##### 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, 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(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
 þ o
  92,728,913 Class A ordinary shares, no par value; and
30,631,746 Class B ordinary shares, no par value




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Table of Contents
 PagePart I.
    
    Financial Information
    
    2Item 1.
    
    Financial Statements
    
    2Condensed Consolidated Balance Sheets at June 30, 2005 and December 31, 2004
    
    2Condensed Consolidated Statements of Operations for the Three Months and Six Months
Ended June 30, 2005 and 2004
    
    3Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30,
2005 and 2004
    
    4Notes to Condensed Consolidated Financial Statements
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    37Item 4.
    
    Controls and Procedures
    
    38Part II.
    
    Other Information
    
    40Item 1.
    
    Legal Proceedings
    
    40Item 6.
    
    Exhibits
    
    42Signature
    
    43Exhibit Index
    
    43EX-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 31,2005
    
    2004*(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    55,690
    
    
    $
    35,660Short-term marketable debt securities
    
    
    6,484
    
    
    
    1,986Accounts receivable, net of allowance for doubtful accounts of $514 and
$559 at June 30, 2005 and December 31, 2004, respectively
    
    
    11,122
    
    
    
    17,797Prepaid expenses and other current assets
    
    
    2,626
    
    
    
    3,073Total current assets
    
    
    75,922
    
    
    
    58,516Long-term marketable debt securities
    
    
    4,444
    
    
    
    25,374Property and equipment, net
    
    
    5,770
    
    
    
    6,858Goodwill
    
    
    70,492
    
    
    
    70,466Intangible assets, net
    
    
    22,547
    
    
    
    25,108Other assets
    
    
    6,832
    
    
    
    6,089Total assets
    
    $
    186,007
    
    
    $
    192,411LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,848
    
    
    $
    3,870Accrued liabilities
    
    
    19,272
    
    
    
    23,916Accrued restructuring
    
    
    2,230
    
    
    
    1,394Due to Liberty Media
    
    
    159
    
    
    
    388Current portion of deferred revenue
    
    
    10,849
    
    
    
    10,520Total current liabilities
    
    
    35,358
    
    
    
    40,088Deferred revenue, less current portion
    
    
    9,251
    
    
    
    6,563Total liabilities
    
    
    44,609
    
    
    
    46,651Commitments and contingencies (Note 10)Minority interest
    
    
    541
    
    
    
    585Shareholders equity:Class A ordinary shares, no par value, 500,000,000 shares authorized;
92,805,240 and 91,552,293 shares issued and outstanding, including
treasury shares, at June 30, 2005 and December 31, 2004, respectively
    
    
    2,217,187
    
    
    
    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
    
    
    470,547
    
    
    
    470,453Treasury shares at cost, 76,327 shares
    
    
    (38
    )
    
    
    (38
    )Deferred share-based compensation
    
    
    (6
    )
    
    
    (10
    )Accumulated other comprehensive income
    
    
    197
    
    
    
    523Accumulated deficit
    
    
    (2,582,983
    )
    
    
    (2,575,657
    )Total shareholders equity
    
    
    140,857
    
    
    
    145,175Total liabilities, minority interest and shareholders equity
    
    $
    186,007
    
    
    $
    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
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Revenues:Royalties
    
    $
    12,308
    
    
    $
    10,513
    
    
    $
    27,186
    
    
    $
    19,618Services, support and other
    
    
    4,480
    
    
    
    4,821
    
    
    
    8,042
    
    
    
    8,926Fees and revenue shares
    
    
    3,277
    
    
    
    3,441
    
    
    
    6,940
    
    
    
    6,631License fees and programming
    
    
    809
    
    
    
    322
    
    
    
    1,535
    
    
    
    1,320Total revenues
    
    
    20,874
    
    
    
    19,097
    
    
    
    43,703
    
    
    
    36,495Operating expenses:Cost of revenues
    
    
    7,480
    
    
    
    9,048
    
    
    
    16,299
    
    
    
    19,296NASCAR amendment
    
    
    
    
    
    
    (4,600
    )
    
    
    
    
    
    
    (4,600
    )Research and development
    
    
    8,107
    
    
    
    6,862
    
    
    
    16,843
    
    
    
    14,001Sales and marketing
    
    
    3,323
    
    
    
    4,256
    
    
    
    6,581
    
    
    
    7,705General and administrative
    
    
    4,047
    
    
    
    5,959
    
    
    
    8,258
    
    
    
    10,187Restructuring and impairment costs
    
    
    1,692
    
    
    
    (517
    )
    
    
    2,177
    
    
    
    (517
    )Amortization of intangible assets
    
    
    393
    
    
    
    1,190
    
    
    
    790
    
    
    
    2,397Total operating expenses
    
    
    25,042
    
    
    
    22,198
    
    
    
    50,948
    
    
    
    48,469Loss from operations
    
    
    (4,168
    )
    
    
    (3,101
    )
    
    
    (7,245
    )
    
    
    (11,974
    )Interest income
    
    
    404
    
    
    
    192
    
    
    
    724
    
    
    
    410Other income (expense), net
    
    
    424
    
    
    
    16
    
    
    
    362
    
    
    
    (26
    )Minority interest
    
    
    (16
    )
    
    
    69
    
    
    
    44
    
    
    
    130Loss before income taxes
    
    
    (3,356
    )
    
    
    (2,824
    )
    
    
    (6,115
    )
    
    
    (11,460
    )Income tax benefit (expense)
    
    
    (686
    )
    
    
    862
    
    
    
    (1,211
    )
    
    
    561Net loss
    
    $
    (4,042
    )
    
    $
    (1,962
    )
    
    $
    (7,326
    )
    
    $
    (10,899
    )Net loss per share, basic and diluted
    
    $
    (0.03
    )
    
    $
    (0.02
    )
    
    $
    (0.06
    )
    
    $
    (0.09
    )Shares used in per share calculation, basic and diluted
    
    
    123,337,922
    
    
    
    121,420,281
    
    
    
    122,919,919
    
    
    
    120,712,281
  3




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##### Table of Contents



OPENTV CORP.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months Ended June 30,2005
    
    2004Cash flows provided from (used in) operating activities:Net loss
    
    $
    (7,326
    )
    
    $
    (10,899
    )Adjustments to reconcile net loss to net cash provided from
(used in) operating activities:Depreciation and amortization of property and equipment
    
    
    2,200
    
    
    
    3,290Amortization of intangible assets
    
    
    2,561
    
    
    
    5,343Amortization of share-based compensation
    
    
    4
    
    
    
    19Non-cash employee compensation
    
    
    102
    
    
    
    839Provision for (reduction of) doubtful accounts
    
    
    
    
    
    
    (253
    )Non-cash impairment costs
    
    
    602
    
    
    
    Minority interest
    
    
    (44
    )
    
    
    (130
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    6,675
    
    
    
    (4,942
    )Prepaid expenses and other current assets
    
    
    447
    
    
    
    1,453Other assets
    
    
    (743
    )
    
    
    21Accounts payable
    
    
    (1,022
    )
    
    
    (1,266
    )Accrued liabilities
    
    
    (1,464
    )
    
    
    (5,482
    )Accrued restructuring
    
    
    836
    
    
    
    (4,734
    )Due to Liberty Media
    
    
    (229
    )
    
    
    795Deferred revenue
    
    
    3,017
    
    
    
    (1,925
    )Net cash provided from (used in) operating activities
    
    
    5,616
    
    
    
    (17,871
    )Cash flows provided from investing activities:Purchase of property and equipment
    
    
    (1,510
    )
    
    
    (1,216
    )Proceeds from sale of marketable debt securities
    
    
    25,438
    
    
    
    6,655Purchase of marketable debt securities
    
    
    (8,999
    )
    
    
    (1,375
    )Private equity investments
    
    
    (300
    )
    
    
    Net cash provided from investing activities
    
    
    14,629
    
    
    
    4,064Cash flows provided from financing activities:Proceeds from issuance of ordinary shares
    
    
    22
    
    
    
    2,953Net cash provided from financing activities
    
    
    22
    
    
    
    2,953Effect of exchange rate changes on cash and cash equivalents
    
    
    (237
    )
    
    
    (238
    )Net increase (decrease) in cash and cash equivalents
    
    
    20,030
    
    
    
    (11,092
    )Cash and cash equivalents, beginning of period
    
    
    35,660
    
    
    
    47,747Cash and cash equivalents, end of period
    
    $
    55,690
    
    
    $
    36,655Non-cash
investing and financing activities:Value of
bonus shares issued to employees
    
    $
    3,180
    
    
    $
    1,671
  4




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##### Table of Contents



OPENTV CORP.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(Unaudited)
 Note 1. Basis of Presentation
    Note 2. Summary of Significant Accounting Policies
 Share-Based Compensation
  Three Month Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net loss, as reported
    
    $
    (4.0
    )
    
    $
    (2.0
    )
    
    $
    (7.3
    )
    
    $
    (10.9
    )Deduct: Share-based employee compensation expense
determined under fair value-based method for all awards,
net of related tax effects
    
    
    (1.1
    )
    
    
    (1.0
    )
    
    
    (2.1
    )
    
    
    (1.6
    )Pro-forma net loss
    
    $
    (5.1
    )
    
    $
    (3.0
    )
    
    $
    (9.4
    )
    
    $
    (12.5
    )Net loss per share, basic and diluted:As reported
    
    $
    (0.03
    )
    
    $
    (0.02
    )
    
    $
    (0.06
    )
    
    $
    (0.09
    )Pro-forma
    
    $
    (0.04
    )
    
    $
    (0.03
    )
    
    $
    (0.08
    )
    
    $
    (0.11
    )
 5




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##### Table of Contents



Three Months
    
    Three Months
    
    Six Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,
    
    Ended June 30,
    
    Ended June 30,2005

    2004
    2005

    2004Risk-free interest rate
    
    
    3.78%-4.24%
    
    
    
    2.65%-3.18%
    
    
    
    3.71-4.42%
    
    
    
    2.65%-3.36%Average expected life
(months)
    
    
    75
    
    
    
    60
    
    
    
    75
    
    
    
    60Volatility
    
    
    102%
    
    
    
    113%-115%
    
    
    
    102%-104%
    
    
    
    113%-115%Dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Recent Accounting Pronouncements
 
  
 Note 3. Net Loss Per Share
  6




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##### Table of Contents



Three
Months Ended June 30,

    

Six
Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Class A ordinary shares issuable upon exercise of
stock
options
    
    
    10,338,310
    
    
    
    9,438,618
    
    
    
    10,567,202
    
    
    
    9,987,052Class 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
    
    
    
    760,844
    
    
    
    744,428
    
    
    
    760,844Class 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. Goodwill
  Note 5. Intangible Assets, Net
  June 30, 2005
    
    Dec 31, 2004Useful
    
    Gross
    
    
    
    
    
    Net
    
    Netlife in
    
    Carrying
    
    Accumulated
    
    Carrying
    
    Carryingyears
    
    Amount
    
    Amortization

    Amount
    
    AmountIntangible assets:Patents
    
    
    5-13
    
    
    $
    20.7
    
    
    $
    (5.0
    )
    
    $
    15.7
    
    
    $
    16.8Developed technologies
    
    
    5
    
    
    
    7.1
    
    
    
    (3.2
    )
    
    
    3.9
    
    
    
    4.6Contracts and relationships
    
    
    2-5
    
    
    
    6.9
    
    
    
    (4.1
    )
    
    
    2.8
    
    
    
    3.6Purchased technologies
    
    
    5
    
    
    
    0.4
    
    
    
    (0.3
    )
    
    
    0.1
    
    
    
    0.1$
    35.1
    
    
    $
    (12.6
    )
    
    $
    22.5
    
    
    $
    25.1
  7




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##### Table of Contents



AmortizationYear ending December 31,
    
    Expense2005 (Remaining six months)
    
    $
    2.42006
    
    
    4.92007
    
    
    3.92008
    
    
    1.82009
    
    
    1.3Thereafter
    
    
    8.2$
    22.5
 Note
6. NASCAR and Sun Amendments
   Note 7. Restructuring and Impairment Costs
      8




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##### Table of Contents



Excess
    
    AssetFacilities
    
    Write-offs
    
    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
liability
    
    
    0.5
    
    
    
    
    
    
    
    0.5Balance, June 30, 2005
    
    $
    2.2
    
    
    $
    
    
    
    $
    2.2
  Note 8. Employee Bonus
  Note 9. Comprehensive Loss
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net loss
    
    $
    (4.0
    )
    
    $
    (2.0
    )
    
    $
    (7.3
    )
    
    $
    (10.9
    )Other comprehensive loss:Foreign currency translation adjustments
    
    
    (0.2
    )
    
    
    (0.3
    )
    
    
    (0.3
    )
    
    
    (0.2
    )Unrealized losses on investments, net
of income taxes
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )Comprehensive loss
    
    $
    (4.2
    )
    
    $
    (2.5
    )
    
    $
    (7.6
    )
    
    $
    (11.3
    )
 Note 10. Commitments and Contingencies
 Operating Leases
   9




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##### Table of Contents



ExistingYear ending December 31,
    
    Commitments2005 (remaining six months)
    
    $
    2.02006
    
    
    4.12007
    
    
    3.62008
    
    
    3.52009
    
    
    3.4Thereafter
    
    
    0.5$
    17.1
  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
 12




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##### Table of Contents



Note 11. Related Party Transactions
   Note 12. Segment Information
     13




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##### Table of Contents



Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Revenues:Middleware and Integrated
Technologies
    
    $
    16.5
    
    
    $
    15.5
    
    
    $
    35.3
    
    
    $
    29.5Applications
    
    
    3.1
    
    
    
    3.1
    
    
    
    6.2
    
    
    
    6.2BettingCorp
    
    
    1.3
    
    
    
    0.5
    
    
    
    2.2
    
    
    
    0.8Total Revenues
    
    
    20.9
    
    
    
    19.1
    
    
    
    43.7
    
    
    
    36.5Contribution Margin:Middleware and Integrated
Technologies
    
    
    6.8
    
    
    
    7.1
    
    
    
    16.0
    
    
    
    12.6Applications
    
    
    (0.8
    )
    
    
    (1.3
    )
    
    
    (2.8
    )
    
    
    (2.9
    )BettingCorp
    
    
    (0.9
    )
    
    
    (1.0
    )
    
    
    (2.3
    )
    
    
    (2.2
    )Total Contribution Margin
    
    
    5.1
    
    
    
    4.8
    
    
    
    10.9
    
    
    
    7.5Unallocated corporate overhead
    
    
    (5.2
    )
    
    
    (8.9
    )
    
    
    (11.2
    )
    
    
    (15.9
    )Adjusted EBITDA before unusual
items
    
    
    (0.1
    )
    
    
    (4.1
    )
    
    
    (0.3
    )
    
    
    (8.4
    )Contract amendment
    
    
    
    
    
    
    4.6
    
    
    
    
    
    
    
    4.6Restructuring and impairment costs
    
    
    (1.7
    )
    
    
    0.5
    
    
    
    (2.2
    )
    
    
    0.5Adjusted EBITDA
    
    
    (1.8
    )
    
    
    1.0
    
    
    
    (2.5
    )
    
    
    (3.3
    )Depreciation and amortization
    
    
    (1.1
    )
    
    
    (1.6
    )
    
    
    (2.2
    )
    
    
    (3.3
    )Amortization of intangible assets
    
    
    (1.3
    )
    
    
    (2.5
    )
    
    
    (2.6
    )
    
    
    (5.3
    )Interest income
    
    
    0.4
    
    
    
    0.2
    
    
    
    0.7
    
    
    
    0.3Other income
    
    
    0.5
    
    
    
    
    
    
    
    0.4
    
    
    
    Minority interest
    
    
    
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Loss before income taxes
    
    
    (3.3
    )
    
    
    (2.8
    )
    
    
    (6.1
    )
    
    
    (11.5
    )Income tax (expense) benefit
    
    
    (0.7
    )
    
    
    0.8
    
    
    
    (1.2
    )
    
    
    0.6Net loss
    
    $
    (4.0
    )
    
    $
    (2.0
    )
    
    $
    (7.3
    )
    
    $
    (10.9
    )
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    %
    
    2004
    
    %
    
    2005
    
    %
    
    2004
    
    %Europe, Middle East and Africa (EMEA)United Kingdom
    
    $
    5.5
    
    
    
    27
    %
    
    $
    3.4
    
    
    
    18
    %
    
    $
    11.4
    
    
    
    26
    %
    
    $
    9.3
    
    
    
    25
    %Italy
    
    
    2.6
    
    
    
    12
    %
    
    
    5.3
    
    
    
    28
    %
    
    
    7.2
    
    
    
    17
    %
    
    
    5.8
    
    
    
    16
    %Other Countries
    
    
    2.6
    
    
    
    12
    %
    
    
    2.8
    
    
    
    14
    %
    
    
    5.8
    
    
    
    13
    %
    
    
    5.7
    
    
    
    16
    %Subtotal
    
    
    10.7
    
    
    
    51
    %
    
    
    11.5
    
    
    
    60
    %
    
    
    24.4
    
    
    
    56
    %
    
    
    20.8
    
    
    
    57
    %AmericasUnited States
    
    
    6.4
    
    
    
    31
    %
    
    
    4.4
    
    
    
    23
    %
    
    
    11.5
    
    
    
    26
    %
    
    
    9.7
    
    
    
    27
    %Other Countries
    
    
    0.7
    
    
    
    3
    %
    
    
    0.7
    
    
    
    4
    %
    
    
    1.7
    
    
    
    4
    %
    
    
    1.5
    
    
    
    4
    %Subtotal
    
    
    7.1
    
    
    
    34
    %
    
    
    5.1
    
    
    
    27
    %
    
    
    13.2
    
    
    
    30
    %
    
    
    11.2
    
    
    
    31
    %Asia Pacific
    
    
    3.1
    
    
    
    15
    %
    
    
    2.5
    
    
    
    13
    %
    
    
    6.1
    
    
    
    14
    %
    
    
    4.5
    
    
    
    12
    %$
    20.9
    
    
    
    100
    %
    
    $
    19.1
    
    
    
    100
    %
    
    $
    43.7
    
    
    
    100
    %
    
    $
    36.5
    
    
    
    100
    %
 14




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,Customer
    
    2005
    
    2004
    
    2005
    
    2004Echostar
    
    
    18
    %
    
    
    15
    %
    
    
    17
    %
    
    
    15
    %Sky Italia
    
    
    12
    %
    
    
    28
    %
    
    
    16
    %
    
    
    15
    %
    Three Months
    
    Six Months EndedEnded June 30,
    
    June 30,Capital expenditures,net:
    
    2005
    
    2004
    
    2005
    
    2004United States
    
    $
    0.4
    
    
    $
    0.7
    
    
    $
    0.9
    
    
    $
    0.9Other countries
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.6
    
    
    
    0.3$
    0.7
    
    
    $
    0.9
    
    
    $
    1.5
    
    
    $
    1.2
 June 30,
    
    December 31,2005
    
    2004Long-lived assets (*):United States
    
    $
    10.1
    
    
    $
    10.3Other countries
    
    
    2.5
    
    
    
    2.6$
    12.6
    
    
    $
    12.9
 
 (*) Long-lived assets include property and equipment, and other assets. 
 15




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##### 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
   Revenue Recognition
  16




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##### Table of Contents



Valuation Allowances
   Valuation of Investments in Privately-Held Companies
  Impairment of Goodwill and Long-lived Assets
  17




---



##### Table of Contents



Restructuring Costs
  Recent Accounting Pronouncements
 
  
 Three Months and Six Months Ended June 30, 2005 and 2004
 Revenues
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    %
    
    2004
    
    %
    
    2005
    
    %
    
    2004
    
    %Royalties
    
    $
    12.3
    
    
    
    59
    %
    
    $
    10.5
    
    
    
    55
    %
    
    $
    27.2
    
    
    
    62
    %
    
    $
    19.6
    
    
    
    54
    %Services, support and other
    
    
    4.5
    
    
    
    21
    %
    
    
    4.8
    
    
    
    25
    %
    
    
    8.0
    
    
    
    19
    %
    
    
    8.9
    
    
    
    24
    %Fees and revenue shares
    
    
    3.3
    
    
    
    16
    %
    
    
    3.5
    
    
    
    18
    %
    
    
    7.0
    
    
    
    16
    %
    
    
    6.7
    
    
    
    18
    %License fees and
programming
    
    
    0.8
    
    
    
    4
    %
    
    
    0.3
    
    
    
    2
    %
    
    
    1.5
    
    
    
    3
    %
    
    
    1.3
    
    
    
    4
    %Total Revenues
    
    $
    20.9
    
    
    
    100
    %
    
    $
    19.1
    
    
    
    100
    %
    
    $
    43.7
    
    
    
    100
    %
    
    $
    36.5
    
    
    
    100
    %
 Royalties.
  18




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##### Table of Contents



Services, Support and Other.
  Fees and Revenue Shares.
   License Fees and Programming.
 19




---



##### Table of Contents



Operating Expenses
   Three Months Ended June 30,
    
    
    
    
    
    
    
    
    
    Six Months Ended June 30,% of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % of2005
    
    Revenue
    
    2004
    
    Revenue
    
    2005
    
    Revenue
    
    2004
    
    RevenueCost of revenues
    
    $
    7.5
    
    
    
    36
    %
    
    $
    9.0
    
    
    
    47
    %
    
    $
    16.3
    
    
    
    37
    %
    
    $
    19.3
    
    
    
    53
    %NASCAR amendment
    
    
    
    
    
    
    
    
    
    
    (4.6
    )
    
    
    (24
    %)
    
    
    
    
    
    
    
    
    
    
    (4.6
    )
    
    
    (13
    %)Research and development
    
    
    8.1
    
    
    
    39
    %
    
    
    6.9
    
    
    
    36
    %
    
    
    16.8
    
    
    
    38
    %
    
    
    14.0
    
    
    
    38
    %Sales and marketing
    
    
    3.3
    
    
    
    16
    %
    
    
    4.2
    
    
    
    22
    %
    
    
    6.6
    
    
    
    15
    %
    
    
    7.7
    
    
    
    21
    %General and administrative
    
    
    4.0
    
    
    
    19
    %
    
    
    6.0
    
    
    
    31
    %
    
    
    8.2
    
    
    
    19
    %
    
    
    10.2
    
    
    
    28
    %Restructuring and impairment costs
    
    
    1.7
    
    
    
    8
    %
    
    
    (0.5
    )
    
    
    (2
    %)
    
    
    2.2
    
    
    
    5
    %
    
    
    (0.5
    )
    
    
    (1
    %)Amortization of intangible assets
    
    
    0.4
    
    
    
    2
    %
    
    
    1.2
    
    
    
    6
    %
    
    
    0.8
    
    
    
    2
    %
    
    
    2.4
    
    
    
    7
    %Total Operating Expenses
    
    $
    25.0
    
    
    
    120
    %
    
    $
    22.2
    
    
    
    116
    %
    
    $
    50.9
    
    
    
    116
    %
    
    $
    48.5
    
    
    
    133
    %
 Cost of Revenues.
   NASCAR Amendment.
 Research and Development.
 20




---



##### Table of Contents



Sales and Marketing.
   General and Administrative.
   Restructuring and Impairment Costs
 21




---



##### Table of Contents



Amortization of Intangible Assets
 Interest Income, Other Income (Expense) and Minority Interest
   Income Taxes
  Business Segment Results
     22




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Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    %
    
    2004
    
    %
    
    2005
    
    %
    
    2004
    
    %Middleware and IntegratedTechnologies SegmentRoyalties
    
    $
    12.3
    
    
    
    75
    %
    
    $
    10.5
    
    
    
    68
    %
    
    $
    27.2
    
    
    
    77
    %
    
    $
    19.6
    
    
    
    66
    %Services, support and other
    
    
    4.0
    
    
    
    24
    %
    
    
    4.7
    
    
    
    30
    %
    
    
    7.4
    
    
    
    21
    %
    
    
    8.7
    
    
    
    30
    %License fees and
programming
    
    
    0.2
    
    
    
    1
    %
    
    
    0.3
    
    
    
    2
    %
    
    
    0.7
    
    
    
    2
    %
    
    
    1.2
    
    
    
    4
    %Subtotal
    
    
    16.5
    
    
    
    100
    %
    
    
    15.5
    
    
    
    100
    %
    
    
    35.3
    
    
    
    100
    %
    
    
    29.5
    
    
    
    100
    %Applications SegmentServices, support and other
    
    
    0.1
    
    
    
    3
    %
    
    
    0.1
    
    
    
    3
    %
    
    
    0.2
    
    
    
    3
    %
    
    
    0.2
    
    
    
    3
    %Fees and revenue shares
    
    
    2.4
    
    
    
    78
    %
    
    
    3.0
    
    
    
    97
    %
    
    
    5.2
    
    
    
    84
    %
    
    
    5.9
    
    
    
    95
    %License fees and
programming
    
    
    0.6
    
    
    
    19
    %
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    13
    %
    
    
    0.1
    
    
    
    2
    %Subtotal
    
    
    3.1
    
    
    
    100
    %
    
    
    3.1
    
    
    
    100
    %
    
    
    6.2
    
    
    
    100
    %
    
    
    6.2
    
    
    
    100
    %Betting CorpServices, support and other
    
    
    0.4
    
    
    
    31
    %
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    18
    %
    
    
    
    
    
    
    Fees and revenue shares
    
    
    0.9
    
    
    
    69
    %
    
    
    0.5
    
    
    
    100
    %
    
    
    1.8
    
    
    
    82
    %
    
    
    0.8
    
    
    
    100
    %Subtotal
    
    
    1.3
    
    
    
    100
    %
    
    
    0.5
    
    
    
    100
    %
    
    
    2.2
    
    
    
    100
    %
    
    
    0.8
    
    
    
    100
    %TOTAL
    
    $
    20.9
    
    
    
    
    
    
    $
    19.1
    
    
    
    
    
    
    $
    43.7
    
    
    
    
    
    
    $
    36.5
    23




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##### Table of Contents



Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Contribution Margin:Middleware and Integrated Technologies
    
    $
    6.8
    
    
    $
    7.1
    
    
    $
    16.0
    
    
    $
    12.6Applications
    
    
    (0.8
    )
    
    
    (1.3
    )
    
    
    (2.8
    )
    
    
    (2.9
    )BettingCorp
    
    
    (0.9
    )
    
    
    (1.0
    )
    
    
    (2.3
    )
    
    
    (2.2
    )Total Contribution Margin
    
    
    5.1
    
    
    
    4.8
    
    
    
    10.9
    
    
    
    7.5Unallocated corporate overhead
    
    
    (5.2
    )
    
    
    (8.9
    )
    
    
    (11.2
    )
    
    
    (15.9
    )Adjusted EBITDA before unusual items
    
    
    (0.1
    )
    
    
    (4.1
    )
    
    
    (0.3
    )
    
    
    (8.4
    )Contract amendment
    
    
    
    
    
    
    4.6
    
    
    
    
    
    
    
    4.6Restructuring and impairment costs
    
    
    (1.7
    )
    
    
    0.5
    
    
    
    (2.2
    )
    
    
    0.5Adjusted EBITDA
    
    
    (1.8
    )
    
    
    1.0
    
    
    
    (2.5
    )
    
    
    (3.3
    )Depreciation and amortization
    
    
    (1.1
    )
    
    
    (1.6
    )
    
    
    (2.2
    )
    
    
    (3.3
    )Amortization of intangible assets
    
    
    (1.3
    )
    
    
    (2.5
    )
    
    
    (2.6
    )
    
    
    (5.3
    )Interest income
    
    
    0.4
    
    
    
    0.2
    
    
    
    0.7
    
    
    
    0.3Other income
    
    
    0.5
    
    
    
    
    
    
    
    0.4
    
    
    
    Minority interest
    
    
    
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Loss before income taxes
    
    
    (3.3
    )
    
    
    (2.8
    )
    
    
    (6.1
    )
    
    
    (11.5
    )Income tax (expense) benefit
    
    
    (0.7
    )
    
    
    0.8
    
    
    
    (1.2
    )
    
    
    0.6Net loss
    
    $
    (4.0
    )
    
    $
    (2.0
    )
    
    $
    (7.3
    )
    
    $
    (10.9
    )
  Deferred Revenue
    24




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Expected Recognition of Unearned RevenueYear Ending December 31,
    
    (in millions)2005
(Remaining six months)
    
    $
    3.42006
    
    
    5.62007 and thereafter
    
    
    6.1$
    15.1
  Liquidity and Capital Resources
     25




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Commitments and Contractual Obligations
  Payments due by periodDue in
    
    
    
    
    
    
    
    
    
    Due inremainder of
    
    Due in
    
    Due in
    
    2010 orTotal
    
    2005
    
    2006-007
    
    2008-2009
    
    afterOperating lease obligations
    
    $
    17.1
    
    
    $
    2.0
    
    
    $
    7.7
    
    
    $
    6.9
    
    
    $
    0.5Noncancelable purchase obligations
    
    
    3.8
    
    
    
    1.7
    
    
    
    2.1
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    20.9
    
    
    $
    3.7
    
    
    $
    9.8
    
    
    $
    6.9
    
    
    $
    0.5
    Indemnifications
   26




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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.
       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.
  27




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##### Table of Contents



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.
  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. While we have remediated certain aspects of those control
issues, we had not completed those efforts as of June 30, 2005. If we do not properly address
identified weaknesses and implement additional controls to remedy those weaknesses, the reliability
of our financial statements could be implicated and, ultimately, our financial results and our
stock price could suffer.
 28




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We may be unable in the future to raise additional capital required to support our operating
activities.
   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.
  29




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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
 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.
   Unanticipated fluctuations in our quarterly operating results could affect our stock price.
       30




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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.
  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.
  31




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Intellectual property infringement claims may be asserted against us, which could have the
effect of disrupting our business.
  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
 32




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##### Table of Contents



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.
    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.
  33




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##### Table of Contents




    
    Software revenue recognition;
    
    Accounting for stock-based compensation; and
    
    Accounting for goodwill and other intangible assets.
   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.
  34




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##### Table of Contents



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.
           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.
  35




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Because we are controlled by Liberty Media, we are exempt from certain listing requirements of
the Nasdaq National Market relating to corporate governance matters.
  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.
  36




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Fixed Income Investment Risk
     Valuation of
    
    
    
    
    
    Valuation of
    
    Valuation ofSecurities if
    
    Fair Value as
    
    Securities if
    
    Securities ifInterest Rates
    
    of June 30,
    
    Interest Rates
    
    Interest RatesIssuer
    
    Decrease 1%
    
    2005
    
    Increase 1%
    
    Increase 2%U.S. government and agencies
    
    $
    5,998
    
    
    $
    5,946
    
    
    $
    5,891
    
    
    $
    5,839Corporate notes and bonds
    
    
    2,531
    
    
    
    2,482
    
    
    
    2,472
    
    
    
    2,444Certificates of deposit
    
    
    2,623
    
    
    
    2,500
    
    
    
    2,525
    
    
    
    2,478$
    11,152
    
    
    $
    10,928
    
    
    $
    10,888
    
    
    $
    10,761
  Foreign Currency Exchange Rate Risk
  37




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##### Table of Contents



Item 4. Controls and Procedures
          38




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##### Table of Contents



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
     Evaluation of Disclosure Controls and Procedures
    39




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##### 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
 40




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##### 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
 41




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##### Table of Contents



Personalized Media Communications, LLC
 Other Matters
 
 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
 42




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##### Table of Contents



Signature
  Date:
August 9, 2005
    
    OpenTV Corp./s/ Shum MukherjeeShum MukherjeeExecutive Vice President andChief Financial Officer
 
 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
 43