Opentv (OPTV) 10-Q 2007 Q3 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 September 30, 2007

OR

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	98-0212376
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
275 Sacramento Street	94111
San Francisco, California	(Zip Code)
(Address of principal executive offices)

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

109,579,861 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	24
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	36
	Item 4. Controls and Procedures	37
Part II. Other Information		38
	Item 1. Legal Proceedings	38
	Item 1A. Risk Factors	38
	Item 6. Exhibits	39
Exhibit Index		41
EX-31.1: CERTIFICATION		42
EX-31.2: CERTIFICATION		43
EX-32: CERTIFICATIONS		44

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

2

Part I. Financial Information

Item 1. Financial Statements

OPENTV CORP.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2007			2006 *
	(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	46,167		$	48,309
Short-term marketable debt securities		22,159			8,681
Accounts receivable, net of allowance for doubtful accounts of $713 and $348 at September 30, 2007 and December 31, 2006, respectively		20,722			18,684
Prepaid expenses and other current assets		6,008			5,477
Current assets of discontinued operations		2,095			2,505
Total current assets		97,151			83,656
Long-term marketable debt securities		2,966			7,928
Property and equipment, net		6,566			7,016
Goodwill		95,061			95,019
Intangible assets, net		13,614			18,477
Other assets		4,584			4,827
Non-current assets of discontinued operations		85			3,841
Total assets	$	220,027		$	220,764
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,245		$	3,879
Accrued liabilities		16,775			15,816
Accrued restructuring		709			416
Deferred revenue		25,784			12,614
Current liabilities of discontinued operations		1,349			1,660
Total current liabilities		46,862			34,385
Accrued liabilities, net of current portion		2,703			3,121
Accrued restructuring, net of current portion		1,054			1,954
Deferred revenue, net of current portion		8,720			12,987
Total liabilities		59,339			52,447
Commitments and contingencies (Note 13)
Minority interest		460			486
Shareholders’ equity:
Class A ordinary shares, no par value, 500,000,000 shares authorized; 109,656,188 and 107,906,960 shares issued and outstanding, including treasury shares, at September 30, 2007 and December 31, 2006, respectively		2,235,905			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 September 30, 2007 and December 31, 2006, respectively		35,953			35,953
Additional paid-in capital		499,608			491,630
Treasury shares at cost, 76,327 shares		(38	)		(38	)
Accumulated other comprehensive loss		(83	)		(261	)
Accumulated deficit		(2,611,117	)		(2,594,948	)
Total shareholders’ equity		160,228			167,831
Total liabilities, minority interest and shareholders’ equity	$	220,027		$	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.

3

OPENTV CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
	(In thousands, except share and per share amounts)
Revenues:
Royalties and licenses	$	16,188		$	17,327		$	48,115		$	48,441
Services and other		7,486			7,644			23,630			21,678
Total revenues		23,674			24,971			71,745			70,119
Cost of revenues:
Royalties and licenses		1,390			2,010			5,091			5,697
Services and other		9,884			8,221			29,084			23,222
Total cost of revenues		11,274			10,231			34,175			28,919
Gross profit		12,400			14,740			37,570			41,200
Operating expenses:
Research and development		8,704			7,883			25,011			23,124
Sales and marketing		2,801			3,151			8,690			8,977
General and administrative		6,629			4,562			16,750			13,952
Restructuring and impairment costs		—			—			(28	)		20
Amortization of intangible assets		412			515			1,432			1,574
Total operating expenses		18,546			16,111			51,855			47,647
Loss from operations		(6,146	)		(1,371	)		(14,285	)		(6,447	)
Interest income		1,161			825			2,407			2,270
Other income / (expenses)		715			37			665			(161	)
Minority interest		9			9			26			28
Loss before income taxes		(4,261	)		(500	)		(11,187	)		(4,310	)
Income tax expense		486			1,098			1,325			2,195
Net loss from continuing operations		(4,747	)		(1,598	)		(12,512	)		(6,505	)
Discontinued operations:
Income / (loss) from discontinued operations, net of tax		238			(185	)		(5	)		(897	)
Impairment of assets of discontinued operations, net of tax		(3,652	)		—			(3,652	)		—
Net loss from discontinued operations		(3,414	)		(185	)		(3,657	)		(897	)
Net loss	$	(8,161	)	$	(1,783	)	$	(16,169	)	$	(7,402	)
Net loss per share from continuing operations, basic and diluted	$	(0.03	)	$	(0.01	)	$	(0.09	)	$	(0.04	)
Net loss per share from discontinued operations, basic and diluted		(0.03	)		—			(0.03	)		(0.01	)
Net loss per share, basic and diluted	$	(0.06	)	$	(0.01	)	$	(0.12	)	$	(0.05	)
Shares used in per share calculation, basic and diluted		139,052,035			137,648,870			138,734,827			137,005,835

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

4

OPENTV CORP.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended September 30,
	2007			2006
	(In thousands)
Cash flows from operating activities:
Net loss	$	(16,169	)	$	(7,402	)
Less: Loss from discontinued operations		(3,657	)		(897	)
Net loss from continuing operations		(12,512	)		(6,505	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property and equipment		2,844			2,220
Amortization of intangible assets		4,863			5,280
Share-based compensation		2,741			2,772
Non-cash employee compensation		82			95
Provision for doubtful accounts		456			24
Write-off of accounts receivable		(91	)		—
(Gain) loss on disposal of property and equipment		(3	)		24
Minority interest		(26	)		(28	)
Changes in operating assets and liabilities:
Accounts receivable		(2,403	)		(2,067	)
Prepaid expenses and other current assets		(531	)		883
Other assets		243			(1,766	)
Accounts payable		(1,634	)		141
Accrued liabilities		541			3,038
Accrued restructuring		(607	)		(371	)
Deferred revenue		8,903			1,720
Net cash provided by operating activities of continuing operations		2,866			5,460
Net cash provided by (used in) operating activities of discontinued operations		182			(280	)
Total net cash provided by operating activities		3,048			5,180
Cash flows from investing activities:
Purchase of property and equipment		(2,325	)		(2,707	)
Proceeds from disposal of property and equipment		27			—
Proceeds from sale of marketable debt securities		11,481			10,466
Purchase of marketable debt securities		(19,984	)		(7,175	)
Net cash (used in) provided by investing activities of continuing operations		(10,801	)		584
Net cash used in investing activities of discontinued operations		(20	)		(17	)
Total net cash (used in) provided by investing activities		(10,821	)		567
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		269			796
Net cash provided by financing activities of continuing operations		5,497			796
Effect of exchange rate changes on cash and cash equivalents of continuing operations		296			216
Effect of exchange rate changes on cash and cash equivalents of discontinuing operations		(214	)		(315	)
Total effect of exchange rate changes on cash and cash equivalents		82			(99	)
Net (decrease) increase in cash and cash equivalents of continuing operations		(2,142	)		7,056
Net decrease in cash and cash equivalents of discontinued operations		(52	)		(612	)
Net (decrease) increase in cash and cash equivalents		(2,194	)		6,444
Cash and cash equivalents, beginning of period, of continuing operations		48,309			46,267
Cash and cash equivalents, beginning of period, of discontinued operations		307			962
Cash and cash equivalents, beginning of period		48,616			47,229
Cash and cash equivalents, end of period, of continuing operations		46,167			53,323
Cash and cash equivalents, end of period, of discontinued operations		255			350
Cash and cash equivalents, end of period	$	46,422		$	53,673
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	(1,205	)	$	(1,178	)
Non-cash investing and financing activities:
Conversion of exchangeable shares	$	42		$	17,576
Value of bonus shares issued to employees	$	—		$	2,658

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

5

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 unaudited condensed consolidated 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 unaudited 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 unaudited 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, primarily related to discontinued operations and the adoption of 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.”

     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.

     Discontinued Operations

          In September 2007, we committed to a plan to divest Static Holding Ltd. (Static), which is our subsidiary that operates our PlayJam business (PlayJam). In accordance with SFAS No. 144,“Accounting for the Impairment or Disposal of Long Lived Assets”(SFAS 144), the net assets associated with such business unit are currently considered as “held-for-sale”, and the financial results of the disposal group have been classified as discontinued operations in our unaudited condensed consolidated financial statements for all periods presented. Unless noted otherwise, discussions in the footnotes below pertain to continuing operations.

Note 2. Summary of Significant Accounting Policies

     Income Taxes

          On January 1, 2007, we adopted FIN 48, which 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 12 (Income Taxes) 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

6

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 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 losses per share were computed using the weighted average number of ordinary shares outstanding during the periods presented. The following weighted items as of September 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 September 30,		Nine Months Ended September 30,
	2007	2006	2007	2006
Class A ordinary shares issuable upon exercise of stock options	6,704,061	10,991,876	8,106,386	10,484,967
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)	670,066	715,185	674,714	727,534
Class B ordinary shares issuable for shares of OpenTV, Inc.
Class B common stock	—	—	—	112,515

          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 0.8 million and 1.6 million for the three months ended September 30, 2007 and 2006, respectively, and 1.0 million and 2.4 million for the nine months ended September 30, 2007 and 2006, respectively.

Note 4. Discontinued Operations

          In July 2001, we acquired Static, an interactive TV media and entertainment company, which has become our PlayJam business unit included in our applications segment. In September 2007, we committed to a plan to divest Static. In accordance with SFAS 144, the net assets associated with such business unit are currently considered as “held-for-sale”, and the financial results of this disposal group have been classified as discontinued operations in our unaudited condensed consolidated financial statements for all periods presented.

          As a result of a reassessment of the carrying value of the long-lived assets of the discontinued operations, in accordance with SFAS 144 and SFAS 142,“Goodwill and Other Intangible Assets”(SFAS 142), during the three months ended September 30, 2007, we recorded an impairment charge of $3.6 million in our applications segment representing the entire goodwill balance for PlayJam, and a nominal amount of impairment charge to property and equipment. We determined fair values based on current expectations for the business and expected sales price.

7

          The assets and liabilities classified as discontinued operations were as follows (in thousands):

	September 30,		December 31,
	2007		2006
Cash and cash equivalents	$	255	$	307
Accounts receivable		1,709		1,876
Prepaid expenses and other current assets		131		322
Total current assets of discontinued operations	$	2,095	$	2,505
Goodwill	$	—	$	3,626
Property and equipment, net		85		215
Total non-current assets of discontinued operations	$	85	$	3,841
Accounts payable	$	194	$	456
Accrued liabilities		1,155		1,204
Total current liabilities of discontinued operations	$	1,349	$	1,660

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Revenues - services and other	$	1,278		$	1,582		$	3,879		$	5,051
Cost of revenues - services and other		874			1,409			3,095			4,659
Gross profit		404			173			784			392
Research and development		205			366			761			1,142
Sales and marketing		—			37			—			161
General and administrative		101			132			271			356
Impairment of goodwill		3,626			—			3,626			—
Impairment of property and equipment		26			—			26			—
Loss from operations		(3,554	)		(362	)		(3,900	)		(1,267	)
Interest income		5			2			11			5
Loss from discontinued operations before income taxes		(3,549	)		(360	)		(3,889	)		(1,262	)
Income tax benefit		(135	)		(175	)		(232	)		(365	)
Net loss from discontinued operations	$	(3,414	)	$	(185	)	$	(3,657	)	$	(897	)

          The cash flows from the discontinued operations, as presented in the unaudited condensed consolidated statement of cash flows, relate to the ongoing operations of PlayJam and are expected to continue until the divestiture occurs, which is expected to be in the fourth quarter of 2007.

          As of September 30, 2007, the balance of foreign currency translation adjustments associated with PlayJam was $0.1 million and will be eliminated upon divestiture and included in the gain / (loss) from discontinued operations. See Note 10 (Other Comprehensive Loss).

8

Note 5. Balance Sheet Components (in thousands)

	September 30,			December 31,
	2007			2006
Prepaid expenses and other current assets:
Value added tax	$	297		$	606
Current deferred tax asset		233			274
Deferred contract costs		2,786			650
Other		2,692			3,947
	$	6,008		$	5,477
Property and equipment:
Computers and equipment	$	14,938		$	15,093
Software		5,370			5,233
Furniture and fixtures		1,419			2,632
Leasehold improvements		2,930			2,645
		24,657			25,603
Less accumulated depreciation and amortization		(18,091	)		(18,587	)
	$	6,566		$	7,016
Other assets:
Deposits	$	810		$	820
Deferred contract costs		3,322			3,136
Other		452			871
	$	4,584		$	4,827
Accrued liabilities (current and non-current):
Accrued payroll and related liabilities	$	9,828		$	8,323
Accrued professional fees		962			1,222
Accrued marketing		1,139			1,457
Accrued income taxes		3,214			3,611
Deferred rent		1,570			1,569
Other		2,765			2,755
	$	19,478		$	18,937

          As of September 30, 2007 and December 31, 2006, accounts receivable included approximately $3.1 million and $1.3 million, respectively, of unbilled receivables.

Note 6. Goodwill

          As a result of a reassessment of the carrying value of the long-lived assets of our discontinued operations, in accordance with SFAS 144 and SFAS 142, during the three months ended September 30, 2007, we recorded an impairment charge of $3.6 million in our applications segment representing the entire goodwill balance for PlayJam. See Note 4 (Discontinued Operations).

          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.

9

Note 7. Intangible Assets

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

	September 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	$	14,102	$	(4,611	)	$	9,491	$	10,872
Developed technologies		3-5		8,600		(6,547	)		2,053		4,103
Contracts and relationships		5		3,300		(1,374	)		1,926		3,302
Trademarks		4		300		(156	)		144		200
			$	26,302	$	(12,688	)	$	13,614	$	18,477

          The intangible assets are being amortized on a straight-line basis over their estimated useful lives. Aggregate amortization of intangible assets was $1.5 million and $1.7 million for the three months ended September 30, 2007 and 2006, respectively, and $4.9 million and $5.3 million for the nine months ended September 30, 2007 and 2006, respectively. Of the aggregate amount, $1.1 million and $1.2 million were reported in cost of revenues (royalties and licenses) in the statement of operations for the three months ended September 30, 2007 and 2006, respectively, and $3.5 million and $3.7 million for the nine months ended September 30, 2007 and 2006, respectively.

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

	Amortization
Year Ending December 31,	Expense
2007 (remaining three months)	$	1,024
2008		3,303
2009		1,796
2010		1,526
2011		1,085
2012		1,085
Thereafter		3,795
	$	13,614

Note 8. 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 nine months ended September 30, 2007 (in thousands):

	Employee
	Severance			Excess
	and Benefits			Facilities			Total
Accrued restructuring as of December 31, 2006, current and non-current	$	1,001		$	1,369		$	2,370
Cash payments		(488	)		(125	)		(613	)
Reclassification to lease expenses		—			34			34
Adjustment of original estimate		(28	)		—			(28	)
Accrued restructuring as of September 30, 2007, current and non-current	$	485		$	1,278		$	1,763

10

          The outstanding accrual for employee severance and benefits as of September 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 9. Employee Bonus

          On August 27, 2007, our board of directors approved the adoption of a 2007 Management Bonus and Equity Issuance Plan. A total of 1,020,230 restricted Class A ordinary shares were issued pursuant to this plan during the three months ended September 30, 2007. In connection with that issuance, we reserved for issuance an additional equivalent number of shares under our 2005 Incentive Plan in accordance with the terms of that plan. See Note 11 (Share-based Compensation Plans).

          During the three months ended March 31, 2007, we 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 to our employees in other jurisdictions. In connection with that issuance, we reserved for issuance an additional equivalent number of shares under our 2005 Incentive Plan in accordance with the terms of that plan.

Note 10. Other Comprehensive Loss

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Reported net loss	$	(8,161	)	$	(1,783	)	$	(16,169	)	$	(7,402	)
Other comprehensive gains (losses):
Foreign currency translation gains (losses)		131			61			165			(41	)
Unrealized gains (losses) on available-for-sale investments, net of income taxes		(6	)		72			13			44
Total comprehensive loss	$	(8,036	)	$	(1,650	)	$	(15,991	)	$	(7,399	)

          The balance of foreign currency translation adjustments associated with PlayJam was $0.1 million and $0.4 million as of September 30, 2007 and December 31, 2006, respectively. Upon divestiture of PlayJam, the associated balance of foreign currency translation adjustment will be eliminated upon divestiture and included in the gain / (loss) from discontinued operations.

Note 11. 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

11

“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 remain in existence for the sole purpose of governing outstanding options issued there under until such time as such options expire or have been exercised or cancelled. Options issued under the 1999 Plan, 2001 Plan and 2003 Plan that are forfeited or cancelled will no longer be available for future issuance.

          2005 Plan.We currently issue options and restricted share awards under 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, share awards or share units issued under the 2005 Plan. The options may be incentive stock options or non-statutory stock options. Options under the 2005 Plan are granted at an exercise price equal to the fair market value on the date of grant and typically 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 7,955,894 Class A ordinary shares have been reserved for issuance under the 2005 Plan since its inception, and as of September 30, 2007, options to purchase 2,134,946 Class A ordinary shares were outstanding under the 2005 Plan, and 3,804,337 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 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 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 September 30, 2007, options to purchase 2,221,681 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 remains in existence for the sole purpose of governing those remaining outstanding options until such time as such options expire or have been exercised or cancelled 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 September 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 September 30, 2007, options to purchase 141,734 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 September 30, 2007, options to purchase 1,820,353 Class A ordinary shares were outstanding under the 2003 Plan.

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

12

          Options outstanding under the Assumed ACTV Plan were converted as a result of the ACTV acquisition into options to purchase our Class A ordinary shares. As of September 30, 2007, options to purchase 35,926 Class A ordinary shares were outstanding under the Assumed ACTV Plan.

          Options outstanding under 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 Issued to Former Chief Executive Officer (CEO)

          In March 2007, we entered into an employment agreement with Alan A. Guggenheim, our former CEO. Pursuant to that agreement, we issued Mr. Guggenheim 60,000 restricted Class A ordinary shares under our 2005 Plan on the date of the employment agreement. In August 2007, Mr. Guggenheim stepped down as CEO. The restricted shares issued to Mr. Guggenheim were fully vested upon issuance but are restricted from sale or transfer until August 2008.

     2007 Management Bonus and Equity Issuance Plan

          In August 2007, our board of directors approved the adoption of a 2007 Management Bonus and Equity Issuance Plan (2007 Plan). The 2007 Plan provides that:

• 2007 bonus awards for certain senior management of OpenTV, other than the former CEO (Alan A. Guggenheim), shall be based upon achievement of our profitability targets;

• the profitability targets are based upon our cumulative net income measured over any four consecutive fiscal quarters during the period commencing April 1, 2007 and ending December 31, 2009 (Cumulative Net Income), where Cumulative Net Income is based on net income as publicly reported in our financial statements, subject to certain exclusions;

• subject to achievement of the profitability targets, bonus awards will be comprised of a cash amount and a grant of restricted Class A ordinary shares issued pursuant to the 2005 Plan; and

• the restricted shares will vest, and the cash will become payable, in each case on a pro rata basis, based on the following schedule:

• (i) 62.5% upon OpenTV achieving Cumulative Net Income equal to or greater than zero,

• (ii) 12.5% upon OpenTV achieving Cumulative Net Income equal to $4,000,000, and

• (iii) 25% upon OpenTV achieving Cumulative Net Income equal to $6,000,000.

          As defined by SFAS No. 123 (revised 2004),“Share-based Payment,”(SFAS 123(R)), the 2007 Plan has both a performance and service element. Accordingly, once vesting is considered probable, we recognize expense on a straight-line basis over the remaining requisite service period. Final compensation cost is recognized only for the awards that ultimately vest. The 2007 Plan payout is a combination of restricted stock and cash. As of September 30, 2007, we have issued 1,020,230 restricted Class A ordinary shares under the 2005 Plan and have accrued approximately $0.1 million of expense related to probable achievement of performance targets.

          As of September 30, 2007, none of the profitability targets applicable to shares issued under the 2007 Plan had been achieved and thus, restrictions remained in effect as to all such shares.

13

     Impact of the Adoption of SFAS 123(R)

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007		2006
Stock options and 2007 Plan:
Cost of revenues — services and other	$	120		$	120	$	369	$	420
Research and development		168			155		511		564
Sales and marketing		75			130		338		452
General and administrative		147			339		1,274		1,336
		510			744		2,492		2,772
CEO restricted shares:
General and administrative		(39	)		—		249		—
	$	471		$	744	$	2,741	$	2,772

          Cash received from option exercises under all share-based compensation plans was nominal for the three months ended September 30, 2007 and 2006. Cash received from option exercises under all share-based compensation plans was approximately $0.3 million and $0.8 million for the nine months ended September 30, 2007 and 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 nine months ended September 30, 2007 and 2006. On June 27, 2007, we repurchased 1,150,000 stock options for $167,000 from James A. Chiddix, our former CEO, in connection with his resignation as CEO.

     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 September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Risk-free interest rates		4.21% - 5.02	%		4.51% - 5.19	%		4.21% - 5.10	%		4.28% - 5.22	%
Average expected lives (months)		65			63			65			63
Dividend yield		—			—			—			—
Expected volatility		67	%		79	%		67% - 74	%		79% - 85	%

          Our computation of expected volatility for the three and nine months ended September 30, 2007 and 2006 was based on historical volatility of our stock price. Our computation of expected life in the three and nine months ended September 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.

          We calculated the fair value of restricted shares based on the closing price of our Class A ordinary shares on the date of grant.

14

     Option Award Activity

          The following table summarizes stock option activity under our equity incentive plans:

	Number of
	Options					Weighted Average
	Outstanding			Exercise Price		Exercise Price
Balance, December 31, 2006		9,680,385				$	5.04
Options granted		112,300		$	2.34 - $2.72	$	2.51
Restricted shares granted		—			$2.65	$	2.65
Options exercised		(109,000	)	$	1.05 - $1.78	$	1.75
Options forfeited		(349,137	)	$	1.51 - $4.00	$	3.32
Options expired		(307,677	)	$	1.63 - $54.25	$	4.35
Balance, March 31, 2007		9,026,871				$	5.14
Options granted		254,400		$	2.12 - $2.56	$	2.27
Options exercised		(15,052	)	$	1.51 - $2.29	$	1.77
Options forfeited		(738,633	)	$	1.51 - $3.94	$	2.89
Options expired		(1,645,376	)	$	1.63 - $54.25	$	7.45
Balance, June 30, 2007		6,882,210				$	4.73
Options granted		100,000		$	1.32 - $2.11	$	1.64
Options exercised		(101,854	)		$0.33	$	0.33
Options forfeited		(128,626	)	$	1.63 - $3.71	$	2.82
Options expired		(242,356	)	$	1.51 - $54.25	$	3.51
Balance, September 30, 2007		6,509,374				$	4.83

          The following table summarizes information with respect to options outstanding at September 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		725,014		4.44	$	1.48		477,986	$	1.29
$  2.13	-	$  2.69		532,841		8.14	$	2.43		159,874	$	2.39
$  2.70	-	$  2.70		1,205,599		6.91	$	2.70		810,689	$	2.70
$  2.72	-	$  2.82		358,300		7.62	$	2.77		189,228	$	2.77
$  2.84	-	$  2.84		1,613,130		7.75	$	2.84		749,210	$	2.84
$  2.85	-	$  3.05		700,875		6.74	$	2.98		322,479	$	2.99
$  3.06	-	$  6.00		728,137		5.98	$	4.48		470,485	$	4.92
$  6.04	-	$81.00		641,478		2.83	$	22.73		641,478	$	22.73
$82.06	-	$82.06		3,000		2.51	$	82.06		3,000	$	82.06
$88.00	-	$88.00		1,000		2.17	$	88.00		1,000	$	88.00
				6,509,374		6.46	$	4.83		3,825,429	$	6.28

          Intrinsic Value.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.

          The aggregate intrinsic value of options exercised under our stock option plans, determined as of the date of option exercise, was $0.1 million for the three months ended September 30, 2007, and was nominal for the three months ended September 30, 2006. The aggregate intrinsic value of options exercised under our stock option plans, determined as of the date of option exercise, was $0.2 million and $0.5 million for the nine months ended September 30, 2007 and 2006, respectively.

          Vested and Unvested Options.The aggregate intrinsic value of all vested and unvested options outstanding as of September 30, 2007 was approximately $0.2 million, based on the closing price of our Class A ordinary shares on September 28, 2007, which was $1.48.

          Exercisable Options.The aggregate intrinsic value of options currently exercisable as of September 30, 2007 was approximately $0.2 million, based on the closing price of our Class A ordinary shares on September 28, 2007, which was $1.48. The weighted average remaining contractual life of currently exercisable options,

15

calculated from September 30, 2007, is 5.41 years.

          Vested and Expected-to-Vest Options. The number of options vested and expected-to-vest as of September 30, 2007 was 5,561,908, the weighted-average exercise price of which was $5.19. The aggregate intrinsic value of options vested and expected-to-vest as of September 30, 2007 was $0.2 million, based on the closing price of our Class A ordinary shares on September 28, 2007, which was $1.48. The weighted average remaining contractual life of options vested and expected-to-vest as of September 30, 2007 was 6.19 years.

          Weighted Average Grant-date Fair Value.The weighted average grant-date fair value of options granted was $1.01 and $2.15 per share for grants in the three months ended September 30, 2007 and 2006, respectively, and $1.39 and $2.07 per share for grants in the nine months ended September 30, 2007 and 2006, respectively.

     Restricted Shares Activity

          The following table summarizes activity relating to restricted shares issued pursuant to our 2007 Plan and restricted shares issued to Mr. Guggenheim, our former CEO:

	Number of			Weighted Average Grant
	Shares			Date Fair Value
Unvested shares balance, December 31, 2006		—
Former CEO restricted shares granted		60,000		$	2.65
Former CEO restricted shares vested		(60,000	)	$	2.65
Unvested restricted shares granted		1,020,230		$	1.43
Unvested shares balance, September 30, 2007		1,020,230		$	1.43

     Unrecognized Compensation Expense

          As of September 30, 2007, there was approximately $2.4 million of 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 2.00 years.

          As of September 30, 2007, there was approximately $1.4 million of unrecognized compensation cost related to unvested restricted shares issued under the 2007 Plan that could be recognized through December 31, 2009.

Note 12. Income Taxes

          On January 1, 2007, we adopted FIN 48. 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

16

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 nine months ended September 30, 2007, the interest and penalties net of deferred tax benefit that we recognized as part of income tax expense were not material.

Note 13. 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 November 2007 and May 2012. Total rent expense was $1.2 million for the three months ended September 30, 2007 and 2006, respectively, and $3.6 million for the nine months ended September 30, 2007 and 2006, respectively. The sublease income was nominal for the three and nine months ended September 30, 2007. There was no sublease income for the three and nine months ended September 30, 2006.

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

	Minimum
Year ending December 31,	Commitments
2007 (remaining three months)	$	1,365
2008		5,235
2009		4,338
2010		1,151
2011		596
Thereafter		181
	$	12,866

          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 September 30, 2007 were $0.4 million for the remaining three months of 2007, and $0.4 million for the year ending December 31, 2008.

          As of September 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.

          As of December 31, 2006, we had three standby letters of credit aggregating approximately $1.2 million, for the same purpose as stated above. We pledged approximately $0.5 million of restricted cash, which was included under other assets and one certificate of deposit of $1.0 million, which was included under long-term marketable debt securities, as collateral in respect of these standby letters of credit.

17

     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 TVWorks, LLC (formerly known as Double C Technologies), a joint venture between Comcast Corporation and Cox Communications, Inc. In connection with that transaction, Liberate and TVWorks indicated in a filing with the United States District Court that TVWorks had assumed all liability related to this litigation. On October 1, 2007, OpenTV, Liberate and TVWorks participated in a settlement conference with a magistrate judge of the Northern District of California. On November 6, 2007, OpenTV and Liberate filed a proposed consent judgment with the District Court, which, if approved by the court, would result in the issuance of a permanent injunction against Liberate restraining and enjoining Liberate from violating the OpenTV patents at issue. In addition, the proposed consent judgment would result in the dismissal of all Liberate counterclaims against OpenTV. Separately, subject to court approval of the consent judgment, TVWorks has agreed to pay OpenTV the amount of $1.5 million in exchange for a limited release covering solely Liberate’s activities prior to TVWorks’ acquisition. The proposed consent judgment is subject to court approval, and there can be no guarantee that such approval will be obtained.

          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 filed amended master allegations and amended complaints in the six focus cases. 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.

18

          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

          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. Historically, costs related to these indemnification provisions have not been significant. We are not, however, able to estimate the maximum potential impact of these indemnification provisions on our future results of operations since the liabilities associated with those types of claims are dependent on various factors that are not known until an action is commenced.

          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.

19

Note 14. 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 September 30, 2007, Kudelski’s total ownership represented approximately 26.7% of the economic interest and approximately 75.1% 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 months ended September 30, 2007, we recorded approximately $0.4 million interest income related to such unpaid capital contribution from Kudelski.

          During the three and nine months ended September 30, 2007, the services and support revenue received from Kudelski was not material. During the three months ended September 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 $2.1 million for the three and nine months ended September 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 15. Segment Information

          Our chief operating decision maker, or CODM, is our Chief Operating Officer and Acting CEO. 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”(SFAS 131).

          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, NASCAR service and related technologies. Our BettingCorp business has included our PlayMonteCarlo betting and gaming channel and the development and 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. During September 2007, we committed to a plan to divest Static, which operates our PlayJam business. In accordance with SFAS 144, the net assets associated with such reporting unit are currently considered as “held-for-sale”, and the financial results of the disposal group have been classified as discontinued operations in our unaudited condensed consolidated financial statements for all periods presented.

          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 personnel and personnel-related support 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.

20

          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 GAAP 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 affected.

          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. Nigel W. Bennett was appointed Chief Operating Officer and Acting CEO and CODM on August 29, 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. Finally, due to our plan to divest Static, which operates our PlayJam games business, we have disclosed the associated financial results as discontinued operations, which means that the assets now included within our Applications segment are different than those included when we initially began reporting this segment. These changes, among other considerations, may affect the manner in which we report our segments in the future.

21

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Revenues:
Middleware and integrated technologies
Royalties and licenses	$	14,864		$	15,205		$	44,391		$	44,615
Services and other		5,592			4,207			17,684			12,990
Subtotal — Middleware and integrated technologies		20,456			19,412			62,075			57,605
Applications
Royalties and licenses		1,239			868			3,604			2,572
Services and other		1,778			1,995			5,446			5,606
Subtotal — Applications		3,017			2,863			9,050			8,178
Betting Corp
Royalties and licenses		85			1,254			120			1,254
Services and other		116			1,442			500			3,082
Subtotal — Betting Corp		201			2,696			620			4,336
Total Revenues	$	23,674		$	24,971		$	71,745		$	70,119
Contribution Margin / (Loss):
Middleware and integrated technologies	$	4,765		$	6,917		$	16,039		$	21,208
Applications		467			(507	)		1,157			(704	)
Betting Corp		(764	)		1,162			(2,458	)		(552	)
Total Contribution Margin		4,468			7,572			14,738			19,952
Unallocated corporate support		(7,727	)		(5,610	)		(18,521	)		(16,012	)
Restructuring and impairment costs		—			—			28			(20	)
Depreciation and amortization		(949	)		(784	)		(2,844	)		(2,220	)
Amortization of intangible assets		(1,461	)		(1,751	)		(4,863	)		(5,280	)
Share-based and non-cash compensation		(477	)		(798	)		(2,823	)		(2,867	)
Interest income		1,161			825			2,407			2,270
Other expenses		715			37			665			(161	)
Minority interest		9			9			26			28
Loss before income taxes		(4,261	)		(500	)		(11,187	)		(4,310	)
Income tax expense		486			1,098			1,325			2,195
Net loss from continuing operations	$	(4,747	)	$	(1,598	)	$	(12,512	)	$	(6,505	)
Discontinued operations:
Income / (loss) from discontinued operations, net of tax		238			(185	)		(5	)		(897	)
Impairment of assets of discontinued operations, net of tax		(3,652	)		—			(3,652	)		—
Net loss from discontinued operations		(3,414	)		(185	)		(3,657	)		(897	)
Net loss	$	(8,161	)	$	(1,783	)	$	(16,169	)	$	(7,402	)

22

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

	Three Months Ended September 30,										Nine Months Ended September 30,
	2007		%			2006		%			2007		%			2006		%
Europe, Africa and Middle East
United Kingdom	$	5,377		23	%	$	4,640		19	%	$	14,706		20	%	$	15,202		22	%
Italy		1,065		4	%		1,532		6	%		4,224		6	%		4,666		7	%
Other Countries		4,535		19	%		4,771		19	%		13,496		19	%		13,959		20	%
Subtotal		10,977		46	%		10,943		44	%		32,426		45	%		33,827		49	%
Americas
United States		5,184		22	%		6,634		26	%		16,375		23	%		20,060		28	%
Other Countries		1,462		6	%		1,353		6	%		4,733		7	%		4,255		6	%
Subtotal		6,646		28	%		7,987		32	%		21,108		30	%		24,315		34	%
Asia Pacific
Japan		2,985		13	%		3,089		12	%		9,486		13	%		5,142		7	%
Other Countries		3,066		13	%		2,952		12	%		8,725		12	%		6,835		10	%
Subtotal		6,051		26	%		6,041		24	%		18,211		25	%		11,977		17	%
	$	23,674		100	%	$	24,971		100	%	$	71,745		100	%	$	70,119		100	%

          Two major customers accounted for the following percentages of revenues:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Echostar		9	%		13	%		10	%		15	%
Thomson		16	%		11	%		15	%		10	%

          British Sky Broadcasting, or BSkyB, directly and indirectly accounted for 20% and 14% of total revenues for the three months ended September 30, 2007 and 2006, respectively, and 18% and 17% of total revenues for the nine months ended September 30, 2007 and 2006, respectively, taking into account the royalties that are paid by three manufacturers who sell set-top boxes to BSkyB.

          One customer accounted for 11% of net accounts receivable as of September 30, 2007. Two customers accounted for 20% and 11%, respectively, of net accounts receivable as of September 30, 2006.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
United States	$	623	$	731	$	1,721	$	1,969
Other countries		331		314		604		738
	$	954	$	1,045	$	2,325	$	2,707

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

	September 30,		December 31,
	2007		2006
Property and equipment:
United States	$	4,699	$	5,025
Other countries		1,867		1,991
	$	6,566	$	7,016
Other assets
United States	$	3,761	$	3,997	��
Other countries		823		830
	$	4,584	$	4,827

23

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

          This Quarterly Report on Form 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. 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 on Form 10-K for the fiscal year ended December 31, 2006, as such section may be updated in our subsequent Quarterly Reports on Form 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 on Form 10-K for the fiscal year ended December 31, 2006, as filed with the Securities and Exchange Commission.

Overview of Our Business

          We are one of the world’s leading providers of software solutions for digital and interactive television. Our software enables cable, satellite, telecommunications, and digital terrestrial operators, which we refer to as “network operators,” to offer an enhanced television experience to their viewers.

          The majority of our revenues typically comes from 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. We also derive revenues from the licensing of related software and interactive content and applications associated with the delivery of digital and interactive television, as well as from licensing products that enable advanced advertising solutions. In addition, we receive professional services fees from consulting, systems integration 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.

          We have recently signed subscription-based licensing agreements under which we 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.

          As of September 30, 2007, Kudelski SA and its affiliates owned approximately 26.7% of the economic interest and 75.1% of the voting interest of OpenTV.

Recent Events

          On August 29, 2007, Alan A. Guggenheim stepped down as our President and CEO and resigned from our board of directors. On the same day, Nigel W. Bennett was appointed as our Chief Operating Officer and Acting CEO, and Mauro Saladini was appointed as a member of our board of directors.

          In September 2007, we signed a letter of intent to sell Static Holding Ltd, which operates our PlayJam games business. This sale is subject to negotiation of definitive agreements, which will include customary closing conditions, but we expect to close the transaction by December 31, 2007. In accordance with SFAS 144, the net assets associated with such business unit are currently considered as “held-for-sale”. Accordingly, the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been revised for all periods presented to reflect this business as a discontinued operation. Unless noted otherwise, discussions in this Quarterly Report on Form 10-Q pertain only to continuing operating activities.

          On November 6, 2007, OpenTV and Liberate Technologies, Inc. filed a proposed consent judgment with the United States District Court for the Northern District of California, which, if approved by the court, would resolve the patent infringement lawsuit filed by OpenTV against Liberate in February 2002. The proposed judgment would result in the issuance of a permanent injunction against Liberate restraining and enjoining Liberate from violating the OpenTV patents at issue. In addition, the proposed consent judgment would result in the dismissal of all Liberate counterclaims against OpenTV. Separately, subject to court approval of the consent judgment, TVWorks, LLC (formerly known as Double C Technologies, LLC), a joint venture between Comcast Corporation and Cox Communications, has agreed to pay OpenTV $1.5 million in exchange for a limited release covering solely Liberate’s activities prior to TVWorks’ acquisition of Liberate’s North American assets in April 2005. The proposed consent judgment is subject to court approval, and there can be no guarantee that such approval will be obtained.

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.

24

          We believe the following critical accounting policies and estimates have the greatest potential impact on our unaudited condensed consolidated financial statements: revenue recognition, allowances for doubtful accounts, tax valuation allowances, 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 nine months ended September 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.

Financial Highlights for the Three and Nine Months Ended September 30, 2007 and 2006

Revenues

          Revenues were as follows (in millions, except percentages):

	Three Months Ended September 30,
	2007		%			2006		%			$ Change			% Change
Royalties and licenses	$	16.2		68	%	$	17.3		69	%	$	(1.1	)		(6	%)
Services and other		7.5		32	%		7.7		31	%		(0.2	)		(3	%)
Total revenues	$	23.7		100	%	$	25.0		100	%	$	(1.3	)		(5	%)

          Revenues were as follows (in millions, except percentages):

	Nine Months Ended September 30,
	2007		%			2006		%			$Change			% Change
Royalties and licenses	$	48.1		67	%	$	48.4		69	%	$	(0.3	)		(1	%)
Services and other		23.6		33	%		21.7		31	%		1.9			9	%
Total revenues	$	71.7		100	%	$	70.1		100	%	$	1.6			2	%

          We have entered into commercial arrangements involving both product licenses and service elements that are bundled together under generally accepted accounting principles. Revenues from such bundled offerings have been allocated to each of the “Royalties and licenses” and “Services and other” revenue line items based on the relative fair values of the product and service elements in each of the contracts. Our determination of relative fair value of each of these elements is based on the relative amounts of the fees for the product licenses and service elements, as set forth in each of the applicable contracts.

     Royalty revenues.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 prospective volume discounts on optional future deployments of the licensed middleware products, based on the volume of the customer’s previous deployments of the particular licensed products, and expect that we will continue to do so in the

25

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.

          A significant portion of our revenues is dependent upon our customers’ subscriber base, the growth in their subscriber base, and the related quantities of set-top boxes deployed. 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.

     Other license revenues.We also derive fees from the licensing of other software products, such as OpenTV Streamer, OpenTV Software Developers Kit, our advanced advertising products and our OpenTV Participate product. 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.

     Services and other revenues.Services and other revenues consist primarily of professional services, maintenance and support, training, service usage fees, revenue sharing arrangements, and programming fees. Professional service revenues are generally derived from deployment and integration consulting engagements for network operators, set-top box manufacturers, and system integrators. Service usage fees and revenue sharing arrangements are generally derived from our PlayMonteCarlo gaming channel which was sold in the fourth quarter of 2006 and revenue sharing arrangements for advertising and other interactive services. We also derived programming fees in 2006 from our NASCAR service agreement, which was not renewed for the 2007 season, and from other programmers.

          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.

          Revenues were as follows (in millions, except percentages):

	Three Months Ended September 30,
	2007		%			2006		%			$ Change			% Change
Royalties and licenses:
Americas	$	4.3		26	%	$	5.5		32	%	$	(1.2	)		(22	%)
Europe, Middle East, and Africa		8.4		52	%		8.0		46	%		0.4			5	%
Asia Pacific		3.5		22	%		3.8		22	%		(0.3	)		(8	%)
Total royalties and licenses		16.2		100	%		17.3		100	%		(1.1	)		(6	%)
Services and other:
Americas		2.3		31	%		2.6		34	%		(0.3	)		(12	%)
Europe, Middle East, and Africa		2.7		36	%		2.9		38	%		(0.2	)		(7	%)
Asia Pacific		2.5		33	%		2.2		28	%		0.3			14	%
Total services and other		7.5		100	%		7.7		100	%		(0.2	)		(3	%)
Total revenues	$	23.7				$	25.0				$	(1.3	)		(5	%)

          Revenues were as follows (in millions, except percentages):

26

	Nine Months Ended September 30,
	2007		%			2006		%			$ Change			% Change
Royalties and licenses:
Americas	$	14.2		30	%	$	17.2		36	%	$	(3.0	)		(17	%)
Europe, Middle East, and Africa		23.8		49	%		23.4		48	%		0.4			2	%
Asia Pacific		10.1		21	%		7.8		16	%		2.3			29	%
Total royalties and licenses		48.1		100	%		48.4		100	%		(0.3	)		(1	%)
Services and other:
Americas		6.9		29	%		7.1		33	%		(0.2	)		(3	%)
Europe, Middle East, and Africa		8.6		37	%		10.5		48	%		(1.9	)		(18	%)
Asia Pacific		8.1		34	%		4.1		19	%		4.0			98	%
Total services and other		23.6		100	%		21.7		100	%		1.9			9	%
Total revenues	$	71.7				$	70.1				$	1.6			2	%

     Royalties and license revenues

          Royalties and license revenues in the Americas region decreased 22% and 17% for the three months and nine months ended September 30, 2007, respectively, primarily reflecting reductions in revenues from EchoStar and Bell Express Vu, partially offset by increased revenues from NET in Brazil and by increased revenues from our advanced advertising products.

          Revenues from EchoStar were $1.8 million and $6.3 million for the three and nine months ended September 30, 2007, respectively, and represented a reduction of $1.3 million and $3.7 million compared to the corresponding periods for the prior year. EchoStar revenues are decreasing due to reduced set-top box shipments and to a reduction in amortization as compared to the same periods in 2006. Because we previously committed to develop a limited number of unspecified future applications for EchoStar pursuant to an applications development agreement entered into with EchoStar contemporaneously with the middleware license agreement with EchoStar, the royalty payments we previously received from EchoStar under that license agreement were being 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 through September 2008. As a result, we are currently amortizing revenues from EchoStar over the remaining term of the middleware license agreement.

          Revenues from Bell Express Vu were $0.1 million and $1.3 million, respectively for the three and nine months ended September 30, 2007, and represented a reduction of $0.8 million and $1.8 million compared to the corresponding periods of the prior year. This decrease was primarily due to an amendment to our license agreement with Bell ExpressVu entered into during the first quarter of 2007 that converted the 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 the set-top box incorporating our middleware. 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 more than compensate for the relative difference between the amount of the prior upfront royalty and the recurring subscription fee.

          These reductions in middleware revenues were partially offset by higher revenues from NET in Brazil which increased by $0.7 million and $1.9 million for the three months and nine months ended September 30, 2007, respectively, over the corresponding prior year periods, reflecting increased shipments of set-top boxes.

          Advanced advertising royalties and license revenues increased $0.3 million and $0.9 million for the three months and nine months ended September 30, 2007, respectively, due to increased deployments of our products by existing customers.

          Royalties and licensing revenues in the Europe, Middle East, and Africa regions increased 5% and 2% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year. Revenues from BSkyB were $4.7 million and $12.4 million for the three and nine months ended September 30, 2007, respectively, and represented an increase of $1.6 million and $2.7 million compared to the corresponding periods of the prior year, 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 expect the

27

number of PVR shipments to increase as network operators seek to deploy more PVR functionality in the future. These increases were partially offset by decreased royalty revenues of $1.2 million and $2.2 million from Digiturk and other customers for the three and nine months ended September 30, 2007, respectively, resulting from lower volumes of deployments by such customers.

          Royalty and licensing revenues in the Asia-Pacific region decreased 8% and increased 29% for the three and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year. JCOM royalty revenue increased $0.6 million and $1.8 million for the three and nine months ended September 30, 2007, respectively, resulting from additional deployments of our video-on-demand products that began during the three months ended June 30, 2007. Sales of our integrated browser products increased $0.3 million and $1.2 million for the three and nine months ended September 30, 2007, respectively, reflecting increased device sales by our customers. In addition, increased amortization from FOXTEL, for whom we first started recognizing revenues from middleware shipments during the second quarter of 2006, accounted for an increase of $0.8 million for the nine months ended September 30, 2007. These increases were partially offset by the one-time recognition of $1.3 million in licensing revenue from PartiTV for the three months ended September 30, 2006 pursuant to a contract that was terminated in the third quarter of 2006.

     Service and other revenues

          Service and other revenues in the Americas region decreased 12% and 3% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily reflecting a decrease in NASCAR service revenue of $0.6 million and $1.5 million for the three and nine months ended September 30, 2007, respectively, as our service agreement was not renewed for the 2007 season. These decreases were partially offset by increased maintenance and support and service fees of $0.4 million and $0.8 million for the three months and nine months ended September 30, 2007, respectively, related to our advanced advertising products as a result of increased deployments of our products by existing customers, and an increase of $0.5 million for the nine months ended September 30, 2007 primarily in revenue share payments and discrete professional services engagements from other customers.

          Service and other revenues in the Europe, Middle East, and Africa regions decreased 7% and 18% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily reflecting a decrease in PlayMonteCarlo revenue of $0.5 million and $2.0 million, for the three and nine months ended September 30, 2007, respectively, resulting from the sale of the PlayMonteCarlo betting and gaming service in December 2006. In addition, revenues from BSkyB and other customers decreased $0.6 million and $3.0 million for the three months and nine months ended September 30, 2007, respectively, due to the substantial competition of certain discrete development and integration service engagements in 2006. These decreases were partially offset by increased UGC professional services revenues of $0.9 million and $3.1 million for the three and nine months ended September 30, 2007, respectively, primarily resulting from a new engagement that began during the three months ended March 31, 2007.

          Service and other revenues in the Asia Pacific regions increased 14% and 98% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily reflecting a $1.0 million and $2.8 million increase in JCOM professional services revenues, resulting from a new project that began during the three months ended June 30, 2007. In addition, services and other revenues from other customers accounted for an increase of $2.1 million for the nine months ended September 30, 2007. These increases were partially offset by the one-time recognition of $0.9 million in services and maintenance and support revenue from PartiTV during the three months ended September 30, 2006 pursuant to a contract that was terminated in the third quarter of 2006.

Cost of Revenues

          Cost of revenues were as follows (in millions, except percentages):

	Three Months Ended September 30,
	2007		%			2006		%			$ Change			% Change
Cost of royalties and licenses	$	1.4		12	%	$	2.0		20	%	$	(0.6	)		(30	%)
Cost of services and other		9.9		88	%		8.2		80	%		1.7			21	%
Total cost of revenues	$	11.3		100	%	$	10.2		100	%	$	1.1			11	%

          Cost of revenues were as follows (in millions, except percentages):

28

	Nine Months Ended September 30,
	2007		%			2006		%			$ Change			% Change
Cost of royalties and licenses	$	5.1		15	%	$	5.7		20	%	$	(0.6	)		(11	%)
Cost of services and other		29.1		85	%		23.2		80	%		5.9			25	%
Total cost of revenues	$	34.2		100	%	$	28.9		100	%	$	5.3			18	%

     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 decreased 30% and 11% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily reflecting the final amortization in August 2007 of intangible assets relating to our 2002 acquisition of Wink Communications.

     Cost of services and other.Cost of services and other consist primarily of personnel and personnel-related support costs associated with maintenance and support, 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 increased 21% and 25% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily reflecting increased personnel and personnel-related costs of $1.2 million and $4.5 million for the three months and nine months ended September 30, 2007, respectively, resulting from an increase in staffing new and ongoing projects. In addition, we experienced an increase in consulting and subcontractor costs of $0.9 million and $3.7 million for the three months and nine months ended September 30, 2007, respectively, associated with staffing professional service engagements. These increases were partially offset by a decrease in network infrastructure and bandwidth costs of $0.7 million and $2.7 million for the three months and nine months ended September 30, 2007, respectively, resulting from the sale of our PlayMonteCarlo channel in the fourth quarter of 2006.

Operating Expenses

          Operating Expenses were as follows (in millions, except percentages):

	Three Months Ended September 30,
	2007		%			2006		%			$ Change			% Change
Research and development	$	8.7		47	%	$	7.8		48	%	$	0.9			12	%
Sales and marketing		2.8		15	%		3.2		20	%		(0.4	)		(13	%)
General and administrative		6.7		36	%		4.6		29	%		2.1			46	%
Amortization of intangible assets		0.4		2	%		0.5		3	%		(0.1	)		(20	%)
Total Operating Expenses	$	18.6		100	%	$	16.1		100	%	$	2.5			16	%

          Operating Expenses were as follows (in millions, except percentages):

	Nine Months Ended September 30,
	2007		%			2006		%			$ Change			% Change
Research and development	$	25.0		48	%	$	23.1		49	%	$	1.9			8	%
Sales and marketing		8.7		17	%		9.0		19	%		(0.3	)		(3	%)
General and administrative		16.8		32	%		14.0		29	%		2.8			20	%
Amortization of intangible assets		1.4		3	%		1.6		3	%		(0.2	)		(13	%)
Total Operating Expenses	$	51.9		100	%	$	47.7		100	%	$	4.2			9	%

     Research and development.Research and development expenses consist primarily of personnel and personnel-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 expenses increased 12% and 8% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily as a result of increased personnel and personnel-related costs of $0.9 million and $1.4 million for the three months and nine months ended September 30, 2007, respectively.

          Research and development remains important to our long-term growth strategy. We will continue to focus

29

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.

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

          Sales and marketing expenses decreased 13% and 3% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily as a result of decreased sales and travel-related expenses of $0.2 million and $0.5 million for the three months and nine months ended September 30, 2007, respectively, as a result of reduced spending on trade shows and conferences during 2007.

     General and administrative. General and administrative expenses consist primarily of personnel and personnel-related support costs, fees for professional services, including legal and accounting fees, and provision for doubtful accounts.

          General and administrative expenses increased 46% and 20% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily the result of increased personnel and personnel-related costs, including severance costs of approximately $2.0 million recorded during the three months ended September 30, 2007 for former senior executive officers, as well as the additional share-based compensation expense of approximately $0.5 million recorded during the three months ended June 30, 2007 relating to the repurchase of stock options from a former senior executive officer.

     Amortization of intangible assets.Amortization of intangible assets is generally recognized 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.

          Amortization of intangible assets decreased 20% and 13% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, reflecting the final amortization in August 2007 of the intangible assets relating to our 2002 acquisition of Wink Communications.

Non-Operating Expense Items and Discontinued Operations

     Interest income. Interest income consists primarily of interest earned on our cash, cash equivalents, and marketable debt securities, net of interest expense. Interest income was approximately $1.2 million and $2.4 million for the three and nine months ended September 30, 2007, respectively, as compared to $0.8 million and $2.3 million for the corresponding period in the prior year, primarily reflecting interest income of $0.4 million recorded during the three months ended September 30, 2007 in respect of the funds held in escrow on behalf of OpenTV pursuant to the stock purchase agreement between Liberty and Kudelski.

     Other income and expenses.Other income and expenses consists primarily of gains or losses from foreign currency exchange, gains or losses on the disposal of capital assets, and miscellaneous income that was previously deferred. Other income and expenses was approximately $0.7 million of the three and nine months ended September 30, 2007, as compared to a nominally positive and $0.2 million negative for the corresponding periods in the prior year. These increases were primarily due to foreign exchange gains in 2007 on funds held in bank accounts denominated in various foreign currencies.

     Income tax expense.Income tax expense consists primarily of foreign taxes, state taxes, tax benefits or refunds, and changes to reserves for identified potential foreign tax exposures. Income tax expense was approximately $0.5 million and $1.3 million for the three and nine months ended September 30, 2007, respectively, as compared to $1.1 million and $2.2 million, respectively, for the corresponding periods in the prior year, primarily reflecting a decrease in foreign taxes payable as a result of the completion of discrete service engagements in foreign jurisdictions in 2006.

          On January 1, 2007, we adopted FIN 48. As a result of the adoption, we did not have an adjustment to accumulated deficit.

     Discontinued Operations. During September 2007, we committed to a plan to divest Static, which operates our

30

PlayJam business. In accordance with SFAS 144, the net assets associated with such business unit are currently considered as “held-for-sale”, and the financial results of the disposal group have been classified as discontinued operations in our unaudited condensed consolidated financial statements for all periods presented.

          As a result of reassessment of the carrying value of the long-lived assets of the discontinued operations, in accordance with SFAS 144 and SFAS 142, during the three months ended September 30, 2007, we recorded an impairment charge to goodwill of $3.6 million. We determined fair values based on current expectations for the business and expected sales price. See Note 4 (Discontinued Operations) to the unaudited condensed consolidated financial statement for further information.

Business Segment Results

          Our chief operating decision maker, or CODM, is our Chief Operating Officer and Acting CEO. 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 131.

          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, NASCAR service and related technologies. Our BettingCorp business has included our PlayMonteCarlo betting and gaming channel and the development 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. During September 2007, we committed to a plan to divest Static, which operates our PlayJam games business. In accordance with SFAS 144, the net assets associated with such reporting unit are currently considered as “held-for-sale”, and the financial results of the disposal group have been classified as discontinued operations in our unaudited condensed consolidated financial statements for all periods presented.

          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 personnel and personnel-related support 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 GAAP that are otherwise presented in our financial statements. In addition, our calculation of contribution margin may be different from the calculation used by other

31

companies and, therefore, comparability may be affected.

          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. Nigel W. Bennett was appointed Chief Operating Officer and Acting CEO and CODM on August 29, 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. Finally, due to our plan to divest Static, which operates our PlayJam games business, we have disclosed the associated financial results as discontinued operations, which means that the assets now included within our Applications segment are different than those included when we initially began reporting this segment. These changes, among other considerations, may affect the manner in which we report our segments in the future.

          Revenues and contribution margin of our middleware and integrated technology segment were as follows (in millions, except percentages):

	Three Months Ended September 30,													Nine Months Ended September 30,
	2007		%			2006		%			% Change			2007		%			2006		%			% Change
Royalties and licenses	$	14.9		73	%	$	15.2		78	%		(2	%)	$	44.4		71	%	$	44.6		77	%		—	%
Services and other		5.6		27	%		4.2		22	%		33	%		17.7		29	%		13.0		23	%		36	%
Total revenues	$	20.5		100	%	$	19.4		100	%		6	%	$	62.1		100	%	$	57.6		100	%		8	%
Contribution Margin	$	4.8				$	6.9					(30	%)	$	16.0				$	21.2					(25	%)

          Middleware and integrated technologies’ revenues increased 6% and 8% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily reflecting an increase of $4.2 million in professional services projects and $0.7 million in customer maintenance and support fees for the nine months ended September 30, 2007. UGC and JCOM professional service revenues increased $3.1 million and $2.8 million, respectively, for the nine months ended September 30, 2007. Royalties and licensing revenues remained consistent for the three months and nine months ended September 30, 2007, compared to the corresponding periods of the prior year.

          Middleware and integrated technologies’ contribution margin decreased 30% and 25% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily reflecting an increase in consulting and subcontractor costs associated with staffing professional service engagements, and an increase in personnel and personnel-related costs as we continue to invest in this segment.

          Revenues and contribution margin of our applications segment were as follows (in millions, except percentages):

	Three Months Ended September 30,														Nine Months Ended September 30,
	2007		%			2006			%			% Change			2007		%			2006			%			% Change
Royalties and licenses	$	1.2		40	%	$	0.9			31	%		33	%	$	3.6		40	%	$	2.6			32	%		38	%
Services and other		1.8		60	%		2.0			69	%		(10	%)		5.5		60	%		5.6			68	%		(2	%)
Total revenues	$	3.0		100	%	$	2.9			100	%		3	%	$	9.1		100	%	$	8.2			100	%		11	%
Contribution Margin (Loss)	$	0.5				$	(0.5	)					200	%	$	1.2				$	(0.7	)					271	%

          Applications royalties and licenses revenues increased 33% and 38% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily reflecting an increase in licensing revenues from increased deployment of our advanced advertising products.

          Applications services and other revenues decreased 10% and 2% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily reflecting the termination of our NASCAR service in the fourth quarter of 2006. These decreases were partially offset by an increase in maintenance and support revenues associated with our advanced advertising products.

32

          Applications contribution margin increased 200% and 271% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily reflecting 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 termination of our NASCAR service in the fourth quarter of 2006.

          Revenues and contribution margin of our BettingCorp segment were as follows (in millions, except percentages):

	Three Months Ended September 30,														Nine Months Ended September 30,
	2007			%			2006		%			% Change			2007			%			2006			%			% Change
Royalties and licenses	$	0.1			50	%	$	1.3		48	%		(92	%)	$	0.1			17	%	$	1.2			28	%		(92	%)
Services and other		0.1			50	%		1.4		52	%		(93	%)		0.5			83	%		3.1			72	%		(84	%)
Total revenues	$	0.2			100	%	$	2.7		100	%		(93	%)	$	0.6			100	%	$	4.3			100	%		(86	%)
Contribution Margin (Loss)	$	(0.8	)				$	1.2					(167	%)	$	(2.5	)				$	(0.6	)					(317	%)

          BettingCorp revenues decreased 93% and 86% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily reflecting a one-time recognition of $2.1 million in licensing, professional services and maintenance and support revenues from PartiTV in the three months ended September 30, 2006 and the sale of our PlayMonteCarlo betting and gaming channel in the fourth quarter of 2006.

          BettingCorp contribution margin decreased 167% and 317% for the three months and nine months ended September 30, 2007, respectively, compared to the corresponding periods of the prior year, primarily reflecting lower overall margins from reduced royalties and licenses revenues related to PartiTV.

          Contribution Margin, as reconciled to net loss on a GAAP basis, was as follows (in millions):

	Three Months Ended September 30, 2007						Nine Months Ended September 30, 2007
	2007			2006			2007			2006
Total Contribution Margin	$	4.5		$	7.6		$	14.7		$	19.9
Unallocated corporate overhead		(7.7	)		(5.6	)		(18.5	)		(16.0	)
Depreciation and amortization		(1.0	)		(0.8	)		(2.8	)		(2.2	)
Intangible asset amortization		(1.5	)		(1.7	)		(4.9	)		(5.3	)
Share-based compensation expense		(0.5	)		(0.8	)		(2.8	)		(2.9	)
Interest income		1.2			0.8			2.4			2.3
Other income (expense)		0.7			—			0.7			(0.1	)
Minority interest		—			—			—			—
Loss before income taxes		(4.3	)		(0.5	)		(11.2	)		(4.3	)
Income tax expense		0.5			1.1			1.3			2.2
Net loss from continuing operations		(4.8	)		(1.6	)		(12.5	)		(6.5	)
Net loss from discontinued operations		(3.4	)		(0.2	)		(3.7	)		(0.9	)
Net loss	$	(8.2	)	$	(1.8	)	$	(16.2	)	$	(7.4	)

Liquidity and Capital Resources

          Selected financial information is as follows (in millions, except percentages):

	September 30,		December 31,
	2007		2006		$ Change			% Change
Cash and cash equivalents	$	46.2	$	48.3	$	(2.1	)		(4	%)
Short-term investments		22.1		8.7		13.4			154	%
Long-term investments		3.0		7.9		(4.9	)		62	%
Total cash and cash investments	$	71.3	$	64.9	$	6.4			10	%

          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.

          Our primary source of cash is royalty payments from customers. The primary uses of cash are personnel

33

and personnel-related costs, subcontractor and consulting costs, facilities costs, and capital expenditures.

          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 mix of cash and short-term and long-term investments may change in the future as we make decisions regarding the composition of our investment portfolio. 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.

          Selected financial information is as follows (in millions):

	Nine Months Ended September 30,
	2007			2006
Cash provided by operating activities	$	2.9		$	5.5
Cash provided by (used in) investing activities	$	(10.8	)	$	0.6
Cash provided by financing activities	$	5.5		$	0.8

     Cash provided by (used in) operating activities.The decrease in net cash provided by operating activities during the nine months ended September 30, 2007, as compared to the corresponding period of the prior year, is primarily attributable to the increase in net loss, net of non-cash items, which was $1.6 million for the nine months ended September 30, 2007, compared to net income of $3.9 million, net of non-cash items, for the nine months ended September 30, 2006. The decrease in net income was also attributable to an increase of $7.2 million in year-over-year personnel and personnel-related costs and severance costs of approximately $2.0 million for former senior executive officers. These decreases were partially offset by an increase of $7.2 million in deferred revenues, resulting from increased customer billings that are not yet recognizable.

     Cash provided by (used in) investing activities.The increase in net cash used in investing activities during the nine months ended September 30, 2007, as compared to the corresponding period of the prior year, primarily reflects a conversion from investments in long-term securities to investments in short-term securities and an increase in capital expenditures of $0.4 million.

     Cash provided by (used in) financing activities.The increase in net cash provided by financing activities during the nine months ended September 30, 2007, as compared to the corresponding period of the prior year, primarily reflects the receipt of a capital contribution of $5.4 million from Liberty in January 2007. This increase was partially offset by a $0.5 million decrease in proceeds received from employee stock option exercises.

Deferred Revenue

          We have entered into several multiple-element revenue arrangements for products and services with the following customers:

• Austar,

• Comcast,

• EchoStar’s DISH Network,

• Essel Group (which operates the DishTV network in India),

• FOXTEL,

• Innovative Systems,

• Time Warner Cable, and

• UnitedGlobalCom (or UGC, a subsidiary of Liberty Global).

          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

34

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.

     Future revenues for all customers listed in the preceding paragraph will be included in our middleware and integrated technologies business segment, with the exception of Comcast, which related to our Advision product and will be included in our applications business segment.

     As of September 30, 2007, we recorded $34.5 million in deferred revenue, of which $24.4 million, or 71%, was deferred as a result of the arrangements with the eight customers listed above. The remaining $10.1 million, or 29%, of deferred revenue as of September 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 $24.4 million of deferred revenue at September 30, 2007 resulting from the arrangements with the eight customers listed in the preceding paragraph:

     Deferred Revenues is as follows (in millions):

		Expected Recognition
Year Ending December 31,		of Deferred Revenue
2007 (remaining three months)	$	12.5
2008		5.8
Thereafter		6.1
	$	24.4

     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, particularly 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.

Commitments and Contractual Obligations

     There has been no material change to our contractual obligations during three months ended September 30, 2007. As such, see our Annual Report on Form 10-K for the year ended December 31, 2006 for a description of our facility leases and Note 13 to the unaudited condensed consolidated financial statement for further information.

     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 September 30, 2007 were $0.4 million for the remaining three months of 2007, and $0.4 million for the year ending December 31, 2008. In addition, we also have agreements with certain parties that provide for payments on revenue sharing arrangements.

35

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.

     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.

Off-Balance Sheet Arrangements

     As of September 30, 2007, we have no off-balance sheet arrangements.

Recent Accounting Pronouncements

     In September 2006, the FASB issued 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 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.

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.

36

     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 September 30, 2007 using a model that assumes immediate sustained parallel changes in interest rates across the range of maturities (in thousands):

			Valuation of		Valuation of		Valuation of		Valuation of
	Fair Value as		Securities if		Securities if		Securities if		Securities if
	of September 30,		Interest Rates		Interest Rates		Interest Rates		Interest Rates
	2007		Decrease 1%		Increase 1%		Decrease 2%		Increase 2%
Marketable debt securities	$	25,125	$	25,211	$	25,039	$	25,297	$	24,953

     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. As of September 30, 2007, we held approximately $17.4 million of various foreign currencies as a result of our worldwide operations.

     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.”During the nine months ended September 30, 2007, we did not use foreign currency forward exchange contracts, options in hedging foreign currency exposures, or other hedging procedures. However, we regularly assess our foreign currency exchange rate risk that results from our global operations, and we may in the future elect to make use of appropriate hedging strategies.

Item 4.   Controls and Procedures

     Management of the company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Based on their evaluation as of September 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 effective.

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

     Our management, including our acting 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

37

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.

     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 has been pending since that time 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 TVWorks, LLC (formerly known as Double C Technologies), a joint venture between Comcast Corporation and Cox Communications, Inc. In connection with that transaction, Liberate and TVWorks indicated in a filing with the United States District Court that TVWorks had assumed all liability related to this litigation. On October 1, 2007, OpenTV, Liberate and TVWorks participated in a settlement conference with a magistrate judge of the Northern District of California. On November 6, 2007, OpenTV and Liberate filed a proposed consent judgment with the District Court, which, if approved by the court, would result in the issuance of a permanent injunction against Liberate restraining and enjoining Liberate from violating the OpenTV patents at issue. In addition, the proposed consent judgment would result in the dismissal of all Liberate counterclaims against OpenTV. Separately, subject to court approval of the consent judgment, TVWorks has agreed to pay OpenTV the amount of $1.5 million in exchange for a limited release covering solely Liberate’s activities prior to TVWorks’ acquisition. The proposed consent judgment is subject to court approval, and there can be no guarantee that such approval will be obtained.

     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

38

Annual Report on Form 10-K for the year ended December 31, 2006.

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

39

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: November 7, 2007	By: /s/ Shum Mukherjee
	Shum Mukherjee
	Executive Vice President and
	Chief Financial Officer

40

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

41