##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 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 incorporation or
    
    (I.R.S. Employer Identification No.)organization)275 Sacramento Street, San Francisco, California
    
    94111(Address of principal executive offices)
    
    (Zip Code)
 (415) 962-5000  (Registrants telephone number, including area code)
  þ o
  o þ o
  o þ




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##### 



Table of Contents
 PagePart I. Financial Information
    
    
    3Item 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets at June 30, 2006 and December 31, 2005
    
    
    3Condensed
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35Part II. Other Information
    
    
    37Item 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 6. Exhibits
    
    
    37Signature
    
    
    38Exhibit Index
    
    
    39EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATION




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##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 OPENTV CORP.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share amounts)
 June 30,
    
    
    December 31,2006
    
    
    2005*(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    47,999
    
    
    $
    47,229Short-term marketable debt securities
    
    
    8,046
    
    
    
    9,030Accounts receivable, net of allowance for doubtful accounts of $287 and
$305 at June 30, 2006 and December 31, 2005, respectively
    
    
    17,464
    
    
    
    16,873Prepaid expenses and other current assets
    
    
    3,044
    
    
    
    4,638Total current assets
    
    
    76,553
    
    
    
    77,770Long-term marketable debt securities
    
    
    8,924
    
    
    
    8,213Property and equipment, net
    
    
    6,094
    
    
    
    5,863Goodwill
    
    
    97,615
    
    
    
    80,124Intangible assets, net
    
    
    23,621
    
    
    
    27,150Other assets
    
    
    4,332
    
    
    
    2,945Total assets
    
    $
    217,139
    
    
    $
    202,065LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,018
    
    
    $
    4,361Accrued liabilities
    
    
    16,560
    
    
    
    18,568Accrued restructuring
    
    
    1,699
    
    
    
    1,931Due to Liberty Media
    
    
    228
    
    
    
    182Current portion of deferred revenue
    
    
    12,037
    
    
    
    14,193Total current liabilities
    
    
    33,542
    
    
    
    39,235Long-term liabilities:Deferred rent
    
    
    1,248
    
    
    
    1,404Deferred revenue
    
    
    12,067
    
    
    
    8,391Total long-term liabilities
    
    
    13,315
    
    
    
    9,795Total liabilities
    
    
    46,857
    
    
    
    49,030Commitments and contingencies (Note 9)Minority interest
    
    
    504
    
    
    
    523Shareholders equity:Class A ordinary shares, no par value, 500,000,000 shares
authorized; 107,078,440 and 98,105,119 shares issued and
outstanding, including treasury shares, at June 30, 2006 and
December 31, 2005, respectively
    
    
    2,233,821
    
    
    
    2,230,398Class B ordinary shares, no par value, 200,000,000 shares authorized;
30,631,746 shares issued and outstanding
    
    
    35,953
    
    
    
    35,953Additional paid-in capital
    
    
    490,186
    
    
    
    470,596Treasury shares at cost, 76,327 shares
    
    
    (38
    )
    
    
    (38
    )Deferred share-based compensation
    
    
    
    
    
    
    (2
    )Accumulated other comprehensive loss
    
    
    (395
    )
    
    
    (265
    )Accumulated deficit
    
    
    (2,589,749
    )
    
    
    (2,584,130
    )Total shareholders equity
    
    
    169,778
    
    
    
    152,512Total liabilities, minority interest and shareholders equity
    
    $
    217,139
    
    
    $
    202,065
 
 *
    
    The consolidated balance sheet at December 31, 2005 has
been derived from the companys audited consolidated financial
statements at that date, but does not include all of the information
and notes required by accounting principles generally accepted in the
United States of America.  3




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##### Table of Contents



OPENTV CORP.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except share and per share amounts)
 (Unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Royalties and licenses
    
    $
    14,743
    
    
    $
    12,518
    
    
    $
    31,114
    
    
    $
    27,922Services and other
    
    
    8,978
    
    
    
    8,356
    
    
    
    17,503
    
    
    
    15,781Total revenues
    
    
    23,721
    
    
    
    20,874
    
    
    
    48,617
    
    
    
    43,703Cost of revenues:Royalties and licenses
    
    
    1,754
    
    
    
    1,738
    
    
    
    3,495
    
    
    
    3,374Services and other (1)
    
    
    9,385
    
    
    
    5,742
    
    
    
    18,443
    
    
    
    12,925Total cost of revenues
    
    
    11,139
    
    
    
    7,480
    
    
    
    21,938
    
    
    
    16,299Gross profit
    
    
    12,582
    
    
    
    13,394
    
    
    
    26,679
    
    
    
    27,404Operating expenses:Research and development (1)
    
    
    7,654
    
    
    
    8,107
    
    
    
    16,017
    
    
    
    16,843Sales and marketing (1)
    
    
    3,297
    
    
    
    3,323
    
    
    
    5,950
    
    
    
    6,581General and administrative (1)
    
    
    4,266
    
    
    
    4,047
    
    
    
    9,614
    
    
    
    8,258Restructuring and impairment costs
    
    
    20
    
    
    
    1,692
    
    
    
    20
    
    
    
    2,177Amortization of intangible assets
    
    
    530
    
    
    
    393
    
    
    
    1,059
    
    
    
    790Total operating expenses
    
    
    15,767
    
    
    
    17,562
    
    
    
    32,660
    
    
    
    34,649Loss from operations
    
    
    (3,185
    )
    
    
    (4,168
    )
    
    
    (5,981
    )
    
    
    (7,245
    )Interest income
    
    
    898
    
    
    
    404
    
    
    
    1,448
    
    
    
    724Other (expense) / income, net
    
    
    (201
    )
    
    
    424
    
    
    
    (198
    )
    
    
    362Minority interest
    
    
    10
    
    
    
    (16
    )
    
    
    19
    
    
    
    44Loss before income taxes
    
    
    (2,478
    )
    
    
    (3,356
    )
    
    
    (4,712
    )
    
    
    (6,115
    )Income tax expense
    
    
    (14
    )
    
    
    (686
    )
    
    
    (907
    )
    
    
    (1,211
    )Net loss
    
    $
    (2,492
    )
    
    $
    (4,042
    )
    
    $
    (5,619
    )
    
    $
    (7,326
    )Net loss per share, basic and diluted:
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.04
    )
    
    $
    (0.06
    )Shares used in per share calculation, basic and diluted
    
    
    137,392,075
    
    
    
    123,337,922
    
    
    
    136,684,318
    
    
    
    122,919,919(1) Includes the following share-based compensation expense
primarily due to the adoption of FAS 123(R):Cost of services and other
    
    $
    153
    
    
    $
    2
    
    
    $
    339
    
    
    $
    4Research and development
    
    
    179
    
    
    
    
    
    
    
    395
    
    
    
    Sales and marketing
    
    
    147
    
    
    
    
    
    
    
    323
    
    
    
    General and administrative
    
    
    502
    
    
    
    
    
    
    
    997
    
    
    
    Total share-based compensation expense
    
    $
    981
    
    
    $
    2
    
    
    $
    2,054
    
    
    $
    4
  4




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##### Table of Contents



OPENTV CORP.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Six Months Ended June 30,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (5,619
    )
    
    $
    (7,326
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization of property and equipment
    
    
    1,539
    
    
    
    2,200Amortization of intangible assets
    
    
    3,529
    
    
    
    2,561Amortization of share-based compensation
    
    
    2,054
    
    
    
    4Non-cash employee compensation
    
    
    40
    
    
    
    102Provision for doubtful accounts
    
    
    (18
    )
    
    
    Non-cash impairment costs
    
    
    
    
    
    
    602Loss on disposal of fixed assets
    
    
    10
    
    
    
    Minority interest
    
    
    (19
    )
    
    
    (44
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (573
    )
    
    
    6,675Prepaid expenses and other current assets
    
    
    1,594
    
    
    
    447Other assets
    
    
    (1,387
    )
    
    
    (743
    )Accounts payable
    
    
    (1,343
    )
    
    
    (1,022
    )Accrued liabilities and deferred rent
    
    
    494
    
    
    
    (1,464
    )Accrued restructuring
    
    
    (232
    )
    
    
    836Due to Liberty Media
    
    
    46
    
    
    
    (229
    )Deferred revenue
    
    
    1,520
    
    
    
    3,017Net cash provided by operating activities
    
    
    1,635
    
    
    
    5,616Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,668
    )
    
    
    (1,510
    )Proceeds from sale of marketable debt securities
    
    
    6,800
    
    
    
    25,438Purchase of marketable debt securities
    
    
    (6,555
    )
    
    
    (8,999
    )Private equity investments
    
    
    
    
    
    
    (300
    )Net cash (used in) / provided by investing activities
    
    
    (1,423
    )
    
    
    14,629Cash flows from financing activities:Proceeds from issuance of ordinary shares
    
    
    772
    
    
    
    22Net cash provided by financing activities
    
    
    772
    
    
    
    22Effect of exchange rate changes on cash and cash equivalents
    
    
    (214
    )
    
    
    (237
    )Net increase in cash and cash equivalents
    
    
    770
    
    
    
    20,030Cash and cash equivalents, beginning of period
    
    
    47,229
    
    
    
    35,660Cash and cash equivalents, end of period
    
    $
    47,999
    
    
    $
    55,690Supplemental disclosure of cash flow information:Cash paid for income taxes
    
    $
    (340
    )
    
    $
    (623
    )Non-cash investing and financing activitiesConversion of exchangeable shares
    
    $
    17,491
    
    
    $
    26Value of bonus shares issued to employees
    
    $
    2,658
    
    
    $
    3,180
  5




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##### Table of Contents



OPENTV CORP.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 JUNE 30, 2006
 (Unaudited)
 Note 1. Basis of Presentation
    Note 2. Summary of Significant Accounting Policies
 Share-Based Compensation
 Share-Based Payment Accounting for Stock Issued to Employees
  Accounting for Share-based Compensation  Transition and Disclosure
 6




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##### Table of Contents



Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes, Accounting for Income Taxes
   Note 3. Net Loss Per Share
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Class A ordinary shares issuable upon exercise of stock options
    
    
    10,604,099
    
    
    
    10,338,310
    
    
    
    10,226,512
    
    
    
    10,567,202Class 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)
    
    
    731,865
    
    
    
    744,428
    
    
    
    733,708
    
    
    
    744,428Class B ordinary shares issuable for shares of OpenTV, Inc.Class B common stock
    
    
    
    
    
    
    7,594,796
    
    
    
    168,773
    
    
    
    7,594,796
  Note 4. Goodwill
    7




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##### Table of Contents



Note 5. Intangible Assets, Net
  June 30, 2006
    
    
    December 31, 2005Useful
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Netlife in
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carryingyears
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmountIntangible assets:Patents
    
    
    5-13
    
    
    $
    20.7
    
    
    $
    (7.1
    )
    
    $
    13.6
    
    
    $
    14.7Developed technologies
    
    
    3-5
    
    
    
    11.3
    
    
    
    (5.8
    )
    
    
    5.5
    
    
    
    6.9Contracts and relationships
    
    
    5
    
    
    
    9.8
    
    
    
    (5.5
    )
    
    
    4.3
    
    
    
    5.3Trademarks
    
    
    4
    
    
    
    0.3
    
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    0.3Purchased technologies
    
    
    5
    
    
    
    0.4
    
    
    
    (0.4
    )
    
    
    
    
    
    
    $
    42.5
    
    
    $
    (18.9
    )
    
    $
    23.6
    
    
    $
    27.2
   AmortizationYear ending December 31,
    
    Expense2006 (Remaining six months)
    
    $
    3.52007
    
    
    6.02008
    
    
    3.52009
    
    
    2.02010
    
    
    1.7Thereafter
    
    
    6.9$
    23.6
 Note 6. Restructuring and Impairment Costs
 Accounting for Costs Associated
with Exit or Disposal Activities
 8




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##### Table of Contents



EmployeeSeverance
    
    
    Excessand Benefits
    
    
    Facilities
    
    
    TotalBalance, December 31, 2005
    
    $
    0.2
    
    
    $
    1.7
    
    
    $
    1.9Cash payments
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )Balance, March 31, 2006
    
    $
    0.2
    
    
    $
    1.6
    
    
    $
    1.8Cash payments
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )Balance, June 30, 2006
    
    $
    0.2
    
    
    $
    1.5
    
    
    $
    1.7
  Note 7. Employee Bonus
   Note 8. Comprehensive Loss
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (2.5
    )
    
    $
    (4.0
    )
    
    $
    (5.6
    )
    
    $
    (7.3
    )Other comprehensive loss:Foreign currency translation adjustment
    
    
    0.1
    
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.3
    )Comprehensive loss
    
    $
    (2.4
    )
    
    $
    (4.2
    )
    
    $
    (5.7
    )
    
    $
    (7.6
    )
 Note 9. Commitments and Contingencies
 Operating Leases
  9




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##### Table of Contents



MinimumYear ending December 31,
    
    Commitments2006 (remaining six months)
    
    $
    2.42007
    
    
    4.42008
    
    
    4.32009
    
    
    3.82010
    
    
    0.7Thereafter
    
    
    0.2$
    15.8
  Other Commitments
   Contingencies
 OpenTV, Inc. v. Liberate Technologies,

Inc.
   10




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##### Table of Contents



Initial Public Offering Securities

Litigation. Brody v. OpenTV Corp., et al. In re OpenTV Corp. Initial Public Offering Securities Litigation In re Initial Public Offering Securities Litigation


In
re Wink Communications, Inc. Initial Public Offering Securities Litigation In re Initial Public Offering Securities Litigation


Litigation Relating to the Acquisition

of ACTV, Inc.


11




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##### Table of Contents



Broadcast Innovation Matter.
 Personalized Media Communications, LLC.
 Other Matters.
  Indemnifications
   12




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##### Table of Contents



Note 10. Related Party Transactions
    Note 11. Segment Information
 Disclosure about Segments of an Enterprise and Related Information.
    13




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Middleware and integrated technologiesRoyalties and licenses
    
    $
    13.8
    
    
    $
    12.4
    
    
    $
    29.4
    
    
    $
    27.8Services and other
    
    
    4.4
    
    
    
    4.0
    
    
    
    8.4
    
    
    
    7.4Subtotal  Middleware and
integrated technologies
    
    
    18.2
    
    
    
    16.4
    
    
    
    37.8
    
    
    
    35.2ApplicationsRoyalties and licenses
    
    
    0.9
    
    
    
    0.1
    
    
    
    1.7
    
    
    
    0.1Services and other
    
    
    3.9
    
    
    
    3.1
    
    
    
    7.4
    
    
    
    6.2Subtotal  Applications
    
    
    4.8
    
    
    
    3.2
    
    
    
    9.1
    
    
    
    6.3BettingCorpServices and other
    
    
    0.7
    
    
    
    1.3
    
    
    
    1.7
    
    
    
    2.2Subtotal  BettingCorp
    
    
    0.7
    
    
    
    1.3
    
    
    
    1.7
    
    
    
    2.2Total Revenue
    
    $
    23.7
    
    
    $
    20.9
    
    
    $
    48.6
    
    
    $
    43.7Contribution margin:Middleware and integrated technologies
    
    $
    6.5
    
    
    $
    6.8
    
    
    $
    14.0
    
    
    $
    16.0Applications
    
    
    
    
    
    
    (0.8
    )
    
    
    (0.6
    )
    
    
    (2.8
    )BettingCorp
    
    
    (0.9
    )
    
    
    (0.9
    )
    
    
    (1.7
    )
    
    
    (2.3
    )Total contribution margin
    
    
    5.6
    
    
    
    5.1
    
    
    
    11.7
    
    
    
    10.9Unallocated corporate overhead
    
    
    (5.2
    )
    
    
    (5.2
    )
    
    
    (10.5
    )
    
    
    (11.2
    )Restructuring and impairment costs
    
    
    
    
    
    
    (1.7
    )
    
    
    
    
    
    
    (2.2
    )Depreciation and amortization
    
    
    (0.8
    )
    
    
    (1.1
    )
    
    
    (1.5
    )
    
    
    (2.2
    )Amortization of intangible assets
    
    
    (1.8
    )
    
    
    (1.3
    )
    
    
    (3.6
    )
    
    
    (2.6
    )Amortization of share-based compensation
    
    
    (1.0
    )
    
    
    
    
    
    
    (2.1
    )
    
    
    Interest income
    
    
    0.9
    
    
    
    0.4
    
    
    
    1.5
    
    
    
    0.7Other (expense) / income, net
    
    
    (0.2
    )
    
    
    0.5
    
    
    
    (0.2
    )
    
    
    0.4Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Loss before income taxes
    
    
    (2.5
    )
    
    
    (3.3
    )
    
    
    (4.7
    )
    
    
    (6.1
    )Income tax expense
    
    
    
    
    
    
    (0.7
    )
    
    
    (0.9
    )
    
    
    (1.2
    )Net loss
    
    $
    (2.5
    )
    
    $
    (4.0
    )
    
    $
    (5.6
    )
    
    $
    (7.3
    )
  Three Months Ended June 30
    
    
    Six Months Ended June 30,% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of2006
    
    
    revenues
    
    
    2005
    
    
    revenues
    
    
    2006
    
    
    revenues
    
    
    2005
    
    
    revenuesEurope, Africa and Middle EastUnited Kingdom
    
    $
    6.2
    
    
    
    26
    %
    
    $
    5.5
    
    
    
    27
    %
    
    $
    13.6
    
    
    
    28
    %
    
    $
    11.4
    
    
    
    26
    %Italy
    
    
    1.2
    
    
    
    5
    %
    
    
    2.6
    
    
    
    12
    %
    
    
    3.1
    
    
    
    6
    %
    
    
    7.2
    
    
    
    17
    %Other countries
    
    
    4.8
    
    
    
    21
    %
    
    
    2.6
    
    
    
    12
    %
    
    
    9.1
    
    
    
    19
    %
    
    
    5.8
    
    
    
    13
    %Subtotal
    
    
    12.2
    
    
    
    52
    %
    
    
    10.7
    
    
    
    51
    %
    
    
    25.8
    
    
    
    53
    %
    
    
    24.4
    
    
    
    56
    %AmericasUnited States
    
    
    7.1
    
    
    
    30
    %
    
    
    6.4
    
    
    
    31
    %
    
    
    13.8
    
    
    
    28
    %
    
    
    11.5
    
    
    
    26
    %Other countries
    
    
    1.0
    
    
    
    4
    %
    
    
    0.7
    
    
    
    3
    %
    
    
    2.3
    
    
    
    5
    %
    
    
    1.7
    
    
    
    4
    %Subtotal
    
    
    8.1
    
    
    
    34
    %
    
    
    7.1
    
    
    
    34
    %
    
    
    16.1
    
    
    
    33
    %
    
    
    13.2
    
    
    
    30
    %Asia Pacific
    
    
    3.4
    
    
    
    14
    %
    
    
    3.1
    
    
    
    15
    %
    
    
    6.7
    
    
    
    14
    %
    
    
    6.1
    
    
    
    14
    %$
    23.7
    
    
    
    100
    %
    
    $
    20.9
    
    
    
    100
    %
    
    $
    48.6
    
    
    
    100
    %
    
    $
    43.7
    
    
    
    100
    %
 14




---



##### Table of Contents







Three Months Ended June 30,
    
    Six Months Ended June 30,2006
    
    2005
    
    2006
    
    2005Sky Italia
    
    
    5
    %
    
    
    12
    %
    
    
    6
    %
    
    
    16
    %Echostar
    
    
    16
    %
    
    
    18
    %
    
    
    16
    %
    
    
    17
    %








Three Months Ended June 30,
    
    
    Six Months Ended June 30,Capital expenditures, net:
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005United States
    
    $
    0.8
    
    
    $
    0.4
    
    
    $
    1.3
    
    
    $
    0.9Other countries
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.6$
    1.1
    
    
    $
    0.7
    
    
    $
    1.7
    
    
    $
    1.5


June 30,
    
    
    December 31,Long-lived assets: (*)
    
    2006
    
    
    2005United States
    
    $
    7.5
    
    
    $
    6.0Other countries
    
    
    2.9
    
    
    
    2.8$
    10.4
    
    
    $
    8.8





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

Note 12. Share-based Compensation Plans


Employee Stock Purchase Plan




Option Plans






th 15




---



##### Table of Contents



1
       16




---



##### Table of Contents



Impact of the Adoption of SFAS 123(R)
   Three Months Ended
    
    
    Six Months EndedJune 30, 2006
    
    
    June 30, 2006Cost of revenues  services and other
    
    $
    153
    
    
    $
    337Research and development
    
    
    179
    
    
    
    395Sales and marketing
    
    
    147
    
    
    
    323General and administrative
    
    
    502
    
    
    
    997$
    981
    
    
    $
    2,052
  Valuation Assumptions
  Three Months Ended June 30,
    
    Six months Ended June 30,2006
    
    2005
    
    2006
    
    2005Risk-free interest rates
    
    
    4.82% - 5.22
    %
    
    
    3.78% - 4.24
    %
    
    
    4.28% - 5.22
    %
    
    
    3.71% - 4.42
    %Average expected lives (months)
    
    
    63
    
    
    
    75
    
    
    
    63
    
    
    
    75Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expected volatility
    
    
    81-84
    %
    
    
    102
    %
    
    
    81-85
    %
    
    
    102-104
    %
  17




---



##### Table of Contents



Share-based Payment Award Activity
  Shares
    
    Number ofAvailable for
    
    Shares
    
    
    
    
    
    Weighted AverageGrant
    
    Outstanding
    
    Exercise Price
    
    Exercise PriceBalance, December 31, 2005
    
    
    5,997,000
    
    
    
    10,325,710
    
    
    
    
    
    
    $
    5.42Options granted
    
    
    (37,900
    )
    
    
    37,900
    
    
    $
    2.27  -     $2.88
    
    
    $
    2.54Options exercised
    
    
    
    
    
    
    (29,022
    )
    
    $
    1.05  -     $2.10
    
    
    $
    1.21Options forfeited
    
    
    
    
    
    
    (62,913
    )
    
    $
    1.63  -      $3.77
    
    
    $
    2.80Options expired
    
    
    
    
    
    
    (428,847
    )
    
    $
    1.63  -    $54.25
    
    
    $
    9.89Balance, March 31, 2006
    
    
    5,959,100
    
    
    
    9,842,828
    
    
    
    
    
    
    $
    5.24Options granted
    
    
    (1,309,950
    )
    
    
    1,309,950
    
    
    $
    2.29  -    $4.00
    
    
    $
    2.95Options exercised
    
    
    
    
    
    
    (385,548
    )
    
    $
    0.33  -     $2.99
    
    
    $
    1.89Options forfeited
    
    
    24,600
    
    
    
    (106,470
    )
    
    $
    1.63  -     $3.61
    
    
    $
    2.93Options expired
    
    
    
    
    
    
    (37,404
    )
    
    $
    1.63  -   $54.25
    
    
    $
    13.05Balance, June 30, 2006
    
    
    4,673,750
    
    
    
    10,623,356
    
    
    
    
    
    
    $
    5.08
  Options Outstanding
      
    Options Currently ExercisableWeighted Average
    
    
    
    
    
    NumberNumber
    
    Remaining
    
    Weighted Average
    
    Vested and
    
    Weighted AverageExercise Price
    
    Outstanding
    
    Contractual Life
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$0.33   - $2.16
    
    
    1,087,396
    
    
    
    5.03
    
    
    $
    1.38
    
    
    
    749,604
    
    
    $
    1.20$2.18   - $2.69
    
    
    1,050,444
    
    
    
    3.09
    
    
    $
    2.26
    
    
    
    747,023
    
    
    $
    2.19$2.70   - $2.70
    
    
    1,465,869
    
    
    
    8.64
    
    
    $
    2.70
    
    
    
    534,590
    
    
    $
    2.70$2.72   - $2.82
    
    
    371,411
    
    
    
    8.88
    
    
    $
    2.77
    
    
    
    69,982
    
    
    $
    2.77$2.84   - $2.84
    
    
    1,708,950
    
    
    
    9.30
    
    
    $
    2.84
    
    
    
    255,334
    
    
    $
    2.84$2.85   - $2.98
    
    
    121,300
    
    
    
    8.29
    
    
    $
    2.91
    
    
    
    23,466
    
    
    $
    2.91$2.99   - $2.99
    
    
    2,184,845
    
    
    
    7.73
    
    
    $
    2.99
    
    
    
    929,315
    
    
    $
    2.99$3.00   - $4.59
    
    
    1,083,197
    
    
    
    6.56
    
    
    $
    3.58
    
    
    
    345,177
    
    
    $
    3.47$4.77   - $17.63
    
    
    1,065,034
    
    
    
    4.53
    
    
    $
    9.01
    
    
    
    1,028,784
    
    
    $
    9.15$19.00 - $94.56
    
    
    484,910
    
    
    
    4.06
    
    
    $
    40.92
    
    
    
    484,910
    
    
    $
    40.9210,623,356
    
    
    
    6.46
    
    
    $
    5.08
    
    
    
    5,168,185
    
    
    $
    7.39
   Pro forma Information for Periods Prior to the Adoption of SFAS 123(R)
  18




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005Net loss, as reported
    
    $
    (4.0
    )
    
    $
    (7.3
    )Deduct: Share-based employee compensation expense
determined under fair value-based method for all awards,
net of related tax effects
    
    
    (1.1
    )
    
    
    (2.1
    )Pro-forma net loss
    
    $
    (5.1
    )
    
    $
    (9.4
    )Net loss per share, basic and diluted:As reported
    
    $
    (0.03
    )
    
    $
    (0.06
    )Pro-forma
    
    $
    (0.04
    )
    
    $
    (0.08
    )
 
 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 operation; any statements concerning
developments, performance or market conditions relating to products or services; any statements
regarding future economic conditions or performance; any statements of expectation or belief; and
any statements of assumptions underlying any of the foregoing. You should not place undue reliance
on these forward-looking statements, which speak only as of the date of this Quarterly Report on
Form 10-Q. All these forward-looking statements are based on information available to us at this
time, and we assumeno 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 Factors That May Affect Future Results contained
in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, 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, 2005, as filed with the Securities and
Exchange Commission.
 Overview
   19




---



##### Table of Contents



Critical Accounting Policies and Estimates
   Revenue Recognition
 Software
Revenue Recognition Accounting
for Performance of Construction-Type and Certain Production-Type
Contracts Revenue Recognition.
  20




---



##### Table of Contents



Valuation Allowances
   Impairment of Goodwill and Long-lived Assets
  Restructuring Costs
  Share-Based Compensation
  21
    Table of Contents  Interaction
Between FASB Statement No. 123(R), and Certain SEC Rules and
Regulations Regarding the Valuation of Share-based Payment
Arrangement for Public Companies
  Recent Accounting Pronouncements
     22
    Table of Contents  Three and Six Months Ended June 30, 2006 and 2005
 Revenues
  Three Months Ended June 30,

    
    Six Months Ended June 30,% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of2006
    
    
    revenues
    
    
    2005
    
    
    revenues
    
    
    2006
    
    
    revenues
    
    
    2005
    
    
    revenuesRoyalties and licenses
    
    $
    14.7
    
    
    
    62
    %
    
    $
    12.5
    
    
    
    60
    %
    
    $
    31.1
    
    
    
    64
    %
    
    $
    27.9
    
    
    
    64
    %Services and other
    
    
    9.0
    
    
    
    38
    %
    
    
    8.4
    
    
    
    40
    %
    
    
    17.5
    
    
    
    36
    %
    
    
    15.8
    
    
    
    36
    %Total revenues
    
    $
    23.7
    
    
    
    100
    %
    
    $
    20.9
    
    
    
    100
    %
    
    $
    48.6
    
    
    
    100
    %
    
    $
    43.7
    
    
    
    100
    %
 Royalties and licenses.
    23
    Table of Contents  Services and Other.
  24
    Table of Contents  Operating Expenses
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of2006
    
    
    revenues
    
    
    2005
    
    
    revenues
    
    
    2006
    
    
    revenues
    
    
    2005
    
    
    revenuesCost of royalties and licenses
    
    $
    1.7
    
    
    
    7
    %
    
    $
    1.7
    
    
    
    8
    %
    
    $
    3.5
    
    
    
    7
    %
    
    $
    3.4
    
    
    
    8
    %Cost of services and other (1)
    
    
    9.4
    
    
    
    40
    %
    
    
    5.8
    
    
    
    28
    %
    
    
    18.4
    
    
    
    38
    %
    
    
    12.9
    
    
    
    29
    %Total cost of revenues
    
    
    11.1
    
    
    
    47
    %
    
    
    7.5
    
    
    
    36
    %
    
    
    21.9
    
    
    
    45
    %
    
    
    16.3
    
    
    
    37
    %Research and development (1)
    
    
    7.7
    
    
    
    33
    %
    
    
    8.1
    
    
    
    39
    %
    
    
    16.0
    
    
    
    33
    %
    
    
    16.8
    
    
    
    38
    %Sales and marketing (1)
    
    
    3.3
    
    
    
    14
    %
    
    
    3.3
    
    
    
    16
    %
    
    
    6.0
    
    
    
    12
    %
    
    
    6.6
    
    
    
    15
    %General and administrative (1)
    
    
    4.3
    
    
    
    18
    %
    
    
    4.0
    
    
    
    19
    %
    
    
    9.6
    
    
    
    20
    %
    
    
    8.2
    
    
    
    19
    %Restructuring and impairment costs
    
    
    
    
    
    
    
    %
    
    
    1.7
    
    
    
    8
    %
    
    
    
    
    
    
    
    %
    
    
    2.2
    
    
    
    5
    %Amortization of intangible assets
    
    
    0.5
    
    
    
    2
    %
    
    
    0.4
    
    
    
    2
    %
    
    
    1.1
    
    
    
    2
    %
    
    
    0.8
    
    
    
    2
    %Total operating expenses
    
    $
    26.9
    
    
    
    114
    %
    
    $
    25.0
    
    
    
    120
    %
    
    $
    54.6
    
    
    
    112
    %
    
    $
    50.9
    
    
    
    116
    %
 
  Cost of services and other
    
    $
    0.2
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    0.4
    
    
    
    
    
    
    $
    Research and development
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    Sales and marketing
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    General and administrative
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    Total
share-basedcompensation expense
    
    $
    1.0
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    2.1
    
    
    
    
    
    
    $
    
 Cost of Royalties and Licenses.
   25
    Table of Contents    Cost of Services and Other.
   Research and Development.
    Sales and Marketing.
  26
    Table of Contents    General and Administrative.
   Restructuring and Impairment Costs
 Amortization of Intangible Assets
   Interest Income, Other Expense and Minority Interest
  Income Taxes
 27
    Table of Contents  Business Segment Results
 Disclosure about Segments of an Enterprise and Related Information
    28
    Table of Contents  Three Months Ended June 30,
    
    
    Six Months Ended June 30,% of segment
    
    
    
    
    
    
    % of segment
    
    
    
    
    
    
    % of segment
    
    
    
    
    
    
    % of segment2006
    
    
    revenue
    
    
    2005
    
    
    revenue
    
    
    2006
    
    
    revenue
    
    
    2005
    
    
    revenueRevenues:Middleware and integrated technologiesRoyalties and licenses
    
    $
    13.8
    
    
    
    76
    %
    
    $
    12.4
    
    
    
    76
    %
    
    $
    29.4
    
    
    
    78
    %
    
    $
    27.8
    
    
    
    79
    %Services and other
    
    
    4.4
    
    
    
    24
    %
    
    
    4.0
    
    
    
    24
    %
    
    
    8.4
    
    
    
    22
    %
    
    
    7.4
    
    
    
    21
    %Subtotal  Middleware and integrated technologies
    
    
    18.2
    
    
    
    100
    %
    
    
    16.4
    
    
    
    100
    %
    
    
    37.8
    
    
    
    100
    %
    
    
    35.2
    
    
    
    100
    %ApplicationsRoyalties and licenses
    
    $
    0.9
    
    
    
    19
    %
    
    $
    0.1
    
    
    
    3
    %
    
    $
    1.7
    
    
    
    19
    %
    
    $
    0.1
    
    
    
    2
    %Services and other
    
    
    3.9
    
    
    
    81
    %
    
    
    3.1
    
    
    
    97
    %
    
    
    7.4
    
    
    
    81
    %
    
    
    6.2
    
    
    
    98
    %Subtotal  Applications
    
    
    4.8
    
    
    
    100
    %
    
    
    3.2
    
    
    
    100
    %
    
    
    9.1
    
    
    
    100
    %
    
    
    6.3
    
    
    
    100
    %BettingCorpRoyalties and licenses
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %Services and other
    
    
    0.7
    
    
    
    100
    %
    
    
    1.3
    
    
    
    100
    %
    
    
    1.7
    
    
    
    100
    %
    
    
    2.2
    
    
    
    100
    %Subtotal  BettingCorp
    
    
    0.7
    
    
    
    100
    %
    
    
    1.3
    
    
    
    100
    %
    
    
    1.7
    
    
    
    100
    %
    
    
    2.2
    
    
    
    100
    %Total Revenue
    
    $
    23.7
    
    
    
    
    
    
        $
    20.9
    
    
    
    
    
    
        $
    48.6
    
    
    
    
    
    
       $
    43.7Contribution margin:Middleware and integrated technologies
    
       $
    6.5
    
    
    
    
    
    
       $
    6.8
    
    
    
    
    
    
       $
    14.0
    
    
    
    
    
    
       $
    16.0Applications
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    (2.8
    )BettingCorp
    
    
    (0.9
    )
    
    
    
    
    
    
    (0.9
    )
    
    
    
    
    
    
    (1.7
    )
    
    
    
    
    
    
    (2.3
    )Total contribution margin
    
    
    5.6
    
    
    
    
    
    
    
    5.1
    
    
    
    
    
    
    
    11.7
    
    
    
    
    
    
    
    10.9Unallocated corporate overhead
    
    
    (5.2
    )
    
    
    
    
    
    
    (5.2
    )
    
    
    
    
    
    
    (10.5
    )
    
    
    
    
    
    
    (11.2
    )Restructuring and impairment costs
    
    
    
    
    
    
    
    
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.2
    )Depreciation and amortization
    
    
    (0.8
    )
    
    
    
    
    
    
    (1.1
    )
    
    
    
    
    
    
    (1.5
    )
    
    
    
    
    
    
    (2.2
    )Amortization of intangible assets
    
    
    (1.8
    )
    
    
    
    
    
    
    (1.3
    )
    
    
    
    
    
    
    (3.6
    )
    
    
    
    
    
    
    (2.6
    )Amortization of share-based compensation
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.1
    )
    
    
    
    
    
    
    Interest income
    
    
    0.9
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    0.7Other
(expense) / income, net
    
    
    (0.2
    )
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    0.4Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Loss before income taxes
    
    
    (2.5
    )
    
    
    
    
    
    
    (3.3
    )
    
    
    
    
    
    
    (4.7
    )
    
    
    
    
    
    
    (6.1
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    (0.9
    )
    
    
    
    
    
    
    (1.2
    )Net loss
    
    $
    (2.5
    )
    
    
    
    
    
    $
    (4.0
    )
    
    
    
    
    
    $
    (5.6
    )
    
    
    
    
    
    $
    (7.3
    )
 29
    Table of Contents  Middleware and integrated technologies
     Applications
     BettingCorp
   30
    Table of Contents  Deferred Revenue
      ExpectedRecognitionof UnearnedYear Ending December 31,
    
    Revenue(In millions)Remaining six months of 2006
    
    $
    4.72007
    
    
    4.8Thereafter
    
    
    9.2$
    18.7
  31
    Table of Contents  Liquidity and Capital Resources
        32
    Table of Contents  Commitments and Contractual Obligations
  Due in
    
    
    Due in
    
    
    Due in
    
    
    Due in 2011Total
    
    
    2006
    
    
    2007-2008
    
    
    2009-2010
    
    
    Or AfterOperating leases obligations
    
    $
    15.8
    
    
    $
    2.4
    
    
    $
    8.7
    
    
    $
    4.5
    
    
    $
    0.2Noncancellable purchase obligations
    
    
    1.5
    
    
    
    1.4
    
    
    
    0.1
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    17.3
    
    
    $
    3.8
    
    
    $
    8.8
    
    
    $
    4.5
    
    
    $
    0.2
    Indemnifications
   33
    Table of Contents  Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Fixed Income Investment Risk
     Valuation of
    
    Valuation of
    
    Valuation of
    
    Valuation ofFair Value as
    
    Securities if
    
    Securities if
    
    Securities if
    
    Securities ifof June 30,
    
    Interest Rates
    
    Interest Rates
    
    Interest Rates
    
    Interest Rates2006
    
    Decrease 1%
    
    Increase 1%
    
    Decrease 2%
    
    Increase 2%Marketable debt securities
    
    $16,970

    
    $17,134

    
    $16,806

    
    $17,299

    
    $16,641
  Foreign Currency Exchange Rate Risk
  Accounting for Derivative Instruments and Hedging Activities.
 34
    Table of Contents  Item 4. Controls and Procedures
   
 
   Remediation of Material Weakness Related to Certain Ineffective Account Analysis in Financial
Reporting Process
   Remediation of Material Weakness Related to Insufficient Personnel with Technical Expertise
   35
    Table of Contents  Evaluation of Disclosure Controls and Procedures
     36
    Table of Contents  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 Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006 (the March 10-Q). To the extent that we do not have any
significant changes in contingencies referred to in our March 10-Q, we have not restated the
description of those contingencies. That determination not to so restate those contingencies
should not be taken as a representation that we have resolved the contingency or that it is no
longer a contingency. In addition, any update of the contingencies 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 contingency and is
intended to provide our investors with a reasonable understanding of the nature of the contingency
as we understand it on the date of this Quarterly Report.
 OpenTV, Inc. v. Liberate Technologies, Inc.
 Broadcast Innovation Matter.
 Other Matters.
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
 Exhibit
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
 37
    Table of Contents  Signature
  Date: August 9, 2006
    OpenTV Corp./s/ Shum MukherjeeShum MukherjeeExecutive Vice President and
Chief Financial Officer 38
    Table of Contents  Exhibit Index
 ExhibitNumber
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
 39