UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the one-month transition period ended
January 31, 2001
Commission file number 000-27141
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TIVO INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0463167
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(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
2160 Gold Street, PO Box 2160, Alviso, CA 95002
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(Address of principal executive offices) (Zip Code)
(408) 519-9100
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(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE PER SHARE
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [_]
As of April 20, 2001 there were 43,721,782 shares of registrant's common stock
outstanding, and the aggregate market value of such shares held by non-
affiliates of the registrant (based upon the closing sale price of such shares
on the NASDAQ National Market on April 20, 2001) was approximately $100.0
million. Shares of the registrant's common stock held by each executive
officer, director and holder of five percent or more of the registrant's common
stock outstanding as of April 20, 2001 have been excluded in that such persons
may be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of Registrant's Proxy Statement for the Annual Meeting of Stockholders to
be held on June 15, 2001 are incorporated by reference into Part III of this
Transition Report on Form 10-K. (The Report of the Compensation Committee, the
Report of the Audit Committee and the Comparative Stock Performance graph of the
Registrant's Proxy Statement are expressly not incorporated by reference
herein.)
Table of Contents
Table of Contents............................................................................................ 2
PART I........................................................................................................ 3
Item 1. Business........................................................................................... 3
Item 2. Properties......................................................................................... 19
Item 3. Legal Proceedings.................................................................................. 20
Item 4. Submission of Matters to a Vote of Security Holders................................................ 20
PART II....................................................................................................... 21
Item 5. Market For The Registrant's Common Equity and Related Stockholder Matters.......................... 21
Item 6. Selected Financial Data............................................................................ 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 24
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.......................................... 43
Item 8. Financial Statements and Supplementary Data........................................................ 44
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure............... 72
PART III...................................................................................................... 73
Item 10. Directors and Executive Officers of the Company.................................................... 73
Item 11. Executive Compensation............................................................................. 73
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 73
Item 13. Certain Relationships and Related Transactions..................................................... 73
PART IV....................................................................................................... 74
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................... 74
Signatures................................................................................................... 77
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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This Transition Report on Form 10-K (The "Transition Report") contains
certain 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 statements relate to, among other things, our
future financial position, services, business development, strategy and our
management's plans and objectives for future operations. Forward-looking
statements generally can be identified by the use of forward-looking terminology
such as, "believe," "expect," "may," "will," "intend," "estimate," "continue,"
"ongoing," "predict," "potential," and "anticipate" or similar expressions or
the negative of those terms or expressions. These statements involve known and
unknown risks, uncertainties and other factors, which may cause our actual
results, performance or achievements to differ materially from those expressed
or implied by such forward-looking statements. Such factors include, among
others, the information contained under the captions "Part I, Item 1. Business,"
and "Part II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this Transition Report. The reader is
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date of this Transition Report. The
reader is strongly urged to read the information set forth under the captions
"Part I, Item 1, Business," and "Part II, Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations," in particular
"Factors That May Affect Future Operating Results," for a more detailed
description of these significant risks and uncertainties.
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PART I
Item 1. Business
General Development of Business
TiVo is a pioneer in the personal television industry. We have created a
unique personal television service that allows viewers to watch what they want
when they want. The TiVo Service creates a richer and more enjoyable television
experience by offering viewers greater control, choice and convenience. We
believe that the TiVo Service also allows television programmers and advertisers
to reach a broader audience by making shows more accessible and easier to record
and to target their programming and advertising to specific viewers. The TiVo
Service is a subscription-based service enabled by a personal video recorder
designed and developed by TiVo.
TiVo was incorporated in August 1997 as a Delaware corporation with
facilities in California. On August 21, 2000, TiVo (UK) Ltd., a wholly owned
subsidiary of TiVo, was incorporated in the United Kingdom. We have developed a
subscription-based personal television service, 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. We
conduct our operations through one reportable segment.
We commenced our retail launch in the second half of 1999. Philips Business
Electronics B.V. ("Philips"), Sony Corporation of America ("Sony"), Hughes
Electronics Corporation ("Hughes") and Thomson Mulitmedia S.A. in the United
Kingdom ("Thomson UK") currently manufacture and sell the personal video
recorder enabling the TiVo Service. In addition, with the exception of Hughes,
all of our manufacturing partners also market the devices allowing us to focus
our resources on promoting and enhancing the TiVo Service. DIRECTV, Inc.
("DIRECTV"), a unit of Hughes, provides marketing resources that allows TiVo to
target DIRECTV subscribers and provides sales support in the retail channel.
On September 13, 2000, TiVo closed an Investment Agreement with America
Online, Inc. ("AOL") for $200 million. The AOL investment is part of a three-
year strategic Production Integration and Marketing Agreement between AOL and
TiVo, in which TiVo will become an AOL TV programming partner offering AOL TV
subscribers access to features of the TiVo Service.
On January 30, 2001, we signed an agreement with AOL Time Warner to expand
our existing strategic relationship to include an enhanced mulit-million dollar
marketing and promotional campaign with AOL Time Warner. Under this agreement,
the Second Amendment to the Investment Agreement, TiVo will be promoted across
AOL Time Warner online, print and television media properties, which will focus
on educating consumers about the TiVo Service. Additionally, the Second
Amendment provided for an amendment to the Escrow Agreement. The First Amendment
to the Escrow Agreement authorized release of $43.5 million in restricted
funds, which had been provided by AOL under our previously executed investment
agreement with AOL, which is now
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working capital. In return,for the release of restricted cash, we agreed to
reduce the exercise price of certain warrants held by AOL. TiVo reduced the
exercise price of a warrant to purchase 2,308,475 shares of common stock held by
AOL from $23.11 to $7.29 and also reduced the exercise price of a warrant to
purchase 295,428 shares of common stock held by AOL from $30.00 to $7.29. In
January 2001, we paid AOL $16.5 million for prepaid advertising expenses out of
the $43.5 million released cash.
Industry Background
The television is a truly ubiquitous consumer product. According to the
market research firm Nielsen Media Research, 98.0 million, or more than 98% of
all U.S. households, owned at least one television at the end of 1998. Nielsen
also reports that in 1998, U.S. households owned, on average, 2.4 televisions
and spent an average of 7 hours and 15 minutes per day viewing television.
According to Forrester Research, by 2004, 14 million households will use
personal video recorders to control their television viewing.
The reach and popularity of television has been facilitated by the
emergence of new technologies and delivery systems for television programming.
These new technologies have enhanced the clarity, color and sound of television
and, as a result, have increased the entertainment value of watching television.
In addition, new delivery systems, including cable and satellite systems, now
offer a large number of programming choices and specialized programming such as
pay-per-view promotions. According to Cable Ad Bureau, 78.1 million U.S.
households spent $34.4 billion to receive subscription-based cable television
services in 1999. CAB estimated a growth rate of 12% for 2000. In addition,
according to Intertec Publishing Corporation, 14.5 million U.S. households
received subscription-based satellite television services in 1999. New services
and features such as Internet access, personal video recorders and high-
definition TV broadcasts are forecasted to increase subscriber numbers to 25
million by 2005.
These statistics have not been lost on advertisers, who have made
television their largest, most popular medium for reaching consumers. McCann-
Erickson, Inc., a market research firm, estimates that $47.4 billion was spent
on television advertising in 1998. This represents over 23% of total advertising
spending.
As the reach and popularity of television has grown, so too has the amount
of programming available to viewers. Cable and home satellite television systems
have dramatically increased the number of networks and channels available to
today's television viewer. According to the Television & Cable Fact Book, in
1998, over 60% of U.S. cable subscribers had access to more than 53 channels,
compared to less than 10% in 1985. The explosive growth in available channels
has led to an overwhelmingly diverse selection of programming and content. This
is due in large part to the emergence of specialized television channels and
networks, which are formed around a given subject, theme or category of
interest. For example, channels have been created to deliver programming to
targeted groups, such as women or children, or to deliver specialized content,
such as news, cartoons, classic movies, golf, comedy or educational programming.
Subscription-based premium channels, such as HBO and Showtime, also offer
specialized programming, including major motion pictures, made-for-television
movies and sporting events. Clearly, there is more television programming to
choose from now than ever before.
The Need for Personal Television
From the introduction of color television and remote controls to the
proliferation of cable and satellite programming and home theater systems,
improvements in the television experience have been aimed at meeting viewer
demand for richer programming and a more enjoyable viewing experience. However,
the dramatic increase in the volume and diversity of television programming has
fragmented viewing audiences and created new challenges for viewers, television
programmers, network operators and advertisers.
Challenges Faced by Viewers. TiVo believes that today's television viewer
wants greater control, choice and convenience when watching television. Today's
television viewers:
. are unable to easily navigate through hundreds of channels and
thousands of programs;
. are unable to easily identify programs of interest;
. are limited to either watching shows at the time they are
broadcast or recording shows by using a VCR; and
. are often forced to miss portions of shows due to interruptions.
Challenges Faced by Television Programmers. Although the television has
become a ubiquitous product, the dramatic increase in the volume and diversity
of channels and programming has drawbacks for networks and
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other television programmers. The major networks have been particularly affected
by the proliferation of channels and specialized programming and are suffering
from:
. brand dilution and declining viewer loyalty;
. greater fragmentation of their audience base; and
. the inability to effectively evaluate viewing habits, preferences
and demand.
The TV International Sourcebook for 1999 reports that networks have
steadily lost market share to other content providers, from 60% market share in
1993 to approximately 45% in 1998. As television becomes more fragmented and the
competition for viewers increases, networks and other television programmers
must find new ways to attract viewers and increase viewer loyalty.
Challenges Faced by Advertisers. Similarly, TiVo believes that today's
television advertisers face new challenges as they seek greater effectiveness
and efficiency in targeting specific viewers and establishing brand identity and
loyalty. For example, advertisers must:
. spend increasing amounts of time and money to target desired
demographic groups;
. spread their advertising budgets over an ever-expanding number of
channels and programs; and
. find new ways to identify, monitor and respond to viewers'
programming and advertising preferences.
As viewer fragmentation has increased, so too has the cost of advertising.
Prime time advertisements on the major television networks are more expensive
today than ever before, yet ratings and market share for these networks are
declining. According to the Television Bureau of Advertising and Nielsen Media
Research, the average cost of a 30-second night-time commercial has increased
from $92,700 in 1993 to $121,300 in 1998. Like television programmers,
advertisers must find new ways to reach their targeted audience and to establish
brand identity and loyalty among viewers.
Challenges Faced by Cable and Satellite Network Operators. As a result of
increased competition, cable and satellite network operators have begun placing
greater emphasis on acquiring and retaining subscribers and finding ways to
increase the monthly revenue they receive from these subscribers. In order to
successfully accomplish this, they must:
. improve customer satisfaction;
. enhance programming choice; and
. provide new features and functionality, such as electronic
commerce.
TiVo Solution
TiVo has created a personal television service that we believe meets the
challenges faced by viewers, television programmers, advertisers and network
operators. The TiVo Service provides viewers with greater control, easier
navigation and a wider range of viewing options when watching television than
what was formerly available. The TiVo Service creates a richer and more
enjoyable viewing experience by allowing viewers to watch what they want when
they want. The TiVo Service also creates a new platform that enables television
programmers, advertisers, and network operators to deliver television
programming, advertising and in-home commerce. We believe that our service
allows television programmers and advertisers to reach a broader audience by
making shows more accessible and easier to record and to target their
programming and advertising to specific viewers. The TiVo Service is a
subscription-based service enabled by a personal video recorder designed and
developed by TiVo. The personal video recorder is a device that includes a hard
disk drive for recording shows and accessing the content available on the TiVo
Service.
The TiVo Service has many features that distinguish it from traditional
television viewing, including:
Locate and Record Multiple Shows Quickly and Easily. The TiVo Service
offers a variety of easy-to-use navigation and recording features that allow
viewers to easily locate and record their favorite shows. Viewers can
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record and play back a single show or schedule a customized line-up of several
shows to be recorded without entering specialized codes, setting a timer or
using a video tape. With the Season Pass feature, the TiVo Service automatically
records all episodes of viewers' favorite shows.
Control Live Television. Using the TiVo Service and the personal video
recorder, viewers have more control over live television. For example, viewers
can utilize advanced viewing commands, such as pause, rewind, fast forward and
frame-by-frame. When a viewer pauses live television, the personal video
recorder continues to record the program that the viewer is watching. The viewer
can then resume viewing in normal mode, fast forward to catch up to the live
telecast, or execute any of the other advanced viewing commands. Prior to the
introduction of TiVo, the ability to control live television in this manner was
not available.
Viewing Preferences and Suggested Programming. The TiVo Service allows
viewers to create viewing preferences around particular shows or categories of
interest. Using the Thumbs Up and Thumbs Down buttons on the TiVo remote,
viewers can express their preferences for a particular type of show. These
preferences accumulate over time and are stored locally on the personal video
recorder. Based on the viewer's stored preferences, TiVo recommends programming
that viewers are likely to enjoy and, when storage space is available, the TiVo
Service will automatically record shows that are most likely to match viewers'
individual preferences.
Specialized Content. The TiVo Service also enables a variety of
specialized content. For example, the TiVo Service allows television programmers
to develop and deliver Network Showcases that feature selected programming, such
as an upcoming movie, special event or mini-series, on easy-to-use interactive
screens. Currently, Network Showcases available on the TiVo Service include
directories of simplified recording options for groups of related shows of
particular programmers. In the future, television programmers could use the TiVo
Service to directly offer viewers special programming packages and pay-per-view
promotions such as movies, sporting events, news headlines and other
programming. Subscribers to the TiVo Service also have access to TiVolution
Magazine, which features theme-based collections of shows compiled by TiVo's
editorial staff.
To further enhance the TiVo Service, we create and produce a weekly program
that highlights upcoming shows and events called "TiVo Takes". Produced by TiVo
Studios, the show offers great benefits to both viewers and partners through the
use of Ipreview encoded interactive menus. While viewing the TiVo Takes
program, viewers can schedule recordings with one touch of the remote. Viewers
can also record every episode of an entire season with TiVo's exclusive Season
Pass. Advertisers also have the option to run billboard interactive
advertisements and interstitials throughout the program.
Menu-Driven Navigation and Viewer Interface. The TiVo Service employs a
menu-driven interface and easy-to-use navigation system. TiVo Central, the main
screen of the TiVo Service, allows viewers to access their customized lineup of
shows, Network Showcases, TiVolution Magazine and other TiVo Services and
features. The Pick Programs to Record feature, located on the TiVo Central
screen, allows viewers to search for shows to record by subject, title, channel
or time of showing. Using the on-air guide, viewers can quickly and efficiently
browse through a schedule of up to two weeks of available television programming
and descriptions for each show.
Benefits of the TiVo Service
For viewers, television programmers, advertisers and network operators, the
TiVo Service offers several benefits over traditional television viewing.
Benefits to Viewers. We believe that our service offers an enhanced
television viewing experience. Key benefits offered to viewers include the
following:
Greater Control, Choice and Convenience. The TiVo Service provides viewers
with greater control, choice and convenience in watching television. Using the
search and navigation features and variety of recording options, viewers can:
. automatically record all episodes of their favorite shows;
. quickly and easily create a customized lineup of shows to be
recorded up to two weeks in advance;
. pause, rewind and fast-forward live television;
. skip through programming that they do not want to see; and
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. access their customized lineup of recorded shows and other
specialized content.
Making Sense of Available Content. The TiVo Service assists viewers in
navigating through the hundreds of channels and thousands of programs available
for viewing. Using the TiVo Service, viewers can browse pre-set categories of
programming, such as sports or action/adventure, and select a desired show for
viewing or recording simply by entering the title, channel or time. With the
TiVo Service, viewers can easily organize their television viewing around shows
they want to watch and receive suggestions for programming that they are likely
to enjoy.
Programming that Matches Viewers' Preferences. The TiVo Service ranks and
recommends programming according to viewers' preferences. This functionality not
only gives viewers access to programming that meets their personal tastes, but
also displays programming, based on viewer preferences, that they might
otherwise never have known was being broadcast.
Benefits to Television Programmers. We believe our TiVo Service offers
television programmers a new and exciting way to reach the viewing audience.
Key benefits offered to television programmers include the following:
Enhanced Viewer Loyalty and Retention. By making it easy for viewers to
find and record the shows they want to watch, the TiVo Service enables
programmers to make their shows accessible to a broader audience. TiVo believes
that these easy to use features, especially the Season Pass feature, will
increase the likelihood that viewers will continue viewing new episodes of a
particular series or show. Viewers also can easily play back the shows they have
recorded long after they have aired, enhancing viewer retention and loyalty.
More Effective Promotions and Previews. The TiVo Service provides
television programmers with an opportunity to create more effective promotions
and previews such as Network Showcases for selected programming and pay-per-view
events. TiVo developed a service, called Ipreview, that consists of active
previews and promotions that allow a viewer to easily record featured
programming at the touch of a button. TiVo believes these promotions will be
effective in attracting viewers and increasing a network's brand presence
because they allow viewers to "impulse record" featured programming and to watch
these programs at a more convenient time. TiVo also believes that by taking
advantage of these features, television programmers have a greater opportunity
to reach a larger viewing audience.
New Platform for Content Delivery. TiVo anticipates that television
programmers will embrace the TiVo Service as a new way to reach audiences with
programming, products and services and as a way to enable couch commerce. For
example, the TiVo Service can enable television programmers to allow viewers to
order and automatically record special programming packages, including bundled
episodes of previously run shows and pay-per-view promotions. TiVo anticipates
that viewers would be able to simply "point and click" to order movies, sports
events, programming packages, games and other products and services.
Audience Measurement. TiVo has partnered with ASI Entertainment and
Nielsen Media Research to create the National In-Home TV Lab. The Lab is
designed to help the television industry and advertisers understand the impact
of how television viewers are going to embrace and use emerging technologies,
particularly the personal television services. We believe that research from the
Lab will provide the television industry with accurate audience data and will
help programmers and advertisers speak more effectively to their audiences.
Benefits to Advertisers. We believe that our TiVo Service will offer
advertisers a new platform with more efficient and effective ways to reach their
targeted audience. Key benefits offered to advertisers include the following:
Targeting Consumers. In the future, the TiVo Service will allow
advertisers to offer advertising that is related to the viewing preferences
stored on the personal video recorder. For example, working with our network
partners TiVo could download and store several commercials on the personal video
recorder and select which of these commercials to show based on the viewer's
preferences. For example, an automobile advertiser may want to advertise one of
several models during the airing of a particular program, depending on each
viewer's preferences. If the viewer's preferences suggest that the viewer is an
outdoor enthusiast, the commercial might feature a sport utility vehicle.
Platform for New Advertising Opportunities. The TiVo Service provides
advertisers with a new platform to offer advertisements to viewers. For example,
advertisers may be able to combine new advertising with recorded shows and
special promotions to reach new and existing viewers. TiVo also intends to offer
advertisers a new
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service that will allow viewers to get more information about and possibly
purchase a featured product or service using the TiVo remote. In this way, TiVo
expects to create an interactive on-air shopping experience for the viewer.
Benefits to Cable and Satellite Network Operators. The TiVo Service
provides a unique platform for network operators to reduce subscriber turnover
and create new sources of revenue. Key benefits offered to cable and satellite
network operators include the following:
Ability to Differentiate Services. The TiVo Service allows network
operators to differentiate and enhance their service offerings by making
available programming more accessible to viewers, and enhancing viewer loyalty
by offering subscribers the ability to customize their viewing experience.
Platform for New Service Opportunities. The TiVo Service can also provide
new sources of revenue for network operators. In 2000, TiVo introduced "TiVo
Direct", an innovative, new marketing and merchandising product. This new
content product is comprised of 30 minutes of video advertising and marketing
programming pre-loaded into the hard drive before a personal video recorder
enabled with TiVo Service is shipped from the factory. This content is produced
by an advertiser. It may include advertisements for purchase of advertiser
merchandise or other goods and services selected by the advertiser. The content
resides on the hard drive and is displayed prominently on the Now Showing screen
until the consumer deletes it.
TiVo Strategy
TiVo's objective is to establish the TiVo Service as the platform for
delivering richer television programming, advertising and in-home commerce. The
key elements of our strategy are:
Establish the TiVo Service as the Market Leader in Personal Television.
TiVo is a pioneer in the personal television industry. As the personal
television industry develops, we intend to aggressively grow our subscriber
base, create specialized content to enhance the value of the TiVo Service and
develop new ways to deliver effective targeted advertising. TiVo also intends to
augment these efforts through strategic partnerships with cable and satellite
network operators, television programmers, advertisers and consumer electronics
manufacturers. TiVo believes that establishing and maintaining a market
leadership position in personal television is critical to establishing new
sources of revenues and the overall growth of our business.
Establish and Promote the TiVo Brand. TiVo believes that establishing the
TiVo brand is critical to attracting subscribers, advertisers and strategic
partners. We have dedicated substantial resources to promoting our brand through
multiple advertising and marketing channels, participation in trade shows,
sponsoring events, merchandising and by leveraging existing and future strategic
partnerships.
Leverage Partnerships to Accelerate Market Acceptance. TiVo believes that
leveraging the market presence, brand recognition and distribution resources of
established television industry participants will help us establish broad
consumer awareness and acceptance of the TiVo Service and personal television.
We intend to continue to establish partnerships with leading television industry
participants to expand our subscriber base, provide content and develop and
distribute a wide variety of devices that enable the TiVo Service. Such
partnerships may include:
Network Operators and Other Content Distributors. TiVo intends to continue
to establish partnerships with an increasing number of network operators,
including cable and satellite operators. TiVo believes that agreements with
these companies will provide access to a large and established base of viewers
who are likely to purchase the TiVo Service. Relationships with these companies
will also provide opportunities to develop additional devices that enable the
TiVo Service and provide specialized programming to viewers. For example, TiVo's
agreement with DIRECTV provides for a variety of assisted and joint marketing
activities targeting DIRECTV's installed base of subscribers.
Networks and Other Television Programmers. TiVo intends to continue to
establish partnerships with an increasing number of television programmers,
including broadcast and premium-service providers. TiVo believes that
partnerships with these companies can increase the amount and diversity of
customized content available on the TiVo Service and provide a significant
opportunity to offer specialized programming to viewers. Partnerships with these
companies also provide TiVo with opportunities to develop new interactive
services. Currently, TiVo has relationships with HBO, HGTV and Discovery
Communications. Many of these relationships provide for the delivery of Network
Showcases and other specialized programming to viewers.
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Consumer Electronics Manufacturers. TiVo intends to continue to establish
partnerships with consumer electronic and other device manufacturers for the
development, manufacture and marketing of devices that enable the TiVo Service.
TiVo believes this strategy will accelerate the growth of the market for
personal television. TiVo has a strategic relationship with Philips, which
launched the Philips' branded personal video recorder into the retail channel in
the third quarter of 1999 and which continues to manufacture and distribute its
recorder. Additionally, TiVo has entered into agreements with Sony, Hughes and
Thomson UK to manufacture and distribute their brands of the personal video
recorder enabled with TiVo Service.
Advertisers. TiVo intends to pursue partnerships with advertisers in an
effort to generate new sources of revenue. TiVo believes that garnering
advertiser support for the TiVo Service will accelerate the market acceptance
for personal television. We also believe that our proprietary software and other
technology embedded in the personal video recorder and the TiVo Service will
enable advertisers to reach desired viewers more effectively. Not only will
advertisers be better equipped to reach consumers with specific tastes or
preferences, viewers will receive more information about products in which they
are likely to be interested. Currently, TiVo has relationships with IFILM,
Pfizer and Guthy-Renker.
Offer an Increasing Range of Programming and Features. TiVo intends to
continue to offer new programming and features in order to enhance the value of
the TiVo Service and create new sources of revenue. TiVo's technology allows for
frequent updates and improvements to the programming and features offered on the
TiVo Service. TiVo intends to develop other features, such as sports highlights,
condensed news programs and other specialized programming. TiVo believes that
the TiVo Service allows television programmers and advertisers to reach a
broader audience by making shows more accessible and easier to record and to
target their programming and advertising to specific viewers. Potential future
services include:
Active Promotions. TiVo anticipates that programmers will be able to use
the TiVo Service to allow viewers to easily record a variety of programming such
as movies, sports events, television series and other products and services. For
example, TiVo has developed "Ipreview", a service that allows viewers to
schedule and record featured programming using a "point and click" feature
during previews.
Active Ads. TiVo anticipates that advertisers will be able to use special
coding, called "data tags," to allow viewers to interact with commercials. For
example, when viewing a commercial, viewers may be able to click a button on
their remote control to request a longer infomercial about the product, to
request a brochure or ask for the nearest retailer. TiVo is currently developing
a service that allows viewers to get more information about and possibly
purchase featured products or services using the TiVo remote control.
Targeted Ads. TiVo anticipates that advertisers will be able to use the
TiVo Service to reach a broader base of consumers and offer commercials that
better match viewers' interests. For example, based on the viewers' preferences
stored on the personal video recorder, an automobile advertiser can feature a
sport utility vehicle in one household and a minivan in another. This is
accomplished by a software program utilizing data stored on the personal video
recorder. Individual viewing preferences will not be released to advertisers or
other third parties without the viewer's consent.
Encourage the Development of New Devices Enabling the TiVo Service. TiVo
has continued to work in partnership with consumer electronics manufacturers and
others in developing new and complementary products that enable the TiVo
Service, such as televisions, DVD players and satellite television receivers.
This strategy is based on TiVo's belief that the TiVo Service enhances the value
of other television, entertainment and home theater products and services. In
pursuing these relationships, we expect to continue to grant broad licensing
rights to our technology and intends to create a set of standards that will
allow consumer electronics manufacturers to embed the technology that enables
the TiVo Service in home entertainment products. We anticipate that the broad
licensing of our technology will accelerate our subscriber growth, enhance our
market position and strengthen the TiVo brand.
What Viewers Experience Using the TiVo Service
The TiVo Service is designed to appeal to a broad consumer base by being
easy-to-use and intuitive. The TiVo Service gives viewers the ability to control
and personalize television by letting them watch what they want when they want.
Navigation through the TiVo Service's menu-driven interface starts from the TiVo
Central screen.
TiVo Central. TiVo Central is the main screen on the TiVo Service and is
the first screen seen by the viewer when the television is turned on. TiVo
Central can also be accessed from anywhere in the TiVo Service by pushing the
TiVo button on the TiVo remote. Most of the recording and viewing features
available on the TiVo Service can be accessed through this screen.
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Now Showing. The Now Showing screen allows viewers to easily choose from
their customized lineup of shows, which have been recorded and are stored on the
personal video recorder. For each show, viewers can get detailed information,
including a description of the show and its recorded time. Viewers can also see
when the program will be deleted from the personal video recorder and can change
the deletion time if desired.
Network Showcases Screen. The Network Showcases screen can be used by
television programmers and advertisers to feature selected programming and
products. Network Showcases are separately categorized by each programmer.
Within their own Network Showcase, programmers can customize the manner in which
they highlight and package shows. In the future, we believe that programmers
will create a unique look and feel for their Network Showcases and may include
promotional video clips and trailers.
Pick Programs to Record. Pick Programs to Record allows viewers to easily
select shows to be recorded. Viewers can choose to select shows by name, channel
or time. In addition, viewers can choose from a list of shows recommended by the
TiVo Service based upon their individual preferences.
On-Air Program Guide. The TiVo Service includes an easy-to-use on-air
program guide that allows viewers to browse through available programming and
receive information about upcoming shows. The on-air program guide includes a
brief description of the program and the time and channel for viewing.
TiVolution Magazine. TiVolution Magazine features theme-based collections
of shows and other content compiled by TiVo's editorial staff.
How TiVo Works
The TiVo Service relies on three key components: the personal video
recorder, the TiVo remote control and the TiVo Broadcast Center. Individually,
each of these components serves a vital function in the TiVo Service.
The Personal Video Recorder. The personal video recorder was initially
designed and developed by TiVo and enables the basic functionality of the TiVo
Service. The personal video recorder automatically records live television while
the viewer is watching, which allows the viewer to control live television. The
current versions of the personal video recorder, however, cannot record a
different show while concurrently watching live television. The personal video
recorder works with analog broadcast, cable and digital satellite systems. Our
manufacturing partners produce two categories of personal video recorders known
as stand-alone recorders and DIRECTV Receivers with TiVo. The stand-alone
recorders work with analog broadcast and cable systems. Three models of the
personal video stand-alone recorder are currently available, one supporting up
to 20 hours, another supporting up to 30 hours of recorded programming and one
supporting up to 60 hours of recorded programming. The DIRECTV Receiver with
TiVo is an integrated device that can store up to 35 hours of programming
recorded straight from the digital bitstream coming off the DIRECTV satellite.
After the initial set-up, the personal video recorder will automatically
dial into the TiVo Broadcast Center via a telephone line on a daily basis to
download the program guide data, Network Showcases and other programs or
features of the TiVo Service. Software upgrades to the personal video stand-
alone recorder are also delivered directly to the personal video recorder via
the phone line at no additional charge. The DIRECTV Receivers with TiVo are
updated via satellite link instead of phone lines. The program guide data
downloaded from the TiVo Broadcast Center does not decrease the amount of
programming that can be recorded by the subscriber on the personal video
recorder.
When enabled with the TiVo Service, the personal video recorder stores the
subscribers' viewing preferences. Based on these preferences, the TiVo Service
ranks every show listed in the on-air program guide and then recommends the
highest ranked shows to the viewer. If there is available storage capacity in
the personal video recorder, the personal video recorder may automatically
record the show or shows with the highest ranking.
The TiVo Service uses an advanced disk scheduling technique, which manages
the recording and deletion of programs on the system. This allows viewers to
select programming to record well in advance of airing and receive confirmation
that the selected program will be recorded, even if the length of the
programming selected for recording exceeds the then available storage capacity
on the recorder.
TiVo expects that the vast majority of purchasers of the personal video
recorder will activate the TiVo Service. However, if the TiVo Service is not
enabled or is subsequently cancelled, the personal video recorder provides
viewers with several basic capabilities, including pause, rewind and fast
forward navigation of live or
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recorded television and the ability to record selected programs by manually
programming the personal video recorder without the aid of the TiVo Service.
The TiVo Remote Control. The TiVo remote control can operate both the
personal video recorder and the viewer's television. Using the TiVo remote
control, a viewer is able to take advantage of the functionality of the TiVo
Service, including navigation of programming, selection of shows to be recorded
and advanced viewing features. The TiVo remote control also enables viewers to
indicate personal preferences through the use of the Thumbs Up or Thumbs Down
buttons. As the TiVo Service is expanded, the TiVo remote control will
accommodate expanded functionality associated with new features, services,
promotions and programming options.
The TiVo Broadcast Center. The TiVo Broadcast Center is a series of
computer servers that manage all of TiVo's programming and service data. The
TiVo Broadcast Center distributes proprietary services and specialized content
such as TiVo's on-air program guides, Network Showcases, TiVolution Magazine and
other content provided by us and our partners. The TiVo Broadcast Center is
designed to be a platform for future interactive services. Presently, data
contained in the TiVo Broadcast Center is communicated to each personal video
recorder automatically on a daily basis through the subscriber's phone line for
the standalone receivers. Upgrades to the software that enable the TiVo Service
are also provided automatically over this phone line. For the DIRECTV Receiver
with TiVo subscribers, we utilize satellite and cable bandwidth to transmit data
and communicate information from the TiVo Broadcast Center to the DIRECTV
Receiver with TiVo version of the personal video recorder.
Strategic Partnerships
Our success depends on our ability to quickly build a large subscriber
base, integrate TiVo functionality into a broad range of consumer electronics
products, and develop new services and programming to enhance the TiVo Service.
In order to achieve these goals, TiVo has chosen to aggressively pursue
strategic partnerships with:
. cable and satellite network operators;
. television programmers;
. consumer electronics manufacturers;
. marketing support partners; and
. suppliers of key components of the TiVo technology.
By working with strategic partners to develop a business model that
complements the businesses of other industry stakeholders, TiVo is seeking to
aggressively develop personal television as a major category of home
entertainment.
Through our partnerships, TiVo's personal video recorders and other devices
will be manufactured and distributed through retail and other channels. These
partners will also provide access to a large number of potential subscribers and
the resources to effectively market and promote the TiVo Service. In addition,
these partnerships will allow us to provide our subscribers with richer content,
including Network Showcases, previews and promotions of upcoming shows and other
specialized viewing options on the TiVo Service. Some of TiVo's major
partnerships include:
AOL. In 2000, TiVo closed an Investment Agreement with AOL for $200
million. The AOL investment is part of a three-year strategic Production
Integration and Marketing Agreement between AOL and TiVo, in which TiVo will
become an AOL TV programming partner offering AOL TV subscribers access to
features of the TiVo Service. Additionally, TiVo signed media insertion orders
for calendar years 2000 and 2001 with AOL for advertising programs to promote
the TiVo Service on AOL Time Warner properties.
BSkyB. TiVo launched the TiVo Service in the United Kingdom in cooperation
with British Sky Broadcast. Consumer electronic manufacturer, Thomson,
manufactures the personal video recorder that enables the TiVo Service under the
Thomson SCENIUM brand. The SCENIUM recorder became available in October 2000. In
an effort to support this partnership, TiVo has established a presence in the
United Kingdom by both incorporating TiVo (UK) Ltd. and establishing an office
in Middlesex, UK. Additionally, the BBC signed an agreement as a network partner
to showcase its content on the TiVo Personal Television Service in the UK.
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DIRECTV. DIRECTV is promoting TiVo and the TiVo Service to its nine
million subscribers. DIRECTV provides a variety of marketing and sales support,
including commercial air time on the DIRECTV system, access to DIRECTV
subscribers for targeted mailings and placement on its web site and in its on-
air magazine. DIRECTV has also made a portion of the high bandwidth capacity of
DIRECTV's satellite network available to TiVo. We intend to use this capacity to
expand and enrich the TiVo Service offered to DIRECTV subscribers.
In connection with this agreement, DIRECTV also made an equity investment
in TiVo. Additionally, DIRECTV will share in specified revenues that we receive
that relate to subscribers to the TiVo Service who also subscribe to the DIRECTV
satellite service. TiVo has also agreed offset a portion of DIRECTV's
marketing expenses for the DIRECTV Receiver with TiVo.
Discovery Communications. TiVo is working with Discovery to produce weekly
Network Showcases and other programming packages that highlight current and
upcoming Discovery programs. We also granted Discovery preferential placement on
our Network Showcases screen. TiVo will also work with Discovery to enable
Discovery to use our Ipreview Service.
NBC Multimedia. TiVo is working with NBC to produce weekly Network
Showcases and other programming packages that highlight current and upcoming NBC
programs. These NBC programming packages and specials will also be featured in
TiVolution Magazine.We also granted NBC preferential placement on our Network
Showcases screen. TiVo and NBC have agreed to feature each other as partners on
their respective web sites.
In connection with this agreement, NBC also made an equity investment in
TiVo. In addition, NBC will receive certain rights with respect to TiVo's couch
commerce and Internet services if such services are enabled on the TiVo Service.
Philips. Philips has agreed to manufacture, market and distribute personal
video recorders that enable the TiVo Service. Philips will continue to market
co-branded personal video recorders with TiVo and support the TiVo Service in
retail channels. Philips has also licensed TiVo's technology to develop, market
and promote other products that enable the TiVo Service.
TiVo has agreed to offset a portion of Philips' manufacturing costs by
paying a subsidy to Philips for each personal video recorder that Philips
manufactures and sells. TiVo has also agreed to share a portion of the TiVo
Service subscription revenues it receives from purchasers of the personal video
recorders and other devices manufactured by Philips that enables the TiVo
Service. Philips is also one of our stockholders.
Sony. Sony has also agreed to manufacture, market and distribute personal
video recorders that enable the TiVo Service. Sony will continue to market co-
branded personal video recorders with TiVo and support the TiVo Service in
retail channels.
TiVo has agreed to offset a portion of Sony's manufacturing costs by paying
a subsidy to Sony for each personal video recorder that Sony manufactures and
sells. TiVo has also agreed to share a portion of the TiVo Service subscription
revenues it receives from purchasers of the personal video recorders and other
devices manufactured by Sony that enables the TiVo Service. Sony is also one of
our stockholders.
Quantum. Quantum has agreed to develop and supply the hard disk drives
used in personal video recorders that enable the TiVo Service. Under the
agreement, we or a designated third-party buyer may purchase from Quantum up to
an agreed number of hard disk drives at a discount. In addition, Quantum has
agreed to work with TiVo to customize its hard disk drives for devices that
enable the TiVo Service. Quantum and TiVo have also agreed to work together in
promoting TiVo and the TiVo Service. Quantum has acquired shares of our stock in
connection with this agreement. We have also agreed to share a portion of the
TiVo Service subscription revenues we receive from the subscribers who have
purchased personal video recorders and other devices equipped with Quantum hard
disk drives on which we received a discount from Quantum.
Liberate Technologies. We have agreed to license and incorporate
Liberate's TV Navigator software into future version of our personal television
reference platform, thus integrating Liberate's platform with interactive TV
with the TiVo Service. The Liberate platform includes client and server software
that enable interactive TV services such as accessing web sites via the TV.
Additionally, this license agreement provides a platform for the enhancement of
AOL TV enabled with TiVo Service.
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Sales and Marketing
TiVo is building a team of sales and marketing professionals whose efforts
are focused on establishing the TiVo brand, educating consumers on the features
and benefits of the TiVo Service and personal television, and promoting sales of
personal video recorders and other devices that enable the TiVo Service.
TiVo anticipates that retail stores will be the dominant distribution
channel for the personal video recorders and is establishing direct
relationships with potential retail partners. Our marketing team maintains an
ongoing dialogue with viewers via research and other consumer response vehicles
to ensure that TiVo continues to deliver services that match viewers' needs.
TiVo began selling personal video recorders and subscriptions to the TiVo
Service on March 31, 1999 directly to consumers, principally through our web
site and our toll-free telephone number, 1-877-FOR-TIVO. Philips began
distributing co-branded personal video recorders to national retail chains and
regional retail stores and distributors and online e-tailers in the fourth
quarter of 1999.
Philips began selling personal video recorders to retailers and supporting
the retail channel through marketing efforts, in-store display materials and
sales force training. TiVo, with the assistance of DIRECTV, has supported
Philips' efforts by educating retailers about personal video recorders and the
TiVo Service and providing training where necessary. In addition, DIRECTV
incorporated the TiVo logo in certain of its in-store promotional materials in
the first quarter of 2000. Philips and DIRECTV also encourage their existing and
prospective customers to subscribe to the TiVo Service by offering promotional
incentives such as coupons or discounts.
TiVo initiated a marketing campaign in support of the retail launch of the
personal video recorder that utilized print, outdoor, web and television
advertising. TiVo also targeted certain DIRECTV subscribers with direct mail and
bill inserts. The goal of these efforts is to increase awareness of the personal
television category and to promote the TiVo brand as the leader in this
category. TiVo's marketing campaign was augmented by advertising efforts by
Philips and Sony.
Personal video recorders with the TiVo Service are available from Philips
and Sony at stores nationwide and from online retailers such as Best Buy,
Circuit City, Good Guys, Ultimate Electronics and The Wiz. Thomson SCENIUM brand
personal video recorders with the TiVo Service are available at Dixons and
Curry's in the UK.
Privacy Policy
TiVo has adopted a privacy policy, which we make available on our web site
and deliver to each new subscriber to the TiVo Service. This policy was updated
and expanded in September 2000. This policy explains that we collect certain
types of information such as anonymous viewing and diagnostic information but
all viewing information that is linked or associated with an individual identity
will not be disclosed without the viewer's affirmative consent. TiVo further
gives subscribers the ability to "opt-out" from the collection of anonymous
viewing information or diagnostic information log files.
TiVo has designed a system that ensures that any viewing information
transmitted from the TiVo Receiver is anonymous on the Receiver and remains
unidentifiable to a particular viewer (known as anonymous viewing information),
unless that subscriber affirmatively consents to such identification before any
viewing data leaves the Receiver. Anonymous viewing information is collected
and stored separate from any information that identifies a viewer personally.
As a result, unless subscribers affirmatively consent to the collection of
personally identifiable viewing information before the file containing such
viewing information is transmitted from the Receiver to TiVo's distribution
servers, we have no way of matching anonymous viewing information with
particular subscribers. We may be able to use this anonymous information to
tell a broadcaster the percentage of TiVo viewers that recorded a particular
program, but we will not know, nor be able to tell the broadcaster, which of our
viewers did so, unless a viewer decides to provide that information.
We are able to send information to viewers' personal video recorders that
allows us and other companies to customize viewers' television experience.
Neither we nor the company supplying the customizing options will know which
options viewers' personal video recorders select to show. If a viewer does not
want this customizing information sent to their personal video recorder, they
can simply ask for a block on such customized information.
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Competition
The market for home entertainment goods and services is intensely
competitive, rapidly evolving and subject to rapid technological change. The
delivery of video and television programming is particularly competitive as new
products and services continue to be introduced and marketed. TiVo believes that
the principal competitive factors in these markets are name recognition,
performance, pricing, ease of use and functionality. Because the personal
television market is new and rapidly evolving, we expect we will face
significant barriers in our efforts to secure broad market acceptance and
intense competition at several different levels.
Established competitors in the consumer electronics market. Personal
television competes in a consumer electronics market that is crowded with
several established products and services, especially products delivering
television programming and other home video entertainment. Personal video
recorders and the TiVo Service compete with products and technologies that have
established markets and proven consumer support, such as VCRs, DVD players and
cable and satellite television systems. In addition, many of the manufacturers
and distributors of these established products have greater brand recognition,
market presence, distribution channels and advertising and marketing budgets,
and more strategic partners than we do. To be successful, TiVo believes it will
need to spend significant resources to develop consumer awareness of TiVo and
the personal television product category.
TiVo's initial success will depend not only on consumers agreeing to
purchase a personal video recorder, but also paying a monthly subscription fee
to receive the TiVo Service. This is a significant cost, and many consumers who
have purchased VCRs, DVDs or other home video entertainment products may be
reluctant to purchase personal television systems and services. The personal
video recorder enabled with the TiVo Service does, however, offer several
advantages over competing home video entertainment products, including:
. an on-air guide to up to 12 days of television programming,
updated on a nightly basis;
. the ability to pause, rewind and fast-forward live television;
. the ability to record every episode of a given show at the click
of a button;
. the ability to recommend television shows to viewers based upon
their particular preferences; and
. specialized content, including Network Showcases and TiVolution
Magazine.
Although the personal video recorder is not well-suited as an archival
system for recorded television shows, personal video recorders enabled with the
TiVo Service do contain a feature that allows viewers to off-load recorded
programming to a VCR. While the personal video recorder and TiVo Service allow
viewers to control live television, the current version of the personal video
recorder does not permit viewers to record a show on one channel and watch a
show being broadcast at the same time on another channel.
Internet-related companies and companies offering similar products and
services. TiVo faces competition from Internet service providers and other
Internet companies such as WebTV and X-TV. These competitors are seeking to meld
Internet browsing and traditional broadcast, cable or satellite television
programming into a single medium. For example, WebTV launched UltimateTV during
the spring of calendar year 2001. UltimateTV combines elements of Microsoft's
WebTV, a television-based e-mail and Web surfing service, and combines them with
DIRECTV's satellite service and digital video recorder technology. Last year,
WebTV and EchoStar Communications released the DishPlayer, which is a product
that combines Internet access with a program guide and the ability to pause live
television. While many of these products offer fewer services than the TiVo
Service, we do not presently offer Internet browsing capability. However, in
September 2000 we signed an agreement with AOL to become an AOL TV programming
partner offering AOL TV subscribers access to features of the TiVo Service.
TiVo's primary competitor in the personal television market was ReplayTV,
Inc. ReplayTV manufactured and marketed a personal television recorder that
included a hard disk drive and functionality similar to that of our partners
personal video recorders. While ReplayTV's personal video recorder was more
expensive than our partners personal video recorders enabled with TiVo Service,
ReplayTV did not charge a monthly subscription fee for its service. In February
2001, hardware maker SonicBlue announced its intention to acquire ReplayTV.
Exactly how it will use ReplayTV's assets and intellectual property is unclear
at this time.
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Research and Product Development
From TiVo's inception until March 1999, TiVo's research and development
efforts were focused on designing and developing the personal video recorder and
the TiVo remote control, the TiVo Service and the TiVo Broadcast Center. These
activities included both hardware and software development. TiVo's engineering
staff is now focused on research and development in the following three areas:
Performance engineering. TiVo intends to continue to devote considerable
engineering resources to improve TiVo's essential technologies. TiVo's engineers
and customer support personnel work together to quickly identify and correct
potential performance errors. We also continually work to identify, develop and
implement features that improve performance in areas such as video and audio
quality, speed, ease of use and additional features and functionality.
Platform engineering. Although TiVo does not intend to manufacture the
personal video recorder or other hardware products, the evolution of hardware
technology that enables the TiVo Service is a crucial element of TiVo's future
success. Our hardware engineers are working with consumer electronics
manufacturers, component suppliers, and data storage suppliers to reduce the
manufacturing cost of the personal video recorder and integrate TiVo
functionality into other consumer electronics goods. In September 2000, we and
AOL signed a strategic agreement under which TiVo would become an AOL TV
programming partner, offering AOL subscribers access to features of the TiVo
Service. Similarly, TiVo intends to integrate the TiVo Service into components
such as cable set-top boxes, televisions and other consumer electronics
products. We intend to work with a broad range of partners to develop our
technology platforms and establish TiVo as the prominent technology in the
personal television market.
Service engineering. TiVo intends to continue to develop the TiVo Service,
offering new features and programming. We have assembled a group of experienced
television and multimedia professionals to create specialized programming for
the TiVo Service. As part of this effort, the programming team is currently in
the process of building software and video development tools that will enable
networks and other content providers to create specialized programming for the
TiVo Service.
Patents and Intellectual Property
TiVo has adopted a proactive patent and trademark strategy designed to
protect all important aspects of its technology and intellectual property. We
have filed thirty-six patent applications and nine provisional patents. TiVo has
also jointly filed a patent application with Quantum. The patent applications
that we have filed are broad in nature and are tied to fundamental inventions
rather than small, unrelated features or applications. These patent applications
cover substantially all of TiVo's technology, including hardware, software, the
TiVo Service functionality and appearance, network architecture, manufacturing
and international patent rights. TiVo has also filed patent applications that
cover technologies it intends to incorporate in future versions of the TiVo
Service and hardware. Several of our early patent applications have been
examined and claims allowed by the U.S. Patent and Trademark Office (PTO).
Included in these are a number that are fundamental to the operation of personal
video recorders, as well as forming a foundation for other important patent
applications currently under examination. We anticipate ongoing progress in
establishing a defensible and useful intellectual property portfolio. There can
be no assurance that current applications of our patents will ever be granted.
We have filed many trademark applications covering substantially all of our
trade dress, logos and slogans, including:
. Active Preview
. Can't Miss TV
. DIRECTIVO
. Instant Replay logo
. Ipreview
. Jump logo
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. 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
. You run the show
These applications are currently pending with the U.S. Patent and Trademark
Office. Additionally, we have international trademark applications pending for
our TiVo logo. We have secured the U.S. registration for the TiVo name. We have
licensed the use of our name and logo to some of our strategic partners. See
"Factors That May Affect Future Operating Results -- Our success depends on our
ability to secure and protect patents, trademarks and other proprietary rights."
Recent Developments
Revised Operating Plan
On April 5, 2001, we announced a new operating plan that we believe will
eliminate the need for additional funding during our current fiscal year ending
January 31, 2002. The plan supports our key objectives of building our
subscriber base and increasing revenue, while reducing our operating expenses by
nearly 35%. We intend to execute several key initiatives in order to achieve our
targeted cost reductions. We expect that these initiatives will decrease our
cash burn-rate by approximately $60 million for the current fiscal year ending
January 31, 2002. These initiatives are as follows:
. Leveraged marketing;
. A new, low cost platform, expected to be delivered this year;
. Reduced infrastructure costs;
. Reduction in Service Operations costs; and
. Headcount reductions.
In addition to the cost reductions, we plan to increase subscriber revenue
and non-subscriber revenue as follows:
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. Subscriber revenue. We intend to increase the lifetime subscription
service price from $199.00 to $249.00 effective May 1, 2001, and
. Non-subscriber revenues. By leveraging our products such as
Ipreview(TM), Network Showcases(TM), TiVolution Magazine(TM) and TiVo
Direct(TM) we expect to be able to sell to a broader advertising and
network base.
Employees
At April 12, 2001, we employed approximately 265 employees, including 50 in
service operations, 115 in research and development, 45 in sales and marketing
and 55 in general and administration. We also employ, from time to time, a
number of temporary and part-time employees as well as consultants on a contract
basis. At April 12, 2001, we employed 31 such persons. Our future success will
depend in part on our ability to attract, train, retain and motivate highly
qualified employees who are in great demand. We may not be successful in
attracting and retaining such personnel. Our employees are not represented by a
collective bargaining organization and we have never experienced a work stoppage
or strike. Our management considers employee relations to be good.
Executive Officers and Key Employees:
As of April 20, 2001, our executive officers and key employees and their
ages were as follows:
Name Age Position
---- --- --------
Executive Officers
Michael Ramsay.......................... 51 Chairman of the Board, Chief Executive Officer and President
James Barton............................ 43 Senior Vice President of Research and Development, Chief Technical
Officer
David H. Courtney....................... 42 Senior Vice President of Finance and Administration and Chief
Financial Officer
Key Employees
Susan Cashen............................ 40 Vice President of Corporate Communications
Ta-Wei Chien............................ 46 Senior Vice President of Engineering and Operations
Andrew Cresci........................... 40 Vice President and General Manager of TiVo (UK)
Morgan P. Guenther...................... 47 Senior Vice President of Business and Revenue Development
Stacy Jolna............................. 49 Vice President of Programming and Media Relations
Brodie Keast............................ 45 Senior Vice President of Sales and Marketing
Luther Kitahata......................... 36 Vice President of Software Engineering
Howard Look............................. 34 Vice President of TiVo Studios
Joe Miller.............................. 34 Vice President of Sales
Karrin Nicol............................ 41 Vice President of Human Resources
Mark A. Roberts......................... 40 Vice President of Information Technology and Chief Information Officer
Robert P. Vallone....................... 43 Vice President of Service Operations and Customer Service
Matthew Zinn............................ 36 Vice President, General Counsel and Chief Privacy Officer
Michael Ramsay is a co-founder of TiVo and has served as TiVo's Chairman of
the Board of Directors, Chief Executive Officer and President since our
inception in August 1997. From April 1996 to July 1997, Mr. Ramsay was the
Senior Vice President of the Silicon Desktop Group for Silicon Graphics, a
manufacturer of advanced graphics computers. From August 1994 to April 1996, Mr.
Ramsay was President of Silicon Studio, Inc., a wholly owned subsidiary of
Silicon Graphics, Inc. ("SGI") focused on enabling applications development for
emerging interactive media markets. From July 1991 to August 1994, Mr. Ramsay
served as the Senior Vice President and General Manager of Silicon Graphics'
Visual Systems Group. Mr. Ramsay also held the positions of vice president and
general manager for the Entry Systems Division of SGI. Prior to 1986, Mr. Ramsay
held research
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& development and engineering management positions at Hewlett-Packard and
Convergent Technologies. Mr. Ramsay holds a B.S. degree in Electrical
Engineering from the University of Edinburgh, Scotland.
James Barton is a co-founder of TiVo and has served as TiVo's Vice
President of Research and Development, Chief Technical Officer and Director
since our inception and is currently Senior Vice President of Research and
Development, Chief Technical Officer and Director. From June 1996 to August
1997, Mr. Barton was President and Chief Executive Officer of Network Age
Software, Inc., a company that he founded to develop software products targeted
at managed electronic distribution. From November 1994 to May 1996, Mr. Barton
served as Chief Technical Officer of Interactive Digital Solutions Company, a
joint venture of Silicon Graphics and AT&T Network Systems created to develop
interactive television systems. From June 1993 to November 1994, Mr. Barton
served as Vice President and General Manager of the Media Systems Division of
SGI. From January 1990 to May 1991, Mr. Barton served as Vice President and
General Manager for the Systems Software Division of Silicon Graphics. Prior to
joining SGI, Mr. Barton held technical and management positions with Hewlett-
Packard and Bell Laboratories. Mr. Barton holds a B.S. degree in Electrical
Engineering and an M.S. degree in Computer Science from the University of
Colorado at Boulder.
David H. Courtney joined TiVo in March 1999 as Chief Financial Officer and
is currently Senior Vice President of Finance and Administration and Chief
Financial Officer. From May 1995 to July 1998, Mr. Courtney served as a Managing
Director at J.P. Morgan, an investment banking firm, where he was responsible
for building and expanding the firm's high technology investment banking
business in the United States. From 1986 to 1995, Mr. Courtney was a member of
the high technology investment banking group at Goldman, Sachs & Co., most
recently serving as Vice President. Mr. Courtney currently serves as a director
of KQED Television, a non-profit affiliate of the Public Broadcasting System in
San Francisco, California. Mr. Courtney holds a B.A. degree in Economics from
Dartmouth College and an M.B.A. degree from Stanford University.
Susan Cashen joined TiVo in March 2000 as Vice President of Corporate
Communications. From November 1994 to March 2000, Ms. Cashen was employed at
Blanc & Otus, a leading technology public relations firm based in San Francisco,
California and most recently served as Senior Vice President and Partner from
March 1999 to March 2000. Prior to joining Blanc & Otus, Ms. Cashen managed her
own consulting practice. Ms. Cashen holds a B.A. degree in Russian Studies from
Hamilton College.
Ta-Wei Chien has served as Vice President of Engineering and Operations
since February 1998 and is currently Senior Vice President of Engineering and
Operations. From December 1996 to February 1998, Mr. Chien served as Vice
President of Engineering in the Desktop Workstations group at SGI, where he
managed engineering projects for desktop workstations. From April 1991 to
December 1996, Mr. Chien was a director of digital media and VLSI engineering at
SGI. Mr. Chien holds a B.S. degree in Electrical Engineering from National
Taiwan University and an M.S. degree in Electrical Engineering from the
University of California, Los Angeles.
Andrew Cresci has served as Vice President and General Manager of TiVo (UK)
since November 2000. In August 1999 Mr. Cresci co-founded TapCast, a California
based wireless Internet portal. Prior to founding TapCast Mr. Cresci was
Director of Worldwide Marketing for the workstation division at SGI for eight
years. Mr. Cresci holds a B.S. degree in Electronics Engineering from the
University of Bath, England.
Morgan P. Guenther has served as Vice President of Business and Revenue
Development since March 2001. From June 1999 to February 2001 he served as Vice
President of Business Development. From March 1998 to June 1999, Mr. Guenther
was a partner of the law firm of Paul, Hastings, Janofsky & Walker LLP. From
1990 to March 1998, Mr. Guenther was a partner of the law firm of Farella Braun
& Martel. Mr. Guenther also serves on the board of directors of Tier
Technologies, Inc., an information technology consulting company. Mr. Guenther
holds J.D. and B.A. degrees from the University of Colorado and an M.B.A. degree
from the University of San Francisco.
Stacy Jolna has served as Vice President of Programming and Media Relations
since May 1998. Prior to joining TiVo, Mr. Jolna had served as a Vice President
at WebTV Networks Inc., an Internet services company and subsidiary of Microsoft
Corp., since May 1997. From December 1981 to February 1996, Mr. Jolna was
employed by Cable News Network, most recently serving as a Vice President. Mr.
Jolna holds a B.S. degree from State University of New York and an M.S. degree
in Journalism from Boston University.
Brodie Keast has served as Senior Vice President of Sales and Marketing
since March 2001. In December 1999, Mr. Keast joined TiVo as Vice President of
Sales and Marketing. Prior to joining TiVo, Mr. Keast was employed with Quantum
Corporation from 1996 through 1999 most recently serving as Vice President and
General Manager for Quantum's DLT Tape Division. Prior to joining Quantum, he
spent ten years at Apple Computer where
18
he held a number of executive marketing positions. Mr. Keast holds a B.S. degree
in Computer Science from California State University, Chico.
Luther Kitahata has served as Vice President of Sales since October 2000.
He joined TiVo in 1998 as the Director of Software. Prior to joining TiVo, Mr.
Kitahata was part of the founding team at Navio Communications (now Liberate
Technologies) where he worked in both managerial and engineering capacities from
April of 1996 to January 1998. Prior to 1996, Mr. Kitahata was founder and
Director of Engineering of E-Motion, a leading provider of content distribution
and multimedia collaboration systems. Mr. Kitahata holds an M.S. degree and a
B.A. degree with honors in Computer Science from Brown University.
Howard Look has served as Vice President of TiVo Studios since March 2000.
He joined TiVo in February 1998 as Director of Application Software. Prior to
joining TiVo, Mr. Look was Manager and the Director of Applied Engineering at
SGI from 1996 to 1998. Mr. Look holds a B.S degree in Computer Engineering from
Carnegie-Mellon University.
Joe Miller has served as Vice President of Sales since October 2000. From
June 1999 to October 2000, Mr. Miller served as Director of Channel Marketing
for TiVo. Prior to joining TiVo, Mr. Miller was employed with U.S. Satellite
Broadcasting from 1994 to 1999; most recently serving as General Manager of
Retail Sales. Prior to joining U.S. Satellite Broadcasting, Mr. Miller was
National Sales Manager for Cox Satellite Programming. Mr. Miller holds a B.A.
degree in Public Relations from Southwest Texas State University.
Karrin Nicol joined TiVo in July 1999 as Vice President of Human Resources.
From 1987 to 1999, Ms. Nicol was employed with at SGI, most recently as Director
of Human Resources. Prior to that, Ms. Nicol served in various positions at
Fairchild Semiconductor Corporation. Ms. Nicol holds a B.S. degree in Food and
Nutrition from California State University, Chico and a Masters in Human
Resources and Organizational Development from University of San Francisco.
Mark A. Roberts has served as Chief Information Officer since March 1999
and Vice President of Information Technology since July 1999. Prior to joining
TiVo, he served as Vice President of Information Technology at Acuson
Corporation, a medical ultrasound company, from March 1996 to March 1999. From
July 1990 to March 1996, Mr. Roberts was Director of Information Systems at SGI.
Mr. Roberts holds a B.S. degree in Economics from Santa Clara University.
Robert P. Vallone has served as Vice President of Service Operations and
Customer Service since March 1999. From November 1998 to April 1999, Mr. Vallone
served as Director of Operations for TiVo. Prior to joining TiVo, Mr. Vallone
served as Director of Engineering at SGI since October 1993. Mr. Vallone holds a
B.S. degree in Experimental Psychology from Cornell University.
Matthew Zinn has served as Vice President, General Counsel and Chief
Privacy Officer since July 2000. From May 1998 to July 2000, Mr. Zinn was the
Senior Attorney, Broadband Law and Policy for the MediaOne Group, a leading
global communications company. From August 1995 to May 1998, Mr. Zinn served as
corporate counsel for Continental Cablevision, the third largest cable
television operator in the United States. From November 1993 to August 1995, he
was an associate with the Washington, D.C., law firm of Cole, Raywid &
Braverman, where he represented cable operators in federal, state and local
matters. Mr. Zinn holds a J.D. degree from the George Washington University
National Law Center and a B.A. degree in Political Science from the University
of Vermont.
Item 2. Properties
In March 2000, we moved our corporate headquarters, which houses our
administrative, sales and marketing, customer service and product development
activities, to a leased facility in Alviso, California. We believe that our new
corporate facilities will be adequate to meet our office space needs for the
next several years as we currently utilize approximately 75% of the total office
space. We believe that our facilities are well maintained and are in good
operating condition. The lease for this space expires in 2007.
Additionally, we currently lease sales office space in Beverly Hills,
California and in New York, New York, as well as one international location in
Middlesex, United Kingdom. We believe that these facilities are adequate to
meet our sales office space needs for the next year.
19
Item 3. Legal Proceedings
StarSight Telecast. On January 18, 2000, a suit was filed against TiVo by
StarSight Telecast Inc, a subsidiary of Gemstar International Group Limited
("StarSight"), 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 its TV schedule systems and
processes without a license from StarSight. Starsight seeks unspecified monetary
damages as well as an injunction against our operations. It also seeks
attorneys' fees and costs. We believe that we have meritorious defenses against
this 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 defense, and in the event
we were to lose this suit our business would be harmed. See "Factors that May
Affect Future Operating Results -- Intellectual property claims against us can
be costly and could result in the loss of significant rights."
TiVo is aware that media companies and other organizations may support
litigation or explore legislative solutions unless the members of the personal
television industry agree to obtain license agreements for the use of certain
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.
For further discussion of intellectual property risks facing TiVo, see
"Factors that May Affect Future Operating Results-- Intellectual property claims
against us can be costly and could result in the loss of significant rights."
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the one-
month transition period ended January 31, 2001.
20
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Market Information for Common Equity
Our common stock is traded on the Nasdaq National Market under the symbol
TIVO. As of April 20, 2001, we had 275 stockholders of record.
The following table shows the high and low per-share closing prices for our
common stock as reported by the National Association of Securities Dealers,
Inc., on any trading day during the respective period:
Fiscal Year 2002 High Low
---------------- ---- ---
First Quarter as of April 20, 2001 $ 7.19 $ 4.00
One-month Ended January 31, 2001 $ 9.13 $ 6.13
Fiscal Year 2000
--------------------
Fourth Quarter ended December 31, 2000 $19.94 $ 5.38
Third Quarter ended September 30, 2000 $33.75 $16.69
Second Quarter ended June 30, 2000 $36.19 $15.88
First Quarter ended March 31, 2000 $71.50 $30.50
Fiscal Year 1999
----------------
Fourth Quarter ended December 31, 1999 $51.00 $25.13
Third Quarter ended September 30, 1999 $29.94 $29.94
On April 20, 2001, the closing price of our common stock was $5.48 per
share.
Dividend Policy
On September 13, 2000, we closed the Investment Agreement with AOL for $200
million. Under the terms of the Investment Agreement between AOL and TiVo, dated
June 9, 2000 and the First Amendment to the Investment Agreement dated September
11, 2000, between AOL and TiVo, we issued to AOL shares of Series A redeemable
convertible preferred stock with certain dividend and voting rights. Dividends
on the Series A redeemable 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 redeemable convertible
preferred stock outstanding. Dividends are payable quarterly as declared by our
board of directors.
We expect to continue our current policy of paying no cash dividends to
holders of our common stock for the foreseeable future.
21
Item 6. Selected Financial Data
The following selected financial data as of and for the one-month
transition period ended January 31, 2001 and years ended December 31, 2000,
December 31, 1999 and December 31, 1998 and for the period from August 4, 1997
(Inception) to December 31, 1997 have been derived from our financial statements
audited by Arthur Andersen LLP, independent public accountants. These historical
results are not necessarily indicative of the results of operations to be
expected for any future period.
The data set forth below (in thousands, except for per share data) should
be read in conjunction with Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements included in Item 8. "Financial Statements and Supplementary Data."
Period from
Year Ended August 4, 1997
------------------------------------------
Month ended December 31, December 31, December 31, (Inception),
January 31, 2001 2000 1999 1998 December 31, 1997
---------------- ------------ ------------ ------------ -----------------
Consolidated statement of Operations Data: (in thousands, except per share data)
Revenues........................................... $ 989 $ 3,571 $ 223 $ -- $ --
Costs and expenses
Cost of services............................. 1,710 18,382 4,067 -- --
Research and development..................... 2,507 24,279 9,727 5,614 356
Sales and marketing.......................... 7,884 102,091 24,502 1,277 28
Sales and marketing-related parties.......... 6,632 53,604 15,172 -- --
General and administrative................... 1,326 14,346 7,027 2,946 241
Stock-based compensation..................... 175 3,115 1,530 -- --
Other operating expense, net................. -- -- 7,210 -- --
----------------------------------------------------------------------------
Loss from operations............................... (19,245) (212,246) (69,012) (9,837) (625)
----------------------------------------------------------------------------
Interest income......................... 672 7,928 2,913 136 49
Interest expense and other.............. (17) (522) (466) (20) (19)
----------------------------------------------------------------------------
Net loss........................................... (18,590) (204,840) (66,565) (9,721) (595)
Less: Series A redeemable convertible
preferred stock dividend......................... (423) (1,514) -- -- --
============================================================================
Net loss attributable to common stock.............. $(19,013) $(206,354) $(66,565) $(9,721) $ (595)
============================================================================
Net loss per share
Basic and diluted....................... $ (0.47) $ (5.55) $ (5.49) $ (3.25) $(0.20)
Weighted average shares................. 40,850 37,175 12,129 2,990 2,917
As of January 31, As of December 31,
------------------- ------------------------------------
2001 2000 1999 1999
---------- --------- --------- -------
Consolidated Balance Sheet Data: (in thousands)
Cash and cash equivalents................... $ 124,474 $ 106,096 $ 139,687 $ 2,248
Working capital*.......................... 88,836 122,973 130,327 1,329
Total assets................................ 211,543 236,318 152,842 3,543
Long-term portion of obligations............ 538 606 1,141 --
under capital lease
Redeemable convertible preferred stock...... 2 3 -- --
Redeemable common stock..................... -- 1 -- --
Total paid-in capital for
redeemable convertible preferred
stock and redeemable common stock........ -- 96,986 -- --
Total stockholders' equity.................. 50,337 34,849 133,247 2,121
* Working capital includes restricted cash of $50.1 million and $93.2
million as of January 31, 2001 and December 31, 2000, respectively (see Item 8.
Note 9).
22
Quarterly Results of Operations
The following table represents certain unaudited statement of operations
data for our eight most recent quarters ended January 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 Transition Report. 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
----------------------------------------------------------------------------------------------------
April 30, July 31, October 31, January 31, April 30, July 31, October 31, January 31,
1999 1999 1999 2000 2000 2000 2000 2001
---------- --------- ----------- ------------ --------- ---------- ---------- ------------
(unaudited, in thousands except per share data)
Revenues....................... $ 1 $ 16 $ 53 $ 287 $ 499 $ 869 $ 1,102 $ 2,166
Costs and expenses
Cost of services............... 754 588 1,032 2,746 4,994 4,295 4,149 5,661
Research and development....... 1,710 1,886 2,684 4,626 4,844 6,788 7,572 5,888
Sales and marketing............ 2,644 1,981 10,341 12,215 8,479 16,422 34,638 46,905
Sales and marketing--
related parties............... -- 1,025 9,049 7,323 3,342 9,293 24,283 21,093
General and administrative..... 1,474 857 2,140 2,888 2,978 3,720 3,876 4,483
Stock-based compensation....... -- 341 632 878 974 808 624 562
Other operating expense net.... 2 1,329 5,947 (69) -- -- -- --
------- ------- -------- -------- -------- -------- -------- --------
Loss from operations........... (6,583) (7,991) (31,772) (30,320) (25,112) (40,457) (74,040) (82,426)
Interest income................ 86 303 1,132 2,097 1,766 1,752 2,056 2,305
Interest expense and other..... (15) (229) (362) 110 (101) (276) (46) (86)
------- ------- -------- -------- -------- -------- -------- --------
Net loss....................... (6,512) (7,917) (31,002) (28,113) (23,447) (38,981) (72,030) (80,207)
Less: Series A redeemable
convertible preferred stock
dividend...................... -- -- -- -- -- -- (665) (1,272)
------- ------- -------- -------- -------- -------- -------- --------
Net loss attributable
to common stock............... $(6,512) $(7,917) $(31,002) $(28,113) $(23,447) $(38,981) $(72,695) $(81,479)
======= ======= ======== ======== ======== ======== ======== ========
Net loss per share
Basic and diluted......... $ (1.69) $ (1.39) $ (2.15) $ (0.80) $ (0.66) $ (1.09) $(1.89) $(2.00)
Weighted average shares... 3,853 5,692 14,426 35,215 35,462 35,865 38,461 40,774
The TiVo Service is enabled through a personal video recorder that is sold
in retail channels like other consumer electronic devices. As a result, we
anticipate that our business will be seasonal and we expect to generate a
significant number of our annual new subscribers during the holiday shopping
season. We also expect to generate a portion of future revenues from television
advertising, which tends to be seasonal and cyclical, reflecting overall
economic conditions as well as budgeting and buying patterns.
23
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the Notes thereto included in Item 8 of this Transition Report on
Form 10-K.
--------------------------------------------------------------------------------
The discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains trend analysis and other forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements include, without limitation,
statements containing the words "believes," "anticipates," "expects," and words
of similar import or the negative of those terms or expressions. Such forward-
looking statements will have known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Actual results could differ materially from those set forth
in such forward-looking statements as a result of the "Factors That May Affect
Future Operating Results" and other risks detailed in the Company's reports
filed with the Securities and Exchange Commission.
--------------------------------------------------------------------------------
Overview
We were incorporated in August 1997 as a Delaware corporation and are
located in Alviso, California. On August 21, 2000, TiVo (UK) Ltd., a wholly
owned subsidiary of TiVo Inc., was incorporated in the United Kingdom. The TiVo
Service is a subscription-based television service that provides viewers with
greater control, easier navigation and a wider range of viewing options when
watching television. The TiVo Service also provides television content providers
and advertisers with a new platform for content delivery, interactive viewing
options and in-home commerce. The TiVo Service is enabled through a personal
video recorder designed and developed by TiVo.
We have generated a limited amount of revenues to date and expect to incur
significant operating expenses over the next several years in connection with
the continued development and expansion of our business. In particular, we
expect our sales and marketing expenses to continue to be a large portion of
total expenses as personal video recorders gain market acceptance in the retail
channel with the consumer and as we establish the TiVo brand and educate and
attract subscribers. We launched the personal video recorder and service into
the retail channel in the second half of 1999. We incurred losses of $204.8
million in 2000 and $18.6 million for the one-month transition period ended
January 31, 2001, and we expect to continue to incur losses for the foreseeable
future.
We currently generate revenues from two sources, subscription revenue and
non-subscription revenue. Subscriptions to the TiVo Service are available on a
monthly, annual or lifetime basis. The current price for a monthly subscription
to the TiVo Service is $9.95 per month, an annual subscription is $99.00 per
year and a lifetime subscription is $199.00. Recently we announced an increase
in our lifetime subscription price to $249.00, effective May 1, 2001. A lifetime
subscription allows access to the TiVo Service for the life of the personal
video recorder. Subscription fees are paid by the viewer when activating the
TiVo Service. Subscription revenues from lifetime subscriptions are recognized
ratably over a four-year period.
Non-subscription revenue primarily includes Charter Advertising and
Sponsorship revenue from consumer companies and media networks who have provided
content on the TiVo Service.
We began selling personal video recorders and subscriptions to the TiVo
Service on March 31, 1999. We transitioned manufacturing to Philips, one of our
manufacturing partners, in the fourth quarter of 1999. The sales of personal
video recorders in 1999 were not expected to be recurring for TiVo, and were
therefore considered incidental to our business. The sales less the cost of
sales for the personal video recorders sold directly by TiVo for the year ended
December 31, 1999 were recorded as "other operating expense, net."
24
Since the TiVo Service is enabled through a personal video recorder that is
sold in retail channels like other consumer electronic devices, we anticipate
that our business will be seasonal and we expect to generate a significant
number of our annual new subscriptions during the holiday shopping season.
We anticipate that the sources of our revenues will change over time. In
the future, we may generate revenue from other sources such as:
. audience measurement reporting revenue; and
. electronic commerce or couch commerce.
We have agreed to share a substantial portion of our subscription and other
fees 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. These agreements may require us to share
substantial portions of the subscription and other fees attributable to the same
subscriber with multiple partners. 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 have agreed to make formula-based payments to Sony, Thomson, Quantum,
Philips and DIRECTV in exchange for key activities and results. Quantum provided
us a discount payment for hard disk drives purchased by our manufacturing
partners for use in the personal video recorder from Quantum. We have agreed to
share a portion of the TiVo Service subscription revenues we receive from
subscribers who have purchased personal video recorders and other devices
equipped with Quantum hard disk drives on which we received a discount from
Quantum. We have agreed to pay to Philips and Sony a per-unit subsidy for each
personal video recorder that they manufacture and sell. The amount of the
payments can vary depending on Philips' and Sony's manufacturing costs and
selling prices. Subsidy payments are renegotiated on an annual basis. We pay
DIRECTV a revenue share for our subscription revenues generated from DIRECTV
subscribers in exchange for DIRECTV's marketing efforts. Payments made to our
strategic partners in exchange for these services are recognized as "sales and
marketing --related parties expense."
In the past, we have issued stock in exchange for services to our strategic
partners. For example, we issued shares of our common stock to DIRECTV in
exchange for marketing support and a note which is reduced as bandwidth capacity
is made available to TiVo on DIRECTV's satellite television system. We also
issued warrants, which were exercised for shares of our common stock to Quantum
in exchange for a discount on hard disk drives used in the personal video
recorders that enable the TiVo Service. We recorded prepaid marketing expenses
resulting from the issuance of this equity to DIRECTV and Quantum. These prepaid
marketing expenses are amortized as services are provided to us and charged to
"sales and marketing --related parties expense." Additionally, TiVo closed an
Investment Agreement with AOL for $200 million. The AOL investment is part of a
three-year strategic Production Integration and Marketing Agreement between AOL
and TiVo, in which TiVo will become an AOL TV programming partner offering AOL
TV subscribers access to features of the TiVo Service. In return for AOL's
investment, TiVo issued to AOL a combination of convertible redeemable preferred
stock, a portion of common stock subject to redemption, common stock and initial
and performance warrants. Additionally, TiVo has signed media insertion orders
for calendar years 2000 and 2001 with AOL for advertising programs to promote
the TiVo Service on AOL Time Warner properties (see Item 8. Note 9).
Prior to our initial public offering, we granted stock options to
employees, consultants and directors at prices that were less than the estimated
fair value of our common stock at the date of grant. We recorded deferred
compensation related to these options, which is amortized over the vesting
period of each option as "stock-based compensation."
Results of Operations
On January 30, 2001, TiVo announced a fiscal year end change from December
31 of each year to January 31 of each year. TiVo believes that the change in
fiscal year will help align the seasonal patterns of demand in TiVo's business
with its reporting cycle and better align TiVo's promotional activities with
those of its retail, service and network partners. The following discussion of
historical operating results compares the one-month period ended January 31,
2001 and the twelve-month period ended January 31, 2001 to the same periods in
the prior year. For the previous fiscal year, which ended December 31, 2000, the
comparison is for the twelve-month period ended December 31, 1999 to the twelve-
month period ended December 31, 1998.
25
To enhance comparability, the following table sets forth audited Statements
of Operations for the one-month period ended January 31, 2001 and unaudited
Statements of Operations for the one-month period ended January 31, 2000 and for
the twelve months ended January 31, 2001 and January 31, 2000. The unaudited
financial data for the periods presented have been derived from our financial
statements for the twelve months ended December 31, 2000, 1999 and 1998 audited
by Arthur Andersen LLP, independent public accountants. Certain unaudited
financial information for the year ended January 31, 2000 has been reclassified
in order to conform to current classifications.
TIVO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
One-Month One-Month
Ended Ended Year Ended
----------- ----------- ----------------------------------
January 31, January 31, January 31, January 31,
2001 2000 2001 2000
----------- ----------- --------------- ---------------
(unaudited) (unaudited) (unaudited)
Revenues......................................... $ 989,000 $ 134,000 $ 4,636,000 $ 357,000
Costs and expenses
Cost of services................................ 1,710,000 1,204,000 19,099,000 5,120,000
Research and development........................ 2,507,000 1,694,000 25,092,000 10,906,000
Sales and marketing............................. 7,884,000 3,532,000 106,444,000 27,181,000
Sales and marketing-related parties............. 6,632,000 2,225,000 58,011,000 17,397,000
General and administrative ..................... 1,326,000 614,000 15,057,000 7,359,000
Stock-based compensation........................ 175,000 321,000 2,968,000 1,851,000
Other operating expense, net.................... -- -- -- 7,209,000
----------- ----------- --------------- ---------------
Loss from operations........................... (19,245,000) (9,456,000) (222,035,000) (76,666,000)
Interest income............................. 672,000 721,000 7,879,000 3,617,000
Interest expense and other.................. (17,000) (29,000) (509,000) (495,000)
----------- ----------- --------------- ---------------
Net loss....................................... (18,590,000) (8,764,000) (214,665,000) (73,544,000)
Less: Series A redeemable convertible
preferred stock dividend...................... (423,000) -- (1,937,000) --
----------- ----------- --------------- ---------------
Net loss attributable to common stock....... $(19,013,000) $(8,764,000) $(216,602,000) $(73,544,000)
=========== =========== =============== ===============
Net loss per common share
Basic and diluted.............................. $ (0.47) $ (0.25) $ (5.75) $ (4.97)
=========== =========== =============== ===============
Weighted average common shares outstanding -
Basic and diluted.............................. 40,850,353 35,274,071 37,640,183 14,796,582
=========== =========== =============== ===============
One-Month Period Ended January 31, 2001 Compared to the One-Month Period Ended
January 31, 2000
Revenues. Revenues for the one-month period ended January 31, 2001 were
$989,000, compared to $134,000 for the one-month period ended January 31, 2000.
The increase is attributable to increased customer subscriptions to the TiVo
Service. During the month of January 2001, TiVo activated approximately 18,000
new subscribers to the TiVo Service compared to approximately 5,000 subscribers
activated during the month of January 2000.
Cost of services. Cost of services consists primarily of telecommunication
and network expenses, employee salaries, call center and other expenses related
to providing the TiVo Service to subscribers. Cost of services for the one-
month period ended January 31, 2001 was $1.7 million compared to $1.2 million
for the one-month period ended January 31, 2000. This increase was primarily
attributable to increased salaries and benefits and service center expenses.
Total salaries and benefits accounted for 52% of the total increase due to the
expansion and staffing of the Broadcast Operations department. Service center
expenses accounted for 42% of the total increase due to the expansion and
staffing of the customer service center.
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 one-month period ended
January 31, 2001
26
were $2.5 million compared to $1.7 million for the one-month period ended
January 31, 2000. Approximately 61% of the total increase in expenses was due to
the hiring of additional engineers to help support the improvement and addition
of features and functionality of current products as well as the design of new
platforms. Approximately 19% of the total increase was related to prototype
expenses.
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 one-month period ended January 31, 2001 were $7.9 million
compared to $3.5 million for the one-month period ended January 31, 2000. The
increase was primarily attributable to an increase in expenditures for
advertising, public relations and trade shows in connection with the continued
retail marketing campaign of the TiVo Service and the personal video recorder
that enables the TiVo Service. Advertising expenses, including public relations
and trade shows, comprised over 63% of the total increase in sales and marketing
expenses. For the one-month period ended January 31, 2001, total salaries
expense was $776,000 compared to $385,000 for the one-month period ended January
31, 2000. Salaries expense accounted for 9% of the total increase. We expect our
marketing expenses to continue to be a large portion of our total company
expenses for fiscal year 2002. Advertising expense for fiscal year 2002 will be
comprised mostly of marketing campaigns focused on consumer education.
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 one-month period ended January 31, 2001 was $6.6 million
compared to $2.2 million for the one-month period ended January 31, 2000. The
increase in sales and marketing--related parties expense is primarily
attributable to the manufacturing and shipments of personal video recorders and
to the related activations of subscribers to the TiVo Service and AOL media
insertion orders.
Sales and marketing--related parties expense for the one-month period ended
January 31, 2001, consists of cash charges of $5.4 million and non-cash charges
of $1.2 million. The non-cash portion is related to the amortization of
warrants or common stock issued for services that we issued to AOL and DIRECTV.
We amortize the valuation of the warrants and common stock issued for services
on a straight-line basis over the period that the services are provided.
The cash portion of sales and marketing--related parties expense is
comprised of revenue share and manufacturing subsidy payments to Philips, Sony,
Quantum and DIRECTV. Additionally included are media insertion orders paid to
AOL. Subsidies are formula based payments to our partners in exchange for key
activites and results. The formulas are periodically adjusted based on our
partners' manufacturing costs and selling prices. A portion of the subsidy is
payable after shipment and the balance is payable after the subscription is
activated. We have also agreed to share a portion of our revenues with some of
our strategic partners in order to promote the TiVo Service and encourage the
manufacture and distribution of the personal video recorders that enable the
TiVo Service. Revenue share is calculated as an agreed upon percentage of
revenue for a specified group of TiVo subscribers. We anticipate that our
business will continue to grow and, as such, we expect the revenue share and
manufacturing subsidy amounts to continue to be large for next year. We are
currently working with our partners to manage manufacturing costs for fiscal
year 2002. 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 one-month period ended January 31, 2001 were $1.3 million compared to
$614,000 for the one-month period ended January 31, 2000. Over 51% of the
increase was primarily attributable to the hiring of additional personnel and
related expenses. Also contributing to the increase were consulting and
temporary expenses totaling 25% 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. The stock-based compensation expense
was approximately $175,000 for the one-month period ended January 31, 2001 and
$321,000 for the one-month period ended January 31, 2000.
Year Ended January 31, 2001 Compared to the Year Ended January 31, 2000
27
Revenues. Revenues for the year ended January 31, 2001 were $4.6 million,
compared to $357,000 for the year ended January 31, 2000. The increase is
attributable to increased customer subscriptions to the TiVo Service. During the
year ended January 2001, TiVo activated approximately 131,000 new subscribers to
the TiVo Service bringing the total installed subscriber base to approximately
154,000 as of January 31, 2001. As of January 31, 2000, the total subscriber
base was approximately 23,000.
Cost of services. Cost of services consists primarily of telecommunication
and network expenses, employee salaries, call center and other expenses related
to providing the TiVo Service to subscribers. Cost of services for the year
ended January 31, 2001 was $19.1 million compared to $5.1 million for the year
ended January 31, 2000. This increase was primarily attributable to increased
telecommunications and network expenses due to the increase in number of
activations. During the year ended January 31, 2001, telecommunications and
network expense increased 46% or $6.4 million over prior year expenses. Total
salaries and benefits accounted for 18% of the total increase due to the
expansion and staffing of the broadcast operations department and customer
service departments.
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 year ended January 31, 2001
were $25.1 million compared to $10.9 million for the year ended January 31,
2000. Approximately 50% of the total increase in expenses was due to the hiring
of additional engineers to help support the improvement and addition of features
and functionality of current products as well as the design of new platforms.
Approximately 23% of the total increase was related to research and development
consulting expenses.
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 year ended January 31, 2001 were $106.4 million compared to
$27.2 million for the year ended January 31, 2000. The increase was primarily
attributable to an increase in expenditures for advertising, public relations
and trade shows in connection with the continued retail marketing campaign of
the TiVo Service and the personal video recorder that enables the TiVo Service.
Advertising expenses, including public relations and trade shows, comprised over
78% of the total increase in sales and marketing expenses from year to year.
For the year ended January 31, 2001, channel sales support was $5.9 million
compared to $2.4 million for the year ended January 31, 2000. Channel sales
support accounted for 4% of the total increase. We expect our marketing expenses
to continue to be a large portion of our total company expenses for fiscal year
2002. Advertising expense for fiscal year 2002 will be comprised mostly of
marketing campaigns focused on consumer education.
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 year ended January 31, 2001 was $58.0 million compared to $17.4
million for the year ended January 31, 2000. The increase in sales and
marketing--related parties expense is primarily attributable to the
manufacturing and shipments of personal video recorders and to the related
activations of subscribers to the TiVo Service and AOL media insertion orders.
Sales and marketing--related parties expense for the year ended January 31,
2001, consists of cash charges of $47.4 million and non-cash charges of $10.6
million. The non-cash portion is related to the amortization of warrants or
common stock issued for services to AOL, Quantum, DIRECTV and Creative Artists
Agency, LLC. The total amount of warrant valuation and common stock issued for
services as of January 31, 2001 was $44.4 million, of which $21.6 million has
not yet been amortized. 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. We are currently working with our partners to manage
manufacturing costs for fiscal year 2002. 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 year ended January 31, 2001 were $15.1 million compared to $7.4 million for
the year ended January 31, 2000. Approximately 31% of the increase was primarily
attributable to the hiring of additional personnel and related expenses. Also
contributing to the increase were accounting and legal expenses totaling 17% 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
28
on the date of grant. As a result, stock-based compensation expense is being
recognized over the period that these stock options vest. The stock-based
compensation expense was approximately $3.0 million for the year ended January
31, 2001 and $1.9 million for the year ended January 31, 2000. The unamortized
balance of $2.8 million will be fully amortized by February 2004.
Other operating expenses, net. Other operating expenses, net consists of
the revenues from the sale of personal video recorders sold directly by TiVo,
less the cost of the personal video recorders sold. For the year ended January
31, 2001, other operating expenses, net was zero compared to $7.2 million for
the year ended January 31, 2000. We transitioned manufacturing and selling
personal video recorders in the fourth quarter of 1999 to Philips. The revenues
and costs resulting from the sale of personal video recorders were not expected
to be recurring and are therefore considered incidental to our business and as
such have been classified as other operating expense, net.
Interest income. Interest income resulting from cash and cash equivalents
held in interest bearing accounts and short term investments was $7.9 million
for the year ended January 31, 2001 compared to $3.6 million for the year ended
January 31, 2000, as cash balances have increased largely due to the AOL
investment in calendar year 2000.
Interest expense and other. Interest expense and other was $509,000 for
the year ended January 31, 2001. This includes amortization of the value
assigned primarily to the Comdisco warrant for interest expense of $164,000 and
disposal of an asset no longer used of approximately $227,000. For the year
ended January 31, 2000, interest expense and other was $495,000.
Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999
Revenues. Revenues for the year ended December 31, 2000 were $3.6 million,
compared to $223,000 for the year ended December 31, 1999. The increase is
attributable to increased customer subscriptions to the TiVo Service, which grew
by approximately 118,000 new subscribers during calendar year 2000, bringing the
total installed subscriber base to approximately 136,000 as of December 31,
2000.
Cost of services. Cost of services for the year ended December 31, 2000 was
$18.4 million compared to $4.1 million for the year ended December 31, 1999.
This increase was primarily attributable to increased telecommunications and
network expenses due to the increase in number of activations. The increase was
$7.3 million for the year ended December 31, 2000. Total salaries and benefits
accounted for 16% of the total increase due to the expansion and staffing of the
broadcast operations department and customer service departments.
Research and development expenses. TiVo's research and development expenses
for the year ended December 31, 2000 were $24.3 million compared to $9.7 million
for the year ended December 31, 1999. Approximately 49% of the total increase in
expenses was due to the hiring of additional engineers to help support the
improvement and addition of features and functionality of current products as
well as the design of new platforms. Approximately 22% of the total increase was
related to research and development consulting expenses.
Sales and marketing expenses. Sales and marketing expenses for the year
ended December 31, 2000 were $102.1 million compared to $24.5 million for the
year ended December 31, 1999. The increase was primarily attributable to an
increase in expenditures for advertising, public relations and trade shows in
connection with the continued retail marketing campaign of the TiVo Service and
the personal video recorder that enables the TiVo Service. Advertising expenses,
including public relations and trade shows, comprised over 78% of the total
increase in sales and marketing expenses from 1999 to 2000. For the year ended
December 31, 2000, channel sales support was $7.2 million compared to $1.7
million for the year ended December 31, 1999. Channel sales support accounted
for 7% of the total increase.
Sales and marketing--related parties. Sales and marketing--related parties
expense for the year ended December 31, 2000 was $53.6 million compared to $15.2
million for the year ended December 31, 1999. The increase in sales and
marketing--related parties expense is primarily attributable to the
manufacturing and shipments of personal video recorders and to the related
activations of subscribers to the TiVo Service.
Sales and marketing--related parties expense as of December 31, 2000,
consists of cash charges of $44.0 million and non-cash charges of $9.6 million.
The non-cash portion is related to the amortization of warrants or common stock
issued for services that we issued to AOL, Quantum, DIRECTV and Creative Artists
Agency, LLC. The total amount of warrant valuation and common stock issued for
services as of December 31, 2000 was $44.4 million. As of December 31, 2000,
$22.1 million has not yet been amortized. 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.
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General and administrative expenses. General and administrative expenses
for the year ended December 31, 2000 were $14.3 million compared to $7.0 million
for the year ended December 31, 1999. Over 31% of the increase was primarily
attributable to the hiring of additional personnel and related expenses. Also
contributing to the increase were accounting and legal expenses totaling 19% 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. The stock-based compensation expense
was approximately $3.1 million for the year ended December 31, 2000 and $1.5
million for the year ended December 31, 1999.
Other operating expenses, net. Other operating expenses, net consists of
the revenues from the sale of personal video recorders sold directly by TiVo,
less the cost of the personal video recorders sold. For the year ended December
31, 2000, other operating expenses, net was zero compared to $7.2 million for
the year ended December 31, 1999.
Interest income. Interest income resulting from cash and cash equivalents
held in interest bearing accounts and short term investments was $7.9 million
for the year ended December 31, 2000 compared to $2.9 million for the year ended
December 31, 1999, as cash balances have increased largely due to the AOL
investment in calendar year 2000.
Interest expense and other. Interest expense and other was $522,000 for
the year ended December 31, 2000. This includes amortization of the value
assigned primarily to the Comdisco for interest expense and convertible debt
warrants of $164,000 and disposal of an asset no longer used of approximately
$227,000. For the year ended December 31, 1999, interest expense and other was
$466,000.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998.
Revenues. Revenues for the year ended December 31, 1999 were $223,000,
compared to zero for the year ended December 31, 1998. The increase is
attributable to customer subscriptions to the TiVo Service, which began in March
1999. As of December 31, 1999, we had approximately 18,000 subscribers.
Cost of services. Cost of services for the year ended December 31, 1999 was
$4.1 million compared to zero for the year ended December 31, 1998. This
increase was primarily attributable to the hiring of content programming and
customer service personnel. Total salaries and benefits accounted for 45% of the
total cost of services expenses. The establishment of a customer call center in
connection with the retail release of the TiVo Service and the personal video
recorder that enables the TiVo Service comprised 48% of the total cost of
services expenses. Additionally, as subscribers increased there were other
variable costs, such as telephone charges which accounted for 4% of the total
cost of services.
Research and development expenses. TiVo's research and development expenses
for the year ended December 31, 1999 were $9.7 million compared to $5.6 million
for the year ended December 31, 1998. Increase in salary expenses 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 accounted for approximately 72% of the total increase from calendar
year 1998 to 1999. Approximately 22% of the total increase was related to
research and development consulting expenses.
Sales and marketing expenses. Sales and marketing expenses for the year
ended December 31, 1999 were $24.5 million compared to $1.3 million for the year
ended December 31, 1998. The increase was primarily attributable to an increase
in expenditures for advertising, public relations and trade shows in connection
with the continued retail marketing campaign of the TiVo Service and the
personal video recorder that enables the TiVo Service. Advertising expenses,
including public relations and trade shows, comprised over 75% of the total
increase in sales and marketing expenses from calendar year 1998 to 1999. For
the year ended December 31, 1999, sales support expense was $1.7 million
compared to zero for the year ended December 31, 1998. Sales support accounted
for 7% of the total increase.
Sales and marketing--related parties. Sales and marketing--related parties
expense for the year ended December 31, 1999 was $15.2 million compared to zero
for the year ended December 31, 1998. The increase in sales and marketing--
related parties expense is attributable to the manufacturing and shipments of
personal video recorders and to the related activations of subscribers to the
TiVo Service.
30
Sales and marketing--related parties expense as of December 31, 1999,
consists of cash expense of $2.5 million and non-cash charges of $12.7 million.
The non-cash portion is related to the amortization of warrants or common stock
issued for services that we issued to Quantum, DIRECTV and Creative Artists
Agency, LLC. The total amount of warrant valuation and common stock issued for
services as of December 31, 1999 was $29.0 million. As of December 31, 1999,
$16.3 million has not yet been amortized.
General and administrative expenses. General and administrative expenses
for the year ended December 31, 1999 were $7.0 million compared to $2.9 million
for the year ended December 31, 1998. Over 24% of the increase was primarily
attributable to the hiring of additional personnel and related expenses. Also
contributing to the increase were the costs of establishing Information Services
and Service Operations departments which did not exist during the year ended
December 31, 1998 or prior. The costs of the Information Services department was
38% and the costs of the Service Operations department was 31% of the total
increase in general and administrative expenses.
Stock-based compensation. During 1999, we granted stock options with
exercise prices that were less than the estimated fair value of the underlying
shares of common stock on the date of grant. As a result, stock-based
compensation expense is being recognized over the period that these stock
options vest. The stock-based compensation expense was approximately $1.5
million for the year ended December 31, 1999 and zero for the year ended
December 31, 1998.
Other operating expenses, net. Other operating expenses, net consists of
the revenues from the sale of personal video recorders sold directly by TiVo,
less the cost of the personal video recorders sold. For the year ended December
31, 1999, other operating expenses, net was $7.2 million compared to zero for
the year ended December 31, 1998.
Interest income. Interest income resulting from cash and cash equivalents
held in interest bearing accounts and short term investments was $2.9 million
for the year ended December 31, 1999 compared to $136,000 for the year ended
December 31, 1998, as cash balances have increased due to proceeds of the
private sale of equity securities and the proceeds from TiVo's initial public
offering.
Interest expense and other. Interest expense and other was $466,000 for
the year ended December 31, 1999. This includes amortization of the value
assigned primarily to the Comdisco and convertible debt warrants of $432,000 and
interest expense of $34,000 resulting from borrowings under the capital lease
obligation. For the year ended December 31, 1998, interest expense was $20,000
and other expense was $19,000.
Liquidity and Capital Resources
From inception through January 31, 2001, we financed our operations and met
our capital expenditure requirements primarily from the proceeds of the private
sale of equity securities and the proceeds from our initial public offering. At
January 31, 2001, we had $124.5 million of cash and cash equivalents. In April
2001, we announced our new operating plan that we believe will eliminate the
need for additional funding during our current fiscal year, ending on January
31, 2002. The plan supports our key objectives of building our subscriber base
and increasing revenue, while reducing our operating expenses by nearly 35%. We
intend to execute several key initiatives in order to achieve our targeted cost
reductions. We expect that these initiatives will reduce our cash burn-rate by
approximately $60.0 million for the current fiscal year ending January 31, 2002.
The initiatives are: leveraged marketing, a new, low cost platform, reduced
infrastructure costs, reduced service operations costs and headcount reductions.
With this change in our operating plan, we believe that our capital is adequate
to fund operations, capital expenditures and working capital needs through our
fiscal year ending January 31, 2002.
Net cash used in operating activities was $23.6 million for the one-month
transition period ended January 31, 2001. During the one-month transition period
ended January 31, 2001, we continued to provide the TiVo Service, incurring a
net loss of $18.6 million. Uses of cash from operating activities also included
an increase in prepaid expenses of $17.8 million, of which $16.5 million was for
prepaid advertising related to the AOL media insertion orders, an increase in
accounts receivable-related parties of $623,000 and an decrease in accrued
liabilities of $127,000. These uses were offset by sources of cash provided from
operating activities consisting of an increase in accrued liabilities--related
parties of $6.0 million, an increase in accounts payable of $2.0 million, an
increase in long-term deferred revenue of $1.1 million, an increase in deferred
revenue of $850,000 and an increase in other long-term liabilities of $30,000.
Net cash used in investing activities was $758,000 for the one-month
transition period ended January 31, 2001 was for the acquisition of property and
equipment.
31
Net cash provided by financing activities was $42.8 million for the one-
month transition period ended January 31, 2001. Of this amount, $43.5 million
was from proceeds of restricted cash that was released under the terms of the
First Amendment to the Escrow Agreement, dated as of January 30, 2001.
Additionally, we received $21,000 from the issuance of common stock for stock
options exercised. Cash was used for payment of the redeemable convertible
preferred stock dividend of $423,000, payment of issuance costs for the stock
issued to AOL of $250,000 and payment on a capital lease of $64,000.
We have commitments for future lease payments under facilities operating
leases of $18.8 million and obligations under capital leases of $1.4 million as
of January 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.
Our future capital requirements will depend on a variety of factors,
including market acceptance of the personal video recorder and the TiVo Service,
the resources we devote to developing, marketing, selling and supporting our
products and other factors. We expect to devote substantial capital resources:
. to develop new or enhance existing services or products;
. to continue support of our customer call center
. to subsidize the sale of personal video recorders;
. for advertising to educated consumers;
. to further expansion in the European market;
. for general corporate purposes.
We believe that our cash and cash equivalents, the net proceeds from the
sale of our Series A redeemable convertible preferred stock and private sales of
equity securities and the net proceeds from the initial public offering that we
have raised to date will be sufficient to fund our operations for at least the
next 12 months through fiscal year ending January 31, 2002. Despite our
expectations, we may need to raise additional capital before the end of the next
12 months in order to:
. fund anticipated growth, including significant increases in
personnel, office facilities and computer systems;
. develop new or enhance existing services or products;
. expand into new markets and respond to competitive pressures; or
. acquire or invest in complementary businesses, technologies,
services or products.
In addition, in order to meet long-term liquidity needs, we may need to
raise additional funds, establish a credit facility or seek other financing
arrangements. Additional funding may not be available on favorable terms or at
all. See "Factors That May Affect Future Operating Results-If we are unable to
raise additional capital on acceptable terms, our ability to effectively manage
growth and build a strong brand could be harmed."
Factors That May Affect Future Operating Results
In addition to the other information included in this Transition 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 one-month transition period
ended January 31, 2001 and the year ended December 31, 2000, we recognized
subscription revenues of $989,000 and $3.6 million, respectively. As of January
31, 2001, we had an accumulated deficit of $302.2 million. We expect to incur
significant operating expenses over the next several years in connection with
the continued development and expansion of our business. As a result, we expect
to continue to incur losses for the foreseeable future. The size of these net
losses depends in part on the growth in our subscriber base and on our expenses.
With increased expenses, we will need to generate significant additional
revenues to
32
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 January 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:
. educate consumers on the benefits of the TiVo Service and related
personal video recorder, which will require an extensive
marketing campaign;
. commit a substantial amount of human and financial resources to
achieve continued, successful retail distribution; and
. coordinate our own sales, marketing and support activities with
those of Philips, Sony, BSkyB, DIRECTV, AOL and other strategic
partners.
We or our strategic partners may not achieve any or all of these
objectives. In addition, consumers may perceive the TiVo Service and related
personal video recorder as too expensive or complex and our marketing campaign
may not effectively attract new subscribers. Because of competitive offerings or
changing preferences, consumers may delay or decline the purchase of the TiVo
Service and related personal video recorder. All of these events would reduce
consumer demand and market acceptance, diminish our brand and impair our ability
to attract subscribers to the TiVo Service.
We have agreed to share a substantial portion of the revenue we generate from
subscription fees with some of our strategic partners. We may be unable to
generate enough revenue to cover these obligations.
We have agreed to share a substantial portion of our subscription and other
fees with some of our strategic partners in exchange for manufacturing,
distribution and marketing support and discounts on key components for personal
video recorders. Given how these amounts are calculated, we may be required to
share substantial portions of the subscription and other fees attributable to
the same subscriber with multiple partners. These agreements require us to share
a portion of our subscription fees whether or not we increase or decrease the
price of the TiVo Service. If we change our subscription fees in response to
competitive or other market factors, our operating results would be adversely
affected. Our decision to share subscription revenues is based on our
expectation that our partnerships will help us obtain subscribers, broaden
market acceptance of personal television and increase our future revenues. If
these expectations are not met, we may be unable to generate sufficient revenue
to cover our expenses and obligations.
33
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.
We are dependent on single suppliers for several key components and
services. If these suppliers fail to perform their obligations, we may be unable
to find alternative suppliers or deliver our products and services to our
customers on time. We currently rely on sole suppliers for a number of the key
components and services used in the personal video recorders and the TiVo
Service. For example:
. Quantum is the sole supplier of the hard disk drives;
. NEC is the sole supplier of the application specific integrated
circuit, a semiconductor device;
. Sony is the sole supplier of the MPEG2 encoder semiconductor
device; and
. Tribune Media Services is the sole supplier of program guide
data.
In addition to the above, we have several sole suppliers for key components
of our products currently under development.
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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. 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.
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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:
. advertising;
. revenues from networks; and
. electronic commerce or couch commerce.
In order to derive substantial revenues from these activities, we will need
to attract and retain a large and growing base of subscribers to the TiVo
Service. We also will need to work closely with television advertisers, cable
and satellite network operators, electronic commerce companies and consumer
electronics manufacturers to develop products and services in these areas. We
may not be able to effectively work with these parties to develop products that
generate revenues that are sufficient to justify their costs. In addition, we
are currently obligated to share a portion of these revenues with several of our
strategic partners. Any inability to attract and retain a large and growing
group of subscribers and strategic partners will seriously harm our ability to
support new services and develop new revenue streams.
It will take a substantial amount of time and resources to achieve broad
market acceptance of the TiVo Service and products that enable the TiVo Service
and we cannot be sure that these efforts will generate a broad enough subscriber
base to sustain our business.
Personal television products and services represent a new, untested
consumer electronics category. The TiVo Service is in an early stage of
development and many consumers are not aware of its benefits. As a result, it is
uncertain whether the market will demand and accept the TiVo Service and
products that enable the TiVo Service. Retailers, consumers and potential
partners may perceive little or no benefit from personal television products and
services. Likewise, consumers may not value, and may be unwilling to pay for the
TiVo Service and products that enable the TiVo Service. To develop this market
and obtain subscribers to the TiVo Service, we will need to devote a substantial
amount of time and resources to educate consumers and promote our products. We
may fail to obtain subscribers, encourage the development of new devices that
enable the TiVo Service and develop and offer new content and services. We
cannot be sure that a broad base of consumers will ultimately subscribe to the
TiVo Service or purchase the products that enable the TiVo Service.
We face intense competition from a number of sources, which may impair our
revenues and ability to generate subscribers.
The personal television market is new and rapidly evolving and we expect
competition from a number of sources, including:
Internet-related companies and companies offering similar products and
services. We are likely to face intense direct competition from companies such
as WebTV Networks Inc., SonicBlue and X-TV. These companies offer, or have
announced their intention to offer, products with one or more of the TiVo
Service's functions or features and, in some instances, combine these features
with Internet browsing or traditional broadcast, cable or satellite television
programming. Many of these companies have greater brand recognition and market
presence and substantially greater financial, marketing and distribution
resources than we do. For example, Microsoft Corporation controls and provides
financial backing to WebTV. Some of these companies also have established
relationships with third party consumer electronic manufacturers, network
operators and programmers, which could make it difficult for us to establish
relationships and enter into agreements with these third parties. Some of these
competitors also have relationships with our strategic partners. For example,
DIRECTV recently formed an alliance with Microsoft. Faced with this competition,
we may be unable to expand our market share and attract an increasing number of
subscribers to the TiVo Service.
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Established competitors in the consumer electronics market. We compete
with consumer electronic products in the television and home entertainment
industry. The television and home entertainment industry is characterized by
rapid technological innovation, a small number of dominant manufacturers and
intense price competition. As a new product category, personal television enters
a market that is crowded with several established products and services. The
competition for consumer spending in the television and home entertainment
market is intense, and our products and services will compete with:
. satellite television systems;
. video on demand services;
. digital video disc players; and
. laser disc players.
Most of these technologies or devices have established markets, a broad
subscriber base and proven consumer acceptance. In addition, many of the
manufacturers and distributors of these competing devices have substantially
greater brand recognition, market presence, distribution channels, advertising
and marketing budgets and promotional and other strategic partners. Faced with
this competition, we may be unable to effectively differentiate the personal
video recorder or the TiVo Service from these devices.
Established competition for advertising budgets. Personal television, in
general, and TiVo, specifically, also compete with traditional advertising media
such as print, radio and television for a share of advertisers' total
advertising budgets. If advertisers do not perceive personal television as an
effective advertising medium, they may be reluctant to devote a significant
portion of their advertising budget to promotions on the TiVo Service.
If we are unable to introduce new products or services, or if our new products
and services are unsuccessful, the growth in our subscriber base and revenues
may suffer.
To attract and retain subscribers and generate revenues, we must continue
to add functionality and content and introduce products and services which
embody new technologies and, in some instances, new industry standards. This
challenge will require hardware and software improvements, as well as new
collaborations with programmers, advertisers, network operators, hardware
manufacturers and other strategic partners. These activities require significant
time and resources and may require us to develop and promote new ways of
generating revenue with established companies in the television industry. These
companies include television advertisers, cable and satellite network operators,
electronic commerce companies and consumer electronics manufacturers. In each
of these examples, a small number of large companies dominate a major portion of
the market and may be reluctant to work with us to develop new products and
services for personal television. If we are unable to further develop and
improve the TiVo Service or expand our operations in a cost-effective or timely
manner, our ability to attract and retain subscribers and generate revenue will
suffer.
If we do not successfully establish strong brand identity in the personal
television market, we may be unable to achieve widespread acceptance of our
products.
We believe that establishing and strengthening the TiVo brand is critical
to achieving widespread acceptance of our products and services and to
establishing key strategic partnerships. The importance of brand recognition
will increase as current and potential competitors enter the personal television
market with competing products and services. Our ability to promote and position
our brand depends largely on the success of our marketing efforts and our
ability to provide high quality services and customer support. These activities
are expensive and we may not generate a corresponding increase in subscribers or
revenues to justify these costs. If we fail to establish and maintain our brand,
or if our brand value is damaged or diluted, we may be unable to attract
subscribers and effectively compete in the personal television market.
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
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and profits. Our business also will be harmed if consumers believe our service
is unreliable. In addition to placing increased burdens on our engineering
staff, service outages will create a flood of customer questions and complaints
that must be responded to by our customer support personnel. Any frequent or
persistent system failures could irreparably damage our reputation and brand.
We have detected and may continue to detect errors and product defects.
These problems can affect system uptime, result in significant warranty and
repair problems, which could cause customer service and customer relations
problems. Correcting errors in our software requires significant time and
resources, which could delay product releases and affect market acceptance of
the TiVo Service. Any delivery by us of products or upgrades with undetected
material product defects or software errors could harm our credibility and
market acceptance of the personal video recorders and the TiVo Service.
Intellectual property claims against us can be costly and could result in the
loss of significant rights.
From time to time, we may be subject to intellectual property litigation,
which could:
. be time-consuming and expensive;
. divert management's attention and resources away from our
business;
. cause delays in product delivery and new service introduction;
. cause the cancellation of new products or services; or
. require us to pay significant royalties or licensing fees.
The emerging enhanced-television industry is highly litigious, particularly
in the area of on-screen program guides. Additionally, many patents covering
interactive television technologies have been granted but have not been
commercialized. For example, we are aware of at least seven patents for pausing
live television. A number of companies in the enhanced-television industry earn
substantial profits from technology licensing, and the introduction of new
technologies such as ours is likely to provoke lawsuits from such companies. A
successful claim of infringement against us, our inability to obtain an
acceptable license from the holder of the patent or other right or our inability
to design around an asserted patent or other right could cause our manufacturing
partners to cease manufacturing the personal video recorder or us to cease
providing our service, or both, which would eliminate our ability to generate
revenues.
On January 6, 2000, PhoneTel Communications, Inc. filed a lawsuit against
us in the U.S. District Court for the Northern District of Texas alleging
willful and deliberate violation of U.S. Patent Number 4,873,584, entitled
"Computer Control for VCR including Display of Record Playback Listing and
Playback Order Selection." held by PhoneTel. The complaint alleged that TiVo
infringed the patent by, among other things, making, using, selling, offering to
sell and/or importing its television set-top boxes, and sought unspecified
monetary damages, an injunction against TiVo's operations, and attorneys' fees
and costs. On April 17, 2000, the suit was voluntarily dismissed by PhoneTel.
While the suit could be re-filed by PhoneTel, TiVo believes that it has
meritorious defenses against the claims and would vigorously defend itself
against such claims. In the event the suit is re-filed, TiVo could be forced to
incur material expenses, and in the event it were to lose such a suit, its
business would be harmed.
On January 18, 2000, StarSight Telecast Inc., a subsidiary of Gemstar
International Group Limited filed a lawsuit against us in the U.S. District
Court for the Northern District of California alleging willful and deliberate
violation of U.S. Patent Number 4,706,121, entitled "TV Schedule System and
Process," held by StarSight. The complaint alleged that TiVo infringed the
patent by, among other things, making, using, selling, offering to sell and/or
importing its TV schedule systems and processes without a license from
StarSight. Starsight seeks unspecified monetary damages and an injunction
against our operations. The suit also seeks attorneys' fees and costs. TiVo
believes that we have has meritorious defenses against the suit and intends to
vigorously defend ourself. On February 25, 2000, TiVo counterclaimed against
StarSight, Gemstar Development Corporation and Gemstar International Group
Limited seeking damages for federal antitrust violations and state unfair
business practices claims, as well as declaratory relief of non-infringement,
invalidity and unenforceability with respect to the patent. TiVo could be
forced to incur material expenses during this litigation, and in the event we
were to lose this suit our business would be harmed.
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
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articles have appeared in the press regarding the formation of a consortium of
broadcast and cable television networks called the Advanced Television Copyright
Coalition. Some of those articles have indicated that the coalition is prepared
to support litigation and to explore legislative solutions unless the members of
the personal television industry agree to obtain license agreements for use of
the companies' programming. We have received letters from Time Warner Inc. and
Fox Television stating that these entities believe our personal television
service exploits copyrighted networks and programs without the necessary
licenses and business arrangements. Lawsuits or other actions taken by these
types of organizations or companies could make it more difficult for us to
introduce new services, delay widespread consumer acceptance of our products and
services, restrict our use of some television content, increase our costs and
adversely affect our business.
Our success depends on our ability to secure and protect patents, trademarks
and other proprietary rights.
Our success and ability to compete are substantially dependent upon our
internally developed technology. We rely on patent, trademark and copyright
law, trade secret protection and confidentiality or license agreements with our
employees, customers, partners and others to protect our proprietary rights.
However, the steps we take to protect our proprietary rights may be inadequate.
We have filed patent applications and provisional patent applications covering
substantially all of the technology used to deliver the TiVo Service and its
features and functionality. To date, none of these patents has been granted, and
we cannot assure you that any 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
39
concerns, however, could create uncertainty in the marketplace for personal
television and our products and services. Changes in our privacy policy could
reduce demand for the TiVo Service, increase the cost of doing business as a
result of litigation costs or increased service delivery costs, or otherwise
harm our reputation and business.
In the future, our revenues and operating results may fluctuate significantly,
which may adversely affect the market price of our common stock.
We expect our revenues and operating results to fluctuate significantly due
to a number of factors, many of which are outside of our control. Therefore, you
should not rely on period-to-period comparisons of results of operations as an
indication of our future performance. It is possible that in some future periods
our operating results may fall below the expectations of market analysts and
investors. In this event, the market price of our common stock would likely
fall.
Factors that may affect our quarterly operating results include:
. demand for personal video recorders and the TiVo Service;
. the timing and introduction of new services and features on the
TiVo Service;
. seasonality and other consumer and advertising trends;
. changes in revenue sharing arrangements with our strategic
partners;
. entering into new or terminating existing strategic partnerships;
. changes in the subsidy payments we make to certain strategic
partners;
. changes in our pricing policies, the pricing policies of our
competitors and general pricing trends in the consumer
electronics market;
. loss of subscribers to the TiVo Service; and
. general economic conditions.
Because our expenses precede associated revenues, unanticipated shortfalls
in revenue could adversely affect our results of operations for any given period
and cause the market price of our common stock to fall.
Seasonal trends may cause our quarterly operating results to fluctuate and our
inability to forecast these trends may adversely affect the market price of our
common stock.
Consumer electronic product sales have traditionally been much higher
during the holiday shopping season than during other times of the year. Although
predicting consumer demand for our products is very difficult, we believe that
sales of personal video recorders and new subscriptions to the TiVo Service will
be disproportionately high during the holiday shopping season when compared to
other times of the year. If we are unable to accurately forecast and respond to
consumer demand for our products, our reputation and brand will suffer and the
market price of our common stock would likely fall.
We expect that a portion of our future revenues will come from targeted
commercials and other forms of television advertising enabled by the TiVo
Service. Expenditures by advertisers tend to be seasonal and cyclical,
reflecting overall economic conditions as well as budgeting and buying patterns.
A decline in the economic prospects of advertisers or the economy in general
could alter current or prospective advertisers' spending priorities or increase
the time it takes to close a sale with our advertisers, which could cause our
revenues from advertisements to decline significantly in any given period.
If we are unable to raise additional capital on acceptable terms, our ability
to effectively manage growth and build a strong brand could be harmed.
We expect that our existing capital resources will be sufficient to meet
our cash requirements through at least the next 12 months. 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
40
acceptable terms, we may not be able to develop or enhance our products and
services, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements.
If additional capital is raised through the issuance of equity securities,
the percentage ownership of our existing stockholders will decline, stockholders
may experience dilution in net book value per share, or these equity securities
may have rights, preferences or privileges senior to those of the holders of our
common stock. Any debt financing, if available, may involve covenants limiting,
or restricting our operations or future opportunities.
We have agreed to subsidize the cost of manufacturing personal video
recorders, which may adversely affect our operating results and ability to
achieve profitability.
We have agreements with our consumer electronic manufacturing partners to
manufacture the personal video recorder that enables the TiVo Service. We have
agreed to pay our manufacturing partners a per-unit subsidy for each personal
video recorder that they manufacture and sell. The amount of the payments can
vary depending upon the manufacturing costs and selling prices. In addition, in
the event our manufacturing partners are unable to manufacture the personal
video recorders at the costs currently estimated or if selling prices are less
than anticipated, we may owe additional amounts to them, which could adversely
affect our operating results. We are obligated to pay a portion of the subsidy
when the personal video recorder is shipped, and we will not receive any
revenues related to the unit until the unit is sold and the purchaser activates
the TiVo Service. We may make additional subsidy payments in the future to
consumer electronic and other manufacturers in an effort to maintain a
commercially viable retail price for the personal video recorders and other
devices that enable the TiVo Service.
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.
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 April 12, 2001, our common stock has
closed between $71.50 per share and $4.00 per share, closing at $4.11 on April
12, 2001. The market price of our common stock may be subject to significant
fluctuations in response to, among other things, the factors discussed in this
section and the following factors:
. Changes in estimates of our financial performance or changes in
recommendations by securities analysts;
. Our failure to meet the expectations of securities analysts or
investors;
. Release of new or enhanced products or introduction of new
marketing initiatives by us or our competitors;
. Announcements by us or our competitors of the creation,
developments under or termination of significant strategic
partnerships, joint ventures, significant contracts or
acquisitions;
. Fluctuations in the market prices generally for technology-
related stocks;
. Fluctuations in general economic conditions;
41
. Fluctuations in interest rates;
. Market conditions affecting the television and home entertainment
industry;
. Fluctuations in operating results; and
. Additions or departures of key personnel.
The stock market has from time to time experienced extreme price and volume
fluctuations, which have particularly affected the market prices for emerging
companies, and which have often been unrelated to their operating performance.
These broad market fluctuations may adversely affect the market price of our
common stock.
Our Certificate of Incorporation, Bylaws, Rights Agreement and Delaware law
could discourage a third party from acquiring us and consequently decrease the
market value of our common stock.
We may become the subject of an unsolicited attempted takeover of our company.
Although an unsolicited takeover could be in the best interests of our
stockholders, certain provisions of Delaware law, our organizational documents
and our Rights Agreement could be impediments to such a takeover.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a business combination with
an interested stockholder for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. Our Amended and
Restated Certificate of Incorporation and Bylaws also require that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of the stockholders and may not be effected by
a consent in writing. In addition, special meetings of our stockholders may be
called only by our board of directors, the chairman of the board or the chief
executive officer. Our Amended and Restated Certificate of Incorporation and
Bylaws also provide that directors may be removed only for cause by a vote of a
majority of the stockholders and that vacancies on the board of directors
created either by resignation, death, disqualification, removal or by an
increase in the size of the board of directors may be filled by a majority of
the directors in office, although less than a quorum. Our Amended and Restated
Certificate of Incorporation also provides for a classified board of directors
and specifies that the authorized number of directors may be changed only by
resolution of the board of directors.
On January 9, 2001, our board of directors adopted a Rights Agreement. Each
share of our common stock has attached to it a right to purchase one one-
hundredth of a share of our Series B Junior Participating Preferred Stock at a
price of $60 per one one-hundredth of a preferred share in the event that the
rights become exercisable. The rights become exercisable upon the earlier to
occur of (i) ten days following a public announcement that a person or group of
affiliated or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of our common stock, subject to limited
exceptions, or (ii) ten business days (or such later date as may be determined
by action of our board of directors prior to such time as any person or group of
affiliated persons becomes an acquiring person as described in the preceding
clause) following the commencement or announcement of an intention to make a
tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of our common stock,
subject to limited exceptions.
These provisions of Delaware law, our Amended and Restated Certificate of
Incorporation and Bylaws and our Rights Agreement could make it more difficult
for us to be acquired by another company, even if our acquisition is in the best
interests of our stockholders. Any delay or prevention of a change of control or
change in management could cause the market price of our common stock to
decline.
The nature of some of our strategic relationships may restrict our ability to
operate freely in the future.
From time to time, we may engage in discussions with other parties concerning
strategic relationships, which may include equity investments by such parties in
our company. We currently have such relationships with a number of our
strategic partners, including AOL, DIRECTV, Sony and Philips. While we believe
that such relationships have enhanced our ability to finance and develop our
business model, the terms and conditions of such relationships may place some
restrictions on our freedom to operate in the future.
42
Item 7A. 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.
The table below presents principal amounts and related weighted average
interest rates as of January 31, 2001 for our cash and cash equivalents. We had
no short-term investments at this time.
Cash and cash equivalents............................... $124,474,000
Average interest rate............................... 6.27%
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.
43
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements and notes thereto appear on
pages 46 to 72 of this Transition Report on Form 10-K. The unaudited quarterly
results of our consolidated operations for our two most recent fiscal years are
incorporated herein by reference under Item 6. "Selected Financial Data."
Index to Financial Statements
Report of Independent Public Accountants......... 45
Consolidated Balance Sheets...................... 46
Consolidated Statements of Operations............ 48
Consolidated Statements of Stockholders' Equity.. 49
Consolidated Statements of Cash Flows............ 52
Notes to Consolidated Financial Statements....... 54
44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of TiVo Inc.:
We have audited the accompanying consolidated balance sheets of TiVo Inc.
(a Delaware corporation) as of January 31, 2001, December 31, 2000 and December
31, 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for the one-month ended January 31, 2001 and for each of
the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TiVo Inc. as
of January 31, 2001, December 31, 2000 and December 31, 1999, and the results of
its operations and its cash flows for the one-month ended January 31, 2001 and
for each of the three years in the period ended December 31, 2000 in conformity
with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California
March 2, 2001
45
TIVO INC.
CONSOLIDATED BALANCE SHEETS
January 31, December 31, December 31,
2001 2000 1999
--------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................ $124,474,000 $106,096,000 $139,687,000
Short-term investments................................................... -- -- 6,168,000
Restricted cash.......................................................... 50,104,000 93,166,000 --
Accounts receivable, net of allowance for doubtful accounts of $263,000,
$211,000 and zero as of January 31, 2001,
December 31, 2000 and December 31, 1999 respectively.................... 1,772,000 2,036,000 127,000
Accounts receivable-related parties...................................... 4,878,000 4,255,000 210,000
Prepaid expenses and other............................................... 8,391,000 9,093,000 2,589,000
-------------- ------------- -------------
Total current assets.................................................... 189,619,000 214,646,000 148,781,000
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $4,813,000,
$4,307,000 and $831,000 as of January 31, 2001, December 31, 2000 and
December 31, 1999, respectively.......................................... 21,924,000 21,672,000 4,061,000
-------------- ------------- -------------
Total assets....................................................... $211,543,000 $236,318,000 $152,842,000
============== ============= =============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMMON STOCK AND
STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable......................................................... $ 21,971,000 $ 20,018,000 $ 8,432,000
Accrued liabilities...................................................... 19,863,000 19,990,000 4,778,000
Accrued liabilities-related parties...................................... 49,839,000 43,847,000 2,349,000
Deferred interest income on restricted cash.............................. 2,104,000 1,666,000 --
Deferred revenue, short-term............................................. 6,210,000 5,360,000 2,271,000
Current portion of obligations under capital lease....................... 796,000 792,000 624,000
-------------- ------------- -------------
Total current liabilities............................................... 100,783,000 91,673,000 18,454,000
Long-term portion of obligations under capital lease..................... 538,000 606,000 1,141,000
Deferred revenue, long-term.............................................. 12,113,000 11,013,000 --
Other long-term liabilities.............................................. 1,217,000 1,187,000 --
-------------- ------------- -------------
Total long-term liabilities............................................. 13,868,000 12,806,000 1,141,000
-------------- ------------- -------------
Total liabilities.................................................. 114,651,000 104,479,000 19,595,000
-------------- ------------- -------------
The accompanying notes are an integral part of these consolidated statements.
46
TIVO INC.
CONSOLIDATED BALANCE SHEETS (continued)
January 31, December 31, December 31,
2001 2000 1999
----------------------------------------------
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMMON STOCK
Series A Redeemable convertible preferred stock,
par value $0.001:
Issued and outstanding shares at January 31, 2001,
December 31, 2000 and December 31, 1999 are
1,600,000, 2,711,861 and zero, respectively.......................... $ 2,000 $ 3,000 $ --
Redeemable common stock, par value $0.001:
Issued and outstanding shares at January 31, 2001,
December 31, 2000 and December 31, 1999 are zero,
806,889 and zero, respectively....................................... -- 1,000 --
Additional paid-in capital............................................... 46,553,000 96,986,000 --
-------------- -------------- --------------
Total redeemable convertible preferred stock and common stock.... 46,555,000 96,990,000 --
STOCKHOLDERS' EQUITY
Series A Convertible preferred stock, par value $0.001:
Authorized shares at January 31, 2001 and December 31, 2000 are
10,000,000 and December 31, 1999 are zero
Issued and outstanding shares at January 31, 2001 are 1,111,861 and
zero at December 31, 2000 and December 31, 1999........................ $ 1,000 $ -- $ --
Common stock, par value $0.001:
Authorized shares at January 31, 2001 and December 31, 2000 are
150,000,000 and at December 31, 1999 are 75,000,000
Issued and outstanding shares at January 31, 2001 and December 31, 2000
and December 31, 1999 are 43,430,023, 42,597,530 and 37,746,391,
respectively........................................................... 43,000 42,000 38,000
Additional paid-in capital............................................... 406,294,000 351,151,000 235,423,000
Deferred compensation.................................................... (2,786,000) (2,972,000) (6,170,000)
Prepaid marketing expenses............................................... (48,458,000) (27,550,000) (16,341,000)
Note receivable.......................................................... (2,509,000) (2,587,000) (2,822,000)
Retained deficit......................................................... (302,248,000) (283,235,000) (76,881,000)
-------------- -------------- --------------
Total stockholders' equity......................................... 50,337,000 34,849,000 133,247,000
-------------- -------------- --------------
Total liabilities, redeemable convertible preferred stock and
common stock and stockholders' equity............................. $ 211,543,000 $ 236,318,000 $152,842,000
============== ============== ==============
The accompanying notes are an integral part of these consolidated statements.
47
TIVO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
One-Month One-Month
Ended Ended Year Ended
---------- ---------- -----------------------------------------------
January 31, January 31, December 31, December 31, December 31,
2001 2000 2000 1999 1998
----------- ----------- ------------- ------------ ------------
(unaudited)
Revenues......................................... $ 989,000 $ 134,000 $ 3,571,000 $ 223,000 $ --
Costs and expenses
Cost of services (excludes $9,000, $16,000,
$141,000, $116,000 and zero of amortization
of stock-based compensation for the one-month
periods ended January 31, 2001 and 2000 and
years ended December 31, 2000, 1999 and 1998,
respectively).................................. 1,710,000 1,204,000 18,382,000 4,067,000 --
Research and development (excludes $37,000,
$89,000, $791,000, $431,000 and zero of
amortization of stock-based compensation for
the one-month periods ended January 31, 2001
and 2000 and years ended December 31, 2000,
1999 and 1998, respectively)................... 2,507,000 1,694,000 24,279,000 9,727,000 5,614,000
Sales and marketing (excludes $60,000, $78,000,
$992,000, $176,000 and zero of amortization
of stock-based compensation for the one-month
periods ended January 31, 2001 and 2000 and
years ended December 31, 2000, 1999 and 1998,
respectively).................................. 7,884,000 3,532,000 102,091,000 24,502,000 1,277,000
Sales and marketing-related parties.............. 6,632,000 2,225,000 53,604,000 15,172,000 --
General and administrative (excludes $69,000,
$138,000, $1,191,000, $807,000 and zero of
amortization of stock-based compensation for
the one-month periods ended January 31, 2001
and 2000 and years ended December 31, 2000,
1999 and 1998 respectively).................... 1,326,000 614,000 14,346,000 7,027,000 2,946,000
Stock-based compensation......................... 175,000 321,000 3,115,000 1,530,000 --
Other operating expense, net..................... -- -- -- 7,210,000 --
------------ ----------- ------------- ------------ ------------
Loss from operations........................... (19,245,000) (9,456,000) (212,246,000) (69,012,000) (9,837,000)
Interest income............................. 672,000 721,000 7,928,000 2,913,000 136,000
Interest expense and other.................. (17,000) (29,000) (522,000) (466,000) (20,000)
------------ ----------- ------------- ------------ ------------
Net loss....................................... (18,590,000) (8,764,000) (204,840,000) (66,565,000) (9,721,000)
Less: Series A redeemable convertible
preferred stock dividend...................... (423,000) -- (1,514,000) -- --
------------ ----------- ------------- ------------ ------------
Net loss attributable to common stock............ $(19,013,000) $(8,764,000) $(206,354,000) $(66,565,000) $ (9,721,000)
============ =========== ============= ============ ============
Net loss per common share
Basic and diluted.............................. $ (0.47) $ (0.25) $ (5.55) $ (5.49) $ (3.25)
============ =========== ============= ============ ============
Weighted average common shares outstanding -
Basic and diluted.............................. 40,850,353 35,274,071 37,175,493 12,128,560 2,989,717
============ =========== ============= ============ ============
The accompanying notes are an integral part of these consolidated statements
48
TIVO INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Convertible Additional
Preferred Stock Common Stock Paid-In
--------------------------- --------------------------
Shares Amount Shares Amount Capital
----------- ------------- ---------- ------- ------------
BALANCE, DECEMBER 31, 1997 5,000,000 $ 2,990,000 2,916,664 $ 3,000 $ 7,000
Issuance of Series B preferred stock at
$1.26 per share for cash....................... 3,660,914 4,609,000 -- -- --
Issuance of Series C preferred stock at
$1.85 per share for cash....................... 2,500,000 4,618,000 -- -- --
Exercise of stock options for common stock...... -- -- 2,276,458 2,000 130,000
Common stock exchanged for services............. -- -- 198,586 -- 60,000
Series C preferred stock exchanged for
services....................................... 13,513 25,000 -- -- --
Common stock repurchases........................ -- -- (174,771) -- (7,000)
Net loss........................................ -- -- -- -- --
----------- ------------- ---------- ------- ------------
BALANCE, DECEMBER 31, 1998 11,174,427 $ 12,242,000 5,216,937 $ 5,000 $ 190,000
Issuance of Series D preferred stock at
$3.68 per share for cash....................... 1,358,695 4,973,000 -- -- --
Issuance of Series E preferred stock at
$7.40 per share for cash....................... 270,270 1,982,000 -- -- --
Issuance of Series F preferred stock at
$7.40 per share for cash....................... 405,405 2,960,000 -- -- --
Issuance of Series G preferred stock at
$7.40 per share for cash....................... 1,013,513 7,431,000 -- -- --
Issuance of Series H preferred stock at
$7.40 per share for cash....................... 1,351,351 9,992,000 -- -- --
Issuance of Series I preferred stock at
$10.41 per share for cash...................... 3,121,994 31,494,000 -- -- --
Issuance of Series J preferred stock at
$10.41 per share for cash...................... 3,123,789 31,740,000 -- -- --
Conversion of preferred stock to common
stock.......................................... (21,819,444) (102,814,000) 21,819,444 22,000 102,792,000
Issuance of preferred stock warrants for
services....................................... -- -- -- -- 12,828,000
Issuance of common stock through initial
public offering, net of issuance costs......... -- -- 6,166,875 6,000 90,249,000
Issuance of common stock for marketing
services....................................... -- -- 1,852,329 2,000 12,038,000
Issuance of common stock for marketing
services and note receivable................... -- -- 1,128,867 1,000 7,336,000
Prepaid
Deferred Marketing Note Retained
Compensation Expense Receivable Deficit Total
------------ ------------ ----------- ------------- -------------
BALANCE, DECEMBER 31, 1997 $ -- $ -- $ -- $ (595,000) $ 2,405,000
Issuance of Series B preferred stock at
$1.26 per share for cash....................... -- -- -- -- 4,609,000
Issuance of Series C preferred stock at
$1.85 per share for cash....................... -- -- -- -- 4,618,000
Exercise of stock options for common stock...... -- -- -- -- 132,000
Common stock exchanged for services............. -- -- -- -- 60,000
Series C preferred stock exchanged for
services....................................... -- -- -- -- 25,000
Common stock repurchases........................ -- -- -- -- (7,000)
Net loss........................................ -- -- -- (9,721,000) (9,721,000)
----------- ------------ ----------- ------------- -------------
BALANCE, DECEMBER 31, 1998 $ -- $ -- $ -- $ (10,316,000) $ 2,121,000
Issuance of Series D preferred stock at
$3.68 per share for cash....................... -- -- -- -- 4,973,000
Issuance of Series E preferred stock at
$7.40 per share for cash....................... -- -- -- -- 1,982,000
Issuance of Series F preferred stock at
$7.40 per share for cash....................... -- -- -- -- 2,960,000
Issuance of Series G preferred stock at
$7.40 per share for cash....................... -- -- -- -- 7,431,000
Issuance of Series H preferred stock at
$7.40 per share for cash....................... -- -- -- -- 9,992,000
Issuance of Series I preferred stock at
$10.41 per share for cash...................... -- -- -- -- 31,494,000
Issuance of Series J preferred stock at
$10.41 per share for cash...................... -- -- -- -- 31,740,000
Conversion of preferred stock to common
stock.......................................... -- -- -- -- --
Issuance of preferred stock warrants for
services....................................... -- (12,454,000) -- -- 374,000
Issuance of common stock through initial
public offering, net of issuance costs......... -- -- -- -- 90,255,000
Issuance of common stock for marketing
services....................................... -- (12,040,000) -- -- --
Issuance of common stock for marketing
services and note receivable................... -- (4,515,000) (2,822,000) -- --
The accompanying notes are an integral part of these statements.
49
Covertible Additional
Preferred Stock Common Stock Paid-In
---------------------------- -----------------------------
Shares Amount Shares Amount Capital
------------ ------------ ------------- ------------ -------------
Issuance of common stock warrants for -- -- -- -- 498,000
services..................................
Exercise of stock options for common stock... -- -- 525,064 1,000 1,191,000
Exercise of warrants for common stock........ -- -- 1,125,234 1,000 (1,000)
Common stock exchanged for services.......... -- -- 137,983 -- 605,000
Common stock repurchases..................... -- -- (226,342) -- (28,000)
Amortization of prepaid marketing expenses... -- -- -- -- --
Amortization of warrants for services........ -- -- -- -- 25,000
Recognition of deferred compensation......... -- -- -- -- 7,700,000
Stock-based compensation expense............. -- -- -- -- --
Net loss..................................... -- -- -- -- --
------------ ------------ ------------- ------------ -------------
BALANCE, DECEMBER 31, 1999 -- $ -- 37,746,391 $38,000 $235,423,000
============ ============ ============= ============ =============
Series A redeemable convertible preferred
stock dividend, $0.56 per share.......... -- -- -- -- --
Issuance of common stock for cash and -- -- 4,327,833 4,000 99,996,000
prepaid marketing.........................
Issuance costs for common stock.............. -- -- -- -- (3,050,000)
Recognition of marketing expenses............ -- -- -- -- --
Issuance of warrants for marketing expenses.. -- -- -- -- 246,000
Issuance of common stock warrants for
prepaid marketing expenses................ -- -- -- -- 15,364,000
Issuance of common stock - employee stock
purchase plan............................. -- -- 177,907 -- 2,185,000
Exercise of stock options for common stock... -- -- 395,465 -- 1,110,000
Common stock repurchases..................... -- -- (50,066) -- (4,000)
Reversal of deferred compensation............ -- -- -- -- (83,000)
Stock-based compensation expense............. -- -- -- -- --
Amortization of prepaid marketing expenses... -- -- -- -- --
Amortization of note receivable.............. -- -- -- -- --
Amortization of warrants..................... -- -- -- -- (36,000)
Net loss..................................... -- -- -- -- --
------------ ------------ ------------- ------------ -------------
BALANCE, DECEMBER 31, 2000 -- $ -- 42,597,530 $ 42,000 $ 351,151,000
------------ ------------ ------------- ------------ -------------
Prepaid
Deferred Markerting Note Retained
Compensation Expense Receivable Deficit Total
------------ ----------- ------------ ----------------- -------------
Issuance of common stock warrants for
services.................................. -- -- -- -- 498,000
Exercise of stock options for common stock... -- -- -- -- 1,192,000
Exercise of warrants for common stock........ -- -- -- -- --
Common stock exchanged for services.......... -- -- -- -- 605,000
Common stock repurchases..................... -- -- -- -- (28,000)
Amortization of prepaid marketing expenses... -- 12,668,000 -- -- 12,668,000
Amortization of warrants for services........ -- -- -- -- 25,000
Recognition of deferred compensation......... (7,700,000) -- -- -- --
Stock-based compensation expense............. 1,530,000 -- -- -- 1,530,000
Net loss..................................... -- -- -- (66,565,000) (66,565,000)
------------ ------------ ------------ ------------- -------------
BALANCE, DECEMBER 31, 1999 $(6,170,000) $(16,341,000) $(2,822,000) $ (76,881,000) $ 133,247,000
============ ============ ============ ============= =============
Series A redeemable convertible preferred
stock dividend, $0.56 per share.......... -- -- -- (1,514,000) (1,514,000)
Issuance of common stock for cash and
prepaid marketing......................... -- (8,500,000) -- -- 91,500,000
Issuance costs for common stock.............. -- -- -- -- (3,050,000)
Recognition of marketing expenses............ -- 3,888,000 -- -- 3,888,000
Issuance of warrants for marketing expenses.. -- -- -- -- 246,000
Issuance of common stock warrants for
prepaid marketing expenses................ -- (15,364,000) -- -- --
Issuance of common stock - employee stock
purchase plan............................. -- -- -- -- 2,185,000
Exercise of stock options for common stock... -- -- -- -- 1,110,000
Common stock repurchases..................... -- -- -- -- (4,000)
Reversal of deferred compensation............ 83,000 -- -- -- --
Stock-based compensation expense............. 3,115,000 -- -- -- 3,115,000
Amortization of prepaid marketing expenses... -- 7,160,000 -- -- 7,160,000
Amortization of note receivable.............. -- -- 235,000 -- 235,000
Amortization of warrants..................... -- 1,607,000 -- -- 1,571,000
Net loss..................................... -- -- -- (204,840,000) (204,840,000)
------------ ------------ ------------ -------------- -------------
BALANCE, DECEMBER 31, 2000 $ (2,972,000) $(27,550,000) $ (2,587,000) $(283,235,000) $ 34,849,000
The accompanying notes are an integral part of these statements.
50
Convertible
Preferred Stock Common Stock Additional
------------------------------ ---------------------------- Paid-In
Shares Amount Shares Amount Capital
-------------- -------------- ------------ ------------ ------------
Series A redeemable convertible preferred
stock dividend declared, $0.16 per share.... -- -- -- -- --
Removal of redemption feature-Series A
convertible preferred stock................. 1,111,861 1,000 -- -- 32,351,000
Removal of redemption feature-common stock.... -- -- 806,889 1,000 18,082,000
Exercise of stock options for common stock.... -- -- 25,604 -- 21,000
Issuance of common stock warrants for
marketing expense........................... -- -- -- -- 76,000
Repricing of common stock warrants for
prepaid marketing expenses and other
consideration.............................. -- -- -- -- 4,874,000
Recognition of prepaid marketing expenses..... -- -- -- -- --
Amortization of value of warrants............. -- -- -- -- --
Amortization of prepaid marketing expenses.... -- -- -- -- --
Recognition of marketing expenses............ -- -- -- -- --
Reversal of deferred compensation............. -- -- -- -- (11,000)
Recognition of stock-based compensation
expense..................................... -- -- -- -- --
Amortization of note receivable............... -- -- -- -- --
Issuance costs for convertible preferred
stock and common stock...................... -- -- -- -- (250,000)
Net loss...................................... -- -- -- -- --
----------- ------------- ----------- ------------- -------------
BALANCE, JANUARY 31, 2001..................... 1,111,861 $ 1,000 43,430,023 $ 43,000 $ 406,294,000
=========== ============= =========== ============= =============
Prepaid
Deferred Marketing Note Retained
Compensation Expense Receivable Deficit Total
------------ ------------ ----------- --------- ----------
Series A redeemable convertible preferred
stock dividend declared, $0.16 per share.... -- -- -- (423,000) (423,000)
Removal of redemption feature-Series A
convertible preferred stock................. -- -- -- -- 32,352,000
Removal of redemption feature-common stock.... -- -- -- -- 18,083,000
Exercise of stock options for common stock.... -- -- -- -- 21,000
Issuance of common stock warrants for
marketing expenses......................... -- -- -- -- 76,000
Repricing of common stock warrants for
prepaid marketing expenses and other
consideration.............................. -- (4,874,000) -- -- --
Recognition of prepaid marketing expenses.... -- (18,502,000) (18,502,000)
Amortization of value of warrants............. -- 453,000 -- -- 453,000
Amortization of prepaid marketing expenses.... -- 627,000 -- -- 627,000
Recognition of marketing expenses............ -- 1,388,000 -- -- 1,388,000
Reversal of deferred compensation............. 11,000 -- -- -- --
Recognition of stock-based compensation
expense..................................... 175,000 -- -- -- 175,000
Amortization of note receivable............... -- -- 78,000 -- 78,000
Issuance costs for convertible preferred
stock and common stock...................... -- -- -- -- (250,000)
Net loss...................................... -- -- -- (18,590,000) (18,590,000)
----------- ------------- ----------- ------------- -------------
BALANCE, JANUARY 31, 2001..................... $(2,786,000) $ (48,458,000) $(2,509,000) $(302,248,000) $ 50,337,000
=========== ============= =========== ============= =============
The accompanying notes are an integral part of these statements.
51
TIVO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
One-Month One-Month
Ended Ended
---------------------------------
January 31, January 31, Year Ended December 31,
----------------------------------------------------------------
2001 2000 2000 1999
----------------------------------------------------------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss...................................................... $(18,590,000) $(8,764,000) $(204,840,000) $(66,565,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.............................. 506,000 104,000 3,476,000 661,000
Issuance of preferred stock warrants for services.......... -- -- -- 374,000
Issuance of common stock warrants for services............. 76,000 -- 246,000 498,000
Common stock exchanged for services........................ -- -- -- 605,000
Amortization of prepaid marketing expenses................. 627,000 186,000 7,160,000 12,668,000
Amortization of warrants issued for services............... 453,000 115,000 1,571,000 110,000
Recognition of prepaid marketing expense................... 1,388,000 -- 3,888,000 --
Stock-based compensation expense........................... 175,000 322,000 3,115,000 1,530,000
Amortization of note receivable............................ 78,000 -- 235,000 --
Changes in assets and liabilities:
Accounts receivable........................................ 264,000 (63,000) (1,909,000) (337,000)
Accounts receivable-related parties........................ (623,000) 100,000 (4,045,000) --
Prepaid expenses and other................................. (17,800,000) (1,552,000) (6,504,000) (2,335,000)
Accounts payable........................................... 1,953,000 1,780,000 11,586,000 8,127,000
Accrued liabilities........................................ (127,000) 1,058,000 15,212,000 4,103,000
Accrued liabilities-related parties........................ 5,992,000 2,072,000 41,498,000 2,349,000
Deferred revenue........................................... 850,000 520,000 3,089,000 2,271,000
Long-term deferred revenue................................. 1,100,000 -- 11,013,000 --
Other long-term liabilities................................ 30,000 -- 1,187,000 --
----------------------------------------------------------------
Net cash used in operating activities........................ (23,648,000) (4,122,000) (114,022,000) (35,941,000)
----------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment, net.................... (758,000) (1,639,000) (21,087,000) (3,930,000)
Sale (purchase) of short-term investments, net................ -- 3,530,000 6,168,000 (6,004,000)
----------------------------------------------------------------
Net cash used in investing activities........................ (758,000) 1,891,000 (14,919,000) (9,934,000)
----------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible preferred stock, net of
issuance costs............................................... -- -- -- 90,572,000
Proceeds from issuance of common stock through initial public
offering, net of issuance costs.............................. -- -- -- 90,255,000
Proceeds from issuance of common stock........................ -- -- 100,000,000 --
Payment of issuance costs for redeemable convertible
preferred stock, redeemable common stock and common stock.... (250,000) -- (6,060,000) --
Proceeds from release of restricted cash...................... 43,500,000 -- -- --
Proceeds from issuance of common stock - employee stock --
purchase plan................................................ -- -- 2,185,000
Proceeds from exercise of common stock options................ 21,000 14,000 1,110,000 1,192,000
Series A redeemable convertible preferred stock dividend...... (423,000) -- (1,514,000) --
Repurchase of common stock.................................... -- -- (4,000) (28,000)
Net (payments) borrowings under capital lease................. (64,000) 188,000 (367,000) 1,765,000
Borrowings under line of credit............................... -- -- -- --
Repayments under line of credit............................... -- -- -- --
Increase (decrease) in bank overdraft......................... -- -- -- (442,000)
----------------------------------------------------------------
Net cash provided by financing activities.................... 42,784,000 202,000 95,350,000 183,314,000
----------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 18,378,000 (2,029,000) (33,591,000) 137,439,000
----------------------------------------------------------------
-----------
1998
-----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss...................................................... $(9,721,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.............................. 242,000
Issuance of preferred stock warrants for services.......... --
Issuance of common stock warrants for services............. --
Common stock exchanged for services........................ 85,000
Amortization of prepaid marketing expenses................. --
Amortization of warrants issued for services............... --
Recognition of prepaid marketing expense................... --
Stock-based compensation expense........................... --
Amortization of note receivable............................ --
Changes in assets and liabilities:
Accounts receivable........................................ --
Accounts receivable-related parties........................ --
Prepaid expenses and other................................. (282,000)
Accounts payable........................................... 188,000
Accrued liabilities........................................ 649,000
Accrued liabilities-related parties........................ --
Deferred revenue........................................... --
Long-term deferred revenue................................. --
Other long-term liability.................................. --
-----------
Net cash used in operating activities........................ (8,839,000)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment, net.................... (673,000)
Sale (purchase) of short-term investments, net................ (144,000)
-----------
Net cash used in investing activities........................ (817,000)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible preferred stock, net of
issuance costs............................................... 9,227,000
Proceeds from issuance of common stock through initial public
offering, net of issuance costs.............................. --
Proceeds from issuance of common stock........................ --
Payment of issuance costs for redeemable convertible
preferred stock, redeemable common stock and common stock.... --
Proceeds from release of restricted cash...................... --
Proceeds from issuance of common stock - employee stock
purchase plan................................................ --
Proceeds from exercise of common stock options................ 132,000
Series A redeemable convertible preferred stock dividend...... --
Repurchase of common stock.................................... (7,000)
Net (payments) borrowings under capital lease................. --
Borrowings under line of credit............................... 610,000
Repayments under line of credit............................... (610,000)
Increase (decrease) in bank overdraft......................... 442,000
-----------
Net cash provided by financing activities.................... 9,794,000
-----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 138,000
-----------
52
TIVO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
One-Month One-Month
Ended Ended
---------------------------------------------------------------------
January 31, January 31, Year Ended December 31,
---------------------------------------------------------------------
2001 2000 2000 1999 1998
---------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Balance at beginning of period............................... 106,096,000 139,687,000 139,687,000 2,248,000 2,110,000
---------------------------------------------------------------------
Balance at end of period..................................... $124,474,000 $137,658,000 $106,096,000 $139,687,000 $2,248,000
=====================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest....................................... $ (11,000) $ (11,000) $ ( 117,000) $ (41,000) $ (19,000)
(Recognition) reversal of deferred stock-based compensation.. 11,000 63,000 83,000 (7,700,000) --
SUPPLEMENTAL DISCLOSURE OF RESTRICTED CASH AND OTHER 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) -- --
Restricted cash released to cash in connection with Second (43,500,000) -- -- -- --
Amendment to AOL Investment Agreement.......................
Interest income earned on restricted cash.................... 438,000 -- 1,666,000 -- --
Issuance of common stock warrants for prepaid marketing -- -- -- --
expenses.................................................... (15,364,000)
Issuance of Series A convertible preferred stock for (33,356,000) -- -- -- --
Series A redeemable preferred stock and release of
restricted cash.........................................
Issuance of common stock for redeemable common stock and (18,644,000) -- -- -- --
release of restricted cash..................................
Incremental value of repriced common stock warrants.......... 4,874,000 -- -- -- --
Stock issued for a note receivable........................... -- -- -- 2,822,000 --
Equipment acquired under capital lease....................... -- -- 367,000 1,978,000 --
53
TIVO INC.
NOTES TO CONSOLIDATED 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) Ltd., a wholly owned subsidiary of TiVo Inc., was incorporated in the
United Kingdom. The Company has developed a subscription-based personal
television service (the "TiVo Service") that provides viewers with the ability
to pause, rewind and play back live or recorded television broadcasts, as well
as to search for, watch and record programs. The TiVo Service also provides
television listings, daily suggestions and special viewing packages. The TiVo
Service relies on three key components: the personal video recorder, the TiVo
remote control and the TiVo Broadcast Center. The Company conducts its
operations through one reportable segment.
The Company continues to be subject to certain risks, including the
uncertainty of availability of additional financing; dependence on third parties
for manufacturing, marketing and sales support; the uncertainty of the market
for personal television; dependence on key management; limited manufacturing,
marketing and sales experience; and the uncertainty of future profitability and
positive cash flow.
TiVo has recognized limited revenue, has incurred significant losses and
has had substantial negative cash flow. During the one-month transition period
ended January 31, 2001 and the year ended December 31, 2000, TiVo recognized
subscription revenues of $989,000 and $3.6 million, respectively. As of January
31, 2001, TiVo had an accumulated deficit of $302.2 million. In April 2001, in
an effort to eliminate the need for additional funding during its current fiscal
year, the Company reevaluated its business model and announced its new operating
plan. The plan supports TiVo's key objectives of building its subscriber base
and increasing revenue, while reducing its operating expenses by nearly 35%.
TiVo intends to execute several key initiatives in order to achieve its targeted
cost reductions. TiVo expects that these initiatives will reduce its cash burn-
rate by approximately $60 million for the current fiscal year ending January 31,
2002. The initiatives are: leveraged marketing, a new, low cost platform,
reduced infrastructure costs, reduced service operations costs and headcount
reductions. With this change in operating plan, TiVo believes that its capital
is adequate to fund operations, capital expenditures and working capital needs
through its fiscal year ending January 31, 2002.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Change in Year End
On January 30, 2001, the Company announced a fiscal year end change from
December 31 of each year to January 31 of each year.
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)
54
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 9).
Accounts Receivable - Related Parties
Accounts Receivable-related parties consist of amounts owed to the Company
from the Company's strategic partners such as DIRECTV, Inc. ("DIRECTV"), Philips
Business Electronics B.V. ("Philips"), Quantum Corporation ("Quantum") and Sony
Corporation of America ("Sony"). These receivables are comprised of monies
collected from subscribers on the Company's behalf, volume discounts and amounts
owed for reimbursement of a portion of the Company's development costs.
Prepaid Expenses and Other
Prepaid expenses consist of payments made in advance of recognizing the
expense, including primarily marketing expenses related to media purchases and
trade show expenses. Other consists primarily of TiVo stand-alone recorders and
DIRECTV receivers with TiVo held for future marketing programs.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over estimated useful lives as follows:
Furniture and fixtures................ 3-5 years
Computer and office equipment......... 3-5 years
Lab equipment......................... 3 years
Leasehold improvements................ 7 years or the life of the lease
Capitalized software.................. 1-5 years
Maintenance and repair expenditures are expensed as incurred.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109).
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets or liabilities of a change in tax rates is recognized in the period in
which the rate change occurs. Valuation allowances have been established when
necessary to reduce deferred tax assets to the amounts expected to be recovered.
Other Long-Term Liabilities
Other long-term liabilities consist of deferred rent and security deposit
held from our tenant. Deferred rent of $883,000 results from the recognition of
rent expense under facilities lease amortized on a straight line basis over 7
years, the life of the related lease. The security deposit from our tenant
relates to space in our Alviso facility that we have subleased.
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.
55
Business Concentrations and Credit Risk
Financial instruments that subject the Company to concentrations of credit
risk consist primarily of cash. The Company maintains cash with various
financial institutions. The Company performs periodic evaluations of the
relative credit standing of these institutions. The majority of the Company's
customers are concentrated in the United States. The Company is subject to a
slight amount of credit risk of these customers as subscription revenue is
primarily obtained through credit card sales. The reserve for doubtful accounts
at January 31, 2001 was $263,000. The Company does not consider credit risk
associated with accounts receivable-related parties (Philips, Sony, AOL, DIRECTV
and Quantum) to be material.
Net Loss Per Common Share
Net loss per share is calculated in accordance with SFAS No. 128, "Earnings
Per Share," and SEC Staff Accounting Bulletin No. 98 (SAB No. 98). Under the
provisions of SFAS No. 128 and SAB No. 98, Basic net loss per common share is
computed by dividing net loss by the weighted average number of common shares
outstanding. Shares used in the computation of the one-month transition period
ended January 31, 2001, net loss per share amount do not include repurchasable
common stock issued to DIRECTV (see Note 10), options and warrants to purchase
common stock, Series A convertible preferred stock and Series A redeemable
convertible preferred stock (see Note 9) and unvested, repurchasable common
stock issued under the employee stock option plans (see Note 8).
Diluted net loss per common share is calculated by dividing net loss
attributable to common stock by the weighted average number of common shares and
dilutive common share equivalents outstanding. The net loss attributable to
common stock is calculated by deducting the Series A redeemable convertible
preferred stock dividend from the net loss. Diluted net loss per share does not
include the effect of the following antidilutive common share equivalents:
January 31, December 31,
--------------- ------------------------------------------------
2001 2000 1999 1998
-------------- --------------- --------------- ---------------
Series A redeemable convertible preferred stock...... 1,600,000 2,711,861 -- --
Series A convertible preferred stock................. 1,111,861 -- -- 11,174,427
Convertible preferred stock warrants................. -- -- -- 52,083
Redeemable common stock.............................. -- 806,889 -- --
Repurchasable common stock, related parties.......... 1,128,867 1,128,867 1,128,867 --
Repurchasable common stock........................... 1,060,849 1,103,736 1,364,366 2,024,187
Options to purchase common stock..................... 7,397,307 7,425,698 4,346,522 1,235,000
Warrants to purchase common stock.................... 2,694,861 2,649,380 -- --
-----------------------------------------------------------------
Total 14,993,745 15,826,431 6,839,755 14,485,697
===================================================================
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. No stock compensation expense was recorded in 1998 and
1997. The Company has recorded stock-based compensation expenses of $175,000,
$3.1 million and $1.5 million for one-month transition period ended January 31,
2001 and years ended December 31, 2000 and 1999, respectively. 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
56
Company uses either the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable.
Revenue Recognition
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB 101 clarifies the
SEC staff's views on application of generally accepted accounting principles to
revenue recognition. The Company has concluded its revenue recognition policy
continues to be appropriate and in accordance with generally accepted accounting
principles and SAB 101.
Revenue arises from two sources, subscription revenue and non-subscription
revenue. Subscription revenues represent revenues from customer subscriptions to
the TiVo Service. Subscriptions to the TiVo Service are available on a monthly,
annual or lifetime basis. Subscription fees are generally charged to customers'
credit cards and are generally billed in advance on a monthly basis. A lifetime
subscription covers the life of the particular personal video recorder
purchased. Revenues from subscriptions are recognized ratably over the
subscription period. Subscription revenues from lifetime subscriptions are
recognized ratably over a four-year period, the best estimate of the useful life
of the personal video recorder. Deferred revenue relates to subscription fees
collected but for which service has not yet been provided.
Non-subscription revenue primarily includes Charter Advertising and
Sponsorship revenue from consumer companies and media networks who have provided
content on the TiVo Service. Customers are billed on a net terms basis and the
revenue is recognized as the advertising and content is delivered.
Research and Development
Research and development expenses consist primarily of employee salaries
and related expenses and consulting fees relating to the development of the TiVo
Service and products that enable the TiVo Service. Research and development
costs are expensed as incurred.
Sales and Marketing--Related Parties Expense
Sales and marketing--related parties expense consists of cash and non-cash
charges related to the Company's agreements with DIRECTV, Philips, Quantum,
Sony, AOL and Creative Artists Agency, LLC ("CAA"), all of which hold stock in
the Company (see Note 10).
Other Operating Expense, Net
Prior to the transition of manufacturing and distribution responsibility to
Philips in the fourth quarter of 1999, the Company sold personal video recorders
directly to consumers. The Company's direct sales of personal video recorders of
$13.5 million, less the cost of the personal video recorders sold of $20.7
million for the year ended December 31, 1999 was classified as other operating
expense, net. Other operating expense, net is considered incidental to the
Company's business and was recognized upon shipment to the customer. The Company
recorded a provision for estimated warranty costs and returns at the time of
sale. This reserve was zero at both January 31, 2001 and December 31, 2000 and
$30,000 at December 31, 1999.
Advertising Costs
In accordance with Statement of Position 93-7, "Reporting on Advertising
Costs," the Company expensed advertising costs as incurred. Advertising expenses
were $3.2 million for the one-month transition period ended January 31, 2001,
$58.4 million for the year ended December 31, 2000, $13.4 million for the year
ended December 31, 1999 and zero for the year ended December 31, 1998.
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
57
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.
3. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
January 31, December 31,
----------------------- -------------------------------
2001 2000 1999
----------------------- ------------ ----------
Furniture and fixtures....................... $ 3,397,000 $ 3,399,000 $ 184,000
Computer and office equipment................ 11,049,000 10,529,000 3,384,000
Lab equipment................................ 1,125,000 1,106,000 559,000
Leasehold improvements....................... 6,060,000 6,059,000 287,000
Capitalized software......................... 5,106,000 4,886,000 478,000
-----------------------------------------------------------
26,737,000 25,979,000 4,892,000
Accumulated depreciation..................... (4,813,000) (4,307,000) (831,000)
-----------------------------------------------------------
Property and equipment, net.................. $21,924,000 $21,672,000 $4,061,000
===========================================================
Equipment under capital leases was $2.3 million at ended January 31, 2001
and at December 31, 2000 and $2.0 million at December 31, 1999. Depreciation and
amortization expense was $501,000, $3.6 million, $661,000 and $155,000 at
January 31, 2001 and at years ended December 31, 2000, 1999 and 1998,
respectively.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
January 31, December 31,
----------------- --------------------------------------
2001 2000 1999
----------------- ------------------ ------------------
Marketing and promotions.................. $14,843,000 $15,492,000 $2,012,000
Compensation and vacation................. 1,506,000 1,301,000 626,000
Consulting and outside services........... 575,000 732,000 750,000
Commissions............................... -- -- 227,000
Employee stock purchase plan.............. 629,000 441,000 491,000
Legal and accounting...................... 713,000 820,000 188,000
Telecommunications and utilities.......... 691,000 458,000 --
Prepaid rent from tenant.................. 669,000 669,000 --
Other..................................... 237,000 77,000 484,000
---------------------------------------------------------
$19,863,000 $19,990,000 $4,778,000
=========================================================
5. LINE OF CREDIT
In December 1997, the Company established a $750,000 line of credit with a
financial institution, which expired on August 15, 1999. The line was partially
utilized to secure a letter of credit in the amount of $600,000, which expired
in July 1999. No amounts were outstanding at January 31, 2001, or at December
31, 2000, 1999 and 1998.
58
6. INCOME TAXES
There was no provision or benefit for income taxes for the one-month
transition period ended January 31, 2001, or for the years ended December 31,
2000, 1999 and 1998. Significant components of deferred tax assets were as
follows as of January 31, 2001:
Net operating loss carryforwards....................... $ 104,590,000
Tax credit carryforwards............................... 4,687,000
Temporary differences..................................
Deferred revenue...................................... 8,181,000
Deferred marketing.................................... 5,558,000
Other................................................. 810,000
-------------
Total Temporary differences................... 14,549,000
Gross deferred tax assets............................. 123,825,000
Valuation allowance.................................... (123,825,000)
-------------
Net deferred tax assets............................... $ --
=============
As of January 31, 2001, the Company had a tax net operating loss (NOL)
carryforward of approximately $261.0 million for federal and $162.7 million for
California purposes. The federal NOL expires beginning in 2017, and the
California NOL expires beginning in 2005. A significant change in ownership of
the Company may limit the Company's ability to utilize these NOL carryforwards.
SFAS No. 109 requires that the tax benefit of such NOL be recorded as an asset.
A valuation allowance for the entire amount has been provided because of
uncertainties about the Company's ability to realize the value of the deferred
tax assets.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK, COMMON STOCK AND STOCKHOLDERS'
EQUITY
Common Stock
In 1998, the Company issued 2,276,458 shares of common stock as a result of
the exercise of stock options. During 1998, 174,771 shares of common stock were
repurchased in accordance with the terms the Company's stock option plan (see
Note 8). As of December 31, 1998, the Company had the right to repurchase
2,024,187 unvested shares at the stock issuance price, if the holders' service
with the Company terminated.
In 1999, the Company issued 525,064 shares of common stock as a result of
the exercise of stock options. During 1999, 226,342 shares of common stock were
repurchased in accordance with the terms the Company's stock option plan (see
Note 8). The Company had the right to repurchase 1,364,366 unvested shares as of
December 31, 1999, at the stock issuance price, if the holders' service with the
Company terminated. See Note 10 for a description of DIRECTV shares subject to
repurchase.
In 2000, the Company issued 395,465 shares of common stock as a result of
the exercise of stock options and 177,907 shares of common stock as part of the
Employee Stock Purchase Plan. The Company issued 83,967 and 96,940 shares of
common stock under the employee stock purchase plan in April and October 2000,
respectively. During 2000, 50,066 shares of common stock were repurchased in
accordance with the terms the Company's stock option plan (see Note 8). The
Company had the right to repurchase 1,103,736 unvested shares as of December 31,
2000, at the stock issuance price, if the holders' service with the Company
terminated. See Note 10 for a description of DIRECTV shares subject to
repurchase.
In 1998, the Company issued 198,586 shares of common stock to consultants
and vendors in exchange for services. In 1999, the Company issued 137,983
shares of common stock to consultants and vendors in exchange for services. The
common stock issued was recorded at the estimated fair value of the common stock
at the time the services were performed and the related expense was recorded.
The Company's management believes that the value of the common stock issued
approximates the value of services received.
In 1999, the Company issued 1,852,329 shares of common stock in exchange
for marketing services under the DIRECTV Agreement and 1,128,867 shares of
common stock in exchange for a $2.8 million promissory note due at the end of a
three-year service period.
59
The Company's initial public offering ("IPO") of 6,166,875 shares of common
stock with net proceeds of $90.3 million was effective on September 29, 1999 and
closed on October 5, 1999. At the closing date, the preferred stock was
converted into common stock on a one-for-one basis and the warrants were
exercised. The Company issued 1,125,234 shares of common stock as a result of
the exercise of common stock warrants.
At the Annual Meeting of Stockholders held on July 26, 2000, the proposal
to amend and restate the Company's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of common stock from
75 million shares to 150 million shares was approved.
In September 2000, the Company issued 5,134,722 shares of common stock at
$23.11 per share, of which 806,889 shares were subject to redemption as of
December 31, 2000, to AOL in exchange for $118.6 million, before issuance costs
of $4.4 million. The portion of the common stock subject to redemption was shown
as redeemable common stock on the Company's consolidated financial statements.
The Company also issued Initial Warrants A and B to AOL pursuant to the terms of
the Investment Agreement. The estimated value of the warrants of $16.0 million
was recorded as prepaid marketing expense (contra-equity) when issued (see Note
9 for additional description).
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. Pursuant
to the terms of the Agreement, the redemption feature was removed from 806,889
shares of common stock subject to redemption. These shares are now classified as
common stock.
In January 2001, the Company issued 25,604 shares of common stock as a
result of the exercise of stock options.
Convertible Preferred Stock
In September and October 1997, the Company issued 5,000,000 shares of
Series A preferred stock at $0.60 per share. In May, June and July 1998, the
Company issued 3,660,914 shares of Series B preferred stock at $1.26 per share.
In October 1998, the Company issued 2,500,000 shares of Series C preferred stock
at $1.85 per share. In December 1998, the Company issued 13,513 shares of Series
C preferred stock at $1.85 per share in exchange for services received.
In January 1999, the Company issued 1,358,695 shares of Series D preferred
stock at $3.68 per share. In March 1999, the Company issued 270,270 shares of
Series E preferred stock at $7.40 per share. In April 1999, the Company issued
405,405 shares, 1,013,513 shares and 1,351,351 shares of Series F, G and H
preferred stock, respectively, at $7.40 per share. In July 1999, the Company
issued 3,121,994 shares of Series I preferred stock at $10.41 per share. In
August 1999, the Company issued 480,307 shares of Series J preferred stock at
$10.41 per share. In September 1999, the Company issued 2,643,482 shares of
Series J preferred stock at $10.41 per share.
On October 5, 1999, 21,819,444 shares of the outstanding preferred stock
converted into common stock on a one-for-one basis, therefore, no shares of
preferred stock were outstanding as of December 31, 1999.
At the Annual Meeting of Stockholders held on July 26, 2000, the proposal
to amend and restate the Company's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of preferred stock
from 2 million shares to 10 million shares was approved.
On January 30, 2001, pursuant to the terms of the Second Amendment to the
Investment Agreement, the redemption feature was removed from 1,111,861 shares
of convertible preferred stock subject to redemption. These shares are now
classified as convertible preferred stock.
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. See Note 9 for a
description of Series A redeemable convertible preferred stock issued to AOL.
On January 30, 2001, pursuant to the terms of the Second Amendment to the
Investment Agreement, the redemption feature was removed from 1,111,861 shares
of convertible preferred stock subject to redemption. These
60
shares are now classified as convertible preferred stock. As of January 31, 2001
there were 1,600,000 shares of redeemable convertible preferred stock.
The following table summarizes the activity related to redeemable
convertible preferred stock and common stock subject to redemption for the one-
month transition period ended January 31, 2001 and the year ended December 31,
2000:
Redeemable Convertible Preferred Redeemable Common Stock
Stock Additional Total
Shares Amount Shares Amount Paid-In Capital
----------- ---------------- ---------- -------- -------------- ------------
BALANCE, DECEMBER 31, 1999 -- $ -- -- $ -- $ -- $ --
----------- ---------------- ---------- -------- -------------- ------------
Issuance of Series A redeemable
convertible preferred stock.......... 2,711,861 3,000 -- -- 81,353,000 81,356,000
Issuance of common stock subject to
redemption........................... -- -- 806,889 1,000 18,643,000 18,644,000
Issuance costs........................ -- -- -- -- (3,010,000) (3,010,000)
----------- ---------------- ---------- -------- -------------- ------------
BALANCE, DECEMBER 31, 2000 2,711,861 3,000 806,889 1,000 96,986,000 96,990,000
Removal of redemption feature-Series
A convertible preferred stock........ (1,111,861) (1,000) -- -- (33,355,000) (33,356,000)
Removal of redemption feature-common
stock................................ -- -- (806,889) (1,000) (18,643,000) (18,644,000)
Issuance costs........................ -- -- -- -- 1,565,000 1,565,000
----------- ---------------- ---------- -------- -------------- ------------
BALANCE, JANUARY 31, 2001 1,600,000 $ 2,000 -- $ -- $ 46,553,000 $ 46,555,000
=========== ================ ========== ======== ============== ============
The following table recaps the balances related to redeemable convertible
preferred stock and common stock subject to redemption as of January 31, 2001:
Redeemable Convertible Preferred Redeemable Common Stock
Stock
Additional Total
Shares Amount Shares Amount Paid-In Capital
--------- -------- -------- ---------------------------------------
Series A redeemable convertible 1,600,000 $2,000 -- -- $47,998,000 $48,000,000
preferred stock......................
Issuance costs........................ -- -- -- -- (1,445,000) (1,445,000)
--------- -------- -------- ------- ----------- ------------
BALANCE, JANUARY 31, 2001 1,600,000 $2,000 -- $ -- $46,553,000 $46,555,000
========= ======== ======== ======= =========== ============
Warrants
In addition to receiving 156,250 options to purchase common stock under the
1997 Plan, in March 1998, a member of the Company's board of directors received
warrants to purchase a total of 52,083 shares of Series A preferred stock at an
exercise price of $0.60 per share, the estimated fair market value of the Series
A preferred stock at the date of issuance. These warrants were exercised and
converted to common stock on a one-for-one basis upon the closing of the initial
public offering of the Company's common stock. The value of the above warrants
has been included in the calculation of pro forma net loss for the year ended
December 31, 1998 under SFAS No. 123, discussed in Note 8.
See Note 9 for a description of AOL Initial Common Stock Warrants A and B
and Performance Warrants A and B.
See Note 10 for a description of common stock warrants issued to DIRECTV
under the Warrant and Registration Rights Agreement.
See Note 10 for a description of Series C and Series D preferred stock
warrants issued to Quantum under a hard disk drive supply agreement.
61
8. EQUITY INCENTIVE PLANS
1997 Equity Incentive Plan
Under the terms of the Company's 1997 Equity Incentive Plan, adopted in
1997 and amended and restated in 1999 (the "1997 Plan"), options to purchase
shares of the Company's common stock may be granted to employees and other
individuals at a price equal to the fair market value of the common stock at the
date of grant. The options vest 25 percent after the first year of service, and
the remaining 75 percent vest ratably over the next 36 months. Options expire
10 years after the grant date. The terms of the 1997 Plan allow individuals to
exercise their options prior to full vesting. In the event that the individual
terminates their service to the Company before becoming fully vested, the
Company has the right to repurchase the unvested shares at the original option
price. The number of shares authorized for option grants under the 1997 Plan is
4,000,000. As of January 31, 2001, options to purchase 677,832 shares of common
stock remain outstanding.
1999 Equity Incentive Plan
In April 1999, the Company's stockholders approved the 1999 Equity
Incentive Plan (the "1999 Plan"). Amendments to the 1999 Plan were adopted in
July 1999. The 1999 Plan allows the grant of options to purchase shares of the
Company's common stock to employees and other individuals at a price equal to
the fair market value of the common stock at the date of grant. The options vest
25 percent after the first year of service, and the remaining 75 percent vest
ratably over the next 36 months. Options expire 10 years after the grant date.
The terms of the 1999 Plan allow individuals to exercise their options prior to
full vesting. In the event that the individual terminates their service to the
Company before becoming fully vested, the Company has the right to repurchase
the unvested shares at the original option price. The number of shares
authorized for option grants under the 1999 Plan is 12,200,000 subject to an
annual increase of the greater of 7% of outstanding shares or 4,000,000 shares,
up to a maximum of 40,000,000 shares. As of January 31, 2001, options to
purchase 6,539,475 shares of common stock remain outstanding.
1999 Non-Employee Directors' Stock Option Plan
In July 1999, the Company adopted the 1999 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan"). The Directors' Plan provides for the
automatic grant of options to purchase shares of the Company's common stock to
non-employee directors at a price equal to the fair market value of the stock at
the date of the grant. The options vest monthly over two years from the date of
grant. The option term is ten years after the grant date but terminates three
months after a director's service terminates. The number of shares authorized
for option grants under the Directors' Plan is 700,000, subject to an annual
increase of 100,000 shares. Options to purchase 180,000 shares of common stock
are outstanding as of January 31, 2001.
1999 Employee Stock Purchase Plan
In July 1999, the Company adopted the 1999 Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan"). The Employee Stock Purchase Plan provides
a means for employees to purchase TiVo common stock through payroll deductions
of up to 15 percent of their base compensation. The Company offers the common
stock purchase rights to eligible employees, generally all full-time employees
who have been employed for at least 10 days. This plan allows for common stock
purchase rights to be granted to employees of TiVo at a price equal to the lower
of 85% of the fair market value on the first day of the offering period or on
the common stock purchase date. Under the purchase plan, the board may specify
offerings up to 27 months. The number of shares reserved for issuance under this
plan is 600,000 subject to automatic annual increase by the lesser of (i) 5
percent of the outstanding shares of common stock on a diluted basis, (ii)
500,000 shares, or (iii) a smaller number as determined by the board of
directors. There were zero shares and 177,907 shares of common stock issued as a
result of purchases under this plan during the one-month transition period ended
January 31, 2001 and during calendar year 2000. As of January 31, 2001, there
were 422,093 shares available for future purchases. No additional shares were
added to the number of shares reserved for issuance as of January 31, 2001. As
of March 31, 2001 the Board approved a 200,000 share increase so that the total
shares available for issuance are 800,000 shares.
The Company accounts for stock options under APB Opinion No. 25, under
which, for the period from August 4, 1997 (Inception) to December 31, 1997 and
for the year ended December 31, 1998, no compensation cost was recognized when
the awards were granted to employees or directors. The Company has recorded
deferred compensation of approximately zero, $83,000 and $7.7 million as a
contra-equity account and stock-based compensation expense of $175,000, $3.1
million and $1.5 million for the one-month transition period ended January 31,
2001 and years ended December 31, 2000 and 1999, respectively. Had compensation
cost for the stock
62
options been determined consistently with SFAS No. 123, the effect on the
Company's net loss and basic and diluted loss per share would have been changed
to the following pro forma amounts:
One-Month
ended
January 31, Year Ended December 31,
------------ ---------------------------------------------------
2001 2000 1999 1998
------------ ------------- ------------ -----------
Net loss, as reported.................... $(19,013,000) $(206,354,000) $(66,565,000) $(9,721,000)
Pro forma effect of SFAS No. 123......... (1,065,000) (6,983,000) (4,100,000) (10,000)
-----------------------------------------------------------------------
Net loss, pro forma...................... $(20,078,000) $(213,337,000) $(70,665,000) $(9,731,000)
=======================================================================
Basic and diluted
loss per share, as reported............. $ (0.47) $ (5.55) $ (5.49) $ (3.25)
=======================================================================
Basic and diluted
loss per share, pro forma............... $ (0.49) $ (5.74) $ (5.83) $ (3.25)
=======================================================================
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants: weighted average risk-free interest rates of
between 4.03% and 6.54%; expected dividend yield of zero percent; expected lives
of four years for the options; and expected volatility of 70%.
A summary of the status of the 1997 Plan, the 1999 Plan and the
Director's Plan is presented in the table and narrative below:
Range of Exercise Weighted Average
Shares Prices Exercise Price
----------------- ----------------- -----------------
Outstanding at December 31, 1997......... 700,000 $ .04
----------------- -----------------
Granted................................. 3,006,458 $ .04 - $.45 .15
Exercised............................... (2,276,458) .06
Canceled................................ (195,000) .04
----------------- -----------------
Outstanding at December 31, 1998......... 1,235,000 $ .27
----------------- -----------------
Granted................................. 4,307,087 $1.00 - $39.94 8.46
Exercised............................... (525,064) 2.29
Canceled................................ (670,502) 5.25
----------------- -----------------
Outstanding at December 31, 1999......... 4,346,521 $ 7.37
----------------- -----------------
Granted................................. 3,949,850 $5.50 - $35.31 19.11
Exercised............................... (395,466) 2.78
Canceled................................ (475,207) 12.48
----------------- -----------------
Outstanding at December 31, 2000......... 7,425,698 $13.48
----------------- -----------------
Granted................................. 42,500 $ 6.38 - $7.13 6.60
----------------- -----------------
Exercised............................... (25,604) .81
----------------- -----------------
Canceled................................ (45,287) 10.02
----------------- -----------------
Outstanding at January 31, 2001.......... 7,397,307 $13.51
----------------- -----------------
The weighted average fair value of options granted during the one-
month transition period ended January 31, 2001 and calendar years 2000, 1999 and
1998 is $6.60, $19.11, $10.15 and $.02, respectively. Of the options outstanding
at the one-month transition period ended January 31, 2001 and at years ended
December 31, 2000, 1999 and 1998, 2,161,743, 2,093,252, 1,270,888 and 93,542 are
vested, respectively. The Company repurchased zero, 50,066, 226,342 and 174,771
unvested shares issued upon early exercise of options during the one-month
transition period ended January 31, 2001 and calendar years 2000, 1999 and 1998,
respectively, upon the optionees' terminating employment with the Company.
The following table contains information concerning outstanding and
exercisable options as of January 31, 2001:
63
Number of Options Outstanding Weighted
and Range Average Remaining Contractual
Exercisable of Exercise Prices Life
----------------------------------------------------------------------------------------
427,662 $ 0.04-0.75 7.59 years
705,192 1.00 - 5.50 8.20 years
2,335,023 6.50 - 9.50 8.68 years
773,773 10.50 -16.00 9.29 years
617,250 16.13 -19.88 9.57 years
1,963,991 20.00-22.13 9.32 years
373,916 25.13 -35.31 9.12 years
200,500 35.75 - 39.94 8.84 years
----------------------------
7,397,307
============================
9. AOL RELATIONSHIP
On September 13, 2000, the Company closed the Investment Agreement
with AOL for $200 million. Under the terms of the Investment, the Company issued
2,711,861 shares of redeemable convertible preferred stock at $30.00 per share,
5,134,722 shares of common stock at $23.11 per share, 806,889 shares of which
were subject to redemption as of December 31, 2000, two initial warrants to
purchase an aggregate of 2,603,903 shares of the Company's common stock and two
performance warrants to purchase an aggregate of up to 5,207,806 shares of
common stock. The portion of common stock subject to redemption is shown as
redeemable common stock on the Company's consolidated financial statements. The
two performance warrants are contingent upon future performance. The AOL
investment is part of a three-year Commercial Agreement, in which TiVo became an
AOL TV programming partner, offering AOL TV subscribers access to features of
TiVo's Personal TV Service.
On January 30, 2001, the Company entered into the Second Amendment to
the Investment Agreement with AOL, dated as of June 9, 2000, as amended by the
First Amendment to the Investment Agreement, dated as of September 11, 2000. The
Second Amendment provided for, among other things, an amendment to the Escrow
Agreement, dated as of September 11, 2000, by and among the Company and AOL in
which the Company had deposited a portion of the proceeds it received from AOL
in connection with AOL's purchase of shares of the Company's Series A redeemable
convertible preferred stock.
Restricted Cash
Under the terms of the Investment Agreement, the Company deposited
$91.5 million of the proceeds received from the AOL investment and the
associated interest income earned of $1.7 million in an escrow account as
restricted cash. In accordance with the Commercial Agreement, $91.5 million of
the restricted cash is intended to be used as subsidy payments to
manufacturer(s) of set-top boxes that enable the TiVo Service. However, the
restricted cash would be used in the event AOL exercises its put option to
repurchase Series A redeemable convertible preferred stock and their portion of
common stock subject to redemption. The terms of the put option are described
below. The interest income earned on this restricted cash is shown on the
consolidated balance sheets as deferred interest income on restricted cash until
such time as the cash is no longer restricted.
The First Amendment to the Escrow Agreement, dated as of January 30,
2001, authorized the release to the Company of $43.5 million in restricted funds
previously held in escrow pursuant to the Escrow Agreement. Of this amount, on
January 31, 2001, $16.5 million was paid to AOL for prepaid advertising as of
expenses.
Series A Redeemable Convertible Preferred Stock
In September 2000, the Company issued 2,711,861 shares of Series A
redeemable convertible preferred stock at $30.00 per share to AOL in exchange
for $81.4 million, before issuance costs of $2.4 million. In January 2001, under
the terms of the Second Amendment, 1,111,861 shares of Series A redeemable
convertible preferred had their redemption feature removed. As of January 31,
2001, each of the 1,600,000 shares of the Series A redeemable convertible
preferred stock is initially convertible into one share of common stock, subject
to adjustment
64
for stock splits, dividends, combinations, reclassifications or similar
transactions, as provided in the Company's Amended and Restated Certificate of
Incorporation. The Series A redeemable convertible preferred stock is
convertible upon AOL's option or is mandatorily convertible if the price of the
Company's common stock exceeds $30.00 per share for 18 trading days in any 20
consecutive trading day period.
Put Option
Under the terms of the First Amendment to the Investment Agreement, if
the set-top box launch of the Integrated Product does not occur by December 31,
2001, and AOL has not committed a material breach of the Commercial Agreement or
the Company has breached its obligations with respect to the financial
covenants, then AOL would have a put option pursuant to which AOL could require
the Company to repurchase from AOL the number of shares of Series A redeemable
convertible preferred stock which have an initial liquidation value of $91.5
million. If all the shares of Series A redeemable convertible preferred stock
have an aggregate initial liquidation value of less than $91.5 million, then AOL
could require the Company to repurchase the number of shares of common stock
having a value equal to the difference between that aggregate initial
liquidation value and $91.5 million. In the event that the set-top box launch
occurred after the planned launch date, but prior to the exercise of the put
option, the put option would immediately expire.
The Second Amendment to the Investment Agreement modified the terms of
AOL's put option with respect to the Series A redeemable convertible preferred
stock held by AOL. Under the Second Amendment, the Company could be required to
repurchase that number of shares of Series A redeemable convertible preferred
stock having a liquidation value of $48.0 million, which is equal to the amount
of the funds remaining in the restricted cash account, following AOL's release
of $43.5 million of restricted cash in January 2001, excluding any interest
earned on such funds.
Series A Redeemable Convertible Preferred Stock Dividend
Under the terms of the Investment Agreement between AOL and the
Company, the Company issued Series A redeemable convertible preferred stock,
with certain dividend and voting rights. Dividends on the Series A convertible
preferred stock are calculated by multiplying the Non-Government Institutional
Funds Simple Average Rate by $30.00 per share times the number of shares of
Series A convertible preferred stock outstanding. Dividends are payable
quarterly as declared by the Company's Board of Directors.
Common Stock
In September 2000, the Company issued 5,134,722 shares of common stock
at $23.11 per share, of which 806,889 shares were subject to redemption as of
December 31, 2000, to AOL in exchange for $118.6 million, before issuance costs
of $4.4 million. As of January 31, 2001 there were no shares of common stock
subject to redemption under the Second Amendment. The portion of common stock
subject to redemption was shown as redeemable common stock on the Company's
consolidated financial statements.
Initial Common Stock Warrants A and B
In September 2000, in conjunction with AOL's investment, the Company
issued two initial warrants to AOL to purchase common stock.The initial warrants
were vested immediately and exercisable as follows:
. Initial Warrant A - AOL was issued warrants to purchase 2,308,475
shares of common stock at $23.11 per share. The Company will
expense the estimated fair value of the warrants of $13.5 million
over 3 years, the term of the Commercial Agreement. The estimated
fair value of the warrants was determined using the Black-Scholes
option pricing model. The principal assumptions used in the
computation are: 16-month term; fair market value at the date of
issuance of $20.00 per share; a risk-free rate of return of
6.05%; dividend yield of zero percent; and a volatility of 70%.
. Initial Warrant B - AOL was issued warrants to purchase 295,428
shares of common stock at $30.00 per share. The Company will
expense the estimated fair value of the warrants of $2.5 million
over 3 years, the term of the Commercial Agreement. The estimated
fair value of the warrants was determined using the Black-Scholes
option pricing model. The principal assumptions used in the
computation are: 40-month term; fair market value at the date of
issuance of $20.00 per share; a risk-free rate of return of
6.05%; dividend yield of zero percent; and a volatility of 70%.
In January 2001, the Second Amendment to the Investment Agreement
provided for the reduction in the exercise price of the two initial warrants.
The Company issued amended warrants to AOL, which reduced the per
65
share exercise price of AOL's warrant to purchase 2,308,475 shares of common
stock from $23.11 to $7.29, and reduced the per share exercise price of AOL's
warrant to purchase 295,428 shares of common stock from $30.00 to $7.29. The
initial warrants are vested immediately and exercisable as follows:
. Initial Warrant A - AOL was issued warrants to purchase 2,308,475
shares of common stock at $7.29 per share. The Company will
expense the estimated incremental fair value of the repriced
warrants of $4.2 million over the remaining term of the
Commercial Agreement (original term of 3 years). The estimated
fair value of the warrants was determined using the Black-Scholes
option pricing model. The principal assumptions used in the
computation are: 9-month remaining life of the warrant; fair
market value at the date of issuance of $7.13 per share; a risk-
free rate of return of 6.05%; dividend yield of zero percent; and
a volatility of 70%.
. Initial Warrant B - AOL was issued warrants to purchase 295,428
shares of common stock at $7.29 per share. The Company will
expense the estimated incremental fair value of the repriced
warrants of $720,000 over the remaining term of the Commercial
Agreement (original term of 3 years). The estimated fair value of
the warrants was determined using the Black-Scholes option
pricing model. The principal assumptions used in the computation
are: 33-month remaining life of the warrant; fair market value at
the date of issuance of $7.13 per share; a risk-free rate of
return of 6.05%; dividend yield of zero percent; and a volatility
of 70%.
The expiration of Initial Warrant A is December 31, 2001 and Initial
Warrant B expires December 31, 2003. The estimated incremental fair value of the
warrants of $4.9 million was recorded as prepaid marketing expense (contra-
equity) as of January 31, 2001.
Performance Warrants
In conjunction with AOL's investment in September 2000, the Company
issued two performance warrants to AOL to purchase common stock. If AOL meets
certain performance criteria, it may exercise these two performance warrants to
purchase common stock. The warrants are exercisable as follows:
. Performance Warrant A - AOL was issued warrants to purchase up to
2,603,903 shares of common stock at the exercise price described
below. Performance Warrant A may be exercised within six months
following the execution of the Launch Commitment. The Launch
Commitment is a binding contractual commitment to market
Integrated Service to have 1,500,000 activated users on Time
Warner cable systems.
. Performance Warrant B - AOL was issued warrants to purchase up to
2,603,903 shares of common stock at the exercise price described
below. Performance Warrant B may be exercised within the six
month period following the date on which AOL notifies the Company
that 1,500,000 activated users of the Integrated Service existed
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 existed at one time.
If the Company were to value the performance warrants as of January
31, 2001, it would record the estimated value of the performance warrants of
$9.0 million as prepaid marketing expense (contra-equity). If market conditions
at the time that AOL earns the performance warrants are different than those at
January 31, 2001 than the valuation of the warrants could significantly increase
or decrease from the following calculated valuation:
. Performance Warrant A - AOL would be issued warrants to purchase
up to 2,603,903 shares of common stock at $6.57 per share.
Performance Warrant A would be valued when it is earned by AOL.
The Company would expense the estimated fair value of the
warrants of $4.5 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 $7.13
per share; a risk-free rate of return of 6.05%; dividend yield of
zero percent; and a volatility of 70%.
66
. Performance Warrant B - AOL would be issued warrants to purchase
up to 2,603,903 shares of common stock at $6.57 per share.
Performance Warrant B would be valued when it is probable of
being earned by AOL. The Company would expense the estimated fair
value of the warrants of $4.5 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 $7.13 per share; a risk-free rate of return of
6.05%; dividend yield of zero percent; and a volatility of 70%.
Additionally, Performance Warrants A and B would also become
exercisable immediately upon the occurrence of either a material breach of the
Commercial Agreement by the Company or if the Company enters into a definitive
agreement for a change of control of the Company. The performance warrants would
expire on the earlier of September 11, 2003 or in the event that AOL commits a
material breach of the Commercial Agreement.
Since these warrants are contingent on AOL's performance or probable
performance and the criteria have not been meet 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 January 31, 2001 than the valuation of the
warrants could significantly increase or decrease from the above amount.
AOL Advertising Insertion Order
Under the terms of the Investment Agreement, the Company has agreed to
pay $12.0 million to AOL for advertising media under the AOL Advertising
Insertion Order. On September 13, 2000, $8.5 million of this amount was paid to
AOL. The Company recorded this payment as prepaid marketing expense (contra
equity). On January 30, 2001, the Company signed an additional media insertion
order with AOL Time Warner for $21.5 million in advertising programs to promote
the TiVo Service on AOL Time Warner properties. As of January 31, 2001, the
Company recorded $18.5 million as prepaid marketing expense (contra equity) for
payments and incurred $5.3 million of advertising expense. The balance of $21.7
million will be expensed as incurred in the future.
Financial Convenants
Under the terms of the Investment Agreement, the Company must maintain
a positive net cash position in excess of $25.0 million at the end of each
fiscal quarter. Net cash is defined as consolidated current assets (excluding
deferred tax assets and escrowed funds) minus consolidated current liabilities
(excluding deferred revenue, deferred interest income on escrowed funds,
lifetime service subscriptions, 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. The Company's projections show that during the next 12 months the
Company will fall below the net cash position without a substantial subscription
revenue increase or significant non-subscription revenue contracts, cost
containment measures or proceeds from equity sales. The Company is implementing
plans pursuing all of these alternatives (see Note 1). The financial covenants
shall terminate from 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.
10. MARKETING AND MANUFACTURING AGREEMENTS
Quantum Agreement
In November 1998, the Company entered into a hard disk supply
agreement with Quantum to allow the Company or certain third-party manufacturers
(the buyer) to purchase up to an agreed-upon number of hard disk drives used in
the personal video recorder and other devices that enable the TiVo Service.
Under the terms of the agreement, the Company is entitled to a discounted
purchase price if certain milestones are met. TiVo has agreed to share with
Quantum a portion of the TiVo Service subscription fees it receives from the
personal video recorders and other devices equipped with these hard disk drives.
In addition, the Company issued a warrant to Quantum to purchase
324,325 shares of Series C preferred stock and 543,478 shares of Series D
preferred stock at an exercise price of $0.01 per share. The Series C and D
warrants vest and were exercisable upon the meeting of certain milestones which
allow a discounted purchase price
67
on an agreed upon number of hard disk drives, or upon the closing of an initial
public offering of the Company's common stock. As of December 31, 1998, Quantum
had not vested in the warrants because the Company had not met the required
performance milestones and therefore had not received the discounted price on
its hard-disk drive purchases. In April 1999, the warrants to purchase Series C
preferred stock vested and the Company recorded as a contra-equity account a
prepaid marketing expense of $2.4 million related to the 324,325 shares of
Series C preferred stock warrants. In September 1999, the warrants to purchase
Series D preferred stock vested and the Company recorded as a contra-equity
account a prepaid marketing expense of $8.7 million related to the 543,478
shares of Series D preferred stock warrants. The $2.4 million and the $8.7
million are being amortized as sales and marketing--related parties expense as
the specified number of hard disk drives related to this agreement are shipped
from Quantum. The fair value of the Series C and Series D vested warrants were
estimated using the Black-Scholes option pricing model with the following
assumptions: weighted average risk-free interest rate of 5.07%; expected
dividend yield of zero percent; expected life of four years; expected volatility
of 50%; and market price of preferred stock of $7.40 per share for Series C and
$16.00 per share for Series D. These warrants were exercised and converted to
common stock on a one-for-one basis upon the closing of the initial public
offering in September 1999.
The Company recognized zero, $670,000 and $10.4 million of sales and
marketing--related parties expense for the one-month transition period ended
January 31, 2001 and the years ended December 31, 2000 and 1999, respectively,
related to these warrants.
DIRECTV Agreement
The Company entered into an agreement with DIRECTV to promote and
offer support for the TiVo Service and products that enable the TiVo Service
(the "DIRECTV Agreement"). Under the DIRECTV Agreement, DIRECTV will provide a
variety of marketing and sales support to promote TiVo and the TiVo Service,
collaborate on certain product development efforts and make a portion of the
bandwidth capacity of DIRECTV's satellite network available to TiVo.
In April 1999, the Company issued 1,852,329 shares of common stock in
exchange for marketing services under the DIRECTV Agreement. The shares were
non-forfeitable and were valued at an estimated fair value of $6.50 per share.
The Company recorded prepaid marketing expenses classified as a contra-equity
account related to the issuance of these shares of common stock of $12.0
million. These prepaid marketing expenses are expensed as the marketing
services are provided over the two-year service period. The Company expensed
$502,000, $6.0 million and $1.7 million during the one-month transition period
ended January 31, 2001 and years ended December 31, 2000 and 1999, respectively.
Additionally, in April 1999, the Company issued 1,128,867 shares of
common stock in exchange for a $2.8 million promissory note due at the end of a
three-year service period. The shares were valued at an estimated fair value of
$6.50 per share. The $4.5 million of estimated fair value in excess of the
balance of the note was recorded as a prepaid marketing expense contra-equity
account. This $4.5 million prepaid marketing expense is amortized into sales and
marketing--related parties expense as the bandwidth services are provided over
the three year service period. DIRECTV may repay the note either by providing
bandwidth capacity at no additional charge or by paying in cash. At the end of
the three year service period, if specified milestones are not achieved, TiVo
will have the right to repurchase some or all of these shares at $.001 per
share. Amortization of the prepaid marketing expense and the note receivable
began in calendar year 2000. For the one-month transition period ended January
31, 2001 and year ended December 31, 2000, $78,000 and $235,000 had been
amortized, respectively, for providing bandwidth as repayment of the note
receivable as sales and marketing--related parties expense. Also, $125,000 and
$376,000 had been amortized for prepaid marketing expense as sales and
marketing--related parties expense for the one-month transition period ended
January 31, 2001 and year ended December 31, 2000, respectively.
In addition to the equity consideration for DIRECTV's marketing
services described above, DIRECTV will receive a percentage of TiVo's
subscription revenues attributable to DIRECTV/TiVo subscribers. These amounts
are expensed as earned and included in sales and marketing--related parties
expense.
In April 1999, TiVo sold 405,405 shares of Series F preferred stock to
DIRECTV at $7.40 per share which were converted to common stock on a one-for-one
basis upon the closing of the initial public offering in September 1999.
On October 6, 2000 TiVo and DIRECTV signed a Warrant and Registration
Rights Agreement. Under the terms of this agreement, DIRECTV has the right to
purchase shares of TiVo common stock for each sale of the DIRECTV receiver with
TiVo recorder. The strike price is calculated as the average daily closing
price of a share of
68
common stock of the Company as reported on the Nasdaq for the five trading days
of the month in which the warrants were earned. As of January 31, 2001, DIRECTV
had earned the right to be issued common stock warrants to purchase 90,958
shares at exercises prices ranging from $5.58-$12.88. The fair value of each
warrant is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions used for grants: weighted
average risk-free interest rates of between 5.13% and 5.85%; expected dividend
yield of zero percent; expected lives of two years for the warrants; and
expected volatility of 70%. The value of warrants of $173,000 was expensed as
sales and marketing--related expense for year ended December 31, 2000 and
$76,000 was expensed as sales and marketing--related partner expense for the one
month period January 31, 2001, in the period earned.
During the fourth quarter of 2000, TiVo, Philips, Sony, Hughes and
DIRECTV signed nine-month Marketing Agreements to encourage the sales of the
DIRECTV receiver with TiVo recorder. Under the terms of these agreements, TiVo
recognizes a sales and marketing--related parties expense on each sale of a
DIRECTV receiver with TiVo recorder to a consumer from an authorized DIRECTV
dealer. All payments to dealers are made through DIRECTV. As of January 31,
2001, $1.2 million had been recognized as sales and marketing--related parties
expense.
Philips Agreement
On March 31, 1999, the Company entered into an agreement with Philips
for the manufacture, marketing and distribution of personal video recorders that
enable the TiVo Service. Subject to certain limitations, this agreement grants
Philips the right to manufacture, market and sell personal video recorders that
enable the TiVo Service in North America. Philips was also granted the right to
manufacture, market and sell personal video recorders in North America that
incorporates both DIRECTV's satellite receiver and the TiVo Service. The Company
also granted Philips a license to TiVo technology for the purpose of developing
and manufacturing personal video recorders and other devices that enable the
TiVo Service.
The Company has agreed to pay Philips a subsidy on each personal video
recorder that is manufactured and sold by Philips. The amount of the subsidy is
periodically adjusted based on Philips manufacturing costs and selling prices. A
portion of the subsidy amount paid to Philips is due when the personal video
recorder is shipped. The remaining portion is due when the subscriber activates
the TiVo Service. The Company will record the subsidy as sales and marketing--
related parties expense upon shipment of the personal video recorder by Philips.
In addition to these amounts, the Company has agreed to pay Philips a fixed
amount per month for each Philips-branded personal video recorder that has an
active subscription to the TiVo Service. As of December 31, 1999, we incurred
$2.2 million as sales and marketing--related parties expense. We paid this
entire amount as of December 31, 2000. For the one-month transition period ended
January 31, 2001 and year ended December 31, 2000, $1.5 million and $16.7
million had been recognized as sales and marketing--related parties expense,
respectively. Of these amounts, as of April 30, 2001 $13.8 million had been
paid.
Under the terms of the agreement, Philips has committed to provide a
specified amount of marketing activities related to Philips-branded personal
video recorders that enable the TiVo Service in order to promote, market and
sell their personal video recorder.
In April 1999, Philips purchased 1,351,351 shares of Series H
preferred stock for $7.40 per share which were converted to common stock on a
one-for-one basis upon the closing of the initial public offering.
Sony Agreement
On August 6, 1999, the Company entered into a Letter of Intent with
Sony for the manufacture, marketing and distribution of personal video recorders
that enable the TiVo Service. Subject to certain limitations, this agreement
grants Sony the right to manufacture, market and sell personal video recorders
that enable the TiVo Service in North America. Sony was also granted the right
to manufacture, market and sell personal video recorders in North America that
incorporates both DIRECTV's satellite receiver and the TiVo Service. The Company
also granted Sony a license to TiVo technology for the purpose of developing and
manufacturing personal video recorders and other devices that enable the TiVo
Service.
The Company has agreed to pay Sony a subsidy on each personal video
recorder that is manufactured and sold by Sony. The amount of the subsidy is
periodically adjusted based on Sony's manufacturing costs and selling prices.
The subsidy amount paid to Sony is due when the personal video recorder is
shipped. The Company will record the subsidy as sales and marketing--related
parties expense upon shipment of the personal video recorder by Sony. In
addition to these amounts, the Company has agreed to pay Sony a calculated
amount per month for each Sony-branded personal video recorder that has an
active subscription to the TiVo Service. For the one-month
69
transition period ended January 31, 2001 and the year ended December 31, 2000,
$737,000 and $20.5 million had been recognized as sales and marketing--related
parties expense, respectively. Of these amounts, as of April 30, 2001 $10.0
million had been paid.
Thomson Multimedia S.A.
On May 31, 2000, the Company entered into a Letter of Intent with
Thomson Multimedia S.A. for the manufacture, marketing and distribution of
personal video recorders that enable the TiVo Service. Subject to certain
limitations, this agreement grants Thomson the right to manufacture, market and
sell personal video recorders that enable the TiVo Service in the United Kingdom
and Ireland. TiVo intends to provide the TiVo Service in cooperation with Sky
Broadcasting and other operators of TV broadcast services in the United Kingdom.
The Company also agreed to pay Thomson a calculated amount per month for each
sale of a Thomson manufactured personal video recorder. For the one-month
transition period ended January 31, 2001 and year ended December 31, 2000, zero
and $4.0 million had been recognized as sales and marketing--related parties
expense, respectively. At April 30, 2001, the entire obligation had been paid.
Hughes Network Systems
On August 31, 2000 the Company entered into a Technology License
Agreement with Hughes Network Systems for the manufacture and distribution of
personal video recorders that enable the TiVo Service. Subject to certain
limitations, the agreement grants Hughes the right to manufacture and sell
personal video recorders that enable the TiVo Service in the United States.
Hughes was also granted the right to manufacture and sell personal video
recorders in the United States that incorporate both DIRECTV's satellite
receiver and the TiVo Service. The Company also granted Hughes a license to TiVo
technology for the purpose of developing and manufacturing personal video
recorders and other devices that enable the TiVo Service.
Creative Artists Agency Agreement
In July 1999, the Company entered into an agreement with Creative
Artists Agency, LLC, ("CAA"), for the marketing and promotional support of the
personal video recorder. CAA was issued warrants to purchase 192,123 shares of
Series I preferred stock for $10.41 per share. The Company expensed the
estimated fair value of the warrants of $1.4 million over one year. The
estimated fair value of the warrants was determined using the Black-Scholes
option pricing model. The principal assumptions used in the computation are: one
year term; deemed fair value at the date of issuance of $8.50 per share; a risk-
free rate of return of 5.07%; dividend yield of zero percent; and a volatility
of 50%. As a result of CAA's exercise of these warrants, upon the closing of the
initial public offering, TiVo issued 67,122 shares of preferred stock. The
67,122 shares of preferred stock were converted to common stock on a one-for-one
basis upon the closing of the initial public offering.
11. COMMITMENTS AND CONTINGENCIES
Facilities Leases
In October 1999, the Company entered into a new office lease with
WIX/NSJ Real Estate Limited Partnership. The lease began on March 10, 2000 and
has a seven-year term. Monthly rent is approximately $236,000 with built-in base
rent escalations periodically throughout the lease term.
In June 2000, the Company entered into an office lease for its UK
office with Regus Business Center. The lease began on June 20, 2000 and has a
six-month term. It was renewed in December 2000 for an additional six- month
period. Monthly rent is approximately $21,000.
The Company has also signed leases for sales offices in Beverly Hills,
CA and in New York, NY. The Beverly Hills office lease has a three-year term and
monthly rent is approximately $7,000. The New York office lease has a one-year
term and monthly rent is approximately $5,000.
Rent expense under operating leases was approximately $217,000, $2.4
million, $1.0 million and $619,000 for the one-month transition period ended
January 31, 2001 and years ended December 31, 2000, 1999 and 1998, respectively.
70
Equipment Lease Line
In March 1999, the Company entered into an equipment lease line for
$2.5 million over the 12 months following the date of the lease. The annual
interest rate is 7.25%, and the line is repayable over 36 months. The lessor
received a warrant for 60,814 shares of the Company's Series B preferred stock
at an exercise price of $1.26 per share. The Company expenses the estimated fair
value of the warrants of $304,000 over the life of the lease. The estimated fair
value of the warrants was determined using the Black-Scholes option pricing
model. The principal assumptions used in the computation are: ten year term,
deemed fair value at the date of issuance of $5.50 per share, a risk-free rate
of return of 5.07%, dividend yield of zero percent and a volatility of 50%. As
of January 31, 2001, $2.3 million of the available lease line has been used and
has been accounted for as a capital lease. The current portion of the capital
lease obligation, net of interest expense, at January 31, 2001, December 31,
2000 and 1999 is $796,000, $792,000 and $624,000, respectively. The unused
equipment lease line expired February 2000.
Future minimum lease payments as of January 31, 2001, by calendar year are as
follows:
Capital
Year Facilities Leases Equipment Lease Total
------------------------------------------------------------------------------------------------------
2001............................... $ 2,782,000 $ 795,000 $ 3,577,000
2002............................... 2,959,000 620,000 3,579,000
2003............................... 3,020,000 6,000 3,026,000
2004............................... 3,076,000 -- 3,076,000
2005 and thereafter................ 6,979,000 -- 6,979,000
------------------------------------------------------------
Total.............................. $18,816,000 $1,421,000 $20,237,000
============================================================
Convertible Debt
In April 1999, the Company entered into a secured convertible
debenture purchase agreement with certain stockholders, which terminated on
December 31, 1999. Under the terms of the agreement, TiVo could borrow up to
$3.0 million at an interest rate of 4.67% per annum. The debentures delivered by
TiVo for any loan made under this agreement were convertible into common stock
on a one-for-one basis and secured by substantially all of the Company's assets
other than intellectual property.
In conjunction with the agreement, TiVo issued warrants to purchase
81,522 shares of common stock at an exercise price of $2.50 per share. Deferred
financing costs of $341,000 were recorded using the estimated fair value of the
warrants at the date of issuance. The estimated fair value of the warrants was
determined using the Black-Scholes option pricing model. The principal
assumptions used in the computation were: five year term; deemed fair value at
the date of issuance of $5.50 per share; a risk free rate of return of 5.07%;
dividend yield of zero percent; and a volatility of 50%. During the year ended
December 31, 1999, the entire value of the warrants of $341,000 was expensed.
The Company issued 81,522 shares of common stock as a result of the exercise of
the warrants upon the closing of the initial public offering of the Company's
common stock.
Legal Matters
In September 1999, TiVo received letters from Time Warner, Inc. and
Fox Television stating that TiVo's personal television service exploits these
companies' copyrights without the necessary licenses. The Company believes that
the TiVo Service does not infringe on these copyrights and believes that there
will not be an adverse impact as a result of these letters.
12. RETIREMENT PLAN
In December 1997, the Company established a 401(k) Retirement Plan
(the "Retirement Plan") available to employees who meet the plan's eligibility
requirements. Participants may elect to contribute a percentage of their
compensation to the Retirement Plan up to a statutory limit. Participants are
fully vested in their contributions. The Company may make discretionary
contributions to the Retirement Plan as a percentage of participant
contributions, subject to established limits. The Company has not made any
contributions to the Retirement Plan through January 31,2001.
71
13. ADOPTION OF STOCKHOLDER RIGHTS PLAN
On January 9, 2001, TiVo's Board of Directors declared a dividend
distribution of one Preferred Share Purchase Right ("Right") on each outstanding
share of TiVo common stock ("the Rights Plan"). Subject to limited exceptions,
the Rights will be exercisable if a person or group acquires 15% or more of the
Company's common stock or announces a tender offer for 15% or more of the common
stock, ("Acquiring Person"). Under certain circumstances, each Right will
entitle shareholders to buy one -hundredth of a share of newly created Series
B Junior Participating Preferred Stock of TiVo at an exercise price of $60.00
per Right. The TiVo Board will be entitled to redeem the Rights at $.01 per
Right at any time before a person has acquired 15% or more of the outstanding
common stock.
The Rights are intended to enable all TiVo shareholders to realize the
long-term value of their investment in the Company. They do not prevent a
takeover, but should encourage anyone seeking to acquire TiVo to negotiate with
the Board of Directors prior to attempting a takeover. The Rights Plan will
expire in January 2011.
The Rights are not being distributed in response to any specific
effort to acquire control of TiVo. The Rights are designed to assure that all
TiVo shareholders receive fair and equal treatment in the event of any proposed
takeover of TiVo and to guard against partial tender offers, open market
accumulations and other abusive tactics to gain control of TiVo without paying
all shareholders a control premium.
If a person becomes an Acquiring Person, each Right will entitle its
holder to purchase, at the Right's then-current exercise price, a number of
common shares of TiVo having a market value at that time of twice the Right's
exercise price. Rights held by the Acquiring Person will become void and will
not be exercisable to purchase shares at the bargain purchase price. If TiVo is
acquired in a merger or other business combination transaction which has not
been approved by the Board of Directors, each Right will entitle its holder to
purchase, at the Right's then-current exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the Right's
exercise price.
The dividend distribution to establish the new Rights Plan will be
payable to shareholders of record on January 31, 2001. The Rights will expire in
January 2011. The Rights distribution is not taxable to shareholders.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
72
PART III
Item 10. Directors and Executive Officers of the Company
Certain information required by Part III has been omitted from this
Transition Report on Form 10-K. This information is instead incorporated by
reference to our definitive proxy statement (the "Proxy Statement"), which will
be filed with the Securities and Exchange Commission in connection with our 2001
Annual Meeting of Stockholders.
Identification of Executive Officers
Information regarding our directors is incorporated by reference from
our Proxy Statement. The information identifying our current executive officers
is found under the caption "Executive Officers and Key Employees" in Part I
hereof, and is also incorporated by reference into this Item 10.
The information concerning TiVo's executive officers is incorporated by
reference from our Proxy Statement.
Identification of Directors
The information concerning the Company's directors and nominees is
incorporated by reference from our Proxy Statement.
Compliance with Section 16 (a) of the Exchange Act
The information concerning compliance with Section 16 (a) of the Exchange
Act is incorporated by reference from the section entitled "Compliance with
Section 16 (a) of the Exchange Act" in the Proxy Statement.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference from
our Proxy Statement under the heading "Executive Compensation and Other
Information."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference from
our Proxy Statement under the headings "Proposal No. 1 Election of Directors"
and "Security Ownership of Certain Beneficial Owners and Management."
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference from
our Proxy Statement under the heading "Certain Relationships and Related
Transactions."
73
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-k
(a) 1. INDEX TO FINANCIAL STATEMENTS
See Item 8.
(a) 3. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.2 of the
registrant's Quarterly Report on Form 10-Q filed on
November 14, 2000).
3.2 Amended and Restated Bylaws (incorporated by reference
to Exhibit 3.4 of the registrant's Quarterly Report on
Form 10-Q filed on November 15, 1999).
4.1++ Warrant and Registration Rights Agreement, dated as of
October 6, 2000, by and between DIRECTV, Inc.
(incorporated by reference to Exhibit 4.1 of the
registrant's Annual Report on Form 10-K filed on April
2, 2001).
4.2 Stockholders and Registration Rights Agreement, dated as
of June 9, 2000, between TiVo and America Online, Inc.
(incorporated by reference to Exhibit 4.4 of the
registrant's Quarterly Report on Form 10-Q filed on
November 14, 2000).
4.3 Ninth Amended and Restated Investor Rights Agreement by
and among TiVo and certain investors, dated as of August
6, 1999 (incorporated by reference to Exhibit 4.3 of the
registrant's Registration Statement on Form S-1 (SEC
File No. 333-83515)).
4.4 Certificate of Designations of the Series B Junior
Participating Preferred Stock of TiVo (incorporated by
reference to Exhibit 4.1 of the registrant's Current
Report on Form 8-K/A filed on January 19, 2001).
4.5 Certificate of Correction to the Certificate of
Designations of the Series B Junior Participating
Preferred Stock of TiVo (incorporated by reference to
Exhibit 4.2 of the Registrant's Current Report on Form
8-K/A filed on January 19, 2001).
10.1 Rights Agreement, dated as of January 16, 2001, between
TiVo and Wells Fargo Shareowner Services, as Rights
Agent (incorporated by reference to Exhibit 10.1 of the
registrant's Current Report on Form 8-K/A filed on
January 19, 2001).
10.2 First Amendment to Rights Agreement, dated as of
February 20, 2001, between TiVo Inc. and Wells Fargo
Shareowner Services, as Rights Agent (incorporated by
reference to Exhibit 10. of the registrant's Current
Report on Form 8-K filed on February 28, 2001).
10.3 Form of Indemnification Agreement between TiVo and its
officers and directors (incorporated by reference to
Exhibit 10.1 of the registrant's Registration Statement
on Form S-1 (SEC File No. 333-83515)).
10.4 TiVo's 1999 Equity Incentive Plan and related documents
(incorporated by reference to Exhibit 10.2 of the
registrant's Registration Statement on Form S-1 (SEC
File No. 333-83515)).
10.5 TiVo's Amended and Restated 1997 Equity Incentive Plan
and related documents (incorporated by reference to
Exhibit 10.3 of the registrant's Registration Statement
on Form S-1 (SEC File No. 333-83515)).
10.6 TiVo's 1999 Employee Stock Purchase Plan and related
documents (incorporated by reference to Exhibit 10.4 of
the registrant's Registration Statement on Form S-1 (SEC
File No. 333-83515)).
10.7 TiVo's 1999 Non-Employee Directors' Stock Option Plan
and related documents (incorporated by reference to
Exhibit 10.5 of the registrant's Annual Report on Form
10-K filed on March 30, 2000).
10.8+ Hard Disk Drive Supply Agreement between Quantum
Corporation and TiVo, dated November 6, 1998
(incorporated by by reference to Exhibit 10.6 of the
registrant's Registration Statement on Form S-1 (SEC
File No. 333-83515)).
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
74
EXHIBIT
NUMBER DESCRIPTION
------ -----------
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
(SEC File No. 333-83515)).
10.11+ Master Agreement between Philips Business Electronics
B.V. and TiVo, dated March 31, 1999 (incorporated by
reference to Exhibit 10.7 of the registrant's
Registration Statement on Form S-1 (SEC File No. 333-
83515)).
10.12+ Marketing Agreement between DIRECTV, Inc. and TiVo,
dated April 13, 1999 (incorporated by reference to
Exhibit 10.8 of the registrant's Registration Statement
on Form S-1 (SEC File No. 333-83515)).
10.13+ Agreement between NBC Multimedia, Inc. and TiVo, dated
April 16, 1999 (incorporated by reference to Exhibit
10.9 of the registrant's Registration Statement on Form
S-1 (SEC File No. 333-83515)).
10.14 Sublease Agreement between Verity, Inc. and TiVo, dated
February 23, 1998 (incorporated by reference to Exhibit
10.10 of the registrant's Registration Statement on Form
S-1 (SEC File No. 333-83515)).
10.15 Amendment to Sublease Agreement between Verity, Inc. and
TiVo, dated November 1998 (incorporated by reference to
Exhibit 10.11 of the registrant's Registration Statement
on Form S-1 (SEC File No. 333-83515)).
10.16 Second Amendment to Sublease Agreement between Verity,
Inc. and TiVo, dated March 1999 (incorporated by
reference to Exhibit 10.12 of the registrant's
Registration Statement on Form S-1 (SEC File No. 333-
83515)).
10.17 Consent of Landlord to Sublease between Verity, Inc. and
TiVo, dated February 23, 1998 (incorporated by reference
to Exhibit 10.13 of the registrant's Registration
Statement on Form S-1 (SEC File No. 333-83515)).
10.18 Master Lease Agreement between Comdisco, Inc. and TiVo,
dated February 12, 1999 (incorporated by reference to
Exhibit 10.15 of the registrant's Registration Statement
on Form S-1 (SEC File No. 333-83515)).
10.19 Warrant to Purchase Shares of Series A Preferred Stock
issued to Randy Komisar, dated March 18, 1998
(incorporated by reference to Exhibit 10.17 of the
registrant's Registration Statement on Form S-1 (SEC
File No. 333-83515)).
10.20 Warrant Agreement between Comdisco, Inc. and TiVo, dated
February 12, 1999 (incorporated by reference to Exhibit
10.18 of the registrant's Registration Statement on Form
S-1 (SEC File No. 333-83515)).
10.21 Secured Convertible Debenture Purchase Agreement between
TiVo and certain of its investors, dated April 8, 1999,
and related documents (incorporated by reference to
Exhibit 10.19 of the registrant's Registration Statement
on Form S-1 (SEC File No. 333-83515)).
10.22 TiVo's 401(k) Plan, effective December 1, 1997
(incorporated by reference to Exhibit 10.21 of the
registrant's Registration Statement on Form S-1 (SEC
File No. 333-83515)).
10.23+ Tribune Media Services Television Listing Agreement
between Tribune Media Services and TiVo, dated June 1,
1998 (incorporated by reference to Exhibit 10.22 of the
registrant's Registration Statement on Form S-1 (SEC
File No. 333-83515)).
10.24+ Amendment to the Data License Agreement between
Teleworld Inc., and Tribune Media Services, Inc. between
Tribune Media Services and TiVo, dated November 10, 1998
(incorporated by reference to Exhibit 10.23 of the
registrant's 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).
23.1 Consent of Independent Public Accountants
24.1 Power of Attorney (included in Part IV of this Form
10-K).
99.5 Form of Stock Option Grant used in connection with an
option granted outside of TiVo's stock option plans and
related documents (incorporated by reference to Exhibit
99.5 of the registrant's Registration Statement on Form
S-1 (SEC File No. 333-83515)).
-----------------------
+ Confidential treatment granted as to portions of this exhibit.
++ Confidential treatment has been requested as to portions of this exhibit.
75
(b) REPORTS ON FORM 8-K
The registrant filed the following reports on Form 8-K during the
one-month transition period ended January 31, 2001:
. Current Report on Form 8-K on January 17, 2001, regarding the
execution of a Rights Agreement, dated as of January 16, 2001.
. Amendment No. 1 to Current Report on Form 8-K on January 19, 2001,
regarding the execution of a Rights Agreement, dated as of January 16,
2001,
The registrant subsequently filed the following:
. Current Report on Form 8-K on February 1, 2001, regarding the change
in the registrant's fiscal reporting year-end from December31 to
January 31.
. Current Report on Form 8-K on February 14, 2001, regarding the
announcement of the registrant's earnings for the fourth quarter and
year ended December 31, 2000.
. Current Report on Form 8-K on February 28, 2001, regarding an
amendment to the Rights Agreement, dated as of January 16, 2001.
. Current Report on Form 8-K on March 15, 2001, regarding the execution
of an amendment to that certain Investment Agreement, dated as of June
9, 2000, as amended, by and between the registrant and America Online,
Inc. and the execution of promotional agreements with America Online,
Inc. and AOL Time Warner, Inc.
. Current Report on Form 8-K on March 19, 2001, regarding the
announcement of the registrant's earnings for the one-month
transitional period ended January 31, 2001 in connection with the
change in the registrant's fiscal reporting year-end.
Trademark Acknowledgments
TiVo is a registered trademark of TiVo, Inc.
"Active Preview", "Can't Miss TV", "DIRECTIVO", Instant Replay logo,
"Ipreview", Jump logo, "Life's too short for bad TV", "Network Showcase",
"Personal TV", "Personal Video Recorder", "Primetime Anytime", "Season Pass",
"See it, want it, get it", "The New Face of Television", "The way TV is meant to
be", "Thumbs Down" (logo and text), "Thumbs Up" (logo and text), "TiVo Central",
"TiVo" (logo, name and character), "TiVolution", "What you want, when you want
it", and "You run the shows" are trademarks of the registrant. All other
trademarks or trade names appearing in this report are the property of their
respective owners.
76
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: April 30, 2001 By: /s/ Michael Ramsay
-----------------------
Michael Ramsay
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael Ramsay and David H. Courtney and
each or any one of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Report on Form 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated:
Signature Title Date
/s/ Michael Ramsay President, Chief Executive Officer and
------------------------- Chairman of the Board (Principal Executive April 30, 2001
Michael Ramsay Officer)
/s/ David H. Courtney Senior Vice President of Finance and
------------------------- Administration and Chief Financial Officer April 30, 2001
David H. Courtney (Principal Financial and Accounting Officer)
/s/ James Barton Senior Vice President of Research and
------------------------- Development, Chief Technical Officer and April 30, 2001
James Barton Director
_________________________ Director
Geoffrey Y. Yang
/s/ Stewart Alsop
------------------------- Director April 30, 2001
Stewart Alsop
/s/ Randy Komisar
------------------------- Director April 30, 2001
Randy Komisar
------------------------- Director
Michael Homer
/s/ Larry N. Chapman
------------------------ Director April 30, 2001
Larry N. Chapman
/s/ Jan P. Oosterveld
------------------------ Director April 30, 2001
Jan P. Oosterveld
77
/s/ John S. Hendricks
_________________________ Director April 30, 2001
John S. Hendricks
/s/ David Zaslav
_________________________ Director April 30, 2001
David Zaslav
================================================================================
78