UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- -----
Exchange Act of 1934. For the quarterly period ended April 30, 2001.
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 000-27141
TIVO INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0463167
-------------------------------------------------------------- ------------------------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
2160 Gold Street, PO Box 2160, Alviso, CA 95002
----------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
(408) 519-9100
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
The number of outstanding shares of the registrant's Common Stock, $0.001 par
value, was 44,040,507 as of June 11, 2001.
TABLE OF CONTENTS
PART I : FINANCIAL INFORMATION..............................................................................3
Item 1. Financial Statements............................................................................3
Consolidated Balance Sheets.....................................................................3
Consolidated Statements of Operations...........................................................5
Consolidated Statements of Stockholders' Equity.................................................6
Consolidated Statements of Cash Flows...........................................................7
Notes To Financial Statements...................................................................9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................................................18
Item 3. Quantitative and Qualitative Disclosure About Market Risk......................................34
PART II : OTHER INFORMATION................................................................................35
Item 1. Legal Proceedings..............................................................................35
Item 2. Changes in Securities and Use of Proceeds......................................................35
Item 3. Defaults Upon Senior Securities................................................................35
Item 4. Submission of Matters to a Vote of Security Holders............................................35
Item 5. Other Information..............................................................................36
Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................37
Signatures..............................................................................................40
2
PART I : FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
TIVO INC.
CONSOLIDATED BALANCE SHEETS
April 30, January 31,
2001 2001
---------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................................ $ 71,741,000 $124,474,000
Restricted cash .................................................. 50,697,000 50,104,000
Accounts receivable, net of allowance for doubtful accounts of
$311,000 and $201,000, as of April 30, 2001 and January 31,
2001............................................................ 771,000 1,834,000
Accounts receivable-related parties, net of allowance for doubtful
accounts of $125,000 and $62,000, as of April 30, 2001 and
January 31, 2001 ............................................... 4,957,000 4,816,000
Prepaid expenses and other ....................................... 7,747,000 8,391,000
------------ ------------
Total current assets ........................................... 135,913,000 189,619,000
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $6,416,000
and $4,813,000 as of April 30, 2001 and January 31, 2001 ...... 21,975,000 21,924,000
------------ ------------
Total assets .......................................... $157,888,000 $211,543,000
============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable ................................................. $ 14,329,000 $ 21,971,000
Accrued liabilities .............................................. 15,635,000 19,863,000
Accrued liabilities-related parties .............................. 34,851,000 49,839,000
Deferred interest income on restricted cash ...................... 2,697,000 2,104,000
Deferred revenue, short-term ..................................... 7,718,000 6,210,000
Current portion of obligations under capital lease ............... 811,000 796,000
------------ ------------
Total current liabilities ...................................... 76,041,000 100,783,000
Long-term portion of obligations under capital lease ............. 329,000 538,000
Deferred revenue, long-term ...................................... 14,779,000 12,113,000
Other long-term liabilities ...................................... 893,000 1,217,000
------------ ------------
Total long-term liabilities .................................... 16,001,000 13,868,000
------------ ------------
Total liabilities ..................................... 92,042,000 114,651,000
------------ ------------
The accompanying notes are an integral part of these statements.
3
TIVO INC.
CONSOLIDATED BALANCE SHEETS (continued)
April 30, January 31,
2001 2001
--------------- -------------
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Series A Redeemable convertible preferred stock,
par value $0.001:
Issued and outstanding shares at April 30, 2001 and January 31, 2001
are 1,600,000 ..................................................... $ 2,000 $ 2,000
Additional paid-in capital ......................................... 46,553,000 46,553,000
--------------- -------------
Total redeemable convertible preferred stock ............. 46,555,000 46,555,000
STOCKHOLDERS' EQUITY
Series A Convertible preferred stock, par value $0.001:
Authorized shares at April 30, 2001 and January 31, 2001 are
10,000,000
Issued and outstanding shares at April 30, 2001 and January 31,
2001 are 1,111,861 ........................................... $ 1,000 $ 1,000
Common stock, par value $0.001:
Authorized shares at April 30, 2001 and January 31, 2001 are
150,000,000
Issued and outstanding shares at April 30, 2001 and January 31,
2001 are 43,580,059 and 43,430,023 ........................... 43,000 43,000
Additional paid-in capital ......................................... 406,819,000 406,294,000
Deferred compensation .............................................. (2,161,000) (2,786,000)
Prepaid marketing expenses ......................................... (30,706,000) (48,458,000)
Note receivable .................................................... (2,273,000) (2,509,000)
Retained deficit ................................................... (352,432,000) (302,248,000)
--------------- -------------
Total stockholders' equity ............................... 19,291,000 50,337,000
--------------- -------------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity ........................... $ 157,888,000 $ 211,543,000
=============== =============
The accompanying notes are an integral part of these statements.
4
TIVO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
April 30,
----------------------------
2001 2000
------------ ------------
Revenues ....................................................................... $ 3,196,000 $ 499,000
Costs and expenses
Cost of services (excludes ($30,000) and $45,000 of amortization of
stock-based compensation for the quarters ended April 30, 2001 and
April 30, 2000, respectively) ............................................. 5,497,000 4,994,000
Research and development (excludes $96,000 and
$263,000 of amortization of stock-based
compensation for the quarters ended April 30,
2001 and April 30, 2000, respectively) .................................... 6,827,000 4,844,000
Sales and marketing (excludes $148,000 and
$268,000 of amortization of stock-based
compensation for the quarters ended April 30,
2001 and April 30, 2000, respectively) .................................... 13,020,000 8,479,000
Sales and marketing-related parties ......................................... 23,488,000 3,342,000
General and administrative (excludes $75,000 and
$398,000 of amortization of stock-based
compensation for the quarters ended April 30,
2001 and April 30, 2000, respectively) .................................... 4,507,000 2,978,000
Stock-based compensation .................................................... 289,000 974,000
------------ ------------
Loss from operations ...................................................... (50,432,000) (25,112,000)
Interest income ....................................................... 1,390,000 1,766,000
Interest expense and other ............................................ (50,000) (101,000)
------------ ------------
Net loss .................................................................. (49,092,000) (23,447,000)
Less: Series A redeemable convertible
preferred stock dividend ................................................ 1,092,000 --
------------ ------------
Net loss attributable to common stock .......................................... $(50,184,000) $(23,447,000)
============ ============
Net loss per common share
basic and diluted ......................................................... $ (1.20) $ (0.66)
============ ============
Weighted average common shares outstanding -
basic and diluted ......................................................... 41,787,409 35,461,536
============ ============
The accompanying notes are an integral part of these statements.
5
TIVO INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Convertible Additional
Preferred Stock Common Stock Paid-In Deferred
--------------------- ----------------------
Shares Amount Shares Amount Capital Compensation
---------- -------- ---------- -------- ------------ -------------
BALANCE, JANUARY 31, 2001 1,111,861 $1,000 43,430,023 $43,000 $406,294,000 $(2,786,000)
Series A redeemable convertible preferred
stock dividend declared, $0.40 per share...... -- -- -- -- -- --
Issuance of common stock-employee stock
purchase plan................................. -- -- 193,840 -- 746,000 --
Exercise of stock options for common stock...... -- -- 8,741 -- 15,000 --
Common stock repurchases........................ -- -- (52,545) -- (20,000) --
Issuance of common stock warrants for
marketing expenses............................ -- -- -- -- 120,000 --
Recognition of prepaid marketing expenses...... -- -- -- -- -- --
Amortization of value of warrants .............. -- -- -- -- -- --
Amortization of prepaid marketing expenses...... -- -- -- -- -- --
Reversal of deferred compensation............... -- -- -- -- (336,000) 336,000
Recognition of stock-based compensation
expense....................................... -- -- -- -- -- 289,000
Amortization of note receivable................. -- -- -- -- -- --
Net loss........................................ -- -- -- -- -- --
--------- ------ ---------- ------- ------------ -----------
BALANCE, APRIL 30, 2001 1,111,861 $1,000 43,580,059 $43,000 $406,819,000 $(2,161,000)
========= ====== ========== ======= ============ ===========
Prepaid
Marketing Note Retained Total
-------------
Expense Receivable Deficit
----------- ------------ ------------
BALANCE, JANUARY 31, 2001 $(48,458,000) $(2,509,000) $(302,248,000) $ 50,337,000
Series A redeemable convertible preferred
stock dividend declared, $0.40 per share.......... -- -- (1,092,000) (1,092,000)
Issuance of common stock-employee stock
purchase plan..................................... -- -- -- 746,000
Exercise of stock options for common stock.......... -- -- -- 15,000
Common stock repurchases............................ -- -- -- (20,000)
Issuance of common stock warrants for
marketing expenses................................ -- -- -- 120,000
Recognition of prepaid marketing expenses.......... 14,116,000 14,116,000
Amortization of value of warrants .................. 1,755,000 -- -- 1,755,000
Amortization of prepaid marketing expenses.......... 1,881,000 -- -- 1,881,000
Reversal of deferred compensation................... -- -- -- --
Recognition of stock-based compensation
expense........................................... -- -- -- 289,000
Amortization of note receivable..................... -- 236,000 -- 236,000
Net loss............................................ -- -- (49,092,000) (49,092,000)
------------ ----------- ------------- ------------
BALANCE, APRIL 30, 2001 $(30,706,000) $(2,273,000) $(352,432,000) $ 19,291,000
============ =========== ============= ============
The accompanying notes are an integral part of these statements.
6
TIVO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
April 30,
----------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................................ $(49,092,000) $(23,447,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization................................... 1,603,000 501,000
Issuance of common stock warrants for services.................. 120,000 --
Amortization of prepaid marketing expenses...................... 1,881,000 2,941,000
Amortization of warrants for services........................... 1,755,000 115,000
Recognition of prepaid marketing expense........................ 14,116,000 --
Stock-based compensation expense................................ 289,000 974,000
Amortization of note receivable................................. 236,000 --
Changes in assets and liabilities:
Accounts receivable............................................. 1,063,000 (823,000)
Accounts receivable-related parties............................. (141,000) (1,164,000)
Prepaid expenses and other...................................... 644,000 (3,854,000)
Accounts payable................................................ (7,642,000) 8,052,000
Accrued liabilities............................................. (4,228,000) (4,248,000)
Accrued liabilities-related parties............................. (14,988,000) 2,234,000
Deferred revenue................................................ 1,508,000 1,443,000
Long-term deferred revenue...................................... 2,666,000 --
Other long-term liabilities..................................... (324,000) --
------------ ------------
Net cash used in operating activities............................. (50,534,000) (17,276,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment............................... (1,654,000) (7,604,000)
Sale (purchase) of short-term investments, net...................... -- 2,189,000
------------ ------------
Net cash used in investing activities............................. (1,654,000) (5,415,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Series A redeemable convertible preferred stock dividend............ (1,092,000) --
Proceeds from issuance of common stock - employee stock
purchase plan................................................... 746,000 1,142,000
Proceeds from exercise of common stock options...................... 15,000 54,000
Repurchase of common stock.......................................... (20,000) (1,000)
Net borrowings (payments) under capital lease....................... (194,000) (59,000)
------------ ------------
Net cash (used in) provided by financing activities............... (545,000) 1,136,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... (52,733,000) (21,555,000)
------------ ------------
The accompanying notes are an integral part of these statements.
7
TIVO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Three Months Ended
April 30,
--------------------------
2001 2000
------------ ------------
CASH AND CASH EQUIVALENTS:
Balance at beginning of period .................................... 124,474,000 137,658,000
------------ ------------
Balance at end of period .......................................... $ 71,741,000 $116,103,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ............................................ $ 23,000 $ 36,000
SUPPLEMENTAL DISCLOSURE OF RESTRICTED CASH AND OTHER NON-CASH
FINANCING INFORMATION
Interest earned on restricted cash ................................ 593,000 --
Equipment acquired under capital lease ............................ -- 121,000
The accompanying notes are an integral part of these statements.
8
TIVO INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
TiVo Inc. (the "Company" or "TiVo") was incorporated in August 1997 as
a Delaware corporation and is located in Alviso, California. On August 21, 2000,
TiVo (UK) Limited., a wholly owned subsidiary of TiVo Inc., was incorporated in
the United Kingdom. The Company has developed a subscription-based personal
television service (the "TiVo Service") that provides viewers with the ability
to pause, rewind and play back live or recorded television broadcasts, as well
as to search for, watch and record programs. The TiVo Service also provides
television listings, daily suggestions and special viewing packages. The TiVo
Service relies on three key components: the personal video recorder, the TiVo
remote control and the TiVo Broadcast Center. The Company conducts its
operations through one reportable segment.
The Company continues to be subject to certain risks, including the
uncertainty of availability of additional financing; dependence on third parties
for manufacturing, marketing and sales support; the uncertainty of the market
for personal television; dependence on key management; limited manufacturing,
marketing and sales experience; and the uncertainty of future profitability and
positive cash flow.
TiVo has recognized limited revenue, has incurred significant losses
and has had substantial negative cash flow. During the quarter ended April 30,
2001 TiVo recognized subscription revenues of $3.2 million. As of April 30,
2001, TiVo had an accumulated deficit of $352.4 million. In April 2001, the
Company reevaluated its business model and announced its new operating plan. The
plan supports TiVo's key objectives of building its subscriber base and
increasing revenue, while reducing its operating expenses by nearly 35%. TiVo
intends to execute several key initiatives in order to achieve its targeted cost
reductions. TiVo expects that these initiatives will reduce its cash burn-rate
by approximately $60 million for the current fiscal year ending January 31,
2002. The initiatives are: leveraged marketing, a new, low cost platform,
reduced infrastructure costs, reduced service operations costs and headcount
reductions. With this change in its operating plan, TiVo believes that it has
adequate capital to fund operations, capital expenditures and working capital
needs through its fiscal year ending January 31, 2002. Tivo is currently
considering alternatives to address its funding needs beyond the end of this
fiscal year.
Unaudited Interim Consolidated Financial Statements
The accompanying consolidated balance sheet as of April 30, 2001 and
the accompanying consolidated statements of operations, consolidated statements
of stockholders' equity and consolidated statements of cash flows for the three
months ended April 30, 2001 and 2000 included herein have been prepared by the
Company and are unaudited. The information furnished in the unaudited financial
statements referred to above include all normal adjustments that are, in the
opinion of management, necessary for a fair presentation of such financial
statements. The results of operations for the three months ended April 30, 2001
are not necessarily indicative of results for the entire fiscal year or future
periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash equivalents
The Company classifies financial instruments as cash equivalents if the
original maturity of such instruments is three months or less.
9
Restricted Cash
Under the terms of the Investment Agreement between America
Online, Inc. ("AOL") and TiVo, dated June 9, 2000 and the First Amendment to the
Investment Agreement dated September 11, 2000 (the "Investment Agreement"), the
Company deposited $91.5 million into an interest bearing escrow account as
restricted cash. The $91.5 million in restricted cash is intended to be used for
subsidy payments to manufacturer(s) in accordance with the Production
Integration and Marketing Agreement between AOL and TiVo, (the "Commercial
Agreement"). On January 30, 2001, the Company entered into the Second Amendment
to the Investment Agreement with AOL (the "Second Amendment"). The Second
Amendment provided for, among other things, an amendment to the Escrow
Agreement, dated as of September 11, 2000, by and among the Company, AOL and
U.S. Trust Company, National Association, as escrow agent, pursuant to which the
Company had deposited a portion of the proceeds it received from AOL in
connection with AOL's purchase of shares of the Company's Series A redeemable
convertible preferred stock. The First Amendment to the Escrow Agreement, dated
as of January 30, 2001, authorized the release to the Company of $43.5 million
in restricted funds previously held in escrow pursuant to the Escrow Agreement
(see Note 4).
Accounts Receivable - Related Parties
Accounts Receivable-related parties consist of amounts owed to the
Company from the Company's strategic partners such as DIRECTV, Inc. ("DIRECTV"),
Philips Business Electronics B.V. ("Philips"), Quantum Corporation ("Quantum")
and Sony Corporation of America ("Sony"). These receivables are comprised of
monies collected from subscribers on the Company's behalf, volume discounts and
amounts owed for reimbursement of a portion of the Company's development costs.
Prepaid Expenses and Other
Prepaid expenses consist of payments made in advance of recognizing the
expense, including primarily marketing expenses related to media purchases and
trade show expenses. Other consists primarily of TiVo stand-alone recorders and
DIRECTV receivers with TiVo Service held for future marketing programs.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
using the straight-line method over estimated useful lives as follows:
Furniture and fixtures....................... 3-5 years
Computer and office equipment................ 3-5 years
Lab equipment................................ 3 years
Leasehold improvements....................... 7 years or the life of the lease
Capitalized software......................... 1-5 years
Maintenance and repair expenditures are expensed as incurred.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109).
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets or liabilities of a change in tax rates is recognized in the period in
which the rate change occurs. Valuation allowances have been established when
necessary to reduce deferred tax assets to the amounts expected to be recovered.
10
Other Long-Term Liabilities
Other long-term liabilities consist of deferred rent. Deferred rent of
$893,000 results from the recognition of rent expense under facilities lease
amortized on a straight line basis over 7 years, the life of the related lease.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, short-term
investments, accounts receivable, and accounts payable approximate fair value
due to the short-term maturity of these instruments.
Business Concentrations and Credit Risk
Financial instruments that subject the Company to concentrations of
credit risk consist primarily of cash. The Company maintains cash with various
financial institutions. The Company performs periodic evaluations of the
relative credit standing of these institutions. The majority of the Company's
customers are concentrated in the United States. The Company is subject to a
slight amount of credit risk of these customers as subscription revenue is
primarily obtained through credit card sales. The reserve for doubtful accounts
at April 30, 2001 was $311,000 and $125,000 for accounts receivable and accounts
receivable--related parties, respectively. The Company does not consider credit
risk associated with accounts receivable-related parties (Philips, Sony, AOL and
Quantum) to be material.
Stock-Based Compensation and Stock Exchanged for Services
The Company has elected to follow Accounting Principles Board Opinion
No. 25 (APB 25), "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock options. Under APB 25, when
the exercise price of employee stock options is less than the market price of
the underlying stock on the date of grant, compensation expense is recorded for
the difference between fair value and the exercise price. Expense associated
with stock-based compensation is being amortized on an accelerated basis over
the vesting period of the individual award, generally four years. The method of
amortization is in accordance with Financial Accounting Standards Board ("FASB")
Interpretation No. 28, under which value assigned to options vesting in future
periods is ratably amortized beginning upon issuance of the option rather than
at the vesting date. The Company has recorded stock-based compensation expenses
of $289,000 for the quarter ended April 30, 2001. The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation."
The value of warrants, options or stock exchanged for services is
expensed over the period benefited. The warrants and options are valued using
the Black-Scholes option pricing model. To calculate the expense, the Company
uses either the fair value of the consideration received or the fair value of
the equity instruments issued, whichever is more reliably measurable.
Revenue Recognition
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB 101
clarifies the SEC staff's views on application of generally accepted accounting
principles to revenue recognition. The Company has concluded its revenue
recognition policy continues to be appropriate and in accordance with generally
accepted accounting principles and SAB 101.
Revenue arises from two sources, subscription revenue and
non-subscription revenue. Subscription revenues represent revenues from customer
subscriptions to the TiVo Service. Subscriptions to the TiVo Service are
available on a monthly, annual or lifetime basis. Subscription fees are
generally charged to customers' credit cards and are generally billed in advance
on a monthly basis. A lifetime subscription covers the life of the particular
personal video recorder purchased.
11
Revenues from subscriptions are recognized ratably over the subscription period.
Subscription revenues from lifetime subscriptions are recognized ratably over a
four-year period, the best estimate of the useful life of the personal video
recorder. Deferred revenue relates to subscription fees collected but for which
service has not yet been provided.
Non-subscription revenue primarily includes Charter Advertising and
Sponsorship revenue from consumer companies and media networks who have provided
content on the TiVo Service. Customers are billed on a net terms basis and the
revenue is recognized as the advertising and content is delivered.
Research and Development
Research and development expenses consist primarily of employee
salaries and related expenses and consulting fees relating to the development of
the TiVo Service and products that enable the TiVo Service. Research and
development costs are expensed as incurred.
Sales and Marketing--Related Parties Expense
Sales and marketing--related parties expense consists of cash and
non-cash charges related to the Company's agreements with DIRECTV, Philips,
Quantum, Sony, AOL and Creative Artists Agency, LLC ("CAA"), all of which hold
stock in the Company.
Other Operating Expense, Net
Prior to the transition of manufacturing and distribution
responsibility to Philips in the fourth quarter of 1999, the Company sold
personal video recorders directly to consumers. The Company's direct sales of
personal video recorders of $13.5 million, less the cost of the personal video
recorders sold of $20.7 million for the year ended December 31, 1999 was
classified as other operating expense, net. Other operating expense, net is
considered incidental to the Company's business and was recognized upon shipment
to the customer. The Company recorded a provision for estimated warranty costs
and returns at the time of sale. This reserve was zero at both April 30, 2001
and January 31, 2001.
Advertising Costs
In accordance with Statement of Position 93-7, "Reporting on
Advertising Costs," the Company expensed advertising costs as incurred.
Advertising expenses were $6.7 million for the three months ended April 30, 2001
including expenses related to a portion of the AOL media insertion orders (See
Note 4).
Comprehensive Income
The Company has no material components of other comprehensive income or
loss and, accordingly, the comprehensive loss is the same as the net loss for
all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior years' financial
information to conform with the current period presentation.
12
Net Loss Per Common Share
Net loss per share is calculated in accordance with SFAS No. 128,
"Earnings Per Share," and SEC Staff Accounting Bulletin No. 98 (SAB No. 98).
Under the provisions of SFAS No. 128 and SAB No. 98, Basic net loss per common
share is computed by dividing net loss by the weighted average number of common
shares outstanding. Shares used in the computation of the three months ended
April 30, 2001, net loss per share amount do not include repurchasable common
stock issued to DIRECTV, options and warrants to purchase common stock, Series A
convertible preferred stock and Series A redeemable convertible preferred stock
(see Note 4) and unvested, repurchasable common stock issued under the employee
stock option plans.
3. COMMITMENTS AND CONTINGENCIES
Facilities Leases
In June 2000, the Company entered into an office lease for its UK
office with Regus Business Center. The lease began on June 20, 2000 and had a
six-month term. It was renewed in December 2000 for an additional six-month
period. Monthly rent is approximately $18,000 until lease expiration at June 1,
2001. The Company is not planning on renewing this lease. In April 2001, the
Company entered into a new office lease with Leopold House. The lease began on
April 2001 and has a five year term. Monthly rent is approximately $8,000.
4. AOL RELATIONSHIP
On September 13, 2000, the Company closed the Investment Agreement with
AOL for $200 million. Under the terms of the Investment, the Company issued
2,711,861 shares of redeemable convertible preferred stock at $30.00 per share,
5,134,722 shares of common stock at $23.11 per share, 806,889 shares of which
were subject to redemption as of December 31, 2000, two initial warrants to
purchase an aggregate of 2,603,903 shares of the Company's common stock and two
performance warrants to purchase an aggregate of up to 5,207,806 shares of
common stock. The portion of common stock subject to redemption is shown as
redeemable common stock on the Company's consolidated financial statements. The
two performance warrants are contingent upon future performance. The AOL
investment is part of a three-year Commercial Agreement, in which TiVo became an
AOL TV programming partner, offering AOL TV subscribers access to features of
TiVo's Personal TV Service.
On January 30, 2001, the Company entered into the Second Amendment to
the Investment Agreement with AOL, dated as of June 9, 2000, as amended by the
First Amendment to the Investment Agreement, dated as of September 11, 2000. The
Second Amendment provided for, among other things, an amendment to the Escrow
Agreement, dated as of September 11, 2000, by and between the Company and AOL in
which the Company had deposited a portion of the proceeds it received from AOL
in connection with AOL's purchase of shares of the Company's Series A redeemable
convertible preferred stock.
Restricted Cash
Under the terms of the Investment Agreement, the Company deposited
$91.5 million of the proceeds received from the AOL investment in an escrow
account as restricted cash. In accordance with the Commercial Agreement, $91.5
million of the restricted cash is intended to be used as subsidy payments to
manufacturer(s) of set-top boxes that enable the TiVo Service. However, the
restricted cash would be used in the event AOL exercises its put option to
repurchase Series A redeemable convertible preferred stock and their portion of
common stock subject to redemption. The terms of the put option are described
below. The interest income earned on this restricted cash is shown on the
consolidated balance sheets as deferred interest income on restricted cash until
such time as the cash is no longer restricted. For the quarter ended April 30,
2001, $593,000 was deferred as interest income.
13
The First Amendment to the Escrow Agreement, dated as of January 30,
2001, authorized the release to the Company of $43.5 million in restricted funds
previously held in escrow pursuant to the Escrow Agreement. Of this amount, as
of January 31, 2001, $16.5 million was paid to AOL for prepaid advertising
expenses to be expensed in the current fiscal year.
Series A Redeemable Convertible Preferred Stock
In September 2000, the Company issued 2,711,861 shares of Series A
redeemable convertible preferred stock at $30.00 per share to AOL in exchange
for $81.4 million, before issuance costs of $2.4 million. In January 2001, under
the terms of the Second Amendment, 1,111,861 shares of Series A redeemable
convertible preferred had their redemption feature removed. As of January 31,
2001, each of the 1,600,000 shares of the Series A redeemable convertible
preferred stock is initially convertible into one share of common stock, subject
to adjustment for stock splits, dividends, combinations, reclassifications or
similar transactions, as provided in the Company's Amended and Restated
Certificate of Incorporation. The Series A redeemable convertible preferred
stock is convertible upon AOL's option or is mandatorily convertible if the
price of the Company's common stock exceeds $30.00 per share for 18 trading days
in any 20 consecutive trading day period.
Put Option
Under the terms of the First Amendment to the Investment Agreement, if
the set-top box launch of the Integrated Product does not occur by December 31,
2001, and AOL has not committed a material breach of the Commercial Agreement or
the Company has breached its obligations with respect to the financial
covenants, then AOL would have a put option pursuant to which AOL could require
the Company to repurchase from AOL the number of shares of Series A redeemable
convertible preferred stock which have an initial liquidation value of $91.5
million. If all the shares of Series A redeemable convertible preferred stock
have an aggregate initial liquidation value of less than $91.5 million, then AOL
could require the Company to repurchase the number of shares of common stock
having a value equal to the difference between that aggregate initial
liquidation value and $91.5 million. In the event that the set-top box launch
occurred after the planned launch date, but prior to the exercise of the put
option, the put option would immediately expire.
The Second Amendment to the Investment Agreement modified the terms of
AOL's put option with respect to the Series A redeemable convertible preferred
stock held by AOL. Under the Second Amendment, the Company could be required to
repurchase that number of shares of Series A redeemable convertible preferred
stock having a liquidation value of $48.0 million, which is equal to the amount
of the funds remaining in the restricted cash account, following AOL's release
of $43.5 million of restricted cash in January 2001, excluding any interest
earned on such funds.
Series A Redeemable Convertible Preferred Stock Dividend
Under the terms of the Investment Agreement between AOL and the
Company, the Company issued Series A redeemable convertible preferred stock,
with certain dividend and voting rights. Dividends on the Series A convertible
preferred stock are calculated by multiplying the Non-Government Institutional
Funds Simple Average Rate by $30.00 per share times the number of shares of
Series A convertible preferred stock outstanding. Dividends are payable
quarterly as declared by the Company's Board of Directors. As of April 30, 2001,
$1.1 million was payable.
Common Stock
In September 2000, the Company issued 5,134,722 shares of common stock
at $23.11 per share, of which 806,889 shares were subject to redemption as of
December 31, 2000, to AOL in exchange for $118.6 million, before issuance costs
of $4.4 million. As of April 30, 2001 there were no shares of common stock
subject to redemption under the Second Amendment to the Investment Agreement
signed in January 2001.
14
Initial Common Stock Warrants A and B
In September 2000, in conjunction with AOL's investment, the Company
issued two initial warrants to AOL to purchase common stock. The initial
warrants were vested immediately and exercisable as follows:
. Initial Warrant A - AOL was issued warrants to purchase 2,308,475
shares of common stock at $23.11 per share. The Company will
expense the estimated fair value of the warrants of $13.5 million
over 3 years, the term of the Commercial Agreement. The estimated
fair value of the warrants was determined using the Black-Scholes
option pricing model. The principal assumptions used in the
computation are: 16-month term; fair market value at the date of
issuance of $20.00 per share; a risk-free rate of return of
6.05%; dividend yield of zero percent; and a volatility of 70%.
. Initial Warrant B - AOL was issued warrants to purchase 295,428
shares of common stock at $30.00 per share. The Company will
expense the estimated fair value of the warrants of $2.5 million
over 3 years, the term of the Commercial Agreement. The estimated
fair value of the warrants was determined using the Black-Scholes
option pricing model. The principal assumptions used in the
computation are: 40-month term; fair market value at the date of
issuance of $20.00 per share; a risk-free rate of return of
6.05%; dividend yield of zero percent; and a volatility of 70%.
In January 2001, the Second Amendment to the Investment Agreement
provided for the reduction in the exercise price of the two initial warrants.
The Company issued amended warrants to AOL, which reduced the per share exercise
price of AOL's warrant to purchase 2,308,475 shares of common stock from $23.11
to $7.29, and reduced the per share exercise price of AOL's warrant to purchase
295,428 shares of common stock from $30.00 to $7.29. The initial warrants are
vested immediately and exercisable as follows:
. Initial Warrant A - AOL was issued warrants to purchase 2,308,475
shares of common stock at $7.29 per share. The Company will
expense the estimated incremental fair value of the repriced
warrants of $4.2 million over the remaining term of the
Commercial Agreement (original term of 3 years). The estimated
fair value of the warrants was determined using the Black-Scholes
option pricing model. The principal assumptions used in the
computation are: 9-month remaining life of the warrant; fair
market value at the date of issuance of $7.13 per share; a
risk-free rate of return of 6.05%; dividend yield of zero
percent; and a volatility of 70%.
. Initial Warrant B - AOL was issued warrants to purchase 295,428
shares of common stock at $7.29 per share. The Company will
expense the estimated incremental fair value of the repriced
warrants of $720,000 over the remaining term of the Commercial
Agreement (original term of 3 years). The estimated fair value of
the warrants was determined using the Black-Scholes option
pricing model. The principal assumptions used in the computation
are: 33-month remaining life of the warrant; fair market value at
the date of issuance of $7.13 per share; a risk-free rate of
return of 6.05%; dividend yield of zero percent; and a volatility
of 70%.
The expiration of Initial Warrant A is December 31, 2001 and Initial
Warrant B expires December 31, 2003. The estimated incremental fair value of the
warrants of $4.9 million was recorded as prepaid marketing expense
(contra-equity) as of January 31, 2001.
Performance Warrants
In conjunction with AOL's investment in September 2000, the Company
issued two performance warrants to AOL to purchase common stock. If AOL meets
certain performance criteria, it may exercise these two performance warrants to
purchase common stock. The warrants are exercisable as follows:
. Performance Warrant A - AOL was issued warrants to purchase up to
2,603,903 shares of common stock at the exercise price described
below. Performance Warrant A may be exercised within six months
following the execution of the Launch Commitment. The Launch
Commitment is a binding contractual commitment to market the
Integrated Service to 1,500,000 activated users on Time Warner
cable systems.
. Performance Warrant B - AOL was issued warrants to purchase up to
2,603,903 shares of common stock at the exercise price described
below. Performance Warrant B may be exercised within the six
month period following
15
the date on which AOL notifies the Company that 1,500,000
activated users of the Integrated Service exist at one time.
Performance Warrants A and B shall be valued at the date that AOL meets
the performance criteria. The exercise price for each performance warrant is
equal to 90% of the average of the last reported trading prices of the Common
Stock on the Nasdaq for the ten consecutive trading days preceding the date of
AOL's Notice of Exercise.
Performance Warrant A shall be valued at the date that TiVo receives a
written binding contractual commitment from AOL for the set- top box launch to
occur on cable television systems owned or controlled by Time Warner or its
Affiliates in markets where TiVo has the potential to acquire at least 1.5
million activated users in the aggregate on such cable systems. Performance
Warrant B shall be valued at the date that it is probable that AOL will meet the
performance criteria of notifying the Company that 1,500,000 activated users of
the Integrated Service exist at one time.
If the Company were to value the performance warrants as of April 30,
2001, it would record the estimated value of the performance warrants of $4.8
million as prepaid marketing expense (contra-equity). If market conditions at
the time that AOL earns the performance warrants are different than those at
April 30, 2001 than the valuation of the warrants could significantly increase
or decrease from the following calculated valuation:
. Performance Warrant A - AOL would be issued warrants to purchase
up to 2,603,903 shares of common stock at $6.57 per share.
Performance Warrant A would be valued when it is earned by AOL.
The Company would expense the estimated fair value of the
warrants of $2.4 million over 3 years, the term of the Commercial
Agreement. The estimated fair value of the warrants would be
determined using the Black-Scholes option pricing model. The
principal assumptions that would be used in the computation are:
6-month term; fair market value at the date of issuance of $4.53
per share; a risk-free rate of return of 3.67%; dividend yield of
zero percent; and a volatility of 70%.
. Performance Warrant B - AOL would be issued warrants to purchase
up to 2,603,903 shares of common stock at $6.57 per share.
Performance Warrant B would be valued when it is probable of
being earned by AOL. The Company would expense the estimated fair
value of the warrants of $2.4 million over 3 years, the term of
the Commercial Agreement. The estimated fair value of the
warrants would be determined using the Black-Scholes option
pricing model. The principal assumptions that would be used in
the computation are: 6-month term; fair market value at the date
of issuance of $4.53 per share; a risk-free rate of return of
3.67%; dividend yield of zero percent; and a volatility of 70%.
Additionally, Performance Warrants A and B would also become
exercisable immediately upon the occurrence of either a material breach of the
Commercial Agreement by the Company or if the Company enters into a definitive
agreement for a change of control of the Company. The performance warrants would
expire on the earlier of September 11, 2003 or in the event that AOL commits a
material breach of the Commercial Agreement.
Since these warrants are contingent on AOL's performance or probable
performance and the criteria have not been met at this time, the Company has not
recorded nor valued the performance warrants at this time in the financial
statements. If market conditions at the time that AOL earns the performance
warrants are different than those at April 30, 2001 than the valuation of the
warrants could significantly increase or decrease from the above amount.
AOL Advertising Insertion Order
Under the terms of the Investment Agreement, the Company has agreed to
pay $12.0 million to AOL for advertising media under the AOL Advertising
Insertion Order. On September 13, 2000, $8.5 million of this amount was paid to
AOL. The Company recorded this payment as prepaid marketing expense (contra
equity).
On January 30, 2001, the Company signed an additional media insertion
order with AOL Time Warner for $21.5 million in advertising programs to promote
the TiVo Service on AOL Time Warner properties. The $21.5 million media
insertion order was comprised of $3.5 million, the balance of the original AOL
Insertion Order, and $18.0 million. As of April 30, 2001, the Company recorded
$27.0 million as prepaid marketing expense (contra equity) for payments and
incurred $19.4 million of advertising expense. The balance of $7.6 million of
prepaid marketing expense will be expensed as incurred in the future.
16
Financial Covenants
Under the terms of the Investment Agreement, the Company must maintain
a positive net cash position in excess of $25.0 million at the end of each
fiscal quarter. Net cash is defined as consolidated current assets (excluding
deferred tax assets and escrowed funds) minus consolidated current liabilities
(excluding deferred revenue, deferred interest income on escrowed funds,
sublessee prepaid rent and leasing obligations). The Company advises AOL
monthly, on an informational basis, of the Company's net cash position. Per the
agreement, if the Company falls below the $25.0 million net cash position at the
end of a quarter, AOL has the right to exercise its put option. Absent a
substantial subscription revenue increase or significant non-subscription
revenue contracts, cost containment measures or proceeds from sales of its
securities, we would not be in compliance with this covenant as of the end of
the second quarter of this fiscal year. The Company is currently exploring these
alternatives (see Note 1). As of April 30, 2001, the Company is in compliance.
The financial covenants shall terminate upon the earlier of the date of the set-
top box launch, (so long as such set-top box launch occurs before the planned
launch date), the expiration of the put option or the day following the first
anniversary of the planned launch date.
17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
===============================================================================
The discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains trend analysis and other forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements include, without limitation,
statements containing the words "believes," "anticipates," "expects," and words
of similar import or the negative of those terms or expressions. Such forward-
looking statements will have known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Actual results could differ materially from those set forth
in such forward-looking statements as a result of the "Factors That May Affect
Future Operating Results" and other risks detailed in the Company's reports
filed with the Securities and Exchange Commission.
===============================================================================
TiVo achieved several important milestones during the quarter ended
April 30, 2001:
. Completion of a major software release, which adds significant
new capabilities to the TiVo Service including "Wishlists",
"Season Pass Manager" and more recording options.
. Increased interest from the advertising community in using TiVo
as an advertising platform. TiVo's Charter Advertising partners
include companies such as Miller Brewing, Guthy Renker and
Pfizer. During this quarter, Lexus signed up as TiVo's latest
partner. Lexus will take advantage of new, innovative advertising
capabilities that will start to roll out during the second
quarter of fiscal year 2002. While minimal revenue has been
earned to date, by the end of the quarter, TiVo had accumulated
over $1 million of backlog for future advertising revenues.
In April 2001, TiVo reevaluated its business model and announced its
new operating plan. The plan supports TiVo's key objectives of building its
subscriber base and increasing revenue, while reducing its operating expenses by
nearly 35%. TiVo intends to execute several key initiatives in order to achieve
its targeted cost reductions. TiVo expects that these initiatives will reduce
its cash burn-rate by approximately $60 million for the current fiscal year
ending January 31, 2002. The initiatives are: leveraged marketing, a new, low
cost platform, reduced infrastructure costs, reduced service operations costs
and headcount reductions. With this change in its operating plan, TiVo believes
that its capital is adequate to fund operations, capital expenditures and
working capital needs through its fiscal year ending January 31, 2002. TiVo is
currently considering alternatives to address its funding needs beyond the end
of this fiscal year.
As part of the new operating plan, TiVo announced a price increase in
the lifetime subscription from $199 to $249 effective May 1, 2001.
In May 2001, TiVo announced the U.S. Patent Office had issued patent
number 6,233,389 for a "Multimedia Timewarping System", based on an application
filed in July 1998. The patent covers TiVo's method for implementing the key
features that separate personal video recorders ("PVR") from videocassette
recorders. This patent discloses all aspects of the design and construction of
the TiVo Receiver/Recorder. Key inventions in the patent include:
. a method for recording one program while playing back another or
watching a program as it is recording, often referred to as
time-shifting the program;
. a method for efficient and low-cost processing and synchronizing
of the various multimedia streams in a television signal such as
video, audio and closed-captioning, and a storage format that
easily supports advanced Trickplay capabilities. Trickplay
includes pausing the live TV broadcast, fast-forwarding,
rewinding, instant replays and slow motion.
18
This is one of many patent applications filed by TiVo. In addition to the
patent awarded above, TiVo has been issued patent number 6,215,526, which
describes a method for embedding data within a television signal in such a way
that it survives analog-to-digital and digital-to-analog conversion during the
transmission process. TiVo owns design patents for its remote control and the
design for the integrated DIRECTV Receiver with TiVo. These patents are issued
as Remote Control design patents: D424,061, D431,552, Remote Control housing
design patents: D424,577, D435,403 and DIRECTV Receiver with TiVo bezel design
patent: D434,043. TiVo also has pending applications that cover the end-to-end
features and functions of the TiVo Service.
Additionally, the patents have also been examined and approved under the
terms of the Patent Convention Treaty (PCT), which provides for nominal
acceptance of the patent in countries that are signatories to the treaty, which
includes most countries in the world. TiVo is currently filing for acceptance in
key countries around the world.
Results of Operations
Revenues. Revenues for the three months ended April 30, 2001 were $3.2
million, compared to $499,000 for the three months ended April 30, 2000. The
increase is attributable to increased customer subscriptions to the TiVo
Service. A large part of the increase was due to TiVo's existing monthly
subscribers upgrading to lifetime subscriptions for $199 before the new price
increase. This promotion generated an additional $1 million in cash for the
quarter ended April 2001. During this period TiVo activated approximately 35,000
new subscribers to the TiVo Service compared to approximately 15,000 subscribers
activated during the prior year comparable period. As of April 30, 2001, the
total installed subscriber base had grown to approximately 189,000 subscribers.
Cost of services. Cost of services consists primarily of telecommunication
and network expenses, employee salaries, call center and other expenses related
to providing the TiVo Service to subscribers. Cost of services for the three
months ended April 30, 2001 was $5.5 million compared to $5.0 million for the
three months ended April 30, 2000. This increase was primarily attributable to
increased salaries and benefits and service center expenses. Total salaries and
benefits accounted for the majority of the total increase due to the expansion
and staffing of the Broadcast Operations department. Additionally,
telecommunications and network expense decreased by 42%, from the three months
ended April 30, 2000 to the three months ended April 30, 2001. This decrease was
a result of decreasing the service cost per subscriber by using satellite
transmission of the Service for subscribers using the DIRECT Receiver with TiVo.
Research and development expenses. TiVo's research and development
expenses consist primarily of employee salaries and related expenses and
consulting fees relating to the design of the personal video recorder that
enables the TiVo Service. Research and development expenses for the three months
ended April 30, 2001 were $6.8 million compared to $4.8 million for the three
months ended April 30, 2000. Approximately 72% of the total increase in expenses
was due to the hiring of additional engineers to help support the improvement
and addition of features and functionality of current products as well as the
design of new platforms. Other outside services decreased by 41% because
employees were hired to perform work previously done by outside services.
Sales and marketing expenses. Sales and marketing expenses consist
primarily of employee salaries and related expenses, media advertising, public
relations activities, special promotions, trade shows and the production of
product related items, including collateral and videos. Sales and marketing
expenses for the three months ended April 30, 2001 were $13.0 million compared
to $8.5 million for the three months ended April 30, 2000. The increase was
primarily attributable to an increase in expenditures for advertising, public
relations and trade shows in connection with the continued retail marketing
campaign of the TiVo Service and the personal video recorder that enables the
TiVo Service. Advertising expenses, including public relations and trade shows,
comprised over 39% of the total increase in sales and marketing expenses. Sales
support expenses accounted for 42% of the total increase and salaries expense
accounted for 14% of the total increase. We expect our marketing expenses to
continue to be a large portion of our total company expenses for fiscal year
2002. Advertising expense for fiscal year 2002 will be comprised mostly of
marketing campaigns focused on consumer education.
19
Sales and marketing--related parties. Sales and marketing--related parties
expense consist of cash and non-cash charges related primarily to agreements
with AOL, DIRECTV, Philips, Sony, Quantum, and Creative Artists Agency, LLC
("CAA") all of which hold stock in TiVo. Sales and marketing--related parties
expense for the three months ended April 30, 2001 was $23.5 million compared to
$3.3 million for the three months ended April 30, 2000. The increase in sales
and marketing--related parties expense is primarily attributable to the
manufacturing and shipments of personal video recorders and to the related
activations of subscribers to the TiVo Service and AOL media insertion orders.
Sales and marketing--related parties expense for the three months ended
April 30, 2001, consists of cash charges of $19.5 million and non-cash charges
of $4.0 million. The non-cash portion is related to the amortization of warrants
or common stock issued for services that we issued to AOL and DIRECTV. We
amortize the valuation of the warrants and common stock issued for services on a
straight-line basis over the period that the services are provided.
The cash portion of sales and marketing--related parties expense is
comprised of revenue share and manufacturing subsidy payments to Philips, Sony,
Quantum and DIRECTV. Additionally included are media insertion orders paid to
AOL. Subsidies are formula based payments to our partners in exchange for key
activites and results. The formulas are periodically adjusted based on our
partners' manufacturing costs and selling prices. A portion of the subsidy is
payable after shipment and the balance is payable after the subscription is
activated. We have also agreed to share a portion of our revenues with some of
our strategic partners in order to promote the TiVo Service and encourage the
manufacture and distribution of the personal video recorders that enable the
TiVo Service. Revenue share is calculated as an agreed upon percentage of
revenue for a specified group of TiVo subscribers. We anticipate that our
business will continue to grow and, as such, we expect the revenue share and
manufacturing subsidy amounts to continue to be large for the foreseeable
future. We are in the process of negotiating deferral payment of payables
currently due. We are currently working with our partners to manage
manufacturing costs. By decreasing manufacturing costs per unit, we expect this
will decrease subsidy costs on a per unit basis.
General and administrative expenses. General and administrative expenses
consist primarily of employee salaries and related expenses for executive,
administrative, accounting, information systems, customer operations personnel,
facility costs, and professional fees. General and administrative expenses for
the three months ended April 30, 2001 were $4.5 million compared to $3.0 million
for the three months ended April 30, 2000. Over 66% of the increase was
primarily attributable to the hiring of additional information systems personnel
and related expenses. Also contributing to the increase were consulting and
temporary expenses totaling 15% of the total increase.
Stock-based compensation. During calendar years 1999 and 2000, we granted
stock options with exercise prices that were less than the estimated fair value
of the underlying shares of common stock for accounting purposes on the date of
grant. As a result, stock-based compensation expense is being recognized over
the period that these stock options vest on an accelerated basis. The stock-
based compensation expense was approximately $289,000 for the three months ended
April 30, 2001 and $974,000 for the prior year comparable period.
Interest income. Interest income resulting from cash and cash equivalents
held in interest bearing accounts and short term investments was $1.4 million
for the three months ended April 30, 2001 compared to $1.8 million for the three
months ended April 30, 2000, as cash balances have increased largely due to the
AOL investment in calendar year 2000.
Interest expense and other. Interest expense and other was $50,000 for the
three months ended April 30, 2001. This includes amortization of the value
assigned primarily to the Comdisco warrant for interest expense of $25,000. For
the three months ended April 30, 2000, interest expense and other was $101,000.
Series A redeemable convertible preferred stock dividend. Under the terms
of the Investment Agreement between AOL and TiVo, the Company is required to pay
dividends to the Series A redeemable convertible preferred stockholders. The
dividend payable for the three months ended April 30, 2001 was $1.1 million. The
dividends are payable quarterly as declared by the Board of Directors.
20
Quarterly Results of Operations
The following table represents certain unaudited statement of operations
data for our eight most recent quarters ended April 30, 2001. In management's
opinion, this unaudited information has been prepared on the same basis as the
audited annual financial statements and includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair representation of the
unaudited information for the quarters presented. This information should be
read in conjunction with our consolidated financial statements, including the
notes thereto, included elsewhere in this Form 10-Q. The results of operations
for any quarter are not necessarily indicative of results that may be expected
for any future period. Prior quarters have been reclassified in order to conform
to current quarter classifications.
Three Months Ended
---------------------------------------------------------------------------------------------------
July 31, October 31, January 31, April 30, July 31, October 31, January 31, April 30,
1999 1999 2000 2000 2000 2000 2001 2001
---------- ----------- ------------ ---------- --------- ---------- ----------- ---------
(unaudited, in thousands except per share data)
Revenues....................... $ 16 $ 53 $ 287 $ 499 $ 869 $ 1,102 $ 2,166 $ 3,196
Costs and expenses
Cost of services............... 588 1,032 2,746 4,994 4,295 4,149 5,661 5,497
Research and development....... 1,886 2,684 4,626 4,844 6,788 7,572 5,888 6,827
Sales and marketing............ 1,981 10,341 12,215 8,479 16,422 34,638 46,905 13,020
Sales and marketing--related
parties...................... 1,025 9,049 7,323 3,342 9,293 24,283 21,093 23,488
General and administrative..... 857 2,140 2,888 2,978 3,720 3,876 4,483 4,507
Stock-based compensation....... 341 632 878 974 808 624 562 289
Other operating expense, net... 1,329 5,947 (69) -- -- -- -- --
------- -------- -------- -------- -------- -------- -------- --------
Loss from operations........... (7,991) (31,772) (30,320) (25,112) (40,457) (74,040) (82,426) (50,432)
Interest income................ 303 1,132 2,097 1,766 1,752 2,056 2,305 1,390
Interest expense and other..... (229) (362) 110 (101) (276) (46) (86) (50)
------- -------- -------- -------- -------- -------- -------- --------
Net loss....................... (7,917) (31,002) (28,113) (23,447) (38,981) (72,030) (80,207) (49,092)
Less: Series A redeemable
convertible preferred
stock dividend................. -- -- -- -- -- (665) (1,272) (1,092)
------- -------- -------- -------- -------- -------- -------- --------
Net loss attributable to
common stock................... $(7,917) $(31,002) $(28,113) $(23,447) $(38,981) $(72,695) $(81,479) $(50,184)
======= ======== ======== ======== ======== ======== ======== ========
Net loss per share
Basic and diluted............ $ (1.39) $ (2.15) $ (0.80) $ (0.66) $ (1.09) $ (1.89) $ (2.00) $ (1.20)
Weighted average shares...... 5,692 14,426 35,215 35,462 35,865 38,461 40,774 41,787
The TiVo Service is enabled through a personal video recorder that is sold
in retail channels like other consumer electronic devices. As a result, we
anticipate that our business will be seasonal and we expect to generate a
significant number of our annual new subscribers during the holiday shopping
season. Although advertising revenue to date has been minimal, we also expect to
generate a portion of future revenues from television advertising, which tends
to be seasonal and cyclical, reflecting overall economic conditions as well as
budgeting and buying patterns.
Liquidity and Capital Resources
From inception through April 30, 2001, we financed our operations and met
our capital expenditure requirements primarily from the proceeds of the private
sale of equity securities and the proceeds from our initial public offering. At
April 30, 2001, we had $71.7 million of cash and cash equivalents. In April
2001, we announced our new operating plan,
21
The plan supports our key objectives of building our subscriber base and
increasing revenue, while reducing our operating expenses by nearly 35%. We
intend to execute several key initiatives in order to achieve our targeted cost
reductions. We expect that these initiatives will reduce our cash burn-rate by
approximately $60.0 million for the current fiscal year ending January 31, 2002.
The initiatives are: leveraged marketing, a new, low cost platform, reduced
infrastructure costs, reduced service operations costs and headcount reductions.
With this change in our operating plan, we believe that our capital is adequate
to fund operations, capital expenditures and working capital needs through our
fiscal year ending January 31, 2002. TiVo is currently considering alternatives
to address its funding needs beyond the end of this fiscal year.
Net cash used in operating activities was $50.5 million for the three
months ended April 30, 2001. During this period we continued to provide the TiVo
Service, incurring a net loss of $49.1 million. Uses of cash from operating
activities also included a decrease in accrued liabilities--related parties of
$15.0 million, a decrease in accounts payable of $7.6 million and a decrease in
accrued liabilities of $4.2 million, an increase in accounts receivable-related
parties of $141,000 and a decrease in other long-term liabilities of $324,000.
These uses were offset by sources of cash provided from operating activities
consisting of an increase in long-term deferred revenue of $2.7 million, an
increase in deferred revenue of $1.5 million and a decrease in accounts
receivable of $1.1 million and a decrease in prepaid expenses of $644,000.
Net cash used in investing activities was $1.7 million for the three months
ended April 30, 2001 was for the acquisition of property and equipment.
Net cash used for financing activities was $545,000 for the three months
ended April 30, 2001. Of this amount, $1.1 million was used for payment of the
redeemable convertible preferred stock dividend . We obtained $746,000 of
financing as proceeds from the issuance of common stock through our employee
stock purchase plan. Additionally, we received $15,000 from the issuance of
common stock for stock options exercised. Cash was used for payment on a capital
lease of $194,000.
We have commitments for future lease payments under facilities operating
leases $18.4 million and obligations under capital leases of $1.2 million as of
April 30, 2001. The obligations under the capital lease relate to equipment
leased under a total available lease line of $2.5 million, which expired in
February 2000.
Our future capital requirements will depend on a variety of factors,
including market acceptance of the personal video recorder and the TiVo Service,
the resources we devote to developing, marketing, selling and supporting our
products and other factors. We expect to devote substantial capital resources:
. to develop new or enhance existing services or products;
. to continue support of our customer call center
. to subsidize the sale of personal video recorders;
. for advertising to educated consumers;
. to continue to support our existing efforts in the United
Kingdom market;
. for general corporate purposes.
We believe that our cash and cash equivalents, the net proceeds from
the sale of our Series A redeemable convertible preferred stock and private
sales of equity securities and the net proceeds from the initial public offering
that we have raised to date will be sufficient to fund our operations through
our fiscal year ending January 31, 2002. Despite our expectations, we may seek
to raise additional capital before the end of the next 12 months in order to:
. fund anticipated growth, including significant increases in
personnel, office facilities and computer systems;
22
. develop new or enhance existing services or products;
. expand into new markets and respond to competitive
pressures; or
. acquire or invest in complementary businesses, technologies,
services or products.
In addition, in order to meet long-term liquidity needs, we may need to
raise additional funds, establish a credit facility or seek other financing
arrangements. Additional funding may not be available on favorable terms or at
all. See "Factors That May Affect Future Operating Results-If we are unable to
raise additional capital on acceptable terms, our ability to effectively manage
growth and build a strong brand could be harmed."
Impact of Inflation
We believe that inflation has not had a significant impact on our
operating results.
Factors that May Affect Future Operating Results
In addition to the other information included in this Report, the
following factors should be considered in evaluating our business and future
prospects:
We have recognized very limited revenue, have incurred significant net
losses and may never achieve profitability.
We have recognized limited revenue, have incurred significant losses
and have had substantial negative cash flow. During the three months ended April
30, 2001 we recognized revenues of $3.2 million. As of April 30, 2001, we had an
accumulated deficit of $352.4 million. We expect to incur significant operating
expenses over the next several years in connection with the continued
development and expansion of our business. As a result, we expect to continue to
incur losses for the foreseeable future. The size of these net losses depends in
part on the growth in our subscriber base and on our expenses. With increased
expenses, we will need to generate significant additional revenues to achieve
profitability. Consequently, we may never achieve profitability, and even if we
do, we may not sustain or increase profitability on a quarterly or annual basis
in the future.
Our limited operating history may make it difficult for us or investors to
evaluate trends and other factors that affect our business.
We were incorporated in August 1997 and have been obtaining subscribers
only since March 31, 1999. Prior to that time, our operations consisted
primarily of research and development efforts. As of April 30, 2001, only a
limited number of personal video recorders had been sold and we obtained only a
limited number of subscribers to the TiVo Service. As a result of our limited
operating history, our historical financial and operating information is of
limited value in evaluating our future operating results. In addition, any
evaluation of our business must be made in light of the risks and difficulties
encountered by companies offering products or services in new and rapidly
evolving markets. For example, it may be difficult to accurately predict our
future revenues, costs of revenues, expenses or results of operations. Personal
television is a new product category for consumers and it may be difficult to
predict the future growth rate, if any, or size of the market for our products
and services. We may be unable to accurately forecast customer behavior and
recognize or respond to emerging trends, changing preferences or competitive
factors facing us. As a result, we may be unable to make accurate financial
forecasts and adjust our spending in a timely manner to compensate for any
unexpected revenue shortfall. This inability could cause our net losses in a
given quarter to be greater than expected, which could cause the price of our
stock to decline.
If our marketing in the retail channel is not successful, consumers and
consumer electronics manufacturers may not accept the TiVo Service and products
that enable the TiVo Service.
23
Our success depends upon a continually successful retail marketing
campaign for the TiVo Service and related personal video recorders, which began
in the third quarter of calendar year 1999. We will rely principally on our
consumer electronics partners, such as Philips and Sony, to manufacture, market,
sell and support the personal video recorder that enables the TiVo Service. We
also will rely on the efforts of DIRECTV and BSkyB to market, sell and support
the TiVo Service to DIRECTV and BSkyB subscribers. The ongoing marketing
campaign requires, among other things, that we:
. educate consumers on the benefits of the TiVo Service and
related personal video recorder, which will require an
extensive marketing campaign;
. commit a substantial amount of human and financial resources
to achieve continued, successful retail distribution; and
. coordinate our own sales, marketing and support activities
with those of Philips, Sony, BSkyB, DIRECTV, AOL and other
strategic partners.
We or our strategic partners may not achieve any or all of these
objectives. In addition, consumers may perceive the TiVo Service and related
personal video recorder as too expensive or complex and our marketing campaign
may not effectively attract new subscribers. Because of competitive offerings or
changing preferences, consumers may delay or decline the purchase of the TiVo
Service and related personal video recorder. All of these events would reduce
consumer demand and market acceptance, diminish our brand and impair our ability
to attract subscribers to the TiVo Service.
We have agreed to share a substantial portion of the revenue we generate
from subscription fees with some of our strategic partners. We may be unable to
generate enough revenue to cover these obligations.
We have agreed to share a substantial portion of our subscription and
other fees with some of our strategic partners in exchange for manufacturing,
distribution and marketing support and discounts on key components for personal
video recorders. Given how these amounts are calculated, we may be required to
share substantial portions of the subscription and other fees attributable to
the same subscriber with multiple partners. These agreements require us to share
a portion of our subscription fees whether or not we increase or decrease the
price of the TiVo Service. If we change our subscription fees in response to
competitive or other market factors, our operating results would be adversely
affected. Our decision to share subscription revenues is based on our
expectation that our partnerships will help us obtain subscribers, broaden
market acceptance of personal television and increase our future revenues. If
these expectations are not met, we may be unable to generate sufficient revenue
to cover our expenses and obligations.
We depend on a limited number of third parties to manufacture, distribute
and supply critical components and services for the personal video recorders
that enable the TiVo Service. We may be unable to operate our business if these
parties do not perform their obligations.
The TiVo Service is enabled through the use of a personal video
recorder made available by a limited number of third parties. In addition, we
rely on sole suppliers for a number of key components for the personal video
recorders. We do not control the time and resources that these third parties
devote to our business. We cannot be sure that these parties will perform their
obligations as expected or that any revenue, cost savings or other benefits will
be derived from the efforts of these parties. If any of these parties breaches
or terminates its agreement with us or otherwise fails to perform their
obligations in a timely manner, we may be delayed or prevented from
commercializing our products and services. Because our relationships with these
parties are non-exclusive, they may also support products and services that
compete directly with us, or offer similar or greater support to our
competitors. Any of these events could require us to undertake unforeseen
additional responsibilities or devote additional resources to commercialize our
products and services. This outcome would harm our ability to compete
effectively and quickly achieve market acceptance and brand recognition.
In addition, we face the following risks in relying on these third
parties:
24
If our manufacturing partnerships are not successful, we may be unable
to establish a market for our products and services. We initially manufactured
the personal video recorders that enable the TiVo Service through a third-party
contract manufacturer. We have entered into agreements with Philips, Sony,
Hughes and Thomson UK to manufacture and distribute the personal video recorders
that enable the TiVo Service. However, we have no minimum volume commitments
from Philips, Sony, Hughes, Thomson UK or any other manufacturer. The ability of
our manufacturing partners to reach sufficient production volume of the personal
video recorder to satisfy anticipated demand is subject to delays and unforeseen
problems such as defects, shortages of critical components and cost overruns.
Moreover, they will require substantial lead times to manufacture anticipated
quantities of the personal video recorders that enable the TiVo Service. Delays
and other problems could impair the retail distribution and brand image and make
it difficult for us to attract subscribers. In addition, the loss of a
manufacturing partner would require us to identify and contract with alternative
sources of manufacturing, which we may be unable to do and which could prove
time-consuming and expensive. Although we expect to continue to contract with
additional consumer electronics companies for the manufacture of personal video
recorders in the future, we may be unable to establish additional relationships
on acceptable terms.
If our corporate partners fail to perform their obligations, we may be
unable to effectively market and distribute our products and services. Our
manufacturing partners distribute the personal video recorder that enables the
TiVo Service. We rely on their sales forces, marketing budgets and brand images
to promote and support the personal video recorder and the TiVo Service. We
expect to continue to rely on our manufacturing partners and other strategic
partners to promote and support the personal video recorder and other devices
that enable the TiVo Service. The loss of one or more of these partners could
require us to undertake more of these activities on our own. As a result, we
would spend significant resources to support personal video recorders and other
devices that enable the TiVo Service. We also expect to rely on AOL, DIRECTV and
other partners to provide marketing support for the TiVo Service. The failure of
one or more of these partners to provide anticipated marketing support will
require us to divert more of our limited resources to marketing the TiVo
Service. If we are unable to provide adequate marketing support for the personal
video recorder and the TiVo Service, our ability to attract subscribers to the
TiVo Service will be limited.
We are dependent on single suppliers for several key components and
services. If these suppliers fail to perform their obligations, we may be unable
to find alternative suppliers or deliver our products and services to our
customers on time. We currently rely on sole suppliers for a number of the key
components and services used in the personal video recorders and the TiVo
Service. For example:
. Quantum is the sole supplier of the hard disk drives;
. NEC is the sole supplier of the application specific
integrated circuit, a semiconductor device;
. Sony is the sole supplier of the MPEG2 encoder semiconductor
device; and
. Tribune Media Services is the sole supplier of program guide
data.
In addition to the above, we have several sole suppliers for key
components of our products currently under development.
We cannot be sure that alternative sources for key components and
services used in the personal video recorders and the TiVo Service will be
available when needed or, if available, that these components and services will
be available on favorable terms. If our agreements or our manufacturing
partners' agreements with Quantum, NEC, Sony or Tribune Media Services were to
terminate or expire, or if we or our manufacturing partners were unable to
obtain sufficient quantities of these components or required program guide data,
our search for alternate suppliers could result in significant delays, added
expense or disruption in product availability.
Our ability to generate revenues from subscription fees is unproven and may
fail.
25
We expect to generate a substantial portion of our revenues from
subscription fees for the TiVo Service. Many of our potential customers already
pay monthly fees for cable or satellite television services. We must convince
these consumers to pay an additional subscription fee to receive the TiVo
Service. The availability of competing services that do not require subscription
fees will harm our ability to effectively attract subscribers. In addition, the
personal video recorder that enables the TiVo Service can be used to record
programs and pause, rewind and fast forward through live or recorded shows
without an active subscription to the TiVo Service. If a significant number of
purchasers of the personal video recorders use these devices without subscribing
to the TiVo Service, our revenue growth will decline and we may not achieve
profitability.
Our business is expanding rapidly and our failure to manage growth could
disrupt our business and impair our ability to generate revenues.
Since we began our business in August 1997, we have significantly
expanded our operations. We anticipate continued expansion in our headcount and
infrastructure to support potential growth in our subscriber base and to allow
us to pursue market opportunities. This expansion has placed, and will continue
to place, a significant strain on our management, operational and financial
resources and systems. Specific risks we face as our business expands include:
We need to attract and retain qualified personnel, and any failure to
do so may impair our ability to offer new products or grow our business. Our
success will depend on our ability to attract, retain and motivate managerial,
technical, marketing, financial, administrative and customer support personnel.
Competition for such employees is intense, especially for engineers in the San
Francisco Bay Area, and we may be unable to successfully attract, integrate or
retain sufficiently qualified personnel. If we are unable to hire, train, retain
and manage required personnel, we may be unable to successfully introduce new
products or otherwise implement our business strategy.
Any inability of our systems to accommodate our expected subscriber
growth may cause service interruptions or delay our introduction of new
services. We internally developed many of the systems we use to provide the TiVo
Service and perform other processing functions. The ability of these systems to
scale as we rapidly add new subscribers is unproven. We must continually improve
these systems to accommodate subscriber growth and add features and
functionality to the TiVo Service. Our inability to add software and hardware or
to upgrade our technology, systems or network infrastructure could adversely
affect our business, cause service interruptions or delay the introduction of
new services.
We will need to provide acceptable customer support, and any inability
to do so will harm our brand and ability to generate and retain new subscribers.
Our ability to increase sales, retain current and future subscribers and
strengthen our brand will depend in part upon the quality of our customer
support operations. Some customers require significant support when installing
the personal video recorder and becoming acquainted with the features and
functionality of the TiVo Service. We have limited experience with widespread
deployment of our products and services to a diverse customer base, and we may
not have adequate personnel to provide the levels of support that our customers
require. In addition, we have entered into agreements with third parties to
provide this support and will rely on them for a substantial portion of our
customer support functions. Our failure to provide adequate customer support for
the TiVo Service and personal video recorder will damage our reputation in the
personal television and consumer electronics marketplace and strain our
relationships with customers and strategic partners. This could prevent us from
gaining new or retaining existing subscribers and could cause harm to our
reputation and brand.
We will need to improve our operational and financial systems to
support our expected growth, and any inability to do so will adversely impact
our billing and reporting. To manage the expected growth of our operations and
personnel, we will need to improve our operational and financial systems,
procedures and controls. Our current and planned systems, procedures and
controls may not be adequate to support our future operations and expected
growth. For example, we replaced our accounting and billing system at the
beginning of August 2000. Delays or problems associated with any improvement or
expansion of our operational and financial systems and controls could adversely
impact our relationships with subscribers and cause harm to our reputation and
brand. Delays or problems associated with any improvement or expansion of our
operational and financial systems and controls could also result in errors in
our financial and other reporting.
26
If we are unable to create multiple revenue streams, we may not be able to
cover our expenses or meet our obligations to strategic partners and other third
parties.
Although our initial success will depend on building a significant
customer base and generating subscription fees from the TiVo Service, our
long-term success will depend on securing additional revenue streams such as:
. advertising;
. revenues from networks; and
. electronic commerce or couch commerce.
In order to derive substantial revenues from these activities, we will
need to attract and retain a large and growing base of subscribers to the TiVo
Service. We also will need to work closely with television advertisers, cable
and satellite network operators, electronic commerce companies and consumer
electronics manufacturers to develop products and services in these areas. We
may not be able to effectively work with these parties to develop products that
generate revenues that are sufficient to justify their costs. In addition, we
are currently obligated to share a portion of these revenues with several of our
strategic partners. Any inability to attract and retain a large and growing
group of subscribers and strategic partners will seriously harm our ability to
support new services and develop new revenue streams.
It will take a substantial amount of time and resources to achieve broad
market acceptance of the TiVo Service and products that enable the TiVo Service
and we cannot be sure that these efforts will generate a broad enough subscriber
base to sustain our business.
Personal television products and services represent a new, untested
consumer electronics category. The TiVo Service is in an early stage of
development and many consumers are not aware of its benefits. As a result, it is
uncertain whether the market will demand and accept the TiVo Service and
products that enable the TiVo Service. Retailers, consumers and potential
partners may perceive little or no benefit from personal television products and
services. Likewise, consumers may not value, and may be unwilling to pay for the
TiVo Service and products that enable the TiVo Service. To develop this market
and obtain subscribers to the TiVo Service, we will need to devote a substantial
amount of time and resources to educate consumers and promote our products. We
may fail to obtain subscribers, encourage the development of new devices that
enable the TiVo Service and develop and offer new content and services. We
cannot be sure that a broad base of consumers will ultimately subscribe to the
TiVo Service or purchase the products that enable the TiVo Service.
We face intense competition from a number of sources, which may impair our
revenues and ability to generate subscribers.
The personal television market is new and rapidly evolving and we
expect competition from a number of sources, including:
Internet-related companies and companies offering similar products and
services. We are likely to face intense direct competition from companies such
as WebTV Networks Inc., SonicBlue and X-TV. These companies offer, or have
announced their intention to offer, products with one or more of the TiVo
Service's functions or features and, in some instances, combine these features
with Internet browsing or traditional broadcast, cable or satellite television
programming. Many of these companies have greater brand recognition and market
presence and substantially greater financial, marketing and distribution
resources than we do. For example, Microsoft Corporation controls and provides
financial backing to WebTV. Some of these companies also have established
relationships with third party consumer electronic manufacturers, network
operators and programmers, which could make it difficult for us to establish
relationships and enter into agreements with these third parties. Some of these
competitors also have relationships with our strategic partners. For example,
DIRECTV recently formed an alliance with Microsoft. Faced with this competition,
we may be unable to expand our market share and attract an increasing number of
subscribers to the TiVo Service.
27
Established competitors in the consumer electronics market. We compete
with consumer electronic products in the television and home entertainment
industry. The television and home entertainment industry is characterized by
rapid technological innovation, a small number of dominant manufacturers and
intense price competition. As a new product category, personal television enters
a market that is crowded with several established products and services. The
competition for consumer spending in the television and home entertainment
market is intense, and our products and services will compete with:
. satellite television systems;
. video on demand services;
. digital video disc players; and
. laser disc players.
Most of these technologies or devices have established markets, a broad
subscriber base and proven consumer acceptance. In addition, many of the
manufacturers and distributors of these competing devices have substantially
greater brand recognition, market presence, distribution channels, advertising
and marketing budgets and promotional and other strategic partners. Faced with
this competition, we may be unable to effectively differentiate the personal
video recorder or the TiVo Service from these devices.
Established competition for advertising budgets. Personal television,
in general, and TiVo, specifically, also compete with traditional advertising
media such as print, radio and television for a share of advertisers' total
advertising budgets. If advertisers do not perceive personal television as an
effective advertising medium, they may be reluctant to devote a significant
portion of their advertising budget to promotions on the TiVo Service.
If we are unable to introduce new products or services, or if our new
products and services are unsuccessful, the growth in our subscriber base and
revenues may suffer.
To attract and retain subscribers and generate revenues, we must
continue to add functionality and content and introduce products and services
which embody new technologies and, in some instances, new industry standards.
This challenge will require hardware and software improvements, as well as new
collaborations with programmers, advertisers, network operators, hardware
manufacturers and other strategic partners. These activities require significant
time and resources and may require us to develop and promote new ways of
generating revenue with established companies in the television industry. These
companies include television advertisers, cable and satellite network operators,
electronic commerce companies and consumer electronics manufacturers. In each of
these examples, a small number of large companies dominate a major portion of
the market and may be reluctant to work with us to develop new products and
services for personal television. If we are unable to further develop and
improve the TiVo Service or expand our operations in a cost-effective or timely
manner, our ability to attract and retain subscribers and generate revenue will
suffer.
If we do not successfully establish strong brand identity in the personal
television market, we may be unable to achieve widespread acceptance of our
products.
We believe that establishing and strengthening the TiVo brand is
critical to achieving widespread acceptance of our products and services and to
establishing key strategic partnerships. The importance of brand recognition
will increase as current and potential competitors enter the personal television
market with competing products and services. Our ability to promote and position
our brand depends largely on the success of our marketing efforts and our
ability to provide high quality services and customer support. These activities
are expensive and we may not generate a corresponding increase in subscribers or
revenues to justify these costs. If we fail to establish and maintain our brand,
or if our brand value is damaged or diluted, we may be unable to attract
subscribers and effectively compete in the personal television market.
28
Product defects, system failures or interruptions to the TiVo Service may
have a negative impact on our revenues, damage our reputation and decrease our
ability to attract new subscribers.
Our ability to provide uninterrupted service and high quality customer
support depends on the efficient and uninterrupted operation of our computer and
communications systems. Our computer hardware and other operating systems for
the TiVo Service are vulnerable to damage or interruption from earthquakes,
floods, fires, power loss, telecommunication failures and similar events. They
are also subject to break-ins, sabotage, intentional acts of vandalism and
similar misconduct. These types of interruptions in the TiVo Service may reduce
our revenues and profits. Our business also will be harmed if consumers believe
our service is unreliable. In addition to placing increased burdens on our
engineering staff, service outages will create a flood of customer questions and
complaints that must be responded to by our customer support personnel. Any
frequent or persistent system failures could irreparably damage our reputation
and brand.
We have detected and may continue to detect errors and product defects.
These problems can affect system uptime, result in significant warranty and
repair problems, which could cause customer service and customer relations
problems. Correcting errors in our software requires significant time and
resources, which could delay product releases and affect market acceptance of
the TiVo Service. Any delivery by us of products or upgrades with undetected
material product defects or software errors could harm our credibility and
market acceptance of the personal video recorders and the TiVo Service.
Intellectual property claims against us can be costly and could result in
the loss of significant rights.
From time to time, we may be subject to intellectual property
litigation, which could:
. be time-consuming and expensive;
. divert management's attention and resources away from our
business;
. cause delays in product delivery and new service
introduction;
. cause the cancellation of new products or services; or
. require us to pay significant royalties or licensing fees.
The emerging enhanced-television industry is highly litigious,
particularly in the area of on-screen program guides. Additionally, many patents
covering interactive television technologies have been granted but have not been
commercialized. For example, we are aware of at least seven patents for pausing
live television. A number of companies in the enhanced-television industry earn
substantial profits from technology licensing, and the introduction of new
technologies such as ours is likely to provoke lawsuits from such companies. A
successful claim of infringement against us, our inability to obtain an
acceptable license from the holder of the patent or other right or our inability
to design around an asserted patent or other right could cause our manufacturing
partners to cease manufacturing the personal video recorder or us to cease
providing our service, or both, which would eliminate our ability to generate
revenues.
On January 6, 2000, PhoneTel Communications, Inc. filed a lawsuit against
us in the U.S. District Court for the Northern District of Texas alleging
willful and deliberate violation of U.S. Patent Number 4,873,584, entitled
"Computer Control for VCR including Display of Record Playback Listing and
Playback Order Selection." held by PhoneTel. The complaint alleged that TiVo
infringed the patent by, among other things, making, using, selling, offering to
sell and/or importing its television set-top boxes, and sought unspecified
monetary damages, an injunction against TiVo's operations, and attorneys' fees
and costs. On April 17, 2000, the suit was voluntarily dismissed by PhoneTel.
While the suit could be re-filed by PhoneTel, TiVo believes that it has
meritorious defenses against the claims and would vigorously defend itself
against such claims. In the event the suit is re-filed, TiVo could be forced to
incur material expenses, and in the event it were to lose such a suit, its
business would be harmed.
On January 18, 2000, StarSight Telecast Inc., a subsidiary of Gemstar
International Group Limited filed a lawsuit against us in the U.S. District
Court for the Northern District of California alleging willful and deliberate
violation of U.S. Patent Number 4,706,121, entitled "TV Schedule System and
Process," held by StarSight. The complaint alleged that TiVo infringed the
patent by, among other things, making, using, selling, offering to sell and/or
importing its TV schedule systems and processes without a license from
StarSight. Starsight seeks unspecified monetary damages and an injunction
against our operations. The suit also seeks attorneys' fees and costs. TiVo
believes that we have has meritorious defenses against the suit and intends to
vigorously defend ourself. On February 25, 2000, TiVo counterclaimed against
StarSight, Gemstar Development Corporation and Gemstar International Group
Limited seeking damages for federal antitrust violations and state unfair
business practices claims, as well as declaratory relief of non-infringement,
invalidity and unenforceability with respect to the patent. TiVo could be
forced to incur material expenses during this litigation, and in the event we
were to lose this suit our business would be harmed.
29
In addition, we are aware that some media companies may attempt to form
organizations to develop standards and practices in the personal television
industry. These organizations or individual media companies may attempt to
require companies in the personal television industry to obtain copyright or
other licenses. A number of articles have appeared in the press regarding the
formation of a consortium of broadcast and cable television networks called the
Advanced Television Copyright Coalition. Some of those articles have indicated
that the coalition is prepared to support litigation and to explore legislative
solutions unless the members of the personal television industry agree to obtain
license agreements for use of the companies' programming. We have received
letters from Time Warner Inc. and Fox Television stating that these entities
believe our personal television service exploits copyrighted networks and
programs without the necessary licenses and business arrangements. Lawsuits or
other actions taken by these types of organizations or companies could make it
more difficult for us to introduce new services, delay widespread consumer
acceptance of our products and services, restrict our use of some television
content, increase our costs and adversely affect our business.
Our success depends on our ability to secure and protect patents,
trademarks and other proprietary rights.
Our success and ability to compete are substantially dependent upon our
internally developed technology. We rely on patent, trademark and copyright law,
trade secret protection and confidentiality or license agreements with our
employees, customers, partners and others to protect our proprietary rights.
However, the steps we take to protect our proprietary rights may be inadequate.
We have filed patent applications and provisional patent applications covering
substantially all of the technology used to deliver the TiVo Service and its
features and functionality. To date, several of these patents have been granted,
and we cannot assure you that any additional patents will ever be granted, that
any issued patents will protect our intellectual property or that third parties
will not challenge any issued patents. In addition, other parties may
independently develop similar or competing technologies designed around any
patents that may be issued to us. Our failure to secure and protect our
proprietary rights could have a material adverse effect on our business.
Laws or regulations that govern the television industry and the delivery of
programming could expose us to legal action if we fail to comply or could
require us to change our business.
Personal television and the delivery of television programming through
the TiVo Service and a personal video recorder represents a new category in the
television and home entertainment industries. As such, it is difficult to
predict what laws or regulations will govern our business. Changes in the
regulatory climate or the enforcement or interpretation of existing laws could
expose us to additional costs and expenses and could require changes to our
business. For example, copyright laws could be applied to restrict the capture
of television programming, which would adversely affect our business. It is
unknown whether existing laws and regulations will apply to the personal
television market. Therefore, it is difficult to anticipate the impact of
current or future laws and regulations on our business.
The Federal Communications Commission has broad jurisdiction over the
telecommunications and cable industries. The majority of FCC regulations, while
not directly affecting us, do affect many of the strategic partners on whom we
substantially rely for the marketing and distribution of the personal video
recorder and the TiVo Service. As such,
30
the indirect effect of these regulations may adversely affect our business. In
addition, the FCC could promulgate new regulations, or interpret existing
regulations in a manner that would cause us to incur significant compliance
costs or force us to alter the features or functionality of the TiVo Service.
We need to safeguard the security and privacy of our subscribers'
confidential data, and any inability to do so may harm our reputation and brand
and expose us to legal action.
The personal video recorder collects and stores viewer preferences and
other data that many of our subscribers consider confidential. Any compromise or
breach of the encryption and other security measures that we use to protect this
data could harm our reputation and expose us to potential liability. Advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments could compromise or breach the systems we use to protect
our subscribers' confidential information. We may be required to make
significant expenditures to protect against security breaches or to remedy
problems caused by any breaches.
Uncertainty in the marketplace regarding the use of data from subscribers
could reduce demand for the TiVo Service and result in increased expenses.
Consumers may be concerned about the use of viewing information
gathered by the TiVo Service and personal video recorder. Currently, we gather
anonymous information about our subscribers' viewing choices while using the
TiVo Service, unless a subscriber affirmatively consents to the collection of
personally identifiable viewing information. This anonymous viewing information
does not identify the individual subscriber. Privacy concerns, however, could
create uncertainty in the marketplace for personal television and our products
and services. Changes in our privacy policy could reduce demand for the TiVo
Service, increase the cost of doing business as a result of litigation costs or
increased service delivery costs, or otherwise harm our reputation and business.
In the future, our revenues and operating results may fluctuate
significantly, which may adversely affect the market price of our common stock.
We expect our revenues and operating results to fluctuate significantly
due to a number of factors, many of which are outside of our control. Therefore,
you should not rely on period-to-period comparisons of results of operations as
an indication of our future performance. It is possible that in some future
periods our operating results may fall below the expectations of market analysts
and investors. In this event, the market price of our common stock would likely
fall.
Factors that may affect our quarterly operating results include:
. demand for personal video recorders and the TiVo Service;
. the timing and introduction of new services and features on
the TiVo Service;
. seasonality and other consumer and advertising trends;
. changes in revenue sharing arrangements with our strategic
partners;
. entering into new or terminating existing strategic
partnerships;
. changes in the subsidy payments we make to certain strategic
partners;
. changes in our pricing policies, the pricing policies of our
competitors and general pricing trends in the consumer
electronics market;
31
. loss of subscribers to the TiVo Service; and
. general economic conditions.
Because our expenses precede associated revenues, unanticipated
shortfalls in revenue could adversely affect our results of operations for any
given period and cause the market price of our common stock to fall.
Seasonal trends may cause our quarterly operating results to fluctuate and
our inability to forecast these trends may adversely affect the market price of
our common stock.
Consumer electronic product sales have traditionally been much higher
during the holiday shopping season than during other times of the year. Although
predicting consumer demand for our products is very difficult, we believe that
sales of personal video recorders and new subscriptions to the TiVo Service will
be disproportionately high during the holiday shopping season when compared to
other times of the year. If we are unable to accurately forecast and respond to
consumer demand for our products, our reputation and brand will suffer and the
market price of our common stock would likely fall.
We expect that a portion of our future revenues will come from targeted
commercials and other forms of television advertising enabled by the TiVo
Service. Expenditures by advertisers tend to be seasonal and cyclical,
reflecting overall economic conditions as well as budgeting and buying patterns.
A decline in the economic prospects of advertisers or the economy in general
could alter current or prospective advertisers' spending priorities or increase
the time it takes to close a sale with our advertisers, which could cause our
revenues from advertisements to decline significantly in any given period.
If we are unable to raise additional capital on acceptable terms, our
ability to effectively manage growth and build a strong brand could be harmed.
We expect that our existing capital resources will be sufficient to
meet our cash requirements through our fiscal year ending January 31, 2002.
However, as we continue to grow our business, we may need to raise additional
capital, which may not be available on acceptable terms or at all. If we cannot
raise necessary additional capital on acceptable terms, we may not be able to
develop or enhance our products and services, take advantage of future
opportunities or respond to competitive pressures or unanticipated requirements.
If additional capital is raised through the issuance of equity
securities, the percentage ownership of our existing stockholders will decline,
stockholders may experience dilution in net book value per share, or these
equity securities may have rights, preferences or privileges senior to those of
the holders of our common stock. Any debt financing, if available, may involve
covenants limiting, or restricting our operations or future opportunities.
We have agreed to subsidize the cost of manufacturing personal video
recorders, which may adversely affect our operating results and ability to
achieve profitability.
We have agreements with our consumer electronic manufacturing partners
to manufacture the personal video recorder that enables the TiVo Service. We
have agreed to pay our manufacturing partners a per-unit subsidy for each
personal video recorder that they manufacture and sell. The amount of the
payments can vary depending upon the manufacturing costs and selling prices. In
addition, in the event our manufacturing partners are unable to manufacture the
personal video recorders at the costs currently estimated or if selling prices
are less than anticipated, we may owe additional amounts to them, which could
adversely affect our operating results. We are obligated to pay a portion of the
subsidy when the personal video recorder is shipped, and we will not receive any
revenues related to the unit until the unit is sold and the purchaser activates
the TiVo Service. We may make additional subsidy payments in the future to
consumer electronic and other manufacturers in an effort to maintain a
commercially viable retail price for the personal video recorders and other
devices that enable the TiVo Service.
32
The lifetime subscriptions to the TiVo Service that we currently offer
commit us to providing services for an indefinite period. The revenue we
generate from these subscriptions may be insufficient to cover future costs.
We currently offer product lifetime subscriptions that commit us to
provide service for as long as the personal video recorder is in service. We
receive the lifetime subscription fee for the TiVo Service in advance and
amortize it as subscription revenue over four years, which is our estimate of
the service life of the personal video recorder. If these lifetime subscribers
use the personal video recorder for longer than anticipated, we will incur costs
without a corresponding revenue stream and therefore will be required to fund
ongoing costs of service from other sources.
If we lose key management personnel, we may not be able to successfully
operate our business.
Our future performance will be substantially dependent on the continued
services of our senior management and other key personnel. The loss of any
members of our executive management team and our inability to hire additional
executive management could harm our business and results of operations. In
addition, we do not have employment agreements with, or key man insurance
policies for, any of our key personnel.
If there is an adverse outcome in the class action litigation that has been
filed against TiVo, our business may be harmed.
On June 12, 2001, a securities class action lawsuit was filed in the
United States District Court for the Southern District of New York on behalf of
all persons who acquired our stock between September 30, 1999 and December 6,
2000. TiVo, certain of the executive officers of TiVo, and certain underwriters
involved in our initial public offering were named as defendants in the
complaint. The complaint charges the defendants with violation of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated
thereunder, for issuing a registration statement and prospectus in our initial
public offering that contained material misrepresentations and/or omissions by
failing to disclose the underwriters' alleged agreement with certain investors
to provide them with restricted shares in our initial public offering in
exchange for commissions, and the alleged agreement between the underwriters and
certain of their customers whereby they would allocate shares in our initial
public offering to those customers in exchange for the customers' agreement to
purchase our shares in the after-market at pre-determined prices. The complaint
seeks damages on behalf of all those who purchased or otherwise acquired TiVo
securities during the period covered by the complaint. We believe we have
meritorious defenses and intend to defend this action vigorously. However, we
could be forced to incur material expenses in the litigation, and in the event
there is an adverse outcome, our business could be harmed.
We expect to experience volatility in our stock price.
The market price of our common stock is highly volatile. Since our
initial public offering in September 1999 through June 11, 2001, our common
stock has closed between $71.50 per share and $4.00 per share, closing at $8.05
on June 11, 2001. The market price of our common stock may be subject to
significant fluctuations in response to, among other things, the factors
discussed in this section and the following factors:
. Changes in estimates of our financial performance or changes
in recommendations by securities analysts;
. Our failure to meet the expectations of securities analysts
or investors;
. Release of new or enhanced products or introduction of new
marketing initiatives by us or our competitors;
. Announcements by us or our competitors of the creation,
developments under or termination of significant strategic
partnerships, joint ventures, significant contracts or
acquisitions;
. Fluctuations in the market prices generally for
technology-related stocks;
. Fluctuations in general economic conditions;
. Fluctuations in interest rates;
. Market conditions affecting the television and home
entertainment industry;
. Fluctuations in operating results; and
. Additions or departures of key personnel.
The stock market has from time to time experienced
extreme price and volume fluctuations, which have particularly
affected the market prices for emerging companies, and which have
often been unrelated to their operating performance. These broad
market fluctuations may adversely affect the market price of our
common stock.
Our Certificate of Incorporation, Bylaws, Rights Agreement and Delaware law
could discourage a third party from acquiring us and consequently decrease the
market value of our common stock.
33
We may become the subject of an unsolicited attempted takeover of our
company. Although an unsolicited takeover could be in the best interests of our
stockholders, certain provisions of Delaware law, our organizational documents
and our Rights Agreement could be impediments to such a takeover.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a business combination with
an interested stockholder for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. Our Amended and
Restated Certificate of Incorporation and Bylaws also require that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of the stockholders and may not be effected by
a consent in writing. In addition, special meetings of our stockholders may be
called only by our board of directors, the chairman of the board or the chief
executive officer. Our Amended and Restated Certificate of Incorporation and
Bylaws also provide that directors may be removed only for cause by a vote of a
majority of the stockholders and that vacancies on the board of directors
created either by resignation, death, disqualification, removal or by an
increase in the size of the board of directors may be filled by a majority of
the directors in office, although less than a quorum. Our Amended and Restated
Certificate of Incorporation also provides for a classified board of directors
and specifies that the authorized number of directors may be changed only by
resolution of the board of directors.
On January 9, 2001, our board of directors adopted a Rights Agreement. Each
share of our common stock has attached to it a right to purchase one
one-hundredth of a share of our Series B Junior Participating Preferred Stock at
a price of $60 per one one-hundredth of a preferred share in the event that the
rights become exercisable. The rights become exercisable upon the earlier to
occur of (i) ten days following a public announcement that a person or group of
affiliated or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of our common stock, subject to limited
exceptions, or (ii) ten business days (or such later date as may be determined
by action of our board of directors prior to such time as any person or group of
affiliated persons becomes an acquiring person as described in the preceding
clause) following the commencement or announcement of an intention to make a
tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of our common stock,
subject to limited exceptions.
These provisions of Delaware law, our Amended and Restated Certificate of
Incorporation and Bylaws and our Rights Agreement could make it more difficult
for us to be acquired by another company, even if our acquisition is in the best
interests of our stockholders. Any delay or prevention of a change of control or
change in management could cause the market price of our common stock to
decline.
The nature of some of our strategic relationships may restrict our ability
to operate freely in the future.
From time to time, we may engage in discussions with other parties
concerning strategic relationships, which may include equity investments by such
parties in our company. We currently have such relationships with a number of
our strategic partners, including AOL, DIRECTV, Sony and Philips. While we
believe that such relationships have enhanced our ability to finance and develop
our business model, the terms and conditions of such relationships may place
some restrictions on our freedom to operate in the future.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Our exposure to market risk for changes in interest rates relates
primarily to our investment portfolio. We do not use derivative financial
instruments in our investment portfolio and conduct transactions in U.S.
dollars. Our investment portfolio only includes highly liquid instruments with
original maturities of less than one year.
We are subject to fluctuating interest rates that may impact, adversely
or otherwise, our results of operations or cash flows for our cash and cash
equivalents and our short-term investments.
34
Although payments under the operating lease for our facility are tied
to market indices, we are not exposed to material interest rate risk associated
with the operating lease. Our capital lease obligations are not subject to
changes in the interest rate and, therefore, are not exposed to interest rate
risk.
PART II : OTHER INFORMATION
Item 1. Legal Proceedings
On June 12, 2001, a securities class action lawsuit was filed in the
United States District Court for the Southern District of New York on behalf of
all persons who acquired our stock between September 30, 1999 and December 6,
2000. TiVo, certain of the executive officers of TiVo, and certain underwriters
involved in our initial public offering were named as defendants in the
complaint. The complaint charges the defendants with violation of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated
thereunder, for issuing a registration statement and prospectus in our initial
public offering that contained material misrepresentations and/or omissions by
failing to disclose the underwriters' alleged agreement with certain investors
to provide them with restricted shares in our initial public offering in
exchange for commissions, and the alleged agreement between the underwriters and
certain of their customers whereby they would allocate shares in our initial
public offering to those customers in exchange for the customers' agreement to
purchase our shares in the after-market at pre-determined prices. The complaint
seeks damages on behalf of all those who purchased or otherwise acquired TiVo
securities during the period covered by the complaint. We believe we have
meritorious defenses and intend to defend this action vigorously. However, we
could be forced to incur material expenses in the litigation, and in the event
there is an adverse outcome, our business could be harmed.
Item 2. Changes in Securities and Use of proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended April 30, 2001.
35
Item 5. Other Information
Board of Directors
During the first quarter ended April 30, 2001, Barry Schuler and Howard
Stringer resigned from the Company's Board of Directors as the AOL and Sony
representatives, respectively. On April 25, 2001, by a unanimous written consent
of the executive committee of the Board of Directors, the number of directors
constituting the Board was reduced from twelve to ten members.
On March 13, 2001, the Board approved a 200,000 share increase to the
Employee Share Purchase Plan.
36
Item 6. Exhibits, Financial Statement Schedules,
and Reports on Form 8-k
Exhibits
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.2 of the
registrant's Quarterly Report on Form 10-Q filed on
November 14, 2000).
3.2 Amended and Restated Bylaws (incorporated by reference
to Exhibit 3.4 of the registrant's Quarterly Report on
Form 10-Q filed on November 15, 1999).
4.1++ Warrant and Registration Rights Agreement, dated as of
October 6, 2000, by and between DIRECTV, Inc.
(incorporated by reference to Exhibit 4.1 of the
registrant's Annual Report on Form 10-K filed on April
2, 2001).
4.2 Stockholders and Registration Rights Agreement, dated
as of June 9, 2000, between TiVo and America Online,
Inc. (incorporated by reference to Exhibit 4.4 of the
registrant's Quarterly Report on Form 10-Q filed on
November 14, 2000).
4.3 Ninth Amended and Restated Investor Rights Agreement by
and among TiVo and certain investors, dated as of
August 6, 1999 (incorporated by reference to Exhibit
4.3 of the registrant's Registration Statement on Form
S-1 (SEC File No. 333-83515)).
4.4 Certificate of Designations of the Series B Junior
Participating Preferred Stock of TiVo (incorporated by
reference to Exhibit 4.1 of the registrant's Current
Report on Form 8-K/A filed on January 19, 2001).
4.5 Certificate of Correction to the Certificate of
Designations of the Series B Junior Participating
Preferred Stock of TiVo (incorporated by reference to
Exhibit 4.2 of the Registrant's Current Report on Form
8-K/A filed on January 19, 2001).
10.1 Rights Agreement, dated as of January 16, 2001, between
TiVo and Wells Fargo Shareowner Services, as Rights
Agent (incorporated by reference to Exhibit 10.1 of the
registrant's Current Report on Form 8-K/A filed on
January 19, 2001).
10.2 First Amendment to Rights Agreement, dated as of
February 20, 2001, between TiVo Inc. and Wells Fargo
Shareowner Services, as Rights Agent (incorporated by
reference to Exhibit 10. of the registrant's Current
Report on Form 8-K filed on February 28, 2001).
10.3 Form of Indemnification Agreement between TiVo and its
officers and directors (incorporated by reference to
Exhibit 10.1 of the registrant's Registration Statement
on Form S-1 (SEC File No. 333-83515)).
10.4 TiVo's 1999 Equity Incentive Plan and related documents
(incorporated by reference to Exhibit 10.2 of the
registrant's Registration Statement on Form S-1 (SEC
File No. 333-83515)).
10.5 TiVo's Amended and Restated 1997 Equity Incentive Plan
and related documents (incorporated by reference to
Exhibit 10.3 of the registrant's Registration Statement
on Form S-1 (SEC File No. 333-83515)).
10.6 TiVo's 1999 Employee Stock Purchase Plan and related
documents (incorporated by reference to Exhibit 10.4 of
the registrant's Registration Statement on Form S-1
(SEC File No. 333-83515)).
10.7 TiVo's 1999 Non-Employee Directors' Stock Option Plan
and related documents (incorporated by reference to
Exhibit 10.5 of the registrant's Annual Report on Form
10-K filed on March 30, 2000).
10.8+ Hard Disk Drive Supply Agreement between Quantum
Corporation and TiVo, dated November 6, 1998
(incorporated by by reference to Exhibit 10.6 of the
registrant's Registration Statement on Form S-1 (SEC
File No. 333-83515)).
37
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.9 First Amendment to Hard Disk Supply Agreement between
Quantum and TiVo, dated June 25, 1999 (incorporated by
reference to Exhibit 10.20 of the registrant's
Registration Statement on Form S-1 (SEC File No.
333-83515)).
10.10+ Warrant Purchase and Equity Rights Agreement between
Quantum Corporation and TiVo, dated November 6, 1998
and related documents (incorporated by reference to
Exhibit 10.16 of the registrant's Registration
Statement on Form S-1 (SEC File No. 333-83515)).
10.11+ Master Agreement between Philips Business Electronics
B.V. and TiVo, dated March 31, 1999 (incorporated by
reference to Exhibit 10.7 of the registrant's
Registration Statement on Form S-1 (SEC File No.
333-83515)).
10.12+ Marketing Agreement between DIRECTV, Inc. and TiVo,
dated April 13, 1999 (incorporated by reference to
Exhibit 10.8 of the registrant's Registration Statement
on Form S-1 (SEC File No. 333-83515)).
10.13+ Agreement between NBC Multimedia, Inc. and TiVo, dated
April 16, 1999 (incorporated by reference to Exhibit
10.9 of the registrant's Registration Statement on Form
S-1 (SEC File No. 333-83515)).
10.14 Sublease Agreement between Verity, Inc. and TiVo, dated
February 23, 1998 (incorporated by reference to Exhibit
10.10 of the registrant's Registration Statement on
Form S-1 (SEC File No. 333-83515)).
10.15 Amendment to Sublease Agreement between Verity, Inc.
and TiVo, dated November 1998 (incorporated by
reference to Exhibit 10.11 of the registrant's
Registration Statement on Form S-1 (SEC File No.
333-83515)).
10.16 Second Amendment to Sublease Agreement between Verity,
Inc. and TiVo, dated March 1999 (incorporated by
reference to Exhibit 10.12 of the registrant's
Registration Statement on Form S-1 (SEC File No.
333-83515)).
10.17 Consent of Landlord to Sublease between Verity, Inc.
and TiVo, dated February 23, 1998 (incorporated by
reference to Exhibit 10.13 of the registrant's
Registration Statement on Form S-1 (SEC File No.
333-83515)).
10.18 Master Lease Agreement between Comdisco, Inc. and TiVo,
dated February 12, 1999 (incorporated by reference to
Exhibit 10.15 of the registrant's Registration
Statement on Form S-1 (SEC File No. 333-83515)).
10.19 Warrant to Purchase Shares of Series A Preferred Stock
issued to Randy Komisar, dated March 18, 1998
(incorporated by reference to Exhibit 10.17 of the
registrant's Registration Statement on Form S-1 (SEC
File No. 333-83515)).
10.20 Warrant Agreement between Comdisco, Inc. and TiVo,
dated February 12, 1999 (incorporated by reference to
Exhibit 10.18 of the registrant's Registration
Statement on Form S-1 (SEC File No. 333-83515)).
10.21 Secured Convertible Debenture Purchase Agreement
between TiVo and certain of its investors, dated April
8, 1999, and related documents (incorporated by
reference to Exhibit 10.19 of the registrant's
Registration Statement on Form S-1 (SEC File No.
333-83515)).
10.22 TiVo's 401(k) Plan, effective December 1, 1997
(incorporated by reference to Exhibit 10.21 of the
registrant's Registration Statement on Form S-1 (SEC
File No. 333-83515)).
10.23+ Tribune Media Services Television Listing Agreement
between Tribune Media Services and TiVo, dated June 1,
1998 (incorporated by reference to Exhibit 10.22 of the
registrant's Registration Statement on Form S-1 (SEC
File No. 333-83515)).
10.24+ Amendment to the Data License Agreement between
Teleworld Inc., and Tribune Media Services, Inc.
between Tribune Media Services and TiVo, dated November
10, 1998 (incorporated by reference to Exhibit 10.23 of
the registrant's
38
EXHIBIT
NUMBER DESCRIPTION
------ -----------
Registration Statement on Form S-1 (SEC File No. 333-
83515)).
10.25 Lease Agreement between WIX/NSJ Real Estate Limited
Partnership and TiVo, dated October 6, 1999
(incorporated by reference to Exhibit 10.24 of the
Quarterly Report on Form 10-Q filed on November 15,
1999).
24.1 Power of Attorney (included in Part IV of this Form
10-K).
99.5 Form of Stock Option Grant used in connection with an
option granted outside of TiVo's stock option plans and
related documents (incorporated by reference to Exhibit
99.5 of the registrant's Registration Statement on Form
S-1 (SEC File No. 333-83515)).
-----------------------
+ Confidential treatment granted as to portions of this exhibit.
++ Confidential treatment has been requested as to portions of this
exhibit.
REPORTS ON FORM 8-K
The registrant filed the following reports on Form 8-K during the
quarter ended April 30, 2001:
. Current Report on Form 8-K on February 1, 2001, regarding the change in the
registrant's fiscal reporting year-end from December 31 to January 31.
. Current Report on Form 8-K on February 14, 2001, regarding the announcement
of the registrant's earnings for the fourth quarter and year ended December
31, 2000.
. Current Report on Form 8-K on February 28, 2001, regarding an amendment to
the Rights Agreement, dated as of January 16, 2001.
. Current Report on Form 8-K on March 15, 2001, regarding the execution of an
amendment to that certain Investment Agreement, dated as of June 9, 2000,
as amended, by and between the registrant and America Online, Inc. and the
execution of promotional agreements with America Online, Inc. and AOL Time
Warner, Inc.
. Current Report on Form 8-K on March 19, 2001, regarding the announcement of
the registrant's earnings for the one-month transitional period ended
January 31, 2001 in connection with the change in the registrant's fiscal
reporting year-end.
Trademark Acknowledgments
TiVo is a registered trademark of TiVo, Inc.
"Active Preview", "Can't Miss TV", "DIRECTIVO", Instant Replay logo,
"Ipreview", Jump logo, "Life's too short for bad TV", "Network Showcase",
"Personal TV", "Personal Video Recorder", "Primetime Anytime", "Season Pass",
"See it, want it, get it", "The New Face of Television", "The way TV is meant to
be", "Thumbs Down" (logo and text), "Thumbs Up" (logo and text), "TiVo Central",
"TiVo" (logo, name and character), "TiVolution", "What you want, when you want
it", and "You run the shows" are trademarks of the registrant. All other
trademarks or trade names appearing in this report are the property of their
respective owners.
39
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TIVO INC.
Date: June 14, 2001 By: /s/ Michael Ramsay
---------------------------------
Michael Ramsay
Chief Executive Officer and Chairman of
the Board of Directors
(Principal Executive Officer)
Date: June 14, 2001 By: /s/ David H. Courtney
---------------------------------
David H. Courtney
Chief Financial Officer and Sr. Vice
President of Finance and Administration
(Principal Financial and Accounting
Officer)
40