<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

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

                  For The Quarterly Period Ended:    AUGUST 31, 2000
                                                     ---------------

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

                  For The Transition Period From _____ To _____

         Commission File Number: 0-14779
                                 -------

                                 MEDIA 100 INC.
         ---------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

<TABLE>

   <S>                                               <C>
                      DELAWARE                                           04-2532613
   ----------------------------------------------    -----------------------------------------------------
    (State or other jurisdiction of organization            (I.R.S. Employer Identification Number)
                 or incorporation)
</TABLE>

                           290 DONALD LYNCH BOULEVARD
                           MARLBOROUGH, MASSACHUSETTS
         ---------------------------------------------------------------
                    (Address of principal executive offices)

                                   01752-4748
         ---------------------------------------------------------------
                                   (Zip code)

                                 (508) 460-1600
         ---------------------------------------------------------------
              (Registrant's telephone number, including area code)



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

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

                           Indicate the number of shares outstanding of each of
               the issuer's classes of common stock, as of the latest
               practicable date.

<TABLE>
         <S>                                               <C>
         Common Stock, par value $.01 per share                            12,144,891 shares
         --------------------------------------            --------------------------------------------
                         Class                                   Outstanding at September 30, 2000
</TABLE>


<PAGE>


                                 MEDIA 100 INC.


                                      INDEX
<TABLE>
<CAPTION>
                                                                                                   PAGE
PART I - FINANCIAL INFORMATION                                                                    NUMBER
                                                                                                  ------
<S>                                                                                              <C>
    ITEM 1      Consolidated Financial Statements:
                Consolidated Balance Sheets as of
                   August 31, 2000 and November 30, 1999                                            3

                Consolidated Statements of Operations for the three and
                   Nine months ended August 31, 2000 and  August 31, 1999                           4

                Consolidated Statements of Cash Flows for the nine
                   months ended August 31, 2000 and August 31, 1999                               5 - 6

                Notes to Consolidated Financial Statements                                        7 - 15

    ITEM 2      Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                                           16 - 23

    ITEM 3      Quantitative and Qualitative Disclosures about Market Risk                          24


PART II - OTHER INFORMATION
    ITEM 1      Legal Proceedings                                                                   25

    ITEM 6      Exhibits and Reports on Form 8-K                                                    25

SIGNATURES                                                                                          26

EXHIBIT INDEX                                                                                       27

</TABLE>


                                       2
<PAGE>



                         PART I - FINANCIAL INFORMATION

                                 MEDIA 100 INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                     August 31,        November 30,
                                                                                        2000               1999
                                                                                   ---------------    ----------------
<S>                                                                              <C>                <C>
ASSETS
Current assets:
               Cash and cash equivalents                                         $           7,788  $          13,858
               Marketable securities                                                        12,776             18,169
               Accounts receivable, net of allowance for doubtful
                 accounts of $3,912 in 2000 and $4,160 in 1999                              11,554              8,376
               Inventories, net                                                              5,004              1,689
               Prepaid expenses                                                              1,478              1,246
                                                                                   ----------------   ----------------
                    Total current assets                                                    38,600             43,338

Property and equipment, net                                                                  6,710              7,235
Intangible assets, net                                                                       9,482              1,560
Other assets, net                                                                            1,918                605
                                                                                   ----------------   ----------------
Total assets                                                                     $          56,710  $          52,738
                                                                                   ================   ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
               Accounts payable                                                  $           4,103  $           4,683
               Accrued expenses                                                             11,057             10,532
               Note payable                                                                  1,465                  -
               Deferred revenue                                                              5,361              5,193
                                                                                   ----------------   ----------------
                    Total current liabilities                                               21,986             20,408
                                                                                   ----------------   ----------------

Contingencies (Note 9)

Stockholders' equity:
               Preferred stock                                                                   -                  -
               Common stock                                                                    122                115
               Capital in excess of par value                                              216,959            210,839
               Accumulated deficit                                                        (182,178)          (178,418)
               Accumulated other comprehensive income (loss):
                 Cumulative translation adjustment                                               5                  5
                 Unrealized holding loss on
                  available for sale securities                                               (184)              (211)
                                                                                   ----------------   ----------------

                    Total stockholders' equity                                              34,724             32,330
                                                                                   ----------------   ----------------

Total liabilities and stockholders' equity                                       $          56,710  $          52,738
                                                                                   ================   ================
</TABLE>


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


                                       3
<PAGE>

                                 MEDIA 100 INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

                                   (unaudited)
<TABLE>
<CAPTION>
                                                       Three Months Ended August 31,            Nine Months Ended August 31,
                                                          2000                1999               2000                 1999
                                                      -------------       -------------      --------------      ---------------
<S>                                                 <C>                 <C>                <C>                <C>
  Net sales:
     Products                                       $       16,609      $      14,677      $        50,538    $          40,548
     Services                                                2,703              2,221                7,268                6,493
                                                      -------------       ------------       --------------     ----------------
  Total net sales                                           19,312             16,898               57,806               47,041

  Cost of sales                                              7,836              6,271               23,727               18,008
                                                      -------------       ------------       --------------     ----------------

       Gross profit                                         11,476             10,627               34,079               29,033
                                                      -------------       ------------       --------------     ----------------

  Operating expenses:
       Research and development                              4,307              3,867               11,916               12,292
       Selling and marketing                                 4,867              4,442               15,511               13,636
       General and administrative                            1,098              1,838                6,061                5,192
       Amortization of intangible assets                       850                 92                1,686                   92
       Acquired in-process research
           and development                                       -                430                  470                  430
       Restructuring expense                                                      424                    -                  424
       Merger-related costs                                      -                  -                2,007                    -
                                                      -------------       ------------       --------------      ---------------
          Total operating expenses                          11,122             11,093               37,651               32,066
                                                      -------------       ------------       --------------      ---------------

       Operating income (loss)                                 354               (466)              (3,572)              (3,033)

  Interest income, net                                         260                314                  809                  990
  Other income (expense), net                                 (337)             1,794                 (465)               7,048
                                                      -------------       ------------       --------------     ----------------

       Income (loss) before tax provision                      277              1,642               (3,228)               5,005

  Tax provision                                                  -                  -                   30                    -
                                                      -------------       ------------       --------------     ----------------

      Net income (loss)                             $          277      $       1,642      $        (3,258)    $          5,005
                                                      =============       ============       ==============     ================

  Net income (loss) per share:
     Basic                                          $         0.02      $        0.15      $         (0.27)     $          0.44
                                                      =============       ============       ==============      ===============

     Diluted                                        $         0.02      $        0.14      $         (0.27)     $          0.43
                                                      =============       =============      ==============      ===============

  Weighted average common shares outstanding:
     Basic                                                  12,136             11,297               11,916               11,266
                                                      =============       ============       ==============     ================

    Diluted                                                 13,167             11,746               11,916               11,643
                                                      =============       ============       ==============     ================
</TABLE>


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


                                       4
<PAGE>

                                 MEDIA 100 INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                           Nine Months Ended August 31,
                                                                                             2000                 1999
                                                                                        ---------------      ---------------
<S>                                                                                   <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss) income                                                                   $         (3,258)   $           5,005
  Adjustments to reconcile net (loss) income to net cash
  used in operating activities:
                Depreciation and amortization                                                    2,628                2,749
                Non-cash interest expense                                                           71                    -
                Acquired in-process research and development                                       470                  430
                Amortization of acquisition-related intangible assets                            1,686                   92
                Loss on disposition of fixed asset                                                   6                    -
                Gain on sale of other assets                                                         -               (6,637)
                Gain on sale of marketable securities                                               15                  (21)
  Changes in Assets and Liabilities, excluding effects of acquisitions:
                Accounts receivable                                                             (4,008)              (1,297)
                Note receivable                                                                      -                4,150
                Inventories                                                                     (2,184)                 (26)
                Prepaid expenses and other current assets                                         (373)                (143)
                Accounts payable                                                                   (35)                (507)
                Accrued expenses                                                                (2,317)              (3,267)
                Deferred revenue                                                                   168               (4,978)
                                                                                        ---------------      ---------------
  Net cash used in operating activities                                               $         (7,131)   $          (4,450)
                                                                                        ---------------     ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
                Acquisition of Terran Interactive, Inc., net of cash acquired                     (350)              (1,890)
                Acquisition of Wired, Inc., net of cash acquired                                (1,487)                   -
                Acquisition of 21st Century Media LLC, net of cash acquired                       (481)                   -
                Acquisition of J2 Digital Media Inc., net of cash acquired                        (152)                   -
                Acquisition of certain assets of Integrated Computing Engines, Inc.             (1,797)                   -
                Purchases of property and equipment                                             (1,614)              (1,155)
                Other assets                                                                    (1,225)                (160)
                Purchase of intangible assets                                                     (227)                   -
                Net proceeds on the sale of other assets                                             -                6,637
                Proceeds from sales of marketable securities, net                                5,405                5,112
                                                                                        ---------------      ---------------
  Net cash (used in) provided by investing activities                                 $         (1,928)    $          8,544
                                                                                        ---------------     ----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
                Net repayments on short term borrowings                                              -               (1,340)
                Proceeds from issuance of common stock pursuant to stock plans                   4,472                  511
                Purchase of treasury stock                                                           -                 (202)
                                                                                        ---------------      ---------------
  Net cash provided by (used in) financing activities                                 $          4,472    $          (1,031)
                                                                                        ---------------     ----------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                              -                 (148)
NET DECREASE IN CASH DURING EXCLUDED PRE-MERGER PERIOD (Note 4b)                                (1,483)                   -
                                                                                        ---------------      ---------------

NET (DECREASE)  INCREASE IN CASH AND CASH EQUIVALENTS                                 $         (6,070)    $          2,915

CASH AND CASH EQUIVALENTS, beginning of period                                                  13,858                7,849
                                                                                        ---------------      ---------------

CASH AND CASH EQUIVALENTS, end of period                                              $          7,788     $         10,764
                                                                                        ===============      ===============
</TABLE>


                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                                                           Nine Months Ended August 31,
                                                                                             2000                 1999
                                                                                             ----                 ----
<S>                                                                                   <C>                 <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid for income taxes                                                                       13                    2
                                                                                        ===============     ================
   Cash paid for interest                                                             $              -     $              -
                                                                                        ===============     ================
OTHER TRANSACTIONS NOT USING CASH:
   Increase (Decrease) in value of marketable securities                              $             27     $           (472)
                                                                                        ===============      ===============
<CAPTION>
                                                                                           Nine Months Ended August 31,
                                                                                             2000                 1999
                                                                                             ----                 ----
<S>                                                                                   <C>                  <C>
   SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:

   In connection with the acquisition of Wired, Inc., the following non-cash
     transaction occurred:
   Fair value of assets acquired                                                      $          3,180     $              -
   Cash paid for acquisition and acquisition costs                                               1,487
                                                                                        ---------------      ---------------
   Note payable and liabilities assumed                                               $          1,693     $              -
                                                                                        ===============      ===============

   In connection with the acquisition of 21st Century Media, LLC, the following
     non-cash transaction occurred:
   Fair value of assets acquired                                                      $          1,130     $              -
   Cash paid for acquisition and acquisition costs                                                 481
                                                                                        ---------------      ---------------
   Common stock issued and liabilities assumed                                        $            649     $              -
                                                                                        ===============      ===============

   In connection with the acquisition of J2 Digital Media, Inc., the following
     non-cash transaction occurred:
   Fair value of assets acquired                                                      $            280     $              -
   Cash paid for acquisition and acquisition costs                                                 152
                                                                                        ---------------      ---------------
   Liabilities assumed                                                                $            128     $              -
                                                                                        ===============      ===============

   In connection with the acquisition of certain assets of Integrated Computing
     Engines, Inc., The following non-cash transaction occurred:
   Fair value of assets acquired                                                      $          2,775     $              -
   Cash paid for acquisition and acquisition costs                                               1,797
                                                                                        ---------------      ---------------
   Common stock issued                                                                $            978     $              -
                                                                                        ===============      ===============

   In connection with the acquisition of Terran Interactive, Inc., the following
     non-cash transaction occurred:
   Fair value of assets acquired                                                      $            350     $          2,558
   Cash paid for acquisition and acquisition costs                                                 350                1,890
                                                                                        ---------------      ---------------
   Liabilities assumed                                                                $              -     $            668
                                                                                        ===============      ===============
</TABLE>
                    The accompanying notes are an integral part of these
                            consolidated financial statements.


                                       6
<PAGE>

                                 MEDIA 100 INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (UNAUDITED, EXCEPT FOR NOVEMBER 30, 1999 AMOUNTS)


1.  BASIS OF PRESENTATION

The accompanying interim consolidated financial statements include the
accounts of Media 100 Inc. ("the Company"), a Delaware corporation, and its
wholly owned subsidiaries. The interim financial statements are unaudited.
However, in the opinion of management, the interim consolidated financial
statements and disclosures reflect all adjustments necessary for fair
presentation. Interim results are not necessarily indicative of results
expected for a full year or for any other interim period. 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 the rules and regulations
of the Securities and Exchange Commission. These consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's latest
audited financial statements, which are included in the Company's Annual
Report on Form 10-K for the fiscal year ended November 30, 1999, filed with
the Securities and Exchange Commission.

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

The Company develops, markets, sells, and supports digital video and
web-based streaming media software and systems, or tools, that enable new
Internet broadcasters and traditional broadcasters, corporate marketing
professionals, and educators to create and deliver high-quality video
programs. The Company markets and delivers its products to end users through
its web sites as well as through a worldwide channel of specialized
value-added resellers ("VARs") that sell, assemble, and install turnkey
systems using personal computers, disk drives, and ancillary video equipment.

In June 1999, the Company acquired Terran Interactive Inc. ("Terran"), a
leading supplier of software tools for high quality Internet and DVD video.
In December 1999, the Company acquired Wired, Inc. ("Wired"), a supplier of
Moving Pictures Experts Group ("MPEG") streaming media production tools for
the Internet and digital video disk ("DVD") authoring.

In April 2000, the Company acquired 21st Century Media, LLC ("21st Century
Media"), a leading provider of encoding, hosting, webcasting, and interactive
production services. In June 2000, the Company announced it completed the
acquisition of J2 Digital Media, Inc. ("J2 Digital Media"), another encoding,
hosting and streaming media services provider (Note 3a). After this
acquisition, J2 Digital Media Inc.'s operations were combined with the
operations of 21st Century Media, and the Company launched a new division,
called StreamRiver Networks, focused on providing encoding and hosting
services for Internet broadcasters, web designers and digital media content
creators.

 In May 2000, the Company completed its merger with Digital Origin, Inc.
("Digital Origin"). Digital Origin is a leading developer of digital video
editing and effects software applications designed to support the new
low-cost, high-quality digital video ("DV") camcorders used for acquiring
video for Internet applications (see Note 3b).

In August 2000, the Company acquired certain strategic technology assets and
intellectual properties from Integrated Computing Engines, Inc. ("ICE"). ICE
is a leading provider of acceleration solutions for streaming media from the
desktop (Note 3c).

2.   PRINCIPLES OF CONSOLIDATION

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

                                       7

<PAGE>

3.   ACQUISITIONS

a.)  J2 DIGITAL MEDIA, INC.

In June 2000, the Company acquired substantially all of the assets of J2
Digital Media, a New York-based encoding, hosting and streaming media
services provider for $150,000 in cash. The Company has treated the
acquisition as a purchase for accounting purpose; accordingly, the Company
has recorded the results of operations of J2 Digital Media's operations since
the acquisition date. The Company has not included pro forma results as they
are not deemed to be material.

The aggregate purchase price consisted of the following (in thousands):

<TABLE>
<CAPTION>
        Description                                              Amount
        -----------                                              ------
<S>                                                             <C>
       Cash                                                     $   150
       Liabilities assumed                                          128
       Acquisition costs                                              2
                                                                -------

               Total purchase price                             $   280
                                                                -------
</TABLE>

The purchase price has been allocated to the acquired assets as follows (in
thousands):

<TABLE>
<S>                                                             <C>
       Current assets                                           $    44
       Equipment and other assets                                    22
       Goodwill                                                     214
                                                                -------
                                                                $   280
                                                                -------
</TABLE>

b.) DIGITAL ORIGIN

On May 9, 2000, the Company completed its merger with Digital Origin. Under
the terms of the agreement, Digital Origin's shareholders and option holders
received 0.5347 equivalent shares, or approximately 3.7 million Media 100
common shares, to effect the business combination. The transaction has been
accounted for as a pooling of interests. As a result, all periods presented
have been restated to reflect the combined operations of the two companies.
As permitted by Accounting Principles Board Opinion No.16 BUSINESS
COMBINATIONS (APB No.16), the November 30, 1999 balance sheet presented
herein reflects the combination of the Media 100's November 30, 1999 balance
sheet and Digital Origin's September 30, 1999 balance sheet. Likewise, the
1999 statements of operations and cash flows presented for the combined
companies are the companies respective first, second and third fiscal
quarters, which also differ by two months. In fiscal 2000, the balance sheet
is as of August 31, 2000 for the combined companies and the statements of
operations and cash flows represent the three and nine-month periods ended
August 31, 2000 for both companies. The results of operations for Digital
Origin for the two months ended November 30, 1999 have been excluded from the
statement of operations and have been recorded directly to accumulated
deficit as permitted by APB No.16. Net cash flows for Digital Origin for the
two months ended November 30, 1999 have been included in the statement of
cash flows as a single line item.

Results for Digital Origin for the two month period ended November 30, 1999
which have been recorded directly to accumulated deficit were as follows:

<TABLE>
<CAPTION>
                                                       Two months ended
                                                       November 30, 1999
                                                       -----------------
<S>                                                    <C>
        Sales                                              $     1,953
        Cost of sales                                              719
                                                           -----------
            Gross profit                                         1,234
        Operating expenses                                       1,695
                                                           -----------
            Operating loss                                        (461)
        Other income (expense), net                                (41)
                                                           -----------
            Net loss                                       $      (502)
                                                           ===========
</TABLE>

                                       8

<PAGE>

3.   ACQUISITIONS (continued)

As part of the transaction, the Company incurred direct, merger-related costs
of approximately $2.0 million, consisting primarily of investment bank fees,
legal and accounting fees. All such costs have been expensed in the quarter
ended May 31, 2000, upon consummation of the Digital Origin merger.

Separate and combined results of Media 100 and Digital Origin during the
periods preceding the merger were as follows:

<TABLE>
<CAPTION>
                                                                   Media 100     Digital Origin   Eliminations      Combined
                                                               ----------------------------------------------------------------


<S>                                                        <C>                  <C>             <C>              <C>
       (NINE MONTHS ENDED AUGUST 31, 2000)(a)

       Net sales                                                        50,995           7,373           (562)          57,806
       Net income (loss)                                                (1,822)         (1,436)             -           (3,258)

       (THREE MONTHS ENDED AUGUST 31, 1999)

       Net sales                                                        13,116           3,782               -          16,898
       Net income (loss)                                                  (172)          1,814               -           1,642

       (NINE MONTHS ENDED AUGUST 31, 1999)

       Net sales                                           $            37,792  $        9,249  $            -   $      47,041
       Net income (loss)                                   $              (684) $        5,689  $            -   $       5,005
</TABLE>


      (a) Digital Origin results represent December 1, 1999 through May 9, 2000.
      Results subsequent to May 9, 2000 included In Media 100 results.

c.) INTEGRATED COMPUTING ENGINES

In August 2000, the Company acquired certain strategic technology assets and
intellectual properties from Integrated Computing Engines, Inc. ("ICE"). ICE is
a leading provider of acceleration solutions for streaming media from the
desktop. In connection with the acquisition, the Company paid approximately
$1,735,000 in cash and issued 61,577 shares of the Company's common stock for
certain assets of ICE. The Company has treated the acquisition as a purchase for
accounting purposes; accordingly, the Company has recorded the results of
operations of ICE's operations since the acquisition date.

The aggregate purchase price consisted of the following (in thousands):

<TABLE>
<CAPTION>
        Description                                              Amount
        -----------                                              ------

<S>                                                              <C>
        Cash                                                     $1,735
        Common stock                                                978
        Acquisition costs                                            62
                                                                 ------

               Total purchase price                              $2,775
                                                                 ------
</TABLE>


The purchase price has been allocated to the acquired assets as follows (in
thousands):

<TABLE>
<S>                                                              <C>
        Current assets                                           $  503
        Goodwill and other intangible assets                      2,272
                                                                 ------
                                                                 $2,775
                                                                 ------
</TABLE>

The Company is currently having an appraisal performed to determine the
allocation of the purchase price. The amounts above represent a preliminary
allocation based on management estimates.


                                       9
<PAGE>

4.   CASH EQUIVALENTS AND MARKETABLE SECURITIES

Cash equivalents are carried at cost, which approximates market value, and
have original maturities of less than three months. Cash equivalents
primarily include money market accounts. The Company accounts for marketable
securities in accordance with Statement of Financial Accounting Standards No.
115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES (SFAS
No. 115). Under this standard, the Company is required to classify all
investments in debt and equity securities into one or more of the following
three categories: held-to-maturity, available-for-sale or trading.
Available-for-sale securities are recorded at fair market value with
unrealized gains and losses excluded from earnings and reported as a separate
component of stockholders' equity. All of the Company's marketable securities
are classified as available-for-sale.

Marketable securities held as of August 31, 2000 and November 30, 1999 consist
of the following (in thousands):

<TABLE>
<CAPTION>
                                                              Maturity                  2000           1999
                                                             ----------                ------         ------
<S>                                                        <C>                  <C>               <C>
      Investments available for sale:
        U.S. Treasury Notes                                less than 1 year     $             505 $           -
        U.S. Treasury Notes                                1 - 5 years                      3,010         4,538
                                                                                   --------------- -------------
           Total U.S. Treasury Notes                                                        3,515         4,538

        Municipal Bonds                                    less than 1 year                   861         1,797

        U.S. Agency Bonds                                  less than 1 year                 1,510             -
        U.S. Agency Bonds                                  1 - 5 years                        990         3,008
                                                                                   --------------- -------------
           Total U.S. Agency Bonds                                                          2,500         3,008

        Money Market Instruments                           less than 1 year                   358         3,689

        Corporate Obligations                              less than 1 year                 3,410         4,042
        Corporate Obligations                              1 - 5 years                      2,490         4,784
                                                                                   --------------- -------------
           Total Corporate Obligations                                                      5,900         8,826

        Total investments available for sale                                               13,134        21,858
        Less: cash and cash equivalents                                                     (358)       (3,689)
                                                                                   --------------- -------------
        Total marketable securities                                             $          12,776 $      18,169
                                                                                   =============== =============
</TABLE>


Marketable securities had a cost of $12,960 and $18,380, and a market value of
$12,776 and $18,169 at August 31, 2000 and November 30, 1999, respectively.

5.  INVENTORIES

Inventories are stated at the lower of first-in, first-out (FIFO) cost or market
and consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                  August 31,             November 30,
                                                                     2000                    1999
                                                                ---------------        -----------------
<S>                                                          <C>                    <C>
           Raw materials                                     $           2,506      $               556
           Work-in-process                                                 823                      498
           Finished goods                                                1,675                      635
                                                                ---------------        -----------------
                                                             $           5,004      $             1,689
                                                                ===============        =================
</TABLE>

Work-in-process and finished goods inventories include material, labor and
manufacturing overhead. Management performs periodic reviews of inventory and
disposes of items not required by their manufacturing plan.


                                       10
<PAGE>


6.   PROPERTY AND EQUIPMENT, NET

Property and equipment, net is stated at cost, less accumulated depreciation and
amortization, and consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                       August 31,             November 30,
                                                                          2000                    1999
                                                                     ---------------        -----------------
<S>                                                               <C>                    <C>
       Machinery and equipment                                    $          13,018      $            11,535
       Purchased software                                                     7,010                    8,026
       Furniture and fixtures                                                 1,728                    1,606
       Vehicles                                                                  11                       11
       Leasehold improvements                                                 1,613                    1,599
                                                                     ---------------        -----------------
                                                                  $          23,380                   22,777
       Less accumulated depreciation and amortization                       (16,670)                 (15,542)
                                                                     ---------------        -----------------
                                                                  $           6,710      $             7,235
                                                                     ===============        =================
</TABLE>


7.  INTANGIBLE ASSETS, NET

Intangible assets consist of the following as of August 31, 2000 and November
30, 1999 (in thousands):

<TABLE>
<CAPTION>
                                                                       August 31,             November 30,
                                                                          2000                    1999
                                                                     ---------------        -----------------
<S>                                                               <C>                    <C>
       Patents and Trademarks                                     $             397      $               169
       Acquired Technology                                                    2,460                    1,560
       Goodwill                                                               8,664                      101
                                                                     ---------------        -----------------
                                                                             11,521                    1,830
       Less accumulated amortization                                         (2,039)                    (270)
                                                                     ---------------        -----------------
                                                                  $           9,482      $             1,560
                                                                     ===============        =================
</TABLE>

Patents and trademarks are being amortized over periods ranging from three to
five years, their estimated useful lives. The Company is amortizing goodwill and
acquired technology related to each of its acquisitions using the straight-line
method over two to three years, their estimated useful lives. In connection with
a prior business combination, the Company has accrued $3,532 as additional
goodwill pursuant to an earnout provision that has been met. The Company will
amortize this additional goodwill over its remaining useful life.

8.  NET INCOME (LOSS) PER SHARE

Effective December 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE (SFAS No. 128). In accordance
with SFAS No. 128, basic net income (loss) per share is computed by using the
weighted-average number of common shares outstanding. Diluted income (loss) per
share is computed by using the weighted-average number of common shares
outstanding and potential common shares from the assumed exercise of stock
options and warrants outstanding during the period, if any, using the treasury
stock method.

The following is a reconciliation of the shares used in the computation of basic
and diluted net income (loss) per share (in thousands):

<TABLE>
<CAPTION>
                                                                  Three months ended August 31,      Nine months ended August 31,
                                                                       2000             1999            2000             1999
                                                                 ----------------- --------------- --------------- -----------------
<S>                                                              <C>               <C>             <C>             <C>
       Basic net income (loss)  - weighted average
         common outstanding                                                12,136          11,297          11,916            11,266
       Effect of potential common shares - stock options
         and warrants outstanding (unless antidilutive)                     1,031             449               -               377
                                                                 ----------------- --------------- --------------- -----------------
       Diluted net income (loss)  - weighted average shares
        and potential common shares outstanding                            13,167          11,746          11,916            11,643
                                                                 ================= =============== =============== =================
       Options not included in computation of diluted net
       income (loss) per share due to their antidilutive effect             1,302             465              94               851
                                                                 ================= =============== =============== =================
</TABLE>


                                       11
<PAGE>

9.  CONTINGENCIES

(a)  On June 7, 1995, a lawsuit was filed against the Company by Avid
     Technology, Inc. ("Avid") in the United States District Court for the
     District of Massachusetts. The complaint generally alleges patent
     infringement by the Company arising from the manufacture, sale, and use of
     the Company's Media 100 products. The complaint includes requests for
     injunctive relief, treble damages, interest, costs and fees. In July 1995,
     the Company filed an answer and counterclaim denying any infringement and
     asserting that the Avid patent in question is invalid. The Company intends
     to vigorously defend the lawsuit. In addition, Avid is seeking reissue of
     the patent, including claims that it asserts are broader than in the
     existing patent, and these reissue proceedings remain pending before the
     U.S. Patent and Trademark Office. On January 16, 1998, the court dismissed
     the lawsuit without prejudice to either party moving to restore it to the
     docket upon completion of all matters pending before the U.S. Patent and
     Trademark Office.

     On August 16, 2000, the U.S. Patent and Trademark Office issued an Office
     Action rejecting all of the claims made by Avid in their latest request for
     reexamination of the patent related to the aforementioned lawsuit. In
     addition, the Examiner at the U.S. Patent and Trademark Office designated
     the action as "final". Avid has the right to appeal the rejections to the
     Patent Office Board of Appeals and the Company plans to continue to monitor
     the proceedings. There can be no assurance that the Company will prevail in
     the event of an appeal by Avid or that the expense or other effects of the
     appeal, whether or not the Company prevails, will not have a material
     adverse effect on the Company's business, operating results and financial
     condition.

     Based on new information concerning the Avid litigation, the Company
     revised its estimate of costs necessary to bring this matter to its
     conclusion. As a result, the Company reversed $750,000 of the related
     accrual during the three months ended August 31, 2000.

(b)  On January 13, 1999 and January 28, 1999, Digital Origin and one of its
     former directors, Charles Berger, were named as defendants in two
     shareholder class action lawsuits against Splash Technology Holdings, Inc.
     ("Splash"), various directors and executives of Splash and certain selling
     shareholders of Splash. The lawsuit alleges, among other things, that the
     defendants made or were responsible for material misstatements, and failed
     to disclose information concerning Splash's business, finances and future
     business prospects in order to artificially inflate the price of Splash
     common stock. The complaint does not identify any statements alleged to
     have been made by Charles Berger or the Company. The complaint further
     alleges that the Company engaged in a scheme to artificially inflate the
     price of Splash common stock to reap an artificially large return on the
     sale of the common stock in order to pay off its debt. Digital Origin and
     the former director vigorously deny all allegations of wrongdoing and
     intend to aggressively defend themselves in these matters. Defendant's
     initial motion to dismiss the action was granted with leave to amend, and
     plaintiffs have amended the complaint. Defendants have filed their second
     motion to dismiss.

(c)  On July 18, 1997, Intelligent Electronics, Inc. filed a claim against
     Digital Origin alleging a breach of contract and related claims in the
     approximate amount of $800,000, maintaining that Digital Origin failed to
     comply with various return, price protection, inventory balancing and
     marketing development funding undertakings. In 1997, Digital Origin filed
     an answer to the complaint and cross-claimed against the plaintiffs and in
     October 1997 additionally cross claimed against Deutsche Financial, Inc., a
     factor in the account relationship between the Company and the plaintiffs,
     seeking the recovery of existing accounts receivable of approximately $1.8
     million. During May 2000, the trial was completed and the Court entered two
     judgments in favor of Digital Origin, one in the amount of $314,000
     relating to existing accounts receivable plus interest against Intelligent
     Electronics and one in the amount of $1,491,000 plus interest against
     Deutsche Financial, Inc. In September 2000, Intelligent Electronics, Inc.
     paid $314,000 plus interest of $139,000 and reimbursement of certain costs
     in the amount of $20,000 to the Company. Deutsche Financial, Inc. has
     requested that the Court reconsiders various portions of its rulings, and
     an appeal of the final judgment is expected.

     Pursuant to APB Opinion No. 20, Accounting Changes, the Company revised its
     estimate of the allowance for doubtful accounts by reversing $314,000 of
     the allowance in the three months ended August 31, 2000. The Company
     considers the balance of the recovery from Intelligent Electronics
     (interest and court costs) to be a gain contingency, as this term is
     defined in SFAS No. 5, Accounting for Contingencies. Accordingly, the
     Company will record the interest and court costs in the fourth quarter of
     2000, the period in which the gain contingency was realized.

     The Company has not recorded any amounts pursuant to the Deutsche
     Financial, Inc. judgement, pending completion of the appeals process, as
     neither the collection of the outstanding accounts receivable nor the
     interest and court costs is certain.


                                       12
<PAGE>

9.  CONTINGENCIES (CONTINUED)

(d)  From time to time the Company is involved in other disputes and/or
     litigation encountered in its normal course of business. The Company does
     not believe that the ultimate impact of the resolution of such other
     outstanding matters will have a material effect on the Company's business,
     operating results or financial condition.

10.  ACCRUED EXPENSES

Accrued expenses at August 31, 2000 and November 30, 1999 consist of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                             August 31,          November 30,
                                                                                2000                   1999
                                                                           ----------------      -----------------
<S>                                                                     <C>                   <C>
       Payroll and related taxes                                        $            2,714    $             3,366
       Accrued warranty                                                                562                    611
       Accrued selling and marketing                                                   251                    484
       Accrued inventory                                                             1,696                  1,041
       Accrued contingent acquisition payment                                        3,182                      -
       Accrued legal and other                                                       2,652                  5,030
                                                                           ----------------      -----------------
                                                                        $           11,057    $            10,532
                                                                           ================      =================
</TABLE>


11.  COMPREHENSIVE INCOME (LOSS)

Effective December 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS No. 130).
SFAS No. 130 establishes standards for the display of comprehensive income
(loss) and its components in a full set of financial statements. Comprehensive
income (loss) includes all changes in equity during a period except those
resulting from the issuance of shares of stock and distributions to
stockholders. SFAS No. 130 requires that an enterprise display the components of
comprehensive income (loss) for each period presented.

The components of the Company's comprehensive income (loss) were as follows:

<TABLE>
<CAPTION>
                                                   Three months ended August 31,             Nine months ended August 31,
                                                     2000                 1999                2000                 1999
                                               -----------------     ----------------    ----------------    ------------------
<S>                                         <C>                   <C>                 <C>                 <C>
      Net income (loss)                     $               277   $            1,642  $          (3,258)  $              5,005
      Cumulative translation adjustment                       2                   37                   -                 (148)
      Unrealized holding gain (loss) on
         available for sale securities                      150                (108)                  27                 (472)

                                               -----------------     ----------------    ----------------    ------------------
      Comprehensive income (loss)           $               429   $            1,571  $          (3,231)  $              4,385
                                               =================     ================    ================    ==================
</TABLE>

12.  SEGMENT INFORMATION

In July 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION (SFAS No. 131). SFAS No. 131 establishes
standards for public companies to report operating segment information in annual
and interim financial statements filed with the SEC and shareholders effective
for fiscal years beginning after December 15, 1997. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief decision
maker, or decision making group, in deciding how to allocate resources and in
assessing performance. The Company's chief operating decision-making group is
composed of the Chief Executive Officer and members of senior management. The
Company's reportable operating segments are Internet tools, digital video
systems and services.


                                       13
<PAGE>

12.  SEGMENT INFORMATION (CONTINUED)

Revenues are attributed to geographic areas based on where the customer is
located. Segment information for the three and nine months ended August 31, 2000
and August 31, 1999 is as follows:

<TABLE>
<CAPTION>
                                                                               Digital
                                           Internet                             Video
                                            Tools           Services           Systems          Corporate          Total
                                          -----------     --------------    ---------------    ------------    ---------------
<S>                                    <C>             <C>               <C>                <C>             <C>
THREE MONTHS ENDED AUGUST 31, 2000

 Net sales from external customers     $       7,648   $          2,703  $           8,961  $            -  $          19,312
                                          ===========     ==============    ===============    ============    ===============

 Gross profit                                  4,738              2,068              4,670               -             11,476
                                          ===========     ==============    ===============    ============    ===============

 Depreciation and amortization                   131                 25                701               -                857
                                          ===========     ==============    ===============    ============    ===============

 Interest income, net                              -                  -                  -             260                260
                                          ===========     ==============    ===============    ============    ===============

NINE MONTHS ENDED AUGUST 31, 2000

 Net sales from external customers     $      24,787   $          7,268  $          25,751  $            -  $          57,806
                                          ===========     ==============    ===============    ============    ===============

 Gross profit                                 14,709              6,001             13,369               -             34,079
                                          ===========     ==============    ===============    ============    ===============

 Depreciation and amortization                   439                 64              2,125               -              2,628
                                          ===========     ==============    ===============    ============    ===============

 Interest income, net                                                                                  809                809
                                          ===========     ==============    ===============    ============    ===============

 Income taxes                          $           -   $              -  $               -  $           30  $              30
                                          ===========     ==============    ===============    ============    ===============

THREE MONTHS ENDED AUGUST 31, 1999

 Net sales from external customers     $       5,231   $          2,221  $           9,446  $            -  $          16,898
                                          ===========     ==============    ===============    ============    ===============

 Gross profit                                  3,622              1,910              5,095               -             10,627
                                          ===========     ==============    ===============    ============    ===============

 Depreciation and amortization                    32                 19                876               -                927
                                          ===========     ==============    ===============    ============    ===============

 Interest income, net                              -                  -                  -             314                314
                                          ===========     ==============    ===============    ============    ===============

NINE MONTHS ENDED AUGUST 31, 1999

 Net sales from external customers     $      10,698   $          6,493  $          29,850  $            -  $          47,041
                                          ===========     ==============    ===============    ============    ===============

 Gross profit                                  6,979              5,525             16,529               -             29,033
                                          ===========     ==============    ===============    ============    ===============

 Depreciation and amortization                   101                 52              2,596               -              2,749
                                          ===========     ==============    ===============    ============    ===============

 Interest income, net                              -                  -                  -             990                990
                                          ===========     ==============    ===============    ============    ===============
</TABLE>

Interest income and income taxes are considered corporate level activities and
are, therefore, not allocated to segments. Management believes transfers between
geographic areas are accounted for on an arms-length basis.

Net sales by geographic area for the three and nine months ended August 31, 2000
and August 31, 1999 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                               Three months ended
                                                         August 31,           August 31,
                                                           2000                1999
                                                       --------------     ----------------
<S>                                                 <C>               <C>
   United States                                    $         13,916  $            11,737
   United Kingdom, Sweden, Denmark and Norway                  1,662                1,482
   Germany, Austria and Switzerland                              598                  868
   France, Spain and Benelux                                   1,151                  971
   Japan                                                         987                  914
   Other foreign countries                                       998                  926
                                                       --------------     ----------------
                                                    $         19,312  $            16,898
                                                       ==============     ================
</TABLE>


                                       14
<PAGE>

12.  SEGMENT INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
                                                               Nine months ended
                                                        August 31,          August 31,
                                                           2000                1999
                                                      --------------    ----------------

<S>                                                 <C>              <C>
   United States                                    $        37,312  $           30,683
   United Kingdom, Sweden, Denmark and Norway                 4,567               4,555
   Germany, Austria and Switzerland                           3,336               2,182
   France, Spain and Benelux                                  4,590               2,815
   Japan                                                      2,543               2,745
   Other foreign countries                                    5,458               4,061
                                                      --------------    ----------------
                                                    $        57,806  $           47,041
                                                      ==============    ================
</TABLE>


Long-lived tangible assets by geographic area for the quarters ended August 31,
2000 and November 30, 1999 consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                        August 31,        November 30,
                                                           2000               1999
                                                     ---------------   -----------------

<S>                                                <C>               <C>
   United States                                   $          6,482  $            6,877
   United Kingdom                                                96                 146
   France                                                        67                  89
   Germany                                                       49                  97
   Italy                                                         16                  26
                                                     ---------------   -----------------
                                                   $          6,710  $            7,235
                                                     ===============   =================
</TABLE>


13.  NOTE PAYABLE

In connection with the acquisition of Wired, the Company agreed to pay $3
million in cash for all outstanding shares of Wired's common stock. The first
payment in the amount of $1.5 million was paid upon completion of the
acquisition and the remaining to be paid on the first anniversary of the
closing. The net present value of this latter payment has been classified on the
balance sheet as a note payable.


                                       15
<PAGE>

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


Overview

Except for the historical information contained herein, the matters discussed in
this Quarterly Report on Form 10-Q are forward-looking statements based on
current expectations, and involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from those
expressed in such forward-looking statements. The risks and uncertainties
associated with such statements have been described under the heading "Certain
Factors That May Affect Future Results" in this Form 10-Q and the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 1999.

The Company develops, markets, sells, and supports digital video and web-based
streaming media software and systems, or tools, that enable new Internet
broadcasters and traditional broadcasters, corporate marketing professionals,
and educators to create and deliver high-quality video programs quickly, easily,
and with great creative flexibility. The Company markets and delivers its
products to end users through its web sites as well as through a worldwide
channel of specialized value-added resellers ("VARs") that sell, assemble, and
install turnkey systems using personal computers, disk drives, and ancillary
video equipment. Since the Company began first shipments of its products in
1993, it has shipped over 300,000 software applications and 26,000 systems to
users in over 50 countries.


In June 1999, the Company acquired Terran Interactive Inc. ("Terran") of Los
Gatos, CA, a leading supplier of software tools for high quality Internet and
DVD video. In December 1999, the Company acquired Wired, Inc. ("Wired"). Wired
is a supplier of Moving Pictures Experts Group ("MPEG") streaming media
production tools for the Internet and digital video disk ("DVD") authoring.

In April 2000, the Company acquired 21st Century Media, LLC ("21st Century
Media"), a leading provider of encoding, hosting, webcasting, and interactive
production services. In June 2000, the Company announced it completed the
acquisition of J2 Digital Media, Inc. ("J2 Digital Media"), another encoding,
hosting and streaming media services provider. After this acquisition, J2
Digital Media Inc.'s operations were combined with the operations of 21st
Century Media, and the Company launched a new division, called StreamRiver
Networks, focused on providing encoding and hosting services for Internet
broadcasters, web designers and digital media content.

 In May 2000, the Company completed its merger with Digital Origin, Inc.
("Digital Origin"). Digital Origin is a leading developer of digital video
editing and effects software applications designed to support the new low-cost,
high-quality digital video ("DV") camcorders used for acquiring video for
Internet applications. As a result of the merger, all periods presented have
been restated to reflect the combined operations of the two companies. As
permitted by Accounting Principles Board Opinion No.16 BUSINESS COMBINATIONS
(APB No.16), the November 30, 1999 balance sheet presented herein reflects the
combination of the Media 100's November 30, 1999 balance sheet and Digital
Origin's September 30, 1999 balance sheet. Likewise, the 1999 statements of
operations and cash flows presented for the combined companies are the companies
first and second and third fiscal quarters, which also differ by two months. In
fiscal 2000, the balance sheet is as of August 31, 2000 for the combined
companies and the statements of operations and cash flows represent the three
and nine-month periods ended August 31, 2000 for both companies. The results of
operations for Digital Origin for the two months ended November 30, 1999 have
been excluded from the statement of operations and have been recorded directly
to accumulated deficit as permitted by APB No.16. Net cash flows for Digital
Origin for the two months ended November 30, 1999 have been included in the
statement of cash flows as a single line item.

In August 2000, the Company acquired certain strategic technology assets and
intellectual properties from Integrated Computing Engines, Inc. ("ICE"). ICE is
a leading provider of acceleration solutions for streaming media from the
desktop.


                                       16
<PAGE>

Results of Operations

The following table shows certain consolidated statements of operations data as
a percentage of net sales.

<TABLE>
<CAPTION>
                                                  Three months ended August 31,                  Nine months ended August 31,
                                                   2000                  1999                  2000                   1999
                                               --------------       ---------------        --------------       -----------------
<S>                                            <C>                   <C>                   <C>                  <C>
      Net sales:
         Products                                       86.0%                 86.9%                 87.4%                   86.2%
         Services                                       14.0                  13.1                  12.6                    13.8
                                               --------------       ---------------        --------------       -----------------
      Total net sales                                  100.0                 100.0                 100.0                   100.0
      Cost of sales                                     40.6                  37.1                  41.0                    38.3
                                               --------------       ---------------        --------------       -----------------
           Gross profit                                 59.4                  62.9                  59.0                    61.7
      Operating expenses:
           Research and development                     22.4                  22.9                  20.6                    26.1
           Selling and marketing                        25.2                  26.3                  26.8                    29.0
           General and administrative                    5.7                  10.9                  10.5                    11.0
            Amortization of intangible
                assets                                   4.4                    .6                   2.9                      .2
            Acquired in-process research
                and development                            -                   2.5                   0.8                      .9
            Restructuring expense                          -                   2.5                     -                      .9
            Merger related costs                           -                     -                   3.5                       -
                                               --------------       ---------------        --------------       -----------------
               Total operating expenses                 57.6                  65.7                  65.1                    68.2
      Operating income (loss)                            1.8                 (2.8)                  (6.2)                   (6.5)
      Interest income, net                               1.3                   1.9                   1.4                     2.1
      Other income (expense), net                      (1.7)                  10.6                  (0.8)                   15.0
                                               --------------       ---------------        --------------       -----------------
      Income (loss) before tax provision                 1.4                   9.7                  (5.6)                   10.6
      Tax provision                                        -                     -                     -                       -
                                               --------------       ---------------        --------------       -----------------
      Net income (loss)                                  1.4%                  9.7%                 (5.6)%                  10.6%
                                               ==============       ===============        ==============       =================
</TABLE>


Comparison of Third Fiscal Quarter of 2000 to Third Fiscal Quarter of 1999

Net sales. Net sales for the third fiscal quarter ended August 31, 2000 were
$19.3 million an increase of $2.4 million, or 14.3%, from the same period a year
ago. Net sales from products for the third fiscal quarter ended August 31, 2000
were $16.6 million, an increase of $1.9 million or 13.2%, from the same period a
year ago. The increase in net sales from products is due primarily to Internet
tool sales from the Company's wholly owned subsidiaries Terran, Wired and
Digital Origin. Internet tools sales for the third fiscal quarter ended August
31, 2000 increased to $7.6 million from $5.2 million in the same period a year
ago. The Company acquired Terran in June 1999, acquired Wired in December 1999
and merged with Digital Origin in May 2000. The increase in sales of Internet
tools was offset by a decrease of $0.4 million in digital video sales to $9.0
million in the third fiscal quarter ended August 31, 2000 from $9.4 million in
the same period a year ago. Net sales from services for the third fiscal quarter
ended August 31, 2000 were $2.7 million, an increase of $.5 million or 21.7%,
from the same period a year ago. The increase in net sales from services is due
to new customers purchasing and existing customers renewing their support
contracts, and initial sales from the Company's recently announced streaming
media services division, StreamRiver Networks.

Gross profit. The Company's gross profit increased 8.0% to $11.5 million in the
third fiscal quarter of 2000 from $10.6 million in the third fiscal quarter of
1999. Overall gross profit as a percentage of net sales was 59.4% in the third
fiscal quarter of 2000 compared to 62.9% in the third fiscal quarter of 1999,
due primarily to lower gross margins on the Company's digital origin products.
Specifically, gross profit as a percentage of net product sales decreased to
56.6% in the third fiscal quarter of 2000 from 59.4% in the third fiscal quarter
of 1999, while gross profit as a percentage of net sales of services decreased
to 76.5% in the third fiscal quarter of 2000 from 86.0% in the third fiscal
quarter of 1999.


                                       17
<PAGE>

Research and development. Research and development expenses increased 11.4% to
$4.3 million in the third fiscal quarter of 2000 from $3.9 million in the same
period a year ago. Research and development expenses consist primarily of
salaries and related benefits, consultants, outside services, occupancy and
depreciation. The Company currently anticipates research and development
expenses will increase in absolute dollars in fiscal 2000 versus fiscal 1999 due
to continued research and development of new technology, as well as, the
acquisitions of Terran, Wired and Digital Origin and the planned development of
their products.


Selling and marketing. Selling and marketing expenses increased 9.6% to $4.9
million in the third fiscal quarter of 2000 from $4.4 million in the same period
a year ago. Selling expenses consist primarily of salaries and related benefits,
commissions, travel, occupancy and depreciation. Marketing expenses consist
primarily of salaries and related benefits, trade shows, seminars, advertising,
website development and lead generation activities. The increase in selling and
marketing expenses resulted primarily from the acquisition of Terran and Wired
and the merger with Digital Origin and the Company's promotion of the streaming
media tools acquired as part of these transactions. The Company currently
anticipates that its selling and marketing expenses will increase in absolute
dollars in fiscal 2000 versus fiscal 1999 as the Company increases its focus on
the Internet and the related support of the Company's promotion of its streaming
media tools.

General and administrative. General and administrative expenses decreased 40.3%
to $1.1 million in the third fiscal quarter of 2000 from $1.9 million in the
same period a year ago. General and administrative expenses include the cost of
human resources, finance, information technology, legal and other administrative
functions of the Company. The decrease in general and administrative expenses
was due to a reduction of $314,000 in the allowance for doubtful accounts as a
result of a settlement agreement reached between the Company and one of its
customers (See Note 9 to the financial statements). General and administrative
expenses were also affected by a reduction of $750,000 in the legal reserve
account due to the Office Action from the U.S. Patent and Trademark Office in
the Avid reexamination proceedings (See Note 9 to financial statements).

Amortization of intangible assets. The Company recorded an expense for the
amortization of intangible assets of $850,000 in the third fiscal quarter of
2000 as a result of the acquisitions of Terran, Wired, 21st Century Media and J2
Digital Media. The Company recorded an expense of $92,000 for the amortization
of intangible assets in the third quarter of fiscal 1999 as a result of the
Terran acquisition.

Acquired in-process research and development. In connection with the acquisition
of Terran Interactive, the Company allocated $430,000 of the purchase price to
in-process research and development projects for the three months ended August
31, 1999. These allocations represented the appraised fair value based on
risk-adjusted cash flows related to incomplete research and development
projects. At the date of acquisition, the development of these projects had not
yet reached technological feasibility and the research and development in
progress had no alternative future uses. Accordingly, these costs were expensed
as of the acquisition date. There were no such charges in the three months ended
August 31, 2000.

Restructuring expense. In the third quarter of 1999, the Company implemented a
restructuring plan to better align its operating costs with its anticipated
future revenue stream. The major component of the restructuring charge relates
to the elimination of approximately 12 employees across the following functions:
Product Development (4), Selling and marketing (7) and General and
administration (1). At August 31, 1999 approximately $366,000 of the accrued
restructuring charge remained, which is comprised of severance-related costs.
The total cash impact of the restructuring amounted to approximately $424,000.
The total cash paid as of August 31, 1999 was $58,000 and the remaining amount
was paid in fiscal 2000. There were no such charges in the three months ended
August 31, 2000.

Interest income. Interest income for the third fiscal quarter ended August 31,
2000 was $260,000, a decrease of $54,000, or 17.2%, from the comparable quarter
a year ago. The decrease in interest income is due to lower cash and cash
equivalents and marketable securities in the third fiscal quarter of 2000,
compared to the third fiscal quarter of 1999. The Company currently anticipates
interest income will decline in fiscal 2000 versus 1999 due to additional
reductions of cash resulting from the acquisition of Wired and 21st Century
Media and an additional cash payment due to the former shareholders of Terran.

 Other income (expenses), net. Other income (expense), net was ($337,000) in the
third fiscal quarter of 2000 compared to $1.8 million in the same period a year
ago. The expense of $337,000 relates primarily to foreign exchange losses on
inter-company transactions with the Company's foreign subsidiaries. The income
of $1.8 million relates primarily to the licensing of technology by Digital
Origin of its monitor and color publishing business to another company.

Tax provision. The Company has not provided for a tax provision for the third
fiscal quarter ended August 31, 2000 due to the net loss incurred for the first
nine months of the fiscal year.


                                       18
<PAGE>

Net income (loss). Net income for the third fiscal quarter ended August 31, 2000
was $277,000, or $0.02 per share, compared to a net income of $1.64 million, or
$0.15 per share, for the same period a year ago.

Comparison of First Nine Months of 2000 to First Nine Months of 1999

Net sales. Net sales for nine months ended August 31, 2000 were $57.8 million an
increase of $10.8, or 22.9%, from the same period a year ago. Net sales from
products for the nine months ended August 31, 2000 were $50.5 million, an
increase of $10.0 million or 24.6%, from the same period a year ago. The
increase in net sales from products is due primarily to Internet tool sales from
the Company's wholly owned subsidiaries Terran, Wired and Digital Origin.
Internet tools sales for the nine months ended August 31, 2000 increased to
$24.8 million from $10.7 million in the same period a year ago. The Company
acquired Terran in June 1999, acquired Wired in December 1999 and merged with
Digital Origin in May 2000. The increase in Internet tool sales was offset by a
decrease of $4.1 million in digital video sales to $25.7 million in the nine
months ended August 31, 2000 from $29.9 million in the same period a year ago.
Net sales from services for the nine months ended August 31, 2000 were $7.3
million, an increase of $.8 million or 12.0%, from the same period a year ago.
The increase in net sales from services is due to new customers purchasing and
existing customers renewing their support contracts, and initial sales from the
Company's recently announced streaming media services division, StreamRiver
Networks.

Gross profit. The Company's gross profit increased 17.4% to $34.1 million for
the nine months ended August 31, 2000 from $29.0 million for the same period
a year ago. Overall gross profit as a percentage of net sales was 59.0% for
the nine months ended August 31, 2000 compared to 61.7% for the same period a
year ago, due primarily to lower gross margins on the Company's Digital
Origin products. Specifically, gross profit as a percentage of net product
sales decreased to 55.6% for the nine months ended August 31, 2000 from 58.0%
for the same period a year ago, while gross profit as a percentage of net
sales of services decreased to 82.6% for the nine months ended August 31,
2000 from 85.1% in the same period a year ago.

Research and development. Research and development expenses decreased 3.1% to
$11.9 million for the nine months ended August 31, 2000 from $12.3 million in
the same period a year ago. Research and development expenses consist primarily
of salaries and related benefits, consultants, outside services, occupancy and
depreciation. The Company currently anticipates research and development
expenses will increase in absolute dollars in fiscal 2000 versus fiscal 1999 due
to continued research and development of new technology, as well as, the
acquisitions of Terran, Wired and Digital Origin and the planned development of
their products.

Selling and marketing. Selling and marketing expenses increased 13.8% to $15.5
million for the nine months ended August 31, 2000 from $13.6 million in the same
period a year ago. Selling expenses consist primarily of salaries and related
benefits, commissions, travel, occupancy and depreciation. Marketing expenses
consist primarily of salaries and related benefits, trade shows, seminars,
advertising, website development and lead generation activities. The increase in
selling and marketing expenses resulted primarily from the acquisition of Terran
and Wired and the merger with Digital Origin and the Company's promotion of the
streaming media tools acquired as part of these transactions. The Company
currently anticipates that its selling and marketing expenses will increase in
absolute dollars in fiscal 2000 versus fiscal 1999 as the Company increases its
focus on the Internet and the related support of the Company's promotion of its
streaming media tools.

General and administrative. General and administrative expenses increased 16.7%
to $6.1 million for the nine months ended August 31, 2000 from $5.2 million in
the same period a year ago. General and administrative expenses include the cost
of human resources, finance, information technology, legal and other
administrative functions of the Company. The increase in general and
administrative expenses resulted primarily from increased personnel costs as a
result of the acquisitions of Terran and Wired, and legal expenses related to a
lawsuit involving Digital Origin. This increase was partially offset by a
reduction of $314,000 in the allowance for doubtful accounts as a result of a
settlement agreement reached between the Company and one of its customers (See
Note 9 to the financial statements). General and administrative expenses were
also affected by a reduction of $750,000 in the legal reserve account due to the
Office Action from the U.S. Patent and Trademark Office in the Avid
reexamination proceedings (See Note 9 to the financial statements).

Amortization of intangible assets. The Company recorded an expense for the
amortization of intangible assets of $1,686,000 for the nine months ended August
31, 2000 as a result of the acquisitions of Terran, Wired, 21st Century Media
and J2 Digital Media. The Company recorded an expense of $92,000 for the
amortization of intangible assets for the nine months ended August 31, 1999 as a
result of the Terran acquisition.

Acquired in-process research and development. In connection with the acquisition
of Wired, the Company expensed $470,000 of the purchase price to in-process
research and development projects for the nine months ended August 31, 2000. In
connection with the acquisition of Terran Interactive, the Company allocated
$430,000 of the purchase price to in-process research and


                                       19
<PAGE>

development projects for the three months ended August 31, 1999. These
allocations represented the appraised fair value based on risk-adjusted cash
flows related to the incomplete research and development projects. At the date
of acquisition, the development of these projects had not yet reached
technological feasibility and the research and development in progress had no
alternative future uses. Accordingly, these costs were expensed as of the
acquisition date.

Restructuring expense. In the third quarter of 1999, the Company implemented a
restructuring plan to better align its operating costs with its anticipated
future revenue stream. The major component of the restructuring charge relates
to the elimination of approximately 12 employees across the following functions:
Product Development (4), Selling and marketing (7) and General and
administration (1). At August 31, 1999 approximately $366,000 of the accrued
restructuring charge remained, which is comprised of severance-related costs.
The total cash impact of the restructuring amounted to approximately $424,000.
The total cash paid as of August 31, 1999 was $58,000 and the remaining amount
was paid in fiscal 2000. There were no such charges in the nine months ended
August 31, 2000.

Merger related costs. In connection with the merger with Digital Origin, the
Company incurred direct, acquisition-related charges of approximately $2.0
million, consisting primarily of investment bank fees, legal and accounting
fees. There was no similar expense recorded in the same period a year ago.

Interest income. Interest income for the nine months ended August 31, 2000 was
$809,000, a decrease of $181,000, or 18.3%, from the comparable quarter a year
ago. The decrease in interest income is due to lower cash and cash equivalents
and marketable securities in the first nine months of fiscal 2000, compared to
the same period a year ago. The Company currently anticipates interest income
will decline in fiscal 2000 versus 1999 due to additional reductions of cash
resulting from the acquisition of Wired and 21 Century Media and an additional
cash payment due to the former shareholders of Terran.

Other income (expenses), net. Other income (expense), net was ($465,000) for
the first nine months of fiscal 2000 compared to $7.0 million in the same period
a year ago. The expense of $465,000 relates primarily to foreign exchange losses
on inter-company transactions with the Company's foreign subsidiaries. The
income of $7.0 million relates primarily to licensing technology from Digital
Origin's monitor and color publishing business and a gain on the sale of Digital
Origin's Color Server Group to another company.

Tax provision. The Company has provided for a tax provision in the amount of
$30,000 for the nine months ended August 31, 2000, compared to no tax provision
in 1999. The tax provision is based on the statutory rate, offset by the
expected utilization of net operating loss carryforwards and tax credits
available to the Company.

Net income (loss). The net loss for the nine months ended August 31, 2000 was
($3.258) million, or ($0.27) per share, compared to a net income of $5.0
million, or $0.44 per share, for the same period a year ago.

Liquidity and Capital Resources

The Company has funded its operations to date primarily from public offerings of
equity securities and cash flows from operations. As of August 31, 2000, the
Company's principal sources of liquidity included cash and cash equivalents and
marketable securities totaling approximately $20,564,000.

For the nine months ended August 31, 2000, cash used in operating activities
was approximately $7,131,000 compared to cash used in operations of
approximately $4,450,000 for the same period a year ago. Cash used in
operations during the first nine months of fiscal 2000 was due to increases
in accounts receivable of $4,008,000, inventories of $2,184,000, prepaid
expenses of $373,000, decreases in accounts payable of $35,000 and accrued
expenses of $ 2,317,000 offset by an increase in deferred revenue of
$168,000. Net cash used in investing activities was approximately $1,928,000
during the first nine months of fiscal 2000, compared to cash provided by
investing activities of approximately $8,544,000 for the same period a year
ago. Cash used in investing activities during the nine months ended August
31, 2000 was related to the acquisitions of Terran, Wired, 21st Century, J2
Digital Media, and Integrated Computing Engines in the amounts of $350,000,
$1,487,000, $481,000, $152,000 and $1,797,000 respectively, purchases of
property and equipment of $1,614,000, intangible assets of $227,000 and
purchases of other assets of $1,225,000. In addition, the Company received
net proceeds on the sale of marketable securities of $5,405,000. Cash
provided by financing activities during the first nine months of fiscal 2000
was approximately $4,472,000 compared to cash used in financing activities of
$1,031,000 for the same period a year ago. Cash provided by financing
activities in the first nine months of fiscal 2000 came from proceeds from
the issuance of common stock pursuant to stock plans.

In connection with prior business combinations, the Company may be required to
make additional payments if certain earn-out provisions are met over the next
several years.


                                       20
<PAGE>

The Company believes its existing cash balance, cash equivalents and marketable
securities will be sufficient to meet the Company's cash requirements for at
least the next twelve months.


CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS


Except for the historical information contained herein, the matters discussed in
this Form 10-Q are forward-looking statements, and are based on current
expectations, and involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from those expressed in
such forward-looking statements. The risks and uncertainties associated with
such statements include the following:


ACQUISITION RELATED RISKS. During the fiscal year ended November 30, 1999, the
Company completed the Terran acquisition. During the first fiscal quarter of
2000, the Company completed the acquisition of Wired. During the second fiscal
quarter of 2000, the Company completed the 21st Century Media acquisition and
the merger with Digital Origin. During the third quarter of fiscal 2000, the
Company acquired J2 Digital Media and acquired certain strategic technology
assets and intellectual properties from Integrated Computing Engines, Inc. The
Company's business and results of operations could be materially adversely
affected in the event the Company fails to complete publicly announced
acquisitions or to successfully integrate the business and operations of these
acquisitions. The Company may continue in the future to acquire existing
businesses, products, and technologies to enhance and expand its line of
products. Such acquisitions may be material in size and in scope. There can be
no assurance that the Company will be able to identify, acquire, or profitably
manage additional business or successfully integrate any acquired businesses
into the Company without substantial expenses, delays, or other operational or
financial problems. Acquisitions involve a number of special risks and factors,
including increasing competition for attractive acquisition candidates in the
Company's markets, the technological enhancement and incorporation of acquired
products into existing product lines and services, the assimilation of the
operations and personnel of the acquired companies, failure to retain key
acquired personnel, adverse short-term effects on reported operating results,
the amortization of acquired intangible assets, the assumption of undisclosed
liabilities of any acquired companies, the failure to achieve anticipated
benefits such as cost savings and synergies, as well as the diversion of
management's attention during the acquisition and integration process. Some or
all of these special risks and factors may have a material adverse impact on the
Company's business, operating results, and financial condition.


SIGNIFICANT FLUCTUATIONS AND UNPREDICTABILITY OF OPERATING RESULTS. The
Company's quarterly operating results may vary significantly for a number of
reasons, including new product announcements and introductions by the Company or
its competitors, changes in pricing, and the volume and timing of orders
received during the quarter. The Company has also in the past experienced delays
in the development of new products and enhancements, and such delays may occur
in the future. These factors make the forecasting of revenue inherently
uncertain. Additionally, a significant portion of the Company's operating
expenses is relatively fixed, and operating expense levels are based primarily
on internal expectations of future revenue. As a consequence, quarterly
operating expense levels cannot be reduced rapidly in the event that quarterly
revenue levels fail to meet internal expectations. Therefore, if quarterly
revenue levels fail to meet internal expectations, the Company's operating
results would be adversely affected.


EMERGING MARKETS. The Company is targeting the emerging market of new
Internet-based broadcasters that are building streaming media web sites and
businesses and institutions that are adding Internet video to their web sites.
This market and the products utilized by these users are relatively new. The
Company's success in this emerging market will depend on the rate at which the
market develops and the Company's ability to penetrate that market. In addition,
in fiscal 2000, the Company plans to begin targeting consumers who are looking
to edit video at low cost and without complication. The Company believes this
market will grow rapidly in the future as consumers increase their purchases of
DV camcorders that connect directly to personal computers. Using a DV camcorder,
a home PC and the Internet, the Company believes consumers will be able to
capture, edit and stream video simply and easily. The Company's future growth
will depend, in part, on the rate at which consumers purchase DV camcorders and
adopt editing and streaming technology. There can be no assurance that the use
of digital video editing and streaming products, like the ones offered by the
Company, will expand among existing users of video production processes or the
market for new users. Any failure of the Company's products to achieve market
acceptance in these markets, as a result of competition, technological change or
other factors, could have a material adverse effect on the Company's business
and operating results.


RISKS ASSOCIATED WITH DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS. New product
announcements by the Company's competitors and by the Company itself could have
the effect of reducing customer demand for the Company's existing products. The
introduction of new or enhanced products by the Company also requires the
Company to manage the transitions from existing products. New product
introductions require the Company to devote time and resources to the training
of its sales channel in the features and target customers for such new products,
which efforts could result in less selling efforts being made


                                       21
<PAGE>

by the sales channel during such training period. New product announcements or
introductions could contribute to significant quarterly fluctuations in
operating results as orders for new products commence and orders for existing
products decline.


RAPID TECHNOLOGICAL CHANGE. Rapidly changing technology, evolving industry
standards and frequent new product introductions characterize the market for the
Company's products. The Company's future success will depend in part upon its
ability to enhance its existing products and to introduce new products and
features in a timely manner to address customer requirements, respond to
competitive offerings, adapt to new emerging industry standards and take
advantage of new enabling technologies that could render the Company's existing
products obsolete. The Company plan in fiscal 2000 is to continue its investment
in research and development, in connection with the Company's development
strategy. Any delay or failure of the Company in developing additional new
products or features for existing products or any failure of such new products
or features to achieve market acceptance, could have a material adverse effect
on the Company's business and operating results.


COMPETITION. The market for the Company's products is highly competitive and
characterized by pressure to reduce prices, incorporate new features and
accelerate the release of new products. A number of companies currently offer
products that compete directly or indirectly with the Company's products,
including Accom, Inc., Adobe Systems, Apple Computer Inc. ("Apple"), Avid
Technology, Inc., Discreet (a division of Autodesk, Inc.), FAST Electronic GmbH,
Matrox Electronic Systems Ltd., Pinnacle Systems, Inc., Real Networks Inc.,
Loudeye Technologies, Inc., and Sonic Foundry, Inc. In addition, the Company
expects much larger vendors, such as Matsushita Electric Industrial Company
Ltd., Microsoft Corporation, and Sony Corporation, to develop and introduce
digital editing systems that may compete with the Company's products. Many of
these current and potential competitors have greater financial, technical and
marketing resources than the Company. As a result, such competitors may be able
to develop products comparable to or superior to the Company's products, adapt
more quickly than the Company to new technologies, evolving industry standards
or customer requirements, or lower their product costs and thus be able to lower
prices to levels at which the Company could not operate profitably, the
occurrence of any of which could have a material adverse effect on the Company's
business and operating results. In this regard, the Company believes that it
will continue to experience competitive pressure to reduce prices, particularly
for its high data rate systems. The Company has historically realized higher
gross profit on the sale of its high data rate systems than its entry-level
systems, and such continued competitive pricing pressure could result in lower
sales and gross margin, which in turn could adversely affect the Company's
operating results.


DEPENDENCE ON AND COMPETITION WITH APPLE COMPUTER, INC. As a competitor, Apple
could, in the future, inhibit the Company's ability to develop its products that
operate on the Macintosh platform. Additionally, new products and enhancements
to existing products from Apple such as Final Cut Pro could cause customers to
delay purchases of the Company's products or alter their purchase decision
altogether. Furthermore, as the sole supplier of Macintosh computers, any
disruption in the availability of these computers could cause customers to defer
or alter their purchase of the Company's products. The Company relies on access
to key information from Apple to continue development of its products and any
failure to continue supplying the Company's engineers with this information
could have a material adverse affect on the Company's business and financial
results.


DEPENDENCE ON MICROSOFT CORPORATION. Many of the Company's products operate in
the Windows environment and the Company's engineers depend upon access to
information in advance from Microsoft Corporation ("Microsoft"). Any failure to
continue supplying the Company's engineers with this information could have a
material adverse affect on the Company's business and financial results.


DEPENDENCE ON SINGLE OR LIMITED SOURCE SUPPLIERS. The Company is dependent on
single or limited source suppliers for several key components used in its
products. The availability of many of these components is dependent on the
Company's ability to provide suppliers with accurate forecasts of its future
requirements, and certain components used by the Company have been subject to
industry-wide shortages. The Company does not carry significant inventories of
these components and has no guaranteed supply arrangements with such suppliers.
There can be no assurance that the Company's inventories would be adequate to
meet the Company's production needs during any interruption of supply. The
Company's inability to develop alternative supply sources, if required, or a
reduction or stoppage in supply, could delay product shipments until new sources
of supply become available, and any such delay could adversely affect the
Company's business and operating results in any given period.


DEPENDENCE ON PROPRIETY TECHNOLOGY. The Company's ability to compete
successfully and achieve future revenue growth will depend, in part, on its
ability to protect its proprietary technology and operate without infringing the
rights of others. The Company has in the past received, and may in the future
continue to receive, communications suggesting that its products may infringe
patents or other intellectual property rights of third parties. The Company's
policy is to investigate the factual basis of such communications and negotiate
licenses where appropriate. While it may be necessary or desirable in the future
to obtain licenses relating to one or more products, or relating to current or
future technologies, there can be no assurance that the


                                       22
<PAGE>

Company will be able to do so on commercially reasonable terms or at all. There
can be no assurance that these or other future communications can be settled on
commercially reasonable terms or that they will not result in protracted and
costly litigation.


RISKS OF THIRD-PARTY CLAIMS OF INFRINGEMENT. There has been substantial industry
litigation regarding patent, trademark and other intellectual property rights
involving technology companies. In the future, litigation may be necessary to
enforce any patents issued to the Company or to enforce trade secrets,
trademarks and other intellectual property rights owned by the Company, to
defend the Company against claimed infringement of the rights of others and to
determine the scope and validity of the proprietary rights of others. For a
description of certain pending litigation instituted against the Company, see
Note 10 to the Consolidated Financial Statements included herein. Any such
litigation could be costly and a diversion of management's attention, which
could adversely affect the Company's business, operating results and financial
condition. Adverse determinations in any such litigation could result in the
loss of the Company's proprietary rights, subject the Company to significant
liabilities, require the Company to seek licenses from third parties or prevent
the Company from manufacturing or selling its products, any of which could
adversely affect the Company's business, operating results and financial
condition.


DEPENDENCE ON RESELLERS AND DISTRIBUTORS. The Company relies primarily on its
worldwide network of independent VARs to distribute and sell its content
creation products to end-users. The Company's resellers generally offer products
of several different companies, including in some cases products that are
competitive with the Company's products. In addition, many of these VARs are
small organizations with limited capital resources. There can be no assurance
that the Company's resellers will continue to purchase the Company's products or
provide them with adequate levels of support, or that the Company's efforts to
expand its VAR network will be successful, any significant failure of which
could have a material adverse effect on the Company's business and operating
results. Digital Origin relies on distributors to distribute its products. There
can be no assurance that Digital Origin's distributors will continue to purchase
the Company's products, any significant failure of which could have a material
adverse effect on the Company's business and operating results.


RELIANCE ON INTERNATIONAL SALES. International sales and operations may be
subject to risks such as the imposition of government controls, export license
requirements, restrictions on the export of critical technology, less effective
enforcement of proprietary rights; currency exchange fluctuations, generally
longer collection periods, political instability, trade restrictions, changes in
tariffs, difficulties in staffing and managing international operations,
potential insolvency of international resellers and difficulty in collecting
accounts receivable. The Company's international sales are also subject to more
seasonal fluctuation than domestic sales. In this regard, the traditional summer
vacation period, which occurs during the Company's third fiscal quarter, may
result in a decrease in sales, particularly in Europe. There can be no assurance
that these factors will not have an adverse effect on the Company's future
international operations and consequently, on the Company's business and
operating results.


INTERNET-BASED SALES. In fiscal 1999, the Company implemented e-commerce systems
allowing customers to purchase the Company's products directly from its web
site. Although the portion of revenue derived from its e-commerce web site was
less than five percent in fiscal 1999, the Company anticipates revenue derived
from its e-commerce web site to ramp up in fiscal 2000. There can be no
assurances that the Company's customers will continue to purchase the Company's
products from its web site or that the web site will not experience technical
difficulties thereby causing customers to delay purchases. Any significant
technical difficulties could have a material adverse effect on the Company's
business and operating results.


DEPENDENCE ON KEY PERSONNEL. Competition for employees with the skills required
by the Company is intense in the geographic areas in which the Company's
operations are located. The Company believes that its future success will depend
on its continued ability to attract and retain qualified employees, especially
in research and development.


EURO CONVERSION. On January 1, 1999, 11 of the 15 member countries of the
European Union established fixed conversion rates between their existing
sovereign currencies and the Euro. As of January 1, 2002, the transition to the
Euro will be complete. The Company has operations within the European Union and
has prepared for the Euro conversion. The Company does not expect the costs
associated with the transition to be material. However, the overall effect of
the transition to the Euro may have a material adverse affect on the Company's
business, financial condition and financial results.


                                       23
<PAGE>

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Derivative Financial Instruments, Other Financial Instruments and Derivative
Commodity Instruments. The Company does not participate in derivative financial
instruments, other financial instruments for which the fair value disclosure
would be required under Statement of Financial Accounting Standards No. 107
DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS AND DERIVATIVE
COMMODITY INSTRUMENTS ( SFAS No. 107). All of the Company's investments are in
short-term, investment grade commercial paper, certificates of deposit and U.S.
Government and agency securities that are carried at fair value on the Company's
books. Accordingly, the Company has no quantitative information concerning the
market risk of participating in such investments.

Primary Market Risk Exposures. The Company's primary market risk exposures are
in the area of interest rate risk and foreign currency exchange rate risk. The
Company's investment portfolio of cash equivalents is subject to interest rate
fluctuations, but the Company believes this risk is immaterial due to the
short-term nature of these investments. The Company's business in Europe is
conducted in local currency. In Asia, business is conducted in US currency. In
addition, the Company sells products to its foreign subsidiaries in transactions
denoted in US currency. The Company's foreign subsidiaries are therefore exposed
to foreign exchange fluctuations on US currency-denominated inter-company
payables to the Company. The Company has no foreign exchange contracts, option
contracts or other foreign hedging arrangements.



                                       24
<PAGE>

                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On June 7, 1995, a lawsuit was filed against the Company by Avid Technology,
Inc. ("Avid") in the United States District Court for the District of
Massachusetts. The complaint generally alleges patent infringement by the
Company arising from the manufacture, sale, and use of the Company's Media 100
products. The complaint includes requests for injunctive relief, treble damages,
interest, costs and fees. In July 1995, the Company filed an answer and
counterclaim denying any infringement and asserting that the Avid patent in
question is invalid. The Company intends to vigorously defend the lawsuit. In
addition, Avid is seeking reissue of the patent, including claims that it
asserts are broader than in the existing patent, and these reissue proceedings
remain pending before the U.S. Patent and Trademark Office. On January 16, 1998,
the court dismissed the lawsuit without prejudice to either party moving to
restore it to the docket upon completion of all matters pending before the U.S.
Patent and Trademark Office.

On August 16, 2000, the U.S. Patent and Trademark Office issued an Office Action
rejecting all of the claims made by Avid in their latest request for
reexamination of the patent related to the aforementioned lawsuit. In addition,
the Examiner at the U.S. Patent and Trademark Office designated the action as
"final". Avid has the right to appeal the rejections to the Patent Office Board
of Appeals and the Company plans to continue to monitor the proceedings. There
can be no assurance that the Company will prevail in the event of an appeal by
Avid or that the expense or other effects of the appeal, whether or not the
Company prevails, will not have a material adverse effect on the Company's
business, operating results and financial condition.

On January 13, 1999 and January 28, 1999, the Company and one of its former
directors, Charles Berger, were named as defendants in two shareholder class
action lawsuits against Splash Technology Holdings, Inc. ("Splash"), various
directors and executives of Splash and certain selling shareholders of Splash.
The lawsuit alleges, among other things, that the defendants made or were
responsible for material misstatements, and failed to disclose information
concerning Splash's business, finances and future business prospects in order to
artificially inflate the price of Splash common stock. The complaint does not
identify any statements alleged to have been made by Charles Berger or the
Company. The complaint further alleges that the Company engaged in a scheme to
artificially inflate the price of Splash common stock to reap an artificially
large return on the sale of the common stock in order to pay off its debt. The
Company and the former director vigorously deny all allegations of wrongdoing
and intend to aggressively defend themselves in these matters. Defendant's
initial motion to dismiss the action was granted with leave to amend, and
plaintiffs have amended the complaint. Defendants have filed their second motion
to dismiss.

On July 18, 1997, Intelligent Electronics, Inc. filed a claim against Digital
Origin alleging a breach of contract and related claims in the approximate
amount of $800,000, maintaining that Digital Origin failed to comply with
various return, price protection, inventory balancing and marketing development
funding undertakings. In 1997, Digital Origin filed an answer to the complaint
and cross-claimed against the plaintiffs and in October 1997 additionally cross
claimed against Deutsche Financial, Inc., a factor in the account relationship
between the Company and the plaintiffs, seeking the recovery of existing
accounts receivable of approximately $1.8 million. During May 2000, the trial
was completed and the Court entered two judgments in favor of Digital Origin,
one in the amount of $314,000 plus interest against Intelligent Electronics and
one in the amount of $1,491,000 plus interest against Deutsche Financial, Inc.
In September 2000, Intelligent Electronics, Inc. paid $314,000 plus interest of
$139,000 and reimbursement of certain costs in the amount of $20,000 to the
Company. Deutsche Financial, Inc. has requested that the Court reconsiders
various portions of its rulings, and an appeal of the final judgment is
expected.

Item 6. Exhibits and Reports on Form 8-K

a) Exhibits

Exhibits required as part of this Quarterly Report on Form 10-Q are listed in
the exhibit index on page 27.

b) Reports on Form 8-K

No report was filed during the third quarter of fiscal year 2000.


                                       25
<PAGE>

                                   SIGNATURES


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


                               Media 100 Inc.





Date:    October 16, 2000      By: /s/ Steven D. Shea
                                   -------------------------------
                                    Steven D. Shea
                                    Chief Financial Officer
                                    Treasurer


                                       26
<PAGE>

                                  EXHIBIT INDEX



                      Number                              Description
                      ------                              -----------



                        27          Financial Data Schedule


                                       27