Opentv 10Q 2007 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2007


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: 001-15473

OPENTV CORP.

(Exact name of registrant as specified in its charter)


British Virgin Islands (State or other jurisdiction of incorporation or organization)		98-0212376 (I.R.S. Employer Identification No.)

275 Sacramento Street San Francisco, California (Address of principal executive offices)		94111 (Zip Code)

(415) 962-5000
(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 þ No o

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

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

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

As of June 30, 2007, the Registrant had outstanding (not including 76,327 Class A ordinary shares held in treasury):

108,457,777 Class A ordinary shares, no par value; and
30,206,154 Class B ordinary shares, no par value

TABLE OF CONTENTS


Part I. Financial Information		3
	Item 1. Financial Statements	3
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	32
	Item 4. Controls and Procedures	33
Part II. Other Information		34
	Item 1. Legal Proceedings	34
	Item 1A. Risk Factors	35
	Item 4. Submission of Matters to a Vote of Security Holders	35
	Item 6. Exhibits	36
Signature		37
Exhibit Index		38
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION

OpenTV, the OpenTV logo and our product names are trademarks or registered trademarks of OpenTV Corp. or its subsidiaries in the United States and other countries. Other product names mentioned herein may be trademarks or registered trademarks of their respective owners.

Part I. Financial Information

Item 1.Financial Statements

OPENTV CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30,			December 31,
	2007			2006 *
	(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	45,283		$	48,616
Short-term marketable debt securities		25,673			8,681
Accounts receivable, net of allowance for doubtful accounts of $593 and $348 at June 30, 2007 and December 31, 2006, respectively		18,551			20,560
Prepaid expenses and other current assets		5,985			5,799

Total current assets		95,492			83,656

Long-term marketable debt securities		3,146			7,928
Property and equipment, net		6,675			7,231
Goodwill		98,687			98,645
Intangible assets, net		15,075			18,477
Other assets		3,889			4,827

Total assets	$	222,964		$	220,764


LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,210		$	4,335
Accrued liabilities		13,848			17,020
Current portion of accrued restructuring		972			416
Current portion of deferred revenue		24,515			12,614

Total current liabilities		42,545			34,385

Long-term liabilities:
Taxes payable		1,767			1,920
Deferred rent		1,047			1,201
Accrued restructuring		1,097			1,954
Deferred revenue		8,294			12,987

Total long-term liabilities		12,205			18,062

Total liabilities		54,750			52,447

Commitments and contingencies (Note 11)

Minority interest		469			486

Shareholders’ equity:
Class A ordinary shares, no par value, 500,000,000 shares authorized; 108,534,104 and 107,906,960 shares issued and outstanding, including treasury shares, at June 30, 2007 and December 31, 2006, respectively		2,235,872			2,235,495
Class B ordinary shares, no par value, 200,000,000 shares authorized; 30,206,154 and 30,631,746 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively		35,953			35,953
Additional paid-in capital		499,122			491,630
Treasury shares at cost, 76,327 shares		(38	)		(38	)
Accumulated other comprehensive loss		(208	)		(261	)
Accumulated deficit		(2,602,956	)		(2,594,948	)

Total shareholders’ equity		167,745			167,831

Total liabilities, minority interest and shareholders’ equity	$	222,964		$	220,764


*		The condensed consolidated balance sheet at December 31, 2006 has been derived from the company’s audited consolidated financial statements at that date.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

OPENTV CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
	(In thousands, except share and per share amounts)
Revenues:
Royalties and licenses	$	14,066		$	14,743		$	31,927		$	31,114
Services and other		10,200			8,978			18,745			17,503

Total revenues		24,266			23,721			50,672			48,617
Cost of revenues:
Royalties and licenses		1,934			1,807			3,701			3,687
Services and other		11,063			9,332			21,421			18,251

Total cost of revenues		12,997			11,139			25,122			21,938

Gross profit		11,269			12,582			25,550			26,679
Operating expenses:
Research and development		8,000			7,654			16,863			16,017
Sales and marketing		2,993			3,297			5,889			5,950
General and administrative		4,777			4,266			10,291			9,614
Restructuring and impairment costs		(28	)		20			(28	)		20
Amortization of intangible assets		510			530			1,020			1,059

Total operating expenses		16,252			15,767			34,035			32,660

Loss from operations		(4,983	)		(3,185	)		(8,485	)		(5,981	)
Interest income		748			898			1,252			1,448
Other expenses		(123	)		(201	)		(50	)		(198	)
Minority interest		9			10			17			19

Loss before income taxes		(4,349	)		(2,478	)		(7,266	)		(4,712	)
Income tax expense		515			14			742			907

Net loss	$	(4,864	)	$	(2,492	)	$	(8,008	)	$	(5,619	)


Net loss per share, basic and diluted	$	(0.04	)	$	(0.02	)	$	(0.06	)	$	(0.04	)


Shares used in per share calculation, basic and diluted		138,659,811			137,392,075			138,576,223			136,684,318

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

OPENTV CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended June 30,
	2007			2006
	(In thousands)
Cash flows from operating activities:
Net loss	$	(8,008	)	$	(5,619	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property and equipment		1,972			1,539
Amortization of intangible assets		3,402			3,529
Share-based compensation		2,287			2,052
Non-cash employee compensation		76			42
Provision for doubtful accounts		245			(18	)
Loss on disposal of fixed assets		2			10
Minority interest		(17	)		(19	)
Changes in operating assets and liabilities:
Accounts receivable		1,764			(573	)
Prepaid expenses and other current assets		(186	)		1,594
Other assets		938			(1,387	)
Accounts payable		(1,125	)		(1,297	)
Accrued liabilities, taxes payable and deferred rent		(3,479	)		494
Accrued restructuring		(301	)		(232	)
Deferred revenue		7,208			1,520

Net cash provided by operating activities		4,778			1,635

Cash flows from investing activities:
Purchase of property and equipment		(1,391	)		(1,668	)
Proceeds from sale of marketable debt securities		6,995			6,800
Purchase of marketable debt securities		(19,186	)		(6,555	)

Net cash used in investing activities		(13,582	)		(1,423	)

Cash flows from financing activities:
Repurchase of employee stock options		(167	)		—
Capital contribution from the controlling shareholder		5,395			—
Proceeds from issuance of ordinary shares		236			772

Net cash provided by financing activities		5,464			772

Effect of exchange rate changes on cash and cash equivalents		7			(214	)

Net increase (decrease) in cash and cash equivalents		(3,333	)		770

Cash and cash equivalents, beginning of period		48,616			47,229

Cash and cash equivalents, end of period	$	45,283		$	47,999


Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	(1,004	)	$	(340	)


Non-cash investing and financing activities:
Conversion of exchangeable shares	$	42		$	17,491

Value of bonus shares issued to employees	$	—		$	2,658

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

OPENTV CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

In the opinion of management, the unaudited condensed consolidated interim financial statements included herein have been prepared on the same basis as our December 31, 2006 audited consolidated financial statements and include all adjustments, consisting of only normal reoccurring adjustments, necessary to fairly state the information set forth within. As it relates to condensed financial statements, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for the interim period financial statements. These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of OpenTV Corp., sometimes referred to herein as OpenTV, together with its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the 2007 presentation.

Use of Estimates

Preparation of the accompanying unaudited condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ materially from these estimates.

Note 2. Summary of Significant Accounting Policies

Income Taxes

On January 1, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation No. 48,“Accounting for Uncertainty in Income Taxes”(FIN 48), an interpretation of Statement of Financial Accounting Standards (SFAS) No. 109,“Accounting for Income Taxes.”FIN 48 clarifies the recognition threshold and measurement of a tax position taken on a tax return. FIN 48 also requires expanded disclosure with respect to the uncertainty in income taxes.

The adoption did not result in an adjustment to accumulated deficit. See Note 10 for further detail regarding the adoption of this interpretation.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measures”(SFAS 157). SFAS 157 provides guidance for using fair value to measure assets and liabilities and applies whenever other standards require or permit assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We do not expect SFAS 157 to have a material impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS Statement No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115”(SFAS 159). SFAS 159 provides the option to report certain financial assets and liabilities at fair value, with the intent to mitigate volatility in financial reporting that can occur when related assets and liabilities are recorded on different bases. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We do not expect SFAS 159 to have a material impact on our consolidated financial statements.

Note 3. Net Loss Per Share

Basic and diluted net loss per share were computed using the weighted average number of ordinary shares outstanding during the periods presented. The following weighted items as of June 30, 2007 and 2006 were not included in the computation of diluted net loss per share because the effect would be anti-dilutive:


	Three Months Ended June 30,		Six Months Ended June 30,
	2007	2006	2007	2006
Class A ordinary shares issuable upon exercise of stock options	8,323,290	10,604,009	8,807,548	10,226,512

Class A ordinary shares issuable for shares of OpenTV, Inc.
Class A common stock (including shares of OpenTV, Inc.
Class A common stock issuable upon exercise of stock options)	671,510	731,865	677,038	733,708

Class B ordinary shares issuable for shares of OpenTV, Inc.
Class B common stock	—	—	—	168,773

Had such items been included in the calculation of diluted net loss per share, shares used in the calculation would have been increased by approximately 1.0 million and 3.5 million for the three months ended June 30, 2007 and 2006, respectively, and 1.0 million and 2.8 million for the six months ended June 30, 2007 and 2006, respectively.

Note 4. Goodwill

Minority shareholders of OpenTV, Inc., which is a subsidiary of ours that is not publicly traded, have the ability, under certain arrangements, to exchange their shares of OpenTV, Inc. for our shares, generally on a one-for-one basis. As the shares are exchanged, they are accounted for at fair value. This accounting effectively provides that at each exchange date, the exchange is accounted for as a purchase by us of a minority interest in OpenTV, Inc., valued at the number of our Class A ordinary shares issued to effect the exchange multiplied by the market price of a Class A ordinary share on that date.

As of December 31, 2005, Sun Microsystems, Inc. (Sun) beneficially owned 7,594,796 shares of OpenTV, Inc. Class B common stock. On January 4, 2006, Sun exercised its right to exchange those Class B shares in OpenTV, Inc. for the same number of our Class B ordinary shares. As a result of applying purchase accounting to this exchange, we recorded an additional $17.4 million of goodwill in the three months ended March 31, 2006. On April 6, 2006, Sun converted its Class B ordinary shares into Class A ordinary shares.

Note 5. Intangible Assets

The components of intangible assets, net, excluding goodwill, were as follows (in thousands):


			June 30, 2007							December 31, 2006
	Useful		Gross					Net		Net
	life in		Carrying		Accumulated			Carrying		Carrying
	years		Amount		Amortization			Amount		Amount
Intangible assets:
Patents		5-13	$	18,402	$	(8,501	)	$	9,901	$	10,872
Developed technologies		3-5		11,300		(8,608	)		2,692		4,103
Contracts and relationships		5		9,800		(7,479	)		2,321		3,302
Trademarks		4		300		(139	)		161		200

			$	39,802	$	(24,727	)	$	15,075	$	18,477

The intangible assets are being amortized on a straight-line basis over their estimated useful lives. Aggregate amortization of intangible assets was $1.7 million and $1.8 million for the three months ended June 30, 2007 and 2006, respectively, and $3.4 million and $3.5 million for the six months ended June 30, 2007 and 2006, respectively. Of the aggregate amount, $1.2 million and $1.3 million were reported in cost of revenues (royalties and licenses) in the statement of operations, for the three months ended June 30, 2007 and 2006, respectively, and $2.4 million for each of the six months ended June 30, 2007 and 2006.

The future annual amortization expense is expected to be as follows (in thousands):


	Amortization
Year Ending December 31,	Expense
2007 (remaining six months)	$	2,474
2008		3,323
2009		1,796
2010		1,513
2011		1,058
2012		1,081
Thereafter		3,830

	$	15,075

Note 6. Restructuring and Impairment Costs

We continuously monitor our organizational structure and associated operating expenses. Depending upon events and circumstances, actions may be taken to restructure the business. Restructuring activities could include terminating employees, abandoning excess leased space and incurring other exit costs. Restructuring costs are recorded in accordance with SFAS No. 146,“Accounting for Costs Associated with Exit or Disposal Activities”(SFAS 146). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Any resulting restructuring accrual depends on numerous estimates made by management, which are developed based on management’s knowledge of the activity being affected and the cost to exit existing commitments. These estimates could differ from actual results. We monitor the initial estimates periodically and record adjustments for any significant changes.

The following sets forth the restructuring activity during the six months ended June 30, 2007 (in thousands):


	Employee
	Severance			Excess
	and Benefits			Facilities			Total
Accrued restructuring as of December 31, 2006	$	1,001		$	1,369		$	2,370

Cash payments		(205	)		(28	)		(233	)
Reclassification to lease expenses		—			34			34

Accrued restructuring as of March 31, 2007	$	796		$	1,375		$	2,171

Cash payments		(46	)		(52	)		(98	)
Interest accretion expense		24			—			24
Adjustment of original estimate		(28	)		—			(28	)

Accrued restructuring as of June 30, 2007	$	746		$	1,323		$	2,069

The outstanding accrual for employee severance and benefits as of June 30, 2007 is expected to be paid and reduced to zero by the first quarter of 2008. The outstanding accrual for excess facilities relates to operating lease obligations, which expire in 2016.

Note 7. Employee Bonus

During the three months ended March 31, 2007, we had paid approximately $5.1 million in cash to our employees as a bonus for achievement of company and individual performance objectives in 2006. This amount was fully accrued as of December 31, 2006.

During the three months ended March 31, 2006, we paid approximately $0.2 million in cash to our employees as a bonus for achievement of company and individual in performance objective in 2005. During the three months ended June 30, 2006, we paid the full remaining 2005 bonus net of withholding taxes in the form of

935,664 shares of our Class A ordinary shares with an aggregate value of $2.7 million (based on the closing price for our Class A ordinary shares on the issuance date) to our employees in the United States and the United Kingdom and cash in our other foreign jurisdictions. In connection with that issuance, we also reserved for issuance an additional equivalent number of shares under our 2005 Incentive Plan as contemplated by the terms of that plan.

Note 8. Other Comprehensive Loss

The components of other comprehensive loss, net of tax, were as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Reported net loss	$	(4,864	)	$	(2,492	)	$	(8,008	)	$	(5,619	)
Other comprehensive gains / (losses):
Foreign currency translation gains / (losses)		37			95			34			(102	)
Unrealized gains / (losses) on available-for-sale investments, net of income taxes		(2	)		(19	)		19			(28	)

Total comprehensive loss	$	(4,829	)	$	(2,416	)	$	(7,955	)	$	(5,749	)

Note 9. Share-based Compensation Plans

Employee Stock Purchase Plan

We have an Amended and Restated 1999 Employee Stock Purchase Plan, or ESPP. Our board of directors suspended the ESPP in 2003 and no options or purchase rights are currently outstanding under the ESPP. In the event our board of directors elects to commence offering periods under our ESPP in the future, the number of Class A ordinary shares issuable under the ESPP will, pursuant to the terms of the ESPP, be reset at 500,000 each successive December 31 through calendar year 2008, in each case for issuances during the following year.

Option Plans

Options are currently outstanding under the following plans: (i) the Amended and Restated OpenTV Corp. 1999 Share Option/Share Issuance Plan (1999 Plan); (ii) the Amended and Restated OpenTV, Inc. 1998 Option/Stock Issuance Plan (1998 Plan); (iii) the OpenTV Corp. 2001 Nonstatutory Stock Option Plan (2001 Plan); (iv) the OpenTV Corp. 2003 Incentive Plan (2003 Plan); (v) the OpenTV Corp. 2005 Incentive Plan (2005 Plan); (vi) option plans relating to outstanding options assumed in connection with the Spyglass merger (collectively, the “Assumed Spyglass Plan”); and (vii) option plans relating to outstanding options assumed in connection with the ACTV merger (collectively, the “Assumed ACTV Plan”).

As a result of our stockholders’ approval of the 2005 Plan on November 10, 2005, no further awards will be granted under the 1999 Plan, 2001 Plan or 2003 Plan. The 1999 Plan, 2001 Plan and 2003 Plan will remain in existence for the sole purpose of governing the outstanding options until such time as such options expire or have been exercised or cancelled. Options or shares awarded under the 1999 Plan, 2001 Plan or 2003 Plan that are forfeited or cancelled will no longer be available for future issuance.

2005 Plan

We currently issue options from the 2005 Plan. The compensation and nominating committee of our board of directors administers the 2005 Plan. The compensation and nominating committee has the discretion to determine grant recipients, the number and exercise price of stock options, and the number of stock appreciation rights, restricted stock or stock units issued under the 2005 Plan. The options may be incentive stock options or non-statutory stock options. Consistent with the foregoing, options under the 2005 Plan have been granted at an exercise price equal to the fair market value on the date of grant and vest 25% after one year from the date of grant and 1/48th over each of the next 36 months. The term of the options generally is 10 years from the date of grant. Unexercised options generally expire ninety days after termination of employment and are then returned to the pool and available for reissuance. A total of 6,935,664 Class A ordinary shares have been reserved for issuance under the 2005 Plan since its inception, and as of June 30, 2007, options to purchase 2,146,027 Class A ordinary shares were outstanding under the 2005 Plan, and 3,793,296 shares were available for future grant.

1999 Plan

Options that were issued under the 1999 Plan were generally granted at an exercise price equal to the fair market value on the date of grant and vested 25% after 12 months of continuous service with us and 1/48th over each of the next 36 months. The term of the options generally was 10 years from the date of grant. Unexercised options generally expired three months after termination of employment with us. A total of 8,980,000 Class A ordinary shares were reserved for issuance under the 1999 Plan, and as of June 30, 2007, options to purchase 2,329,414 Class A ordinary shares were outstanding under the 1999 Plan.

1998 Plan

Effective as of October 23, 1999, options to purchase 5,141,114 shares of Class A common stock of OpenTV, Inc. under the 1998 Plan were assigned to and assumed by us and these options thereafter represented the right to purchase under the 1999 Plan an identical number of our Class A ordinary shares. The remainder of the options then outstanding under the 1998 Plan were not assigned to and assumed by us. OpenTV, Inc. no longer issues options from the 1998 Plan. The 1998 Plan will remain in existence for the sole purpose of governing those remaining outstanding options until such time as such options have expired or been exercised and the underlying shares have become transferable by the holders. Options or shares awarded under the 1998 Plan that are forfeited or cancelled will no longer be available for issuance. As of June 30, 2007, options to purchase 62,000 shares of OpenTV, Inc.’s Class A common stock were outstanding under the 1998 Plan.

2001 Plan

Options that were issued under the 2001 Plan were generally granted at an exercise price equal to the fair market value on the date of grant and vested 25% after one year from the date of grant and 1/48th over each of the next 36 months. The term of the options generally was 10 years from the date of grant. Unexercised options generally expired ninety days after termination of employment with us. A total of 500,000 Class A ordinary shares were reserved for issuance under the 2001 Plan, and as of June 30, 2007, options to purchase 143,734 Class A ordinary shares were outstanding under the 2001 Plan.

2003 Plan

Options that were issued under the 2003 Plan were generally granted at an exercise price equal to the fair market value on the date of grant and, for grants made through the end of 2004, vested 25% after two years from the date of grant and 25% yearly thereafter for the following three years. In 2005, we revised the vesting schedule to be consistent with the schedule generally applicable under the 1999 and 2001 Plans. The term of the options generally was 10 years from the date of grant. Unexercised options generally expired ninety days after termination of employment with us. A total of 5,000,000 Class A ordinary shares were reserved for issuance under the 2003 Plan. As of June 30, 2007, options to purchase 1,970,521 Class A ordinary shares were outstanding under the 2003 Plan.

Assumed Plans

The options of the Assumed Spyglass Plan were converted as a result of the Spyglass acquisition into options to purchase our Class A ordinary shares. As of June 30, 2007, options to purchase 92,734 Class A ordinary shares were outstanding.

The options of the Assumed ACTV Plan were converted as a result of the ACTV acquisition into options to purchase our Class A ordinary shares. As of June 30, 2007, options to purchase 137,780 Class A ordinary shares were outstanding.

The options from the Assumed Spyglass Plan and Assumed ACTV Plan that are forfeited or cancelled will no longer be available for issuance. No new options will be granted under either the Assumed Spyglass Plan or the Assumed ACTV Plan.

Restricted Shares

On March 13, 2007, we entered into an employment agreement with Alan A. Guggenheim pursuant to which Mr. Guggenheim agreed to serve as our chief executive officer. Pursuant to Mr. Guggenheim’s employment agreement, we issued Mr. Guggenheim 60,000 Class A ordinary shares on the date of the employment agreement. In addition, pursuant to such agreement, we will issue 61,000 Class A ordinary shares on the second anniversary of the employment agreement, 62,000 Class A ordinary shares on the third anniversary of the employment agreement, and 65,000 Class A ordinary shares on all subsequent anniversaries of the employment agreement. All of such Class A ordinary shares will be fully vested upon issuance, but will be restricted from sale or transfer until the earlier of: the third anniversary of the date of such issuance, the one year anniversary of termination of the employment agreement other than “for cause,” death, or disability or the termination of the employment agreement as a result of Mr. Guggenheim’s death or disability.

Impact of the Adoption of SFAS 123(R)

The impact on our results of operations of recording share-based compensation for the three and six months ended June 30, 2007 and 2006 was as follows (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2007			2006		2007		2006
Stock options:
Cost of revenues — services and other	$	119		$	153	$	260	$	337
Research and development		154			179		349		395
Sales and marketing		126			147		263		323
General and administrative		791			502		1,127		997

		1,190			981		1,999		2,052

Restricted shares:
General and administrative		(18	)		—		288		—

	$	1,172		$	981	$	2,287	$	2,052

Cash received from option exercises under all share-based compensation plans was nominal for the three months ended June 30, 2007 and was approximately $0.7 million for the three months ended June 30, 2006. Cash received from option exercises under all share-based compensation plans was approximately $0.2 million and $0.8 million for the six months ended June 30, 2007 and June 30, 2006, respectively. No income tax benefit was recognized in the statement of operations for share-based compensation costs. No share-based compensation costs were capitalized for the three and six months ended June 30, 2007 and 2006. On June 27, 2007, we repurchased 1,150,000 stock options for $167,000 from a former executive officer in connection with his departure.

Valuation Assumptions

We calculated the fair value of each option award on the date of grant using the Black-Scholes valuation model. The following assumptions were used for each respective period:


	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Risk-free interest rates		4.52% - 5.10	%		4.82% - 5.22	%		4.44% - 5.10	%		4.28% - 5.22	%
Average expected lives (months)		65			63			65			63
Dividend yield		—			—			—			—
Expected volatility		69	%		81% - 84	%		69% - 74	%		81% - 85	%

Our computation of expected volatility for the three and six months ended June 30, 2007 and 2006 was based on historical volatility of our stock price. Our computation of expected life in the three and six months ended June 30, 2007 and 2006 was determined based on historical experience of similar awards, giving consideration to the contractual terms of the share-based awards, vesting schedules and expectations of future employee behavior. The interest rate for periods within the contractual life of the award is based on the similar United States Treasury yield curve in effect at the time of grant. While we believe that these assumptions are reasonable, actual experience may differ materially from these assumptions.

Share-based Payment Award Activity

The following table summarizes activity under our equity incentive plans:


	Shares			Number of
	Available for			Shares								Weighted Average
	Grant			Outstanding			Exercise Price					Exercise Price
Balance, December 31, 2006		3,940,300			9,680,385							$	5.04
Options granted		(112,300	)		112,300		$	2.34	-	$	2.72	$	2.51
Restricted shares granted		(60,000	)		—		$	2.65				$	2.65
Options exercised		—			(109,000	)	$	1.05	-	$	1.78	$	1.75
Options forfeited		150,886			(349,137	)	$	1.51	-	$	4.00	$	3.32
Options expired		—			(307,677	)	$	1.63	-	$	54.25	$	4.35

Balance, March 31, 2007		3,918,886			9,026,871							$	5.14

Options granted		(254,400	)		254,400		$	2.12	-	$	2.56	$	2.27
Options exercised		—			(15,052	)	$	1.51	-	$	2.29	$	1.77
Options forfeited		128,810			(738,633	)	$	1.51	-	$	3.94	$	2.89
Options expired		—			(1,645,376	)	$	1.63	-	$	54.25	$	7.45

Balance, June 30, 2007		3,793,296			6,882,210							$	4.73

The following table summarizes information with respect to options outstanding at June 30, 2007:


					Options Outstanding						Options Currently Exercisable
							Weighted Average
					Number		Remaining		Weighted Average		Number		Weighted Average
Exercise Price					Outstanding		Contractual Life		Exercise Price		Exercisable		Exercise Price
$	0.33	-	$	2.12		773,581		3.58	$	1.33		611,290	$	1.15
$	2.13	-	$	2.69		557,611		8.21	$	2.42		129,910	$	2.39
$	2.70	-	$	2.70		1,258,672		7.35	$	2.70		784,606	$	2.70
$	2.72	-	$	2.82		363,757		7.99	$	2.77		169,416	$	2.77
$	2.84	-	$	2.84		1,728,797		7.79	$	2.84		702,953	$	2.84
$	2.85	-	$	2.99		694,729		6.67	$	2.97		306,412	$	2.98
$	3.00	-	$	6.00		843,721		6.48	$	4.31		472,500	$	4.88
$	6.04	-	$	81.00		657,342		3.05	$	22.55		657,342	$	22.55
$	82.06	-	$	82.06		3,000		2.76	$	82.06		3,000	$	82.06
$	88.00	-	$	88.00		1,000		2.42	$	88.00		1,000	$	88.00

						6,882,210		6.55	$	4.73		3,838,429	$	6.25

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing price of our Class A ordinary shares. Aggregate intrinsic value is not equivalent to the value determined by the Black Scholes valuation model.

Vested and Unvested Options

The aggregate intrinsic value of all vested and unvested options outstanding as of June 30, 2007 was approximately $0.6 million, based on the closing price of our Class A ordinary shares on June 29, 2007, which was $2.12.

Exercisable Options

The aggregate intrinsic value of options currently exercisable as of June 30, 2007 was approximately $0.6 million, based on the closing price of our Class A ordinary shares on June 29, 2007, which was $2.12. The weighted average remaining contractual life of currently exercisable options, calculated from June 30, 2007, is 5.29 years.

Vested and Expected-to-Vest Options

The number of options vested and expected-to-vest as of June 30, 2007 was 5,812,997, the weighted-average exercise price of which was $5.08. The aggregate intrinsic value of options vested and expected-to-vest as of June 30, 2007 was $0.6 million, based on the closing price of our Class A ordinary shares on June 29, 2007, which was $2.12. The weighted average remaining contractual life of options vested and expected-to-vest as of June 30, 2007 was 6.24 years.

The number of restricted shares vested and expected to vest as of June 30, 2007 was 121,000.

Intrinsic Value

The aggregate intrinsic value of options exercised under our stock option plans, determined as of the date of option exercise, was nominal for the three months ended June 30, 2007, and was $0.5 million for the three months ended June 30, 2006, and was $0.1 million and $0.5 million for the six months ended June 30, 2007 and June 30, 2006, respectively.

Weighted Average Grant-date Fair Value

The weighted average grant-date fair value of options granted was $1.43 and $2.06 per share for grants in the three months ended June 30, 2007 and 2006, respectively, and $1.50, and $2.06 per share for grants in the six months ended June 30, 2007 and 2006, respectively.

Unrecognized Compensation Expense

As of June 30, 2007, there was approximately $2.8 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements granted under our option plans. That cost is expected to be recognized over a weighted-average period of 2.09 years.

Note 10. Income Taxes

On January 1, 2007, we adopted FIN 48, an interpretation of SFAS No. 109. FIN 48 clarifies the recognition threshold and measurement of a tax position taken on a tax return. FIN 48 also requires expanded disclosure with respect to the uncertainty in income taxes. The adoption did not result in an adjustment to accumulated deficit. The total gross amount of unrecognized tax benefits as of the date of adoption was $2.6 million. Of this total, $1.7 million represents the amount that, if recognized, would favorably affect our income tax rate in future periods. As a result of the implementation of FIN 48, we reclassified $1.7 million of unrecognized tax benefits as of December 31, 2006, from current liabilities to long-term liabilities.

We are subject to U.S. federal income tax as well as income tax of multiple foreign and state jurisdictions. We have substantially concluded all U.S. federal income tax matters for years through 1998. We have substantially concluded all material state and local, and foreign income tax matters for years through 1999.

We have significant net operating loss carryforwards that are subject to certain Section 382 limitations as a result of past changes in ownership as defined by federal and state law. Certain of these attributes will never be utilized, and we have therefore removed them from our disclosures and our deferred tax assets.

We classify interest and penalties associated with our uncertain tax positions as a component of income tax expense. As of January 1, 2007, we had accrued approximately $0.4 million of interest expense associated with our uncertain tax positions. As a result of the implementation of FIN 48, we reclassified $0.2 million of accrued interest expense associated with our uncertain tax positions as of December 31, 2006, from current liabilities to long-term liabilities. For the three and six months ended June 30, 2007, the interest and penalties net of deferred tax benefit that we recognized as part of income tax expense were not material.

Note 11. Commitments and Contingencies

Operating Leases

We lease our facilities from third parties under operating lease agreements or sublease agreements in the United States, Europe and Asia Pacific. These leases expire between January 2008 and May 2012. Total rent expense was $1.2 million and $1.3 million for the three months ended June 30, 2007 and 2006, respectively, and $2.4 million for the six months ended June 30, 2007 and 2006, respectively. The sublease income was nominal for the three and six months ended June 30, 2007. There was no sublease income for the three and six months ended June 30, 2006.

Future minimum payments under non-cancelable operating leases as of June 30, 2007 were as follows (in thousands):


	Minimum
Year ending December 31,	Commitments
2007 (remaining six months)	$	2,851
2008		5,235
2009		4,338
2010		1,151
2011		596
Thereafter		181

	$	14,352

We have the right to terminate, without penalty, two of our operating leases prior to their scheduled expiration. If we exercised those early termination rights beginning in 2008, our future minimum lease commitments would be reduced by an aggregate of $6.6 million over the current remaining life of those leases. We have not yet made any determination as to whether we intend to exercise any of those rights. If we did exercise any such rights, while our commitments under those specific leases would be reduced, we might also be required to lease additional space to conduct our business and we cannot be certain, at this time, whether any such actions would possibly result in a net increase in our future minimum lease commitments.

Other Commitments

In the ordinary course of business we enter into various arrangements with vendors and other business partners for bandwidth, marketing, and other services. Future minimum purchase commitments under these arrangements as of June 30, 2007 were $0.7 million for the remaining six months of 2007, and $0.4 million for the year ending December 31, 2008.

As of June 30, 2007, we had three standby letters of credit aggregating approximately $1.2 million, two of which were issued to landlords of our leased properties, and one of which was issued to a sublessee at our New York facility, which we had vacated in the second quarter of 2005. We pledged two certificates of deposit aggregating approximately $1.4 million, which are included under long-term marketable debt securities, as collateral in respect of these standby letters of credit.

Contingencies

OpenTV, Inc. v. Liberate Technologies, Inc.On February 7, 2002, OpenTV, Inc., our subsidiary, filed a lawsuit against Liberate Technologies, Inc. alleging patent infringement in connection with two patents held by OpenTV, Inc. relating to interactive technology. The lawsuit is pending in the United States District Court for the Northern District of California. On March 21, 2002, Liberate Technologies filed a counterclaim against OpenTV, Inc. for alleged infringement of four patents allegedly owned by Liberate Technologies. Liberate Technologies has since dismissed its claims of infringement on two of those patents. In January 2003, the District Court granted two of OpenTV, Inc.’s motions for summary judgment pursuant to which the court dismissed Liberate Technologies’ claim of infringement on one of the remaining patents and dismissed a defense asserted by Liberate Technologies to OpenTV, Inc.’s infringement claims, resulting in only one patent of Liberate Technologies remaining in the counterclaim. The District Court issued a claims construction ruling for the two OpenTV patents and one Liberate patent remaining in the suit on December 2, 2003.

In April 2005, Liberate sold substantially all of the assets of its North American business to Double C Technologies, a joint venture between Comcast Corporation and Cox Communications, Inc. In connection with that transaction, Liberate and Double C Technologies indicated in a filing with the United States District Court that Double C Technologies had assumed all liability related to this litigation. On May 24, 2007, the Court referred the parties to non-binding mediation before a magistrate judge in the Northern District of California. On June 19, 2007, the magistrate judge scheduled a settlement conference for October 1, 2007. In addition, the parties were ordered to exchange settlement proposals and to meet and confer in person regarding such proposals on or before September 7, 2007.

We continue to believe that our lawsuit is meritorious and intend to continue vigorously pursuing prosecution of our claims. In addition, we believe that we have meritorious defenses to the counterclaims brought against OpenTV, Inc. and will defend ourselves vigorously. No provision has been made in our consolidated financial statements for this matter. We are unable to predict the likelihood of a favorable outcome or estimate our potential liability, if any, in respect of any potential counterclaims if litigated to conclusion.

Initial Public Offering Securities Litigation.In July 2001, the first of a series of putative securities class actions was filed in the United States District Court for the Southern District of New York against certain investment banks which acted as underwriters for our initial public offering, us and various of our officers and directors. In November 2001, a similar securities class action was filed in the United States District Court for the Southern District of New York against Wink Communications and two of its officers and directors and certain investment banks which acted as underwriters for Wink Communications’ initial public offering. We acquired Wink Communications in October 2002. The complaints allege undisclosed and improper practices concerning the allocation of initial public offering shares, in violation of the federal securities laws, and seek unspecified damages on behalf of persons who purchased OpenTV Class A ordinary shares during the period from November 23, 1999 through December 6, 2000 and Wink Communications’ common stock during the period from August 19, 1999 through December 6, 2000. Other actions have been filed making similar allegations regarding the initial public offerings of more than 300 other companies. All of these lawsuits have been coordinated for pretrial purposes asIn re Initial Public Offering Securities Litigation, 21 MC 92 (SAS). Defendants in these cases filed an omnibus motion to dismiss on common pleading issues. All claims against our and Wink Communications’ officers and directors have been dismissed without prejudice in this litigation pursuant to the parties’ stipulation approved by the Court on October 9, 2002. On February 19, 2003, the Court denied in part and granted in part the omnibus motion to dismiss filed on behalf of defendants, including us and Wink Communications. The Court’s order dismissed all claims against us and Wink Communications except for a claim brought under Section 11 of the Securities Act of 1933.

In June 2004, a stipulation of settlement and release of claims against the issuer defendants, including us and Wink Communications, was submitted to the court for approval. On August 31, 2005, the court preliminarily approved the settlement. In December 2006, the appellate court overturned the certification of classes in the six test cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceedings. Because class certification was a condition of the settlement, it was unlikely that the settlement would receive final Court approval. On June 25, 2007, the Court entered an order terminating the proposed settlement based upon a stipulation among the parties to the settlement. Plaintiffs have indicated that they will seek to amend their allegations and file amended complaints. It is uncertain whether there will be any revised or future settlement.

We believe that we have meritorious defenses to the claims asserted against us and will defend ourselves vigorously. No provision has been made in our condensed consolidated financial statements for this matter. We are unable to predict the likelihood of an unfavorable outcome or estimate our potential liability, if any.

Broadcast Innovation Matter.On November 30, 2001, a suit was filed in the United States District Court for the District of Colorado by Broadcast Innovation, L.L.C., or BI, alleging that DIRECTV, Inc., EchoStar Communications Corporation, Hughes Electronics Corporation, Thomson Multimedia, Inc., Dotcast, Inc. and Pegasus Satellite Television, Inc. are infringing certain claims of United States patent no. 6,076,094, assigned to or licensed by BI. DIRECTV and certain other defendants settled with BI on July 17, 2003. We are unaware of the specific terms of that settlement. Though we are not currently a defendant in the suit, BI may allege that certain of our products, possibly in combination with the products provided by some of the defendants, infringe BI’s patent. The agreement between OpenTV, Inc. and EchoStar includes indemnification obligations that may be triggered by the litigation. If liability is found against EchoStar in this matter, and if such a decision implicates our technology or products, EchoStar has notified OpenTV, Inc. of its expectation of indemnification, in which case our business performance, financial position, results of operations or cash flows may be adversely affected. Likewise, if OpenTV, Inc. were to be named as a defendant and it is determined that the products of OpenTV, Inc. infringe any of the asserted claims, and/or it is determined that OpenTV, Inc. is obligated to defend EchoStar in this matter, our business performance, financial position, results of operations or cash flows may be adversely affected. On November 7, 2003, BI filed suit against Charter Communications, Inc. and Comcast Corporation in United States District Court for the District of Colorado, alleging that Charter and Comcast also infringe the ’094 patent. The agreements between Wink Communications and Charter Communications include indemnification obligations of Wink Communications that may be triggered by the litigation. While reserving all of our rights in respect of this matter, we have conditionally reimbursed Charter for certain reasonable legal expenses that it incurred in connection with this litigation. On August 4, 2004, the District Court found the ’094 patent invalid. After various procedural matters, including interim appeals, in November 2005, the United States Court of Appeals for the Federal Circuit remanded the case back to the District Court for disposition. On March 8, 2006, the defendants filed a writ of

certiorari in this matter with the Supreme Court of the United States to review the decision of the United States Court of Appeals for the Federal Circuit, which had overturned the District Court’s order for summary judgment in favor of the defendants. That writ of certiorari was denied. Charter filed a request with the United States Patent and Trademark Office on June 8, 2006 to re-examine the patent based on prior art references. On July 11, 2006, the District Court ordered a stay of the proceedings pending notice as to whether the re-examination request is accepted by the United States Patent and Trademark Office. On June 21, 2006, Charter filed a motion to stay the litigation pending completion of the Patent Office’s reexamination of the ’094 patent. On July 11, 2006, the Court granted Charter’s motion and entered an order staying the case. On August 5, 2006, the United States Patent and Trademark Office ordered a re-examination of all of the patent’s claims. The case remains stayed. Based on the information available to us, we have established a reserve for costs and fees that may be incurred in connection with this matter. That reserve is an estimate only and actual costs may be materially different.

The estimate of the potential impact on our financial position or overall results of operations for any of the legal proceedings described in this section could change in the future.

Indemnification

As permitted under the laws of the British Virgin Islands, we have agreed to indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is not material.

Note 12. Related Party Transactions

On January 16, 2007, Kudelski SA and certain of its subsidiaries (which we collectively refer to as Kudelski) completed a stock purchase transaction with Liberty Media Corporation (Liberty), pursuant to which Kudelski acquired 6,533,951 of our Class A ordinary shares and 30,206,154 of our Class B ordinary shares from Liberty. As of June 30, 2007, Kudelski’s total ownership represented approximately 26.5% of the economic interest and approximately 75.2% of the voting power of our ordinary shares on an undiluted basis. We were not a direct party to that transaction. Pursuant to an agreement we previously entered into with Liberty in February 2006, we expect to receive a capital contribution of up to $19.7 million in cash, representing 71.4% of the premium received by Liberty in the Kudelski transaction. We received $5.4 million of this amount on the closing date of the Kudelski transaction and may receive up to an additional $14.3 million in cash in early 2008 after expiration of an indemnity period specified in the stock purchase agreement between Liberty and Kudelski.

During the three and six months ended June 30, 2007 and the three months ended June 30, 2006, the services and support revenue received from Kudelski was not material. During the three months ended March 31, 2006, we had received $0.6 million from Nagravision S.A., a subsidiary of Kudelski, in connection with integration and development work performed for a third party network operator.

Prior to Kudelski’s purchase of our shares from Liberty, we participated in the Liberty benefits program for employees in the United States at a cost of $0.7 million and $1.4 million for the three and six months ended June 30, 2006. We believe that this participation provided us with better economic terms than we would have otherwise been able to achieve independent of Liberty.

Note 13. Segment Information

Our chief operating decision maker, or CODM, is our chief executive officer. Our CODM assesses our results and financial performance, and reviews our internal budgeting reports, on the basis of three segments: the middleware and integrated technologies business, the applications business, and the BettingCorp business. We have prepared this segment analysis in accordance with SFAS No. 131,“Disclosure about Segments of an Enterprise and Related Information.”

Our middleware and integrated technologies business is composed of set-top box middleware and embedded browser technologies, as well as software components that are deployed at the network operator’s headend. Over the past 12 months, our applications business has included our advanced advertising, PlayJam and NASCAR products and related technologies. Our BettingCorp business has included our PlayMonteCarlo betting and gaming channel, the development and operation of our Ultimate One platform and the marketing of our OpenTV Participate product that is based on the Ultimate One technology. Beginning in 2007, we no longer operate our NASCAR service or the PlayMonteCarlo betting and gaming channel.

Our management reviews and assesses the “contribution margin” of each of these segments, which is not a financial measure calculated in accordance with GAAP. We define contribution margin for these purposes as segment revenues less related, direct or indirect, allocable costs, including headcount and headcount-related overhead costs, communications, facilities, maintenance & support, consulting and subcontractor costs, travel, marketing and network infrastructure and bandwidth costs. There are significant judgments management makes with respect to the direct and indirect allocation of costs that may affect the calculation of contribution margins. While management believes these and other related judgments are reasonable and appropriate, others could assess such matters in ways different than our company’s management. Contribution margin is a non-GAAP financial measure which excludes unallocated corporate support, interest, taxes, depreciation and amortization, amortization of intangible assets, share-based compensation, impairment of goodwill, impairment of intangibles, other income, minority interest, restructuring provisions, and unusual items such as contract amendments that mitigated potential loss positions. These exclusions reflect costs not considered directly allocable to individual business segments and result in a definition of contribution margin that does not take into account the substantial cost of doing business. Management believes that segment contribution margin is a helpful measure in evaluating the performance of our business segments. While our management may consider contribution margin to be an important measure of comparative operating performance, this measure should be considered in addition to, but not as a substitute for, loss from operations, net loss, cash flow and other measures of financial performance prepared in accordance with accounting principles generally accepted in the United States that are otherwise presented in our financial statements. In addition, our calculation of contribution margin may be different from the calculation used by other companies and, therefore, comparability may be possible.

Because these segments reflect the manner in which management reviews our business, they necessarily involve judgments that management believes are reasonable in light of the circumstances under which they are made. These judgments may change over time or may be modified to reflect new facts or circumstances. Segments may also be changed or modified to reflect technologies and applications that are newly created, or that change over time, or other business conditions that evolve, each of which may result in reassessing specific segments and the elements included within each of those segments. Recent events may affect the manner in which we present segments in the future. Alan A. Guggenheim was appointed our new chief executive officer and CODM on March 13, 2007 and has been conducting a comprehensive review of our business and organization since his appointment. In addition, the sale of our customer list and channel placement for PlayMonteCarlo in December 2006 means that the assets now included within our BettingCorp segment are different than those included when we initially began reporting this segment. Those changes, among other considerations, may affect the manner in which we report our segments in the future.

Summarized information by segment was as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Revenues:
Middleware and integrated technologies
Royalties and licenses	$	12,976		$	13,829		$	29,527		$	29,410
Services and other		6,953			4,532			12,076			8,783

Subtotal — Middleware and integrated technologies		19,929			18,361			41,603			38,193
Applications
Royalties and licenses		1,055			914			2,365			1,704
Services and other		3,148			3,783			6,284			7,080

Subtotal — Applications		4,203			4,697			8,649			8,784
BettingCorp
Royalties and licenses		35			—			35			—
Services and other		99			663			385			1,640

Subtotal — BettingCorp		134			663			420			1,640

Total Revenues	$	24,266		$	23,721		$	50,672		$	48,617


Contribution Margin / (Loss):
Middleware and integrated technologies	$	4,570		$	6,633		$	11,274		$	14,291
Applications		350			(176	)		438			(969	)
BettingCorp		(827	)		(905	)		(1,694	)		(1,714	)

Total Contribution Margin		4,093			5,552			10,018			11,608

Unallocated corporate support		(5,179	)		(5,167	)		(10,794	)		(10,407	)
Restructuring and impairment costs		28			(20	)		28			(20	)
Depreciation and amortization		(1,002	)		(790	)		(1,972	)		(1,539	)
Amortization of intangible assets		(1,701	)		(1,764	)		(3,402	)		(3,529	)
Share-based and non-cash compensation		(1,222	)		(996	)		(2,363	)		(2,094	)
Interest income		748			898			1,252			1,448
Other expenses		(123	)		(201	)		(50	)		(198	)
Minority interest		9			10			17			19

Loss before income taxes		(4,349	)		(2,478	)		(7,266	)		(4,712	)
Income tax expense		515			14			742			907


Net loss	$	(4,864	)	$	(2,492	)	$	(8,008	)	$	(5,619	)

Our revenues by geographic area, based on the location of customers, were as follows (in thousands):


	Three Months Ended June 30,										Six Months Ended June 30,
	2007		%			2006		%			2007		%			2006		%
Europe, Africa and Middle East
United Kingdom	$	5,013		21	%	$	6,153		26	%	$	11,584		23	%	$	13,548		28	%
Italy		1,478		6	%		1,188		5	%		3,241		6	%		3,135		6	%
Other Countries		3,657		15	%		4,889		21	%		8,896		18	%		9,116		19	%

Subtotal		10,148		42	%		12,230		52	%		23,721		47	%		25,799		53	%

Americas
United States		5,553		23	%		7,144		30	%		11,364		22	%		13,883		28	%
Other Countries		907		4	%		995		4	%		3,271		7	%		2,249		5	%

Subtotal		6,460		27	%		8,139		34	%		14,635		29	%		16,132		33	%

Asia Pacific
Japan		4,815		20	%		717		3	%		6,501		13	%		2,055		4	%
Other Countries		2,843		11	%		2,635		11	%		5,815		11	%		4,631		10	%

Subtotal		7,658		31	%		3,352		14	%		12,316		24	%		6,686		14	%

	$	24,266		100	%	$	23,721		100	%	$	50,672		100	%	$	48,617		100	%

Three major customers accounted for the following percentages of revenues:


	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Echostar		11	%		16	%		10	%		16	%
Thomson		9	%		9	%		13	%		9	%
Jupiter		13	%		—			6	%		—

British Sky Broadcasting, or BSkyB, directly and indirectly accounted for 19% and 20% of total revenues for the three months ended June 30, 2007 and 2006, respectively, and 21% and 23% of total revenues for the six months ended June 30, 2007 and 2006, respectively, taking into account the royalties that are paid by three manufacturers who sell set-top boxes to BSkyB, including shipments by Thomson, and by customers transacting on our PlayJam service on BSkyB channels.

Five customers accounted for 13%, 13%, 13%, 12% and 10% of net accounts receivable as of June 30, 2007. One customer accounted for 14% of net accounts receivable as of June 30, 2006.

Capital expenditures by geographic area were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
United States	$	367	$	733	$	1,098	$	1,238
Other countries		120		298		293		430

	$	487	$	1,031	$	1,391	$	1,668

Long-lived assets (*) by geographic area were as follows (in thousands):


	June 30,		December 31,
	2007		2006
United States	$	7,827	$	9,022
Other countries		2,737		3,036

	$	10,564	$	12,058

(*)Long-lived assets include property and equipment, and other assets

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report onForm 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of OpenTV Corp. and its consolidated subsidiaries to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, expenses, earnings or losses from operations; any statements of the plans, strategies and objectives of management for future operations; any statements concerning developments, performance or market conditions relating to products or services; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. All these forward-looking statements are based on information available to us at this time, and we assume no obligation to update any of these statements. Actual results could differ materially from those projected in these forward-looking statements as a result of many factors, including those identified in the section titled “Risk Factors” contained in Item 1A of our Annual Report onForm 10-K for the fiscal year ended December 31, 2006, as such section may be updated in our subsequent Quarterly Reports onForm 10-Q, and elsewhere. We urge you to review and consider the various disclosures made by us from time to time in our filings with the Securities and Exchange Commission that attempt to advise you of the risks and factors that may affect our future results.

The following discussion should be read together with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements, the notes thereto and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report onForm 10-K for the fiscal year ended December 31, 2006, as filed with the Securities and Exchange Commission.

Overview

We are one of the world’s leading providers of software solutions for digital and interactive television.

We derive our revenues from the licensing of our core middleware software and related technologies, the licensing and distribution of our interactive content and applications and the delivery of professional services. We typically receive one-time royalty fees from network operators or manufacturers of set-top boxes once a set-top box, which incorporates our software, has been shipped to, or activated by, the network operator. However, we have recently signed subscription-based licensing agreements under which we will receive monthly payments for each set-top box that includes our software that our customers deploy, for so long as those set-top boxes remain active. As we pursue additional subscription-based arrangements, our revenue model may change over time. We also receive ongoing license fees for various other software products that we sell. In addition, we receive professional services fees from consulting, engineering and training engagements, fees for the maintenance and support of our products and fees from revenue sharing arrangements related to the use of our interactive content and applications.

As of June 30, 2007, Kudelski SA, through two of its subsidiaries, owned 6,533,951 of our Class A ordinary shares and 30,206,154 of our Class B ordinary shares, representing approximately 26.5% of the economic interest and 75.2% of the voting interest of our ordinary shares on an undiluted basis.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, which we refer to as GAAP, as applicable to financial statements for interim reporting periods. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In preparing these unaudited condensed consolidated financial statements, we made our best estimates and judgments, which are normally based on knowledge and experience with regard to past and current events and assumptions about future events, giving due consideration to materiality. Actual results could differ materially from these estimates under different assumptions or conditions.

We believe the following critical accounting polices and estimates have the greatest potential impact on our unaudited condensed consolidated financial statements: revenue recognition, valuation allowances for doubtful accounts and deferred tax assets, impairment of goodwill and long-lived assets, restructuring costs and share-based compensation. All of these accounting policies and estimates, together with their underlying assumptions, and their impact on our financial statements, have been discussed with the audit committee of our board of directors.

There have been no significant changes in our critical accounting policies and estimates during the six months ended June 30, 2007 as compared to the critical accounting policies and estimates disclosed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”included in our Annual Report on Form 10-K for the year ended December 31, 2006.

Recent Accounting Pronouncements

Three and Six Months Ended June 30, 2007 and 2006

Revenues

Revenues for the three months ended June 30, 2007 were $24.3 million, an increase of $0.6 million, or 3%, from $23.7 million for the same period in 2006. Revenues for the six months ended June 30, 2007 were $50.7 million, an increase of $2.1 million, or 4%, from $48.6 million for the same period in 2006. Revenues by line item were as follows (in millions):


	Three Months Ended June 30,										Six Months Ended June 30,
			% of					% of					% of					% of
	2007		Revenue			2006		Revenue			2007		Revenue			2006		Revenue
Royalties and licenses	$	14.1		58	%	$	14.7		62	%	$	32.0		63	%	$	31.1		64	%
Services and other		10.2		42	%		9.0		38	%		18.7		37	%		17.5		36	%

Total revenues	$	24.3		100	%	$	23.7		100	%	$	50.7		100	%	$	48.6		100	%

Royalties.We generally derive royalties from the sale of set-top boxes and other products that incorporate our software. Royalties are paid by either the network operator or the set-top box manufacturer depending upon our payment arrangements with those customers. We recognize royalties upon receipt of royalty reports reflecting unit shipments or activation of our software by network operators or manufacturers. Royalty reports are generally received one quarter in arrears. For non-refundable prepaid royalties, we recognize revenues upon initial delivery of the software to our customers. We have historically realized revenues through one-time royalty payments and ongoing license fees. More recently, we have entered into license agreements with network operators that will pay us under a subscription-based model, pursuant to which we are paid a monthly fee for each set-top box that is shipped or deployed by the network operator for so long as that box remains in possession or use by the network operator. Our royalties usually result from several different types of arrangements. In the case of our set-top box software, these may include: initial deployments by new customers, the activation of new subscribers by existing customers, the shipment of additional set-top boxes as replacements for older or defective set-top boxes or for purposes of simply upgrading existing set-top boxes, or sales of new products or services by the network operators that require new or updated set-top boxes. We have historically provided various types of volume discounts to our customers and expect that we will continue to do so in the future. Unless we are able to offset anticipated discounts through a change in product mix, upgrades to our software or other methods which enable us to charge higher fees, we may experience slower royalty growth as discounting is triggered. Specific royalty trends associated with set-top box deployments by our customers are difficult to discern in many cases, as we do not control or directly influence actual deployment schedules of our customers. However, our general experience in the past suggests that set-top box deployments by our customers tend to be stronger in the third and fourth quarters of the calendar year. Because we receive most of our royalty reports one quarter in arrears, our royalty revenues in the past have generally been higher in the first and fourth quarters of the calendar year.

Licenses.We also derive license fees from the licensing of other software products, such as OpenTV Streamer, OpenTV Software Developers Kit, our advanced advertising products and participation TV products. These license fees can be in the form of one-time, upfront payments by our customers, the total of which can vary significantly from quarter to quarter, or, in the case of our advanced advertising products, can be in the form of a recurring license fee, the total of which is less likely to vary significantly from quarter to quarter.

Royalties and license revenues for the three months ended June 30, 2007 decreased $0.6 million, or 4%, to $14.1 million compared to the same period in 2006.

Europe, Middle East and Africa accounted for approximately $6.1 million in royalties and license revenues for the three months ended June 30, 2007. Royalties and license revenues related to British Sky Broadcasting, or BSkyB, accounted for $3.3 million, or 23%, of our total worldwide royalties and license revenues for the three months ended June 30, 2007. Overall, revenues for the region in the second quarter of 2007 decreased $0.5 million as compared to the same period in 2006. Royalties and license revenues related to BSkyB were $0.5 million higher in the second quarter of 2007 than in the same period in 2006, primarily as a result of increased standard set-top box shipments and increased shipments of our software for personal video recording (PVR). We typically generate higher royalty rates from set-top boxes that include our PVR software, such as the set-top boxes shipped to BSkyB, and we would expect the number of PVR shipments to increase as network operators seek to deploy more PVR functionality in the future. Royalties and license revenues from other customers in the region were, in the aggregate,

$1.0 million lower in the second quarter of 2007 as compared to the same period in 2006, primarily as a result of reduced standard set-top box shipments.

The Americas region accounted for approximately $4.0 million in royalties and license revenue for the three months ended June 30, 2007. EchoStar, including DISH Network and EchoStar Technologies Corporation, accounted for $2.2 million, or 16%, of our total worldwide royalties and license revenues for the three months ended June 30, 2007. Overall, royalties and license revenues for the region in the second quarter of 2007 decreased $2.0 million as compared to the same period in 2006. Royalty and license revenues from EchoStar were $1.2 million lower in the second quarter of 2007 than in the same period in 2006. Although the level of set-top box shipments to EchoStar remained consistent, total revenues from EchoStar in the second quarter of 2007 were affected by a reduction in amortization as compared to the same period in 2006. Because we previously committed to develop a limited number of unspecified future applications pursuant to an applications development agreement entered into contemporaneously with the middleware license agreement, the royalty payments we have previously received from EchoStar under that license agreement were amortized over its original seven-year term expiring in September 2006. The middleware license agreement is renewable on an annual basis, and was renewed by EchoStar until September 2007. The term of the applications development agreement has also been extended until September 2007. As a result, we are currently amortizing revenues from EchoStar over the remaining term of the middleware license agreement. In the first quarter of 2007, we amended our license agreement with Bell ExpressVu, which converted its pricing model from an upfront royalty to a recurring subscription fee per set-top box payable over the term of the customer’s use of our middleware. As a result, royalty revenues from this customer in the second quarter of 2007 were $0.9 million lower than in the second quarter of 2006. We expect the cumulative per set-top box subscription fees paid by Bell ExpressVu over the expected period of use of the set-top box to compensate for the relative difference between the amount of the prior upfront royalty and the recurring subscription fee.

The Asia Pacific region accounted for approximately $4.0 million in royalties and license revenues for the three months ended June 30, 2007. Overall, royalties and license revenues for the region in the second quarter of 2007 increased $1.8 million as compared to the same period in 2006. Royalties and license revenues from shipments of our integrated browser and extensions in certain digital television sets distributed within Japan accounted for an increase of $1.7 million, and increased amortization and shipments from FOXTEL, for whom we first started recognizing revenues from middleware shipments during the second quarter of 2006, accounted for an increase of $0.5 million. Royalties and license revenues from other customers in the region were $0.4 million lower in the second quarter of 2007 than in the same period in 2006, primarily as a result of increased set-top box and digital television set shipments.

Royalties and license revenues for the six months ended June 30, 2007 increased $0.9 million, or 3%, to $32.0 million compared to the same period in 2006.

Europe, Middle East and Africa accounted for approximately $14.4 million in royalties and license revenues for the six months ended June 30, 2007. Royalties and license revenues related to BSkyB accounted for $7.7 million, or 24%, of our total worldwide royalties and license revenues for the six months ended June 30, 2007. Overall, revenues for the region decreased $0.2 million from the same period in 2006, principally as a result of a net decrease in set-top box shipments. Royalties and license revenues related to BSkyB were $1.1 million higher in the first six months of 2007 than in the same period in 2006, primarily as a result of increased standard set-top box shipments and increased shipments of our PVR software. Royalties and license revenues from other customers in the region were, in the aggregate, $1.3 million lower in the first six months of 2007 than in the same period in 2006, primarily as a result of reduced standard set-top box shipments.

The Americas region accounted for approximately $9.9 million in royalties and license revenues for the six months ended June 30, 2007. EchoStar, including DISH Network and EchoStar Technologies Corporation, accounted for $4.5 million, or 14%, of our total worldwide royalties and license revenues for the six months ended June 30, 2007. Overall, royalties and license revenues for the region in the first six months of 2007 decreased $1.9 million from the same period in 2006. Royalties and license revenues related to NET in Brazil, for whom we had received the first royalty report in the second quarter of 2006 increased by $1.2 million in the first six months of 2007. This increase was offset by lower royalty and license revenues from EchoStar, which were $2.4 million lower than in the same period in 2006. Although the level of set-top box shipments to EchoStar remained consistent, total revenues from EchoStar in the first six months of 2007 were affected by the same reduction in amortization as described above in respect of the three months ended June 30, 2007. Royalty and license revenues from Bell ExpressVu, an existing customer in the region, which had converted from an upfront royalty to recurring

subscription fee per set-top box accounted for a decrease of $1.0 million. We expect the cumulative per set-top box subscription fees paid by Bell ExpressVu over the expected period of use of the set-top box to compensate for the relative difference between the amount of the prior upfront royalty and the recurring subscription fee. In the aggregate, other customers also accounted for a net increase of $0.3 million.

The Asia Pacific region accounted for approximately $7.7 million in royalties and license revenues for the six months ended June 30, 2007. Overall, royalties and license revenues for the region increased $2.9 million as compared to the same period in 2006. Royalties and license revenues from shipments of our integrated browser and extensions in certain digital television sets distributed within Japan accounted for an increase of $2.1 million, and increased amortization and shipments from FOXTEL, for whom we first started recognizing revenues from middleware shipments during the second quarter of 2006, accounted for an increase of $1.1 million. Royalties and license revenues from other customers in the region were, in the aggregate, $0.3 million lower in the first six months of 2007 than in the same period in 2006, primarily as a result of reduced standard set-top box shipments.

Services and Other.Services and other revenues consist primarily of professional services, maintenance and support, training, service usage fees and revenue shares and programming fees. Professional service revenues are generally derived from consulting engagements for network operators, set-top box manufacturers and system integrators. Maintenance, support and training revenues are generally realized as services are provided to network operators and set-top box manufacturers. A set-top box manufacturer’s decision to purchase maintenance and support from us depends largely on whether such manufacturer is actively shipping set-top boxes with our software or reasonably expects to do so in quantities large enough to justify payment of these amounts, which, in both cases, is dependent upon such manufacturer’s supply contracts with network operators and set-top box demand by the network operator. Service usage fees and revenue share payments are generally derived from our PlayJam games channels, our PlayMonteCarlo betting and gaming channel which we sold in the fourth quarter of 2006, and revenue shares for advertising and other interactive services. We also derived programming fees in 2006 from our NASCAR agreement, which was not renewed for the 2007 season, and from other programmers.

Services and other revenues for the three months ended June 30, 2007 increased $1.2 million, or 13%, to $10.2 million as compared to the same period in 2006.

During the three months ended June 30, 2007, we realized, in the aggregate, increases of $2.4 million in fees from discrete development and integration service engagements, increases of $0.2 million in revenue share payments, and increases of $0.4 million in maintenance and support fees and advanced advertising related services principally as a result of further deployment of our products by existing customers. These increases were partially offset by decreases of $0.5 million in PlayJam games channel fees resulting from increased competition, decreases of $0.7 million in service usage fees and revenue share payments resulting from the fourth quarter sale of our PlayMonteCarlo betting and gaming channel, and decreases of $0.6 million in services revenues from our NASCAR agreement, which was not renewed for the 2007 season. As discussed previously, beginning in 2007 we will no longer operate our NASCAR service or PlayMonteCarlo betting and gaming channel. As a result, we expect a decrease in both related service revenues and network infrastructure and bandwidth costs associated with these arrangements.

Services and other revenues for the six months ended June 30, 2007 increased $1.2 million, or 7%, to $18.7 million as compared to the same period in 2006. During six months ended June 30, 2007, we realized, in the aggregate, increases of $3.1 million in fees from discrete development and integration service engagements, increases of $0.2 million in revenue share payments, and increases of $1.4 million in maintenance and support fees from middleware and integrated technologies customers and advanced advertising related services principally as a result of further deployment of our products by existing customers. These increases were partially offset by decreases of $0.9 million in PlayJam games channel fees resulting from increased competition, decreases of $1.7 million in service usage fees and revenue share payments resulting from the fourth quarter 2006 sale of our PlayMonteCarlo betting and gaming channel in the United Kingdom, and decreases of $0.9 million in services revenues from our NASCAR agreement, which was not renewed for the 2007 season.

Cost of Revenues

Our total cost of revenues for the three months ended June 30, 2007 were $13.0 million, an increase of $1.9 million, or 17%, from $11.1 million for the same period in 2006. Our total cost of revenues for the six months ended June 30, 2007 were $25.1 million, an increase of $3.2 million, or 15%, from $21.9 million for the same period in 2006. Cost of revenues by line item were as follows (in millions):


	Three Months Ended June 30,										Six Months Ended June 30,
			% of					% of					% of					% of
	2007		Revenue			2006		Revenue			2007		Revenue			2006		Revenue
Cost of royalties and licenses	$	1.9		8	%	$	1.8		8	%	$	3.7		8	%	$	3.7		8	%
Cost of services and other		11.1		46	%		9.3		39	%		21.4		42	%		18.2		37	%

Total cost of revenues	$	13.0		54	%	$	11.1		47	%	$	25.1		50	%	$	21.9		45	%

Cost of Royalties and Licenses.Cost of royalties and licenses consist primarily of materials and shipping costs, amortization of developed technology and patents and patent-related legal costs.

Cost of royalties and licenses for the three months ended June 30, 2007 increased $0.1 million to $1.9 million as compared to the same period in 2006. As a percentage of revenues, cost of royalties and licenses remained at 8% as compared to the same period in 2006.

Cost of royalties and licenses for the six months ended June 30, 2007 remained at $3.7 million as compared to the same period in 2006. As a percentage of revenues, cost of royalties and licenses remained at 8% as compared to the same period in 2006.

Cost of Services and Other.Cost of services and other consist primarily of headcount and headcount-related support costs associated with maintenance and support and professional services engagements, consulting and subcontractor costs, third party material costs, depreciation and network infrastructure and bandwidth costs of our interactive games and betting channels.

Cost of services and other for the three months ended June 30, 2007 increased $1.8 million, or 19%, to $11.1 million compared to the same period in 2006. As a percentage of revenues, cost of services and other increased to 46% from 39% in the same period in 2006. Headcount and headcount-related costs increased $0.9 million, due to an increase in hiring to staff new and ongoing projects. In addition, we experienced an increase of $2.1 million in consulting and subcontractor costs associated with staffing of professional service engagements. These increases were partially offset by a decrease of $1.1 million in network infrastructure and bandwidth costs principally as a result of the sale of our PlayMonteCarlo channel in the fourth quarter of 2006 and as a result of lower revenue share payments in respect of our PlayJam games channels.

Cost of services and other for the six months ended June 30, 2007 increased $3.2 million, or 18%, to $21.4 million compared to the same period in 2006. As a percentage of revenues, cost of services and other increased to 42% from 37% in the same period in 2006. Headcount and headcount-related costs increased $2.1 million, due to an increase in hiring to staff new and ongoing projects. In addition, we experienced an increase of $2.8 million in consulting and subcontractor costs associated with staffing of professional service engagements and an increase of $0.3 million in materials used in professional service engagements. These increases were partially offset by a decrease of $2.0 million in network infrastructure and bandwidth costs principally as a result of the sale of our PlayMonteCarlo channel in the fourth quarter of 2006 and as a result of lower revenue share payments in respect of our PlayJam games channels.

Operating Expenses

Our total operating expenses for the three months ended June 30, 2007 were $16.2 million, an increase of $0.4 million, or 3%, from $15.8 million for the same period in 2006. Our total operating expenses for the six months ended June 30, 2007 were $34.0 million, an increase of $1.3 million, or 4%, from $32.7 million for the same period in 2006. Operating expenses by line item were as follows (in millions):


	Three Months Ended June 30,										Six Months Ended June 30,
			% of					% of					% of					% of
	2007		Revenue			2006		Revenue			2007		Revenue			2006		Revenue
Research and development	$	8.0		33	%	$	7.7		33	%	$	16.9		33	%	$	16.0		33	%
Sales and marketing		3.0		12	%		3.3		14	%		5.9		12	%		6.0		12	%
General and administrative		4.7		20	%		4.3		18	%		10.2		20	%		9.6		20	%
Amortization of intangible assets		0.5		2	%		0.5		2	%		1.0		2	%		1.1		2	%

Total Operating Expenses	$	16.2		67	%	$	15.8		67	%	$	34.0		67	%	$	32.7		67	%

Research and Development.Research and development expenses consist primarily of headcount and headcount-related support costs, travel costs, consulting and subcontractor costs incurred for both new product development and enhancements to our existing software products and applications.

Research and development remains important to our long-term growth strategy. We will continue to focus on the timely development of new and enhanced interactive television products for our customers, and we plan to continue investing at levels that are sufficient to develop our technologies and product offerings.

Research and development expenses for the three months ended June 30, 2007 increased $0.3 million, or 4%, to $8.0 million compared to the same period in 2006. As a percentage of revenues, research and development expenses remained at 33% as compared to the same period in 2006. The increase was primarily as a result of $0.3 million in increased headcount and headcount-related costs to staff new and ongoing projects.

Research and development expenses for the six months ended June 30, 2007 increased $0.9 million, or 6%, to $16.9 million compared to the same period in 2006. As a percentage of revenues, research and development expenses remained consistent as compared to the same period in 2006. The increase in expenses was primarily as a result of $0.8 million in increased headcount and headcount-related costs and $0.1 million in increased consulting and subcontractor costs, both to staff new and ongoing projects.

Sales and Marketing.Sales and marketing expenses consist primarily of headcount and headcount-related support costs, travel, consulting and subcontractor costs, and marketing-related expenses.

Sales and marketing expenses for the three months ended June 30, 2007 decreased $0.3 million, or 9%, to $3.0 million compared to the same period in 2006. As a percentage of revenues, sales and marketing expenses decreased to 12% from 14% in the same period in 2006. The decrease is primarily attributable to reduced marketing and trade show related spending.

Sales and marketing expenses for the six months ended June 30, 2007 decreased $0.1 million, or 2%, to $5.9 million compared to the same period in 2006. As a percentage of revenues, sales and marketing expenses remained at 12% as compared to the same period in 2006. The decrease in expenses is primarily attributable to $0.3 million in reduced marketing and trade show related spending, which was offset by $0.2 million in increased headcount and headcount-related overhead costs to support our increased sales efforts.

General and Administrative.General and administrative expenses consist primarily of headcount and headcount-related support costs, fees for professional services, including litigation costs, and provision for doubtful accounts.

General and administrative expenses for the three months ended June 30, 2007 increased $0.4 million, or 9%, to $4.7 million compared to the same period in 2006. As a percentage of revenues, general and administrative expenses increased to 20% from 18% in the same period in 2006. The increase relates primarily to higher costs associated with executive personnel-related costs, including share-based compensation expense relating to the repurchase of 1,150,000 stock options from a former executive in connection with his departure, and compensation of our board of directors.

General and administrative expenses for the six months ended June 30, 2007 increased $0.6 million, or 6%, to $10.2 million compared to the same period in 2006. As a percentage of revenues, general and administrative expenses remained at 20% as compared to the same period in 2006. The increase relates primarily to higher costs associated with executive personnel-related costs, including share-based compensation expense relating to the repurchase of 1,150,000 stock options from a former executive in connection with his departure, and compensation of our board of directors.

Amortization of Intangible Assets.Intangible assets are amortized on a straight-line basis over the estimated useful life of three to 13 years. As noted above, cost of royalties and licenses include amounts relating to the amortization of developed technologies and patents.

For the three months ended June 30, 2007, amortization of intangible assets remained at $0.5 million as compared to the same period in 2006. The related intangibles were acquired as a result of our acquisitions of Wink Communications in 2002 and CAM Systems in 2005.

For the six months ended June 30, 2007, amortization of intangible assets was $1.0 million as compared to $1.1 million for the same period in 2006.

Interest Income, Other Expense and Minority Interest

Interest income was $0.7 million for the three months ended June 30, 2007 and $1.2 million for the six months ended June 30, 2007, compared with $0.9 million and $1.5 million, respectively, for the same periods in the prior year. Interest income includes interest earned on cash, cash equivalents and short and long-term marketable debt securities.

Income Taxes

Our income tax expense of $0.5 million for the three months ended June 30, 2007 was primarily attributable to foreign taxes, state taxes, and increases to reserves for identified potential foreign tax exposures. Our income tax expense was nominal for the three months ended June 30, 2006. During the second quarter of 2006, we obtained tax refunds from amended returns in Australia and a favorable Swiss tax ruling. As a result, we recognized tax benefits of $0.5 million and $0.7 million, respectively, in the second quarter of 2006. These benefits were offset by foreign and state taxes of approximately $1.2 million incurred during the same period.

Our income tax expense of $0.7 million for the six months ended June 30, 2007 was primarily attributable to foreign taxes, state taxes, and increases to reserves for identified potential foreign tax exposures. Our income tax expense of $0.9 million for the six months ended June 30, 2006 was primarily attributable to foreign taxes, state taxes, and increases to reserves for identified potential foreign tax exposures, net of the benefits described above.

On January 1, 2007, we adopted FIN 48, an interpretation of SFAS No. 109. As a result of the adoption, we did not have an adjustment to accumulated deficit.

Business Segment Results

respect to the direct and indirect allocation of costs that may affect the calculation of contribution margins. While management believes these and other related judgments are reasonable and appropriate, others could assess such matters in ways different than our company’s management. Contribution margin is a non-GAAP financial measure which excludes unallocated corporate support, interest, taxes, depreciation and amortization, amortization of intangible assets, share-based compensation, impairment of goodwill, impairment of intangibles, other income, minority interest, restructuring provisions, and unusual items such as contract amendments that mitigated potential loss positions. These exclusions reflect costs not considered directly allocable to individual business segments and result in a definition of contribution margin that does not take into account the substantial cost of doing business. Management believes that segment contribution margin is a helpful measure in evaluating the performance of our business segments. While our management may consider contribution margin to be an important measure of comparative operating performance, this measure should be considered in addition to, but not as a substitute for, loss from operations, net loss, cash flow and other measures of financial performance prepared in accordance with accounting principles generally accepted in the United States that are otherwise presented in our financial statements. In addition, our calculation of contribution margin may be different from the calculation used by other companies and, therefore, comparability may not be possible.

Revenues and contribution margin, as reconciled to net loss on a GAAP basis, by segment were as follows (in millions):


	Three Months Ended June 30,												Six Months Ended June 30,
	2007			% of Segment Revenue			2006			% of Segment Revenue			2007			% of Segment Revenue			2006			% of Segment Revenue
Revenues:
Middleware and integrated technologies
Royalties and licenses	$	13.0			65	%	$	13.8			75	%	$	29.6			71	%	$	29.4			77	%
Services and other		7.0			35	%		4.5			25	%		12.1			29	%		8.7			23	%

Subtotal — Middleware and integrated technologies		20.0			100	%		18.3			100	%		41.7			100	%		38.1			100	%
Applications
Royalties and licenses		1.1			26	%		0.9			19	%		2.4			28	%		1.7			19	%
Services and other		3.1			74	%		3.8			81	%		6.2			72	%		7.1			81	%

Subtotal — Applications		4.2			100	%		4.7			100	%		8.6			100	%		8.8			100	%
BettingCorp
Royalties and licenses		—			—			—			—			—			—			—			—
Services and other		0.1			100	%		0.7			100	%		0.4			100	%		1.7			100	%

Subtotal — BettingCorp		0.1			100	%		0.7			100	%		0.4			100	%		1.7			100	%

Total Revenues	$	24.3					$	23.7					$	50.7					$	48.6

Contribution Margin / (Loss):
Middleware and integrated technologies	$	4.6					$	6.7					$	11.3					$	14.3
Applications		0.3						(0.2	)					0.4						(1.0	)
BettingCorp		(0.8	)					(0.9	)					(1.7	)					(1.7	)

Total Contribution Margin		4.1						5.6						10.0						11.6

Unallocated corporate support		(5.2	)					(5.2	)					(10.8	)					(10.4	)
Restructuring and impairment costs		—						—						—						—
Depreciation and amortization		(1.0	)					(0.8	)					(2.0	)					(1.5	)
Amortization of intangible assets		(1.7	)					(1.8	)					(3.4	)					(3.6	)
Share-based and non-cash compensation		(1.2	)					(1.0	)					(2.3	)					(2.1	)
Interest income		0.7						0.9						1.2						1.5
Other expense		(0.1	)					(0.2	)					—						(0.2	)
Minority interest		—						—						—						—

Loss before income taxes		(4.4	)					(2.5	)					(7.3	)					(4.7	)
Income tax expense		0.5						—						0.7						0.9

Net loss	$	(4.9	)				$	(2.5	)				$	(8.0	)				$	(5.6	)

Middleware and integrated technologies

Revenues from the middleware and integrated technologies business for the three months ended June 30, 2007 increased 9% from the same period in 2006 to $20.0 million. Revenues from the middleware and integrated technologies business for the six months ended June 30, 2007 increased 9% from the same period in 2006 to $41.7 million.

Royalties and license revenues from set-top box shipments and other product sales accounted for 65% and 75% of segment revenues for the three months ended June 30, 2007 and 2006, respectively. Royalties and license revenues from set-top box shipments and other product sales accounted for 71% and 77% of segment revenues for the six months ended June 30, 2007 and 2006, respectively. Royalties and license revenues from the middleware and integrated technologies business account for the majority of our overall royalties and license revenues, and increased in 2007 due to the additional shipments of set-top boxes and digital televisions and amortization of license and royalty revenues. As a percentage of segment revenues, royalties and license revenues declined primarily as a result of a greater relative increase in service revenues from discrete middleware professional service projects and increased maintenance and support fees.

Services and other consists primarily of professional services consulting engagements for network operators, set-top box manufacturers and system integrators and maintenance, support and training. This category accounted for 35% of segment revenues in the three months ended June 30, 2007, an increase from 25% of segment revenues in the same period in 2006. This category accounted for 29% of segment revenues in the six months ended June 30, 2007, an increase from 23% of segment revenues in the same period in 2006. The increases in 2007 were due to a significant amount of discrete middleware professional service projects and increased maintenance and support

fees from customers in 2007.

Middleware and integrated technologies costs consist primarily of headcount and headcount-related support costs and consulting and subcontractor costs associated with billable professional services engagements. Total contribution margin for the middleware and integrated technologies business in the three months ended June 30, 2007 decreased 31% from 2006 to $4.6 million resulting principally from increased consulting and subcontractor costs associated with staffing of professional service engagements, and from increased headcount and headcount-related costs which was due to our continued investment in this segment. Total contribution margin for the middleware and integrated technologies business in the six months ended June 30, 2007 decreased 21% from 2006 to $11.3 million resulting principally from increased consulting and subcontractor associated with staffing of professional service engagements, and from increased headcount and headcount-related costs due to our continued investment in this segment.

Applications

Revenues from the applications business for the three months ended June 30, 2007 were $4.2 million, a decrease of $0.5 million, or 11%, from $4.7 million in the same period in 2006. Royalties and license revenues increased $0.2 million, principally as a result of increased license revenues from increased deployment of our advanced advertising-related products. This partially offset a decline of $0.7 million in services revenues, principally as a result of a $0.5 million decline in PlayJam games channel fees due to increased competition and a $0.6 million decline in services revenues from our NASCAR service, which we no longer operate. These service revenue declines were partially offset by a $0.4 million increase in advanced advertising-related services and maintenance and support revenues primarily due to additional deployments of our products by existing customers.

Revenues from the applications business for the six months ended June 30, 2007 were $8.6 million, a decrease of $0.2 million, or 2%, from $8.8 million in the same period in 2006. Royalties and license revenues increased $0.7 million, principally as a result of increased license revenues from increased deployment of our advanced advertising-related products. This offset a decline of $0.9 million in services revenues primarily resulting from a decline in PlayJam games channel fees due to increased competition and a $0.9 million decline in services revenues from our NASCAR service, which we no longer operate. These service revenue declines were partially offset by a $0.9 million increase in advanced advertising-related services and maintenance and support revenues primarily due to additional deployments of our products by existing customers.

Contribution margin for the applications business for the three months ended June 30, 2007 increased $0.5 million to a gain of $0.3 million. This increase reflects the higher margins from increased royalties and license revenues, as well as a reduction in both associated network infrastructure costs and bandwidth costs resulting from the decline in use of our PlayJam service and from the termination of our NASCAR service. Contribution margin for the applications business for the six months ended June 30, 2007 increased $1.4 million to a gain of $0.4 million. This increase reflects the higher margins from increased royalties and license revenues, as well as a reduction in both associated network infrastructure costs and bandwidth costs resulting from the decline in use of our PlayJam service and from the termination of our NASCAR service.

BettingCorp

Revenues from the BettingCorp business for the three months ended June 30, 2007 decreased by $0.6 million to $0.1 million primarily as a result of a decrease of $0.7 million due to the fourth quarter 2006 sale of our PlayMonteCarlo betting and gaming channel, which was partially offset by increased revenues of $0.1 million from our OpenTV Participate product. Revenues from the BettingCorp business for the six months ended June 30, 2007 decreased by $1.3 million to $0.4 million, primarily as a result of the fourth quarter 2006 sale of our PlayMonteCarlo betting and gaming channel, which was partially offset by increased revenues of $0.4 million from our OpenTV Participate product.

Contribution loss for the BettingCorp business decreased to $0.8 million for the first three months ended June 30, 2007. The sale of our PlayMonteCarlo betting and gaming channel and the resulting decrease in service revenues offset an associated reduction in infrastructure and bandwidth costs and lower revenue sharing costs associated with the service. Contribution loss for the BettingCorp business remained at $1.7 million for the first six months ended June 30, 2007 as compared to the same period in 2006. The sale of our PlayMonteCarlo betting and

gaming channel and the resulting decrease in service revenues offset an associated reduction in infrastructure and bandwidth costs and lower revenue sharing costs associated with the service.

Deferred Revenue

We have entered into multiple-element arrangements for products and services with customers including Time Warner Cable, Essel Group (which operates the DishTV network in India), EchoStar’s DISH Network, UnitedGlobalCom (or UGC, a subsidiary of Liberty Global), Innovative Systems, FOXTEL, Austar and Comcast. Portions of the amounts that we have invoiced to Essel Group, EchoStar, UGC, Innovative Systems, FOXTEL and Austar under those arrangements have been deferred and will be included as revenue over time in our middleware and integrated technologies business. Portions of those amounts that we have invoiced to Comcast under our agreement with Comcast will be included as revenue over time in our applications business. The arrangements with these customers include maintenance and support, for which vendor specific objective evidence, or VSOE, of fair value did not exist at the time the respective agreement was signed with each customer. In addition, several of these arrangements provide for the delivery of specified future products, for which such evidence of fair value also did not exist. All revenues under arrangements for which we are obligated to provide specified future products are initially deferred. Upon final delivery of all specified products under each arrangement, recognition will then depend on whether or not VSOE of fair value for maintenance and support exists. In instances where VSOE of fair value for maintenance and support still does not exist, we will generally recognize all revenues from the arrangement either over the remaining contractual period of support or over the remaining period during which maintenance and support is expected to be provided. In instances where VSOE of fair value for maintenance and support exists, we will generally recognize the maintenance and support revenues over the remaining period if the related maintenance and support will be provided and all other deferred revenues upon the final delivery.

As of June 30, 2007, we recorded $32.8 million in deferred revenue compared with $25.6 million at the end of 2006. Of that total deferred amount at June 30, 2007, $23.4 million, or 71%, was deferred as a result of the arrangements with Essel Group, EchoStar, UGC, Innovative Systems, FOXTEL, Austar, and Comcast described in the preceding paragraphs. The remaining $9.4 million, or 29%, of our deferred revenue as of June 30, 2007 was principally attributable to maintenance and support and professional services arrangements with other customers, which are typically short-term in nature.

Based on our current estimates of final delivery for all specified products, we expect the following recognition of the $23.4 million of deferred revenue at June 30, 2007 resulting from the Essel Group, EchoStar, UGC, Innovative Systems, FOXTEL, Austar, and Comcast arrangements (in millions):


	Expected Recognition
Year Ending December 31,	of Deferred Revenue
2007 (remaining six months)	$	13.6
2008		4.9
Thereafter		4.9

	$	23.4

In order to determine the expected recognition of deferred revenue set forth in the foregoing table, we make judgments and estimates regarding, among other things, future deliverable products and services, the appropriate valuation of those products and services and expected changes in customer requirements. These judgments and estimates could differ from actual events, particular those that involve factors outside of our control. As a result, the actual revenue recognized from these arrangements, and the timing of that recognition may differ from the amounts identified in this table. While management believes that this information is a helpful measure in evaluating the company’s performance, investors should understand that unless, and until, the company is actually able to recognize these amounts as revenue in accordance with GAAP, there can be no assurance that the conditions to recording that revenue will be satisfied.

Liquidity and Capital Resources

We expect to be able to fund our operating and capital requirements for at least the next twelve months by using existing cash balances and short-term and long-term marketable debt securities, if our assumptions about our revenues, expenses and cash commitments are generally accurate. Because we cannot be certain that our assumptions about our business or the interactive television market in general will prove to be accurate, our funding requirements may differ from our current expectations.

As of June 30, 2007, we had cash and cash equivalents of $45.3 million, which was a decrease of $3.3 million from December 31, 2006. Taking into account short-term and long-term marketable debt securities of $28.8 million, our cash, cash equivalents and marketable debt securities were $74.1 million as of June 30, 2007 as compared to $65.2 million as of December 31, 2006, and $65.0 million as of June 30, 2006. The mix of cash and

short-term and longer-term securities may change in the future as we make decisions regarding the composition of our investment portfolio. Our primary source of cash is receipts from customers. In addition, we may receive up to an additional $14.3 million in cash in early 2008 after expiration of an indemnity period specified in the stock purchase agreement between Liberty and Kudelski. The primary uses of cash are operating and capital expenditures.

Our cash balances as of June 30, 2007 were positively affected by $5.5 million of cash from financing activities, which included a $5.4 million capital contribution from Liberty in connection with its sale of its controlling interest in our company to Kudelski, and $4.8 million of cash provided by operating activities. These were offset by a negative cash flow from investing activities of $13.6 million, primarily as a result of a net increase in investments in marketable debt securities. Our cash balances as of June 30, 2006 were positively affected by $1.6 million in cash generated from operating activities, $0.8 million from the issuance of ordinary shares in connection with option exercises and the net sale of $0.3 million of marketable debt securities. These increases were used to fund $1.7 million of capital expenditures.

Net cash provided by operating activities was $4.8 million for the six months ended June 30, 2007. This increase is primarily a result of increased customer billings that are not yet recognizable, which increased deferred revenue by $7.2 million. Accounts receivable decreased $1.8 million due to increased collection efforts of key U.S. customers. Such improvements were partially offset by the $8.0 million net loss, adjusted for depreciation and amortization of $5.4 million. Accrued liabilities decreased $3.5 million, primarily due to the payment of the annual employee bonuses in the first quarter of 2007.

Net cash provided by operating activities was $1.6 million for the six months ended June 30, 2006. This increase is primarily the result of a $1.5 million increase in deferred revenue due to customer billings that are not yet recognizable. Prepaid expenses and other current assets decreased $1.6 million due to regular amortization and the refund of foreign income taxes. These improvements were partially offset by the $5.6 million net loss, adjusted for depreciation and amortization of $5.1 million.

Net cash used in investing activities was $13.6 million for the six months ended June 30, 2007 which was due primarily to the acquisition of $1.4 million of computer equipment for research and development activities and $12.2 million for the net purchase of marketable debt securities.

Net cash used in investing activities was $1.4 million for the six months ended June 30, 2006 which was due primarily to the acquisition of $1.7 million of property and equipment. Our investing activities yielded $0.2 million in net proceeds from the sales of marketable debt securities.

Our financing activities provided $5.5 million in the six months ended June 30, 2007 which was primarily due to a capital contribution of $5.4 million from Liberty, representing the premium payable pursuant to a February 2006 agreement between OpenTV and Liberty.

Our financing activities provided $0.8 million in the six months ended June 30, 2006 which was due to the sales of common stock through the exercise of stock options.

We use professional investment management firms to manage most of our invested cash. The portfolio consists of highly liquid, high-quality investment grade securities of the United States government and agencies, corporate notes and bonds and certificates of deposit that predominantly have maturities of less than three years. All investments are made in accordance with our written investment policy, which has been approved by our board of directors.

Commitments and Contractual Obligations

Information as of June 30, 2007 concerning the amount and timing of required payments under our contractual obligations is summarized below (in millions):


			Due in
			remaining six		Due in 2008-		Due in 2010-		Due in 2012 or
	Total		months of 2007		2009		2011		after
Operating leases obligations	$	14.4	$	2.9	$	9.6	$	1.7	$	0.2
Noncancellable purchase obligations		1.1		0.7		0.4		—		—

Total contractual obligations	$	15.5	$	3.6	$	10.0	$	1.7	$	0.2

We have the right to terminate, without penalty, two of our operating leases prior to their scheduled expiration. If we exercise those early termination rights, beginning in 2008 our future minimum lease commitments would be reduced by an aggregate of $6.6 million over the current remaining life of those leases. We have not yet made any determination as to whether we intend to exercise any of those rights. If we did exercise any such rights, while our commitments under those specific leases would be reduced, we might also be required to lease additional space to conduct our business and we cannot be certain, at this time, whether any such actions would possibly result in a net increase in our future minimum lease commitments.

In the ordinary course of business, we enter into various arrangements with vendors and other business partners for bandwidth, marketing, and other services. Future minimum commitments under these arrangements as of June 30, 2007 were $0.7 million for the remaining six months of 2007, and $0.4 million for the year ending December 31, 2008. In addition, we also have arrangements with certain parties that provide for revenue sharing payments.

As of June 30, 2007, we had three standby letters of credit aggregating approximately $1.2 million, two of which were issued to landlords of our leased properties, and one of which was issued to a sublessee at our New York facility, which we had vacated in the second quarter of 2005. We pledged two certificates of deposit aggregating approximately $1.4 million, which is included under long-term marketable debt securities, as collateral in respect of these standby letters of credit.

Indemnification

In the normal course of our business, we provide indemnification to customers, subject to limitations, against claims of intellectual property infringement made by third parties arising from the use of our products. Costs related to these indemnification provisions are sometimes difficult to estimate. While we have not historically experienced significant costs for these matters, there may be occasions in the ordinary course of our business where we assume litigation and other costs on behalf of our customers that could have an adverse effect on our financial position depending upon the outcome of any specific matter. We ordinarily seek to limit our liabilities in those arrangements in various respects, including monetarily, but the costs associated with any type of intellectual property indemnification arrangement continue to escalate in general, and especially in the technology sector.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

We are exposed to financial market risks. This exposure relates to our holdings of fixed income investment securities, investments in privately-held companies and assets and liabilities denominated in foreign currencies.

Fixed Income Investment Risk

We own a fixed income investment portfolio with various holdings, types and maturities. These investments are generally classified as available-for-sale. Available-for-sale securities are recorded on the balance sheet at fair value with unrealized gains or losses, net of tax, included as a separate component of the balance sheet line item titled “accumulated other comprehensive loss.”

Most of these investments consist of a diversified portfolio of highly liquid United States dollar- denominated debt securities classified by maturity as cash equivalents, short-term investments or long-term investments. These debt securities are not leveraged and are held for purposes other than trading. Our investment policy limits the maximum maturity of securities in this portfolio to three years and weighted-average maturity to 15 months. Although we expect that market value fluctuations of our investments in short-term debt obligations will not be significant, a sharp rise in interest rates could have a material adverse effect on the value of securities with longer maturities in the portfolio. Alternatively, a sharp decline in interest rates could have a material positive effect on the value of securities with longer maturities in the portfolio. We do not currently hedge interest rate exposures.

Our investment policy limits investment concentration in any one issuer (other than with respect to United States treasury and agency securities) and also restricts this part of our portfolio to investment grade obligations based on the assessments of rating agencies. There have been instances in the past where the assessments of rating agencies have failed to anticipate significant defaults by issuers. It is possible that we could lose most or all of the value in an individual debt obligation as a result of a default. A loss through a default may have a material impact on our earnings even though our policy limits investments in the obligations of a single issuer to no more than five percent of the value of our portfolio.

The following table presents the hypothetical changes in fair values in our portfolio of investment securities with original maturities greater than 90 days as of June 30, 2007 using a model that assumes immediate sustained parallel changes in interest rates across the range of maturities (in thousands):

Valuation of

Fair Value as

Securities if

of June 30,

Interest Rates

2007

Decrease 1%

Increase 1%

Decrease 2%

Increase 2%

Marketable debt securities

28,819

28,926

28,712

29,033

28,605

The modeling technique used in the above table estimates fair values based on changes in interest rates assuming static maturities. The fair value of individual securities in our investment portfolio is likely to be affected by other factors including changes in ratings, market perception of the financial strength of the issuers of such securities and the relative attractiveness of other investments. Accordingly, the fair value of our individual securities could also vary significantly in the future from the amounts indicated above.

Foreign Currency Exchange Rate Risk

We transact business in various foreign countries. We incur a substantial majority of our expenses, and earn most of our revenues, in United States dollars. Although a majority of our worldwide customers are invoiced and make payments in United States dollars, some of our customer contracts provide for payments to be remitted in local currency.

We have a foreign currency exchange exposure management policy. The policy permits the use of foreign currency forward exchange contracts and foreign currency option contracts and the use of other hedging procedures in connection with hedging foreign currency exposures. The policy requires that the use of derivatives and other procedures qualify for hedge treatment under SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities.”We regularly assess foreign currency exchange rate risk that results from our global operations. We did not use foreign currency forward exchange contracts, options in hedging foreign currency exposures, or other hedging procedures, during the first six months of 2007. We expect over time, however, that a more significant number of our European customers may seek to pay us in Euros, which may affect our risk profile and require us to make use of appropriate hedging strategies. While we anticipate a certain portion of our revenues in 2007 will be paid to us in Euros, we do not believe that such payments will require a material change in our existing hedging policies.

Item 4.Controls and Procedures

Management of the company is responsible for establishing and maintaining adequate internal control over financial reporting (“Internal Control”) as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on their evaluation as of June 30, 2007, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in

Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were sufficiently effective to ensure that the information required to be disclosed by us in this quarterly report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and Form 10-Q.

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Part II. Other Information

Item 1.Legal Proceedings

The information set forth in this Section has been included only to the extent that it reflects a significant update of information previously set forth in our Annual Report on Form 10-K for the year ended December 31, 2006. To the extent that we do not have any significant changes in the legal proceedings referred to in such Annual Report, we have not restated the description of those proceedings. That determination not to so restate those descriptions should not be taken as a representation that we have resolved the matter or that it is no longer a contingency. In addition, any update to the legal proceedings referred to below does not necessarily mean that the information contained in the update is material; rather, we have determined that the updated information is relevant to a fair assessment of the matter and is intended to provide our investors with a reasonable understanding of the nature of the legal proceeding as we understand it on the date of this Quarterly Report.

liability, if any, in respect of any potential counterclaims if litigated to conclusion.

Other Matters.From time to time in the ordinary course of our business, we are also party to other legal proceedings or receive correspondence regarding potential or threatened legal proceedings. While we currently believe that the ultimate outcome of these other proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in our results of operations, legal proceedings are subject to inherent uncertainties.

Item 1A.Risk Factors

Based on information available to management as of the date of this Quarterly Report on Form 10-Q, management has determined that no material changes are required to the risk factor disclosure as reported in our Annual Report on Form 10-K for the year ended December 31, 2006.

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

At our 2007 Annual Meeting of Stockholders held on June 27, 2007, each of the following individuals was elected to our board of directors to hold office until the next annual meeting of stockholders or until their successors are duly elected and qualified:


Nominee	Votes For		Votes Withheld
James A. Chiddix		367,038,132		11,670,821
Joseph Deiss		378,108,008		600,945
Lucien Gani		366,787,925		11,921,028
Alan A. Guggenheim		367,072,039		11,636,914


Nominee	Votes For		Votes Withheld
André Kudelski		364,690,165		14,018,788
Jerry Machovina		378,078,629		630,324
Mercer Reynolds		378,093,350		615,603
Pierre Roy		366,787,821		11,921,132
Claude Smadja		366,781,112		11,927,841

The following proposal was also approved at our annual meeting of stockholders:


	Votes For		Votes Against		Votes Abstained
Ratification of the appointment of Grant Thornton LLP as independent auditors for OpenTV Corp. for the year ending December 31, 2007.		378,294,001		256,515		158,437

No other matters were submitted to stockholders for a vote.

Item 6.Exhibits

(a) Exhibits. Listed below are the exhibits which are filed as a part of this Report (according to the number assigned to them in Item 601 of Regulation S-K):


	31.1			Rule 13a-14(a)/15d-14(a) Certification*

	31.2			Rule 13a-14(a)/15d-14(a) Certification*

	32			Section 1350 Certification*


*		Filed herewith

Signature

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


	OpenTV Corp.
Date: August 2, 2007	By:	/s/ Shum Mukherjee
		Shum Mukherjee
		Executive Vice President and Chief Financial Officer

Exhibit Index


Exhibit
Number		Description

	31.1	Rule 13a-14(a)/15d-14(a) Certification*
	31.2	Rule 13a-14(a)/15d-14(a) Certification*
	32	Section 1350 Certification*


*		Filed herewith

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

Opentv (OPTV) Inactive 10-Q2007 Q2 Quarterly report

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