OPENWAVE SYSTEMS INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2002

o	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

(State or other jurisdiction of incorporation or organization)

94-3219054

(I.R.S. Employer Identification No.)

1400 Seaport Blvd.

Redwood City, California 94063

(Address of principal executive offices, including zip code)

(650) 480-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

As of October 31, 2002 there were 179,419,244 shares of the registrant’s Common Stock outstanding.

OPENWAVE SYSTEMS INC. AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2002 and June 30, 2002	3
	Condensed Consolidated Statements of Operations for the three months ended September 30, 2002 and 2001	4
	Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2002 and 2001	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	40

PART II. Other Information

Item 1.	Legal Proceedings	40
Item 2.	Changes in Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Submission of Matters to a vote of Security Holders	41
Item 5.	Other Information	41
Item 6.	Exhibits and Reports on Form 8-K	41

SIGNATURES		42

CERTIFICATIONS		42

OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

			September 30, 2002			June 30, 2002

			(Unaudited)
Assets
Current Assets:
	Cash and cash equivalents		$	157,762		$	140,699
	Short-term investments			70,065			73,500
	Accounts receivable, net			111,495			96,571
	Prepaid and other current assets			11,443			9,917

		Total current assets		350,765			320,687
Property and equipment, net				78,200			77,559
Long-term investments, and restricted cash and investments				48,742			102,311
Deposits and other assets				13,373			10,976
Goodwill and other intangible assets, net				7,145			17,664

			$	498,225		$	529,197

Liabilities and Stockholders’ Equity
Current Liabilities:
	Accounts payable		$	8,528		$	4,926
	Accrued liabilities			55,776			48,442
	Accrued restructuring costs			39,985			5,751
	Deferred revenue			80,835			66,858

		Total current liabilities		185,124			125,977
	Accrued restructuring costs - long term			54,816			6,844
	Deferred rent obligations			2,917			3,480

		Total liabilities		242,857			136,301

Commitments and contingencies

Stockholders’ equity:
	Common stock			177			177
	Additional paid-in capital			2,755,129			2,757,317
	Deferred stock-based compensation			(4,187	)		(7,159	)
	Treasury stock			(38,087	)		(38,087	)
	Accumulated other comprehensive income			705			636
	Notes receivable from stockholders			(394	)		(557	)
	Accumulated deficit			(2,457,975	)		(2,319,431	)

		Total stockholders’ equity		255,368			392,896

			$	498,225		$	529,197

See accompanying notes to condensed consolidated financial statements

OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

			Three Months Ended September 30,

			2002			2001

Revenues:
	License		$	39,744		$	88,285
	Maintenance and support services			17,926			19,196
	Professional services			8,178			10,300
	Project revenues			5,310			—

		Total revenues		71,158			117,781

Cost of revenues:
	License			2,409			4,220
	Maintenance and support services			8,442			7,827
	Professional services			5,866			6,520
	Project costs			4,821			—

		Total cost of revenues		21,538			18,567

		Gross profit		49,620			99,214

Operating Expenses:
	Research and development			32,298			38,409
	Sales and marketing			34,422			47,754
	General and administrative			13,977			18,422
	Restructuring and other costs			83,335			—
	Stock-based compensation*			772			4,986
	Amortization and impairment of goodwill and other intangible assets			8,209			159,017
	In-process research and development			400			—
	Merger, acquisition and integration-related costs			244			570

		Total operating expenses		173,657			269,158

		Operating loss		(124,037	)		(169,944	)
Interest income and other, net				2,287			3,470

		Loss before provision for income taxes and cumulative effect of change in accounting principle		(121,750	)		(166,474	)
Income taxes				2,247			3,977

		Loss before cumulative effect of change in accounting principle		(123,997	)		(170,451	)
Cumulative effect of change in accounting principle				(14,547	)		—

		Net loss	$	(138,544	)	$	(170,451	)

Basic and diluted net loss per share:
	Before cumulative effect of change in accounting principle		$	(0.70	)	$	(0.99	)
	Cumulative effect of change in accounting principle			(0.09	)		—

Basic and diluted net loss per share			$	(0.79	)	$	(0.99	)

Shares used in computing basic and diluted net loss per share				176,226			171,352

*Stock-based compensation by category
	Research and development		$	63		$	2,882
	Sales and marketing			122			212
	General and administrative			587			1,892

			$	772		$	4,986

See accompanying notes to the condensed consolidated financial statements

OPENWAVE SYSTEMS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

				Three Months Ended September 30,

				2002			2001

Cash flows from operating activities:
	Net loss			$	(138,544	)	$	(170,451	)
	Adjustments to reconcile net loss to net cash used for operating activities:
		Depreciation and amortization			10,574			167,348
		Stock-based compensation			772			4,986
		Loss on sale of property and equipment			—			138
		Write-down of nonmarketable equity securities			—			263
		Provision for doubtful accounts			900			5,500
		Impairment of goodwill			7,287			—
		Cumulative effect of change in accounting principle			14,547			—
		In-process research and development			400			—
		Changes in operating assets and liabilities:
			Accounts receivable		(11,891	)		14,118
			Prepaid expenses and other assets		(1,055	)		(3,226	)
			Accounts payable		2,969			(10,596	)
			Accrued liabilities		(187	)		9,316
			Accrued restructuring costs		81,019

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