<PAGE>

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 For the Quarter Ended June 30, 2001

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

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

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


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



                            257 Great Valley Parkway
                          Malvern, Pennsylvania 19355
                    (Address of Principal Executive Offices)

       Registrant's Telephone Number, Including Area Code: (800) 700-0362

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                    Yes X No
                          ---------------------------

On August 10, 2001, 18,718,351 shares of the Registrant's Common Stock, $.001
par value, were outstanding.


================================================================================
<PAGE>

                          RAVISENT TECHNOLOGIES INC.
                                   FORM 10-Q
                          QUARTER ENDED JUNE 30, 2001

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                    Page

Part I:      Financial Information

Item 1:      Financial Statements

<S>          <C>                                                                                   <C>
             Consolidated Balance Sheets at June 30, 2001 (unaudited) and December 21, 2000             3

             Consolidated Statements of Operations for the three months ended June 30, 2001 and         4
             2000  (unaudited).

             Consolidated Statements of Operations for the six months ended June 30, 2001 and           5
             2000  (unaudited).

             Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and           6
             2000  (unaudited).

             Notes to Consolidated Financial Statements                                                 7

Item 2:      Management's Discussion and Analysis of Financial Condition and Results of                22
             Operations

Item 3:      Quantitative and Qualitative Disclosures About Market Risk                                41

Part II:     Other Information

Item 1:      Legal Proceedings                                                                         58

Item 2:      Changes in Securities and Use of Proceeds                                                 59

Item 3:      Defaults upon Senior Securities                                                           59

Item 4:      Submission of Matters to a Vote of Security Holders                                       59

Item 5:      Other Information                                                                         59

Item 6:      Exhibits and Reports on Form 8-K                                                          59

</TABLE>
<PAGE>

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




PART I
ITEM 1: FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                 June 30,   December 31,
                                                                                   2001        2000
                                                                               (unaudited)
<S>                                                                             <C>         <C>
ASSETS
Current assets:
   Cash and cash equivalents, including restricted cash of  $1,800 in 2001
   and $1,806 in 2000 .......................................................   $  62,935    $   9,615
   Accounts receivable, net of allowance for doubtful accounts of $4,050 in
   2001 and $2,405 in 2000 ..................................................       1,388        5,901
   Inventories, net .........................................................       8,278       20,883
   Prepaid expenses .........................................................       1,061          963
   Loans receivable - officers ..............................................         361          662
   Other current assets .....................................................         681          547
                                                                                ---------    ---------
       Total current assets .................................................      74,704       38,571

   Furniture and equipment, net .............................................       1,520        3,995
   Goodwill and other intangibles, net of accumulated amortization of $766 in
   2001 and $7,425 in 2000 ..................................................       4,931       17,530
   Loan receivable--officer .................................................           8           25
   Other assets .............................................................         852           72
                                                                                ---------    ---------
       Total assets .........................................................   $  82,015    $  60,193
                                                                                =========    =========


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable .........................................................   $   3,274    $  11,088
   Accrued expenses .........................................................       4,131        2,147
   Income taxes payable .....................................................       1,760         --
   Deferred revenue .........................................................         345        1,473
   Other current liabilities ................................................          66          657
                                                                                ---------    ---------
       Total current liabilities ............................................       9,576       15,365

Non-current liabilities:
   Deferred tax liability ...................................................         564         --
                                                                                ---------    ---------

     Total liabilities ......................................................      10,140       15,365
                                                                                ---------    ---------

Commitments and contingencies (note 8)

Stockholders' equity:
   Preferred stock, $.001 par value; 5,000,000 shares authorized in 2001 and
   2000, none issued or outstanding
   Common stock, $.001 par value 50,000,000 authorized; 18,583,122 shares
   issued in 2001 and 17,594,429 in 2000 ....................................          19           17
   Additional paid-in capital ...............................................     122,259      121,330
   Deferred stock compensation ..............................................        (872)      (3,241)
   Accumulated deficit ......................................................     (48,592)     (72,380)
   Accumulated other comprehensive income ...................................        (219)        (178)
   Treasury stock at cost, 200,000 shares ...................................        (720)        (720)
                                                                                ---------    ---------

       Total stockholders' equity ...........................................      71,875       44,828
                                                                                ---------    ---------

       Total liabilities and stockholders' equity ...........................   $  82,015    $  60,193
                                                                                =========    =========

</TABLE>
         See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                                                  Quarter Ended June 30,
                                                                                  2001           2000
                                                                               (unaudited)    (unaudited)
<S>                                                                           <C>             <C>
Revenues:
    License and services ..................................................   $        673    $      3,299
    Hardware ..............................................................            121           1,547
                                                                              ------------    ------------

Total revenues ............................................................            794           4,846
                                                                              ------------    ------------

Cost of revenues:
    License and services ..................................................            432             985
    Hardware ..............................................................            104           1,356
    Inventory charge ......................................................         13,420            --
                                                                              ------------    ------------

Total cost of revenues ....................................................         13,956           2,341
                                                                              ------------    ------------

Gross profit ..............................................................        (13,162)          2,505

Research and development
    Non-cash compensation .................................................            116              81
    Other research and development expense ................................            999           2,970
Selling and marketing
    Non-cash compensation .................................................           --               143
    Other selling and marketing expense ...................................            842           2,602
General and administrative
    Non-cash compensation .................................................             48              55
    Other general and administrative expense ..............................          2,246           3,367
Depreciation and amortization .............................................            389           1,385
                                                                              ------------    ------------

        Operating loss ....................................................        (17,802)         (8,098)

Interest (income) expense, net ............................................           (681)           (598)
                                                                              ------------    ------------

Loss before income taxes ..................................................   $    (17,121)   $     (7,500)

     Provision for income taxes (benefit) .................................         (1,171)             23
                                                                              ------------    ------------

Net loss ..................................................................   $    (15,950)   $     (7,523)
                                                                              ============    ============

Basic and diluted net loss per weighted average common share
outstanding ...............................................................   $      (0.89)   $      (0.46)
                                                                              ============    ============

Weighted average number of common shares outstanding used in calculation of
basic and diluted net loss per share ......................................     17,840,876      16,289,587
                                                                              ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.



                                       4
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except share and per share data)
<TABLE>
<CAPTION>

                                                                                    Six Months Ended June 30,
                                                                                     2001           2000
                                                                                 (unaudited)     (unaudited)

<S>                                                                            <C>             <C>

 Revenues:
     License and services ..................................................   $      3,443    $      6,220
     Hardware ..............................................................            167           4,336
                                                                               ------------    ------------

 Total revenues ............................................................          3,610          10,556
                                                                               ------------    ------------

 Cost of revenues:
     License and services ..................................................          1,049           2,114
     Hardware ..............................................................            141           3,870
     Inventory charge ......................................................         13,420            --
                                                                               ------------    ------------

 Total cost of revenues ....................................................         14,610           5,984
                                                                               ------------    ------------

 Gross profit ..............................................................        (11,000)          4,572

 Research and development
     Non-cash compensation .................................................          1,854             162
     Other research and development expense ................................          3,406           5,113
 Selling and marketing
     Non-cash compensation .................................................             69             502
     Other selling and marketing expense ...................................          4,334           4,484
 General and administrative
     Non-cash compensation .................................................            112              96
     Other general and administrative expense ..............................          4,661           5,710
 Depreciation and amortization .............................................          2,055           2,741
                                                                               ------------    ------------

         Operating loss ....................................................        (27,491)        (14,236)

 Gains on sales of assets ..................................................         52,037            --
 Interest (income) expense, net and other (income) .........................         (1,047)         (1,214)
                                                                               ------------    ------------

 Income (loss) before income taxes .........................................   $     25,593    $    (13,022)

      Provision for income taxes ...........................................          1,808              38
                                                                               ------------    ------------

 Net income (loss) .........................................................   $     23,785    $    (13,060)
                                                                               ============    ============
 Basic net income (loss) per weighted average common share outstanding .....   $       1.35    $      (0.81)
                                                                               ============    ============
 Diluted net income (loss) per weighted average common share outstanding ...   $       1.30    $      (0.81)
                                                                               ============    ============
 Weighted average number of common shares outstanding used in calculation of
 basic net income (loss) per share .........................................     17,629,136      16,162,390
                                                                               ============    ============
 Weighted average number of common shares outstanding used in calculation of
 diluted net income (loss) per share .......................................     18,284,292      16,162,390
                                                                               ============    ============
</TABLE>


          See accompanying notes to consolidated financial statements.
                                       5
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                  Six Months Ended June 30,
                                                                              --------------------------------
                                                                                    2001          2000
                                                                              --------------------------------
                                                                                 (unaudited)   (unaudited)
<S>                                                                                <C>         <C>

Cash flows from operating activities:
  Net income (loss) ............................................................   $ 23,785    $(13,060)
  Adjustments to reconcile net income (loss) to net cash used in operating
  activities:
    Depreciation and amortization ..............................................      2,055       2,741
    Gain on sales of assets ....................................................    (52,037)       --
    Non-cash compensation and other expenses ...................................      1,602         760
    Deferred income taxes ......................................................        564        --
    Provision for doubtful accounts ............................................      1,645          90
    Provision for inventory ....................................................     13,930        --
  Changes in items affecting operations (excluding the sales of CE and IA
    businesses):
    Accounts receivable ........................................................      2,607       1,675
    Inventory ..................................................................     (1,325)     (1,217)
    Loan receivable--officer ...................................................         35          77
    Prepaid expenses and other current assets ..................................     (1,713)     (2,673)
    Other assets and intangible assets .........................................     (1,486)       --
    Accounts payable ...........................................................     (7,677)      2,698
    Accrued expenses and other current liabilities .............................      1,500         465
    Income taxes payable .......................................................      1,760        --
    Deferred revenue ...........................................................     (1,128)       (689)
                                                                                   --------    --------
Net cash used in operating activities ..........................................    (15,883)     (9,133)
                                                                                   --------    --------

Cash flows from investing activities:
  Capital expenditures .........................................................       (353)     (1,632)
  Net proceeds from sales of assets ............................................     68,112          12
  Investment in short-term investment ..........................................       --           (26)
                                                                                   --------    --------
Net cash provided by (used in) investing activities ............................     67,759      (1,646)
                                                                                   --------    --------

Cash flows from financing activities:
  Repayments under capital lease obligations ...................................        (38)        (21)
  Note receivable ..............................................................       --           500
  Net proceeds from exercise of stock options and warrants .....................      1,502         445
   Repayments under other liabilities ..........................................       --          (441)
                                                                                   --------    --------
Net cash provided by financing activities ......................................      1,464         483
                                                                                   --------    --------

Effect of exchange rate changes on cash and cash equivalents ...................        (20)        (17)
                                                                                   --------    --------


Net increase (decrease) in cash and cash equivalents ...........................     53,320     (10,313)
Cash and cash equivalents:
  Beginning of period ..........................................................      9,615      48,251
                                                                                   --------    --------

  End of period ................................................................   $ 62,935    $ 37,938
                                                                                   ========    ========

Supplemental disclosure of cash flow information:
   Cash paid during the year for:
    Interest ...................................................................   $      1    $     10

    Income taxes ...............................................................       --          --
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       6
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(Information with respect to June 30, 2001 and 2000 is unaudited)

     Unaudited Interim Financial Statements

     The interim consolidated financial statements of the Company for the three
and six months ended June 30, 2001 and 2000 included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations relating to interim
financial statements. In the opinion of management, the accompanying unaudited
interim consolidated financial statements reflect all adjustments necessary to
present fairly the financial position of the Company at June 30, 2001 and the
results of its operations for the three and six months ended June 30, 2001 and
2000 and its cash flows for the six months ended June 30, 2001 and 2000. The
unaudited consolidated financial statements included in this Form 10-Q should be
read in conjunction with the audited consolidated financial statements and notes
thereto, included in the Company's Form 10-K for the year ended December 31,
2000.

1) Summary of Significant Accounting Policies

     a) Description of Business (Note 11)

     RAVISENT Technologies Inc. ("the Company"), which changed its name from
Divicore Inc. in June 1999 and from Quadrant International, Inc. in May 1999,
designs, develops, licenses and markets core-based modular software solutions
that enable digital video and audio stream management in personal computer
systems. In March 2001, the Company sold its consumer electronics business and
its Internet appliance business (note 11). The Company also provides supporting
hardware designs to selected customers as well as customization services and
customer support. The Company's solutions enable decoding (playback) and
encoding (recording) of multimedia formats such as digital versatile disk (DVD);
direct broadcast satellite (DBS) and high-definition television (HDTV) on
existing personal computers and, during 2000, consumer electronics platforms.
The Company's customers consist principally of personal computer manufacturers.

     During 2000, the Company's revenues were substantially generated from
selling digital video solutions and Internet appliance devices to personal
computer, consumer electronics, and Internet appliance original equipment
manufacturers. During 1999 and 1998 the Company's revenues were substantially
generated from selling hardware-based digital video solutions to personal
computer and consumer electronics original equipment manufacturers. The Company
changed its strategic focus during 1999 from selling hardware-based digital
video solutions to licensing its proprietary technology to provide
software-based digital video solutions to primarily personal computer and
consumer electronics original equipment manufacturers. In November of 1999, the
Company acquired Teknema Inc., which expanded the Company's product offerings to
the Internet appliance market. In August 2000, the Company acquired Cinax
Designs Inc., which enhanced the Company's digital video product line.

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



                                       7
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)



     The Company has historically sustained significant net losses and negative
cash flows from operations since its inception. For the six months ended June
30, 2001, the Company's net income was $23.8 million, which is primarily
attributable to gains on the sales of assets of $52 million in March 2001 (note
11). The Company plans on investing in product development, sales and marketing
and to a lesser degree in operations and administrative areas. There can be no
assurances that the Company will be able to generate sufficient revenues
necessary to achieve or sustain profitability in the short or long term.
However, management believes that the current cash and cash equivalent amounts
will be sufficient to sustain the Company's operations through June 30, 2002.
See note 11 for sales of assets.

     On June 28, 2001, the Company announced that it signed an agreement to
acquire all of the outstanding capital stock of eMation Ltd., a company
headquartered in Boston, MA. Under the terms of the transaction, RAVISENT has
offered to acquire from eMation's shareholders all of the issued and outstanding
shares of eMation for approximately 8 million shares of RAVISENT common stock
and the assumption of $5 million in debt. In addition, RAVISENT agreed to
provide up to $2.5 million of interim financing to fund operating expenses until
closing. The Company has also agreed to issue an additional 1.55 million shares
of RAVISENT common Stock upon the exercise of eMation Stock options to be
assumed by the Company in the eMation acquisition. This transaction is subject
to customary closing conditions, including regulatory and RAVISENT shareholder
approval, and is currently expected to close during the fourth quarter of 2001.

     b) Principles of Consolidation

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

     c) Cash and Cash Equivalents

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

     d) Inventories

     Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out method (FIFO). Inventory is net of reserves of
approximately $17,729,000 at June 30, 2001 and $3,799,000 December 31, 2000.

     e) Revenue Recognition

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

     In cases where a license fee is associated with the delivery of multiple
elements and vendor-specific objective evidence cannot be established for each
of the individual elements, the entire fee from the arrangement is deferred
until the earlier of the establishment of vendor-specific objective evidence or
the delivery of all the elements of the arrangement. In cases where a license
grants a customer unspecified upgrade rights, the license fee is deferred and
recognized ratably over the term of the arrangement. Billed amounts due from the
customers in excess of revenue recognized are recorded as deferred revenue.

                                       8
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

     Hardware revenues are recognized upon shipment of products to customers.
The Company's sales to original equipment manufacturers do not provide a right
of return unless in the event of manufacturing defect, which is the
responsibility of the Company's third party contract manufacturers.

     Revenues related to services are recognized upon delivery of the service in
the case of time and material contracts. Revenues related to development
contracts involving significant modification or customization of hardware or
software under unilateral or joint development arrangements are recognized using
the percentage-of-completion method, based on performance milestones specified
in the contract where such milestones fairly reflect progress toward contract
completion. In other instances, progress toward completion is based on
individual contract costs incurred to date compared with total estimated
contract costs. Losses on contracts are recognized for the entire anticipated
loss, if any, as soon as the loss becomes evident.

     f) Use of Estimates

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

     g) Computation of Net Income (Loss) Per Share

     The Company computes earnings per share in accordance with SFAS No. 128,
Earnings Per Share. In accordance with SFAS No. 128, basic earnings per share
("EPS") is computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon the exercise of stock options and
warrants (using the treasury stock method), and the incremental common shares
issuable upon the conversion of the convertible preferred stock (using the
if-converted method), if any. Under the treasury stock method, the dilutive
effect of options and warrants are weighted from the later of the beginning of
the period or the date of issuance. Common equivalent shares also consist of
contingently issuable shares, whose issuance is contingent upon the satisfaction
of certain conditions. If all necessary conditions are satisfied by the end of
the period, such shares are included in common equivalent shares as of the
beginning of the period. Common equivalent shares are excluded from the
calculation if their effect is anti-dilutive.







                                       9
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for net income:

<TABLE>
<CAPTION>

                                  For the six months ended June 30, 2001
                                  (in thousands, except per share data)
                                                    Income               Shares           Per-Share
                                                 (Numerator)         (Denominator)         Amount
<S>                                                <C>                  <C>                <C>

Net income                                         $23,785                --               $     --
Basic EPS
 Income available to
   common stockholders                             $23,785              17,629             $   1.35
Effect of Dilutive Securities
Warrants                                              --                   221
Outstanding Options                                   --                    53
Contingently Issuable Shares                          --                   381
Diluted EPS
Income available to common stockholders and        $23,785              18,284             $   1.30
   assumed conversions
</TABLE>



Options to purchase approximately 1.0 million shares of common stock at various
exercise prices were outstanding during the six months ended June 30, 2001 but
were not included in the computation of diluted EPS because the corresponding
exercise prices of the options were greater than the average market price of the
common shares. The options have various expiration dates during the next 10
years.

Warrants to purchase approximately 0.1 million shares of common stock, issued at
various exercise prices were outstanding during the six months ended June 30,
2001, but were not included in the calculation of diluted EPS because the
corresponding exercise prices were greater than the average market price of the
common shares. The warrants have various expiration dates during the next 5
years.

The effects of dilution for the three months ended June 30, 2001 and for the
three and six months ended June 30, 2000 are not considered since the effects of
assumed conversion or exercise would have an antidilutive effect on EPS.


     h) Recent Accounting Pronouncements

     In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, Business Combinations, and Statement SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001 as well as
all purchase method business combinations completed after June 30, 2001 (note
8c). SFAS No. 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be




                                       10
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


recognized and reported apart from goodwill, noting that any purchase price
allocable to an assembled workforce may not be accounted for separately. SFAS
No. 142 which is effective January 1, 2002, will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 will also require that intangible
assets with definitive useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of.

     Excluding the proposed acquisition of eMation, of the date of adoption, the
Company expects to have unamortized goodwill in the amount of approximately $1.8
million, and unamortized identifiable intangible assets in the amount of
approximately $0.9 million, all of which will be subject to the transition
provisions of SFAS Nos. 141 and 142. Amortization expense related to goodwill
was approximately $5.2 million and $1.7 million for the year ended December 31,
2000 and the six months ended June 30, 2001, respectively. Because of the
extensive effort needed to comply with adopting SFAS Nos. 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these Statements in
the Company's financial statements at the date of this filing.

     i) Reclassifications

     Certain prior year amounts have been reclassified to conform with the
current year presentation.

2) Comprehensive Income (Loss)

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

<TABLE>
<CAPTION>
                                                                  Three Months Ended              Six Months Ended
                                                                  ------------------              ----------------
                                                                       June 30,                       June 30,
                                                                       --------                       --------
                                                                     2001         2000            2001          2000
                                                                     ----         ----            ----          ----
<S>                                                               <C>           <C>             <C>        <C>
      Net income (loss)                                           $(15,950)     $(7,523)        $23,785    $(13,060)
      Foreign currency translation adjustment                           (3)          (3)           (20)         (17)
      Unrealized loss on available-for-sale investment                 (39)        --              (21)        --
                                                                  --------      -------         -------    --------

      Comprehensive income (loss)                                 $(15,992)     $(7,526)        $23,744    $(13,077)
                                                                  ========      =======         =======    ========
</TABLE>


3)       Inventories

          Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>

                                                                              June 30,           December 31,
                                                                                2001                 2000
                                                                              --------             --------
<S>                                                                            <C>                 <C>
        Raw materials                                                          $ 5,639             $ 17,369
        Products in process                                                          7                  762
        Finished products                                                        2,632                2,752
                                                                              --------             --------

        Inventories, net                                                      $  8,278             $ 20,883
                                                                              ========             ========
</TABLE>
During the quarter ended June 30, 2001, the Company recorded a charge for
inventory reserves of approximately $10.2 million for components and $3.2
million for finished goods. The reserves were determined based on various
factors including current market prices, industry conditions, alternative uses
and distribution channels and manufacturers' warranties.

                                       11
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


4) Bank Line of Credit

     The Company has a loan and security agreement with a commercial bank that
provides the Company a line of credit in the amount of the lesser of $5 million
or the borrowing base, as defined (limited to a percentage of eligible accounts
receivable). The line of credit provides for the Company to issue a maximum of
$2 million in the form of letters of credit that reduces the amount of available
borrowings under the line of credit. The line of credit matured in June 2001,
but was extended by the bank until September 2001, and bears interest at the
bank's prime rate (6.75% at June 30, 2001). The line of credit is collateralized
by substantially all of the assets of the Company. The Company is required to
comply with quarterly financial covenants, as defined in the loan and security
agreement. As of June 30, 2001 the Company was in compliance with covenants.
There was no amount outstanding under the line of credit at June 30, 2001 and
$0.1 was available as of June 30, 2001.

5) Accrued Expenses

     Accrued expenses consist of the following:


                                    June 30,     December 31,
                                       2001          2000
                                    -------------------------
      Payroll and related costs     $  847         $  397
      Accrued Dolby royalties          403            664
      Legal and professional fees      486            290
      Legal settlements              1,488           --
      Warranty                         361            361
      Other                            546            435
                                    ------         ------
                                    $4,131         $2,147
                                    ======         ======

6) Loans Receivable-Officers

     In November 2000, the Company entered into an agreement to loan a newly
hired officer of the Company $50,000 for the purpose of relocation. The loan is
secured by any personal or real property acquired with the funds and by all of
the Company's stock held or subsequently acquired by the officer. The loan bears
interest at 9% per annum and will be forgiven in November 2002 including all
accrued and unpaid interest, or is due immediately if the officer's employment
is terminated by the Company for cause or by the officer for any reason.

     From September to November 2000, the Company advanced $189,510 to an
officer of the Company. The loan is payable on demand.

     In August and September 2000, the Company entered into agreements to loan
an executive officer of the Company $52,000 and $96,000, respectively, for an
aggregate loan amount of $148,000. The loans are secured by all of the Company's
stock held or subsequently acquired by the officer. The loans bear interest at
5% per annum and were originally due and payable on December 31, 2000, including
all accrued and unpaid interest. The payment terms of the loans will be extended
to September 30, 2001.

     In January 2000, the Company entered into an agreement to loan a former
officer of the Company $160,000. The loan is secured by all of the Company's
stock held or subsequently acquired by the former officer and any proceeds from
the disposition of the stock. The loan bears interest at 5% per annum and was
due December 31, 2000. The former officer committed to paying the unpaid balance
of $145,000 in full by September 30, 2001.

                                       12
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

     In November 1999, the Company entered into an agreement to loan an officer
of the Company approximately $288,800. The loan was to be repaid in twenty-four
monthly installments of approximately $13,000, and bears an interest rate of 8%.
The agreement also provided for a monthly bonus to the officer in an amount
equal to the monthly loan repayment. In connection with the sale of the Internet
appliance assets (note 11) the unpaid loan balance of approximately $114,000 was
forgiven.

7)   Equity Transactions

     Options

     In July 2001 the board of directors granted 380,000 stock options
to employees with an exercise price of $0.01 per share. The Company will
record deferred compensation of approximately $0.8 million that will be
amortized on a pro rata basis over the vesting period of 12 months. Also in July
2001, the board of directors granted 162,500 stock options to employees with an
exercise price equal to the fair market value on the date of grant, that are
fully vested upon the completion of one year of service from the date of grant.

     Warrants

     In June 2000, the Company entered into a one-year distribution rights
agreement (the "Agreement") with American Trading S.A. ("ATSA") for exclusive
distribution of the Company's Internet television set-top box product in Brazil.
Upon the signing of the Agreement the Company issued a warrant to purchase
1,500,000 shares of the Company's common stock to ATSA with an exercise price of
$7.00 per share, which approximated fair market value on the date of grant. The
warrant was fully vested and non-forfeitable on the date of grant, had a
two-year term, and contained certain exercise restrictions as described in the
warrant agreement. At June 30, 2000, the Company recorded the estimated fair
value of the warrant of $5.6 million as an intangible prepaid distribution
rights fee and additional paid-in capital. On March 28, 2001, pursuant to the
January 2001 settlement and release agreement with ATSA canceling the Agreement,
the warrant was canceled (note 8). On March 28, 2001, the warrant had an
estimated fair value of approximately $435,000, which was estimated using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 4.21%, volatility factor of 96%, no dividend factor and a
remaining life of 1.25 years.

8) Commitments and Contingencies


     On or about August 10, 2000, Corum Group, Ltd. filed an action against
RAVISENT and Cinax Designs Inc. in the United States District Court for the
Western District of Washington (No. C00-1352D). Corum, a business consultant,
alleged that it had an agreement with Cinax whereby Cinax would pay Corum an 8%
"transaction fee" in the event Corum located a purchaser for Cinax. The Company
acquired Cinax by agreement dated as of July 13, 2000 for compensation of $3.5
million in cash and an aggregate of 825,000 shares of the Company's common stock
and non-voting exchangeable preferred stock of one of our subsidiaries, Ravisent
British Columbia Inc., which preferred stock is exchangeable, on a one-for-one
basis, into shares of our common stock. In the complaint Corum alleged that it
introduced RAVISENT to Cinax and that it was therefore entitled to $281,362 and
66,000 shares of our common stock. As part of our acquisition of Cinax, the
shareholders of Cinax agreed to indemnify us for 50% of any liability stemming
from the Corum claim and an aggregate of 53,500 shares of our common stock and
non-voting exchangeable preferred stock of Ravisent British Columbia Inc. were
placed in escrow to secure this indemnification obligation. On April 17, 2001,
the parties entered into a settlement and release agreement whereby the Company
paid cash of $110,000 and issued 125,000 shares of RAVISENT common stock
to Corum totaling approximately $0.3 million in full settlement of the matter
and the action has been dismissed. The amount of the settlement was accrued in
full as of March 31, 2001.

     Between February and April 2000, eleven class action lawsuits were filed
against RAVISENT and certain of its officers and directors in the United States
District Court for the Eastern District of Pennsylvania. On May 25, 2000, the
cases were consolidated under Civil Action No. 00-CV-1014, and entitled "In re
RAVISENT Technologies Inc. Securities Litigation". Pursuant to the court's
consolidation order, a consolidated and amended class action complaint was filed
on June 14, 2000 with an alleged class period of July 15, 1999 through April 27,
2000. This complaint alleges violations of the federal securities laws,
specifically Sections 11 and 15 of the Securities Act of 1933, Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated
thereunder and seeks unspecified damages on behalf of a purported class of
purchasers of our stock during the period stated above. On July 3, 2000, we
filed a motion to dismiss the consolidated and amended class action complaint.
The motion is presently fully briefed and the parties are awaiting a hearing
date to be set for the motion. In connection with the Company's initial


                                       13
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

public offering, the Company purchased directors and officers insurance that
provides the Company with protection from claims made against officers,
directors or the Company arising from claims including but not limited to any
written demand for damages and any civil, criminal, administrative, or
regulatory proceedings and appeals. Certain of our employees and certain holders
of 5% or more of our common stock are members of the putative classes alleged in
these actions and therefore may have interests adverse to us with respect to the
alleged claims in these actions. We believe that such lawsuits or claims are
without merit and that we have meritorious defenses to the actions. We plan to
vigorously defend the litigation. However, failure to successfully defend these
actions could substantially harm our results of operations, liquidity and
financial condition.

     In April 2001, a third party who licensed software to the Company filed a
lawsuit against the Company in California. The dispute arose out of a contract
whereby the Company licensed software from the third party for use with the
eSurfer browser bundled with the Company's Internet set-top box assets sold to
Phoenix Technologies in March 2001 (note 11). The third party claimed that there
were fees due and owing under the contract. The Company and the third party
entered into a confidential settlement agreement in July 2001 and the case has
been dismissed. The amount of the settlement was fully accrued as of June 30,
2001.

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

     In June 2000, the Company entered into a one-year distribution rights
agreement ("the Agreement") with American Trading S.A. ("ATSA") for exclusive
distribution of the Company's Internet television set-top box product in Brazil.
Upon the signing of the Agreement the Company issued a warrant to purchase
1,500,000 shares of the Company's common stock to ATSA with an exercise price of
$7.00 per share, which approximated fair market value on the date of grant. The
warrant was fully vested and non-forfeitable on the date of grant, had a
two-year term, and contained certain exercise restrictions as described in the
warrant agreement.

     Due to the parties' differing interpretations of the terms of the
Agreement, in January 2001 the parties entered into a settlement and release
agreement (the Release). The Release provides for the immediate termination of
the Agreement, including the right for RAVISENT to terminate the warrant and a
royalty-free right in 2001 for Ravisent to use the mark "WWWTV," which RAVISENT
will own after December 31, 2001. In addition, in January 2001 the Company paid
approximately $1.2 million to ATSA in exchange for the settlement and release
and is required to pay an additional minimum finder's fee of $1 million in
January 2002 for sales of the Internet set-top box in Brazil in 2001. The
aggregate amount of the settlement of $2.2 million, net of the estimated fair
value of the canceled warrant of $0.4 million (note 7) is included in other
selling and marketing expense in the consolidated statement of operations for
the six months ended June 30, 2001.

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



                                       14
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


9) Segment Information

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

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

<TABLE>
<CAPTION>
                                                       Three Months Ended June 30,
                                              ----------------------------------------------
Country/ Geographic Region                             2001                   2000
--------------------------                    ----------------------------------------------

<S>                                            <C>                         <C>
North America:
     United States                                              $263                 $2,162
     Canada                                                      347                    733
                                              ----------------------- ----------------------
          Total - North America                                  610                  2,895

Europe:
     Italy                                                         -                    567
     Germany                                                     108                    108
     France                                                        6                      4
     Other                                                         -                     19
                                              ----------------------- ----------------------
          Total - Europe                                         114                    698

Asia-Pacific:
     Taiwan                                                        -                  1,094
     Japan                                                        68                    150
     Korea                                                         2                      -
                                              ----------------------- ----------------------
          Total - Asia-Pacific                                    70                  1,244
South America - Other                                              -                      9
                                              ----------------------- ----------------------
Total                                                           $794                 $4,846
                                              ----------------------- ----------------------
</TABLE>




                                       15
<PAGE>

                          RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

<TABLE>
<CAPTION>

                                                                        Six Months Ended June 30,
                                                              ----------------------------------------------
Country/ Geographic Region                                             2001                   2000
--------------------------                                    ----------------------------------------------

<S>                                                                           <C>                    <C>
North America:
     United States                                                            $2,067                 $3,809
     Canada                                                                    1,090                  1,375
                                                              ----------------------- ----------------------
          Total - North America                                                3,157                  5,184

Europe:
     Italy                                                                         -                  1,735
     Germany                                                                     148                    260
     France                                                                       21                      4
     Turkey                                                                        6                    (30)
     Other                                                                        22                     19
                                                              ----------------------- ----------------------
          Total - Europe                                                         197                  1,988

Asia-Pacific:                                                                      -
     Taiwan                                                                        0                  2,620
     Japan                                                                       253                    375
     Korea                                                                         2
     Malaysia                                                                      -                      -
                                                              ----------------------- ----------------------
          Total - Asia-Pacific                                                   255                  2,995

South America - Other                                                              1                    389
                                                              ----------------------- ----------------------



Total                                                                         $3,610                $10,556
                                                              ----------------------- ----------------------
</TABLE>


10) Segment Reporting

     Segment information is presented in accordance with Statement of Financial
Account Standards No. 131 ("SFAS 131"), "Disclosures About Segments Of An
Enterprise And Related Information." This standard requires segmentation based
upon the Company's internal organization and disclosure of revenue and operating
income based upon internal accounting methods. For the six months ended
June 30, 2001 the Company had three reportable segments: personal computer
("PC"), consumer electronics ("CE") and Internet appliance ("IA") (note 11).

     PC: This segment designs, develops, licenses and markets core-based modular
software solutions that enable digital video and audio stream management in
personal computer systems. The segment also provides supporting hardware designs
to selected customers as well as customization services and customer support.
The segments solutions enable decoding (playback) and encoding (recording) of
multimedia formats such as digital versatile disk (DVD); direct broadcast
satellite (DBS) and high-definition television (HDTV) on existing personal
computers.

     CE: This segment designed, developed, licensed and marketed core-based
modular software solutions that enable digital video and audio stream management
in consumer electronics devices. The segment also provided supporting hardware
designs to selected customers as well as customization services and customer
support. The segments solutions enable decoding (playback) and encoding
(recording) of multimedia formats such as digital versatile disk (DVD); direct
broadcast satellite (DBS) and high-definition television (HDTV) on existing
consumer electronics platforms (note 11).



                                       16
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

     IA: The Company's Internet technology segment was involved in the
development of products for the emerging market in information appliances. The
segment sold Internet appliance hardware reference designs and software
technology through intellectual property licenses and agreements with Internet
service providers. This segment provided the Company with a number of Internet-
related products, including an efficient web browser, and several Internet
appliance reference designs including a Web Pad design, Internet ready TV and
monitor designs and an Internet-ready screenphone (note 11).

     The Company evaluates operating segment performance based on revenue and
gross profit. It has not historically evaluated segment performance based on
operating income nor allocated assets to its individual operating segments.

<TABLE>
<CAPTION>
                                                     Three Months Ended June 30,
                                                     2001                2000
                                                   --------             --------
                                                           (In thousands)

<S>                                                <C>                  <C>
Revenue:
     PC ...............................            $    719             $  2,965
     CE ...............................                   -                   75
     IA ...............................                  75                1,806
                                                   --------             --------
          Total .......................            $    794             $  4,846
                                                   ========             ========

Gross profit:
     PC ...............................            $    241             $  1,983
     CE ...............................                   -                   49
     IA (excludes inventory charge of
        $13,420 in 2001)...............                  17                  473
                                                   --------             --------
          Total (excludes inventory charge
                of $13,420 in 2001)....            $    258             $  2,505
                                                   ========             ========
</TABLE>

<TABLE>
<CAPTION>
                                                      Six Months Ended June 30,
                                                     2001                2000
                                                   --------             --------
                                                           (In thousands)
<S>                                                <C>                  <C>
Revenue:
     PC ...............................            $  3,088             $  5,504
     CE ...............................                 421                  120
     IA ...............................                 101                4,932
         ..............................            --------             --------
          Total .......................            $  3,610             $ 10,556
                                                   ========             ========


Gross profit:
     PC ...............................            $  2,078             $  3,657
     CE ...............................                 327                   83
     IA (excludes inventory charge
        of $13,420 in 2001)............                  15                  832
                                                   --------             --------
          Total (excludes inventory charge
                of $13,420 in 2001)....            $  2,420             $  4,572
                                                   ========             ========
</TABLE>

11) Sales of Assets

     a) Sale of Consumer Electronics Assets

     On March 1, 2001, pursuant to an Asset Acquisition Agreement, the Company
sold certain assets related to its consumer electronics business to
STMicroelectronics N.V. ("STMicroelectronics"), a Dutch corporation. The assets
sold included certain contracts, equipment, intangible assets, intellectual
property,




                                       17
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

prepaid expenses, accounts receivable and other assets primarily related to the
operations of the consumer electronics business. In connection with the sale,
the Company and STMicroelectronics entered into certain agreements including an
Assignment and Assumption of Lease with respect to the Company's former
corporate headquarters office facility located in Malvern, Pennsylvania. Certain
employees of the Company entered into employment agreements with
STMicroelectronics. Pursuant to the terms of the Asset Acquisition Agreement,
STMicroelectronics paid approximately $55.6 million in cash consideration, of
which $0.8 million is being held by a third party in escrow for a period of 18
months for indemnification purposes and is included in other assets in the
consolidated balance sheet as of June 30, 2001. In connection with the asset
sale, the Company and certain of its subsidiaries granted to STMicroelectronics
certain non-exclusive rights to license and distribute certain of its technology
used in its Internet appliance products (note 11b) and personal computer
products.

     The Company recorded a gain on the sale of approximately $47.5 million
during the quarter ended March 31, 2001. The net gain was calculated as follows
(in thousands):

<TABLE>
<CAPTION>
<S>                                                                              <C>
     Sale Price ..........................................................       $55,602
     Accounts receivable acquired ........................................         (261)
     Accrued expenses assumed ............................................           137
     Net book value of deferred stock compensation .......................         (498)
     Net book value of furniture and equipment sold ......................       (2,036)
     Net book value of goodwill and intangibles ..........................         (968)
     Other assets ........................................................          (18)
     Employee transition and inducement costs ............................       (2,956)
     Professional and legal fees .........................................       (1,487)
                                                                               ----------

     Gain on sale of consumer electronics assets .........................       $47,515
</TABLE>


     b) Sale of Internet Appliance Assets

     On March 23, 2001, pursuant to an Asset Acquisition Agreement, the Company
sold certain assets related to its Internet appliance business to Phoenix
Technologies Ltd. ("Phoenix"), a Delaware corporation. The assets sold included
certain contracts, equipment, intangible assets, intellectual property and
prepaid expenses primarily related to the operations of the Internet appliance
business. Certain employees of the Company entered into employment agreements
with Phoenix Technologies, Ltd. Pursuant to the terms of the Asset Acquisition
Agreement, Phoenix paid $18 million in cash consideration, of which $1.8 million
is being held by a third party in escrow for a period of 12 months for
indemnification purposes and is included in restricted cash in the consolidated
balance sheet as of June 30, 2001.

     The Company recorded a gain on the sale of approximately $4.5 million
during the quarter ended March 31, 2001. The net gain was calculated as follows
(in thousands):

<TABLE>
<CAPTION>
<S>                                                                               <C>
     Sale Price ..........................................................        $18,000
     Prepaid expenses ....................................................          (954)
     Net book value of deferred stock compensation .......................          (121)
     Net book value of furniture and equipment sold ......................          (466)
     Net book value of goodwill and intangibles ..........................       (10,586)
     License fee .........................................................          (250)
     Employee transition and inducement costs ............................          (763)
     Professional and legal fees incurred ................................          (338)
                                                                             -------------
     Gain on sale of Internet appliance assets ...........................         $4,522
</TABLE>



                                       18
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


     c) Pro Forma Financial Information

     The following unaudited pro forma financial information presents the
results of operations of the Company as if the dispositions occurred on January
1, 2001, after giving effect to certain adjustments, primarily revenues and
personnel costs associated with the disposed businesses and amortization of
goodwill. The unaudited pro forma financial information for the six-months ended
June 30, 2001 (in thousands except per share data) does not necessarily reflect
the results of operations that would have occurred had the dispositions been
completed on January 1, 2001.

                                       19
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

<TABLE>
<CAPTION>
                                                                              Six Months Ended June 30, 2001
                                                                           (In thousands, except per share data)
                                                                                                          Ravisent
                                                                             Adjustments   Pro Forma-   Adjustments     Pro Forma-
                                                                Ravisent     to record     Subsequent    to record      Subsequent
                                                               Historical   sale of CE     to sale of   sale of IA   to sales of CE
                                                              (unaudited)     assets       CE assets      Assets      and IA assets
                                                               --------      --------      --------      --------      --------
<S>                                                            <C>           <C>           <C>           <C>           <C>
Revenues:
    License and services .................................     $  3,443      $   (421)     $  3,022      $   --        $  3,022
    Hardware .............................................          167          --             167           (26)          141
                                                               --------      --------      --------      --------      --------
Total revenues ...........................................        3,610          (421)        3,189           (26)        3,163
                                                               --------      --------      --------      --------      --------
Cost of revenues:
    License and services .................................        1,049           (94)          955          --             955
    Hardware .............................................          141          --             141           (28)          113
    Inventory charge .....................................       13,420          --          13,420          --          13,420
                                                               --------      --------      --------      --------      --------
Total cost of revenues ...................................       14,610           (94)       14,516           (28)       14,488
                                                               --------      --------      --------      --------      --------
Gross profit .............................................      (11,000)         (327)      (11,327)            2       (11,325)
                                                               --------      --------      --------      --------      --------
Research and development
    Non-cash compensation ................................        1,854           (45)        1,809            (4)        1,805
    Other research and development expense ...............        3,406          (693)        2,713          (775)        1,938
Sales and marketing
    Non-cash compensation ................................           69            (6)           63           (44)           19
    Other selling and marketing expense ..................        4,334          (349)        3,985        (1,768)        2,217
General and administrative
    Non-cash compensation ................................          112            (4)          108          --             108
    Other general and administrative expense .............        4,661          (419)        4,242          (145)        4,097
Depreciation and amortization ............................        2,055          (216)        1,839        (1,070)          769
                                                               --------      --------      --------      --------      --------
        Operating income (loss) ..........................     $(27,491)     $  1,405      $(26,086)     $  3,808      $(22,278)
                                                               ========      ========      ========      ========      ========

Basic operating income (loss) per weighted
average common share outstanding .........................     $  (1.56)     $   0.08      $  (1.48)     $   0.22      $  (1.26)
                                                               ========      ========      ========      ========      ========
Diluted operating income (loss) per weighted
average common share outstanding .........................     $  (1.56)     $   0.08      $  (1.48)     $   0.21      $  (1.26)
                                                               ========      ========      ========      ========      ========
Weighted average number of common shares
outstanding used in calculation of basic net
income (loss) per share ..................................       17,629        17,629        17,629        17,629        17,629
                                                               ========      ========      ========      ========      ========
Weighted average number of common shares
outstanding used in calculation of diluted net
income (loss) per share ..................................       17,629        18,284        17,629        18,284        17,629
                                                               ========      ========      ========      =========     ========
</TABLE>



                                       20
<PAGE>

                           RAVISENT TECHNOLOGIES INC.
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)



                     (This page left blank intentionally)

                                       21
<PAGE>

                           RAVISENT TECHNOLOGIES INC.


 ITEM 2:

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

     The following discussion of the financial condition and results of
operations of RAVISENT should be read in conjunction with the unaudited
condensed consolidated financial statements and notes thereto included elsewhere
in this report. The information herein contains forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 that
involve a number of risks and uncertainties. A number of factors could cause our
actual results, performance and achievements or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. These factors, as
discussed below, see Risk Factors, and in our Annual Report on Form 10K filed on
April 2, 2001, include, but are not limited to, the competitive environment in
the personal computer industry in general and our specific market areas; changes
in prevailing interest rates and the availability of terms of financing to fund
the anticipated growth of our business; inflation; changes in costs of goods and
services; our inability to protect our intellectual property; economic
conditions in general and in our specific market areas; demographic changes;
changes in or failure to comply with foreign, federal, state and/or local
government regulations; claims for damages asserted against us; changes in
operating strategy or development plans; the ability to attract and retain
qualified personnel; changes in our acquisition and capital expenditure plans;
and other factors referenced herein. In addition, such forward looking
statements are necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown risks, uncertainties
and other factors. Accordingly, any forward looking statements included herein
do not purport to be predictions of future events or circumstances and may not
be realized. Forward looking statements can be identified by, among other
things, the use of forward looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "pro forma," "anticipates," or "intends," or
the negative of any thereof, or other variations thereon or comparable
terminology, or by discussions of strategy or intentions. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward looking statements. We disclaim any obligations to update any
such factors or to publicly announce the results of any revisions to any of the
forward looking statements contained herein to reflect future events or
developments.

Overview and Recent Events

     Prior to March 1, 2001, we designed, developed, licensed and marketed
innovative modular software solutions that enabled digital video and audio
stream management in personal computer systems, consumer electronics devices and
Internet appliances. We also licensed supporting hardware designs to select
customers, provided customization services and customer support. In addition, we
also sold Internet appliances and components to telecommunications companies,
Internet service providers and others. Our product offerings included a software
or hardware Internet set-top box solution, which included all of the
intellectual property, software, hardware design and manufacturing design
necessary for a manufacturer or Internet service provider to launch an
affordable product, and Nucleo, a hardware reference design based on our
ARM-7500 processors with e-Surfer(TM) - a thin customizable browser designed
specifically for Internet appliances.

         Effective as of March 1, 2001, and pursuant to an Asset Acquisition
Agreement dated as of January 18, 2001, along with our subsidiaries, Ravisent
I.P., Inc., Ravisent Operating Company, Inc., and VIONA Development Hard and
Software Engineering GmbH & Co. KG, we

                                       22
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

sold and licensed substantially all of our assets related to our consumer
electronics business to STMicroelectronics, NV, a Dutch corporation,
STMicroelectronics, Inc., a Delaware corporation and STMicroelectronics GmbH
(collectively, "STMicroelectronics"). The assets sold and licensed include
contracts, equipment, intangible assets, intellectual property, prepaid
expenses, accounts receivable and other assets primarily related to the
operation of the consumer electronics business. In addition, approximately 76 of
our employees, most of whom were associated with our consumer electronics
business, accepted employment with STMicroelectronics in connection with the
asset sale. Pursuant to the terms of the Asset Acquisition Agreement,
STMicroelectronics paid approximately $55.6 million in cash consideration, of
which $0.8 million is being held by a third party in escrow until September 2002
for indemnification purposes. In connection with the asset sale, we granted to
STMicroelectronics certain non-exclusive rights to license and distribute
certain of our technology used in our Internet appliance products and our
personal computer products. In addition, we agreed not to compete in significant
aspects of the consumer electronics market until March 1, 2006. Revenues and
gross margin for the consumer electronics business totaled approximately $0.4
million, or 12% of total revenues, and $0.3 million, or 13% of total gross
profit, excluding inventory charges, respectively, for the six months ended June
30, 2001. There were no revenues or gross margin for the consumer electronics
business for the three months ended June 30, 2001. These amounts are not
necessarily indicative of the results that would have been obtained for any
future period.

     Effective as of March 23, 2001, and pursuant to an Asset Acquisition
Agreement dated as of March 21, 2001, along with certain of our subsidiaries we
sold substantially all of the assets related to our Internet appliance business
to Phoenix Technologies Ltd. a Delaware corporation, for $18 million in cash
consideration, of which $1.8 million is being held in escrow by a third party
for indemnification purposes until March 2002. The assets sold include certain
of the contracts, equipment, intangible assets, intellectual property, prepaid
expenses, and other assets primarily related to the operation of the Internet
appliance business. Under the agreement, Phoenix Technologies purchased our
e-Surfer embedded software Internet browser and related hardware designs for the
Internet Appliance market. In addition, in connection with this asset sale, 13
of our employees, associated with the Internet appliance business accepted
employment with Phoenix Technologies. With the exception of the expected sales
in 2001 of inventory not included in the transaction, we expect only nominal
sales attributable to our Internet appliance business in 2001.

     For the six months ended June 30, 2001, revenues and gross profit from our
Internet appliance product line were approximately $101,000 and $16,000,
respectively, and represented 3% of the total revenues and 1% of total gross
profit, excluding inventory charges, for the three months ended June 30, 2001.
These amounts are not necessarily indicative of the results that would have been
obtained for any future period.

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

     As of June 30, 2001 our net inventories totaled $8.3 million, and decreased
approximately $12.6 million from the balance at December 31, 2000. The decrease
is primarily due to increased reserves of approximately $10.2 million for
components



                                       23
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

and approximately $3.2 million for Internet set-top boxes. The reserves were
determined based on various factors including current market prices, industry
conditions, alternative uses and distribution channels and manufacturers'
warranties. In addition, we received additional credits from a component
supplier of $0.6 million and a from a contract manufacturer of approximately
$0.6 million. The decreases are offset by increases attributable to purchases of
approximately 25,000 Internet set-top boxes, related to our recently sold
Internet appliance group totaling approximately $2.6 million. We placed orders
with our contract manufacturers for these products during the third and fourth
quarters of 2000 in expectation of significant orders under a distribution
rights agreement with a customer in South America. Due to the parties' differing
interpretations of the terms of the distribution rights agreement, in January
2001 the parties entered into a settlement and release agreement, terminating
the distribution rights agreement. Because of current market conditions we have
reserved approximately $1.5 million for these units. While our current product
offerings have changed as a result of the sale of the Internet appliance
business, we continue to pursue existing customer relationships and sales
channels, which require raw materials and finished goods relating to the
manufacture of Internet appliance devices, for the sale of these inventories. In
addition, we are working with Phoenix Technologies, to leverage its distribution
channels, customers and sales leads for the sale of these inventories.
Presently, we believe that we can sell the inventory in the normal course of its
business and we are continually assessing the market for these products.
However, to the extent that we are unsuccessful at selling the inventory through
the sales channels discussed above, we may have to explore alternative sales
channels which may not be on terms that we will be able to recover the carrying
value of the inventory.

     During the quarter ending June 30, 2001 and following the asset sales in
March 2001, our customers consisted primarily of personal computer and computer
graphics chip and board manufacturers and distributors. Approximately $0.7
million or 85% of our second quarter 2001 revenues were from licensing our
software solutions. These revenues were derived primarily from sales of our
Software CineMaster products.

      Under the PC licensing business model, we receive either a per-unit
license fee or a flat fee on sales of the CineMaster DVD, DVR and HDTV products.
As a result of this shift, the mix between license and service revenues and
hardware revenues may vary according to future sales of our current inventories,
and correspondingly, the cost of revenues associated with these revenue streams
will also vary. During the remainder of 2001 revenues are expected to increase
as we sell our current component and finished goods inventories. However, we
expect to generate minimal gross profit from these sales due to the current
market conditions for these inventories.

     License revenues consist of fees paid on a per unit basis, each time a
manufacturer ships a product that incorporates our software solutions, or may
consist of flat fee arrangements, bulk license purchases, or license grants.
Services revenues now consist of engineering fees from personal computer,
peripheral and semiconductor manufacturers for custom engineering services.
During the first quarter 2001, we earned services revenues from consumer
electronics manufacturers for custom engineering. However, in March 2001 we
disposed of both this product line and our Internet appliance product line
pursuant to the March 2001 asset sales to STMicroelectronics N.V. and Phoenix
Technologies Ltd. Services are generally billed on either a time and material
basis or on a project or contract basis. License revenues are recognized when



                                       24
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

earned, which is generally based on receiving notification from a licensee
detailing the shipments of products incorporating our technology. In a number of
cases, this occurs in the quarter following the sale of the licensee's product
to its customers. Our license agreements generally have a term of one year or
less, and typically require payment within 45 or 60 days after the end of the
calendar quarter in which the product is shipped. Some of our contracts may also
require payment of an up-front license fee. License fees paid in advance, with
no further future commitment, are recognized in the period that the license
agreement is signed, the fee is fixed and determinable, the technology is
delivered and accepted, and collectibility is probable.

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

     In April 1998, we acquired Viona, a German engineering services company.
Prior to the acquisition, we had contracted with Viona to co-develop its
products and a significant portion of its software and systems architecture. The
purchase price was approximately $11.4 million, and the acquisition was recorded
under the purchase method of accounting. The results of operations of Viona have
been included in our operating results since the date of acquisition. In
connection with the acquisition, we expensed $7.9 million of the purchase price
as acquired in-process research and development. The remaining portion of the
purchase price was attributable to acquired assets, which were primarily fixed
assets and accounts receivable, recorded at fair market value, in the amount of
$0.5 million, and intangible assets totaling $3.5 million less, liabilities
acquired of $0.6 million. The intangible assets consisted of goodwill valued at
$3.5 million and workforce in place valued at $0.04 million. We sold most of the
intellectual property used in the consumer electronics business that we acquired
from Viona in connection with the sale of our consumer electronics business to
STMicroelectronics in March 2001. The remaining unamortized book value of the
goodwill recorded in connection with the acquisition of Viona of approximately
$1 million, which was being amortized over its estimated useful life of four
years, and the net book value of all of Viona's furniture and equipment of
approximately $0.2 million has been included in the net gain on sale of assets.

     In November 1999, we acquired Teknema, an Internet technology company
involved in the development of products for the emerging market in information
appliances for an aggregate of approximately $14.9 million in cash, common stock
and options to purchase common stock. Prior to the acquisition we loaned Teknema
$1 million. The acquisition was recorded under the purchase method of
accounting. In connection with the acquisition, we expensed $1.8 million of the
purchase price as acquired in-process research and development. We sold all of
the intellectual property that we acquired from Teknema in connection with the
sale of our Internet appliance business to Phoenix Technologies in March 2001,
as described above. The remaining unamortized book value of the goodwill
recorded in connection with the acquisition of Teknema

                                       25
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

of approximately $10.6 million, which was being amortized over its estimated
useful life of four years, has been included in the net gain on sale of assets.

     In August 2000, we acquired all of the outstanding capital stock of Cinax
Designs Inc. ("Cinax"), a company located in British Columbia, Canada involved
in the development of digital video software products based on MPEG audiovisual
compression for approximately $3.5 million in cash and an aggregate of 825,000
shares of our common stock and shares of no par, non-voting exchangeable
preferred stock of our subsidiary, Ravisent British Columbia Inc., which shares
of preferred stock are exchangeable, at the option of the holder, on a
one-for-one basis, into shares of our common stock. The acquisition was recorded
under the purchase method of accounting. In connection with the acquisition, we
expensed $1.3 million of the purchase price as acquired in-process research and
development. Goodwill and other intangible assets of $3.2 million were recorded
and are being amortized on a straight-line basis over a period of four years. We
have retained this intellectual property and have not transferred or sold it as
a result of the STMicroelectronics or Phoenix transactions.

     Operating expenses for the quarter ended June 30, 2001 decreased by
approximately $6.0 million as compared to the quarter ended June 30, 2000 and
for the six months ended June 30, 2001, our operating expenses decreased by
approximately $2.3 million as compared to the six months ended June 30, 2000.
The decrease is due primarily to decreased compensation and benefits resulting
from the reduction in workforce and reduced goodwill amortization as a result of
the asset sales to STMicroelectronics and Phoenix Technologies described above
as well as a decrease in professional fees as a result of costs capitalized
related to the acquisition of eMation Ltd. and insurance reimbursements for fees
related to the class action litigation. For the six months ended June 30, 2001
the total decreases in operating expenses were offset by the settlement of the
American Trading S.A. distribution agreement, the immediate recognition of
prepaid and deferred compensation expense from the Cinax acquisition,
amortization of goodwill recorded as part of the acquisition of Cinax and the
pursuit of strategic initiatives.

     On June 28, 2001 we announced that we signed an agreement to acquire all of
the issued share capital of eMation Ltd. Under the terms of the transaction, we
have offered to acquire from eMation's shareholders all of the issued and
outstanding shares of eMation for approximately 8 million shares of our common
stock and the assumption of $5 million in debt. We have also agreed to issue an
additional 1.55 million shares of our common stock upon the exercise of eMation
stock options to be assumed by us in the eMation acquistion. In addition, we
have agreed to provide up to $2.5 million of interim financing to eMation to
fund operating expenses until closing. The eMation acquisition is subject to
customary closing conditions, including regulatory and RAVISENT stockholder
approval, and is currently expected to close during the fourth quarter of 2001.

                                       26
<PAGE>

                           RAVISENT TECHNOLOGIES INC.


Results of Operations

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000.

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

                           RAVISENT Technologies Inc.
              Unaudited Consolidated Statements of Operations Data
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                    Three Months Ended June 30,
                                                                                    ---------------------------
                                                                               2001                             2000
                                                                               ----                             ----
                                                                                      Percentage                         Percentage
                                                                       Amount         of Revenue        Amount          of Revenue
                                                                      --------          ------         --------            ----

<S>                                                                   <C>                   <C>        <C>                   <C>
Revenues:
   License and services                                               $    673              85%        $  3,299              68%
   Hardware                                                                121              15            1,547              32
                                                                      --------          ------         --------            ----
     Total revenues                                                        794             100            4,846             100
                                                                      --------          ------         --------            ----
Cost of revenues:
   License and services                                                    432              55              985              20
   Hardware                                                                104              13            1,356              28
   Inventory charge                                                     13,420           1,690             --              --
                                                                      --------          ------         --------            ----
     Total cost of revenues                                             13,956           1,758            2,341              48
                                                                      --------          ------         --------            ----
Gross profit                                                           (13,162)         (1,658)           2,505              52

Research and development
    Non-cash compensation                                                  116              14               81               2
    Other research and development expense                                 999             126            2,970              61
Sales and marketing
    Non-cash compensation                                                 --              --                143               3
    Other selling and marketing expense                                    842             106            2,602              54
General and administrative
    Non-cash compensation                                                   48               6               55               1
    Other general and administrative expense                             2,246             283            3,367              69
Depreciation and amortization                                              389              49            1,385              29
                                                                      --------          ------         --------            ----

Operating loss                                                         (17,802)         (2,242)          (8,098)           (167)

Interest (income) expense, net and other (income)                         (681)            (86)            (598)            (12)
                                                                      --------          ------         --------            ----

Net loss before income taxes (benefit)                                 (17,121)         (2,156)          (7,500)           (155)

Provision for income taxes (benefit)                                    (1,171)           (147)              23            --
                                                                      --------          ------         --------            ----

Net loss                                                              $(15,950)         (2,009%)       $ (7,523)           (155%)
                                                                      ========          ======         ========            ====
</TABLE>



                                       27
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

Revenues. Total revenues decreased 84% from $4.8 million for the quarter ended
June 30, 2000 to $0.8 million for the quarter ended June 30, 2001. License and
services revenue decreased 80% to $0.7 million for the quarter ended June 30,
2001, due primarily to a decline in Internet appliance revenues, weak demand for
PC-related products resulting in lower sales volumes and increased competition
resulting in lower per unit selling prices in the PC DVD market. As a result of
increased competition, we lost a PC-peripherals manufacturing customer that
accounted for approximately $0.8 million, or 16%, of our total revenues, or 23%
of our license and services revenue, in the quarter ended June 30, 2000. Also,
during the quarter ended June 30, 2000, we recognized approximately $0.8 million
of a total of $2.3 million of previously deferred revenue for prepaid Software
CineMaster license fees as a result of delivering all of the elements under a
multiple element software contract with a customer. Upon the delivery of all of
the elements, we commenced amortizing the deferred revenue at the beginning of
the second quarter of 2000 over the balance of the contract term ending December
31, 2000. Due to the termination of a contract with an Internet appliance
customer located in Italy, license and services revenue decreased by
approximately $0.3 million from the comparable quarter in 2000.

     Hardware revenue decreased 92% from approximately $1.5 million for the
quarter ended June 30, 2000 to approximately $0.1 million for the quarter ended
June 30, 2001. Overall, the decrease in our hardware revenue was attributable to
the sale of the Internet appliance business in March 2001.

     Our revenues are concentrated among a few customers. In the quarter ended
June 30, 2001, Matrox Graphics and Gateway, Inc. accounted for 30% and
20%, respectively, of our total revenues. We expect that a significant portion
of our revenues will continue to be derived from a relatively small number of
customers for the foreseeable future. The revenues from particular customers may
vary widely from period to period depending on the addition of new contracts and
the volumes and prices at which our licensees sell RAVISENT-enabled products to
end users in any given period.

     We sell our products primarily to personal computer and computer graphics
chip and board manufacturers and distributors in North America, Europe, and the
Pacific Rim. In the second quarter of 2001 companies based in North America
accounted for a majority of our revenues. Sales outside of the United States
have been primarily through U.S. manufacturers that distribute their products to
end users overseas and contract manufacturers based in Asia.

     Cost of Revenues. Cost of revenues consist primarily of license fees paid
to third parties for technologies incorporated into our products, including
Dolby Digital technology, hardware components sold to manufacturers, and costs
associated with the distribution of Software

                                       28
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

CineMaster. Cost of revenues increased 496% from $2.3 million for the quarter
ended June 30, 2000 to $14.0 million for the quarter ended June 30, 2001, due
principally to a charge for inventory reserves of approximately $13.4 million
recorded in the quarter ended June 30, 2001. The reserves recorded were for
components, of approximately $10.2 million, and approximately $3.2 million for
Internet set-top boxes. The reserves were determined based on various factors
including current market prices, industry conditions, alternative uses and
distribution channels and manufacturers' warranties.

     Excluding the charges for reserves, cost of revenues decreased 77% from
$2.3 million for the quarter ended June 30, 2000 to $0.5 million for the quarter
ended June 30, 2001. The decrease is the result of declining revenues.

     Gross Profit. Gross profit decreased from $2.5 million for the quarter
ended June 30, 2000 to $(13.2) million for the quarter ended June 30, 2001. The
decrease is primarily attributable to a charge for inventory reserves recorded
during the quarter of approximately $13.4 million. Excluding the charges for
inventory, gross profit declined from $2.5 million to $0.3 million primarily as
a result of lower revenues. Excluding the inventory charges, the gross profit
percent of revenues declined from 52% to 33% due to lower DVD pricing and higher
cost of license fees for technologies incorporated into our products.

     Other Research and Development Expense. Other research and development
expenses consist primarily of engineering and related costs associated with the
development of new products, customization of existing products for customers,
quality assurance and testing. Other research and development expenses decreased
66%, from $3.0 million for the quarter ended June 30, 2000, to $1.0 million for
the quarter ended June 30, 2001. As a percentage of total revenues, research and
development expenses increased from 61% to 126%. The decrease in research and
development expenses in absolute dollars was due primarily to the sales of our
consumer electronics and Internet appliance businesses described above. The
increase in research and development expenses as a percentage of total revenues
resulted primarily from our lower quarterly revenues. While we expect research
and development expenses to increase once the acquisition of eMation Ltd. is
completed in the fourth quarter of 2001, overall we expect research and
development expenses to decrease in 2001 compared to 2000 due to the sales of
our consumer electronics and Internet appliance businesses.

     Non-cash Research and Development Expense. Non-cash research and
development expense relates to compensation related to stock options. Non-cash
research and development expense was flat quarter over quarter. The year over
year changes are due primarily to amortization of approximately $0.1 million for
deferred compensation recorded in connection with our acquisition of Cinax
Designs in August 2000, offset by approximately $0.1 million for amortization of
deferred compensation that was originally recorded for certain of our
former


                                       29
<PAGE>

                           RAVISENT TECHNOLOGIES INC.


employees that was written off as part of the sales of our consumer electronics
and Internet appliance businesses discussed above. Stock options granted to
employees at less than fair value are recorded as deferred compensation expense
and amortized over the applicable vesting periods of two to four years.

     Other Selling and Marketing Expense. Other selling and marketing expenses
consist primarily of salaries, travel expenses and costs associated with trade
shows, advertising and other marketing efforts, as well as technical support
costs. Other selling and marketing expenses decreased 68% from $2.6 million for
the quarter ended June 30, 2000 to $0.8 million for the quarter ended June 30,
2001. As a percentage of total revenues, sales and marketing expenses increased
from 54% to 106%. The decrease in absolute dollars was due to the sales of our
consumer electronics and Internet appliance businesses. The increase in sales
and marketing expenses as a percentage of total revenues resulted primarily from
lower quarterly revenues. While we expect sales and marketing expenses to
increase once the acquisition of eMation Ltd. is completed in the fourth quarter
of 2001, overall we expect sales and marketing expenses to decrease in 2001
compared to 2000 as a result of the sales of our consumer electronics and
Internet appliance businesses and other reductions in our workforce have
occurred.

     Non-cash Selling and Marketing Expense. Non-cash selling and marketing
expense relates to compensation related to stock options. Non-cash sales and
marketing expense decreased 100% from $0.1 million for the quarter ended June
30, 2000 to zero for the quarter ended June 30, 2001. The decrease is primarily
attributable to amortization of deferred compensation that was originally
recorded for certain of our former employees and was written off as part of the
sales of our consumer electronics and Internet appliance businesses. Stock
options granted to employees at less than fair value are recorded as deferred
compensation expense and amortized over the applicable vesting periods of two to
four years.

     Other General and Administrative Expense. Other general and administrative
expenses consist primarily of personnel and support costs for our finance, human
resources, information systems and other management departments. General and
administrative expenses decreased 33% from $3.4 million for the quarter ended
June 30, 2000 to $2.2 million for the quarter ended June 30, 2001. As a
percentage of total revenues, general and administrative expenses increased from
69% to 283%. In absolute dollars, the decrease in general and administrative
expense was due to reimbursements and expense reclassifications arising from
third-party recoveries related to our class action litigation, in which we are a
defendant, as well as capitalized costs in connection with the acquisition of
eMation. Additionally, for the six months ended June 30, 2001, decreases in
recruiting, staff and rent expenses were offset by increases for uncollectible
accounts associated with the Internet appliance business sold in March 2001.
General and administrative expenses increased as a percentage of total revenues
primarily due to lower quarterly revenues. While we expect other general and
administrative expenses to increase once the acquisition of eMation Ltd. is
completed in the fourth quarter of 2001, overall we expect general and
administrative expenses to decrease in absolute dollars in 2001 compared to 2000
as our business requires less administrative support for fewer employees and
product lines resulting from the March 2001 sales of the consumer electronics
and Internet appliance businesses.

Non-cash General and Administrative Expense. Non-cash general and administrative
expense relates primarily to amortization of compensation related to stock
options. Non-cash general and administrative expense decreased 13% from $55,000
for the quarter ended June 30, 2000 to $48,000 for the quarter ended June 30,
2001.


                                       30
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

     Depreciation and Amortization. We recorded depreciation and amortization of
$0.4 million for the quarter ended June 30, 2001, compared to $1.4 million for
the quarter ended June 30, 2000. The decrease primarily relates to the decrease
in amortization of goodwill associated with the sale in March 2001 of our
consumer electronics business and our Internet appliance business. Amortization
increased as a result of the amortization of the goodwill recorded in connection
with the acquisition in August 2000 of Cinax Designs. See "Acquired In-Process
Research and Development Expense."

     Interest (Income) and Expense, Net. Net interest income increased by $0.1
million, or 14%, for the quarter ended June 30, 2001 compared with the
comparable quarter of 2000 as a result of greater cash on hand resulting from
the sales of our consumer electronics and Internet appliance businesses in March
2001. The increase in net interest income is due to higher cash balances
partially offset by lower bank interest rates in 2001 than in 2000.

                                       31
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000.

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

                           RAVISENT Technologies Inc.
              Unaudited Consolidated Statements of Operations Data
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                         Six Months Ended June 30,
                                                                                         -------------------------
                                                                                    2001                         2000
                                                                                    ----                         ----
                                                                                            Percentage                   Percentage
                                                                          Amount            of Revenue      Amount        of Revenue
                                                                         --------             ---         --------          ----
<S>                                                                      <C>                   <C>        <C>                   <C>

Revenues:
   License and services                                                  $  3,443              95%        $  6,220              59%
   Hardware                                                                   167               5            4,336              41
                                                                         --------             ---         --------            ----
     Total revenues                                                         3,610             100           10,556             100
                                                                         --------             ---         --------            ----
Cost of revenues:
   License and services                                                     1,049              29            2,114              20
   Hardware                                                                   141               4            3,870              37
   Inventory charge                                                        13,420             372             --              --
                                                                         --------             ---         --------            ----
     Total cost of revenues                                                14,610             405            5,984              57
                                                                         --------             ---         --------            ----
Gross profit                                                              (11,000)           (305)           4,572              43

Research and development
    Non-cash compensation                                                   1,854              51              162               1
    Other research and development expense                                  3,406              95            5,113              48
Sales and marketing
    Non-cash compensation                                                      69               2              502               5
    Other selling and marketing expense                                     4,334             120            4,484              43
General and administrative
    Non-cash compensation                                                     112               3               96               1
    Other general and administrative expense                                4,661             129            5,710              54
Depreciation and amortization                                               2,055              57            2,741              26
                                                                         --------             ---         --------            ----
Operating loss                                                            (27,491)           (762)         (14,236)           (135)

Gains on sales of assets                                                   52,037           1,442             --              --


Interest (income) expense, net and other (income)                          (1,047)            (29)          (1,214)            (11)
                                                                         --------             ---         --------            ----
Net income (loss) before income taxes                                      25,593             709          (13,022)           (124)


Provision for income taxes                                                  1,808              50               38               0
                                                                         --------             ---         --------            ----
Net income (loss)                                                        $ 23,785             659%        $(13,060)           (124)%
                                                                         ========             ===         ========            ====
</TABLE>


                                       32
<PAGE>

                           RAVISENT TECHNOLOGIES INC.


Revenues. Total revenues decreased 66% from $10.6 million for the six months
ended June 30, 2000 to $3.6 million for the six months ended June 30, 2001.
License and services revenue decreased 45% to $3.4 million for the six months
ended June 30, 2001, due primarily to a decline in Internet appliance revenues,
continued weakness in the PC industry and increased competition resulting in
lower per unit selling prices in the PC DVD market. Included in our license and
services revenue for the six months ended June 30, 2001 was a substantial
license grant to a new OEM customer. To the degree these types of arrangements
cannot be made with our customers in the future, license and services revenue
may decrease. As a result of increased competition, we lost a PC-peripherals
manufacturing customer, which accounted for approximately $1.6 million, or 16%,
of our total revenues and 27% of our license and services revenue, in the six
months ended June 30, 2000. Also as a result of increased competition, we lost a
PC OEM customer, which accounted for approximately $1.0 million, or 10% of our
total revenues and 16% of license and services revenue, in the six months ended
June 30, 2000. Also, during the six months ended June 30, 2000, we recognized
approximately $0.8 million of a total of $2.3 million of previously deferred
revenue for prepaid Software CineMaster license fees as a result of delivering
all of the elements under a multiple element software contract with a customer.
Upon the delivery of all of the elements, we commenced amortizing the deferred
revenue at the beginning of the second quarter of 2000 over the balance of the
contract term ending December 31, 2000. Due to the termination of a contract
with an Internet appliance customer located in Italy in conjunction with the
sale of the IA business, license and services revenue decreased by approximately
$0.7 million for the six months ended June 30, 2001 compared with the six months
ended June 30, 2000.

     Hardware revenue decreased 96% from $4.3 million for the six months ended
June 30, 2000 to $0.2 million for the six months ended June 30, 2001. The
decrease was primarily attributable to decreased Internet appliance units sold
in the first quarter of 2001 and the sale of the Internet appliance business in
March 2001.

     Our revenues are derived from a small number of customers. In the six
months ended June 30, 2001, three customers, Matrox Graphics, Inc., Gateway,
Inc. and another customer accounted for 20%, 9% and 35%, respectively, of our
total revenues. We expect that a significant portion of our revenues will
continue to be concentrated among a relatively small number of customers for the
foreseeable future. Revenues from particular customers may vary widely from
period to period depending on the addition of new contracts and the volumes and
prices at which our licensees sell RAVISENT-enabled products to end users in any
given period.

     We sell our products primarily to personal computer and computer graphics
chip and board manufacturers and distributors in North America, Europe, and the
Pacific Rim. In the six months ended June 30, 2001 companies based in North
America accounted for a majority of our revenues. Sales outside of the United
States have been primarily through U.S. manufacturers that distribute their
products to end users overseas and contract manufacturers based in Asia.

                                       33
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

Cost of Revenues. Cost of revenues consist primarily of license fees paid to
third parties for technologies incorporated into our products, including Dolby
Digital technology, hardware components sold to manufacturing firms, and costs
associated with the delivery of Software CineMaster. Cost of revenues increased
144% from approximately $6.0 million for the six months ended June 30, 2000 to
$14.6 million for the six months ended June 30, 2001, due principally to a
charge for inventory reserves of approximately $13.4 million recorded for the
six months ended June 30, 2001. The reserves recorded were for components, of
approximately $10.2 million, and approximately $3.2 million for Internet set-top
boxes. The reserves were determined based on various factors including current
market prices, industry conditions, alternative uses and distribution channels
and manufacturers' warranties.

     Excluding the charges for reserves, cost of revenues decreased 80% from
$6.0 million for the six months ended June 30, 2000 to $1.2 million for the six
months ended June 30, 2001. The decrease is due to lower total revenues,
partially offset by an increase in the per-unit cost of license fees for
technologies incorporated into our products.

Gross Profit. Gross profit decreased from $4.6 million for the six months ended
June 30, 2000 to $(11.0) million for the six months ended June 30, 2001,
primarily due to a charge for inventory reserves of approximately $13.4 million,
partially offset by an increase in the proportion of license and services
revenue to total revenues in the six months ended June 30, 2001 as compared the
six months ended June 30, 2000. Excluding the inventory charge, gross profit
decreased from $4.6 million to $2.4 million due to lower revenues. For the six
months ended June 30, 2001, 95% of our total revenues were derived from license
and services revenue, in comparison to 59% for the comparable six months in
2000. The gross profit percentage for license and services revenue is much
higher than that from hardware sales. As a percentage of total revenues, gross
profit, excluding the charges recorded for inventory reserves, increased from
43% for the six months ended June 30, 2000 to 67% for the six months ended June
30, 2001, primarily as a result of a higher proportion of license revenues
offset by an increase in the per-unit cost of license fees for technologies
incorporated into our products.

Other Research and Development Expenses. Other research and development expenses
consist primarily of engineering and related costs associated with the
development of new products, customization of existing products for customers,
quality assurance and testing. Research and development expenses decreased 33%,
from $5.1 million for the six months ended June 30, 2000, to $3.4 million for
the six months ended June 30, 2001. As a percentage of total revenues, research
and development expenses increased from 48% to 95%. The decrease in research and
development expenses in absolute dollars was due primarily to the sales of the
consumer electronics and Internet appliance businesses described above. The
increase in research and development expenses as a percentage of total revenues
resulted primarily from lower revenues. While we expect research and
development expenses to increase once the acquisition of eMation is completed in
the fourth quarter of 2001, overall we expect research and development expenses
to decrease in


                                       34
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

2001 compared to 2000 due to the sales of our consumer electronics and Internet
appliance businesses in March 2001.

Non-cash Research and Development Expense. Non-cash research and development
expense relates to both compensation related to stock options and
acquisition-related stock compensation. Non-cash research and development
expense increased 1,044% from $0.2 million for the six months ended June 30,
2000 to $1.9 million for the six months ended June 30, 2001. The increase over
the prior year is due primarily to the immediate recognition of the prepaid and
deferred stock compensation related to reductions in staffing in connection with
the closing of our Vancouver office in March 2001.

Other Selling and Marketing Expense. Other selling and marketing expenses
consist primarily of salaries, travel expenses and costs associated with trade
shows, advertising and other marketing efforts, as well as technical support
costs. Sales and marketing expenses decreased 3% from $4.5 million for the six
months ended June 30, 2000 to $4.3 million for the six months ended June 30,
2001. As a percentage of total revenues, sales and marketing expenses increased
from 43% to 120%. Included in other selling and marketing expense for the six
months ended June 30, 2001 is a charge for approximately $1.8 million related to
the settlement of our American Trading S.A. distribution rights agreement.
Excluding this item, sales and marketing expense for the six months would have
decreased $2.0 million or 44% compared to the comparable period of the prior
year. The increase in other selling and marketing expenses as a percentage of
total revenues resulted primarily from lower revenues. While we expect sales and
marketing expenses to increase once the acquisition of eMation Ltd. is completed
in the fourth quarter of 2001, overall we expect sales and marketing expenses to
decrease in 2001 compared to 2000 as our consumer electronics and Internet
appliance businesses were sold in March 2001 and other staff reductions have
occurred.

Non-cash Selling and Marketing Expense. Non-cash selling and marketing expense
relates to compensation related to stock options. Non-cash sales and marketing
expense decreased 86% from $0.5 million for the six months ended June 30, 2000
to $0.1 million for the six months ended June 30, 2001. The decrease is
primarily attributed to a one-time charge of $0.3 million for the modification
of stock options held by a former employee. Stock options granted to employees
at less than fair market value are recorded as deferred compensation expense and
amortized over the applicable vesting periods of two to four years.


Other General and Administrative Expenses. Other general and administrative
expenses consist primarily of personnel and support costs for our finance, human
resources, information systems and other management departments. General and
administrative expenses decreased 18% from $5.7 million for the six months ended
June 30, 2000 to $4.7 million for the six months ended June 30, 2001. As a
percentage of total revenues, general and administrative expenses increased from
54% to 129%. In absolute dollars, the decrease in general and administrative
expense was due to reimbursements and expense reclassifications arising from
third-party recoveries related to our class action litigation, in which we are a
defendant, as well as capitalized costs in connection with the acquisition of
eMation. Additionally, for the six months ended June 30, 2001, decreases in
recruiting expenses were offset by increases for uncollectible accounts
associated with the Internet appliance business sold in March 2001. Other
general and administrative expenses increased as a percentage of total revenues
primarily due to the decrease in total revenues. While we expect other general
and administrative expenses to increase once the acquisition of eMation is
completed in the fourth quarter of 2001, overall we expect general and
asministrative expenses to decrease in 2001 compared to 2000 as our consumer
electronics and Internet appliance businesses were sold in March 2001 and other
staff reductions have occurred.

                                       35
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

     Non-cash General and Administrative Expense. Non-cash general and
administrative expense relates primarily to amortization of compensation related
to stock options. Non-cash general and administrative expense increased 17% from
$96,000 for the six months ended June 30, 2000 to $112,000 for the six months
ended June 30, 2001. The increase is primarily the result of amortization of
deferred compensation recorded in connection with stock options granted to
employees at less than fair market value on the date of grant in May and June
2000.

     Depreciation and Amortization. We recorded depreciation and amortization of
$2.1 million for the six months ended June 30, 2001, compared to $2.7 million
for the six months ended June 30, 2000. The decrease primarily relates to the
decrease in amortization of goodwill associated with the sale in March 2001 of
our consumer electronics business and our Internet appliance business. These
decreases are offset by an increase in amortization expense for the amortization
of the goodwill recorded as part of the acquisition of Cinax Designs in August
2000, including an impairment charge for the workforce in place intangible asset
associated with the closing of our Vancouver office in March 2001. See
"Acquired In-Process Research and Development Expense."


Other (Income) and Expense

     As a result of the sale of the assets related to our consumer electronics
business completed as of March 1, 2001, we recorded a gain on this sale of
approximately $47.5 million for the six months ended June 30, 2001.

     As a result of the sale of assets related to our Internet appliance
business completed as of March 23, 2001, we recorded a gain on this sale of
approximately $4.5 million for the six months ended June 30, 2001.

     Interest (Income) and Expense, Net. Net interest income decreased by $0.2
million, or 14%, for the six months ended June 30, 2001 compared to the
comparable period in 2000. The decrease is the result of lower average cash on
hand for the six-month period in 2001 than in 2000, combined with lower bank
interest rates in 2001 than in 2000.

Acquired In-Process Research and Development


     In August 2000, we completed the acquisition of Cinax Designs Inc. The
acquisition of Cinax was recorded under the purchase method of accounting. A
portion of the purchase price was allocated to in-process research and
development, which resulted in a charge of $1.4 million to our operations in
August 2000. As of the acquisition date, Cinax was conducting ongoing research
and development into new products in the form of two projects, including
enhancements to the existing products previously developed by Cinax. At the date
of acquisition, these projects had not reached technological feasibility and
there was no alternative future use for them. The two research and development
projects included:

     WinVCR version 2. This product enables computer users to record real-time
     MPEG video straight to their hard drives. The current upgrade includes a
     substantial amount of new features such as better programmability as well
     as faster, embedded encoding capabilities with MPEG-2. At the time of
     acquisition, this development project was approximately 75% complete.

     MediaLock. This product is designed for rights management of video
     distribution over digital networks. This product is expected to allow
     content producers to easily protect


                                       36
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

     their copyrights prior to distribution with its frame scrambling, playtime
     decryption and unique password system capabilities. At the time of
     acquisition, this development project was approximately 50% complete.

     In November 1999, we completed the acquisition of Teknema, Inc. The
acquisition of Teknema was recorded under the purchase method of accounting. A
portion of the purchase price was allocated to in-process research and
development technology, which resulted in a charge of $1.9 million to our
operations in November 1999. The in-process research and development technology
was valued using the cash flow model, under which projected income and expenses
attributable to the purchased technology were identified, and potential income
streams were discounted using a 20%-30% discount rate for risks, probabilities
and uncertainties, including the stage of development of the technology,
viability of target markets, and other factors.

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

     In March 2001, we sold all of the intellectual property that we acquired
from Teknema to Phoenix Technologies as part of the sale of our Internet
appliance business as described above. The remaining unamortized book value of
the goodwill recorded in connection with the acquisition of Teknema, which was
being amortized over its estimated useful life of four years, is included in the
net gain on the sale of assets.

     In April 1998, we completed the acquisition of Viona, a company
specializing in the development of digital video technology. We paid $6.1
million in cash, of which $2.6 million was paid at closing, $2.1 million was
paid during 1999, and $1.4 million was paid in equal installments at the end of
the next three fiscal years. In addition, we issued 1,204,820 shares of our
common stock then valued at $4.8 million and incurred transaction costs of $0.8
million. For accounting purposes, payments due in future periods were
discounted. In January 2001 the final installment was paid.

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

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

     In March 2001, we sold and transferred to STMicroelectronics intellectual
property that we used in the consumer electronics business that we acquired from
VIONA. The remaining unamortized book value of the goodwill recorded in
connection with the acquisition of Viona,



                                       37
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

which was being amortized over its estimated useful life of four years, and, the
net book value of all of Viona's furniture and equipment is included in the net
gain on the sale of assets.


LIQUIDITY AND CAPITAL RESOURCES


     Since inception, we have financed our operations primarily through the
issuance and sale of debt and equity securities to investors including our
initial public offering which was completed July 16, 1999. As of June 30, 2001
we had approximately $62.9 million in cash and cash equivalents, including $1.8
million of the proceeds from the sale of our Internet appliance business in
March 2001, which is held in escrow by a third party for indemnification
purposes. Included in other assets is $0.8 million of the proceeds from the sale
of our consumer electronics business, which is held in escrow by a third party
for indemnification purposes until September 2002.

     Net cash used in operating activities for the six months ended June 30,
2001 was $15.9 million, compared to net cash used in operating activities of
$9.1 million for the six months ended June 30, 2000. Cash used in operating
activities for this period was primarily the result of net income, adjusted for
non-recurring gains, non-cash compensation expense and payments to vendors.

                                       38
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

     Net cash provided by investing activities for the six months ended June 30,
2001 was $67.8 million, compared to net cash used in investing activities of
$1.6 million for the six months ended June 30, 2000. Cash provided by investing
activities for the six months ended June 30, 2001 consisted primarily of the net
proceeds from the sales of assets related to our consumer electronics and
Internet appliance businesses. Cash used in investing activities for the six
months ended June 30, 2000 consisted primarily of net purchases of furniture and
equipment.

     Net cash provided by financing activities of $1.5 million for the six
months ended June 30, 2001 was attributable to the net proceeds received from
the exercise of stock options. Net cash provided by financing activities of $0.5
million for the six months ended June 30, 2000 was attributable to the net
proceeds received from the exercise of stock options and payment of a stock
subscription receivable, offset by repayments of other liabilities.

     As of June 30, 2001, our principal commitments consisted of obligations
outstanding under equipment leases. The equipment leasing arrangements consist
primarily of paying rental fees to third party leasing providers at interest
rates between 8% to 18% that maintain title to the leased equipment. In most
cases, there are no obligations for us to purchase the equipment at the end of
the term. Although we have no material commitments for capital expenditures, we
anticipate minimal increases in our capital expenditures as our needs in
operations, infrastructure and personnel arise.

     As of June 30, 2001, we had a $5 million line of credit with Silicon Valley
Bank. Under the terms of the line of credit, borrowings are subject to a
percentage of "eligible" accounts receivable, as defined in the loan and
security agreement, and bear interest at the bank's prime rate (6.75% at June
30, 2001). In addition, we must:

          o    maintain a tangible net worth as defined in the loan and security
               agreement, of at least $40 million;

          o    maintain a quick ratio, excluding deferred revenue, of at least
               2.0 to 1.0;

          o    supply Silicon Valley Bank within 45 days after the end of each
               quarter, quarterly, unaudited financial statements and compliance
               certificates.

     At June 30, 2001, no borrowings against this line of credit were
outstanding and $1 million was available under the line of credit. As of June
30, 2001 we were in compliance with all financial covenants to the bank. The
line of credit matured in June 2001, but was extended by the bank until
September 2001, and bears interest at the bank's prime rate (6.75% at June 30,
2001). Silicon Valley Bank has a senior security interest in substantially all
of our assets.

     In connection with the agreement to acquire all of the issued share capital
of eMation Ltd., we have agreed to provide up to $2.5 million of interim
financing to fund operating expenses until closing of the eMation acquisition,
which is expected to occur during the fourth quarter of 2001.

     In March 2001, we completed the sale of our consumer electronics business
to STMicroelectronics, NV, a Dutch corporation, STMicroelectronics, Inc., a
Delaware corporation and STMicroelectronics GmbH and received approximately
$55.6 million in cash consideration,



                                       39
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

of which $0.8 million is being held by a third party in escrow for
indemnification purposes until September 2002.

     In March 2001, we sold the assets of our Internet appliance business,
excluding inventory, to Phoenix Technologies Ltd. for $18 million in cash
consideration, of which $1.8 million is being held in escrow by a third party
until March 2002 for indemnification purposes.

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


Recent Accounting Pronouncements


     In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, Business Combinations, and Statement SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001 as well as
all purchase method business combinations completed after June 30, 2001. SFAS
No. 141 also specifies criteria intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce may
not be accounted for separately. SFAS No. 142, which is effective January 1,
2002, will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 will
also require that intangible assets with definitive useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

     Excluding the proposed acquisition of eMation, as of the date of adoption,
we expect to have unamortized goodwill in the amount of approximately $1.8
million, and unamortized identifiable intangible assets in the amount of
approximately $0.9 million, all of which will be subject to the transition
provisions of SFAS Nos. 141 and 142. Amortization expense related to goodwill
was $5.2 million and $1.7 million for the year ended December 31, 2000 and the
six months ended June 30, 2001, respectively. Because of the extensive effort
needed to comply with adopting SFAS Nos. 141 and 142, it is not practicable to
reasonably estimate the impact of adopting these Statements in our financial
statements at the date of this filing.

                                       40
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

ITEM 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

RISKS RELATED TO RAVISENT


We are currently undergoing a business transition that may adversely affect our
company

     In March 2001, we announced the sale of our consumer electronics business
and our Internet appliance business and that we were seeking strategic
alternatives for our company. The strategic alternative we have chosen is the
acquisition of eMation. Although we believe that the acquisition of eMation is
in the best interests of our stockholders, this acquisition may increase our
costs as we proceed to modify our business plan and operations.

     As part of the sale of our consumer electronics and Internet appliance
businesses, approximately 89 of our employees accepted employment with either
STMicroelectronics or Phoenix Technologies. These employees were dedicated
primarily to research and development activities in the digital media market.
The reduction in our research and development workforce has adversely affected
our ability to offer new products in the digital media market. The reduction in
our sales force has also adversely affected our ability to sell our products.

     These strategic transactions may negatively impact relationships with our
partners, distributors and customers. There can be no guarantees that we can
maintain or re-establish such relationships or develop new customer, partner and
distributor relationships in a timely manner, or at all, to overcome any loss of
business resulting from our business transition. As a result of this business
transition, it will be difficult to forecast our financial performance. We
expect that both sales and operating income will be adversely affected and we
expect to report operating losses in fiscal 2001.


We currently have a limited product offering and may not have a diversified
business if the acquisition of eMation is not completed

     Due to the disposition of our consumer electronics business and our
Internet appliance business, we currently have a limited offering of products
that can be used only in personal computers. Pursuant to the terms of our
agreement with STMicroelectronics, we may not participate in significant aspects
of the consumer electronics market prior to March 2006. As a result, we are
subject to economic pressures within a limited industry, which may result in a
material adverse effect on our business and financial condition.

                                       41
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

We have a limited operating history and our historical financial information is
of limited value in projecting our future operating results or evaluating our
operating history

     As a result of our relatively brief operating history and because our
business model has changed significantly since inception and will change further
with the acquisition of eMation, we believe that comparing different periods of
our operating results is not meaningful and you should not rely on the results
for any period as an indication of our future performance. In addition,
fluctuations in our operating results have caused, and may in the future
continue to cause us to perform below the expectations of public market analysts
and investors. If our results continue to fall below market expectations, the
price of our common stock may continue to fall significantly. Our limited
operating results have varied widely in the past, and we expect that they will
continue to vary significantly from quarter-to-quarter as we attempt to
establish our products in the market and transition to a new business model.

You should expect our quarterly operating results to fluctuate in future periods
and they may fail to meet the expectations of securities analysts or investors,
which could cause our stock price to decline

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

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

      o    the timing of sales of our products and services and the timing
           of new releases of personal computer systems and semiconductors
           that incorporate our products;

      o    delays in introducing our products and services;

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

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

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

      o    changes in the usage of digital media;

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

      o    new product introductions by competitors;

      o    the mix of license and service hardware revenues;

      o    unanticipated customer demands which impact on our ability to
           deliver our products and ultimately recognize revenues;

      o    the mix of domestic and international sales;


                                       42
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

      o    costs related to the acquisition of technologies or businesses,
           including, but not limited to, the eMation acquisition;

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

      o    our ability to expand our operations; and

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

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

     We determine our operating expenses largely on the basis of anticipated
revenue trends and a high percentage of our expenses are fixed in the short term
and are significant. As a result, any delay in generating or recognizing
revenues could cause significant variations in our operating results from
quarter-to-quarter and could result in substantial operating losses.

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

We face inventory risks that may be increased by our business shift away from
the Internet appliance business.

     During the quarter ending, June 30, 2001, we recorded an inventory charge
of $13.4 million. As of June 30, 2001, we have approximately $8.3 million of
inventory, the majority of which was acquired from May through October 2000 to
support production of our Internet appliance hardware designs. This inventory
was purchased to accommodate long lead times for components in order to meet the
anticipated demand for our Internet appliance products (the Internet screen
phone, set-top box, and Nucleo platform). The sale of our Internet appliance
business included the assignment of our Internet appliance customer contracts,
but not the inventory to support production of the associated products. While we
have obtained assurances that we will be the preferred supplier of inventory to
Phoenix Technologies for these products, we may not be able to sell all of the
inventory that we currently have. Furthermore, even if our efforts to sell this
inventory are successful, we may not be able to recover the full cost of the
inventory due to market price fluctuations and other market conditions.

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

                                       43
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

     We had a net loss from operations of approximately $27.5 million for the
six months ended June 30, 2001. To date, we have not achieved profitability on
an annual basis and revenues from our software and hardware design solutions may
not result in sufficient revenues to sustain profitability in any future period.
In addition, we cannot be certain that we can increase profitability,
particularly to the extent that we face price competition. As a result, we will
need to generate significant revenues to attain profitability. Increasing
competition may cause our prices to decline, which would harm our operating
results. We expect our prices for our digital entertainment products to decline
over the next few years. We expect to face increased competition in markets
where we license our digital entertainment products, which will make it more
difficult to maintain our prices and profit margins even if our sales volumes
increase. If anticipated increases in sales volume do not keep pace with
anticipated pricing pressures, our revenues would decline and our business could
be harmed. Despite our efforts to introduce enhancements to our products, we may
not be successful in maintaining our pricing.

Our business significantly depends upon our CineMaster products, and it is
uncertain whether the market will continue to accept these products

     In the six month period ending June 30, 2001, we derived approximately 95%
of our license revenues from sales of our CineMaster products. We expect that
license revenue from our CineMaster products will continue to account for a
significant portion of our revenues for the foreseeable future. In particular,
our business will be harmed if our existing manufacturing customers do not
continue to incorporate our CineMaster products or if we are unable to obtain
new customers for our CineMaster products. In seeking market acceptance, it may
be difficult for our digital solutions to displace incumbent solutions employed
by manufacturers not currently licensing our CineMaster products. Manufacturers
that are using other solutions would need to invest in additional training and
development tools and convert software for existing hardware solutions in order
to change to a new digital solution. Accordingly, potential customers may not
accept our digital solutions, which could limit our growth opportunities and
harm our prospects.

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

     A substantial portion of our license revenue comes from a small number of
customers. In the six months ending June 30, 2001, three customers Matrox
Graphics, Gateway, Inc. and another customer, accounted for 20%, 9% and 35%,
respectively, of our total revenues and 9%, 6% and 52%, respectively, of our
total gross profit, excluding inventory charges of $13.4 million. We expect a
relatively small number of customers to account for a majority of our revenues
and gross profit, if any, for the foreseeable future. The loss of any of these
or other primary customers, or a material decrease in revenues from these
customers, would immediately harm our business. As a result of the sales of our
consumer electronics and Internet appliance businesses, we transferred
substantially all of our customers from our consumer electronics business,
including Microsoft Corporation, Funai Electric Co., Ltd., and Cyber Home
Entertainment to STMicroelectronics and a portion of our Internet appliance
customers to Phoenix Technologies.

Since most of our revenues are derived from a small number of customers,
problems those customers experience will directly impact our business

     As a result of our concentrated customer base, problems that our customers
experience could materially harm our business. These risks are beyond our
control. For example, because we do not control the business practices of our
customers, we do not influence the degree to which they promote our


                                       44
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

technology or set the prices at which the products incorporating our technology
are sold to end users. Risks that may influence the success or failure of the
personal computer manufacturers that are our customers include:

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

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

      o    the financial and other resources of the manufacturer;

      o    new governmental regulations or changes in taxes or tariffs
           applicable to the manufacturer; and

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

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

     Since our customers have not executed long-term contracts with us, our
revenues could decline significantly with little or no notice.

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

We depend upon technology licensed from third parties, and if we do not maintain
these license arrangements, we will not be able to ship many of our products and
our business will be seriously harmed

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


                                       45
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

we would not be able to ship products for the DVD market, and we would
accordingly lose a substantial portion of our revenues.

The loss of any of our strategic relationships would make it more difficult to
keep pace with evolving industry standards and to design products that appeal to
the marketplace

     We rely on strategic relationships, such as those with ATI Technologies
Inc., Intel Corporation and STMicroelectronics to provide us with state of the
art technology, assist us in integrating our products with leading industry
applications and help us make use of economies of scale in manufacturing and
distribution. Through our relationships with our strategic partners, we gain
valuable insights on evolving industry standards and trends. However, we do not
have written agreements with any of our strategic partners that could ensure
these relationships will continue for a significant period of time. All of our
agreements with these partners are informal, and may be terminated by them at
any time. The loss of any one of these relationships could harm our business.

Delays in providing our products to our customers may affect how much business
we receive

     Since the product life cycle in the personal computer industry can be as
short as six to twelve months or less, if our product development efforts are
not successful or are significantly delayed, our business will be harmed. In the
past, we have failed to deliver new products, upgrades or customizations on
time, including customization projects for DVD products that are requested from
time to time by our customers. In the future, our efforts to remedy this
situation may not be successful and we may lose customers as a result. Delays in
bringing to market new products, enhancements to old products or interfaces
between existing products and new models of personal computers could be
exploited by our competitors. If we were to lose market share as a result of
lapses in our product management, our business would be harmed.

Our business model depends upon licensing our intellectual property, and if we
fail to protect our proprietary rights, our business could be harmed

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

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

     We regard the protection of patentable inventions as important to our
business. We currently have four U.S. patent applications pending relating to
our digital video stream management technology. We co-own with
STMicroelectronics two additional patent applications and we have one pending
application under the Patent Cooperation Treaty ("PCT") based on several of the
above-mentioned U.S. patent applications. However, none of our technology is
patented outside the United States. It is possible that:

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

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


                                       46
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

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

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

     o    effective patent protection, if any, may not be available in every
          country in which we do business.

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

         We rely on a combination of laws, such as copyright, trademark and
trade secret laws, and contractual restrictions, such as confidentiality
agreements and licenses, to establish and protect our proprietary rights. We
currently have two pending trademark applications for the marks "RAVISENT" and
"RAVISENT Technologies". We also have an issued U.S. trademark for the mark
"CineMaster," and have a number of pending trademark applications for "RAVISENT"
in foreign countries. Moreover, despite any precautions which we have taken:

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

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

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

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

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

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

We may become involved in costly and time-consuming litigation over proprietary
rights

     Substantial litigation regarding intellectual property rights exists in our
industry. We expect that software and hardware in our industry may be
increasingly subject to third party infringement claims as the number of
competitors grows and the functionality of products in different areas of the
industry overlap. Third parties may currently have, or may eventually be issued,
patents that would be infringed by our products or technology. We cannot be
certain that




                                       47
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

any of these third parties will not make a claim of infringement against us with
respect to our products and technology.

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

We have received notices of claims that may result in litigation

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

     o    Our digital video stream management solutions comply with industry DVD
          specifications, which incorporates technology known as MPEG-2 that
          governs the process of storing a video input in digital form. We have
          received notice from two of our largest customers that a third party
          with a history of litigating its proprietary rights and which has
          substantial financial resources has alleged that aspects of MPEG-2
          technology infringe upon patents held by the third party. These
          customers may in the future seek compensation or indemnification from
          us arising out of the third party claims and we may be required to
          agree to indemnify them to secure future business or otherwise.
          Moreover, we may be required to pay license fees in connection with
          the use of the third party's technology in the future.

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

     o    Another group of companies has formed a consortium known as "6C"
          (formerly DVD Patent License Program) to enforce the proprietary
          rights of other holders of patents covering essential aspects of DVD
          technology that are incorporated into our products. 6C has notified
          us, as well as a number of computer manufacturers and other companies
          manufacturing or licensing DVD-related products, including our
          customers, that patents owned by members of the consortium are
          infringed by products that incorporate the DVD technology. 6C has
          requested that these personal computer manufacturers pay license fees
          for using the 6C patents. We may be



                                       48
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

          required to pay license fees in connection with the use of such DVD
          technology in our products in the future as a result of such claims.
          Further, a court could determine that we infringe any such patents and
          we would be liable for resulting damages. In addition, our customers
          who have been contacted by the 6C may in the future seek compensation
          or indemnification from us arising out of the 6C claims, and we may be
          required to pay license fees on their behalf in connection with the
          use of such DVD technology in the future.

     o    A third party has asserted that the parental control features of our
          CineMaster products infringe patents held by the third party. A court
          could determine that such parental control features do infringe these
          patents and we could be liable for resulting damages. In addition, our
          customers could seek compensation or indemnification from us arising
          out of such third party's claims.

     o    Another consortium of companies, commonly known as "3C", notified a
          number of DVD product manufacturers that the members of the consortium
          hold patents that are essential to DVD technology, and have requested
          that such companies pay license royalties for the use of the
          technology covered by the 3C patents. In addition, our customers may
          seek compensation or indemnification from us as a result of the 3C
          claims, and we may be required to pay license fees on their behalf in
          connection with the use of such DVD technology in the future. 3C
          members may in the future seek compensation or indemnification from us
          arising out of the consortium's claims.

     o    A letter dated September 12, 2000 from a third party to one of our
          customers who distributes our product claims infringement of a
          Japanese utility model patent regarding Internet terminal which can be
          coupled to a television set. This third party is seeking a license
          agreement as a resolution. We have requested more time to respond and
          are accumulating prior art to invalidate the utility model patent.


     o    A third party has asserted that some of our digital media products
          infringe one or more of such third party's patents in the field of
          "all format decoders". The third party has stated that it was prepared
          to license the relevant patents to us on favorable terms. We are
          currently in discussions with such third party. The third party may
          seek compensation from us related to this matter. We do not know if
          this party has contacted any of our customers regarding this matter.
          If so, our customers may in the future seek compensation or
          indemnification from us arising out of the third party's claims. No
          claim for such payments has been made to date. We have not determined
          whether and to what extent that the patents held by the third party
          are valid and whether and to what extent our products are covered by
          their patents.


                                       49
<PAGE>

                           RAVISENT TECHNOLOGIES INC.


We may not be able to successfully make acquisitions of or investments in other
companies

     We have very limited experience in acquiring or making investments in
companies, technologies or services. From time to time we have had discussions
with companies regarding our acquiring, or investing in, their businesses,
products or services. In the future, we may make acquisitions or investments in
other companies, products or technologies. Acquisitions in our industry are
particularly difficult to assess because of the rapidly changing technological
standards in our industry. If we make any acquisitions, we will be required to
assimilate the personnel, operations and products of the acquired businesses and
train, retain and motivate key personnel from the acquired businesses. However,
the key personnel of the acquired company may decide not to work for us.
Moreover, acquisitions may cause disruptions in our operations and divert
management's attention away from day-to-day operations, which could impair our
relationships with our current employees, customers and strategic partners. We
may be unable to maintain uniform standards, controls, procedures and policies
if we fail in our efforts to assimilate acquired businesses, which could result
in a material adverse effect on our business.

We are dependent upon our key management for our future success, and few of our
managers are obligated to stay with us

     Our success depends on the efforts and abilities of our senior management
and certain other key personnel. Many of our key employees are employed at will.
If any of these or other key employees left or was seriously injured and unable
to work and we were unable to find a qualified replacement, then our business
could be harmed. We have recently hired new managers and may hire key management
personnel as needed. We may not be able to successfully assimilate our recently
hired managers or to hire qualified key management personnel to replace them.

We may not be able to hire and retain qualified employees, which would impair
our ability to grow

     As a result of our asset sales to STMicroelectronics and Phoenix
Technologies, our workforce has been reduced by approximately 89 employees,
including 70 employees in our research and development department and 9
employees in our sales and marketing department. Although our need for employees
has been reduced as a result of the disposition of our consumer electronics
business and our Internet appliance business, we have vacancies in several
positions in our research and development group. Competition for these
individuals is intense, and we may not be able to attract, assimilate or retain
additional highly qualified personnel in the future. Hiring qualified personnel,
particularly sales, marketing, engineering and product management personnel, is
very competitive in our industry due to the limited number of people available
with the necessary technical skills and understanding of the digital video and
audio stream management industry. In addition, we are headquartered in Malvern,
Pennsylvania and we maintain operations in San Jose, California. We have in the
past and expect in the future to face


                                       50
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

difficulties locating qualified personnel in these locations. We have had, and
expect to continue having greater difficulty attracting such personnel with
equity incentives as a public company than we did as a privately held company.

We may be subject to product returns, product liability claims and reduced sales
because of defects in our products

     Our products are very complex and frequently contain undetected errors. The
likelihood of errors is higher when a new product is introduced or when new
versions or enhancements are released. Errors may also arise as a result of
defects in the products into which our products are incorporated. Despite our
extensive quality assurance process, we have in the past shipped product
releases with some defects, and have discovered other errors in our products
after their commercial shipment. Despite our quality assurance process and that
of our customers, defects and errors may be found in new products or in new
versions or enhancements of existing products after commercial shipment has
begun. We may be required to devote significant financial resources and
personnel to correct any defects. Known or unknown errors or defects that affect
the operation of our products could result in the following, any of which could
harm our business:

     o    delay or loss of revenues;

     o    cancellation of customer contracts;

     o    diversion of development resources;

     o    damage to our reputation;

     o    failure of our products to achieve market acceptance;

     o    increased service and warranty costs; and

     o    litigation costs.

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

Our business is subject to risks from international operations such as legal
uncertainty, tariffs and trade barriers and political and economic instability

     In the quarter ended June 30, 2001, we derived approximately 67% of our
revenues from sales to foreign companies, and we may derive an increasing amount
of our revenues from sales outside North America in the future. We have limited
experience in marketing and distributing our products internationally. In
addition, there are many risks inherent in doing business internationally
including, among others:

     o    legal uncertainty regarding liability;

     o    tariffs, trade barriers and other regulatory barriers;

                                       51
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

     o    problems in collecting accounts receivable;

     o    political and economic instability;

     o    changes in diplomatic and trade relationships;

     o    seasonal reductions in business activity;

     o    potentially adverse tax consequences;

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

     o    complexity and unexpected changes in local laws and regulations.

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

It may be difficult to raise needed capital in the future, which could
significantly harm our business

     We may require substantial additional capital to finance our future growth
and fund our ongoing research and development activities beyond 2001. Our
capital requirements will depend on many factors, including:

     o    the results of our search for strategic alternatives;

     o    acceptance of and demand for our products;

     o    the number and timing of acquisitions;

     o    the costs of developing new products;

     o    the costs associated with our expansion; and

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

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


                                       52
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

Because of their significant stock ownership, our officers and directors can
exert significant control over our future direction

     Our officers, directors and entities affiliated with them, in the
aggregate, beneficially own approximately 2.5 million shares, or 14% of our
outstanding common stock. These stockholders, if acting together, would be able
to significantly influence all matters requiring approval by our stockholders,
including the election of directors, the approval of mergers or other business
combination transactions or a sale of all or substantially all of our assets.

Certain provisions of our certificate of incorporation and by-laws make changes
of control difficult even if they would be beneficial to shareholders

     The board of directors has the authority without any further vote or action
on the part of the stockholders to issue up to 5,000,000 shares of preferred
stock and to determine the price, rights, preferences, privileges and
restrictions of the preferred stock. This preferred stock, if it is ever issued,
may have preference over and harm the rights of the holders of common stock.
Although the issuance of this preferred stock will provide us with flexibility
in connection with possible acquisitions and other corporate purposes, this
issuance may make it more difficult for a third party to acquire a majority of
our outstanding voting stock. We currently have no plans to issue preferred
stock.

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

Our revenues are dependent upon acceptance of products that incorporate our
digital entertainment technology only in the personal computer industry

We rely on the personal computer industry, which has risks and uncertainties
that are beyond our control.

     The personal computer industry is presently the only market for our digital
entertainment solutions. In addition, we are subject to a non-competition
agreement with STMicroelectronics pursuant to which we have agreed to not
compete in significant aspects of the consumer electronics market until March
2006. As a result, our results of operations will depend almost entirely on
consumer acceptance of the personal computer. Our dependence on these industries
involves several risks and uncertainties, including:

     o    whether semiconductor manufacturers developing silicon devices for
          personal computer manufacturers will design our digital solutions into
          their devices and successfully introduce these devices;

     o    changes in consumer requirements and preferences for personal
          computers;

     o    the small number of product manufacturers in the personal computer
          industry and the short product life cycles which can be six months or
          less; and

                                       53
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

     o    the difficulty in predicting the level of consumer interest in and
          acceptance of many digital product applications employing our products
          that employ our technology.


     Any general economic, business or industry conditions that cause customers
or potential customers to reduce or delay their investments in personal computer
systems could have a negative effect on our strength and profitability. For
example, a softening of demand for computer systems may result in decreased
revenues (or at least declining revenue growth rates) for computer manufacturers
in general which could have a corresponding negative impact on our sales. In
turn, a decrease in our sales could result in pricing pressures for our
products, which could have a negative effect on our revenues and profitability.
Recently, personal computer manufacturers have experienced a slowdown in sales
of personal computers, which may result in a material adverse affect on the
sales of our products.

We are subject to a non-competition agreement prohibiting us from selling
products in significant aspects of the consumer electronics market

     Our agreement with STMicroelectronics, pursuant to which we sold our
consumer electronics market, provides that we may not compete in significant
aspects of the consumer electronics business until March 2006. Traditional
consumer electronics manufacturers have introduced stand-alone Internet access
devices for the television. Recently, personal computer manufacturers have
announced major initiatives in providing their own versions of stand-alone
Internet devices in an effort to combat the consumer electronic manufacturers
initiatives. An increase in the demand for certain consumer electronics products
may result in a corresponding decrease in the demand for personal computer
products employing our technology which may have a material adverse effect on
our business and financial condition.

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

     Our success currently depends upon continued demand for digital
entertainment products in the personal computer market. All of our revenues in
1998 and 1999 resulted from sales of digital entertainment products. In 2000 a
significant portion of our revenues was derived from sales of digital
entertainment products. In addition to the risks inherent in the personal
computer industry, the market for digital entertainment products also contains
risk and uncertainties, including:

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

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

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

Competition in our markets is likely to continue to increase and could harm our
business


                                       54
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

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

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

If we fail to manage technological change, respond to evolving industry
standards or enhance our products' interoperability with the products of our
customers, demand for our products will decrease and our business will suffer

     Future versions of software and hardware platforms employing new
technologies or the emergence of new industry standards could render our
products obsolete or uncompetitive. The market for digital video and audio
solutions is characterized by rapid technological change and evolving industry
standards, such as standards for DVD audio, DVD random access memory and DTV as
well as other digital entertainment applications. If we fail to respond to
evolving industry standards, our products could rapidly become obsolete, which
would harm our business. If the characteristics of our digital solutions are not
compatible with the requirements of specific



                                       55
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

system or program applications, the likelihood that our customers will design
our products into their systems and devices will decrease and our business will
be harmed.

We may not be able to respond to rapidly changing consumer preferences

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

     o    the difficulty of anticipating and responding in a timely manner to
          the latest consumer trends and requirements;

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

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

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

We face risks from the uncertainties of any future governmental regulation

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

     o    pricing;

     o    content;

     o    copyrights;

     o    export controls (particularly regarding data encryption);

     o    distribution; and

     o    characteristics and quality of products and services.

     The growth and development of the digital media market may prompt calls for
more stringent consumer protection laws that may impose additional burdens on
those companies

                                       56
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

conducting business in this segment. The adoption of any additional laws or
regulations may decrease the expansion of this market and harm our business. Our
business could be harmed by any new legislation or regulation, the application
of laws and regulations from jurisdictions whose laws do not currently apply to
our business, or the application of existing laws and regulations to the digital
media market.












                                       57
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

PART II: OTHER INFORMATION

Item 1: LEGAL PROCEEDINGS

Legal Proceedings

     On or about August 10, 2000 Corum Group, Ltd. filed an action against us
and Cinax Designs Inc. in the United States District Court for the Western
District of Washington (No. C00-132D). Corum, a business consultant, alleged
that it had an agreement with Cinax whereby Cinax would pay Corum an 8%
"transaction fee" in the event Corum located a purchaser for Cinax. We acquired
Cinax by agreement dated as of July 13, 2000 for compensation of $3.5 million in
cash and an aggregate of 825,000 shares of RAVISENT common stock and no par,
non-voting exchangeable preferred stock of Ravisent British Columbia Inc., an
indirectly owned subsidiary, which preferred stock is exchangeable, on a
one-for-one basis, into shares of RAVISENT common stock. In the complaint Corum
alleged that it introduced us to Cinax and that it is therefore entitled to
$281,362 and 66,000 shares of RAVISENT common stock. As part of our acquisition
of Cinax, the shareholders of Cinax agreed to indemnify us for 50% of any
liability stemming from the Corum claim and an aggregate of 53,500 shares of
RAVISENT common stock and non-voting exchangeable preferred stock of Ravisent
British Columbia Inc. have been placed in escrow to secure this indemnification
obligation. In April 2001 we entered into a settlement and release agreement
whereby we paid cash of $110,000 and issued 125,000 shares of our common stock,
totaling approximately $0.3 million, to Corum in full settlement of the matter
and the action has been dismissed.

     Between February and April 2000, eleven class action lawsuits were filed
against us and certain of our current and former officers and directors in the
United States District Court for the Eastern District of Pennsylvania. On May
25, 2000, the cases were consolidated under Civil Action No. 00-CV-1014, and
entitled "In re RAVISENT Technologies Inc. Securities Litigation". Pursuant to
the court's consolidation order, a consolidated and amended class action
complaint was filed on June 14, 2000 with an alleged class period of July 15,
1999 through April 27, 2000. This complaint alleges violations of the federal
securities laws, specifically Sections 11 and 15 of the Securities Act of 1933,
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5
promulgated thereunder and seek unspecified damages on behalf of a purported
class of purchasers of our stock during the period stated above. On July 3,
2000, we filed a motion to dismiss the consolidated and amended class action
complaint. The motion is presently fully briefed and the parties are awaiting a
hearing date to be set for the motion. Certain of our employees and certain
holders of 5% or more of RAVISENT common stock are members of the putative
classes alleged in these actions and therefore may have interests adverse to us
with respect to the alleged claims in these actions. We believe that such
lawsuits or claims are without merit and that we have meritorious defenses to
the actions. We plan to vigorously defend the litigation. However, failure to
successfully defend these actions could substantially harm our results of
operations, liquidity and financial condition.

     In April 2001, a third party who licenses software to us filed a
lawsuit against us in California. The dispute arose out of a contract
whereby the Company licensed software from the third party for use with the
eSurfer browser bundled with our Internet set-top box assets sold to Phoenix
Technologies Ltd. in March 2001. The third party claimed that there were fees
due and owing under the contract. We and the third party entered into a
confidential settlement agreement in July 2001 and the case has been dismissed.
The amount of the settlement was fully accrued as of June 30, 2001.





                                       58
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

     From time to time, we have received, and expect to continue to receive,
notices of claims of infringement of other parties' proprietary rights and other
claims in the ordinary course of our business. See "Risk Factors--We may become
involved in costly and time consuming litigation over proprietary rights."


Item 2:  CHANGES IN SECURITIES AND USE OF PROCEEDS

(a)  CHANGES TO SECURITIES

     None.


(b)  CHANGES TO OTHER CLASSES OF SECURITIES

     None.


(c)  RECENT SALES OF UNREGISTERED SECURITIES
     None.

(d)  USE OF PROCEEDS
     Not applicable.

(e)  DIVIDENDS

     We have never declared or paid any dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of the board of directors and will be dependent upon our
financial condition, operating results, capital requirements and such other
factors as the board of directors deems relevant. Moreover, pursuant to
agreements with our lender, we are prohibited from declaring or paying dividends
without the prior written consent of the lender. See "Management's Discussion
and Analysis of Financial Condition and Results the of Operations-Liquidity and
Capital Resources."


Item 3: DEFAULTS UPON SENIOR SECURITIES

     None.

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

     None.

Item 5. OTHER INFORMATION

     None

Item 6: Exhibits and Reports on Form 8-K

     (a) Exhibits

2.7    Share Purchase Agreement among Ravisent Technologies Inc. eMation, LTD,
and certain of the Shareholders of eMation, LTD (amended and restated as of July
27, 2001)

10.33  Employment Agreement, dated May 10, 2001 by and between RAVISENT and Ned
E. Barlas.

10.34  Employment Agreement, dated March 1, 2001 by and between RAVISENT and
Francis X. Brown III.

                                       59
<PAGE>

                           RAVISENT TECHNOLOGIES INC.

Exhibit
Number          Exhibit Title
-------         ----------------------------------------------------------------



     (b) The following reports were filed on Form 8K during this period:

         On April 9, 2001, the Company filed a Form 8K for the sale of the
         assets of its Internet appliance business to Phoenix Technologies
         Ltd., a Delaware corporation. The report contained an unaudited pro
         forma consolidated statement of operations for the year ended December
         31, 2000 to give effect to the sale of substantially all the assets
         and liabilities of the Internet appliance business as if it had
         occurred on January 1, 2000 and an unaudited pro forma consolidated
         balance sheet as of December 31, 2000 to give effect to the
         disposition as if it had occurred on such date. The unaudited pro
         forma information provided in this report also included the unaudited
         pro forma financial information included with the Company's report on
         Form 8-K filed on March 16, 2001 for the sale of the assets of its
         consumer electronics business to STMicroelectronics N.V.

        On July 6, 2001, the Company filed a Form 8K announcing that it had
        signed an agreement to acquire eMation Ltd, a company headquartered in
        Boston, MA.

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) the Securities Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Malvern,
Commonwealth of Pennsylvania on this 14th day of August 2001.

August 14, 2001

 RAVISENT TECHNOLOGIES INC.


       /s/ Thomas J. Fogarty
           -----------------
           Thomas J. Fogarty
             Senior Vice President and Chief Financial Officer






                                       60