##### 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 March 31, 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(State or other jurisdiction of incorporation or
organization)
    
    98-0212376(I.R.S. Employer Identification No.)275 Sacramento Street, San Francisco, California(Address of principal executive offices)
    
    94111(Zip Code)
 (415) 962-5000  (Registrants telephone number, including area code)
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ




---



##### Table of Contents



Table of Contents
 PagePart I. Financial InformationItem 1. Financial Statements
    
    1Condensed Consolidated Balance Sheets at March 31, 2006 and December 31, 2005
    
    1Condensed Consolidated Statements of Operations for the Three Months Ended March
31, 2006 and 2005
    
    2Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
2006 and 2005
    
    3Notes to Condensed Consolidated Financial Statements
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    28Item 4. Controls and Procedures
    
    29Part II. Other Information
    
    31Item 1. Legal Proceedings
    
    31Item 1A. Risk Factors
    
    3333Item 6. ExhibitsSignature
    
    34Exhibit Index
    
    35EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONS




---



##### Table of Contents



Part I. Financial Information
 
 Item 1. Financial Statements
 OPENTV CORP.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share amounts)
 March 31,
    
    
    December 31,2006
    
    
    2005*(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    47,447
    
    
    $
    47,229Short-term marketable debt securities
    
    
    5,742
    
    
    
    9,030Accounts receivable, net of allowance for doubtful accounts of $370 and
$305 at March 31, 2006 and December 31, 2005, respectively
    
    
    21,175
    
    
    
    16,873Prepaid expenses and other current assets
    
    
    4,827
    
    
    
    4,638Total current assets
    
    
    79,191
    
    
    
    77,770Long-term marketable debt securities
    
    
    8,396
    
    
    
    8,213Property and equipment, net
    
    
    5,793
    
    
    
    5,863Goodwill
    
    
    97,551
    
    
    
    80,124Intangible assets, net
    
    
    25,385
    
    
    
    27,150Other assets
    
    
    3,262
    
    
    
    2,945Total assets
    
    $
    219,578
    
    
    $
    202,065LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,137
    
    
    $
    4,361Accrued liabilities
    
    
    21,341
    
    
    
    18,568Accrued restructuring
    
    
    1,864
    
    
    
    1,931Due to Liberty Media
    
    
    449
    
    
    
    182Current portion of deferred revenue
    
    
    13,767
    
    
    
    14,193Total current liabilities
    
    
    40,558
    
    
    
    39,235Long-term liabilities:Deferred rent
    
    
    1,322
    
    
    
    1,404Deferred revenue
    
    
    9,445
    
    
    
    8,391Total long-term liabilities
    
    
    10,767
    
    
    
    9,795Total liabilities
    
    
    51,325
    
    
    
    49,030Commitments and contingencies (Note 9)Minority interest
    
    
    514
    
    
    
    523Shareholders equity:Class A ordinary shares, no par value, 500,000,000 shares authorized;
98,195,598 and 98,105,119 shares issued and outstanding, including
treasury shares, at March 31, 2006 and December 31, 2005, respectively
    
    
    2,230,433
    
    
    
    2,230,398Class B ordinary shares, no par value, 200,000,000 shares authorized;
38,226,542 and 30,631,746 shares issued and outstanding at March 31,
2006 and December 31, 2005, respectively
    
    
    35,953
    
    
    
    35,953Additional paid-in capital
    
    
    489,119
    
    
    
    470,596Treasury shares at cost, 76,327 shares
    
    
    (38
    )
    
    
    (38
    )Deferred share-based compensation
    
    
    
    
    
    
    (2
    )Accumulated
other comprehensive loss
    
    
    (471
    )
    
    
    (265
    )Accumulated deficit
    
    
    (2,587,257
    )
    
    
    (2,584,130
    )Total shareholders equity
    
    
    167,739
    
    
    
    152,512Total liabilities, minority interest and shareholders equity
    
    $
    219,578
    
    
    $
    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 generally accepted accounting
principles.  1




---



##### Table of Contents



OPENTV CORP.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except share and per share amounts)
 (Unaudited)
 Three Months Ended March 31,2006
    
    
    2005Revenues:Royalties and licenses
    
    $
    16,371
    
    
    $
    15,404Services and other
    
    
    8,525
    
    
    
    7,425Total revenues
    
    
    24,896
    
    
    
    22,829Cost of revenues:Royalties and licenses
    
    
    1,741
    
    
    
    1,636Services and other (1)
    
    
    9,058
    
    
    
    7,183Total cost of revenues
    
    
    10,799
    
    
    
    8,819Gross profit
    
    
    14,097
    
    
    
    14,010Operating expenses:Research and development (1)
    
    
    8,363
    
    
    
    8,736Sales and marketing (1)
    
    
    2,653
    
    
    
    3,258General and administrative (1)
    
    
    5,348
    
    
    
    4,211Restructuring and impairment costs
    
    
    
    
    
    
    485Amortization of intangible assets
    
    
    529
    
    
    
    397Total operating expenses
    
    
    16,893
    
    
    
    17,087Loss from operations
    
    
    (2,796
    )
    
    
    (3,077
    )Interest income
    
    
    550
    
    
    
    320Other income / (expense), net
    
    
    3
    
    
    
    (62
    )Minority interest
    
    
    9
    
    
    
    60Loss before income taxes
    
    
    (2,234
    )
    
    
    (2,759
    )Income tax expense
    
    
    (893
    )
    
    
    (525
    )Net loss
    
    $
    (3,127
    )
    
    $
    (3,284
    )Net loss per share, basic and diluted:
    
    $
    (0.02
    )
    
    $
    (0.03
    )Shares used in per share calculation, basic and diluted
    
    
    135,976,561
    
    
    
    122,501,915(1) Includes the following share-based compensation
expense primarily due to the adoption of 
FAS 123(R):Cost of services and other
    
    $
    186
    
    
    $
    2Research and development
    
    
    216
    
    
    
    Sales and
marketing
    
    
    176
    
    
    
    General and administrative
    
    
    495
    
    
    
    Total share-based compensation expense
    
    $
    1,073
    
    
    $
    2
  2




---



##### Table of Contents



OPENTV CORP.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Three Months Ended March 31,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (3,127
    )
    
    $
    (3,284
    )Adjustments to reconcile net loss to net cash provided from / (used in) operating activities:Depreciation and amortization of property and equipment
    
    
    749
    
    
    
    1,115Amortization of intangible assets
    
    
    1,765
    
    
    
    1,281Amortization of share-based compensation
    
    
    1,073
    
    
    
    2Non-cash employee compensation
    
    
    25
    
    
    
    70Provision for doubtful accounts
    
    
    65
    
    
    
    Non-cash impairment costs
    
    
    
    
    
    
    602Loss on disposal of fixed assets
    
    
    6
    
    
    
    Minority interest
    
    
    (9
    )
    
    
    (60
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (4,367
    )
    
    
    1,605Prepaid expenses and other current assets
    
    
    (189
    )
    
    
    48Other assets
    
    
    (317
    )
    
    
    44Accounts payable
    
    
    (1,224
    )
    
    
    10Accrued liabilities and deferred rent
    
    
    2,691
    
    
    
    227Accrued restructuring
    
    
    (67
    )
    
    
    (186
    )Due to Liberty Media
    
    
    267
    
    
    
    (198
    )Deferred revenue
    
    
    628
    
    
    
    928Net cash (used in) / provided from operating activities
    
    
    (2,031
    )
    
    
    2,204Cash flows from investing activities:Purchase of property and equipment
    
    
    (637
    )
    
    
    (778
    )Proceeds from sale of marketable debt securities
    
    
    3,311
    
    
    
    6,068Purchase of marketable debt securities
    
    
    (215
    )
    
    
    (5,975
    )Private equity investments
    
    
    
    
    
    
    (300
    )Net cash provided from / (used in) investing activities
    
    
    2,459
    
    
    
    (985
    )Cash flows from financing activities:Proceeds from issuance of ordinary shares
    
    
    35
    
    
    
    10Net cash provided from financing activities
    
    
    35
    
    
    
    10Effect of exchange rate changes on cash and cash equivalents
    
    
    (245
    )
    
    
    (99
    )Net increase in cash and cash equivalents
    
    
    218
    
    
    
    1,130Cash and cash equivalents, beginning of period
    
    
    47,229
    
    
    
    35,660Cash and cash equivalents, end of period
    
    $
    47,447
    
    
    $
    36,790Supplemental disclosure of cash flow information:Cash paid for income taxes
    
    $
    (277
    )
    
    $
    (216
    )Non-cash investing and financing activitiesConversion of exchangeable shares
    
    $
    17,427
    
    
    $
    26Value of bonus shares issued to employees
    
    $
    
    
    
    $
    3,180
  3




---



##### Table of Contents



OPENTV CORP.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 MARCH 31, 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,
   4




---



##### Table of Contents



Recent Accounting Pronouncements
 Accounting Changes and Error Corrections  A
Replacement of APB Opinion No. 20 and FASB Statement No. 3.
 Note 3. Net Loss Per Share
  Three Months ended March 31,2006
    
    2005Class A ordinary shares issuable upon exercise of stock options
    
    
    9,831,703
    
    
    
    10,796,093Class 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)
    
    
    735,551
    
    
    
    744,428Class B ordinary shares issuable for shares of OpenTV, Inc.Class B common stock
    
    
    337,546
    
    
    
    7,594,796
  Note 4. Goodwill
    5




---



##### Table of Contents



Note 5. Intangible Assets, Net
  March 31, 2006
    
    
    December 31, 2005Useful
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Netlife in
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carryingyears
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmountIntangible assets:Patents
    
    
    5-13
    
    
    $
    20.7
    
    
    $
    (6.6
    )
    
    $
    14.1
    
    
    $
    14.7Developed technologies
    
    
    3-5
    
    
    
    11.3
    
    
    
    (5.1
    )
    
    
    6.2
    
    
    
    6.9Contracts and relationships
    
    
    5
    
    
    
    9.8
    
    
    
    (5.0
    )
    
    
    4.8
    
    
    
    5.3Trademarks
    
    
    4
    
    
    
    0.3
    
    
    
    
    
    
    
    0.3
    
    
    
    0.3Purchased technologies
    
    
    5
    
    
    
    0.4
    
    
    
    (0.4
    )
    
    
    
    
    
    
    $
    42.5
    
    
    $
    (17.1
    )
    
    $
    25.4
    
    
    $
    27.2
   AmortizationYear ending December 31,
    
    Expense2006 (Remaining nine months)
    
    $
    5.32007
    
    
    6.02008
    
    
    3.52009
    
    
    2.02010
    
    
    1.7Thereafter
    
    
    6.9$
    25.4
 Note 6. Restructuring and Impairment Costs
 Accounting for Costs Associated
with Exit or Disposal Activities.
  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
    
    
    $
    1.8
  Note 7. Employee Bonus
  6




---



##### Table of Contents



Note 8. Comprehensive Loss
  Three Months Ended March 31,2006
    
    
    2005Net loss
    
    $
    (3.1
    )
    
    $
    (3.3
    )Other comprehensive loss:Foreign currency translation losses
    
    
    (0.2
    )
    
    
    (0.1
    )Unrealized losses on investments, net of income taxes
    
    
    
    
    
    
    Comprehensive loss
    
    $
    (3.3
    )
    
    $
    (3.4
    )
 Note 9. Commitments and Contingencies
 Operating Leases
   MinimumYear ending December 31,
    
    Commitments2006 (remaining nine months)
    
    $
    3.62007
    
    
    4.42008
    
    
    4.32009
    
    
    3.82010
    
    
    0.7Thereafter
    
    
    0.2$
    17.0
  Other Commitments
  7




---



##### Table of Contents



Contingencies
 OpenTV, Inc. v. Liberate Technologies, Inc.
   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
 8




---



##### Table of Contents



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.
 Broadcast Innovation Matter.
 9




---



##### Table of Contents



Personalized Media Communications, LLC.
 Indemnifications
   Note 10. Related Party Transactions
    10




---



##### Table of Contents



Note 11. Segment Information
 Disclosure about Segments of an Enterprise and Related Information.
    11




---



##### Table of Contents



Three Months Ended March 31,2006
    
    
    2005Revenues:Middleware and integrated technologiesRoyalties and licenses
    
    $
    15.6
    
    
    $
    15.4Services and other
    
    
    4.0
    
    
    
    3.4Subtotal  Middleware and integrated technologies
    
    
    19.6
    
    
    
    18.8ApplicationsRoyalties and licenses
    
    
    0.8
    
    
    
    Services and other
    
    
    3.5
    
    
    
    3.1Subtotal  Applications
    
    
    4.3
    
    
    
    3.1BettingCorpRoyalties and licenses
    
    
    
    
    
    
    Services and other
    
    
    1.0
    
    
    
    0.9Subtotal  BettingCorp
    
    
    1.0
    
    
    
    0.9Total Revenue
    
    $
    24.9
    
    
    $
    22.8Contribution margin:Middleware
and integrated technologies
    
    $
    7.5
    
    
    $
    9.2Applications
    
    
    (0.6
    )
    
    
    (2.0
    )BettingCorp
    
    
    (0.8
    )
    
    
    (1.4
    )Total contribution margin
    
    
    6.1
    
    
    
    5.8Unallocated corporate overhead
    
    
    (5.3
    )
    
    
    (6.0
    )Restructuring and impairment costs
    
    
    
    
    
    
    (0.5
    )Depreciation and amortization
    
    
    (0.7
    )
    
    
    (1.1
    )Amortization of intangible assets
    
    
    (1.8
    )
    
    
    (1.3
    )Amortization of share-based compensation
    
    
    (1.1
    )
    
    
    Interest income
    
    
    0.6
    
    
    
    0.3Other expense
    
    
    
    
    
    
    (0.1
    )Minority interest
    
    
    
    
    
    
    0.1Loss before income taxes
    
    
    (2.2
    )
    
    
    (2.8
    )Income tax expense
    
    
    (0.9
    )
    
    
    (0.5
    )Net loss
    
    $
    (3.1
    )
    
    $
    (3.3
    )
  Three Months Ended March 312006
    
    

%
of revenues
    
    
    2005
    
    

%
ofrevenuesEurope, Africa and Middle EastUnited Kingdom
    
    $
    7.4
    
    
    
    30
    %
    
    $
    5.9
    
    
    
    26
    %Italy
    
    
    1.9
    
    
    
    8
    %
    
    
    4.6
    
    
    
    20
    %Other Countries
    
    
    4.3
    
    
    
    17
    %
    
    
    3.2
    
    
    
    14
    %Subtotal
    
    
    13.6
    
    
    
    55
    %
    
    
    13.7
    
    
    
    60
    %AmericasUnited States
    
    
    6.7
    
    
    
    27
    %
    
    
    5.1
    
    
    
    23
    %Other Countries
    
    
    1.3
    
    
    
    5
    %
    
    
    1.0
    
    
    
    4
    %Subtotal
    
    
    8.0
    
    
    
    32
    %
    
    
    6.1
    
    
    
    27
    %Asia Pacific
    
    
    3.3
    
    
    
    13
    %
    
    
    3.0
    
    
    
    13
    %$
    24.9
    
    
    
    100
    %
    
    $
    22.8
    
    
    
    100
    %
 12




---



##### Table of Contents



Three Months Ended March 31,2006
    
    2005Sky Italia
    
    
    8
    %
    
    
    20
    %EchoStar
    
    
    15
    %
    
    
    16
    %
    Three Months ended March 31,Capital expenditures, net:
    
    2006
    
    
    2005United States
    
    $
    0.5
    
    
    $
    0.5Other countries
    
    
    0.1
    
    
    
    0.3$
    0.6
    
    
    $
    0.8
 March 31,
    
    
    December 31,2006
    
    
    2005Long-lived assets: (*)United States
    
    $
    6.3
    
    
    $
    6.0Other countries
    
    
    2.8
    
    
    
    2.8$
    9.1
    
    
    $
    8.8
 
 (*)
    
    Long-lived assets include property and equipment, and other assets. Note 12. Share-based Compensation Plans
 Employee Stock Purchase Plan
  Option Plans
   13




---



##### Table of Contents



1 th
 1 th
       14




---



##### Table of Contents



Impact of the Adoption of FAS 123(R)
 Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans (an Interpretation of APB Opinions No. 15 and 25)
  Three Months endedMarch 31, 2006Cost of revenues  services and other
    
    $
    184Research and development
    
    
    216Sales and marketing
    
    
    176General and administrative
    
    
    495$
    1,071
  Valuation Assumptions
  Three months ended March 31,2006
    
    2005Risk-free interest rates
    
    4.28%  4.78%
    
    3.71%  4.42%Average expected lives (months)
    
    63
    
    75Dividend yield
    
    
    
    Expected volatility
    
    85%
    
    104%
  Share-based Payment Award Activity
  15




---



##### Table of Contents



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
    
    
    
    
    
    
    (125,097
    )
    
    $
    1.63
    
    
    
    
    
    
    $
    54.25
    
    
    $
    7.33Options
expired
    
    
    
    
    
    
    (366,663
    )
    
    
    
    
    
    
    
    
    
    $
    9.55
    
    
    $
    9.55Balance, March 31, 2006
    
    
    5,959,100
    
    
    
    9,842,828
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5.24
  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
    
    
    
    
    $
    1.78
    
    
    
    1,059,503
    
    
    
    5.33
    
    
    $
    1.27
    
    
    
    650,277
    
    
    $
    0.98$
    2.02
    
    
    
    
    $
    2.10
    
    
    
    102,200
    
    
    
    1.56
    
    
    $
    2.05
    
    
    
    46,250
    
    
    $
    2.07$
    2.16
    
    
    
    
    $
    2.18
    
    
    
    1,017,294
    
    
    
    8.47
    
    
    $
    2.18
    
    
    
    1,009,794
    
    
    $
    2.18$
    2.21
    
    
    
    
    $
    2.69
    
    
    
    277,800
    
    
    
    9.13
    
    
    $
    3.29
    
    
    
    31,944
    
    
    $
    2.25$
    2.70
    
    
    
    
    $
    2.70
    
    
    
    1,494,157
    
    
    
    9.29
    
    
    $
    2.70
    
    
    
    448,305
    
    
    $
    2.70$
    2.72
    
    
    
    
    $
    2.84
    
    
    
    1,165,099
    
    
    
    8.24
    
    
    $
    2.82
    
    
    
    247,601
    
    
    $
    2.83$
    2.85
    
    
    
    
    $
    2.98
    
    
    
    91,200
    
    
    
    8.22
    
    
    $
    2.90
    
    
    
    22,216
    
    
    $
    2.90$
    2.99
    
    
    
    
    $
    2.99
    
    
    
    2,195,325
    
    
    
    5.92
    
    
    $
    2.99
    
    
    
    430,052
    
    
    $
    2.99$
    3.00
    
    
    
    
    $
    5.04
    
    
    
    994,460
    
    
    
    3.17
    
    
    $
    3.78
    
    
    
    416,663
    
    
    $
    3.73$
    5.55
    
    
    
    
    $
    94.56
    
    
    
    1,445,790
    
    
    
    4.54
    
    
    $
    20.22
    
    
    
    1,445,727
    
    
    $
    20.239,842,828
    
    
    
    6.46
    
    
    $
    5.24
    
    
    
    4,748,829
    
    
    $
    7.80
   Pro forma Information for Periods Prior to the Adoption of FAS 123R
 Accounting for Stock Issued to
Employees, Accounting for Stock-Based
Compensation  Transition and Disclosure
  16




---



##### Table of Contents



Three Months EndedMarch 31, 2005Net loss, as reported
    
    $
    (3.3
    )Deduct: Share-based employee compensation expense
determined under fair value-based method for all awards,
net of related tax effects
    
    
    (1.0
    )Pro-forma net loss
    
    $
    (4.3
    )Net loss per share, basic and diluted:As reported
    
    $
    (0.03
    )Pro-forma
    
    $
    (0.04
    )
 Note 13. Subsequent Event
   
 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 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 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
   17




---



##### 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.
  18




---



##### Table of Contents



Valuation Allowances
   Impairment of Goodwill and Long-lived Assets
  Restructuring Costs
  Share-Based Compensation
 Share-Based Payment Accounting for Stock Issued to Employees,
  19




---



##### Table of Contents



Recent Accounting Pronouncements
 Accounting Changes and Error Corrections  A
Replacement of APB Opinion No. 20 and FASB Statement No. 3.
 Three Months Ended March 31, 2006 and 2005
 Revenues
  Three Months Ended March 31,% of
    
    
    
    
    
    % of2006
    
    revenues
    
    2005
    
    revenuesRoyalties and licenses
    
    $
    16.4
    
    
    
    66
    %
    
    $
    15.4
    
    
    
    68
    %Services and other
    
    
    8.5
    
    
    
    34
    %
    
    
    7.4
    
    
    
    32
    %Total revenues
    
    $
    24.9
    
    
    
    100
    %
    
    $
    22.8
    
    
    
    100
    %
 Royalties and licenses.
 20




---



##### Table of Contents



Services and Other.
  21




---



##### Table of Contents



Operating Expenses
  Three Months Ended March 31,% of
    
    
    
    
    
    
    % of2006
    
    
    Revenue
    
    
    2005
    
    
    RevenueCost of royalties and licenses
    
    $
    1.7
    
    
    
    7
    %
    
    $
    1.6
    
    
    
    7
    %Cost of services and other (1)
    
    
    9.1
    
    
    
    36
    %
    
    
    7.2
    
    
    
    32
    %Total cost of revenues
    
    
    10.8
    
    
    
    43
    %
    
    
    8.8
    
    
    
    39
    %Research and development (1)
    
    
    8.4
    
    
    
    34
    %
    
    
    8.7
    
    
    
    38
    %Sales and marketing (1)
    
    
    2.7
    
    
    
    11
    %
    
    
    3.3
    
    
    
    15
    %General and administrative (1)
    
    
    5.3
    
    
    
    21
    %
    
    
    4.2
    
    
    
    18
    %Restructuring and impairment costs
    
    
    
    
    
    
    
    %
    
    
    0.5
    
    
    
    2
    %Amortization of intangible assets
    
    
    0.5
    
    
    
    2
    %
    
    
    0.4
    
    
    
    2
    %Total operating expenses
    
    $
    27.7
    
    
    
    111
    %
    
    $
    25.9
    
    
    
    114
    %(1) Includes the following share-based compensation expense primarily due to the adoption of FAS 123(R):Cost of services and other
    
    $
    0.2
    
    
    
    
    
    
    $
    Research and development
    
    
    0.2
    
    
    
    
    
    
    
    Sales and marketing
    
    
    0.2
    
    
    
    
    
    
    
    General and administrative
    
    
    0.5
    
    
    
    
    
    
    
    Total share-based compensation expense
    
    $
    1.1
    
    
    
    
    
    
    $
    
 Cost of Royalties and Licenses.
  Cost of Services and Other.
  22




---



##### Table of Contents



Research and Development.
   Sales and Marketing.
  General and Administrative.
  Restructuring and Impairment Costs
 Amortization of Intangible Assets
  Interest Income, Other Expense and Minority Interest
  Income Taxes
  23




---



##### Table of Contents



Business Segment Results
 Disclosure about Segments of an Enterprise and Related Information.
    24




---



##### Table of Contents



Three Months Ended March 31,% of segment
    
    
    
    
    
    
    % of segment2006
    
    
    revenue
    
    
    2005
    
    
    revenueRevenues:Middleware and integrated technologiesRoyalties and licenses
    
    $
    15.6
    
    
    
    80
    %
    
    $
    15.4
    
    
    
    82
    %Services and other
    
    
    4.0
    
    
    
    20
    %
    
    
    3.4
    
    
    
    18
    %Subtotal  Middleware and integrated technologies
    
    
    19.6
    
    
    
    100
    %
    
    
    18.8
    
    
    
    100
    %ApplicationsRoyalties and licenses
    
    $
    0.8
    
    
    
    19
    %
    
    $
    
    
    
    
    
    %Services and other
    
    
    3.5
    
    
    
    81
    %
    
    
    3.1
    
    
    
    100
    %Subtotal  Applications
    
    
    4.3
    
    
    
    100
    %
    
    
    3.1
    
    
    
    100
    %BettingCorpRoyalties and licenses
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %Services and other
    
    
    1.0
    
    
    
    100
    %
    
    
    0.9
    
    
    
    100
    %Subtotal  BettingCorp
    
    
    1.0
    
    
    
    100
    %
    
    
    0.9
    
    
    
    100
    %Total Revenue
    
    
    24.9
    
    
    
    
    
    
    
    22.8Contribution margin:Middleware
and integrated technologies
    
    
    7.5
    
    
    
    
    
    
    
    9.2Applications
    
    
    (0.6
    )
    
    
    
    
    
    
    (2.0
    )BettingCorp
    
    
    (0.8
    )
    
    
    
    
    
    
    (1.4
    )Total contribution margin
    
    
    6.1
    
    
    
    
    
    
    
    5.8Unallocated corporate overhead
    
    
    (5.3
    )
    
    
    
    
    
    
    (6.0
    )Restructuring and impairment costs
    
    
    
    
    
    
    
    
    
    
    (0.5
    )Depreciation and amortization
    
    
    (0.7
    )
    
    
    
    
    
    
    (1.1
    )Amortization of intangible assets
    
    
    (1.8
    )
    
    
    
    
    
    
    (1.3
    )Amortization of share-based compensation
    
    
    (1.1
    )
    
    
    
    
    
    
    Interest income
    
    
    0.6
    
    
    
    
    
    
    
    0.3Other expense
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    0.1Loss before income taxes
    
    
    (2.2
    )
    
    
    
    
    
    
    (2.8
    )Income tax expense
    
    
    (0.9
    )
    
    
    
    
    
    
    (0.5
    )Net loss
    
    $
    (3.1
    )
    
    
    
    
    
    $
    (3.3
    )
 Middleware and integrated technologies
     Applications
  25




---



##### Table of Contents



BettingCorp
   Deferred Revenue
      Expected RecognitionYear Ending December 31,
    
    of Unearned Revenue(In millions)Remaining 9 months of 2006
    
    $
    6.82007
    
    
    4.8Thereafter
    
    
    5.8$
    17.4
 26




---



##### Table of Contents



Liquidity and Capital Resources
       27




---



##### Table of Contents



Commitments and Contractual Obligations
  Due inDue in
    
    
    Due in
    
    
    Due in
    
    
    2011 orTotal
    
    
    2006
    
    
    2007-2008
    
    
    2009-2010
    
    
    AfterOperating leases obligations
    
    $
    17.0
    
    
    $
    3.6
    
    
    $
    8.7
    
    
    $
    4.5
    
    
    $
    0.2Noncancellable purchase obligations
    
    
    1.6
    
    
    
    1.5
    
    
    
    0.1
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    18.6
    
    
    $
    5.1
    
    
    $
    8.8
    
    
    $
    4.5
    
    
    $
    0.2
    Indemnifications
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Fixed Income Investment Risk
   28




---



##### Table of Contents



Valuation of
    
    Valuation of
    
    Valuation of
    
    Valuation ofFair Value as
    
    Securities if
    
    Securities if
    
    Securities if
    
    Securities ifof March 31,
    
    Interest Rates
    
    Interest Rates
    
    Interest Rates
    
    Interest Rates2006
    
    Decrease 1%
    
    Increase 1%
    
    Decrease 2%
    
    Increase 2%Marketable debt securities
    
    $
    14,138
    
    
    $
    14,253
    
    
    $
    14,023
    
    
    $
    14,369
    
    
    $
    13,907
  Foreign Currency Exchange Rate Risk
  Accounting for Derivative Instruments and Hedging
Activities.
 
 Item 4. Controls and Procedures
   
    
    The companys financial reporting process did not provide
for effective account analysis for certain financial
 29




---



##### Table of Contents



statement accounts. Specifically, the accounting for
accruals, long-term other assets, and deferred-tax assets
was not adequately analyzed. This material weakness
resulted in errors, which were material in the aggregate,
in the companys preliminary 2005 financial statements.
    
    The company did not have sufficient personnel with adequate
technical expertise to analyze effectively, and review in a
timely manner, its accounting for revenue and income taxes.
These material weaknesses resulted in material errors in
the companys accounting for: (a) certain complex
multiple-element software license and professional service
arrangements; and (b) income taxes and related financial
statement note disclosures.
   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
   Evaluation of Disclosure Controls and Procedures
    30




---



##### Table of Contents



Part II. Other Information
 
 Item 1. Legal Proceedings
 OpenTV, Inc. v. Liberate Technologies, Inc.
   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
 31




---



##### Table of Contents



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.
 Broadcast Innovation Matter.
 32




---



##### Table of Contents



Personalized Media Communications, LLC.
 Other Matters.
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
 Exhibit Number
    
    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
 33




---



##### Table of Contents



Signature
  Date: May 10, 2006
    
    OpenTV Corp./s/ Shum MukherjeeShum MukherjeeExecutive Vice President andChief Financial Officer
 
 34




---



##### 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


35