SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

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(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, 2002

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 810
San 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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
    Yes  
 ̈    No

As of June 28, 2002, the last business day
of the Registrant's most recently completed second fiscal quarter, there were
approximately 5,961,127 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 June 28, 2002) was approximately $6,569,663. 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.

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Definitive Proxy Statement for the Registrant's 2003 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, 2002.









DIGITAL VIDEO SYSTEMS, INC.
                        ANNUAL REPORT ON FORM 10-K
                         Year Ended December 31, 2002

                               INDEX

|           |                                                                                       | Page
|---------- | ------------------------------------------------------------------------------------- | ----
|Part I.    |                                                                                       | 1   
|Item 1.    | Business                                                                              | 1   
|Item 2.    | Properties                                                                            | 8   
|Item 3.    | Legal Proceedings                                                                     | 9   
|Item 4.    | Submission of Matters to a Vote of Security Holders                                   | 10  
|Part II.   |                                                                                       | 12  
|Item 5.    | Market for the Registrant's Common Equity and Related Stockholder Matters             | 12  
|Item 6.    | Selected Consolidated Financial Data                                                  | 13  
|Item 7.    | Management's Discussion and Analysis of Financial Condition and Results of Operations | 14  
|Item 7a.   | Quantitative and Qualitative Disclosures About Market Risks                           | 36  
|Item 8.    | Financial Statements and Supplementary Data                                           | 36  
|Item 9.    | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  | 36  
|Part III.  |                                                                                       | 37  
|Item 10.   | Directors and Executive Officers of the Registrant                                    | 37  
|Item 11.   | Executive Compensation                                                                | 37  
|Item 12.   | Security Ownership of Certain Beneficial Owners and Management                        | 37  
|Item 13.   | Certain Relationships and Related Transactions                                        | 37  
|Item 14.   | Controls and Procedures                                                               | 37  
|Part IV.   |                                                                                       | 38  
|Item 15.   | Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K | 38  
|SIGNATURES |                                                                                       | 67  

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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" or the "Company")
(NASDAQ: DVID) is a technology company specializing in the development and
application of digital video technologies that enable the convergence of data,
digital audio, digital video and high-end graphics. DVS's mission is to be the
leading DVD (Digital Versatile Disc) solution provider and remain at the
forefront of this technology convergence. Our current product offerings include
DVD loaders, the principal hardware component of DVD players and DVD-ROM drives,
as well as a portfolio of other related products.

History

DVS 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 and
other DVD sub-systems and components.

DVS IPO

During the fiscal year ended on March 31, 1997, we
completed our initial public offering and a follow-on public offering,
generating total net proceeds of approximately $43.7 million.

Acquisition of Hyundai Electronics Industries, Co., Ltd's DVD
Operations.

In June 1998, DVS's founder, Dr. Edmund Y. Sun,
introduced the opportunity to acquire Hyundai Electronics Industries, Co., Ltd's
("Hyundai") DVD operations. To aid DVS in completing the acquisition, Dr. Sun
provided a $1.0 million loan to DVS as a short-term note that was converted to
190,211 shares of common stock in July 1998. With the $1.0 million cash and
285,714 shares of our common stock, DVS was able to complete the acquisition.
The 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.

Establishment of DVS Korea Co., Ltd.

Pursuant to an Investment Agreement dated October 15,
1998, Oregon Power Lending Institution ("OPLI") and certain investors had the
right to invest up to $12.25 million in the Company. By March 31, 1999, OPLI had
provided DVS with $6.5 million in additional financing. The cash infusion from
OPLI enabled us to establish the operations of DVS Korea Co., Ltd., our Korean
subsidiary ("DVS Korea" or "DVSK"), 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.

Formation of Shanghai Fangyuan Digital Technology Ltd.

In late 1999, DVS 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
proposed joint venture in Shanghai China was to allow the Company to take
advantage of certain tax savings and lower production costs. Under certain
Chinese tax regulations, a Chinese corporate entity may be entitled to two years
of complete tax exemption and three years of 50% tax reduction thereafter,
commencing from the first profit-making year, net of losses carried forward.
Also, since many DVD player manufacturers are already located in China, the
resulting shipping time and cost savings we expected to be substantial. The
joint venture, Shanghai Fangyuan Digital Technology Ltd. ("SFDT") was formed.
SFDT is 51% owned by our Korean subsidiary, 10% owned directly by DVS, and 39%
owned by SIIG.

The manufacturing facilities of SFDT began operations in May
2001 and over one million units were produced in its first year of operation. At
times during the year 2002, SFDT achieved a production rate as high as 500,000
units per month.

The manufacturing facilities of SFDT occupy approximately
73,000 square feet in a six-story building acquired by SFDT in 2001, located in
an industrial park in Shanghai, China. The first two floors are used as
warehouse space, the next three floors are used for production and the sixth
floor is used as SFDT's 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.

New Korean Factory Opened

During the fourth quarter of 2001, DVS Korea 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 and 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
DVS is well positioned to continue to expand its market share and to create
certain competitive advantages.

DVS Korea IPO

In September 2002, DVS Korea successfully
completed a public offering of 6 million common shares of DVSK on the KOSDAK
Exchange (a Korean stock market) with trading beginning on October 1, 2002. The
value of the proceeds to the subsidiary was approximately $11 million. The
proceeds will be used to fund new product activities, including a DVD player for
the automobile market, rewritable DVD drives for the computing and home markets,
and establishing a new venture, MobileTouch Korea, to develop and market new
products for the digital video and audio markets with a focus on mobile
applications. Additionally, the proceeds will support the increasing production
of our current products.

The ability to realize a higher valuation for DVSK's equity
in Korea ($40 million U.S.) was a key factor in our decision to raise capital on
the KOSDAQ, and reflects DVS's belief regarding its position as a leading
worldwide supplier in the growing DVD market segment. Although the offering
dilutes our ownership from 74.6% to 51.4%, we expect to continue to be the majority
shareholder of DVSK. In March 2003, Dr. Edmund Sun, Doug Watson and Robert Baker, each an executive officer of DVS, joined the DVS Korea (DVSK)
board to take a more active role in the day-to-day workings of this key
subsidiary as it plans for greater margin potential through new products.

Our Products

Our current product offerings consist primarily of
DVD loaders and other DVD sub-systems and components. We also produce and/or
market other products for the consumer, commercial video and computer
peripherals markets, which are described in greater detail below. During
late 1999, due to the global over-supply of DVD-ROM drives, we stopped our
production of DVD-ROM drives and devoted our DVD production lines to the
production of DVD loaders, which were then, and are now, more profitable and in higher demand.

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. The ability to read imperfect discs is an
important differentiating factor in this market and 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.
Sales of these products accounted for less than 3% of our revenue in 2002 and
2001.

Research and Development

Because of DVS's firm position in the DVD loader
market and despite a general downturn in the economy, DVS has experienced large
growth in unit shipments. In recent years, DVS estimates that it has captured
one third of the non-captive DVD loader market. The issue confronting DVS,
however, is that with competition mounting and the precipitous decline in
end-user prices for DVD players, gross margins for DVD
loaders have and may continue to decline. As is typical with consumer electronic
products, gross margins are inversely proportional to the growth in unit
shipments.

During fiscal 2002, most of 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 product, and improving the
integration of our products by our customers. Currently, we are developing more
advanced DVD loaders including a front loader intended for the automobile audio
and video market and a DVD-RW intended for the home video and PC market. The
DVD-RW product enables users to record data to a DVD-RW disc for any application
including the creation of DVD's made from home videos, high capacity data
backups and the capability of copying VHS tapes (movies) to discs. Working
prototypes of these products were demonstrated at the annual meeting of
shareholders of DVS Korea on March 28, 2003. We are optimistic as to the rate of
growth and eventual size of the world-wide DVD drive market and we hope to
expand our presence in all segments of the DVD drive market.

As noted above, we have sought to diversify our product base through increased emphasis on new
products such as the rewritable drive which we anticipate will enjoy much greater margins and, more
importantly, will sell into the larger market and customer base that DVSK has successfully established with
our DVD loader products.   In merging these vital areas of development in 2003, we expect to generate losses
as we invest heavily in R&D personnel and engineers.

As of December 31, 2002, we had 49 engineering personnel,
some of whom focus on supporting our sales and marketing efforts in connection
with customizing product applications for specific customers.

Our research and development
efforts involve numerous risks.  These efforts may not progress as anticipated, and we may not be able to reduce costs
sufficiently to be able to compete with others marketing similar products, and our
new product models may not be developed on a timely basis.

Sales, Marketing and Distribution

We sell our DVD loaders to original equipment
manufacturers ("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,
including Hong Kong, Turkey, Korea  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 2002, due to active marketing and field
engineering, the unit sales of our DVD loaders have continued to increase
relative to prior periods.
This increase has enabled us  to hold our current market share in this market.

In the past, we sold CD-based Video Engine products to Kiosk
distributors, who integrated our products as part of a complete solution that
included software titles. Subject to favorable evaluation of this product line,
we may develop and introduce next generation Video Engines to incorporate the
current DVD technologies. We are currently preparing a proposal relating to a
potential Kiosk application for the gaming industry in England.

Our sales and marketing personnel attend tradeshows to
increase the awareness and interest in our product offerings. We employ ten full
time marketing and sales personnel based primarily in South Korea, who travel to
other parts of the world to sell our products to OEM's.

New Markets and Products

DVS has embarked on a program of diversification of
product lines, expansion and ongoing support of existing its customer base,
participation in standards development, rigorous patent research, patent
acquisition, and patent filing, aggressive marketing, continued manufacturing
process reviews to reduce costs and/or increase productivity, and ongoing
research and development of new products utilizing the newest technologies.

MPEG-4

A critical success factor for technology companies in
the consumer electronics sectoris the ability to judge emerging
standards and extrapolate how the new standards will affect the demand and
supply for current and future commercial products. DVS believes that the soon to
be adopted MPEG-4AVC, or H.264AVC or MPEG-4 part 10, as it is otherwise known,
is such a standard that will ultimately replace MPEG2 and MPEG4.

The practical implications of MPEG-4AVC (with a 100% or more
compression improvement over current MPEG-4 technology) could allow a tenfold
increase in the amount of DVD-quality video stored on a typical DVD disc; allow
the storage of full-length HDTV programming on current DVDs without resorting to
new hardware based on blue-laser technologies; provide the compression needed to
stream high-quality video to mobile phones over the existing GPRS network; or
enable DVD quality video to be streamed over current broad band connections.

Other MPEG-4AVC research involves implementing the new
compression technology in devices capable of supplying HDTV programming on DVD
players based on existing low-cost disc and player technologies. All other
current alternatives to provide HDTV-quality video on discs, including blue
laser technology, would require significant retooling in authoring, disc and
player manufacturing, and would rely on expensive new technologies. The new
MPEG4 AVC standard, although based on complex software technology, will require
only minor changes in the existing authoring, content production and consumer
electronics manufacturing. Ultimately, DVS believes that it could further
develop this technology into products such as HDTV recorders for home
markets.

Jeecom, Inc. Licensing Agreement

To capitalize on products utilizing the new MPEG-4AVC
technology, in November of 2002, we entered into an exclusive licensing
agreement with Jeecom, Inc. to develop, market, and sell its existing and future
software products aimed at the wireless mobile marketplace. Jeecom MBI, (Mobile
Business Intelligence), is the primary product designed to enable users to
access and interact with all types of corporate database applications from
almost any mobile device, including laptop computers, PDAs, and virtually all
mobile phones. Other derivative products address a variety of specialized and
consumer mobile applications. Jeecom, Inc. was founded by Dr. Edmund Sun, DVS's
Chief Technology Officer. Dr. Sun is the majority owner of Jeecom, Inc.

By acquiring this license we are now poised to
successfully incorporate the soon-to-be-adopted standards for new MPEG4 part 10
technologies with innovative software designed for the mobile business market.
The Jeecom software provides the platform for successfully integrating video and
other multimedia products for the mobile market, while the next-generation video
compression standard should further enhance this new effort. This agreement
gives us the exclusive ability to sell and distribute Jeecom software to a
majority of the world's markets. The licensing agreement also extends to
hardware applications and represents the potential to generate new revenue
streams for DVS, DVS Korea and our new MobileTouch subsidiaries.

New MobileTouch Subsidiaries

MobileTouch Korea, a wholly owned subsidiary of DVS
Korea, and MobileTouch, Inc. ("MobileTouch USA"), a wholly owned subsidiary of
DVS, were both incorporated in January 2003. These two new wholly-owned
subsidiaries are examples of diversification toward broader and more navigable
revenue streams to be derived from new products based on emerging compression
technologies employing the revolutionary MPEG4- Part 10 AVC-264 standard. These
enterprises are expected to enable DVS to develop new products for the mobile
marketplace in addition to its established DVD market.

MobileTouch USA, in partnership with Jeecom, Inc., will
develop new products and applications directed at the corporate and consumer
mobile applications markets and with a particular focus on media-rich
applications for the consumer market. This project is part of an ongoing
partnership between DVS and Jeecom, Inc. to develop software that is designed to
allow mobile wireless users to access data, information, video and audio and
other services from a remote PC. The initial products under development will
focus primarily on consumer-oriented entertainment applications allowing mobile
wireless users to access photographs, MP3 audio and video content from their
personal computer.

DVS has embarked on a program of diversification of product
lines; an expansion of its customer base and ongoing support of existing
customer base; participation in standards development efforts; rigorous patent
research, patent acquisition, and patent filing; aggressive marketing; continued
manufacturing process review to reduce costs and/or increase productivity; and
ongoing research and development of new products utilizing the newest
technologies.

Intellectual Property and Other Proprietary Rights

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 and Korea covering our intellectual property rights for periods
ranging from 9 to 17 years. Our patents, design rights and other intellectual
property rights are the basis for our product development efforts and are
important to our overall business. These patents and design rights include areas
such as DVD video, DVD ROM, and video recording to hard drive 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.

The competitive environment is becoming more demanding due to
a number of factors, including the following:

- an increase in the number of new market
entrants;
- intensifying competition in the industry;
- rapid technological progress;
- oversupply of digital products; and
- global price erosion.

We believe, however, that our product mapping and
development, the high quality of our products, our reputation of innovative
product introductions, product improvements and service, and our extensive
sales, marketing and servicing efforts are the important factors
that help us remain competitive with respect to each of the competitive
factors set forth above.

Strategy

From the outset, our essential strategy has been to
provide each major customer with changes required of our basic design to insure
compatibility with individual customer demands. Additionally we have emphasized
the need to decrease "time to market", as our major competitors are very large
organizations that are unable to move as rapidly to meet market demands.

In adjusting to the swiftly-evolving digital world, DVS has
entered a period of exploring new avenues of enterprise as we adapt our
resources to research and development of revenue streams in both technology and
product areas offering higher margins. DVS is committed to further advancing
these technologies and commercializing them to create profitable product lines
in order to sustain its competitive advantage.

Our rapid advancement for the past four years has been fueled
by an unprecedented global appetite for our primary product, the DVD loader, the
chief component of the popular DVD player. The demand for the DVD loader soon
eclipsed other items in our product line, such as decoder chips, networked video
servers, and video players for commercial kiosk applications. During this phase
of advancement, our subsidiary DVS Korea focused upon two customer driven
demands: 1) the need to focus engineering expertise on cost-reduction efforts
for our prime product, the DVD loader to maximize manufacturing margins and
thereby maintain profits and 2) providing our existing OEM customers with custom
design and value engineering options tailored to their specific needs. To
maintain and enhance our existing core business, addressing these existing
customer demands took precedence over the need for new product development.

As our market share in the DVD loader showed the expected
attrition from encroaching competition, we have sought to diversify through
increased emphasis on new products such as the rewritable drive which we
anticipate will enjoy much greater margins and, more importantly, will sell into
the larger market and customer base that DVSK has successfully established with
our DVD loader products. In merging these vital areas of development in 2003, we
expect to generate losses as we invest heavily in R&D personnel and
engineers.

With the erosion in gross margins for its current product
offerings, DVS is consciously shifting gears to focus on its real strength, the
ability to innovate and develop leading-edge technologies and commercialize new
products. DVS is ready to enter into new markets by leveraging its accumulated
wealth of knowledge and experience and developing newer, bolder and more
advanced products such as the DVD Loader/Player, the Car DVD Audio and Video
Player, and the Recordable DVD Player. We are also developing MobileTouch
products with our timely development of (1) software required to optimize the
utilization of new MPEG-4 part 10 video compression in mobile wireless products
and (2) software in support of the decoder chip also being developed by
MobileTouch USA that we expect will provide DVS with higher margins and a
sustainable competitive advantage in this market.

Employees

At March 31, 2003, we had 470 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 employee relations are good.



Item 2.	Properties

As of March 31, 2003, 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                          | Sunnyvale, CA        | 2,000          | $	 2.6                     
|Korea Main Offices                        | Sungnam City, Korea  | 36,800         | $	15.5                     
|MobileTouch Korea Offices                 | Seoul, Korea         | 1,100          | $	2.6                      
|China Sales Offices                       | Shenzhen, China      | 1,600          | $	1.1                      
|Korea Factory                             | Pyengtak City, 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. 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.



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
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 violations 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 $1,000,000, punitive damages and costs
of the suit, including attorneys' fees. DVS has reached a settlement related to
this matter and the Company has accrued and reflected in general and
administrative expense $465,000 during December 31, 2002 related to the lawsuit.

On June 18, 2001, the Company filed a lawsuit in the Santa
Clara County Superior Court against Ernst & Young, LLP, the Company's former
auditors. The complaint includes claims of professional negligence, breach of
contract, breach of fiduciary duty, fraud and deceit. The case was originally
scheduled for mediation in October 2002. Mediation has been scheduled for April
28, 2003, pending discussion between the parties.

On June 24, 2002, the Company filed a lawsuit in the Santa
Clara County Superior Court against Mali Kuo, Michael Chen, Meng Tek Ung and
Doe's 1 through 50, alleging breach of fiduciary duty and seeking declaratory
relief, cancellation and rescission of certain written agreements, damages,
costs and attorneys' fees. Of the named defendants, Ms. Kuo and Mr. Chen, were
both directors and executive officers of the Company for periods between 1999
and 2002, and Mr. Ung was an executive officer of the Company from 1999 to 2002.
The complaint alleges that Ms. Kuo breached her fiduciary duties of care and
loyalty when she defrauded the Company and misappropriated Company property with
the purpose of furthering the private interests of all defendants. The complaint
has been served on Mr. Chen and Ms. Kuo, but the Company has not yet been able
to serve the other named or unnamed defendants as they reside outside of the
United States. The Company believes it will obtain a favorable outcome to the
suit. As of December 31, 2002, the Company has received Mr. Chen and Ms. Kuo's
counter claim with respect to alleged unpaid wages and expenses. The Company has
established an accrual of $650,000 for wages and expenses related to prior
employment of Mr. Chen and Ms. Kuo which the Company believes is adequate.

DVS 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.

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

No matters were submitted to a vote of security holders
during the fourth quarter of fiscal 2002.

Executive Officers

The following table sets forth certain information
concerning our executive officers as of March 15, 2003:

|Name                 | Age | Position                            
|-------------------- | --- | ------------------------------------
|Douglas T. Watson    | 50  | Chief Executive Officer and Director
|Edmund Y. Sun, Ph.D. | 54  | Chief Technical Officer and Director
|Robert Baker         | 72  | Chief Financial Officer             

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.

Management Profile, Corporate Headquarters, San Jose,
California

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

Dr. Edmund Y. Sun founded DVS in 1992 and has served
as Chief Technical Officer since June 1998, also having served as CEO, President
and Chairman of the Board. In addition to his distinguished contributions to
DVS, Dr. Sun was a co-founder of C-Cube Microsystems Inc., a public company
involved in the development of full-color still and motion picture compression
technology, and was both its CEO and Chairman of the Board. C-Cube was acquired
by LSI Technologies in 2001.

Dr. Sun, who 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, has played a
pivotal role in the Digital Versatile Disc (DVD) advances of the last decade.
Dr. Sun is also the CTO of the new DVS R&D subsidiary, MobileTouch USA, and
is responsible for the leadership of a multinational team of engineers operating
in the US, Ireland, Taiwan, Japan and in Korea with DVS subsidiary, DVS Korea.
Dr. Sun is also the founder of Jeecom, Inc. an enterprise level software
company, now working in partnership with DVS.

Douglas T. Watson, Chief Executive Officer

Douglas T. Watson has served as Chief Executive
Officer of DVS since February 2002. In addition, Mr. Watson has been a member of
the DVS Board of Directors since November 1998, the year in which he
successfully facilitated a $6 million dollar investment from Oregon Power
Institution (OPLI) enabling DVS to acquire the Hyundai Electronics DVD unit, its
intellectual properties, patents and management team which later became DVS
Korea. Mr. Watson served on the DVS Executive Committee from November 1998 to
March 2002.

Prior to joining DVS, Mr. Watson held the role of President
and CEO of Astoria Metal Corporation (AMC), a California based ship repair and
dismantling firm he founded in 1992. AMC and affiliated companies were
responsible for multi-million dollar contracts with major oil and gas companies
such as Chevron and BP for oil tanker repair projects and other required
assignments. During the 1980's Mr. Watson served in the Far East as a consultant
to Exxon Corporation.

Robert Baker, Chief Financial Officer

Robert Baker has served in his current role of Chief
Financial Officer of DVS since June 2002. Mr. Baker previously served DVS as its
Chief Financial Officer from June 1999 to April 2000 and in a consulting
capacity for various projects from May 1997 to June 1999.

Mr. Baker's extensive financial career includes holding
management positions with General Electric (GE) and IT&T before founding his
own company, Baker Associates, Inc., a management consultant firm to the venture
capital community.



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.



|               | Common Stock
|-------------- | ------------
|               | High        
|Fiscal 2002    |             
|First quarter  | $4.460      
|Second quarter | 3.250       
|Third quarter  | 2.950       
|Fourth quarter | 4.600       
|Fiscal 2001    |             
|First quarter  | $4.250      
|Second quarter | 6.220       
|Third quarter  | 3.999       
|Fourth quarter | 6.990       



On March 31, 2003, the last reported sale price for
the common stock was $2.73 per share.

As of March 31, 2003, there were approximately 215
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

|                                                                  | Fiscal Year
Ended
December 31,        | Fiscal Year
Ended
December 31, | Nine Month
Fiscal Period
Ended
December 31, | Fiscal Year Ended March 31,
|----------------------------------------------------------------- | ------------------------------------- | ------------------------------ | ------------------------------------------- | ---------------------------
|                                                                  | 2002                                  | 2001                           | 2000                                        | 2000                       
|                                                                  | (In thousands, except per share
data)
|Consolidated Statement of Operations Data:                        |                                       |                                |                                             |                            
|Net revenue                                                       | $157,214                              | $159,871                       | $73,103                                     | $60,292                    
|Gross profit                                                      | 11,285                                | 14,076                         | 10,110                                      | 7,783                      
|Research and development                                          | 3,043                                 | 2,503                          | 2,493                                       | 2,492                      
|Sales and marketing                                               | 2,907                                 | 2,173                          | 1,902                                       | 1,828                      
|General and administrative                                        | 7,054                                 | 7,612                          | 3,467                                       | 5,639                      
|Purchased in-process research and development                     | -                                     | -                              | -                                           | -                          
|Restructuring (gain) loss                                         | -                                     | -                              | -                                           | -                          
|Gain (loss) from operations                                       | (1,719)                               | 1,788                          | 2,248                                       | (2,176)                    
|Income (loss) before income tax provisions and minority
interests | (3,982)                               | 1,895                          | 2,226                                       | 1,198                      
|Net income (loss)                                                 | (2,991)                               | 868                            | 1,148                                       | 861                        
|Net income (loss) per share (1):                                  |                                       |                                |                                             |                            
|Basic                                                             | $(0.50)                               | $	0.16                         | $	0.25                                      | $	0.20                     
|Diluted                                                           | $(0.50)                               | $	0.14                         | $	0.21                                      | $	0.20                     
|Weighted average number of shares outstanding                     | 5,979                                 | 6,146                          | 5,419                                       | 4,363                      



|                                 | December 31,                          | March 31,
|-------------------------------- | ------------------------------------- | ---------
|                                 | 2002                                  | 2001     
|                                 | (In thousands, except per share
data)
|Consolidated Balance Sheet Data: |                                       |          
|Current assets                   | $59,458                               | $34,892  
|Current liabilities              | 48,086                                | 29,896   
|Working capital                  | 11,372                                | 4,996    
|Total assets                     | 71,427                                | 45,636   
|Long-term obligations            | 96                                    | 1,753    
|Total liabilities                | 48,182                                | 31,648   
|Additional paid in capital       | 73,334                                | 71,350   
|Accumulated deficit              | (64,961)                              | (61,970) 
|Total stockholders equity        | 9,811                                 | 9,111    



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. It is important to note that DVS 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 for the years 2001 and 2002 and the nine month period
for the year period ending December 31, 2000 and the pro-forma results for the
nine month period ending December 31, 1999.

Overview

DVS derives over 95% of its revenues from the sale of
loaders and components associated with DVD loaders to DVD player manufacturers.
The majority of these sales are made to DVD player manufacturers in China, Korea
and Turkey. Average selling prices of these products have declined rapidly over
the past three years and currently are over 50% less than in the year 2000. In
the year ending December 31, 2002, average loader prices declined 28%. The mix
of sales continues to shift more to the components of the loader produced by the
Company resulting in lower average selling prices which are also experiencing
price erosion. The combination of lower prices for loaders and an unfavorable
price mix has resulted in a leveling of revenues between the years 2001 and
2002. Unit shipments on the other hand have more than doubled in 2002 over 2001,
allowing the Company to increase its market share to over 30% of the market for
loaders sold to external player manufacturers who do not have their own loader
technology. As our product line continues to mature we are likely to experience
further declines in the average selling prices of our current product offerings.
We are not able to predict the amount of such future change with any degree of
certainty.

Our costs of goods sold which consist of purchased components
representing about 90% of the loader cost have been reduced by about 40% over
the past two years. Purchasing volume and lower costs of assembly in our China
joint venture have allowed us to maintain some margin during this period of
rapid sales price declines. At the present time gross margins have eroded to somewhere
between 2% to 5%, depending on mix of products sold in the period. As previously
stated, this unit price erosion and resulting reduction of gross margins is
likely to continue during 2003. We are at a point where new products must be
introduced if we are to experience any improvement in our rate of gross margin.
The amount of engineering effort required to value engineer the loader product
during the year 2002 has interrupted the "new product" programs of our Korean
subsidiary, thereby causing delays in the introduction of new products such as
DVD players for the automotive market and rewritable DVD drives for the
computing and audio markets. The new product engineering group in Korea is
currently working extended hours to get back on schedule, and we believe that
the introduction of the two previously mentioned products will occur late in the
third quarter of this year. Working prototypes of both these products
were shown at the Korean subsidiary's annual meeting in March 2003. We are not
able to predict the level of sales for these new products or their impact on our
gross margins with any degree of certainty for the year 2003.

Our operating income as shown in the table below has gone
from operating income of $1.8 million in fiscal year 2001 to an operating loss of $1.7
million in the year ended December 31, 2002. This unfavorable change of $3.5
million is made up of $0.7 million of increases in operating expense with the
remaining $2.8 million loss accounted for by the decline in our gross margins
resulting from average selling prices of loaders declining by 28%.

Additional new product activity has been initiated both in
Korea and in the United States with the formation of MobileTouch Korea and
MobileTouch USA, a wholly owned subsidiary of DVS Korea and the Company,
respectively. The subsidiaries working in partnership with Jeecom, Inc. will
develop new products and applications directed at the corporate and consumer
mobile applications market, and in particular will focus on media rich
applications for the consumer market. MobileTouch USA has begun the development
of software required to optimize the utilization of new MPEG -4 part 10 video
compression in mobile wireless products and software in support of the decoder
chip also being developed by MobileTouch USA. We believe that this new standard
offers substantial benefits to many potential product areas such as, low
bandwidth video for mobile handsets, DVD video, broadband entertainment, and
digital cinema. We do not expect any major sales activity from these
developments in the year 2003.

In January 2003, the Company announced an exclusive licensing
agreement with Jeecom, Inc., a company founded by, and whose majority owner is,
Dr. Edmund Sun, the Company's Chief Technology Officer. The Jeecom, Inc. license
and software provide the platform for integrating video and other multimedia
products for the mobile market with the exclusive right to market the software
to the major markets of the world.

As noted above, we have sought to diversify our product base through increased emphasis on new
products such as the rewritable drive which we anticipate will enjoy much greater margins and, more
importantly, will sell into the larger market and customer base that DVSK has successfully established with
our DVD loader products.   However, in merging these vital areas of development in 2003, we expect to
generate losses as we invest heavily in R&D personnel and engineers.

Our Korean subsidiary (DVSK) raised approximately $10.7
million during the last year and coupled with its line of credit
is expected to be able to fund new product programs and
support the existing loader business in both Korea and China in the year 2003.
The Company plans to meet its operating obligations for 2003 by raising money
through private placements and receiving management fees from its Korean
subsidiary.

The Company's minority interest liability increased
significantly during September 2002 from the reduction of its ownership interest
in DVS Korea, as a result of the $10.7 million from DVS Korea's initial public
offering. The sale of the 23.2% interest in DVS Korea resulted in a gain from
the sale of subsidiary common stock of $1,177,000, which has been reflected in
additional paid-in capital at December 31, 2002.

Results of Operations

The table that follows summarizes the impact of these
factors on the Company's financial results (in millions):

|                           | Fiscal Year
Ended
December 31, | Fiscal Year
Ended
December 31, | Nine Month
Fiscal Period
Ended
December 31, | (Unaudited) Nine Month
Fiscal Period
Ended
December 31,
|-------------------------- | ------------------------------ | ------------------------------ | ------------------------------------------- | -------------------------------------------------------
|                           | 2002                           | 2001                           | 2000                                        | 1999                                                   
|Revenues                   | $ 157.2                        | $159.9                         | $	73.1                                      | $ 45.6                                                 
|Gross margin               | 11.3                           | 14.1                           | 10.1                                        | 5.7                                                    
|Research and development   | 3.1                            | 2.5                            | 2.5                                         | 1.7                                                    
|Sales and marketing        | 2.9                            | 2.2                            | 1.9                                         | 1.7                                                    
|General and administrative | 7.0                            | 7.6                            | 3.5                                         | 2.9                                                    
|Operating (loss) income    | (1.7)                          | 1.8                            | 2.2                                         | (0.6)                                                  
|Net (loss) income          | (3.0)                          | 0.9                            | 1.1                                         | 2.6                                                    

Results of Operations for the Twelve-Month Period Ended
December 31, 2002 Compared to the Twelve-Month Period Ended December 31,
2001

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 periods ended December 31,
2002 and 2001, the nine-month period ended December 31, 2000, and the
unaudited nine months ended December 31, 1999. Please see our Consolidated
Financial Statements of Operations and item 6 Selected Consolidated Financial
Data for additional details.

|                           | Twelve Months Ended
December 31, 2002 | Twelve Months Ended
December 31, 2001 | Nine Months Ended
December 31, 2000 | (Unaudited) Nine Months Ended
December 31, 1999
|-------------------------- | ------------------------------------- | ------------------------------------- | ----------------------------------- | -----------------------------------------------
|                           | (Percent of revenue)                 
|Revenues                   | 100.0%                                | 100.0%                                | 100.0%                              | 100.0%                                         
|Gross margin               | 7.2%                                  | 8.8%                                  | 13.8%                               | 12.5%                                          
|Research and development   | 1.9%                                  | 1.6%                                  | 3.4%                                | 3.7%                                           
|Sales and marketing        | 1.8%                                  | 1.4%                                  | 2.6%                                | 3.6%                                           
|General and administrative | 4.5%                                  | 4.8%                                  | 4.7%                                | 6.6%                                           
|Operating income (loss)    | (1.1)%                                | 1.1%                                  | 3.1%                                | (1.4)%                                         
|Net income                 | (1.9)%                                | 0.5%                                  | 1.6%                                | 5.7%                                           



|                     | Twelve Months Ended
December 31, 2002 | Twelve Months Ended
December 31, 2001 | Nine Months Ended
December 31, 2000 | (Unaudited) Nine Months Ended
December 31, 1999
|-------------------- | ------------------------------------- | ------------------------------------- | ----------------------------------- | -----------------------------------------------
|                     | (In thousands)                       
|Consolidated revenue | $157,214                              | $159,871                              | $73,103                             | $45,567                                        

As set forth above, total revenue in the twelve-month period
ended December 31, 2002 was $157.2 million, about 1.7% less than the $159.9
million for the twelve-month period in 2001.The decrease in total
revenue is primarily attributed to erosion of average selling prices for our products. Overseas
sales represented over 95% of revenue for the twelve-months ended
December 31, 2002, as was the case for the twelve-month period ended
December 31, 2001. During the year ended December 31, 2002, Vestel was the
only customer which accounted for over 10% of sales. During the twelve months
ended December 31, 2001, SIIG, our joint venture partner in China, was our
only customer which accounted for over 10% of sales. As mentioned previously,
unit sales during 2002 more than doubled over 2001 with 4.9 million units
shipped in 2002, as compared to 2.2 million units shipped in 2001.

|                           | Twelve Months Ended
December 31, 2002 | Twelve Months Ended
December 31, 2001 | Nine Months Ended
December 31, 2000 | (Unaudited) Nine Months Ended
December 31, 1999
|-------------------------- | ------------------------------------- | ------------------------------------- | ----------------------------------- | -----------------------------------------------
|                           | (In thousands)                       
|Gross margin               | $11,285                               | $14,076                               | $10,110                             | $5,696                                         
|As a percentage of revenue | 7.2%                                  | 8.8%                                  | 13.8%                               | 12.5%                                          

The rapid decline in gross margin rates during the year 2001
and 2002 is almost entirely attributable to the decline in the selling prices of
DVD loaders during these periods. Using the average selling price of December
2000 as the base period (100%), the following rates of decline occurred with
respect to our margins:

|          | % to Base (100%) Period
|--------- | -----------------------
|          | Q1                     
|Year 2001 | 80%                    
|Year 2002 | 51%                    

In the fourth quarter of 2002 the average selling price of a
DVD loader was only 41% of what it was in December of 2000, a reduction of 59%.
The average selling price declined 43% in the year 2001 and 28% in the year
2002. Looking ahead to fiscal year ending December 31, 2003, we expect to
experience continued pricing pressure as competition becomes more intense in the
Company's customer base and the DVD market.

|                           | Twelve Months Ended
December 31, 2002 | Twelve Months Ended
December 31, 2001 | Nine Months Ended
December 31, 2000 | (Unaudited) Nine Months Ended
December 31, 1999
|-------------------------- | ------------------------------------- | ------------------------------------- | ----------------------------------- | -----------------------------------------------
|                           | (In thousands)                       
|Research and development   | $3,048                                | $2,503                                | $2,493                              | $1,705                                         
|As a percentage of revenue | 1.9%                                  | 1.6%                                  | 3.4%                                | 3.7%                                           

Our research and development expenses consist of salaries and
related costs of employees engaged in ongoing research, design, and development
activities and providing our existing OEM customers with custom design and value
engineering options to meet their specific needs. R&D spending increased 20%
or $0.5 million over 2001, particularly in the second half of the fiscal year as
additional engineers and support staff were added to the Company in order to
recover lost time in developing the new product programs and to initiate
MobileTouch Korea's R&D efforts on the mobile phone hardware platform.
With respect to our research and development efforts we expect to generate losses during 2003
as we invest heavily in R&D personnel and engineers.

|                           | Twelve Months Ended
December 31, 2002 | Twelve Months Ended
December 31, 2001 | Nine Months Ended
December 31, 2000 | (Unaudited) Nine Months Ended
December 31, 1999
|-------------------------- | ------------------------------------- | ------------------------------------- | ----------------------------------- | -----------------------------------------------
|                           | (In thousands)                       
|Sales and marketing        | $2,907                                | $2,173                                | $1,902                              | $1,652                                         
|As a percentage of revenue | 1.8%                                  | 1.4%                                  | 2.6%                                | 3.6%                                           

Sales and marketing expense is comprised primarily of
employee related expenses, export freight & insurance (when absorbed by the
Company), and advertising/promotional costs. The Company has sales and marketing
organizations in Korea, China and the U.S.These
organizations have been significantly expanded due to the shift away from major
distributors (Hyundai in Korea and SIIG in China) used in prior years. As a
result, overall spending for sales and marketing increased 34%, or $0.7 million
over 2001.

|                           | Twelve Months Ended
December 31, 2002 | Twelve Months Ended
December 31, 2001 | Nine Months Ended
December 31, 2000 | (Unaudited) Nine Months Ended
December 31, 1999
|-------------------------- | ------------------------------------- | ------------------------------------- | ----------------------------------- | -----------------------------------------------
|                           | (In thousands)                       
|General and administrative | $7,054                                | $7,612                                | $3,467                              | $2,989                                         
|As a percentage of revenue | 4.5%                                  | 4.8%                                  | 4.7%                                | 6.6%                                           

General and administrative expenses decreased in the year
ended December 31, 2002 as compared to the year ended December 31, 2001 by 7% or
$0.6 million. 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
essentially constant when compared to the twelve-month period ended
December 31, 2001.

Results of Operations for the Twelve-Month Period Ended
December 31, 2001 Compared to the Nine-Month Transition 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 Months Ended
December 31, 2001 | Nine Months Ended
December 31, 2000 | Fiscal Year Ended
March 31, 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 Months Ended
December 31, 2001 | Nine Months Ended
December 31, 2000 | Fiscal Year Ended
March 31, 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
accounted 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 Months Ended
December 31, 2001 | Nine Months Ended
December 31, 2000 | Fiscal Year Ended
March 31, 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, which increased our manufacturing costs significantly during this period.
The costs relate primarily to training personnel and establishing efficient
manufacturing processes. 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 also
contributed to the decline in gross margin.

|                           | Twelve Months Ended
December 31, 2001 | Nine Months Ended
December 31, 2000 | Fiscal Year Ended
March 31, 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 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 December 31, 2000. The decrease in
these expenses as a percentage of revenues is principally attributable to an
increase in sales volume while maintaining essentially the same level of
spending.

|                           | Twelve Months Ended
December 31, 2001 | Nine Months Ended
December 31, 2000 | Fiscal Year Ended
March 31, 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 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%.

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

As reflected in the table
above, general and administrative expenses as a percentage of revenue remained
essentially constant 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 Transition
Period Ended December 31, 2000 Compared to the Unaudited Pro-forma
Nine-Month Period Ended December 31, 1999

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 unaudited nine-month period ended December 31, 1999. Please see
item 6 Selected Consolidated Financial Data for details.

|                           | Nine Months Ended
December 31, 2000 | (Unaudited)
                  Nine Months Ended
December 31, 1999
|-------------------------- | ----------------------------------- | -----------------------------------------------------------------
|                           | (Percent of revenue)               
|Revenues                   | 100.0%                              | 100.0%                                                           
|Gross margin               | 13.8%                               | 12.5%                                                            
|Research and development   | 3.4%                                | 3.7%                                                             
|Sales and marketing        | 2.6%                                | 3.6%                                                             
|General and administrative | 4.7%                                | 6.6%                                                             
|Operating income (loss)    | 3.1%                                | (1.4)%                                                           
|Net income                 | 1.6%                                | 5.7%                                                             



|                     | Nine Months Ended
December 31, 2000 | (Unaudited)
                  Nine Months Ended
December 31, 1999
|-------------------- | ----------------------------------- | -----------------------------------------------------------------
|                     | (In thousands)                     
|Consolidated revenue | $73,103                             | $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 primarily the result of the Company's decision to focus its
resources on the DVD product line, which accounted for approximately 98% of
total revenue in 2000, as compared to 93% in 1999.Overseas sales
represented almost 100% for the nine-months ended December 31, 2000, as
compared to about 91% for the nine-months ended December 31, 1999.

|                           | Nine Months Ended
December 31, 2000 | (Unaudited)
                  Nine Months Ended
December 31, 1999
|-------------------------- | ----------------------------------- | -----------------------------------------------------------------
|                           | (In thousands)                     
|Gross margin               | $10,110                             | $5,696                                                           
|As a percentage of revenue | 13.8%                               | 12.5%                                                            

Gross margin increased from 12.5% of revenue for the nine
months ended December 31, 1999 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 by implementing more cost efficient
production processes.

|                           | Nine Months Ended
December 31, 2000 | (Unaudited)
                  Nine Months Ended
December 31, 1999
|-------------------------- | ----------------------------------- | -----------------------------------------------------------------
|                           | (In thousands)                     
|Research and development   | $2,493                              | $1,705                                                           
|As a percentage of revenue | 3.4%                                | 3.7%                                                             

Research and development expenses as a percentage of revenue
decreased to 3.4% for the nine-month period ended December 31, 2000,
compared with 3.7% for the nine-months period ended December 31, 1999. 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 margins allowed the Company to increase its
research and development expenses, from $1.7 million for the nine-month period
ended December 31, 1999 to $2.5 million for the same period in 2000.

|                           | Nine Months Ended
December 31, 2000 | (Unaudited)
                  Nine Months Ended
December 31, 1999
|-------------------------- | ----------------------------------- | -----------------------------------------------------------------
|                           | (In thousands)                     
|Sales and marketing        | $1,902                              | $1,652                                                           
|As a percentage of revenue | 2.6%                                | 3.6%                                                             

Sales and marketing expenses as a percentage of revenues
decreased from 3.6% in the nine-months ended December 31, 1999 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 of capital for sales and marketing expenses, from
$1.7 million for the nine-month period ended December 31, 1999 to $1.9
million for the same period in 2000.

|                           | Nine Months Ended
December 31, 2000 | (Unaudited)
                  Nine Months Ended
December 31, 1999
|-------------------------- | ----------------------------------- | -----------------------------------------------------------------
|                           | (In thousands)                     
|General and administrative | $3,467                              | $2,989                                                           
|As a percentage of revenue | 4.7%                                | 6.6%                                                             

General and administrative expenses increased $0.5 million
for the nine-month period ended December 31, 2000 over the same period in
1999. The increase of $0.5 million was primarily attributable to increased
spending in professional fees for both legal and accounting services.

Liquidity and Capital Resources

At December 31, 2002 the Company had $18.2 million of
cash and cash equivalents of which $5.9 million was restricted as collateral for
lines of credit.

Our operating activities used cash of $17.3 million during
2002. The principal uses of cash were increased inventory of $13.9 million
resulting from the sales forecasts, which are the basis for material
procurement. During the fourth quarter, our sales did not meet forecasts and
volume purchases of major components beyond requirements were made in order to
maximize price rebates on certain purchased components. During 2002, accounts
receivable increased $8.6 million, which was consistent with the change in terms
from principally letters of credit in the year 2001 to open credit terms in
2002. We experienced a net loss in 2002 of $3.0 million, as adjusted by non-cash
impact of depreciation and amortization of $2.6 million, the impairment charge
of goodwill of $0.2 million, the issuance of common stock for services provided
with a fair value of $0.4 million, all of which was partially offset by the
non-cash reduction in the majority interest of the investors of our Korean
Subsidiary (DVSK) and Chinese Joint Venture, totaling $1.0 million.
Reduction in other short and long term liabilities totaling $3.0 million were made during the year 2002, which
included $1.5 million primarily representing amounts originally provided for obligations of dormant foreign
operation which are no longer required.  Cash provided by operating activities in 2002 was provided by an
increased accounts payable and accounts payable - related party of $11.7 million
and the return of the $1.0 million deposit required during the
settlement of litigation with a previous Korean employee.

Net cash used in investing activities was $4.9 million,
principally resulting from an increase in restricted cash of $2.7 million used
as collateral for the Korean subsidiary's lines of credit, and $1.6 million for
molds (tooling) for the factory opened in the fourth quarter of 2001 in Korea.
Additionally the China joint venture acquired plant equipment totaling $0.9
million and spent $0.7 million for leasehold improvements. Offsetting the above
was $1.1 million written-down of a note receivable from a related party due to
non-payment, and the maturity of marketable securities totaling $0.3
million.

During 2002, net cash provided by financing activities was
$22.7 million, with $10.7 million in proceeds from the sale of the Korean
subsidiary's stock in an initial public offering in September 2002, $9.6 million
from Korean line of credit borrowings, and $2.4 million in proceeds from a note
payable from Shanghai bank and secured by the joint venture facility in China.

We believe that with working capital of $11.4 million at
December 31, 2002, and the renewal of our existing lines of credit in Korea, now
totaling $52.3 million of which we have taken down $26.1 million, that our
operations in Asia have sufficient resources to manage both their new product
plans and production requirements for the year 2003. Our operations in the U.S.
will require the raising of additional capital to finance MobileTouch USA. The
Company is currently in discussions with investment firms and hopes to have
agreements reached for this funding in the next sixty to ninety days.
Additionally, the Company anticipates obtaining management fees from its
subsidiaries to be advanced on a monthly basis.

Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standard ("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. The Company adopted SFAS No. 144 on January 1,
2002. The adoption of SFAS No. 144 did not have a material impact on the
Company's consolidated financial position or results of operations.

In June 2002, the FASB issued No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses the timing
and amount of costs recognized as a result of restructuring and similar
activities. The Company will apply SFAS No. 146 to activities initiated after
December 31, 2002. The adoption of SFAS No. 146 is not expected to have a
material impact on the Company's consolidated statements of income or financial
position.

In December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock-Based Compensation-Transition and Disclosure." This Statement amends
SFAS No. 123, "Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The alternative methods of transition of SFAS No. 148 are effective for
fiscal years ended after December 15, 2002. The Company follows APB 25 in
accounting for employee stock options. The disclosure provisions of SFAS No. 148
is effective for fiscal years ending after December 15, 2002 and have been
incorporated into these financial statements and accompanying footnotes.

In November 2002, the FASB issued Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," which requires a guarantor to
recognize and measure certain types of guarantees at fair value. In addition,
Interpretation No. 45 requires the guarantor to make new disclosures for these
guarantees and other types of guarantees that are not subject to the initial
recognition and initial measurement provisions. The disclosure requirements are
effective for financial statements for interim or annual periods ended after
December 15, 2002, while the recognition and measurement provisions are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Company is in the process of evaluating the impact the
initial recognition and initial measurement provisions will have on its
consolidated financial position and results of operations.

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.

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

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 collection
is probable. These criteria are met at the time the product is shipped to the
customer. Shipping terms are freight on board shipping point. Returns and
discounts on sales are deducted from revenue upon issuance of a credit memo.
Returns for products under warranty are repaired and returned to the customer at
the company's cost.
 The Company provides for an estimate of costs that may be incurred under its warranty
at the time product revenue is recognized.  The Company had a warranty reserve of $130,000 at December 31,
2002.

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. The Company had a warranty reserve of
$130,000 at December 31, 2002.

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 must establish a valuation allowance. At
December 31, 2002 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. The Company after assessment has, as of December 31, 2002, written
off its remaining balance of goodwill totaling $175, net of
amortization.

Determining Functional Currencies for the Purpose of
Consolidation

Our majority owned foreign subsidiary and joint
venture represent the vast majority of our revenues, assets, and liabilities at
December 31, 2002. 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

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. In addition to the losses incurred during the year ended December 31,
2002, we have incurred substantial net losses in the past, as recently as, among
others, fiscal years ended March 31, 1999, 1998 and 1997.
We also expect to generate losses as we invest heavily in R&D personnel
and engineers in connection with our research and development efforts related to new product development
during 2003.
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 of 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 including, Zoran, Mediatech, and
Hitachi. 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 are working with, 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 increasing
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 our 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 manufacturing 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 growth and future profitability depend 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. The average unit selling price for
our DVD loader products has decreased and we expect it to continue to decrease
in the foreseeable future. Unless we obtain an equally reduced cost of revenues,
our gross margins will continue to decline. Successful development and
commercialization of new products is essential to our growth and future
profitability. 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.
In addition, we expect to generate losses as we invest heavily in R&D personnel and engineers during 2003.

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 our competitors or potential competitors are also suppliers
of key components for some of our products. 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 in South Korea, where our DVD products have been designed and where
most 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, where
the laws may not protect our proprietary rights as fully as in the United
States. 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 2003 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%,
98.1% and 99.0% of our revenues in the fiscal year ended March 31, 2000,
the nine-month period ended December 31, 2000, the fiscal year ended
December 31, 2001 and the fiscal year ended December 31, 2002,
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 foreign regulatory
requirements and standards;
- tariffs and other trade barriers relating to cross border
transactions;
- costs and risks of localizing products for foreign
countries;
- longer accounts receivable payment cycles from customers
located in foreign countries;
- potentially adverse tax consequences resulting from
changes in international tax regulations;
- limits on repatriation of earnings from our foreign
operations; and
- limited ability to effect quality-control measures
associated with our foreign operations.

We derived most of our product revenue from Asia during the
last three years. 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.

We may encounter significant difficulties in understanding local
business practices that may require additional expenditures.

As a substantial portion of our operations are located in Asia and subject to foreign laws and
regulations, our operations in Asia may be adversely affected by changes in local laws and regulations, such
as those relating to accounting practices, taxation, import and export tariffs, environmental regulations, land
use rights, property and other matters.  Local governments may impose new, stricter regulations or
interpretations of existing regulations, which would require additional expenditures.  Asian economies may
also differ in terms of structure, government involvement, level of development, growth rate, capital
reinvestment, allocation of resources, self-sufficiency and rate of inflation, among others.  As a result, we may
encounter significant difficulties in understanding and addressing local business practices that may require us
to incur additional expenses in connection with our international operations.

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 five customers accounted for
approximately 47% of our revenues during the year ended December 31, 2002.
Products sold to our top 10 customers accounted for approximately 75% 88% and
67% of our revenues during the nine-month period ended December 31, 2000,
the fiscal year ended December 31, 2001, and the fiscal year ended December
31, 2002, respectively. In the fiscal year ended December 31, 2002, Vestel
accounted for 23% of our revenue. In the fiscal year ended December 31,
2001, SIIG accounted for about 37% of our revenue. In the fiscal year ended
March 31, 2000, Hyundai accounted for about 36% of our revenue. In the
nine-month period ended December 31, 2000, Hyundai accounted for about 42% 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. We have
established credit facilities with certain Korean banks with a total borrowing
limit of about $52 million as of December 31, 2002. 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.

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.

The price of our common stock is likely to be
volatile.

Our stock has closed at prices ranging from a high of
$6.23 on December 11, 2001 to a low of $1.08 on June 24, 2002. If our
revenues do not grow or grow more slowly than we anticipate, or if operating or
capital expenditures exceed our expectations or cannot be adjusted accordingly,
the market price of our common stock could be materially and adversely affected.
In addition, the market price of our common stock has been in the past and could
in the future be materially and adversely affected for reasons unrelated to our
specific business or results of operations. General market price declines or
volatility in the future could adversely affect the price of our common stock.
In addition, short-term trading strategies of certain investors can also have a
significant effect on the price of specific securities.

The exercise of warrants or options may depress our stock
price.

There are a significant number of warrants and options to
purchase our common stock outstanding. Holders may sell the common stock
acquired upon exercise of the warrants and options at a market price that
exceeds the exercise price of the warrants and options paid by the holders.
Sales of a substantial number of shares of common stock in the public market by
holders of warrants or options may depress the prevailing market price for our
common stock and could impair our ability to raise capital through the future
sale of our equity securities.

We do not expect to pay dividends.

We have never paid any cash dividends on our common
stock, and we do not anticipate paying any cash dividends in the foreseeable
future. We currently intend to retain any future earnings for funding growth and
therefore, do not expect to pay any dividends on our common stock in the
foreseeable future. Therefore, you may not receive any return on an investment
in our common in the form of dividends.

Provisions of our corporate charter documents could delay
or prevent a change of control.

Our Certificate of Incorporation grants our board of
directors the authority to determine the relative rights and preferences of our
preferred stock and gives the board the authority to issue such shares, all
without further stockholder approval. As a result, our board of directors could
authorize the issuance of a series of preferred stock that would grant to
holders preferred rights to our company's assets upon liquidation, the right to
special voting privileges, the right to receive dividends before dividends would
be declared upon the common stock and the right to redemption of such shares,
together with a premium, prior to the redemption of common stock. Our common
stockholders have no redemption rights. The ability of the board to issue large
blocks of preferred stock could have a potential anti-takeover effect, and the
issuance of preferred stock in accordance with such authority may delay or
prevent a change of control of our company.

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 loaders. The sales of our DVD loaders are related to the markets for DVD
video discs and DVD video players. If we experience an unforeseen downturn in
the markets for DVD video discs and DVD video players or a global over-supply in
the production of DVD loaders, our results of operations from our DVD loaders
business will be adversely affected. 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.
Seasonal purchasing patterns generally lead to higher sales
occurring in the second half of each calendar year although there may be a
sharp decline of sales near the Christmas and New Year's holidays.  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.
Cash equivalents and short-term investment are carried at cost, which
approximated market value, and investments in marketable debt securities are carried at amortized cost, which
approximates market value.

Foreign Currency Risk

We develop products in the United States, Korea and China
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 financial statements required pursuant to this item are included in Part IV, Item 15 of this Form 10-K.



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
2003 Annual Meeting to be held on June 27, 2003 (the "2003 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 2003 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 2003 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
2003 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 2003 Proxy Statement and is
incorporated herein by reference.



Item 14.	Controls and Procedures

a.Evaluation of disclosure controls and
procedures.

Within 90 days prior to the filing date of this Annual Report on
Form 10-K (the "Evaluation Date"), we evaluated, under the supervision of
our Chief Executive Officer and our Chief Financial Officer, the effectiveness
of our disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and our Chief Financial Officer have concluded that our
disclosure controls and procedures are effective to ensure that information we
are required to disclose in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms.

b.Changes in internal controls.

Subsequent to the Evaluation Date, there were no significant changes in
our internal controls or in other factors that could significantly affect such
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.



PART IV



Item 15.	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.

3.	Exhibits

See Item 14(c) below.

(b)	Reports on Form 8-K

[Form 8-K ]

(c)	Exhibits

See Exhibit Index.

DIGITAL VIDEO SYSTEMS, INC.

Index To Consolidated Financial Statements

|                                                                                                                                          | Page   
|----------------------------------------------------------------------------------------------------------------------------------------- | -------
|Report of Burr, Pilger & Mayer LLP, Independent Auditors                                                                                  | 40     
|Consolidated Balance Sheets - December 31, 2002 and December 31,
2001                                                                     | 41     
|Consolidated Statements of Operations - Year ended December 31,
2002,
December 31, 2001 and nine months ended December 31, 2000           | 42     
|Consolidated Statements of Stockholders' Equity - Year ended
December 31, 2002,
December 31, 2001 and nine months ended December 31, 2000 | 43     
|Consolidated Statements of Cash Flows - Year ended December 31, 2002,

December 31, 2001 and nine months ended December 31, 2000          | 44 - 45
|Notes to Consolidated Financial Statements                                                                                                | 46     

---



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, 2002 and
2001, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year ended December 31, 2002,
December 31, 2001, and the nine months ended December 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. management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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 provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Digital Video Systems, Inc. and subsidiaries as of December 31,
2002 and 2001, and the results of their operations and their cash flows for the
year ended December 31, 2002, December 31, 2001, and nine months ended
December 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
                   April 4, 2003

---



DIGITAL VIDEO SYSTEMS, INC.
                  CONSOLIDATED BALANCE SHEETS(in thousands, except share and per share
amounts)

|                                                                                                                                                                 | December 31,
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------
|                                                                                                                                                                 | 2002        
|ASSETS                                                                                                                                                           |             
|Current assets:                                                                                                                                                  |             
|Cash and cash equivalents                                                                                                                                        | $ 12,330    
|Restricted cash                                                                                                                                                  | 5,908       
|Accounts receivable, less allowance for doubtful accounts of
$127 and $320 for 2002 and 2001, respectively                                                       | 10,749      
|Inventories                                                                                                                                                      | 25,758      
|Marketable debt securities                                                                                                                                       | 427         
|Prepaid expenses and other current assets                                                                                                                        | 3,402       
|Note receivable - related party                                                                                                                                  | 884         
|Total current assets                                                                                                                                             | 59,458      
|Property and equipment, net of depreciation                                                                                                                      | 11,067      
|Intangibles                                                                                                                                                      | 587         
|Other assets                                                                                                                                                     | 315         
|Total assets                                                                                                                                                     | $ 71,427    
|LIABILITIES AND STOCKHOLDERS'
EQUITY                                                                                                                             |             
|Current liabilities:                                                                                                                                             |             
|Line of credit                                                                                                                                                   | $26,086     
|Current portion of long term debt                                                                                                                                | 192         
|Notes payable                                                                                                                                                    | 4,223       
|Notes payable - related party                                                                                                                                    | -           
|Accounts payable                                                                                                                                                 | 13,592      
|Accounts payable - related party                                                                                                                                 | 434         
|Other payable                                                                                                                                                    | 234         
|Accrued liabilities                                                                                                                                              | 3,325       
|Total current liabilities                                                                                                                                        | 48,086      
|Long-term liabilities-long term debt                                                                                                                             | 96          
|Other long term liabilities                                                                                                                                      | -           
|Total liabilities                                                                                                                                                | 48,182      
|Minority interest                                                                                                                                                | 13,434      
|Stockholders' equity                                                                                                                                             |             
|Preferred stock, $0.0001 par value, 5,000,000 shares authorized;
no shares issued and outstanding at December 31, 2002 and December 31,
2001                     | -           
|Common stock, $0.0001 par value, 30,000,000 shares authorized;
6,183,555 and 5,899,252 shares issued and outstanding at December 31, 2002 and
2001, respectively | 1           
|Additional paid-in capital                                                                                                                                       | 73,334      
|Accumulated deficit                                                                                                                                              | (64,961)    
|Accumulated other comprehensive (loss) income                                                                                                                    | 1,457       
|Deferred compensation                                                                                                                                            | (20)        
|Total stockholders' equity                                                                                                                                       | 9,811       
|Total liabilities and stockholders' equity                                                                                                                       | $ 71,427    

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

---



DIGITAL VIDEO SYSTEMS, INC.
                  CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share
amounts)

|                                                                | Year Ended
December 31, | Year Ended
December 31, | Nine Months Ended
December 31,
|--------------------------------------------------------------- | ----------------------- | ----------------------- | ------------------------------
|                                                                | 2002                    | 2001                    | 2000                          
|Net revenue                                                     | $157,214                | $159,871                | $73,103                       
|Cost of revenue                                                 | 145,929                 | 145,795                 | 62,993                        
|Gross profit                                                    | 11,285                  | 14,076                  | 10,110                        
|Operating expenses:                                             |                         |                         |                               
|Research and development                                        | 3,043                   | 2,503                   | 2,493                         
|Sales and marketing                                             | 2,907                   | 2,173                   | 1,902                         
|General and administrative                                      | 7,054                   | 7,612                   | 3,467                         
|Total operating expenses                                        | 13,004                  | 12,288                  | 7,862                         
|(Loss) income from operations                                   | (1,719)                 | 1,788                   | 2,248                         
|Other income (expenses):                                        |                         |                         |                               
|Interest expense                                                | (2,050)                 | (1,155)                 | (453)                         
|Other (expense) income                                          | (213)                   | 1,274                   | 347                           
|(Loss) gain on disposal of fixed assets                         | -                       | (12)                    | 84                            
|(Loss) income before minority interest and income tax
provision | (3,982)                 | 1,895                   | 2,226                         
|(Benefit from) provision for income taxes                       | (33)                    | 722                     | 376                           
|(Loss) income before minority interest                          | (3,949)                 | 1,173                   | 1,850                         
|Net minority interest income (loss)                             | 958                     | (305)                   | (702)                         
|Net (loss) income                                               | $ (2,991)               | $	868                   | $ 1,148                       
|Basic net (loss) income per share                               | $ (0.50)                | $	0.16                  | $	0.25                        
|Diluted net (loss) income per share                             | $ (0.50)                | $	0.14                  | $	0.21                        

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

---



DIGITAL VIDEO SYSTEMS, INC.
                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  (in thousands, except shares)

|                                                                             |              |           | Additional      |             | Accumulated   |                  |             
|---------------------------------------------------------------------------- | ------------ | --------- | --------------- | ----------- | ------------- | ---------------- | ------------
|                                                                             |              |           | Paid-in Capital |             | Other         |                  |             
|                                                                             | Common Stock | Preferred | Common          | Accumulated | Comprehensive | Deferred         |             
|                                                                             | Shares       | Amount    | Stock           | Stock       | Deficit       | Income (Expense) | Compensation
|Balance at March 31, 2000                                                    | 5,646,905    | $ 1       | -               | $ 68,088    | $ (63,986)    | $ 1,802          | $ (305)     
|Comprehensive Income:                                                        |              |           |                 |             |               |                  |             
|Net income                                                                   | -            | -         | -               | -           | 1,148         | -                | -           
|Translation adjustment                                                       | -            | -         | -               | -           | -             | (1,171)          | -           
|Comprehensive Income:                                                        |              |           |                 |             |               |                  |             
|Exercise of common stock options                                             | 16,069       | -         | -               | 118         | -             | -                | -           
|Conversion of promissory notes to common stock                               | 160,748      | -         | -               | 680         | -             | -                | -           
|Issuance of common stock                                                     | 57,854       | -         | -               | 160         | -             | -                | -           
|Amortization of deferred compensation                                        | -            | -         | -               | (153)       | -             | -                | 174         
|Issuance of common stock in settlement of legal
obligations                  | 122,041      | -         | -               | 73          | -             | -                | -           
|Issuance of warrants in settlement of legal
obligations                      | -            | -         | -               | 54          | -             | -                | -           
|Balance at December 31, 2000                                                 | 6,003,617    | $ 1       | -               | $ 69,020    | $ (62,838)    | $ 631            | $ (131)     
|Comprehensive Income:                                                        |              |           |                 |             |               |                  |             
|Net income                                                                   | -            | -         | -               | -           | 868           | -                | -           
|Translation adjustment                                                       | -            | -         | -               | -           | -             | (841)            | -           
|Comprehensive Income:                                                        |              |           |                 |             |               |                  |             
|Exercise of common stock options                                             | 77,922       | -         | -               | 300         | -             | -                | -           
|Issuance of common stock                                                     | 723,362      | -         | -               | 1,450       | -             | -                | -           
|Amortization of deferred compensation                                        | -            | -         | -               | -           | -             | -                | 71          
|Issuance of warrants for legal services                                      | -            | -         | -               | 56          | -             | -                | -           
|Issuance of common stock for services and in settlement of legal
obligations | 210,492      | -         | -               | 524         | -             | -                | -           
|Escrow stock returned to capital                                             | (1,116,141)  | -         | -               | -           | -             | -                | -           
|Balance at December 31, 2001                                                 | 5,899,252    | $ 1       | -               | $ 71,350    | $ (61,970)    | $ (210)          | $ (60)      
|Comprehensive Income:                                                        |              |           |                 |             |               |                  |             
|Net loss                                                                     | -            | -         | -               | -           | (2,991)       | -                | -           
|Translation adjustment                                                       | -            | -         | -               | -           | -             | 1,667            | -           
|Comprehensive (Loss):                                                        |              |           |                 |             |               |                  |             
|Exercise of common stock options                                             | 50,000       | -         | -               | 166         | -             | -                | -           
|Issuance of common stock                                                     | 30,000       | -         | -               | 45          | -             | -                | -           
|Amortization of deferred compensation                                        | -            | -         | -               |             | -             | -                | 40          
|Gain on sale of subsidiary common stock                                      | -            | -         | -               | 1,177       | -             | -                | -           
|Issuance of common stock in settlement of service
provided                   | 144,303      | -         | -               | 424         | -             | -                | -           
|Issuance of common stock in settlement of accounts
payable                   | 60,000       | -         | -               | 172         | -             | -                | -           
|Balance at December 31, 2002                                                 | 6,183,555    | $ 1       | -               | $ 73,334    | $ (64,961)    | $ 1,457          | $ (20)      

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

---



DIGITAL VIDEO SYSTEMS, INC.
                  CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)

|                                                                                            | Year Ended
December 31, | Year Ended
December 31, | Nine Months Ended
December 31,
|------------------------------------------------------------------------------------------- | ----------------------- | ----------------------- | ------------------------------
|                                                                                            | 2002                    | 2001                    | 2000                          
|Operating activities:                                                                       |                         |                         |                               
|Net (loss) income                                                                           | $(2,991)                | $	868                   | $1,148                        
|Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |                         |                         |                               
|Minority interest                                                                           | (958)                   | 305                     | 702                           
|Depreciation                                                                                | 2,344                   | 758                     | 680                           
|Amortization                                                                                | 251                     | 453                     | 303                           
|Impairment of goodwill                                                                      | 175                     | -                       | -                             
|Loss (gain) on disposal of fixed assets                                                     | -                       | 12                      | (84)                          
|Stock and warrants issued for expenses                                                      | 424                     | 580                     | 76                            
|Amortization of deferred compensation                                                       | 40                      | -                       | -                             
|Changes in operating assets and liabilities:                                                |                         |                         |                               
|Accounts receivable                                                                         | (8,614)                 | 768                     | (1,028)                       
|Inventories                                                                                 | (13,872)                | (1,836)                 | (5,281)                       
|Prepaid expenses and other current assets                                                   | 1,101                   | (1,751)                 | (2,042)                       
|Other assets                                                                                | (48)                    | 2,782                   | (170)                         
|Accounts payable                                                                            | 10,024                  | (2,189)                 | 411                           
|Accounts payable - related party                                                            | (1,702)                 | 2,136                   | -                             
|Accrued liabilities                                                                         | (558)                   | 1,676                   | 101                           
|Other payable                                                                               | 1,397                   | 1,492                   | 374                           
|Other long-term liabilities                                                                 | (1,488)                 | -                       | -                             
|Net cash (used in) provided by operating activities                                         | (17,269)                | 6,054                   | (4,810)                       
|Investing activities:                                                                       |                         |                         |                               
|Write down of notes receivable - related party                                              | 1,090                   | -                       | -                             
|Maturities (purchase) of marketable debt securities                                         | 342                     | (769)                   | -                             
|Acquisition of property and equipment                                                       | (3,696)                 | (8,479)                 | (816)                         
|Increase in restricted cash                                                                 | (2,672)                 | (82)                    | (1,133)                       
|Investment in Shanghai joint venture                                                        | -                       | -                       | (324)                         
|Net cash used in investing activities                                                       | (4,936)                 | (9,330)                 | (2,273)                       
|Financing activities:                                                                       |                         |                         |                               
|Investment by minority interest in China Joint Venture                                      | -                       | 3,195                   | -                             
|Proceeds from the sale of common shares                                                     | 45                      | 1,450                   | 160                           
|Proceeds from the exercise of stock options                                                 | 166                     | 300                     | 118                           
|Proceeds from line of credit borrowing                                                      | 9,586                   | 5,336                   | 22,168                        
|Repayment of capital lease obligation                                                       | -                       | -                       | (356)                         
|Repayment of bank borrowings                                                                | (148)                   | (105)                   | (16,562)                      
|Proceeds from repayment of note receivable                                                  | -                       | 289                     | -                             
|Proceeds from sale of subsidiary stock                                                      | 10,685                  | -                       | -                             
|Repayment of notes payable                                                                  | -                       | (69)                    | (934)                         
|Proceeds from issuance of notes payable                                                     | 2,389                   | 1,834                   | 1,433                         
|Net cash provided by financing activities                                                   | 22,723                  | 12,230                  | 6,027                         
|Effect of exchange rate changes                                                             | 1,667                   | (841)                   | (1,171)                       
|Net increase (decrease) in cash and cash equivalents                                        | 2,185                   | 8,113                   | (2,227)                       
|Cash and cash equivalents at the beginning of year                                          | 10,145                  | 2,032                   | 4,259                         
|                                                                                            | $   12,330              | $  10,145               | $   2,032                     

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

---

DIGITAL VIDEO SYSTEMS, INC.
                  CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued(in thousands)

|                                                            | Year Ended
December 31, | Year Ended
December 31, | Nine Months Ended
December 31,
|----------------------------------------------------------- | ----------------------- | ----------------------- | ------------------------------
|                                                            | 2002                    | 2001                    | 2000                          
|Supplemental disclosures:                                   |                         |                         |                               
|Interest paid                                               | $         1,999         | $         1,199         | $           413               
|Taxes paid                                                  | $	516                   | $	244                   | $	54                          
|Supplemental disclosure of non-cash transaction:            |                         |                         |                               
|Conversion of notes payable to common stock                 | $	-                     | $	-                     | $	680                         
|Offset of notes payable and note receivable-related
party   | $	-                     | $	289                   | $	319                         
|Issuance of common stock in payment of accounts payable     | $            172        | $	-                     | $	-                           
|Issuance of common stock and warrants for legal
settlements | $	-                     | $	580                   | $	73                          
|Issuance of common stock for service provided               | $	424                   | $	-                     | $	-                           

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

---



DIGITAL VIDEO SYSTEMS, INC.

Notes to Consolidated Financial Statements(Dollar Amounts in Thousands Unless Otherwise
Indicated)

1. The Company and its Significant Accounting
Policies
2. Credit Risk
3. Inventories
4. Property and Equipment
5. Intangible Assets
6. Note Receivable-Related Party
7. Line of Credit
8. Notes Payable
9. Notes Payable - Related Party
10. Long-term Debt
11. Commitments
12. Minority Interest
13. Income Taxes
14. Net Income (Loss) Per Share
15. Stockholders' Equity
16. Employee Benefit Plan
17. Segment Information
18. Joint Venture
19. Related Party Transactions
20. Pending Litigation
21. Subsequent Events
22. Selected Quarterly Financial Data
(unaudited)
23. Comparative Transitional Financial
Information (Unaudited)

---



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 15th day of April 2003.

DIGITAL VIDEO SYSTEMS, INC.

By: /s/  Douglas T. Watson
                           Douglas T. Watson
                        Chief Executive Officer and Director
                       (Principal Executive Officer)

By: /s/  Robert Baker
                           Robert Baker
                       Chief Financial Officer
                       (Principal Accounting and Financial Officer)

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 15, 2003
|/s/ Dr. Edmund Y. Sun
                  Dr. Edmund Y. Sun | Chief Technology Officer and Director | April 15, 2003
|/s/ Ande Abbott
                  Ande Abbott             | Director                              | April 15, 2003
|/s/ Grant Jasmin
                  Grant Jasmin           | Director                              | April 15, 2003
|/s/ Carey Fitchey
                  Carey Fitchey         | Director                              | April 15, 2003
|/s/ John Fuller
                  John Fuller             | Director                              | April 15, 2003
|/s/ In Baik Jeon
                  In Baik Jeon           | Director                              | April 15, 2003

---

CERTIFICATIONS

I, Douglas T. Watson, certify that:

1.	I have reviewed this annual report on Form 10-K of
Digital Video Systems, Inc.;

2.	Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this annual report;

3.	Based on my knowledge, the financial statements, and
other financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this annual
report;

4. 	The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. 	The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and

6. 	The registrant's other certifying officer and I have
indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: April 15, 2003

/s/ Douglas T. Watson 
                           Douglas T. Watson
                       Chief Executive Officer
                      (Principal Executive Officer)

---

I, Robert Baker, certify that:

1.	I have reviewed this annual report on Form 10-K of
Digital Video Systems, Inc.;

2.	Based on my knowledge, this annual report does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this annual report;

3.	Based on my knowledge, the financial statements, and
other financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this annual
report;

4. 	The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. 	The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing
the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and

6. 	The registrant's other certifying officer and I have
indicated in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: April 15, 2003

/s/ Robert Baker 
            Robert Baker
                   Chief Financial Officer
   (Principal Financial Officer and Principal Accounting Officer)

---

DIGITAL VIDEO SYSTEMS, INC.
                  Schedule II
                  Valuation and Qualifying Accounts and Reserves

(in thousands)



|Description                                    | Balance at
Beginning
of Period | Additions
Charged to
Costs and
Expenses | Deductions | Balance at
End of Period
|---------------------------------------------- | ------------------------------ | --------------------------------------- | ---------- | ------------------------
|2002:                                          |                                |                                         |            |                         
|Allowance for doubtful accounts receivable     | $	320                          | $ 18                                    | $ 211      | $	127                   
|Warranty reserve                               | 335                            | 53                                      | 258        | 130                     
|Deferred tax asset valuation allowance         | 18,131                         | -                                       | 8,201      | 9,930                   
|Reserve for slow moving and obsolete inventory | 328                            | 82                                      | -          | 410                     
|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                     

---

EXHIBIT INDEX

|Exhibit Number | Document                                                                                                                                                                                                                                        
|-------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            | 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)                                                                                              
|10.63          | Service Agreement dated January 4, 2001 by and between DVS Korea Corporation
and Dong IL.                                                                                                                                                       
|10.64          | Credit Agreement dated May 2, 2001 by and between DVS Korea Co., Ltd. and
Woori Bank.                                                                                                                                                           
|10.65          | Letter of Credit Commitment Agreement dated November 15, 2001 by and between
DVS Korea Co., Ltd. and Hana Bank.                                                                                                                                 
|10.66          | Letter of Credit Commitment Agreement dated November 16, 2001 by and between
DVS Korea Co., Ltd. and Hana Bank.                                                                                                                                 
|10.67          | Revolving Line of Credit Agreement dated March 22, 2002 by and between DVS
Korea Co., Ltd. and Hana Bank.                                                                                                                                       
|10.68          | Revolving Line of Credit Agreement dated March 22, 2002 by and between DVS
Korea Co., Ltd. and Hana Bank.                                                                                                                                       
|10.69          | Credit Agreement dated July 15, 2002 by and between DVS Korea Co., Ltd. and
Korean Exchange Bank.                                                                                                                                               
|10.70          | Credit Agreement dated July 16, 2002 by and between DVS Korea Co., Ltd. and
Kookmin Bank.                                                                                                                                                       
|10.71          | Credit Agreement dated September 20, 2002 by and between DVS Korea Co., Ltd.
and Hanmi Bank (Korea Industrial Bank).                                                                                                                            
|10.72          | Credit Agreement dated October 17, 2002 by and between DVS Korea Co., Ltd.
and Sanup Bank (Korea Industrial Bank).                                                                                                                              
|10.73          | Loan Hypothecation Contract dated December 2002 by and between Shanghai Fangyuan Digital
Technology Company, Ltd. and Shanghai Bank Caohejing Branch.                                                                                           
|10.74          | Foreign Currency Loan Contract dated as of December 18, 2002 by and between Shanghai
Fangyuan Digital Technology Co., Ltd. and Shanghai Bank.                                                                                                   
|10.75          | Technology License and Joint Development Agreement dated as of December 10, 2002 by
and between Digital Video Systems, Inc. and Jeecom, Inc.                                                                                                    
|21.1           | List of Subsidiaries                                                                                                                                                                                                                            
|23.1           | Consent of Burr, Pilger & Mayer, Inc., Independent Auditors                                                                                                                                                                                     
|99.1           | Certification of Chief Executive Officer and Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002                                                                  

________

(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.

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