<PAGE>   1
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                    FORM 10-Q
                            ------------------------

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

                                       OR

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

                        COMMISSION FILE NUMBER: 333-96315

                            ------------------------
                                  VIRAGE, INC.
             (Exact name of registrant as specified in its charter)

                DELAWARE                               38-3171505
    (State or other jurisdiction of          (IRS Employer Identification No.)
     incorporation or organization)

                            177 BOVET ROAD, SUITE 520
                        SAN MATEO, CALIFORNIA 94402-3116
                                 (650) 573-3210
    (Address, including zip code, and telephone number, including area code,
                of the registrant's principal executive offices)

                            ------------------------

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 [X] No

     The number of outstanding shares of the registrant's Common Stock, $0.001
par value, was 19,915,165 as of August 1, 2000.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


<PAGE>   2


                                  VIRAGE, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                   PAGE
                                                                                   ----
<S>                                                                                <C>
PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

     Condensed Consolidated Balance Sheets
         June 30, 2000 and March 31, 2000 .....................................      3

     Condensed Consolidated Statements of Operations -- Three Months Ended
         June 30, 2000 and 1999 ...............................................      4

     Condensed Consolidated Statements of Cash Flows -- Three Months Ended
         June 30, 2000 and 1999 ...............................................      5

     Notes to Condensed Consolidated Financial Statements .....................      6

Item 2. Management's Discussion and Analysis of Financial Condition
         and Results of Operations  ...........................................     10

PART II: OTHER INFORMATION

Item 1. Legal Proceedings .....................................................     24

Item 2. Changes in Securities and Use of Proceeds .............................     24

Item 3. Defaults Upon Senior Securities .......................................     24

Item 4. Submission of Matters to a Vote of Security Holders ...................     24

Item 5. Other Information .....................................................     24

Item 6. Exhibits and Reports on Form 8-K ......................................     24

     Signature ................................................................     25
</TABLE>

<PAGE>   3


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


                                  VIRAGE, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                               JUNE 30,       MARCH 31,
                                                                 2000           2000
                                                               --------       ---------
                     ASSETS
<S>                                                            <C>            <C>
Current assets:
  Cash and cash equivalents .............................      $  6,137       $ 10,107
  Restricted cash .......................................        13,000             --
  Accounts receivable, net ..............................         1,283          1,792
  Prepaid expenses and other current assets .............         1,264          1,217
                                                               --------       --------
      Total current assets ..............................        21,684         13,116

Property and equipment, net .............................         3,139          2,320
Restricted investments ..................................         2,101          2,083
Other assets ............................................         1,835          1,353
                                                               --------       --------
      Total assets ......................................      $ 28,759       $ 18,872
                                                               ========       ========

      LIABILITIES AND STOCKHOLDERS' EQUITY
            (NET CAPITAL DEFICIENCY)

Current liabilities:
  Accounts payable ......................................      $    487       $    773
  Accrued payroll and related expenses ..................         1,397            659
  Accrued expenses ......................................         1,820          1,769
  Deferred revenue ......................................         1,847          1,656
  Current portion of borrowings .........................           931            158
                                                               --------       --------
      Total current liabilities .........................         6,482          5,015

Long-term portion of borrowings .........................            52             83

Redeemable convertible preferred stock ..................        37,120         36,995

Stockholders' equity (net capital deficiency):
  Common stock ..........................................             4              3
  Additional paid-in capital ............................        38,467         23,671
  Deferred compensation .................................       (13,331)       (14,595)
  Accumulated deficit ...................................       (40,035)       (32,300)
                                                               --------       --------
      Total stockholders' equity (net
       capital deficiency) ..............................       (14,895)       (23,221)
                                                               --------       --------
      Total liabilities and stockholders' equity (net
       capital deficiency) ..............................      $ 28,759       $ 18,872
                                                               ========       ========
</TABLE>

                             See accompanying notes


<PAGE>   4


                                  VIRAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED
                                                                  JUNE 30,
                                                          -----------------------
                                                            2000           1999
                                                          --------       --------

<S>                                                       <C>            <C>
Revenues:
  License revenues .................................      $  1,093       $  1,009
  Service revenues .................................           819             88
  Other revenues ...................................            19             61
                                                          --------       --------
    Total revenues .................................         1,931          1,158
Cost of revenues:
  License revenues .................................           148            177
  Service revenues(1) ..............................         1,481            161
  Other revenues ...................................            55             42
                                                          --------       --------
    Total cost of revenues .........................         1,684            380
                                                          --------       --------
Gross profit .......................................           247            778
Operating expenses:
  Research and development(2) ......................         2,033            750
  Sales and marketing(3) ...........................         3,983          1,814
  General and administrative(4) ....................         1,242            437
  Stock-based compensation .........................           836             41
                                                          --------       --------
    Total operating expenses .......................         8,094          3,042
                                                          --------       --------
Loss from operations ...............................        (7,847)        (2,264)

Interest and other income, net .....................           112             32
                                                          --------       --------
Net loss ...........................................      $ (7,735)      $ (2,232)
                                                          ========       ========

Basic and diluted net loss per share ...............      $  (2.41)      $  (1.10)
                                                          ========       ========
Shares used in computation of basic and diluted
  net loss per share ...............................         3,214          2,025
                                                          ========       ========

Pro forma basic and diluted net loss per share .....      $  (0.57)      $  (0.24)
                                                          ========       ========
Shares used in computation of  pro forma basic
  and diluted net loss per share ...................        13,535          9,307
                                                          ========       ========
</TABLE>

(1) Excluding $76 in amortization of deferred stock-based compensation for the
    three months ended June 30, 2000 (none for the three months ended June 30,
    1999).

(2) Excluding $138 in amortization of deferred stock-based compensation for the
    three months ended June 30, 2000 (none for the three months ended June 30,
    1999).

(3) Excluding $264 in amortization of deferred stock-based compensation for the
    three months ended June 30, 2000 ($41 for the three months ended June 30,
    1999).

(4) Excluding $358 in amortization of deferred stock-based compensation for the
    three months ended June 30, 2000 (none for the three months ended June 30,
    1999).

                             See accompanying notes


<PAGE>   5


                                  VIRAGE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                     JUNE 30,
                                                           ---------------------------
                                                               2000           1999
                                                           ------------   ------------
<S>                                                        <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..............................................      $ (7,735)      $ (2,232)
Adjustments to reconcile net loss to net cash
  used in operating activities:
  Depreciation and amortization .......................           341            130
  Amortization of deferred compensation related to
    stock options .....................................         1,061             72
  Amortization of deferred advertising costs and
    technology right ..................................           204             --
  Changes in operating assets and liabilities:
    Accounts receivable ...............................           509           (543)
    Prepaid expenses and other current assets .........          (242)            90
    Other assets ......................................          (491)            (5)
    Accounts payable ..................................          (286)           (20)
    Accrued payroll and related expenses ..............           738             18
    Accrued expenses ..................................            51            203
    Deferred revenue ..................................           191             25
                                                             --------       --------
Net cash used in operating activities .................        (5,659)        (2,262)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ....................        (1,160)          (390)
Increase in restricted investments ....................           (18)            --
                                                             --------       --------
Net cash used in investing activities .................        (1,178)          (390)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit .....................           806             --
Principal payments on loans and capital leases ........           (64)           (51)
Proceeds from exercise of stock options ...............            --             26
Proceeds from exercise of warrants to
  purchase preferred and common stock .................         2,125             --
                                                             --------       --------
Net cash provided by (used in) financing activities ...         2,867            (25)
                                                             --------       --------
Net decrease in cash and cash equivalents .............        (3,970)        (2,677)
Cash and cash equivalents at beginning of period ......        10,107          4,357
                                                             --------       --------
Cash and cash equivalents at end of period ............      $  6,137       $  1,680
                                                             ========       ========

SUPPLEMENTAL DISCLOSURES OF NONCASH AND OTHER
  INVESTING AND FINANCING ACTIVITIES:
Cash advance for common stock subscription ............      $ 13,000       $     --
Deferred compensation related to stock options ........      $     29       $    398
Reversal of deferred compensation upon
  employee termination ................................      $    232       $     --
</TABLE>

                             See accompanying notes


<PAGE>   6


                                  VIRAGE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2000
                                   (UNAUDITED)

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and in accordance with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the financial statements at June 30, 2000 and for the three
month periods ended June 30, 2000 and 1999 have been included.

        The condensed consolidated financial statements include the accounts of
Virage, Inc. (the "Company") and its majority owned subsidiary, Virage Europe,
Ltd. All significant intercompany balances and transactions have been eliminated
in consolidation.

        Results for the three months ended June 30, 2000 are not necessarily
indicative of results for the entire fiscal year or future periods. These
financial statements should be read in conjunction with the consolidated
financial statements and the accompanying notes included in the Company's
Registration Statement on Form S-1 (No. 333-96315), including the related
prospectus dated June 28, 2000 as filed with the United States Securities and
Exchange Commission. The accompanying balance sheet at March 31, 2000 is derived
from the Company's audited consolidated financial statements at that date.

Cash Equivalents

        Cash equivalents consist of short-term, highly liquid financial
instruments, such as money market funds at June 30, 2000 and March 31, 2000.

Restricted Cash and Restricted Investments

        As of June 30, 2000, the Company had $13,000,000 in restricted cash
representing advance proceeds from investors that participated in a private
placement of the Company's common stock that closed subsequent to June 30, 2000
(see Note 3).

        As of June 30, 2000 and March 31, 2000, the Company had $2,101,000 and
$2,083,000, respectively, in certificates of deposit that are held as collateral
for certain letters of credit that are required pursuant to agreements in which
the Company has entered, including the Company's operating leases.

Other Assets

        Other assets included $1,294,000 and $812,000 of offering costs related
to the Company's initial public offering (see Note 3) as of June 30, 2000 and
March 31, 2000, respectively.

Comprehensive Net Loss

        The Company has had no other comprehensive income (loss), and
consequently, net loss equals total comprehensive net loss for the three months
ended June 30, 2000 and 1999.


<PAGE>   7


                                  VIRAGE, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JUNE 30, 2000
                                   (UNAUDITED)


Net Loss Per Share

        Basic and diluted net loss per share are computed using the weighted
average number of common shares outstanding. Options, warrants, restricted stock
and preferred stock were not included in the computation of diluted net loss per
share because the effect would be antidilutive.

        Pro forma basic and diluted net loss per share have been computed as
described above and also give effect, even if antidilutive, to common equivalent
shares from preferred stock as if such conversion had occurred on April 1, 1999,
or at the date of original issuance, if later.

        The following table presents the computation of basic and diluted and
pro forma basic and diluted net loss per share (in thousands, except per share
data):


<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED
                                                    JUNE 30,
                                            -----------------------
                                              2000           1999
                                            --------       --------
<S>                                         <C>            <C>
Net loss .............................      $ (7,735)      $ (2,232)
                                            ========       ========
Weighted-average shares of
  common stock outstanding ...........         3,704          2,408
Less weighted-average shares of
  common stock subject to
  repurchase .........................          (490)          (383)
                                            ========       ========
Weighted-average shares used
  in computation of basic and
  diluted net loss per share .........         3,214          2,025
                                            ========       ========
Basic and diluted net loss
  per share ..........................      $  (2.41)      $  (1.10)
                                            ========       ========
Shares used in computation
  of basic and diluted net
  loss per share .....................         3,214          2,025
Pro forma adjustment to
  reflect weighted-average effect
  of the assumed conversion of
  convertible preferred stock ........        10,321          7,282
                                            ========       ========
Shares used in computing pro
  forma basic and diluted net
  loss per share .....................        13,535          9,307
                                            ========       ========
Pro forma basic and diluted net
  loss per share .....................      $  (0.57)      $  (0.24)
                                            ========       ========
</TABLE>

<PAGE>   8


                                  VIRAGE, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JUNE 30, 2000
                                   (UNAUDITED)

Impact of Recently Issued Accounting Standards

        In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 establishes accounting
methods for derivative financial instruments and hedging activities related to
those instruments as well as other hedging activities. The Company will be
required to implement FAS 133 at the beginning of fiscal 2002. Because the
Company does not currently hold any derivative instruments and does not engage
in hedging activities, the Company does not expect that the adoption of FAS 133
will have a material impact on its financial position, results of operations or
cash flows.

        In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation -- an Interpretation of APB Opinion No. 25". FIN 44 clarifies
the application of APB Opinion No. 25 and, among other issues, clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of the previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.

2.      SEGMENT REPORTING

        The Company has two reportable segments: the sale of software and
related software support services including revenues from U.S. government
agencies ("software") and the sale of its application services which includes
set-up fees, video processing fees, and application hosting fees . The Company's
Chief Operating Decision Maker ("CODM") is the Company's Chief Executive Officer
who evaluates performance and allocates resources based upon total revenues and
gross margin (loss). Discreet financial information for each segment's profit
and loss and each segment's total assets is not provided to the Company's CODM,
nor is it tracked by the Company. Total revenues for the Company's software
segment were $1,380,000 and $1,158,000 for the three months ended June 30, 2000
and 1999, respectively, and total revenues for the Company's application
services segment were $551,000 for the three months ended ended June 30, 2000
(insignificant for the three months ended June 30, 1999). Total cost of revenues
for the Company's software segment were $297,000 and $314,000 for the three
months ended June 30, 2000 and 1999, respectively, and total cost of revenues
for the Company's application services segment were $1,387,000 and $66,000 for
the three months ended June 30, 2000 and 1999, respectively. Gross profit for
the Company's software segment was $1,083,000 and $844,000 for the three months
ended June 30, 2000 and 1999, respectively, and gross loss for the Company's
application services segment was $836,000 and $66,000 for the three months ended
June 30, 2000 and 1999, respectively.


<PAGE>   9


                                  VIRAGE, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JUNE 30, 2000
                                   (UNAUDITED)

3.      SUBSEQUENT EVENTS

Initial Public Offering and Amended and Restated Certificate of Incorporation

        In July 2000, the Company completed its initial public offering and
issued 3,500,000 shares of its common stock to the public at a price of $11.00
per share. The Company received net proceeds of approximately $35,800,000 in
cash. The Company's underwriters also exercised their over-allotment option to
purchase an additional 525,000 shares of the Company's common stock at a price
of $11.00 per share resulting in an additional $5,371,000 of net proceeds to the
Company.

        In addition, the Company amended the conversion terms of its redeemable
convertible preferred stock by reducing the automatic conversion price per share
to $8.00 per share from $11.152 per share. Upon the closing of the Company's
initial public offering, all of the outstanding shares of redeemable convertible
preferred stock were converted into an aggregate of 10,369,451 shares of common
stock.

Common Stock Purchase Agreement

        In July 2000, the Company completed an $18,000,000 common stock purchase
agreement with certain private investors concurrent with its initial public
offering.

Reverse Stock Split

        The Company's stockholders approved a 1-for-2 reverse stock split of the
Company's preferred and common stock which took place and became effective just
prior to the consummation of the Company's initial public offering in July 2000.
All share data has been restated to reflect the reverse stock split.


<PAGE>   10


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

        The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the condensed
consolidated financial statements and related notes contained herein and the
information contained in our Registration Statement on Form S-1 (No. 333-96315),
including the related prospectus dated June 28, 2000 as filed with the United
States Securities and Exchange Commission. This discussion contains
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. We may identify these statements by the
use of words such as "believe", "expect", "anticipate", "intend", "plan" and
similar expressions. These forward-looking statements involve several risks and
uncertainties. Our actual results may differ materially from those set forth in
these forward-looking statements as a result of a number of factors, including
those described under the caption "Risk Factors" herein and in our Registration
Statement on Form S-1 (No. 333-96315), including the related prospectus dated
June 28, 2000 as filed with the United States Securities and Exchange
Commission. These forward-looking statements speak only as of the date of this
quarterly report, and we caution you not to rely on these statements without
also considering the risks and uncertainties associated with these statements
and our business as addressed elsewhere in this quarterly report and in our
Registration Statement on Form S-1 (No. 333-96315), including the related
prospectus dated June 28, 2000 as filed with the United States Securities and
Exchange Commission.

OVERVIEW

        Virage is a leading provider of software products and application
services that enable owners of video content to manage, publish and distribute
their video assets over the Internet and corporate intranets. Depending on their
particular needs and resources, these video content owners may elect either to
license our software products or to subscribe to our application services. Our
customers include media and entertainment companies, other corporations,
government agencies and educational institutions.

REVENUE RECOGNITION

        We enter into arrangements for the sale of licenses of software products
and related maintenance contracts and application services offerings; and we
receive revenues under U.S. government agency research grants. Service revenues
include revenues from maintenance contracts and application services. Other
revenues are primarily U.S. government agency research grants.

        Our revenue recognition policy is in accordance with the American
Institute of Certified Public Accountants, or AICPA's, Statement of Position No.
97-2, or SOP 97-2, "Software Revenue Recognition," as amended by Statement of
Position No. 98-4, "Deferral of the Effective Date of SOP 97-2, "Software
Revenue Recognition, "" or SOP 98-4, and Statement of Position No. 98-9,
"Modification of SOP No. 97-2 with Respect to Certain Transactions" or SOP 98-9.
For each arrangement, we determine whether evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable, and collection is
probable. If any of these criteria are not met, revenue recognition is deferred
until such time as all of the criteria are met. We consider all arrangements
with payment terms extending beyond twelve months and other arrangements with
payment terms longer than normal not to be fixed or determinable. If
collectibility is not considered probable, revenue is recognized when the fee is
collected provided all other criteria are met. No customer has the right of
return.

        Arrangements consisting of license and maintenance. For those contracts
that consist solely of license and maintenance, we recognize license revenues
based upon the residual method after all elements other than maintenance have
been delivered as prescribed by SOP 98-9. We recognize maintenance revenues over
the term of the maintenance contract as vendor specific objective evidence of
fair value for maintenance exists. In accordance with paragraph ten of SOP 97-2,
vendor specific objective evidence of fair value of maintenance is determined by
reference to the price the customer will be required to pay when it is sold
separately (that is, the renewal rate). Each license agreement offers additional
maintenance renewal periods at a stated price. Maintenance contracts are
typically one year in duration. Revenue is recognized on a per copy basis for
licensed software when each copy of the license requested by the customer is
delivered. Revenue is recognized on licensed software on a per user or per
server basis for a fixed fee when the product master is delivered to the
customer. There is no right of return or price protection for sales to domestic
and international distributors, system integrators, or value added resellers. In
situations where the distributor, integrator or reseller has a purchase order
from the end user that is immediately


<PAGE>   11


deliverable, we recognize revenue on shipment to the distributor, integrator or
reseller, if other criteria in SOP 97-2 are met, since we have no risk of
concessions. We defer revenues on shipments to distributors, integrators or
resellers if the party does not have a purchase order from an end user that is
immediately deliverable or other criteria in SOP 97-2 are not met. We recognize
royalty revenues upon receipt of the quarterly reports from the vendors.

        Application services. Our application services revenues consist of
set-up fees, video processing fees and application hosting fees. Set-up fees are
recognized ratably over the contract term, which is generally six to 18 months.
We generate video processing fees for each hour of video that a customer
deploys. Processing fees are recognized as encoding, indexing and editorial
services are performed and are based upon hourly rates per hour of video
content. We generate application hosting fees based on the number of video
queries processed, subject in some cases to monthly minimums and maximums. We
recognize revenues on transaction fees that are subject to monthly minimums
based on the greater of actual transaction fees or the monthly minimum, and
monthly maximums based on the lesser of actual transaction fees or the monthly
maximum, since we have no further obligations, the payment terms are normal and
each month is a separate measurement period.

        Other revenues. Other revenues consist primarily of U.S. government
agency research grants that are best effort arrangements. The
software-development arrangements are within the scope of the FASB's Statement
of Financial Accounting Standards No. 68, "Research and Development
Arrangements". As the financial risks associated with the software-development
arrangement rests solely with the U.S. government agency, we are recognizing
revenues as the services are performed. The cost of these services are included
in cost of other revenues. Our contractual obligation is to provide the required
level of effort (hours), technical reports, and funds and man-hour expenditure
reports.

        Cost of license revenues consist primarily of royalty fees for
third-party software products integrated into our products. Our cost of service
revenues includes personnel expenses, related overhead, communication expenses
and capital depreciation costs for maintenance and support activities and
application services. Our cost of other revenues includes engineering personnel
expenses and related overhead for custom engineering and government projects.

        We incurred a net loss of $7,735,000 million during the three months
ended June 30, 2000. As of June 30, 2000, we had an accumulated deficit of
$40,035,000. We expect to continue to incur operating losses for the foreseeable
future. In view of the rapidly changing nature of our market and our limited
operating history, we believe that period-to-period comparisons of our revenues
and other operating results are not necessarily meaningful and should not be
relied upon as indications of future performance. Our historic revenue growth
rates are not necessarily sustainable or indicative of our future growth.


<PAGE>   12


RESULTS OF OPERATIONS

        The following table sets forth consolidated financial data for the
periods indicated, expressed as a percentage of total revenues.


<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED
                                                          JUNE 30,
                                                     ------------------
                                                      2000        1999
                                                     ------      ------
<S>                                                  <C>         <C>
Revenues:
  License revenues .............................        57%         87%
  Service revenues .............................        42           8
  Other revenues ...............................         1           5
                                                      ----        ----
          Total revenues .......................       100         100
                                                      ----        ----
Cost of revenues:
  License revenues .............................         8          15
  Service revenues .............................        76          14
  Other revenues ...............................         3           4
                                                      ----        ----
          Total cost of revenues ...............        87          33
                                                      ----        ----
Gross profit ...................................        13          67
Operating expenses:
  Research and development .....................       105          65
  Sales and marketing ..........................       206         157
  General and administrative ...................        64          38
  Stock-based compensation .....................        44           3
                                                      ----        ----
          Total operating expenses .............       419         263
                                                      ----        ----
Loss from operations ...........................      (406)       (196)
Interest and other income, net .................         5           3
                                                      ----        ----
Loss before income taxes .......................      (401)       (193)
Provision for income taxes .....................        --          --
                                                      ----        ----
Net loss .......................................      (401)%      (193)%
                                                      ====        ====
</TABLE>

        Total Revenues. Total revenues increased 67% to $1,931,000 for the three
months ended June 30, 2000 from $1,158,000 for the three months ended June 30,
1999. This increase was due to increases in license and service revenues,
slightly offset by a decrease in other revenues. International revenues
increased to $393,000, or 20% of total revenues, for the three months ended June
30, 2000 from $294,000, or 25% of total revenues, for the three months ended
June 30, 1999. Sales to two customers accounted for 40% and 23%, respectively,
of total revenues for the three months ended June 30, 1999 (no customer
constituted more than 10% of total revenues for the three months ended June 30,
2000). Sales to agencies of the U.S. government accounted for 20% of total
revenues for the three months ended June 30, 1999 (less than 10% for the three
months ended June 30, 2000). Sales of licenses and services to agencies of the
U.S. government, excluding other revenues, accounted for 16% of total revenues
for the three months ended June 30, 1999 (less than 10% for the three months
ended June 30, 2000).

        License revenues increased to $1,093,000 for the three months ended June
30, 2000 from $1,009,000 for the three months ended June 30, 1999, an increase
of $84,000. The increase was primarily due to the introduction of new product
lines and the expansion of our domestic and international sales and marketing
operations.

        Service revenues increased to $819,000 for the three months ended June
30, 2000 from $88,000 for the three months ended June 30, 1999, an increase of
$731,000. Approximately 25% of this growth was due to an increase in the number
of customers purchasing maintenance contracts, while the remainder was due to
the growth of our application services offering.

        Other revenues decreased to $19,000 for the three months ended June 30,
2000 from $61,000 for the three months ended June 30, 1999, a decrease of
$42,000. The majority of this decrease was attributable to the timing of final
payments to be received under a contract with a government agency.

        Total Cost of Revenues. Total cost of revenues increased to $1,684,000,
or 87% of total revenues, for the three months ended June 30, 2000 from
$380,000, or 33% of total revenues, for the three months ended June 30, 1999.
This increase in total cost of revenues was due to an increase in the cost of
service revenues, particularly the cost of application services, and was offset
slightly by a decrease in the cost of license revenues.


<PAGE>   13


        Cost of license revenues decreased to $148,000, or 14% of license
revenues, for the three months ended June 30, 2000 from $177,000, or 18% of
license revenues, for the three months ended June 30, 1999. This decrease in
absolute dollars was primarily due to an amendment of an existing technology
license agreement that lowered the amount of our royalty obligations.

        Cost of service revenues increased to $1,481,000, or 181% of service
revenues for the three months ended June 30, 2000 from $161,000, or 183% of
service revenues, for the three months ended June 30, 1999. This increase was
due to expenditures for the development of application services. We expect the
cost of service revenues to increase substantially, and margins on our service
revenues to remain negative for the foreseeable future as we expand our
application services and worldwide support capabilities.

        Cost of other revenues increased to $55,000, or 289% of other revenues,
for the three months ended June 30, 2000 from $42,000, or 69% of other revenues,
for the three months ended June 30, 1999. This increase was due to slightly
higher costs associated with engineering services performed for a government
agency.

        Research and Development Expenses. Research and development expenses
consist primarily of personnel and related costs for our development efforts.
Research and development expenses increased to $2,033,000, or 105% of total
revenues, for the three months ended June 30, 2000 from $750,000, or 65% of
total revenues, for the three months ended June 30, 1999. The increase in
absolute dollars was due to an increase in our research and development staff.
We expect research and development expenses to increase substantially for the
foreseeable future as we believe that significant product development
expenditures are essential for us to maintain and enhance our market position.
To date, we have not capitalized any software development costs as they have
been insignificant.

        Sales and Marketing Expenses. Sales and marketing expenses consist of
personnel and related costs for our direct sales force, pre-sales support and
marketing staff, and marketing programs including trade shows and advertising.
Sales and marketing expenses increased to $3,983,000, or 206% of total revenues,
for the three months ended June 30, 2000 from $1,814,000, or 157% of total
revenues, for the three months ended June 30, 1999. Over half of this increase
in absolute dollars was due to growth in our sales and marketing personnel while
the remainder was due to increased expenses incurred in connection with trade
shows and additional marketing programs. The increase in our sales and marketing
staff related to the opening of new sales offices in the United States and in
Europe. We expect sales and marketing expenses to increase substantially for the
foreseeable future as we hire additional sales and marketing personnel, increase
spending on advertising and marketing programs, and expand our operations in
North America and internationally.

        General and Administrative Expenses. General and administrative expenses
consist primarily of personnel and related costs for general corporate
functions, including finance, accounting, legal, human resources, facilities and
information system expenses not allocated to other departments, as well as the
costs of our external audit firm and our outside legal counsel. General and
administrative expenses increased to $1,242,000, or 64% of total revenues, for
the three months ended June 30, 2000 from $437,000, or 38% of total revenues,
for the three months ended June 30, 1999. The increase in absolute dollars was
due to an increase in our general and administrative headcount. We expect
general and administrative expenses to increase substantially for the
foreseeable future as we hire additional general and administrative personnel
and enhance our information systems to support our expected growth.

        Stock-Based Compensation Expense. Stock based compensation expense
represents the amortization of deferred compensation (calculated as the
difference between the exercise price of stock options granted to our employees
and the then deemed fair value of our common stock) for stock options granted to
our employees. We recognized stock-based compensation expense of $836,000 and
$41,000 for the three months ended June 30, 2000 and 1999, respectively.

        Interest and Other Income, Net. Interest and other income, net, includes
interest income from cash and cash equivalents offset by interest on capital
leases and bank debt. Interest and other income, net, increased to $112,000 for
the three months ended June 30, 2000 from $32,000 for the three months ended
June 30, 1999, an increase of $80,000. The increase was due to interest income
from increased cash balances.

        Provision for Income Taxes. We have not recorded a provision for federal
and state or foreign income taxes for the three months ended June 30, 2000 or
1999 because we have experienced net losses since inception, which have


<PAGE>   14


resulted in deferred tax assets. We have recorded a valuation allowance for the
entire deferred tax asset as a result of uncertainties regarding the realization
of the asset balance through future taxable profits.


LIQUIDITY AND CAPITAL RESOURCES

        As of June 30, 2000, we had cash and cash equivalents of $6,137,000, a
decrease of $3,970,000 in cash and cash equivalents held as of March 31, 2000.
Our working capital, defined as current assets less current liabilities, at June
30, 2000 was $15,202,000, an increase of $7,101,000 in working capital from
March 31, 2000. The increase in our working capital is primarily attributable to
the increase in our restricted cash balance at June 30, 2000. This restricted
cash became available for our use on July 5, 2000 when we completed an
$18,000,000 private placement with certain investors concurrent with our initial
public offering that resulted in $35,805,000 of net proceeds to us. In addition,
our underwriters exercised their over-allotment option on July 17, 2000, which
resulted in $5,371,000 of net proceeds to us.

        We have a $1,500,000 senior line of credit facility with a bank that
bears interest at the bank's prime lending rate less 0.25% and expires in
November 2000. At June 30, 2000, $806,000 was outstanding under this line of
credit. This line of credit is secured by accounts receivable and other assets.
We have two equipment term loans with a bank totaling $177,000 at June 30, 2000
that bear interest at the bank's prime lending rate plus 0.5% and are payable in
monthly installments through November 1, 2001.

        Our operating activities resulted in net cash outflows of $5,659,000 and
$2,262,000 for the three months ended June 30, 2000 and 1999, respectively. The
cash used in these periods was primarily attributable to net losses of
$7,735,000 and $2,232,000 in the three months ended June 30, 2000 and 1999,
respectively.

        Investing activities resulted in cash outflows of $1,178,000 and
$390,000 for the three month ended June 30, 2000 and 1999, respectively. These
expenditures were primarily for computer hardware and software and furniture and
fixtures. We expect that capital expenditures will continue to increase to the
extent we increase our headcount and expand our operations.

        Financing activities provided net cash inflows of $2,867,000 during the
three months ended June 30, 2000 primarily as a result of warrant exercises to
purchase our preferred and common stock and a draw on our senior line of credit
facility. For the three months ended June 30, 1999, financing activities
resulted in net cash outflows due to payments on debt and capital lease
obligations.

        We anticipate that our current cash, cash equivalents and available
credit facilities will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
However, we may need to raise additional funds in future periods through public
or private financings, or other sources, to fund our operations and potential
acquisitions, if any, until we achieve profitability, if ever. We may not be
able to obtain adequate or favorable financing when necessary to fund our
business. Failure to raise capital when needed could harm our business. If we
raise additional funds through the issuance of equity securities, the percentage
of ownership of our stockholders would be reduced. Furthermore, these equity
securities might have rights, preferences or privileges senior to our common
stock.


<PAGE>   15


YEAR 2000 READINESS DISCLOSURE

        To date, we have not experienced any disruption in our products or
services as a result of, nor has any third-party vendor on which we depend been
affected by, the commencement of the year 2000. Although we do not anticipate
that our products and services will be affected by the year 2000, if we, or our
third-party providers, fail to remedy any year 2000 issues, the result could be
lost revenues, increased operating expenses, the loss of customers and other
business interruptions, any of which could harm our business. The failure to
adequately address year 2000 compliance issues in the delivery of products and
services to our customers could result in claims against us of breach of
contract and related litigation, any of which could be costly and time consuming
to defend.

        In light of our experiences to date, we have not developed any specific
contingency plans for year 2000 issues. Our worst case scenario for year 2000
problems would be our inability to provide our products and services to our
customers and a resultant decline in our total revenues.


<PAGE>   16


RISK FACTORS

        The occurrence of any of the following risks could materially and
adversely affect our business, financial condition and operating results. In
this case, the trading price of our common stock could decline and you might
lose all or part of your investment.

                          RISKS RELATED TO OUR BUSINESS

BECAUSE WE HAVE ONLY RECENTLY INTRODUCED OUR VIDEO SOFTWARE PRODUCTS AND
APPLICATION SERVICES, WE FACE A NUMBER OF RISKS WHICH MAY SERIOUSLY HARM OUR
BUSINESS.

        We incorporated in April 1994 and to date we have generated only limited
revenues. Most of our revenues were generated in the last six quarters. We
introduced our first video software products in December 1997, and our
application services in May 1999. Because we have a limited operating history
with our video software products and application services and because our
revenue sources may continue to shift as our business develops, you must
consider the risks and difficulties that we may encounter when making your
investment decision. These risks include our ability to:

        -       expand our customer base;

        -       increase penetration into key customer accounts;

        -       maintain our pricing structure;

        -       develop new video products and application services; and

        -       adapt our products and services to meet changes in the Internet
                video infrastructure marketplace.

        If we do not successfully address these risks, our business will be
seriously harmed.

OUR BUSINESS MODEL IS UNPROVEN AND MAY FAIL, WHICH MAY DECREASE SIGNIFICANTLY
THE MARKET PRICE OF OUR COMMON STOCK.

        We do not know whether our business model and strategy will be
successful. Our business model is based on the premise that content providers
will use our licensed products and application services to catalog, manage and
distribute their video content over the Internet and intranets. Our potential
customers may elect to rely on their internal resources or on lower priced
products and services that do not offer the full range of functionality offered
by our products and services. If the assumptions underlying our business model
are not valid or if we are unable to implement our business plan, our business
will suffer.

WE HAVE NOT BEEN PROFITABLE AND IF WE DO NOT ACHIEVE PROFITABILITY, OUR
BUSINESS MAY FAIL.

        We have experienced operating losses in each quarterly and annual period
since we were formed and we expect to incur significant losses in the future. As
of June 30, 2000, we had an accumulated deficit of $40,035,000. We expect to
continue to incur increasing research and development, sales and marketing and
general and administrative expenses. Accordingly, our failure to increase our
revenues significantly or improve our gross margins will harm our business. Even
if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis in the future. If our revenues grow
more slowly than we anticipate, if our gross margins do not improve, or if our
operating expenses exceed our expectations, our operating results will suffer
and our stock price may fall.

OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF WE
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE MARKET
PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.

        Our quarterly operating results have varied significantly in the past
and are likely to vary significantly in the future. We believe that
period-to-period comparisons of our results of operations are not meaningful and
should not be relied upon as indicators of future performance. If securities
analysts follow our stock, our operating results will likely fall below their
expectations in some future quarter or quarters. Our failure to meet these
expectations would likely cause the market price of our common stock to decline.


<PAGE>   17


        Our quarterly revenues depend on a number of factors, many of which are
beyond our control and which makes it difficult for us to predict our revenues
going forward. We plan to increase our operating expenses and if our revenues
and gross margins do not increase, our business could be seriously harmed. We
plan to increase our operating expenses to expand our sales and marketing
operations, fund greater levels of research and development, expand our
application services and develop our internal organization. Many of these
expenditures are planned or committed in advance in anticipation of future
revenues, and if our revenues in a particular quarter are lower than we
anticipate, we may be unable to reduce spending in that quarter. As a result,
any shortfall in revenues or a failure to improve gross margins would likely
hurt our quarterly operating results.

THE FAILURE OF ANY SIGNIFICANT FUTURE CONTRACTS TO MEET OUR POLICIES FOR
RECOGNIZING REVENUE MAY PREVENT US FROM ACHIEVING OUR REVENUE OBJECTIVES FOR A
QUARTER OR A FISCAL YEAR, WHICH WOULD HURT OUR OPERATING RESULTS.

        Our sales contracts are typically based upon standard agreements that
meet our revenue recognition policies. However, our future sales may include
site licenses or other transactions with customers who may negotiate special
terms and conditions that are not part of our standard sales contracts. If these
special terms and conditions cause sales under these contracts to not qualify
under our revenue recognition policies, we would defer revenues to future
periods, which may hurt our reported operating results and cause our stock price
to fall.

THE LENGTH OF OUR SALES AND DEPLOYMENT CYCLE IS UNCERTAIN, WHICH MAY CAUSE OUR
REVENUES AND OPERATING RESULTS TO VARY SIGNIFICANTLY FROM QUARTER TO QUARTER.

        During our sales cycle, we spend considerable time and expense providing
information to prospective customers about the use and benefits of our products
and services without generating corresponding revenue. Our expense levels are
relatively fixed in the short term and based in part on our expectations of
future revenues. Therefore, any delay in our sales cycle could cause significant
variations in our operating results, particularly because a relatively small
number of customer orders represent a large portion of our revenues.

        Some of our largest sources of revenues are government entities and
large corporations that often require long testing and approval processes before
making a decision to license our products. In general, the process of entering
into a licensing arrangement with a potential customer may involve lengthy
negotiations. As a result, our sales cycle has been and may continue to be
unpredictable. In the past, our sales cycle has ranged from one to 12 months.
Our sales cycle is also subject to delays as a result of customer-specific
factors over which we have little or no control, including budgetary constraints
and internal acceptance procedures. In addition, because our technology must
often be integrated with the products and services of other vendors, there may
be a significant delay between the use of our software and services in a pilot
system and our customers' volume deployment of our products and services.

IF OUR CUSTOMERS FAIL TO GENERATE TRAFFIC ON THE VIDEO-RELATED SECTIONS OF THEIR
INTERNET SITES, OUR RECURRING REVENUES MAY DECREASE, WHICH MAY ADVERSELY AFFECT
OUR BUSINESS AND FINANCIAL RESULTS.

        Our ability to achieve recurring revenues from our application services
is largely dependent upon the success of our customers in generating traffic on
the video-related sections of their Internet sites. Generally, we generate
recurring revenue from our application services whenever our customers add more
hours of video to an existing project and with each additional video query on a
customer's site. If our customers do not attract and maintain traffic on
video-related sections of their sites, video queries may decrease and customers
may decide not to add more hours of video to existing projects. This result
would cause revenues from our application services to decrease, which will
prevent us from growing our business.


<PAGE>   18


IF WE FAIL TO INCREASE THE SIZE OF OUR CUSTOMER BASE OR INCREASE OUR REVENUES
WITH OUR EXISTING CUSTOMERS, OUR BUSINESS WILL SUFFER.

        Increasing the size of our customer base and increasing the revenues we
generate from our customer base are critical to the success of our business. To
expand our customer base and the revenues we generate from our customers, we
must:

        -       generate additional revenues from different organizations within
                our customers;

        -       conduct effective marketing and sales programs to acquire new
                customers;

        -       establish and maintain distribution relationships with value
                added resellers and system integrators.

        Our failure to achieve one or more of these objectives will hurt our
business.

THE PRICES WE CHARGE FOR OUR PRODUCTS AND SERVICES MAY DECREASE, WHICH WOULD
REDUCE OUR REVENUES AND HARM OUR BUSINESS.

        The prices we charge for our products and services may decrease as a
result of competitive pricing pressures, promotional programs and customers who
negotiate price reductions. For example, some of our competitors have provided
their services without charge in order to gain market share or new customers and
key accounts. The prices at which we sell and license our products and services
to our customers depend on many factors, including:

        -       purchase volumes;

        -       competitive pricing;

        -       the specific requirements of the order;

        -       the duration of the licensing arrangement; and

        -       the level of sales and service support.

        If we are unable to sell our products or services at acceptable prices
relative to our costs, or if we fail to develop and introduce on a timely basis
new products and services from which we can derive additional revenues, our
financial results will suffer.

WE RELY ON, AND EXPECT TO CONTINUE TO RELY ON, A LIMITED NUMBER OF CUSTOMERS FOR
A SIGNIFICANT PORTION OF OUR REVENUES AND IF ANY OF THESE CUSTOMERS STOPS
LICENSING OUR SOFTWARE OR PURCHASING OUR PRODUCTS AND SERVICES, OUR OPERATING
RESULTS WILL SUFFER.

        Historically, a limited number of customers has accounted for a
significant portion of our revenues. We anticipate that our operating results in
any given period will continue to depend to a significant extent upon revenues
from a small number of customers. We do not have long-term contracts with our
customers obligating them to license our software or purchase our products or
services. We cannot be certain that we will retain our current customers or that
we will be able to recruit additional or replacement customers. If we were to
lose one or more customers, our operating results could be significantly harmed.

ANY FAILURE OF OUR NETWORK COULD LEAD TO SIGNIFICANT DISRUPTIONS IN OUR
APPLICATION SERVICES BUSINESS WHICH COULD DAMAGE OUR REPUTATION, REDUCE OUR
REVENUES OR OTHERWISE HARM OUR BUSINESS.

        Our application services business is dependent upon providing our
customers with fast, efficient and reliable services. To meet our customers'
requirements, we must protect our network against damage from, among other
things:

        -       human error;

        -       physical or electronic security breaches;

        -       computer viruses;

        -       fire, earthquake, flood and other natural disasters;

        -       power loss;


<PAGE>   19


        -       telecommunications failure; and

        -       sabotage and vandalism.

        Our failure to protect our network against damage from any of these
events will hurt our business.

WE DEPEND ON AN OUTSIDE THIRD PARTY TO MAINTAIN OUR COMMUNICATIONS HARDWARE AND
PERFORM MOST OF OUR COMPUTER HARDWARE OPERATIONS AND IF THIS THIRD PARTY'S
HARDWARE AND OPERATIONS FAIL, OUR REPUTATION AND BUSINESS WILL SUFFER.

        Substantially all of our communications hardware and most of our
computer hardware operations are located at Exodus Communications' facility in
Santa Clara, California. We do not have complete backup systems for these
operations. A problem with, or failure of, our communications hardware or
operations could result in interruptions or increases in response times on the
Internet sites of our customers. Furthermore, if Exodus fails to adequately
maintain or operate our communications hardware or does not perform our computer
hardware operations adequately, our services to our customers may not be
available. We have experienced system failures in the past. Other outages or
system failures may occur. Any disruptions could damage our reputation, reduce
our revenues or otherwise harm our business. Our insurance policies may not
adequately compensate us for any losses that may occur due to any failures or
interruptions in our systems.

IF WE ARE UNABLE TO SCALE OUR CAPACITY SUFFICIENTLY AS DEMAND FOR OUR SERVICES
INCREASES, WE MAY LOSE CUSTOMERS WHICH WOULD BE DETRIMENTAL TO OUR BUSINESS.

        We cannot be certain that if we increase our customers we will be able
to correspondingly increase our personnel and to perform our application
services at satisfactory levels. In addition, our application services may need
to accommodate an increasing volume of traffic. If we are not able to expand our
internal operations to accommodate such an increase in traffic, our customers'
Internet sites may in the future experience slower response times or outages. If
we cannot adequately handle a significant increase in customers or customers'
traffic, we may lose customers or fail to gain new ones, which may reduce our
revenues and harm our business.

IF WE DO NOT SUCCESSFULLY DEVELOP NEW PRODUCTS AND SERVICES TO RESPOND TO RAPID
MARKET CHANGES DUE TO CHANGING TECHNOLOGY AND EVOLVING INDUSTRY STANDARDS, OUR
BUSINESS WILL BE HARMED.

        The market for our products and services is characterized by rapidly
changing technology, evolving industry standards, frequent new product and
service introductions and changes in customer demands. The recent growth of
video on the Internet and intense competition in our industry exacerbate these
market characteristics. Our future success will depend to a substantial degree
on our ability to offer products and services that incorporate leading
technology, and respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis. To succeed, we
must anticipate and adapt to customer requirements in an effective and timely
manner, and offer products and services that meet customer demands. If we fail
to do so, our products and services will not achieve widespread market
acceptance, and we may not generate significant revenues to offset our
development costs, which will hurt our business.

        The development of new or enhanced products and services is a complex
and uncertain process that requires the accurate anticipation of technological
and market trends. We may experience design, manufacturing, marketing and other
technological difficulties that could delay our ability to respond to
technological changes, evolving industry standards, competitive developments or
customer requirements. You should additionally be aware that:

        -       our technology or systems may become obsolete upon the
                introduction of alternative technologies, such as products that
                better manage and search video content;

        -       we could incur substantial costs if we need to modify our
                products and services to respond to these alternative
                technologies;

        -       we may not have sufficient resources to develop or acquire new
                technologies or to introduce new products or services capable of
                competing with future technologies; and


<PAGE>   20


        -       when introducing new or enhanced products or services, we may be
                unable to manage effectively the transition from older products
                and services and ensure that we can deliver products and
                services to meet anticipated customer demand.

WE DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES, AND THE LOSS OF OR OUR
INABILITY TO MAINTAIN THESE LICENSES COULD RESULT IN INCREASED COSTS OR DELAY
SALES OF OUR PRODUCTS.

        We license technology from third parties, including software that is
integrated with internally-developed software and used in our products to
perform key functions. We anticipate that we will continue to license technology
from third parties in the future. This software may not continue to be available
on commercially reasonable terms, if at all. Although we do not believe that we
are substantially dependent on any licensed technology, some of the software we
license from third parties could be difficult for us to replace. The loss of any
of these technology licenses could result in delays in the license of our
products until equivalent technology, if available, is developed or identified,
licensed and integrated. The use of additional third-party software would
require us to negotiate license agreements with other parties, which could
result in higher royalty payments and a loss of product differentiation. In
addition, the effective implementation of our products depends upon the
successful operation of third-party licensed products in conjunction with our
products, and therefore any undetected errors in these licensed products could
prevent the implementation or impair the functionality of our products, delay
new product introductions and/or damage our reputation.

IF WE ARE UNABLE TO RETAIN OUR KEY PERSONNEL, OUR BUSINESS MAY BE HARMED.

        Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, and particularly Paul
Lego, our chief executive officer. The loss of either this individual or other
key employees would likely have an adverse effect on our business. We do not
have employment agreements with most of our senior management team. If one or
more of our senior management team were to resign, the loss could result in loss
of sales, delays in new product development and diversion of management
resources.

BECAUSE COMPETITION FOR QUALIFIED PERSONNEL IS INTENSE, WE MAY NOT BE ABLE TO
RECRUIT OR RETAIN PERSONNEL, WHICH COULD IMPACT THE DEVELOPMENT AND ACCEPTANCE
OF OUR PRODUCTS AND SERVICES.

        We expect that we will need to hire additional personnel in all
functional areas in the foreseeable future. Competition for personnel throughout
our industry is intense. We may be unable to attract or assimilate other
highly-qualified employees in the future. We have in the past experienced, and
we expect to continue to experience, difficulty in hiring highly-skilled
employees with appropriate qualifications. In addition, new hires frequently
require extensive training before they achieve desired levels of productivity.
Several members of our existing management team have been employed at Virage for
less than one year, including our chief financial officer. We may fail to
attract and retain qualified personnel, which could have a negative impact on
our business.

FAILURE TO PROPERLY MANAGE OUR POTENTIAL GROWTH WOULD BE DETRIMENTAL TO OUR
BUSINESS.

        Any growth in our operations will place a significant strain on our
resources. As part of this growth, we will have to implement new operational and
financial systems, procedures and controls to expand, train and manage our
employee base and to maintain close coordination among our technical,
accounting, finance, marketing, sales and editorial staffs. We will also need to
continue to attract, retain and integrate personnel in all aspects of our
operations. To the extent we acquire other businesses, we will also need to
integrate and assimilate new operations, technologies and personnel. Failure to
manage our growth effectively could hurt our business.

DEFECTS IN OUR SOFTWARE PRODUCTS COULD DIMINISH DEMAND FOR OUR PRODUCTS WHICH
MAY CAUSE OUR STOCK PRICE TO FALL.

        Our software products are complex and may contain errors that may be
detected at any point in the life of the product. We cannot assure you that,
despite testing by us and our current and potential customers, errors will not
be found in new products or releases after shipment, resulting in loss of
revenues, delay in market acceptance and sales, diversion of development
resources, injury to our reputation or increased service and warranty costs. If
any of these were to occur, our business would be adversely affected and our
stock price could fall.


<PAGE>   21


        Because our products are generally used in systems with other vendors'
products, they must integrate successfully with these existing systems. System
errors, whether caused by our products or those of another vendor, could
adversely affect the market acceptance of our products, and any necessary
revisions could cause us to incur significant expenses.

WE COULD BE SUBJECT TO LIABILITY CLAIMS AND NEGATIVE PUBLICITY IF OUR CUSTOMERS'
SYSTEMS, INFORMATION OR VIDEO CONTENT IS DAMAGED THROUGH THE USE OF OUR PRODUCTS
OR OUR APPLICATION SERVICES.

        If our customers' systems, information or video content is damaged by
software errors, product design defects or use of our application services, our
business may be harmed. In addition, these errors or defects may cause severe
customer service and public relations problems. Errors, bugs, viruses or
misimplementation of our products or services may cause liability claims and
negative publicity ultimately resulting in the loss of market acceptance of our
products and services. Our agreements with customers that attempt to limit our
exposure to liability claims may not be enforceable in jurisdictions where we
operate.

OTHERS MAY BRING INFRINGEMENT CLAIMS AGAINST US WHICH COULD BE TIME CONSUMING
AND EXPENSIVE FOR US TO DEFEND.

        Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, limit or interfere with our ability to
conduct our business. These companies could assert, and it may be found, that
our technologies infringe their proprietary rights. We could incur substantial
costs to defend any litigation, and intellectual property litigation could force
us to do one or more of the following:

        -       cease using key aspects of our technology that incorporate the
                challenged intellectual property;

        -       obtain a license from the holder of the infringed intellectual
                property right; and

        -       redesign some or all of our products.

        From time to time, we have received notices claiming that our technology
infringes patents held by third parties. In the event any such claim is
successful and we are unable to license the infringed technology on commercially
reasonable terms, our business and operating results would be significantly
harmed.

IF THE PROTECTION OF OUR INTELLECTUAL PROPERTY IS INADEQUATE, OUR COMPETITORS
MAY GAIN ACCESS TO OUR TECHNOLOGY, AND WE MAY LOSE CUSTOMERS.

        We depend on our ability to develop and maintain the proprietary aspects
of our technology. We seek to protect our software, documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. Our proprietary rights may not prove viable or of value in
the future since the validity, enforceability and type of protection of
proprietary rights in Internet-related industries are uncertain and still
evolving.

        Unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. Policing unauthorized
use of our products is difficult, and while we are unable to determine the
extent to which piracy of our software or code exists, software piracy can be
expected to be a persistent problem. We license our proprietary rights to third
parties, and these licensees may not abide by our compliance and quality control
guidelines or they may take actions that would materially adversely affect us.
In addition, the laws of some foreign countries do not protect our proprietary
rights to as great an extent as do the laws of the United States, and effective
patent, copyright, trademark and trade secret protection may not be available in
these foreign jurisdictions. To date, we have not sought protection of our
proprietary rights in any foreign jurisdiction. Our efforts to protect our
intellectual property rights through patent, copyright, trademark and trade
secret laws may not be effective to prevent misappropriation of our technology,
or may not prevent the development and design by others of products or
technologies similar to or competitive with those developed by us. Our failure
or inability to protect our proprietary rights could harm our business.


<PAGE>   22


AS WE EXPAND OUR OPERATIONS INTERNATIONALLY, WE WILL FACE SIGNIFICANT RISKS IN
DOING BUSINESS IN FOREIGN COUNTRIES.

        As we expand our operations internationally, we will be subject to a
number of risks associated with international business activities, including:

        -       costs of customizing our products and services for foreign
                countries, including localization, translation and conversion to
                international and other foreign technology standards;

        -       compliance with multiple, conflicting and changing governmental
                laws and regulations, including changes in regulatory
                requirements that may limit our ability to sell our products and
                services in particular countries;

        -       import and export restrictions, tariffs and greater difficulty
                in collecting accounts receivable; and

        -       foreign currency-related risks if a significant portion of our
                revenues become denominated in foreign currencies.

FAILURE TO INCREASE OUR BRAND AWARENESS AMONG CONTENT OWNERS COULD LIMIT OUR
ABILITY TO COMPETE EFFECTIVELY.

        We believe that establishing and maintaining a strong brand name is
important to the success of our business. Competitive pressures may require us
to increase our expenses to promote our brand name, and the benefits associated
with brand creation may not outweigh the risks and costs associated with brand
name establishment. Our failure to develop a strong brand name or the incurrence
of excessive costs associated with establishing our brand name, may harm our
business.

WE MAY NEED TO MAKE ACQUISITIONS IN ORDER TO REMAIN COMPETITIVE IN OUR MARKET,
AND POTENTIAL FUTURE ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS AND DILUTE STOCKHOLDER VALUE.

        Although we have no current plans to do so, we may acquire other
businesses in the future in order to remain competitive or to acquire new
technologies. As a result of these acquisitions, we may need to integrate
products, technologies, widely dispersed operations and distinct corporate
cultures. The products, services or technologies of the acquired companies may
need to be altered or redesigned in order to be made compatible with our
software products and services, or the software architecture of our customers.
These integration efforts may not succeed or may distract our management from
operating our existing business. Our failure to successfully manage future
acquisitions could seriously harm our operating results. In addition, our
stockholders would be diluted if we finance the acquisitions by incurring
convertible debt or issuing equity securities.

         RISKS RELATING TO THE INTERNET VIDEO INFRASTRUCTURE MARKETPLACE

COMPETITION AMONG INTERNET VIDEO INFRASTRUCTURE COMPANIES IS INTENSE. IF WE ARE
UNABLE TO COMPETE SUCCESSFULLY, OUR BUSINESS WILL FAIL.

        Competition among Internet video infrastructure companies seeking to
attract new customers is intense and we expect this intensity of competition to
increase in the future. Our competitors vary in size and in the scope and
breadth of the products and services they offer and may have significantly
greater financial, technical and marketing resources. Our current direct
competitors include Excalibur Technologies and MediaSite. In May 2000, Intel and
Excalibur announced a relationship pursuant to which Excalibur and a division of
Intel will merge to form a new entity that will focus on providing Internet
video infrastructure. We may also compete indirectly with system integrators to
the extent they may embed or integrate competing technologies into their product
offerings, and in the future we may compete with video service providers and
searchable video portals. In addition, we may compete with our current and
potential customers who may contemplate developing software or performing
application services internally. Increased competition could result in price
reductions, reduced margins or loss of market share, any of which will cause our
business to suffer.


<PAGE>   23


IF BROADBAND TECHNOLOGY IS NOT ADOPTED OR DEPLOYED AS QUICKLY AS WE EXPECT,
DEMAND FOR OUR PRODUCTS AND SERVICES MAY NOT GROW AS QUICKLY AS ANTICIPATED.

        Broadband technology such as digital subscriber lines, commonly referred
to as DSL, and cable modems, which allows video content to be transmitted over
the Internet more quickly than current technologies, has only recently been
developed and is just beginning to be deployed. The growth of our business
depends in part on the broad market acceptance of broadband technology. If the
market does not adopt broadband technology, or adopts it more slowly than we
anticipate, demand for our products and services may not grow as quickly as we
anticipate, which will harm our business.

        We depend on the efforts of third parties to develop and provide the
technology for broadband transmission. Even if broadband access becomes widely
available, heavy use of the Internet may negatively impact the quality of media
delivered through broadband connections. If these third parties experience
delays or difficulties establishing the technology to support widespread
broadband transmission, or if heavy usage limits the broadband experience, the
market may not accept our products and services.

        Because the anticipated growth of our business depends in part on
broadband transmission infrastructure, we are subject to a number of risks,
including:

        -       changes in content delivery methods and protocols;

        -       the need for continued development by our customers of
                compelling content that takes advantage of broadband access and
                helps drive market acceptance of our products and services;

        -       the emergence of new competitors, including traditional
                broadcast and cable television companies, which have significant
                control over access to content, substantial resources and
                established relationships with media providers;

        -       the development of relationships by our competitors with
                companies that have significant access to or control over the
                broadband transmission technology or content; and

        -       the need to establish new relationships with non-PC based
                providers of broadband access, such as providers of television
                set-top boxes and cable television.

GOVERNMENT REGULATION OF THE INTERNET COULD LIMIT OUR GROWTH.

        We are not currently subject to direct regulation by any government
agency, other than laws and regulations generally applicable to businesses,
although certain U.S. export controls and import controls of other countries may
apply to our products. While there are currently few laws or regulations that
specifically regulate communications or commerce on the Internet, due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations may be adopted in the U.S. and abroad in the near future
with particular applicability to the Internet. It is possible that governments
will enact legislation that may be applicable to us in areas such as content,
network security, access charges and retransmission activities. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, content, taxation, defamation and personal privacy is uncertain. The
adoption of new laws or the adaptation of existing laws to the Internet may
decrease the growth in the use of the Internet, which could in turn decrease the
demand for our services, increase the cost of doing business or otherwise hurt
our business.


<PAGE>   24


PART II: OTHER INFORMATION

Item 1. Legal Proceedings.

   None.

Item 2. Changes in Securities and Use of Proceeds

  (c) Recent Sales of Unregistered Securities.

        During the three months ended June 30, 2000, Virage, Inc. issued and
        sold the following unregistered securities:

        Options to purchase 646,150 shares of our common stock on various dates
        to directors, employees and consultants under our 1997 Stock Option
        Plan. These options were issued in connection with employment or other
        service relationships, and no consideration was paid by the recipients
        for the options. The exercise price of the options is the fair market
        value determined on the date of exercise, and the options are generally
        on the standard terms for options issued under the 1997 Stock Option
        Plan. In addition, 4,166 shares of our common stock were exercised on
        various dates pursuant to employee options.

        34,197 shares of our series E preferred stock in June 2000 to an
        accredited investor pursuant to a net exercise of a warrant.

        19,055 shares of our series E preferred stock in June 2000 to an
        accredited investor pursuant to an exercise of a warrant at a price per
        share of $6.56 for a total purchase price of $125,000.80.

        181,818 shares of common stock pursuant to an exercise of a warrant at a
        price per share of $11.00 for a total purchase price of $1,999,998.00 to
        an accredited investor

        In issuing these securities and granting these options to directors,
        employees and consultants, we relied on exemptions from registration
        under the Securities Act of 1933 ("the Act") in reliance upon Rule 701
        promulgated under Section 3(b) of the Act as transactions pursuant to
        compensatory benefit plans and contracts relating to compensation. In
        issuing the securities pursuant to the warrants, the recipients
        represented that they were accredited investors, and we relied on the
        exemption from registration under the Act provided by Section 4(2).

  (d) Use of Proceeds

        On June 28, 2000, we commenced a firm commitment underwritten initial
        public offering of 3,500,000 shares of our common stock, at a price of
        $11.00 per share. The shares of the common stock sold in the offering
        were registered under the Securities Act of 1933, as amended, on a
        Registration Statement on Form S-1 (File No. 333-96315). The Securities
        and Exchange Commission declared the Registration Statement effective on
        June 28, 2000. The public offering was underwritten by a syndicate of
        underwriters led by Credit Suisse First Boston, FleetBoston Robertson
        Stephens Inc. and Wit SoundView Corporation, as their representatives.
        The public offering was not completed until July 2000, after the three
        months ended June 30, 2000

Item 3. Defaults Upon Senior Securities

   None.


<PAGE>   25


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

        We held our Annual Meeting of Stockholders on May 19, 2000. The
        following is a brief description of each matter voted upon at the
        meeting and the number of votes cast for, withheld, or against and the
        number of abstentions with respect to each matter. Each director
        proposed by us was elected and the stockholders also approved the
        management proposal we proposed.

        (a)     The stockholders reelected the nominees for our Board of
                Directors:

<TABLE>
<CAPTION>
Director                       Shares voted for          Shares withheld
--------                       ----------------          ---------------

<S>                            <C>                      <C>
Ramesh Jain .................      9,436,747                4,577,601
Paul G. Lego ................      9,436,747                4,577,601
Standish H. O'Grady .........      9,436,747                4,577,601
Lawrence K. Orr .............      9,436,747                4,577,601
C.K. Prahalad ...............      9,436,747                4,577,601
William H. Younger, Jr. .....      9,436,747                4,577,601
Philip W. Halperin ..........      9,436,747                4,577,601
</TABLE>

        (b)     The stockholders approved the appointment of Ernst & Young LLP
                as our independent auditors for the fiscal year ending March 31,
                2001:
<TABLE>
<S>                           <C>
Shares voted for: ......      9,436,747
Shares voted against: ..             --
Shares abstaining: .....      4,577,601
</TABLE>

        In June 2000, we submitted to our stockholders a proposal to amend the
        Sixth Amended and Restated Certificate of Incorporation, which, among
        other things, effects a one-for-two reverse stock split and adopts
        certain anti-takeover measures. The proposal was approved by written
        consent of the stockholders and became effective in June 2000. The
        results of the voting by written consent were as follows: votes FOR the
        proposal were cast by holders of 13,708,081 shares of Common and
        Preferred Stock; votes AGAINST the proposal were cast by holders of
        32,271 shares of Common and Preferred Stock. Holders of 273,996 shares
        of Common and Preferred Stock did not cast a vote or abstained.

Item 5. Other Information

   None.

Item 6. Exhibits and Report on Form 8-K.

  (a) Exhibits

<TABLE>
<CAPTION>
    Exhibit
    Number      Description of Document
    -------     -----------------------

    <S>         <C>
     3.4        Seventh Amended and Restated Certificate of Incorporation of
                Registrant

    27.1        Financial Data Schedule

    27.2        Financial Data Schedule
</TABLE>

  (b) Reports on Form 8-K

      None.

<PAGE>   26


                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                            VIRAGE, INC.

Date:  August 8, 2000                      By: /s/ Alfred J. Castino
                                               ---------------------------------
                                               Alfred J. Castino
                                               Vice President, Finance and
                                               Chief Financial Officer
                                               (Duly Authorized Officer and
                                               Principal Financial Officer)


<PAGE>   27
                                 EXHIBIT INDEX
<TABLE>
<CAPTION>
    Exhibit
    Number      Description of Document
    -------     -----------------------

    <S>         <C>
     3.4        Seventh Amended and Restated Certificate of Incorporation of
                Registrant

    27.1        Financial Data Schedule

    27.2        Financial Data Schedule
</TABLE>