RAVISENT TECHNOLOGIES INC, 10-Q, 2000-08-14

RAVISENT TECHNOLOGIES INC
10-Q, 2000-08-14
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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the Quarter Ended June 30, 2000

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ____________ to ______________
Commission File number 000-26287

RAVISENT Technologies Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 23-2763854
-----------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
205 Great Valley Parkway
Malvern, Pennsylvania 19355

(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 700-0362

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 No X
--------------------------------------------- --- -- ---

On August 8, 2000, 16,731,952 shares of the Registrant's Common Stock, $.001 par
value, were outstanding.
<PAGE>

RAVISENT Technologies Inc.
FORM 10-Q

QUARTER ENDED JUNE 30, 2000

INDEX

Page
----
Part I: Financial Information

Item 1: Financial Statements

Consolidated Balance Sheets at June 30, 2000 (unaudited) and 3
December 31, 1999

Consolidated Statements of Operations for the quarters 4
ended June 30, 2000 and 1999, as restated (unaudited)

Consolidated Statements of Operations for the six months
ended June 30, 2000 and 1999, as restated (unaudited) 5

Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and 1999, as restated (unaudited) 6

Notes to Consolidated Financial Statements 7

Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 13

Item 3: Quantitative and Qualitative Disclosures About
Market Risk 23

Part II:Other Information

Item 1: Legal Proceedings 37

Item 2: Changes in Securities and Use of Proceeds 38

Item 3: Defaults upon Senior Securities 39

Item 4: Submission of matters to a vote of security holders 39

Item 5: Other information 39

Item 6: Exhibits and Reports on Form 8-K 40

2
<PAGE>

ITEM 1: FINANCIAL STATEMENTS

RAVISENT TECHNOLOGIES INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- -------------
<S> <C> <C>
2000 1999
-------- --------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 37,938 $ 48,251
Short-term investments................................................................ 1,044 1,018
Accounts receivable, net of allowance for doubtful accounts of $ 409 in 2000 and
$ 319 in 1999......................................................................... 13,923 15,597
Inventory, net........................................................................ 2,540 1,323
Prepaid expenses...................................................................... 6,508 1,085
Loan receivable-officer............................................................... 337 340
Other current assets.................................................................. 3,640 216
-------- --------
Total current assets................................................................. 65,930 67,830

Furniture and equipment, net........................................................... 2,951 1,598
Goodwill and other intangibles, net of accumulated amortization of $4,652 in 2000 and
$ 2,190 in 1999....................................................................... 16,882 19,357
Loan receivable--officer............................................................... 64 138
Restricted cash........................................................................ - 525
Other assets........................................................................... 312 300
-------- --------
Total assets......................................................................... $ 86,139 $ 89,748
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................................... $ 8,441 $ 5,743
Deferred revenue...................................................................... 3,643 4,332
Accrued expenses and other............................................................ 4,144 3,672
Other current liabilities............................................................. 451 539
Current installments of obligations under capital leases.............................. 39 40
-------- --------
Total current liabilities............................................................ 16,718 14,326

Deferred revenue, less current portion................................................. 327 327
Other long-term liabilities............................................................ 31 472
Obligations under capital leases, excluding current installments....................... 18 38
-------- --------
Total liabilities.................................................................... 17,094 15,163
-------- --------
Commitments and contingencies (note 5)

Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized, none issued
or outstanding........................................................................ - -

Common stock, $.001 par value; 50,000,000 shares authorized;
16,796,180 and 16,052,866 shares issued in 2000 and 1999 respectively................. 17 16
Additional paid-in capital............................................................ 116,813 109,460
Deferred stock compensation........................................................... (1,997) (1,678)
Accumulated deficit................................................................... (44,971) (31,913)
Accumulated other comprehensive income................................................ (97) (80)
Note receivable....................................................................... - (500)
Treasury stock at cost, 200,000 shares in 2000 and 1999............................... (720) (720)
-------- --------
Total stockholders' equity........................................................... 69,045 74,585
-------- --------
Total liabilities and stockholders' equity........................................... $ 86,139 $ 89,748
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

3
<PAGE>

RAVISENT TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
----------------------
2000 1999
(as restated)
------- -------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
License and services........................... $ 3,299 $ 3,238
Hardware....................................... 1,547 4,441
------- -------
Total revenues................................ 4,846 7,679

Cost of revenues:
License and services........................... 985 671
Hardware....................................... 1,356 3,966
------- -------
Total cost of revenues........................ 2,341 4,637
------- -------

Gross profit.................................. 2,505 3,042

Research and development......................... 2,970 1,443
Sales and marketing.............................. 2,602 1,066
General and administrative....................... 3,367 1,146
Depreciation and amortization.................... 1,385 372
Compensation related to stock options............ 279 100
------- -------
Operating loss................................ (8,098) (1,085)
Other (income) expense:
Interest (income) expense, net................. (598) 65
------- -------

Net loss before income taxes..................... (7,500) (1,150)
Provision for income taxes..................... 23 --
------- -------
Net loss......................................... (7,523) (1,150)

Accretion of discount on mandatory redeemable
preferred stock................................. -- 283
------- -------

Net loss attributable to common stockholders..... $(7,523) $(1,433)
======= =======
Basic and diluted net loss per common share...... $(0.46) $(0.43)
======= =======

Weighted average shares outstanding used in per
common share calculation (basic and diluted).... 16,290 3,331
======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

4
<PAGE>

RAVISENT TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
(as restated)
-------- -------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
License and services..................... $ 6,220 $ 5,528
Hardware................................. 4,336 12,963
-------- -------
Total revenues......................... 10,556 18,491

Cost of revenues:
License and services..................... 2,114 806
Hardware................................. 3,870 11,230
-------- -------
Total cost of revenues................. 5,984 12,036
-------- -------

Gross profit........................... 4,572 6,455

Research and development......................... 5,113 2,837
Sales and marketing.............................. 4,484 2,128
General and administrative....................... 5,710 1,951
Depreciation and amortization.................... 2,741 686
Compensation related to stock options............ 760 203
-------- -------
Operating loss......................... (14,236) (1,350)
Other (income) expense:
Interest (income) expense, net........... (1,214) 110
-------- -------

Net loss before income taxes..................... (13,022) (1,460)
Provision for income taxes............... 38 --
-------- -------
Net loss......................................... (13,060) (1,460)

Accretion of discount on mandatory redeemable
preferred stock................................ -- 566
-------- -------

Net loss attributable to common stockholders..... $(13,060) $(2,026)
======== =======

Basic and diluted net loss per common share...... $(0.81) $(0.61)
======== =======
Weighted average shares outstanding used in per
common share calculation (basic and diluted)... 16,162 3,326
======== =======
</TABLE>

See accompanying notes to consolidated financial statements.

5
<PAGE>

RAVISENT TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
(as restated)
------- -------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $(13,060) $(1,460)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............................... 2,741 686
Non-cash compensation and other expenses.................... 760 203

Changes in items affecting operations:
Accounts receivable....................................... 1,765 2,093
Inventory................................................. (1,217) (165)
Prepaid expenses, other current assets, and other assets.. (2,673) 1,077
Loan receivable-officer................................... 77 -
Accounts payable.......................................... 2,698 (3,575)
Deferred revenue.......................................... (689) 855
Other current liabilities................................. (88) -
Accrued expenses.......................................... 753 (789)
-------- -------
Net cash used in operating activities.......................... (8,933) (1,075)
-------- -------

Cash flows from investing activities:
Capital expenditures......................................... (1,632) (240)
Proceeds from sale of furniture and equipment................ 12 --
Investment in short-term investment.......................... (26) --
-------- -------
Net cash used in investing activities.......................... (1,646) (240)
-------- -------

Cash flows from financing activities:
Repayments under capital lease obligations................... (21) (7)
Note receivable.............................................. 500 (500)
Net proceeds from exercise of stock options and warrants..... 445 -
Net proceeds from Series B and C preferred stock............. - 3,536
Repayments under other liabilities........................... (441) (874)
Legal settlement............................................. (200) -
-------- -------
Net cash provided by financing activities...................... 283 2,155
-------- -------

Effect of exchange rate changes on cash and cash equivalents... (17) (42)
-------- -------

Net (decrease) increase in cash and cash equivalents........... (10,313) 798
Cash and cash equivalents:
Beginning of period.......................................... 48,251 1,024
-------- -------
End of period................................................ $ 37,938 $ 1,822
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the quarter for:
Interest.................................................... $ 10 $ 62
Non-cash investing and financing activities:
Compensation related to stock options and warrants............ 6,007 61
Amortization of deferred stock compensation.................. 413 142
</TABLE>

See accompanying notes to consolidated financial statements.

6
<PAGE>

RAVISENT TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS

(Information with respect to June 30, 2000 and 1999 is unaudited)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Description of Business

RAVISENT Technologies Inc., ("the Company") designs, develops, licenses and
markets core-based modular software solutions that enable digital video and
audio stream management in personal computer systems and consumer electronic
devices. The Company also provides supporting hardware designs to selected
customers as well as customization services and customer support. The Company's
solutions enable decoding (playback) and encoding (recording) of multimedia
formats such as digital versatile disk (DVD); direct broadcast satellite (DBS)
and high-definition television (HDTV) on personal computers and consumer
electronics platforms. The Company's customers consist principally of personal
computer and consumer electronics manufacturers. In November of 1999, the
Company acquired Teknema Inc., which has expanded our product offerings to the
Internet appliance market.

During 1999 a majority of the Company's revenue was generated from selling
hardware-based digital video solutions to personal computer and consumer
electronics original equipment manufacturers. The Company changed its strategic
focus during 1999 from selling a hardware-based digital video solution to
licensing its proprietary technology to provide software-based digital video
solutions to primarily personal computer and consumer electronics original
equipment manufacturers, as well as the Internet appliance market.

The Company was incorporated in Pennsylvania in April 1994 as Quadrant
International, Inc. In April 1999, the Company changed its name to Divicore Inc.
In July 1999, the Company reincorporated in Delaware as RAVISENT Technologies
Inc.

The Company has sustained significant net losses and negative cash flows
from operations since its inception. The Company plans on investing heavily in
product development, sales and marketing, and to a lesser degree in operations
and administrative areas. There can be no assurances that the Company will be
able to generate sufficient revenues necessary to achieve or sustain
profitability in the short or long term. However, management believes that the
current cash and cash equivalent amounts will be adequate to meet the Company's
cash needs for at least the next twelve months.

(b) Principles of Consolidation

The consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

The interim consolidated financial statements of the Company for the three
and six months ended June 30, 2000 and 1999 included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations relating to interim financial statements.
In the opinion of management, the accompanying unaudited interim consolidated
financial statements reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of the
Company at June 30, 2000 and the results of its operations for the three and six
months ended June 30, 2000 and 1999, and its cash flows for the six months ended
June 30, 2000 and 1999. The unaudited consolidated financial statements included
in this Form 10-Q should be read in conjunction with the audited consolidated
financial statements and notes thereto, included in the Company's Form 10-K for
the year ended December 31, 1999.

7
<PAGE>

(d) Recent Accounting Pronouncements

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements ("SAB 101"). SAB 101 summarizes the SEC staff's views in
applying generally accepted accounting principles to revenue recognition.
In March 2000 the SEC issued Staff Accounting Bulleting 101A, Deferral of
the Effective Date of SAB 101 ("SAB 101A"). SAB 101 delays the
implementation of SAB 101 until calendar quarters beginning April 1, 2000.
The implementation of SAB 101 did not have a material impact on the
Company's financial position or results of operations.

(e) Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an original maturity of three
months or less to be cash equivalents.

(2) BANK LINE OF CREDIT

On June 13, 2000 the Company renewed its loan and security agreement with a
commercial bank that provides the Company a line of credit in the amount of the
lesser of $5 million or the borrowing base, as defined (limited to a percentage
of eligible accounts receivable). The line of credit provides for the Company to
issue a maximum of $2 million in the form of letters of credit that reduces the
amount of available borrowings under the line of credit. The line of credit
matures in June 2001 and bears interest at the bank's prime rate (9.5% at June
30, 2000). The line of credit is collateralized by substantially all of the
assets of the Company. The Company is required to comply with a quarterly
tangible net worth covenant, as defined in the loan and security agreement. At
June 30, 2000, the Company was in compliance with its debt covenants. There was
no amount outstanding under the line of credit at June 30, 2000, and
approximately $0.2 million was available under the terms of the line of credit
at June 30, 2000. At June 30, 2000, there were no letters of credit outstanding.

(3) COMPREHENSIVE INCOME

The components of comprehensive income (loss) are as follows (in
thousands):

<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- --------------------------------
2000 1999 2000 1999
------- ----- -------- -----
<S> <C> <C> <C> <C>
Net loss $(7,523) $(1,150) $(13,060) $(1,460)
Foreign currency translation adjustment (3) (22) (17) (67)
------- ----- -------- -----
Comprehensive loss $(7,526) $(1,172) $(13,077) $(1,527)
======= ===== ======== =====
</TABLE>

(4) STOCK OPTIONS AND WARRANTS

On May 2, 2000 the Company granted 78,500 stock options to employees, with
an exercise price of $0.01 per share. The Company has recorded approximately
$633,000 of deferred stock compensation in connection with these options that
will be amortized over the option vesting periods, ranging from 18 to 24 months.
On June 5, 2000 the Company granted 17,500 stock options, with an exercise price
of $0.01 per share. The Company has recorded approximately $112,000 of deferred
stock compensation in connection with these options that will be amortized over
the option vesting period of 24 months.

On June 30, 2000 the Company issued a warrant to purchase 1,500,000 shares of
the Company's common stock to a distributor with an exercise price of $7.00 per
share, which approximated fair market value on the date of grant. The warrant is
fully vested and non-forfeitable on the date of grant, has a two-year term, and
contains certain exercise restrictions as described in the warrant agreement.
The Company has recorded the estimated fair value of the warrant of $5,661,000
as prepaid expenses and additional paid-in capital and will amortize the
estimated value over the shorter of the contract term or the period benefited.

(5) COMMITMENTS AND CONTINGENCIES

Litigation
----------

On May 25, 1999, a complaint was filed against the Company in the Superior
Court of California, Santa Clara County, by a former supplier, alleging breach
of oral and written contract and other claims totaling approximately $1.2
million. The complaint was removed to federal court and, on September 23, 1999
the Company filed a counterclaim against the supplier for the damages the
Company incurred as a result of the supplier's failure to timely ship the
Company non-defective parts. On June 30, 2000 the parties entered into a
confidential settlement agreement and mutual release in full settlement of any
claims under the complaint. The amount of the settlement was accrued as of
December 31, 1999.

8
<PAGE>

On November 4, 1999, a complaint was filed against the Company in the
Commonwealth of Massachusetts, Norfolk Superior Court Department, alleging
breach of agreements to allow a former supplier to purchase an undetermined
number of shares of the Company's common stock at $1.00 per share. The complaint
was removed to federal court on December 3, 1999. The Company disputed the claim
as being wholly without merit. To that end, on December 14, 1999, the Company
filed a Motion to Dismiss, which was denied on January 13, 2000. On May 17,
2000, pursuant to a confidential settlement agreement, the case was dismissed
under a joint motion for dismissal. The amount of the settlement accrued was as
of December 31, 1999. On November 8, 1999 the Superior Court in the Commonwealth
of Massachusetts approved an attachment of funds for $525,000 to be held in
trust pending the settlement of the complaint by a former supplier. In
connection with the settlement agreement, on June 1, 2000, the attachment was
vacated and the funds were returned to the Company.

In February and March 2000, eleven class action lawsuits were filed against
the Company and certain of its officers and directors in the United States
District Court for the Eastern District of Pennsylvania. On May 25, 2000, the
cases were consolidated under Civil Action No. 00-CV-1014, and entitled "In re
RAVISENT Technologies Inc. Securities Litigation". Pursuant to the court's
consolidation order, a consolidated and amended class action complaint was filed
on June 14, 2000 with an alleged class period of July 15, 1999 through April 27,
2000. This complaint alleges violations of the federal securities laws,
specifically Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 during the periods stated
above. There may be additional purported class action lawsuits filed against us
based upon similar alleged facts and claims. Certain of our employees and
certain holders of 5% or more of our common stock are members of the putative
classes alleged in these actions and therefore may have interests adverse to us
with respect to the alleged claims in these actions. We believe that such
lawsuits or claims are without merit and that we have meritorious defenses to
the actions. We plan to vigorously defend the litigation. However, failure to
successfully defend these actions could substantially affect our results of
operations, liquidity and financial condition.

Leases
------

On February 4, 2000 the Company entered into a 60-month operating lease for its
facilities in San Jose, California, commencing May 1, 2000. The lease provides
for minimum monthly rent of approximately $21,000 per month plus operating
expenses of approximately $8,000, totaling approximately $29,000 monthly. The
lease provides for annual increases to the minimum monthly rent of approximately
$12,000 per year. In June 2000, the Company vacated its Palo Alto and former
San Jose offices.

9
<PAGE>

On March 8, 2000 the Company entered into an 84-month operating lease for its
corporate office facilities in Malvern, Pennsylvania, effective June 1, 2000.
The lease provides for minimum annual rent of approximately $660,000, payable in
monthly installments of approximately $55,000 plus operating expenses of
approximately $30,000, totaling approximately $85,000 monthly. The lease
provides for annual increases to the minimum annual rent of approximately
$20,000 per year. The Company expects to vacate its former Malvern facility
entirely during the third quarter of 2000.

Distribution Agreement

On June 30, 2000 the Company entered into a one-year distribution rights
agreement with American Trading S.A. for distribution of the Company's Internet
television set-top box product in Brazil. In addition, under the terms of the
agreement, as of June 30, 2000, the Company is required to share in the cost of
joint marketing initiatives. The Company will amortize the expenses over the
period that the marketing takes place.

(6) SUBSEQUENT EVENT - ACQUISITION

On July 27, 2000, the Company announced that it signed a definitive
agreement to acquire all of the outstanding capital stock of Cinax Design Inc.
("Cinax"). Under the terms of the agreement, the Company will pay $3.5 million
in cash and issue approximately 825,000 shares of common stock. Including the
associated estimated acquisition expenses, the Cinax acquisition is valued at
approximately $7.5 million. Based in Vancouver, British Columbia, Cinax is a
leading provider of digital video technology and tools. Cinax products include a
suite of authoring, editing and encryption tools used by clients in the
Internet, multimedia and consumer electronics industries worldwide. Cinax'
flagship product, WinVCR, enables computer users to record real-time MPEG video
straight to their hard drives. The acquisition will be recorded under the
purchase method of accounting and the estimated excess of the purchase price
will be recorded as goodwill and other intangible assets and will be amortized
over the estimated useful lives which are estimated to be 48 months. The
historical results of operations of Cinax are insignificant to Ravisent and are
not required to be reported.

10
<PAGE>

(7) RESTATED QUARTERLY RESULTS OF OPERATIONS

The following table presents certain unaudited quarterly consolidated statements
of operations data for the three and six-months ended June 30, 1999,
respectively. In the opinion of management, this information has been presented
on the same basis as the audited consolidated financial statements appearing
elsewhere in this financial information, and all necessary adjustments have been
included in the amounts stated below to present fairly the unaudited quarterly
results when read in conjunction with the audited consolidated financial
statements of RAVISENT. Results of operations for any quarter are not
necessarily indicative of the results to be expected for the entire year or for
any future period.

<TABLE>
<CAPTION>
Quarter Ended June 30, 1999
----------------------------------
As previously
reported As restated
-------- -----------
(In thousands)
<S> <C> <C>
License and services.................... $ 3,838 $ 3,238
Hardware................................ 7,763 4,441
------- -------
Total revenues....................... 11,601 7,679

Cost of revenues..................... 7,657 4,637
------- -------

Gross profit......................... 3,944 3,042

Research and development.................. 1,443 1,443
Sales and marketing....................... 1,066 1,066
General and administrative................ 1,146 1,146
Depreciation and amortization............. 372 372
Compensation related to stock options..... 100 100
------- -------

Operating loss....................... (183) (1,085)

Other (income) expense:
Interest expense ....................... 65 65
------- -------

Net loss before income taxes.............. (248) (1,150)
Provision for income taxes.............. -- --
------- -------

Net loss.................................. $ (248) $(1,150)
======= =======
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
Six months Ended June 30, 1999
--------------------------------------
As previously
reported As restated
------------------ ------------------
(In thousands)
<S> <C> <C>
Revenues:
License and services......................................... $ 6,128 $ 5,528
Hardware..................................................... 16,285 12,963
------- -------
Total revenues............................................ 22,413 18,491
Cost of revenues.......................................... 15,056 12,036
------- -------
Gross profit.............................................. 7,357 6,455
------- ------
Research and development....................................... 2,837 2,837
Sales and marketing............................................ 2,128 2,128
General and administrative..................................... 2,051 2,051
Depreciation and amortization.................................. 686 686
Compensation related to stock options.......................... 103 103
------- -------
Operating loss............................................ (448) (1,350)
Other (income) expense:
Interest expense............................................. 110 110
------- -------
Net loss before income taxes................................... (558) (1,460)
Provision for income taxes................................... -- --
------- -------
Net loss....................................................... $ (558) $(1,460)
======= =======
</TABLE>

Notes to Quarterly Restatements (in thousands):

June 30, 1999

License and service revenues decreased due to a multiple element
contract not meeting revenue recognition criteria under SOP 97-2. This
amount was reclassified to deferred revenue pending the establishment
of vendor-specific objective evidence of fair value or the completion
of the previously undelivered elements. On March 31, 2000 Ravisent
delivered the previously undelivered element under the contract.
Pursuant to SOP 97-2, beginning April 1, 2000 and ending December 31,
2000, the Company is amortizing the previously deferred revenue over
the remaining term of postcontract customer support. For the quarter
ended June 30, 2000, the Company recognized $200 of the previously
deferred revenue.

Hardware revenue decreased due to two sales transactions, which were
deemed to be a return of inventory and a consignment sale. Gross profit
of $255 related to the return of inventory was recognized in the fourth
quarter ended December 31, 1999 as the sale was completed to the end
users. The remaining amount related to the consignment sale will be
recognized as those undelivered units ship to the ultimate end users.

12
<PAGE>

ITEM 2:

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion of the financial condition and results of operations of
RAVISENT should be read in conjunction with the unaudited condensed consolidated
financial statements and notes thereto included elsewhere in this report. The
information herein contains forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 that involve a number of risks
and uncertainties. A number of factors could cause our actual results,
performance and achievements or industry results to be materially different from
any future results, performance or achievements expressed or implied by such
forward looking statements. These factors, as discussed below, see Risk Factors,
and in our Annual Report on Form 10K filed on March 31, 2000, include, but are
not limited to, the competitive environment in the personal computer, consumer
electronics and Internet appliance industries in general and our specific market
areas; changes in prevailing interest rates and the availability of terms of
financing to fund the anticipated growth of our business; inflation; changes in
costs of goods and services; our inability to protect our intellectual property;
economic conditions in general and in our specific market areas; demographic
changes; changes in or failure to comply with foreign, federal, state and/or
local government regulations; claims for damages asserted against us; changes in
operating strategy or development plans; the ability to attract and retain
qualified personnel; changes in our acquisition and capital expenditure plans;
and other factors referenced herein. In addition, such forward looking
statements are necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown risks, uncertainties
and other factors. Accordingly, any forward looking statements included herein
do not purport to be predictions of future events or circumstances and may not
be realized. Forward looking statements can be identified by, among other
things, the use of forward looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "pro forma," "anticipates," or "intends," or
the negative of any thereof, or other variations thereon or comparable
terminology, or by discussions of strategy or intentions. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward looking statements. We disclaim any obligations to update any
such factors or to publicly announce the results of any revisions to any of the
forward looking statements contained herein to reflect future events or
developments.

Overview

We design, develop, license and market innovative modular software solutions
that enable digital video and audio stream management in personal computer
systems, consumer electronics devices, and Internet appliances. We also license
supporting hardware designs to selected customers and provide customization
services and customer support. Our solution enables decoding and encoding
multimedia formats such as DVD, DBS/DVB and HDTV on existing personal computer
and consumer electronics platforms. Our digital solutions incorporate industry
standards for video and audio compression and are independent of operating
systems and silicon components.

Our customers consist primarily of personal computer, consumer electronics, and
Internet appliances manufacturers. In addition, we supply our software
solutions and hardware designs to selected peripherals providers and
semiconductor manufacturers. We anticipate that an increasing percentage of
revenues will be derived from consumer electronics, Internet appliances and
semiconductor manufacturers. Approximately $3.3 million or 68% of our second
quarter 2000 revenues were from license and services. Revenues from personal
computer and peripheral manufacturers were derived primarily from Software
CineMaster 99, Hardware CineMaster and our Internet appliance device. In March
2000, we introduced CineMaster 2000, which included encoder functionality.
License revenues consist of fees paid on a per unit basis, or sometimes with new
customers in advance, each time a manufacturer ships a product that incorporates
our software solutions or software with supporting hardware designs. Services
revenues consist of engineering fees from consumer electronics, personal
computer, Internet appliances, peripherals and semiconductor manufacturers for
custom engineering services. Services are generally billed on either a time and
material basis or on a project or contract basis.

By entering into manufacturing and license agreements with third parties under
which we will no longer manufacture Hardware CineMaster, we have begun to
transform our business model from a hardware revenue base to a license revenue
base. Once the transition to a licensing business model is completed, we will
receive a per unit license fee on all future sales of Hardware CineMaster and
future versions of the CineMaster product. In the future, we expect that most
of our revenues will be derived from licenses of our software and hardware
designs. As a result of this change, we may recognize lower revenues in 2000
than in 1999, which we expect to be accompanied by a decrease in our cost of
revenues.

13
<PAGE>

Currently, our revenues are comprised of hardware revenues, license revenues and
services revenues. Hardware revenues, consisting primarily of direct sales of
hardware subsystems to personal computer and peripherals manufacturers and
Internet appliances, have represented most of our total revenues in the past but
are expected to be nominal in the future. During the quarter ended June 30,
2000, hardware revenues included sales of Hardware CineMaster products and
Internet appliances. In the quarter ended June 30, 2000, revenue generated by
the sale of our hardware products was approximately $1.5 million.

License revenues consist of fees paid on a per unit basis each time a
manufacturer ships a product that incorporates our software solutions or
software with supporting hardware designs. Services revenues consist of
engineering fees from consumer electronics, personal computer, peripherals and
semiconductor manufacturers for custom engineering services. Services are
generally billed on either a time and material basis or on a project or contract
basis. License revenues are recognized when earned, which is generally based on
receiving notification from a licensee detailing the shipments of products
incorporating our technology. In a number of cases, this occurs in the quarter
following the sale of the licensee's product to its customers. Our license
agreements generally have a term of one year or less, and typically require
payment within 45 or 60 days after the end of the calendar quarter in which the
product is shipped. Some of our contracts may also require payment of an up-
front license fee. License fees paid in advance, with no further future
commitment, are recognized in the period that the license agreement is signed,
the technology is delivered, and collectibility is probable.

The amount and timing of some fixed fees could cause our operating results to
vary significantly from period to period due to the timing and number of
agreements, as well as the timing of the recognition of the associated revenue.
In cases where a license fee is associated with the delivery of multiple
elements, and vendor-specific objective evidence of fair value cannot be
established for the individual elements, the entire fee from the arrangement is
deferred until the earlier of the establishment of vendor-specific objective
evidence of fair value or the delivery of all the elements of the arrangement.
In cases where a license grants a customer unspecified upgrade rights, the
license fee is deferred and recognized ratably over the term of the arrangement.
Billed amounts due from the customers in excess of revenue recognized are
recorded as deferred revenue. Services revenues are recognized upon delivery of
the service in the case of time and material contracts or on a percentage
completion basis in the case of project-based contracts. Hardware product sales
are recognized upon shipment of the product to the manufacturer or end user.

In April 1999, we completed a financing in which we issued convertible
securities to an affiliate of Intel of $4.7 million and entered into a license
agreement covering certain Intel technology.

In November 1999, we acquired Teknema, Inc. ("Teknema"), an Internet technology
company dedicated to developing software and hardware designs, for an aggregate
of approximately $16 million in cash, stock and stock options. The acquisition
was recorded under the purchase method of accounting. In connection with the
acquisition, we expensed $1.8 million of the purchase price as acquired in-
process research and development. Goodwill and other intangible assets of $16.2
million recorded in the acquisition are being amortized over a period of four
years. Teknema sells Internet appliance software and hardware technology through
intellectual property licenses and agreements with Internet service providers.
Teknema recently entered into an agreement with Met@box under which we will
market Internet appliances containing our technology to its customers.

14
<PAGE>

Results of Operations

Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999.

The following table sets forth, for the periods indicated, the amount (in
thousands) and percentage of total revenues represented by certain items
reflected in our consolidated statements of operations:

Ravisent Technologies
Consolidated Statement of Operations Data

<TABLE>
<CAPTION>
Quarter ended
June 30,
(unaudited)
-----------

2000 1999
(as restated)
------------------------- ------------------------
Percent Percent
of of
Amount Revenue Amount Revenue
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
License and services ...................... $ 3,299 68% $ 3,238 42%
Hardware .................................. 1,547 32% 4,441 58%
------- ---- ------- ---
Total revenues ....................... 4,846 100% 7,679 100%
Cost of revenues:
License and services ...................... 985 20% 671 9%
Hardware .................................. 1,356 28% 3,966 51%
------- ---- ------- ---
Total cost of revenues ............... 2,341 48% 4,637 60%
------- ---- ------- ---

Gross profit ......................... 2,505 52% 3,042 40%

Research and development ....................... 2,970 61% 1,443 19%
Sales and marketing ............................ 2,602 54% 1,066 14%
General and administrative ..................... 3,367 69% 1,146 15%
Depreciation and amortization .................. 1,385 29% 372 5%
Compensation related to stock options .......... 279 6% 100 1%
------- ---- ------- ---
Operating loss ....................... (8,098) (167%) (1,085) (14%)
Other (income) expense:
Interest (income) expense, net ............ (598) (12%) 65 1%
------- ---- ------- ---
Net loss before income taxes ................... (7,500) (155%) (1,150) (15%)
Provision for income taxes.................. 23 - - -
------- ---- ------- ---
Net loss......................................... (7,523) (155%) (1,150) (15%)
Accretion of discount on mandatory redeemable
preferred stock .............................. - - 283 4%
------- ---- ------- ---
Net loss attributable to common stockholders ... $(7,523) (155%) $(1,433) (19%)
======= ==== ======= ===
</TABLE>

15
<PAGE>

Revenues. Total revenues decreased 37% from $7.7 million for the quarter ended
June 30, 1999 to $4.8 million for the quarter ended June 30, 2000. License and
services revenue increased 2% from $3.2 million to $3.3 million for the quarter
ended June 30, 2000, due primarily to growth in license fees associated with
Software CineMaster 99, increased customization services related to our consumer
electronics business, and license fees from our Internet appliances. Hardware
revenues decreased 65% from $4.4 million for the quarter ended June 30, 1999 to
$1.5 million for the quarter ended June 30, 2000, the decrease was attributable
to our continued movement towards the change in business model in which we will
license our software and our hardware designs rather than selling finished goods
and components and recording hardware revenue.

Our revenues are concentrated among a few customers. In the quarter ended June
30, 2000 and June 30, 1999, two customers accounted for 37% and 77% of our
revenues, respectively. While we believe that the number of customers
incorporating our technology into their products will grow, we expect that a
significant portion of revenue will continue to be concentrated among a
relatively small number of customers for the foreseeable future. The revenues
from particular customers may vary widely from period to period depending on the
addition of new contracts and the volumes and prices at which licensees sell
RAVISENT-enabled products to end users in any given period.

We sell our products directly to personal computer, consumer electronics, and
Internet appliances manufacturers in North America, Europe, South America and
the Pacific Rim. In the second quarter of 2000 companies based in the Pacific
Rim and North America accounted for a majority of our revenues. Sales outside of
the United States have been primarily through U.S. manufacturers that distribute
their products to end users overseas.

Cost of Revenues. Cost of revenues consist primarily of costs of hardware
components sold to manufacturing firms, costs associated with shipment of
CineMaster 99 and license fees paid to third parties for technologies
incorporated into our products, including Dolby Digital technology. Cost of
revenues decreased 50% from $4.6 million for the quarter ended June 30, 1999 to
$2.3 million for the quarter ended June 30, 2000. The decrease in cost of
revenues was primarily due to lower hardware revenue.

Gross Profit. Gross profit decreased from $3.0 million for the quarter ended
June 30, 1999 to $2.5 million for the quarter ended June 30, 2000, primarily due
to lower hardware revenues. For the quarter ended June 30, 2000, 68% of total
revenue was derived from license and services revenues, in comparison to 42% for
the comparable quarter in 1999. The gross profit percentage for license and
services revenues is much higher than that from hardware sales. As a percentage
of total revenues, gross profit increased from 40% for the quarter ended June
30, 1999 to 52% for the quarter ended June 30, 2000, primarily as a result of a
higher proportion of license revenues associated with our transition to a
business model based on licensing our technology rather than direct sales of
hardware products.

Research and Development Expenses. Research and development expenses consist
primarily of engineering and related costs associated with the development of
new products, customization of existing products for customers, quality
assurance and testing. Research and development expenses increased 106%, from
$1.4 million for the quarter ended June 30, 1999, to $3.0 million for the
quarter ended June 30, 2000. As a percentage of total revenues, research and
development expenses increased from 19% to 61%. The increase in research and
development expenses in absolute dollars was due primarily to increased
headcount and professional fees and the acquisition of Teknema. The increase in
research and development expenses as a percentage of total revenues resulted
from lower quarterly revenue as well as an increase in research and development
spending.

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of
salaries, travel expenses and costs associated with trade shows, advertising and
other marketing efforts, as well as technical support costs. Sales and marketing
expenses increased 144% from $1.1 million for the quarter ended June 30, 1999 to
$2.6 million for the quarter ended June 30, 2000. As a percentage of total
revenues, sales and marketing expenses increased from 14% to 54%. The increase
in absolute dollars was primarily due to the building of the sales and marketing
teams in the United States as well as the impact of the acquisition of Teknema.
The increase in sales and marketing expenses as a percentage of total revenues
resulted from both lower quarterly revenues and increases in selling and
marketing spending.

16
<PAGE>

percentage of total revenues, general and administrative expenses increased from
15% to 69%. In absolute dollars, the general and administrative increase was
due to additional employees needed for added infrastructure since going public.
Additionally, higher legal and accounting expenses were incurred in connection
with work associated with a potential acquisition and anticipated legal expenses
from the Company's class action proceedings. General and administrative expenses
increased as a percentage of total revenues primarily due to increased general
and administrative spending as well as lower quarterly revenues.

Amortization of Goodwill. We recorded amortization and depreciation of $1.4
million for the quarter ended June 30, 2000, compared to $0.4 million for the
quarter ended June 30, 1999. The increase primarily relates to the goodwill
recorded as part of the Teknema acquisition. See"--Acquired In-Process Research
and Development Expense."

Stock-based Compensation. In June 2000, we recorded $0.3 million of amortization
of deferred stock compensation in connection with stock options granted to
employees in 2000 and 1999. In June 2000, we granted $0.6 million in stock
options at less than fair value to certain employees, which we will amortize as
non-cash compensation expense over the vesting periods of the options, ranging
from 18 to 24 months.

17
<PAGE>

Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999

RAVISENT TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Six months ended
June 30,
(unaudited)

2000 1999
(as restated)
-------------------------- -------------------------
Percent Percent
Of Of
Amount Revenue Amount Revenue
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
License and services ......................... $ 6,220 59% $ 5,528 30%
Hardware ..................................... 4,336 41% 12,963 70%
-------- ---- ------- ---
Total revenues .......................... 10,556 100% 18,491 100%
Cost of revenues:
License and services ......................... 2,114 20% 806 4%
Hardware ..................................... 3,870 37% 11,230 61%
-------- ---- ------- ---
Total cost of revenues .................. 5,984 57% 12,036 65%
-------- ---- ------- ---
Gross profit ............................ 4,572 43% 6,455 35%

Research and development ........................... 5,113 48% 2,837 15%
Sales and marketing ................................ 4,484 43% 2,128 11%
General and administrative ......................... 5,710 54% 1,951 11%
Depreciation and amortization ...................... 2,741 26% 686 4%
Compensation related to stock options .............. 760 7% 203 1%
-------- ---- ------- ---
Operating loss ........................... (14,236) (135%) (1,350) (7%)
Other (income) expense:
Interest (income) expense, net ................ (1,214) (12%) 110 1%
-------- ---- ------- ---
Net loss before income taxes ....................... (13,022) (123%) (1,460) (8%)
Provision for income taxes...................... 38 - - -
-------- ---- ------- ---
Net loss............................................. (13,060) (124%) (1,460) (8%)
Accretion of discount on mandatory redeemable
preferred stock ................................... - - 566 3%
-------- ---- ------- ---
Net loss attributable to common stockholders ....... $(13,060) (124%) $(2,026) (11%)
======== ==== ======= ===
</TABLE>

Revenues. Total revenues decreased 43% from $18.5 million for the six month
ended June 30, 2000 to $10.6 million for the six months ended June 30, 2000 .
License and services revenue increased 13% from 5.5 million for the six months
June 30, 1999 to $6.2 million for the six months ended June 30, 2000, due
primarily to growth in license fees associated with our Software CineMaster 99,
increased customization services related to our consumer electronics business,
and licenses fees from our Internet appliances. Hardware revenues decreased 67%
from $13.0 million for the six months ended June 30, 1999 to $4.3 million for
the six months ended June 30, 2000. The decrease was attributable to our
continued movement towards the change in business model in which we will license
our software and our hardware designs rather than selling finished goods and
components and recording hardware revenue.

18
<PAGE>

Our revenues are concentrated among a few customers. In the six months ended
June 30, 2000 and June 30, 1999, two customers accounted for 40% and 79% of our
revenues, respectively. While we believe that the number of customers
incorporating our technology into their products will grow, we expect that a
significant portion of revenue will continue to be concentrated among a
relatively small number of customers for the foreseeable future. The revenues
from particular customers may vary widely from period to period depending on the
addition of new contracts and the volumes and prices at which licensees sell
RAVISENT-enabled products to end users in any given period.

We sell our products directly to personal computer, consumer electronics, and
Internet appliances manufacturers in North America, Europe, South America and
the Pacific Rim. For the six months ended June 30, 2000 companies based in the
Pacific Rim and North America accounted for a majority of our revenues. Sales
outside of the United States have been primarily through U.S. manufacturers that
distribute their products to end users overseas.

Cost of Revenues. Cost of revenues consist primarily of costs of hardware
components sold to manufacturing firms, costs associated with shipment of
CineMaster 99 and license fees paid to third parties for technologies
incorporated into our products, including Dolby Digital technology. Cost of
revenues decreased 50% from $12.0 million for the six months ended June 30, 1999
to $6.0 million for the six months ended June 30, 2000. The decrease in cost of
revenues was primarily due to lower hardware revenue.

Gross Profit. Gross profit decreased from $6.5 million for the six months ended
June 30, 1999 to $4.6 million for the six months ended June 30, 2000, primarily
due to lower hardware revenues. For the six months ended June 30, 2000, 59% of
total revenue was derived from license and services revenues, in comparison to
30% for the comparable six months in 1999. The gross profit percentage for
license and services revenues is much higher than that from hardware sales. As a
percentage of total revenues, gross profit increased from 35% for the six months
ended June 30, 1999 to 43% for the six months ended June 30, 2000, primarily as
a result of a higher proportion of license revenues associated with our
transition to a business model based on licensing our technology rather than
direct sales of hardware products.

Research and Development Expenses. Research and development expenses consist
primarily of engineering and related costs associated with the development of
new products, customization of existing products for customers, quality
assurance and testing. Research and development expenses increased 80%, from
$2.8 million for the six months ended June 30, 1999, to $5.1 million for the six
months ended June 30, 2000. As a percentage of total revenues, research and
development expenses increased from 15% to 48%. The increase in research and
development expenses in absolute dollars was due primarily to increased
headcount and professional fees, and partially due to the acquisition of
Teknema. The increase in research and development expenses as a percentage of
total revenues resulted from lower quarterly revenues as well as increases in
research and development spending.

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of
salaries, travel expenses and costs associated with trade shows, advertising and
other marketing efforts, as well as technical support costs. Sales and marketing
expenses increased 111% from $2.1 million for the six months ended June 30, 1999
to $4.5 million for the quarter ended June 30, 2000. As a percentage of total
revenues, sales and marketing expenses increased from 11% to 43%. The increase
in absolute dollars was primarily due to the building of the sales and marketing
teams in the United States. The increase in sales and marketing expenses as a
percentage of total revenues resulted from both lower quarterly revenues and
increases in selling and marketing spending.

General and Administrative Expenses. General and administrative expenses
consist primarily of personnel and support costs for our finance, human
resources, information systems and other management departments. General and
administrative expenses increased 193% from $2.0 million for the six months
ended June 30, 1999 to $5.7 million for the six months ended June 30, 2000. As a
percentage of total revenues, general and administrative expenses increased from
11% to 54%. In absolute dollars, the general and administrative expenses
increase was due to additional employees needed for added infrastructure since
going public. Additionally, higher legal and accounting expenses were incurred
in connection with work associated with a potential acquisition, additional
activities in connection with our year-end audit, and anticipated legal expenses
in connection with our class action legal proceedings. General and
administrative expenses increased as a percentage of total revenues due to
increased general and administrative spending as well as lower quarterly
revenues.

19
<PAGE>

Amortization of Goodwill. We recorded amortization and depreciation of $2.7
million for the six months ended June 30, 2000, compared to $0.7 million for
the six months ended June 30, 1999. The increase primarily relates to the
goodwill recorded as part of the Teknema acquisition. See"--Acquired In-Process
Research and Development Expense."

Stock-based Compensation. Stock-based compensation for the six months ended
June 2000 included a grant of options with an estimated fair value of $0.6
million to certain employees. This grant and the grants from 1999 are amortized
as non-cash compensation expense over the vesting periods of the options,
ranging from 18 to 48 months. Also in included in this expense for the six
months ended June 30, 2000 is a one-time charge for stock compensation of $0.3
million to a former employee.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT

In November 1999, we completed the acquisition of Teknema, a company
located in Palo Alto, California and dedicated to developing software and
solutions for the emerging market for information appliances. The purchase price
included $2.5 million in cash, 266,169 shares of RAVISENT common stock and
537,582 options to acquire common stock with a combined value of $12.4 million
In connection with the acquisition, we incurred transaction costs of $0.9
million.

The acquisition of Teknema was recorded under the purchase method of
accounting. A portion of the purchase price was allocated to in-process research
and development technology, which resulted in a charge of $1.9 million to our
operations in December 1999. The in-process research and development technology
was valued using a combination of the Income Approach, Projected Earnings
Approach calculating EBIT as well as after-tax earnings from technology and a
cash flow model, under which projected income and expenses attributable to the
purchased technology were identified, and potential income streams were
discounted using a 30% discount rate for risks, probabilities and uncertainties,
including the stage of development of the technology, viability of target
markets, and other factors.

The excess of the purchase price over the fair value of the net
identifiable assets and in-process research and development technology acquired
of $ 16.2 million has been recorded as goodwill and other intangible assets.
This amount is being amortized on a straight-line basis over four years.

As of the acquisition date, Teknema was conducting ongoing research and
development into new products in the form of three projects, including
enhancements to the existing products previously developed by Teknema. At the
date of acquisition, these projects had not reached technological feasibility
and there was no alternative future use for them. The three research and
development projects included:

Advance Set-Top Box/Technology. This product was a customized television
set-top box which incorporated an easy-to-use Web browser and electronic
mail ("e-mail") consumer application. This product was enhanced with secure
transaction, smartcard application and JavaScript capabilities, as well as
V.90 modem and broadband capabilities. Subsequent enhancements included an
Internet integration platform, scripting and graphic capabilities of an
embedded Web browser. At the time of acquisition, the primary development
efforts were focused on developing a full-featured advanced set-top box
(and associated technology that can be licensed to third parties) that will
be a complete redesign of an existing Teknema product using a new operating
system, a new, faster processor and adding multimedia capabilities. Some of
the development efforts include developing or utilizing:

. Chat and messaging functions for its Internet Integration Platform;
. Network interfaces and LCD displays for its Internet Integration
Platform;
. Multimedia functions such as digital video and audio streaming and
decoding and bi-directional video communication capabilities;
. A faster processor, broadband network interface, video engine chip and a
POSIX-compliant operating system which provides native application
programming interfaces for the development of browser plug-ins; and
. A port for hardware expansion

At the time of acquisition, this development project was approximately 30%
complete. This project is still under development and is planned to be completed
in the next six months.

20
<PAGE>

Telephony. Teknema was developing an expansion of its Internet appliance
platform for the Internet telephony market. The product would leverage its
current set-top box platform into a multimedia platform capable of offering
video, data and voice over the Internet for video conferencing-over-the-
Internet. At the time of acquisition, this development project was
approximately 50% complete. This product is still under development and is
planned to be completed in the next nine months.

Home & Industrial. Teknema was developing various products for the home
automation and consumer products market. Teknema was in the early stages of
developing a graphical, interactive control system for home appliances such
as televisions. In addition, Teknema was developing a DVD player with
Internet capabilities. At the time of acquisition, this development project
was approximately 15% complete. Prototypes of the DVD player were built
combining technology from our consumer electronics group. Current plans are
to incorporate this technology into the advanced set-top box designs and
next generation DVD designs over the next nine months.

In April 1998, we completed the acquisition of Viona, a company specializing
in the development of digital video technology. We paid $6.1 million in cash, of
which $2.6 million was paid at closing, $2.1 million will be paid during 1999,
and $1.4 million will be paid in equal installments at the end of each of the
next three fiscal years, issued 1,204,820 shares of RAVISENT common stock valued
at $4.8 million and incurred transaction costs of $0.8 million. For accounting
purposes, payments due in future periods have been discounted.

The acquisition of Viona was recorded under the purchase method of
accounting. A portion of the purchase price was allocated to in-process research
and development technology, which resulted in a charge of approximately $7.9
million to our operations in April 1998. The in-process research and development
technology was valued using a cash flow model, under which projected income and
expenses attributable to the purchased technology were identified, and potential
income streams were discounted using a 30%-35% discount rate for risks,
probabilities and uncertainties, including the stage of development of the
technology, viability of target markets, and other factors.

As of the acquisition date, Viona was conducting significant ongoing
research and development into five new software and hardware products including
enhancements to the existing digital video and audio system solutions previously
developed by us. At the date of acquisition, these projects had not reached
technological feasibility and there was no alternative future use for them. The
five research and development projects included:

CineMaster LC Hardware DVD Decoder, a single circuit board or card that can
be added to a personal computer to allow the personal computer to process
digital video signals. At the time of the acquisition, Viona was conducting
research and development to integrate this product into a single chip-based
design in an effort to reduce manufacturing costs and to improve playback
performance quality. This research and development project had completed only
alpha testing and was approximately 80% complete at the date of acquisition.
Viona had incurred approximately $117,000 of research and development expense
and estimated that $35,000 would be required to complete the development of the
project. Development was completed during 1998.

CE DVD Set-top Player/Portable Player, a DVD playback set-top reference
design for equipment manufacturers which was expected to provide full DVD
playback capabilities such as fast forward, rewinding, multi-language and
surround sound audio. At the time of the acquisition, this project had not yet
completed alpha testing and there was significant uncertainty of completion. We
estimated that the project was approximately 5% complete. Viona had incurred
approximately $30,000 of research and development expense and estimated that
$500,000 would be required to complete the development of the project. Several
consumer electronics manufactures are now shipping products (both set-top and
portable) based upon this completed development effort. The development team has
moved on porting this technology to the next generation of DVD hardware designs
for our customers.

DVD Software Encoder, a software solution to enable the processing of
digital video signals which is designed to eliminate the need for a DVD encoder
chip or circuit board by utilizing software to record DVD and video streams on a
personal computer. At the time of the acquisition, this project had not yet
completed alpha testing and there was significant uncertainty of completion. We
estimated that the project was approximately 40% complete. Viona had incurred
approximately $121,000 of research and development expense and estimated that
$203,000 would be required to complete the development of the project. This core
technology was completed in the second quarter and was released in RAVISENT'S
CinePlayer(TM) DVR product for use by PC OEMs and IHVs.

HDTV Hardware Decoder, a circuit board or card that could enable personal
computers to process HDTV signals. At the time of the acquisition, this project
had not yet completed alpha testing and there was significant uncertainty of
completion. We estimated that the project was approximately 35% complete. Viona
had incurred approximately $63,000 of research and

21
<PAGE>

development expense and estimated that $111,000 would be required to complete
the development of the project. This effort was re-targeted to provide HDTV
tuner support for the HDTV Software Decoder development effort. This development
effort was completed by the end of 1999 and the technology integrated into the
HDTV Software Decoder project and our partner's HDTV tuner hardware and software
driver implementations.

HDTV Software Decoder, a software solution designed to allow a personal
computer to process HDTV signals without the need for a hardware solution. At
the time of the acquisition, this project had not yet completed alpha testing
and there was significant uncertainty of completion. We estimated that the
project was approximately 15% complete. Viona had incurred approximately $15,000
of research and development expense and estimated that $150,000 would be
required to complete the development of the project. Development was completed
in the second quarter and released to a customer in a development kit form. This
HDTV development kit offers full software-based audio/video decoding and data
extraction.

The efforts required to develop the acquired in-process technology into
commercially viable products principally relate to the completion of all
planning, designing and testing activities that are necessary to establish that
the products can meet their design requirements, including function, features
and technical performance requirements.

We based our determination of the acquired in-process technology allocation
on recently issued guidance by the Securities and Exchange Commission and
considered such factors as degree of completion, technological uncertainties,
costs incurred and projected costs to complete. Acquired in-process technology
projects continue to progress, in all material respects, consistent with
management's original assumptions used to value the acquired in-process
technology.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily through the
issuance and sale of debt and equity securities to investors including our
initial public offering which was completed July 16, 1999. As of June 30, 2000
we had approximately $38 million in cash and cash equivalents.

Net cash used in operating activities for the six months ended June 30,
2000 was $8.9 million, compared to cash used in operating activities of $1.1
million for the six months ended June 30,1999. Cash used in operating activities
was primarily the result of net losses, adjusted for non-cash items, including
non-cash compensation expense.

Net cash used in investing activities for the six months ended June 30,
2000 was $1.6 million, compared to cash used in investing activities of $0.2
million for the six months ended June 30, 1999. Cash used in investing
activities for the six months ended June 30, 2000 and 1999 consisted primarily
of net purchases of furniture and equipment.

Net cash provided by financing activities for the six months ended June 30,
2000 was $0.3 million, compared to cash provided by financing activities of $2.2
million for the six months ended June 30, 1999. Cash provided by financing
activities for the six months ended June 30, 2000 was primarily attributable to
the net proceeds from stock option and warrant exercises and the payment of the
balance due on a note receivable for the purchase of equity securities of the
Company. Cash provided by financing activities for the six months ended June 30,
1999 was primarily attributable to net proceeds from the issuance of debt and
equity securities to investors.

As of June 30, 2000, our principal commitments consisted of obligations
outstanding under equipment and facilities leases and notes payable to partially
fund our operations and capital purchases. The equipment leasing arrangements
consist primarily of paying rental fees to third party leasing providers at
interest rates between 15% to 18% that maintain title to the leased equipment.
In most cases, there are no obligations for us to purchase the equipment at the
end of the term. Although we have no material commitments for capital
expenditures, we anticipate an increase in our capital expenditures consistent
with anticipated growth in operations, infrastructure and personnel. In
addition, we have approximately $0.5 million at June 30, 2000 of payments due to
the former owners of Viona. This amount is payable during the fourth quarter of
2000.

On February 4, 2000 the Company entered into a 60-month operating lease for
its facilities in San Jose, California, commencing May 1, 2000. The lease
provides for minimum monthly rent of approximately $21,000 per month plus
operating expenses of approximately $8,000, totaling approximately $29,000
monthly. The lease provides for annual increases to the minimum monthly rent of
approximately $12,000 per year. In June 2000, the Company vacated its Palo Alto
and former San Jose offices.

On March 8, 2000 the Company entered into an 84-month operating lease for
its corporate office facilities in Malvern, Pennsylvania, effective June 1,
2000. The lease provides for minimum annual rent of approximately $660,000,
payable in monthly installments of approximately $55,000 plus operating expenses
of approximately $30,000, totaling approximately $85,000 monthly. The lease
provides for annual increases to the minimum annual rent of approximately
$20,000 per year. The Company expects to vacate its former Malvern facility
during the third quarter of 2000.

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As of June 30, 2000, we had a $5.0 million line of credit with Silicon
Valley Bank. Under the terms of the line of credit, borrowings are subject to a
percentage of "eligible" accounts receivable, as defined in the credit
agreement, and bears interest at the bank's prime rate (9.5% at June 30, 2000).

At June 30, 2000 no borrowings against this line of credit were outstanding
and $0.2 million was available under the line of credit. This line of credit
expires in June 2001. Silicon Valley Bank has senior security interest in
substantially all of our assets. We are required to comply with a quarterly
tangible net worth covenant, as defined in the loan and security agreement. On
June 30, 2000 the Company was in compliance with all debt covenants.

We believe that our current cash, cash equivalents balance and cash
anticipated to be provided by operations, if any, together with borrowings
available under our line of credit, will be adequate to meet our cash needs for
at least the next twelve months.

ITEM 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We develop products in the United States and sell such products in North
America, Asia and Europe. As a result, our financial results could be affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. As all sales are currently made in U.S. dollars,
a strengthening of the dollar could make our products less competitive in
foreign markets. We do not use derivative instruments to hedge our foreign
exchange risk. Our interest income is sensitive to changes in the general level
of U.S. interest rates, particularly since the majority of our investments are
in short-term instruments. Due to the nature of our short-term investments, we
have concluded that there is no material market risk exposure. Therefore, no
quantitative tabular disclosures are required.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Our business and the value of our shares is subject to numerous risks. Some of
these risks are described above and certain additional risks are described
below:

RISKS RELATED TO RAVISENT

WE HAVE A LIMITED OPERATING HISTORY AND OUR HISTORICAL FINANCIAL INFORMATION IS
OF LIMITED VALUE IN PROJECTING OUR FUTURE OPERATING RESULTS OR EVALUATING OUR
OPERATING HISTORY

As a result of our relatively brief operating history, we believe that
comparing different periods of our operating results is not meaningful and you
should not rely on the results for any period as an indication of our future
performance. In addition at some point in the future, fluctuations in our
operating results may cause us to perform below the expectations of public
market analysts and investors. If our results were to fall below market
expectations, the price of our common stock may fall significantly. Our limited
operating results have varied widely in the past, and we expect that they will
continue to vary significantly from quarter-to-quarter as we attempt to
establish our products in the market.

YOU SHOULD EXPECT OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE IN FUTURE PERIODS
AND THEY MAY FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS,
WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE

Our revenues and operating results will vary significantly from quarter-to-
quarter due to a number of factors, including:

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. variations in demand for our products and services, which are relatively
few in number;

. the timing of sales of our products and services and the timing of new
releases of personal computer systems, consumer electronics devices and
semiconductors that incorporate our products;

. delays in introducing our products and services;

. changes in our pricing policies or the pricing policies of our
competitors;

. the timing and accuracy of royalty reports received from our customers,
which we have to date not audited;

. the timing of large contracts that materially affect our operating
results in a given quarter;

. changes in the usage of digital media;

. our ability to develop and attain market acceptance of enhancements to
our products;

. new product introductions by competitors;

. the mix of license, service and hardware revenues;

. unanticipated customer demands which impact on our ability to deliver
our products and ultimately recognize revenue;

. the mix of domestic and international sales;

. costs related to acquisitions of technologies or businesses;

. our ability to attract, integrate, train, retain and motivate a
substantial number of sales and marketing, research and development,
administrative and product management personnel;

. our ability to expand our operations; and

. global economic conditions as well as those specific to personal
computer, consumer electronics, peripherals and semiconductor
manufacturers and other providers of digital video and audio stream
management solutions.

We plan to significantly increase our operating expenses to expand our sales
and marketing operations, including opening new sales offices and adding
additional sales professionals, broaden our product management and customer
support capabilities and fund greater levels of research and development,
particularly in the consumer electronics markets. We determine our operating
expenses largely on the basis of anticipated revenue trends and a high
percentage of our expenses are fixed in the short term and are significant. As a
result, any delay in generating or recognizing revenue could cause significant
variations in our operating results from quarter-to-quarter and could result in
substantial operating losses.

Due to the foregoing factors, we believe that quarter-to-quarter comparisons
of our operating results are not a good indication of our future performance. In
future quarters, our operating results may be below the expectations of public
market analysts and

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investors. In this event, the price of our common stock may fall significantly.
Since our license revenue is based upon customer sales reports and we have never
audited our customers, we may be required to restate our recognized revenues or
adjust our revenues for subsequent periods, which could cause our stock price to
drop.

WE HAVE NEVER BEEN PROFITABLE AND MAY NEVER ACHIEVE PROFITABLITIY IN THE FUTURE

We had a net operating loss of $7.5 million for the quarter ended June 30,
2000. To date, we have not achieved profitability on an annual basis, and
revenues from our software and hardware design solutions may not result in
sufficient revenues to sustain profitability in any future period. In addition,
we cannot be certain that we can increase profitability, particularly to the
extent that we face price competition. We expect to significantly increase our
sales and marketing, product development, engineering and administrative
expenses. As a result, we will need to generate significant revenues to sustain
profitability.

INCREASING COMPETITION MAY CAUSE OUR PRICES TO DECLINE, WHICH WOULD HARM OUR
OPERATING RESULTS

We expect our prices for our digital entertainment products to decline over
the next few years. We expect to face increased competition in markets where we
license our digital entertainment products, which will make it more difficult to
maintain our prices and profit margins even if our sales volumes increase. If
anticipated increases in sales volume did not keep pace with anticipated pricing
pressures, our revenues would decline and our business could be harmed. Despite
our efforts to introduce enhancements to our products, we may not be successful
in maintaining our pricing.

OUR BUSINESS SIGNIFICANTLY DEPENDS UPON OUR CINEMASTER PRODUCTS, AND IT IS
UNCERTAIN WHETHER THE MARKET WILL CONTINUE TO ACCEPT THESE PRODUCTS

In the quarter ended June 30, 2000, we derived approximately 61% of our
license revenues from sales of devices incorporating our CineMaster products. We
expect that license revenues from our CineMaster products will continue to
account for a significant portion of our revenues for the foreseeable future. In
particular, our business will be harmed if our existing manufacturing customers
do not continue to incorporate our CineMaster products or if we are unable to
obtain new customers for our CineMaster products. In seeking market acceptance,
it may be difficult for our digital solutions to displace incumbent solutions
employed by manufacturers not currently licensing our CineMaster products.
Manufacturers that are using other solutions would need to invest in additional
training and development tools and convert software for existing hardware
solutions in order to change to a new digital solution. Accordingly, potential
customers may not accept our digital solutions, which could limit our growth
opportunities and harm our prospects.

SINCE MOST OF OUR REVENUE IS DERIVED FROM A SMALL NUMBER OF CUSTOMERS, PROBLEMS
THAT THOSE CUSTOMERS EXPERIENCE WILL DIRECTLY IMPACT OUR BUSINESS

As a result of our concentrated customer base, problems that our customers
experience could materially harm our business. These risks are beyond our
control. For example, because we do not control the business practices of our
customers, we do not influence the degree to which they promote our technology
or set the prices at which the products incorporating our technology are sold to
end users. Risks that may influence the success or failure of the personal
computer or consumer electronics manufacturers that are our customers include:

. the competition the manufacturer faces and the market acceptance of its
products;

. the engineering, marketing and management capabilities of the
manufacturer and the technical challenges unrelated to our technology
that it faces in developing its products;

. the financial and other resources of the manufacturer;

. new governmental regulations or changes in taxes or tariffs applicable

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to the manufacturer; and

. the failure of third parties to develop and introduce content for
digital entertainment applications in a timely fashion.

The inability of our customers or us to successfully address any of these risks
could harm our business.

SINCE OUR CUSTOMERS HAVE NOT EXECUTED LONG-TERM CONTRACTS WITH US, OUR REVENUES
COULD DECLINE SIGNIFICANTLY WITH LITTLE OR NO NOTICE

Our agreements with our customers are typically of limited duration and do
not contain minimum purchase commitments or are terminable with little or no
notice. Rather than long-term contracts, we typically enter into licensing
agreements with one-year terms that automatically renew each subsequent year
unless either party receives a written cancellation. As a result, many of our
customers could elect not to renew these agreements and we could have little
warning of this election. Also, since our agreements with our customers do not
include minimum purchase requirements, the demand for our products is
unpredictable. As a result of competition or fluctuations in demand, we could be
required to reach an accommodation with our customers with respect to
contractual provisions such as price or delivery time in order to obtain
additional business and maintain our customer relationships. Any termination,
decrease in orders or election not to renew a contract by our principal
customers would harm our business.

WE DEPEND UPON TECHNOLOGY LICENSED FROM THIRD PARTIES, AND IF WE DO NOT MAINTAIN
THESE LICENSE ARRANGEMENTS, WE WILL NOT BE ABLE TO SHIP MANY OF OUR PRODUCTS AND
OUR BUSINESS WILL BE SERIOUSLY HARMED

We license technology that is used in our products from third parties under
agreements with a limited duration and we may not be able to maintain these
license arrangements. If we fail to maintain these license arrangements, we
would not be able to ship many of our digital entertainment products and our
business would be seriously harmed. For example, we have a license agreement
with Dolby Laboratories Licensing Corporation for the audio format that is used
in all of our DVD-related products. Without this technology, we could not ship
product for DVD markets. In addition, we license encryption and decryption
software technology from Matsushita Electric, which must also be included in any
DVD products we ship. The license for the Dolby Digital technology is for a term
expiring at the expiration of the patent covered thereby with the furthest
expiration date from the date of the license. The license for the encryption and
decryption technology may be terminated by Matsushita at any time after the
giving of notice. We may not be able to renew either license. If we failed to
renew either of these licenses, we would not be able to ship products for the
DVD market, and we would accordingly lose a substantial amount of our revenue.

THE LOSS OF ANY OF OUR STRATEGIC RELATIONSHIPS WOULD MAKE IT MORE DIFFICULT TO
KEEP PACE WITH EVOLVING INDUSTRY STANDARDS AND TO DESIGN PRODUCTS THAT APPEAL TO
THE MARKETPLACE

We rely on strategic relationships, such as those with ATI Technologies
Inc., Cirrus Logic, Dolby Laboratories, Intel Corporation and
STMicroelectronics, Inc. to provide us with state of the art technology, assist
us in integrating our products with leading industry applications and help us
make use of economies of scale in manufacturing and distribution. Through our
interaction with our strategic partners, we gain valuable insights on evolving
industry standards and trends. For example, we may be able to learn about future
product lines in advance so that we can more efficiently design products that
our customers find valuable. However, we do not have written agreements with any
of our strategic partners that can ensure these relationships will continue for
a significant period of time. All of our agreements with these partners are
informal, and may be terminated by them at any time. The loss of any one of
these relationships could harm our business

DELAYS IN PROVIDING OUR PRODUCTS TO OUR CUSTOMERS MAY AFFECT HOW MUCH BUSINESS
WE RECEIVE

Our product development efforts may not be successful and we may encounter
significant delays in bringing our products to market. Since the product life
cycle in the personal computer, consumer electronics and Internet appliance
industries can be as short as six to twelve months or less, if our product
development efforts are not successful or are significantly delayed, our
business will be harmed. In the past, we have failed to deliver new products,
upgrades or customizations on time, including customization projects for DVD
products that are requested from time to time by our customers. In the future,
our efforts to remedy this situation may not be successful and we

26
<PAGE>

may lose customers as a result. Delays in bringing to market new products,
enhancements to old products or interfaces between existing products and new
models of personal computers, consumer electronics or Internet appliance devices
could be exploited by our competitors. If we were to lose market share as a
result of lapses in our product management, our business would be harmed.

OUR BUSINESS MODEL DEPENDS UPON LICENSING OUR INTELLECTUAL PROPERTY, AND IF WE
FAIL TO PROTECT OUR PROPRIETARY RIGHTS, OUR BUSINESS COULD BE HARMED

Our ability to compete depends substantially upon our internally developed
technology. We have a comprehensive program for securing and protecting rights
in patentable inventions, trademarks, trade secrets and copyrightable materials.
If we are not successful in protecting our intellectual property, our business
could be substantially harmed.

Our pending patents may never be issued, and even if issued, may provide us with
little protection.

We regard the protection of patentable inventions as important to our
future opportunities. We currently have six U.S. patent applications pending
relating to our digital video and audio stream management technology. However,
none of our technology is patented outside of the United States nor do we
currently have any international patent applications pending. It is possible
that:

. our pending patent applications may not result in the issuance of
patents;

. our patents may not be broad enough to protect our proprietary rights;

. any issued patent could be successfully challenged by one or more third
parties, which could result in our loss of the right to prevent others
from exploiting the inventions claimed in those patents;

. current and future competitors may independently develop similar
technology, duplicate our products or design around any of our patents;
and

. effective patent protection may not be available in every country in
which we do business.

We rely upon trademarks, copyrights and trade secrets to protect our proprietary
rights, which are only of limited value.

We rely on a combination of laws, such as copyright, trademark and trade
secret laws, and contractual restrictions, such as confidentiality agreements
and licenses, to establish and protect our proprietary rights. We currently have
three pending trademark applications for the marks "RAVISENT," "RAVISENT
Technologies" and the RAVISENT logo. We also have an issued U.S. trademark for
the mark "CineMaster." None of our trademarks are yet registered outside of
the United States. Moreover, despite any precautions which we have taken:

. laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technology or deter others from developing
similar technologies;

. other companies may claim common law trademark rights based upon state
or foreign law which precede our federal registration of such marks;

. current federal laws that prohibit software copying provide only limited
protection from software "pirates," and effective trademark, copyright
and trade secret protection may be unavailable or limited in certain

27
<PAGE>

foreign countries;

. policing unauthorized use of our products and trademarks is difficult,
expensive and time-consuming and we are unable to determine the extent
to which piracy of our products and trademarks may occur, particularly
overseas;

. we have provided our source code for our products to a few of our
customers as part of our licensing arrangements with them and the
procedures and practices implemented under the terms of these licenses
may not be sufficient to prevent them from exploiting the source code;
and

. the tamper-resistant copy protection codes in our software have been
broken in the past and may not be successful in preventing unauthorized
use of our software in the future.

WE MAY BECOME INVOLVED IN COSTLY AND TIME-CONSUMING LITIGATION OVER PROPRIETARY
RIGHTS

Intellectual property litigation is typical in our industry.

Substantial litigation regarding intellectual property rights exists in our
industry. We expect that software and hardware in our industry may be
increasingly subject to third-party infringement claims as the number of
competitors grows and the functionality of products in different industry
segments overlaps. Third parties may currently have, or may eventually be
issued, patents that would be infringed by our products or technology. We cannot
be certain that any of these third parties will not make a claim of infringement
against us with respect to our products and technology.

Any litigation, brought by others, or us could result in the expenditure of
significant financial resources and the diversion of management's time and
efforts. In addition, litigation in which we are accused of infringement may
cause product shipment delays, require us to develop non-infringing technology
or require us to enter into royalty or license agreements even before the issue
of infringement has been decided on the merits. If any litigation were not to be
resolved in our favor, we could become subject to substantial damage claims and
be enjoined from the continued use of the technology at issue without a royalty
or license agreement. These royalty or license agreements, if required, might
not be available on acceptable terms, or at all, and could harm our business. If
a successful claim of infringement were made against us and we could not develop
non-infringing technology or license the infringed or similar technology on a
timely and cost-effective basis, our business could be significantly harmed.

We have received notices of claims that may result in litigation.

From time to time, we have received, and we expect to continue to receive,
notice of claims of infringement of other parties' proprietary rights. For
example:

. Our digital video stream management solutions comply with industry DVD
specifications, which incorporates technology known as MPEG-2 that governs
the process of storing a video input in digital form. We have received
notice from several of our largest customers which are personal computer
manufacturers, that a third party with a history of litigating its
proprietary rights and which has substantial financial resources has
alleged that aspects of MPEG-2 technology infringe upon patents held by the
third party. These customers may in the future seek compensation or
indemnification from us arising out of the third-party claims and may be
required to agree to indemnify them to secure future business or otherwise.
We do not have written agreements with these customers that

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<PAGE>

limit our liability to these customers should litigation ensue.
Moreover, we may be required to pay license fees in connection with the
use of the third party's technology in the future.

. A group of companies mostly comprised of consumer electronics manufacturers
has formed a consortium known as MPEG-LA to enforce the proprietary rights
of other holders of patents covering essential aspects of MPEG-2 technology
that are incorporated into our products. MPEG-LA has notified a number of
personal computer manufacturers, including our customers, that patents
owned by members of the consortium are infringed by the personal computer
manufacturers in their distribution of products that incorporate the MPEG-2
technology. MPEG-LA has requested that these personal computer
manufacturers pay license fees for use of the technology covered by MPEG-LA
patents. These personal computer manufacturers may in the future seek
compensation or indemnification from us arising out of the MPEG-LA claims,
and we may be required to pay license fees in connection with the use of
MPEG-2 technology in the future.

. Another group of companies mostly comprised of consumer electronics
manufacturers has formed a consortium known as the DVD Patent Licensing
Program to enforce the proprietary rights of other holders of patents
covering essential aspects of DVD technology that are incorporated into our
products. The DVD Patent Licensing Program has notified us, as well as a
number of computer manufacturers and other companies manufacturing or
licensing DVD-related products, including our customers, that patents owned
by members of the consortium are infringed by the personal computer
manufacturers in their distribution of products that incorporate the DVD
technology. The DVD Patent Licensing Program has requested that these
personal computer manufacturers pay license fees for use of the technology
covered by DVD Patent Licensing Program patents. We may be required to pay
license fees in connection with the use of such DVD technology in the
future as a result of such claims. Further, a court could determine that we
infringe any such patents and we would be liable for resulting damages. In
addition, our customers who have been contacted by the DVD Patent Licensing
Program may in the future seek compensation or indemnification from us
arising out of the DVD Patent Licensing Program claims, and we may be
required to pay license fees on their behalf in connection with the use of
such DVD technology in the future.

. A third party has asserted that the parental control features of our
CineMaster products infringe patents held by the third party. A court could
determine that we did infringe these patents and we would be liable for
resulting damages.

Any of these notices could result in litigation, which would include all of the
risks discussed above.

WE MAY NOT BE ABLE TO PROFIT FROM GROWTH IN OUR BUSINESS IF WE ARE UNABLE TO
EFFECTIVELY MANAGE THE GROWTH

Our ability to successfully offer our products and services in rapidly
evolving markets requires an effective planning and management process. We have
limited experience in managing rapid growth. In the last several months, we have
added engineering, sales, marketing, administrative and other management
personnel. Our business will suffer dramatically if we fail to

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<PAGE>

manage our growth. On June 30, 2000, we had a total of 167 employees compared to
a total of 104 employees on June 30, 1999. Our growth so far has placed strains
on our managerial, financial and personnel resources. We expect these strains to
continue in the future. The pace of our expansion, together with the complexity
of the technology involved in our products, demands an unusual amount of focus
upon the operational needs of our customers for quality, reliability, timely
delivery and post-installation field support. Our existing licensees rely
heavily on our technical expertise in customizing our digital solutions to their
new products. In addition, relationships with new manufacturing customers
generally require significant engineering support. Therefore, any increases in
adoption of our products by existing or new customers will increase the strain
on our resources, especially our engineers. To reach our goals, we will need to
continue hiring on a rapid basis while, at the same time, investing in our
infrastructure. We will also need to increase the scale of our operations. We
expect that we will also have to expand our facilities, and we may face
difficulties identifying and moving into suitable office space. In addition, we
will need to:

. successfully train, motivate and manage new employees;

. expand our sales and support organization;

. integrate new management and employees into our overall operations;

. adopt and staff an investor relations program; and

. continue to improve our financial and accounting systems.

We may not succeed in anticipating all of the changing demands that growth
will impose on our systems, procedures and structure. If we fail to effectively
manage our expansion, our results of operations will suffer.

WE ARE IN THE PROCESS OF CHANGING THE INTERNET APPLIANCE PORTION OF OUR BUSINESS
FROM SELLING HARDWARE TO LICENSING SOFTWARE AND SUPPORTING HARDWARE DESIGNS, AND
OUR REVENUES ARE EXPECTED TO DECLINE AS A RESULT

In November 1999, we acquired all of the capital stock of Teknema, Inc., which
forms the basis for our Internet appliance division. Teknema's business model
was focused on selling hardware-based solutions. Following the acquisition, we
have begun changing the business model for our Internet appliance division from
selling hardware-based digital solutions to licensing software-based digital
solutions. This change requires us to adjust our business processes and make
additions to our engineering and marketing teams. In addition, we expect that
revenues from this division will be lower in 2000 than in 1999 in part because
it will no longer be selling hardware solutions.

You should consider the risks and challenges we may face in this area of our
business as a result of this change in business model, which include, among
others:

. increasing demand for Internet appliances and services;

. maintaining and increasing our base of Internet appliance manufacturers;

. competing effectively with existing and potential competitors; and

. developing further this relatively new and unproven business model.

We cannot be certain that this change in business strategy will be successful
or that we will successfully address these risks.

WE MAY NOT BE ABLE TO SUCCESSFULLY MAKE ACQUISITIONS OF OR INVESTMENTS IN OTHER
COMPANIES

We have very limited experience in acquiring or making investments in
companies, technologies or services. From time to time we have had discussions
with companies regarding our acquiring, or investing in, their businesses,
products or services. In

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the future, we may make acquisitions or investments in other companies, products
or technologies. Acquisitions in our industry are particularly difficult to
assess because of the rapidly changing technological standards in our industry.
If we make any acquisitions, we will be required to assimilate the personnel,
operations and products of the acquired businesses and train, retain and
motivate key personnel from the acquired businesses. However, the key personnel
of the acquired company may decide not to work for us. Moreover, acquisitions
may cause disruptions in our operations and divert management's attention from
day-to-day operations, which could impair our relationships with our current
employees, customers and strategic partners. We may be unable to maintain
uniform standards, controls, procedures and policies if we fail in our efforts
to assimilate acquired businesses that could make management of our business
very difficult.

WE ARE DEPENDENT UPON OUR KEY MANAGEMENT FOR OUR FUTURE SUCCESS, AND FEW OF OUR
MANAGERS ARE OBLIGATED TO STAY WITH US

Our success depends on the efforts and abilities of our senior management and
certain other key personnel, particularly technical personnel in our engineering
subsidiary in Germany. Many of our officers and key employees are employed at
will. In addition, Mr. Wilde, CEO, and the principal engineers in our German
subsidiary, Messrs. Sigmund, Horak and Ringelberg, are the only employees upon
whom we have obtained key man life insurance and we do not expect to obtain life
insurance on any of our other senior managers. If any of these or other key
employees left or was seriously injured and unable to work and we were unable to
find a qualified replacement, then our business could be harmed. We have
recently hired new managers and intend to continue hiring key management
personnel. We may not be able to successfully assimilate our recently hired
managers or to hire qualified key management personnel to replace them.

WE MAY NOT BE ABLE TO HIRE AND RETAIN QUALIFIED EMPLOYEES, WHICH WOULD IMPAIR
OUR ABILITY TO GROW

We intend to hire a significant number of additional sales, support,
marketing, engineering and product management personnel in 2000 and beyond.
Competition for these individuals is intense, and we may not be able to attract,
assimilate or retain additional highly qualified personnel in the future. Hiring
qualified personnel, particularly sales, marketing, engineering and product
management personnel, is very competitive in our industry due to the limited
number of people available with the necessary technical skills and understanding
of the digital video and audio stream management industry. In addition, we are
headquartered in Malvern, Pennsylvania and we have significant operations in
Palo Alto, California. We have in the past and expect in the future to face
difficulties locating qualified personnel in these locations. We have had, and
expect to continue having greater difficulty attracting these personnel with
equity incentives as a public company than we did as a privately held company

WE MAY ENCOUNTER SIGNIFICANT DIFFICULTIES IN INTEGRATING OUR NEWEST SUBSIDIARIES
THAT COULD RESULT IN UNEXPECTED FUTURE EXPENSES AND DIFFICULTIES IN FINANCIAL
REPORTING

In November 1999, we completed the acquisition of Teknema, Inc. However, we
may not be able to successfully integrate the company. Combining our companies
requires, among other things, integrating our respective technologies,
coordinating our research and development and financial reporting efforts, and
continuously evaluating whether existing systems and procedures meet our growth
requirements, especially our financial and internal control systems and
management structure. Important aspects of the integration, such as improving
financial controls and reporting, are still in process and may not be completed
smoothly or successfully. If we fail to integrate these areas, we may be unable
to maintain uniform standards, procedures, controls and policies. Integrating
operations such as engineering, may require our management to dedicate resources
that may temporarily distract them from our day-to-day business, including from
the development of new products, which could result in delays in introducing
these new products. Coordinating geographically separated organizations with
distinct cultures may increase the difficulty of our integration. If we fail to
successfully complete the integration of Teknema's operations, our business
could be harmed.

WE MAY BE SUBJECT TO PRODUCT RETURNS, PRODUCT LIABILITY CLAIMS AND REDUCED SALES
BECAUSE OF DEFECTS IN OUR PRODUCTS

Our products are very complex and frequently contain undetected errors. The
likelihood of errors is higher when a new product is introduced or when new
versions or enhancements are released. Errors may also arise as a result of
defects in the products into which our products are incorporated. Despite our
extensive quality assurance process, we have in the past shipped

31
<PAGE>

product releases with some defects, and have discovered other errors in our
products after their commercial shipment. Despite our quality assurance process
and that of our customers, defects and errors may be found in new products or in
new versions or enhancements of existing products after commercial shipment has
begun. We may be required to devote significant financial resources and
personnel to correct any defects. Known or unknown errors or defects that affect
the operation of our products could result in the following, any of which could
harm our business:

. delay or loss of revenue;

. cancellation of customer contracts;

. diversion of development resources;

. damage to our reputation;

. failure of our products to achieve market acceptance;

. increased service and warranty costs; and

. litigation costs.

Although some of our licenses with customers contain provisions designed to
limit our exposure to potential product liability claims, these contractual
limitations on liability may not be enforceable. In addition, our product
liability insurance may not be adequate to cover our losses in the event of a
product liability claim resulting from defects in our products and may not be
available to us in the future.

SINCE OUR LICENSE REVENUE IS BASED UPON CUSTOMER SALES REPORTS AND WE HAVE NEVER
AUDITED OUR CUSTOMERS, WE MAY BE REQUIRED TO MAKE AN ADJUSTMENT TO OUR REVENUES
FOR SUBSEQUENT PERIODS, WHICH COULD CAUSE OUR STOCK PRICE TO DROP

We receive a license royalty for each personal computer, consumer electronics
device, Internet appliance or peripheral sold that contains our products and a
royalty for each silicon device sold by a semiconductor manufacturer that
incorporates our technology. In collecting these fees, preparing our financial
reports, projections and budgets and in directing our sales efforts and product
development, we rely on our customers to accurately report the number of units
sold. We have never undertaken an audit of any of our customers to verify that
their reported sales unit numbers were accurate. These reports are subject to
potential revision by these manufacturers. If any of our customers revised their
product sales reports, we might be required to adjust our revenues for
subsequent periods, which could harm our business and the price of our common
stock.

OUR BUSINESS IS SUBJECT TO RISKS FROM INTERNATIONAL OPERATIONS SUCH AS LEGAL
UNCERTAINTY, TARIFFS AND TRADE BARRIERS AND POLITICAL AND ECONOMIC INSTABILITY

In the quarter ended June 30, 2000, we derived approximately 56% of our
revenues, from shipments to foreign companies, and we expect to derive an
increasing amount of our revenue from sales outside North America. We have
limited experience in marketing and distributing our products internationally.
In addition, there are many risks inherent in doing business on an international
basis, including, among others:

. legal uncertainty regarding liability;

. tariffs, trade barriers and other regulatory barriers;

. problems in collecting accounts receivable;

. political and economic instability;

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<PAGE>

. changes in diplomatic and trade relationships;

. seasonal reductions in business activity;

. potentially adverse tax consequences;

. the impact of recessions in economies outside the United States; and

. variance and unexpected changes in local laws and regulations.

Our licensees are subject to many of the risks described above with respect to
their manufacturing or end-user customers. Currently, all of our international
sales are denominated in U.S. dollars; therefore, a strengthening of the dollar
could make our products less competitive in foreign markets. We do not use
derivative instruments to hedge foreign exchange risk. In the future, we may
conduct sales in local currencies, in which case, changes in exchange rates
could adversely affect our operating results. In addition, if we conduct sales
in local currencies, we may engage in hedging activities, which may not be
successful and could expose us to additional risks.

IT MAY BE DIFFICULT TO RAISE NEEDED CAPITAL IN THE FUTURE, WHICH COULD
SIGNIFICANTLY HARM OUR BUSINESS

We may require substantial additional capital to finance our future growth and
fund our ongoing research and development activities beyond 2000. Our capital
requirements will depend on many factors, including:

. acceptance of and demand for our products;

. the number and timing of acquisitions;

. the costs of developing new products;

. the costs associated with our expansion; and

. the extent to which we invest in new technology and research and
development projects.

To the extent that the proceeds from our initial public offering are
exhausted, our existing sources of cash and cash flow from operations, if any,
are insufficient to fund our activities, we may need to raise additional funds.
If we issue additional stock to raise capital, your percentage ownership in
RAVISENT would be reduced. Additional financing may not be available when needed
and, if such financing is available, it may not be available on terms favorable
to us.

BECAUSE OF THEIR SIGNIFICANT STOCK OWNERSHIP, OUR OFFICERS AND DIRECTORS WILL BE
ABLE TO EXERT SIGNIFICANT CONTROL OVER OUR FUTURE DIRECTION

Executive officers, directors and entities affiliated with them will, in the
aggregate, beneficially own approximately twenty-five percent (25%) of our
outstanding common stock . These stockholders, if acting together, would be able
to significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions.

CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS MAKE CHANGES
OF CONTROL DIFFICULT EVEN IF THEY WOULD BE BENEFICIAL TO SHAREHOLDERS

The board of directors has the authority without any further vote or action on
the part of the stockholders to issue up to 5,000,000 shares of preferred stock
and to determine the price, rights, preferences, privileges and restrictions of
the preferred stock. This preferred stock, if it is ever issued, may have
preference over and harm the rights of the holders of common stock. Although the
issuance of this preferred stock will provide us with flexibility in connection
with possible acquisitions and other

33
<PAGE>

corporate purposes, this issuance may make it more difficult for a third party
to acquire a majority of our outstanding voting stock. We currently have no
plans to issue preferred stock.

Our certificate of incorporation and by-laws include provisions that may have
the effect of deterring an unsolicited offer to purchase our stock. These
provisions, coupled with the provisions of the Delaware General Corporation Law,
may delay or impede a merger, tender offer or proxy contest involving RAVISENT.
Furthermore, our board of directors is divided into three classes, only one of
which is elected each year. Directors are only capable of being removed by the
affirmative vote of 66 2/3% or greater of all classes of voting stock. These
factors may further delay or prevent a change of control of RAVISENT.

RISKS RELATED TO OUR INDUSTRY

Our revenues are dependent upon acceptance of products that incorporate our
digital entertainment technology in the personal computer, consumer electronics
and Internet appliance industries.

We rely on the personal computer, consumer electronics and Internet appliance
industries, and these industries have risks and uncertainties that are beyond
our control.

The personal computer, consumer electronics and Internet appliance industries
are presently the only markets for our digital entertainment solutions. As a
result, our results of operations will depend almost entirely on consumer
acceptance of the products that incorporate our technology. Our dependence on
these industries involves several risks and uncertainties, including:

. whether semiconductor manufacturers developing silicon devices for personal
computer, consumer electronics and Internet appliance manufacturers will
design our digital solutions into their devices and successfully introduce
these devices;

. changes in consumer requirements and preferences;

. the small number of product manufacturers in these industries and the short
product life cycles which can be six months or less;

. the difficulty in predicting the level of consumer interest in and
acceptance of many digital product applications, such as handheld personal
computers and set-top boxes, which have only recently been introduced to
the market; and

. the current lack of open industry standards for software and hardware in
the consumer electronics and Internet appliance industries.

We currently depend upon demand for digital entertainment products, which may
not be sustained.

Our success currently depends upon continued demand for digital entertainment
products in the personal computer, consumer electronics and Internet appliance
markets. All of our revenues the quarter ended June 30, 2000 resulted from sales
of digital entertainment products. In addition to the risks inherent in the
personal computer, consumer electronics and Internet appliance industries, the
market for digital entertainment products also contains risk and uncertainties,
including:

. the developing and marketing of content by third party content providers
for end-user systems such as DVD players and desktop computers in a format
compatible with our digital solutions;

. the sustaining and developing of the demand for DVD players or other
existing digital entertainment applications; and

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<PAGE>

. the potential for declining demand for DVD solutions in lower price
personal computers.

Factors negatively affecting the personal computer, consumer electronics or
Internet appliance industries in general or the DVD market in particular could
harm our business. Moreover, to the extent that the performance, functionality,
price and power characteristics of our digital solutions fail to satisfy
customers who have a critical need for specific digital applications, the use of
our digital solutions could become confined to a limited segment of these
industries.

COMPETITION IN OUR MARKETS IS LIKELY TO CONTINUE TO INCREASE AND COULD HARM OUR
BUSINESS

We compete in markets that are new, intensely competitive, highly fragmented
and rapidly changing and which are characterized by short product life cycles
and price erosion. Our principal competitors in the software-based digital
solution market are Mediamatics, Inc. (a subsidiary of National Semiconductor,
Inc.), Zoran Corporation and RealNetworks, Inc. Our principal competitors in
the hardware-based digital solution market are Sigma Designs, Inc., Intervideo
Inc. and we also compete against several smaller companies. We also compete with
the internal research and development departments of other software companies as
well as those of personal computer, peripherals, consumer electronics and
semiconductor manufacturers who are in the market for specific digital video or
audio software applications. Numerous other major personal computer
manufacturers, software developers and other companies are focusing significant
resources on developing and marketing products and services that will compete
with our CineMaster products. At least two semiconductor manufacturers,
including C-Cube Microsystems and Zoran, are positioning their products as
offering hardware-based digital video and audio management capabilities and
marketing such products as equal or superior to our CineMaster products. In the
future, operating system providers with a larger established customer base, such
as Microsoft, may enter the digital video or audio stream management markets by
building video or audio stream management applications into their operating
systems. For example, Microsoft currently markets a basic MPEG-1 compliant
digital solution that is bundled into its operating system, which is used by a
substantial number of personal computer users. If Microsoft were to successfully
develop or license a DVD-compliant digital video solution and incorporate the
solution into its operating system, our revenues could be substantially harmed.

We anticipate continued growth and competition in the personal computer,
consumer electronics and Internet appliance industries and the entrance of new
competitors into our markets, and accordingly, the market for our products will
remain intensely competitive. We expect that competition will increase in the
near term and that our primary long-term competitors may not yet have entered
the market. Our future competitors may have significantly more personnel or
greater financial, technical, marketing and other resources than either we or
our current competitors do. Furthermore, our future competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements than we can. Also, future competitors may have greater name
recognition and more extensive customer bases that they can leverage. Increased
competition could result in price reductions, fewer customer orders, reduced
gross profit margins and loss of market share, any of which could harm our
business.

IF WE FAIL TO MANAGE TECHNOLOGICAL CHANGE, RESPOND TO EVOLVING INDUSTRY
STANDARDS OR ENHANCE OUR PRODUCTS' INTEROPERABILITY WITH THE PRODUCTS OF OUR
CUSTOMERS, DEMAND FOR OUR PRODUCTS WILL DROP AND OUR BUSINESS WILL SUFFER

Future versions of software and hardware platforms embodying new technologies
or the emergence of new industry standards could render our products obsolete or
uncompetitive. The market for digital video and audio solutions is characterized
by rapid technological change and evolving industry standards, such as standards
for DVD audio, DVD random access memory and DTV in Europe as well as other
digital entertainment applications. If we fail to respond to evolving industry
standards, our products could rapidly become obsolete, which would harm our
business. If the characteristics of our digital solutions are not compatible
with the requirements of specific system or program applications, the likelihood
that our customers will design our products into their systems and devices will
decrease and our business will be harmed.

WE MAY NOT BE ABLE TO RESPOND TO RAPIDLY CHANGING CONSUMER PREFERENCES

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<PAGE>

Our results of operations will depend on the extent to which our products are
incorporated into the products of leading personal computer, consumer
electronics, Internet appliance, peripherals and semiconductor manufacturers.
Their willingness to incorporate our products depends upon whether we succeed in
developing enhancements and new generations of our software and hardware that
satisfy consumer preferences in their markets and introducing these new
technologies to the marketplace in a timely manner. We must constantly modify or
improve our products to keep pace with changing consumer preferences. For
example, DVD drives became widespread on new personal computers in the last two
years. It is particularly difficult to keep pace with changing consumer
preferences in the personal computer and consumer electronics industries as a
result of a number of factors, including:

. the difficulty of anticipating and timely responding to the latest consumer
trends and requirements;

. the introduction by our competitors of new products embodying popular new
technologies or features that appeal to consumers; and

. the significant investment that is often required before commercial
viability is achieved to market a new feature or function.

Any failure by us to adequately address these risks could render our existing
digital solutions obsolete and could harm our business. In addition, we may not
have the financial and other resources necessary to develop any enhancements or
new generations of the technology that generate revenue in excess of the costs
of development.

YEAR 2000 ISSUES PRESENT TECHNOLOGICAL RISKS TO OUR BUSINESS AND COULD HARM
SALES

Neither our Hardware CineMaster nor our Software CineMaster products make use
of calendar clocks in any way; nor do the products of our newly acquired
subsidiary, Teknema, Inc. However, our products are incorporated into software
and hardware of personal computer, consumer electronics, computer peripheral and
semiconductor manufacturers, some of which may make use of calendar clocks and
may therefore experience Year 2000 failures. Although, as of August 11, 2000,
we have not received notice of any Year 2000 failure, we cannot assure you that
third-party software and hardware that is incorporated into our information
systems will not need to be revised or replaced as well. If we were required to
replace these third-party products, our business could be harmed. In addition,
we performed operational tests on our products as incorporated into those of our
customers and these tests did not result in Year 2000 failures. Nonetheless,
these tests may not be completely accurate and Year 2000 failures may occur. If
our customers' hardware or software were to suffer Year 2000 failures, such
failures might cause our products to fail as well. Changes required to respond
to Year 2000 failures caused by interoperability issues could be expensive and
time consuming and lead to lost revenues, breach of contract claims, higher
operating costs, loss of customers and other business interruptions, any of
which could harm our business.

In addition, governmental agencies, utility companies, Internet access
companies, third-party service providers and others outside of our control may
suffer Year 2000 failures. If these entities were to suffer Year 2000 failures,
a systemic failure might occur which is beyond our control, such as a prolonged
Internet, telecommunications or electrical failure. A systemic failure could
prevent us from delivering our services to our customers or cause other business
disruptions, such as preventing our customers or potential customers from
accessing our Internet web site. Any significant disruption in the
infrastructure on which we rely could harm our business.

WE FACE RISKS FROM THE UNCERTAINTIES OF ANY FUTURE GOVERNMENTAL REGULATION

We are not currently subject to direct regulation by any domestic or foreign
governmental agency, other than regulations applicable to businesses generally.
However, due to the increasing popularity and use of the digital delivery
mediums, it is possible that future laws and regulations may be adopted that
regulate DSS/DBS or other markets in which our products are sold. Future
regulatory measures may include, among other things:

36
<PAGE>

. pricing;

. content;

. copyrights;

. export controls (particularly regarding data encryption);

. distribution; and

. characteristics and quality of products and services.

The growth and development of the digital media market may prompt calls for
more stringent consumer protection laws that may impose additional burdens on
those companies conducting business in this segment. The adoption of any
additional laws or regulations may decrease the expansion of this market and
harm our business. Our business could be harmed by any new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to our business, or the application of existing laws
and regulations to the digital media market.

PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

In February and March 2000, eleven (11) securities class action lawsuits were
filed against the Company and certain of its officers and directors in the
United States District Court for the Eastern District of Pennsylvania. On May
25, 2000, the cases were consolidated under Civil Action No. 00-CV-1014, and
entitled "In re RAVISENT Technologies Inc. Securities Litigation". Pursuant to
the court's consolidation order, a consolidated and amended class action
complaint was filed on June 14, 2000 with an alleged class period of July 15,
1999 through April 27, 2000. This complaint alleges violations of the federal
securities laws, specifically Sections 11 and 15 of the Securities Act of 1933
and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934

37
<PAGE>

during the periods stated above. There may be additional purported class action
lawsuits filed against us based upon similar alleged facts and claims. Certain
of our employees and certain holders of 5% or more of our common stock are
members of the putative classes alleged in these actions and therefore may have
interests adverse to us with respect to the alleged claims in these actions. We
believe that such lawsuits or claims are without merit and that we have
meritorious defenses to the actions. We plan to vigorously defend the
litigation. However, failure to successfully defend these actions could
substantially affect our results of operations, liquidity and financial
condition.

On May 25, 1999, a complaint was filed against the Company in the Superior Court
of California, Santa Clara County, by a former supplier, alleging breach of oral
and written contract and other claims totaling approximately $1.2 million. The
complaint was removed to federal court and, on September 23, 1999 the Company
filed a counterclaim against the supplier for the damages the Company incurred
as a result of the supplier's failure to timely ship the Company non-defective
parts. On June 30, 2000 the parties entered into a confidential settlement
agreement and mutual release in full settlement of any claims under the
complaint. The amount of the settlement was accrued as of December 31, 1999.

On November 4, 1999, a complaint was filed against the Company in the
Commonwealth of Massachusetts, Norfolk Superior Court Department, alleging
breach of agreements to allow a former supplier to purchase an undetermined
number of shares of the Company's common stock at $1.00 per share. The complaint
was removed to federal court on December 3, 1999. The Company disputes the claim
as being wholly without merit. To that end, on December 14, 1999, the Company
filed a Motion to Dismiss, which was denied on January 13, 2000. On May 17,
2000, pursuant to a confidential settlement agreement, the case was dismissed
under a joint motion for dismissal. The amount of the settlement was accrued as
of December 31, 1999. On November 8, 1999 the Superior Court in the Commonwealth
of Massachusetts approved an attachment of funds for $525,000 to be held in
trust pending the settlement of the complaint by a former supplier. In
connection with the settlement agreement, on June 1, 2000, the attachment was
vacated and the funds were returned to the Company.

From time to time, we have received, and expect to continue to receive,
notices of claims of infringement of other parties' proprietary rights and other
claims in the ordinary course of our business.

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

(a) CHANGES IN SECURITIES: NONE

(b) DIVIDENDS:

We have never declared or paid any dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of the board of directors and will be dependent upon our
financial condition, operating results, capital requirements and such other
factors as the board of directors deems relevant.

On July 15, 1999 the Company's Registration Statement on Form S-1 covering
the Offering of 5,750,000 shares of the Company's Common Stock, Commission
file number 333-77269 was declared effective.

From the effective date the amount of expenses incurred for the issuer's account
in connection with the issuance and distribution of the securities registered
was incurred as follows:

Underwriting discounts and commissions $4,830,000
Finders Fees --
Expenses paid to or for underwriters --

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<PAGE>

Other expenses $2,748,000
----------
Total Expenses $7,578,000
==========

All of the foregoing payments were direct or indirect payments to persons other
than (i) directors, officers or their associates: (ii) persons owning ten
percent (10%) or more of the Company's common stock; or (iii) affiliates of the
Company.

The net proceeds of the Offering to the Company (after deducting the foregoing
expenses) were $61,422,000. From the effective date of the Registration
Statement to June 30, 2000, the net proceeds have been used for the following
purposes:

Construction of plant, building and facilities 167,266
Purchase and installation of furniture
and equipment 1,631,526
Acquisition of other business (including
transaction costs) 4,530,060
Working Capital 15,141,265
Temporary investments, including cash
and cash equivalents 37,938,000
Other purposes (for which at least $100,000
has been used), including:
Investments, including debt instruments
of the United States Government and its
agencies and in high quality corporate
Issuers.

2,013,883
-----------
$61,422,000
===========

All of the foregoing payments were direct or indirect payments to persons other
than (i) directors, officers or their associates: (ii) persons owning ten
percent (10%) or more of the company's common stock; or (iii) affiliates of the
Company.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On June 16, 2000, the Company held its annual meeting of shareholders. Four
matters were submitted for a vote. The four matters were:

1. The first matter was the election of Frederick Beste to serve as a
Director until the 2003 annual meeting.

2. The second matter was an amendment to the 1999 Stock Incentive Plan,
which would increase the number of shares of our common stock reserved
for issuance under the Plan by an additional 500,000 shares.

3. The third matter was also an amendment to the 1999 Stock Incentive
Plan, which would increase the automatic share increase provision in
the Plan so that the number of shares of common stock available for
issuance under the Plan will automatically increase on the first
trading day in January each year, beginning with the 2001 calendar
year, from 1% to 3% of the shares of common stock outstanding on the
last trading day of December of the immediately preceding calendar
year, but in no event will any such annual increase exceed 600,000
shares of common stock.

4. The fourth matter was the ratification of KPMG LLP as our independent
auditors.

A quorum was obtained and all matters were passed.

ITEM 5: OTHER INFORMATION

None

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ITEM 6: Exhibits and Reports on Form 8-K

(a) EXHIBITS

NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------

10.31 Distribution Rights Agreement, dated June 30, 2000, by
and between American Trading S.A. and RAVISENT
(Portions of the Exhibit have been redacted pursuant
to a request for confidential treatment.)

27.1 Financial data schedule

(b) REPORTS ON FORM 8K

None

August 14, 2000 RAVISENT TECHNOLOGIES INC.

/s/ Thomas J. Fogarty

Thomas J. Fogarty
Chief Financial Officer