##### 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 September 30, 2005
 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
 þ o
 o  þ




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Table of Contents
 PagePart I.
    
    Financial Information
    
    2Item 1.
    
    Financial Statements
    
    2Condensed Consolidated Balance Sheets at September 30, 2005 and December 31, 2004
    
    2Condensed
Consolidated Statements of Operations for the Three Months and Nine
Months Ended September 30, 2005 and 2004
    
    3Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004
    
    4Notes to Condensed Consolidated Financial Statements
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    40Item 4.
    
    Controls and Procedures
    
    41Part  II.
    
    Other Information
    
    43Item 1.
    
    Legal Proceedings
    
    43Item 6.
    
    Exhibits
    
    46SignatureExhibit IndexEX-10.34: REGISTRATION RIGHTS AGREEMENTEX-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)
 September 30,
    
    
    December 31,2005
    
    
    2004*(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    34,671
    
    
    $
    35,660Short-term marketable debt securities
    
    
    11,452
    
    
    
    1,986Accounts receivable, net of allowance for doubtful accounts of $518 and
$559 at September 30, 2005 and December 31, 2004, respectively
    
    
    13,265
    
    
    
    17,797Prepaid expenses and other current assets
    
    
    3,784
    
    
    
    3,073Total current assets
    
    
    63,172
    
    
    
    58,516Long-term marketable debt securities
    
    
    8,901
    
    
    
    25,374Property and equipment, net
    
    
    5,820
    
    
    
    6,858Goodwill
    
    
    79,935
    
    
    
    70,466Intangible assets, net
    
    
    28,914
    
    
    
    25,108Other assets
    
    
    7,338
    
    
    
    6,089Total assets
    
    $
    194,080
    
    
    $
    192,411LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,306
    
    
    $
    3,870Accrued liabilities
    
    
    17,241
    
    
    
    23,916Accrued restructuring
    
    
    2,234
    
    
    
    1,394Due to Liberty Media
    
    
    323
    
    
    
    388Current portion of deferred revenue
    
    
    12,504
    
    
    
    10,520Total current liabilities
    
    
    34,608
    
    
    
    40,088Deferred revenue, less current portion
    
    
    9,063
    
    
    
    6,563Total liabilities
    
    
    43,671
    
    
    
    46,651Commitments and contingencies (Note 11)Minority interest
    
    
    532
    
    
    
    585Shareholders equity:Class A ordinary shares, no par value, 500,000,000 shares authorized;
98,103,368 and 91,552,293 shares issued and outstanding, including
treasury shares, at September 30, 2005 and December 31, 2004, respectively
    
    
    2,230,396
    
    
    
    2,213,951Class 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
    
    
    470,571
    
    
    
    470,453Treasury shares at cost, 76,327 shares
    
    
    (38
    )
    
    
    (38
    )Deferred share-based compensation
    
    
    (4
    )
    
    
    (10
    )Accumulated other comprehensive income
    
    
    33
    
    
    
    523Accumulated deficit
    
    
    (2,587,034
    )
    
    
    (2,575,657
    )Total shareholders equity
    
    
    149,877
    
    
    
    145,175Total liabilities, minority interest and shareholders equity
    
    $
    194,080
    
    
    $
    192,411
 
 *
    
    The consolidated balance sheet at December 31, 2004 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 for complete financial statements.  2




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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 September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Royalties
    
    $
    11,487
    
    
    $
    9,264
    
    
    $
    38,673
    
    
    $
    28,882Services, support and other
    
    
    3,470
    
    
    
    3,026
    
    
    
    11,512
    
    
    
    11,952Fees and revenue shares
    
    
    3,121
    
    
    
    3,313
    
    
    
    10,061
    
    
    
    9,944License fees and programming
    
    
    1,400
    
    
    
    974
    
    
    
    2,935
    
    
    
    2,294Total revenues
    
    
    19,478
    
    
    
    16,577
    
    
    
    63,181
    
    
    
    53,072Operating expenses:Cost of revenues
    
    
    8,522
    
    
    
    8,076
    
    
    
    24,821
    
    
    
    27,372NASCAR amendment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,600
    )Research and development
    
    
    7,786
    
    
    
    7,243
    
    
    
    24,629
    
    
    
    21,244Sales and marketing
    
    
    2,777
    
    
    
    3,516
    
    
    
    9,358
    
    
    
    11,221General and administrative
    
    
    3,508
    
    
    
    3,696
    
    
    
    11,766
    
    
    
    13,883Restructuring and impairment costs
    
    
    368
    
    
    
    (575
    )
    
    
    2,545
    
    
    
    (1,092
    )Amortization of intangible assets
    
    
    426
    
    
    
    711
    
    
    
    1,216
    
    
    
    3,108Total operating expenses
    
    
    23,387
    
    
    
    22,667
    
    
    
    74,335
    
    
    
    71,136Loss from operations
    
    
    (3,909
    )
    
    
    (6,090
    )
    
    
    (11,154
    )
    
    
    (18,064
    )Interest income
    
    
    439
    
    
    
    201
    
    
    
    1,163
    
    
    
    611Other (expense) / income, net
    
    
    (65
    )
    
    
    562
    
    
    
    297
    
    
    
    536Minority interest
    
    
    9
    
    
    
    64
    
    
    
    53
    
    
    
    194Loss before income taxes
    
    
    (3,526
    )
    
    
    (5,263
    )
    
    
    (9,641
    )
    
    
    (16,723
    )Income tax (expense) / benefit
    
    
    (525
    )
    
    
    500
    
    
    
    (1,736
    )
    
    
    1,061Net loss
    
    $
    (4,051
    )
    
    $
    (4,763
    )
    
    $
    (11,377
    )
    
    $
    (15,662
    )Net loss per share, basic and diluted
    
    $
    (0.03
    )
    
    $
    (0.04
    )
    
    $
    (0.09
    )
    
    $
    (0.13
    )Shares used in per share calculation, basic and diluted
    
    
    124,751,421
    
    
    
    121,830,392
    
    
    
    123,530,419
    
    
    
    121,084,985
  3




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OPENTV CORP.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Nine Months Ended September 30,2005
    
    
    2004Cash flows used in operating activities:Net loss
    
    $
    (11,377
    )
    
    $
    (15,662
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization of property and equipment
    
    
    3,008
    
    
    
    4,751Amortization of intangible assets
    
    
    3,994
    
    
    
    6,941Amortization of share-based compensation
    
    
    6
    
    
    
    22Non-cash employee compensation
    
    
    126
    
    
    
    1,025Provision for / (reduction of) doubtful accounts
    
    
    11
    
    
    
    (353
    )Non-cash impairment costs
    
    
    602
    
    
    
    Minority interest
    
    
    (53
    )
    
    
    (194
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    4,521
    
    
    
    (2,931
    )Prepaid expenses and other current assets
    
    
    (137
    )
    
    
    785Other assets
    
    
    (1,249
    )
    
    
    17Accounts payable
    
    
    (1,564
    )
    
    
    268Accrued liabilities
    
    
    (3,768
    )
    
    
    (5,365
    )NASCAR amendment
    
    
    
    
    
    
    (4,600
    )Accrued restructuring
    
    
    840
    
    
    
    (6,733
    )Due to Liberty Media
    
    
    (65
    )
    
    
    600Deferred revenue
    
    
    4,034
    
    
    
    (1,459
    )Net cash used in operating activities
    
    
    (1,071
    )
    
    
    (22,888
    )Cash flows provided from investing activities:Purchase of property and equipment
    
    
    (2,140
    )
    
    
    (1,485
    )Cash used for acquisition of CAM Systems (Note 4)
    
    
    (4,261
    )
    
    
    Proceeds from sale of marketable debt securities
    
    
    36,545
    
    
    
    18,415Purchase of marketable debt securities
    
    
    (29,533
    )
    
    
    (3,377
    )Private equity investments
    
    
    (300
    )
    
    
    Net cash provided from investing activities
    
    
    311
    
    
    
    13,553Cash flows provided from financing activities:Proceeds from issuance of ordinary shares
    
    
    181
    
    
    
    2,953Net cash provided from financing activities
    
    
    181
    
    
    
    2,953Effect of exchange rate changes on cash and cash equivalents
    
    
    (410
    )
    
    
    (65
    )Net decrease in cash and cash equivalents
    
    
    (989
    )
    
    
    (6,447
    )Cash and cash equivalents, beginning of period
    
    
    35,660
    
    
    
    47,747Cash and cash equivalents, end of period
    
    $
    34,671
    
    
    $
    41,300Non-cash investing and financing activitiesValue of bonus shares issued to employees
    
    $
    3,180
    
    
    $
    1,671Value of shares issued in connection with acquisition of CAM Systems (Note 4)
    
    $
    13,050
    
    
    $
    
  4




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OPENTV CORP.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER 30, 2005
 (Unaudited)
 Note 1. Basis of Presentation
    Note 2. Summary of Significant Accounting Policies
 Share-Based Compensation
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss, as reported
    
    $
    (4.1
    )
    
    $
    (4.8
    )
    
    $
    (11.4
    )
    
    $
    (15.7
    )Deduct: Share-based employee compensation
expense determined under fair value-based
method for all awards, net of related tax
effects
    
    
    (1.2
    )
    
    
    (1.0
    )
    
    
    (3.3
    )
    
    
    (2.6
    )Pro-forma net loss
    
    $
    (5.3
    )
    
    $
    (5.8
    )
    
    $
    (14.7
    )
    
    $
    (18.3
    )Net loss per share, basic and diluted:As reported
    
    $
    (0.03
    )
    
    $
    (0.04
    )
    
    $
    (0.09
    )
    
    $
    (0.13
    )Pro-forma
    
    $
    (0.04
    )
    
    $
    (0.05
    )
    
    $
    (0.12
    )
    
    $
    (0.15
    )
 5




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##### Table of Contents



Three Months Ended
    
    Three Months Ended
    
    Nine Months Ended
    
    Nine Months EndedSeptember 30, 2005
    
    September 30, 2004
    
    September 30, 2005
    
    September 30, 2004Risk-free interest rate
    
    
    3.89%-4.18
    %
    
    
    3.69%-3.74
    %
    
    
    3.71%-4.42
    %
    
    
    2.65%-3.74
    %Average expected life
(months)
    
    
    75
    
    
    
    60
    
    
    
    75
    
    
    
    60Volatility
    
    
    100%-102
    %
    
    
    111
    %
    
    
    100%-104
    %
    
    
    111%-115
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Recent Accounting Pronouncements
 Share-Based
Payment Statement of Cash Flows
 Share-Based Payment
 The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments Implementation Guidance for the Application of Paragraph 16 of EITF Issue No.
03-1 The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments Recognition of Other-Than-Temporary Impairment
upon the Planned Sale of a Security Whose Cost Exceeds Fair Value
 Accounting Changes and Error CorrectionsA
 6




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Replacement of APB Opinion No. 20 and FASB Statement No. 3
 Note 3. Net Loss Per Share
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Class A ordinary shares issuable
upon exercise
of stock options
    
    
    10,351,229
    
    
    
    9,163,936
    
    
    
    9,978,485
    
    
    
    8,712,680Class 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)
    
    
    744,428
    
    
    
    755,428
    
    
    
    747,178
    
    
    
    759,039Class B ordinary shares issuable
for shares of OpenTV Inc. Class B common stock
    
    
    7,594,796
    
    
    
    7,594,796
    
    
    
    7,594,796
    
    
    
    7,594,796
  Note 4. Acquisition
   Tangible net assets
    
    $
    0.3Intangible assets
    
    
    7.8Goodwill
    
    
    9.5Total
    
    $
    17.6
 7




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##### Table of Contents



Note 5. Goodwill
   Note 6. Intangible Assets, Net
  8




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##### Table of Contents



September 30, 2005
    
    
    December 31, 2004Useful
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Netlife in
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carryingyears
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmountIntangible assets:Patents
    
    
    5-13
    
    
    $
    20.7
    
    
    $
    (5.5
    )
    
    $
    15.2
    
    
    $
    16.8Developed technologies
    
    
    3-5
    
    
    
    11.3
    
    
    
    (3.7
    )
    
    
    7.6
    
    
    
    4.6Contracts and
relationships
    
    
    2-5
    
    
    
    9.8
    
    
    
    (4.1
    )
    
    
    5.7
    
    
    
    3.6Trademarks
    
    
    4
    
    
    
    0.3
    
    
    
    
    
    
    
    0.3
    
    
    
    Purchased technologies
    
    
    5
    
    
    
    0.4
    
    
    
    (0.3
    )
    
    
    0.1
    
    
    
    0.1$
    42.5
    
    
    $
    (13.6
    )
    
    $
    28.9
    
    
    $
    25.1
  Year ending December 31,
    
    Amortization Expense2005 (Remaining three months)
    
    $
    1.72006
    
    
    7.02007
    
    
    6.02008
    
    
    3.52009
    
    
    2.0Thereafter
    
    
    8.7$
    28.9
 Note 7. NASCAR Amendment
  Note 8. Restructuring and Impairment Costs
   9




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EmployeeSeveranceAnd
    
    
    Excess
    
    
    AssetBenefits
    
    
    Facilities
    
    
    Impairments
    
    
    TotalBalance, December 31, 2004
    
    $
    
    
    
    $
    1.4
    
    
    $
    
    
    
    $
    1.4Provision
    
    
    
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.5Cash payments
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.4
    )Non-cash charges
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.3
    )Balance, March 31, 2005
    
    $
    
    
    
    $
    1.2
    
    
    $
    
    
    
    $
    1.2Provision
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    1.7Cash payments
    
    
    
    
    
    
    (1.2
    )
    
    
    
    
    
    
    (1.2
    )Transfer from accrued
liabilities
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    0.5Balance, June 30, 2005
    
    $
    
    
    
    $
    2.2
    
    
    $
    
    
    
    $
    2.2Provision
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.4Cash payments
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.4
    )Balance, September 30,
2005
    
    $
    0.3
    
    
    $
    1.9
    
    
    $
    
    
    
    $
    2.2
  Note 9. Employee Bonus
  Note 10. Comprehensive Loss
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss
    
    $
    (4.1
    )
    
    $
    (4.8
    )
    
    $
    (11.4
    )
    
    $
    (15.7
    )Other comprehensive loss:Foreign currency translation (losses) / gains
    
    
    (0.2
    )
    
    
    0.2
    
    
    
    (0.5
    )
    
    
    Unrealized gains / (losses) on investments, net of
income taxes
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    (0.1
    )Comprehensive loss
    
    $
    (4.3
    )
    
    $
    (4.5
    )
    
    $
    (11.9
    )
    
    $
    (15.8
    )
 10




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Note 11. Commitments and Contingencies
 Operating Leases
   Year ending December 31,
    
    Minimum Commitments2005 (remaining three months)
    
    $
    1.02006
    
    
    4.02007
    
    
    3.62008
    
    
    3.52009
    
    
    3.4Thereafter
    
    
    0.5$
    16.0
  Other Commitments
    11




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Contingencies
 OpenTV, Inc. v. Liberate Technologies, Inc.
   Initial Public Offering Securities Litigation. In re OpenTV Corp. Initial Public Offering Securities Litigation In re Initial Public Offering Securities Litigation
 12




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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.
 13




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##### Table of Contents



Personalized Media Communications, LLC.
 Other Matters.
    14




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##### Table of Contents



Note 12. Related Party Transactions
   Note 13. Segment Information
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Middleware and Integrated Technologies
    
    $
    15.4
    
    
    $
    13.1
    
    
    $
    50.7
    
    
    $
    42.6Applications
    
    
    3.2
    
    
    
    3.0
    
    
    
    9.4
    
    
    
    9.2BettingCorp
    
    
    0.9
    
    
    
    0.5
    
    
    
    3.1
    
    
    
    1.3Total Revenue
    
    
    19.5
    
    
    
    16.6
    
    
    
    63.2
    
    
    
    53.1Contribution Margin:Middleware and Integrated Technologies
    
    
    5.4
    
    
    
    5.0
    
    
    
    21.4
    
    
    
    17.6Applications
    
    
    (1.1
    )
    
    
    (1.5
    )
    
    
    (3.9
    )
    
    
    (4.4
    )BettingCorp
    
    
    (1.2
    )
    
    
    (1.1
    )
    
    
    (3.5
    )
    
    
    (3.3
    )Total Contribution Margin
    
    
    3.1
    
    
    
    2.4
    
    
    
    14.0
    
    
    
    9.9Unallocated corporate overhead
    
    
    (4.4
    )
    
    
    (6.0
    )
    
    
    (15.6
    )
    
    
    (21.9
    )Adjusted EBITDA before unusual items
    
    
    (1.3
    )
    
    
    (3.6
    )
    
    
    (1.6
    )
    
    
    (12.0
    )Contract amendment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.6Restructuring and impairment costs
    
    
    (0.4
    )
    
    
    0.6
    
    
    
    (2.6
    )
    
    
    1.1Adjusted EBITDA
    
    
    (1.7
    )
    
    
    (3.0
    )
    
    
    (4.2
    )
    
    
    (6.3
    )Depreciation and amortization
    
    
    (0.8
    )
    
    
    (1.5
    )
    
    
    (3.0
    )
    
    
    (4.8
    )
 15




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Amortization of intangible assets
    
    
    (1.4
    )
    
    
    (1.6
    )
    
    
    (4.0
    )
    
    
    (6.9
    )Interest income
    
    
    0.4
    
    
    
    0.2
    
    
    
    1.1
    
    
    
    0.6Other income / (expense)
    
    
    (0.1
    )
    
    
    0.6
    
    
    
    0.3
    
    
    
    0.5Minority interest
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.2Loss before income taxes
    
    
    (3.6
    )
    
    
    (5.3
    )
    
    
    (9.7
    )
    
    
    (16.7
    )Income tax (expense) / benefit
    
    
    (0.5
    )
    
    
    0.5
    
    
    
    (1.7
    )
    
    
    1.0Net loss
    
    $
    (4.1
    )
    
    $
    (4.8
    )
    
    $
    (11.4
    )
    
    $
    (15.7
    )
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    %
    
    
    2004
    
    
    %
    
    
    2005
    
    
    %
    
    
    2004
    
    
    %Europe, Africa and Middle EastUnited Kingdom
    $
    4.8
    
    
    
    23
    %
    
    $
    5.7
    
    
    
    34
    %
    
    $
    16.2
    
    
    
    26
    %
    
    $
    15.0
    
    
    
    28
    %Italy
    
    
    1.2
    
    
    
    7
    %
    
    
    2.4
    
    
    
    15
    %
    
    
    8.4
    
    
    
    13
    %
    
    
    8.2
    
    
    
    16
    %Other Countries
    
    
    4.0
    
    
    
    21
    %
    
    
    2.3
    
    
    
    14
    %
    
    
    9.8
    
    
    
    16
    %
    
    
    7.9
    
    
    
    15
    %Subtotal
    
    
    10.0
    
    
    
    51
    %
    
    
    10.4
    
    
    
    63
    %
    
    
    34.4
    
    
    
    55
    %
    
    
    31.1
    
    
    
    59
    %AmericasUnited States
    
    
    5.7
    
    
    
    29
    %
    
    
    2.5
    
    
    
    15
    %
    
    
    17.2
    
    
    
    27
    %
    
    
    12.2
    
    
    
    23
    %Other Countries
    
    
    1.3
    
    
    
    7
    %
    
    
    0.8
    
    
    
    5
    %
    
    
    3.0
    
    
    
    4
    %
    
    
    2.4
    
    
    
    4
    %Subtotal
    
    
    7.0
    
    
    
    36
    %
    
    
    3.3
    
    
    
    20
    %
    
    
    20.2
    
    
    
    31
    %
    
    
    14.6
    
    
    
    27
    %Asia Pacific
    
    
    2.5
    
    
    
    13
    %
    
    
    2.9
    
    
    
    17
    %
    
    
    8.6
    
    
    
    14
    %
    
    
    7.4
    
    
    
    14
    %$
    19.5
    
    
    
    100
    %
    
    $
    16.6
    
    
    
    100
    %
    
    $
    63.2
    
    
    
    100
    %
    
    $
    53.1
    
    
    
    100
    %
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004EchoStar
    
    
    18
    %
    
    
    8
    %
    
    
    17
    %
    
    
    13
    %Sky Italia
    
    
    6
    %
    
    
    14
    %
    
    
    13
    %
    
    
    15
    %Pace
    
    
    6
    %
    
    
    10
    %
    
    
    5
    %
    
    
    9
    %
   16




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Capital
expenditures, net:United States
    
    $
    0.3
    
    
    $
    0.2
    
    
    $
    1.1
    
    
    $
    1.1Other countries
    
    
    0.3
    
    
    
    0.1
    
    
    
    1.0
    
    
    
    0.4$
    0.6
    
    
    $
    0.3
    
    
    $
    2.1
    
    
    $
    1.5
 September 30,
    
    
    December 31,2005
    
    
    2004Long-lived assets:United States
    
    $
    10.4
    
    
    $
    10.3Other countries
    
    
    2.7
    
    
    
    2.6$
    13.1
    
    
    $
    12.9
 
 (*)
    
    Long-lived assets include property and equipment, and other assets. 17




---



##### Table of Contents



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 and
elsewhere. We urge you to review and consider the various disclosures made by us in this report,
and those detailed 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, 2004, as filed with the Securities and
Exchange Commission.
 Overview
    Critical Accounting Policies and Estimates
   18




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##### Table of Contents



Revenue Recognition
    Valuation Allowances
   Valuation of Investments in Privately-Held Companies
  Impairment of Goodwill and Long-lived Assets
  19




---



##### Table of Contents



Restructuring Costs
  Recent Accounting Pronouncements
 Share-Based
Payment Statement of Cash Flows
 Share-Based Payment
 The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments Implementation Guidance for the Application of Paragraph 16 of EITF Issue No.
03-1 The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments Recognition of Other-Than-Temporary Impairment
upon the Planned Sale of a Security Whose Cost Exceeds Fair Value
 Accounting Changes and Error CorrectionsA
Replacement of APB Opinion No. 20 and FASB Statement No. 3
 20




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##### Table of Contents



Three Months and Nine Months Ended September 30, 2005 and 2004
 Revenues
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    %
    
    
    2004
    
    
    %
    
    
    2005
    
    
    %
    
    
    2004
    
    
    %Royalties
    
    $
    11.5
    
    
    
    59
    %
    
    $
    9.3
    
    
    
    56
    %
    
    $
    38.7
    
    
    
    61
    %
    
    $
    28.9
    
    
    
    55
    %Services, support
and other
    
    
    3.5
    
    
    
    18
    %
    
    
    3.0
    
    
    
    18
    %
    
    
    11.5
    
    
    
    18
    %
    
    
    11.9
    
    
    
    22
    %Fees and revenue
shares
    
    
    3.1
    
    
    
    16
    %
    
    
    3.3
    
    
    
    20
    %
    
    
    10.1
    
    
    
    16
    %
    
    
    10.0
    
    
    
    19
    %License fees and
programming
    
    
    1.4
    
    
    
    7
    %
    
    
    1.0
    
    
    
    6
    %
    
    
    2.9
    
    
    
    5
    %
    
    
    2.3
    
    
    
    4
    %Total Revenues
    
    $
    19.5
    
    
    
    100
    %
    
    $
    16.6
    
    
    
    100
    %
    
    $
    63.2
    
    
    
    100
    %
    
    $
    53.1
    
    
    
    100
    %
 Royalties.
   21




---



##### Table of Contents



Services, Support and Other.
  Fees and Revenue Shares.
   License Fees and Programming.
 Operating Expenses
  22




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of2005
    
    
    Revenue
    
    
    2004
    
    
    Revenue
    
    
    2005
    
    
    Revenue
    
    
    2004
    
    
    RevenueCost of revenues
    
    $
    8.5
    
    
    
    44
    %
    
    $
    8.1
    
    
    
    49
    %
    
    $
    24.8
    
    
    
    39
    %
    
    $
    27.4
    
    
    
    52
    %NASCAR amendment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.6
    )
    
    
    (9
    %)Research and
development
    
    
    7.8
    
    
    
    40
    %
    
    
    7.3
    
    
    
    44
    %
    
    
    24.6
    
    
    
    39
    %
    
    
    21.2
    
    
    
    40
    %Sales and marketing
    
    
    2.8
    
    
    
    14
    %
    
    
    3.5
    
    
    
    21
    %
    
    
    9.4
    
    
    
    15
    %
    
    
    11.2
    
    
    
    21
    %General and
administrative
    
    
    3.5
    
    
    
    18
    %
    
    
    3.7
    
    
    
    22
    %
    
    
    11.8
    
    
    
    19
    %
    
    
    13.9
    
    
    
    26
    %Restructuring and
impairment costs
    
    
    0.4
    
    
    
    2
    %
    
    
    (0.6
    )
    
    
    (3
    %)
    
    
    2.5
    
    
    
    4
    %
    
    
    (1.1
    )
    
    
    (2
    %)Amortization of
intangible assets
    
    
    0.4
    
    
    
    2
    %
    
    
    0.7
    
    
    
    4
    %
    
    
    1.2
    
    
    
    2
    %
    
    
    3.1
    
    
    
    6
    %Total Operating
Expenses
    
    $
    23.4
    
    
    
    120
    %
    
    $
    22.7
    
    
    
    137
    %
    
    $
    74.3
    
    
    
    118
    %
    
    $
    71.1
    
    
    
    134
    %
 Cost of Revenues.
   NASCAR Amendment.
 Research and Development.
  23




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##### Table of Contents



Sales and Marketing.
   General and Administrative.
   Restructuring and Impairment Costs
  24




---



##### Table of Contents



Amortization of Intangible Assets
 Interest Income, Other Income (Expense) and Minority Interest
   Income Taxes
  Business Segment Results
     25




---



##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    %
    
    
    2004
    
    
    %
    
    
    2005
    
    
    %
    
    
    2004
    
    
    %Middleware and
Integrated
Technologies SegmentRoyalties
    
    $
    11.5
    
    
    
    75
    %
    
    $
    9.3
    
    
    
    71
    %
    
    $
    38.7
    
    
    
    76
    %
    
    $
    28.9
    
    
    
    68
    %Services, support
and other
    
    
    3.2
    
    
    
    21
    %
    
    
    2.9
    
    
    
    22
    %
    
    
    10.6
    
    
    
    21
    %
    
    
    11.6
    
    
    
    27
    %License fees and
programming
    
    
    0.7
    
    
    
    4
    %
    
    
    0.9
    
    
    
    7
    %
    
    
    1.4
    
    
    
    3
    %
    
    
    2.1
    
    
    
    5
    %Subtotal
    
    
    15.4
    
    
    
    100
    %
    
    
    13.1
    
    
    
    100
    %
    
    
    50.7
    
    
    
    100
    %
    
    
    42.6
    
    
    
    100
    %Applications SegmentServices, support
and other
    
    
    0.3
    
    
    
    9
    %
    
    
    0.1
    
    
    
    3
    %
    
    
    0.5
    
    
    
    5
    %
    
    
    0.3
    
    
    
    3
    %Fees and revenue
shares
    
    
    2.2
    
    
    
    69
    %
    
    
    2.8
    
    
    
    94
    %
    
    
    7.4
    
    
    
    79
    %
    
    
    8.7
    
    
    
    95
    %License fees and
programming
    
    
    0.7
    
    
    
    22
    %
    
    
    0.1
    
    
    
    3
    %
    
    
    1.5
    
    
    
    16
    %
    
    
    0.2
    
    
    
    2
    %Subtotal
    
    
    3.2
    
    
    
    100
    %
    
    
    3.0
    
    
    
    100
    %
    
    
    9.4
    
    
    
    100
    %
    
    
    9.2
    
    
    
    100
    %Betting Corp SegmentServices, support
and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    13
    %
    
    
    
    
    
    
    Fees and revenue
shares
    
    
    0.9
    
    
    
    100
    %
    
    
    0.5
    
    
    
    100
    %
    
    
    2.7
    
    
    
    87
    %
    
    
    1.3
    
    
    
    100
    %Subtotal
    
    
    0.9
    
    
    
    100
    %
    
    
    0.5
    
    
    
    100
    %
    
    
    3.1
    
    
    
    100
    %
    
    
    1.3
    
    
    
    100
    %TOTAL
    
    $
    19.5
    
    
    
    
    
    
    $
    16.6
    
    
    
    
    
    
    $
    63.2
    
    
    
    
    
    
    $
    53.1
   26




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##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Contribution Margin:Middleware and Integrated Technologies
    
    $
    5.4
    
    
    $
    5.0
    
    
    $
    21.4
    
    
    $
    17.6Applications
    
    
    (1.1
    )
    
    
    (1.5
    )
    
    
    (3.9
    )
    
    
    (4.4
    )BettingCorp
    
    
    (1.2
    )
    
    
    (1.1
    )
    
    
    (3.5
    )
    
    
    (3.3
    )Total Contribution Margin
    
    
    3.1
    
    
    
    2.4
    
    
    
    14.0
    
    
    
    9.9Unallocated corporate overhead
    
    
    (4.4
    )
    
    
    (6.0
    )
    
    
    (15.6
    )
    
    
    (21.9
    )Adjusted EBITDA before unusual items
    
    
    (1.3
    )
    
    
    (3.6
    )
    
    
    (1.6
    )
    
    
    (12.0
    )Contract amendment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.6Restructuring and impairment costs
    
    
    (0.4
    )
    
    
    0.6
    
    
    
    (2.6
    )
    
    
    1.1Adjusted EBITDA
    
    
    (1.7
    )
    
    
    (3.0
    )
    
    
    (4.2
    )
    
    
    (6.3
    )Depreciation and amortization
    
    
    (0.8
    )
    
    
    (1.5
    )
    
    
    (3.0
    )
    
    
    (4.8
    )Amortization of intangible assets
    
    
    (1.4
    )
    
    
    (1.6
    )
    
    
    (4.0
    )
    
    
    (6.9
    )Interest income
    
    
    0.4
    
    
    
    0.2
    
    
    
    1.1
    
    
    
    0.6Other (expense) / income
    
    
    (0.1
    )
    
    
    0.6
    
    
    
    0.3
    
    
    
    0.5Minority interest
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.2Loss before income taxes
    
    
    (3.6
    )
    
    
    (5.3
    )
    
    
    (9.7
    )
    
    
    (16.7
    )Income tax (expense) / benefit
    
    
    (0.5
    )
    
    
    0.5
    
    
    
    (1.7
    )
    
    
    1.0Net loss
    
    $
    (4.1
    )
    
    $
    (4.8
    )
    
    $
    (11.4
    )
    
    $
    (15.7
    )
  27




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##### Table of Contents



Deferred Revenue
      Expected Recognition of UnearnedRevenueYear Ending December 31,
    
    (in millions)2005 (Remaining three months)
    
    $
    1.72006
    
    
    6.52007 and thereafter
    
    
    7.8$
    16.0
  Liquidity and Capital Resources
  28




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Commitments and Contractual Obligations
  Payments due by periodDue in
    
    
    
    
    
    
    
    
    
    
    Due inremainder of
    
    
    Due in
    
    
    Due in
    
    
    2010 orTotal
    
    
    2005
    
    
    2006-2007
    
    
    2008-2009
    
    
    afterOperating lease obligations
    
    $
    16.0
    
    
    $
    1.0
    
    
    $
    7.6
    
    
    $
    6.9
    
    
    $
    0.5Minimum purchase obligations
    
    
    3.0
    
    
    
    1.0
    
    
    
    2.0
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    19.0
    
    
    $
    2.0
    
    
    $
    9.6
    
    
    $
    6.9
    
    
    $
    0.5
   29




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##### Table of Contents



Indemnifications
   Factors That May Affect Future Results
  We have a history of net losses, and we may continue to experience net losses in the future.
  We have historically derived a significant percentage of our revenues from licensing our
middleware to network operators. Our opportunities for future revenue growth with middleware are
limited by the actual number of worldwide network operators and by technology decisions they make
from time to time.
  30




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We offer volume discounts to certain customers, which may, over time, depress our average
pricing. While deployments of our software may continue to grow, those discounts, as they are
triggered, may limit the rate of our royalty growth in the future.
  We expect a more significant portion of our revenue growth in the future to be derived from
interactive applications that we develop and market. If we are not successful in developing and
marketing interactive applications, our future revenue growth may be limited.
  Two of our potential North American cable customers, Cox Communications and Comcast
Corporation, joined together in early 2005 to acquire certain assets from Liberate Technologies,
one of our direct competitors in the middleware business. That acquisition, which closed in April
2005, is likely to eliminate Cox and Comcast as potential customers for our middleware, which could
adversely affect our ability to grow.
  31




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A significant percentage of our revenues are currently provided by entities affiliated with
The News Corporation, which also controls companies that compete with us in certain market
segments. Those circumstances may make it more difficult for us, over the long-term, to sell
products, technologies or services to News Corporation affiliates in market segments in which other
News Corporation affiliates offer competing products.
  We concluded that our internal control over financial reporting and disclosure controls were
not effective as of December 31, 2004. As of September 30, 2005, we continued our earlier efforts
to remediate weaknesses in our internal control and expect to continue those efforts through the
remainder of the year. If we do not properly address those identified weaknesses by the end of
this year, the reliability of our financial statements for the year could be implicated and,
ultimately, our financial results and our stock price could suffer
   We may be unable in the future to raise additional capital required to support our operating
activities.
 32




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We realize a percentage of our revenue from revenue sharing and subscription-based
arrangements, especially in our applications business. We are not certain that those revenue models
will be generally acceptable to our customers over the long-term or that they will offer us
significant opportunities for revenue growth, which could adversely affect the growth opportunities
for our applications business.
  The market for our products and services is subject to significant competition, which could
adversely affect our business.
  The trend of consolidation among industry participants may adversely impact our business,
results of operations and future prospects.
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Unanticipated fluctuations in our quarterly operating results could affect our stock price.
            We depend upon key personnel, including our senior executives and technical and engineering
staff, to operate our business effectively, and we may be unable to attract or retain such
personnel.
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We continue to evaluate our business operations and may implement structural and other changes
that affect the conduct of our worldwide business operations. As we continue to align our resources
appropriately with our evolving business we may face unintended consequences or suffer adverse
effects on our operations or personnel.
  Interactive television remains an emerging business and it may not attract widespread market
acceptance or demand.
  Because much of our success and value lie in our ownership and use of our intellectual
property, our failure to protect our intellectual property and develop new proprietary technology
may negatively affect us.
   Intellectual property infringement claims may be asserted against us, which could have the
effect of disrupting our business.
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We grant certain indemnification rights to our customers when we license our software
technologies. We may, therefore, become subject to third party infringement claims through those
commercial arrangements. In addition, the damages to which we are subject may be increased by the
use of our technologies in our customers products.
   The adoption of industry-wide standards for interactive television, such as the OpenCable
initiative in North America, could adversely affect our ability to sell our products and services
or place downward pressure on our pricing.
  Our failure to participate in certain industry standards setting organizations, including
CableLabs, may adversely affect our ability to sell products or services to network operators or
other potential customers that are members of those organizations.
  The adoption of incompatible standards by our industry and rapid technological advances could
render our products and services obsolete or non-competitive.
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Government regulations may adversely affect our business.
  Changes to current accounting policies or in how such policies are interpreted or applied to
our business could have a significant effect on our reported financial results or the way in which
we conduct our business and could make it difficult for investors to assess properly our financial
condition or operating results.
  
    
    Software revenue recognition;
    
    Accounting for stock-based compensation; and
    
    Accounting for goodwill and other intangible assets.
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Through the use of our technology, we have the ability to collect personal and confidential
information from set-top boxes. If we fail to protect this information from security breaches or
misuse this information, then our operations could be disrupted and we could be subject to
litigation and liability under privacy laws.
  If we continue to develop and seek to market gaming and gambling applications, we must assess
the legality of these types of activities in different jurisdictions. Our inability to launch these
applications legally, the uncertain regulatory landscape for these applications and the significant
costs associated with ongoing evaluations regarding the state of gaming and gambling laws around
the world may adversely affect our business.
  Our multinational operations expose us to special risks that could increase our expenses,
adversely affect our operating results and require increased time and attention of management.
  
 
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
 
 
 
 
 
  Our software products may contain errors, which could cause us to lose revenue and incur
unexpected expenses.
  The interests of our majority owner may differ from yours and may result in OpenTV acting in a
manner inconsistent with your general interests.
  Because we are controlled by Liberty Media, we are exempt from certain listing requirements of
the Nasdaq National Market relating to corporate governance matters.
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Because we are a British Virgin Islands company, you may not be able to enforce judgments
against us that are obtained in United States courts.
   Because we are a British Virgin Islands company, your rights as a stockholder may be less
clearly established as compared to the rights of stockholders of companies incorporated in other
jurisdictions.
  Certain provisions contained in our charter documents could deter a change of control of us.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Fixed Income Investment Risk
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Valuation of
    
    
    Valuation of
    
    
    Valuation of
    
    
    Valuation ofFair Value as
    
    
    Securities if
    
    
    Securities if
    
    
    Securities if
    
    
    Securities ifof September 30,
    
    
    Interest Rates
    
    
    Interest Rates
    
    
    Interest Rates
    
    
    Interest RatesIssuer
    
    2005
    
    
    Decrease 1%
    
    
    Increase 1%
    
    
    Decrease 2%
    
    
    Increase 2%Marketable debt securities
    
    $
    20,353
    
    
    $
    20,562
    
    
    $
    20,114
    
    
    $
    20,771
    
    
    $
    19,935
  Foreign Currency Exchange Rate Risk
   
 Item 4. Controls and Procedures
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Remediation of Material Weakness Related to Improper Segregation of Certain Duties within the
Financial Group
   Remediation of Certain Controls Associated with the Financial Reporting and Close Process
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Evaluation of Disclosure Controls and Procedures
     
 Part II. Other Information
 
 Item 1. Legal Proceedings
 OpenTV, Inc. v. Liberate Technologies, Inc.
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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
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Litigation Relating to the Acquisition of ACTV, Inc.
 Broadcast Innovation Matter
 Personalized Media Communications, LLC
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Other Matters
 
 Item 6. Exhibits
 Exhibit Number
    
    Description10.34
    
    Registration Rights Agreement, dated as of September 7, 2005, by and among OpenTV Corp., CAM
Systems, L.L.C., and StarNet, L.P.31.1
    
    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
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Signature
  Date: November 7, 2005
    
    OpenTV Corp./s/ Shum MukherjeeShum MukherjeeExecutive Vice President andChief Financial Officer
 
 Exhibit Index
 ExhibitNumber
    
    Description10.34
    
    Registration Rights Agreement, dated as of September 7, 2005, by and among OpenTV Corp., CAM
Systems, L.L.C., and StarNet, L.P.31.1
    
    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