<PAGE>   1
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-Q

      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
                             EXCHANGE ACT OF 1934.

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                        COMMISSION FILE NUMBER: 333-94271

                             DIRECTV BROADBAND, INC.
                       (FORMERLY TELOCITY DELAWARE, INC.)
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                          <C>
DELAWARE                                                     77-0467929
(State or other jurisdiction of incorporation                (I.R.S. Employer
or organization)                                             Identification Number)

10355 N. DEANZA BOULEVARD CUPERTINO, CALIFORNIA              95014
(Address of principal executive offices)                     (Zip Code)

                                                             (408) 863-6600
                                                             (Registrant's telephone number, including area
                                                             code)
</TABLE>


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filled 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 30 days.  Yes [X]  No [ ]

         As of March 31, 2001, 82,468,226 shares of the Registrant's $0.001 par
value Common Stock, were issued and outstanding.

<PAGE>   2
                             DIRECTV BROADBAND, INC.
                       (FORMERLY TELOCITY DELAWARE, INC.)
                                      INDEX



<TABLE>
<CAPTION>
                                                                                                PAGE NO.
                                                                                                --------
<S>                                                                                             <C>
PART I.   FINANCIAL INFORMATION (UNAUDITED)

Item 1.   Condensed Consolidated Financial Statements

          Condensed Consolidated Balance Sheets as of
          March 31, 2001 and December 31, 2000..................................................   2

          Condensed Consolidated Statements of Operations for the
          Three Months Ended March 31, 2001 and March 31, 2000.................................... 3

          Condensed Consolidated Statements of Cash Flows for the
          Three Months Ended March 31, 2001 and March 31, 2000..................................   4

          Notes to Condensed Consolidated Financial Statements..................................   5

Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations.............................................................   7

Item 3.   Quantitative and Qualitative Disclosures About Market Risk............................  11


PART II.  OTHER INFORMATION (UNAUDITED)

Item 1.   Legal Proceedings.....................................................................  16

Item 2.   Changes in Securities and Use of Proceeds.............................................  16

Item 6.   Reports on Form 8-K...................................................................  16


          Signatures............................................................................  16
</TABLE>



                                       1
<PAGE>   3
PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                             DIRECTV BROADBAND, INC.
                       (FORMERLY TELOCITY DELAWARE, INC.)

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (AMOUNTS IN 000'S, EXCEPT SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                                      March 31,      December 31,
                                                                                        2001            2000
                                                                                    (unaudited)        (Note 2)
                                                                                      ---------        ---------
<S>                                                                                 <C>              <C>
ASSETS
Current assets:
     Cash and cash equivalents ................................................       $   2,343        $  38,422
     Accounts receivable, net .................................................             828              539
     Prepaid expenses and other current assets ................................           8,613           11,803
                                                                                      ---------        ---------
           Total current assets ...............................................          11,784           50,764
Property and equipment, net ...................................................          53,689           45,311
Intangibles, net ..............................................................             252              278
Other assets ..................................................................          31,811           35,990
                                                                                      ---------        ---------
           Total assets .......................................................       $  97,536        $ 132,343
                                                                                      =========        =========


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable .........................................................       $  18,377        $  23,761
     Accrued liabilities ......................................................          37,247           21,662
     Deferred revenue .........................................................           1,343            1,026
     Capital lease obligations, current .......................................           4,904            5,757
                                                                                      ---------        ---------
           Total current liabilities ..........................................          61,871           52,206
Notes payable .................................................................          20,000               --
Capital lease obligations, net of current portion .............................           6,490            6,860
Other liabilities .............................................................             314              264
                                                                                      ---------        ---------
           Total liabilities ..................................................          88,675           59,330
                                                                                      ---------        ---------

Stockholders' equity:
     Common stock: $0.001 par value, 250,000,000 shares authorized; issued
        and outstanding: 82,468,226 in 2001 and 81,623,140 in 2000 ............              79               78
     Additional paid-in capital ...............................................         325,910          326,450
     Receivable from stockholders .............................................          (3,427)          (3,326)
     Unearned stock-based compensation ........................................          (6,739)          (8,022)
     Accumulated deficit ......................................................        (306,962)        (242,167)
                                                                                      ---------        ---------
           Total stockholders' equity .........................................           8,861           73,013
                                                                                      ---------        ---------
           Total liabilities and stockholders' equity .........................       $  97,536        $ 132,343
                                                                                      =========        =========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.



                                       2
<PAGE>   4
                             DIRECTV BROADBAND, INC.
                       (FORMERLY TELOCITY DELAWARE, INC.)

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             (AMOUNTS IN 000'S, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                       THREE MONTHS ENDED
                                                                                                 March 31,            March 31,
                                                                                                    2001                 2000
                                                                                                ------------        ------------
<S>                                                                                             <C>                 <C>
Revenues ................................................................................       $      7,853        $        350
                                                                                                ------------        ------------
     Operating costs and expenses:
     Network and product costs ..........................................................             17,992               4,249
     Sales and marketing ................................................................             17,220              12,403
     General and administrative .........................................................             20,235               8,115
     Research and development ...........................................................              6,031               4,535
     Amortization of stock-based compensation (*) .......................................              4,903               3,200
     Depreciation and amortization ......................................................              6,375               2,085
                                                                                                ------------        ------------
           Total operating expenses .....................................................             72,756              34,587
                                                                                                ------------        ------------
Loss from operations ....................................................................            (64,903)            (34,237)
Interest income/(expense), net ..........................................................                132                (186)
Other expense ...........................................................................                (24)                 --
                                                                                                ------------        ------------

Net loss ................................................................................            (64,795)            (34,423)
Accretion on mandatorily redeemable convertible preferred stock .........................                 --                (341)
                                                                                                ------------        ------------
Net loss attributable to common stockholders...............................                     $    (64,795)       $    (34,764)
                                                                                                ============        ============


Net loss per share, basic and diluted ...................................................       $      (0.83)       $      (2.61)
                                                                                                ============        ============
Shares used in computing net loss per share, basic and diluted ..........................         77,748,119          13,306,454
                                                                                                ============        ============

 (*)Amortization of stock-based compensation:
    Network and product costs ...........................................................       $         16                 189
    Sales and marketing .................................................................              4,309                 374
    General and administrative ..........................................................                443               2,276
    Research and development ............................................................                135                 361
                                                                                                ------------        ------------
                                                                                                $      4,903        $      3,200
                                                                                                ============        ============
</TABLE>



The accompanying notes are an integral part of these condensed consolidated
financial statements.



                                       3
<PAGE>   5
                             DIRECTV BROADBAND, INC.
                       (FORMERLY TELOCITY DELAWARE, INC.)

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (AMOUNTS IN 000'S)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                                                        ------------------------
                                                                        March 31,       March 31,
                                                                          2001            2000
                                                                        --------        --------
<S>                                                                     <C>             <C>
Cash flows from operating activities:
        Net cash used in operating activities ...................       $(40,719)       $(27,572)
                                                                        --------        --------

Cash flows from investing activities:
     Proceeds from the sale of property and equipment ...........             23              --
     Purchase of property and equipment .........................        (14,057)         (6,472)
                                                                        --------        --------
        Net cash used in investing activities ...................        (14,034)         (6,472)
                                                                        --------        --------

Cash flows from financing activities:
     Proceeds from issuance of common stock, net ................            159             107
     Proceeds from issuance of warrants for common stock ........             38              --
     Proceeds from issuance of warrants for preferred stock .....             --             104
     Proceeds from issuance of notes payable ....................         20,000              --
     Repayments of notes payable ................................             --            (517)
     Principal payments on capital lease obligations ............         (1,223)           (796)
     Increase in restricted cash related to commitments .........           (300)             --
                                                                        --------        --------
        Net cash provided by (used in) financing activities .....         18,674          (1,102)
                                                                        --------        --------
Net decrease in cash and cash equivalents .......................        (36,079)        (35,146)
Cash and cash equivalents, beginning of period ..................         38,422          66,978
                                                                        --------        --------
Cash and cash equivalents, end of period ........................       $  2,343        $ 31,832
                                                                        ========        ========
</TABLE>



The accompanying notes are an integral part of these condensed consolidated
financial statements



                                       4
<PAGE>   6
                             DIRECTV BROADBAND, INC.
                       (FORMERLY TELOCITY DELAWARE, INC.)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.       DESCRIPTION OF BUSINESS

         DIRECTV Broadband, Inc. (formerly Telocity Delaware, Inc.) (the
"Company") develops, markets, integrates and delivers interactive online
services to the residential market over high-speed, or broadband, connections.
The Company has a single operating segment and has no organizational structure
dictated by product lines, geography or customer type. All revenues earned to
date have been generated from U.S. based customers.

         The Company has been successful in completing several rounds of
financing with its last round arising from its initial public offering in March
2000 that raised approximately $120.7 million, net of issuance costs. However,
the Company has incurred substantial losses and negative cash flows from
operations every quarter since inception. For the three months ended March 31,
2001, the Company incurred a loss from operations of approximately $64.8 million
and negative cash flows from operations of $40.7 million. As of March 31, 2001,
the Company has an accumulated deficit of approximately $307.0 million.

         On December 21, 2000, the Company and HUGHES Electronics Corporation
("HUGHES") announced an agreement in which HUGHES, through a recently formed
subsidiary, DIRECTV Broadband, Inc., would acquire all the Company's outstanding
shares of common stock at a purchase price of $2.15 per share, or approximately
$178.0 million, subject to the satisfaction of certain conditions. The cash
tender offer for these shares was successfully completed on April 2, 2001. As of
April 3, 2001, DIRECTV Broadband, Inc. merged with and into the Company and
became a wholly owned subsidiary of HUGHES.


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Basis of presentation

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements. Actual
results may differ from those estimates. The consolidated financial statements
of the Company include the accounts of all its wholly owned subsidiaries.

         The accompanying condensed consolidated financial statements at March
31, 2001 and for the three month periods ended March 31, 2001 and 2000 are
unaudited, but include all adjustments (consisting only of recurring
adjustments) which, in the opinion of management, are necessary for a fair
presentation of financial position and operating results. Operating results for
the three-month period ended March 31, 2001 and 2000 are not necessarily
indicative of results that may be expected for any future periods.

         The condensed consolidated balance sheet at December 31, 2000 has been
derived from the audited consolidated financial statements at that date, but
does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.

         The information included in this report should be read in conjunction
with the Company's 2000 Annual Report on Form 10-K and all other filings of the
Company including current reports on Form 8-K, filed with the Securities and
Exchange Commission through the date of this report.

         Cash and cash equivalents

         The Company considers all highly liquid investments with original or
remaining maturities of three months or less at the date of purchase to be cash
equivalents. At March 31, 2001, the Company had restricted cash of approximately
$6.3 million, of which $4.8 million related to letter of credit facilities with
a bank, which had terms in excess of one year. The current portion of restricted
cash of $1.5 million has been included in "prepaid expenses and other current
assets", while the long term balance of $4.8 million has been included in "other
assets."



                                       5
<PAGE>   7

         Research and development

         Research and development costs are expensed as incurred, except for
certain software development costs. In January 1999 the Company adopted
Statement of Position ("SOP") 98-1, which requires software development costs
associated with internal use software to be charged to operations until certain
capitalization criteria are met. For the three months ended March 31, 2001 and
2000, software development costs of approximately $306,000 million and $618,000,
respectively, were capitalized and included in property and equipment.

         Advertising Costs

         Advertising costs are expensed the first time the advertising takes
place. Included in prepaid expenses and other current assets and other assets at
March 31, 2001 and December 31, 2000 is $19.5 million and $23.5 million,
respectively, related to advertising commitments received from National
Broadcasting Company, Inc. ("NBC") and NBC Internet, Inc. ("NBCi") in exchange
for the issuance of Series C mandatorily redeemable preferred stock. Advertising
expense for the three months ended March 31, 2001 and 2000 was $12.2 million and
$7.9 million respectively; advertising expense for the three months ended March
31, 2001, is inclusive of stock-based compensation of $4.0 million.

3.       RECLASSIFICATIONS

         Certain prior period amounts have been reclassified to conform to
March 31, 2001 presentation.

4.       NET LOSS PER SHARE

         Basic and diluted net loss per share have been computed using the
weighted-average number of shares of common stock outstanding during the period,
less shares subject to repurchase. Diluted net loss per share includes common
equivalent shares outstanding during the period, if dilutive.

         The following table represents the calculation of basic and diluted net
loss per share (in thousands, except share and per share amounts):


<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED
                                                             March 31, 2001      March 31, 2000
                                                             --------------      --------------
<S>                                                           <C>                 <C>
Numerator:
Net loss ..............................................       $    (64,795)       $    (34,423)
Accretion on mandatorily redeemable convertible
 preferred stock ......................................                 --                 341
                                                              ------------        ------------
Net loss attributable to common stockholders ..........       $    (64,795)       $    (34,764)
                                                              ============        ============

Denominator:
Weighted-average common shares - basic and diluted ....         81,884,455          24,506,189
Weighted-average common shares subject to repurchase ..         (4,136,336)        (11,199,735)
                                                              ------------        ------------
Denominator for basic and diluted calculation .........         77,748,119          13,306,454
                                                              ============        ============

Basic and diluted net loss per share ..................       $      (0.83)       $      (2.61)
                                                              ============        ============
</TABLE>


         Options to purchase 5,922,334 and 651,012 shares of common stock or
convertible preferred stock at an average exercise price of $6.54 and $4.86 per
share, respectively, and warrants to purchase 2,076,870 and 3,483,339 shares of
common or convertible preferred stock at an average exercise price of $3.65 and
$3.78 per share, respectively, and zero and 48,302,903 of convertible preferred
stock outstanding, have not been included in the computation of diluted net loss
per share for the three month periods ended March 31, 2001 and 2000,
respectively, as their effect would have been anti-dilutive.

5. COMPREHENSIVE INCOME

         To date, the Company has not had any transactions that are required to
be reported in comprehensive income.



                                       6
<PAGE>   8
6. NEW ACCOUNTING PRONOUNCEMENT

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires an entity to recognize all derivatives as either assets or liabilities
in the balance sheet and measure those instruments at fair value. The Company
adopted SFAS No. 133 (as amended by SFAS No. 138) as required by SFAS No. 137,
"Deferral of the Effective Date the FASB Statement No. 133", effective January
1, 2001. The Company, to date, has not engaged in derivative and hedging
activities, and accordingly the adoption of SFAS No. 133 did not have a material
effect on the consolidated financial statements.


7.  BORROWINGS

         During February and March 2001, the Company received $20 million from
HUGHES under an 8% convertible subordinated unsecured note which matures on
January 31, 2004. The note was issued to the Company, by HUGHES, in connection
with the December 21, 2000 "Agreement and Plan of Merger by and among Telocity,
HUGHES and DIRECTV Broadband, Inc." (See Note 1).

8.  SUBSEQUENT EVENTS

         On April 2, 2001, through its recently formed subsidiary, DIRECTV
Broadband, Inc., HUGHES completed its tender offer to acquire all of the
Company's outstanding shares of common stock at a purchase price of $2.15 per
share, or approximately $178.0 million in cash plus $20.0 million of interim
financing. As of April 3, 2001, DIRECTV Broadband, Inc. merged with and into the
Company, and the Company became a wholly owned subsidiary of HUGHES (See Note
1).

         During April 2001, approximately 19,700 of the Company's subscribers
who received DSL connectivity through NorthPoint lost their service following
NorthPoint's decision to shut down its network. The Company had received notice
of the shutdown on March 28, 2001 following the United States Bankruptcy Court's
approved sale of substantially all of NorthPoint's assets. The Company is in the
process of reprovisioning service to NorthPoint subscribers where it has an
alternate, financially secure, supplier of DSL connectivity. The Company is also
entering into new agreements with suppliers of DSL connectivity in those
geographical markets where it does not currently have an alternate, financially
secure, supplier. Despite these efforts, however, the Company estimates that in
excess of 13,000 subscribers will not be reprovisioned through a combination of
no alternate last mile provider and customers choosing to terminate their
service.


                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


         The discussion in this quarterly report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties. The statements
contained in this Report that are not purely historical are 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,
including statements regarding our expectations, beliefs, intentions or
strategies regarding the future. All forward-looking statements included in this
document are based on information available to us on the date hereof, and we
assume no obligation to update any such forward-looking statements. Our actual
results could differ materially from those described in our forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, our ability to provision timely, consistent and reliable
DSL services; our unproven business model and a limited operating history in a
new and rapidly evolving industry; our ability to implement our business plan;
and our ability to manage our growth, retain and grow our customer base and
expand our service offerings.

     Additional risk factors are discussed under the heading "Risk Factors" both
below and in our 2000 Annual Report on Form 10-K.

OVERVIEW

          We develop, market and deliver to the residential market interactive
online services and content designed for use over high-speed, or broadband,
connections. These broadband connections allow our customers to enjoy services
and content that they could not access with traditional slower speed Internet
connections. Although we currently deliver our services to customers using
digital subscriber line, or



                                       7
<PAGE>   9

DSL, technology, in the future we intend to utilize the technology we have
developed to deliver these services and content over a variety of broadband
technologies from a managed nationwide network to and throughout the home. Our
goal is to become a leading provider of broadband access services, content and
home networking services to the residential market.

      In July 1999, we began offering services commercially in Chicago. As of
March 31, 2001, we were offering services in more than 150 metropolitan
statistical areas nationwide. At March 31, 2001, we had approximately 65,000
active subscribers.

      During April 2001, approximately 19,700 of the Company's subscribers who
received DSL connectivity through NorthPoint lost their service following
NorthPoint's decision to shut down its network. The Company had received notice
of the shutdown on March 28, 2001 following the United States Bankruptcy Court's
approved sale of substantially all of NorthPoint's assets. The Company is in the
process of reprovisioning service to NorthPoint subscribers where it has an
alternate, financially secure, supplier of DSL connectivity. The Company is also
entering into new agreements with suppliers of DSL connectivity in those
geographical markets where it does not currently have an alternate, financially
secure, supplier. Despite these efforts, however, the Company estimates that in
excess of 13,000 subscribers will not be reprovisioned through a combination of
no alternate last mile provider and customers choosing to terminate their
service.


      Our maximum potential market is limited by the number of homes that are
DSL-capable, meaning homes that are within approximately 2 1/2 and 3 miles from
a local telephone office that has equipment necessary to support DSL service and
have voice grade copper telephone lines that are in good condition.

      On December 21, 2000, we announced an agreement in which HUGHES, through a
recently formed subsidiary, DIRECTV Broadband Inc., would acquire all of our
outstanding shares of common stock at a purchase price of $2.15 per share, or
approximately $178.0 million in cash, subject to the satisfaction to certain
conditions. Also, to ensure we have sufficient access to funding during the
period prior to the consummation of our merger with HUGHES, HUGHES agreed to
provide unsecured interim financing of $20.0 million in the form of a
convertible subordinated note. The cash tender offer for those shares commenced
February 1, 2001 and was successfully completed on April 2, 2001. As of April 3,
2001, DIRECTV Broadband, Inc. merged with and into the Company, and the Company
became a wholly owned subsidiary of HUGHES.


      Since our incorporation in August 1997, our primary activities have
consisted of:

      - developing our residential broadband gateway technology;

      - obtaining space and locations for our network equipment;

      - deploying and installing our network;

      - developing and integrating our operational support system and other back
office systems;

      - negotiating and executing network agreements with traditional telephone
companies and new competitive carriers;

      - launching service in target markets;

      - developing a marketing and branding strategy;

      - building our customer service organization;

      - negotiating agreements for broadband content;

      - hiring management and other personnel; and

      - raising capital.

      We have incurred operating losses, net losses and negative earnings before
interest, taxes, amortization of stock-based compensation, depreciation and
amortization, or EBITDA, for each month since our formation. As of March 31,
2001, we had an accumulated deficit of $307.0 million.

      We incur network and product costs, sales and marketing expenses and
capital expenditures when we enter a new market. Once we have developed our
network in a market, we incur incremental expenditures as we connect new
customers. These



                                       8
<PAGE>   10

incremental expenditures primarily include local access costs and gateway device
costs.


THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000

         Revenues. Installed billable subscribers increased from approximately
5,000 at March 31, 2000 to 65,000 at March 31, 2001. Major factors that
contributed to our growth include an additional year of operating activity
following the commercial launch of our operations in November 1999; and an
expansion in our national footprint from 115 to 150 metropolitan statistical
areas during the year. The increase in our subscriber base is a major driver
behind the increase in revenue from $350,000 for the quarter ended March 31,
2000 to $7.9 million for the quarter ended March 31, 2001. The commercial launch
in January 2001 of our first value added service package, "Connect&Protect(TM)",
which provides home networking and enhanced computer security capabilities also
contributed to the increase in revenues.

         As noted above under the heading "OVERVIEW", the size of our subscriber
base will be negatively impacted by the NorthPoint bankruptcy proceedings. We
anticipate that this will have an adverse impact on the size of our average
subscriber base for the quarter ended June 30, 2001 compared to the quarter
ended March 31, 2001, resulting in a reduction in revenue for the forthcoming
quarter. Revenue will also be adversely impacted by the provision of a free
month of service, provided as compensation for service interruption, to those
NorthPoint subscribers which we successfully reprovision with another carrier
during the forthcoming quarter. These reductions in revenue will, however, be
offset in part by an anticipated increase in our average revenue per user
arising from a higher customer penetration rate for our value added service and
the adoption, in March 2001, of a national monthly pricing plan of $49.95 per
incremental subscriber; previously certain geographical markets were priced at
$39.95 per month.

         Network and product costs. Network and product costs increased from
$4.2 million for the three months ended March 31, 2000, to $18.0 million for the
three months ended March 31, 2001. The increase in these costs is directly
attributable to incremental recurring access and installation fees payable to
our suppliers of DSL connectivity following an increase in our installed
subscriber base from approximately 5,000 at March 31, 2000, to 65,000 at March
31, 2001; and additional leased optical fiber costs arising from an expansion of
our geographical coverage area and deeper penetration into our existing markets.

         Sales and marketing expenses. Sales and marketing expenses increased
from $12.4 million for the three months ended March 31, 2000 to $17.2 million
for the three months ended March 31, 2001. The overall increase in expenditure
is consistent with the development of our business as we expanded our
geographical service areas with Northern and Southern California in April 2000;
the mountain states in July 2000; Texas in August 2000; and Connecticut, Rhode
Island, Arizona and Western Florida in October 2000. The table below sets out
the primary areas of increased expenditure for the three month period ended
March 31, 2001, compared to the respective, prior year period (in thousands):

<TABLE>
<S>                                                          <C>
Incremental advertising and
  promotional costs                                          $  894
Incremental employee costs                                   $3,375
</TABLE>

      Sales and marketing expenses in the first quarter 2001 is net of the
utilization of $4.0 million of our NBC and NBCi advertising credits which we
began utilizing from September 2000, following the launch of our nationwide
television advertising campaign, coincident with our nationwide network
deployment.

      General and administrative expenses. General and administrative expenses
increased from $8.1 million for the three months ended March 31, 2000 to $20.2
million for the three months ended March 31, 2001. The increased level of
expenditures reflects the growth in the volume and complexity of our underlying
business and the ongoing expansion of commercial operations to over 150
metropolitan statistical areas by March 31, 2001; and costs attributable to our
acquisition by HUGHES. The following table sets out the primary areas of
increased



                                       9
<PAGE>   11

expenditure for the three month period ended March 31, 2001 compared to the
respective, prior year, period (in thousands):

<TABLE>
<S>                                             <C>
Incremental customer delivery and
 support expenditure                            $5,445

Incremental executive and general
 corporate expenditure                          $5,183

Incremental facilities expenditure              $  478
</TABLE>

         Research and development expenses. Research and development expenses
increased from $4.5 million for the three months ended March 31, 2000 to $6.0
million for the three months ended March 31, 2001. These increases are primarily
due to incremental charges, over the comparative period of the prior year, of
$918,000 for the three months ended March 31, 2001, for the hiring of additional
engineers and consultants involved in increased research and development
activities associated with our service development platform and associated
services.

         Amortization of stock-based compensation. Stock-based compensation
increased from $3.2 million for the three months ended March 31, 2000, to $4.9
million for the three months ended March 31, 2001. The increase in stock-based
compensation expense for the quarter ended March 23, 2001 is primarily
attributable to the utilization of $4.0 million of advertising credits received
from NBC and NBCi as part of our Series C round of financing, net of a $2.3
million reduction in employee and third party stock-based compensation compared
to the corresponding quarter of the prior year.

         Depreciation and amortization expenses. Depreciation and amortization
expenses increased from $2.1 million for the three months ended March 31, 2000
to $6.4 million for the three months ended March 31, 2001. This increase was
primarily due to additional capital expenditures arising from the build out of
our managed network and the capital expenditures associated with the increase in
our subscriber base.


LIQUIDITY AND CAPITAL RESOURCES

         From inception through March 31, 2001, we financed our operations
primarily through the proceeds of our initial public offering, net of
underwriting commissions, of $120.7 million; private placements of equity of
approximately $149.0 million in cash and promotional services; the use of
operating equipment leases totaling $18.3 million; and borrowings under notes
payable of $31.9 million. As of March 31, 2001, we had an accumulated deficit of
$307.0 million, cash and cash equivalents of $2.3 million and restricted cash of
$6.3 million.

         During the three months ended March 31, 2001 and 2000, the net cash
used in our operating activities was $40.7 million and $27.6 million,
respectively. This cash was used for a variety of operating purposes, including
salaries; consulting and legal expenses; transaction related expenses; network
operations; marketing; customer care; and overhead expense.

         Our net cash used for investing activities for the three months ended
March 31, 2001 and 2000, was $14.0 million and $6.5 million, respectively, and
was primarily used for purchases of property and equipment coincident with the
build out of our network and subscriber base.

         Net cash provided by financing activities for the three months ended
March 31, 2001 was $18.7 million and came from receipts under notes payable of
$20.0 million, proceeds from the exercise of common stock options and warrants
of $197,000, partially offset by $1.2 million in principal payments under
capital lease obligations and a $300,000 increase in restricted cash related to
commitments. Net cash used by financing activities for the three months ended
March 31, 2000 was $1.1 million and was primarily used for the repayment of
notes and the payment of capital lease obligations of $1.3 million net of
proceeds from the issuance of common stock and preferred stock warrants of
$211,000.



                                       10
<PAGE>   12
RECENT ACCOUNTING PRONOUNCEMENTS

        In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The Company adopted
SFAS No. 133 (as amended by SFAS No. 138) as required by SFAS No. 137, "Deferral
of the Effective Date the FASB Statement No. 133", effective January 1, 2001.
The Company, to date, has not engaged in derivative and hedging activities, and
accordingly the adoption of SFAS No. 133 did not have a material effect on the
consolidated financial statements.


       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE SENSITIVITY

        The primary objective of our investment activities is to preserve
principal while at the same time maximizing the income we receive from our
investments without significantly increasing risk. Some of the securities that
we may invest in may be subject to market risk. This means that a change in
prevailing interest rates may cause the principal amount of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the principal amount of our investment will probably decline. To minimize
this risk in the future, we intend to maintain our portfolio of cash equivalents
and short-term investments in a variety of securities, including commercial
paper, money market funds, government and non-government debt securities. In
general, money market funds are not subject to market risk because the interest
paid on such funds fluctuates with the prevailing interest rate. As of March 31,
2001, all of our cash and cash equivalents were in money market and checking
funds.

OTHER RISK FACTORS


AT PRESENT, WE CANNOT PROVIDE OUR SERVICES UNLESS DSL ACCESS PROVIDERS SUPPLY US
WITH DSL CONNECTIONS AND COOPERATE WITH US FOR THE TIMELY PROVISION OF DSL
CONNECTIONS FOR OUR CUSTOMERS.

        We must obtain DSL connections from traditional telephone companies and
new competitive carriers and have their continuing cooperation for the timely
provision of DSL connections for our customers in order for us to provide our
services. DSL operates over local telephone lines, which are under the control
of traditional telephone companies and new competitive carriers and requires a
special connection from our network to the telephone lines. We rely on them to
provide us with these DSL connections, and if we were unable to use these
connections, we would not be able to provide our services. In addition, we
depend on traditional telephone companies and new competitive carriers to test
and maintain the quality of the DSL connections that we use. An inability to
obtain adequate and timely access to DSL connections on acceptable terms and
conditions from traditional telephone companies and competitive carriers and to
gain their cooperation in the timely provision of DSL connections for our
customers could harm our business, as could their failure to properly maintain
the DSL connection we use.

MANY OF OUR VENDORS OR SUPPLIERS MAY NOT HAVE THE RESOURCES TO SUSTAIN THEIR
BUSINESSES AND MAY NOT BE ABLE TO PROVIDE COMPONENT PARTS FOR OUR INFRASTRUCTURE
OR DSL CONNECTIONS FOR OUR CUSTOMERS

        Many of our vendors or suppliers, including our DSL access providers,
are facing serious financial difficulty. With the recent economic slow down and
the down turn in the DSL market, many of these vendors or suppliers are
forecasting that their revenue for the foreseeable future will be lower than
anticipated, and some of these vendors and suppliers are experiencing, or are
likely to experience, serious cash flow problems, and even bankruptcy. If some
of these vendors or suppliers are not successful in generating sufficient
revenue or securing alternate financing arrangements in order to sustain their
operations, they may not be able to supply us with components for our
infrastructure or DSL connections for our customers. If any of these failures
occur, we may not be able to provide continued service to existing customers or
install our service for new customers and further, we may be exposed to
technical obsolescence for certain types of our gateway. For example, NorthPoint
Communications, Inc., one of our DSL access providers, recently filed for
bankruptcy and has shut down its DSL network, interrupting service to
approximately 19,700 of our customers. We are diligently seeking to reprovision
the affected customers; however, a substantial number of these customers have
chosen to terminate their



                                       11
<PAGE>   13

relationship with us. The failure of our vendors or suppliers to provide us with
component parts for our infrastructure or DSL connections for our customers will
harm our business and will adversely affect our operating results.


WE WILL COMPETE WITH OUR DSL ACCESS PROVIDERS IN PROVIDING BROADBAND INTERNET
ACCESS, WHICH MAY CAUSE DELAYS, INCREASE EXPENSES, OR ADVERSELY IMPACT OUR
MARGINS.

        Because in some instance our DSL access providers will also provide
broadband Internet access and other services, we compete with them. Although our
DSL access providers are required to provide DSL connections to us on a
non-discriminatory basis under the Telecommunications Act of 1996, they may
nevertheless be reluctant to cooperate with us. Compelling these DSL access
providers to meet the regulatory requirements may be expensive and
time-consuming and could result in delays and increased expenses associated with
providing our services and content on a wider scale, which in turn could harm
our business. In view of the comparative size of the traditional telephone
companies, we may also be vulnerable to predatory pricing which could force us
to either forgo orders because we operate at a comparative price disadvantage,
or reduce our prices, thereby adversely impacting our margins and our long-term
profitability.


OUR FAILURE TO MANAGE OUR GROWTH COULD HARM OUR ABILITY TO RETAIN AND GROW OUR
CUSTOMER BASE AND EXPAND OUR SERVICE OFFERINGS.

        We may not be able to install management information and control systems
in an efficient and timely manner, and our current or planned personnel,
systems, procedures and controls may not be adequate to support our future
operations. Failure to manage our future growth effectively could harm our
ability to retain and grow our customer base and expand our service offerings
which would materially and adversely affect our business, prospects, operating
results and financial condition.


CUSTOMERS MAY NOT ACCEPT THE VALUE ADDED SERVICES WE ARE CURRENTLY DEVELOPING.
IF THESE SERVICES DO NOT GAIN BROAD MARKET ACCEPTANCE, WE WILL NOT BE ABLE TO
INCREASE OUR REVENUES AND BUILD OUR BUSINESS AS ANTICIPATED.

        We are currently developing a range of value-added services which
include firewall and other internet safety features; multiple computer support;
unified messaging; and consumer related content and voice services. Broadband
services are a new and emerging business, and we cannot guarantee that these
services will attract widespread demand or market acceptance. If this market
fails to develop or develops more slowly than anticipated, we will not be able
to increase our revenues, build our business, or improve our margins as
anticipated.


BECAUSE OUR CUSTOMER ACQUISITION COSTS ARE HIGH, IF WE FAIL TO RETAIN CUSTOMERS
LONG ENOUGH TO PAY BACK OUR UP FRONT INVESTMENT, WE MAY NOT ACHIEVE
PROFITABILITY.

        Our customer acquisition costs comprise a significant portion of our
operating costs, including advertising, order fulfillment, installation,
customer care, and the cost of our residential gateway. Because of our
significant up-front investment in each customer, if our customers terminate
their relationships with us before we recover our up front costs, we may fail to
generate a profit. In addition, if we fail to reduce our customer acquisition
costs, including by increasing the efficiency of our customer care organization
and reducing the costs associated with the development and production of our
gateways, our operating results will suffer.



                                       12
<PAGE>   14
THE SCALABILITY, RELIABILITY AND SPEED OF OUR NETWORK REMAIN LARGELY UNPROVEN
AND MAY NOT SATISFY CUSTOMER DEMAND.

        We may not be able to scale our network and operational support system
to meet our projected customer numbers while achieving and maintaining superior
performance. This risk will continue to exist as long as we expand our services
geographically to increasing numbers of customers. Our failure to achieve or
maintain high-speed digital transmissions, for a number of reasons including the
reliability and inter-operability of our network equipment, would significantly
reduce customer demand for our services, resulting in decreased revenues and the
inability to build our business as planned.


FACTORS OUTSIDE OF OUR CONTROL MAY ADVERSELY AFFECT OUR TRANSMISSION SPEED.
LOWER SPEEDS MAY RESULT IN CUSTOMER DISSATISFACTION AND ULTIMATELY A LOSS OF
CUSTOMERS.

        Peak digital data transmission speeds currently offered across our
networks when utilizing DSL are 1.5 megabits per second. However, the actual
data transmission speeds over our networks can be significantly slower. These
slower speeds may result in customer dissatisfaction and ultimately in the loss
of customers and revenues. The speeds over our networks depend on a variety of
factors, many of which are out of our control, including:

             -  the distance an end-user is located from a central office;

             -  the configuration of the telecommunications line being used;

             -  the quality of the telephone lines provisioned by
                traditional telephone companies;

             -  the inside wiring of our customers' homes; and

             -  the limitations of our customers' computers.

WE AND MANUFACTURERS OF OUR PRODUCTS RELY ON A CONTINUOUS POWER SUPPLY TO
CONDUCT OPERATIONS, AND CALIFORNIA'S CURRENT ENERGY CRISIS COULD DISRUPT OUR
BUSINESS AND INCREASE OUR EXPENSES

        California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
that is, when power reserves for California fall below 1.5%, California has on
some occasions implemented, and may in the future continue to implement, rolling
blackouts. Virtually all of our operations are located in California and our
backup power supplies can only work for a finite period of time. If blackouts
are prolonged, we would be temporarily unable to continue operations at our
facilities. Any such interruption in our ability to continue operations at our
facilities could damage our reputation, harm our ability to retain existing
customers and to obtain new customers, and could result in lost revenue, any of
which could substantially harm our business and results of operation.

        The manufacturer of our residential gateway, Wellex, and a provider of
our DSL connections, PacBell, are located in California. As a result of this
crisis, Wellex may be unable to manufacture sufficient quantities of our gateway
to meet our needs, or they may increase the fees they charge us for their
services. In addition, PacBell would no longer be able to install DSL
connections for our customers, or they may increase the fees they charge us for
providing us with DSL connections. The inability of our contract manufacturer to
provide us with adequate supplies of our gateway and the inability of PacBell to
install DSL connections for new customers would cause a delay in our ability to
fulfill our customers' orders, which would hurt our business, and any increase
in their fees could adversely affect our financial condition.

A SYSTEM FAILURE OR BREACH OF NETWORK SECURITY COULD CAUSE DELAYS OR
INTERRUPTIONS OF SERVICE TO OUR CUSTOMERS, WHICH COULD HURT OUR BRAND IMAGE,
LEAD TO A LOSS OF CUSTOMERS, AND RESULT IN A SIGNIFICANT DECREASE OF REVENUES.



                                       13
<PAGE>   15

        Although we have not experienced any system failures or breaches of
network security that materially affected us, if we experience one or more of
the problems described below in the future, our financial performance and
results of operations could be materially affected at that time.

        Our operations depend on our ability to avoid damages from fires,
earthquakes, floods, power losses, excessive sustained or peak user demand,
telecommunications failures, network software flaws, transmission cable cuts,
and similar events. The occurrence of a natural disaster or other unanticipated
problem at our network operations center, our operational support system, our
managed network of leased communication lines or any metropolitan hubs or
collocation facilities could cause interruptions in the services provided by us
and these interruptions could result in the loss of customers and the attendant
reduction of revenue. Additionally, if a traditional telephone company, new
competitive carrier or other service provider fails to provide the
communications capacity we require, as a result of a natural disaster,
operational disruption or any other reason, then this failure could interrupt
our services.


WE ARE VULNERABLE TO CLAIMS THAT ANY ELEMENT OF OUR SERVICE DEPLOYMENT PLATFORM
INFRINGES THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS, AND ANY RESULTING CLAIMS
AGAINST US COULD BE COSTLY TO DEFEND OR SUBJECT US TO SIGNIFICANT DAMAGES.

        Infringement claims could materially harm our business. From time to
time, we may receive notice of claims of infringement of third parties'
proprietary rights. The fields of telecommunications and Internet communications
are filled with patents, both pending and issued. We may unknowingly infringe
such a patent. We may be exposed to future litigation based on claims that our
platform infringes the intellectual property rights of others, especially patent
rights. Someone, including a competitor, might file a suit with little merit, in
order to harm us commercially, to force us to re-allocate resources to defending
such a claim, or extract a large settlement. In addition, our employees might
utilize proprietary and trade secret information from their former employers
without our knowledge, even though we prohibit these practices.


OUR FAILURE TO MEET CHANGING CUSTOMER REQUIREMENTS AND EMERGING INDUSTRY
STANDARDS WOULD LIMIT OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS.

        The market for high-speed broadband access is characterized by rapidly
changing customer demands and short life cycles for services and content. If
enhancements to our existing services, such as broadband Internet access, e-mail
and storage for web pages, or development of new services, including electronic
commerce, communications and utility services, take longer than planned,
customer requirements and industry standards may have changed, which would
adversely affect our ability to sell our services and cause our results of
operations and financial condition to suffer.


WE DEPEND ON SINGLE AND LIMITED SOURCE SUPPLIERS FOR KEY COMPONENTS OF OUR
GATEWAY WHICH MAKES US SUSCEPTIBLE TO SUPPLY SHORTAGES OR PRICE FLUCTUATIONS
THAT COULD ADVERSELY AFFECT OUR OPERATING RESULTS.

        We rely on Wellex Corporation to produce our proprietary residential
gateway device and we will not have another supplier for at least three months.
In the event of any significant delay, disruption, capacity constraint or
quality control problem in its manufacturing operations, gateway shipments to
our customers could be delayed, which would negatively affect our net revenues,
competitive position and reputation. Should Wellex cease to be our contract
supplier for any reason, we would then need to qualify a new gateway supplier
and we may be unable to find a gateway supplier that meets our needs or that can
source components as cost-effectively as Wellex. Qualifying a new gateway
supplier and commencing volume production is expensive and time consuming.
Transferring production operations can significantly disrupt gateway supply. If
we are required or choose to change gateway suppliers, we may lose sales and may
experience increased production or component costs, and our customer
relationships may suffer.

        If any of our sole-source manufacturers delays or halts production of
any of the components or equipment that we use in our residential gateway we
would be unable to manufacture and ship our gateway, and, as a result, our
revenues and operating results would decline and our customer relationships may
suffer.


OUR BUSINESS IS SIGNIFICANTLY AFFECTED BY THE LEGISLATIVE, REGULATORY AND
JUDICIAL RULES APPLICABLE TO TELECOMMUNICATIONS SERVICES AND THE BROADBAND
MARKETPLACE.



                                       14
<PAGE>   16

        Changes in existing laws and regulations applicable to our business may
not be favorable to us and may require us to direct time and money toward legal
and regulatory matters. Since 1996, telecommunications laws have been in a state
of particularly rapid change. We rely on our ability to purchase DSL access from
both traditional telephone companies and new competitive carriers, vendor
channels that may not remain open to use, or for which prices may rise, if the
regulatory status of these service providers changes in the future. In order to
protect our market options and business flexibility, we may also be required to
participate in legislative, regulatory and judicial proceedings, or proceedings
may be instituted against us by competitors seeking to harm our business, all of
which could entail the diversion of substantial funds and management attention.

        If existing laws and regulations change, the competition among our DSL
providers that we rely on to maintain efficiently priced and high quality DSL
connections, could be adversely affected. In addition, if the Telecommunications
Act of 1996 and recent decisions by the Federal Communications Commission
implementing portions of the Act that have opened the existing telephone network
to competition are stayed, reversed or modified by appellate courts, if the laws
and decisions requiring traditional telephone companies and competitive carriers
to sell DSL connections to companies like ours are changed or vacated, or if new
regulatory mandates degrade competition, our costs will increase and we will
have lower profit margins.


OUR HEADQUARTERS AND SUPPLIERS ARE ALL LOCATED IN NORTHERN CALIFORNIA WHERE
NATURAL DISASTERS MAY OCCUR WHICH COULD DAMAGE OUR FACILITIES AND RENDER US
UNABLE TO PROVIDE SERVICES TO OUR CUSTOMERS.

        Currently, our corporate headquarters, network operations center and the
only manufacturer of our residential gateway are all located in Northern
California. Northern California historically has been vulnerable to natural
disasters and other risks, such as earthquakes, fires and floods, which at times
have disrupted the local economy and posed physical risks to our property and
the property of the manufacturer of our residential gateway. In the event of
such disaster, our business would suffer. We presently do not have redundant,
multiple site capacity in the event of a natural disaster.



                                       15

<PAGE>   17
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      From time to time, we may be involved in litigation that arises in the
normal course of our business operations. As of the date of this filing, we are
not party to any litigation that we believe could adversely affect our business
relationship and our financial results.


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        NONE

ITEM 6. REPORTS ON FORM 8-K

               The Company filed four reports on Form 8-K dated December 28,
2000, as amended on February 2, 2001; February 16, 2001; March 30, 2001; and
April 4, 2001.


                                   SIGNATURES

      Pursuant to the requirements 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.

                                 DIRECTV Broadband, Inc.,
                                 (formerly TELOCITY DELAWARE, INC.)
                                 (Registrant)


Date: May 15, 2001            BY: /s/ EDWARD HAYES
                                  ----------------------------------------------
                                  Edward Hayes
                                  President & Chief Executive Officer




                                  /s/ DAVID WILSON
                                  ----------------------------------------------
                                  David Wilson
                                  Vice President & Chief Financial Officer




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