)

The following table sets forth potential common stock that are not included in the diluted net income (loss) per share calculation because to do so would be antidilutive for the periods indicated below (in thousands):

	Fiscal Year ended June 30,
	2007	2006	2005
Weighted average effect of potential common stock:
Unvested common stock subject to repurchase	1,168	1,670	760
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	385	N/A	7,535
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 fiscal year	9,705	4,575	5,297
Shares resulting from an “as-if” conversion of the convertible debt	8,154	8,154	8,154
Contingently issuable shares related to a business combination	—	—	941

F-23

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(3)    Discontinued Operations

During the third quarter of fiscal 2006, we acquired Musiwave, S.A. (Musiwave), a leading provider of mobile music entertainment services to operators and media companies primarily in Europe. During June 2007, the Company committed to a plan to sell our interest in Musiwave. In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), Musiwave’s financial results have been classified as discontinued operations in our consolidated financial statements for all periods presented. The net assets associated with Musiwave are currently considered “held-for-sale.”

During the fourth quarter of fiscal 2007, in accordance with SFAS 144 and SFAS 142, the Company recorded an impairment charge of $7.0 million to intangible assets and $81.0 million to goodwill, respectively, related to a reassessment of the carrying value of Musiwave’s long-lived assets in Impairments of assets of discontinued operations, net of tax on the consolidated results of operations. We determined fair values utilizing widely accepted valuation techniques, including discounted cash flows. We based fair values on current expectations for the business in light of the existing environment and expected sales price. The sales price is an estimate and is likely to be higher or lower once a sales agreement is signed. Any difference from the estimated and actual sales price would cause a gain or loss on sale in the period a definitive agreement is signed.

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

	Fiscal Year ended June 30,
	2007			2006
Revenue of discontinued operations	$	31,708		$	15,778
Loss from discontinued operations		(11,540	)		(6,889	)
Income tax benefit		5,118			1,732
Net loss from discontinued operations, net of taxes		(6,422	)		(5,157	)
Impairment on discontinued operations, net of taxes		(87,968	)		—
Total loss from discontinued operations	$	(94,390	)	$	(5,157	)

F-24

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents the carrying amounts of major classes of assets and liabilities relating to discontinued operations at June 30, 2007 and 2006 (in thousands):

	Fiscal Year ended June 30,
	2007		2006
Assets:
Cash and cash equivalents	$	5,518	$	4,542
Short term investments		327		—
Accounts receivable, net		9,755		13,194
Prepaid and other current assets		3,439		3,072
Total current assets of discontinued operations		19,039		20,808
Property and equipment, net		1,833		2,403
Goodwill		7,339		88,383
Intangibles, net		22,730		34,997
Deposits and other assets		2,750		2,007
Total non-current assets of discontinued operations		34,652		127,790
Liabilities:
Accounts payable		4,293		8,907
Accrued liabilities		13,725		12,330
Deferred revenue		819		570
Total current liabilities of discontinued operations		18,837		21,807
Deferred revenue, net of current portion		2,094		1,798
Deferred tax liabilities, net of deferred tax assets		2,940		8,142
Notes payable		—		301
Total non-current liabilities of discontinued operations		5,034		10,241

The cash flows from the discontinued operation, as presented in the consolidated statement of cash flows, relate to the ongoing operations of Musiwave and are expected to continue until the sale occurs, which is expected in fiscal 2008. Cash flows of the discontinued operation are identified by considering the separate legal entities of Musiwave as well as certain payments made by Openwave related solely to the discontinued operation such as the Holdback Amount discussed in Note 5 below.

As of June 30, 2007, the balance of foreign currency translation adjustments associated with Musiwave was $3.3 million and will be eliminated upon a sale of Musiwave. See Note 2 (n) Comprehensive Loss above.

(4)    Recently Issued Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (“FAS 155”), which amends FASB Statement No. 133 and FASB Statement 140, and improves the financial reporting of certain hybrid financial instruments by requiring more consistent accounting that eliminates exemptions and provides a means to simplify the accounting for these instruments. Specifically, FAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. FAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006.

F-25

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company is currently assessing the impact of FAS 155 on its consolidated financial position and results of operations.

In June 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 06-03 (“EITF 06-03”), “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation).” EITF 06-03 provides that the presentation of taxes assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer on either a gross basis (included in revenues and costs) or on a net basis (excluded from revenues) is an accounting policy decision that should be disclosed. The provisions of EITF 06-03 became effective for us as of January 1, 2007. The Company has continued to report taxes collected from customers on a gross presentation basis after adoption of EITF 06-03.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,” (“FIN 48”) which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. FIN 48 is effective beginning in the first quarter of fiscal 2008. The Company is currently assessing the impact of FIN 48 on its consolidated financial position and results of operations.

In September 2006, the SEC Staff released Staff Accounting Bulletin No. 108 (“SAB 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 provides interpretive guidance on the process of quantifying materiality of financial statement misstatements. Under SAB 108 registrants are required to consider both a “rollover” method which focuses primarily on the income statement impact of misstatements and the “iron curtain” method which focuses primarily on the balance sheet impact of misstatements. SAB 108 does not change the requirements within SFAS No. 154, “Accounting Changes and Error Corrections” for the correction of an error on financial statements. Further, SAB 108 does not change the Staff’s previous guidance in SAB No. 99, “Materiality” on evaluating the qualitative materiality of misstatements. The Company adopted SAB 108 in its current fiscal year. The adoption of SAB 108 did not have an impact on the Company’s financial position or results of operations.

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

In February, 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS 159 to have a material impact on its consolidated financial position or results of operations.

F-26

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(5)    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 may pay contingent consideration relating to a retention agreement (“Retention Amount”). The maximum amount potentially payable for the Retention Amount is $875,000 for the retention of certain key employees of WiderWeb for a two-year period beginning February 9, 2007. The Retention Amount is being amortized over the two-year period as compensation expense.

Openwave may also pay contingent consideration (“WiderWeb Earn Out”) of up to an additional $4.0 million. The actual amount of the WiderWeb Earn Out payments is determined based upon the achievement of revenue-related targets by the WiderWeb product line over various periods between closing and February 8, 2009. A total of $0.2 million of the WiderWeb Earn Out has been achieved as of June 30, 2007 and was charged to goodwill on the consolidated balance sheet at the time the contingency was resolved in June 2007. The remaining potential WiderWeb Earn Out pursuant to the merger agreement is $3.8 million as of June 30, 2007.

The Initial Consideration also does not include $875,000 held back for potential indemnification claims. If there are no qualifying claims made, one half of the $875,000 is payable one year following the acquisition and the other half is payable 15 months following the acquisition. Such payments will be charged to goodwill on the consolidated balance sheet at the time of payment.

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

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

F-27

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Pro Forma financial statements have not been included as the amounts are not material to the consolidated financial results of the Company.

Acquisition of SoloMio

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

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

Pursuant to the terms of the merger agreement, in addition to the Initial Consideration, Openwave may pay contingent consideration (“SoloMio Earn Out”) of up to an additional $5.5 million. The actual amount of the SoloMio Earn Out payments is determined based upon the achievement of revenue-related targets by the SoloMio product line over various periods between closing and December 31, 2007. Per the quarterly amount of revenue recognized by the Company relating to SoloMio products, no SoloMio Earn Out has been achieved as of June 30, 2007. However, the former shareholders of SoloMio have exercised their right to audit whether a SoloMio Earn Out of $0.8 million was earned for the quarter ending December 31, 2006. No SoloMio Earn Out has been recorded by the Company as of June 30, 2007. The remaining potential SoloMio Earn Out pursuant to the merger agreement is $2.2 million as of June 30, 2007, of which up to $1.1 million may be earned per quarter through December 31, 2007.

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

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

Pro Forma financial statements have not been included as the amounts are not material to the consolidated financial results of the Company.

F-28

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Acquisition of Musiwave

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

In addition to the Initial Consideration, Openwave paid contingent consideration relating to a retention agreement (“Holdback Amount”) totaling €2.3 million, or $3.1 million, for retention of certain key employees of Musiwave for an 18 month period beginning January 13, 2006. Twenty seven percent of the Holdback was paid in the first quarter of fiscal 2007 and the remainder was paid in the first quarter of fiscal 2008. The Holdback Amount was being amortized over the 18 month period as compensation expense and is reflected in loss from discontinued operations.

In accordance with the purchase method of accounting as prescribed by SFAS No. 141, “Business Combinations,” the Company allocated the Initial Consideration to the net tangible and identifiable intangible assets, based on their estimated fair values. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets. The factors that contributed to the recognition of goodwill included securing buyer-specific synergies that increase revenue and profits and are not otherwise available to a marketplace participant, and the acquisition of a talented workforce. The Initial Consideration has been allocated as follows (in thousands):

Tangible assets:
Cash and cash equivalents	$	2,693
Short term investments		902
Accounts receivable		14,851
Prepaid and other curent assets		3,718
Other assets		305
Property, plant and equipment		1,662
Total tangible assets		24,131
Intangible assets:
Identifiable intangibles		37,330
Goodwill		88,383
Total intangible assets		125,713
Liabilities assumed:
Accounts payable and accrued liabilities		(21,140	)
Deferred revenue		(1,508	)
Notes payable		(533	)
Deferred tax liability		(10,054	)
Total liabilities assumed		(33,235	)
Net assets acquired	$	116,609

F-29

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Although buyer-specific synergies were anticipated by integrating Musiwave operations into Openwave, the planned integration did not successfully materialize. In June 2007, the Board of Directors approved the disposition of Musiwave. Accordingly, the results of operations and assets and liabilities of Musiwave are being reported as discontinued operations. See Discontinued Operations in Note 3 above.

Acquisition of Cilys

On January 31, 2005, the Company consummated the acquisition of Cilys 53 Inc. (“Cilys”), a private company in the development stage and incorporated in Canada, acquiring the entire issued share capital of Cilys from the existing Cilys shareholders. As a result of the transaction, Cilys became a wholly owned subsidiary of Openwave. The purchase price of approximately $9.7 million consisted of 314,104 shares of the Company’s common stock, valued at $4.3 million, or $13.62 per share using the market price on the closing date, cash in the amount of $4.9 million, and transaction costs of approximately $463,000.

Cilys is a wireless telecommunications software infrastructure vendor which makes data compression software for the communications industry. With the acquisition of Cilys, the Company strengthened its position as an open standards-based software provider for both wireless service providers and data phone manufacturers. As of January 31, 2005, the date of the acquisition, the technology acquired in the Cilys acquisition was approximately 98% complete, resulting in acquired core technology of $11.1 million identified as an intangible asset, along with $414,000 recorded as workforce in place.

The results of Cilys have been included in the Condensed Consolidated Financial Statements since February 1, 2005. The acquisition has been accounted for as an asset purchase since Cilys had not commenced principal operations and had no material revenue. The purchase price has been allocated as follows (in thousands):

Tangible assets:
Cash and cash equivalents	$	48
Prepaid and other current assets		526
Total tangible assets		574
Intangible assets:
Identifiable intangibles		11,557
Total intangible assets		11,557
Liabilities assumed:
Accounts payable and accrued liabilities		(748	)
Deferred tax liability		(1,700	)
Total liabilities assumed		(2,448	)
Net assets acquired	$	9,683

Acquisition of Magic4

On July 30, 2004, the Company acquired all of the outstanding issued share capital of Magic4, a leading provider of messaging software for mass-market mobile phones, for initial aggregate consideration of $72.0 million (the “Initial Consideration”).

F-30

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In addition to the Initial Consideration, the Company agreed to additional contingent consideration consisting of 1,135,730 shares of the Company’s common stock with an aggregate value of $12.3 million, based on the fair value of the common stock at the closing date, to be issued to the former holders of share capital of Magic4 on a pro-rata basis (the “Contingent Consideration”). Payment of the Contingent Consideration was contingent upon the continued employment with the Company of certain key employees of Magic4 for specified periods extending through January 2006. These key employees were also holders of the share capital of Magic4. On January 31, 2005, July 30, 2005, and January 31, 2006, the Company issued the first, second and final installments of the contingent consideration comprising 113,570, 454,273, and 567,887 shares of common stock to the former holders of the share capital of Magic4. The amount of the first, second and final installments issued to the key employees was 24,918, 93,281, and 119,857 shares, respectively, resulting in stock-based compensation expense of $339,000, $1.7 million and $2.6 million in the quarters ended March 31, 2005, September 30, 2005, and March 31, 2006, respectively, based upon the fair value of the stock at the dates of issuance. The fair value of the remaining 88,652, 360,992 and 448,030 shares issued to the non-employee shareholders in the first, second and final installments was $1.2 million, $6.7 million and $9.7 million, respectively, and was recorded as additions to goodwill. The sum of Initial Consideration and Contingent Consideration, excluding consideration paid to the key employees discussed above, paid as of June 30, 2007, was $89.5 million.

(6)    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 and by product for purposes of making operating decisions and assessing financial performance.

On June 3, 2007 the Company’s Board of Directors committed to a plan of disposal of Musiwave. As such, Musiwave is considered an asset-held-for-sale and constitutes a separate business with discrete financial information. In carrying out an impairment assessment under SFAS 144 and SFAS 142, $88.4 million of goodwill was allocated to the discontinued operations and management began tracking this entity separately. For more financial information regarding this discontinued operation, refer to Note 3 above.

The Company has organized its operations based on a single operating segment. The disaggregated revenue information reviewed on a product category basis by the CEO includes server software and services, and client software and services.

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

F-31

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

	Fiscal Year ended June 30,
	2007		2006		2005
Disaggregated revenue
Server	$	242,822	$	296,336	$	294,518
Client		47,479		99,896		89,117
Total revenues	$	290,301	$	396,232	$	383,635

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):

	Fiscal Year ended June 30,
	2007		2006		2005
United States	$	134,283	$	178,975	$	173,533
Americas, excluding the United States		20,969		23,348		24,520
Europe, Middle East, and Africa		51,825		76,412		80,198
Japan		36,615		50,727		54,971
Asia Pacific, excluding Japan		46,609		66,770		50,413
	$	290,301	$	396,232	$	383,635

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

Significant customer revenue as a percentage of total revenue for the fiscal years ended June 30, 2007, 2006 and 2005 was as follows:

	% of Total Revenue for Fiscal Year ended June 30,
	2007		2006		2005
Customer:
Sprint/Nextel	23	%	20	%	25	%

F-32

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(7)    Balance Sheet Components

(a)    Cash, cash equivalents, and investments

The following tables summarize the Company’s cash, cash equivalents, and investments (in thousands):

	June 30, 2007
	Amortized cost		Unrealized gains		Unrealized losses			Estimated fair value
Cash	$	29,924	$	—	$	—		$	29,924
Money Market Funds		25,835		—		—			25,835
Certificate of Deposit		31,922		—		(11	)		31,911
Commercial Paper		49,154		—		(11	)		49,143
Auction Rate Securities		81,737		—		(9	)		81,728
Asset Backed Securities		1,315		—		—			1,315
Corporate Bonds		46,342		7		(18	)		46,331
Federal Agencies		14,488		—		(26	)		14,462
	$	280,717	$	7	$	(75	)	$	280,649
Included in cash and cash equivalents	$	80,584	$	—	$	(3	)	$	80,581
Included in short-term investments		160,134		—		(71	)		160,063
Included in long-term investments		19,652		7		(1	)		19,658
Included in short-term restricted cash and investments		2,061		—		—			2,061
Included in long-term restricted cash and investments		18,286		—		—			18,286
	$	280,717	$	7	$	(75	)	$	280,649
	June 30, 2006
	Amortized cost		Unrealized gains		Unrealized losses			Estimated fair value
Cash	$	31,248	$	—	$	—		$	31,248
Money Market Funds		67,678		—		—			67,678
Taxable Auction Rate Securities		46,143		—		(63	)		46,080
Certificate of Deposit		67,293		—		(10	)		67,283
Corporate Bonds		108,840		—		—			108,840
Commercial Paper		12,983		—		(33	)		12,950
U.S. Treasury Securities and Obligations of U.S. & State		110,719		—		(437	)		110,282
Government Agencies with unrealized loss		61,509		—		(306	)		61,203
	$	506,413	$	—	$	(849	)	$	505,564
Included in cash and cash equivalents	$	168,004	$	—	$	—		$	168,004
Included in short-term investments		256,982		—		(562	)		256,420
Included in long-term investments		61,321		—		(287	)		61,034
Included in restricted cash and investments		20,106		—		—			20,106
	$	506,413	$	—	$	(849	)	$	505,564

F-33

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the Company’s investments at June 30, 2007 (in thousands):

	Expected maturity date for the year ending June 30,							Cost		Fair Value
	2008		2009			2010		June 30, 2007 Total		June 30, 2007 Total
Certificates of deposit	$	7,824	$	—		$	—	$	7,824	$	7,815
Commercial paper		28,080		—			—		28,080		28,070
Corporate bonds		27,764		11,555			7,021		46,340		46,331
Auction rate securities		81,737		—			—		81,737		81,728
Asset backed securities		240		1,075			—		1,315		1,315
Federal agencies		14,488		—			—		14,488		14,462
Total	$	160,133	$	12,630		$	7,021	$	179,784	$	179,721
Weighted-average interest rate				5.3	%

As of June 30, 2007, each of the securities in an unrealized loss position in the above table have investment grade ratings and are in a loss position primarily due to increases in interest rates following the purchase of the investment. The Company expects to receive the full principal and interest on these securities. When evaluating the Company’s investments for possible impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the investee, and the Company’s ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery in market value. The declines in the above securities are considered to be temporary in nature and, accordingly, the Company does not believe these securities are impaired as of June 30, 2007.

(b)    Strategic investments

The Company classifies its investments in non-marketable equity securities within deposits and other assets. In accordance with APB No. 18, “The Equity Method of Accounting for Investments in Common Stock”, the Company accounts for its investments in non-marketable equity securities under the cost method. The following table presents a roll-forward of the investments in non-marketable equity securities (in thousands):

	Fiscal Year ended June 30
	2007			2006			2005
Beginning Cost	$	1,413		$	1,945		$	1,136
Add:
Purchases		152			—			809
Less:
Liquidation proceeds		(380	)
Less:
Impairment		(1,185	)		(532	)		—
Ending Cost	$	—		$	1,413		$	1,945

During the fiscal year ended June 30, 2007, one of our equity investments in a privately held company, which had no book value on the Company’s consolidated balance sheet, was sold to another private company for a combination of cash and common stock of the purchasing company. We recorded a gain of $1.1 million in the fourth quarter of fiscal

F-34

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2007. Separately, during the third quarter of 2007, we recorded an impairment charge of $1.2 million for a privately held company in which we have a minority interest. This impairment was considered necessary based upon the deteriorating financial condition of the private company and its failure to raise additional capital as planned in April 2007.

In fiscal year 2006 we incurred $0.5 million of impairment charges related to two investments we hold in private companies. Impairments represent the difference between our cost of the investment and the amount we estimate is realizable upon sale of the investment. The majority of this impairment relates to an investment in a private company which entered into a definitive agreement for sale in November 2006. As such, we revised our estimate of realizable value as of the fourth quarter of fiscal 2006 to equal our expected proceeds, which resulted in a $0.4 million impairment.

During fiscal year 2005, the Company invested $809,000 in cash in a private company.

The Company regularly performs an impairment assessment of its strategic equity investments. In performing an impairment assessment, the Company considers the following factors, among others, in connection with the businesses in which investments have been made: the implicit valuation of the business indicated by recently completed financing or similar transactions, the business’ current solvency and its access to future capital.

(c)    Accounts receivable, net

Accounts receivable, net consisted of the following (in thousands):

	June 30,
	2007			2006
Accounts receivable	$	60,435		$	95,947
Unbilled accounts receivable		16,673			49,569
Allowance for doubtful accounts		(4,214	)		(6,163	)
	$	72,894		$	139,353

Unbilled accounts receivable represents amounts that have been partially or wholly recognized as revenue, but have not yet been billed because of contractual terms.

Changes in the allowance for doubtful accounts for the fiscal years ended June 30, 2007, 2006, and 2005, are as follows (in thousands):

Allowance for doubtful accounts	Balance at Beginning of Year		Bad debt expense (recovery)			Write-offs			Balance at end of year
Fiscal Year ended June 30, 2007	$	6,163	$	3,402		$	(5,351	)	$	4,214
Fiscal Year ended June 30, 2006	$	7,207	$	(280	)	$	(764	)	$	6,163
Fiscal Year ended June 30, 2005	$	6,095	$	1,990		$	(878	)	$	7,207

F-35

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Significant customer accounts receivable balances as a percentage of total gross accounts receivable at June 30, 2007 and 2006 were as follows:

	% of Total Accounts Receivable at June 30,
	2007		2006
Customer:
Sprint Nextel	19	%	15	%

(d)    Property and equipment, net

Property and equipment consisted of the following (in thousands):

	June 30,
	2007			2006
Computer equipment and software	$	80,774		$	71,907
Furniture and equipment		3,754			3,550
Leasehold improvements		10,901			10,570
		95,429			86,027
Less: accumulated depreciation and amortization		(75,595	)		(67,646	)
	$	19,834		$	18,381

Depreciation and amortization expense was $9.0 million, $9.9 million and $10.9 million for the fiscal years ended June 30, 2007, 2006 and 2005, respectively.

(e)    Goodwill and Intangible assets, net

The following table presents a roll-forward of the goodwill and intangibles, net from June 30, 2006 to June 30, 2007 (in thousands):

	June 30, 2006 Balance		Additions(a)		Amortization			June 30, 2007 Balance
Goodwill	$	60,424	$	5,136	$	—		$	65,560
Intangible assets:
Developed and core technology		15,832		8,160		(7,046	)		16,946
Customer contracts—licenses		71		650		(412	)		309
Customer contracts—support		37		220		(88	)		169
Customer relationships		5,771		—		(2,746	)		3,025
Workforce in place		261		—		(108	)		153
	$	82,396	$	14,166	$	(10,400	)	$	86,162

(a) Additions were recorded in connection with the acquisitions of Widerweb and Solomio (see Note 5).

F-36

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents a roll-forward of the goodwill and intangibles from June 30, 2005 to June 30, 2006 (in thousands):

	June 30, 2005 Balance		Additions		Amortization			June 30, 2006 Balance
Goodwill	$	44,073	$	16,351	$	—		$	60,424
Intangible assets:
Developed and core technology		21,874		—		(6,042	)		15,832
Customer contracts—licenses		95		—		(24	)		71
Customer contracts—support		121		—		(84	)		37
Customer relationships		8,515		—		(2,744	)		5,771
Workforce in place		369		—		(108	)		261
	$	75,047	$	16,351	$	(9,002	)	$	82,396

(a) Additions to goodwill of $16.4 million were recorded in connection with the release of shares held previously in escrow related to the acquisition of Magic4 (see Note 5).

Total amortization expense related to intangible assets was as follows (in thousands):

	Fiscal Year ended June 30,
	2007			2006			2005
Developed and core technology	$	(7,046	)	$	(6,042	)	$	(5,389	)
Customer contracts—licenses		(412	)		(24	)		(621	)
Customer contracts—support		(88	)		(84	)		(76	)
Customer relationships		(2,746	)		(2,744	)		(2,743	)
Workforce in place		(108	)		(108	)		(45	)
	$	(10,400	)	$	(9,002	)	$	(8,874	)

Amortization of acquired developed and core technology and customer license contracts is included in Cost of revenues—License. These assets are being amortized over an average useful life of 4.5 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 acquired customer relationships and workforce in place is included in Operating expenses. These assets are being amortized over an average useful life of four years.

The carrying amount of intangible assets at June 30, 2007 and 2006 was as follows (in thousands):

	June 30, 2007							June 30, 2006
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed and core technology	$	38,895	$	(21,949	)	$	16,946	$	30,735	$	(14,903	)	$	15,832
Customer contracts—licenses		4,992		(4,683	)		309		4,342		(4,271	)		71
Customer contracts—support		417		(248	)		169		197		(160	)		37
Customer relationships		11,802		(8,777	)		3,025		11,802		(6,031	)		5,771
Workforce in place		414		(261	)		153		414		(153	)		261
	$	56,520	$	(35,918	)	$	20,602	$	47,490	$	(25,518	)	$	21,972

F-37

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Based upon intangible assets recorded as of June 30, 2007, future amortization of intangible assets is expected to be as follows (in thousands):

Fiscal Year	Amortization
2008		10,730
2009		6,010
2010		1,681
2011		1,620
2012		561
	$	20,602

(f)    Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

	June 30
	2007		2006
Accrued employee compensation	$	22,027	$	18,636
Income taxes payable		6,232		7,397
Other accrued liabilities		28,085		20,714
	$	56,344	$	46,747

(g)    Deferred Revenue

As of June 30, 2007 and 2006, the Company had deferred revenue of $58.3 million and $63.4 million, respectively, consisting of deferred license fees, new version coverage, maintenance and support fees, and professional services fees. Deferred revenue results from amounts billed 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 $20.4 million and $34.1 million at June 30, 2007 and 2006, respectively.

F-38

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(8)    Convertible subordinated notes

On September 9, 2003, the Company issued $150.0 million of 2  ³/4% convertible subordinated notes (the “Notes”), due September 9, 2008. The Notes are recorded on the Company’s consolidated balance sheet net of a $4.1 million discount, which is being amortized over the term of the Notes using the straight-line method, which approximates the effective interest rate method. Approximately $825,000 of the discount has been amortized during each of the fiscal years ended June 30, 2007, 2006 and 2005, respectively. The Company has made a policy election to classify the issuance costs as a reduction to the Notes. The Company incurred $900,000 of costs in connection with the issuance of the Notes, which were deferred and included in Deposits and other assets. The finance costs are being recognized as interest expense over the term of the Notes using the straight-line method, which approximates the effective interest rate method. Approximately $180,000 of debt issuance costs has been amortized during each of the fiscal years ended June 30, 2007, 2006 and 2005, respectively.

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

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

Interest on the Notes began accruing in September 2003 and is payable semi-annually in March and September. The Company used approximately $12.1 million of the net proceeds to purchase a portfolio of U.S. government securities that was pledged to secure the payment of the first six scheduled semi-annual interest payments on the Notes. The Notes are otherwise unsecured obligations. At June 30, 2006, the balance of the pledged securities was $2.1 million and was recorded as restricted cash and investments within the Company’s consolidated balance sheets. At June 30, 2007, there are no amounts pledged or required to be pledged as security.

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OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Pursuant to the issuance of the Notes, the Company agreed to maintain certain covenants. These covenants include, among others, (1) the timely payment of principal, premium, if any, and interest on the Notes; (2) the timely filing of the Company’s annual and quarterly reports with the SEC and providing copies of such reports to the trustee within 15 days; and (3) the delivery to the trustee of a compliance certificate within 120 days of the end of each fiscal year. As of June 30, 2007 the Company was in compliance with its covenants.

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

(9)    Commitments and Contingencies

(a)    Leases

On February 28, 2005, the Company entered into two sublease agreements (the “Sublease Agreements”) with Informatica Corporation (“Informatica”) to lease office space in the buildings known as 2100 Seaport Boulevard (Floors 1-4) and 2000 Seaport Boulevard (2nd Floor and part of the 1st floor) in Redwood City, California. Collectively, the Sublease Agreements cover approximately 192,000 square feet (collectively, the “Premises”). The Premises serve as the Company’s corporate headquarters and the Company vacated its previous corporate headquarters located at 1400 Seaport Boulevard, Redwood City, California as of June 1, 2005.

The terms of the Sublease Agreements began on May 1, 2005 and end on June 29, 2013; however, the Company has a one time right to terminate one or both of the Sublease Agreements on July 30, 2009 by giving written notice to Informatica prior to October 31, 2008. The Sublease Agreements are triple-net subleases and the Company has a right of first refusal to lease additional space at 2000 Seaport Boulevard. The average base rent expense for the Premises for the first 4 years will be approximately $1.73 million per year. The average base rent for the remaining term of the leases shall be approximately $2.13 million per year. In addition, the Company expects common area and maintenance pass-through charges for the Premises, including real estate taxes, to be approximately $1.5 to $1.8 million per year. The rent obligations are being expensed on a straight-line basis, over the term of the lease beginning upon the date the premises became available for entry in February 2005.

The Company’s prior headquarters facility lease was entered into in March 2000 for approximately 283,000 square feet of office space located at 1400 Seaport Boulevard, Redwood City, California. Lease terms that commenced in April 2001 require a base rent of $3.25 per square foot per month as provided by the lease agreement which will increase by 3.5% annually on the anniversary of the initial month of the commencement of the lease. The lease is for a period of 12 years from the commencement date of the lease. The lease, which was amended in 2004 requires that the Company provide a letter of credit in the amount 100% of the security obligation of $16.5 million with a stipulation that collateral equal to 100% of the letter of credit be invested in certificates of deposits. As of June 30, 2007, the Company held approximately $16.5 million of certificate of deposits classified as restricted cash and investments related to this lease. Furthermore, the Company has guaranteed additional letters of credit and pledged approximately

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OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

$1.0 million as of June 30, 2007 and $0.7 million as of June 30, 2006, respectively, for additional facility leases outside Redwood City, California. The restricted cash and investments held in trust under these agreements are earning approximately 2.8% as of June 30, 2007, and the resulting income earned is not subject to any restrictions.

The Company also has numerous facility operating leases at other locations in the United States and the rest of the world. Excluding leases for Musiwave locations, future minimum lease payments under all non-cancelable operating leases with terms in excess of one year and future contractual sublease income were as follows at June 30, 2007 (in thousands):

Year Ending June 30,	Future Lease Payments		Future Contractual Sublease Income			Net Future Lease Payments
2008		23,881		(4,173	)		19,708
2009		21,688		(3,170	)		18,518
2010		22,121		(3,370	)		18,751
2011		22,515		(3,226	)		19,289
2012		23,010		(3,226	)		19,784
Thereafter		21,404		(2,689	)		18,715
Total	$	134,619	$	(19,854	)	$	114,765

Musiwave has facility operating lease commitments totaling $3.7 million through November 2013, which is comprised of annual rent of approximately $0.6 million.

Rent expense for the years ended June 30, 2007, 2006 and 2005, was approximately $11.2 million, $10.4 million and $17.3 million, respectively, net of sublease income of $0.9 million, $2.2 million and $1.5 million for the years ended June 30, 2007, 2006 and 2005, respectively. Net future lease payments include $77.3 million of accrued restructuring-related lease obligations (See Note 11).

(b)    Litigation

IPO securities class action.    On November 5, 2001, a purported securities fraud class action complaint was filed in the United States District Court for the Southern District of New York. In re Openwave Systems Inc. Initial Public Offering Securities Litigation, Civ. No. 01-9744 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS) (S.D.N.Y.). It is brought purportedly on behalf of all persons who purchased the Company’s common stock from June 11, 1999 through December 6, 2000. The defendants are the Company and five of its present or former officers (the “Openwave Defendants”), and several investment banking firms that served as underwriters of the Company’s initial public offering and secondary public offering. Three of the individual defendants were dismissed without prejudice, subject to a tolling of the statute of limitations. The complaint alleges liability under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, on the grounds that the registration statements for the offerings did not disclose that: (1) the underwriters had agreed to allow certain customers to purchase shares in the offerings in exchange for excess commissions paid to the underwriters; and (2) the underwriters had arranged for certain customers to purchase additional shares in the aftermarket at predetermined prices. The amended complaint also alleges that false analyst

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OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

reports were issued. No specific damages are claimed. Similar allegations were made in over 300 other lawsuits challenging public offerings conducted in 1999 and 2000, and the cases were consolidated for pretrial purposes.

The Company 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 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 stay remains in place and the plaintiffs and issuers have stated that they are prepared to discuss how the settlement might be amended or renegotiated to comply with the Second Circuit decision. Plaintiffs have informed the Court that they intend to submit amended complaints with a revised class definition comporting with the Second Circuit’s decision. We believe a loss is not probable and estimable. Therefore no amount has been accrued as of June 30, 2007.

Shareholder Derivative Lawsuits.    On May 16, 2006, a report published by the Center for Financial Research and Analysis (“CFRA”) identified Openwave as a company at risk for having engaged in backdating of stock options granted to our officers and directors. On May 22, 2006, we announced that we had received a notice of informal inquiry from the SEC requesting documents related to our stock option grants and options granting practices. Following that announcement, seven substantially similar shareholder derivative actions were filed in California state and federal courts, purportedly on behalf of the Company, against various of the Company’s former and then-current directors and officers. The plaintiffs allege that the individual defendants mismanaged corporate assets and breached their fiduciary duties between 1999 and 2005 by authorizing or failing to halt the backdating of certain stock options. The plaintiffs also allege that certain defendants were unjustly enriched by the receipt and retention of backdated stock options and that certain of the defendants sold Openwave stock for a profit while in possession of material, non-public information. Certain of the plaintiffs also allege that the Company issued false and misleading financial disclosures and proxy statements from 1999 through 2005 and that the individual defendants engaged in a fraudulent scheme to divert money to themselves via improper option grants.

On September 5, 2006, the state court consolidated the three actions pending before it into a single action captioned In re: Openwave Systems Inc. Derivative Litigation (Consolidated Case No. CIV 455265) and appointed a lead plaintiff and lead counsel. On September 29, 2006, the lead plaintiff filed a consolidated amended shareholder derivative complaint. On August 21, 2006, the individual defendants, joined by Openwave, filed a motion to stay the state court actions pending resolution of the federal actions. On September 29, 2006, the lead plaintiff filed a consolidated amended shareholder derivative complaint. On December 4, 2006, the state court granted the motion to stay. The state court actions will remain pending and Openwave and the individual defendants will be required to

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OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

attend periodic status conferences until the federal actions are resolved. The plaintiffs in the state court actions have the right to ask the court to lift the stay if circumstances change. The consolidated state court action is in its very early stages. No amount is accrued as of June 30, 2007 as a loss is not considered probable and reasonably estimable.

On October 11, 2006, the federal district court entered an order consolidating the four actions pending before it into a single action captioned In re: Openwave Systems Inc. Shareholder Derivative Litigation (Hacker v. Peterschmidt et. al. Case No. 3:06-cv-03468-SI) and appointed lead plaintiffs and lead counsel. On December 29, 2006, plaintiffs filed an amended and consolidated complaint. A motion to dismiss hearing was held on April 27, 2007, and the district court subsequently granted the motion to dismiss with leave for the plaintiffs to file an amended complaint. The plaintiffs filed an amended complaint on June 29, 2007. The defendants have filed a motion to dismiss, and a hearing on the motion to dismiss is scheduled for October 12, 2007. The consolidated federal court action is in its very early stages. No amount is accrued as of June 30, 2007 as a loss is not considered probable and reasonably estimable.

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

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

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

On January 22, 2007, the Company responded to Harbinger’s complaint by filing a motion to dismiss. The Company also filed its own verified complaint in the Delaware Court of Chancery seeking, among other remedies, declarations that Harbinger did not comply with the Company’s bylaws and therefore its candidates were not properly nominated at the Annual Meeting, that Messrs. Peterschmidt and Held were rightfully elected to serve on the Company’s board of directors, and that Messrs. Zucco and Breen were not validly elected to the Company’s Board of Directors. Harbinger responded to the Company’s motion to dismiss by amending and restating its complaint seeking, among other remedies, a declaration that Mr. Zucco has been validly elected as a member of the Company’s board of directors and that a new election be held between Messrs. Peterschmidt, Held, and Breen for one board seat. Additionally, Harbinger filed a motion for a status quo order, which the Court denied. The Company filed a motion to dismiss, which the Court denied. A trial on the matter was held on March 12-13, 2007, and the court ruled in favor of the Company. Harbinger filed an appeal of the court’s decision in July, 2007. On August 1, 2007, Harbinger dismissed the appeal, and the matter is resolved.

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OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Securities Class Actions.    Between February 21, and March 27, 2007, four substantially similar securities class action complaints were filed in the United States District Court for the Southern District of New York against Openwave and four current and former officers of the Company. The complaints purport to be filed on behalf of all persons or entities who purchased Openwave stock from September 30, 2002 through October 26, 2006 (the “Class Period”), and allege that during the Class Period, the defendants engaged in improper stock options backdating and issued materially false and misleading statements in the Company’s public filings and press releases regarding the manner in which Openwave granted and accounted for the options. Based on these allegations, the complaints assert two causes of action—one against all defendants for violation of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and a second against the individual defendants for violation of Section 20(a) of the Exchange Act.

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

On June 29, 2007, the plaintiffs filed a consolidated and amended class action complaint. The consolidated and amended complaint adds 17 additional defendants, including several current and former Openwave officers and directors, KPMG LLP, and Merrill Lynch, Pierce, Fenner & Smith, Inc., Lehman Brothers Inc., J.P. Morgan Securities, Inc., and Thomas Weisel Partners LLC. The consolidated and amended complaint alleges claims for violation of Sections 10(b), 20(a) and 20(A) of the Exchange Act and Rule 10b-5, as well as claims for violation of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 arising out of the Company’s 2005 public offering. The complaint seeks money damages, equitable relief, and attorneys’ fees and costs. The Company is required under contracts with the individual defendants to indemnify them under certain circumstances for attorneys’ fees and expenses.

On August 10, 2007, the defendants filed motions to dismiss the consolidated and amended class action complaint. A hearing on the motions has not yet been set. The securities class action is in its very early stages. No amount is accrued as of June 30, 2007 as a loss is not considered probable and reasonably estimable.

Indemnification claims.    The Company’s software license and services agreements generally include a limited indemnification provision for claims from third parties relating the to Company’s intellectual property. Such indemnification provisions are accounted for in accordance with FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. As of June 30, 2007, 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 we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations.

(c)    Contingencies

We have various contingent obligations associated with acquisitions made in the last two fiscal years as discussed in Note 5 above.

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OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(10)    Stockholders’ Equity

(a)    Stockholder Rights Agreement

On August 8, 2000, the Company entered into a rights agreement that entitles each holder of the Company’s common stock to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock at a price of $500 per one one-thousandth of a share, subject to adjustment. Ten business days after a person or group of affiliated or associated persons acquires beneficial ownership of 15% or more of the outstanding shares of the Company’s common stock, other than as a result of repurchases of stock by the Company or certain inadvertent actions by institutional or certain other stockholders, and except pursuant to an offer for all outstanding shares of the Company’s common stock which the independent directors of the Company determine to be fair and in the best interests of the Company, each holder of a right to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock will thereafter have the right to receive, upon exercise of the right, shares of the Company common stock having a value equal to two times the exercise price of the right.

At any time until the tenth business day after a person or group of affiliated or associated persons acquires beneficial ownership of 15% or more of the outstanding shares of the Company’s common stock, the Company may redeem the rights in whole, but not in part, at a price of $0.001 per right. This rights agreement will terminate on August 18, 2008, unless such date is extended or the rights are redeemed by the Company prior to such date.

This rights agreement may have certain anti-takeover effects. The rights will cause substantial dilution to a person or group that attempts to acquire the Company in a manner which causes the rights to become discount rights unless the offer is conditional upon a substantial number of rights being acquired.

(b)    Stock Plans

On October 16, 2005, the Company’s 1995 Plan (formerly the Software.com, Inc. 1995 Stock Option Plan) (the “1995 Stock Plan”) expired, and, accordingly, options can no longer be granted from the 1995 Stock Plan. A total of 17,743,215 shares of common stock had previously been authorized for issuance under the 1995 Stock Plan. As of June 30, 2007, options to purchase a total of 3,778,319 shares were outstanding under the 1995 Stock Plan. Additionally, options to purchase 4,041 shares under several other plans from which options are no longer granted are outstanding as of June 30, 2007.

On September 25, 2006, the Company’s 1996 Stock Plan (formerly the Phone.com, Inc. 1996 Stock Plan) (the “1996 Stock Plan”) has expired and, accordingly, options can no longer be granted from the 1996 Stock Plan. A total of 12,531,282 shares of common stock had previously been authorized for issuance under the 1996 Stock Plan. As of June 30, 2007, options to purchase a total of 3,248,168 shares were outstanding under the 1996 Stock Plan.

The Openwave Systems Inc. 1999 Directors’ Equity Compensation Plan (the “Directors’ Stock Plan”) provides for the grant of non-statutory stock options to non-employee directors (“Outside Directors”). Under the Directors’ Stock Plan, a total of 650,000 shares of the Company’s common stock have been reserved for issuance. Options and awards granted to new or existing Outside Directors under the Directors’ Stock Plan vest ratably over a period of three years. The Directors’ Stock Plan also provides for the acceleration of options upon the dismissal of the Outside Director from the Board upon or within twenty-four months following a change in control of the Company. The exercise price of options granted under the Directors’ Stock Plan is equal to the fair market value of the Company’s common stock on

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OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the date of grant. The exercise price of nonvested shares granted under the Directors’ Stock Plan is $0.00. Under the Directors’ Stock Plan, stock option grants have a term of ten years. As of June 30, 2007, the Company had a total of 230,000 shares of common stock available for grant, and options for a total of 354,500 shares were outstanding under the Directors’ Stock Plan.

The Openwave Systems Inc. 2001 Stock Compensation Plan (“2001 Stock Plan”) provides for the issuance of non-statutory stock options, nonvested stock bonus awards and nonvested stock purchase awards to directors, employees and consultants of the Company. The 2001 Stock Plan serves as the successor to certain plans of the Company and plans acquired by the Company. No further grants will be made under the predecessor plans; however, each outstanding option granted under a predecessor plan shall continue to be governed by the terms and conditions of the predecessor plan under which it was granted. A total of 4,068,128 shares of common stock have been reserved for issuance under the 2001 Stock Plan. Under the 2001 Stock Plan, the exercise price for nonstatutory options is determined by the plan administrator and may be above or below the fair market value of the Company’s common stock on the date of grant. Options issued under the 2001 Stock Plan generally expire ten years from the date of grant. Vesting periods are determined by the plan administrator and generally provide for shares to vest ratably over a period of three to four years, with options for new employees generally including a one-year cliff period. As of June 30, 2007, the Company had a total of 387,059 shares of common stock available for grant, and options for a total of 581,588 shares were outstanding under the 2001 Stock Plan.

The Openwave Systems Inc. 2006 Stock Incentive Plan (“2006 Stock Plan”), which was approved by the stockholders at the Company’s annual meeting held on January 17, 2007, provides incentive stock options, non-statutory stock options, restricted stock purchase rights and stock appreciation rights to employees and consultants of the company and its affiliates. The plan also provides restricted stock bonus, phantom stock units, restricted stock units, performance shares bonus and performance share units (“Full-Value Stock Award”). A total of 7,000,000 shares of common stock have been reserved for issuance under the 2006 Stock Plan. Each share of common stock issued pursuant to a stock award issued under this Plan shall reduce the Share Reserve by one (1) share; provided, however that for each Full-Value Stock Award, the share reserve shall be reduced by one and one-half (1.5) shares. The exercise price of options granted under the 2006 Stock Plan is usually equal to the fair market value of the Company’s common stock on the date of grant. The exercise price of nonvested shares granted under the 2006 Stock Plan is $0.00. Options issued under the 2006 Stock Plan generally expire ten years from the date of grant. Vesting periods are determined by the plan administrator and generally provide for shares to vest ratably over a period of three to four years, with options for new employees generally including a one-year cliff period. As of June 30, 2007, the Company had a total of 6,090,334 shares of common stock available for grant, and awards for a total of 504,666 shares were outstanding under the 2006 Stock Plan.

The following table summarizes the number of common shares available for issuance under the plans stated above as of June 30, 2007:

	June 30, 2007
1995 and 1996 Stock Plans	—
Directors’ Stock Plan	230,000
2001 Stock Plan	387,059
2006 Stock Plan	6,090,334
Miscellaneous	624,793
	7,332,186

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OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(c)    Stock Purchase Rights

Certain outstanding stock purchase rights are subject to a restricted stock purchase agreement whereby the Company has the right to repurchase the stock upon the voluntary or involuntary termination of the purchaser’s employment with the Company at the purchaser’s purchase price. The Company’s repurchase right lapses at a rate determined by the stock plan administrator but at a minimum rate of 20% per year. Through June 30, 2007, the Company has issued 5,240,552 shares under restricted stock purchase agreements, of which 1,405,405 shares have been repurchased and 560,500 shares remain subject to repurchase at a weighted-average purchase price of $0.00 per share.

(d)    Employee Stock Purchase Plans

In January 2007 the Company reinstated and amended the Openwave Systems Inc. 1999 Employee Stock Purchase Plan (“ESPP”) which was suspended in October 2002.

The ESPP provides for an automatic annual increase authorized shares (“Evergreen shares”) on the first day of the Company’s fiscal years beginning in 2000 through 2004 equal to the lesser of 601,750 shares or 1% of the Company’s outstanding common stock on the last day of the immediately preceding fiscal year. On the first day of fiscal years 2005, 2006, 2007 and 2008, the ESPP provides for an automatic annual increase equal to the lesser of 268,417 shares or 1% of the shares outstanding on the last day of the immediately preceding fiscal year. As of June 30, 2007, the ESPP had 4,810,959 shares authorized. Of these shares 2,455,507 shares are currently available for issuance.

During fiscal 2007, 149,460 shares were purchased by employees under the ESPP. There were no such purchases in fiscal 2006 or 2005 as the plan was suspended.

The ESPP is intended to qualify under Section 423 of the Internal Revenue Code and contains one six-month purchase period within a six month offering period. Eligible employees may purchase common stock through payroll deductions of up to 20% of compensation. The price of common stock purchased under the ESPP is the lower of 85% of the fair market value of the Company’s common stock at the beginning of the offering period and the end of the purchase period.

The fair value used in recording the stock-based compensation expense associated with the ESPP is estimated for each offering period using the Black-Scholes-Merton option pricing model that uses the assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company’s common stock over the six months. The expected term is six months, coinciding with the offering period. 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.

	Fiscal Year ended June 30, 2007
Expected volatility	43.8	%
Expected dividends	0	%
Expected term (in years)	0.5
Risk-free rate	5.1	%

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OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(e)    Stock buy-back plan

On January 4, 2007, the Company announced that it intended to repurchase up to $100.0 million of the Company’s common stock. On January 30, 2007, the Company entered into an agreement with Merrill Lynch to effect the stock repurchase whereby the Company agreed to purchase shares of its common stock from Merrill Lynch for an aggregate price of $100.0 million. Under the agreement, Merrill Lynch purchased shares in the open market and delivered those shares to the Company from February 23 through April 11, 2007. As a result of this program the Company repurchased and retired 11,843,991 shares of our common stock at an average price of $8.44.

(f)    Cash dividend

On June 4, 2007, we announced a special one-time cash distribution of $1.20 per share which was paid in June 2007 totaling $99.4 million. This dividend was considered to be a return of capital and accordingly was recorded as a reduction of additional paid-in capital.

(g)    Stock-based compensation

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model that uses the assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company’s common stock over the last six years. Expected terms (in years) are derived from the average midpoint between vesting and the contractual term, as described in the SEC’s SAB No. 107, “Share-Based Payment.” Risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

	Fiscal Year ended June 30,
	2007		2006		2005*
Expected volatility	85.4	%	93.4	%	89.9	%
Expected dividends	0	%	0	%	0	%
Expected term (in years)	5.75 - 6.06		5.75 - 6.06		2.41
Risk-free rate	4.8	%	4.5	%	3.1	%

* The assumptions used in 2005 were used to calculate pro forma compensation expense per SFAS 123.

The assumptions used to value employee stock purchase plan shares are as follows:

	Fiscal Year ended June 30, 2007
Expected volatility	43.8	%
Expected dividends	0	%
Expected term (in years)	0.5
Risk-free rate	5.1	%

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

The Company applies an expected forfeiture rate when amortizing stock-based compensation expense. Our estimate of the forfeiture rate is based primarily upon historical experience of employee turnover.

F-48

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A summary of option activity through June 30, 2007 is presented below (in thousands except per share amounts):

Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at July 1, 2004	12,553		$	10.19
Options granted	5,437			12.96
Exercised	(3,088	)		7.44
Forfeited, canceled or expired	(2,393	)		10.98
Outstanding at July 1, 2005	12,509			11.92
Options granted	4,389			17.69
Exercised	(4,415	)		10.11
Forfeited, canceled or expired	(1,926	)		13.28
Outstanding at July 1, 2006	10,557			14.82
Options granted	2,055			8.46
Exercised	(160	)		3.89
Forfeited, canceled or expired	(3,980	)	$	14.43
Outstanding at June 30, 2007	8,472		$	13.67	4.86	$	869
Vested and Expected to Vest at June 30, 2007	6,902		$	13.77	4.76	$	868
Exercisable at June 30, 2007	4,878		$	14.37	4.38	$	868

The weighted average grant date fair value of options granted during the years ended June 30, 2007, 2006 and 2005 was $6.27, $13.70 and $6.56. The total intrinsic value of options exercised during the fiscal years ended June 30, 2007, 2006 and 2005 was $0.7 million, $39.7 million and $19.9 million. Upon the exercise of options, the Company issues new common stock from its authorized shares.

A summary of the activity of the Company’s nonvested shares through June 30, 2007 is presented below (in thousands except per share amounts):

Nonvested Shares	Shares		Grant Date Fair Value Per Share
Nonvested at July 1, 2004	308		$	11.54
Nonvested shares granted	1,425			12.23
Vested	(150	)		11.82
Forfeited	(139	)		10.76
Nonvested at July 1, 2005	1,444		$	12.26
Nonvested shares granted	870			18.23
Vested	(500	)		12.79
Forfeited	(196	)		16.8
Nonvested at July 1, 2006	1,618		$	15.06
Nonvested shares granted	608			8.19
Vested	(1,001	)		13.77
Forfeited	(664	)		14.83
Nonvested at June 30, 2007	561		$	10.42

F-49

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of June 30, 2007, there was $5.8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized on a declining basis as the shares vest over the next 4 years. The total fair value of shares vested during the fiscal year ended June 30, 2007 was $13.8 million.

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

During the quarter ended June 30, 2006, the Company accelerated the vesting of 626,703 share options and 290,000 restricted stock awards to two of the Company’s executives. As a result of the modification, the Company recognized additional compensation expense of $1.4 million for the quarter ended June 30, 2006.

During the quarter ended December 31, 2006, the Company modified the vesting of 140,975 share options and 88,426 shares of restricted stock held by the former Chief Operating Officer. The modification caused these grants to vest on November 30, 2006 to coincide with his final date of employment, as opposed to the previously agreed-upon vesting date of December 31, 2006. As a result of that modification of the share options, the Company recorded $0.8 million in restructuring expense related to this acceleration, as the vesting of this award was accelerated based on the termination agreement entered into in connection with the FY 2007 Q1 Restructuring Plan. Additionally, the Company recorded a reduction of compensation expense of $1.6 million for the quarter ended December 31, 2006, due to the reversal of previously recognized compensation expense related to options as the service condition of the original award was not expected to be satisfied.

During the quarter ended June 30, 2007, the Company accelerated the vesting of 175,000 shares of restricted stock held by the former CEO and director of the Company. As a result of that modification, the Company recorded $1.4 million in restructuring expense related to this acceleration, as the vesting of this award was accelerated based on the termination agreement entered into in connection with the FY 2007 Q4 Restructuring Plan. Additionally, the Company recorded a reduction of compensation expense of $2.1 million for the quarter ended June 30, 2007, due to the reversal of previously recognized compensation expense related to the awards as the service condition of the original award was not expected to be satisfied.

Other accelerations of grants were made to various employees impacted by the restructurings in fiscal year 2007. The Company’s policy is to record the impact of these modifications as restructuring expense when the modification is a result of the restructuring. Previously recognized compensation expense related to awards which are forfeited, or for awards for which the service condition of the original award was not expected to be satisfied, are reversed to stock compensation expense at the time they are forfeited or modified.

(11)    Restructuring and Related Costs

As a result of the Company’s change in strategy and its desire to improve its cost structure, the Company announced seven separate restructurings during the years ended June 30, 2007, 2006, 2005, 2003 and 2002. These restructurings included the fiscal year 2007 fourth quarter restructuring (FY2007 Q4 Restructuring), the fiscal year 2007 first quarter restructuring (FY2007 Q1 Restructuring), fiscal year 2006 restructuring (FY2006 Restructuring), fiscal year 2005 restructuring (FY2005 Restructuring), the fiscal year 2003 fourth quarter restructuring (FY2003 Q4 Restructuring), the fiscal year 2003 first quarter restructuring (FY2003 Q1 Restructuring), and the fiscal year 2002 restructuring (FY2002 Restructuring).

F-50

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables set forth the restructuring activity through June 30, 2007 (in thousands):

	FY 02 to FY 05 Restructuring Plans						FY 06 Restructuring Plan						FY 07, Q1 Restructuring Plan			FY 07, Q4 Restructuring Plan			Total Accrual
	Facility			Severance			Facility			Severance			Severance			Severance
Accrual balance as of June 30, 2004	$	49,109			158															49,267
Activity for the year ended June 30, 2005:
New charges and adjustments to estimates(1)		55,066			(115	)														54,951
Reclassification from deferred rent		4,794			—															4,794
Cash paid, net		(11,472	)		(43	)														(11,515	)
Accrual balance as of June 30, 2005		97,497			—															97,497
Activity for the year ended June 30, 2006:
New charges and adjustments to estimates(2)		(4,573	)		—		$	1,597		$	4,178									1,202
Accretion expense		2,976			—			60			—									3,036
Reclassification from deferred rent		136			—			—			—									136
Cash paid, net		(17,813	)		—			(659	)		(3,935	)								(22,407	)
Accrual balances as of June 30, 2006		78,223			—			998			243									79,464
New charges and adjustments to estimates(3)		—			—			57			—			7,035			14,612			21,704
Accretion expense		2,340			—			43			—			—			—			2,383
Cash paid, net		(17,989	)		—			(673	)		(190	)		(7,029	)		(412	)		(26,293	)
Accrual balances as of June 30, 2007	$	62,574		$	—		$	425		$	53		$	6		$	14,200		$	77,258

(1) Total charges does not include $15.6 million of accelerated depreciation of fixed assets as represented on the Company’s consolidated statements of operations under restructuring and other costs for the year ended June 30, 2005.

(2) Total charges does not include $0.4 million of accelerated depreciation of fixed assets as represented on the Company’s consolidated statements of operations under restructuring and other costs for the year ended June 30, 2006.

(3) Total charges does not include $1.4 million of non-cash accelerated depreciation on fixed assets, a $0.3 million forgiven loan to an employee impacted by the FY 2007 Q4 restructuring, as well as $4.5 million in non-cash stock based compensation expense as represented on the Company’s consolidated statements of operations under restructuring and other costs for the year ended June 30, 2007.

F-51

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the quarter ended December 31, 2005, the Company entered into a non-binding agreement with a potential subtenant for properties that are included in the Company’s FY2005 Restructuring and FY2003 Q1 Restructuring plans. As such, the Company reassessed its estimated obligation and sublease income related to these properties, resulting in a net reduction in restructuring expense recorded during the quarter ended December 31, 2005.

Facility

Facility costs represent the closure and downsizing costs of facilities that were consolidated or eliminated due to the restructurings. Closure and downsizing costs include payments required under lease contracts, less any applicable sublease income after the properties were abandoned, lease buyout costs and restoration costs associated with certain lease arrangements. To determine the lease loss portion of the closure and downsizing costs, certain estimates were made related to: (1) the time period over which the relevant building would remain vacant, (2) sublease terms and (3) sublease rates, including common area charges. As of June 30, 2007, the Company has sublease contracts in place for all of its exited facilities. Since June 30, 2001, 22 sites have been vacated and 7 sites have been selected for downsizing.

Severance

Severance and employment-related charges consist primarily of severance, health benefits, other termination costs and legal costs as a result of the termination of approximately 400, 480, 200, 63, 60 and 182 employees during the FY2002, FY2003 Q1, FY2003 Q4, FY2006, and FY2007 Q1 and Q4 Restructuring Plans, respectively.

Other

Other charges consist of fees resulting from termination costs of certain software license arrangements and other fees.

Restructuring Plans

The FY2007 Q4 Restructuring was implemented to simplify and better align the Company’s product portfolio with market demand, reduce costs and improve operating efficiencies. As such, during the fourth quarter of fiscal year 2007, the Company incurred $16.8 million in pre-tax restructuring and related charges associated with this Restructuring Plans and accelerated depreciation of abandoned assets. Included in the restructuring and other charges are approximately $15.0 million related to employee termination benefits, $1.7 million in stock compensation expense related to modifications of restricted stock grants in connections with the restructuring, and $0.1 million related to accelerated depreciation on abandoned assets. The Company expects to pay the current accrued charges, as well as the additional charges the Company anticipates incurring under the plan, during the first quarter of fiscal year 2008.

The FY2007 Q1 Restructuring was implemented to better align the Company’s resources among its operational groups and reduce the numbers of layers of management between customers and field and product organizations. As such, the Company incurred $11.4 million in pre-tax restructuring and related charges associated with this Restructuring Plan and accelerated depreciation of abandoned assets in the fiscal year ended June 30, 2007. Included in the restructuring and other charges are approximately $7.2 million related to employee termination benefits, $2.8 million in stock compensation expense related to employee termination benefits and $1.4 million related to accelerated depreciation on abandoned assets.

F-52

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The FY2006 Restructuring was implemented by the Company during the quarter ended September 30, 2005, to better distribute the Company’s resources between its client and server product groups. In addition, the Company incurred further facilities-related charges under the FY2005 Restructuring as it ceased using information technology labs in the prior headquarters during the quarter ended September 30, 2005. Restructuring and related expense during the quarter ended September 30, 2005 totaled $8.3 million, which included $3.7 million in facilities and accretion-related charges, $4.2 million in severance and relocation costs, and $0.4 million in accelerated depreciation related to a revision in the estimated useful life of leasehold improvements and furniture in the sites exited under the FY2006 Restructuring. The accelerated depreciation was a non-cash charge and is not included in the restructuring liability table above. The associated restructuring expense for excess facilities was recorded in the quarter ended September 30, 2005 upon the “cease-use” dates in accordance with FAS 146 “Accounting for Costs Associated with Exit or Disposal Activities”. Of the $0.5 million remaining restructuring accrual at June 30, 2007 we expect to pay $0.4 million through June 30, 2008 and $0.1 million thereafter through April 2010.

The FY2005 Restructuring was announced during the three months ended March 31, 2005 in relation to the Company relocating its headquarters from 1400 Seaport Boulevard to certain floors of 2100 and 2000 Seaport Boulevard in Redwood City, California in order to take advantage of more favorable office lease terms. The Company ceased use of its former headquarters in June 2005. Related to the decision to move headquarters, the Company recorded $14.8 million in accelerated depreciation related to a revision in the useful life of leasehold improvements and certain furniture at 1400 Seaport Boulevard. This was a non-cash charge and is not included in the restructuring liability table above. Of the $37.6 million remaining restructuring accrual at June 30, 2007 we expect to pay $5.1 million through June 30, 2008 and $32.5 million thereafter through April 2013.

The FY2003 Q4 Restructuring was announced during the three months ended June 30, 2003 and included further reductions in operating expenses in order to better align our overall costs structure with current revenues. These reductions included a decrease in the Company’s workforce of approximately 200 employees. The majority of these reductions were completed by December 31, 2003. Also included in restructuring and other related costs on the consolidated statements of operations during the year ended June 30, 2005 was a non-cash loss of $0.8 million on the disposal of fixed assets from the early termination of a facility lease that was not previously included in the restructuring accrual. As this was a non-cash charge it is not included in the restructuring liability table above. As of June 30, 2007, the Company expects to pay the remaining $0.1 million restructuring accrual by February 2008.

The FY2003 Q1 Restructuring was announced during the three months ended September 30, 2002 and included the consolidation of products within three core product groups: application software and services, infrastructure software and services, and client software and services. This restructuring plan resulted in a decrease in the Company’s workforce of approximately 480 employees as of June 30, 2003. Of the remaining $24.5 million accrual at June 30, 2007 we expect to pay $4.1 million through June 30, 2008 and $20.4 million thereafter through April 2013.

The FY 2002 Restructuring was announced during the three months ended December 31, 2001 as a result of the Company’s desire to improve its cost structure and profitability. This restructuring plan resulted in a decrease in the Company’s workforce by approximately 400 employees. Of the remaining $0.4 million accrual as of June 30, 2007, we expect to pay $0.4 million through June 30, 2008 and $14,000 thereafter through November 2012.

F-53

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the future payments for liabilities by fiscal year (in thousands):

Year ending June 30,	Cash Obligation		Signed Sublease Payments			Net Estimated Cash Payable
2008		19,247		(7,150	)		12,097
2009		17,602		(6,414	)		11,188
2010		18,079		(6,671	)		11,408
2011		19,119		(6,546	)		12,573
2012		19,035		(6,568	)		12,467
Thereafter		15,483		(5,436	)		10,047
	$	108,565	$	(38,785	)	$	69,780
Future accretion							6,781
Accrued facilities restructuring						$	62,999

(12)    Income Taxes

Income before income taxes includes net income/(loss) from foreign operations of approximately $(1.5) million, $5.6 million and $15.1 million in fiscal 2007, 2006 and 2005, respectively.

The provision for income taxes includes the following (in thousands):

	Fiscal Year ended June 30,
	2007			2006			2005
Current:
Foreign income tax	$	3,072		$	1,150		$	6,261
Foreign withholding tax		6,366			8,502			6,057
Deferred:
Foreign		(2,894	)		(4,275	)		(3,510	)
Total	$	6,544		$	5,377		$	8,808

The Company recorded an income tax benefit relating to discontinued operations of $5.1 million and $1.7 million during fiscal 2007 and 2006, respectively, which is excluded from the table above.

The following reconciles the expected corporate federal income tax expense (benefit) (computed by multiplying the Company’s loss before income taxes by the statutory income tax rate of 35%) to the Company’s income tax expense (in thousands):

	Fiscal Year ended June 30,
	2007			2006			2005
Federal tax expense (benefit) at statutory rate	$	(34,326	)	$	3,920		$	(18,888	)
Foreign withholding taxes		6,366			8,502			6,057
Effect of foreign operations		194			(1,671	)		(2,611	)
Net operating losses not benefited		37,416			—			22,438
Utilization of previously reserved NOLs		—			(5,067	)		—
Changes in reserve		(296	)		(321	)		800
Nondeductible expenses and other		(2,810	)		14			1,012
Total tax expense	$	6,544		$	5,377		$	8,808

F-54

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The tax effect of temporary differences that give rise to significant portions of the Company’s deferred tax assets and liabilities are as follows (in thousands):

	June 30,
	2007			2006
Deferred tax assets:
Net operating loss carryforwards	$	541,897		$	485,383
Accruals and allowances not deductible for tax purposes		55,533			77,059
Research and development credit and other credits carry-forwards		45,700			45,073
Intangible assets related to acquisitions		19,637			15,493
Stock based compensation		6,947			9,506
Total deferred tax assets, gross		669,714			632,514
Less: valuation allowance		(665,146	)		(627,729	)
Total deferred tax assets, net		4,568			4,785
Deferred tax liabilities:
Intangible assets related to acquisitions		(4,543	)		(6,739	)
Net deferred tax assets (liabilities)	$	25		$	(1,954	)

During the year, the Company performed a detailed review of its deferred tax assets in connection with its enhanced controls regarding income taxes. The fiscal 2006 disclosure above reflects adjustments made during this process. The adjustments made are as follows (in thousands):

	Previously Reported (a)			Adjustments			As Adjusted for FY 2006
Deferred tax assets:
Net operating loss carryforwards	$	473,750		$	11,632		$	485,381
Accruals and allowances not deductible for tax purposes		74,114			2,945			77,059
Research and development credit and other credits carry-forwards		45,073			0			45,073
Intangible assets related to acquisitions		193,269			(177,776	)		15,493
Stock based compensation		9,201			305			9,506
Total deferred tax assets, gross		795,407			(162,894	)		632,513
Less: Valuation allowance		(790,623	)		162,894			(627,729	)
Total deferred tax assets, net		4,784			—			4,784
Deferred tax liabilities:
Intangible assets related to acquisitions		(6,738	)		(0	)		(6,739	)
Net deferred tax assets (liabilities)	$	(1,954	)	$	(0	)	$	(1,954	)

(a) The previously reported amount is adjusted to exclude amounts associated with discontinued operations.

In light of the Company’s recent history of operating losses, the Company has recorded a valuation allowance for substantially all of its federal and state deferred tax assets, except to the extent of deferred tax liabilities in certain foreign jurisdictions, as it is presently unable to conclude that it is more likely than not that federal and state deferred tax assets in excess of deferred tax liabilities will be realized. The Company recorded deferred tax assets of $4.6 million, and $4.8 million as of June 30, 2007 and 2006, respectively, before consideration of deferred tax

F-55

OPENWAVE SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

liabilities, for certain foreign subsidiaries, because it concluded that based on the historical taxable income of the respective foreign subsidiaries, it is more likely than not that the deferred tax assets will be realized. Deferred tax liabilities, net of deferred tax assets, related to discontinued operations of Musiwave were $2.9 million and $8.1 million as of June 30, 2007 and 2006, respectively and are not included in the table above.

Approximately $269 million of the valuation allowance for deferred tax assets relating to net operating loss carryforwards is attributable to employee stock option deductions, the benefit from which will be allocated to additional paid-in capital rather than current earnings when and if subsequently realized. The benefit from approximately $8.5 million of the total $45 million valuation allowance for deferred tax assets related to research and development credit carryforwards will be allocated to additional paid-in capital rather than current earnings when and if subsequently realized.

As of June 30, 2007, the Company had net operating loss carryforwards for federal, state and foreign income tax purposes of approximately $1.4 billion, $676 million and $7.8 million, respectively. In addition, the Company has gross federal and California research and development credit carryforwards of approximately $27.3 million and $18.4 million, respectively. The federal net operating loss carryforwards and research and development credit carryforwards will expire from 2010 through 2027. The California research and development credits may be carried forward indefinitely. The California net operating loss carryforwards will expire from 2007 through 2016. The foreign net operating losses will expire from 2024 to 2025.

U.S. income taxes and foreign withholding taxes were not provided for on a cumulative total of $41.0 million of undistributed earnings for certain foreign subsidiaries. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If these earnings were distributed to the U.S. in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, the Company would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. It is not practicable to estimate the amount of additional income tax that might be payable upon distribution of the earnings.

Under current tax law, net operating loss and credit carryforwards available to offset future income in any given year may be limited upon the occurrence of certain events, including significant changes in ownership interests.

(13)    Subsequent Events

On August 2, 2007, the Company announced the appointment of Jean-Yves Dexmier as Chief Financial Officer, effective August 3, 2007.

On August 2, 2007, the Company announced the resignation of Harold Covert as Chief Financial Officer of Openwave, effective August 2, 2007. Mr. Covert continued his employment with Openwave until August 15, 2007 to assist in the transition of duties.

F-56

Exhibit Index

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 November 13, 2001).
3.2	Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s quarterly report on Form 10-Q filed November 14, 2003).
3.3	Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.01 to the Company’s current report on Form 8-K filed August 1, 2007).
4.1	Rights Agreement dated August 8, 2000, by and between the Company and U.S. Stock Transfer Corporation, as Rights Agent, including the form of Certificate of Designation, Preferences and Rights as Exhibit A, the form of Rights Certificates as Exhibit B, and the Summary of Rights as Exhibit C (incorporated by reference to Exhibit 1 to the Company’s registration statement on Form 8-A (12)(B) filed August 17, 2000).
4.2	Form of the Company’s Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s annual report on Form 10-K filed August 28, 2003).
4.3	Indenture dated September 9, 2003, by and among the Company and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 99.2 to the Company’s current report on Form 8-K filed September 10, 2003).
4.4	Form of 2 3/4% Convertible Subordinated Note due 2008 (incorporated by reference to Exhibit 99.2 to the Company’s current report on Form 8-K filed September 10, 2003).
4.5	Registration Rights Agreement dated September 9, 2003, by and among the Company and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 99.3 to the Company’s current report on Form 8-K filed September 10, 2003).
10.1	Lease Agreement by and between the Company and Pacific Shores Center LLC dated February 4, 2000 for offices at 1400 Seaport Boulevard in Pacific Shores Complex, Redwood City, California (incorporated by reference to Exhibit 10.19 to the Company’s quarterly report on Form 10-Q filed May 15, 2000).
10.2	Two Sublease Agreements by and between the Company and Informatica Corporation, each entered into on February 28, 2005, for the lease of office space in the buildings known as 2100 Seaport Boulevard and 2000 Seaport Boulevard, respectively, in Redwood City, California (incorporated by reference to Exhibit 10.5 to the Company’s quarterly report on Form 10-Q/A filed May 10, 2005).
10.3*	Openwave Systems Inc. 1996 Stock Plan (incorporated by reference to Exhibit 10.2 to the Company’s quarterly report on Form 10-Q filed May 15, 2001).
10.4*	Openwave Systems Inc. Amended and Restated 1999 Directors’ Equity Compensation Plan, amended and restated effective November 22, 2005 (incorporated by reference to Appendix A to the Company’s proxy statement on Form DEF 14A filed October 24, 2005).
10.5*	Openwave Systems Inc. 1999 Amended and Restated Directors’ Stock Option Plan form of stock option agreement, amended and restated effective January 1, 2002 (incorporated by reference to Exhibit 10.1 to the Company’s quarterly report on Form 10-Q filed May 15, 2002).
10.6*	Form of Indemnity Agreement for Officers and Directors (incorporated by reference to Exhibit 10.16 to the Company’s annual report on Form 10-K filed September 28, 2001).
10.7*	Openwave Systems Inc. 1999 Employee Stock Purchase Plan, as amended and restated effective November 1, 2006, (incorporated by reference to Exhibit 99.7 to the Company’s registration statement on Form S-8 filed February 14, 2007).
10.8*	Openwave Systems Inc. 2001 Stock Compensation Plan, amended and restated effective as of August 7, 2002 (incorporated by reference to Exhibit 10.1 to the Company’s annual report on Form 10-K filed September 30, 2002).
10.9*	Form of US Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q filed May 12, 2004).

Exhibit Number	Description
10.10*	Form of International Stock Option Agreement (incorporated by reference to Exhibit 10.4 to the Company’s quarterly report on Form 10-Q filed May 12, 2004).
10.11*	Amended and Restated Employment Terms Letter Agreement by and between the Company and Allen Snyder, dated October 4, 2004 (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed October 8, 2004).
10.12*	Amended Employment Offer Letter Agreement by and between Openwave Systems Inc. and Allen Snyder, dated February 23, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed February 28, 2006).
10.13*	Employment Agreement by and between Openwave Systems Inc. and David C. Peterschmidt, dated November 1, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed November 5, 2004).
10.14*	Employment Offer Letter Agreement by and between Openwave and Harold (Hal) L. Covert, Jr., dated September 12, 2005 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed September 12, 2005).
10.15*	Openwave Systems Inc. Executive Severance Benefit Policy, amended effective October 6, 2005 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed October 12, 2005).
10.16	Amended and Restated Stock Purchase Agreement, dated as of November 9, 2005, by and among Openwave Systems Inc. and the Sellers named therein (incorporated herein by reference to Exhibit 2.1 to the Company’s current report on Form 8-K/A filed November 14, 2005).
10.17	Underwriting Agreement, dated December 7, 2005 among Openwave Systems Inc. and Merrill Lynch & Co., Lehman Brothers, Inc., JP Morgan Securities, Inc. and Thomas Weisel Partners LLC (incorporated herein by reference to Exhibit 1.1 to the Company’s current report on Form 8-K filed December 8, 2005).
10.18*	Openwave Systems Inc. Executive Compensation Deferral Plan (incorporated herein by reference to Exhibit 10.5 to the Company’s quarterly report on Form 10-Q filed February 8, 2006).
10.19*	Form of Openwave Systems Inc. Executive Compensation Deferral Plan Participation Agreement (incorporated herein by reference to Exhibit 10.6 to the Company’s quarterly report on Form 10-Q filed February 8, 2006).
10.20*	Form of Executive Change of Control Severance Agreement (incorporated herein by reference to Exhibit 10.01 to the Company’s current report on Form 8-K filed November 7, 2006).
10.21*	Openwave Systems Inc. 2006 Stock Incentive Plan (incorporated herein by reference to Exhibit 99.1 to the Company’s registration statement on Form S-8 filed February 14, 2007).
10.22*	Form of Subscription Agreement for 1999 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.2 to the Company’s quarterly report on Form 10-Q filed May 15, 2002).
10.23*	Severance and Release Agreement between the Company and Steve Peters effective August 25, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed August 31, 2006).
10.24*	Severance and Release Agreement between the Company and Allen Snyder effective November 28, 2006 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed December 4, 2006).
10.25	Master Confirmation letter agreement between the Company and Merrill Lynch International dated January 30, 2007 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed February 5, 2007).
10.26	Supplemental Confirmation between the Company and Merrill Lynch International dated January 30, 2007 (incorporated herein by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed February 5, 2007).

Exhibit Number	Description
10.27*	Severance & Release Agreement between the Company and David Peterschmidt effective June 11, 2007 (incorporated herein by reference to Exhibit (e)(15) to the Company’s Solicitation/Recommendation Statement on Schedule 14D-9 filed June 4, 2007).
10.28*	Severance & Release Agreement between the Company and Harold L. Covert dated July 31, 2007 (incorporated herein by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed August 2, 2007).
10.29*	Summary of At-Will Employment Arrangement between the Company and Robert Vrij as of March 22, 2007 (incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q filed May 11, 2007).
10.30*	Employment Agreement between the Company and Hari Haran dated April 10, 2007 (incorporated herein by reference to Exhibit (e)(11) to the Company’s Solicitation/Recommendation Statement on Schedule 14D-9 filed June 4, 2007).
10.31*	Employment Agreement between the Company and John Boden dated June 28, 2007.
10.32*	Employment Agreement between the Company and Jean-Yves Dexmier dated August 2, 2007 (incorporated herein by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed August 2, 2007).
10.33*	Openwave Systems Inc. Fiscal Year 2008 Corporate Incentive Plan.
21.1	Subsidiaries of the Company.
23.1	Consent of Independent Registered Public Accounting Firm.
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 to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications 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.

* Indicates a management contract or compensatory plan or arrangement

EX-10.31

Exhibit 10.31

June 28, 2007

John Boden

[Address]

Re: Offer of Employment

Dear John:

We are extremely pleased to offer you this opportunity to join Openwave Systems Inc. (“Openwave”) in the position of SVP, Product Management. You shall report to Robert Vrij and you will be based in Openwave’s Redwood City location. The following terms and conditions shall apply to your anticipated employment with Openwave.

1. Commencement of Employment with Company.

Your employment will commence on July 5, 2007 or on the first available date following your providing to Company proof of your eligibility to work in the United States. Please note that if we do not receive proof of your eligibility to work in the United States, your employment with the Company will not commence and will be terminated.

2. Base Compensation.

Your annual base salary will be USD 275,000. You will be paid semi-monthly on the 15th and the last working day of each month.

3. Incentive Compensation

You will be eligible for the following incentive compensation:

a. You shall be eligible for a quarterly incentive cash award from the Company under the Company’s Corporate Incentive Plan (“CIP”), based upon a target for each quarterly period which shall be 60% of your base salary actually earned for the three month performance period (i.e., $41,250 based upon your initial base salary). This amount will be pro-rated for your initial quarterly period. Under the terms of the CIP, your actual annual incentive cash award may be below, at, or above target (up to a maximum of 150% of your target, as pro-rated if applicable) and shall be determined based upon the Company’s achievement level against selected financial and performance objectives. The terms of the CIP, including the financial and performance objectives for the Company, shall be established for each performance period by the Compensation Committee in consultation with the Board of Directors of the Company.

4. Equity Awards.

Subject to the approval of the Stock Award Committee or the Compensation Committee of the Board of Directors, you will be granted an option to purchase 40,000 shares of Company common stock (the “Option”). The Option shall have an exercise price equal to the fair market value of the Company common stock on the date of grant (which shall be determined in the discretion of the Stock Award Committee or the Compensation Committee). The vesting commencement date shall be your employment commencement date. The shares will vest over four years with a one year cliff, meaning that one fourth of your shares will vest on the first anniversary of your vesting commencement date and the remaining shares will vest monthly thereafter on a ratable basis. Vesting will, of course, depend on your continued employment with Openwave. Any Option granted shall be subject to the terms of the Company’s policies and standard form of agreements.

Subject to the approval of the Stock Award Committee or the Compensation Committee of the Board of Directors of Openwave you will be granted a restricted stock award of 10,000 of Company common stock (the “Restricted Stock Award”). The Restricted Stock Award shall vest over four years in equal installments of 2,500 shares each on the four yearly anniversaries of the 15^th day of the second month of the quarter of which the Restricted Stock Award was granted by the Stock Award Committee of the Compensation Committee (i.e., if the grant date is in July, then 2,500 shares will vest on July 15, 2008, 2009, 2010 and 2011. All vesting for the Restricted Stock Award shall be contingent upon your continued employment with the Company on the applicable vesting date. Except as otherwise expressly set forth in this letter agreement, the Restricted Stock Award will be granted under and subject to the terms of the Company’s standard form of restricted stock purchase agreement.

You should be aware that you will incur federal and state income taxes as a result of your receipt or the vesting of the Restricted Stock Award, with the timing of such income contingent upon whether you timely make an election under Section 83(b) of the Internal Revenue Code of 1986, as amended (an “83(b) election”). It is entirely your choice whether you make an 83(b) election and you should consult with your own tax and financial advisors in that regard. The Company will not provide you with any assistance in paying your taxes on the Restricted Stock Award, regardless of whether or not you make an 83(b) election.

5. Insurance Plans.

You are also eligible to participate in our comprehensive employee benefit programs. You understand and agree that the Company reserves the right to unilaterally revise the terms of the employee benefit programs.

6. Relocation.

Openwave will assist you in your relocation to the Redwood City area as per the Company’s Relocation Policy. Please contact Charis Korpela, Account Executive with National Equity Inc. at +1 800 533 7353 x5308 to learn more about your relocation assistance package.

7. At Will Employment.

You should be aware that your employment with Company is for no specified period and constitutes “at will” employment. As a result, you, and/or the Company, each have the right to terminate the employment relationship at any time for any reason, with or without cause. This is the full and complete agreement between you and the Company regarding this term. Although your job duties, title, compensation and/or benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in a written amendment to this Agreement signed by you and an applicable officer of the Company.

8. Severance.

If your employment is terminated by the Company other than for Cause as defined in Addendum E, you shall be eligible to receive the severance and benefits described in the Company’s Executive Severance Benefit Policy and as consistent with applicable law. This paragraph and your participation in the Company’s Executive Severance Benefit Policy do not change or alter the at will nature of your employment relationship with the Company.

9. Components of Agreement.

Incorporated into this Agreement by reference are the following addendums (“Addendums”) and their attachments, each of which is a component of the Agreement.

Addendum A- Employment Requirements

Addendum B- Confidential Information and Inventions Assignment Agreement

Addendum C- Insider Trading Policy

Addendum D- Company Code of Conduct

Addendum E- Definition of Cause

Your acceptance of this Agreement represents a unique opportunity for both you and Company to grow and to succeed. We thank you for the commitment you have made to our common vision and look forward to working with you.

Sincerely,

Donna Goldstein

Director, HR Operations

I accept the offer of employment and terms stated in this Offer Letter and the accompanying Addendums and attachments.

Accepted:                                                                                                    Date:                     

                                John Boden

EX-10.33

Exhibit 10.33

Openwave Systems Inc.

Fiscal Year (FY) 2008

Corporate Incentive Plan (CIP)

Table of Contents

1.		Plan Objective	2
2.		Incentive Compensation Periods	2
	2.1 Performance Periods		2
3.		Incentive Compensation Payout	2
4.		Calculation Example	3
5.		CIP Replacement Bonus	3
6.		Plan Administration	3
	6.1 Eligibility		3
	6.2 Eligible Earnings		3
	6.3 Transfers between CIP and other Company incentive compensation plans		4
	6.4 Terminations		4
	6.5 Payout Timing		4
	6.6 Deductions		4
	6.7 Reservation of Right to Amend the Plan		4
	6.8 Company Authority and Employment at Openwave		4
	6.9 Key Contacts		4
7.		Plan Administration	5

Openwave Systems Inc. CIP FY2008 Page 1 of 5

Openwave Systems Inc.

Fiscal Year (FY) 2008

Corporate Incentive Plan (CIP)

1. Plan Objective

The primary objective of Openwave’s Corporate Incentive Plan (CIP) is to incent and reward employees for their contribution to the profitability and success of Openwave. Openwave is committed to sharing its success directly with the employees who make it possible. The CIP is designed to reward employees when the Company achieves certain financial objectives. Openwave believes its financial targets are most likely to be achieved when all employees work together and that teamwork will be the natural result of a corporate-based incentive compensation plan.

2. Incentive Compensation Periods

The CIP is an incentive plan, which will be funded only if the Company achieves certain financial and profitability objectives. These objectives are set out below in Section 3 and the success of the CIP is driven by the combined performance of all functional units as well as by individual contributions.

2.1 Performance Periods

Performance Periods under the FY2008 CIP are:

• Q1 FY2008: July 1, 2007 through September 30, 2007

• Q2 FY2008: October 1, 2007 through December 31, 2007

• Q3 FY2008: January 1, 2008 through March 31, 2008

• Q4 FY2008: April 1, 2008 through June 30, 2008

3. Incentive Compensation Payout

Actual Eligible Base Pay Earnings (for the Performance Period) X Target Incentive % X Company Performance Modifier = Payout

Note: Payout under the CIP is capped at a maximum payout of 150% of target incentive pay.

Where:

• Actual Eligible Base Pay Earnings refer to the gross base pay earnings for each Participant during the Performance Period.

• Target Incentive %—Incentive target opportunities are expressed as a percentage of the Actual Eligible Base Pay Earnings based on each Participant’s job framework level as follows:

Job Framework Level	Target Incentive %
H	35%
G	25%
E, F	15%
A, B, C, D	10%

• Company Performance Modifier

Company’s financial objectives are expressed through the Company Performance Modifier which is measured by Operating Profit and Revenue targets. The maximum percentage achievable under the Company Performance Modifier is 150%. The Company Performance Modifier is plotted on the following matrix:

Openwave Systems Inc. CIP FY2008 Page 2 of 5

Openwave Systems Inc.

Fiscal Year (FY) 2008

Corporate Incentive Plan (CIP)

Revenue Achievement %	<80%		80%		90%		100%		110%		125%
Percentage Payout Against Target	0	%	50	%	75	%	100	%	120	%	150	%
Operating Profit* Achievement %	<80	%	80	%	90	%	100	%	110	%	125	%
Percentage Payout Against Target	0	%	50	%	75	%	100	%	120	%	150	%
*Operating Profit is determined on a non-GAAP basis before CIP payout

The Company Performance Modifier is equal to:

Revenue % Payout Against Target x 50% + Operating Profit % Payout Against Target x 50%

Note: Modifiers for achievement over 100% will only be applied when Openwave is profitable at non-GAAP net income level (with the accelerated payouts included).

4. Calculation Example

Presume the following achievements:

• Q1 FY2008 Performance Period (July 1—September 31)

• Revenue Achievement % is at 100% of target, resulting in a payout at 100%

• Operating Profit Achievement % is at 105% of target, resulting in a payout at 110%

• The Company Performance Modifier is equal to:

100% x 50% + 110% x 50% = 105%

• Employee’s Annual Salary is $100,000 and Actual Eligible Base Pay Earnings for Q1 Performance Period is $25,000

Participant	Actual Eligible Base Pay Earnings for the Performance Period (Q1)	Job/Level	Target Incentive %	Target Incentive Amount	Company Performance Modifier	Actual Payout to Participant for Q1
Employee 1	$25,000	Software Engineer.5162C	10% (for Level C)	$2,500	105%	$2,625

Note: For FY2008, in the event that the company does not meet its revenue and operating profit targets for CIP, there will still be a CIP Replacement Bonus guaranteed quarterly pay out of 50% of CIP target.

5. CIP Replacement Bonus

For each quarter of FY2008, in the event the Company does not meet its revenue and operating profit targets under the CIP which would result in no CIP payouts, the Company will provide CIP eligible employees with a “CIP Replacement Bonus” equal to 50% of their CIP target for the applicable quarter. Please note—the CIP Replacement Bonus only applies for the FY2008 Corporate Incentive Plan Year.

6. Plan Administration

6.1 Eligibility

An employee will be considered as an eligible CIP Participant (“Participant”) if all of the following apply:

• Not a Participant under any other Openwave incentive compensation plan;

• Hired on or before last BUSINESS day of the first month of a Performance Period;

• Employed at the end of a Performance Period (employed on the last BUSINESS day of the performance period)—see paragraph 6.4 below.

6.2 Eligible Earnings

Each Participant’s payout opportunity is expressed as a percentage of the Participant’s Actual Eligible Base Pay Earnings. Participants hired within the first month of a Performance Period or on approved leave of absence during any part of the Performance Period will be eligible for a prorated payout based on the Participant’s Actual Eligible Base Pay Earnings for the Performance Period.

Openwave Systems Inc. CIP FY2008 Page 3 of 5

Openwave Systems Inc.

Fiscal Year (FY) 2008

Corporate Incentive Plan (CIP)

6.3 Transfers between CIP and other Company incentive compensation plans

Employees whose job change results in a change of plan eligibility (e.g. employee moving to/from the CIP to another Company incentive/sales compensation plan or vice versa) will be eligible for a CIP payout on a prorated basis, based on the time/length of service in a CIP eligible job.

6.4 Terminations

Participants will not be eligible for a CIP payout if a Participant’s employment is terminated for any reason, including but not limited to, voluntary resignation, reduction in force or termination for performance or cause before the last BUSINESS day of a Performance period (e.g. before September 28, 2007, December 28, 2007, March 28, 2008, June 27, 2008; if the last BUSINESS day of a Performance Period is a company’s recognized holiday, then the day before.)

Exception: if a Participant is terminated during a Performance Period and is thereafter rehired during the same Performance Period, the Participant will be credited with prior service and will be eligible for a payout based on the prorated eligible earnings during the Performance Period.

6.5 Payout Timing

Payouts from the Corporate Incentive Plan typically occur no later than 2 months after the end of the Performance Period.

In the event that a Participant dies during a Performance Period or prior to the CIP payout date, the Participant’s beneficiary or estate will be entitled to the payout, if any, that would have been attributable to the Participant.

6.6 Deductions

Local, state and federal withholding and tax deductions will be deducted from the gross CIP payout at the supplemental tax rate, as well as any other individual employee elections for deductions.

6.7 Reservation of Right to Amend the Plan

Openwave continues to undergo a thorough review of its corporate processes as part of Openwave’s commitment to fully comply with the Sarbanes Oxley Act. As Openwave continues to assess it’s compliance with the Sarbanes Oxley Act, it is understood that changes to Openwave’s processes may be required and that such changes may ultimately affect the Company’s incentive compensation payout process. In the event such changes are required for compliance with the Sarbanes Oxley Act, legal laws and/or relevant accounting principles, Openwave hereby reserves the right to amend this Plan as necessary to ensure compliance.

6.8 Company Authority and Employment at Openwave

Openwave may, upon 30 days notice to effected Participants, change or terminate this CIP.

Nothing in this CIP creates or is intended to create a promise or representation of continued employment or an expectation that any amount of compensation referred to in the Plan will be due to Participants.

6.9 Key Contacts

If you have any questions regarding this plan, please contact your manager or HR Business Partner.

Openwave Systems Inc. CIP FY2008 Page 4 of 5

Openwave Systems Inc.

Fiscal Year (FY) 2008

Corporate Incentive Plan (CIP)

7. Plan Administration

Q: My employee’s eligible earnings are less then her quarterly salary? Why?

A: There may be several reasons for that. The following events may be reducing eligible earnings:

- Unpaid Leave of Absence

- Hire date after the beginning of the performance period

- Transfers between the compensation plans (from or to Sales Incentive or other variable pay plans)

If your employees believe that their eligible earnings are incorrect, please ask them to login and check their payroll via Payroll Workcenter (US employees only—http://workcenter.probusiness.com/) and/or check with their payroll contacts in their respective countries. The following earnings codes are included in the Eligible Earnings calculation: Salary, Regular, Hourly, Unpaid (usually a negative number that will reduce your earnings), Retro, Vacation, Holiday and FloatHol. Please contact your HR Business Partner if any corrections need to be made.

Q: Does employee’s personal performance affect the size of the incentive payout?

A: Our financial targets can be achieved when all employees work together—so better teamwork can produce higher plan payouts for everybody. However, individual performance evaluations will not change the payout amount in the FY2008 plan.

Q: When will payouts from CIP occur?

A: Presuming the Corporate Incentive Plan pool is funded, payouts under the plan typically occur within two months following the end of the Performance Period.

Q: What happens if an employee changes jobs within the Company during the CIP Performance Period?

A: If the job change results in the change of the plan eligibility (e.g. move from a sales job to an engineering job), the eligible earnings will be prorated. If the job change results in the job framework level change, the target incentive % will be calculated based on the job framework level at the end of the Performance Period.

Q: What exactly does non-GAAP mean?

A: Openwave publicly reports its financial information in accordance with US Generally Accepted Accounting Principles (GAAP). To facilitate easier comparison of the company’s operating performance, Openwave also presents financial information that may be considered “non-GAAP financial measures”. The items that are classified as “non-GAAP financial measures” are non-operating in nature or non-recurring one-offs.

Q: Why are the modifiers for achievement over 100% only applied when Openwave is profitable at non-GAAP net income levels?

A: The reason we need to use the non-GAAP measures is to ensure that the company is profitable before we can pay out the multipliers. i.e. we take out non operating in nature or non recurring one-offs.

Q: If Openwave does not meet its targets for CIP, does this mean I still get some money?

A: Yes, we have in place a guaranteed CIP Replacement Bonus payout in the event that the company does not meet its revenue and operating profit targets for CIP and it amounts to 50% of your CIP Target. For example, if an eligible employee’s Actual Eligible Base Pay Earnings for the Performance Period (Q1) is $40,000 and his/her Openwave Corporate Bonus Program (“CIP”) Target Incentive Percentage is 25%, the employee’s guaranteed replacement bonus payout is ($40,000 x 25% x 50%) = $5,000.

Q: If we have a CIP payout, will I also be paid the guaranteed replacement bonus payout?

A: No, employees are eligible for either a CIP payout or the CIP replacement bonus payout. The CIP Replacement Bonus payment is only payable in the event the Company does not meet its revenue and operating profit targets and, as a result, there are no CIP payouts.

Openwave Systems Inc. CIP FY2008 Page 5 of 5

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF THE REGISTRANT

Openwave Systems (Argentina) S.R.L.	Argentina
Openwave Systems Pty Ltd	Australia
Openwave Systems Brasil Ltda	Brazil
Openwave Systems (Canada) Limited	Canada
Magic 4 France	France
Musiwave SA	France
Openwave Systems (France) SAS	France
Openwave Systems Holdings (France) SAS	France
Openwave Systems (Deutschland) GmbH	Germany
Musiwave Asia Limited	Hong Kong
Openwave Systems (H.K.) Ltd.	Hong Kong
Openwave Systems Service India Private Limited	India
Openwave Systems (Italia) S.r.l.	Italy
Nihon Openwave Systems K.K.	Japan
Openwave Systems Mexico S. de R.L. de C.V.	Mexico
Openwave Systems B.V.	Netherlands
Openwave Systems (New Zealand) Limited	New Zealand
Openwave Systems (Ireland) Limited	Northern Ireland
Openwave Systems (NI) Limited	Northern Ireland
Openwave Systems (ROI) Limited	Republic of Ireland
Openwave Systems (Singapore) Pte Ltd	Singapore
Openwave Systems (South Africa) (Pty) Limited	South Africa
Openwave Systems Co., Ltd.	South Korea
Openwave Systems (Espana), S.L.	Spain
Openwave Systems (Sweden) AB	Sweden
Openwave Systems (Switzerland) SARL	Switzerland
Openwave Systems Taiwan Limited	Taiwan
Magic4 Limited	United Kingdom
Openwave Systems (Europe) Limited	United Kingdom
Openwave Systems (Holdings) Limited	United Kingdom
Openwave Systems Limited	United Kingdom
Widerweb Limited	United Kingdom
Magic4 US Inc.	United States
Openwave Aries Inc.	United States
Openwave ScriptEase Inc.	United States
Openwave Systems International Holdings Inc.	United States
Openwave Systems International Inc.	United States
Openwave Technologies Inc.	United States
Paragon Software, Inc.	United States
Signalsoft Corporation	United States
Solomio Corporation	United States

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Openwave Systems Inc.:

We consent to the incorporation by reference in the registration statements on Form S-3 (No. 333-109547, 333-130042) and Form S-8 (Nos. 333-140691, 333-131008, 333-128926, 333-115081, 333-97925, 333-84522, 333-81215, 333-67200, 333-67186, 333-54726, 333-46142, 333-44926, 333-40850, 333-40840, 333-36832, 333-35394) of Openwave Systems Inc. of our reports dated August 29, 2007 with respect to the consolidated balance sheets of Openwave Systems Inc. and subsidiaries as of June 30, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years in the three-year period ended June 30, 2007, management’s assessment of the effectiveness of internal control over financial reporting as of June 30, 2007, and the effectiveness of internal control over financial reporting as of June 30, 2007, which reports appear in the June 30, 2007 annual report on Form 10-K of Openwave Systems Inc.

As discussed in Note 1(k) to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standard No. 123(R), Share Based Payments, on July 1, 2005.

/s/ KPMG LLP

Mountain View, California

August 29, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Robert Vrij, certify that:

        1.    I have reviewed this report on Form 10-K of Openwave Systems Inc.;

        2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

        3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

        4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

        5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 29, 2007

/S/    ROBERT VRIJ        

Robert Vrij

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Jean-Yves Dexmier, certify that:

        1.    I have reviewed this report on Form 10-K of Openwave Systems Inc.;

        2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

        3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

        4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

        5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 29, 2007

/S/    JEAN-YVES DEXMIER        

Jean-Yves Dexmier

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF 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

In connection with the Annual Report on Form 10-K of Openwave Systems Inc. for the fiscal year ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Robert Vrij, as Chief Executive Officer of Openwave Systems Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Openwave Systems Inc.

	By:	/S/    ROBERT VRIJ
August 29, 2007		Robert Vrij President and Chief Executive Officer

In connection with the Annual Report on Form 10-K of Openwave Systems Inc. for the fiscal year ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jean-Yves Dexmier, as Chief Financial Officer of Openwave Systems Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Openwave Systems Inc.

	By:	/S/    JEAN-YVES DEXMIER
August 29, 2007		Jean-Yves Dexmier Chief Financial Officer