RAVISENT TECHNOLOGIES INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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Form 10-K

(Mark One)

[X]Annual Report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [No fee required] for the fiscal year ended December 31, 1999.

[_]Transition Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No fee required] for the transition period from
to .

COMMISSION FILE NUMBER: 000-26287

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RAVISENT TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)

Delaware 23-2763854
(State or other (I.R.S. Employer
jurisdiction of Identification Number)
incorporation or
organization)

One Great Valley Parkway
Malvern, Pennsylvania 19355
(800) 700-0362
(Address, including zip code, and telephone number, including area code,
of the registrant's principal executive offices)

Securities registered pursuant to Section 12(g) of the Act: None

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Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, par value $.001 per share NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports
required 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]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in the definitive proxy statement
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]

On March 15, 2000, RAVISENT Technologies Inc. had 16,122,180 outstanding
shares of common stock. Of those, 12,216,106 shares of common stock were held
by non-affiliates. The aggregate market value of such common stock held by
non-affiliates, based on the average of the high and low sales prices of such
shares on the New York Stock Exchange on March 29, 2000, was approximately
$209,200,815. Shares of common stock held by each officer and director and
each person who owns 5% or more of our outstanding common stock have been
excluded from this computation in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement prepared in connection with its
2000 Annual Meeting of Stockholders, to be held on June 1, 2000, are
incorporated by reference into Part III of this Annual Report on Form 10-K
where indicated. The table of Exhibits filed appears at page 66.

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RAVISENT TECHNOLOGIES INC.

FORM 10-K ANNUAL REPORT
(For Fiscal Year Ended December 31, 1999)

Table of Contents

PART I

Page
----

ITEM 1 Business............................................................................... 1
ITEM 2 Properties............................................................................. 25
ITEM 3 Legal Proceedings...................................................................... 26
ITEM 4 Submission of Matters to a Vote of Security Holders.................................... 27

PART II

ITEM 5 Market for Registrant's Common Equity and Related Stockholders Matters................. 27
ITEM 6 Selected Financial Data................................................................ 29
ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.. 30
ITEM 7a Quantitative and Qualitative Disclosure about Market Risk.............................. 41
ITEM 8 Financial Statements and Supplementary Data............................................ 41
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 66

PART III

ITEM 10 Directors and Executive Officers of the Registrant..................................... 66
ITEM 11 Executive Compensation................................................................. 66
ITEM 12 Security Ownership of Certain Beneficial Owners and Management......................... 66
ITEM 13 Certain Relationships and Related Transactions......................................... 66

PART IV

ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 66

Cautionary Statement Concerning Forward-Looking Statements

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 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 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 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.

PART I

ITEM 1. Business

General

We develop and license software and hardware design solutions that serve as
a platform for digital entertainment devices. Our intellectual property is
licensed by manufacturers of personal computers, consumer electronics devices
and Internet appliances. We also provide customization services and customer
support. Our software allows personal computer manufacturers to address
digital multimedia formats such as digital versatile disks, or DVD; direct
broadcast satellite, or DBS; its European counterpart, digital video
broadcasting, or DVB; and high definition television, or HDTV. Our design
solutions enable consumer electronics and digital cable manufacturers to use
digital and audio technology in a wide range of set-top devices. In addition,
through our acquisition of Teknema, Inc., we provide software and hardware
design solutions for Internet devices, including Internet appliances, digital
set-top devices and DVD players.

Our products incorporate a common, high-performance software code using
modular software architecture and are independent of operating systems and
silicon components. As digital technology continues to evolve and standards
change, we can add new modules to our software to provide additional
functionality without altering the existing core components of our digital
solution. This allows personal computer, consumer electronics and Internet
appliance manufacturers to use our products across multiple markets, achieve
faster time-to-market, develop a customizable, consistent look and feel across
product lines and reduce technical support costs. In the personal computer
market, our current products consist of high-performance digital video and
audio decoding and encoding solutions. In the consumer electronics market, our
current product is a high-performance software platform that supports multiple
hardware designs to provide digital audio and video stream management. In the
Internet appliance market, our product is a highly efficient web browser with
a corresponding software and hardware design that enables manufacturers to
bring to market a variety of Internet appliances. Our software and hardware
design solutions provide personal computer, consumer electronics and Internet
appliance manufacturers with a foundation to support future components,
operating systems and functionalities in a rapid and cost effective manner.

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Our products focus on three important markets, the personal computer market,
the consumer electronics market and the Internet appliance market. We license
our software and hardware design solutions to five of the top ten personal
computer manufacturers, based on total unit sales. Personal computer and
peripherals manufacturers currently shipping our products include ATI
Technologies, Inc., Compaq Computer Corporation, Dell Computer Corporation,
Fountain Technologies, Inc., Fujitsu Microelectronics, Inc., Gateway, Inc.,
Hewlett-Packard Company, Matrox Graphics, Inc., Micron Electronics, Inc. and
Siemens. Consumer electronics manufacturers that have agreed to incorporate
our technology include Tottori-Sanyo Electric Co., Ltd. (a subsidiary of Sanyo
Electronics Corporation, Inc.), Vestel USA, Inc. and Yamaha Corporation of
America. Internet Service Providers who are utilizing our intellectual
property for Internet appliances include Met@box AG, Telecom Italia and
Voyager.Net, Inc. We also have strategic relationships with ATI Technologies,
Cirrus Logic, Inc., Dolby Laboratories, Inc., Intel Corporation, S3
Incorporated, MindSpring Enterprises, Inc. and STMicroelectronics. References
herein to "RAVISENT," "we," "our," and "us" collectively refer to RAVISENT
Technologies Inc., a Delaware corporation, and all of its U.S. and German
subsidiaries.

Company History

RAVISENT Technologies Inc. was incorporated in Pennsylvania in April 1994 as
Quadrant Sales International, Inc. and changed its name to Quadrant
International, Inc. in May 1994, to Divicore Inc. in May 1999 and to RAVISENT
Technologies Inc. in June 1999 upon its reincorporation in Delaware.
RAVISENT's U.S. assets and liabilities are held by three Delaware
corporations: Liuco, Inc., a finance subsidiary; RAVISENT Operating Company,
Inc., an operating subsidiary; and RAVISENT Technologies Internet Appliance
Group, Inc., formerly known as Teknema, Inc., each of which is a wholly-owned
subsidiary of RAVISENT Technologies Inc. and a Nevada corporation, RAVISENT
IP, Inc., an intellectual property subsidiary, also a wholly-owned subsidiary
of RAVISENT Technologies Inc. RAVISENT's assets and liabilities in Germany are
held by two German corporations, Erste Cinco Vermogensverwaltungs GmbH, which
is a wholly-owned subsidiary of RAVISENT IP, and Viona Vervatungs GmbH, which
is a wholly-owned subsidiary of Erste Cinco Vermogensverwaltungs GmbH, and a
German limited partnership, Viona Development Hard and Software Engineering
GmbH & Co. KG, which is a wholly-owned subsidiary of the two German
corporations.

In November 1999 we acquired Teknema, Inc., an Internet technology company
involved in the development of products for the emerging market in information
appliances, 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 $1.9 million of
the purchase price as acquired in-process research and development. Teknema
sells Internet appliance hardware and software technology through intellectual
property licenses and agreements with Internet service providers. The
acquisition of Teknema provided us with a number of Internet-related products,
including an efficient web browser, and an Internet appliance design. The
acquisition provided us with approximately 20 additional employees who are
located in our Palo Alto office.

We entered into an agreement with MindSpring Enterprises to bundle their
Internet access software with our Internet appliance. Under the agreement, we
will offer a subsidized rate on our Internet appliance to those consumers who
subscribe to MindSpring. We recently entered into agreements with Met@box and
S3 Incorporated under which these companies will market Internet appliances
containing our technology to their customers. We would bundle the MindSpring
Software with the Internet appliance manufactured under the above discussed
agreements.

Industry Background

Historically, the personal computer and consumer electronics industries
addressed digital entertainment content using different technologies. The
personal computer developed around digital technology using the central
processing unit, or CPU, which was initially expensive and unable to
simultaneously run the operating system and manipulate video and audio inputs
at satisfactory performance levels. As a result, digital entertainment content
was managed by a stand-alone semiconductor device or module. In contrast, the
consumer

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electronics industry evolved using lower cost analog solutions that were able
to provide acceptable performance, but was typically passive and did not
permit the users to edit or enhance the content. Advances in semiconductor
technology have dramatically lowered the price of high performance
microprocessors, allowing personal computers and consumer electronics devices
to employ software solutions to manage video and audio streams in a digital
format without overburdening their CPUs. Moreover, today, when evaluating a
digital personal computer or consumer electronics device, consumers are
increasingly demanding digital entertainment capabilities such as DVD, 3-D
graphics, video editing and MP3 audio playback. Analog formatted devices
cannot provide these capabilities. Meanwhile, digital formats have emerged
that provide higher image resolution and quality, the opportunity to deliver a
wide range of new services and content, more efficient use of limited
transmission spectrums and the ability to deliver customized and interactive
services. As a result, a growing number of personal computer and consumer
electronics manufacturers are storing, accessing and playing video and audio
streams in a digital format.

A number of trends are accelerating the migration of manufacturers from
analog to digital technology, including advances in technology, the evolution
of standards, government and private initiatives, the widespread growth of the
Internet and the increasing availability of content.

. Advances in Technology. In the past, multiple silicon devices were needed
to process digital video and audio streams. As silicon technology
progressed, in many instances only one such device was needed. Today, as
microprocessor-computing speeds continue to increase, software-only
solutions are capable of providing video and audio stream management at a
lower cost and at a performance level indistinguishable from dedicated
silicon approaches.

. Evolution of Standards. Historically, a significant barrier to the growth
of digital video and audio technology was the lack of widely accepted
technological standards. Today, industry participants have adopted a
video compression standard known as MPEG-2 that enables video and audio
compression for digital transmission and storage. MPEG-2 is currently
deployed as the DVD solution in personal computers and DVD players and
has been adopted as the standard for digital television, or DTV, and
HDTV. In addition, Dolby Digital, formerly known as AC-3, designed by
Dolby Laboratories, has emerged as an industry standard for audio
compression.

. Government and Private Initiatives. A number of government and private
initiatives have also emerged to fuel the shift from analog to digital
technology. For example, the cable television industry has adopted the
"OpenCable" standard under which digital cable boxes will be manufactured
and sold through retail channels similar to personal computers and
television sets, thereby creating a new product market. Also, under the
Telecommunications Act of 1996, all broadcasters are scheduled to change
their broadcasting formats to digital and to cease carrying analog
broadcasts by 2006. This will require every owner of an analog television
set to purchase either a new digital television set or a digital
converter box in the next six years.

. Widespread Growth of the Internet. The Internet has become an important
delivery mechanism for digital entertainment. Although Internet access
has historically required a personal computer, International Data Center
("IDC") surveys indicate that U.S. consumers, by a two-to-one margin,
would prefer to receive electronic information and entertainment services
through their television sets, rather than their personal computers. In
recognition of this trend, traditional consumer electronics manufacturers
have introduced stand-alone Internet access devices for the television.
Most recently, personal computer manufacturers have announced major
initiatives in providing their own versions of stand-alone Internet
devices in an effort to combat the consumer electronic manufacturers
initiatives.

. Increasing Availability of Content. The introduction of many forms of
stand-alone content for digital media will lead consumers to shop for
devices, such as DVD players and recorders, digital cable set-top devices
and digital television sets, on which stand-alone content can be seen,
heard, edited and stored. Already, there are over 3000 movie titles
available in DVD format. The recording industry has adopted the DVD
format to be used in next-generation audio devices. Cable television
providers have adopted content strategies intended to capitalize on the
trend toward digital technology through increased channel capacity and
higher-resolution, interactive digital programming.

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Advances in microprocessor speed and capacity coupled with the shift to
digital technology are leading the personal computer and consumer electronics
markets to converge at an accelerating pace. As the personal computer and
consumer electronics industries converge, two major trends have emerged.
First, the integration of video and audio streams with digital technology is
increasing the complexity of product design. Second, products have shorter
life cycles as a result of rising digital processing capabilities, falling
prices of semiconductors and rapidly improving software. Therefore, personal
computer, consumer electronics and Internet appliance manufacturers are
looking for easily adaptable software-based solutions that provide faster time
to market and the flexibility to innovate in response to changing consumer
preferences without the risk of quick obsolescence.

We believe that major personal computer, consumer electronics and Internet
appliance manufacturers will seek to leverage their brand recognition in order
to capitalize on the emerging market for digital entertainment devices. For
example, all existing television sets, videocassette recorders, stereos, and
set-top boxes are candidates for upgrade to digital technologies. We believe
that these product solutions must be extendible, have a customizable
architecture that allows product differentiation, facilitate migration across
product lines and markets, and enable multiple technologies within a single
device. In particular, in order to keep pace with the rapidly changing product
cycles of personal computer and consumer electronics manufacturers and be cost
effective, these product solutions must rely on software that is independent
of operating system and hardware platforms.

The RAVISENT Solution

We develop and license software and hardware design solutions that enable
digital entertainment in personal computer systems, consumer electronic
devices and Internet appliances. Our solutions include high-performance
digital video and audio decoding and encoding engines, graphical user
interface tools, device software drivers, navigation software, Internet
browsers, system test tools and hardware design expertise. Our digital
solutions incorporate industry standards and are independent of operating
system and silicon components. By using our solutions, our customers can
reduce material costs, development costs, time-to-market, increase
functionality and improve the quality of their digital entertainment products.

We believe that our digital solutions provide a number of significant
advantages for manufacturers of personal computers, consumer electronics and
Internet appliances. Our digital solutions are built using the same powerful,
easily customizable, modular software architecture. This modular approach
frees our customers from semiconductor design cycles and provides them with
enhanced flexibility; enabling them to rapidly introduce products to market
that incorporate customized feature sets. As digital technology continues to
evolve and standards change, we can add new modules to our software to address
the changes without altering existing components of our digital solutions.

Examples of how our digital solutions are being implemented include:

. In the personal computer market, Dell uses our DVD decoding solutions
across multiple product lines of its DVD-enabled desktop personal
computers. Dell has migrated our solution across multiple product cycles
through our customization and optimization services, even when the
different cycles involve changing graphics requirements and different
microprocessors. Our digital solution allows Dell to use the same user
interface in each of these product lines while maintaining high quality
video and audio performance and rapid time-to-market delivery.

. In the consumer electronics market, Tottori-Sanyo, by using our software
solution and supporting hardware platform design, is hoping to offer a
broader family of products that provide DVD playback functionality. Our
software serves as the base software platform that Sanyo engineers are
using in several of their next generation DVD-enabled products. The
flexibility and portability of our solution enables Tottori-Sanyo's
engineers to reuse much of their hardware and software development in
each of their next generation DVD-enabled products. Moreover, our
technology is designed to enable Tottori-Sanyo to migrate this platform
to accommodate additional technologies such as DBS/DVB, DTV and HDTV.

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. In the Internet appliance market, Met@box, a German Internet service
provider, has licensed our Internet browser, and our Internet appliance
software, hardware and intellectual property to manufacture and
distribute a low-cost, easy to use Internet appliance. Met@box hopes to
increase its number of Internet access subscribers by subsidizing the
cost of its Internet appliances in return for a multi-year commitment on
Internet access service.

Markets and Applications

We believe our digital video and audio solutions will enable personal
computer, consumer electronics and Internet appliance manufacturers to provide
the next generation of digital devices. A few of the current and future
applications for these devices are the following:

Digital Versatile Disk. The DVD market is expected to experience rapid
growth. IDC predicts that the number of DVD ROM units for personal computers
sold worldwide will grow from 18 million units in 1999 to 96 million units in
2002, representing a compound annual growth rate of 75%. This market
projection is based upon assumptions regarding the level of growth in sales of
personal computers, the desire of personal computer manufacturers to offer
additional functionality by upgrading CD ROM drives to DVD-ROM and the current
supply of necessary components and the speed with which the prices of DVD-ROM
drives is expected to decline. There can be no assurance that these
projections will be achieved. We are shipping currently various products for
the decoding and playback of DVD titles on a personal computer. We also offer
software and hardware design solutions for DVD set-top players and we have
developed a DVD encoding solution that enables the recording of video and
audio streams in the DVD format, as well as a web-enabled DVD set-top player.

Internet Appliance. IDC estimates that there were approximately 196 million
worldwide users of the Internet at the end of 1999 and that the number of
users will grow to approximately 410 million by the end of 2002. Until
recently, personal computers have been the only affordable and easy to use
device to access the Internet. Increasingly, television is viewed as one of
the most attractive devices for the delivery of new Internet-enabled services.
The television is a ubiquitous consumer product that people are comfortable
using for entertainment and information purposes. IDC estimates that there
will be 16.9 million Internet appliances sold in 2000 and 31.4 million by
2002. As a result of our acquisition of Teknema in November 1999, we have
developed design solutions for a number of Internet-related products,
including Internet appliances and web-enabled set-top boxes and DVD players.
We are shipping currently the web-enabled set-top boxes.

Digital Television. One of our key strategies is to pursue the digital
television market, which we expect to be the next major technological
advancement in home electronics. According to The Yankee Group, there is an
installed base of 250 million analog television sets in the United States
alone that will ultimately require a separate set-top box or upgrade to
accommodate digital technologies. Digital broadcast television was first
successfully launched in the United States in 1996 via digital broadcast
satellite, with digital broadcast satellite now delivering direct broadcast
television to over five million households today. Digital television has also
begun to move into the large over-the-air market. Under the Telecommunications
Act of 1996, all broadcasts are scheduled to be in a digital format by 2006.
We are developing currently software and hardware design solutions that enable
the viewing of digital television streams on personal computers.

Digital Cable. In an effort to deliver more channels and services, including
online and interactive services, cable providers are beginning to upgrade
analog cable boxes with digital boxes. For example, Tele-Communications, Inc.
and eight other multiple cable system operators announced in January 1999 the
purchase of 15 million digital cable set-tops from General Instrument
Corporation. We have not shipped any digital cable products to date, but are
developing software and hardware design solutions that will enable the viewing
of digital cable television streams using a personal computer or digital cable
set-top device.

Strategy

Our strategy is to be the leading global provider of digital video and audio
solutions to manufacturers of personal computers, consumer electronics devices
and Internet appliances. We believe that the most effective way to achieve our
strategy is to become an intellectual property company that licenses our
technology to

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manufacturers that will, in turn, use our solutions to penetrate very large
markets for personal computers, consumer electronics and Internet appliances.
Key elements of our strategy include:

Grow License Business Model Among Top Tier Personal Computer, Consumer
Electronics and Internet Appliance Manufacturers. Our strategy is to license
our software and hardware design solutions to leading manufacturers of
personal computers, consumer electronics devices and Internet appliances. We
believe that the success of our manufacturing customers in the digital
entertainment markets will continue to validate our technology. We intend to
leverage our existing customer relationships into additional product lines and
to seek out additional customers in the personal computer, consumer
electronics and Internet appliance markets. We believe that our license model
avoids the risks of manufacturing, storing and distributing hardware-based
digital solutions while simultaneously increasing profitability. We also
believe that by developing customized solutions in partnership with our
customers, we will avoid commoditization of our products.

Leverage Technology and Expertise into New Markets. We intend to leverage
our modular software and hardware design solutions into multiple consumer
electronics markets, such as the emerging DTV, HDTV, DBS/DVB, digital cable
and Internet appliance markets. We believe that these markets will undergo
dramatic growth in the next few years and that the extensibility of our
products across multiple digital markets will provide us with an advantage
over competitors focused on a single product, technology or market. In
addition, through our acquisition of Teknema, we intend to further integrate
Internet access technologies into our line of digital entertainment products.

Extend Technological Leadership. We have established our line of CineMaster
products as a leading DVD solution for the personal computer market. Our
experience in providing digital video and audio technologies has enabled us to
stay at the forefront of the transition to digital technologies. For example,
we believe we were the first company to display a working DVD decode solution
on a personal computer, the first company to demonstrate an HDTV decode
solution on a personal computer and the first company to display an all-
software HDTV decode solution. We intend to continue to invest in research and
development both internally and in conjunction with our customers and
strategic partners to maintain our technological leadership, improve our
current product offerings and leverage our proprietary technologies.

Focus on Strategic Relationships. Our solutions are incorporated into the
products of five of the top ten personal computer manufacturers and two
leading consumer electronics manufacturers. In addition, we have established
strategic relationships with leading technology companies, such as ATI
Technologies, Cirrus Logic, Conexant, Dolby Laboratories, Intel, MindSpring
and STMicroelectronics. We believe these industry relationships better
position us to stay abreast of industry trends, respond to the needs of our
customers, provide input into industry standards and improve our product
planning process. We intend to continue to develop our existing strategic
relationships and develop new strategic relationships in targeted areas.

Technology

We have designed our digital entertainment solutions to be independent of
the hardware platform on which they run. Our designs are based on a modular
software architecture, whereby each of the technical standards that are used
for various digital media is addressed through an independent self-contained
module of our software. For example, compliance with MPEG-2 and Dolby Digital
has been achieved through completely discrete components of our software that
can be "plugged in" to each other or to other modules addressing other
standards or features of our products. Furthermore, each of these modules can
address particular semiconductors or CPUs as needed. As a result, our
architecture allows personal computer and consumer electronics manufacturers
to choose different combinations of software and hardware configurations for
their products while maintaining a consistent look and feel.

Our module-based approach to our digital solutions is designed to provide
flexibility and adaptability as relevant technologies evolve and standards
change. For example, as new digital technology develops, whether hardware or
software-based, we can add new modules to address the new technology without
altering other

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components of our digital solution. In addition, as the processing speeds and
capabilities of personal computers and graphics cards improve, hardware-based
modules can be replaced with software modules, again without requiring the
alteration of other components of our overall architecture. The same
flexibility also applies to the user interface and storage modules. For
example, as new platforms and operating environments arrive, only the
interface modules will need to be altered to adapt.

We identify emerging technologies necessary for future platforms that
address various media sources such as those shown below.

. Software Algorithms and IP Cores

Software algorithms are designed to work with multiple microprocessors,
operating environments or semiconductor devices. These IP Cores exist in
high-level language forms but perform silicon level functions such as
video decoding and encoding.

. Software Drivers

Software drivers control the core software or hardware implementations.
They are designed for specific operating systems and typically run in
Microsoft operating environments; nonetheless, the core design allows for
porting to other environments. Software drivers are the "middleware" that
connects the algorithms of our solution to the operating environments.

. Hardware Designs

Hardware designs are developed with a modular approach to allow for
flexible silicon device selection and adaptation to industry standard
interfaces. We license our hardware designs to enable our software
licensees to deliver a complete product.

. Application Programming Interfaces

Application programming interfaces, or APIs, allow for the use of our
software drivers or hardware components by third party applications as
well as independent application development by our teams. These tools are
developed around multiple industry standards and interfaces to allow for
full-feature access.

. End User Applications

End user applications are delivered to our customers as complete multi-
language installations that provide customizable, full-featured graphical
user interfaces.

We then apply our high-performance modular software solution to manage these
sources in a digital format, enabling manufacturers to support these
technologies in various devices. Our modular solution can be divided into five
stages:

. Internet Browser

Designed for maximum efficiency, our small footprint browser requires
only four megabytes of memory. This browser possesses one of the smallest
and most efficient hypertext markup language and Java Script programming
language available enabling it to be used with low-cost Internet
appliances.

. Source Management

Our digital entertainment solution starts by controlling and decoding
multiple video and audio streams from either digital or digitally
converted analog sources.

. Media Router/Media Caching

After the streams are received and converted, they are directed via the
"Media Router" module to either deliver them to the "Media Decode" module
for immediate presentation, or store the streams for future playback
using a temporary memory storage module called the "Media Caching"
module.

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. Media Decode/Convergence User Interface/Internet Browser/Intelligent
Agent

Upon delivery, the "Media Decode" module translates the compressed data
into video and audio streams. At this point, our "Convergence User
Interface" and "Internet Browser" module allows users to control the
final presentation of the stream as well as to provide a customized look
and feel. We plan to add intelligent agents that would enable user habit-
based automatic programming and simultaneous playback and recording
capabilities.

. User Presentation

As a final step, our "User Presentation" module converts the audio and
video streams to the proper output format for presentation on multiple
devices including computer monitors, television sets and speakers. In an
Internet appliance solution, our "User Presentation" module serves as the
front-end software menu that interacts with the user to complete
functions such as email and web surfing.

Products and Services

Products

We license our high-performance, customizable, modular software and hardware
design solutions to manufacturers to enable digital video and audio playback
and recording within the personal computer, consumer electronics and Internet
appliance industries. We currently license the following products:

Hardware CineMaster, a software and hardware design DVD solution that is
incorporated into the systems of three major personal computer manufacturers
to enable DVD playback in their products. A Dell system incorporating Hardware
CineMaster won the Editors' Choice Award for high-end personal computers in
December 1998 in PC Magazine and June in 1999 in PC World. Both awards cited
the quality of the DVD playback in general and our solution in particular.
Historically, we derived hardware revenue from, and were responsible for, the
manufacture and delivery of this product. In early 1999, we contracted with a
third party to manufacture and deliver this product directly to our customers.
We receive a license fee from our customers for each unit sold.

Software CineMaster, a software-only DVD solution that is licensed to six of
the top ten personal computer manufacturers to enable DVD playback in their
products. Software CineMaster is incorporated into the operating system of
personal computers or sold separately as part of an after-market solution
bundled with a graphics card. Compaq and Gateway systems incorporating
Software CineMaster won the PC Magazine Editors' Choice Award in March 1999
and December 1998, respectively. These awards cited both the quality of the
DVD playback in these systems and our Software CineMaster product as
responsible for DVD decoding in these systems. We receive a per unit license
fee from the personal computer manufacturers for each system or device sold by
them which incorporates this product.

Software CineMaster HDTV, a software design solution that provides high
definition television audio and video. We offer this product to personal
computer original equipment manufacturers. We are not currently shipping this
product. Once this product is released to the market, we will receive a per
unit license fee from the personal computer manufacturers for each system or
device sold by them which incorporates this product.

Software CineMaster DVR, a software application that provides personal
computer and television consumers with the ability to view and record
simultaneously their live broadcast video and other sources of analog video
input. Additionally, while recording, the consumer will be able to pause,
rewind and playback video at any chosen point in the video stream. Once this
product is released to the market, we will receive a per unit license fee from
the personal computer original equipment manufacturers and the television
tuner manufacturers licensing or shipping this product. We are not currently
shipping this product.

CineMaster CE, a software design solution including multiple hardware platform
designs, that enables DVD playback across a variety of consumer electronics
products. CineMaster CE was developed through our strategic relationship with
STMicroelectronics to which we have licensed the product on a nonexclusive
basis. CineMaster CE includes a complete DVD set-top reference design,
including lower level software, a complete hardware design and a front-end
graphical user interface. CineMaster CE was introduced in late 1998 and
Tottori-Sanyo,

8

Vestel and Yamaha have already signed agreements to license this solution. We
receive a per unit license fee for each microprocessor that incorporates our
technology in addition to a license fee we receive on a per unit basis from
the consumer electronics device manufacturer.

Internet Appliance, our Internet set-top solution, which includes all of the
intellectual property, software, hardware design and manufacturing design
necessary for a manufacturer or Internet service provider to launch an
affordable product into the Internet access market. The solution requires
minimal product support and includes our Internet Application Development
Environment that allows the manufacturer to redesign the product's user
interface using simple HTML or JavaScript programming language. In addition,
the solution possesses "smart card" reading technologies which allows higher
levels of e-commerce functionality. We have entered into an agreement with S3
Incorporated to manufacture our Internet applicance solution and bundle it
with the MindSpring Internet access software.

Internet Integration Platform, a software and hardware design solution that
enables inexpensive Internet access on a variety of "smart" appliances. The
Internet Integration Platform includes a manufacturing kit and allows
licensees to build Internet access capabilities into virtually any device with
limited space requirements. Examples of devices that have been Internet-
enabled by the Internet Integration Platform include telephones and
televisions.

Services

We work with our customers to customize elements of our solutions (such as
the graphical user interface) to their products and to mutually agreed-upon
specifications. In addition, we typically add specific features that a
customer requests that may be different from those installed in the same
product licensed to another customer. Finally, we modify our software drivers
to ensure compatibility with hardware components (such as different graphics
cards) that differ among our customers and among the various models of a
single customer.

Sales and Marketing

Our sales and marketing activities are focused on establishing and
maintaining license arrangements with personal computer, consumer electronics,
Internet appliance, peripherals and semiconductor manufacturers. We license
our digital solutions on a non-exclusive worldwide basis to personal computer,
consumer electronics, Internet appliance, peripherals and semiconductor
manufacturers that sell products incorporating these technologies to end
users. We also license our digital solutions on a non-exclusive worldwide
basis to semiconductor manufacturers that incorporate our technology in
products for personal computers and consumer electronics devices.

We sell our digital solutions to personal computer manufacturers in the
United States and Europe through our direct sales force, and to personal
computer manufacturers in Japan through an independent sales representative.
We sell our digital solutions to consumer electronics manufacturers
domestically and in Europe through our direct sales force and in Japan through
a strategic sales partner. We sell our Internet appliance solutions to
manufacturers in the United States through our direct sales force and to
manufacturers in Europe through independent sales representatives.

We establish strategic relationships with peripherals and semiconductor
manufacturers in an effort to establish our solutions as the standard for
digital video and audio stream management. In addition to our strategic
relationships with semiconductor manufacturers such as STMicroelectronics, we
work closely with major software and hardware providers such as Advanced Micro
Devices, Inc., ATI Technologies, Conexant, and Intel in designing our digital
solutions so that our final product will interact smoothly with their software
and hardware platforms. We also maintain close relationships with graphics
card vendors to maximize our product flexibility and support. We work closely
with our customers to anticipate market demand and user requirements and to
maximize consumer acceptance and long-term viability of our solutions. We
intend to supplement our distribution channel in the future by establishing an
Internet presence to maximize direct contact with our customers, facilitate
electronic sales of our products and sell associated products directly to end
users.

9

We are seeking to develop strategic relationships with Internet service
providers to leverage their marketing and distribution strength. For example,
we have established a strategic relationship with S3 Incorporated, which will
brand our Internet appliance solution for their customers, bundle it with the
MindSpring Internet access software, and distribute the final product to the
retail distribution channel.

We participate in industry conferences to market and demonstrate our
technology and distribute quarterly press kits to disseminate information
regarding our latest advances.

Customers

Our typical customers are personal computer, consumer electronics, Internet
appliance and peripherals and semiconductor manufacturers that benefit from
our digital entertainment solutions. As of December 31, 1999, computer and
peripherals manufacturers shipping products that incorporate our technology
included: ATI Technologies, Compaq, Dell, ELSA AG, Fountain, Fujitsu, Gateway,
Hewlett-Packard, Matrox, Micron, and Siemens. In addition, consumer
electronics manufacturers who have incorporated our technology include
Tottori-Sanyo, STMicroelectronics, Vestel and Yamaha. For the year ended
December 31, 1999 and December 31, 1998, one customer, Dell, accounted for in
excess of 10% of our revenues. In 1997, two customers, Hi-Val, Inc. and
Pacific Digital Products, Inc., accounted for in excess of 10% of our
revenues. With the exception of our arrangements with ATI Technologies and
STMicroelectronics, which have terms in excess of one year, all of our
agreements have a duration of one year or less or may be cancelled by the
customer following notice at any time.

Research and Development

We believe that our future competitive position will depend in large part on
our ability to develop new and enhanced digital entertainment solutions and
our ability to meet the evolving and rapidly changing needs of personal
computer, consumer electronics, Internet appliance, peripherals and
semiconductor manufacturers. In April 1998, we acquired Viona Development Hard
& Software Engineering, in order to bolster our research and development and
engineering capabilities. In November 1999, we acquired Teknema in order to
add Internet related intellectual property and bolster our research and
development and engineering capabilities. We have invested significant time
and resources in creating a structured process for undertaking product
development. This process involves several functional groups within our
organization and is designed to provide a framework for defining and
addressing the activities required to bring product concepts and development
projects to market. We have assembled a core team of experienced software
architects, software engineers and system hardware engineers.

As of December 31, 1999, we employed a total of eighty one (81) research and
development personnel in three offices. For the year ended December 31, 1999,
our research and development expenditures totaled $8.1 million. To date, we
have not capitalized any research and development expenses.

Intellectual Property and Proprietary Rights

We rely upon a combination of patent, copyright, trade secret and trademark
laws to protect our intellectual property. We currently have six pending U.S.
patent applications related to our digital video and audio stream management
technology. Five of the six pending U.S. patent applications cover future
products, and do not relate directly to our current products. The sixth patent
relates to the personal computer industry and is utilized in our Software
CineMaster product. In addition, we have numerous pending trademark
applications for the marks "RAVISENT," "RAVISENT Technologies" and the
RAVISENT logo. We also have an issued U.S. trademark registration for the mark
"CineMaster." Although we rely on patent, copyright, trade secret and
trademark laws to protect our technology, we believe that factors such as the
technological and creative skill of personnel, new product developments,
frequent product enhancements and reliable product maintenance are more
essential to

10

establishing and maintaining technology leadership position. However, our
intellectual property covers all aspects of our business and if we are not
successful in protecting such rights (i.e. patent applications are rejected or
patents are successfully challenged) our business may be substantially harmed.

We generally enter into confidentiality or license agreements with our
employees and consultants and corporations with whom we have strategic
relationships, and generally control access to and distribution of our
software, documentation and other proprietary information. In addition, we
often incorporate the intellectual property of our strategic customers into
our designs and we have obligations with respect to the use and disclosure of
such intellectual property.

We license technology from Dolby Laboratories for the audio format that is
used in all of our DVD-related products. We pay a royalty to Dolby on a per-
unit shipped basis. The technology, called Dolby Digital, permits audio from a
DVD to be routed to different speakers in a multi-speaker set up to permit
"theater quality" audio. The Dolby Digital technology is part of the industry
standard DVD specification. In addition, we license encryption and decryption
software technology from Matsushita Electric. This technology is designed to
prevent unauthorized persons from accessing DVD content such as movies. We
have a royalty-free license from Matsushita. 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 at any
time. If these license agreements were not renewed, our business would be
severely harmed, and we would not be able to ship product for the DVD market.

The market for digital entertainment solutions is characterized by vigorous
protection and pursuit of intellectual property rights. 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, we received
notice from two of our largest customers which are personal computer
manufacturers that a third party with a history of litigating its proprietary
rights and that has substantial financial resources has alleged that aspects
of MPEG-2 technology infringe upon patents held by the third party. The third
party has invited these customers to license the technology covered by the
patents. These customers have contacted us for assistance in determining
whether our technology falls within the scope of the asserted patent claims
and may in the future seek compensation or indemnification from us arising out
of the third party claims. In addition, a consortium of companies known as
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 MPEG-2
technology. MPEG-LA has requested that these personal computer manufacturers
pay license royalties 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. A second consortium
of companies known as the DVD Patent Licensing Program has notified a number
of DVD product manufacturers that patents owned by members of the consortium
are infringed by the manufacturers in their distribution of products
incorporating DVD technology. The DVD Patent Licensing Group has requested
that these manufacturers pay license royalties for use of the technology
covered by the DVD Patent Licensing Group's patents. The manufacturers may in
the future seek compensation or indemnification from us arising out of the
consortium's claims. Also, a third party has asserted that the parental
control features of our CineMaster products infringe certain patents held by
the third party. We believe these claims to be without merit. These and any
other claims of infringement against us, whether or not such claims have
merit, could result in litigation that could severely harm our business.

Competition

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.), MGI Software Corp., Intervideo Inc. and RealNetworks, Inc. Our
principal competitors in the hardware-based digital solution market are Sigma
Designs, Inc., Zoran Corporation and we also compete against several smaller
companies. We

11

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. In the Internet
appliance market, we compete with companies such as Liberate Technologies,
Spyglass, Inc., Planetweb, Inc. and WebTV. 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.

Employees

As of December 31, 1999, we had a total of one hundred and forty (140) full-
time employees, eighty-one (81) of whom were engaged in research and
development, thirty-three (33) in sales and marketing, and twenty-four (24) in
administration. Our future performance depends in significant part upon the
continued services of our key technical, sales and senior management
personnel. The loss of the services of one or more of our key employees could
harm our business. Our future success also depends on our continuing ability
to attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for highly qualified personnel is intense, particularly
in the Philadelphia area, where we are headquartered and in the Silicon Valley
area where we have significant operations. We may not be able to retain or
attract key personnel in the future. None of our employees are represented by
a labor union. We have not experienced any work stoppages and consider our
relations with employees to be good.

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.

Risk Factors

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, fluctuations in our operating results have caused,
and may in the future continue to cause us to perform below the expectations
of public market analysts and investors. If our results were to fall

12

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:

. 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,
Internet appliances, 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;

. of 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 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, Internet appliance, 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 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 impact our stock price.

13

We have never been profitable and may never achieve profitability in the
future

We had a net loss of $8.1 million for the year ended December 31, 1999. We
incurred net losses of $13.7 million for the year ended December 31, 1998 and
$7.3 million for the year ended December 31, 1997. 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 year ended December 31, 1999, we derived approximately 72% 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.

The loss of a single customer could significantly harm our business because a
majority of our revenues is derived from a small number of customers

A substantial portion of our license revenues comes from two customers, Dell
Computer Corporation and ATI Technologies Inc. In the year ended December 31,
1999, Dell and ATI Technologies accounted for 53% and 8% of our total revenues
and 29% and 18% of our gross profit, respectively. We expect a relatively
small number of customers to account for a majority of our revenues and gross
profit, if any, for the foreseeable future. The loss of any of these or other
primary customers, or a material decrease in revenue from these customers,
would immediately harm our business.

Since most of our revenue is derived from a small number of customers,
problems 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;

14

. 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 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, Conexant Systems Inc., 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.

15

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 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
foreign countries;

16

. 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 areas of the
industry overlap. 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
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

17

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
manage our growth. On December 31, 1999, we had a total of 140 employees
compared to a total of 76 employees on December 31, 1998. 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 licenses 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.

18

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 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, Messrs. Wilde and Liu 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,

19

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 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 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.

20

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 impact our stock price.

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 year ended December 31, 1999 and in 1998, we derived approximately
32% and 22% of our revenues, respectively, from shipments to foreign
subsidiaries of U.S. 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;

. 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.

21

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-four percent (24%) 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 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.

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

22

. 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 in 1998 and 1999 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

. 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.), MGI Software Corp., Intervideo Inc. and RealNetworks, Inc. Our
principal competitors in the hardware-based digital solution market are Sigma
Designs, Inc., Zoran Corporation 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. In the
Internet appliance market, we compete with companies such as Liberate
Technologies, Spyglass, Inc., Planetweb, Inc. and WebTV. 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

23

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

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 anyway; 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, peripherals and
semiconductor manufacturers, some of which may make use of calendar clocks and
may therefore experience Year 2000 failures. Although, as of March 29, 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

24

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 the digital media market or other markets in which our
products are sold. Future regulatory measures may include, among other things:

. 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.

ITEM 2. Properties

We lease currently an aggregate of approximately 25,000 square feet in an
office complex located in Malvern, Pennsylvania. In June 2000, we will move
our principal office space in Malvern to another building within the same
office complex as our current office space. The new offices will occupy 47,027
square feet of space. We will occupy this space under a lease expiring in June
2007. In addition to our principal office space in Malvern where we have
administration and sales offices and personal computer and consumer
electronics engineering facilities, we also lease office space in Lancaster,
Pennsylvania which is a personal computer engineering facility, Palo Alto,
California, which is an Internet appliance engineering facility, San Jose,
California, a sales, personal computer and consumer electronics engineering
facility, and Karlsruhe, Germany, our core engineering facility covering all
aspects of our business. These leases are for facilities ranging from 1,200
square feet to 8,600 square feet and have terms ranging from month-to-month to
10 years. We believe these facilities will be adequate to fullfill our needs.

25

ITEM 3. Legal Proceedings

Legal Proceedings

On May 25, 1999 Zoran Corporation filed a complaint against us in the
Superior Court of California, Santa Clara County, alleging breach of oral and
written contract and other claims totaling approximately $1.2 million. Zoran
was formerly a supplier of semiconductors to us for use in our CineMaster 98
version 1.2 product, and we refused to pay amounts Zoran claimed it was owed
as a result of quality problems in the Zoran parts. (The particular
semiconductor at issue was manufactured for Zoran by Motorola Corporation,
which in turn had obtained the part from a third party contract manufacturer.)
The Zoran complaint was removed to federal court and, on September 23, 1999 we
filed a counterclaim against Zoran for the damages we incurred as a result of
Zoran's failure to timely ship us non-defective parts. Our counterclaim seeks
damages of approximately $2.7 million. Presently, in the opinion of
management, the amount the ultimate liability with respect to these claims
will not materially affect the Company's financial position, results of
operations or cash flow; however, this litigation may be costly, may distract
management's attention and may be significantly time consuming.

On November 4, 1999, a former supplier filed a complaint against us in the
Commonwealth of Massachusetts, Norfolk Superior Court Department, alleging
breach of agreements to allow the supplier to purchase an undetermined number
of shares of RAVISENT stock at $1.00 per share. The complaint was removed to
federal court on December 3, 1999. We dispute the supplier's claim as being
wholly without merit. To that end, on December 14, 1999, we filed a Motion to
Dismiss, which was denied on January 13, 2000. We plan to vigorously defend
our position. Currently, the litigation is proceeding through discovery phase.
Presently, in the opinion of management, the amount of the ultimate liability
with respect to these claims will not materially affect the Company's
financial position, results of operations or cash flow; however, this
litigation may be costly, may distract management's attention and may be
significantly time consuming.

In February and March 2000, six (6) securities class action lawsuits,
captioned:

. Bruckner v. RAVISENT Technologies Inc., et al., Civil Action No. 00-CV-
1075, dated February 29, 2000, amended March 17, 2000, purported class
period: July 15, 1999 to February 18, 2000;

. Buchbinder v. RAVISENT Technologies Inc., et al., Civil Action No. 00-
CV-1093, dated March 1, 2000, purported class period: July 15, 1999 to
February 17, 2000;

. Burdue v. RAVISENT Technologies Inc., et al., Civil Action No. 00-CV-
1371, dated March 15, 2000, purported class period: July 15, 1999 to
March 14, 2000;

. Fink v. RAVISENT Technologies, Inc., et al., Civil Action No. 00-CV-
1014, dated February 25, 2000, purported class period: July 15, 1999 to
February 17, 2000;

. Raley v. RAVISENT Technologies, Inc., et al., Civil Action No. 00-CV-
1280, dated March 9, 2000, purported class period: July 15, 1999 to
February 17, 2000; and

. Schaefer v. RAVISENT Technologies, Inc., et al., Civil Action No. 00-CV-
1189, dated March 6, 2000, purported class period: July 15, 1999 to
February 17, 2000,

were filed against us and certain of our officers and directors in the United
States District Court for the Eastern District of Pennsylvania. The complaints
allege violations of the federal securities laws, specifically Sections 10(b)
and 20(a) of the Securities and Exchange Act of 1934, and rules 10b-5 and seek
unspecified damages on behalf of a purported class of purchasers of our stock
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 classess 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 harm our results of operations, liquidity and financial
condition.

26

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. See "Risk Factors--We may
become involved in costly and time consuming litigation over proprietary
rights."

ITEM 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1999.

PART II

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters

PRICE RANGE OF COMMON STOCK

Our common stock has been quoted on the NASDAQ National Market under the
symbol RVST since our initial public offering in July 1999. Prior to such
time, there was no public market for our common stock. The following table
sets forth, for the periods indicated, the high and low sales prices per share
of the common stock as reported on the NASDAQ National Market.

Fiscal Year 1999

High Low
------ ------

Third Quarter (from July 15, 1999)............................ $19.19 $ 9.00
Fourth Quarter................................................ 52.00 13.19

PRIVATE ISSUANCE OF STOCK

On November 8, 1999, in connection with the acquisition of Teknema, Inc., we
issued 266,169 shares of common stock. The transfer of the securities issued
was restricted as necessary for the availability of the Section 4(2)
exemption. No underwriters or placement agents were involved in connection
with the issuance of the shares to Teknema.

DIVIDEND POLICY

We have never declared or paid dividends on our capital stock and we do not
anticipate declaring or paying cash dividends in the foreseeable future. We
anticipate that we will retain all future earnings, if any, for use in our
operations and the expansion of our business. Payments of future dividends, if
any, will be at the discretion of our board of directors after taking into
account various factors, including our financial condition, operating results,
current and anticipated cash needs and plans for expansion. Moreover, pursuant
to agreements with our lender, we are prohibited from declaring or paying
dividends without the prior written consent of the lender. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

SALES OF UNREGISTERED SECURITIES

None

27

USE OF PROCEEDS

On July 15, 1999 our registration statement on Form S-1 covering the
offering of 5,750,000 shares of our common stock, commission file number 333-
77269 was declared effective. From the effective date to December 31, 1999 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............................. --
Other expenses................................................... $2,748,000
----------
Total Expenses................................................. $7,578,000
==========

The offering was underwritten by Bear Sterns & Co. Inc, SG Cowen Securities
Corporation, and Volpe Brown Whelan & Company, LLC.

The net proceeds of the offering (after deducting the foregoing expenses)
were $61,422,000. From the effective date of the registration statement to
December 31, 1999, the net proceeds have been used for the following purposes:

Construction of plant, building and facilities................. $ 15,000
Purchase and installation of machinery and equipment........... 168,242
Acquisition of other business ................................. 4,430,060
Repayment of indebtedness...................................... --
Working Capital................................................ 6,406,919
Temporary investments, including cash and cash equivalents..... 48,387,896
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.

28

ITEM 6. Selected Consolidated Financial Data

Year Ended December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(In thousands, except share and per share)

Consolidated Statement
of Operations Data:
Revenues:
License and services.. $ 13,678 $ 3,447 $ 1,445 $ 825 $ 229
Hardware.............. 15,740 26,841 5,376 3,370 972
---------- ---------- ---------- ---------- ----------
Total revenues.......... 29,418 30,288 6,821 4,195 1,201
Cost of revenues:
License and services.. 2,133 354 331 472 115
Hardware.............. 13,732 24,192 8,072 2,664 661
---------- ---------- ---------- ---------- ----------
Total cost of revenues.. 15,865 24,546 8,403 3,136 776
---------- ---------- ---------- ---------- ----------
Gross profit............ 13,553 5,742 (1,582) 1,059 425
Research and
development............ 8,107 3,121 1,828 1,034 319
Sales and marketing..... 5,296 1,964 1,158 731 305
General and
administrative......... 5,079 4,673 1,710 1,198 497
Depreciation and
amortization........... 1,886 906 86 46 23
Compensation related to
stock options.......... 508 139 1,408 -- --
Acquired in-process
research and
development............ 1,888 7,900 -- -- --
---------- ---------- ---------- ---------- ----------
Operating loss.......... (9,211) (12,961) (7,772) (1,950) (719)
Interest expense
(income), net.......... (1,192) 722 197 105 36
Other (income).......... -- -- (716) -- --
---------- ---------- ---------- ---------- ----------
Loss before income
taxes................ $ (8,019) $ (13,683) $ (7,253) $ (2,055) $ (755)
Provision for income
taxes................ 52 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net loss................ $ (8,071) $ (13,683) $ (7,253) $ (2,055) $ (755)
Accretion of discount on
mandatory redeemable
preferred stock........ 659 754 -- -- --
---------- ---------- ---------- ---------- ----------
Net loss attributable to
common stockholders.... $ (8,730) $ (14,437) $ (7,253) $ (2,055) $ (755)
========== ========== ========== ========== ==========
Basic and diluted net
loss per common share.. $ (1.02) $ (4.94) $ (3.52) $ (1.19) $ (0.49)
========== ========== ========== ========== ==========
Weighted average shares
outstanding used in
computing per common
share calculation...... 8,532,140 2,920,677 2,060,668 1,720,922 1,545,856

Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $ 48,251 $ 1,024 $ 607 $ 53 $ 17
Total assets............ 89,748 17,374 2,569 1,900 707
Debt and capital lease
obligations, less
current portion........ 510 1,418 732 725 557
Mandatory redeemable
convertible preferred
stock.................. -- 14,589 -- -- --
Total stockholders'
equity (deficit)....... 74,585 (12,236) (6,084) (922) (774)

See Note 1 of the Notes to the Consolidated Financial Statements for a
detailed explanation of the determination of the shares used to compute basic
and diluted net loss per share.

29

ITEM 7. Management's Discussion and Analaysis of Financial Condition and
Results of Operations

Overview

We develop and license software and hardware design solutions that serve as
a platform in digital entertainment devices. Manufacturers of personal
computers, consumer electronics devices and Internet appliances license our
intellectual property. We also provide customization services and customer
support. Our software allows personal computer manufacturers to address
digital multimedia formats such as digital versatile disks, or DVD; direct
broadcast satellite, or DBS; its European counterpart, digital video
broadcasting, or DVB; and high definition television, or HDTV. Our design
solutions enable consumer electronics and digital cable manufacturers to use
digital and audio technology in a wide range of set-top devices. In addition,
through our acquisition of Teknema, Inc., we provide software and hardware
design solutions for a wide range of Internet devices, including Internet
appliances, digital set-top devices and DVD players.

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 $13.7 million or 46% of our 1999
revenues were from license and services. Revenues from personal computer and
peripheral manufacturers were derived from our Software CineMaster 98 and 99
products and Hardware CineMaster product. Revenues from consumer electronic
manufacturers and distributors and peripheral manufacturers were from
hardware, licenses and services from our Internet appliance devices as well as
Software CineMaster 98 and 99 products. Our Hardware CineMaster product was
introduced in December 1997. In August 1998, we launched our first software-
only solution, Software CineMaster 98, and began to transition our business
model from a direct product sales approach to a license approach. We released
the successor product to our Software CineMaster 98 during the third quarter
of 1999. This product, Software CineMaster 99, has enhanced features and
functionality that enables our OEM customers to offer competitive products. As
part of our license approach, we began entering into manufacturing and license
agreements with third parties under which we will no longer manufacture
Hardware CineMaster 98 or future Hardware CineMaster products or Internet
appliance devices. Once the transition to a licensing business model is
completed, we will receive a per unit license fee from our customers on all of
their sales of Hardware CineMaster and Internet appliance devices. In the
future, we expect that most of our revenues will be derived from licenses of
our software and our hardware designs. As a result of this change, we
recognized lower revenues in 1999 than in 1998, which were accompanied by a
decrease in our cost of revenues. This trend will continue in 2000.

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, have
represented most of our total revenues in the past but are expected to be
nominal in the future. During 1999, hardware revenues included sales of
Hardware CineMaster 98 products, Internet appliances and hardware components
sold to semiconductor manufacturers for the production of consumer electronic
products. In 1999, revenue generated by the sale of our CineMaster 98 products
was approximately $13.2 million, revenue from Internet appliance devices was
approximately $1.3 million and approximately $1.0 million from hardware
components. License revenues consist of fees paid on a per unit basis, or
sometimes in advance, each time a manufacturer ships a product that
incorporates our software solutions or software with supporting hardware
designs. Service 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 materials 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

30

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 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 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 1998, we acquired Viona, a German engineering services company.
Prior to the acquisition, we had contracted with Viona to co-develop its
products and a significant portion of its software and systems architecture.
The purchase price was approximately $11.4 million, and the acquisition was
recorded under the purchase method of accounting. The results of operations of
Viona have been included in our operating results since the date of
acquisition. In connection with the acquisition, we expensed $7.9 million of
the purchase price as acquired in-process research and development. The
remaining portion of the purchase price was attributable to acquired assets,
which were primarily fixed assets and accounts receivable, recorded at fair
market value, in the amount of $0.5 million, and intangible assets totaling
$3.5 million less, liabilities acquired of $0.6 million. The intangible assets
consisted of goodwill valued at $3.5 million and workforce in place valued at
$0.04 million. We are amortizing goodwill and other intangibles associated
with the acquisition over the next four years.

In November 1999, we acquired Teknema, Inc. ("Teknema"), an Internet
technology company involved in the development of products for the emerging
market in information appliances 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 has been
recorded and is being amortized on a straight line basis over a period of four
years. We recently entered into an agreement with Met@box and S3 Incorporated
under which this company will market Internet appliances containing our
technology to its customers.

In 1999, our operating expense increases were due primarily to increases in
headcount associated with selling and marketing, research and development and
general and administrative functions. We expect these trends to continue
throughout 2000 as anticipated growth in our underlying business continues.

In February and March 2000, six (6) securities class action lawsuits were
filed against us and certain of our officers and directors in the United
States District Court for the Eastern District of Pennsylvania. The complaints
allege violations of the federal securities laws. 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.

31

Results of Operations

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

Year Ended
December 31,
----------------------
1999 1998 1997
----- ----- ------

Revenues:
License and services................................. 46.5% 11.3% 21.2%
Hardware............................................. 53.5 88.7 78.8
----- ----- ------
Total revenues......................................... 100.0 100.0 100.0
Cost of revenues:
License and services................................. 7.2 1.2 4.9
Hardware............................................. 46.7 79.8 118.3
----- ----- ------
Total cost of revenues................................. 53.9 81.0 123.2
----- ----- ------
Gross profit........................................... 46.1 19.0 (23.2)
Research and development............................... 27.6 10.3 26.8
Sales and marketing.................................... 18.0 6.5 17.0
General and administrative............................. 17.3 15.4 25.0
Depreciation and amortization.......................... 6.4 3.0 1.3
Compensation related to stock options.................. 1.7 0.5 20.6
Acquired in-process research and development........... 6.4 26.1 --
----- ----- ------
Operating income (loss)................................ (31.3) (42.8) (113.9)
Interest income (expense), net......................... 4.0 (2.4) (2.9)
Other income........................................... -- -- 10.5
----- ----- ------
Net loss........................................... (27.3)% (45.2)% (106.3)%
===== ===== ======

Years Ended December 31, 1999 and 1998

Revenues. Total revenues decreased 3% from $30.3 million for the year ended
December 31, 1998 to $29.4 million for the year ended December 31, 1999. The
decrease in revenue was due to a change in business strategy by which the
Company has chosen to emphasize licensing technology, including technology
related to its hardware products, rather than manufacturing and selling its
hardware products to its customers. Accordingly, as a result of the company's
decision to concentrate on licensing, hardware revenues have declined while
license and services revenues have increased.

License and service revenues increased to $13.7 million for the year ended
December 31, 1999, due primarily to growth in license fees associated with our
Software CineMaster 98 product, introduction of Software CineMaster 99,
increased customization services and licenses granted to customers to allow
manufacturing and distribution related to our consumer electronics business.
Software CineMaster 98 was introduced during the year ended December 31, 1998.
Software CineMaster 99 was introduced during the third quarter of 1999.
Hardware revenues decreased 41% from $26.8 million for the year ended December
31, 1998 to $15.7 million for the year ended December 31, 1999, due to the
change in the company's strategy of focusing on licensing technology.

Cost of Revenues. Cost of revenues consist primarily of manufacturing costs
of the company's Internet appliance and Hardware CineMaster 98 products. Cost
of sales associated with license and service revenues are primarily costs
associated with shipment of Software CineMaster products and license fees paid
to third parties for technologies incorporated into our products, including
Dolby Digital technology.

Cost of revenues decreased 35% from $24.5 million for the year ended
December 31, 1998 to $15.9 million for the year ended December 31, 1999. The
decrease in cost of revenues was primarily due to decreased hardware

32

product sales and the related costs associated with the manufacturing of our
hardware products. Cost of revenues for hardware decreased approximately $10.5
million or 43% from $24.2 million in 1998 to $13.7 million in 1999. The 43%
decrease in cost of revenue for hardware sales was in line with the 41%
decline in hardware sales. Cost of revenues from licensing and services
increased approximately $1.7 million from $.4 million in 1998 to $2.1 million
in 1999. The growth in license and services cost of revenues was due to the
corresponding growth in revenues from license and services.

Gross Profit. For the year ended December 31, 1999, as a result of our
transition to a business model based on licensing our technology rather than
direct sales of hardware products, 47% of total revenue was derived from
license and services revenues and 53% of total revenue was derived from
hardware revenue, in comparison to 11% and 89% respectively, for the
comparable period in the previous year. Due to the change in the composition
of revenue, gross profit increased from $5.7 million for the year ended
December 31, 1998 to $13.6 million for the year ended December 31, 1999.
Similarly, because the gross profit for license and services is much higher
than that from hardware sales for the year ended December 31, 1999, the gross
profit for hardware was approximately 13% of revenue, while the gross profit
for license and services was approximately 84% of revenues.

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 160%, from
$3.1 million for the year ended December 31, 1998 to $8.1 million for the year
ended December 31, 1999. As a percentage of total revenues, research and
development expenses increased from 10.3% to 27.6%.

The increase in research and development expenses in absolute dollars and as
a percentage of revenues was due primarily to supporting an expanded customer
base. Approximately 47% or $2.3 million of the total increase in research and
development of approximately $5.0 million was from increased domestic
salaries, payroll taxes and employee benefits not including the effect of our
subsidiary Teknema. The increase in domestic salaries, payroll taxes and
employee benefits was due to the growth in average headcount that went from
approximately 18 in 1998 to approximately 44 in 1999.

The remainder of the growth in research and development expenses were
primarily attributable to expenses associated with the inclusion of research
and development expenses from our German subsidiary Viona for twelve months in
1999 and inclusion of research and development expenses from our subsidiary
Teknema, acquired in November 1999. Expenses associated with Viona increased
research and development expenses approximately $1.4 million in 1999. Expenses
associated with Teknema increased research and development expenses
approximately $.9 million in 1999. We expect research and development expenses
to continue to increase in absolute dollars in 2000 compared to 1999 as we add
additional engineering staff and capabilities.

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 170% from $2.0 million for the year
ended December 31, 1998 to $5.3 million for the year ended December 31, 1999.
As a percentage of total revenues, sales and marketing expenses increased from
6.5% to 18%. The increase in absolute dollars and as a percentage of revenues,
was primarily due to the building of the sales and marketing teams in the
United States.

During 1999, average sales and marketing headcount increased approximately
81% from the prior year. Accordingly, salaries, payroll taxes, commissions and
employee benefits, not including the effect of consolidating expenses from
Teknema, increased approximately $1.2 million, representing 37% of the total
year-over-year increase in sales and marketing expenses. Expenses associated
with the inclusion of our subsidiary Teknema accounted for approximately $0.8
million representing 23% of the total year-over-year increase in sales and

33

marketing expenses. The remaining portion of the increase in sales and
marketing expenses was due to travel, trade show, marketing and public
relations expenses. We expect sales and marketing expenses to increase in
absolute dollars in 2000 compared to 1999.

General and Administrative Expenses. General and administrative expenses
consist primarily of personnel and support costs for our finance, human
resources, information systems, legal and other management departments. Total
general and administrative expenses increased 9.0% from $4.7 million for the
year ended December 31, 1998 to $5.1 million for the year ended December 31,
1999. As a percentage of total revenues, general and administrative expenses
increased from 15.4% to 17.3%. The increase in absolute dollars was primarily
due to expenditures on administrative infrastructure to support our growing
business operations. General and administrative expenses increased as a
percentage of total revenues primarily due to our decreased revenue base. We
expect general and administrative expenses to increase in absolute dollars in
2000 compared to 1999 as we continue to build the necessary infrastructure to
support our business operations and incur greater legal and accounting
expenses as a public company.

Amortization of Goodwill. We recorded amortization of goodwill of $1.5
million for the year ended December 31, 1999 related to the goodwill recorded
as part of the Viona and Teknema acquisitions. See "--Acquired In-Process
Research and Development Expense."

Stock-based Compensation. In September 1998, February 1999 and June 1999, we
recorded $0.8 million, $0.5 million and $0.9 million respectively, of deferred
stock compensation in connection with grants of stock options. We have been
amortizing these amounts as non-cash compensation expense over the four-year
vesting period of the options. For the year ended December 31, 1999, stock-
based compensation expense was $0.5 million.

Interest Expense/Income. Interest Expense/Income consists of interest income
generated from investment of the company's excess cash balances and interest
expense from interest paid on obligations outstanding under equipment leases
and notes payable to partially fund its operations and capital purchases. For
the year ended December 31, 1998, the company recorded net interest expense of
$0.7 million in comparison to net interest income of $1.2 million for the year
ended December 31, 1999. The increase in interest income was due to interest
income generated by investment of the company's excess cash balances primarily
generated from the proceeds of the company's initial public offering of its
common stock in July 1999. The net proceeds from the offering were
approximately $64,170,000.

Years Ended December 31, 1998 and 1997

Revenues. Total revenues increased 344% from $6.8 million in 1997 to $30.3
million in 1998. License and services revenue increased 139% from $1.4 million
in 1997 to $3.4 million in 1998, primarily due to our launch of its first
software solution, Software CineMaster 98. Hardware revenues increased 399%
from $5.4 million in 1997 to $26.8 million in 1998, primarily due to sales to
Dell Computer that incorporated our solution into a particular line of
personal computers.

Cost of Revenues. Cost of revenues increased 192%, from $8.4 million in 1997
to $24.5 million in 1998. The increase in cost of revenues was due to
increased product costs associated with the manufacturing of our hardware
related products.

Gross Profit. Gross profit increased from a negative $1.6 million in 1997 to
$5.7 million in 1998. As a percentage of total revenues, gross profit
increased from a negative 23% to 19% in 1998. The increase in gross profit
both in absolute dollars and as a percentage of total revenues in 1998 was
primarily due to growth in our license and services business, which
contributed $3.1 million or 54% of gross profit, and growth in sales of
hardware subsystems, which contributed $2.6 million or 46% of gross profit.

34

Research and Development Expenses. Research and development expenses
increased 71% from $1.8 million in 1997 to $3.1 million in 1998. As a
percentage of total revenues, research and development expenses decreased from
27% in 1997 to 10% in 1998. The increase in research and development expenses
in absolute dollars was due to increased headcount associated with research
and development. The decrease in research and development expenses as a
percentage of total revenues resulted primarily from our increased revenue
base.

Sales and Marketing Expenses. Sales and marketing expenses increased 70%
from $1.2 million in 1997 to $2.0 million in 1998. As a percentage of total
revenues, sales and marketing expenses decreased from 17% to 6%. The increase
in absolute dollars was primarily due to the building of the sales and
marketing teams in the United States with increased emphasis on enhancing
market awareness. The decrease in sales and marketing expenses as a percentage
of total revenues resulted primarily from our shift from a retail-oriented
distribution model, which required greater advertising expenses.

General and Administrative Expenses. General and administrative expenses
increased 173% from $1.7 million in 1997 to $4.7 million in 1998. As a
percentage of total revenues, general and administrative expenses decreased
from 25% to 15%. The increase in absolute dollars was primarily due to
expenditures on administrative infrastructure to support our growing business
operations. The decrease in general and administrative expenses as a
percentage of total revenues was primarily due to our increased revenue base.

Depreciation and Amortization Expense. We recorded depreciation and
amortization expense in 1998 of $0.9 million primarily related to the goodwill
recorded as part of the Viona acquisition. Additionally, we wrote off $7.9
million of acquired in-process research and development. See "--Acquired In-
Process Research and Development."

Quarterly Results of Operations

The following table presents certain unaudited quarterly consolidated
statements of operations data for the eight quarters ended December 31, 1999.
In the opinion of management, this information has been presented on the same
basis as the audited consolidated financial statements appearing elsewhere in
this Annual Report, 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 fiscal year or for any future
period.

35

Quarter Ended

June 30, Sept. 30,
1999 June 30, 1999 Sept. 30,
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, As previously 1999 As previously 1999 Dec. 31,
1998 1998 1998 1998 1999 reported As restated reported As restated 1999
-------- -------- --------- -------- -------- ------------- ----------- ------------- ----------- --------
(In Thousands)

Revenues:
License and
services....... $ 10 $ 987 $1,717 $ 733 $ 2,290 $3,838 $ 3,238 $4,985 $ 4,235 $ 3,915
Hardware........ 3,133 3,867 8,091 11,750 8,522 7,763 4,441 1,003 1,003 1,774
------- -------- ------ ------- ------- ------ ------- ------ ------- -------
Total revenues... 3,143 4,854 9,808 12,483 10,812 11,601 7,679 5,988 5,238 5,689
Cost of
revenues........ 3,077 3,713 7,413 10,343 7,399 7,657 4,637 1,175 992 2,837
------- -------- ------ ------- ------- ------ ------- ------ ------- -------
Gross profit..... 66 1,141 2,395 2,140 3,413 3,944 3,042 4,813 4,246 2,852
Research and
development..... 498 944 697 982 1,394 1,443 1,443 1,633 1,633 3,637
Sales and
marketing....... 465 476 478 545 1,062 1,066 1,066 1,172 1,172 1,996
General and
administrative.. 505 1,201 1,318 1,649 837 1,146 1,146 911 911 2,185
Depreciation and
amortization.... 15 281 297 313 314 372 372 364 364 836
Compensation
related to stock
options......... -- -- -- 139 71 100 100 135 135 202
Acquired
in-process
research and
development..... -- 7,900 -- -- -- -- -- -- -- 1,888
------- -------- ------ ------- ------- ------ ------- ------ ------- -------
Operating income
(loss).......... (1,417) (9,661) (395) (1,488) (265) (183) (1,085) 598 31 (7,892)
Interest (income)
expense, net.... 127 350 95 150 45 65 65 (573) (573) (729)
Provision for
income taxes.... -- -- -- -- -- -- -- 74 74 (22)
------- -------- ------ ------- ------- ------ ------- ------ ------- -------
Net income
(loss).......... $(1,544) $(10,011) $ (490) $(1,638) $ (310) $ (248) $(1,150) $1,097 $ 530 $(7,141)
======= ======== ====== ======= ======= ====== ======= ====== ======= =======

Notes to Quarterly Restatements:

June 30, 1999

License and services revenues decreased due to a multiple element
contract not meeting revenue recognition criteria under SOP 97-2. This
amount has been reclassified to deferred revenue, and will be recognized
upon the earlier of the establishment of vendor-specific objective evidence
of fair value or the delivery of the previously undelivered elements.

Hardware revenue decreased due to two sales transactions, which were
deemed to be a return of inventory and a consignment sale. A portion of
these revenues were recognized in the fourth quarter of 1999 as the sale
was completed to the end users, with the remaining amount to be recognized
as those undelivered units ship to the ultimate end users.

September 30, 1999

License and services fees decreased due to a multiple element contract
not meeting revenue recognition criteria under SOP 97-2. This amount has
been reclassified to deferred revenue, and will be recognized upon the
earlier of the establishment of vendor-specific objective evidence of fair
value or the delivery of the previously undelivered elements.

Acquired In-Process Research and Development

In November 1999 we completed the acquisition of Teknema, Inc., a company
located in Palo Alto, California, dedicated to developing software and
solutions for the emerging market for information appliances.

36

We paid $2.5 million in cash, issued 266,169 shares of our common stock and
options to acquire 537,582 shares of common stock with a combined value of
$12.4 million and incurred transaction costs of $0.9 million. Prior to the
acquisition,we loaned Teknema $1 million with an annual interest rate of 10%.
On the date of the closing of the transaction, we paid certain employees of
Teknema for joining the company sign-on bonuses totaling $1,280,000. The
bonuses are recorded in general and administrative expense in our December 31,
1999 financial statements.

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 November 1999. The in-process research and
development technology was valued using the cash flow model, under which
projected income and expenses attributable to the purchased technology were
identified, and potential income streams were discounted using a 20%-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 and is
amortized on a straight-line basis over four years.

As of the acquisition date, Teknema was conducting ongoing research and
development into three new projects including enhancements to 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 brower. 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.

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.

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.

37

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 was 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 our 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. The development effort has been split into customer specific
implementations that are expected to be completed within the next three
months. The first customer was in pilot production by the end of 1999 and the
remaining customer implementations are in the 75-90% completion range.

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. Development is currently expected to be completed within the next
three months and is currently approximately 90% complete.

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 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.

38

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 is
expected to be completed within the next nine months for the release of an
Audio/Video decoding solution and a separate following release that adds Data
decoding. This project is currently approximately 75% complete.

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. See note 5 of notes to consolidated financial statements.

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 December 31,
1999, we had approximately $48.2 million in cash and cash equivalents.

Net cash used in operating activities for the year ended December 31, 1999
was $9.9 million, and for the years ended December 31, 1998 and 1997 was $9.7
million and $2.5 million, respectively. Cash used in operating activities was
primarily the result of net losses, adjusted for non-cash items, including
depreciation and amortization, non-cash compensation expense, and in 1999 and
1998, acquired in-process research and development expense.

Net cash used in investing activities for the year ended December 31, 1999
was $5.3 million. Net cash used in investing activities for the years ended
December 31, 1998 and 1997 was $4 million and $26,000 respectively. Cash used
in investing activities in each period consisted of net purchases of furniture
and equipment and in 1999 the acquisition of Teknema. In 1998, cash used in
investing activities also included the costs associated with the Viona
acquisition.

Net cash provided by financing activities for the years ended December 31,
1999, 1998, and 1997 was $62.4 million, $14.2 million and $3.1 million,
respectively. Cash provided by financing activities was primarily attributable
to net proceeds from the issuance of debt and equity securities to investors.

As of December 31, 1999, our principal commitments consisted of obligations
outstanding under equipment leases and notes payable to partially fund its
operations and capital purchases. The equipment leasing arrangements consist
primarily of paying rental fees to third party leasing providers at interest
rates between 8% 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 a substantial increase in our capital expenditures consistent
with anticipated growth in operations, infrastructure and personnel. In
addition, we have approximately $0.9 million at December 31, 1999 of payments
due to the former owners of Viona. Of this amount, approximately $0.5 million
is scheduled to be paid in the quarter ending March 31, 2000 with the
remainder payable during the fourth quarter of fiscal 2000.

As of December 31, 1999, we had a $5 million line of credit with Silicon
Valley Bank. Under the terms of the line of credit, borrowings, which were
made through the issuance of letters of credit, are subject to a

39

percentage of "eligible" accounts receivable and inventory, as defined in the
credit documentation, and bear interest at a rate of prime plus 1.5% per annum
(10% at December 31, 1999). In addition, we must:

. maintain a tangible net worth of an amount not less than the sum of (a)
($500,00), plus (b) 50% of cash consideration obtained by the Company
from the issuance of borrower's equity securities;

. supply Silicon Valley Bank within ten days after the end of each month,
monthly receivables, payables reconciliation and perpetual inventory
reports; and

. supply Silicon Valley Bank within 30 days after the end of each month,
monthly unaudited financial statements and compliance certificates.

At December 31, 1999 no borrowings against this line of credit were
outstanding and $2.8 million was available under the line of credit. This line
of credit expires in July 2000. Silicon Valley Bank has senior security
interest in substantially all of our assets.

We believe that our current cash and 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.

On July 16, 1999, we commenced an initial public offering of our common
stock. The managing underwriters of the offering were Bear, Stearns & Co.
Inc., SG Cowen Securities Corporation and Volpe Brown Whelan & Company, LLC.
We sold an aggregate of 5,750,000 shares of our common stock to the public in
the offering. After deducting underwriting discounts and commissions but
before deducting any offering expenses, proceeds from the offering were
$64,170,000. We used a portion of the net proceeds to repay all outstanding
amounts owed by us on our bank line of credit and invested the remaining
portion of the proceeds in short-term interest bearing, investment grade
securities. See Item 5 above for a breakdown of our use of the proceeds of the
offering as of December 31, 1999.

In November, 1999, we acquired Teknema, Inc. ("Teknema") for $2.5 million in
cash and issued 266,169 shares of common stock and options to acquire
approximately 537,000 shares of common stock. Prior to the acquisition, we
loaned Teknema $1 million with an annual rate of 10% for three years. Teknema
is an Internet technology company dedicated to developing software and
solutions for the emerging market for Internet appliances. The company sells
Internet television set-top hardware and software technology through
intellectual property licenses and OEM agreements with telecommunication
companies and Internet service providers. Teknema serves the emerging market
for information appliances that connect users to the Internet. The acquisition
has been accounted for as a purchase and the estimated excess of the purchase
price over the fair value of the net assets acquired of approximately $16
million was recorded as goodwill and other intangible assets and is being
amortized over the estimated useful lives which are four years.

Year 2000 Compliance

As of December 31, 1999, all critical business systems had been remediated
and tested to ensure their ability to process the year 2000 date change. The
remediation and testing program's scope included impact areas as well,
including suppliers, product development test equipment, technical
infrastructure, and computing. We entered into the year 2000 without
disruption to the business due to year 2000 problems. We did not experience
malfunctions or errors in our operating or business systems when the date
changed from 1999 to 2000. Based on operations since the date change, we have
not experienced and we do not expect any significant impact to our business as
a result of year 2000 problems. We spent approximately $15,000 in completing
our year 2000 compliance program.

Scope of Year 2000 Assessment

Our Year 2000 compliance program investigated Year 2000 compliance in each
of our offices, in Malvern and Lancaster, Pennsylvania, San Jose and Palo
Alto, California and Karlsruhe, Germany. Our Year 2000

40

Compliance program commenced in February 1999 and was completed in November
1999. The major milestones for each phase and their dates of completion were:

Task Completion Date
------------------------------------------- ----------------------

Identify risk areas March 1999
Evaluation of Potential risks June through July 1999
Modify, upgrade or replace affected systems July 1999
Test high risk areas October 1999
Make additional changes as necessary October 1999
Re-testing November 1999
Implement back-up plan October 1999

Recent Accounting Pronouncements

We do not expect the adoption of recently issued accounting pronouncements
to have a significant impact on our results of operations, financial position
or cash flows.

ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk

Qualitative and Quantitative 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.

ITEM 8. Financial Statements and Supplementary Data

41

RAVISENT TECHNOLOGIES INC.

INDEX TO FINANCIAL STATEMENTS

Page
-----

Consolidated Financial Statements

RAVISENT Technologies Inc.

Independent Auditors' Report........................................... 43

Consolidated Balance Sheets, December 31, 1999 and 1998................ 44

Consolidated Statements of Operations, Years ended December 31, 1999,
1998 and 1997......................................................... 45

Consolidated Statements of Changes in Stockholders' Equity
(Deficiency), Years ended December 31, 1999, 1998 and 1997............ 46

Consolidated Statements of Cash Flows, Years ended December 31, 1999,
1998 and 1997......................................................... 47

Notes to Consolidated Financial Statements............................. 48-65

42

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
RAVISENT Technologies Inc.:

We have audited the accompanying consolidated balance sheets of RAVISENT
Technologies Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholders' equity
(deficiency), and cash flows for each of the years in the three-year period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of RAVISENT
Technologies Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.

KPMG LLP

Philadelphia, Pennsylvania
March 8, 2000

43

RAVISENT TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

December 31,
------------------
1999 1998
-------- --------

ASSETS
Current assets:
Cash and cash equivalents................................ $ 48,251 $ 1,024
Short-term investments................................... 1,018 --
Accounts receivable, net of allowance for doubtful
accounts of $319 in 1999 and $265 in 1998............... 15,597 11,111
Inventory, net........................................... 1,323 1,296
Prepaid expenses......................................... 1,085 72
Loan receivable-officer.................................. 340 --
Other assets............................................. 216 --
-------- --------
Total current assets................................... 67,830 13,503

Furniture and equipment, net............................... 1,598 875
Goodwill and other intangibles, net of accumulated
amortization of $2,190 in 1999 and $664 in 1998........... 19,357 2,881
Debt issuance costs, net of accumulated amortization of $62
in 1998................................................... -- 25
Loan receivable--officer................................... 138 60
Restricted cash............................................ 525 --
Other assets............................................... 300 30
-------- --------
Total assets........................................... $ 89,748 $ 17,374
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
Accounts payable......................................... $ 5,743 $ 9,916
Deferred revenue......................................... 4,332 --
Accrued expenses and other............................... 3,672 1,114
Other current liabilities................................ 539 2,560
Current installments of obligations under capital
leases.................................................. 40 13
-------- --------
Total current liabilities.............................. 14,326 13,603
Subordinated notes payable................................. -- 625
Deferred revenue, less current portion..................... 327 --
Other long-term liabilities................................ 472 788
Obligations under capital leases, excluding current
installments.............................................. 38 5
-------- --------
Total liabilities...................................... 15,163 15,021
-------- --------

Commitments and contingencies (note 14)

Mandatory redeemable convertible preferred stock, $.001 par
value; 31,523,684 shares authorized in 1998; 3,913,072
Series B outstanding in 1998, liquidation preference of
approximately $19,487 at 1998; net of subscription
receivable of $625 for 125,502 shares at 1998............. -- 14,589

Stockholders' equity (deficiency):
Preferred stock, $.001 par value; 5,000,000 shares
authorized in 1999, none issued or outstanding -- --
Common stock, $.001 par value 80,000,000 shares
authorized in 1998; 50,000,000 shares authorized in
1999; 16,052,866 shares issued in 1999, and 3,520,851 in
1998.................................................... 16 3
Additional paid-in capital............................... 109,460 13,097
Deferred stock compensation.............................. (1,678) (749)
Accumulated deficit...................................... (31,913) (23,842)
Accumulated other comprehensive loss..................... (80) (25)
Note receivable.......................................... (500) --
Treasury stock at cost, 200,000 shares in 1999 and 1998.. (720) (720)
-------- --------
Total stockholders' equity (deficiency)................ 74,585 (12,236)
-------- --------
Total liabilities and stockholders' equity
(deficiency).......................................... $ 89,748 $ 17,374
======== ========

See accompanying notes to consolidated financial statements.

44

RAVISENT TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)

December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------

Revenues:
License and services........................ $ 13,678 $ 3,447 $ 1,445
Hardware.................................... 15,740 26,841 5,376
--------- --------- ---------
Total revenues............................ 29,418 30,288 6,821
Cost of revenues:
License and services........................ 2,133 354 331
Hardware.................................... 13,732 24,192 8,072
--------- --------- ---------
Total cost of revenues.................... 15,865 24,546 8,403
--------- --------- ---------
Gross profit.............................. 13,553 5,742 (1,582)

Research and development...................... 8,107 3,121 1,828
Sales and marketing........................... 5,296 1,964 1,158
General and administrative.................... 5,079 4,673 1,710
Depreciation and amortization................. 1,886 906 86
Compensation related to stock options......... 508 139 1,408
Acquired in-process research and development.. 1,888 7,900 --
--------- --------- ---------
Operating loss............................ (9,211) (12,961) (7,772)
Other (income) expense:
Interest expense (income), net.............. (1,192) 722 197
Other income................................ -- -- (716)
--------- --------- ---------
Loss before income taxes...................... (8,019) (13,683) (7,253)
Provision for income taxes.................. 52 -- --
--------- --------- ---------

Net loss...................................... (8,071) (13,683) (7,253)
Accretion of discount on mandatory redeemable
preferred stock.............................. 659 754 --
--------- --------- ---------
Net loss attributable to common stockholders.. $ (8,730) $ (14,437) $ (7,253)
========= ========= =========
Basic and diluted net loss per common share... $ (1.02) $ (4.94) $ (3.52)
========= ========= =========
Weighted average shares outstanding used in
per common share calculation (basic and
diluted)..................................... 8,532,140 2,920,677 2,060,668
========= ========= =========

See accompanying notes to consolidated financial statements.

45

RAVISENT TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
(in thousands, except share data)

Accumulated Total
Common Stock Additional Deferred other stockholders'
----------------- paid-in stock Accumulated comprehensive Treasury Note equity
Shares Amount capital compensation deficit loss stock receivable (deficiency)
---------- ------ ---------- ------------ ----------- ------------- -------- ---------- -------------

Balances as of
December 31,
1996............. 1,990,320 $ 2 $ 1,981 $ -- $ (2,906) $-- $ -- $ -- $ (923)
Issuance of
common stock..... 113,333 -- 626 -- -- -- -- -- 626
Issuance of
warrants to
acquire shares of
common stock..... -- -- 57 -- -- -- -- -- 57
Compensation
related to stock
options.......... -- -- 1,409 -- -- -- -- -- 1,409
Net loss......... -- -- -- -- (7,253) -- -- -- (7,253)
---------- --- -------- ------- -------- ---- ----- ----- --------
Balances as of
December 31,
1997............. 2,103,653 2 4,073 -- (10,159) -- -- -- (6,084)
Issuance of
warrants in
connection with
debt financing... -- -- 68 -- -- -- -- -- 68
Issuance of
warrants in
connection with
the sale of
Series B
preferred stock,
net of
transaction
costs............ -- -- 3,754 -- -- -- -- -- 3,754
Issuance of
common stock to
acquire Viona.... 1,204,820 1 4,770 -- -- -- -- -- 4,771
Repurchase of
common stock..... -- -- -- -- -- -- (720) -- (720)
Deferred stock
compensation
related to stock
options.......... -- -- 799 (799) -- -- -- -- --
Amortization of
deferred stock
compensation..... -- -- -- 50 -- -- -- -- 50
Compensation
related to stock
options.......... -- -- 139 -- -- -- -- -- 139
Issuance of
common stock as
consideration for
interest
payments......... 12,962 -- 65 -- -- -- -- -- 65
Issuance of
common stock upon
exercise of
warrants......... 199,416 -- 183 -- -- -- -- -- 183
Accretion of
discount on
mandatory
redeemable
preferred stock.. -- -- (754) -- -- -- -- -- (754)
Foreign currency
translation
adjustment....... -- -- -- -- -- (25) -- -- (25)
Net loss......... -- -- -- -- (13,683) -- -- -- (13,683)
---------- --- -------- ------- -------- ---- ----- ----- --------
Balances as of
December 31,
1998............. 3,520,851 3 13,097 (749) (23,842) (25) (720) -- (12,236)
Issuance of
Series B
preferred stock
and stock
subscription
receivable....... -- -- 125 -- -- -- -- (500) (375)
Transaction costs
related to sale
of Series C
preferred stock.. -- -- (30) -- -- -- -- -- (30)
Issuance of
common stock upon
exercise of
options.......... 83,061 -- 129 -- -- -- -- -- 129
Conversion of
subordinated
notes payable
upon initial
public offering -- -- 625 -- -- -- -- -- 625
Issuance of
common stock upon
exercise of
warrants......... 926,002 1 54 -- -- -- -- -- 55
Accretion of
discount on
mandatory
redeemable
preferred stock.. (659) (659)
Initial public
stock offering,
net.............. 5,750,000 6 61,416 -- -- -- -- -- 61,422
Conversion of
preferred stock
to common stock
upon public
offering......... 5,508,207 6 20,460 -- -- -- -- -- 20,466
Deferred stock
compensation
related to stock
options.......... -- -- 1,371 (1,371) -- -- -- -- --
Amortization of
deferred stock
compensation..... -- -- -- 442 -- -- -- -- 442
Compensation
related to stock
options.......... -- -- 470 -- -- -- -- -- 470
Issuance of
common stock to
acquire Teknema.. 264,745 -- 12,402 -- -- -- -- -- 12,402
Foreign currency
translation
adjustment....... -- -- -- -- -- (55) -- -- (55)
Net loss......... -- -- -- -- (8,071) -- -- -- (8,071)
---------- --- -------- ------- -------- ---- ----- ----- --------
Balances as of
December 31,
1999............. 16,052,866 $16 $109,460 $(1,678) $(31,913) $(80) $(720) $(500) $ 74,585
========== === ======== ======= ======== ==== ===== ===== ========

See accompanying notes to consolidated financial statements.

46

RAVISENT TECHNOLOGIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

December 31,
---------------------------
1999 1998 1997
-------- -------- -------

Cash flows from operating activities:
Net loss........................................ $ (8,071) $(13,683) $(7,253)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 1,886 906 86
Gain on sale of furniture and fixtures........ (17) -- --
Non-cash compensation and other expenses...... 937 414 1,367
Restricted cash............................... (525) -- --
Acquired in-process research and development.. 1,888 7,900 --
Changes in items affecting operations:
Accounts receivable......................... (231) (10,112) (229)
Inventory................................... 260 (677) (15)
Loan receivable--officer.................... (418) (60) --
Prepaid expenses and other assets........... (1,042) (34) 167
Accounts payable............................ (10,152) 5,241 3,686
Deferred revenue............................ 4,486 (126) (424)
Accrued expenses............................ 1,136 549 142
-------- -------- -------
Net cash used in operating activities............. (9,863) (9,682) (2,473)
-------- -------- -------
Cash flows from investing activities:
Capital expenditures............................ (1,139) (813) (26)
Proceeds from sale of furniture and equipment... 129 -- --
Investment in short-term investment............. (1,018) -- --
Acquisition and investment, net of cash
acquired....................................... (3,267) (3,231) --
-------- -------- -------
Net cash used in investing activities............. (5,295) (4,044) (26)
-------- -------- -------
Cash flows from financing activities:
Borrowings (repayments) under capital lease
obligations.................................... 60 (18) (14)
Secured borrowings (repayments)................. -- (278) 278
Proceeds from bridge loans...................... -- 3,320 1,500
Payments for convertible securities............. (30) -- --
Net proceeds from issuance of common stock...... 61,422 183 626
Net proceeds from Series B and C preferred
stock.......................................... 3,125 12,769 --
Net proceeds from exercise of stock options and
warrants....................................... 184 -- --
Net borrowings (repayments) under bank line of
credit......................................... -- (998) 663
Repayments under other liabilities.............. (2,321) (90) --
Repurchase of common stock...................... -- (720) --
-------- -------- -------
Net cash provided by financing activities......... 62,440 14,168 3,053
-------- -------- -------
Effect of exchange rate changes on cash and cash
equivalents...................................... (55) (25) --
-------- -------- -------
Net increase in cash and cash equivalents......... 47,227 417 554
Cash and cash equivalents:
Beginning of year............................... 1,024 607 53
-------- -------- -------
End of year..................................... $ 48,251 $ 1,024 $ 607
======== ======== =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest...................................... $ 356 $ 683 $ 133
Income taxes.................................. -- -- --
Non-cash investing and financing activities:
Equipment acquired under capital lease
obligations.................................. 109 -- --
Issuance of warrants in connection with bank
line of credit and bridge loans.............. -- 68 57
Issuance of options in connection with equity
transactions and grants below fair value..... 1,437 139 1,409
Issuance of common stock and preferred stock
as consideration for private placement fees.. -- 542 --
Amortization of deferred stock compensation... 442 50 --
Bridge loans converted to Series B preferred
stock........................................ -- 4,820 --

See accompanying notes to consolidated financial statements.

47

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

(a) Description of Business

RAVISENT Technologies Inc., ("the Company") which changed its name from
Divicore Inc. in June 1999 and from Quadrant International, Inc. in May 1999,
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 and Internet appliances. 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 existing personal computers and consumer
electronics platforms. The Company's customers consist principally of personal
computer and consumer electronics manufacturers.

During 1999 and 1998 the Company's revenue was substantially generated from
selling hardware-based digital video solutions to personal computer and
consumer electronics original equipment manufacturers and prior to 1998
through wholesale distributors. 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. Additionally, the company augmented its Internet appliance
capabilities through the acquisition of Teknema.

The Company was incorporated in Pennsylvania in April 1994 and
reincorporated in Delaware as RAVISENT Technologies Inc. in 1999.

The Company has sustained significant net losses and negative cash flows
from operations since its inception. For the years ended December 31, 1999,
1998 and 1997 the Company's net losses were $8 million, $13.7 million, and
$7.3 million, respectively. The Company plans on investing heavily in product
development, and 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 sufficient to sustain the Company's
operations through December 31, 2000.

(b) Principles of Consolidation

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

(c) Cash and Cash Equivalents and Short-term Investments

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. Short-term investments represent a bank
certificate of deposit, with an original maturity greater than three months.

(d) Inventory

Inventory, which principally consists of finished goods, is valued at the
lower of cost or market. Cost is determined using the first-in, first-out
method (FIFO). Inventory is net of reserves of approximately $556,000 and
$174,000 at December 31, 1999 and 1998, respectively.

48

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(e) Furniture and Equipment

Furniture and equipment are stated at cost. Equipment under capital leases is
stated at the present value of the minimum lease payments. Depreciation and
amortization is calculated on the straight-line method over the estimated
useful lives of the assets as follows:

Purchased software................................................... 5 years
Computer equipment................................................... 5 years
Research and development equipment................................... 5 years
Furniture and fixtures............................................... 7 years

(f) Goodwill and Other Intangibles

Goodwill and other intangibles are amortized using the straight-line method
from the date of acquisition over the expected period to be benefited,
estimated at four years. The Company assesses the recoverability of goodwill,
as well as other long-lived assets, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of, which requires the
Company to review for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset might not be recoverable. When
such an event occurs, the Company estimates the future cash flows expected to
result from the use of the asset and its eventual disposition. If the
undiscounted expected future cash flows are less than the carrying amount of
the asset, an impairment loss is recognized.

(g) Revenue Recognition

The Company recognizes revenues in accordance with the American Institute of
Certified Public Accountants' (AICPA) Statement of Position 97-2, Software
Revenue Recognition (SOP 97-2). License revenues for one-time license fees and
up-front license fees are recognized in the period in which the license
agreement is signed, the fee is fixed and determinable, delivery of the
technology has occurred with no significant modification or customization and
collectibility is probable. The up-front license fee terms generally provide an
agreed-upon level of sales of a licensee's products below which a licensee will
not be obligated to remit royalty payments and that the up-front fees are
nonrefundable even in the event such level is not attained. License revenues
consisting of fees paid on a per unit basis are recognized when earned, which
is generally based on receiving notification from licensees stating the number
of products sold which incorporate the licensed technology from the Company and
for which license fees, based on a per unit basis, are due. The terms of the
license agreements generally require the licensees to give notification to the
Company within 45 to 60 days of the end of the quarter during which the sales
of the licensees' products take place. In a number of cases, the revenue
recorded by the Company will occur in the quarter following the sale of the
licensee's products to its customers.

In cases where a license fee is associated with the delivery of multiple
elements, and vendor-specific objective evidence 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 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.

Hardware revenues are recognized upon shipment of products to customers.
Prior to 1998 an allowance for returned merchandise was provided for sales to
distributors based on the Company's historical experience. The Company's sales
to original equipment manufacturers do not provide a right of return unless in
the event of

49

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

manufacturing defect, which is the responsibility of the Company's third party
contract manufacturer. Revenues related to services are recognized upon
delivery of the service in the case of time and material contracts. Revenues
related to development contracts involving significant modifications or
customization of hardware or software under unilateral or joint development
arrangements are recognized using the percentage-of-completion method, based
on performance milestones specified in the contract where such milestones
fairly reflect progress toward contract completion. In other instances,
progress toward completion is based on individual contract costs incurred to
date compared with total estimated contract costs. Losses on contracts are
recognized when the loss is apparent.

Other income represents amounts received in connection with the cancellation
of a development project by a customer during 1997. A total of approximately
$1,134,000 was received from the customer, of which approximately $418,000 was
recorded as revenue based on costs of revenue incurred. The remaining
approximately $716,000 was recorded in other income as a cancellation fee.

(h) Research and Development Costs

Research and development costs are expensed as incurred.

(i) Income Taxes

The stockholders of the Company elected "C" corporation status for federal
and state income tax purposes. Effective with this election, income taxes are
accounted for in accordance with SFAS No. 109, Accounting for Income Taxes.
Under the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and
tax credit carry forwards.

(j) Financial Instruments

The Company's financial instruments principally consist of cash, short-term
investments, accounts receivable, accounts payable, loans payable and capital
lease obligations that are carried at cost which approximates fair value.

(k) Stock Options

SFAS No. 123, Accounting for Stock-based Compensation, provides companies
the alternative to adopt the fair value method for expense recognition of
employee stock options and stock-based awards or to continue to account for
such items using the intrinsic value method as outlined under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25) with pro forma disclosures of results of operations as if the fair value
method had been applied. The Company applies APB 25 for stock options and
stock-based awards to employees and has disclosed pro forma net loss as if the
fair value method had been applied (note 13).

(l) Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

50

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(m) Long-Lived Assets

The Company reviews long-lived assets and certain identifiable intangibles
to be held and used by an entity for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.

(n) Foreign Currency Translation

All assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at fiscal year-end exchange rates. Income and expense items are
translated at average exchange rates prevailing during the fiscal year. The
resulting translation adjustments are recorded as a component of stockholders'
equity (deficiency) in the accompanying consolidated financial statements.

(o) Comprehensive Income

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and display of comprehensive income
and its components in the financial statements. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The Company adopted SFAS No. 130 during 1998.

(p) Computation of Net Loss Per Share

The Company computes earnings per share in accordance with SFAS No. 128,
Computation of Earnings Per Share. In accordance with SFAS No. 128, basic
earnings per share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted average number of common and dilutive common equivalent
shares outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon the exercise of stock options and
warrants (using the treasury stock method), and the incremental common shares
issuable upon the conversion of the convertible preferred stock (using the if-
converted method). Common equivalent shares are excluded from the calculation
if their effect is anti-dilutive.

(q) Recent Accounting Pronouncements

The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flows.

(2) Comprehensive Loss

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

Years ended December 31,
--------------------------
1999 1998 1997
------- -------- -------

Net loss........................................ $(8,071) $(13,683) $(7,253)
Foreign currency translation adjustment......... (80) (25) --
------- -------- -------
Comprehensive loss............................ $(8,151) $(13,708) $(7,253)
======= ======== =======

51

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(3) Furniture and Equipment

Furniture and equipment consist of the following at December 31, 1999 and
1998 (in thousands):

1999 1998
------ -----

Furniture and fixtures......................................... $ 546 $ 292
Leasehold improvements......................................... 129 67
Computer equipment............................................. 1,176 547
Research and development equipment............................. 407 333
Software....................................................... 259 138
------ -----
2,517 1,377
Less: accumulated depreciation and amortization................ 919 502
------ -----
Furniture and equipment, net................................... $1,598 $ 875
====== =====

Assets recorded under capital lease are approximately $166,000 and $58,000
and related accumulated amortization is approximately $69,000 and $25,000 as of
December 31, 1999 and December 31, 1998, respectively.

(4) Restricted Cash

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 a complaint by a former supplier. The Company has classified
these funds as restricted cash at December 31, 1999 (note 14).

(5) Acquisitions

In November 1999 the Company acquired all of the outstanding capital stock of
Teknema, Inc. ("Teknema"), a company located in Palo Alto, California involved
in the development of products for the emerging market in information
appliances.

The Company paid $2.5 million in cash, issued 266,169 shares of the Company's
common stock and options to acquire approximately 537,000 shares of common
stock with a combined value of $12.4 million and incurred transaction costs of
$0.9 million. Prior to the acquisition, the Company loaned Teknema $1 million
with an annual interest rate of 10%. On the date of the closing of the
transaction, the Company paid certain employees of Teknema for joining the
Company sign-on bonuses totaling $1,280,000. The bonuses are recorded in
general and administrative expense in the Company's December 31, 1999
consolidated financial statements.

The acquisition of Teknema was recorded under the purchase method of
accounting. The results of operations of Teknema have been included in the
Company's consolidated financial statements from November 8, 1999. In
connection with the acquisition, we expensed $1.9 million of the purchase price
as acquired in-process research and development. At the date of acquisition,
Teknema had three development projects that had not reached technological
feasibility and for which there was no alternative future use. 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 20%-30%
discount rate for risks, probabilities and uncertainties, including the stage
of development of the technology, viability of target markets and other
factors. The three development projects ranged in percentage of completion at
the date of acquisition from 15% to 50%.

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 and is
amortized on a straight-line basis over four years.

52

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The purchase price was allocated as follows (in thousands):

Fair value of assets acquired....................................... $ 5,018
Goodwill............................................................ 16,031
Workforce in place.................................................. 190
In-process research and development technology...................... 1,888
Liabilities acquired................................................ (7,343)
-------
$15,784
=======

The following unaudited pro forma financial information presents the combined
results of operations of the Company and Teknema as if the acquisition occurred
on January 1, 1998, after giving effect to certain adjustments, primarily
amortization of goodwill, excluding the $1.9 million write-off of acquired in-
process research and development and excluding the $1.3 million sign-on
bonuses. The unaudited pro forma financial information does not necessarily
reflect the results of operations that would have occurred had the acquisition
been completed on January 1, 1998.

Year ended
December 31,
(in thousands
except per share
data)
------------------
1999 1998
-------- --------

Revenues................................................ $ 37,091 $ 35,363
Net loss................................................ $(14,618) $(19,000)
Net loss per common share (basic and diluted)........... $ (1.67) $ (6.03)

In April 1998, the Company completed the acquisition of Viona Development
Hard & Software Engineering GmbH (Viona) a company located in Karlsruhe,
Germany specializing in the development of digital video technology.

The Company paid a total of $11.4 million consisting of: $5.8 million in
cash, of which $2.6 million was paid at closing, $2.1 million was paid during
1999, and $1.35 million, recorded at a discounted value of $1.1 million, will
be paid in equal installments at the end of each of the next two fiscal years;
issued 1,204,820 shares of the Company's common stock valued at $4.8 million;
and incurred transaction costs of $0.8 million.

The acquisition of Viona was recorded under the purchase method of
accounting. The results of operations of Viona have been included in the
Company's consolidated financial statements from April 1, 1998. 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 the
Company's operations in April 1998. At the date of acquisition, Viona had five
development projects that had not reached technological feasibility and for
which there was no alternative future use. 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. The five development projects ranged in percentage of completion at
the date of acquisition from 5% to 80%.

The excess of the purchase price over the fair value of the net identifiable
assets and in-process research and development technology acquired of $3.5
million has been recorded as goodwill and other intangibles and is amortized on
a straight-line basis over four years.

53

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The purchase price was allocated as follows (in thousands):

Fair value of assets acquired....................................... $ 542
Goodwill............................................................ 3,503
Workforce in place.................................................. 42
In-process research and development technology...................... 7,900
Liabilities acquired................................................ (557)
-------
$11,430
=======

The following unaudited pro forma financial information presents the combined
results of operations of the Company and Viona as if the acquisition occurred
on January 1, 1998, after giving effect to certain adjustments, primarily
amortization of goodwill and excluding the $7.9 million write-off of acquired
in-process research and development. The unaudited pro forma financial
information for the year ended December 31, 1998 (in thousands except per share
data) does not necessarily reflect the results of operations that would have
occurred had the acquisition been completed on January 1, 1998.

1998
-------

Revenues........................................................... $30,288
Net loss........................................................... $(5,978)
Net loss per common share (basic and diluted)...................... $ (2.03)

(6) Bank Line of Credit

In July 1998, the Company executed a 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 (principally limited to
a percentage of eligible accounts receivable and eligible inventory). 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 July 2000 and bears interest at
the prime rate plus 1.5% (10% at December 31, 1999). The line of credit is
collateralized by substantially all of the assets of the Company. The Company
is required to comply with a tangible net worth covenant, as defined in the
loan and security agreement, at December 31, 1999 the Company was in compliance
with its debt covenants. There was no amount outstanding under the line of
credit at December 31, 1999 and December 31, 1998, and approximately $2.8
million was available under the terms of the line of credit at December 31,
1999

The bank, in connection with a previous line of credit, was provided warrants
(note 13) to acquire 62,500 shares of the Company's common stock at an exercise
price of $3.56 per share. The estimated fair value of the warrants issued was
$56,500 and was recorded as debt issuance costs. This amount was amortized over
the term of the line of credit.

At December 31, 1999 there were no letters of credit outstanding, and on
December 31, 1998, there were approximately $1,490,000 of letters of credit
outstanding.

(7) Bridge Financing

In February, March and April 1998 the Company entered into various agreements
to borrow additional amounts of short-term bridge loans aggregating $3.3
million. The terms of the debt were substantially identical with the amount
borrowed in December 1997. The Company issued warrants (note 13) to acquire
48,182 shares of the Company's common stock at an exercise price equal to the
price per share at the time of closing of the

54

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Company's round of equity financing in April 1998. The estimated fair value of
the warrants issued was approximately $46,000 and has been recorded as
additional interest expense through the date of the conversion of the bridge
loans into Series B preferred stock.

In December 1997 the Company entered into an agreement to borrow $1.5
million of short-term bridge loans. The loans bear interest at 6% with an
original maturity date of March 31, 1998. The term of the debt was extended to
April 30, 1998, and the interest rate was increased to 15%. In connection with
this financing, the Company issued warrants (note 13) to acquire 45,000 shares
of the Company's common stock. The estimated fair value of the warrants issued
was approximately $23,000. This amount was recorded as debt issuance costs and
was amortized over the term of the debt.

The $4.8 million of short-term bridge loans were converted to Series B
preferred stock in April 1998 (note 11).

(8) Accrued Expenses

Accrued expenses consist of the following:

December 31,
-------------
1999 1998
------ ------
(in
thousands)

Payroll and related costs..................................... $ 584 $ 439
Royalties..................................................... 684 133
Legal and professional fees................................... 1,219 14
Warranty...................................................... 449 --
Other......................................................... 736 528
------ ------
$3,672 $1,114
====== ======

(9) Loan Receivable--Officers

On November 15, 1999 the Company entered into an agreement to loan an
officer of the Company approximately $288,800. The loan shall be repaid in
twenty-four monthly installments of approximately $13,000, and bears an
interest rate of 8%. The agreement also provides for a monthly bonus to the
officer in an amount equal to the monthly loan repayment. The loan is not
secured, and becomes due immediately if the officer's employment is terminated
by the Company for cause or by the officer for any reason.

On November 29, 1999 the Company loaned the same officer of the Company
$200,000. The term of the loan is for three months and bears an interest rate
of 8%. The note is secured by all options to purchase Company stock granted to
the officer following the date of the loan. The loan is due immediately upon
the termination of employment by the officer from the Company for any reason.

At December 31, 1998, the Company had a loan receivable in the amount of
$60,000 due from an officer of the Company. The term of the loan receivable
was three years and was non-interest bearing. In accordance with the terms of
the loan the entire amount was forgiven in 1999 following the company's
initial public offering.

(10) Other Liabilities

In connection with the Company's acquisition of Viona during 1998 (note 5),
$1.35 million of the purchase price, recorded at a present value of $1.1
million, is payable in equal annual installments over the next three

55

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

years. As such, $0.4 million of the amount is included in other current
liabilities with the remaining amount included in other long-term liabilities.

(11) Subordinated Notes Payable

Subordinated notes payable at December 31, 1998 consisted of $625,000 of
various subordinated notes payable to NEPA Venture II, L.P. (NEPA) due May 4,
2003 to November 29, 2003 with a 9% interest rate. The notes were converted
into 920,006 shares of common stock in connection with the Company's initial
public offering in July 1999.

The notes were part of two transactions entered into in May 1995 and March
1996 to provide financing to the Company. Interest on the notes was payable
quarterly. In connection with the issuance of the notes, the Company issued
warrants to acquire a total of 920,006 shares of the Company's Series A
mandatory redeemable convertible preferred stock at exercise prices of $0.60-
$0.75 per share (note 13). The estimated fair value of the warrants issued was
$30,010 and was amortized over the term of the related debt. In accordance
with the terms of the agreement the warrants were converted into preferred
shares which were automatically converted into the Company's common stock in
connection with the Company's initial public offering in July 1999.

(12) Equity Transactions and Capital Stock

Capital Stock and Stock Splits

In 1999, the Company's articles of incorporation were amended and restated.
The Company is authorized to issue 50,000,000 shares of $.001 par value common
stock and 5,000,000 shares of $.001 par value undesignated preferred stock.

On July 15, 1999, the Company effected a one-for-six reverse stock split.
All shares and per share amounts in the consolidated financial statements have
been restated to reflect the reverse stock split.

Initial Public Offering

On July 15, 1999 the Company consummated an initial public offering of its
common stock. The Company sold 5,750,000 shares of its common stock at an
initial public offering price of $12.00 per share. After deducting the
underwriters' discount and other offering expenses, the net proceeds to the
Company were approximately $61.4 million. Contemporaneous with the offering,
5,508,207 shares of preferred stock were converted into common stock.

Treasury Stock

In April 1998 the Company purchased 200,000 shares of common stock for $3.60
per share or $720,000 in the aggregate from the former Chief Executive Officer
of the Company.

Preferred Stock

Upon the closing of the Company's initial public offering in July 1999, all
of the outstanding shares of mandatory redeemable preferred stock, including
the shares under the stock subscription below, were converted into shares of
common stock on a one for one basis.

In April 1999 the Company completed a financing in which it issued
convertible securities to an affiliate of Intel for $4.7 million and entered
into a license agreement covering certain Intel technology. The purchase price

56

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
received from Intel consisted of cash consideration of $3.0 million and, in
addition, the Company was granted a license for Intel technology valued at $1.7
million. The Intel license permits the Company to incorporate the Intel digital
content receiver technology into the Company's products on a royalty free basis
as the Company's products are subsequently licensed to its customers. The
Company has capitalized the $1.7 million and will amortize this cost as
products are delivered over its estimated economic life of four years. The
convertible securities were converted into 549,650 shares of the Company's
Series C preferred stock in May 1999.

In April 1998 the Company sold 3,728,916 shares of Series B mandatory
redeemable convertible preferred stock for an aggregate amount of approximately
$18.6 million including the conversion of $4.82 million of bridge notes (note
7). In addition, the investors in the Series B received an aggregate 1,517,668
warrants (note 13 ) to acquire common stock at an exercise price of $0.06. The
estimated fair value of the warrants of $5.7 million was recorded as additional
paid-in capital.

In April 1998, in connection with the Company's sale of Series B, the Company
paid $1.1 million in cash, issued 108,856 shares of the Company's Series B and
issued 44,304 warrants (note 13) to acquire common stock at an exercise price
of $0.06 to the Company's placement agent as consideration for services
provided in connection with the equity transaction. The shares and warrants had
an estimated fair value of $542,100. The above amounts as well as $0.3 million
of other transaction costs were recorded as costs of the equity transaction and
charged against additional paid-in capital.

Preferred stock consisted of the following at December 31, 1998:

Per share
liquidation Issued and
value Authorized Outstanding
----------- ---------- -----------

Preferred class
Series A................................ $0.678 6,523,684 --
Series B................................ $ 4.98 25,000,000 3,913,072
---------- ---------
31,523,684 3,913,072
========== =========

Preferred Stock Subscription

In March 1998, the Company entered into a subscription and technology license
agreement. This agreement provides, among other things, for the Company to
license certain technology to an unrelated third party (the licensee). In
connection with the agreement, the licensee is required to pay a minimum of
$750,000 at the end of each calendar quarter during the first year and a
minimum of $900,000 at the end of each calendar quarter during the second year.
Included in the first year quarterly payments is $125,000 per quarter that was
applied towards the purchase of the Company's Series B preferred stock at $4.98
per share. The quarterly payment for the fourth quarter of the second year
included $500,000 that was to be applied towards the purchase of the Company's
Series B preferred stock at $4.98 per share. The purchase of the preferred
stock under this agreement is on the same terms as the licensee's purchase of
Series B preferred stock in April 1998. The $625,000 minimum quarterly royalty
payments in year one will be recognized as revenue during each respective
quarter. The $900,000 minimum quarterly payments for each of the first three
quarters and the $400,000 for the fourth quarter of the second year will be
recognized as revenue during each of those respective quarters. As of December
31, 1998, the Company had issued 75,301 shares of Series B preferred stock
under this agreement. In April 1999 the Company issued 25,100 shares of Series
B preferred stock under the preferred stock subscription agreement. In
addition, the Company amended this agreement and issued 100,402 shares of
Series B preferred stock and warrants for the purchase of 40,863 shares of
common stock in exchange for which it received a promissory

57

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

note with an aggregate value of $500,000 due in April 2000. The $500,000 note
reflects the payment due in the fourth quarter of the second year of the above
agreement. In addition, the agreement was amended in December 1999 to reduce
the payment due in the third quarter of the second year to $500,000, with the
remaining $400,000 due as follows: 2000--$100,000; 2001--$300,000. The amounts
will be recognized as revenue on a pro-rata basis over the term of the
contract through September 2001.

(13) Stock Options, Stock Purchases and Warrants

(a) Stock Options

The Company adopted the 1995 Stock Option Plan (the 1995 Plan) in May 1995.
The 1995 Plan provides for the grant of incentive stock options and non-
qualified stock options to employees, consultants, advisors to the Company,
and members of the board of directors to purchase shares of common stock.
Prior to the adoption of the 1995 Plan, 43,258 options were granted to
employees. Under the terms of the 1995 Plan, authorized options are granted at
estimated fair value. The options generally vest over a period ranging from 2
to 5 years and expire 5 to 10 years from the grant date. In 1998 the board of
directors approved an amendment to the Company's 1995 Plan in which the total
number of options available for grant was increased to 8,500,000. In April
1999, the Company, with the approval of the board of directors, adopted the
1999 Stock Incentive Plan (1999 Plan) as a successor to the 1995 Plan. The
1999 Plan has reserved 2,725,000 shares. The 1999 Plan has three separate
programs which include; the discretionary option grant program under which
employees may be granted options to purchase shares of common stock; the stock
issuance program under which eligible employees may be granted shares of
common stock; and the automatic grant program whereby eligible non-employee
board members are granted options to purchase shares of common stock.

In November 1999 the Company, in accordance with the terms of the Teknema
acquisition agreement assumed approximately 537,000 of Teknema's outstanding
options. These options ranged in price from $.10 to $.94, and vest over a
four-year period, consistent with the Company's option plan.

In June 1999, the Company granted 481,555 options, with an exercise price of
$10.20 per share. The Company has recorded $866,800 of deferred stock
compensation in connection with these options that will be amortized over the
option vesting period.

In February 1999, the Company granted 144,688 options, with an exercise
price of $2.52 per share. The Company has recorded $503,514 of deferred stock
compensation in connection with these options that will be amortized over the
option vesting period.

In September 1998 the Company granted 783,333 options, outside the 1995
Plan, to employees of Viona at an exercise price of $1.50 that was below the
estimated fair value of the Company's common stock on the date of grant. The
Company recorded deferred stock compensation of $799,000 in connection with
these options that will be amortized over the options' vesting period.

On September 23, 1998 the Company, with the approval of the board of
directors, repriced all of the outstanding employee stock options that were in
excess of $2.52 to $2.52.

58

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

A summary of stock option activity follows:

1999 1998 1997
------------------- ------------------- ------------------
Weighted Weighted Weighted
average average average
Number of exercise Number of exercise Number of exercise
options price options price options price
--------- -------- --------- -------- --------- --------

Balance as of beginning
of year................ 2,113,952 $ 1.80 974,764 $ 3.60 223,040 $1.92
Options granted....... 986,563 13.95 1,149,513 1.74 751,724 4.14
Options assumed....... 537,560 0.53 -- -- -- --
Options canceled...... (75,697) 2.64 (10,325) (0.90) -- --
Options exercised..... (83,062) 1.55 -- -- -- --
--------- ------ --------- ------ ------- -----
3,479,316 $ 5.09 2,113,952 $ 1.80 974,764 $3.60
========= ====== ========= ====== ======= =====

At December 31, 1999, 1,660,854 options with a weighted-average exercise
price of $1.58, were fully vested and exercisable.

The following summarizes information about the Company's stock options
outstanding at December 31, 1999:

Options outstanding Options exercisable
----------------------------------- ---------------------------
Weighted
average
Number remaining Weighted Number Weighted
Range of outstanding at contractual average outstanding at average
exercise December 31, life exercise December 31, exercise
prices 1999 (years) price 1999 price
-------- -------------- ----------- -------- -------------- --------

$ .03- 3.88............ 2,620,739 4.0 $1.60 1,643,626 $1.53
$ 3.89- 7.75............ 20,832 2.7 6.00 17,228 6.00
$ 7.76-11.63............ 477,364 4.4 10.20 -- --
$11.64-15.50............ 218,881 9.0 13.83 -- --
$34.88-38.75............ 141,500 9.9 38.75 -- --
--------- ----- --------- -----
Totals................ 3,479,316 $5.09 1,660,854 $1.58
========= ===== ========= =====

The Company applies APB 25 and related interpretations in accounting for its
stock option plan. Had compensation cost been recognized pursuant to SFAS No.
123, the Company's loss would have been increased to the pro forma amounts
indicated below (in thousands, except per share data):

1999 1998 1997
-------- -------- -------

Loss attributable to common stockholders:
As reported.................................. $ (8,730) $(14,437) $(7,253)
Pro forma.................................... $(10,758) $(14,919) $(7,630)
Loss per common share:
As reported.................................. $ (1.02) $ (4.94) $ (3.52)
Pro forma.................................... $ (1.26) $ (5.11) $ (3.70)

The per share weighted-average fair value of stock options issued by the
Company during 1999, 1998 and 1997 was $10.63, $1.08, and $2.70 respectively,
on the date of grant.

59

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following range of assumptions were used by the Company to determine the
fair value of stock options granted using a minimum value option-price model:

1999 1998 1997
------- ------- -------

Dividend yield....................................... 0% 0% 0%
Expected volatility.................................. 119% 0% 0%
Average expected option life......................... 4 years 4 years 4 years
Risk-free interest rate.............................. 5.51% 5.15% 5.73%

(b) Employee Stock Purchase Plan

In April 1999, the Company, with the approval of the board of directors,
adopted an Employee Stock Purchase Plan and reserved 500,000 shares of common
stock for issuance thereunder. The purchase plan permits eligible employees to
acquire shares of the Company's common stock through periodic payroll
deductions of up to 15% of total compensation. Each offering period will have a
maximum duration of twenty-four months. The price at which the common stock may
be purchased is 85% of the lesser of the fair market value of the Company's
common stock on the first day of the applicable offering period or on the last
day of the respective purchase interval. The initial offering period commenced
on the effectiveness of the Company's initial public offering and will end on
the last business day of July 2001.

(c) Warrants

The warrants issued by the Company generally contain customary provisions
requiring proportionate adjustment of the exercise price in the event of a
stock split, stock dividend, or dilutive financing in the case of the warrants
for preferred stock.

A summary of warrant activity follows:

Preferred Common
------------------------- -------------------------
Weighted Weighted
Number of average Number of average
warrants exercise price warrants exercise price
--------- -------------- --------- --------------

Balance as of December
31, 1996............... 920,006 $0.60 55,952 $0.75
Warrants granted...... -- -- 90,833 3.36
Warrants canceled..... -- -- -- --
Warrants exercised.... -- -- -- --
-------- ----- --------- -----
Balance as of December
31, 1997............... 920,006 $0.60 146,785 $2.37
======== ===== ========= =====
Warrants granted...... -- -- 1,660,802 0.24
Warrants canceled..... -- -- -- --
Warrants exercised.... -- -- (199,416) 0.92
-------- ----- --------- -----
Balance as of December
31, 1998............... 920,006 $0.60 1,608,171 $0.35
======== ===== ========= =====
Warrants granted...... -- -- 51,079 .06
Warrants canceled..... -- --
Warrants exercised.... (920,006) $0.60 (926,936) .10
-------- ----- --------- -----
Balance as of December
31, 1999............... -- -- 732,314 $0.65
======== ===== ========= =====

The warrants for preferred stock were all exercised and converted to common
stock on a one for one basis in connection with the Company's initial public
offering in July 1999.

60

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(14) Commitments and Contingencies

(a) Leases

The Company is obligated under certain equipment capital leases that expire
at various dates during the next two years. The Company leases its office
facilities and various equipment under operating leases that expire during the
next five years. Future minimum lease payments relating to the noncancelable
capital and operating leases are as follows (in thousands):

Capital Operating
leases leases
------- ---------

Year ending December 31,
2000................................................... $45 $682
2001................................................... 40 460
2002................................................... -- 417
2003................................................... -- 283
2004................................................... -- 36
---
Total minimum lease payments......................... 85
Less: amount representing interest................... 7
---
Present value of net minimum capital lease payments...... 78
Less: current installments of obligations under capital
leases.................................................. 40
---
Obligations under capital leases excluding current
installments............................................ $38
===

Total rent expense for the years ended December 31, 1999, 1998 and 1997, was
approximately $667,000, $328,000 and $150,000, respectively.

(b) Royalties

Under various licensing agreements, the Company is required to pay royalties,
generally on a per unit basis, on the sales of certain products that
incorporate licensed technology. Royalty expense under such agreements was
approximately $1,678,000, $651,000, and $97,000 for the years ended December
31, 1999, 1998 and 1997 respectively.

(c) Contingencies

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. The Company's counterclaim seeks damages of
approximately $2.7 million.

On November 4, 1999, a former supplier filed a complaint against the Company
in the Commonwealth of Massachusetts, Norfolk Superior Court Department,
alleging breach of agreements to allow the 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 supplier's 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. The Company plans to vigorously defend its position.
Currently, the litigation is proceeding through discovery phase. In the opinion
of management, the amount of the ultimate liability with respect to these

61

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

claims will not materially affect the Company's financial position, results of
operations or cash flow; however, this litigation may be costly, may distract
management's attention and may be significantly time consuming.

In the opinion of management, the amount of the ultimate liability with
respect to the above claims will not materially affect the Company's financial
position, results of operations, or cash flows.

In February and March 2000, six (6) securities class action lawsuits,
captioned:

. Bruckner v. RAVISENT Technologies Inc., et al., Civil Action No. 00-CV-
1075, dated February 29, 2000, amended March 17, 2000, purported class
period: July 15, 1999 to February 18, 2000;
. Buchbinder v. RAVISENT Technologies Inc., et al., Civil Action No. 00-
CV-1093, dated March 1, 2000, purported class period: July 15, 1999 to
February 17, 2000;
. Burdue v. RAVISENT Technologies Inc., et al., Civil Action No. 00-CV-
1371, dated March 15, 2000, purported class period: July 15, 1999 to
March 14, 2000;
. Fink v. RAVISENT Technologies, Inc., et al., Civil Action No. 00-CV-
1014, dated February 25, 2000, purported class period: July 15, 1999 to
February 17, 2000;
. Raley v. RAVISENT Technologies, Inc., et al., Civil Action No. 00-CV-
1280, dated March 9, 2000, purported class period: July 15, 1999 to
February 17, 2000; and
. Schafer v. RAVISENT Technologies, Inc., et al., Civil Action No. 00-CV-
1189, dated March 6, 2000, purported class period: July 15, 1999 to
February 17, 2000,

were filed against the Company and certain of our officers and directors in
the United States District Court for the Eastern District of Pennsylvania. The
complaints allege violations of the federal securities laws, specifically
Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, and Rule
10b-5 and seek unspecified damages on behalf of a purported class of
purchasers of our stock during the periods stated above.
There may be additional purported class action lawsuits filed against the
Company based upon similar alleged facts and claims. Certain of the Company's
employees and certain holders of 5% or more of its common stock are members of
the putative classes alleged in these actions and therefore may have interests
adverse to it with respect to the alleged claims in these actions. The Company
believes that such lawsuits or claims are without merit and that it has
meritorious defenses to the actions. The Company plans to vigorously defend
the litigation. However, failure to successfully defend these actions could
substantially harm its results of operations, liquidity and financial
condition.

From time to time, the Company has received, and expects to continue to
receive, notices of claims of infringement of other parties' proprietary
rights and other claims in the ordinary course of business. Management
believes the amount of the ultimate liability with respect to these claims
will not materially affect the Company's financial position, results of
operation, or cash flows.

(d) Employment Agreements

The Company has entered into employment agreements with certain officers and
employees of the Company. The agreements are generally for two to three year
periods, generally provide for annual bonuses and incentive stock options as
determined by the board of directors, and covenants not-to-compete during the
employment term and for two years thereafter. The employment agreements also
generally provide for six months severance in the event the individual is
terminated without cause.

(15) Business Risks and Credit Concentration

The Company licenses and sells its products principally in the intensely
competitive personal computer and consumer electronics original equipment
manufacturers industry and for product sales prior to 1998 through a

62

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

number of wholesale distributors. This industry has been characterized by
price erosion, rapid technological change, short product life cycles, cyclical
market patterns and heightened foreign and domestic competition. Significant
technological changes in the industry would adversely affect operating
results.

The Company's customers, including its major customers disclosed in note 19,
have not executed long-term contracts and are not required to purchased
minimum quantities from the Company. As such, the Company's operating results
could be materially affected by a decrease in business with these customers.

The Company performs ongoing credit evaluations of its customers' financial
condition, and generally no collateral is required. The Company had three
customers representing, in the aggregate, 57% and 88% of accounts receivable
at December 31, 1999 and 1998, respectively.

The Company uses several contract manufacturers to make its hardware
products. If the Company is unable to continue its relationship with these
manufacturers, it believes it could establish similar relationships with other
companies in a reasonable period of time. Because of the competitive nature of
the technology industry, the Company believes it could ultimately obtain terms
as beneficial as those currently in effect.

(16) Income Taxes

The company elected "C" corporation status in September 1996. Prior to that
election, the Company was an "S" corporation.

The income tax expense of $52 as of December 31,1999 relates to foreign
income taxes. No federal, foreign, or state income taxes are due as of
December 31, 1999 and 1998.

The table below reconciles the U.S. federal statutory income tax rate to the
recorded income tax provision (in thousands):

1999 1998 1997
------- ------- -------

Tax benefit at U.S. federal statutory rate...... $(2,726) $(4,659) $(2,479)
State income taxes, net of federal tax benefit.. (524) (1,256) (198)
In-process research and development and
goodwill....................................... 1,005 -- --
Foreign income taxes............................ 52 -- --
Change in valuation allowance................... 2,180 5,848 2,669
Other........................................... 65 67 8
------- ------- -------
$ 52 $ -- $ --
======= ======= =======

The change in valuation allowance above does not include $3,232 of the net
change for 1999, which represents net deferred tax assets acquired by the
Company.

63

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The components of the net deferred tax assets as of December 31, 1999 and
1998, consists of the following (in thousands):

December 31,
-----------------
1999 1998
-------- -------

Deferred tax assets:
Net operating losses.................................. $ 9,987 $ 5,706
Reserves and accruals not currently deductible........ 182 188
Depreciation and amortization......................... 3,190 3,239
Deferred revenue and other............................ 301 151
Prepaid compensation related to acquired stock
options.............................................. 1,036 --
-------- -------
14,696 9,284
Valuation allowance..................................... (14,696) (9,284)
-------- -------
Net deferred tax assets................................. $ -- $ --
======== =======

Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible. Due
to the uncertainty of the Company's ability to realize the benefit of the
deferred tax assets, the net deferred tax assets are fully offset by a
valuation allowance at December 31, 1999 and 1998.

As of December 31, 1999, the Company has approximately $24.7 million of net
operating loss carryforwards for federal tax purposes. These carryforwards will
begin expiring in 2011 if not utilized. In addition, the Company has net
operating loss carryforwards in certain states with various expiration periods
beginning in 2006.

Under the Tax Reform Act of 1986, the utilization of a corporation's net
operating loss carryforward is limited following a greater than 50% change in
ownership. Due to the Company's prior and current equity transactions, the
Company's net operating loss carryforwards may be subject to an annual
limitation. Any unused annual limitation may be carried forward to future years
for the balance of the net operating loss carryforward period. The Company is
currently in the process of determining the amount of annual limitation.

The Company's tax returns are subject to examination by federal, state and
foreign taxing authorities. Because many types of transactions are susceptible
to varying interpretations under federal, state and foreign income tax laws and
regulations, the amounts related to income taxes reported in the financial
statements may be subject to change at a later date upon final determination by
the respective taxing authorities.

(17) Related-Party Transactions

The former Chief Executive Officer of the Company received $125,000 in
severance payments during 1998.

(18) Defined Contribution Plan

The Company has a defined contribution plan for qualified employees as
defined in the plan. Participants may contribute up to 20% of pre-tax
compensation, as defined. Under the plan, the Company can make discretionary
contributions. To date, the Company has not made any contributions to the plan.

64

RAVISENT TECHNOLOGIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(19) Segment and Major Customer Information

The Company operates in a single industry segment, which is the development
and licensing of its technology.

The Company had the following customers that combined represented in excess
of 65%, 91% and 31% of revenues for the years ended December 31, 1999, 1998 and
1997, respectively (in thousands):

Years ended December
31,
--------------------
Customer 1999 1998 1997
-------- ------- ------- ----

1....................................................... $15,689 $25,624 $639
2....................................................... -- -- $632
3....................................................... $ 2,461 $ 1,900 --
4....................................................... -- $ 151 $809
5....................................................... $ 1,213 -- --

The Company sells and licenses its technology to customers primarily in North
America, Asia-Pacific and Europe. The loss for all periods presented is derived
primarily from the Company's North American operations, which generates
revenues from the following geographic regions (in thousands):

Years ended December
31,
----------------------
1999 1998 1997
------- ------- ------

North America........................................ $20,087 $23,660 $4,278
Asia-Pacific......................................... 2,822 853 932
Europe............................................... 6,489 5,775 1,117
Australia and New Zealand............................ 20 -- 494
------- ------- ------
$29,418 $30,288 $6,821
======= ======= ======

65

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

PART III

ITEM 10. Directors and Executive Officers of the Registrant

The information required by this item is incorporated by reference to our
Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed by
RAVISENT with the Securities and Exchange Commission on or before April 29,
2000.

ITEM 11. Executive Compensation

The information required by this item is incorporated by reference to our
Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed by
RAVISENT with the Securities and Exchange Commission on or before April 29,
2000.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this item is incorporated by reference to our
Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed by
RAVISENT with the Securities and Exchange Commission on or before April 29,
2000.

ITEM 13. Certain Relationships and Related Transactions

The information required by this item is incorporated by reference to our
Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed by
RAVISENT with the Securities and Exchange Commission on or before April 29,
2000.

PART IV

ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Documents filed as a part of this Report

(1) CONSOLIDATED FINANCIAL STATEMENTS

The Consolidated Financial Statements and related Notes thereto as set forth
in Item 8 of this Annual Report on Form 10-K are incorporated herein by
reference.

(2) Financial Statement Schedules

Report of Independent Auditors

The Board of Directors and Stockholders
RAVISENT Technologies Inc.:

Under date of March 8, 2000, we reported on the consolidated balance sheets of
RAVISENT Technologies Inc. and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of operations, changes in stockholders
equity (deficiency), and cash flows for each of the years in the three-year
period ended December 31, 1999. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
financial statement schedule. The financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

KPMG LLP

Philadelphia, Pennsylvania
March 8, 2000

66

The following financial statement schedule of RAVISENT Technologies Inc. for
each of the years ended December 31, 1997, 1998 and 1999, should be read in
conjunction with the Consolidated Financial Statements and related Notes
thereto.

RAVISENT Technologies, Inc. and Subsidiaries
Schedule of Valuation and Qualifying Accounts

Charged
Balance to Balance
at Costs at
Beginning and End of
of Year Expenses Deductions Year
--------- -------- ---------- --------
Accounts Receivable
- -------------------

For the year ended December 31, 1997 $ 139,000 $384,038 (56,438) $466,600
For the year ended December 31, 1998 $ 466,600 $ 48,347 (250,097) $264,850
For the year ended December 31, 1999 $ 264,850 $165,268 (111,163) $318,955

Inventory
- ---------

For the year ended December 31, 1997 $ 100,000 $300,000 $400,000
For the year ended December 31, 1998 $ 400,000 $ 70,000 (295,565) $174,435
For the year ended December 31, 1999 $ 174,435 $409,936 (28,785) $555,586

Schedules other than the one listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
Consolidated Financial Statements or Notes thereto contained in this Annual
Report on Form 10-K.

67

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Act of
1934, as amended, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Malvern, Commonwealth of Pennsylvania on this 30th day of March 2000.

Ravisent Technologies Inc.

/s/ Francis E. J. Wilde III
By: _________________________________
Francis E.J. Wilde III
Chief Executive Officer and
President

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below in so signing also makes, constitutes and appoints jointly and severally
Francis E.J. Wilde III and Ned Barlas, and each one of them, his true and
lawful attorney-in-fact and agents, each with full power of substitution for
him and in his name, place and stead in any and all capacities, to execute and
cause to be filed with the Securities and Exchange Commission additional
reports or filings for the same period covered by this Annual Report and all
amendments to this report, and in each case to file the same, with all
exhibits thereto and other documents in connection therewith, granting unto
said attorneys-in-fact and agents, and each of them full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and conforming that each of said
attorneys-in-fact or agents or any of them or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Annual Report has been signed by the persons whose signatures appear below,
which persons have signed such Annual Report in the capacities and on the
dates indicated.

Signature Title Date
--------- ----- ----

/s/ Francis E. J. Wilde III Chief Executive Officer, March [30], 2000
______________________________________ President and Director
Francis E.J. Wilde III (Principal Executive
Officer)

/s/ Jason C. Liu Chief Financial Officer, March [30], 2000
______________________________________ Senior Vice President,
Jason C. Liu Corporate Services and
Secretary (Principal
Accounting Officer)

/s/ Frederick J. Beste III Director March [30], 2000
______________________________________
Frederick J. Beste III

/s/ Peter X. Blumenwitz Director March [30], 2000
______________________________________
Peter X. Blumenwitz

/s/ Walter L. Threadgill Director March [30], 2000
______________________________________
Walter L. Threadgill

/s/ Paul A. Vais Director March [30], 2000
______________________________________
Paul A. Vais

68

Exhibit
Number Exhibit Title
------ -------------
2.1 Sales Agreement Concerning Shares, dated January 16, 1998, by and
among Ulrich Sigmund, Hendrik Horak, Jorg Ringelberg, Erste CINCO
Vermogensverwaltungs GmbH and RAVISENT.(1)
2.2 Appendix to Sales Agreement Concerning Shares, dated January 16,
1998, by and among Ulrich Sigmund, Hendrik Horak, Jorg Ringelberg,
Erste CINCO Vermogensverwaltungs GmbH and RAVISENT.(1)
2.3 Agreement and Plan of Merger, by and between Divicore Inc., a
Pennsylvania corporation, and RAVISENT.(1)
2.4 Agreement and Plan of Reorganization, dated as of October 8, 1999,
by and among RAVISENT, Merger Sub, Teknema, Inc. and certain
security holders of Teknema, Inc. identified therein. (3)
3.1 Amended and Restated Certificate of Incorporation.(1)
3.2 Amended and Restated Bylaws.(1)
4.1 Form of RAVISENT's Specimen Common Stock Certificate.(1)
4.2 Registration Rights Agreement dated April 30, 1998, by and among
RAVISENT and parties listed on Schedule A therein. (1)
4.3 Quadrant International, Inc. Common Stock Purchase Warrant
Certificate, dated July 30, 1998, by and between RAVISENT and
Progress Capital, Inc. for the purchase of up to 75,000 shares of
common stock.(1)
4.4 Quadrant International, Inc. Common Stock Purchase Warrant
Certificate, dated July 30, 1998, by and between RAVISENT and
Progress Capital, Inc. for the purchase of up to 200,000 shares of
common stock.(1)
4.5 Quadrant International, Inc. Common Stock Purchase Warrant
Certificate, dated July 30, 1998, by and between RAVISENT and
Progress Capital, Inc. for the purchase of up to 100,000 shares of
common stock.(1)
4.6 Quadrant International, Inc. Common Stock Purchase Warrant
Certificate, dated June 11, 1996, by and between RAVISENT and
Meridian Bank.(1)
4.7 Quadrant International, Inc. Common Stock Purchase Warrant
Certificate, dated March 15, 1996, by and between RAVISENT and
Meridian Bank.(1)
4.8 Subordinated Note and Warrant Purchase Agreement, dated March 18,
1996, by and between RAVISENT and NEPA Venture Fund II, L.P.(1)
4.9 Convertible Debenture and Warrant Purchase Agreement, dated December
17, 1997, by and between RAVISENT and Atlantic Coastal Ventures,
L.P.(1)
4.10 Convertible Debenture and Warrant Purchase Agreement, dated February
17, 1998, by and between RAVISENT and Donald Horton and Marty
Horton, as community property.(1)
4.11 Quadrant International, Inc. Convertible Debenture and Warrant
Purchase Agreement, dated April 7, 1998, by and between RAVISENT and
the parties who are signatories thereto.(1)
4.12 Convertible Debenture and Warrant Purchase Agreement, dated March
31, 1998, by and among RAVISENT and the parties who are signatories
thereto.(1)
4.13 Subordinated Note and Warrant Purchase Agreement, dated May 4, 1995,
by and between RAVISENT and NEPA Venture Fund II, L.P.(1)
4.14 Convertible Promissory Note Purchase Agreement, dated as of April
26, 1999, among RAVISENT and the parties who are signatories
thereto.(1)
4.15 Registration Rights Agreement, dated as of April 26, 1999, among
RAVISENT and the parties listed on Schedule A thereto.(1)
4.16* Revolving Demand Note, dated July 21, 999 from Divico, Inc. in favor
of Liuco, Inc.
10.1 RAVISENT's 1999 Stock Incentive Plan.(1)
10.2 RAVISENT's 1999 Employee Stock Purchase Plan.(1)
10.3 Form of Directors' and Officers' Indemnification Agreement.(1)
10.4 Letter Agreement, dated October 28, 1997, by and between RAVISENT
and Dell Products, L.P. (1)
10.5@ License Agreement, dated June 30, 1998, by and between RAVISENT and
ST Microelectronics, Inc.(1)
10.6 Source and Object Code License Agreement, dated September 1, 1998,
by and between RAVISENT and Microsoft Corporation.(1)
10.7 Development and License Agreement, dated March 2, 1998, by and
between RAVISENT and ATI Technologies, Inc.(1)

10.8@ Sti5505 Development Contract, dated February 1, 1999, by and between
RAVISENT and ST Microelectronics, S.A.(1)
10.9@ Digital Audio System License Agreement: Consumer Products-Decoder
Hardware, dated May 20, 1997, by and between RAVISENT and Dolby
Laboratories Licensing Corporation.(1)
10.10 Agreement of Lease, dated June 5, 1998, by and between RAVISENT and
Liberty Property Limited Partnership.(1)
10.11 Form of Software License Agreement.(1)
10.12 Silicon Valley Bank Loan and Security Agreement, dated July 14,
1998, by and between RAVISENT and Silicon Valley Bank.(1)
10.13 Commercial Rental Agreement, dated October 18, 1995, between Viona
Development Hard & Software Engineering GmbH & Co. KG and
Deutsche-Bernanten-Lebensversicherung AG.(1)
10.14 Letter Agreement, dated August 20, 1997, by and between RAVISENT and
Francis E.J. Wilde III.(1)
10.15+ Employment Agreement, dated November 12, 1997, by and between
RAVISENT and Michael Harris.(1)
10.16+ Employment Agreement, dated November 12, 1997, by and between
RAVISENT and Jason Liu.(1)
10.17+ Employment Agreement, dated December 11, 1997, by and between
RAVISENT and Leonard Sharp.(1)
10.18+ Employment Agreement, dated January 12, 1998, by and between
RAVISENT and Robert Russell.(1)
10.19+ Employment Agreement, dated December 15, 1997, by and between
RAVISENT and Gregg Garnick.(1)
10.20+ Amendment to Employment Agreement dated March 19, 1998, by and
between RAVISENT and Gregg Garnick.(1)
10.21@ Software License Agreement, dated as of April 23, 1999, by and
between RAVISENT and Intel Corporation.(1)
10.22 Amended and Restated CSS Interim License Agreement, dated November
28, 1997, by and between RAVISENT and Matsushita Electric Industrial
Co., Ltd.(1)
10.23* Intangible Property License Agreement, dated July 21, 1999 by and
between DVA, Inc. and Divico, Inc.
10.24* Tax Sharing Agreement, dated July 21, 1999, by and between RAVISENT
and its subsidiaries, Liuco, Inc., and Divico, Inc.
10.25+ Employment Agreement, dated June 2, 1999, by and between RAVISENT
and Ned Barlas.(1)
10.26+ Employment Agreement, dated March 1, 1999, by and between RAVISENT
and Sharon K. Taylor.(2)
10.27+ Employment Agreement, dated March 1, 1999, by and between RAVISENT
and E. Joseph Vitetta, Jr. (2)
10.28+ Employment Agreement, dated March 1, 1999, by and between RAVISENT
and William H. Wagner.(2)
10.29* Assignment of Intellectual Property Rights, dated July 21, 1999,
from RAVISENT to DVA, Inc.
10.30* Bill of Sale, Assignment and Assumption Agreement, dated July 21,
1999, between RAVISENT and Divico, Inc.
21.1* Subsidiaries of RAVISENT.
23.1* Consent of KPMG LLP, Independent Auditors.
24.1* Power of Attorney. (reference is made to page 68)
27.1* Financial Data Schedule.

(1) Incorporated by reference to identically numbered exhibit to
RAVISENT's registration statement on Form S-1 declared effective
with Securities and Exchange Commission on July 15, 1999 (File NO.
333-77269).
(2) Incorporated by reference to identically numbered exhibit to
RAVISENT's quarterly report on Form 10-Q for the quarterly period
ended September 30, 1999.
(3) Incorporated by reference to identically numbered exhibit to
RAVISENT's current report on Form 8-K dated November 8, 1999, as
filed with the Securities and Exchange Commission on November 22,
1999 (File No. 000-26287).

@ Confidential treatment requested for portions of this agreement
+ Compensation plans and arrangements for executives and others
* filed herewith

(a) CURRENT REPORTS ON FORM 8K DURING THE QUARTER ENDED DECEMBER 31, 1999.

A Current Report on Form 8-K, dated November 22, 1999, as amended
on January 24, 2000 and February 8, 2000, was filed regarding
RAVISENT's acquisition of Teknema, Inc.