SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---

FORM 10-K

---

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

For the fiscal year ended December 31, 2001

OR

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

FOR THE TRANSITION PERIOD FROM ___________ TO  _____________

Commission file number 0-28472

DIGITAL VIDEO SYSTEMS, INC.



|Delaware                                                       | 77-0333728                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number)

1731 Technology Drive, Suite 810San Jose, California     95110

(408) 392-0268

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

Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value [$0.0001] per share

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
  
 Yes [X]       No  [     ]

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

As of March 27, 2002 there were approximately 5,848,120 shares of the Registrant's Common Stock
outstanding.  The aggregate market value of the Common Stock held by non-affiliates of the
Registrant (based on the closing price for the Common Stock on the Nasdaq National Market on
March 28, 2002) was approximately $13,180,844.  Shares of the registrant's Common Stock held by
each executive officer and director and by each entity that owns 5% or more of the
registrant's Common Stock have been excluded in that such persons may be deemed to be
affiliates.  This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

---

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Definitive Proxy Statement for the Registrant's 2002 Annual
Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K to the
extent stated herein.  The Proxy Statement will be filed within 120 days of Registrant's fiscal
year ended December 31, 2001.









DIGITAL VIDEO SYSTEMS, INC.
                        ANNUAL REPORT ON FORM 10-K
                         Year Ended December 31, 2001

                               INDEX



|           |                                                                                       | Page
|---------- | ------------------------------------------------------------------------------------- | ----
|Part I.    |                                                                                       | 1   
|Item 1.    | Business                                                                              | 1   
|Item 2.    | Properties                                                                            | 5   
|Item 3.    | Legal Proceedings                                                                     | 6   
|Item 4.    | Submission of Matters to a Vote of Security Holders                                   | 6   
|Part II.   |                                                                                       | 9   
|Item 5.    | Market for the Registrant's Common Equity and Related Stockholder Matters             | 9   
|Item 6.    | Selected Consolidated Financial Data                                                  | 10  
|Item 7.    | Management's Discussion and Analysis of Financial Condition and Results of Operations | 11  
|Item 7a.   | Quantitative and Qualitative Disclosures About Market Risks                           | 28  
|Item 8.    | Financial Statements and Supplementary Data                                           | 30  
|Item 9.    | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  | 55  
|Part III.  |                                                                                       | 56  
|Item 10.   | Directors and Executive Officers of the Registrant                                    | 56  
|Item 11.   | Executive Compensation                                                                | 56  
|Item 12.   | Security Ownership of Certain Beneficial Owners and Management                        | 56  
|Item 13.   | Certain Relationships and Related Transactions                                        | 56  
|Part IV.   |                                                                                       | 56  
|Item 14.   | Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K | 56  
|SIGNATURES |                                                                                       | 58  

---

This Annual Report on Form 10-K includes
"forward-looking statements" within the meaning of the federal
securities laws, particularly statements referencing gross margin costs and
operating expenses; factory utilization rates; the sufficiency of our cash
balances and cash flows for the next twelve months; potential investments of
cash or stock to acquire or invest in complementary businesses, products or
technologies; the impact of recent changes in accounting standards; and
assumptions underlying any of the foregoing.  In some cases, forward-looking
statements can be identified by the use of terminology such as "may,"
"will," "expects," "intends," "plans,"
"anticipates," "estimates," "potential," or
"continue," or the negative thereof or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements contained herein are reasonable, these expectations or any of the
forward-looking statements could prove to be incorrect, and actual results could
differ materially from those projected or assumed in the forward-looking
statements.  Our future financial condition and results of operations, as well
as any forward-looking statements, are subject to risks and uncertainties,
including but not limited to the factors set forth in "Factors That May
Affect Future Results" and elsewhere in this report.  All forward-looking
statements and reasons why results may differ included in this report are made
as of the date hereof, and we assume no obligation to update any such forward-looking
statements or reasons why actual results may differ.



PART I



Item 1.	Business

Overview

Digital Video Systems, Inc. ("DVS"),
("DVSI") or (the "Company") was founded in 1992 to develop,
manufacture and market digital video compression and decompression hardware and
software for entertainment, commercial and educational applications.  Since our
inception, we have been involved in the marketing and development of a variety
of products and technologies in the digital video arena, such as video CD
players, the design of decoder chips, networked video servers that provide near
Video-on-Demand, digital Ad-Insertion systems that automatically insert digital
video commercials into broadcasting programs, video players for commercial kiosk
applications, DVD players under agreements with original equipment manufacturers
(OEM's) or under the DVS brand name, and other products developed for the
computer peripheral market.  During the fiscal year ended March 31, 1999,
we migrated our product offerings into DVD technology, while phasing out certain
older discontinued product lines.  Our current product offerings primarily
include DVD loaders, DVD-ROM drives and other DVD based products.

During fiscal 1997, which ended on March 31, 1997, we
completed our initial public offering (the "IPO") and a follow-on
public offering ("Secondary Offering").  The IPO and Secondary
Offering generated total net proceeds of approximately $43.7 million.

In June 1998, during a nationwide economic crisis in Korea,
the Company's founder, Dr. Edmund Y. Sun, introduced to us the opportunity
to acquire Hyundai Electronics Industries, Co., LTD's ("Hyundai") DVD
operations.  To aid the Company in completing the acquisition, Dr. Sun
provided a $1.0 million loan to us as a short-term note that was convertible to
common shares.  With the $1.0 million cash 285,714 shares of our common stock,
DVS was able to complete the acquisition.  The two million shares of our common
stock were issued to Hyundai in exchange for a perpetual, worldwide, royalty-
free license to Hyundai's DVD technologies and related intellectual properties.
The $1.0 million cash was paid to Hyundai to acquire its production equipment,
inventory, production supplies, test equipment, furniture, and computer systems
of Hyundai's DVD-ROM operations.  This acquisition provided a basis for the
improvement in our operating results during the fiscal years 2000 and 2001.  We
refer to the assets acquired in this acquisition as our "New Media
Division."

Pursuant to an Investment Agreement dated
October 15,1998 Oregon Power Lending Institution ("OPLI") and
other investors had the right to invest up to $12.25 million in the Company.  By
March 31, 1999, OPLI and certain other investors had provided the Company
with $6.5 million in additional financing.  The cash infusion from OPLI and
certain other investors enabled us to establish the operations of DVS Korea Co.,
Ltd., our 75% owned Korean subsidiary ("DVS Korea"), provide the
working capital required to expand DVS Korea's DVD production, increase sales,
reduce certain liabilities, pay certain costs relating to corporate
restructuring, as well as provide capital for continued marketing, R&D, and
corporate overhead expenses.

Our principal executive offices are located at 1731
Technology Drive, Suite 810, San Jose, California 95110, and our telephone
number at that location is (408) 392-0268.  We were incorporated in
Delaware in October 1992.

Recent Developments

In late 1999, the Company and Shanghai Industrial
Investment Group (SIIG) began negotiations to establish a business relationship
for the purpose of manufacturing DVD loaders in mainland China.  The purpose of
the Joint Venture in Shanghai China was to allow the Company to take advantage
of certain tax savings and lower labor and material costs.  Since many DVD
player manufacturers are already located in China, the resulting shipping time
and cost savings were expected to be substantial.  Shanghai Fangyuan Digital
Technology Ltd. ("SFDT") was formed.  SFDT is 51% owned by our Korean
subsidiary, 10% owned by a U.S. entity with DVS having a purchase option as to
such ownership rights, and 39% owned by SIIG.

The manufacturing facilities of SFDT began operations in May
2001 and over one million units were produced in the last fiscal year.  SFDT has
contributed almost $30 million of the Company's total revenue in 2001.

The manufacturing facilities of SFDT occupy approximately
73,000 square feet in a six story building located in an industrial park in
Shanghai.  SFDT decided to purchase the building in 2001.  The first two floors
are used as warehouse space, the next three floors are used for production, and
the sixth floor is used as administrative offices.  Each production floor can
house up to four assembly lines.  We believe that this facility has dramatically
increased our capacity to meet future production demands.

During the fourth quarter of 2001, our Korean subsidiary
opened a new factory in Korea to produce high end products expected to have
greater margins and higher quality control.  The new Korea factory occupies
approximately 39,000 square feet.  It is situated in a 155,830 square foot
parcel of land.  The land is owned by the Korean government, which has granted
the Company a 20-year rent-free lease.  The building is owned by DVS Korea.  The
factory can accommodate up to six assembly lines.

With the addition of this production capacity, we believe the
Company is well positioned to continue to expand its market share and to create
certain competitive advantages.

Our Products

Our current product offerings consist primarily of DVD-ROM drives
and DVD loaders.  We also produce and/or market other products for
the consumer products, commercial video and computer peripherals markets, which
are described in greater detail below.

DVD-ROM Drives

The DVD-ROM drive is used in personal computers as a
storage medium.  A DVD-ROM drive looks and operates in a similar manner to that
of a CD-ROM drive.  The principal benefits of a DVD-ROM drive versus a CD-ROM
drive are its substantially higher storage capacity and its ability to provide
enhanced multimedia capabilities for computer games and videos.

Our first DVD-ROM drive, rated at 2X DVD-ROM speed, was
produced in July 1998.  (The optical drive industry has established certain test
criteria to determine the speed at which a drive operates relative to a standard
for a DVD-ROM drive or that for a CD-ROM drive.  The higher the speed, the
higher the "X" number.) In September 1998, we supplied our key
customers with prototypes of our 5.2X speed DVD-ROM drive.  Production and
initial sales of the 5.2X speed DVD-ROM drive occurred in October.  In January
1999, we introduced our 6.2X speed DVD-ROM drive, which was produced and sold
from February 1999.  We also introduced the 8X DVD-ROM drive model in August
1999, the 10X DVD-ROM drive at the Comdex Show in November 1999, and the 12X
DVD-ROM drive at Computex in June 2000.  In February 2001 we designed a 16X DVD-ROM drive,
but have not commenced production due to certain competitive factors
such as production costs, product royalties and market demand.  Our DVD-ROM
drives are compatible with DVD-Video, DVD-R, and virtually all CD formats
including CD-ROM, CD-Audio, CD-R, CD-RW, Video CD, CD-I/FMV, multi-session Photo
CD, and Photo CD.

DVD Loaders

We have developed a number of models of DVD loaders with
the ATAPI or AV interfaces, which are offered with competitive pricing, quality,
functionality and service.  Unlike DVD-ROM drives, a high data transfer rate is
not a competitive factor in the market for DVD Loaders.  However, the ability to
read imperfect discs is an important differentiating factor.  We believe that
our DVD products have earned an excellent reputation with respect to this
factor.

Other Products

On a smaller scale, our product offerings include other
computer peripherals such as rewritable compact discs (CD-RWs), thin-film-transistor
liquid crystal display (TFT LCD) monitors, and DVD players.

When connected to a PC, the CD-RW drive allows the user to
record data, audio, images, or video on a CD disc that can be read by a CD-ROM
drive, an audio CD player, a video CD player, or a DVD-ROM drive, depending upon
the type of data recorded.

Compared with an ordinary CRT (Cathode Ray Tube) monitor, the
TFT LCD monitor is a flat-panel display that offers much smaller size, footprint
and power consumption.  Some models of the TFT LCD monitor that we offer include
a TV tuner, so that the monitor can also be used as an ordinary television.

Research and Development

During fiscal 2001, our research and development efforts
focused on enhancing our DVD technologies, improving product quality, reducing
costs of manufacturing, enhancing product functionality, adopting new and
improved key components, developing new products, and improving the integration
of our products by our customers.

As of December 31, 2001, we had 54 engineering
personnel, some of whom focus on supporting the sales and marketing efforts in
connection with customizing product applications for specific customers.

There can be no assurance that our research and development
efforts will progress as anticipated, that we will be able to reduce costs
sufficiently to be able to compete with others marketing similar products or
that new product models will be developed on a timely basis.

Sales, Marketing and Distribution

Our DVD-ROM drives have been sold to OEM's and
distributors of PC's and PC peripherals.  Beginning in late 1999, due to the
global over-supply of DVD-ROM drives, we temporarily stopped our production of
DVD-ROM drives and devoted our DVD production lines to the production of DVD
loaders, which were more profitable and in higher demand during that period.
However, we continued to develop more advanced models of DVD-ROM drives such as
the 8X to 16X models described above.

We continue to pursue potential customers for our DVD-ROM
drives both at the OEM level and the distributor level.  We are optimistic as to
the rate of growth and eventual size of the world-wide DVD-ROM drive market, and
we hope to expand our presence in the DVD-ROM drive market.

We sell our DVD loaders to OEMs of DVD players that do not
independently produce the DVD loaders used in their DVD players.  Many of these
OEMs are located in China, Taiwan, Hong Kong, and other countries.  China is one
of the largest markets for DVD players, and some of the DVD player manufacturers
in China have been active in exporting their products outside China at very
competitive prices.  Some of these DVD player models have been offered in the
United States and Europe under other brand names.

During fiscal 2001, due to active marketing and field
engineering, the sales of our DVD loaders have dramatically increased relative
to prior periods.  We are optimistic that our DVD loader business will continue
to grow in the foreseeable future.

In the past, we sold CD-based Video Engine products to Kiosk
distributors, who integrated our products as part of a complete solution that
include software titles.  Although our Video Engines offer a higher margin,
sales volume is relatively small.  Subject to favorable evaluation of this
product line, we may develop and introduce next generation Video Engines to
incorporate the DVD technologies.

Over the years, we have established global sales and
distribution channels for consumer electronic and computer peripheral products.
We sell these products to OEM's and distributors.

Our sales and marketing personnel attend tradeshows to
increase the awareness and interest in our product offerings.  We employ about
ten full time marketing and sales personnel based in United States and South
Korea, who travel to other parts of the world, to sell our products to OEM's and
distributors.  We also work with agents and distributors that conduct business
internationally.

Intellectual Property and Other Proprietary Rights

Our success depends upon our proprietary technology.  We
rely on a combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights.  As part of our confidentiality procedures, we generally
enter into non-disclosure agreements with our employees, distributors and
corporate partners and into license agreements with respect to our software,
documentation and other proprietary information.  In addition, we have patents
and design rights granted in the United States, Korea, China and other
countries, covering 9 to 17 years.  These patents and design rights include
areas such as DVD video and DVD ROM applications.  We cannot be certain that
these measures will adequately protect our intellectual property rights.

Competition

There are a number of foreign-based electronic
manufacturers substantially larger in size and greater in financial, marketing,
and other resources than us, such as, Thomson Electronics, Sanyo and Phillips
that are competitors or potential competitors with respect to our DVD products.
Some competitors may develop alternative products to compete with our products.
They may also begin operations or expand their existing operations into our
market segments.  In the distribution and sales of our other products, there are
also many well known competitors with substantially greater resources.

We have developed certain strategies to remain competitive in
the market.  However, there can be no assurance that future technological
advances by competitors will not result in improved products or services that
could adversely affect our business.

Competition in the electronics industry also extends to
attracting and retaining qualified technical and marketing personnel.  We have
also implemented strategies in this regard, which we believe have succeeded in
attracting and retaining talented and hardworking personnel with very low
turnover.  However, there can be no assurance that we will continue to be
successful in attracting and retaining such qualified personnel in the
future.

Employees

At March 15, 2002, we had 152 full time employees,
including employees of our subsidiaries.  We believe that our future prospects
will depend, in part, on our ability to obtain additional management, finance,
accounting, marketing, sales, manufacturing, and technical personnel.
Competition for such personnel is substantial, and the number of persons with
relevant experience is limited.  None of our employees is represented by a labor
union.  We believe that our employees relations are good.



Item 2.	Properties

As of March 15, 2002, we had the following
facilities leased from third parties, where our executive offices,
manufacturing, engineering, research and development and testing facilities are
located.





|Facility                                  | Location          | Size (sq. ft.) | Monthly Rent
(in thousands)
|----------------------------------------- | ----------------- | -------------- | ---------------------------
|US Main Offices                           | San Jose, CA      | 2,500          | $	11.0                     
|US Sales Offices                          | San Jose, CA      | 2,600          | $	4.0                      
|Korea Main Offices                        | Seoul, Korea      | 36,800         | $	7.5                      
|Korea Branch Offices                      | Chunan, Korea     | 1,100          | $	0.5                      
|China Sales Offices                       | Shenzhen, China   | 1,600          | $	1.1                      
|Korea Factory                             | Kyunggi Do, Korea | 39,060         | Company Owned              
|China Joint Venture
Factory and Warehouse | Shanghai, China   | 73,000         | $	9.4*                     

*This amount represents the monthly mortgage
payment on the building which was purchased in 2001.

We believe these facilities are adequate
and suitable to meet our needs for at least the next 12 months.



Item 3.	Legal Proceedings

We may from time to time become a party to various legal
proceedings arising in the ordinary course of our business.  We do not believe
that the outcome of any of such legal matters arising in the ordinary course of
business will have a material adverse effect on our business, operating results
or financial condition.

On December 4, 2001, a lawsuit was filed in United
States District Court, Northern District of California against DVS and certain
directors, officers and employees of DVS.  The plaintiffs in the foregoing
action, Glenbrook Capital Limited Partnership, Oxcal Venture Fund, Limited
Partnership, Pratrap Kondamoori and Bruce C. Bailey, are certain investors
that purchased securities from DVS in May 2001 and July 2001 in transactions not
involving a public offering.  The complaint relating to these transactions
purports to allege claims relating to breach of contract, fraud,
misrepresentation and violation of the Securities Exchange Act.  The plaintiffs
seek damages in excess of $1 million, punitive damages and costs of suit.
As of March 31, 2002, DVS and the other defendants have not yet answered
any of complaints listed above, and discovery had not yet commenced.  Although
DVS believes that it has certain meritorious defenses to the complaints and
intends to vigorously defend the action, an adverse judgment by a court or jury
could have a material and adverse effect on DVS's business, results of operation
and financial condition.

DVS Korea is involved in a lawsuit with a former employee who
is claiming unfair dismissal.  The DVS Korea's legal counsel has not been able
to provide an estimate of damages nor have they been able to determine the
likelihood of loss.  The Company had accrued $90 at December 31, 2001 and
2000.  During the period, in accordance with a Korean court order, DVS Korea
deposited $1,160 with the court until this litigation is resolved.  This deposit
is included in prepaid expenses in other current assets as of December 31,
2001 and 2000.  Management intends to defend this lawsuit vigorously and expects
to receive the deposit back during the next year.

While we have accrued certain amounts for the estimated legal
costs associated with defending these matters, there can be no assurance that
these cases and other third party assertions will be resolved without costly
litigation, in a manner that is not adverse to our financial position, results
of operations or cash flows or without requiring royalty payments in the future
which may adversely impact gross margins.  No estimate can be made of the
possible loss or possible range of loss associated with the resolution of these
contingencies.



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

Not Applicable.

Executive Officers

The following table sets forth certain information
concerning our executive officers as of March 15, 2002:



|Name                 | Age | Position                            
|-------------------- | --- | ------------------------------------
|Douglas T. Watson    | 49  | Chief Executive Officer and Director
|Edmund Y. Sun, Ph.D. | 53  | Chief Technical Officer and Director
|Da King Lu           | 59  | Vice President, Finance             
|Michael Chen         | 50  | Vice President, Operations          

Our executive officers are appointed by, and
serve at the discretion of, the Board of Directors.  Each executive officer is a
full-time employee.  There is no family relationship between any of our
executive officers or directors.

Douglas T. Watson, Chief Executive Officer

Mr. Watson has served as a Director since November
1998 and has served as a member of the Executive Committee from November 1998 to
March 2002.  He became Chief Executive Officer in February 2002.
Mr. Watson is currently President and Chief Executive Officer of Astoria
Metal Corporation (AMC), a ship repair and dismantling firm which he founded in
1992, that has operations in San Francisco and Long Beach.

Edmund Y. Sun, Ph.D., Chief Technical Officer

Dr. Edmund Y. Sun is our founder and has served
as our Co-Chairman of the Board since that time.  Dr. Sun has also served
as our Chief Technical Officer since June 1998.  From October 1992 to June 1998,
Dr. Sun served as our Chief Executive Officer and from October 1992 to May
1996, he served as our President.  Dr. Sun founded C-Cube Microsystems Inc.
("C-Cube"), a public company involved in the development of full-color
still and motion picture compression technology, and was its Chief Executive
Officer from March 1989 to September 1991, and Chairman of the Board from August
1988 until April 1993.  Dr. Sun was also previously a founder, Vice
President and Chief Technical Officer of Weitek Corporation, a public company
involved in high-speed three-dimensional shaded graphics systems and the use of
high speed chips in various computer applications.  Dr. Sun is a director
of CSS Laboratories Inc., a privately held computer hardware company.
Dr. Sun has a Ph.D. in Applied Physics and an M.S. in Electrical
Engineering from California Institute of Technology, and a B.S. in
Electrophysics from National Chiao-Tung University in Taiwan.

Da King Lu, Vice President of Finance

Da King Lu joined us in August 1999 as the Director of
Investor Relations.  He became the Vice President of Finance in November 2001.
From March 1998 to July 1999, Mr. Lu was the Vice President of Syntran
Color Imaging, Inc., an importer of consumer electronic products.  Prior to
March 1998, Mr. Lu was President of Lu Realty & Development where
he was involved with real estate development in Santa Clara County, California.
Mr. Lu holds a B.S. degree in Mathematics and a BSEE degree from the
University of Michigan and an MBA from Rutgers University.

Michael Chen, Vice President of Operations

Michael Chen served as a Director from November 1998
until March 2002 and served as a member of the Executive Committee from December
2001 to February 2002.  He also served as a Vice President of the Company since
November 1999.  Prior to that, Mr. Chen served as President of EMEE, Inc.,
a developer of intelligent electronic devices for automotive applications.
Mr. Chen holds a B.S. degree in Physics from National Taiwan University, an
M.S. degree and Ph.D. candidacy in Electrical Engineering from Stanford
University.  Mr. Chen has indicated that he intends to resign from his
position as Vice President of Operations effective April 15, 2002 to pursue
other interests.





PART II



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

Our common stock is listed on the Nasdaq Smallcap Market
under the symbol "DVID."  The following table sets forth, for the
periods indicated, the high and low sales prices per share of our common stock
as reported by the Nasdaq Smallcap Market for each quarter within the last two
years.





|                                                                                                                                                                                              | High                                                     | Low                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | -----------------------------------------------------
|Fiscal 2000
      First Quarter*
      Second Quarter
      Third Quarter
      Fourth Quarter
 Fiscal 2001
      First Quarter
      Second Quarter
      Third Quarter
      Fourth Quarter | $ 23.500
15.438
10.250
8.250
 
$ 4.250
6.220
3.999
6.990 | $ 9.188
6.063
6.125
2.188
 
$ 1.688
2.563
1.700
2.050

_________

*First quarter reflects the high and
low sales prices per share for common stock for the period between January 2000
and March 2000 which was the fourth quarter of the Company's fiscal year ending
March 31, 2000.  The Company subsequently changed its fiscal year end to
December 31.

On March 28, 2002, the last reported
sale price for the Common Stock was $3.15 per share.

As of March 27, 2002, there were approximately 210
holders of record of our Common Stock.  This number does not reflect the number
of beneficial holders of the Common Stock, which we believe is more than
3,000.

We have never paid cash dividends on our Common Stock.  At
present, we intend to retain any earnings for use in our business and do not
anticipate paying cash dividends in the foreseeable future.



Item 6.	Selected Consolidated Financial Data

`Nine Month
                                                   Fiscal
                                    Fiscal Year    Period
                                       Ended        Ended        Fiscal Year Ended March 31,
                                    December 31, December 31, ----------------------------------
                                       2001         2000         2000        1999        1998
                                    -----------  -----------  ----------  ----------  ----------
                                                (in thousands, except per share data)

Consolidated Statement of
  Operations Data:                                                                              
Net revenue....................... $   159,871  $    73,103      60,292      17,111      17,638
Gross profit......................      14,076       10,100       7,783         744      (2,890)
Research and development..........       2,503        2,493       2,492       6,193       8,082
Sales and marketing...............       2,173        1,902       1,828       3,072       5,771
General and administrative .......       7,612        3,467       5,639       8,627       9,447
Purchased in-process research
  and development.................         --           --          --          500         617
Restructuring (gain) loss.........         --           --          --       (1,134)        --
Gain (loss) from operations.......       1,788        2,248      (2,176)    (18,782)    (26,807)
Income (loss) before income tax
  provisions and minority interest       1,895        2,226       1,198     (18,832)    (25,718)
Net income (loss)                          868        1,148         861     (18,832)    (25,718)
Net income (loss) per share (1):
  Basic........................... $      0.16  $      0.25        0.20       (1.27)      (2.09)
  Diluted......................... $      0.14  $      0.21        0.20       (1.27)      (2.09)
Weighted average number of
  shares outstanding..............       6,146        5,419       4,363       2,468       1,754

                                                                                                
                                          December 31,                    March 31,
                                    ------------------------  ----------------------------------
                                       2001         2000         2000        1999        1998
                                    -----------  -----------  ----------  ----------  ----------
                                                (in thousands, except per share data)
Consolidated Balance Sheet Data:                                                                
Current assets.................... $    34,892  $    22,400  $   15,657  $   11,799  $   13,881
Current liabilities...............      29,896       19,977      15,521      11,969       5,552
Working capital...................       4,996        2,423         136        (170)      8,329
Total assets......................      45,636       30,008      22,975      16,093      15,728
Total liabilities.................      31,648       21,537      17,375      11,969       5,552
Additional paid in capital........      71,350       69,020      68,088      70,467      56,510
Accumulated deficit...............     (61,970)     (62,838)    (63,986)    (67,946)    (46,015)
Total stockholders equity                9,111        6,683       5,600       4,124      10,176`

_________

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



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

The following discussion should be read in conjunction
with our consolidated financial statements and notes thereto appearing elsewhere
in this report.

Overview

It is important to note that, the Company changed its
fiscal year end from March 31 to December 31, beginning with the year
ended December 31, 2000.  Therefore the present report on Form 10-K
covers the twelve-month period from January 1, 2001 to December 31,
2001.  A number of the comparisons presented in this report are comparing the
results of  this twelve-month period ended December 31, 2001 with the nine-month
period ended December 31, 2000 and with the twelve months' results of
the fiscal year ended March 31, 2000.

During the twelve-month period ended December 31, 2001,
the Company has continued to carry out the strategy to focus on products based
on its DVD intellectual property portfolio, while seeking to reduce overhead and
eliminate product lines and operations that were under-performing.  The results
of these efforts are highlighted in the table below:

`Twelve        Nine
                                      Months       Months                 Fiscal Year
                                       Ended        Ended       (Twelve Months) Ended March 31,
                                    December 31, December 31, ----------------------------------
                                       2001         2000         2000        1999        1998
                                    -----------  -----------  ----------  ----------  ----------
                                                             (in millions)                      
Revenue........................... $     159.9  $      73.1  $     60.3  $     17.1  $     17.6
Gross profit (loss)...............        14.1         10.1         7.8         0.7        (2.9)
Operating income (loss)...........         1.8          2.2        (2.2)      (18.8)      (26.8)
Net income (loss).................         0.9          1.1         0.9       (18.8)      (25.7)`

The revenue for the twelve-month period ended
December 31, 2001 was $159.9 million, compared with $73.1 million for the
nine-month period ended December 31, 2000, and compared with $60.3, $17.1
and $17.6 million for the twelve-month periods of fiscal years ended
March 31, 2000, 1999 and 1998.

Gross margin for the twelve month period ended
December 31, 2001 was 8.8%, compared with 13.8% for the nine-month period
ended December 31, 2000, and compared with 12.9%, 4.3% and (16.4%) for the
fiscal years ended March 31, 2000, 1999 and 1998.

In the twelve-month period ended December 31, 2001, the
Company achieved income from operations of $1.8 million compared with $2.2
million for the nine-month period ended December 31, 2000, and compared
with operating losses of $2.2, $18.8 and $26.8 million for the fiscal years
ended March 31, 2000, 1999 and 1998.

The net income for the twelve-month period ended
December 31, 2001 was $0.9 million, compared with $1.1 million for the
nine-month period ended December 31, 2000, and compared with the net income
of $0.9 million for the fiscal year ended March 31, 2000 and net losses of
$18.8 and $25.7 million for the fiscal years ended March 31, 1999 and
1998.

The Company is reporting working capital of $5.0 million at
December 31, 2001, $2.42 million at December 31, 2000, and $0.14
million at March 31, 2000.  The Company has increased credit lines and
letter of credit facilities with banks from about $31 million at
December 31, 2000 to about $48 million at December 31, 2001.

Additional credit facilities are expected to be provided by
partners in China for the operations of the joint venture.  These sources of
funds are expected to be sufficient for operations outside Korea in the year
ahead, including meeting certain obligations that were incurred in the past,
which were mainly due to losses from prior operations.

Since December 2001 and continuing through this "off
season" period all of our production needs are being met by the Korean
manufacturing facilities.  As we enter into the peak season beginning in the
Summer of 2002 and as our overall needs for additional capacity increase, we
expect that the Shanghai facility will be more fully utilized and that it remain
in the future, including in subsequent off-season periods.

Management expects to receive market pressure to reduce
prices in the coming year due to increasingly intense competition in the DVD
market.  The Company has implemented certain measures to face the competitive
challenges ahead such as the establishment of lower cost manufacturing in
Shanghai and  implementation of a single board solution, and is now testing a
single chip solution, all of which should lower our manufacturing costs.

Results of Operations for the Twelve-Month Period Ended
December 31, 2001 Compared to the Nine-Month Period Ended December 31,
2000 ("Fiscal 2000")

The following table sets forth for the periods indicated
certain income and expense items expressed as a percentage of the Company's
total revenues for the twelve-month period ended December 31, 2001, the
nine-month period ended December 31, 2000 and the fiscal year ended
March 31, 2000.  Please see  our Consolidated Financial Statements of
Operations for additional details.

`Twelve        Nine        Fiscal
                                     Months       Months        Year
                                     Ended         Ended        Ended
                                  December 31,  December 31,  March 31,
                                      2001         2000         2000
                                  ------------  -----------  -----------
                                           (percent of revenue)
Revenues........................        100.0%       100.0%       100.0%
Gross margin....................          8.8%        13.8%        12.9%
Research and development........          1.6%         3.4%         4.1%
Sales and marketing.............          1.4%         2.6%         3.0%
General and administrative......          4.8%         4.7%         9.4%
Operating income(loss)..........          1.1%         3.1%        -3.6%
Net income                                0.5%         1.6%*        1.4%*`

_________

* includes one-time gain from sale of
certain assets related to discontinued product lines.



`Twelve        Nine        Fiscal
                                     Months       Months        Year
                                     Ended         Ended        Ended
                                  December 31,  December 31,  March 31,
                                      2001         2000         2000
                                  ------------  -----------  -----------
                                               (in thousands)
Consolidated revenue............ $    159,871  $    73,103  $    60,292`

As set forth above, total revenue in the twelve-
month period ended December 31, 2001 was $159.9 million, about 119% higher
than the $73.1 million for the nine-month period in 2000.  This significant
increase of $86.8 million was in part due to the additional three months of the
current year period coupled with the additional manufacturing brought on line in
Korea and in Shanghai.  Overseas sales represented almost 100% of revenue for
the twelve-months ended December 31, 2001, as was the case for the nine-
month period ended December 31, 2000.  During the twelve months ended
December 31, 2001, SIIG, our joint venture partner in China, was our major
customer, accounting for over 10% of sales.

Net income of $0.9 million for the twelve-month period ended
December 31, 2001 was lower than the $1.1 million for the nine-month period
ended December 31, 2001, primarily because of increased expenses relating
to the establishment of new manufacturing facilities in Korea and China.

`Twelve        Nine        Fiscal
                                     Months       Months        Year
                                     Ended         Ended        Ended
                                  December 31,  December 31,  March 31,
                                      2001         2000         2000
                                  ------------  -----------  -----------
                                               (in thousands)
Gross margin.................... $     14,076  $    10,110  $     7,783
   as a percentage of revenue...          8.8%        13.8%        12.9%`

The sharp reduction in gross margin was
principally due to  the opening of a new plant in Korea and the opening of the
factory in Shanghai, China.  Additionally the Company  increased its monthly
output, as measured by net sales, an average of about 70%, from the prior period
and had to absorb the transition costs associated with such a sharp increase.
And as previously mentioned, the increased pricing pressure from competition
contributed to the decline in gross margin.

Looking ahead to fiscal year ending December 31, 2002,
we expect to experience continued pricing pressure as competition becomes more
intense in the Company's customer base and the DVD market.  To reduce or offset
the impact, the Company has taken steps to lower costs and expenses which
include controls relating to our purchasing and engineering efforts.

`Twelve        Nine        Fiscal
                                     Months       Months        Year
                                     Ended         Ended        Ended
                                  December 31,  December 31,  March 31,
                                      2001         2000         2000
                                  ------------  -----------  -----------
                                               (in thousands)
Research and development........ $      2,503  $     2,493  $     2,492
   as a percentage of revenue...          1.6%         3.4%         4.1%`

Research and development expenses consist
primarily of personnel and equipment prototype costs required for the Company's
development efforts.  Research and development expenses as a percentage of
revenue decreased to 1.6% for the twelve-month period ended December 31,
2001, compared with 3.4% for the nine month period ended March 31, 2000.
The decrease in these expenses as a percentage of net revenues is principally
attributable to an increase in sales volume while maintaining essentially the
same level of spending.  Looking ahead to the year 2002 we expect an increase in
spending for R&D on an absolute dollar basis as we intensify our efforts to
reduce our unit cost structure and return to higher gross margins.

`Twelve        Nine        Fiscal
                                     Months       Months        Year
                                     Ended         Ended        Ended
                                  December 31,  December 31,  March 31,
                                      2001         2000         2000
                                  ------------  -----------  -----------
                                               (in thousands)
Sales and marketing............. $      2,173  $     1,902  $     1,828
   as a percentage of revenue...          1.4%         2.6%         3.0%`

Sales and marketing expenses consist primarily
of personnel and consulting costs involved in the selling process and in the
marketing of the Company's products, sales commissions, and expenses associated
with trade shows and advertising.  Sales and marketing expenses as a percentage
of net revenues decreased from 2.6% in the nine months ended December 31,
2000 to 1.4% in the year ended December 31, 2001.  The decrease in these
expenses as a percentage of revenue was also the result of a sharp increase in
sales volume while accompanied only by a slight increase in spending of
approximately 10%.  For the year 2002 we anticipate a further modest increase in
sales and marketing spending in absolute dollar terms.

`Twelve        Nine        Fiscal
                                     Months       Months        Year
                                     Ended         Ended        Ended
                                  December 31,  December 31,  March 31,
                                      2001         2000         2000
                                  ------------  -----------  -----------
                                               (in thousands)
General and administrative ..... $      7,612  $     3,467  $     5,639
   as a percentage of revenue...          4.8%         4.7%         9.4%`

General and administrative expenses consist
primarily of administrative salaries and benefits, insurance, facility, legal,
accounting, investor relations and other business support costs.  As reflected
in the table above, general and administrative expenses as a percentage of
revenue remained essentiallyconstant when compared to the nine month period
ended December 31, 2000.  The actual rate of spending increased about 60%
from the period ended December 31, 2000, reflecting costs associated with
the establishment of SFDT and the additional manufacturing facility in Korea.

Results of Operations for the Nine-Month Period Ended
December 31, 2001 Compared to the Fiscal Year Ended March 31, 2000

The following table sets forth for the periods indicated
certain income and expense items expressed as a percentage of the Company's
total revenues for the nine-month period ended December 31, 2000 and the
fiscal year ended March 31, 2000.  Please see our Consolidated Financial
Statements of Operations for details.

`Nine        Fiscal        Nine
                                     Months        Year        Months
                                     Ended         Ended        Ended
                                  December 31,   March 31,   December 31,
                                      2000         2000         1999
                                  ------------  -----------  -----------
                                       (percent of revenue)  (unaudited)
Revenues........................        100.0%       100.0%       100.0%
Gross margin....................         13.8%        12.9%        12.5%
Research and development........          3.4%         4.1%         3.9%
Sales and marketing.............          2.6%         3.0%         3.6%
General and administrative......          4.7%         9.4%         7.4%
Operating income(loss)..........          3.1%        -3.6%        -2.7%
Net income                                1.6%         1.4%*        3.5%*`

_________

* includes one-time gain from sale of
certain assets.



`Nine        Fiscal        Nine
                                     Months        Year        Months
                                     Ended         Ended        Ended
                                  December 31,   March 31,   December 31,
                                      2000         2000         1999
                                  ------------  -----------  -----------
                                        (in thousands)      (unaudited)
Consolidated revenue............ $     73,103  $    60,292  $    45,567`

As reflected above, total revenue in the nine-
month period ended December 31, 2000 was $73.1 million, about 60% higher
than the $45.6 million for the same nine-month period in 1999.  This significant
increase of $27.5 million was in part a result of the Company's decision to
focus its resources on the DVD product line, which accounted for approximately
98% of the current revenue, as compared to 93% in the fiscal year ended
March 31, 2000.  Overseas sales represented almost 100% for the nine-months
ended December 31, 2000, as compared to about 91% for the fiscal year ended
March 31, 2000.

The net profit of $1.1 million for the nine-month period
ended December 31, 2000 compares favorably with the $0.9 million for the
twelve-month period ended March 31, 2000, as the latter included a one-time
gain of $3.4 million from the sale of certain assets.

`Nine        Fiscal        Nine
                                     Months        Year        Months
                                     Ended         Ended        Ended
                                  December 31,   March 31,   December 31,
                                      2000         2000         1999
                                  ------------  -----------  -----------
                                        (in thousands)      (unaudited)
Gross margin.................... $     10,110  $     7,783  $     5,696
   as a percentage of revenue...         13.8%        12.9%        12.5%`

Gross margin increased from $12.9% of revenue
for the fiscal year ended March 31, 2000 to 13.8% of revenue for the nine-
month period ended December 31, 2000.  The improvement reflects the
continuing efforts of the Company to lower its costs of revenue.

`Nine        Fiscal        Nine
                                     Months        Year        Months
                                     Ended         Ended        Ended
                                  December 31,   March 31,   December 31,
                                      2000         2000         1999
                                  ------------  -----------  -----------
                                        (in thousands)      (unaudited)
Research and development........ $      2,493  $     2,492  $     1,777
   as a percentage of revenue...          3.4%         4.1%         3.9%`

Research and development expenses as a
percentage of revenue decreased to 3.4% for the nine-month period ended
December 31, 2000, compared with 4.1% for the fiscal year ended
March 31, 2000.  The decrease in these expenses as a percentage of net
revenues is attributable to reducing non-performing operations and focusing the
engineering resources on the DVD product line, which has generated substantial
growth in revenues.  The increased revenue and improved margin allowed the
Company to increase its research and development expenses, from $1.8 million for
the nine-month period ended March 31, 1999 to $2.5 million for the same
period in 2000.

`Nine        Fiscal        Nine
                                     Months        Year        Months
                                     Ended         Ended        Ended
                                  December 31,   March 31,   December 31,
                                      2000         2000         1999
                                  ------------  -----------  -----------
                                        (in thousands)      (unaudited)
Sales and marketing............. $      1,902  $     1,828  $     1,652
   as a percentage of revenue...          2.6%         3.0%         3.6%`

Sales and marketing expenses as a percentage of
net revenues decreased from 3.0% in the fiscal year ended March 31, 2000 to
2.6% in the nine-month period ended December 31, 2000.  The decrease in
these expenses as a percentage of revenue was also the result of the
restructuring of the Company's product lines that took place in this period to
focus the sales and marketing resources on the DVD product line, which resulted
in substantial increase in revenues.  The increase in revenue and improvement in
margins also allowed increased allocation for sales and marketing expenses, from
$1.7 million for the nine-month period ended March 31, 1999 to $1.9 million
for the same period in 2000.

`Nine        Fiscal        Nine
                                     Months        Year        Months
                                     Ended         Ended        Ended
                                  December 31,   March 31,   December 31,
                                      2000         2000         1999
                                  ------------  -----------  -----------
                                        (in thousands)      (unaudited)
General and administrative ..... $      3,467  $     5,639  $     3,364
   as a percentage of revenue...          4.7%         9.4%         7.4%`

As reflected in the table above, general and
administrative expenses as a percentage of revenue decreased from $5.6 million,
or 9.4% of revenue, for the fiscal year ended March 31, 2000 to $3.5
million, or 4.7% of revenue, for the nine-month period ended December 31,
2000.  Despite the significant growth of revenue, the general and administrative
expenses for the nine-month period ended December 31, 2000 were maintained
at the same level as the same period last year.  A substantial portion of these
expenses was used on resolving legal and accounting issues that arose from
operations in prior periods.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board
(FASB) issued SFAS No. 141, Accounting for Business Combinations.  This
statement requires the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, and establishes specific
criteria for the recognition of intangible assets separately from goodwill.

In June 2001, the FASB issued SFAS No. 142, Goodwill and
Other Intangible Assets.  Under SFAS No. 142, goodwill and intangible assets
with an indefinity life are not amortized.  Instead of amortizing goodwill and
intangible assets deemed to have an indefinite life, the statement requires a
test for impairment to be performed annually, or immediately if conditions
indicate that such an impairment could exists.  The amortization period of
intangible assets with finite lives will no longer be limited to forty years.
This statement will have the effect of reducing the Company's amortization of
goodwill effective January 1, 2002.  Transitional impairments are not
expected to be material, however, impairment reviews may result in future
periodic write downs.  This statement is effective for fiscal years beginning
after December 15, 2001, and permits early adoption for fiscal years
beginning after March 15, 2001.

In August 2001, the FASB issued SFAS No. 144, Accounting
for the Impairment or Disposal of Long Lived Assets, which addresses
financial accounting and reporting for the impairment and disposal of long-lived
assets with adoption required no later than fiscal year 2003.

The Company does not believe that any of these recent
accounting pronouncements will have a material impact on their financial
position or results of operations.

Liquidity and Capital Resources

Working capital at December 31, 2001 was $5.0
million as compared to $2.2 at December 31, 2000.  With credit lines and
letter of credit facilities of about $48 million established to support its
Korean subsidiary.  The Company believes that it must raise additional funds if
it is to carry out its objectives for worldwide operations in the year
ahead.

Net cash provided by operating activities was $6.1 million
for the year ended December 31, 2001, compared to $4.8 million used for the
nine months ended December 31, 2000, a positive change of $10.9 million.
Net cash provided by operating activities in the year ended December 31,
2001 was composed of increase in payables and accrued liabilities of $3.1
million, a reduction in other assets of $2.8 million, net income and
depreciation and amortization of $1.6 million, reduction of accounts receivable
of $0.8 million, minority interest in our Korean subsidiary of $0.7 million, and
stock and warrants issued for expenses of $0.6 million.  Net cash used in
operating activities were increase in inventory of $1.9 million and prepaids and
other current assets of $1.8 million.  Net cash used by operating activities for
the nine months ended December 31, 2000 consisted primarily of increases in
inventory of $5.3 million, accounts receivable $1.0 million, and prepaids and
other current assets of $2.0 million.  Net cash provided in the nine months
ended December 31, 2000 were net income of $1.1 million non cash charges
for depreciation and amortization of $1.0 million, minority interest in our
Korean subsidiary of $0.7 million, and increase in payables of $0.8 million.

Net cash used in investing activities was $9.2 million for
the year ended December 31, 2001, compared to $1.1 million for the nine
months ended December 31, 2000.  Cash used for the acquisition of property
and equipment was $8.5 million, and purchase of marketable securities of $0.8
million.  In the nine months ended December 31, 2000 net cash used in
investing activities totaled $1.1 million comprised of acquisition of plant and
equipment of $0.8 million and investment in our Shanghai, China joint venture of
$0.3 million.

Net cash provided by financing activities for the year ended
December 31, 2001 was $12.2 million, as compared to $6.0 million for the
nine months ended December 31, 2000.  Proceeds were principally from
increases in credit lines totaling $5.3 million, the issuance of notes payable
of $1.8 million, proceeds from the issuance of common stock of $1.7 and increase
in minority interests of our Korean subsidiary and our newly formed joint
venture in Shanghai China of $3.2 million.  Net cash provided by financing
activities of $6.0 million for the nine months ended December 31, 2000
consisted of the net borrowings through the credit lines facilities of $22.2
million, proceeds from the issuance of common stock for $0.16 million and
proceeds from the exercise of stock option for $0.12 million.  Additionally,
other notes payable netted $0.5 million and was offset in part by repayment of a
$0.356 million capital lease obligations.

Critical Accounting Policies

Management's discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues, and expenses and related
disclosures of contingent assets and liabilities. On an ongoing basis, we
evaluate our estimates, including those related to product returns, accounts
receivable, inventories, investments, intangible assets, income taxes, warranty
obligations, restructuring, contingencies and litigation.  Actual results may
differ from these estimates under different assumptions or conditions. These
estimates and judgments are reviewed by senior management on an ongoing basis,
and by the Audit Committee at the end of each quarter prior to the public
release of our financial results.  We believe the following  critical accounting
policies affect our more significant judgments and estimates used in preparation
of our consolidated financial statements.

Revenue Recognition

The Company recognizes revenue when persuasive evidence
of an arrangement exists, delivery has occurred, the sale price is fixed or
determinable, and collectibility is probable.  Generally, these criteria are met
at the time the product is shipped to the customer.  When other significant
obligations remain after products are delivered, revenue is recognized only
after such obligations are fulfilled.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers to make required
payments.  If the financial condition of our customers or channel partners were
to deteriorate, resulting in an impairment of their ability to make payments,
additional allowance may be required.

Excess and Obsolete Inventory

We write down our excess and obsolete inventory equal to
the difference between the cost of inventory and the estimated market value
based upon assumptions about future product life-cycles, product demand, and
market conditions.  If actual product life-cycles, product demand and market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.

Deferred Taxes

We estimate our actual current tax exposure together with
our temporary differences resulting from differing treatment of items for tax
and accounting purposes.  These temporary differences result in deferred tax
assets and liabilities.  We must then assess the likelihood that our deferred
tax assets will be recovered from future taxable income and to the extent we
believe that recovery is not likely, we much establish a valuation allowance.
At December 31, 2001 we had provided a valuation allowance for the entire
amount of tax assets net of tax liabilities.  To the extent that we increase or
decrease a valuation allowance in a period, the resulting expense or benefit is
included within the tax provision.  Significant management judgment is required
in determining the provision for income taxes, deferred tax assets and
liabilities and any valuation allowance recorded against net deferred tax
assets.

Goodwill and Other Identifiable Intangibles

We assess the impairment of goodwill and other
identifiable intangibles, whenever events or changes in circumstances indicate
that the carrying value may not be recoverable.  Significant under performance
relative to projected operating result, changes is the manner of our use of the
acquired assets and significant negative industry or economic trends are the
more significant indicators that we consider.  Any resulting impairment loss
could have a material adverse impact on our financial condition and results of
operations.

Determining Functional Currencies for the Purpose of
Consolidation

Majority owned foreign subsidiary and joint venture
represents the vast majority of our revenues, assets, and liabilities at
December 31, 2001.  In preparing our consolidated statements we are
required to translate the financial statements of the foreign entity from the
currency in which they keep their accounting records, generally the local
currency, into United States dollars.  This process results in exchange gains
and losses which, under the relevant accounting guidance are either included
within the statement of  operations or as a separate part of our net equity
under the caption "cumulative translation adjustment."



FACTORS THAT MAY AFFECT FUTURE RESULTS

In addition to the other information contained in this
Form 10-K, we have identified the following risks and uncertainties that
may have a material adverse affect on our business, financial condition or
results of operation.  This section should be read in conjunction with the
audited Consolidated Financial Statements and Notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in this Form 10-K.

Our operating results fluctuate significantly, and an
unanticipated decline in revenue or earnings may disappoint investors or
securities analysts and result in a decline in our stock price.

Our recent growth rate may not be sustainable and you
should not use our past financial performance to predict future operating
results.  We have incurred substantial net losses in the past, as recent as,
among others, fiscal years ended March 31, 1999, 1998 and 1997.  Our recent
quarterly and annual operating results have fluctuated, and will continue to
fluctuate, due to the following factors, all of which are difficult to forecast
and many of which are not within our control:

- the availability, timely delivery and cost of components
from our suppliers;
- competitive pressures and related changes in selling
prices;
- fluctuations in manufacturing yields and significant
yield losses which affect our ability to fulfill orders;
- new product announcements and introductions for competing
products by us or our competitors;
- the rate at which our products become obsolete;
- unpredictability of changes in demand for, or in the mix
of, our products;
- the gain or loss of significant customers;
- market acceptance of products utilizing our
technologies;
- changes in the channels through which our products are
distributed and the timeliness of receipt of distributor resale
information;
- exchange rate fluctuations;
- general economic, political and environmental-related
conditions, such as natural disasters;
- difficulties in forecasting, planning and management of
inventory levels, which may trigger lower cost or market inventory
adjustments;
- unanticipated research and development expenses
associated with new product introductions;
- the timing of significant orders and of license and
royalty revenue; and
- the seasonality in our business.

A downturn in the market for consumer products such as
personal computers and DVD players that incorporate our products can also harm
our operating results.  In addition, some of our customers may place orders at
or near the end of a quarter.  As a result, we may not learn of revenue
shortfalls until late in a quarter and may not be able to predict future
revenues with accuracy.  Additionally, a large portion of our costs consists of
salaries for personnel and materials that must be ordered several months in
advance.  These costs are based in part on our expectations for future revenues
and are relatively fixed in the short term.  As a result, any revenue shortfall
below expectations could harm our business.

Our capital resources may not be sufficient to meet our
capital requirements.

Since our inception, we have periodically experienced
negative cash flow from operations and could experience significant negative
cash flow from operations in the future.  Our current and future capital
requirements are substantial and we cannot be certain that cash generated from
operations will be sufficient or that financing will be available at favorable
terms when required, or at all.  If our capital resources are insufficient to
meet future capital requirements, we may not meet our financial obligations to
our creditors when they become due or we may have to curtail or cease certain
operations.

We depend on a limited number of foreign suppliers to
manufacture certain key components, and these manufacturers may not be able to
satisfy our requirements, which could cause our revenues to decline.

We currently buy certain key components, including
optical pick-ups, motors, central processing units and certain other integrated
circuits from a limited number of suppliers.  We anticipate that these suppliers
will manufacture sufficient quantities of these key components to meet our
production requirements.  If these suppliers fail to satisfy our requirements on
a timely basis and at competitive prices, we could suffer manufacturing delays,
a possible loss of revenues or higher than anticipated costs of revenues, any of
which could seriously harm our operating results.  Any constraints on worldwide
manufacturing capacity of these key components may affect our ability to obtain
adequate supplies from these manufacturers.  In certain instances, we have
failed to meet the demand for our products or the scheduled shipment dates due
to our inability to obtain a sufficient supply of certain key components from
our suppliers.  The suppliers with which we currently have arrangements,
together with any additional supplier at which capacity might be obtained, may
not be willing or able to satisfy all of our manufacturing requirements on a
timely basis at favorable prices.  In addition, we have encountered delays in
qualifying new products and in ramping new product production and could
experience these delays in the future.  We are also subject to the risks of
service disruptions, raw material shortages and price increases by the
suppliers.  Such disruptions, shortages and price increases could seriously harm
our operating results.

If we are unable to increase our manufacturing capacity,
we may not achieve our planned growth.

Notwithstanding our recent expansion efforts, in order to
grow, we need to increase our present manufacturing capacity.  Events that we
have not foreseen could arise which would limit our capacity.  In addition, if
we cannot satisfactorily increase our manufacturing capacity, our ability to
grow will be severely impaired and this may harm our operating results.

Our financing requirements will increase in order to
obtain additional manufacturing capacity in the future.

To obtain additional manufacturing capacity, we may be
required to make deposits, equipment purchases, loans, joint ventures, equity
investments or technology licenses in or with other companies.  These
transactions could involve a commitment of substantial amounts of our capital
and technology licenses in return for production capacity.  We may be required
to seek additional debt or equity financing if we need substantial capital in
order to secure this capacity and we cannot assure you that we will be able to
obtain such financing on terms acceptable to us, if at all.

If we or our suppliers fail to achieve acceptable
manufacturing yields, we will experience higher costs of revenues and reduced
product availability.

The fabrication of our products requires certain
components produced in a highly controlled and clean environment.  Companies
that supply our components sometimes have experienced problems achieving
acceptable manufacturing yields.  Low yields may result from marginal design or
manufacturing process drift.  Yield problems may not be identified until the
components are well into the production process, which often makes them
difficult, time consuming and costly to correct.  Furthermore, we rely on
overseas suppliers of certain key components, which increases the effort and
time required to identify, communicate and resolve manufacturing yield problems.
If our suppliers fail to achieve acceptable manufacturing yields, we will
experience higher costs of revenues and reduced product availability, which
would harm our operating results.

If our suppliers discontinue the manufacturing processes
or lines needed to meet our demands, or fail to upgrade the technologies needed
to manufacture our products, we may face production delays and lower
revenues.

Our products' requirements may represent a small portion
of the total production of the suppliers that manufacture our components.  As a
result, we are subject to the risk that a supplier may cease production on an
older or lower-volume manufacturing process that it uses to produce our parts.
Additionally, we cannot be certain our suppliers will continue to devote
resources to advance the production technologies on which the manufacturing of
our parts is based.  Each of these events could increase our costs and harm our
ability to deliver our products on time.

Our dependence on third-party subcontractors to assemble
and test our products subjects us to a number of risks, including an inadequate
supply of products and higher costs of materials.

We depend on independent subcontractors to assemble and
test our components or products.  Despite the direct supervision by our staff
stationed at our primary production site, our reliance on these subcontractors
involves the following significant risks:

- reduced control over delivery schedules and
quality;
- the potential lack of adequate capacity during periods of
strong demand for such subcontractors' services;
- difficulties selecting and integrating new
subcontractors;
- limited warranties on products supplied to us;
- potential increases in prices due to capacity shortages
and other factors; and
- potential misappropriation of our intellectual
property.

These risks may lead to increased costs, delayed product
delivery or loss of competitive advantage, which would harm our profitability
and customer relationships.

Our growth depends upon our ability to successfully
develop and commercialize new DVD products.

During the last three years, a substantial amount of
revenues have been generated by the DVD product line, which is central to our
growth strategy.  The market for this line of products has experienced intense
competition and is highly price sensitive.  While we are currently developing
and introducing new products in this product line, we cannot assure you that
these products will reach the market in a timely manner, satisfactorily address
customer needs, be sold in high volume, or be sold at profitable margins.

Our operating expenses are relatively fixed, and we order
materials in advance of anticipated customer demand; therefore, we have limited
ability to reduce expenses quickly in response to any revenue shortfalls.

Our operating expenses are relatively fixed, and we
therefore have limited ability to reduce expenses quickly in response to any
revenue shortfalls.  Consequently, our operating results will be harmed if our
revenues do not meet our revenue projections.  We may experience revenue
shortfalls for the following reasons:

- significant pricing pressures that occur due to
competition, over-supply, or other reasons;
- sudden shortages of raw materials or fabrication, test or
assembly capacity constraints that lead our suppliers to allocate available
supplies or capacity to other customers which, in turn, harm our ability to meet
our sales obligations; and
- the reduction, rescheduling or cancellation of customer
orders.

In addition, we typically plan our production and inventory
levels based on customers' advance orders, commitments or forecasts, as well as
our internal assessment and forecasts of customer demand, which are highly
unpredictable and can fluctuate substantially, especially if competition becomes
more intense or the demand is reduced due to seasonal or other factors.  From
time to time, in response to anticipated long lead times to obtain inventory and
materials from our suppliers, we may order materials in advance of anticipated
customer demand.  This advance ordering may result in excess inventory levels or
unanticipated inventory write-downs if expected orders fail to materialize.

Because our products typically have lengthy sales cycles,
we may experience substantial delays between incurring expenses related to
research and development and the generation of revenues.

It usually requires a number of months to realize volume
shipments after we first contact a customer.  We first work with customers to
achieve a design win, which may take months or longer.  Our customers then
complete the design, testing and evaluation process and begin to ramp up
production, over a period which typically lasts months or longer.  As a result,
a significant period of time may elapse between the time we incur expenses from
our research and development efforts and our realization of revenue, if any,
from volume purchasing of our products by our customers.

We face intense competition from companies with
significantly greater financial, technical and marketing resources that could
adversely affect our ability to maintain or increase sales of our products.

We compete with major international electronics
companies, many of which have substantially greater financial, technical,
marketing, distribution, and other resources than we do.  Many of our
competitors have their own facilities for the production of semiconductor
components and have been active in increasing their market shares and their
capacity for the production of competing products.  Our DVD products presently
account for substantially all of our revenues.  Our competitors or potential
competitors include Hitachi, Toshiba, Sony, Pioneer, Teac, Sanyo, Samsung,
Philips, LG, and many others.  Some of the competitors or potential competitors
are also suppliers for the key components of some of our models.  In these
cases, our competitors may have divisions making competing DVD products that
have access to some of our proprietary information through the divisions
supplying components to us, or exert influence on the parts supplying divisions
in ways that may adversely affect our parts supply.  These actions would
adversely affect our competitiveness and sales.  Competition may also come from
alternative technologies being developed by these companies.

Our markets are subject to rapid technological change and,
therefore, our success depends on our ability to develop and introduce new
products.

The markets for our products are characterized by:

- rapidly changing technologies;
- evolving and competing industry standards;
- changing customer needs;
- frequent new product introductions and
enhancements;
- increased integration with other functions; and
- rapid product obsolescence.

To develop new products for our target markets, we must
develop, gain access to and use leading technologies in a cost-effective and
timely manner and continue to expand our technical and design expertise.  In
addition, we must have our products designed into our customers' future products
and maintain close working relationships with key customers in order to develop
new products that meet their changing needs.  In addition, DVD products involve
continually evolving industry standards.  Our ability to compete will depend on
our ability to identify and ensure compliance with these industry standards.  As
a result, we could be required to invest significant time and effort and incur
significant expense to redesign our products and ensure compliance with relevant
standards.  We cannot assure you that we will be able to identify new product
opportunities successfully, develop and bring to market new products, achieve
design wins or respond effectively to new technological changes or product
announcements by our competitors.  In addition, we may not be successful in
developing or using new technologies or in developing new products or product
enhancements that achieve market acceptance.  Our pursuit of necessary
technological advances may require substantial time and expense.  Failure in any
of these areas could harm our operating results.

Our future success depends in part on the continued
service of our key design engineering, sales, marketing and executive personnel
and our ability to identify, recruit and retain additional personnel.

We are highly dependent on our principal management and
engineering staff.  There is intense competition for qualified personnel in our
industry, in particular the highly skilled technical personnel involved in the
development of DVD technologies and the production of DVD products.  Competition
is especially intense in Silicon Valley, where our corporate headquarters are
located, and South Korea, where our DVD products have been designed and some of
our manufacturing takes place.  We may not be able to continue to attract and
retain engineers or other qualified personnel necessary for the development of
our business or to replace engineers or other qualified personnel who may leave
our employ in the future.  Our anticipated growth is expected to place increased
demands on our resources and will likely require the addition of new management
and engineering personnel and the development of additional expertise by
existing management personnel.  The failure to recruit and retain key technical
and management personnel could harm our business.

Our ability to compete successfully will depend, in part,
on our ability to protect our intellectual property rights, and we may be unable
to do so.

We rely on a combination of patent, trade secrets,
copyright and mask work production laws and rights, nondisclosure agreements and
other contractual provisions and technical measures to protect our intellectual
property rights.  Policing unauthorized use of our products, however, is
difficult, especially in foreign countries, such as China and South Korea.
Litigation may continue to be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity.  Litigation could result in substantial
costs and diversion of resources and could harm our business, operating results
and financial condition regardless of the outcome of the litigation.  We have
acquired ownership or license to a number of patents or patent applications
related to our products.  However, we cannot assure you that any pending patent
application will be granted, or that such patents will provide adequate
protection for our intellectual property.  Since our competitors may design
around our patents or otherwise independently develop competing technology, our
operating results would be seriously harmed by the failure to protect our
intellectual property.

If we are accused of infringing the intellectual property
rights of other parties we may become subject to time-consuming and costly
litigation.  If we lose such litigation, we could suffer a significant impact on
our business and be forced to pay damages.

Third parties may assert that our products infringe their
proprietary rights, or may assert claims for indemnification resulting from
infringement claims against us.  Any such claims may cause us to delay or cancel
shipment of our products or pay damages, which could seriously harm our
business, financial condition and results of operations.  In addition,
irrespective of the validity or the successful assertion of such claims, we
could incur significant costs in defending against such claims.  In addition, we
receive from time to time letters or communications from other companies stating
that such companies have patent rights relating to our products.  Any legal
finding that we infringe the patent of another company would have a
significantly negative effect on our operating results.  Furthermore, if such a
finding were made, there can be no assurance that we could license the other
company's technology on commercially reasonable terms or that we could
successfully operate without such technology.  Moreover, if we are found to
infringe, we could be required to pay damages to the owner of the protected
technology and could be prohibited from making, using or selling any products
that infringe the protected technology.  In addition, the management attention
consumed by and legal cost associated with any litigation could have a negative
effect on our operating results.  During the course of lawsuits there may be
public announcements of the results of hearings, motions, and other interim
proceedings or developments in the litigation.  If securities analysts or
investors perceive these results to be negative, it could have a substantial
negative effect on the trading price of our stock.  Whether or not we are
successful in any litigation, we expect the litigation to consume substantial
amounts of our financial and managerial resources.  Further, because of the
substantial amount of discovery required in connection with this type of
litigation, there is a risk that some of our confidential information could be
compromised by disclosure.

General economic conditions may reduce our revenues and
harm our business.

As our business has grown, we have become increasingly
subject to the risks arising from adverse changes in domestic and global
economic conditions.  Because of the recent economic slowdown in the United
States, many industries are delaying or reducing technology purchases.  The
impact of this slowdown on us is difficult to predict, but it may result in
reductions in purchases of products by our end-user customers, longer sales
cycles and increased price competition.  As a result, if the current economic
slowdown continues or worsens, we may fall short of our revenue expectations for
any given quarter in 2002 or for the entire year.

Our business may suffer due to risks associated with
international sales and operations.

Sales of products overseas accounted for 90.8%, 99.7% and
99.8% of our revenues in the fiscal year ended March 31, 2000, the nine-
month period ended December 31, 2000 and the fiscal year ended December 31,
2001, respectively.  Our international business activities are subject to a
number of risks, each of which could impose unexpected costs on us that would
have an adverse effect on our operating results.  These risks include:

- difficulties in complying with regulatory requirements
and standards;
- tariffs and other trade barriers;
- costs and risks of localizing products for foreign
countries;
- reliance on third parties to distribute our
products;
- longer accounts receivable payment cycles;
- potentially adverse tax consequences;
- limits on repatriation of earnings; and
- burdens of complying with a wide variety of foreign
laws.

We derived most of our product revenue from Asia during the
last three years.  We expect that this will continue in 2002.  Additionally, our
major suppliers and assembly subcontractors are all located in Asia.  Any kind
of economic, political or environmental instability in this region of the world
can have a severe negative impact on our operating results due to the large
concentration of our production and sales activities in this region.  For
example, during 1997 and 1998, several Asian countries where we currently do
business, such as Japan, Taiwan and South Korea, experienced severe currency
fluctuation and economic deflation.  If such situations reoccur, it may
negatively impact our total revenues and our ability to collect payments from
customers in these regions.  During such situations, the lack of capital in the
financial sectors of these countries can make it difficult for our customers to
open letters of credit or other financial instruments that are guaranteed by
foreign banks.  Finally, the economic situation during such periods may
exacerbate a decline in selling prices for our products as our competitors may
reduce product prices to generate needed cash.

In addition, we are greatly impacted by the political,
economic and military conditions in Taiwan and China, and North Korea and South
Korea, which are continuously engaged in political disputes.  These countries
have recently conducted military exercises in or near the other's territorial
waters and airspace.  Such disputes may continue and even escalate, resulting in
an economic embargo, a disruption in shipping or even military hostilities.
This could severely harm our business by interrupting or delaying production or
shipment of our products.  Any kind of activity of this nature or even rumors of
such activity could severely negatively impact our operations, revenues,
operating results, and stock price.

Because a small number of customers have accounted for,
and are likely to continue to account for, a substantial portion of our
revenues, our revenues could decline due to the loss of one of these
customers.

Products sold to our top 10 customers accounted for
approximately 80%, 75% and 88% of our revenues during the fiscal year ended
March 31, 2000, the nine-month period ended December 31, 2000 and the
fiscal year ended December 31, 2001, respectively.  In the fiscal year
ended March 31, 2000, one customer accounted for about 36% of our revenue.
In the nine-month period ended December 31, 2000, one customer accounted
for about 29% of our revenue and another customer accounted for about 14% of our
revenue.  In the fiscal year ended December 31, 2001, one customer
accounted for about 37% of our revenue.  No other customers accounted for more
than 10% of our revenues during these three periods.  If we were to lose any of
these customers or experience any substantial reduction in orders from these
customers, our revenues and operating results would suffer.

We do not have long-term contracts with our customers and
the loss of a major customer could seriously harm our business.

We do not typically enter into long-term contracts with
our customers, and we cannot be certain as to future order levels from our
customers.  When we do enter into a long-term contract, the contract is
generally terminable at the convenience of the customer.  An early termination
by one of our major customers would harm our financial results, as it is
unlikely that we would be able to rapidly replace that revenue source.

Our backlog may not result in future revenue, which would
seriously harm our business.

Due to possible customer changes in delivery schedules
and cancellations of orders, our backlog at any particular date is not
necessarily indicative of actual sales for any succeeding period.  A reduction
of backlog during any particular period, or the failure of our backlog to result
in future revenue, could harm our business.

Business interruptions could adversely affect our
business.

Our operations are vulnerable to interruptions by fire,
earthquake, power loss, telecommunications failure and other events beyond our
control.  We do not have a detailed disaster recovery plan.  Our facilities in
Northern California may be subject to electrical blackouts as a consequence of a
shortage of available electrical power.  In the event these blackouts occur,
continue or increase in severity, they could disrupt the operations of our
affected facilities.  In connection with the shortage of available power, prices
for electricity have risen dramatically, and may continue to increase for the
foreseeable future.  Such price changes will increase our operating costs, which
could in turn hurt our profitability.  In addition, we do not carry sufficient
business interruption insurance to compensate us for losses that may occur, and
any losses or damages incurred by us could harm our business.

We may require additional capital in order to bring new
products to market, and the issuance of new equity securities will dilute your
investment in our common stock.

To permit the growth of our business operations in the
future, we need to expand our production capacity and bring new products to
market, which will likely require significant working capital.  To date we have
established credit facilities with certain Korean banks with a total borrowing
limit of about $23 million as of December 31, 2001 and about $25 million
payment guarantees for letters of credit.  We have also formed alliances with
state-run businesses in China, which have committed to substantial amounts of
trade credit and financing for production in China under certain terms.
However, there is no assurance that these credit facilities will always be
available.  We may also need to sell shares of our common stock or seek
additional borrowings or outside capital infusions in the future.  We cannot
assure you that such financing options will be available on terms acceptable to
us, if at all, and at the time and place that we need them.  In addition, if we
issue shares of our common stock, our shareholders will experience dilution with
respect to their investment.

We depend on manufacturers' representatives and
distributors to generate a substantial amount of our revenues.

We rely on manufacturers' representatives and
distributors to sell our products and these entities could discontinue selling
our products at any time.  One agent accounted for about 49% of our revenues
during the fiscal year ended March 31, 2000 and about 46% of our revenues
during the nine-month period ended December 31, 2000.  Another agent
accounted for approximately 37% of our revenues during the fiscal year ended
December 31, 2001.  The loss of such agent, or any other significant agents
could seriously harm our operating results.

Our growth continues to place a significant strain on our
management systems and resources and if we fail to manage our growth, our
ability to market and sell our products and develop new products may be
harmed.

Our business is experiencing rapid growth which has
strained our internal systems and will require us to develop or adopt more
sophisticated information management systems in order to manage the business
effectively.  Although we have implemented an ERP system, there is no guarantee
that this system and any new systems implemented in the future will be adequate
to address our expected growth, or that management will be able to foresee in a
timely manner other infrastructure needs before they arise.  Our success depends
on the ability of our executive officers to effectively manage our growth.  If
we are unable to manage our growth effectively, our results of operations will
be seriously harmed.





RISKS RELATED TO OUR INDUSTRY

The selling prices for our products are very volatile and
subject to industry-wide fluctuations.  Our success is dependent on the growth
and strength of the PC market and the DVD video market.

With a focus on the DVD product line, most of our
revenues in the last three years were generated from DVD products.  Most of our
new products currently being developed are in the DVD product line, particularly
DVD-ROM drives and DVD loaders.  The sales of DVD-ROM drives are closely related
to the strength of the PC market and the popularity of PC's equipped with the
DVD-ROM drives, in competition with CD-ROM, CD-RW and other devices.  If we
experience an unforeseen downturn in the PC market, an unexpected decline in
PC's equipped with DVD-ROM drives, or a global over-supply in the production of
DVD-ROM drives, our results of operations from our DVD-ROM drive business will
be adversely affected.  Such a situation occurred in 1999 and more notably in
2001, resulting in weakened product demand, accelerated decline of average
selling prices, and accumulation of inventory due to a reduced turnover rate.
This condition unfavorably impacted our revenues, gross margins, profitability,
and our financial condition.  While these conditions improved in later periods,
if they were to resume, and if our operations could not properly adjust in time,
our growth and operating results would be harmed.  Similarly, the sales of our
DVD loaders are related to the markets for DVD video discs and DVD video
players.  If the DVD video market does not grow as expected, the sales of our
DVD loaders will also be reduced.  Our business could be harmed by such
industry-wide fluctuations in the future.

The cyclical nature of the semiconductor industry could
create fluctuations in our operating results.

The semiconductor industry has historically been
cyclical, characterized by wide fluctuations in product supply and demand.  From
time to time, there are shortages or over-production of memory or other types of
devices.  Our business could be harmed by such industry-wide fluctuations in the
future because our products incorporate these technologies.  When a shortage
occurs with one or more key components, it may be difficult for us to produce
enough quantities of products to fill customers' orders, and it may require us
to pay a higher price for the components in the event of a shortage, adversely
affecting our margin and profitability.

There is seasonality in our business.

Sales of our products in the computer peripherals market
and consumer electronics market are subject to seasonality.  As a result, sales
of these products are impacted by seasonal purchasing patterns with higher sales
generally occurring in the second half of each calendar year.  There may be a
sharp decline of sales near the Christmas and New Year holiday.  Sales to China
and certain other Asian regions may also decline near the lunar New Year's
holidays in January or February.



Item 7A.	Quantitative and Qualitative Disclosure About
Market Risk

Market Risk

The following discusses our exposure to market risk
related to changes in interest rates and foreign currency exchange rates.  This
discussion contains forward-looking statements that are subject to risks and
uncertainties.  Actual results could vary materially as a result of a number of
factors including those set forth in "Factors That May Affect Future
Results."

Interest Rate Risk

Our exposure to market risk for changes in interest rates
relates primarily to our investment portfolio.  We do not use derivative
financial instruments in our investment portfolio.  The primary objective of our
investment activities is to preserve principal while maximizing yields without
significantly increasing risk.  Our investments consist primarily of commercial
paper and certificates of deposits.  Due to the nature of our investments, we
believe that there is no material risk exposure.  All investments are carried at
market value, which approximates cost.

Foreign Currency Risk

We develop products in the United States and market our
products in North America and the Asia-Pacific region.  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 our
sales are primarily in U.S. dollars, a strengthening of the dollar could make
our products less competitive in foreign markets.



Item 8.	Financial Statements and Supplementary Data

The following consolidated financial statements, and the
related notes thereto, of DVS and the Report of Independent Auditors are filed
as a part of this Form 10-K.

DIGITAL VIDEO SYSTEMS, INC.

Index To Consolidated Financial Statements



|                                                                                                                                                   | Page
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|Report of Burr, Pilger & Mayer LLP, Independent
Auditors                                                                                           | 32  
|Report of Shu Lun Pan, Public Accountants                                                                                                          | 33  
|Consolidated Balance Sheets - Year ended December 31, 2001
and nine months ended December 31, 2000                                                 | 34  
|Consolidated Statements of Operations - Year ended
December 31, 2001,
nine months ended December 31, 2000 and year ended March 31,
2000            | 35  
|Consolidated Statements of Stockholders' Equity - Year ended
December 31, 2001,
nine months ended December 31, 2000, and year ended March 31,
2000 | 36  
|Consolidated Statements of Cash Flows - Year ended
December 31, 2001, 
nine months ended December 31, 2000 and year ended March 31,
2000           | 37  
|Notes to Consolidated Financial Statements                                                                                                         | 39  

---





REPORT OF BURR, PILGER & MAYER LLP, INDEPENDENT
AUDITORS

To the Board of Directors and Stockholders of
                   Digital Video Systems, Inc.

We have audited the accompanying consolidated balance sheets
of Digital Video Systems, Inc. and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year ended December 31, 2001, the nine month
period ended December 31, 2000, and the year ended March 31, 2000.
Our audit also included the financial statement schedule listed at
Item 14(a)(2).  The consolidated financial statements and schedule are the
responsibility of the Digital Video Systems, Inc.'s management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.  We did not audit the financial statements of
Shanghai Fangyuen Digital Technology Co. Ltd., a 51% owned joint venture, which
statements reflect assets and revenues constituting 30% percent and 18% percent,
respectively, of the related consolidated totals.  Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to amounts included for Shanghai Fangyuen Digital
Technology Co. Ltd. is based solely on the report of the other auditors.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America.  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement.  An
audit includes examining, on a test basis, evidence supporting amounts and
disclosures in the consolidated 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 and the report of the other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Digital Video
Systems, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for the year ended
December 31, 2001, the nine month period ended December 31, 2000, and
year ended March 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.  Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

/s/ Burr, Pilger & Mayer LLP
                   Palo Alto, California
                   March 31, 2002

---





REPORT OF SHU LUN PAN, PUBLIC ACCOUNTANTS

REPORT NUMBER 10351(2002)

To the Board of Directors of Shanghai Fangyuan Digital
Technology Co., Ltd.:

We were engaged to audit the accompanying balance sheet of
Shanghai Fangyuan Digital Technology Co., Ltd. (the "Company") as of
December 31,2001 and the related statements of income and cash flow for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance with
Independent Auditing Standards for Chinese Certified Public Accountants. Our
audit includes such tests of the accounting records and such other auditing
procedures as we considered necessary in the practical circumstances of the
Company.

In our opinion, such financial statements are prepared in
conformity with Accounting Standards for Enterprises and Accounting Regulations
of the People's Republic of China for Enterprises with Foreign Investment and,
in all material respects, present fairly the financial position of the Company
as of December 31,2001,the results of its operations and cash flows for the year
then ended. The accounting policies adopted follow the consistency
principle.

Appendixes:

1.	Balance sheet of Shanghai Fangyuan Digital Technology
Co., Ltd as of Dec 31,2001

2.	Income statement of Shanghai Fangyuan Digital
Technology Co., Ltd for the year 2001

3.	Cash flow statement of Shanghai Fangyuan Digital
Technology Co., Ltd for the year   2001

4.	Statement of adjustment to taxable income of Shanghai
Fangyuan Digital Technology Co., Ltd for the year 2001

5.	Notes to the financial statement of Shanghai Fangyuan
Digital Technology Co., Ltd for the year 2001

/s/ Shu Lun Pan Certified Public Accounts		Certified
Public Accountant of China Co., Ltd.

Address:	4F,No.61,Nan Jing Dong Road.		Name: Mi Ping
Zhu Guo Yin

Shanghai 200002

P.R.C.		Date: 2002/1/25

Telephone:	(021)63606600

Fax:	(021)63501004

This auditor's report and the accompanying notes to the
financial statements are English translation of the Chinese auditor's report. In
case of doubt as to the presentation of these documents, the Chinese version
shall be controlling.



---

DIGITAL VIDEO SYSTEMS, INC.

                          CONSOLIDATED BALANCE SHEETS
               (in thousands, except share  and per share amounts)
December 31,
                                                             --------------------
                                                               2001       2000
                                                             ---------  ---------
                          ASSETS
Current assets:
   Cash and cash equivalents............................... $  10,145  $   2,032
   Restricted cash.........................................     3,236      3,154
   Accounts receivable, less allowance for doubtful
     accounts of $320 and $952 for 2001 and 2000,
     respectively..........................................     2,135      2,903
   Inventories.............................................    11,886     10,050
   Marketable debt securities..............................       769        --
   Prepaid expenses and other current assets...............     4,747      2,996
   Note receivable - related party.........................     1,974      1,265
                                                             ---------  ---------
        Total current assets...............................    34,892     22,400
Property and equipment, net of depreciation................     9,715      2,006
Investment in China joint venture..........................       --         411
Note receivable - related party............................       --         998
Intangibles................................................     1,013      1,395
Other assets...............................................        16      2,798
                                                             ---------  ---------
        Total assets....................................... $  45,636  $  30,008
                                                             =========  =========
           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Line of credit.......................................... $  16,500  $  11,164
   Current portion of long term debt.......................       172         90
   Notes payable...........................................     1,834         69
   Accounts payable........................................     5,876      5,929
   Other payable...........................................     1,631        139
   Accrued liabilities                                          3,883      2,586
                                                             ---------  ---------
        Total current liabilities..........................    29,896     19,977
Long-term liabilities-long term debt.......................       264        451
Other long term liabilities................................     1,488      1,109
                                                             ---------  ---------
Total liabilities..........................................    31,648     21,537

Minority interest..........................................     4,877      1,788

Stockholders' equity
Preferred stock, $0.0001 par value, 5,000,000 shares
   authorized; no shares issued and outstanding at
   December 31, 2001 and December 31, 2000.................       --         --
Common stock, $0.0001 par value, 80,000,000 shares
   authorized; 5,848,130 shares issued and
   outstanding at December 31, 2001; 6,003,617 shares
   issued and outstanding at December 31, 2000.............         1          1
Additional paid-in capital.................................    71,350     69,020
Accumulated deficit........................................   (61,970)   (62,838)
Accumulated other comprehensive (loss) income..............      (210)       631
Deferred compensation......................................       (60)      (131)
                                                             ---------  ---------
Total stockholders' equity.................................     9,111      6,683
                                                             ---------  ---------
Total liabilities and stockholders' equity................. $  45,636  $  30,008
                                                             =========  =========The accompanying notes are an integral part of these statements
DIGITAL VIDEO SYSTEMS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
               (in thousands, except per share amounts)
Nine
                                                             Year         Months         Year
                                                            Ended         Ended         Ended
                                                         December 31,  December 31,   March 31,
                                                             2001          2000          2000
                                                         ------------  ------------  ------------
                                                                                     (as restated)
Net revenue............................................ $    159,871  $     73,103  $     60,292
Cost of revenue........................................      145,795        62,993        52,509
                                                         ------------  ------------  ------------
        Gross profit...................................       14,076        10,110         7,783
                                                         ------------  ------------  ------------
Operating expenses:
   Research and development............................        2,503         2,493         2,492
   Sales and marketing.................................        2,173         1,902         1,828
   General and administrative..........................        7,612         3,467         5,639
                                                         ------------  ------------  ------------
        Total operating expenses.......................       12,288         7,862         9,959
                                                         ------------  ------------  ------------
        Income/(loss) from operations..................        1,788         2,248        (2,176)

Other income (expenses):
   Interest expense....................................       (1,155)         (453)         (505)
   Other income........................................        1,274           347           778
   (Loss) gain on disposal of fixed assets.............          (12)           84           (87)
   Gain on sale of interest in Korean subsidiary.......          --            --            488
   Gain on sale of discontinued product lines..........          --            --          2,700
                                                         ------------  ------------  ------------
        Income before minority interest and income
           tax provision...............................        1,895         2,226         1,198
Provision for income taxes.............................          722           376            13
                                                         ------------  ------------  ------------
        Income before minority interest................        1,173         1,850         1,185
Minority interest......................................          305           702           324
                                                         ------------  ------------  ------------
Net income............................................. $        868  $      1,148  $        861
                                                         ============  ============  ============

Basic net income per share............................. $       0.16  $       0.25  $       0.20
                                                         ============  ============  ============

Diluted net income per share........................... $       0.14  $       0.21  $       0.20
                                                         ============  ============  ============The accompanying notes are an integral part of these statements
DIGITAL VIDEO SYSTEMS, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                            (in thousands, except shares)
Accumulated
                                                                              Additional                      other
                                    Convertible                              Paid-in Capital                Comprehen-
                                  Preferred Stock     Common Stock       --------------------                  sive      Deferred
                                  ---------------- --------------------  Preferred   Common    Accumulated    Income    Compensa-
                                  Shares   Amount    Shares     Amount     Stock      Stock      Deficit      (Loss)       tion       Total
                                  -------  ------- -----------  -------  ---------  ---------  -----------  ----------  ----------  ---------
Balance at March 31, 1999........  6,475  $   --    3,607,724  $     1  $   3,378  $  63,993  $   (64,847) $    1,600  $      --   $   4,125
                                  -------  ------- -----------  -------  ---------  ---------  -----------  ----------  ----------  ---------
Comprehensive Income:
   Net income....................    --       --          --       --         --         --           861         --          --         861
   Translation adjustment........    --       --          --       --         --         --           --          202         --         202
                                                                                                                                    ---------
Comprehensive income.............                                                                                                      1,063
Exercise of common stock options.    --       --       33,712      --         --         193          --          --          --         193
Conversion of promissory
  notes to common stock.......... (6,475)     --    1,968,083      --      (3,378)     3,378          --          --          --         --
Issuance of common stock.........    --       --       37,386      --         --         123          --          --          --         123
Deferred compensation for
  options granted................    --       --          --       --         --         401          --          --         (311)        90
Amortization of deferred
  compensation...................    --       --          --       --         --         --           --          --            6          6
                                  -------  ------- -----------  -------  ---------  ---------  -----------  ----------  ----------  ---------
Balance at March 31, 2000.........   --       --    5,646,905        1        --      68,088      (63,986)      1,802        (305)     5,600
                                  -------  ------- -----------  -------  ---------  ---------  -----------  ----------  ----------  ---------
Comprehensive Income:
  Net income.....................    --       --          --       --         --         --         1,148         --          --       1,148
  Translation adjustment.........    --       --          --       --         --         --           --       (1,171)        --      (1,171)
                                                                                                                                    ---------
Comprehensive Income.............                                                                                                        (23)
Exercise of common stock options.    --       --       16,069      --         --         118          --          --          --         118
Conversion of promissory
   notes to common stock.........    --       --      160,748      --         --         680          --          --          --         680
Issuance of common stock.........    --       --       57,854      --         --         160          --          --          --         160
Amortization of deferred
  compensation...................    --       --          --       --         --        (153)         --          --          174         21
Issuance of common stock in
  settlement of legal
  obligations....................    --       --      122,041      --         --          73          --          --          --          73
Issuance of warrants in
  settlement of legal
  obligations....................    --       --          --       --         --          54          --          --          --          54
                                  -------  ------- -----------  -------  ---------  ---------  -----------  ----------  ----------  ---------
Balance at December 31, 2000         --       --    6,003,617        1        --      69,020      (62,838)        631        (131)     6,683
                                  -------  ------- -----------  -------  ---------  ---------  -----------  ----------  ----------  ---------
Comprehensive Income:
  Net income.....................    --       --          --       --         --         --           868         --          --         868
  Translation adjustment.........    --       --          --       --         --         --           --         (841)        --        (841)
                                                                                                                                    ---------
Comprehensive Income.............                                                                                                         27
Exercise of common stock options.    --       --       77,922      --         --         300          --          --          --         300
Issuance of common stock.........    --       --      723,362      --         --       1,450          --          --          --       1,450
Amortization of deferred
  compensation...................    --       --          --       --         --         --           --          --           71         71
Issuance of warrants for
  legal services.................    --       --          --       --         --          56          --          --          --          56
Issuance of common stock for
  services and in settlement
  of legal obligations...........    --       --      210,492      --         --         524          --          --          --         524
Escrow stock returned to capital.    --       --   (1,167,263)     --         --         --           --          --          --         --
                                  -------  ------- -----------  -------  ---------  ---------  -----------  ----------  ----------  ---------
Balance at December 31, 2001         --   $   --    5,848,130  $     1  $     --   $  71,350  $   (61,970) $     (210) $      (60) $   9,111
                                  =======  ======= ===========  =======  =========  =========  ===========  ==========  ==========  =========The accompanying notes are an integral part of these statements
DIGITAL VIDEO SYSTEMS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)
Nine
                                                                  Year        Months        Year
                                                                  Ended        Ended        Ended
                                                               December 31, December 31,  March 31,
                                                                  2001         2000         2000
                                                               -----------  -----------  -----------
Operating activities:
  Net income................................................. $       868  $     1,148  $       861
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
    Minority interest........................................         305          702          324
    Gain on sale of interest in Korean subsidiary............         --           --          (488)
    Gain on sale of discontinued product lines...............         --           --        (2,700)
    Depreciation.............................................         758          680          607
    Amortization.............................................         453          303          676
    Loss (gain) on disposal of fixed assets..................          12          (84)          87
    Stock and warrants issued for expenses...................         580           76          134
  Changes in operating assets and liabilities:
    Accounts receivable......................................         768       (1,028)      (1,113)
    Inventories..............................................      (1,836)      (5,281)       3,016
    Prepaid expenses and other current assets................      (1,751)      (2,042)        (119)
    Other assets.............................................       2,782         (170)      (1,290)
    Accounts payable.........................................         (53)         411           79
    Accrued liabilities......................................       1,676          101       (1,445)
    Other payable............................................       1,492          374          396
                                                               -----------  -----------  -----------
      Net cash provide by (used in) operating activities.....       6,054       (4,810)        (975)
                                                               -----------  -----------  -----------
Investing activities:
  Purchase of marketable debt securities.....................        (769)         --           --
  Acquisition of property and equipment......................      (8,479)        (816)        (758)
  Investment in Shanghai joint venture.......................         --          (324)         (87)
                                                               -----------  -----------  -----------
      Net cash used in investing activities..................      (9,248)      (1,140)        (845)
                                                               -----------  -----------  -----------
Financing activities:
  Investment by minority interest in China Joint Venture.....       3,195          --           --
  Proceeds from the sale of common shares....................       1,450          160          123
  Proceeds from the exercise of stock options................         300          118          193
  Proceeds from line of credit borrowing.....................       5,336       22,168        5,559
  Repayment of capital lease obligation......................         --          (356)         --
  Repayment of bank borrowings...............................        (105)     (16,562)      (1,352)
  Proceeds from repayment of note receivable.................         289          --           868
  Proceeds from exercise of option to purchase interest
    in Korean subsidiary.....................................         --           --           500
  Repayment of notes payable.................................         (69)        (934)         --
  Proceeds from issuance of notes payable....................       1,834        1,433          729
                                                               -----------  -----------  -----------
     Net cash provided by financing activities...............      12,230        6,027        6,620
                                                               -----------  -----------  -----------
Effect of exchange rate changes..............................        (841)      (1,171)         204
                                                               -----------  -----------  -----------
Net increase (decrease) in cash and cash equivalents.........       8,195       (1,094)       5,004
Cash and cash equivalents at the beginning of year...........       5,186        6,280        1,276
                                                               -----------  -----------  -----------
                                                              $    13,381  $     5,186  $     6,280
                                                               ===========  ===========  ===========


Supplemental disclosures:
  Interest paid.............................................. $     1,199  $       413  $       462
                                                               ===========  ===========  ===========
  Taxes paid................................................. $       244  $        54  $        22
                                                               ===========  ===========  ===========
Supplemental disclosure of non-cash transaction:
  Capital lease.............................................. $       --   $       --   $       356
                                                               ===========  ===========  ===========
  Conversion of promissory notes into Series C
  Convertible Preferred Stock................................ $       --   $       --   $     4,475
                                                               ===========  ===========  ===========
  Conversion of Series C Convertible Preferred Stock
    into Common Stock shares................................. $       --   $       --   $     6,475
                                                               ===========  ===========  ===========
  Conversion of notes payable to common stock................ $       --   $       680  $       --
                                                               ===========  ===========  ===========
  Offset of notes payable and note
    receivable - related party............................... $       289  $       319  $       --
                                                               ===========  ===========  ===========
  Issuance of common stock and warrants for legal
    settlements.............................................. $       580  $        73  $       --
                                                               ===========  ===========  ===========The accompanying notes are an integral part of these statements
DIGITAL VIDEO SYSTEMS, INC.
Notes to Consolidated Financial Statements
(Dollar Amounts in Thousands Unless
Otherwise Indicated)
The Company and its Significant
Accounting Policies
The Company
Digital Video Systems, Inc. ("DVS" or "the
Company") develops and markets DVD-ROM drives, DVD loaders, video engines,
and certain computer peripherals.
A significant portion of the Company's operations is based
outside of the United States, principally in South Korea and China.  As a
result, the Company must comply with a wide variety of foreign laws and
regulations.  In particular, the Company may be materially adversely affected by
changes in the political, social and economic conditions in these countries, and
by changes in government policies with respect to such matters as laws and
regulations, methods to address inflation, currency conversion and restrictions
and rates and methods of taxation.
During 2000 the Company changed its fiscal year end to
December 31 from March 31.
Financial Results and Liquidity
The accompanying financial statements have been prepared
in conformity with accounting principles generally accepted in the Unites States
of America, which contemplate continuation of the Company as a going concern.
However, the Company has an accumulated deficit of $62.0 million.  The
financial statements do not include any adjustments relating to the
recoverability and classification of the recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.
The Company experienced a reduction in gross margin during
the year ended December 31, 2001 due to the new opening of a plant in Korea
and the opening of the factory in Shanghai, China.  Further, increased pricing
pressure from competition contributed to the decline in gross margin.  The
Company expects during the year end December 31, 2002 to experience
continued pricing pressure as competition becomes more intense.  To offset the
impact, the Company has taken steps to lower costs and expenses which include
controls related to purchasing and engineering efforts.
Additionally, the Company is involved in several outstanding
legal matters discussed in note 18, an unfavorable outcome from one or more
of these matters could result in a material adverse effect upon the Company's
financial position and results of operations.
Funding is needed to discharge the Company's liabilities from
prior years in which substantial operating losses were incurred and to meet the
operating obligations of the U.S. based headquarters and other operations.
During the coming year the Company plans to meet these operating needs through
dividends received from its Korean subsidiary (DVS Korea) and license fee income
from DVS Korea of $100 per month.  Additional working capital must be raised in
order to fully discharge the Company's liabilities from prior years.
The management believes that substantial working capital must
be raised in order to support the growth of worldwide manufacturing operations.
Further, the management believes the Company will have access to the necessary
capital to meet its targets for the year 2002.
Basis of Presentation
The accompanying consolidated financial statements of DVS
include the accounts of the Company, its subsidiaries and its majority owned and
controlled joint venture in China.  All significant intercompany transactions
and balances have been eliminated in consolidation. In the opinion of
management, the consolidated financial statements reflect all normal and
recurring adjustments which are necessary for a fair presentation of the
Company's financial position, results of operations and cash flows as of the
dates and for the periods presented.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.  Significant
estimates include the level of accounts receivable and inventory reserves.
Actual results could differ from those estimates.
Cash and Equivalents and Short-term Investments
Cash and cash equivalents include money market accounts
and highly liquid debt instruments with a remaining maturity of three months or
less at the date of purchase.  Restricted cash of $3,236 represented by passbook
accounts and time deposits for DVS Korea and are used for collateral related to
borrowings and other required deposits.
As of December 31, 2001, the estimated fair value of the
cash equivalents and short-term investments consisted of cash and money market
funds in the amount of $13,381.
Investment in Marketable Debt Securities
The Company classifies its investments
in marketable debt securities as "held to maturity securities" in
accordance with SFAS 115.  These securities are recorded at amortized
costs.  Total investment in marketable debt securities is $769 as of
December 31, 2001.
Revenue Recognition
Net revenues include product and component sales.  The
Company recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable, and
collectibility is probable.  Generally, these criteria are met at the time the
product is shipped to the customer. Returns and discounts on sales are deducted
from revenue.  When other significant obligations remain after products are
delivered, revenue is recognized only after such obligations are fulfilled.
Advertising Expense
Advertising expenditures are charged to operations as
incurred and total $147, $15 and $13 in the twelve months ending
December 31, 2001, nine months ending December 31, 2000 and twelve
months ending March 31, 2000, respectively.
Inventories
Inventories are stated at the lower of cost (moving
average method) or market.  The Company has recorded valuation reserves against
inventory of $328 and $411 as of December 31, 2001 and 2000,
respectively.
Long-Lived Assets
Property and equipment are stated at cost net of
accumulated depreciation and amortization over their estimated useful lives.
Depreciation and amortization are computed using the straight-line method over
the assets estimated useful lives of three to seven years.  The Company performs
reviews for impairments whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Intangibles
Intangible assets consist of acquired technology and
purchased goodwill and are stated at cost net of accumulated amortization or at
their impaired value.  Amortization is computed using the straight-line method
over the assets estimated useful lives of three to seven years.
Foreign Currency Translation
The functional currency of the Company's foreign
subsidiaries is the local currency.  Translation adjustments, which result from
the process of translating foreign currency financial statements into U.S.
dollars, are included as a component of accumulated other comprehensive income.
Transaction gains and losses, which have not been material to date, are included
in interest and other income in the accompanying statement of operations.
Comprehensive Income
Other comprehensive income (loss) includes certain
changes in equity that are excluded from net income (loss), such as, translation
adjustments, unrealized holding gains and losses on available-for-sale
marketable securities and certain derivative instruments.  The Company's other
comprehensive income (loss) is composed of foreign currency translation
adjustments.
Reclassifications
Certain prior year amounts have been reclassified to
conform to the current year presentation.
Recent Pronouncements
In June 2001, the Financial Accounting Standards Board
(FASB) issued SFAS No. 141, Accounting for Business Combinations.
This statement requires the purchase method of accounting be used for all
business combinations initiated after June 30, 2001, and establishes
specific criteria for the recognition of intangible assets separately from
goodwill.
In June 2001, the FASB issued SFAS No. 142, Goodwill
and Other Intangible Assets.  Under SFAS No. 142, goodwill and
intangible assets with an indefinite life are not amortized.  Instead of
amortizing goodwill and intangible assets deemed to have an indefinite life, the
statement requires a test for impairment to be performed annually, or
immediately if conditions indicate that such an impairment could exist.  The
amortization period of intangible assets with finite lives will no longer be
limited to forty years.  This statement will have the effect of reducing the
Company's amortization of goodwill effective January 1, 2002.  Transitional
impairments are not expected to be material; however, impairment reviews may
result in future periodic write downs.  This statement is effective for fiscal
years beginning after December 15, 2001, and permits early adoption for
fiscal years beginning after March 15, 2001.
In August 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long Lived Assets, which
addresses financial accounting and reporting for the impairment and disposal of
long-lived assets with adoption required no later than fiscal year 2003.
The Company does not believe that any of these recent
accounting pronouncements will have a material impact on their financial
position or results of operations.
Credit Risk
Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of cash
equivalents, short-term investments, and receivables from customers.  The
Company primarily invests its cash equivalents and short-term investments in
time deposits with high-credit quality institutions and corporate bonds and
notes.  The Company is exposed to credit risk in the event of default by these
institutions and corporate entities to the extent of the amount recorded in the
balance sheet.  With respect to receivables from customers, the Company
primarily sells its products worldwide to original equipment manufacturers and
product distribution companies in Asia.  The Company generally does not require
collateral, and maintains reserves for potential credit losses.


Inventories
Inventories consisted of the following at
December 31, 2001 and 2000:

2001        2000
                                              ----------  ----------
Raw materials............................... $    3,772  $    3,513
Work-in-process.............................      6,464       4,800
Finished goods..............................      1,978       2,134
                                              ----------  ----------
Total inventories...........................     12,214      10,447
Less inventory reserves.....................       (328)       (397)
                                              ----------  ----------
Net inventories............................. $   11,886  $   10,050
                                              ==========  ==========Property and Equipment

Property and equipment consisted of the following at
December 31, 2001 and 2000:

`2001        2000
                                              ----------  ----------
Building and leasehold improvements......... $    6,193  $      --
Machinery and computer equipment............      5,424       4,001
Furniture and fixtures......................        674         432
                                              ----------  ----------
Total property and equipment................     12,291       4,433
Accumulated depreciation....................     (2,576)     (2,427)
                                              ----------  ----------
Net property and equipment.................. $    9,715  $    2,006
                                              ==========  ==========`

Depreciation expense totaled $758, $680 and $607
for the year ending December 31, 2001, the nine months ending
December 31, 2000 and the year ending March 31, 2000,
respectively.



Intangible assets consisted of the following at
December 31, 2001 and 2000:

`2001        2000
                                              ----------  ----------
Goodwill.................................... $      655  $      655
Intangible assets of acquired businesses....      2,400       2,400
Purchased licenses..........................        --          500
                                              ----------  ----------
Total intangible assets.....................      3,055       3,555
Less: accumulated amortization..............     (2,042)     (2,160)
                                              ----------  ----------
                                             $    1,013  $    1,395
                                              ==========  ==========`

Amortization expense totaled $453, $303 and $676
for the year ending December 31, 2001, the nine months ending
December 31, 2000 and the year ending March 31, 2000.

Intangible assets will be amortized on a straight-line basis
over their estimated useful lives of three to seven years.  The intangibles-
developed technology acquired was determined during fiscal year March 31,
2000 to provide future product developments in the coming years.  Thus, the
estimated useful life of the amortization period was changed effective
July 1, 1999 from three to seven years.



On September 30, 1999, the Company entered into an
Asset Purchase and Option Agreement ("the Agreement") with OPLI, a
related party.  Pursuant to the Agreement, the Company sold the assets used in
its Digital Video Business, which are comprised of the Ad Insertion Business and
the Video on Demand Businesses.

The purchase prices for the Purchased Assets and for the
Option (described below) was $3,450 with the purchased asset valued at $2,700
and the Option at $750.  The purchase price was paid by delivery of a promissory
note in the principal amount of $3,450 (the "Note").  Principal on the
Note is payable in 36 equal monthly installments commencing on October 31,
1999.  The unpaid principal balance of the Note bears interest at an annual rate
of 7%.  The Note was originally secured by a first priority security interest in
favor of the Company in the Purchased Assets and a first priority pledge in
favor of the Company of 987,500 shares of common stock of the Company owned by
OPLI.  At December 31, 2001 606,220 shares of Common Stock in the Company
was on hand as collateral.

Pursuant to the terms of the Agreement, OPLI purchased the
option (the "Option") to acquire 212,000 shares (the "Option
Shares") of the common stock of DVS Korea Ltd., a corporation organized
under the laws of the Republic of Korea and a wholly owned subsidiary of the
Company (DVS Korea).  The Option Shares constitute 20% of the issued and
outstanding shares of capital stock of DVS Korea.  The option was exercisable in
whole or in part, for an aggregate exercise price of $500 payable in cash upon
exercise of the Option.

The sale of the Purchased Assets and the Option was recorded
as a note receivable.  The purchased assets were written off the books as of
March 31, 1999 as part of a restructuring.  As a result, no book value for
these assets exists as of the date of the transaction.  The gain of $2,700 for
the sale of the purchased assets has been recognized as other income in the
fiscal year ending March 31, 2000.

OPLI exercised its right to acquire the Option Shares in
November 1999.  The book value of the Option Shares at that time was $762.  The
sale of the Option for $750 and the proceeds of $500 for exercising the Option
resulted in a gain for the sale of the Option Shares.  This gain has been
recognized as other income in the fiscal year ending March 31, 2000.

At December 31, 2001 the OPLI note receivable
outstanding was at $1,974 and was in default.  Payment in arrears totaled $1.0
million.  The shares of the Company's common stock purchased in 1998 plus the
assets acquired, giving rise to the note receivable, have been pledged and
secured. Common stock of OPLI shareholders pledged are in the possession of the
Company and at December 31, 2001 had a market value that equals
approximately the outstanding balance due on the note receivable.



The Company has lines of credit with several Korean banks
during the year ended December 31, 2001, with borrowing limits varying from
$1,500 to $11,623.  The total borrowing limit as of December 31, 2001 was
$23,037.  The Company also has $25,341 as payment guarantees for letters of
credit.  Borrowings under these lines of credit incur interest at prime rates
between 0.55% to 6.8%, and are guaranteed up to $4.8 million by The Korea
Technology Guarantee Trust Fund and the Korea Credit Guarantee fund.  The
expiration date for these lines of credit are between March and November 2002.
Cash and cash equivalent deposits of approximately $3,236 are restricted as
collateral for lines of credit.

The provisions of these lines of credit contain no covenants
related to the maintenance of working capital or other financial ratios.  As of
December 31, 2001, the Company owed a total of $16,500 on the lines of credit.



The Company has an unsecured demand note of $77 from
M. Tek Ung.  This note bears interest at 10%.  The Company has a note
payable of $1,757 from Shanghai Bank.  This note bears interest rate of 6% and
is secured by the joint venture building in China.



Long-term debt at December 31, 2001 and 2000 consisted of
the following:

`2001        2000
                                              ----------  ----------
Unsecured note payable due to Hanvit
  Bank, with interest rate of 6%, due
  on June 15, 2004.......................... $      436  $      541
Less current portion........................       (172)        (90)
                                              ----------  ----------
Total long-term debt........................ $      264  $      451
                                              ==========  ==========`

Repayments of long-term borrowings for:



`Amount
                                                          ----------
2002.................................................... $      172
2003....................................................        172
2004....................................................         92
                                                          ----------
Total................................................... $      436
                                                          ==========`



Lease Commitments

The Company leases its facilities and certain office
equipment under non-cancelable leases that require the Company to pay operating
costs, including property taxes, insurance and maintenance.  Future minimum
lease payments under these operating leases at December 31, 2001 are as
follows:

`Amount
                                                          ----------
2002.................................................... $      491
2003....................................................        379
Thereafter..............................................        --
                                                          ----------
Total................................................... $      870
                                                          ==========`

Rent expense charged to operations was
approximately $481, 381 and $434 for the twelve months ended December 31,
2001, the nine months ended December 31, 2000 and twelve months ended
March 31, 2001, respectively.



During the year ended December 31, 2001, the Company
increased its investment in DVS Korea by acquiring an additional 127,000 shares,
raising its ownership in DVS Korea to 82%.  Subsequently employees of DVS Korea
were issued 120,099 shares in satisfaction of outstanding loans to the Company,
thereby reducing the Company's ownership in DVS Korea to its current 74.6%.
Currently the shareholders of DVS Korea are comprised of individual Korea
investors and employees of DVS Korea. At December 31, 2001 the company also held
a 51% ownership interest in a Joint Venture in China (see note 17).



The components of income (loss) before provision for
income taxes were as follows:

`Nine
                                                 Year       Months       Year
                                                Ended       Ended       Ended
                                              December 31,December 31,March 31,
                                                 2001        2000        2000
                                              ----------  ----------  ----------
                                                                     (as restated
Domestic.................................... $   (1,728) $   (1,234) $     (786)
Foreign.....................................      3,318       2,793       1,660
                                              ----------  ----------  ----------
Total....................................... $    1,590  $    1,559  $      874
                                              ==========  ==========  ==========`

The provision for income taxes in the twelve
month period ending December 31, 2001 was comprised of state taxes of $60
and foreign taxes of $662.  The provision for income taxes in the nine-month
period ending December 31, 2000 was comprised of states taxes of $20 and
foreign taxes amounting to $356.  The provision for taxes for the twelve months
ending March 31, 2000 was comprised of foreign taxes of $13.

Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets at December 31,
2001 and 2000 are as follows (in thousands):

`2001        2000
                                              ----------  ----------
Deferred tax assets:
   Net operating loss carryforwards......... $   17,469  $   14,958
   Reserves and other accrued expenses
      deductible for taxes not on books.....        876         519
   Depreciation timing differences..........       (214)       (117)
                                              ----------  ----------
     Total deferred assets..................     18,131      15,360
   Valuation allowance for deferred tax asse    (18,131)    (15,360)
                                              ----------  ----------
     Net deferred tax assets................ $      --   $      --
                                              ==========  ==========`

The increase in valuation allowance for deferred
taxes for the year ended December 31, 2001, the nine months ended
December 31, 2000, and the year ended March 31, 2000 was $2,771, $354
and $268, respectively.

The Company has federal net operating loss carryforwards as
of December 31, 2001 of approximately $48.3 million expiring at various
dates through 2021 and $8.2 million state net operating loss carryforwards
expiring as follows:

`Expiration Date                                Federal    California
--------------------------------------------  ----------  ----------
2001........................................ $      --   $    1,747
2002........................................        --        3,353
2003........................................        --        2,661
2004........................................        --          417
2009........................................        552         --
2010........................................      2,811         --
2011........................................      1,324         --
2012........................................      9,772         --
2013........................................     14,498         --
2019........................................     13,103         --
2020........................................      5,131         --
2021........................................      1,088         --
                                              ----------  ----------
                                             $   48,279  $    8,178
                                              ==========  ==========`

Due to the "change in ownership"
provisions of the Internal Revenue Code, the availability of the Company's net
operating loss and credit carryforwards may be subject to an annual limitation
in future periods.  Such a change could substantially limit the eventual tax
utilization of these carryforwards.

Under Korean tax regulations the Company's Korean subsidiary
is allowed a foreign investment exemption, currently 74.6% of taxable income,
for 7 years from the taxable year after the year in which the Korean subsidiary
first recognize taxable income, which was fiscal 2000.  The Korean subsidiary is
then allowed an additional 3 year exemption at 50% of its foreign investment
ratio.



The computation of net income (loss) per share was as
follows:

`Income      Shares       Per
                                                (Loss)     (Denomi-     Share
                                              (Numerator)   nator)      Amount
                                              ----------  ----------  ----------
Year ended December 31, 2001:
  Basic income.............................. $      868   5,336,948  $     0.16
  Effect of dilutive stock options
     and warrants...........................        --      809,068       (0.02)
                                              ----------  ----------  ----------
                                             $      868   6,146,016  $     0.14
                                              ==========  ==========  ==========
Nine months ended December 31, 2000:
  Basic income.............................. $    1,183   4,658,358  $     0.25
  Effect of dilutive stock options
     and warrants...........................        --      761,004       (0.04)
                                              ----------  ----------  ----------
                                             $    1,183   5,419,362  $     0.21
                                              ==========  ==========  ==========
Year ended March 31, 2000:
  Basic income.............................. $      861   4,363,152  $     0.20
  Effect of dilutive stock options
     and warrants...........................        --          --          --
                                              ----------  ----------  ----------
  Diluted income per share.................. $      861   4,363,152  $     0.20
                                              ==========  ==========  ==========`

At December 31, 2001, previously reported
escrowed common stock and stock options were retired effective July 15,
2001 to the Company's capital.  At December 31, 2000, 1,143,645 shares of
common stock and 17,064 stock options were held in escrow.

The Class A and Class B warrants, 2,635,714 and
2,635,714, respectively, expired on May 9, 2001.  At December 31, 2000
these warrants were excluded from the calculation of diluted earnings per share
because the affect was anti-dilutive.

At December 31, 2001 and December 31, 2000, 936,778
and 145,414 options and other warrants were excluded from the calculation of
diluted earnings per share because the effect was anti-dilutive.

Preferred Stock

In March 1999, the Company issued 6,475 shares of
Series C Convertible Preferred Stock to OPLI and several other accredited
investors in exchange for the conversion of $4,475 of Convertible Promissory
Notes and $2,000 in cash.  In connection with the transaction OPLI was also
granted two year options to acquire 428,571 shares of common stock at $5.25 per
share.  The transaction was approved by a majority vote of the common
shareholders and on January 26, 2001 the Board of Directors extended the
exercise period to January 25, 2002.

Common Stock

In April 1999, OPLI converted the 6,475 shares of
Series C Convertible Preferred Stock into 1,968,083 shares of common stock.
During year 2001 the Company completed a private placement of 723,362 shares of
the Company's common stock.  Proceeds from the private placement were $1,700
less costs of raising capital of $250 netting the Company $1,450.  Additionally,
the Company issued 210,492 shares in settlement of legal obligations totaling
$500.  Options exercised during the year 2001 were 77,922 valued at $300.



Escrowed Securities

As of December 31, 2000 all common shares and
options to purchase common stock previously held in escrow were returned to
capital at July 15, 2001.  Shares returned to capital totaled 1,167,263
common shares.  Options cancelled totaled 17,064.

These shares were placed in escrow in 1996 through 1997 and
their release was subject to certain performance criteria, not met, and any
shares not released to be forfeited on July 15, 2001.  No shares were
released.

Stock Option Plans

The Company's stock option plans provide for the granting
of incentive stock options and non-statutory stock options to employees,
directors and consultants at prices ranging from 85% to 110% (depending on the
type of grant and the nature of the optionee) of the fair value of the common
stock on the grant date as determined by the Board of Directors.  Most options
vest ratably over a four-year period commencing as of the date of grant.  The
Company has authorized shares of common stock for issuance under the 1993 Stock
Option Plan (the "1993 Plan"), shares of common stock for issuance
under the 1996 Stock Option Plan (the "1996 Plan"), and shares of
common stock for issuance under the 1998 Stock Option Plan (the "1998
Plan").  The options granted under the 1993 Plan, 1996 Plan and 1998 Plan
are exercisable over a maximum term of ten years from the date of grant, and are
subject to various restrictions as to resale and right of repurchase by the
Company.

Had compensation expense been determined for stock options
granted during the nine months ended December 31, 2000 and year ended
March 31, 2000 based on the fair value at grant dates consistent with SFAS
No. 123, the Company's condensed Pro Forma Statement of Operations for
those periods would have been as follows:

`Nine
                                                 Year        Months        Year
                                                 Ended        Ended       Ended
                                              December 31, December 31, March 31,
                                                 2001         2000         2000
                                              -----------  -----------  ----------
Net income (loss):
  As reported............................... $       868  $     1,148  $      861
                                              ===========  ===========  ==========
  Pro forma................................. $       423  $       933  $      429
                                              ===========  ===========  ==========
Basic income (loss) per share:
  As reported............................... $      0.16  $      0.25  $     0.20
                                              ===========  ===========  ==========
  Pro forma................................. $       --   $      0.20  $     0.10
                                              ===========  ===========  ==========
Diluted income (loss) per share:
  As reported............................... $      0.14  $      0.21  $     0.20
                                              ===========  ===========  ==========
  Pro forma................................. $       --   $      0.17  $     0.10
                                              ===========  ===========  ==========`

The weighted average estimated fair values of
employee stock options granted during the twelve months ended December 31,
2001, the nine months ended December 31, 2000 and the twelve months ended
March 31, 2000 were $2.88, $2.52 and $2.77 per share, respectively.

The fair value for these options was estimated at the date of
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions for the year ended December 31, 2001 was as follows:

`Nine
                                                 Year        Months        Year
                                                 Ended        Ended       Ended
                                              December 31, December 31, March 31,
                                                 2001         2000         2000
                                              -----------  -----------  ----------
Risk-free interest rate.....................        5.98         5.98    5.06-6.6
Dividend yield..............................       0.00%        0.00%       0.003
Volatility..................................         126%         126%    96%-114
Average life................................         2.0          2.0         4.5`

Option activity under the 1993 Plan, 1996 Plan
and 1998 Plan was as follows:

`Outstanding Options
                                              ------------------------
                                                            Weighted
                                                             Average
                                                Number      Exercise
                                               of Shares      Price
                                              -----------  -----------
Balance at March 31, 1999...................     517,403  $      8.20
  Options granted...........................     839,243         3.96
  Options exercised.........................     (33,570)        5.46
  Options cancelled.........................    (228,928)       11.32
                                              -----------
Balance at March 31, 2000...................   1,094,148         4.21
  Options granted...........................      28,571         6.51
  Options exercised.........................     (16,069)        6.25
  Options cancelled.........................    (445,108)        6.76
                                              -----------
Balance at December 31, 2000................     661,542         5.18
  Options granted...........................         --
  Options exercised.........................     (77,922)        3.85
  Options cancelled.........................     (58,993)        4.48
                                              -----------
Balance at December 31, 2001................     524,627         5.41
                                              ===========`

The following table summarizes information
regarding stock options outstanding at December 31, 2001:

`Weighted
                  Average
                 Remaining
                Outstanding Contractual   Average  Exercisable   Average
Range of        at December    Life      Exercise  at December  Exercise
Exercise Prices  31, 2001     (Years)      Price    31, 2001      Price
--------------- ----------- -----------  --------- -----------  ---------
 0.973-4.816       388,641        6.92  $    3.85     215,738  $    3.90
 5.467-7.658         7,429        6.87       6.29       3,428       6.42
 7.875-9.408        99,986        6.57       8.75      94,603       8.80
14.658-35.00        28,571        8.01      14.66      13,095      14.66
                -----------                        -----------
                   524,627                            326,864
                ===========                        ===========`

Other Options and Warrants

The Board has authorized a contingent grant of options
for Mali Kuo, as former chief executive officer, to purchase 250,000 shares of
the Company's common stock, subject to attainment of certain financing targets
for the Company.  These options have an aggregate exercise price of $6.37.  None
of these options have been exercised to date.

In connection with the sale of preferred stock to OPLI in
1998, the Company granted a 2 year option to purchase 428,571 shares of common
stock at an exercise price of $5.25.  The Board subsequently authorized an
extension to January 25, 2002 for the exercise of the OPLI option.  The
options were not exercised and have been cancelled.  Additionally, OPLI had been
given the right to invest $3.5 million in the Company's common stock at an
exercise price of $3.29, which right would expire on January 25, 2002.  The
right was not exercised and has been cancelled.

Dr. Sun was granted a one (1) year option of 493,500
shares at $3.85, immediately exercisable, on December 6, 2000.  This option
was not exercised and has been cancelled.  Dr. Sun currently has no options
outstanding.

Warrants totaling 464,286 were issued during the year ended
December 31, 2001.  Of these warrants, 250,000 were issued in connection
with capital raising activities and 214,286 warrants were issued for expenses.
The exercise prices of these warrants range from $2.75 to $5.25.

Employee Stock Purchase Plan

In September 1997, the shareholders approved 71,429
shares for distribution under the Company's employee stock purchase plan which
employees may purchase shares, subject to certain limitations, at no less than
85% of the lower of the fair market value of the shares at the beginning or end
of a three-month purchase period.  The first enrollment period for the stock
purchase plan began on April 1, 1998.  As of December 31, 2001, no
shares have been distributed to employees under this plan.



During fiscal 1998, the Company implemented a 401(k) tax-
deferred savings plan under which all U.S. employees may contribute up to 16% of
their compensation, subject to certain Internal Revenue Service limitations.
The Company has not contributed to the plan to date.



The Company operates in one business segment, which
includes developing, producing and marketing digital video systems and sub-
assemblers and computer peripherals.

`Nine
                                    Year        Months        Year
                                    Ended        Ended       Ended
                                 December 31, December 31, March 31,
                                    2001         2000         2000
                                 -----------  -----------  ----------
Product line:
  Net sales
    DVD products............... $   158,091  $    71,490  $   56,000
    CD product.................         730          251       1,900
    All other..................       1,050        1,362       2,392
                                 -----------  -----------  ----------
                                $   159,871  $    73,103  $   60,292
                                 ===========  ===========  ==========`

A significant portion of the Company's revenue
and net income is derived from international sales, particularly from customers
based in Asia.  Fluctuation of the U.S. dollar against foreign currencies and
changes in local regulatory or economic conditions could adversely effect
operating results.

Geographic information for revenues and long-lived assets for
the year ended December 31, 2001, nine months ended December 31, 2000
and the year ended March 31, 2000 are as follows:

`Nine
                                    Year        Months        Year
                                    Ended        Ended       Ended
                                 December 31, December 31, March 31,
                                    2001         2000         2000
                                 -----------  -----------  ----------
Product line:
  Net sales
    Domestic................... $     3,051  $       251  $    5,542
    Foreign....................     156,820       72,852      54,750
                                 -----------  -----------  ----------
                                $   159,871  $    73,103  $   60,292
                                 ===========  ===========  ==========
  Identifiable assets
    Domestic................... $     5,707  $     4,837  $    5,277
    Foreign....................      39,929       25,171      17,698
                                 -----------  -----------  ----------
                                $    45,636  $    30,008  $   22,975
                                 ===========  ===========  ==========`

In the twelve months ended December 31,
2001 foreign sales to China were approximately $125 million.  In the nine months
ended December 31, 2000 foreign sales to China were approximately $57
million.  Sales to China in the twelve months ended March 31, 2000 were
$44.5 million.

In the twelve months ended December 31, 2001, the
Company had a major customer who accounted for over 10% of sales.  The largest
customer had sales of $68.0 million.  During the nine months ended
December 31, 2000, the Company had two major customer, who individually
accounted for over 10% of sales.  The largest customer had sales of $20.7
million and the other customer had sales of $9.3 million.  During the fiscal
year ending March 31, 2000, the Company had one major customer who
accounted for over 10% of sales of $17.9 million.



During 2001 the Company formalized its participation in a
joint venture in China.  The Company's majority owned subsidiary, DVS Korea,
owns 51% of the joint venture in return for investing $170 in cash, providing
assembly and test equipment valued at $880 and executing a Technology Investment
Exchange Agreement.  The Chinese partner invested $1,950 cash for a 39%
ownership interest and another company owns the remaining 10% for its investment
of equipment valued at $500.  The Joint Venture Agreement has been approved by
all partners and by the Chinese Government.  The financial statements of the
joint venture have been included in the consolidated financial statements of the
Company since it controls activities of the joint venture.  Additionally, DVS
Korea sold, under letter of credit arrangements, $48 million of product to a
partner in the joint venture.



The Company has reached final settlement agreement with
the Company's former corporate counsel, Troy & Gould, related to unpaid
capital raising fees and legal costs.  The Company will satisfy the terms of the
settlement agreement and receive full satisfaction of the judgment rendered on
previously reported lawsuit by payment of settlement amount in the settlement
agreement.  The amounts due under the settlement agreement were paid in full in
February 2002.

Laser Dynamics, Inc. sued the Company in May 2000 alleging
that DVS infringed on certain patents.  The Company has executed a non-exclusive
and royalty free license agreement with Laser Dynamics, Inc., the owner of U.S.
Patient Nos. 5,587,981 and 5,959,280 effective February 14, 2001.
According to the agreement, DVS shall pay $200 to Laser Dynamics, Inc. for the
license.  The agreement is additionally a world-wide, irrevocable and perpetual
license to manufacture products under said patents.  The Company has received an
order for dismissal on previously filed civil action.  DVS Korea paid the $200
during 2001 and treated the entire amount as a license fee expense.

On December 4, 2001, a lawsuit was filed in United
States District Court, Northern District of California against DVS and certain
directors, officers and employees of DVS.  The plaintiffs in the foregoing
action are certain investors that purchased securities from DVS in May 2001 and
July 2001 in transactions not involving a public offering.  The complaint
relating to these transactions purports to allege claims relating to violation
of state and federal securities laws, breach of fiduciary duties, breach of
contract, fraud, and negligent misrepresentation.  The plaintiffs seek
declaratory judgment relief, compensatory damages in excess of $1,000, punitive
damages, and costs of suit, including attorneys' fees.  DVS and the other
defendants have not yet answered any of the complaints listed above, and
discovery has not yet commenced.  Although DVS believes that it has certain
meritorious defenses to the complaints and intends to vigorously defend the
action, an adverse judgment by a court or jury could have a material and adverse
effect on DVS' business, results of operation and financial condition.

DVS Korea is involved in a lawsuit with a former employee who
is claiming unfair dismissal.  The DVS Korea's legal counsel has not been able
to provide an estimate of damages nor have they been able to determine the
likelihood of loss.  The Company had accrued $90 at December 31, 2001 and
2000.  During the period, in accordance with a Korean court order, DVS Korea
deposited $1,160 with the court until this litigation is resolved.  This deposit
is included in prepaid expenses in other current assets as of December 31,
2001 and 2000.  Management intends to defend this lawsuit vigorously and expects
to receive the deposit back during the next year.

The Company has been named as a defendant in several other
lawsuits in the normal course of its business.  In the opinion of management,
after consulting with legal counsel, the liabilities, if any, resulting from
these matters will not have a material effect on the consolidated financial
statements of the Company.



The following tables contain selected unaudited statement
of operations information for each quarter of the year ended December 31, 2001,
the nine month period ended December 31, 2000 and the year ended March 31,
2000.

`Year Ended December 31, 2001
                                        ------------------------------------------
                                         Fourth      Third     Second      First
                                         Quarter    Quarter    Quarter    Quarter
                                        ---------  ---------  ---------  ---------
                                                 (in thousands) (unaudited)
Net revenue........................... $  54,493  $  52,879  $  36,067  $  16,432
Gross profit..........................     1,206      5,379      5,498      1,993
Net income (loss).....................        67        663        327       (189)
Basic income (loss) per share (1).....      0.01       0.12       0.06      (0.04)
Diluted income (loss) per share (1)...      0.01       0.11       0.05      (0.04)
Shares used in computation of basic
  income (loss) per share.............     5,443      5,548      5,292      4,833
Shares used in computation of diluted
  income (loss) per share.............     6,208      6,269      6,385      4,833



                                              Nine Months Ended December 31, 2000
                                        ------------------------------------------
                                         Fourth      Third     Second      First
                                         Quarter    Quarter    Quarter    Quarter
                                        ---------  ---------  ---------  ---------
                                                 (in thousands) (unaudited)
Net revenue........................... $  25,730  $  24,618  $  22,755  $
Gross profit..........................     3,780      3,755      2,575
Net income (loss).....................       (81)       743        486
Basic income (loss) per share (1).....     (0.02)      0.16       0.11
Diluted income (loss) per share (1)...     (0.02)      0.13       0.09
Shares used in computation of basic
  income (loss) per share.............     4,670      4,681      4,523
Shares used in computation of diluted
  income (loss) per share.............     5,527      5,635      5,590


                                                 Year Ended March 31, 2000
                                        ------------------------------------------
                                         Fourth      Third     Second      First
                                         Quarter    Quarter    Quarter    Quarter
                                        ---------  ---------  ---------  ---------
                                                 (in thousands) (unaudited)
Net revenue........................... $  14,725  $  23,481  $  15,731  $   6,355
Gross profit..........................     2,087      3,649      1,725        322
Net income (loss).....................    (1,250)       461      3,030     (1,380)
Basic income (loss) per share (1).....     (0.28)      0.10       0.68      (0.31)
Diluted income (loss) per share (1)...     (0.28)      0.08       0.68      (0.31)
Shares used in computation of basic
  income (loss) per share.............     4,487      4,610      4,460      4,455
Shares used in computation of diluted
  income (loss) per share.............     5,609      5,763      4,460      4,455`

________

(1)	See Consolidated Statement of
Operations.

The sum of quarterly per share amounts
may not equal per share amounts reported for the year-to-date periods.  This is
due to changes in the number of weighted-average shares outstanding and the
effects of rounding for each period



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

Not applicable.





PART III



Item 10.	Directors and Executive Officers of the
Registrant

Information with respect to Directors is included under
the caption "Proposal One-Election of Directors" in the Proxy
Statement for the 2002 Annual Meeting to be held on May 23, 2002 (the
"2002 Proxy Statement") and is incorporated herein by reference.
Information with respect to Executive Officers is included under the caption
"Executive Officers" in Part I hereof after Item 4.

Information regarding delinquent filers pursuant to
Item 405 of Regulation S-K is included under the heading "Section
16(a) Beneficial Ownership Reporting Compliance" in the 2002 Proxy
Statement and is incorporated herein by reference.



Item 11.	Executive Compensation

The information required by this item is included under
the caption "Proposal One - Election of Directors - Director
Compensation" and "Executive Officer Compensation" in the 2002
Proxy Statement and is incorporated herein by reference.



Item 12.	Security Ownership of Certain Beneficial
Owners and Management

The information required by this item is included under
the caption "Security Ownership of Principal Stockholders and
Management" in the 2002 Proxy Statement and is incorporated herein by
reference.



Item 13.	Certain Relationships and Related
Transactions

The information required by this item is included under
the caption "Transactions with Management" in the 2002 Proxy Statement
and is incorporated herein by reference.



PART IV



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

(a)	The following documents are filed as part of this
Annual Report on Form 10-K:

1.	Financial Statements

Reference is made to the Index to Consolidated Financial
Statements of Digital Video Systems, Inc. under Item 8 of Part II
hereof.

2.	Financial Statement Schedule

The following schedule of the Company is included herein:

Valuation and Qualifying Accounts (Schedule II)

All other schedules are omitted because they are not
applicable or the amounts are immaterial or the required information is
presented in the Consolidated Financial Statements and Notes thereto in
Item 8 above.

The following documents are included in Exhibit 23
hereto:

Exhibit 23.2  Consent of Burr, Pilger & Mayer,
Inc., Independent Auditors

Exhibit 23.3 Consent of Shu Lun Pan certified Public
Accountants Co., LTD

3.	Exhibits

See Item 14(c) below.

(b)	Reports on Form 8-K

Not Applicable.

(c)	Exhibits

See Exhibit Index.

---

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Jose, State of California on this 1st day of April 2002.

DIGITAL VIDEO SYSTEMS, INC.

By: /s/ Douglas T. Watson

Douglas T. Watson

Chief Executive Officer and Director

By: /s/ Da King Lu

Da King Lu

Vice President, Finance

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:



|Signature                                | Title                                 | Date         
|---------------------------------------- | ------------------------------------- | -------------
|/s/  Douglas T. Watson
Douglas T. Watson | Chief Executive Officer and Director  | April 1, 2002
|/s/  Dr. edmund y. sun
Dr. Edmund Y. Sun | Chief Technology Officer and Director | April 1, 2002
|/s/  Ande Abbott
Ande Abbott             | Director                              | April 1, 2002
|/s/  Young Sam Cho
Young Sam Cho         | Director                              | April 1, 2002
|/s/  Cary Fitchey
Carey Fitchey          | Director                              | April 1, 2002
|/s/  Hak C. Howard Lee
Hak C. Howard Lee | Director                              | April 1, 2002

---

DIGITAL VIDEO SYSTEMS, INC.
                                   Schedule II

               Valuation and Qualifying Accounts and Reserves

                              (in thousands)


Balance    Additions
                                         at      Charged to              Balance
                                     Beginning   Costs and                at End
Description                          of Period    Expenses   Deductions of Period
-----------------------------------  ----------  ----------  ---------  ----------
2001:
Allowance for doubtful accounts
  receivable....................... $      952  $      423  $   1,055  $      320
Warranty reserve...................        128         207        --          335
Deferred tax asset valuation
  allowance........................     15,360       2,771        --       18,131
Reserve for slow moving and
  obsolete inventory...............        397         --          69         328


2000:
Allowance for doubtful accounts
  receivable....................... $    4,259  $      519  $   3,826  $      952
Warranty reserve...................        --          128        --          128
Deferred tax asset valuation
  allowance........................     15,006         354        --       15,360
Reserve for slow moving and
  obsolete inventory...............      1,411         --       1,014         397


1999:
Allowance for doubtful accounts
  receivable....................... $    4,275  $      --   $      16  $    4,259
Warranty reserve...................        --          --         --          --
Deferred tax asset valuation
  allowance........................     13,819       1,187        --       15,006
Reserve for slow moving and
  obsolete inventory...............      1,287         124        --        1,411EXHIBIT INDEX
Exhibit Number
Document3.1
Amended and Restated Certificate of Incorporation of the
Company.(1)3.2
Bylaws of the Company.(1)4.1
Specimen Common Stock Certificate.(3)4.2
Form of Warrant Agreement (the "Warrant Agreement") by
and among the Company,  American Stock Transfer and Trust Company and the
Underwriter (including forms of Class A and Class B Warrant
certificates).(3)4.3
Form of Underwriter's Unit Purchase Option (issued in connection
with the Company's initial public offering).(1)4.4
Warrant Agreement.(1)4.5
Escrow Agreement dated as of April 23, 1996 among American Stock
Transfer and Trust Company, the Company and Optionholders listed on Exhibit B
thereto.(3)4.6
Form of Subscription Agreement from the Bridge
Financing.(2)4.7
Escrow Agreement dated as of October 17, 1996 made by and
between the Company and Dr. Edmund Y. Sun.(4)4.8
Escrow Agreement dated as of October 17, 1996 made by and among
the Company, Dr. Edmund Sun and American Stock Transfer and Trust
Company.(4)4.9
Escrow Agreement dated as of October 17, 1996 made by and among
the Company, the shareholders named on the signature pages thereto and American
Stock Transfer and Trust Company.(4)4.10
Form of Amendment to the Warrant Agreement.(4)4.11
Form of Underwriter's Unit Purchase Option.(4)10.1
1993 Amended and Restated Stock Option Plan.(2)10.2
Employment Agreement as of March 1, 1996 between the Company and
Dr. Edmund Sun.(2)10.3
Product Agreement made March 16, 1993 between Hyundai and the
Company.(1)10.4
Technical Assistance and License Agreement made March 16, 1993
between Hyundai and the Company.(1)10.5
1995 Hyundai Technical Assistance and License
Agreement.(1)10.6
Consulting Agreement made as of February 1, 1996 between the
Company and Intermarkt.(1)10.7
Sublease Agreement, dated as of November 15, 1995, between the
Company and McAfee Associates, Inc. (along with consent to sublease and master
lease agreement).(1)10.8
House Leasing Agreements dated August 31, 1994 and September 6,
1994 for facility in Taiwan (translated).(1)10.9
Form of Indemnity Agreement with the Company's officers and
directors.(1)10.10
Series A Preferred Stock Purchase Agreement made as of January
21, 1994 between the Company and Hyundai.(1)10.11
Series B Preferred Stock Purchase Agreement made as of April
1995 between the Company and Hyundai.(1)10.12
Consulting and Employment Agreement between the Company and
Robert B. Pfannkuch entered into as of March 15, 1996.(2)10.13
Agreement and Plan of Merger dated as of October 17, 1996 by and
between the Company, ViComp Technology, Inc. and the shareholders of ViComp
Technology, Inc.(4)10.14
Registration Rights Agreement dated as of October 17, 1996 by
and between the Company and the shareholders of ViComp Technology, Inc. named
therein.(4)10.15
1996 Stock Option Plan.(4)10.16
Consulting Agreement made as of September 27, 1996 between the
Company and Sitrick and Company Inc.(4)10.17
Office Lease Agreement commencing on October 15, 1996 between
the Company and Paulsen Office Park.(4)10.18
Lease, dated July 17, 1996, between the Company and Ken Yang
Real Estate (Shanghai) Co. Ltd.(4)10.19
Letter dated April 10, 1997 from Robert B. Pfannkuch to the
Company regarding resignation as an Officer.(5)10.20
Employment Agreement between the Company and Thomas R. Parkinson
entered into March 28, 1997.(5)10.21
Settlement Agreement and General Release entered into January
30, 1997 between the Company and Janis P. Gemignani.(5)10.22
Joint Venture Agreement dated as of August 5, 1997 by and
between D.V.S. H.K., a wholly-owned subsidiary of the Company, and Panyu Tian Le
Electrical Appliance Manufacturing Co., Ltd. (6)10.23
Asset Purchase Agreement dated as of July 25, 1997 by and
between the Company and Arris Interactive LLC. (7)10.24
Amendment No. 1 to Asset Purchase Agreement by and between the
Company and Arris Interactive LLC dated as of August 1, 1997. (7)10.25
Form of Escrow Agreement by and between the Company and Arris
Interactive LLC. (7)10.26
1997 Employee Stock Purchase Plan. (8)10.27
1993 Amended and Restated Stock Option Plan. (8)10.28
1996 Amended and Restated Stock Option Plan. (8)10.29
Employment Agreement dated as of August 1, 1997 by and between
the Company and Gary Franza. (9)10.30
Ownership Shares Transfer Agreement by and between D.V.S. H.K.,
a wholly-owned subsidiary of the Company, and Panyu.(10)10.31
Lease Agreement by and between D.V.S. H.K., a wholly-owned
subsidiary of the Company, and Panyu.(10)10.32
Form of Joint Venture Partner Substitution Agreement
(superceded).(10)10.33
Employment Agreement dated as of January 12, 1998 by and between
the Company and Edward Miller.(10)10.34
Lease Agreement by and between Digital Video Systems, Inc. and
Dell Enterprises. (10)10.35
Asset Purchase Agreement dated as May 8, 1998 by and between the
Company and Hyundai Electronic Industries Company, Ltd. (11)10.36
Amendment to Asset Purchase Agreement dated June 23, 1998 by and
between the Company and Hyundai Electronic Industries Company, Ltd.
(11)10.37
Joint Venture Partner Substitution Agreement (11)10.38
Amendment to the Asset Purchase Agreement dated March 26, 1998
by and between the Company and Arris Interactive LLC. (11)10.39
Employment Agreement dated as of May 8, 1998 by and between the
Company and Sung Hee Lee. (12)10.40
Subscription Agreement dated June 24, 1998 by and between the
Company and Dr. Edmund Sun. (12)10.41
Investment Agreement by and between Digital Video Systems, Inc.
and Oregon Power Lending Institution (13)10.42
Convertible Promissory Note of $1,000,000 payable to Oregon
Power Lending Institution dated November 12, 1998. (14)10.43
Convertible Promissory Note of $500,000 payable to Oregon Power
Lending Institution dated December 31, 1998. (14)10.44
Convertible Promissory Note of $200,000 payable to Oregon Power
Lending Institution dated January 21, 1999. (14)10.45
Convertible Promissory Note of $100,000 payable to Oregon Power
Lending Institution dated February 2, 1999. (14)10.46
Convertible Promissory Note of $186,000 payable to Oregon Power
Lending Institution dated February 3, 1999. (14)10.47
Convertible Promissory Note of $100,000 payable to Oregon Power
Lending Institution dated February 5, 1999. (14)10.48
Convertible Promissory Note of $100,000 payable to Oregon Power
Lending Institution dated February 8, 1999. (14)10.49
Convertible Promissory Note of $433,326.40 payable to Oregon
Power Lending Institution dated February 11, 1999. (14)10.52
Lease agreement with Hyundai Capital Services dated January 28,
1999. (14)10.53
Regarding the issuance of common stock and Series C Preferred
Stock in connection with that certain investment agreement entered into with
Oregon Power Lending Institution and also constituting notice of action taken
without a meeting. (15)10.54
Sublease Agreement dated as of November 17, 1998 by and among
Digital Video Systems, Inc., Savoir Technology Group and Technology Park
Atlanta, Inc. (17)10.55
Lease Termination Agreement dated as of November 17, 1998 by and
between Digital Video Systems, Inc and Dell Enterprises. (17)10.56
Lease agreement dated as of December 18th, 1998 by and between
Digital Video Systems, Inc. and Sun and Sun LLP. (17)10.57
Agreement dated as of February 1999 by and among Digital Video
Systems, Inc., Savoir Technology Group and Technology Park Atlanta, Inc.
(17)10.58
Employment Agreement dated as of February 18, 1999 by and
between Digital Video Systems, Inc. and Mali Kuo. (17)10.59
Finder's Agreement dated as of January 8, 1999 by and between
Digital Video Systems, Inc. and Mali Kuo. (17)10.60
Agreement dated as of April 28, 1999 by and between Digital
Video Systems, Inc. and Chinapro. (17)10.61
Agreement dated as of July 28, 1999 by and between Digital Video
Systems, Inc. and Shanghai Industrial Investment (Group) Co., Ltd.
(17)10.62
Purchase and Option Agreement dated as of September 30, 1999 by
and between Digital Video Systems, Inc. and Oregon Power Lending Institution.
(16)21.1
List of Subsidiaries23.1
Consent of Burr, Pilger & Mayer, Inc., Independent
Auditors23.2
Consent of Shu Lun Pan certified Public Accountants Co.,
Ltd.(1)	Incorporated by reference from
the Company's Registration Statement on Form SB-2 (Registration
No. 333-2228), as filed with the Commission on March 8, 1996.
(2)	Incorporated by reference from Amendment No. 1 to
the Company's Registration Statement on Form SB-2 (Registration
No. 333-2228) as filed with the Commission on April 23, 1996.
(3)	Incorporated by reference from Amendment No. 2 to
the Company's Registration Statement on FormSB-2 (Registration No. 333-2228), as
filed with the Commission on May 8, 1996.
(4)	Incorporated by reference from the Company's
Registration Statement on Form SB-2 (Registration Statement No. 333-15471), as
filed with the Commission on November 4, 1996.
(5)	Incorporated by reference from the Company's
Form 10-KSB for the Fiscal Year Ended March 31, 1997 as filed with the
Commission on June 30, 1997.
(6)	Incorporated by reference to the Company's Current
Report on Form 8-K filed with the Commission on August 15, 1997.
(7)	Incorporated by reference to the Company's Current
Report on Form 8-K filed with the Commission on September 26,
1997.
(8)	Incorporated by reference to the Company's Definitive
Proxy Statement filed with the Commission on August 11, 1997.
(9)	Incorporated by reference from the Company's
Form 10-QSB for the quarter ended September 30, 1997 as filed with the
Commission on November 19, 1997.
(10)	Incorporated by reference from the Company's
Form 10-QSB for the quarter ended December 31, 1997 as filed with the
Commission on February 12, 1998.
(11)	Incorporated by reference from the Company's
Form 10-KSB for the Fiscal Year Ended March 31, 1998 as filed with the
Commission on July 14, 1998.
(12)	Incorporated by reference from the Company's
Form 10-QSB for the quarter ended June 30, 1998 as filed with the
Commission on August 14, 1998.
(13)	Incorporated by reference to the Company's Current
Report on Form 8-K filed with the Commission on  November 3, 1998.
(14)	Incorporated by reference from the Company's
Form 10-QSB for the quarter ended December 31, 1998 as filed with the
Commission on February 23, 1999.
(15)	Incorporated by reference to the Company's Definitive
Proxy Statement filed with the Commission on April 7, 1999.
(16)	Incorporated by reference to the Company's Current
Report on Form 8-K filed with the Commission on September 30,
1999.
(17)	Incorporated by reference to the Company's Annual
Report on Form 10-KSB filed with the Commission on July 31, 2000.