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 October 31, 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
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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 45,167,179 as of December 10, 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 (Deficit)...................6
Consolidated Statements of Cash Flows.......................................8
Notes To Financial Statements..............................................10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................21
Item 3. Quantitative and Qualitative Disclosure About Market Risk..................39
PART II : Other Information............................................................39
Item 1. Legal Proceedings..........................................................39
Item 2. Changes in Securities and Use of Proceeds..................................40
Item 3. Defaults Upon Senior Securities............................................41
Item 4. Submission of Matters to a Vote of Security Holders........................41
Item 5. Other Information..........................................................41
Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...........42
Signatures..........................................................................45
The accompanying notes are an integral part of these statements.
2
PART I : FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
TIVO INC.
CONSOLIDATED BALANCE SHEETS
October 31, January 31,
2001 2001
-----------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents .......................................... $ 62,831,000 $124,474,000
Short-term investments ............................................. 1,001,000 --
Restricted cash .................................................... 51,509,000 50,104,000
Accounts receivable, net of allowance for doubtful accounts of
$174,000 and $201,000, as of October 31, 2001 and January 31, 2001 596,000 1,834,000
Accounts receivable-related parties, net of allowance for doubtful
accounts of $69,000 and $62,000, as of October 31, 2001 and
January 31, 2001 ................................................. 6,378,000 4,816,000
Prepaid expenses and other ......................................... 9,311,000 6,693,000
Prepaid expenses and other-related parties ......................... 18,225,000 1,698,000
------------ ------------
Total current assets ............................................. 149,851,000 189,619,000
ACCOUNTS RECEIVABLE-RELATED PARTIES, long-term ........................ 560,000 --
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $9,884,000
and $4,813,000 as of October 31, 2001 and January 31, 2001 ....... 20,092,000 21,924,000
------------ ------------
Total assets ..................................................... $170,503,000 $211,543,000
============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
CURRENT LIABILITIES
Accounts payable ................................................... $ 8,280,000 $ 21,971,000
Accrued liabilities ................................................ 19,587,000 19,863,000
Accrued liabilities-related parties ................................ 29,520,000 49,839,000
Deferred interest income on restricted cash ........................ 3,509,000 2,104,000
Deferred revenue, short-term ....................................... 10,147,000 6,210,000
Current portion of obligations under capital lease ................. 700,000 796,000
Total current liabilities ........................................ 71,743,000 100,783,000
------------ ------------
LONG-TERM LIABILITIES
Long-term portion of obligations under capital lease ............... 42,000 538,000
Accrued liabilities-related parties, long-term ..................... 1,297,000 --
Convertible notes payable .......................................... 30,166,000 --
Convertible notes payable-related parties .......................... 12,313,000 --
Deferred revenue, long-term ........................................ 18,742,000 12,113,000
Deferred revenue-related parties, long-term ........................ 10,750,000 --
Other long-term liabilities ........................................ 923,000 1,217,000
------------ ------------
Total long-term liabilities ...................................... 74,233,000 13,868,000
------------ ------------
Total liabilities ................................................ 145,976,000 114,651,000
------------ ------------
The accompanying notes are an integral part of these statements.
3
TIVO INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
October 31, January 31,
2001 2001
--------------------------------
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Series A Redeemable convertible preferred stock,
par value $0.001:
Issued and outstanding shares at October 31, 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 (DEFICIT)
Series A Convertible preferred stock, par value $0.001:
Authorized shares at October 31, 2001 and January 31, 2001 are
10,000,000
Issued and outstanding shares at October 31, 2001 and January
31, 2001 are 1,111,861 ......................................... $ 1,000 $ 1,000
Common stock, par value $0.001:
Authorized shares at October 31, 2001 and January 31, 2001 are
150,000,000
Issued and outstanding shares at October 31, 2001 and January
31, 2001 are 43,775,283 and 43,430,023 ......................... 44,000 43,000
Additional paid-in capital ........................................... 418,908,000 406,294,000
Deferred compensation ................................................ (1,415,000) (2,786,000)
Prepaid marketing expenses ........................................... (16,374,000) (48,458,000)
Note receivable ...................................................... (1,803,000) (2,509,000)
Accumulated deficit .................................................. (421,389,000) (302,248,000)
------------- -------------
Total stockholders' equity (deficit) ............................... (22,028,000) 50,337,000
------------- -------------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity (deficit) ................... $ 170,503,000 $ 211,543,000
============= =============
The accompanying notes are an integral part of these statements.
4
TIVO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------------ ------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Revenues ...................................... $ 5,242,000 1,102,000 $ 12,544,000 $ 2,470,000
Revenues-related parties ...................... 100,000 -- 100,000 --
------------- ------------- ------------- -------------
Total Revenues .................................... 5,342,000 1,102,000 12,644,000 2,470,000
Costs and expenses
Cost of revenues (excludes $11,000 and $30,000
of amortization of stock-based compensation
for the quarters ended October 31, 2001 and
October 31, 2000, respectively and ($27,000)
and $107,000 for the nine months ended October
31, 2001 and October 31, 2000, respectively) . 5,146,000 4,149,000 15,058,000 13,438,000
Cost of revenues- related parties .............. 61,000 -- 61,000 --
Research and development (excludes $79,000 and
$176,000 of amortization of stock-based
compensation for the quarters ended October
31, 2001 and October 31, 2000, respectively
and $287,000 and $640,000 for the nine months
ended October 31, 2001 and October 31, 2000,
respectively) ................................ 7,431,000 7,572,000 21,044,000 19,204,000
Sales and marketing (excludes $144,000 and
$196,000 of amortization of stock-based
compensation for the quarters ended October
31, 2001 and October 31, 2000, respectively
and $435,000 and $744,000 for the nine months
ended October 31, 2001 and October 31, 2000,
respectively) ................................ 7,084,000 34,638,000 25,860,000 59,539,000
Sales and marketing-related parties ............ 11,239,000 24,283,000 50,873,000 36,918,000
General and administrative (excludes $112,000
and $222,000 of amortization of stock-based
compensation for the quarters ended October
31, 2001 and October 31, 2000, respectively
and $279,000 and $915,000 for the nine months
ended October 31, 2001 and October 31, 2000,
respectively) ................................ 5,214,000 3,876,000 14,009,000 10,574,000
Stock-based compensation ....................... 346,000 624,000 974,000 2,406,000
------------- ------------- ------------- -------------
Loss from operations ......................... (31,179,000) (74,040,000) (115,235,000) (139,609,000)
Interest income .......................... 65,000 2,056,000 2,062,000 5,574,000
Interest expense and other ............... (1,171,000) (46,000) (1,266,000) (423,000)
Interest expense- related parties ........ (553,000) -- (1,112,000) --
------------- ------------- ------------- -------------
Loss before taxes ............................ (32,838,000) (72,030,000) (115,551,000) (134,458,000)
Provision for income taxes ................... (1,000,000) -- (1,000,000) --
------------- ------------- ------------- -------------
Net loss ..................................... (33,838,000) (72,030,000) (116,551,000) (134,458,000)
Less: Series A redeemable convertible
preferred stock dividend ................... (658,000) (665,000) (2,590,000) (665,000)
------------- ------------- ------------- -------------
Net loss attributable to common stock ........ $ (34,496,000) $ (72,695,000) $(119,141,000) $(135,123,000)
============= ============= ============= =============
Net loss per common share
basic and diluted ............................ $ (0.81) $ (1.89) $ (2.82) $ (3.69)
============= ============= ============= =============
Weighted average common shares outstanding -
basic and diluted ............................ 42,667,600 38,460,761 42,183,188 36,595,705
============= ============= ============= =============
The accompanying notes are an integral part of these statements.
5
TIVO INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Convertible
Preferred Stock Common Stock Additional
---------------------------- ------------------------------ Paid-In
Shares Amount Shares Amount Capital
------------- ------------ ------------- ------------- -------------
BALANCE, JANUARY 31, 2001 ................... 1,111,861 $ 1,000 43,430,023 $ 43,000 $ 406,294,000
Series A 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 prepaid marketing related
to value of warrants .................... -- -- -- -- --
Amortization of prepaid marketing expenses -- -- -- -- --
Reversal of deferred compensation ......... -- -- -- -- (336,000)
Recognition of stock-based compensation
expense ................................. -- -- -- -- --
Amortization of note receivable ........... -- -- -- -- --
Net loss .................................. -- -- -- -- --
------------- ------------- ------------- ------------- -------------
BALANCE, APRIL 30, 2001 ................... 1,111,861 1,000 43,580,059 43,000 406,819,000
Series A convertible preferred stock
dividend declared, $0.31 per share ...... -- -- -- -- --
Exercise of stock options for common stock -- -- 68,859 1,000 217,000
Issuance of common stock warrants for
marketing expenses ...................... -- -- -- -- 216,000
Recognition of prepaid marketing expenses . -- -- -- -- --
Amortization of prepaid marketing related
to value of warrants .................... -- -- -- -- --
Amortization of prepaid marketing expenses -- -- -- -- --
Reversal of deferred compensation ......... -- -- -- -- (51,000)
Recognition of stock-based compensation
expense ................................. -- -- -- -- --
Amortization of note receivable ........... -- -- -- -- --
Net loss .................................. -- -- -- -- --
------------- ------------- ------------- ------------- -------------
BALANCE, JULY 31, 2001 .................... 1,111,861 1,000 43,648,918 44,000 407,201,000
Prepaid
Deferred Marketing Note Accumulated
Compensation Expense Receivable Deficit Total
------------- ------------- ------------- ------------- -------------
BALANCE, JANUARY 31, 2001 ................... $ (2,786,000) (48,458,000) $ (2,509,000) $(302,248,000) $ 50,337,000
Series A 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 prepaid marketing related
to value of warrants .................... -- 1,755,000 -- -- 1,755,000
Amortization of prepaid marketing expenses -- 1,881,000 -- -- 1,881,000
Reversal of deferred compensation ......... 336,000 -- -- -- --
Recognition of stock-based compensation
expense ................................. 289,000 -- -- -- 289,000
Amortization of note receivable ........... -- -- 236,000 -- 236,000
Net loss .................................. -- -- -- (49,092,000) (49,092,000)
------------- ------------- ------------- ------------- -------------
BALANCE, APRIL 30, 2001 ................... (2,161,000) (30,706,000) (2,273,000) (352,432,000) 19,291,000
Series A convertible preferred stock
dividend declared, $0.31 per share ...... -- -- -- (840,000) (840,000)
Exercise of stock options for common stock -- -- -- -- 218,000
Issuance of common stock warrants for
marketing expenses ...................... -- -- -- -- 216,000
Recognition of prepaid marketing expenses . -- 7,611,000 -- -- 7,611,000
Amortization of prepaid marketing related
to value of warrants .................... -- 1,814,000 -- -- 1,814,000
Amortization of prepaid marketing expenses -- 1,881,000 -- -- 1,881,000
Reversal of deferred compensation ......... 51,000 -- -- -- --
Recognition of stock-based compensation
expense ................................. 339,000 -- -- -- 339,000
Amortization of note receivable ........... -- -- 235,000 -- 235,000
Net loss .................................. -- -- -- (33,621,000) (33,621,000)
------------- ------------- ------------- ------------- -------------
BALANCE, JULY 31, 2001 .................... (1,771,000) (19,400,000) (2,038,000) (386,893,000) (2,856,000)
The accompanying notes are an integral part of these statements.
6
TIVO INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Convertible
Preferred Stock Common Stock Additional
---------------------------- ------------------------------ Paid-In
Shares Amount Shares Amount Capital
------------- ------------ ------------- ------------- -------------
Series A convertible preferred stock
dividend declared, $0.24 per share ........ -- -- -- -- --
Exercise of stock options for common stock -- -- 11,036 -- 40,000
Issuance of common stock-employee stock
purchase plan ........................... -- -- 119,642 -- 460,000
Common stock repurchases .................. -- -- (4,313) -- (37,000)
Cancelation of common stock warrants for
marketing expenses ........................ -- -- -- -- (94,000)
Issuance of common stock warrants to
convertible noteholders ................... -- -- -- -- 9,608,000
Issuance of common stock warrants to
investment bankers ........................ -- -- -- -- 552,000
Beneficial conversion related to
convertible notes payable ................. -- -- -- -- 983,000
Adjustment to financing expense .......... -- -- -- -- 205,000
Amortization of prepaid marketing related
to value of warrants ...................... -- -- -- -- --
Amortization of prepaid marketing expenses -- -- -- -- --
Reversal of deferred compensation ......... -- -- -- -- (10,000)
Recognition of stock-based compensation
expense ................................... -- -- -- -- --
Amortization of note receivable ........... -- -- -- -- --
Net loss .................................. -- -- -- -- --
------------- ------------ ------------- ------------- -------------
BALANCE, OCTOBER 31, 2001 ................. 1,111,861 $ 1,000 43,775,283 $ 44,000 $ 418,908,000
============= ============ ============= ============= =============
Prepaid
Deferred Marketing Note Accumulated
Compensation Expense Receivable Deficit Total
------------- ------------- ------------- ------------- -------------
Series A convertible preferred stock
dividend declared, $0.24 per share ........ -- -- -- (658,000) (658,000)
Exercise of stock options for common stock -- -- -- -- 40,000
Issuance of common stock-employee stock
purchase plan ........................... -- -- -- -- 460,000
Common stock repurchases .................. -- -- -- -- (37,000)
Cancelation of common stock warrants for
marketing expenses ........................ -- -- -- -- (94,000)
Issuance of common stock warrants to
convertible noteholders ................... -- -- -- -- 9,608,000
Issuance of common stock warrants to
investment bankers ........................ -- -- -- -- 552,000
Beneficial conversion related to
convertible notes payable ................. -- -- -- -- 983,000
Adjustment to financing expense .......... -- -- -- -- 205,000
Amortization of prepaid marketing related
to value of warrants ...................... -- 1,814,000 -- -- 1,814,000
Amortization of prepaid marketing expenses -- 1,212,000 -- -- 1,212,000
Reversal of deferred compensation ......... 10,000 -- -- -- --
Recognition of stock-based compensation
expense ................................... 346,000 -- -- -- 346,000
Amortization of note receivable ........... -- -- 235,000 -- 235,000
Net loss .................................. -- -- -- (33,838,000) (33,838,000)
------------- ------------- ------------- ------------- -------------
BALANCE, OCTOBER 31, 2001 ................. $ (1,415,000) $ (16,374,000) $ (1,803,000) $(421,389,000) $ (22,028,000)
============= ============= ============= ============= =============
The accompanying notes are an integral part of these statements.
7
TIVO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
October 31,
--------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES ........................... 2001 2000
------------- -------------
Net loss .................................................. $(116,551,000) $(134,458,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ......................... 5,071,000 2,427,000
Issuance of common stock warrants for services ........ 242,000 492,000
Amortization of prepaid marketing expenses ............ 4,974,000 5,720,000
Amortization of warrants for services ................. 5,383,000 437,000
Recognition of prepaid marketing expense .............. 21,727,000 2,621,000
Stock-based compensation expense ...................... 974,000 2,406,000
Amortization of note receivable ....................... 706,000 78,000
Changes in assets and liabilities:
Accounts receivable ................................... 1,238,000 (186,000)
Accounts receivable-related parties ................... (1,562,000) (2,840,000)
Prepaid expenses and other ............................ 2,823,000 (3,063,000)
Prepaid expenses and other-related parties ............ (8,427,000) (767,000)
Accounts receivable-related parties, long-term ........ (560,000) --
Accounts payable ...................................... (13,691,000) 11,630,000
Accrued liabilities ................................... (276,000) 3,083,000
Accrued liabilities-related parties ................... (20,319,000) 28,661,000
Deferred revenue ...................................... 3,937,000 555,000
Accrued liabilities-related parties, long term ........ 1,297,000 --
Deferred revenue, long term ........................... 17,379,000 6,215,000
Other long-term liabilities ........................... (294,000) 1,311,000
------------- -------------
Net cash used in operating activities ................... (95,929,000) (75,678,000)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment ..................... (3,239,000) (16,275,000)
Purchase of short-term investments, net ................... (1,001,000) (2,274,000)
------------- -------------
Net cash used in investing activities ................... (4,240,000) (18,549,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Series A convertible preferred stock dividend ............. (2,590,000) (240,000)
Proceeds from issuance of common stock .................... -- 100,000,000
Proceeds from issuance of common stock - employee stock
purchase plan ......................................... 1,206,000 2,204,000
Proceeds from exercise of common stock options ......... 273,000 749,000
Payment of issuance costs for redeemable convertible
preferred stock, redeemable
common stock and common stock ............................. -- (6,555,000)
Repurchases of common stock ............................... (57,000) 6,000
Cash proceeds from issuance of convertible notes payable .. 36,750,000 --
Cash proceeds from issuance of convertible notes payable
-related parties....................................... 6,900,000 --
Payment of issuance costs for convertible notes payable ... (3,569,000) --
Reduction of financing expenses ........................... 205,000 --
Payments under capital lease .............................. (592,000) (429,000)
------------- -------------
Net cash (used in) provided by financing activities ..... 38,526,000 95,735,000
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........... (61,643,000) 1,508,000
------------- -------------
The accompanying notes are an integral part of these statements
8
TIVO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Nine Months Ended
October 31,
-----------------------------------
2001 2000
------------- -------------
CASH AND CASH EQUIVALENTS:
Balance at beginning of period .............................. 124,474,000 137,658,000
------------- -------------
Balance at end of period .................................... $ 62,831,000 $ 139,166,000
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest ...................................... $ 1,620,000 $ 98,000
SUPPLEMENTAL DISCLOSURE OF RESTRICTED CASH AND OTHER NON-CASH
FINANCING INFORMATION
Restricted cash received from issuance of Series A redeemable
convertible preferred stock ................................. -- 81,356,000
Restricted cash received from issuance of redeemable common
stock ....................................................... -- 18,644,000
Restricted cash used for prepaid marketing expenses ......... -- (8,500,000)
Deferred interest income on restricted cash ................. 1,405,000 728,000
Beneficial conversion related to convertible notes payable .. 983,000 --
Prepaid advertising received in exchange for convertible
notes payable ............................................... 8,100,000 --
Issuance of warrants-non cash financing expense.............. (552,000) --
Discount on issuance of convertible notes payable ............ 9,608,000 --
Difference between carrying value and cash proceeds on
convertible notes ........................................... (1,508,000) --
Equipment acquired under capital lease ...................... -- 121,000
The accompanying notes are an integral part of these statements.
9
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. On October 9, 2001, the Company formed a new subsidiary,
TiVo International, Inc., a Delaware corporation. 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 revenues, has incurred significant losses and
has had substantial negative cash flow. During the quarter ended October 31,
2001, TiVo recognized revenues of $5.3 million. As of October 31, 2001, TiVo had
an accumulated deficit of $421.4 million.
On August 28, 2001, the Company closed a private placement of $51.8 million
of convertible debt and received cash proceeds, net of issuance costs of
approximately $40.1 million from accredited investors. The Company intends to
use the net proceeds from these notes for marketing and promotion, customer
service and general corporate purposes. TiVo received cash proceeds of
approximately $43.7 million from noteholders and non-cash proceeds of $8.1
million in the form of advertising and promotional services from Discovery
Communications, Inc. ("Discovery") and the National Broadcasting Company, Inc.
("NBC"), who are existing shareholders. Issuance costs were approximately $3.6
million, resulting in net proceeds of approximately $40.1 million. Of the total
proceeds of $51.8 million, $8.1 million is designated for advertising and
promotional services. In addition, the Company paid $5.0 million in October
2001, to NBC for advertising that will run during the period beginning October
1, 2001 and ending December 31, 2001 (see Note 4).
Unaudited Interim Consolidated Financial Statements
The accompanying consolidated balance sheets as of October 31, 2001 and the
accompanying consolidated statements of operations, consolidated statements of
stockholders' equity (deficit) and consolidated statements of cash flows for the
three months and nine months ended October 31, 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 and nine months ended October 31, 2001 are not
necessarily indicative of results for the entire fiscal year or future periods.
10
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.
Short-term Investments
Short-term investments consist of commercial paper investments and
certificates of deposit with original maturities at the date of purchase ranging
between three and twelve months. The Company classifies these investments as
held to maturity and records the instruments at amortized cost, which
approximates fair value due to the short maturities.
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 3).
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 subscription
revenue 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 expenses related to the private
placement of convertible debt (See Note 4).
Prepaid Expenses and Other - Related Parties
Prepaid expenses and other - related parties consist of payments made to
our partners in advance of recognizing the expense primarily resulting from the
Company's revenue share arrangements. Other consists primarily of prepaid joint
advertising with our partners.
11
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." 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.
Under the Sony arrangement, the Company incurred $1.0 million in
withholding taxes to the government of Japan. This payment of this withholding
tax generates a deferred tax asset. However, as the Company's ability to realize
the benefits of this deferred tax asset is uncertain, a full valuation allowance
has been provided. The $1.0 million has been accounted for as a provision for
income tax.
Accrued Liabilities - Related Parties, Long-Term
Accrued liabilities-related parties, long-term consist of the long-term
portion of payments due under negotiated payment schedules with our partners,
who are existing shareholders.
Convertible Notes Payable, Long-Term
Convertible notes payable, long-term consist of the long-term portion of
the notes issued as a result of the private placement, which closed on August
28, 2001 (see Note 4).
Convertible Notes Payable - Related Parties, Long-Term
Convertible notes payable - related parties, long-term consist of the
long-term portion of the notes issued to our existing shareholders as a result
of the private placement, which closed on August 28, 2001 (see Note 4).
Deferred Revenue
Deferred revenue relates to subscription fees collected for which service
has not yet been provided. Deferred revenue is primarily comprised of the
unrecognized portion of cash received for lifetime subscriptions.
12
Deferred Revenue - Related Parties
Deferred revenue - related parties relates to fees collected from our
partners, who are existing shareholders, for which service has not yet been
provided. Deferred revenue - related parties is primarily comprised of the
unrecognized portion of cash received for technology licensing and engineering
services (See Note 5).
Other Long-Term Liabilities
Other long-term liabilities consist of deferred rent. Deferred rent of
$923,000 results from the recognition of rent expense under the 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
minimal amount of credit risk related to these customers as subscription revenue
is primarily obtained through credit card sales. The reserves for doubtful
accounts at October 31, 2001 were $174,000 and $69,000 for accounts receivable
and accounts receivable--related parties, respectively. The Company does not
consider credit risk associated with accounts receivable--related parties
(DirecTV, Philips, Sony, AOL and Quantum) to be significant.
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 $346,000 for the quarter ended October 31, 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
Revenue arises from three sources: subscription revenues, non-subscription
revenues and engineering service revenues. Subscription revenues represent
revenues from customer subscriptions to the TiVo Service. Subscriptions to the
TiVo Service are available on a monthly 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. Revenues from subscriptions are recognized
ratably over the subscription period. Subscription revenues
13
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, for which service has not yet
been provided.
Non-subscription revenue includes charter advertising and sponsorship
revenue from consumer companies and media networks that have provided content on
the TiVo Service. Revenue is recognized as the advertising and content is
delivered.
Revenues -- related parties represent engineering revenues for engineering
services performed.
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 platform development 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.
Advertising Costs
In accordance with Statement of Position 93-7, "Reporting on Advertising
Costs," the Company expensed advertising costs as incurred. Advertising expenses
were $2.8 million for the three months ended October 31, 2001 including expenses
related to a portion of the NBC and Discovery media insertion orders which are
classified as sales and marketing --related parties expense.
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.
Net Loss Per Common Share
Net loss per share is calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," (SFAS No.128) 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. The average number
of shares used in the computation of the net loss per share of the three months
and nine months ended October 31, 2001 exclude options and warrants to purchase
common stock, Series A
14
convertible preferred stock and Series A redeemable convertible preferred stock
(see Note 3) and unvested, repurchasable common stock issued under the employee
stock option plans.
3. 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 Series A 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. As of January 30, 2001 and October 31, 2001, 1,600,000
shares of Series A Preferred stock subject to redemption are shown as redeemable
preferred 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. AOL and the Company are engaged in discussions
regarding the modification of terms of our current agreements. However, there
can be no assurance that these discussions will lead to any such modification.
Restricted Cash
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 leaving a remaining
balance plus interest in restricted cash of $51.5 million.
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 and October 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 of December 31, 2001, but prior to the
exercise of the put option, the put option would immediately expire.
15
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 was 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. Dividends for the quarter ended
October 31, 2001 were $658,000 of which $193,000 was payable as of October 31,
2001.
Initial Common Stock Warrants A and B
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: o Initial Warrant A - AOL was issued
warrants to purchase 2,308,475 shares of common stock at $7.29 per share. The
Company is
o expensing 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%.
o Initial Warrant B - AOL was issued warrants to purchase 295,428 shares
of common stock at $7.29 per share. The Company is expensing 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:
o 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.
o 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
16
following 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 October 31,
2001, it would record the estimated value of the performance warrants of $5.2
million as prepaid marketing expense (contra-equity). If market conditions at
the time that AOL earns the performance warrants are different than those at
October 31, 2001 than the valuation of the warrants could significantly increase
or decrease from the following calculated valuation:
o Performance Warrant A - AOL would be issued warrants to purchase up to
2,603,903 shares of common stock at $5.07 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 $2.6 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 $5.50 per share; a risk-free rate of return of 2.13%;
dividend yield of zero percent; and a volatility of 50%.
o Performance Warrant B - AOL would be issued warrants to purchase up to
2,603,903 shares of common stock at $5.07 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
$2.6 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 $5.50 per share; a risk-free rate of return
of 2.13%; dividend yield of zero percent; and a volatility of 50%.
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 October 31, 2001 than the valuation of the
warrants could significantly increase or decrease from the above amount.
Financial Covenants
Under the terms of the Investment Agreement, the Company must maintain a
positive net cash position in excess of $25.0 million, measured 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. With the
completion of the private placement, the Company was in compliance with the net
cash position requirement as of October 31, 2001.
17
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.
4. CONVERTIBLE DEBT WITH WARRANTS
On August 28, 2001, the Company closed a private placement of $51.8 million
of convertible debt and received cash proceeds, net of issuance costs of
approximately $40.1 million from accredited investors. The Company intends to
use the net proceeds from these notes for marketing and promotion, customer
service and general corporate purposes. TiVo received cash proceeds of
approximately $43.7 million from noteholders and non-cash proceeds of $8.1
million in the form of advertising and promotional services from Discovery
Communications, Inc. ("Discovery") and the National Broadcasting Company, Inc.
("NBC"), who are existing shareholders. Issuance costs were approximately $3.6
million, resulting in net cash proceeds of approximately $40.1 million. Of the
total proceeds of $51.8 million, $8.1 million is designated for advertising and
promotional services. In addition, the Company paid $5.0 million in October
2001, to NBC for advertising that will run during the period beginning October
1, 2001 and ending December 31, 2001.
The Company issued the notes under an indenture, dated August 28, 2001,
with the Bank of New York, as trustee. The Company filed with the Securities and
Exchange Commission a registration statement relating to the resale of the
notes, warrants and underlying common stock, which the Commission declared
effective on November 2, 2001. On November 4, 2001, pursuant to the terms of the
indenture, the conversion price of the notes was adjusted to $5.45 per share,
the average of the per share closing prices of the Company's common stock for
the ten consecutive trading days preceding November 4, 2001.
The effect of recording this transaction in the Company's consolidated
balance sheet was as follows:
o Cash and cash equivalents increased by $40.1 million for the net cash
proceeds from the offering. The $40.1 million is the gross proceeds
from issuance of the securities offered of $51.8 million, less the
cash issuance costs of $3.6 million and non-cash advertising and
promotional services consideration of $8.1 million.
o Prepaid expenses and other increased by $5.1 million for cash and
non-cash financing costs of $3.6 million and $552,000, respectively,
and the value of beneficial conversion of $983,000.
o Prepaid expenses and other -- related parties increased by $13.1
million for prepaid advertising. The non-cash proceeds from issuance
of convertible debt of $8.1 million is designated for advertising and
promotional services. In addition, the Company paid $5.0 million in
October 2001, to NBC for advertising that will run during the period
beginning October 1, 2001 and ending December 31, 2001.
o Convertible notes payable, long-term increased by $30.2 million as a
result of the carrying value of the convertible notes payable which is
the face value of the notes less the discount on convertible notes
payable represented by the value of the warrants issued to
noteholders.
o Convertible notes payable -- related parties, long-term increased by
$12.3 million as a result of the carrying value of the convertible
notes payable which is the face value of the notes less the discount
on convertible notes payable represented by the value of the warrants
issued to existing shareholders.
o Additional paid-in capital increased by $11.1 million for the value of
the warrants issued to warrantholders, the non-cash financing costs
and the value of the beneficial conversion.
The private placement consisted of the following securities:
o $51,750,000 of 7% Convertible Senior Notes due 2006. The notes are
---------------------------------------------------
convertible at any time, unless earlier redeemed pursuant to their
terms, into TiVo common stock at a conversion price of $5.45 per
share, the average of the per share closing prices of the Company's
common stock for the ten consecutive trading days preceding November
4, 2001. A beneficial conversion amount of $983,000 was recorded as a
deferred financing charge and will be amortized as additional interest
expense over the life of the debt or until the notes are converted to
stock.
18
o Warrants to purchase TiVo common stock. Warrants were issued to
--------------------------------------
investors to purchase a total of approximately 2.5 million shares of
TiVo common stock, at an exercise price of $7.85 per share. The
warrants expire in 2006. The estimated fair value of the warrants of
$5.6 million was determined using the Black-Scholes option-pricing
model. The principal assumptions used in the Black-Scholes computation
were: 5-year term; fair market value at the date of issuance of $7.85
per share; a risk-free rate of return of 4.42%; dividend yield of zero
percent; and a volatility of 50%.
o Additional Warrants. As part of the private placement, TiVo issued two
--------------------
additional sets of warrant. The first set of warrants, which expire
after one year from date of issuance, unless earlier terminated, gives
warrantholders the right to purchase a total of approximately 3.8
million shares of TiVo common stock at an exercise price of $6.73 per
share. The second set of warrants, which expire after five years from
date of issuance, unless earlier terminated, gives warrantholders the
right to purchase a total of approximately 1.3 million shares of TiVo
common stock at an exercise price of $7.85 per share. These five-year
terminable warrants may only be exercised if the one-year warrants
have been exercised. The estimated fair value of the warrants of $4.0
million was determined using the Black-Scholes option-pricing model.
The principal assumptions for the one year warrants were: 1-year term;
fair market value at the date of issuance of $6.73 per share; a
risk-free rate of return of 4.42%; dividend yield of zero percent; and
a volatility of 50%. The principal assumptions used in the
Black-Scholes computation for the five-year terminable warrants were:
5-year term; fair market value at the date of issuance of $7.85 per
share; a risk-free rate of return of 4.42%; dividend yield of zero
percent; and a volatility of 50%.
The value of the warrants issued in the private placement was $9.6 million
and has been recorded as a discount on the convertible notes payable. This
discount will be amortized to interest expense e over the five-year life of
the notes payable or until the notes are converted to common stock.
5. SONY RELATIONSHIP
On October 12, 2001, the Company entered into a technology licensing
arrangement with Sony Corporation, a Japanese corporation, pursuant to which the
Company granted a non-exclusive license of its personal digital recording
technology to Sony and its affiliates for use in Sony devices and services. TiVo
also granted Sony a license to sublicense certain technology to third parties in
Japan under certain circumstances. In consideration for the licenses granted
under the agreement, Sony paid the Company an upfront fee. This fee was recorded
as deferred revenue-related parties, long-term because the revenue under the
agreement is expected to be recognized beyond one year. Under the terms of the
agreement, Sony has agreed to pay royalties to the Company in certain
circumstances in connection with the deployment of Sony video recording devices
incorporating TiVo's personal digital recording technology. The license
agreement expires after seven years unless earlier terminated under the terms of
the agreement. Upon expiration, or in the event of termination for certain
breaches under the agreement, certain of the licenses granted will continue,
provided that Sony continues to pay any required royalties and fees.
6. SUBSEQUENT EVENTS
AT&T Marketing Relationship
On November 7, 2001, the Company entered into a marketing relationship with
AT&T Broadband, pursuant to which AT&T Broadband will market the TiVo digital
video recorder and the TiVo Service to its cable customers in the Boston, Denver
and Silicon Valley areas. AT&T Broadband cable customers will be offered the
opportunity to purchase a
19
newly designed TiVo digital video recorder for $299.99 and subscribe to the TiVo
Service at a monthly rate of $9.95 or a one-time payment of $249 for a lifetime
subscription to the TiVo Service.
For each AT&T Broadband cable subscriber who activates the TiVo Service
under this arrangement, TiVo will remit to AT&T Broadband a portion of the
subscription fee for the activation. The Company will also share with AT&T
Broadband a portion of the revenues received from the advertising and
promotional activities on the TiVo digital video recorders that have been
deployed to AT&T Broadband customers under the terms of the arrangement.
20
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 regarding our anticipated financial results, revenues, subscribers,
use of funds and business plan. You can recognize forward-looking statements by
use of 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 our actual results, performance or achievements, 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 our reports filed with the Securities and Exchange
Commission.
================================================================================
TiVo achieved several important milestones during the quarter ended October
31, 2001:
o On August 28, 2001, we closed a private placement of $51.8 million of
convertible debt and received cash proceeds, net of issuance costs of
approximately $40.1 million from accredited investors. We intend to
use the net proceeds from these notes for marketing and promotion,
customer service and general corporate purposes. TiVo received cash
proceeds of approximately $43.7 million from accredited investors and
non-cash proceeds of $8.1 million in the form of advertising and
promotional services from Discovery Communications, Inc. ("Discovery")
and the National Broadcasting Company, Inc. ("NBC"), who are existing
shareholders. Issuance costs were approximately $3.6 million,
resulting in net proceeds of approximately $40.1 million. Of the total
proceeds of $51.8 million, $8.1 million is designated for advertising
and promotional services. In addition, the Company paid $5.0 million
in October 2001, to NBC for advertising that will run during the
period beginning October 1, 2001 and ending December 31, 2001 (see
Note 4).
o On October 18, 2001, we announced that we had signed a technology
licensing agreement with Sony Corporation. The agreement grants a
non-exclusive license of TiVo's personal digital recording technology
to Sony and its affiliates for use in Sony devices and services. We
also granted Sony a license to sublicense certain technology to third
parties in Japan under certain circumstances. In consideration for the
licenses granted under the agreement, Sony paid us an upfront fee.
This fee was recorded as deferred revenue-related parties, long-term
because the revenue under the agreement is expected to be recognized
beyond one year (see Note 5).
Results of Operations
Revenues. Revenues for the three and nine months ended October 31, 2001
were $5.2 million and $12.5 million compared to $1.1 million and $2.5 million
for prior year comparable periods. The increase is largely attributable to
increased customer subscriptions to the TiVo Service. TiVo activated
approximately 51,000 new subscribers to the TiVo Service during the three-month
period ended October 31, 2001 compared to approximately 31,000 subscribers
activated during the prior year comparable period. A large part of the increase
for comparable nine-month periods was due to TiVo's existing monthly subscribers
upgrading to lifetime subscriptions for $199 before the new price increase. This
promotion generated an
21
additional $1 million in cash for the quarter ended April 2001. As of October
31, 2001, the total installed subscriber base had grown to approximately 280,000
subscribers.
Revenues - related parties. Revenues - related parties consists of revenues
received from our partners, who are also shareholders, primarily for engineering
services. Revenues - related parties for both the three and nine months ended
October 31, 2001 were $100,000.
Cost of revenues. Cost of revenues consists primarily of telecommunication
and network expenses, employee salaries, call center and other expenses related
to providing the TiVo Service to subscribers. Cost of revenues for the three and
nine months ended October 31, 2001 was $5.1 million and $15.1 million compared
to $4.1 million and $13.4 million for the three and nine months ended October
31, 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 19%, from the nine months ended October 31, 2000 to the
nine months ended October 31, 2001. This decrease was a result of reducing the
service cost per subscriber by using satellite transmission of the TiVo Service
for subscribers using the DirecTV Receiver with TiVo.
Cost of revenues - related parties. Cost of revenues - related parties
consists primarily of employee salaries and related expenses related to
providing engineering and design support to TiVo's related parties. Cost of
revenues -- related parties for both the three and nine months ended October 31,
2001 was $61,000.
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 and nine months ended
October 31, 2001 were $7.4 million and $21.0 million compared to $7.6 million
and $19.2 million for the three and nine months ended October 31, 2000. Salaries
and related benefits increased approximately 25% for the nine-month period and
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 for the nine-month
period by 74% 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 and nine months ended October 31, 2001 were $7.1 million
and $25.9 million compared to $34.6 million and $59.5 million for the three and
nine months ended October 31, 2000. The significant decrease for the nine-month
period was primarily attributable to a 72% decrease in expenditures for
advertising, public relations and trade shows. This is due to the initiatives we
have put in place with our partners to maximize our joint marketing
effectiveness with much lower levels of cash investment by TiVo and by TiVo
reducing our advertising expenses. Although the marketing expenses have
decreased over prior periods 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.
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 and nine months ended October 31, 2001 was $11.2 million
and $50.9 million compared to $24.3 million and $36.9 million for the three and
nine months ended October 31, 2000. The increase in sales and marketing--related
parties expense is primarily attributable to the activations of subscribers to
the TiVo Service and AOL media insertion orders.
Sales and marketing--related parties expense for the three and nine months
ended October 31, 2001, consists of cash charges of $8.1 million and $39.6
million, respectively and non-cash charges of $3.1 million and $11.3 million,
respectively. Sales and marketing--related parties expense for the same periods
in the prior year consisted of cash charges of
22
$21.5 million and $30.1 million, respectively and non-cash charges of $2.8
million and $6.9 million, respectively. 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
NBC, Discovery and AOL. Subsidies are formula based payments to our partners in
exchange for key activities 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 have
negotiated deferred payment schedules of payables due as of March 31, 2001 with
certain partners in the amount of $15.6 million reflected in accrued
liabilities--related parties. In general, interest started accruing from March
31, 2001 and beginning in October, we have made payments including interest for
the deferred amounts as well as have continued to pay current payables on a
timely basis. Additionally, we expect to continue to work 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 and nine months ended October 31, 2001 were $5.2 million and $14.0
million compared to $3.9 million and $10.6 million for the three and nine months
ended October 31, 2000. Salaries and related expenses increased for the
nine-month period over 58% primarily due to the hiring of additional information
systems and legal personnel. Also contributing to the increase were consulting
and temporary expenses totaling 47% 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 $346,000 and $974,000 for the
three and nine months ended October 31, 2001 and $624,000 and $2.4 million 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 $65,000 and
$2.1 million for the three and nine months ended October 31, 2001 compared to
$2.1 million and $5.6 million for the three and nine months ended October 31,
2000. The decrease is a result of cash balances decreasing largely due to a
declining cash balance.
Interest expense and other. Interest expense and other was $1.2 million and
$1.3 million for the three and nine months ended October 31, 2001. This includes
the coupon interest expense of $634,000 related to the convertible notes and the
amortization of the value assigned primarily to the Comdisco warrant for
interest expense of $58,000. For the three and nine months ended October 31,
2000, interest expense and other was $46,000 and $423,000, respectively.
Interest expense - related parties. Interest expense - related parties was
$553,000 and $1.1 million for the three-month and nine-month periods. This
includes $362,000 and $906,000 for interest expense payable to our strategic
partners according to negotiated deferred payment schedules.
Provision for income taxes. Income tax expense for the three and nine
months ended October 31, 2001 was $1.0 million due to tax withheld by the
government of Japan as foreign source income tax from payments made by Sony
under the terms of the technology licensing agreement.
23
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
dividends payable for the three and nine months ended October 31, 2001 were
$658,000 and $2.6 million, respectively. The dividends are payable quarterly as
declared by our board of directors.
Quarterly Results of Operations
The following table represents certain unaudited statement of operations
data for our eight most recent quarters ended October 31, 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
----------------------------------------------------
January 31, April 30, July 31, October 31,
2000 2000 2000 2000
---------- -------- -------- --------
Revenues ................... $ 287 $ 499 $ 869 $ 1,102
Costs and expenses
Cost of revenues ........... 2,746 4,994 4,295 4,149
Research and
development .............. 4,626 4,844 6,788 7,572
Sales and .................. 12,215 8,479 16,422 34,638
marketing
Sales and marketing--related
parties .................. 7,323 3,342 9,293 24,283
General and administrative . 2,888 2,978 3,720 3,876
Stock-based compensation ... 878 974 808 624
Other operating expense, net (69) -- -- --
-------- -------- -------- --------
Loss from operations ....... (30,320) (25,112) (40,457) (74,040)
Interest income ............ 2,097 1,766 1,752 2,056
Interest expense and other . 110 (101) (276) (46)
Interest expense --related . -- -- --
parties .................. --
-------- -------- -------- --------
Net loss before taxes ...... (28,113) (23,447) (38,981) (72,030)
Provision for income taxes . -- -- -- --
-------- -------- -------- --------
Net loss ................... (28,113) (23,447) (38,981) (72,030)
Less: Series A redeemable
convertible preferred stock
dividend ................... -- -- -- (665)
-------- -------- -------- --------
Net loss attributable to
common stock ............... $(28,113) $(23,447) $(38,981) $(72,695)
======== ======== ======== ========
Net loss per share
Basic and diluted ..... $ (0.80) $ (0.66) $ (1.09) $ (1.89)
Weighted average shares 35,215 35,462 35,865 38,461
Three Months Ended
----------------------------------------------------
January 31, April 30, July 31, October 31,
2001 2001 2001 2001
---------- -------- -------- --------
Revenues ..................... $ 2,166 $ 3,196 $ 4,106 $ 5,342
Costs and expenses
Cost of revenues ............. 5,661 5,497 4,415 5,207
Research and
development ................ 5,888 6,827 6,786 7,431
Sales and
marketing .................. 46,905 13,020 5,756 7,084
Sales and marketing--related
parties .................... 21,093 23,488 16,146 11,239
General and administrative ... 4,483 4,507 4,288 5,214
Stock-based compensation ..... 562 289 339 346
Other operating expense, net . -- -- -- --
-------- -------- -------- --------
Loss from operations ......... (82,426) (50,432) (33,624) (31,179)
Interest income .............. 2,305 1,390 607 65
Interest expense and other ... (86) (50) (45) (1,171)
Interest expense --related
parties .................... -- -- (559) (553)
-------- -------- -------- --------
Net loss before taxes ........ (80,207) (49,092) (33,621) (32,838)
Provision for income taxes ... -- -- -- (1,000)
-------- -------- -------- --------
Net loss ..................... (80,207) (49,092) (33,621) (33,838)
Less: Series A redeemable
convertible preferred stock
dividend ..................... (1,272) (1,092) (840) (658)
-------- -------- -------- --------
Net loss attributable to
common stock ................. $(81,479) $(50,184) $(34,461) $(34,496)
======== ======== ======== ========
Net loss per share
Basic and diluted ....... $ (2.00) $ (1.20) $ (0.82) $ (0.81)
Weighted average shares . 40,774 41,787 42,095 42,668
24
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 new subscribers during the holiday shopping season.
Liquidity and Capital Resources
From inception through October 31, 2001, we financed our operations and met
our capital expenditure requirements primarily from the proceeds of the private
sale of equity securities, the proceeds from our initial public offering and
private placement of convertible debt with warrants. At October 31, 2001, we had
$62.8 million of cash and cash equivalents. On August 28, 2001, the Company
closed a private placement of $51.8 million of convertible debt with warrants to
accredited investors. The Company intends to use the net cash proceeds estimated
to be $40.1 million from the sale of these notes with warrants for marketing and
promotion, customer services and general corporate purposes. Of the $40.1
million net cash proceeds, the Company paid $5.0 million in October 2001, to NBC
for prepaid advertising. Additionally, in October 2001, TiVo received an upfront
cash fee payment from Sony under the terms of the license arrangement.
Under the terms of the current AOL arrangement, 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 has a
put option pursuant to which AOL could require the Company to repurchase the
number of shares of Series A redeemable convertible preferred stock having a
liquidation value of $48.0 million. The Company currently records the $48.0
million on the consolidated balance sheets as the difference between restricted
cash less deferred interest income on restricted cash. AOL and the Company are
engaged in discussions regarding the modification of terms of our current
agreements. However, there can be no assurance that these discussions will lead
to any such modification.
Net cash used in operating activities was $95.9 million for the nine months
ended October 31, 2001. During this period we continued to provide the TiVo
Service, incurring a net loss of $116.6 million. Uses of cash from operating
activities also included a decrease in accrued liabilities--related parties of
$20.3 million, a decrease in accounts payable of $13.7 million, an increase in
prepaid expenses--related parties of $8.4 million, an increase in prepaid
expenses of $2.8 million, an increase in accounts receivable--related parties of
$1.6 million, an increase in accounts receivable related parties, long-term of
$560,000 and a decrease in other long-term liabilities of $294,000 and a
decrease in accrued liabilities of $276,000. These uses were offset by sources
of cash provided from operating activities consisting of an increase in
long-term deferred revenue of $17.4 million, an increase in deferred revenue of
$3.9 million, an increase in accrued liabilities--related parties, long term of
$1.3 million and a decrease in accounts receivable of $1.2 million.
Net cash used in investing activities was $4.2 million for the nine months
ended October 31, 2001 of which $3.2 million was for the acquisition of property
and equipment and $1.0 million was for the purchase of short-term investments.
Net cash used for financing activities was $38.5 million for the nine
months ended October 31, 2001. Of this amount, $2.6 million was used for payment
of the Series A redeemable convertible preferred stock dividend and $592,000 for
payment on a capital lease. We obtained $43.7 million, less cash financing
expense of $3.6 million, of financing as proceeds from the issuance of
convertible notes payable. An additional $1.2 million of financing was obtained
as proceeds from the issuance of common stock through our employee stock
purchase plan, $273,000 from the issuance of common stock for stock options
exercised and $205,000 of financing was obtained from the reduction of financing
expenses related to the AOL Investment Agreement.
We have commitments for future lease payments under facilities operating
leases of $16.8 million and obligations under a capital lease of $770,000 as of
October 31, 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.
25
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:
o to develop new or enhance existing services or products;
o to continue support of our customer call center
o to subsidize the sale of personal video recorders;
o for advertising to educated consumers;
o to continue to support our existing efforts in the United Kingdom
market; and
o 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, the private sales
of equity securities, the net proceeds from the initial public offering and the
private placement of convertible debt with warrants 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 choose to raise additional capital
before the end of the next 12 months in order to:
o fund anticipated growth, including significant increases in personnel,
office facilities and computer systems;
o develop new or enhance existing services or products;
o expand into new markets and respond to competitive pressures; or
o 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 nine months ended October
31, 2001 we recognized revenues of $5.3 million. As of October 31, 2001, we had
an accumulated deficit of $421.4 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
26
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 October 31, 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.
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:
o educate consumers on the benefits of the TiVo Service and related
personal video recorder, which will require an extensive marketing
campaign;
o commit a substantial amount of human and financial resources to
achieve continued, successful retail distribution; and
o 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
27
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:
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.
28
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:
o Quantum is the sole supplier of the hard disk drives;
o NEC is the sole supplier of the application specific integrated
circuit, a semiconductor device;
o Sony is the sole supplier of the MPEG2 encoder semiconductor device;
and
o 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.
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.
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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.
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:
o advertising;
o revenues from networks; and
o 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,
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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.
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:
o satellite television systems;
o video on demand services;
o digital video disc players; and
o 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.
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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.
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:
o be time-consuming and expensive;
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o divert management's attention and resources away from our business;
o cause delays in product delivery and new service introduction;
o cause the cancellation of new products or services; or
o 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 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 we infringed the patent
by, among other things, making, using, selling, offering to sell and/or
importing our 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. We
believe that we have meritorious defenses against the suit and intend to
vigorously defend ourselves. On February 25, 2000, we 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. We 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.
On September 25, 2001, Pause Technology filed a complaint against TiVo in
the US District Court for the District of Massachusetts alleging infringement of
US Reissue Patent No. 36,801, entitled "Time Delayed Digital Video System Using
Concurrent Recording and Playback." Pause Technology seeks unspecified monetary
damages as well as an injunction against our operations. It also seeks
attorneys' fees and costs. The deadline for TiVo to respond to the complaint has
not yet expired. 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.
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.
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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, 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.
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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:
o demand for personal video recorders and the TiVo Service;
o the timing and introduction of new services and features on the TiVo
Service;
o seasonality and other consumer and advertising trends;
o changes in revenue sharing arrangements with our strategic partners;
o entering into new or terminating existing strategic partnerships;
o changes in the subsidy payments we make to certain strategic partners;
o changes in our pricing policies, the pricing policies of our
competitors and general pricing trends in the consumer electronics
market;
o loss of subscribers to the TiVo Service; and
o 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 end. 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.
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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.
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 March 15, 2001, Ezra Birnbaum, an individual resident in the state of
New York, filed, on behalf of himself and all others similarly situated, a class
action complaint against us in the Supreme Court of the State of New York, Kings
County, alleging violation of New York's consumer protection act, breach of
implied warranties of merchantability and fitness, breach of contract and fraud.
The complaint alleges that Mr. Birnbaum's personal video recorder used with the
TiVo subscription Service "does not function properly because the picture image
freezes and preprogrammed channels are lost." He alleges, among other things,
that we knew or should have known of these alleged defects and that, therefore,
we misrepresented or failed to disclose material information regarding our
product to consumers. The complaint seeks repayment of the amount spent to
purchase our product to each member of the class of purchasers, plus interest
from the date of purchase, as well as unspecified punitive damages, attorneys'
and expert witness fees and other costs. The complaint additionally seeks
equitable relief, requesting that we be enjoined from continuing the practices
described in the complaint. On May 3, 2001, we answered the
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complaint. On August 2, 2001, Mr. Birnbaum served a motion for class
certification. On August 10, 2001, we served a motion for summary judgment.
Based on the information available, we are unable to form a conclusion regarding
the amount, materiality or range of potential loss, if any, which might result
if the outcome of this matter were unfavorable; 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.
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 our executive officers, and certain underwriters involved in
our initial public offering are named as defendants in the complaint. Six other
complaints that are virtually identical were filed in the same court in June
through August 2001. These complaints allege that certain of the underwriters of
our initial public offering violated the federal securities laws by failing to
disclose that they had solicited and received undisclosed commissions from, and
entered into undisclosed arrangements with, certain investors who purchased
restricted stock in our initial public offering, and had entered into
undisclosed arrangements with certain investors whereby the underwriters
allocated shares in our initial public offering to those investors in exchange
for their agreement to purchase our shares in the after-market at pre-determined
prices. The complaints also allege that the defendants violated the federal
securities laws by issuing a registration statement in connection with our
initial public offering that contained material misstatements and/or omissions
because it did not disclose that these allegedly undisclosed arrangements had
occurred. The complaints seek damages on behalf of all those who purchased or
otherwise acquired our securities during the period covered by the complaint. In
September 2001, the court ordered that all of these complaints against the
defendants be consolidated. The deadline for defendants to respond to the
complaint(s) has not yet expired, and it is likely that this response will not
be due for several months, after certain procedural issues are resolved. 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.
On August 13, 2001, Alan Federbush, an individual resident in the state of
New York, and Mitchell Brink, an individual resident in the state of Illinois,
filed, on behalf of themselves and all similarly situated purchasers of Sony or
Philips digital television recorders and the TiVo Service, a class action
complaint against us in the Superior Court of the State of California, Santa
Clara County, alleging violation of California's Consumers' Legal Remedies Act,
California's Unfair Practices Act, and fraudulent concealment. The complaint
states that Mr. Federbush and Mr. Brink each experienced problems with the modem
contained in the digital television recorders. The complaint alleges, among
other things, that we knew or had reason to know of these malfunctions and
therefore misrepresented or failed to disclose material information about the
digital television recorders to consumers. The complaint seeks an award of
actual damages, as well as unspecified punitive damages, interest, attorneys'
fees and other costs. The complaint additionally seeks broad equitable relief,
requesting that we be enjoined from continuing the practices described in the
complaint and engaging in false and misleading advertising regarding the digital
television recorders. We filed our answer to the complaint on October 19, 2001.
Discovery, through which we would seek to investigate the plaintiff's claims,
has not commenced. Based on the information available, we are unable to form a
conclusion regarding the amount, materiality or range of potential loss, if any,
which might result if the outcome of this matter were unfavorable. 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 December 10, 2001, our common stock
has closed between $71.50 per share and $3.01 per share, closing at $4.48 on
December 10, 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:
o Changes in estimates of our financial performance or changes in
recommendations by securities analysts;
o Our failure to meet the expectations of securities analysts or
investors;
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o Release of new or enhanced products or introduction of new marketing
initiatives by us or our competitors;
o Announcements by us or our competitors of the creation, developments
under or termination of significant strategic partnerships, joint
ventures, significant contracts or acquisitions;
o Fluctuations in the market prices generally for technology-related
stocks;
o Fluctuations in general economic conditions;
o Fluctuations in interest rates;
o Market conditions affecting the television and home entertainment
industry;
o Fluctuations in operating results; and
o 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.
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
38
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.
If the conversion price on the notes were reduced, it would result in
dilution to the existing holders of our common stock.
The conversion price on the notes will be reduced on August 23, 2002 if the
conversion price is greater than the average closing price per share of our
common stock for the 10 consecutive trading days preceding August 23, 2002. In
addition, the conversion price on the notes may be reduced if we issue common
stock or common stock equivalents at an issuance price (or with respect to
common stock equivalents, such additional common stock is issued with a
conversion or exercise price per share less than the conversion price of the
notes then in effect immediately prior to the issuance) that is lower than the
conversion price then in effect immediately prior to the issuance. If the
conversion price on the notes is reduced as a result of these adjustments,
holders of the notes will receive a greater number of shares of our common stock
in connection with the conversion of the notes, thereby resulting in dilution to
the existing holders of our common stock.
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.
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
Ezra Birnbaum. On March 15, 2001, Ezra Birnbaum, an individual resident in
the state of New York, filed, on behalf of himself and all other similarly
situated, a class action complaint against TiVo in the Supreme Court of the
State of New York, Kings County, alleging violation of New York's consumer
protection act, breach of implied warranties of merchantability and fitness,
breach of contract and fraud. The complaint alleges that Mr. Birnbaum's personal
video recorder used with the TiVo subscription Service "does not function
properly because the picture image freezes and preprogrammed channels are lost."
He alleges, among other things, that TiVo knew or should have known of these
alleged defects and that, TiVo therefore misrepresented or failed to disclose
material information regarding its product to consumers. The complaint seeks
repayment of the amount spent to purchase our product to each member of the
class of purchasers, plus interest from the date of purchase, as well as
unspecified punitive damages, attorneys' and expert witness fees and other
costs. The complaint additionally seeks equitable relief, requesting that we be
enjoined from continuing the practices described in the complaint. On May 3,
2001, TiVo answered the complaint. On August 2, 2001, Mr. Birnbaum served a
motion for class certification. On August 10, 2001, TiVo served a motion for
summary judgment. Based on the information available, we are unable to form a
conclusion regarding the amount, materiality or range of potential loss, if any,
39
which might result if the outcome of this matter were unfavorable; 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.
IPO Litigation. 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 our executive officers, and certain
underwriters involved in our initial public offering are named as defendants in
the complaint. Six other complaints that are virtually identical were filed in
the same court in June through August 2001. These complaints allege that certain
of the underwriters of our initial public offering violated the federal
securities laws by failing to disclose that they had solicited and received
undisclosed commissions from, and entered into undisclosed arrangements with,
certain investors who purchased restricted stock in our initial public offering,
and had entered into undisclosed arrangements with certain investors whereby the
underwriters allocated shares in our initial public offering to those investors
in exchange for their agreement to purchase our shares in the after-market at
pre-determined prices. The complaints also allege that the defendants violated
the federal securities laws by issuing a registration statement in connection
with our initial public offering that contained material misstatements and/or
omissions because it did not disclose that these allegedly undisclosed
arrangements had occurred. The complaints seek damages on behalf of all those
who purchased or otherwise acquired our securities during the period covered by
the complaint. In September 2001, the court ordered that all of these complaints
against the defendants be consolidated. The deadline for defendants to respond
to the complaint(s) has not yet expired, and it is likely that this response
will not be due for several months, after certain procedural issues are
resolved. 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.
Alan Federbush and Mitchell Brink. On August 13, 2001, Alan Federbush, an
individual resident in the state of New York, and Mitchell Brink, an individual
resident in the state of Illinois, filed, on behalf of themselves and all
similarly situated purchasers of Sony or Philips digital television recorders
and the TiVo Service, a class action complaint against us in the Superior Court
of the State of California, Santa Clara County, alleging violation of
California's Consumers' Legal Remedies Act, California's Unfair Practices Act,
and fraudulent concealment. The complaint states that Mr. Federbush and Mr.
Brink each experienced problems with the modem contained in the digital
television recorders. The complaint alleges, among other things, that we knew or
had reason to know of these malfunctions and therefore misrepresented or failed
to disclose material information about the digital television recorders to
consumers. The complaint seeks an award of actual damages, as well as
unspecified punitive damages, interest, attorneys' fees and other costs. The
complaint additionally seeks broad equitable relief, requesting that we be
enjoined from continuing the practices described in the complaint and engaging
in false and misleading advertising regarding the digital television recorders.
We filed our answer to the complaint on October 19, 2001. Discovery, through
which we would seek to investigate the plaintiff's claims, has not commenced.
Based on the information available, we are unable to form a conclusion regarding
the amount, materiality or range of potential loss, if any, which might result
if the outcome of this matter were unfavorable. 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.
Pause Technology LLC. On September 25, 2001, Pause Technology filed a
complaint against TiVo in the US District Court for the District of
Massachusetts alleging infringement of US Reissue Patent No. 36,801, entitled
"Time Delayed Digital Video System Using Concurrent Recording and Playback."
Pause Technology seeks unspecified monetary damages as well as an injunction
against our operations. It also seeks attorneys' fees and costs. The deadline
for TiVo to respond to the complaint has not yet expired. 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.
40
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
AT&T Marketing Relationship
On November 7, 2001, the Company entered into a marketing relationship with
AT&T Broadband, pursuant to which AT&T Broadband will market the TiVo digital
video recorder and the TiVo Service to its cable customers in the Boston, Denver
and Silicon Valley areas. AT&T Broadband cable customers will be offered the
opportunity to purchase a newly designed TiVo digital video recorder for $299.99
and subscribe to the TiVo Service at a monthly rate of $9.95 or a one-time
payment of $249 for a product-lifetime service contract.
For each AT&T Broadband cable subscriber who activates the TiVo Service
under this arrangement, TiVo will remit to AT&T Broadband a portion of the
subscription fee for the activation. The Company will also share with AT&T
Broadband a portion of the revenues received from the advertising and
promotional activities on the TiVo digital video recorders that have been
deployed to AT&T Broadband customers under the terms of the arrangement.
41
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 Form of 7% Convertible Senior Note (incorporated by reference to Exhibit 4.1 of the registrant's
Quarterly Report on Form 10-Q filed on September 14, 2001).
4.2 Form of Five-Year Warrant (incorporated by reference to Exhibit 4.1 of the registrant's
Quarterly Report on Form 10-Q filed on September 14, 2001).
4.3 Form of One-Year Warrant (incorporated by reference to Exhibit 4.1 of the registrant's Quarterly
Report on Form 10-Q filed on September 14, 2001).
4.4 Form of Five-Year Terminable Warrant (incorporated by reference to Exhibit 4.1 of the
registrant's Quarterly Report on Form 10-Q filed on September 14, 2001).
4.5 Indenture, dated August 28, 2001, between TiVo Inc. and The Bank of New York, as trustee
(incorporated by reference to Exhibit 4.1 of the registrant's Current Report on Form 8-K filed
on August 30, 2001).
4.6 Warrant Agreement, dated August 28, 2001, between TiVo Inc. and The Bank of New York, as warrant
agent (incorporated by reference to Exhibit 4.2 of the registrant's Current Report on Form 8-K
filed on August 30, 2001).
4.7 Warrant Agreement, dated August 28, 2001, between TiVo Inc. and The Bank of New York, as warrant
agent (incorporated by reference to Exhibit 4.3 of the registrant's Current Report on Form 8-K filed
on August 30, 2001).
4.8 Warrant Agreement, dated August 28, 2001, between TiVo Inc. and The Bank of New York, as warrant
agent (incorporated by reference to Exhibit 4.4 of the registrant's Current Report on Form 8-K filed
on August 30, 2001).
5+ 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).
6 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).
7 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)).
8 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).
9 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)).
42
EXHIBIT
NUMBER DESCRIPTION
------ -----------
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)).
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)).
43
EXHIBIT
NUMBER DESCRIPTION
------ -----------
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
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).
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.
REPORTS ON FORM 8-K
The registrant filed the following reports on Form 8-K during the quarter ended
October 31, 2001:
o Current Report on Form 8-K on October 31, 2001, regarding a technology
licensing arrangement with Sony Corporation.
o Current Report on Form 8-K on August 31, 2001, regarding our financial
results for the second quarter ended July 31, 2001.
o Current Report on Form 8-K on August 30, 2001, regarding the closing
of a private placement of $51,750,000 of convertible debt with
warrants in a private placement to accredited investors in reliance on
Regulation D under the Securities Act of 1933.
o Current Report on Form 8-K on August 20, 2001, regarding shareholder
support for Company's plan to raise $50 to $75 million in a private
placement to accredited investors.
Subsequent to October 31, 2001, the registrant filed the following
reports on Form 8-K:
o Current Report on Form 8-K on November 13, 2001, regarding a marketing
arrangement with AT&T Broadband and the adjustment to the conversion
price of the convertible notes due 2006.
o Current Report on Form 8-K on November 26, 2001, regarding our
financial results for the third quarter ended October 31, 2001.
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",
44
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.
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: December 14, 2001 By: /s/ Michael Ramsay
-----------------------
Michael Ramsay
Chief Executive Officer and Chairman
of the Board of Directors
(Principal Executive Officer)
Date: December 14, 2001 By: /s/ David H. Courtney
-----------------------
David H. Courtney
Chief Financial Officer and Executive
Vice President of Worldwide Operations
and Administration
(Principal Financial and Accounting Officer)
45