<PAGE>

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

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

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

<Table>
<C>          <S>
 (Mark One)
    [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934



             FOR THE QUARTER ENDED MARCH 31, 2002



                                   OR




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

             FOR THE TRANSITION PERIOD FROM          TO
</Table>

                         COMMISSION FILE NUMBER 0-21126

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

                             SONICBLUE INCORPORATED
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                            <C>
                   DELAWARE                                      77-0204341
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)

        2841 MISSION COLLEGE BOULEVARD
           SANTA CLARA, CALIFORNIA                                 95054
   (Address of principal executive offices)                      (Zip Code)
</Table>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 588-8000

     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 [ ]

     The number of shares of the Registrant's Common Stock, $0.0001 par value,
outstanding at May 1, 2002 was 95,670,058.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                             SONICBLUE INCORPORATED

                                   FORM 10-Q

                                     INDEX

<Table>
<Caption>
                                                                       PAGE
                                                                       ----
<S>      <C>                                                           <C>
           PART I.  CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Item 1.  Condensed Consolidated Financial Statements:
         Condensed Consolidated Balance Sheets at March 31, 2002 and
         December 31, 2001...........................................    2
         Condensed Consolidated Statements of Operations for the
         three months ended March 31, 2002 and 2001..................    3
         Condensed Consolidated Statements of Cash Flows for the
         three months ended March 31, 2002 and 2001..................    4
         Notes to Unaudited Condensed Consolidated Financial
         Statements..................................................    5
Item 2.  Management's Discussion and Analysis of Financial Condition    16
         and Results of Operations...................................
Item 3.  Quantitative and Qualitative Disclosures About Market          38
         Risk........................................................

                        PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings...........................................   39
Item 6.  Exhibits and Reports on Form 8-K............................   42
Signatures...........................................................   43
</Table>

                                        1
<PAGE>

             PART I.  CONDENSED CONSOLIDATED FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                             SONICBLUE INCORPORATED

                     CONDENSED CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                               MARCH 31,     DECEMBER 31,
                                                                  2002           2001
                                                              ------------   ------------
                                                              (UNAUDITED)
                                                               (IN THOUSANDS, EXCEPT PER
                                                                     SHARE DATA )
<S>                                                           <C>            <C>
ASSETS
Current assets:
     Cash and other investments.............................   $  19,123      $  22,081
     Investment -- UMC......................................      84,064         75,907
     Accounts receivable, net...............................      33,607         30,986
     Inventories............................................      21,562         20,571
     Prepaid expenses and other.............................      14,057          8,003
                                                               ---------      ---------
          Total current assets..............................     172,413        157,548
Property and equipment, net.................................       6,843          7,218
Investment -- UMC...........................................      57,924         86,886
Deferred income taxes.......................................      15,197         15,197
Goodwill....................................................      73,585         71,969
Intangible assets...........................................      51,717         56,457
Other assets................................................      18,778         18,232
                                                               ---------      ---------
          Total.............................................   $ 396,457      $ 413,507
                                                               =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable.......................................   $  66,930      $  68,590
     Notes payable..........................................      10,022         15,826
     Accrued liabilities....................................      90,542         94,270
     Deferred income taxes..................................      15,197         15,197
                                                               ---------      ---------
          Total current liabilities.........................     182,691        193,883
Other liabilities...........................................      25,864         22,764
Convertible subordinated notes..............................     103,300        103,300
                                                               ---------      ---------
          Total liabilities.................................     311,855        319,947
                                                               ---------      ---------
Stockholders' equity:
     Preferred stock, $.0001 par value; 5,000,000 shares
      authorized; none outstanding..........................          --             --
     Common stock, $.0001 par value; 175,000,000 shares
      authorized; 94,910,707 and 93,054,332 shares
      outstanding at March 31, 2002 and December 31, 2001,
      respectively..........................................           9              9
     Additional paid-in capital.............................     587,044        583,922
     Unearned stock based compensation......................      (3,057)        (3,801)
     Accumulated other comprehensive gain (loss)............       4,736            993
     Retained earnings (accumulated deficit)................    (504,130)      (487,563)
                                                               ---------      ---------
Total stockholders' equity..................................      84,602         93,560
                                                               ---------      ---------
          Total.............................................   $ 396,457      $ 413,507
                                                               =========      =========
</Table>

    See accompanying notes to the unaudited condensed consolidated financial
                                  statements.
                                        2
<PAGE>

                             SONICBLUE INCORPORATED

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                                 THREE MONTHS ENDED
                                                              -------------------------
                                                               MARCH 31,     MARCH 31,
                                                                 2002          2001
                                                              -----------   -----------
                                                                     (UNAUDITED)
                                                              (IN THOUSANDS, EXCEPT PER
                                                                    SHARE DATA )
<S>                                                           <C>           <C>
Net sales to unaffiliated customers.........................    $ 65,067     $  32,178
Net sales to related party..................................          --        17,708
                                                                --------     ---------
Total net sales.............................................      65,067        49,886
Cost of sales...............................................      53,231        66,655
                                                                --------     ---------
Gross profit (loss).........................................      11,836       (16,769)
Operating expenses:
     Research and development...............................       4,325        10,675
     Selling, marketing and administrative..................      15,467        24,886
     Restructuring expense..................................       6,747            --
     Amortization of goodwill, intangibles and deferred
      compensation..........................................       4,111        11,124
                                                                --------     ---------
          Total operating expenses..........................      30,650        46,685
                                                                --------     ---------
Loss from operations........................................     (18,814)      (63,454)
Gain (loss) on UMC investment...............................       4,452      (458,038)
Gain (loss) on other investments............................        (761)         (732)
Interest expense............................................      (1,805)       (3,126)
Other income (expense), net.................................         361            14
                                                                --------     ---------
Income (loss) before income taxes...........................     (16,567)     (525,336)
Income tax expense (benefit)................................          --      (189,567)
                                                                --------     ---------
Net income (loss)...........................................    $(16,567)    $(335,769)
                                                                ========     =========
Earnings (loss) per share
     Basic..................................................    $  (0.18)    $   (4.16)
     Diluted................................................    $  (0.18)    $   (4.16)
Shares used in computing per share amounts:
     Basic..................................................      94,302        80,720
     Diluted................................................      94,302        80,720
</Table>

    See accompanying notes to the unaudited condensed consolidated financial
                                  statements.
                                        3
<PAGE>

                             SONICBLUE INCORPORATED

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                THREE MONTHS ENDED
                                                              ----------------------
                                                              MARCH 31,   MARCH 31,
                                                                2002         2001
                                                              ---------   ----------
                                                                   (UNAUDITED)
                                                                  (IN THOUSANDS)
<S>                                                           <C>         <C>
Operating activities
  Net income (loss).........................................  $ (16,567)  $ (335,769)
  Adjustments to reconcile net income (loss) to the net cash
     used for operating activities:
  Deferred income taxes.....................................         --     (189,814)
  Depreciation..............................................        751          803
  Amortization..............................................      4,111       11,124
  Impairment of long-lived assets...........................       (112)          --
  (Gain) loss on UMC investment.............................     (4,452)     458,038
  (Gain) loss on other investments..........................        761          114
  Changes in assets and liabilities:
  Accounts receivable.......................................     (3,250)     (15,325)
  Inventories...............................................       (991)       4,206
  Prepaid expenses and other assets.........................     (6,176)      (3,761)
  Accounts payable..........................................       (960)      (5,285)
  Accrued liabilities and other liabilities.................        522       13,949
                                                              ---------   ----------
          Net cash used for operating activities............    (26,363)     (61,720)
                                                              ---------   ----------
Investing activities
  Property and equipment purchases..........................       (265)         609
  Purchases of short-term investments.......................         --       68,058
  Sales and maturities of short-term investments............     28,976           --
  Acquisitions, net of cash acquired........................         --      (13,000)
  Equity investment in technology companies.................       (583)          --
  Other.....................................................       (107)      (4,738)
                                                              ---------   ----------
          Net cash from (used for) investing activities.....     28,021       50,929
                                                              ---------   ----------
Financing activities
  Sale of common stock......................................        932        2,514
  Net borrowing (repayments) of notes payable...............     (5,804)      (1,375)
                                                              ---------   ----------
          Net cash provided by (used for) financing
            activities......................................     (4,872)       1,139
                                                              ---------   ----------
Effect of exchange rate changes.............................         24          (18)
                                                              ---------   ----------
Net increase (decrease) in cash and cash equivalents........     (3,190)      (9,670)
Cash and cash equivalents at beginning of period............     15,251       36,582
                                                              ---------   ----------
Cash and cash equivalents at the end of the period..........  $  12,061   $   26,912
                                                              =========   ==========
</Table>

    See accompanying notes to the unaudited condensed consolidated financial
                                  statements.
                                        4
<PAGE>

                             SONICBLUE INCORPORATED

                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                              FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

     The condensed consolidated financial statements have been prepared by
SONICblue Incorporated, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include the accounts of SONICblue
Incorporated and its wholly owned subsidiaries ("SONICblue" or collectively the
"Company"). All significant inter-company balances and transactions have been
eliminated. Investments in entities in which the Company does not have control,
but has the ability to exercise significant influence over operating and
financial policies, are accounted for by the equity method. Certain information
and footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to such principles and the rules and regulations of the
Securities and Exchange Commission. In the opinion of the Company, the financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position at
March 31, 2002 and December 31, 2001, and the operating results and cash flows
for the three months ended March 31, 2002 and 2001. These financial statements
and notes should be read in conjunction with the Company's audited financial
statements and notes thereto for the year ended December 31, 2001, included in
the Company's Form 10-K filed with the Securities and Exchange Commission.

     The results of operations for the three months ended March 31, 2002 are not
necessarily indicative of the results that may be expected for the future
quarters or the year ending December 31, 2002. Certain reclassifications of 2001
amounts were made in order to conform to the 2002 presentation.

     This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. In particular, the Management's
Discussion and Analysis section of this Quarterly Report on Form 10-Q regarding
revenue growth, gross margin trends, amortization of intangible assets and cost
trends contain forward-looking statements and are qualified by the risks
detailed in "Factors That May Affect Our Results" and other risks detailed in
the Company's Annual Report on Form 10-K for the year ended December 31, 2001,
and other reports filed by SONICblue with the Securities and Exchange Commission
from time to time. Actual results could differ materially from those discussed
in these forward-looking statements as a result of the risks described above as
well as other risks set forth in SONICblue's periodic reports both previously
and hereafter filed with the Securities and Exchange Commission.

2.  SIGNIFICANT TRANSACTIONS

  PURCHASE OF SENSORY SCIENCE CORPORATION

     On June 27, 2001, SONICblue completed the acquisition of Sensory Science
Corporation, a developer of consumer electronics products, including dual deck
videocassette player/recorders and DVD players. The acquisition was accounted
for as a purchase. At closing, SONICblue issued approximately 1.3 million shares
of SONICblue common stock to Sensory Science stockholders in exchange for the
common stock of Sensory Science outstanding, and Sensory Science became a wholly
owned subsidiary of SONICblue. In connection with the acquisition of Sensory
Science, SONICblue had made loans to Sensory Science in the amount of $9.8
million, which became part of the purchase price.

     The purchase price of $21.7 million includes $7.2 million of stock issued
at fair value (fair value being determined as the average price of SONICblue
common stock at the date the exchange ratio was fixed per the merger agreement),
$0.3 million of stock option costs, cash paid to Sensory Science of $9.8 million
and $4.4 million in estimated expenses of the transaction. The purchase price
was allocated as follows: $(2.5) million to the estimated fair value of the
Sensory Science net tangible assets purchased, $0.9 million to purchased
in-process research and development, $0.9 million to purchased existing
technology, $1.2 million to

                                        5
<PAGE>
                             SONICBLUE INCORPORATED

                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                      FINANCIAL STATEMENTS -- (CONTINUED)

trade names, $1.1 million to workforce-in-place, $5.0 million to distribution
channel relationships and $15.1 million to goodwill. Goodwill is recorded as a
result of consideration paid in excess of the fair value of net tangible and
intangible assets acquired, principally due to estimated synergies of the
acquisition. Goodwill and identified acquisition related intangible assets are
amortized on a straight-line basis, generally over a five-year period. In
accordance with SFAS 142, goodwill amortization has ceased effective January 1,
2002. The allocation of the purchase price to intangibles was based upon
management's estimates. The purchase price and the related allocation are
subject to further refinement and change over the next twelve-month period
following the acquisition. Certain elements of the purchase price allocation are
still open to valuation such as inventory costs and Cal Audio product lines held
for sale.

  PURCHASE OF REPLAYTV, INC.

     On August 1, 2001, SONICblue completed the acquisition of ReplayTV, Inc., a
developer of personal television technology. The acquisition was accounted for
as a purchase. At closing, SONICblue issued 10.4 million shares of common stock
and an aggregate of 5.1 million options and warrants to purchase shares of
SONICblue common stock in exchange for all of ReplayTV's outstanding equity, and
ReplayTV became a wholly owned subsidiary of SONICblue. In connection with the
acquisition of ReplayTV, SONICblue had made loans to ReplayTV in the amount of
$20.0 million, which became part of the purchase price.

     The purchase price of $50.1 million includes $26.5 million of stock, $2.8
million of stock option costs, cash paid to ReplayTV of $20.0 million and $0.8
million in estimated expenses of the transaction. The purchase price was
allocated as follows: $(43.5) million to the estimated fair value of the
ReplayTV net tangible assets purchased, $4.2 million to purchased in-process
research and development, $17.5 million to purchased existing and core
technology, $19.5 million to non-compete agreements, $4.8 million to deferred
compensation and $47.6 million to goodwill. Goodwill is recorded as a result of
consideration paid in excess of the fair value of net tangible and intangible
assets acquired, principally due to estimated synergies of the acquisition and
the value of the workforce acquired. Goodwill will not be amortized, but will be
reviewed periodically for potential impairment, in accordance with SFAS 142. The
identified acquisition related intangible assets are amortized on a
straight-line basis, generally over a five-year period. The allocation of the
purchase price to intangibles was based upon a third party appraisal. The
purchase price and the related allocation are subject to further refinement and
change over the next twelve-month period following the acquisition. Certain
elements of the purchase price allocation are still open to valuation, such as
facilities costs and payables.

3.  SIGNIFICANT ACCOUNTING POLICIES

  REVENUE RECOGNITION

     In the fourth quarter of 2000, the Company implemented Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements," or SAB 101,
retroactively to January 1, 2000. SAB 101 requires that the following criteria
must be met before revenues can be recorded: (a) persuasive evidence that an
arrangement exists, (b) delivery has occurred or services have been rendered,
(c) the seller's price to the buyer is fixed or determinable, and (d)
collectibility is reasonably assured. There was no cumulative effect associated
with implementing SAB 101.

     Revenue for product sales to customers where the above criteria are met is
recognized upon product shipment. Revenue for product sales to customers where
one or more of the above criteria are not initially met is deferred until such
criteria have been met. SONICblue recognizes revenue on all Rio brand players
and Diamond brand modems sold through distributor channels on a sell-through
basis deferring all revenue until product is sold to the final customer. Revenue
from our ReplayTV branded products is recognized ratably over the estimated
useful life of the product.
                                        6
<PAGE>
                             SONICBLUE INCORPORATED

                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                      FINANCIAL STATEMENTS -- (CONTINUED)

     SONICblue records estimated reductions to revenue for customer programs and
incentive offerings, including price protection, promotions and special pricing
agreements. If a different number of customers redeem incentives than estimated,
additional adjustments to revenue may be required. Accruals for estimated sales
returns are recorded at the time of the sale. These estimates are based on
historical sales returns, analysis of credit memo data and other known factors.
If the historical data used to calculate these estimates is not representative
of future returns, additional adjustments to revenue may be required.

  INVENTORIES

     Inventories consist of raw materials, work in process and finished goods
and are stated at the lower of cost (first-in, first-out) or market. Our
products are manufactured, assembled and tested by contract manufacturers. In
determining market value, we make assumptions about future demand and market
conditions. We utilize a rolling forecast to determine excess and obsolete or
slow moving inventory reserve requirements. We may apply judgment to the amounts
thus identified in establishing the reserve requirements. If actual conditions
are less favorable than the assumptions used, additional inventory write-downs
may be required.

     Inventories consisted of:

<Table>
<Caption>
                                                              MARCH 31,   DECEMBER 31,
                                                                2002          2001
                                                              ---------   ------------
                                                                   (IN THOUSANDS)
<S>                                                           <C>         <C>
Raw materials...............................................   $ 1,525      $ 2,819
Work in process.............................................     4,489        1,188
Finished goods..............................................    15,548       16,564
                                                               -------      -------
  Total.....................................................   $21,562      $20,571
                                                               =======      =======
</Table>

4.  INVESTMENTS

  INVESTMENT IN UMC

     In 1995, SONICblue entered into a joint foundry venture with United
Microelectronics Corporation, or UMC, to build United Semiconductor Corporation,
or USC, a semiconductor manufacturing facility in Taiwan, R.O.C. In January
2000, USC merged with UMC and, as a result of the merger SONICblue received 252
million UMC shares in exchange for 252 million USC shares. The Company also
received stock dividends of approximately 50 and 32 million shares of UMC stock,
in April 2000 and August 2001, respectively. The Company sold 191 million shares
of UMC stock in 2001 and 21 million shares in the first three months of 2002 on
the Taiwan Stock Exchange. Under the terms of the USC merger with UMC, a portion
of the original number of UMC shares received by SONICblue are subject to
restrictions on their sale that lapse over a three-year period from the date of
the merger. At March 31, 2002, approximately 52 million shares were subject to
restrictions on sale that will lapse in one year or more and are recorded at
adjusted cost as a long-term investment. The unrestricted shares and shares
where the restrictions will lapse in one year or less are recorded as a current
asset and are marked-to-market value through other comprehensive income as
required by SFAS 115.

     At December 31, 2000, the market value of the investment in UMC had
declined to an amount significantly below its original cost basis. It was
determined at that point that this decline was related to the downturn in the
semiconductor industry as a whole and was temporary in nature due to the
historically cyclical nature of the industry. During the first half of 2001, the
Company concluded that the downturn in the semiconductor industry and the
economy in general appeared to be more severe than previously anticipated and
that there was a great deal of uncertainty regarding when the semiconductor
industry would recover from

                                        7
<PAGE>
                             SONICBLUE INCORPORATED

                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                      FINANCIAL STATEMENTS -- (CONTINUED)

this down cycle. At that time SONICblue concluded that the decline in value of
UMC was other than temporary and it reported an unrealized loss on the UMC
investment of $468 million based on the market value at June 20, 2001. For the
three months ended March 31, 2002, the Company realized a gain of $4.5 million
related to our sale of 21 million UMC shares.

     As of March 31, 2002, SONICblue's 106 million short and long-term UMC
shares were worth approximately $160 million, based on the closing price of UMC
shares on the Taiwan Stock Exchange and the prevailing U.S. dollar to New Taiwan
Dollar exchange rate on that date. The Company's available-for-sale portion of
the investment will be marked-to-market through other comprehensive income as
required by SFAS 115 for changes in market value subsequent to March 31, 2002
unless a further decline in market value is considered to be other than
temporary. If any decline is considered to be other than temporary, the decrease
in value of both the available-for-sale and long-term portions of the Company's
UMC investment will be recorded as expense in the statement of operations.

     During the first quarter 2002 SONICblue sold a portion of its UMC
derivative instruments and recorded the gain of $0.2 million in the income
statement in gain on other investments for the three months ended March 31,
2002.

  INTEREST IN REAL ESTATE PARTNERSHIP

     In 1995, the Company entered into a limited partnership arrangement (the
"partnership") with a developer to obtain a ground lease and develop and operate
the Company's current Santa Clara facilities. The Company invested $2.1 million
for a 50% limited partnership interest. On June 29, 1999, the Company entered
into an agreement to assign to the general partner the Company's entire interest
in the partnership for $7.8 million. The gain on the assignment of the Company's
partnership interest is being recognized over the term of the facilities lease,
which expires in 2008.

  INVESTMENT IN RIOPORT, INC.

     In October 1999, SONICblue caused RioPort, Inc. (formerly RioPort.com,
Inc.), which was a wholly owned subsidiary of SONICblue, to sell shares of its
preferred stock to third party investors. RioPort is developing an integrated
platform for acquiring, managing and experiencing music and spoken audio
programming from the Internet. As a result, SONICblue retains a minority
investment in RioPort and accounts for its investment using the equity method.
In addition, in November 1999, SONICblue received $10.9 million for the sale to
RioPort of OneStep, LLC, a software development company. In June 2000, RioPort
sold additional preferred stock to third party investors. As part of this
financing, the Company invested an additional $10.7 million in RioPort,
maintaining its percentage ownership of RioPort. In the fourth quarter of 2000,
RioPort sold additional preferred stock to third party investors. As of March
31, 2002, the Company held approximately 32% of RioPort's outstanding stock. The
Company recorded its equity in the loss of RioPort of $1.0 million and $0.1
million for the three months ended March 31, 2002 and 2001, respectively. As of
March 31, 2002, the Company was a contingent guarantor of RioPort's $2 million
bank line of credit. As of March 31, 2002 the bank balance was $0.7 million and
is included in SONICblue's reported losses for the quarter.

  INVESTMENT IN S3-VIA, INC.

     In November 1999, the Company established a 50.1% majority-owned corporate
joint venture with VIA to bring high-performance integrated graphics and core
logic chip sets to the volume OEM desktop and notebook PC markets. S3-VIA has
exclusive access to both companies' technology and distribution rights for
developed products between SONICblue and VIA. The Company consolidated the
accounts of S3-VIA in its consolidated financial statements through the third
quarter of 2001. VIA, acting as S3-VIA's exclusive
                                        8
<PAGE>
                             SONICBLUE INCORPORATED

                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                      FINANCIAL STATEMENTS -- (CONTINUED)

distributor, orders product from S3-VIA upon VIA's receipt of a third-party
order. Revenue is recognized by S3-VIA upon shipment to VIA. Net sales by S3-VIA
to VIA and receivables and payables between S3-VIA and VIA are classified as
related party revenues, receivables and payables in the Company's consolidated
financial statements. In the fourth quarter of 2001, the Company terminated its
participation in the management of S3-VIA. As a result, the Company wrote off
the net assets of the joint venture, which resulted in an unrecognized gain of
$0.7 million. Since the actual process of withdrawing from the venture will
continue and ultimately be a part of other negotiations that are on-going with
VIA, the Company has deferred recognition of any gain until a comprehensive
settlement of all outstanding issues is reached with VIA.

5.  INTANGIBLE ASSETS

     At December 31, 2001 intangible assets consist of the following (in
thousands):

<Table>
<Caption>
                                                                 DECEMBER 31, 2001
                                                      ----------------------------------------
                                                         GROSS      ACCUMULATED        NET
                                                      INTANGIBLES   AMORTIZATION   INTANGIBLES
                                                      -----------   ------------   -----------
                                                                   (IN THOUSANDS)
<S>                                                   <C>           <C>            <C>
Purchased technology................................    $25,239       $ (7,257)      $17,982
Trade names.........................................     10,765         (3,233)        7,532
Workforce-in-place..................................      4,067         (1,812)        2,255
Distribution channel relationships..................     16,549         (5,736)       10,813
Non-compete covenants...............................     19,500         (1,625)       17,875
                                                        -------       --------       -------
          Total.....................................    $76,120       $(19,663)      $56,457
                                                        =======       ========       =======
</Table>

     Intangible assets subject to amortization at December 31, 2001 totaled
$56.5 million, which we expect will be amortized as follows: $13.6 million for
the year 2002, $12.9 million for the year 2003, $12.1 million for the year 2004,
$10.4 million for the year 2005 and $6.1 million for the year 2006.

     The Company had goodwill of $72.0 million at December 31, 2001. Consistent
with the implementation of SFAS 142, the Company ceased to amortize this balance
beginning January 1, 2002. In accordance with SFAS 142, the Company will assess
goodwill for impairment on at least an annual basis and will record any
impairment charge in the period of the assessment.

     In accordance with SFAS 142, companies are required in the year of adoption
to exclude the impact of SFAS 142 from comparable interim periods until
pre-adoption periods are no longer presented. The following table adjusts the
Company's net loss to exclude the effects of goodwill and assembled workforce
amortization during the period ended March 31, 2001 (in thousands):

<Table>
<Caption>
                                                               THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              --------------------
                                                                2002       2001
                                                              --------   ---------
<S>                                                           <C>        <C>
Reported net loss...........................................  $(16,567)  $(335,769)
Plus FAS 142 adjustments:
  Goodwill amortization.....................................        --       9,317
  Assembled workforce amortization..........................        --         187
                                                              --------   ---------
Adjusted net loss...........................................  $(16,567)  $(326,265)
                                                              --------   ---------
Adjusted net loss per share.................................  $  (0.18)  $   (4.04)
                                                              --------   ---------
</Table>

                                        9
<PAGE>
                             SONICBLUE INCORPORATED

                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                      FINANCIAL STATEMENTS -- (CONTINUED)

6.  LINES OF CREDIT AND NOTES PAYABLE

     Sensory Science Corporation, a wholly owned subsidiary of SONICblue, has
loans under a line of credit with a financial institution, which has a maturity
date of March 25, 2003. The maximum line of credit is $25.0 million with a
borrowing limit of $22.5 million, limited by a borrowing base determined by
specific inventory and receivable balances of Sensory Science and an
availability block of $5.0 million. The line of credit is collateralized by
assets of Sensory Science Corporation and by a guarantee of SONICblue. Interest
is charged at prime plus 1.0%. Borrowings were $10.0 million under this facility
at March 31, 2002. In addition, SONICblue is required to either hold
unencumbered shares of UMC with a market value of at least $40.0 million or
deliver to the lender an irrevocable standby letter of credit with a face amount
of at least $10.0 million.

7.  EARNINGS (LOSS) PER SHARE

     Basic earnings (loss) per share ("EPS") are computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
would occur from any instrument or options, which could result in additional
common shares being issued. When computing earnings (loss) per share, the
Company includes only potential common shares that are dilutive. Exercise of
options and conversion of convertible debt in the three months ended March 31,
2002 and 2001 are not assumed because the result would have been anti-dilutive.

     The following table sets forth the computation of basic and diluted
earnings (loss) per share:

<Table>
<Caption>
                                                                     THREE MONTHS
                                                                   ENDED MARCH 31,
                                                              --------------------------
                                                                 2002           2001
                                                              -----------   ------------
                                                              (IN THOUSANDS, EXCEPT PER
                                                                    SHARE AMOUNTS)
<S>                                                           <C>           <C>
NUMERATOR
  Net income (loss)
     Basic..................................................   $(16,567)     $(335,769)
     Interest expense on subordinated debt..................         --             --
                                                               --------      ---------
     Diluted................................................   $(16,567)     $(335,769)
                                                               ========      =========
DENOMINATOR
     Denominator for basic earnings (loss) per share........     94,302         80,720
     Common stock equivalents...............................         --             --
     Subordinated debt......................................         --             --
                                                               --------      ---------
     Denominator for diluted earnings (loss) per share......     94,302         80,720
                                                               ========      =========
Basic earnings (loss) per share.............................   $  (0.18)     $   (4.16)
Diluted earnings (loss) per share...........................   $  (0.18)     $   (4.16)
</Table>

8.  COMPREHENSIVE INCOME (LOSS)

     The Company's available-for-sale securities and foreign currency
translation adjustments are included in other comprehensive income (loss).

                                        10
<PAGE>
                             SONICBLUE INCORPORATED

                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                      FINANCIAL STATEMENTS -- (CONTINUED)

     The following are the components of accumulated other comprehensive loss,
net of tax:

<Table>
<Caption>
                                                              MARCH 31,   DECEMBER 31,
                                                                2002          2001
                                                              ---------   ------------
                                                                   (IN THOUSANDS)
<S>                                                           <C>         <C>
Unrealized (gain) loss on investments.......................   $13,109      $ 9,390
Foreign currency translation adjustments....................    (8,373)      (8,397)
                                                               -------      -------
Accumulated other comprehensive income......................   $ 4,736      $   993
                                                               =======      =======
</Table>

     The following schedule of other comprehensive income (loss) shows the gross
current-period income (loss):

<Table>
<Caption>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                               2002       2001
                                                              -------   ---------
                                                                (IN THOUSANDS)
<S>                                                           <C>       <C>
Net unrealized gain on investments..........................  $3,719    $189,989
Foreign currency translation adjustments....................      24         (17)
                                                              ------    --------
Other comprehensive income (loss)...........................  $3,743    $189,972
                                                              ======    ========
</Table>

9.  CONTINGENCIES

     The Internet, digital media, entertainment and consumer electronics
industries are characterized by frequent litigation, including litigation
regarding patent and other intellectual property rights. SONICblue is party to
various legal proceedings that arise in the ordinary course of business. While
we currently believe that the ultimate outcome of these proceedings,
individually and in the aggregate, will not have a material adverse effect on
the Company's financial position or overall trends in results of operations,
litigation is subject to inherent uncertainties. There can be no assurance that
an adverse result or settlement with regard to these lawsuits would not have a
material adverse effect on SONICblue's financial condition or results of
operations.

     Beginning in November 1997, a number of complaints were filed in federal
and state courts seeking unspecified damages on behalf of an alleged class of
persons who purchased shares of SONICblue's common stock at various times
between April 18, 1996, and November 3, 1997. The complaints named as defendants
SONICblue, certain of its officers and former officers, certain directors of
SONICblue, and Deloitte & Touche, the company's former auditors, and asserted
that they violated federal and state securities laws by misrepresenting and
failing to disclose certain information about SONICblue's business. In addition,
certain stockholders filed derivative actions in the state courts of California
and Delaware seeking recovery on behalf of SONICblue, alleging, among other
things, breach of fiduciary duties by such individual defendants. The plaintiffs
in the derivative action in Delaware took no steps to pursue their case. The
derivative cases in California State court were consolidated, and plaintiffs
filed a consolidated amended complaint. The court entered a stipulated order in
those derivative cases suspending court proceedings and coordinating discovery
in them with discovery in the class actions in California State courts. In late
2001, the derivative plaintiffs gave notice terminating that stay, and the
parties stipulated that a second amended consolidated complaint might be filed
in April 2002. On plaintiffs' motion, the federal court dismissed the federal
class actions without prejudice. The class actions in California State court
were consolidated, and plaintiffs filed a consolidated amended complaint.
SONICblue answered that complaint and discovery proceeded. In January 2001, four
of the insurance carriers which issued directors and officers insurance to
SONICblue filed suit against all parties named as defendants in the securities
litigation, claiming that the carriers have no obligation to provide coverage
under the California Insurance Code. In May 2001, the court entered an order
staying the insurance action pending resolution of the securities litigation. In
February 2002, the California Superior Court for Santa Clara County entered its
preliminary approval of an agreement to settle the consolidated state court
class action lawsuit. Under the terms of the class action settlement, SONICblue
will contribute 2,401,501 shares of
                                        11
<PAGE>
                             SONICBLUE INCORPORATED

                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                      FINANCIAL STATEMENTS -- (CONTINUED)

SONICblue common stock and Deloitte & Touche will contribute up to $250,000 in
full settlement of all claims. In April 2002, the Superior Court granted final
approval to that settlement, dismissing the case. In May 2002, the Superior
Court also approved the settlement of the related California derivative
litigation. The derivative settlement calls for the defendants to contribute to
the settlement their respective benefits under certain directors and officers
insurance policies in an amount of approximately $4.6 million which, net of
attorneys' fees and litigation costs, would be paid to SONICblue. The total net
cost of these settlements to SONICblue, net of insurance, is expected to
approximate $8.6 million. These charges were recorded in SONICblue's fourth
quarter ended December 31, 2001. In addition the Company settled the claim of a
purchaser of the Company's common stock in 1996 and 1997, by payment of $100,000
and 300,000 shares of the Company's common stock, the net cost of $1.0 million
was recorded in the quarter ended March 31, 2002.

     SONICblue has also been defending several putative class action lawsuits
naming Diamond, which were filed in June and July 1996 and June 1997 in the
California Superior Court for Santa Clara County and the U.S. District Court for
the Northern District of California. The plaintiffs alleged that Diamond and the
other defendants made various material misrepresentations and omissions during
the class period. The parties have agreed to settle this matter for a payment of
$15.0 million, and final court approval of that settlement was obtained, and the
cases dismissed, in April 2002. SONICblue funded $4.5 million of the settlement
in November 2000. SONICblue previously accrued this amount in connection with
the merger with Diamond. SONICblue believes that Diamond's insurance covers the
remaining $10.5 million of the settlement; Diamond's insurers have funded that
amount into the settlement, although one of these insurers has commenced
arbitration disputing its obligation to pay $3.0 million of the $10.5 million.
The contesting insurer maintains that indemnification of its share of the
settlement is barred by virtue of a recent California appellate decision. The
arbitration tribunal issued an order in April 2002, stating that the California
state law claim in the class action was uninsurable, but that factual questions
were presented as to the allocation of the settlement amount as between the
state law claim and other claims included in the settlement documents. Further
proceedings are contemplated before the tribunal, but no schedule has as yet
been set.

     On February 14, 2000, Robert C. Price filed a purported class action
lawsuit in the Circuit Court of Monroe County, State of Indiana against the
Company and Diamond alleging violations of the California Business and
Professions Code section 17200 and the California Song-Beverly Act, which covers
consumer warranties. The lawsuit alleges that certain of the Company's Rio 300
MP3 player retail boxes, which were discontinued in approximately 1999, are
misleading because the boxes indicate that computer software included in the
package allows the purchaser to convert audio tracks on CDs to the MP3 audio
format, but the software included with the product permitted only 50
conversions. The Company answered the complaint on April 27, 2000, denying
plaintiff's allegations. Status conferences were conducted on July 26, 2000,
January 10, 2001, and April 17, 2002. Discovery has commenced. No class has been
certified, but the briefing on the plaintiff's motion for class certification is
expected to be completed by early October 2002, with a hearing on class
certification issues to be scheduled thereafter. SONICblue intends to contest
the certification of the purported class, dispute the lawsuit's allegations and
defend this action vigorously.

     On June 19, 2000, an individual, Valentin Pepelea, filed a lawsuit against
ReplayTV, Inc. in Santa Clara County Superior Court alleging that ReplayTV and
its founders misappropriated trade secrets allegedly disclosed by Mr. Pepelea in
discussions with the founders in the spring of 1997, and that he had been
promised a founder's share in ReplayTV. On January 17, 2001, Mr. Pepelea amended
his complaint to seek licensing royalties as a remedy. The parties entered into
a written settlement agreement in this matter in March 2002 and Mr. Pepelea has
dismissed his complaint.

     In October and November, 2001, a group of 28 entertainment companies
including, among others, Paramount Pictures Corporation, Disney Enterprises,
Inc. and the three major television networks filed four lawsuits against
SONICblue and its ReplayTV, Inc. subsidiary in the U.S. District Court in Los
Angeles,

                                        12
<PAGE>
                             SONICBLUE INCORPORATED

                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                      FINANCIAL STATEMENTS -- (CONTINUED)

California. The lawsuits allege that the Company's planned manufacture and sale
of the ReplayTV 4000, which allows users to skip commercials and to use the
Internet to send recorded material to other ReplayTV 4000 users, constitutes
copyright infringement, among other claims. The plaintiffs in the lawsuits are
seeking an injunction prohibiting the Company from including these features in
its video products. Although one of the lawsuits originally alleged that the
Company's Go-Video VCRs featuring the commercial skipping technology similarly
violate the copyright laws, in their amended complaint plaintiffs eliminated
these claims in November 2001. The parties have commenced discovery. The
District Court preliminarily scheduled a consolidated trial in August 2002 but
removed the trial from its calendar in April 2002 and has not set a new trial
date. SONICblue intends to dispute the plaintiffs' claims and defend this action
vigorously.

     In November 2001, Pac Tec, a division of La France Corporation, filed a
civil action against the Company and one of its suppliers, Manufacturers'
Services Limited, in the United States District Court for the Eastern District
of Pennsylvania, alleging claims against both defendants jointly for breach of
contract and promissory estoppel. The plaintiff seeks damages in excess of $2.5
million, plus prejudgment interest and costs of suit. In February 2002, the
Company filed a motion to dismiss the complaint, which the plaintiff has
opposed. The judge has not set a hearing date for the motion. SONICblue intends
to dispute the plaintiff's claims and vigorously defend itself against this
action.

     In November 2001, four former holders of ReplayTV preferred shares filed a
petition for appraisal in the Chancery Court in the State of Delaware asserting
their dissenters rights of appraisal and seeking the fair value of their
ReplayTV shares in cash in lieu of the SONICblue shares to be issued to them as
provided in SONICblue's merger agreement with ReplayTV. In December 2001,
ReplayTV filed its response to plaintiffs' petition. In addition, in December
2001, the same four former holders of ReplayTV preferred shares filed a
complaint in the Chancery Court in the State of Delaware asserting that ReplayTV
and its former directors breached their fiduciary duties in connection with
Replay's merger by engaging in self-dealing, failing to make appropriate
disclosures to shareholders and failing to maximize the value for them in the
merger, resulting in an allocation of an insufficient amount of the merger
consideration to the ReplayTV preferred stockholders. The complaint seeks "at
least $7,249,990.50" in damages. In its merger agreement with ReplayTV,
SONICblue agreed to indemnify ReplayTV's former directors against this type of
lawsuit, among other things. In February 2002, ReplayTV and the former ReplayTV
directors filed their answer. SONICblue and ReplayTV intend to dispute the
plaintiffs' claims and vigorously defend these actions. The cases are currently
in the pretrial discovery stage.

     On November 28, 2001, Techsearch, LLC filed a complaint for patent
infringement against a number of consumer electronics companies, including
SONICblue, in the United States District Court for the Northern District of
Illinois. Techsearch's complaint generally alleges that SONICblue is infringing
one of its patents by making, selling, and offering to sell its Rio Volt CD
players that are capable of playing CDs encoded with audio tracks in the MP3
format. SONICblue intends to dispute the plaintiff's claims and vigorously
defend itself against the allegations made in Techsearch's complaint. This
action was stayed by order of the Court on or about May 1, 2002, pending a
reexamination of the patent asserted by Techsearch by the U.S. Patent and
Trademark Office.

     On December 12, 2001, SONICblue filed a complaint for patent infringement
against TiVo, Inc. in the United States District Court for the Northern District
of California. SONICblue's complaint generally alleges that TiVo is infringing
one of its patents by licensing and offering to license its DVR technology and
offering its program guide service. In response, TiVo filed an answer and
counterclaim against SONICblue that denies infringement of SONICblue's patent
and that alleges that the patent is invalid. On January 23, 2002, TiVo filed a
separate action in the same court, but assigned to a different judge, that
generally alleges that SONICblue is infringing one of TiVo's patents by making,
selling and offering to sell its ReplayTV DVRs. SONICblue intends to vigorously
defend itself against the allegations made in TiVo's complaint and counterclaim.

                                        13
<PAGE>
                             SONICBLUE INCORPORATED

                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                      FINANCIAL STATEMENTS -- (CONTINUED)

     The investment agreement between SONICblue, VIA and S3 Graphics provides
that under certain circumstances, SONICblue may be required to pay VIA
significant liquidated damages if, unless as a result of certain acts or
omissions on the part of either VIA or S3 Graphics, S3 Graphics is prevented by
court order from utilizing SONICblue's patent cross-license with Intel
Corporation or if SONICblue enters into a settlement agreement with Intel such
that S3 Graphics can no longer operate under the patent cross-license. In
September 2001, Intel filed a patent infringement lawsuit against S3 Graphics
and VIA. SONICblue is not a party to the lawsuit. The lawsuit is in early
stages. Any liquidated damages that SONICblue might be required to pay to VIA
under the investment agreement may under certain circumstances be reduced by
amounts paid by SONICblue to Intel in connection with any lawsuit and amounts
owed to SONICblue by either VIA or S3 Graphics. While we currently believe that
the ultimate outcome of these proceedings will not have a material adverse
effect on the Company's financial position or overall trends in results of
operations, litigation is subject to inherent uncertainties. An adverse result
or settlement with regard to these proceedings could have a material adverse
effect on SONICblue's financial condition or results of operations.

10.  NEW ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combination" ("SFAS 141") and
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 eliminates the pooling-of-interests
method of accounting for business combinations except for qualifying business
combinations that were initiated prior to June 1, 2001. SFAS 141 further
clarifies the criteria to recognize intangible assets separately from goodwill.
The requirements of SFAS 141 are effective for any business combination
accounted for by the purchase method that is completed after June 30, 2001.
Under SFAS 142, goodwill and indefinite-lived intangible assets are no longer
amortized but are reviewed annually (or more frequently if impairment indicators
arise) for impairment. Separable intangible assets that are not deemed to have
an indefinite life will continue to be amortized over their useful lives. We
adopted SFAS 142 on January 1, 2002. During 2002, we will perform the first of
the required impairment tests of goodwill as of January 1, 2002, and we have not
yet determined what the effect of these tests will be on our earnings and
financial position. Any impairment resulting from our initial application of the
statement will be recorded as a cumulative effect accounting change as of
January 1, 2002, and will be reflected in our second quarter results.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. The provisions of SFAS 144 was effective
January 1, 2002. The adoption of SFAS 144 did not have an impact on our
consolidated financial position and results of operations.

11.  RESTRUCTURING EXPENSE AND IMPAIRMENT CHARGE

     In April 2001, the Company adopted a restructuring plan relating to the
change in its business strategy to address changes in the market due to
technology changes, customer demands, and methods of distribution to reflect its
long-term strategy and focus. Specific actions taken in 2001 included reducing
the Company's workforce worldwide by approximately 200 employees, consolidating
facilities, discontinuing unprofitable products and closing offices in
unprofitable locations. Restructuring expenses of $130 million in 2001 related
to the restructuring plan primarily included the write-off of goodwill and other
intangibles ($110 million), facilities closure expenses ($9 million), personnel
severance compensation and related expenses ($6 million) and contract
termination and other costs ($5 million). As part of the restructuring, the
Company also wrote off $60 million of inventory, through cost of sales in 2001.

                                        14
<PAGE>
                             SONICBLUE INCORPORATED

                   NOTES TO UNAUDITED CONDENSED CONSOLIDATED
                      FINANCIAL STATEMENTS -- (CONTINUED)

     Due to the circumstances created by the significant downturns in the
digital media markets, the Company recorded an impairment charge against the
goodwill and intangibles associated with its acquisitions of Diamond Multimedia,
RioPort, and Empeg Limited. These downturns negatively affected the forecasted
revenues and cash flows from the Diamond and Empeg Limited businesses acquired
in 1999 and 2000. In accordance with the Company's policy, undiscounted cash
flows indicated that the assets were impaired. The Company calculated the
impairment charge by comparing the expected discounted future cash flows to the
carrying amount of the related intangible assets.

     In the first quarter of 2002, the Company continued the restructuring
efforts described above. Specific actions taken included a further reduction of
the Company's workforce by approximately 30 employees and consolidating
facilities. Restructuring expenses of $6.7 million in the first quarter of 2002
related to the restructuring plan included personnel severance compensation and
related expenses ($1.3 million), and facilities related expenses and other costs
($5.4 million).

     The related accrued restructuring charges activity was as follows (in
thousands):

<Table>
<Caption>
                                                SEVERANCE         REDUNDANT
                                             COMPENSATION AND    FACILITIES     CONTRACT AND
                                             RELATED EXPENSES   RELATED COSTS   OTHER COSTS     TOTAL
                                             ----------------   -------------   ------------   -------
<S>                                          <C>                <C>             <C>            <C>
Balance December 31, 2001..................       $2,643           $ 6,563         $1,387      $10,593
Restructuring Charges......................        1,254             6,243           (750)       6,747
Cash Payments..............................         (831)             (302)           (53)      (1,186)
Non-Cash Charges...........................           --                --             --           --
                                                  ------           -------         ------      -------
Balance March 31, 2002.....................       $3,066           $12,504         $  584      $16,154
                                                  ======           =======         ======      =======
</Table>

12.  SUBSEQUENT EVENT

     In April 2002, we completed a private placement of $75.0 million in
aggregate principal amount of our 7 3/4% secured senior subordinated convertible
debentures due 2005 to three institutional investors. We also issued warrants to
purchase up to 7,500,000 shares of our common stock in the transaction to the
investors, and a warrant to purchase 293,805 shares of our common stock to the
placement agent for the transaction. The private placement resulted in gross
proceeds to us, prior to the exercise of the warrants, of approximately $62.3
million. The sale of the debentures and the warrants closed on April 22, 2002.
The debentures are convertible into SONICblue common stock at a conversion price
of $19.22 per share subject to standard anti-dilution adjustments. The warrants
are fully vested and exercisable at any time until April 22, 2007 at an exercise
price of $3.39 per share subject to standard anti-dilution adjustments. Under
the terms of the debentures we may pay up to 50% of the interest payments on the
debentures in shares of our common stock. Our repayment obligation on the
debentures is secured by a pledge of 21,426,586 shares of UMC. The institutional
investors also have an option to purchase these UMC shares from us.

                                        15
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     When used in this discussion, the words "expects," "anticipates,"
"believes," "estimates" and similar expressions are intended to identify
forward-looking statements. These statements, which include statements as to the
Company's sources of revenues, development of technology and products, product
mix, the percentage of net sales represented by any particular new or current
product, customer concentration, trends in average selling prices, seasonality
and trends in shipment levels, the percentage of export sales, interest charges
and fees associated with the Company's outstanding debt and bank financing,
income tax benefits, the use of the proceeds from the Company's private
financing of its secured senior subordinated convertible debentures, trends in
net loss, net income, gross margins and cash flow, expected cash requirements,
expected expense levels and plans to reduce expenses, improve supply chain
management and focus on higher volume and margin products, the availability and
cost of products from the Company's suppliers, ability to compete, investments
in research and development, capital expenditures, capital requirements and
adequacy of capital resources, expected stock dividends from our UMC stock,
plans regarding future financing alternatives, the impact and timing of the
Company's current and future litigation, the Company's strategy with regard to
protecting its proprietary technology and the Company's ability to forecast
demand for its products, are subject to risks and uncertainties that could cause
actual results to differ materially from those projected. These risks and
uncertainties include, but are not limited to, those risks discussed below, as
well as risks relating to SONICblue's ability to develop and timely introduce
and ship in volume products that address market demands, manufacturing
difficulties, the cost and availability of component products, decreases in
average selling prices, timing and volume of shipments of new products,
SONICblue's ability to work with strategic partners and OEMs, the ability of the
Company to obtain and retain customers, the impact of alternative technological
advances and competitive products, the value of the Company's shares of UMC
common stock and declines in the semiconductor industry, market fluctuations,
developments in and expenses relating to litigation, SONICblue's ability to
complete business transactions and integrate acquired businesses in a timely
manner, the costs of integrating acquired businesses and technologies, and the
matters discussed in "Factors That May Affect Our Results." These
forward-looking statements speak only as of the date hereof. The Company
expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward-looking statements contained herein to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any statement is based.

OVERVIEW

     SONICblue designs, develops and markets products for the converging
Internet, digital media, entertainment and consumer electronics markets. Our
products include Rio digital audio players, ReplayTV personal television
technology and software solutions, and Go-Video Dual-Deck VCRs and integrated
DVD+VCRs. Prior to the transfer in January 2001 of our graphics chips business
to S3 Graphics Co., Ltd., we were a supplier of graphics and multimedia
accelerator subsystems for PCs for over ten years.

ACQUISITIONS AND DIVESTITURES

     On August 1, 2001, SONICblue completed the acquisition of ReplayTV, Inc., a
developer of personal television technology. The acquisition was accounted for
as a purchase. At closing, SONICblue issued 10.4 million shares of common stock
and assumed an aggregate of 5.1 million options and warrants to purchase shares
of SONICblue common stock in exchange for all of ReplayTV's outstanding equity,
and ReplayTV became a wholly owned subsidiary of SONICblue. Prior to closing the
acquisition, SONICblue made loans to ReplayTV in the amount of $20.0 million,
which became part of the purchase price.

     On June 27, 2001, SONICblue completed the acquisition of Sensory Science
Corporation, a developer of consumer electronics products, including dual deck
videocassette player/recorders and DVD players. The acquisition was accounted
for as a purchase. At closing, SONICblue issued approximately 1.3 million shares
of SONICblue common stock to Sensory Science stockholders in exchange for the
common stock of Sensory Science outstanding, and Sensory Science became a wholly
owned subsidiary of SONICblue. Prior to closing the acquisition, SONICblue made
loans to Sensory Science in the amount of $9.8 million, which became part of the
purchase price.
                                        16
<PAGE>

     In March 2001, SONICblue completed the sale to ATI Technologies, Inc.
("ATI") of its professional graphics division, based in Starnberg, Germany,
which produced the Fire GL line of graphics accelerators. Under the terms of an
Asset Purchase Agreement, SONICblue has received $7.9 million in cash through
March 31, 2002, and is eligible to receive further financial consideration of up
to $2.1 million contingent upon the Fire GL graphics business, as operated by
ATI, achieving future performance targets.

     In January 2001, SONICblue completed the transfer of its graphics chips net
assets, other than its shares of common stock of S3-VIA, Inc. ("S3-VIA"), to S3
Graphics Co., Ltd. ("S3 Graphics"), a joint venture between VIA Technologies,
Inc. ("VIA") and a wholly owned subsidiary of SONICblue. The joint venture
manufactures and distributes semiconductor products and conducts related
research and development activities. Pursuant to the joint venture agreement
with VIA, SONICblue received 13 million shares of SONICblue common stock in
return for a reduction of its economic interest in the future operations of the
joint venture to 0.1%. Under the joint venture agreement, SONICblue will also
receive earn-out payments if the new venture meets specified profitability
goals.

     In November 2000, SONICblue acquired United Kingdom digital audio equipment
manufacturer Empeg Limited, known as empeg, at an initial purchase price of $1.9
million. This acquisition was accounted for as a purchase. In November 2001, a
purchase price adjustment of $1.1 million was recorded resulting in a total
purchase price of $3.0 million.

     In August 2000, SONICblue shut down its Diamond Multimedia-branded graphics
add-in board business. The shutdown did not extend to SONICblue's professional
graphics division, headquartered in Germany, which continued to develop and
market its line of Fire GL graphics accelerators until, as discussed above,
SONICblue sold its professional graphics division to ATI Technologies.

RESULTS OF OPERATIONS

     The following table sets forth certain financial data for the periods
indicated as a percentage of net sales:

<Table>
<Caption>
                                                              THREE MONTHS ENDED
                                                                  MARCH 31,
                                                              ------------------
                                                              2002        2001
                                                              -----     --------
<S>                                                           <C>       <C>
Net sales...................................................  100.0%       100.0%
Cost of sales...............................................   81.8        133.6
                                                              -----     --------
Gross profit (loss).........................................   18.2        (33.6)
Operating expenses:
     Research and development...............................    6.6         21.4
     Selling, marketing and administrative..................   23.8         49.9
     Restructuring expense..................................   10.4           --
     Amortization of goodwill, intangibles and deferred
       compensation.........................................    6.3         22.3
                                                              -----     --------
          Total operating expenses..........................   47.1         93.6
Loss from operations........................................  (28.9)      (127.2)
Gain (loss) on UMC investment...............................    6.8       (918.2)
Gain (loss) on other investments............................   (1.2)        (1.4)
Interest expense............................................   (2.8)        (6.3)
Other income (expense), net.................................    0.6           --
                                                              -----     --------
Income (loss) before income taxes...........................  (25.5)    (1,053.1)
Income tax expense (benefit)................................     --       (380.0)
                                                              -----     --------
Net income (loss)...........................................  (25.5)%     (673.1)%
                                                              =====     ========
</Table>

                                        17
<PAGE>

  NET SALES

     Our products are used in, and our business is dependent upon, the
converging Internet, digital media, entertainment and consumer electronics
markets. Sales of our products are primarily in the United States and to a
lesser extent in Asia and Europe.

     Net sales were $65.1 million for the three months ended March 31, 2002, an
increase of 30.5% from $49.9 million for the three months ended March 31, 2001.
Net sales increased from 2001 to 2002 primarily due to the inclusion of sales
from our recent acquisitions of Sensory Science and, to a lesser extent,
ReplayTV. Net sales for the three months ended March 31, 2002 consisted
primarily of consumer electronics products, including our Rio branded digital
audio players, Sensory Science video products and to a lesser extent our Diamond
brand modems. Net sales for the three months ended March 31, 2001 consisted
primarily of our Diamond brand modems, PDA and communications products, Rio
digital audio players and net sales from our S3-VIA joint venture.

     We expect that the percentage of our net sales represented by any one
product or type of product may change significantly from period to period as new
products are introduced and existing products reach the end of their life
cycles. We anticipate that the majority of our revenues will be generated from
our consumer electronics product lines and to a lesser extent our modem product
line. No further significant revenues are anticipated from chips, boards or
S3-VIA, Inc. Due to competitive price pressures, our products experience
declining average selling prices over time, which at times can be substantial.

     International sales accounted for 4% and 28% of net sales for the three
months ended March 31, 2002 and 2001, respectively, excluding the net sales of
S3-VIA, Inc. International sales decreased as a result of our shift in business
and focus on the converging Internet, digital media, entertainment and consumer
electronics markets which are predominantly domestic sales. There can be no
assurances that international sales as a percentage of net sales will remain at
current levels. All sales transactions are denominated in U.S. dollars.

     Three retailers accounted for 25%, 18% and 12% of net sales in the three
months ended March 31, 2002. Two customers and two distributors accounted for
13%, 13%, 12% and 11% of net sales for the three months ended March 31, 2001,
excluding the sales of S3-VIA, Inc. We expect a significant portion of our
future sales to remain concentrated within a limited number of strategic
customers. Sales to any particular customer may fluctuate significantly from
quarter to quarter.

  GROSS MARGIN

     We had a positive gross margin of 18.2% for the three months ended March
31, 2002, as compared with a negative gross margin of 33.6% for the three months
ended March 31, 2001. The increase in margin for the three months ended March
31, 2002 was primarily the result of adding the Sensory Science product lines,
supply chain management efficiencies and, to a lesser extent, the benefit of
decreased liabilities for certain purchase commitments made with one of our
contract manufacturers. The increase in gross margin was partially offset by
increased costs from the introduction of new products during the quarter and
related product transition costs. In the future, our gross margin percentages
may be affected by increased competition and related decreases in the unit
average selling prices particularly with respect to older generation products,
timing and volume of shipments of new products, the availability and cost of
products from our suppliers, changes in the mix of products sold and the extent
to which we incur or obtain additional licensing fees.

  RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenses consist primarily of salaries, related
benefits, and fees for consulting services. We have made and intend to continue
to make significant investments in research and development to remain
competitive by developing new and enhanced products. Research and development
expenses were $4.3 million for the three months ended March 31, 2002, a decrease
of $6.4 million from $10.7 million for the three months ended March 31, 2001.
This decrease was primarily due to a reduction in headcount and related
personnel costs resulting from the shutdown of our multimedia board business and
the transfer of our graphics

                                        18
<PAGE>

chips business. We intend to continue to focus on core technology and products
while concentrating on efforts to reduce overhead, headcount and related costs.

  SELLING, MARKETING AND ADMINISTRATIVE EXPENSES

     Selling, marketing and administrative expenses consist primarily of
salaries, related benefits, selling costs, facilities costs and fees for
professional services, such as legal and accounting services. Selling, marketing
and administrative expenses were $15.5 million for the three months ended March
31, 2002, a decrease of $9.4 million from $24.9 million for the three months
ended March 31, 2001. Selling, marketing and administrative expenses decreased
from the same period in the prior year primarily due to a reduction in headcount
and related personnel costs resulting from the shutdown of our multimedia board
business and the transfer of our graphics chips business and restructuring
activities in 2001. We expect a further reduction of these costs during the
upcoming year, due to further cost containment efforts and as the benefits of
our restructuring activities are fully realized. As a percentage of net sales,
selling, marketing and administrative expenses decreased from 49.9% in 2001 to
23.8% in 2002.

  AMORTIZATION OF GOODWILL, INTANGIBLES AND DEFERRED COMPENSATION

     Amortization of goodwill and intangibles decreased from $11.1 million for
the three months ended March 31, 2001 to $4.1 million for the three months ended
March 31, 2002. This decrease is due to the write off in 2001 of approximately
$110 million of goodwill and other intangibles, primarily related to the
acquisition of Diamond Multimedia Systems, Inc. and the implementation of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). Deferred compensation expense increased from $0
for the three months ended March 31, 2001 to $0.7 million for the three months
ended March 31, 2002 resulting from the acquisition of ReplayTV, Inc. in August
2001.

     Amortization charges should continue to decrease in 2002 due to the impact
of the 2001 write off noted above and the implementation of SFAS 142. SFAS 142
requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized but be reviewed at least annually for impairment. Intangible
assets with finite useful lives will continue to be amortized over their
respective useful lives.

     Excluding the adoption of SFAS 142, goodwill amortization would have been
an incremental $4.2 million in amortization expense for the three months ended
March 31, 2002. Total amortization charges for goodwill, intangibles and
deferred compensation would have been $8.3 million for the three months ended
March 31, 2002 compared to $11.1 million for the three months ended March 31,
2001.

  GAIN (LOSS) ON UMC INVESTMENT

     In 1995, SONICblue entered into a joint foundry venture with United
Microelectronics Corporation, or UMC, to build United Semiconductor Corporation,
or USC, a semiconductor manufacturing facility in Taiwan, R.O.C. In January
2000, USC merged with UMC and, as a result of the merger, SONICblue received 252
million UMC shares in exchange for 252 million USC shares. The Company also
received stock dividends of approximately 50 and 32 million shares of UMC stock,
in April 2000 and August 2001, respectively. The Company sold 191 million shares
of UMC stock in 2001 and 21 million shares in the first three months of 2002 on
the Taiwan Stock Exchange. Under the terms of the USC merger with UMC, a portion
of the original number of UMC shares received by SONICblue are subject to
restrictions on their sale that lapse over a three-year period from the date of
the merger. At March 31, 2002, approximately 52 million shares were subject to
restrictions that will lapse in one year or more and are recorded at adjusted
cost as a long-term investment. The unrestricted shares and shares where the
restrictions will lapse in one year or less are recorded as a current asset and
are marked-to-market value through other comprehensive income as required by
SFAS 115.

     At December 31, 2000, the market value of the investment in UMC had
declined to an amount significantly below its original basis. It was determined
at that point that this decline was related to the downturn in the semiconductor
industry as a whole and was temporary in nature due to the historically cyclical
nature of the industry. During the first half of 2001, the Company concluded
that the downturn in the
                                        19
<PAGE>

semiconductor industry and the economy in general appeared to be more severe
than previously anticipated and that there was a great deal of uncertainty
regarding when the semiconductor industry would recover from this down cycle.
Because SONICblue concluded that the decline in value of UMC was other than
temporary, it reported an unrealized loss on the UMC investment of $468 million
based on the market value at June 30, 2001.

     As of March 31, 2002, SONICblue's 106 million UMC shares were worth
approximately $160 million, based on the closing price of UMC shares on the
Taiwan Stock Exchange and the prevailing U.S. dollar to New Taiwan Dollar
exchange rate on that date. The Company's available-for-sale portion of the
investment will be marked-to-market through other comprehensive income as
required by SFAS 115 for changes in market value subsequent to March 31, 2002
unless a further decline in market value is considered to be other than
temporary. If any further decline is considered to be other than temporary, the
decrease in value of both the available-for-sale and long-term portions of the
Company's UMC investment will be recorded as an expense in the statement of
operations.

  GAIN (LOSS) ON OTHER INVESTMENTS

     In the three months ended March 31, 2002, we recognized a loss of $0.8
million primarily related to the write-down of certain equity investments which
were partially offset by gains received from the sale of a portion of our UMC
derivative instruments. In the three months ended March 31, 2001, we recognized
a loss of $0.7 million primarily related to the write down of certain equity
investments. The downturn in the economy, particularly in the high technology
sector, contributed to the decline in the market value of these securities. The
remaining value of these cost based equity investments totaled $14.4 million as
of March 31, 2002.

  INTEREST EXPENSE

     Interest expense decreased to $1.8 million for the three months ended March
31, 2002 down from $3.1 million for the three months ended March 31, 2001. This
decrease is primarily due to decreased interest and bank fees associated with
lines of credit and decreased borrowings. During the fourth quarter of 2001, we
paid off our remaining loan balance with China Trust. We expect to continue to
incur significant interest charges associated with our convertible subordinated
debt and, to a lesser extent, interest and fees associated with our bank
financing.

  OTHER INCOME (EXPENSE), NET

     Other income was $0.4 million for the three months ended March 31, 2002,
compared to less than $0.1 million for the three months ended March 31, 2001.
The increase in other income was due primarily to interest on the receipt of a
tax refund.

  INCOME TAXES

     Our effective tax rate for the three months ended March 31, 2002 and 2001
was 0.0% and 28.9%, respectively. The effective tax rate reflects expected tax
payments on the adjusted taxable income at the federal, state and international
statutory rates. Due to uncertainty associated with our prospective ability to
realize the benefits of our tax assets, we have fully reserved the value of our
deferred tax assets and do not expect to record any tax benefit associated with
any further operating losses during the upcoming year.

LIQUIDITY AND CAPITAL RESOURCES

     Cash used for operating activities was $26.4 million for the three months
ended March 31, 2002 and consisted primarily of our net loss of $16.6 million,
which included a non-operating gain on our UMC investment of $4.5 million and
prepaid inventory and insurance costs of $6.2 million. Cash used for operating
activities for the three months ended March 31, 2001 was $61.7 million. Our net
loss of $335.8 million for the three months ended March 31, 2001 included a
non-cash loss on our UMC investment of $458.0 million, and a deferred tax
benefit of $189.8 million.
                                        20
<PAGE>

     Investing activities provided cash of $28.0 million for the three months
ended March 31, 2002 and consisted primarily of sales and maturities of
short-term investments including $29.0 million received from the sale of 21
million UMC shares on the Taiwan Stock Exchange. Investing activities provided
cash of $50.9 million for the three months ended March 31, 2001 and consisted
primarily of the sale of short-term investments, net, partially offset by $13.0
million of loans to ReplayTV and Sensory Science prior to acquisition.

     Financing activities used cash of $4.9 million for the three months ended
March 31, 2002 and consisted of $5.8 million for repayments of notes payable
partially offset by $0.9 million from sales of common stock. Financing
activities provided cash of $1.1 million for the three months ended March 31,
2001, which primarily resulted from the sale of common stock, partially offset
by repayments of notes payable.

     We had a working capital deficit of $10.3 million at March 31, 2002. This
working capital deficit is primarily attributable to the significant degradation
in the value of our available-for-sale UMC holdings, combined with continued
operating losses and our investments in Sensory Science and ReplayTV. We funded
our 2002 and 2001 operating losses and investment activities primarily through
the sale of a portion of our holdings in UMC.

     A portion of the UMC shares received by SONICblue are subject to
restrictions on their sale that lapse over a three-year period. At March 31,
2002, approximately 51 million shares were subject to restrictions that will
lapse in more than one year and are recorded at adjusted cost as a long-term
investment. The unrestricted shares, include shares where the restrictions will
lapse in one year or less. These shares are recorded as a current asset and are
marked-to-market value through other comprehensive income. In addition, we
expect to receive a declared stock dividend of 15 million shares of available
for sale and freely tradable stock in August 2002.

     Sensory Science Corporation, a wholly owned subsidiary of SONICblue, has
loans under a line of credit with Congress Financial Corporation, which has a
maturity date of March 25, 2003. The maximum line of credit is $25.0 million
with a borrowing limit of $22.5 million, limited by a borrowing base determined
by specific inventory and receivable balances of Sensory Science and an
availability block of $5.0 million. The line of credit is collateralized by
assets of Sensory Science Corporation and by a guarantee of SONICblue.

     During 2001, we sold a portion of our UMC holdings, aggregating
approximately 38.9 million shares, in a derivative transaction. In connection
with the sales of these UMC holdings, we purchased a series of call option
collars on UMC stock with an aggregate notional amount of 38.9 million shares.
These transactions provided us funds from the sale of the shares while allowing
us to participate in future increases in the value of UMC shares, if any,
through this series of call option collars. All such derivatives were sold in
March and April 2002.

     In April 2002, we completed a private placement of $75.0 million in
aggregate principal amount of our 7 3/4% secured senior subordinated convertible
debentures due 2005 to three institutional investors. We also issued warrants to
purchase up to 7,500,000 shares of our common stock in the transaction to the
investors, and a warrant to purchase 293,805 shares of our common stock to the
placement agent for the transaction. The private placement resulted in gross
proceeds to us, prior to the exercise of the warrants, of approximately $62.3
million. The sale of the debentures and the warrants closed on April 22, 2002.
The debentures are convertible into SONICblue common stock at a conversion price
of $19.22 per share subject to standard anti-dilution adjustments. The warrants
are fully vested and exercisable at any time until April 22, 2007 at an exercise
price of $3.39 per share subject to standard anti-dilution adjustments. Under
the terms of the debentures we may pay up to 50% of the interest payments on the
debentures in shares of our common stock. Our repayment obligation on the
debentures is secured by a pledge of 21,426,586 shares of UMC. The institutional
investors also have an option to purchase these UMC shares from us. We expect to
use the net proceeds from the private placement for working capital and general
corporate purposes.

     We have incurred significant losses and expect such losses to continue for
at least the next twelve months. Our net loss for the three months ended March
31, 2002 was $16.6 million and for the year ended December 31, 2001 was $756.2
million. As of March 31, 2002, we have an accumulated deficit of

                                        21
<PAGE>

$504.1 million and cash, cash equivalents, and short-term investments of $103.2
million. We expect to experience negative cash flow from operations for at least
the next few quarters and believe that sufficient funds will be available to
support planned operations through the upcoming year. Our future cash
requirements will depend on a number of factors including:

     - the rate at which customers accept and purchase our existing and future
       products;

     - the rate at which we invest in engineering, development and intellectual
       property with respect to existing and future products;

     - the level of marketing required to acquire a competitive position in the
       marketplace;

     - the operational costs that we incur to continue to develop our business
       as a whole;

     - our ability to sell our UMC shares, when needed, and at reasonable
       prices;

     - receipt, in August 2002, of the declared stock dividend of 15 million UMC
       shares;

     - use of financial instruments to allow us to monetize our long-term UMC
       share holdings;

     - the forbearance of the creditors of our legacy businesses to accept
       extended payment terms; and

     - pending litigation as discussed in Part II -- OTHER INFORMATION Item 1.
       "Legal Proceedings."

     We may wish to selectively pursue possible acquisitions of, or investments
in businesses, technologies or products complementary to ours in order to expand
our geographic presence, broaden our product offerings, and achieve operating
efficiencies. We may not have sufficient liquidity, or we may be unable to
obtain additional financing on favorable terms or at all, in order to finance
such an acquisition or investment.

     An adverse business or legal development may require us to raise additional
financing. We recognize that we may be required to raise such additional
capital, at times and in amounts, which are uncertain, especially under the
current capital market conditions. If we are unable to acquire additional
capital or are required to raise it on terms that are less satisfactory than we
desire, it may have a material adverse effect on our financial condition, which
could require additional restructuring of our company. If necessary, we may be
required to consider curtailing our operations significantly or to seek
arrangements with strategic partners or other parties that may require us to
relinquish significant rights to products, technologies or markets. The Company
is currently a party to certain legal proceedings. Litigation could result in
substantial expense to the Company. See "Part II -- OTHER INFORMATION -- Item 1.
Legal Proceedings."

FACTORS THAT MAY AFFECT OUR RESULTS

  BECAUSE SONICBLUE'S LARGEST FINANCIAL ASSET IS ITS SHARES OF UNITED
  MICROELECTRONICS CORPORATION, THE VOLATILITY OF SONICBLUE COMMON STOCK AND
  AVAILABLE CASH MAY BE INFLUENCED BY THE VOLATILITY OF UMC'S STOCK PRICE.
  SONICBLUE'S ABILITY TO SELL ITS UMC SHARES IS SUBJECT TO LOCKUP AND PLEDGE
  RESTRICTIONS.

     SONICblue's largest financial asset is its UMC shares. The market price of
UMC's stock is subject to volatility due to general market conditions as well as
actual or anticipated changes in UMC's business prospects or quarterly or yearly
operating results. Because the UMC shares are SONICblue's largest asset, when
the price per share of UMC's stock increases or declines, the price of
SONICblue's common stock on the Nasdaq National Market tends to follow changes
in UMC's stock price. Fluctuations in the price of SONICblue common stock caused
by changes in UMC's stock price may or may not reflect SONICblue's actual or
anticipated business prospects or quarterly results. Also, fluctuations in UMC's
stock price may cause fluctuations in SONICblue's stock price when there is no
material news regarding SONICblue or any change in its results.

     In addition, due to Taiwan governmental restrictions, as of March 31, 2002,
approximately 101 million of SONICblue's UMC shares are subject to lockup
restrictions, which are being released over a three-year period ending in
January 2004. As a result, SONICblue's ability to sell its UMC shares is
limited.

                                        22
<PAGE>

     SONICblue's repayment obligation on its 7 3/4% secured senior subordinated
convertible debentures due 2005 is secured by a pledge of 21,426,586 of its UMC
shares. The institutional investors that purchased the debentures also have an
option to purchase these UMC shares from SONICblue. In addition, pursuant to a
loan covenant, SONICblue must certify each month that a portion of its UMC
shares with a value equal to at least $40.0 million is free of all liens, claims
and encumbrances. However, in lieu of making the certification, SONICblue may
deliver to the lender an irrevocable standby letter of credit in the amount of
$10.0 million.

  SONICBLUE EXPERIENCED NET OPERATING LOSSES IN THE PAST AND MAY EXPERIENCE NET
  OPERATING LOSSES AGAIN IN THE FUTURE.

     SONICblue had a net loss of $16.6 million for the first quarter 2002 and
$756.2 million for the year ended December 31, 2001, primarily resulting from
the recognition of a loss of $561.6 million related to the decline in value of
its UMC shares. SONICblue had net income of $312.8 million for the year ended
December 31, 2000, primarily from recognizing a gain of $869.4 million on the
UMC shares but not as a result of income from operations. SONICblue had a net
loss of $30.8 million for 1999. With the completion of the transfer of
SONICblue's graphics chips business, SONICblue's ability to achieve operating
profitability depends primarily on its success in refocusing its business
resources and in executing its business plan for its refocused business. In
addition, SONICblue must achieve positive gross margins at a level sufficient to
offset its operating expenses. SONICblue experienced negative gross margins in
2000 and in the first six months of 2001 and could continue to experience
negative gross margins. SONICblue cannot assure you that it will be able to
maintain the positive gross margins it achieved in the last six months of 2001,
nor can SONICblue assure you that it will be able to achieve operating
profitability. If SONICblue is unable to achieve operating profitability or
incurs future losses and negative cash flow, its stock price would likely
decline.

  SONICBLUE HAS RECENTLY CHANGED THE FOCUS OF ITS BUSINESS AND MAY BE
  UNSUCCESSFUL OR EXPERIENCE DIFFICULTIES IN IMPLEMENTING THIS CHANGE. IF THIS
  OCCURS, SONICBLUE MAY NOT BE ABLE TO ACHIEVE OPERATING PROFITABILITY.

     In January 2001, SONICblue completed the transfer of its graphics chips
business to S3 Graphics Co., Ltd., a joint venture between VIA Technologies,
Inc. and a wholly owned subsidiary of SONICblue. Concurrently, SONICblue
realigned its resources to focus on the converging Internet, digital media,
entertainment and consumer electronics markets. To that end, SONICblue recently
completed acquisitions of Sensory Science Corporation and ReplayTV, Inc., both
of which are in the consumer electronics and digital media industries. SONICblue
has a limited operating history with these markets, and its shift in focus may
prove to be unsuccessful. In connection with this shift in focus, it may be
necessary to implement new business processes and internal controls. In
addition, the convergence of these industries is new and continually evolving.
SONICblue must compete with larger, more established competitors in these
markets, and SONICblue may be unable to achieve market success. SONICblue's
profitability depends on its ability to successfully implement its new business
strategy.

  SONICBLUE DEVELOPS AUDIO PRODUCTS FOR A NEW MARKET, WHICH MAY NOT DEVELOP IF
  CONSUMERS DO NOT ACCEPT DIGITAL AUDIO AS THEIR PREFERRED METHOD OF LISTENING
  TO MUSIC. SIMILARLY, THE MARKET FOR REPLAYTV DIGITAL VIDEO RECORDERS MAY NOT
  DEVELOP IF CONSUMERS DO NOT ACCEPT PERSONAL TELEVISION.

     The market for digital audio products is new and evolving. SONICblue's
digital audio products play music that consumers download from the Internet or
CDs. The success of SONICblue's digital audio products depends in part on
consumers using the Internet, rather than using solely traditional sources, such
as record stores where they buy CDs or cassette tapes, as a source of music. If
consumers do not access music on the Internet, or from their CDs, and download
it for use on SONICblue's digital audio products, a market for SONICblue's
digital audio products may not develop or may be limited. ReplayTV digital video
recorders are part of a new and largely untested market for personal television.
If television viewers do not accept and demand ReplayTV products and services,
the market for ReplayTV products will be limited.

                                        23
<PAGE>

  A REDUCTION IN THE AVAILABILITY OR EASE OF DOWNLOADING MUSIC FROM THE INTERNET
  WILL HURT THE SALES OF SONICBLUE'S PRODUCTS.

     SONICblue's digital audio products play music downloaded from the Internet
and CDs. Currently, a variety of litigation is pending that could decrease the
availability of downloadable music available on the Internet. For example, the
five major record companies have sued Napster.com, an Internet service that
allows its users to swap songs. The lawsuits maintain that the swapping of music
between different users free of charge is a violation of the copyright laws in
the United States. If the record companies prevail in the litigation, and
Napster or companies offering similar services are forced to limit the selection
of music available for download or are forced to go out of business, there would
be a reduction in the amount of music available to consumers on the Internet. In
March 2001, the court issued an injunction that ordered Napster to prevent users
from trading copyrighted songs on its web site. Napster suspended its file
transfer services in July 2001, and while Napster reached a preliminary
settlement with the National Music Publishers Association, litigation continues
with respect to copyright infringement claims. Napster has announced plans to
launch a subscription-based service for digital music. Members of the music and
film industries have filed lawsuits against other web sites that offer file
transfer services similar to those previously offered by Napster.

     Some web sites and record companies are working to provide fee-based
downloading of copyright-protected music files. If these web sites are
unsuccessful in providing copyright-protected music files or if consumers find
the downloading too difficult or expensive, acceptance of the Internet as a
source of music would decline. In addition, the rate at which the major record
companies make their music available for digital purchases may discourage the
use of digital audio players or reduce SONICblue's sales. Some record companies
and Internet companies are distributing, or have announced plans to create, CDs
or digital music that cannot be copied or can only be copied a limited number of
times, which would also limit the ability of users to download music from their
own CD collections or share their music with others. New copyright protection
measures, such as these, increased fees associated with making multiple copies
of music from personal collections, or changes in copyright laws, could diminish
the ability of consumers to download music to SONICblue's digital audio
products. Reductions in the availability or ease of downloading music from the
Internet, or limitations on copying from personal CDs, could also impair the use
and sale of SONICblue's digital audio products.

  SONICBLUE HISTORICALLY HAS HAD SIGNIFICANT PRODUCT CONCENTRATION AND CURRENTLY
  DEPENDS ON THE HEALTH OF THE CONSUMER ELECTRONICS MARKET. THIS MEANS THAT A
  DECLINE IN DEMAND FOR A SINGLE PRODUCT, OR IN THE CONSUMER ELECTRONICS MARKET
  IN GENERAL, COULD SEVERELY AFFECT SONICBLUE'S OVERALL REVENUES AND FINANCIAL
  RESULTS.

     SONICblue's revenues have historically been dependent on the markets for
graphics/video chips for PCs and on its ability to compete in those markets.
With the completion of the transfer of the graphics chips assets to a joint
venture between VIA and a wholly owned subsidiary of SONICblue, SONICblue's
remaining businesses continue to have significant product concentration.
SONICblue is dependent on the markets for digital audio players, digital and
analog video products, modems, and other consumer electronics products.
SONICblue's business would be materially harmed if it were unsuccessful in
selling digital audio players, including its Rio players, its Go Video VCRs and
DVD players or its ReplayTV digital video recorders. A decline in demand or
average selling prices for these products would have a material adverse effect
on SONICblue's sales and operating results.

  SONICBLUE'S BUSINESS IS DEPENDENT ON THE INTERNET AND THE DEVELOPMENT OF THE
  INTERNET INFRASTRUCTURE.

     The acceptance and sale of SONICblue's products could decrease if the
infrastructure of the Internet, particularly the development of broadband
Internet access, does not continue to be developed and maintained. For example,
if consumers do not have the necessary speed and data capacity for downloading
music, rendering the Internet too slow of a method for obtaining music,
consumers may choose not to download music, which will decrease demand for
SONICblue's digital audio products. Similarly, SONICblue's ReplayTV 4000 digital
video recorders rely or will rely on high-speed access to the Internet to
provide compelling content or, to access television programming information and
send recorded programs to friends.
                                        24
<PAGE>

In addition, SONICblue's success will depend in large part on increased use of
the Internet, which in turn can increase demand for high-speed communications
products and the products that benefit from high-speed connections. SONICblue's
success will also depend on businesses and consumers using the Internet more
frequently for applications that use multimedia content and that require high
bandwidth. Recent growth in Internet use has caused frequent periods of
performance degradation. Any perceived degradation in the performance of the
Internet as a whole could undermine the benefits of SONICblue's connectivity and
digital media products, such as Rio digital audio players and ReplayTV 4000
products. The performance of SONICblue's products depends on the speed and
reliability of the Internet infrastructure itself. As a result, the emergence
and growth of the market for SONICblue's products will depend on improvements
being made to the entire Internet infrastructure.

  THE JOINT VENTURE WITH VIA WILL REQUIRE SONICBLUE TO PAY SPECIFIED LIQUIDATED
  DAMAGES IF CERTAIN EVENTS OCCUR, AND EARN-OUT PAYMENTS TO SONICBLUE FROM THE
  JOINT VENTURE ARE SUBJECT TO THE JOINT VENTURE MEETING AGGRESSIVE
  PROFITABILITY GOALS.

     The investment agreement between SONICblue, VIA and S3 Graphics provides
that under certain circumstances, SONICblue may be required to pay VIA
significant liquidated damages if, unless as a result of certain acts or
omissions on the part of either VIA or S3 Graphics, S3 Graphics is prevented by
court order from utilizing SONICblue's patent cross-license with Intel
Corporation or if SONICblue enters into a settlement agreement with Intel such
that S3 Graphics can no longer operate under the patent cross-license. In
September 2001, Intel filed a patent infringement lawsuit against S3 Graphics
and VIA. SONICblue is not a party to the lawsuit. The lawsuit is in early
stages. Any liquidated damages that SONICblue might be required to pay to VIA
under the investment agreement may under certain circumstances be reduced by
amounts paid by SONICblue to Intel in connection with any lawsuit and amounts
owed to SONICblue by either VIA or S3 Graphics. An adverse result or settlement
with regard to these proceedings could have a material adverse effect on
SONICblue's financial condition or results of operations.

     SONICblue will receive earn-out payments if S3 Graphics meets aggressive
profitability goals specified in the joint venture agreement between the
parties. There can be no assurance that S3 Graphics will be able to meet these
profitability goals.

  SONICBLUE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE THE GROWTH AND EXPANSION OF
  ITS BUSINESS.

     In the past two years, particularly following its merger with Diamond and
with its recent acquisitions of Sensory Science and ReplayTV, SONICblue has
experienced a significant expansion in the overall level of its business and the
scope and changed nature of its operations, including manufacturing, research
and development, marketing, technical support, customer service, sales and
logistics. This expansion has resulted in significant challenges, and a need for
substantial investment in, infrastructure, process development and information
systems, including:

     - attracting, integrating and retaining key employees;

     - integration of management information, product data management, internal
       control, accounting, telecommunications and networking systems;

     - establishment of a significant worldwide web and e-commerce presence;

     - consolidation of geographically dispersed manufacturing and distribution
       facilities;

     - coordination of suppliers, rationalization of distribution channels,
       establishment and documentation of business processes and procedures; and

     - integration of various functions and groups of employees.

     SONICblue may not successfully address these challenges. SONICblue's future
operating results will depend in large measure on its ability to implement
operating, manufacturing and financial procedures and controls that not only
address the expansion of its operations but also the change in focus of its
business from graphics chips and boards to consumer electronic products, improve
communication and coordination among
                                        25
<PAGE>

the different operating functions, integrate functions such as sales,
procurement and operations, strengthen management information and
telecommunications systems, and continue to hire additional qualified personnel
in key areas. SONICblue may be unable to manage these activities and implement
these additional procedures, controls and systems successfully. Any failure to
do so could cause SONICblue's short-term and long-term operating results to
suffer.

  SONICBLUE'S QUARTERLY AND ANNUAL OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS
  CAUSED BY MANY FACTORS, ANY OF WHICH COULD RESULT IN SONICBLUE'S FAILURE TO
  ACHIEVE ITS REVENUE OR PROFITABILITY EXPECTATIONS.

     SONICblue's quarterly and annual results of operations have varied
significantly in the past and are likely to continue to vary in the future due
to a number of factors, many of which are beyond SONICblue's control. Any one or
more of the factors listed below or other factors could cause SONICblue to fail
to achieve its revenue or profitability expectations. The failure to meet market
expectations would likely cause a decline in SONICblue's stock price. These
factors include:

     - SONICblue's ability to develop, introduce, produce in volume quantities
       and market successfully new or enhanced products;

     - SONICblue's ability to introduce and market products in accordance with
       market demand and short design cycles;

     - changes in the relative volume of sales of various products with
       sometimes significantly different margins;

     - market acceptance of and changes in demand for SONICblue's products;

     - rapid changes in electronic commerce on which SONICblue or its customers
       may not capitalize or which erode SONICblue's current business base;

     - gains or losses of significant customers, distributors or strategic
       relationships;

     - unpredictable volume and timing of customer orders;

     - the availability, pricing and timeliness of delivery of components for
       SONICblue's products, including flash memory;

     - substantial disruption in SONICblue's suppliers' operations, either as a
       result of natural disaster, equipment failure or other cause;

     - fluctuations in the availability of manufacturing capacity or
       manufacturing yields and related manufacturing costs;

     - the timing of new technological advances, product announcements or
       introductions by SONICblue or by its competitors;

     - product obsolescence and the management of product transitions and
       inventory;

     - production delays;

     - decreases in the average selling prices of products;

     - rates of product return in excess of those forecasted or expected;

     - seasonal fluctuations in sales;

     - general consumer electronics industry conditions, including changes in
       demand and associated effects on inventory and inventory practices; and

     - general economic conditions, including economic conditions in North
       America, Europe and Asia in particular, that could affect the timing of
       customer orders and capital spending and result in order cancellations or
       rescheduling.

                                        26
<PAGE>

     Some or all of these factors could adversely affect demand for SONICblue's
products and its future operating results. Most of SONICblue's operating
expenses are relatively fixed in the short-term. SONICblue may be unable to
rapidly adjust spending to compensate for any unexpected sales shortfall, which
could harm its quarterly operating results. Because the lead times of firm
orders are typically short in the consumer products industry, SONICblue does not
have the ability to predict future operating results with any certainty. Because
of the above factors, you should not rely on period-to-period comparisons of
results of operations as an indication of future performance.

  THE DEMAND FOR SONICBLUE'S PRODUCTS HAS HISTORICALLY BEEN WEAKER IN CERTAIN
  QUARTERS, WHICH MAKES IT DIFFICULT TO COMPARE ITS QUARTERLY RESULTS.

     Due to industry seasonality, demand for video, digital audio and other
consumer electronic products is strongest during the fourth quarter of each year
and is generally slower in the period from March through August. This
seasonality may become more pronounced and material in the future to the extent
that:

     - a greater proportion of SONICblue's sales consist of sales into the
       retail/mass merchant channel;

     - SONICblue's net revenues become increasingly based on
       entertainment-related products, including products such as its Rio
       digital audio players, Sensory Science dual-deck VCRs and combination
       DVD/VCR units and ReplayTV digital video recorders; or

     - to the extent SONICblue expands its European sales, it may experience
       relatively weak demand in the third calendar quarter due to historically
       weak summer sales in Europe.

     In addition, SONICblue generally ships more products in the third month of
each quarter than in either of the first two months of the quarter, with levels
of shipment in the third month being higher towards the end of the month. This
pattern is likely to continue and makes future quarterly operating results less
predictable. Because the consumer products market experiences substantial
seasonal fluctuations, with more sales occurring toward the end of the year,
SONICblue's quarterly results will be difficult to compare.

  GENERAL ECONOMIC CONDITIONS AND POLITICAL AND MILITARY CONDITIONS ASSOCIATED
  WITH CURRENT WORLDWIDE CONFLICTS AND SIMILAR EVENTS MAY PREVENT CONSUMERS FROM
  PURCHASING SONICBLUE'S PRODUCTS, WHICH WOULD HARM ITS REVENUES.

     Sales of consumer electronic products have historically been dependent upon
discretionary spending by consumers, which may be adversely affected by general
economic conditions. The slowdown in the United States economy may cause
consumers to defer decisions to purchase SONICblue's products. Some analysts
have predicted a further decline in the United States economy will result from
the terrorist attacks in the United States and any related conflicts or similar
events worldwide. If the economy continues to decline as a result of recent
economic, political and social turmoil, consumers may reduce discretionary
spending and may not purchase SONICblue's products.

  THE MARKETS IN WHICH SONICBLUE OPERATES ARE INTENSELY AND INCREASINGLY
  COMPETITIVE, AND IF IT IS UNABLE TO COMPETE SUCCESSFULLY, ITS REVENUES COULD
  DECLINE.

     The converging Internet, digital media, entertainment and consumer
electronics markets in which SONICblue competes are intensely competitive and
are likely to become more competitive in the future. Because of this
competition, SONICblue faces a constant and increasing risk of losing customers
to its competitors. The competitive environment also creates downward pressure
on prices and requires higher spending to address the competition, both of which
tend to keep gross margins lower. SONICblue believes that the principal
competitive factors for its products are:

     - performance and quality;

     - ability to conform and adapt to, or upgrade for, current and evolving
       industry standards, including audio formats;

     - access to customers and distribution channels;
                                        27
<PAGE>

     - reputation for quality and strength of brand;

     - manufacturing capabilities and cost of manufacturing;

     - price;

     - product support; and

     - ability to bring new products to the market in a timely manner.

     Many of SONICblue's current and potential competitors have substantially
greater financial, technical, manufacturing, marketing, distribution and other
resources. Some of these competitors may also have greater name recognition and
market presence, longer operating histories, greater market power and product
breadth, lower cost structures and larger customer bases. As a result, these
competitors may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements. In addition, some of SONICblue's principal
competitors may have the advantage of producing their own component parts, and,
therefore, benefit from capacity, cost and technical advantages.

     In some markets where SONICblue is a relatively new entrant, including
digital audio or Internet music players and digital video products, it faces
dominant competitors that include Apple (digital audio players), Compaq (home
digital audio players and digital audio players), 3Com (modems), Creative
Technology under the name Creative Labs (modems and digital audio players),
Handspring (digital audio player add-ons to PDAs), Gateway (home network digital
audio players), HP (home digital audio players), Kenwood (home digital audio
players), Microsoft (digital video recorders), Motorola (handheld consumer
electronics), Panasonic (digital audio players, digital video recorders and
combination TV/DVD/VCR players), Philips (digital audio players, home digital
audio players, digital video recorders and home theater-in-a-box solutions),
Pioneer (home theater-in-a-box solutions), RCA (digital video recorders),
Samsung (digital audio players, digital audio player mobile telephones and
combination DVD/VCR players), Sony (home theater-in-a-box solutions, consumer
electronic music, digital audio players and digital video recorders), Thompson
Multimedia (digital audio players), TDK (CD MP3 players) and TiVo (digital video
recorders). Some of SONICblue's products face a variety of competitive sources.
For example, digital audio players compete against traditional stereos and CD
players. In addition, the markets in which SONICblue competes are expected to
become increasingly competitive as PC products support increasingly more robust
multimedia functions and companies that previously supplied products providing
distinct functions (for example, companies today primarily in the sound, modem,
microprocessor or motherboard markets) emerge as competitors across broader or
more integrated product categories.

  SONICBLUE OPERATES IN MARKETS THAT ARE HIGHLY CYCLICAL AND VULNERABLE TO SHARP
  DECLINES IN DEMAND AND AVERAGE SELLING PRICES.

     SONICblue operates in the digital media and consumer electronics markets.
These markets have in the past experienced, and may in the future experience,
significant downturns. In the event of an extensive downturn, SONICblue would
likely experience significantly reduced demand for its products and may be
pressured to reduce average selling prices. Although SONICblue is changing its
focus to concentrate on its digital media and consumer electronics businesses,
substantially all of its revenues during 1999 and 2000 were derived from
products sold for use in or with personal computers. In the near term, SONICblue
expects to derive most of its revenues from the sale of digital audio products,
such as Rio players, and video products, such as Go Video dual-deck VCR's and
combination DVD/VCR units and ReplayTV digital video recorders. Changes in
demand in digital media and consumer electronics markets could be large and
sudden. Since retailers often build inventories during periods of anticipated
growth, they may be left with excess inventories if market growth slows or if
they have incorrectly forecasted product transitions. In these cases, the
retailers may abruptly stop purchasing additional inventory from suppliers like
SONICblue until the excess inventory has been used. This suspension of purchases
or any reduction in demand for SONICblue's products would negatively impact its
revenues and financial results. SONICblue may experience substantial
period-to-period fluctuations in results of operations due to these general
industry conditions.

                                        28
<PAGE>

  IF SONICBLUE IS UNABLE TO CONTINUE TO DEVELOP AND MARKET NEW AND ENHANCED
  PRODUCTS, ITS AVERAGE SELLING PRICES AND GROSS MARGINS WILL LIKELY DECLINE.

     SONICblue must continue to develop new products in order to maintain
average selling prices and gross margins. As the markets for its products
develop and competition increases, SONICblue anticipates that product life
cycles will shorten and average selling prices will decline. In particular,
average selling prices and, in some cases, gross margins, for each of its
products will decline as products mature. A decline in selling prices may cause
the net sales in a quarter to be lower than those of a preceding quarter or
corresponding quarter in a prior year, even if more units were sold during that
quarter than in the preceding or corresponding quarter of a prior year. To
minimize the effect of declining average selling prices, SONICblue must
successfully identify new product opportunities and develop and bring new
higher-end and higher-margin products to market in time to meet market demand.
The availability of new products is typically restricted in volume early in a
product's life cycle. If customers choose to wait for the new version of a
product instead of purchasing the current version, SONICblue's ability to secure
the manufacture of sufficient volumes of these new products to meet customer
demand will be limited. If this happens, SONICblue's revenues and operating
margins could be harmed.

  IF SONICBLUE FAILS TO IDENTIFY NEW PRODUCT OPPORTUNITIES OR DEVELOP AND MARKET
  NEW AND ENHANCED PRODUCTS, IT WILL NOT BE ABLE TO COMPETE SUCCESSFULLY.

     The markets for which SONICblue's products are designed are intensely
competitive and are characterized by rapidly changing technology, evolving
industry standards and short product life cycles. For example, the life cycles
of the Rio audio players typically range from 12 to 18 months. If SONICblue
fails to introduce new products successfully within a given time frame,
SONICblue could lose revenues and market share. Further, continued failure to
develop, introduce and market competitive new products that meet customer
demands on time could also damage SONICblue's brand name, reputation and
relationships with its customers and cause longer-term harm to its financial
condition. SONICblue may not successfully enter the various product markets that
it identifies. In addition, the sale of new products may not become significant
or profitable. To succeed in this environment, SONICblue must anticipate the
features and functionality that customers will demand. SONICblue must then
incorporate those features and functionality into products that meet the design,
performance, quality and pricing requirements of the digital media and consumer
electronics markets in which it competes and the timing requirements of retail
selling seasons. SONICblue believes this will require continued significant
expenditures for research and development activities. SONICblue has in the past
experienced delays in completing the development and introduction of new
products and may experience similar delays in the future. In the past,
SONICblue's business was seriously harmed when it developed products that failed
to achieve significant market acceptance, and, therefore, was unable to compete
successfully in its markets. This type of failure could occur again in the
future.

  SONICBLUE MUST MANAGE PRODUCT TRANSITIONS SUCCESSFULLY IN ORDER TO REMAIN
  COMPETITIVE.

     The introduction of a new product or product line is a complex task,
involving significant expenditures in research and development, training,
promotion and channel development, and management of existing product
inventories to reduce the cost associated with returns and slow moving channel
inventory. As new products are introduced, SONICblue attempts to monitor closely
the inventory of products to be replaced, and to phase out their manufacture in
a controlled manner. There can be no assurance that product transitions will be
executed without harming SONICblue's operating results. Failure to develop
products with required features and performance levels or any delay in bringing
a new product to market could significantly reduce SONICblue's revenues and harm
SONICblue's competitive position.

  SONICBLUE DEPENDS ON A LIMITED NUMBER OF SUPPLIERS FROM WHOM IT DOES NOT HAVE
  A GUARANTEE OF ADEQUATE SUPPLIES, INCREASING THE RISK THAT A LOSS OF OR
  PROBLEMS WITH A SINGLE SUPPLIER COULD RESULT IN IMPAIRED MARGINS, REDUCED
  PRODUCTION VOLUMES, STRAINED CUSTOMER RELATIONS AND LOSS OF BUSINESS.

     SONICblue obtains several of the components used in its products, including
flash memory for its Rio players and semiconductors, hard drives, program guide
data and set-top box compatibility information for its
                                        29
<PAGE>

ReplayTV digital video recorders and service from single or limited sources. If
component manufacturers do not allocate a sufficient supply of components to
meet its needs or if current suppliers do not provide components of adequate
quality or compatibility, SONICblue may have to obtain these components from
distributors or on the spot market at a higher cost. SONICblue rarely has
guaranteed supply arrangements with its suppliers, and suppliers may not be able
to meet its current or future component requirements. If SONICblue is forced to
use alternative suppliers of components, it may have to alter its product
designs to accommodate these components. Alteration of product designs to use
alternative components could cause significant delays and reduce its production
of the related products. In addition, from time to time, SONICblue has
experienced difficulty meeting certain product shipment dates to customers for
various reasons. These reasons include component delivery delays, component
shortages and component quality deficiencies. Delays in the delivery of
components, component shortages and supplier product quality deficiencies will
likely continue to occur in the future. These delays or problems have in the
past and could in the future result in impaired margins, reduced production
volumes, strained customer relations and loss of business.

     Also, in an effort to avoid actual or perceived component shortages,
SONICblue may purchase more of certain components than it may otherwise require.
Excess inventory resulting from over-purchases, obsolescence or a decline in the
market value of such inventory could result in inventory write-offs, which would
have a negative effect on SONICblue's financial results.

  IF SONICBLUE IS UNABLE TO PREDICT MARKET DEMAND FOR ITS INDIVIDUAL PRODUCTS,
  AND FOCUS ITS INVENTORIES AND DEVELOPMENT EFFORTS TO MEET MARKET DEMAND, IT
  COULD LOSE SALES OPPORTUNITIES AND EXPERIENCE DECLINES IN REVENUES.

     SONICblue offers a variety of products within each product line or
division. In order to arrange for the manufacture of sufficient quantities of
products and avoid excess inventories, SONICblue needs to accurately predict
market demand for each product. For example, if SONICblue predicted that
consumers would purchase the Rio Volt and plans its manufacturing accordingly,
but instead consumer demand is for the Rio 800, SONICblue would have excess
inventory of the Rio Volt and lost sales opportunities for the Rio 800, as well
as lost market share and brand confidence. SONICblue expects that it will become
even more difficult to forecast demand as it introduces and supports multiple
products and product lines and as competition in the market for its products
intensifies. Significant unanticipated fluctuations in demand could cause
problems in SONICblue's operations. SONICblue may not be able to accurately
predict market demand in order to properly allocate its manufacturing and
distribution resources among its products. As a result, SONICblue may experience
declines in its revenues and lose, or fail to gain, market share.

  DEMAND FOR SONICBLUE'S DIGITAL AUDIO AND VIDEO PRODUCTS MAY DECREASE IF THE
  SAME CAPABILITIES PROVIDED BY ITS PRODUCTS BECOME AVAILABLE IN OR AS ADD-ONS
  TO OTHER PERSONAL ELECTRONICS PRODUCTS.

     A substantial portion of SONICblue's net sales in 2001 was derived from the
sale of digital audio players. There is a trend within the personal electronics
industry for functionality from individual products to be integrated with other
personal electronics products. For example, Samsung, Fuji, Handspring and others
have developed or announced plans to develop personal electronic products, such
as mobile telephones, digital cameras or PDA plug-ins that integrate digital
audio functions, and in the digital video market, Panasonic offers combination
TV/DVD/VCR players, DirectTV offers satellite receiver set-top boxes with TiVo
software installed, and Sony and Creative Labs have announced hardware and
software products that would give PCs some DVR functionality. These products
could significantly reduce the demand for SONICblue's products. As a result of
these trends of technology migration and product integration, SONICblue's
success largely depends on its ability to continue to develop products that
incorporate new and rapidly evolving technologies into its products.

     SONICblue must continue to expand the scope of its research and development
efforts to provide the latest in digital audio and video technology products,
which will require that it hire and retain engineers skilled in these areas and
promote additional coordination among its design and engineering groups.
Alternatively, SONICblue may find it necessary or desirable to license or
acquire technology to enable it to provide these
                                        30
<PAGE>

functions. This technology may not be available for license or purchase on terms
acceptable to SONICblue, if at all.

  SONICBLUE DEPENDS ON THIRD PARTIES FOR THE MANUFACTURE OF ITS PRODUCTS.

     SONICblue relies on independent subcontractors to manufacture, assemble
and/or test its products. SONICblue procures its components, assembly and test
services and assembled products through purchase orders, and it does not have
specific volume purchase agreements with each of its subcontractors. Most of its
subcontractors could cease supplying the services, products or components at any
time with limited or no penalty. If SONICblue needs to replace a key
subcontractor, it could incur significant manufacturing set-up costs and delays.
Also, SONICblue may be unable to find suitable replacement subcontractors.
SONICblue's emphasis on maintaining low internal and channel inventory levels
may exacerbate the effects of any shortage that may result from the use of
sole-source subcontractors during periods of tight supply or rapid order growth.
Further, some of SONICblue's subcontractors are located outside the United
States, which may present heightened process control, quality control,
political, infrastructure, transportation, tariff, regulatory, legal, import,
export, economic or supply chain management risks.

     SONICblue faces competition for access to manufacturers and manufacturing
capacity. Many of the companies competing with SONICblue for this capacity have
longer operating histories and greater financial and market resources than
SONICblue. SONICblue may not be able to maintain access to adequate capacity of
high quality manufacturing if its subcontractors choose to offer their services
to other companies who can negotiate better terms due to their market presence,
pay higher prices, engage more manufacturing capacity or offer other incentives.
As SONICblue develops new products, it will require manufacturing capacity to
produce quantities to meet market demand. If SONICblue is unable to obtain and
maintain access to high quality manufacturing capacity for its existing and
future products, it will not be able to fill distributor or customer orders, and
its revenues will decline.

  SONICBLUE'S PRODUCTS COULD HAVE DEFECTS OR COMPATIBILITY ISSUES, WHICH COULD
  BE COSTLY TO CORRECT AND COULD RESULT IN THE REJECTION OF ITS PRODUCTS AND
  DAMAGE TO ITS REPUTATION, AS WELL AS LOST REVENUES, DIVERTED DEVELOPMENT
  RESOURCES AND INCREASED SERVICE COSTS AND WARRANTY CLAIMS.

     SONICblue's products could have design defects that could cause them to
malfunction. Product components may contain undetected errors or "bugs" when
first supplied to SONICblue that, despite testing by SONICblue, are discovered
only after SONICblue's products have been installed and used by customers. From
time to time, SONICblue has become aware of problems with components, product
designs and other defects. Errors or defects in SONICblue's products may arise
in the future, and, if significant or perceived to be significant, could result
in rejection of SONICblue's products, product returns or recalls, damage to
SONICblue's reputation, lost revenues, diverted development resources and
increased customer service and support costs and warranty claims. For example,
On April 26 2002, a magistrate judge ordered SONICblue to create software that
will collect data about how SONICblue's customers use their ReplayTV 4000
digital video recorders, including information about which television programs
they record and view, whether they choose to skip commercials and their use of
other features and to deliver this data to 28 motion picture studio and
television networks. The order requires SONICblue to implement the software
within 60 days. SONICblue has filed a motion with the trial court seeking review
of the magistrate judge's ruling and a hearing on this issue is scheduled for
June 3, 2002. Neither SONICblue nor ReplayTV has developed, tested and
implemented a ReplayTV software upgrade of this magnitude in only 60 days. If
the order stands and SONICblue is forced to implement the new software before it
is completed and adequately tested, there will be an increased possibility that
it will contain errors or defects that could cause SONICblue's servers or
customer's ReplayTV 4000 digital video recorders to malfunction. Errors or
defects in SONICblue's products could also result in product liability claims.

     SONICblue includes, or bundles, internally developed and third party
software, including operating systems, with its hardware products. For example,
the software included in its ReplayTV digital video recorders is responsible for
the products' user interface and directs certain product functions. Also,
SONICblue includes software with its Rio players that the purchaser may use to
download and store MP3 or
                                        31
<PAGE>

WMA files on the player. The software products and SONICblue's hardware products
are complex and may contain undetected errors or failures when first introduced
or as new versions are released. SONICblue has distributed updates to Rio
players in the past when required to improve sound quality or to correct minor
audio problems and to its ReplayTV digital video recorders to improve
functionality. SONICblue generally provides warranties for its retail products
allowing the return or repair of defective products. Despite testing by
SONICblue, its suppliers or current or potential customers, errors may be found
in new products after commencement of commercial shipments. These errors could
result in loss of or delay in market acceptance or product acceptance or in
warranty returns. Losses, delays or damage to SONICblue's reputation due to
product defects would likely harm SONICblue's business, financial condition and
results of operations.

     Additionally, new versions or upgrades to operating systems, independent
software vendor titles or applications may require upgrades to the personal
computer software products SONICblue bundles with its hardware products, or the
software products that purchasers of SONICblue's products may obtain from other
sources such as the Internet, to maintain compatibility with the new versions or
upgrades. The sources for the software SONICblue bundles, or the other sources
for purchasers of SONICblue's products to obtain software, may not be successful
in developing new versions, upgrades or enhancements to their software products.
If producers of software experience delays or are unable to maintain
compatibility with new audio formats, operating systems and independent software
vendor titles or applications, the demand for SONICblue's products and
SONICblue's reputation could suffer. Loss of sales and damaged reputation could
harm SONICblue's revenues and profitability.

  SONICBLUE IS SUBJECT TO RISKS RELATING TO PRODUCT RETURNS AND PRICE
  PROTECTION, WHICH COULD LIMIT SONICBLUE'S REVENUES.

     SONICblue often grants limited rights to customers and distributors to
return unsold inventories of its products in exchange for new products, also
known as "stock rotation." Also, some of SONICblue's retail customers may accept
returned products from their own retail customers. These products are then
returned to SONICblue for credit. SONICblue has in the past experienced a
significant percentage of returns of its Rio players. SONICblue estimates stock
rotation, warranty and other returns and accrues reserves for such costs at the
time of sale. SONICblue also often grants price protection on unsold inventory,
which allows customers to receive a price adjustment on existing inventory when
its published price is reduced. In an environment of slower demand and abundant
supply of products, price declines and channel promotional expenses are more
likely to occur and, should they occur, are more likely to have a significant
impact on SONICblue's operating results. Further, in this environment, high
channel inventory levels may result in substantial price protection charges.
These price protection charges have the effect of reducing gross sales and gross
margin. Consequently, in taking steps to bring its channel inventory levels down
to a more desirable level, SONICblue may cause a shortfall in net sales during
one or more accounting periods. These efforts to reduce channel inventory might
also result in price protection charges if prices are decreased to move product
out to final consumers, having a further adverse impact on operating results.
Any estimates, reserves or accruals may be insufficient and any future price
reductions or product returns may seriously harm its operating results.

  SONICBLUE DEPENDS ON SALES THROUGH DISTRIBUTORS AND RETAILERS. IF
  RELATIONSHIPS WITH OR SALES THROUGH DISTRIBUTORS OR RETAILERS DECLINE, ITS
  OPERATING RESULTS WILL BE HARMED.

     SONICblue sells its products through a network of domestic and
international distributors, and directly to major retailers/mass merchants.
SONICblue's future success is dependent on the continued viability and financial
stability of its customer base. Retail channels historically have been
characterized by rapid change, including periods of widespread financial
difficulties and consolidation and the emergence of alternative sales channels,
such as direct mail order, telephone sales and electronic commerce on the
worldwide web. SONICblue may be unable to retain its retailers or distributors.
In addition, sales to any particular retailer or distributor may fluctuate
significantly from quarter to quarter. The loss of, or a reduction in, sales to
any of SONICblue's key retail or distribution customers as a result of changing
market conditions, competition or customer credit problems could materially and
adversely affect its operating results. Likewise, changes in

                                        32
<PAGE>

distribution channel patterns, such as increased electronic commerce via the
Internet and increased use of mail-order catalogues, could affect SONICblue in
ways not yet known.

  SONICBLUE'S ABILITY TO MARKET AND DISTRIBUTE ITS PRODUCTS DEPENDS IN PART UPON
  ITS CURRENT AND FUTURE RELATIONSHIPS WITH ORIGINAL EQUIPMENT MANUFACTURERS, OR
  OEMS, AND OTHER STRATEGIC PARTNERS TO MARKET AND DISTRIBUTE SONICBLUE'S
  PRODUCTS UNDER THEIR OWN BRAND NAMES.

     In addition to direct distributors of SONICblue's products, SONICblue also
depends upon OEMs and other strategic partners to market and distribute its
products. For example, SONICblue has licensed the ReplayTV technology to
Panasonic, which has incorporated the technology into its ShowStopper DVRs. If
SONICblue is unable to obtain and maintain relationships with OEMs and strategic
partners, it may not be able to increase sales of its products and achieve
market acceptance, and its revenues may decline.

  SONICBLUE RELIES ON INTELLECTUAL PROPERTY AND OTHER PROPRIETARY INFORMATION
  THAT MAY NOT BE ADEQUATELY PROTECTED AND THAT MAY BE EXPENSIVE TO PROTECT.

     The markets in which SONICblue competes are characterized by vigorous
protection and pursuit of intellectual property rights. SONICblue relies on a
combination of patent, trademark, copyright, and trade secret laws, employee and
third-party nondisclosure agreements and licensing arrangements to protect its
intellectual property. If SONICblue is unable to adequately protect its
intellectual property, its business may suffer from the piracy of its technology
and the associated loss of sales. Also, the protection provided to SONICblue's
proprietary technology by the laws of foreign jurisdictions, many of which offer
less protection than the United States, may not be sufficient to protect its
technology. It is common in the personal electronics and Internet device
industries for companies to assert intellectual property infringement claims
against other companies. Therefore, SONICblue's products may also become the
target of infringement claims. These infringement claims or any future claims
could cause SONICblue to spend significant time and money to defend its
products, redesign its products or develop or license a substitute technology.
SONICblue may be unsuccessful in acquiring or developing substitute technology
and any required license may be unavailable on commercially reasonable terms, if
at all. In addition, an adverse result in litigation could require SONICblue to
pay substantial damages, cease the manufacture, use, sale, offer for sale and
importation of infringing products, or discontinue the use of certain processes.
Any of these events could materially harm SONICblue's business.

     Litigation by or against SONICblue could result in significant expense and
could divert the efforts of its technical and management personnel, regardless
of the outcome of such litigation. However, even if claims do not have merit,
SONICblue may be required to dedicate significant management time and expense to
defending itself if it is directly sued, or assisting its customers in their
defense of these or other infringement claims pursuant to indemnity agreements.
This could have a negative effect on SONICblue's financial results.

  SONICBLUE MAY NOT BE ABLE TO ATTRACT, RETAIN OR INTEGRATE KEY PERSONNEL, WHICH
  MAY PREVENT IT FROM SUCCEEDING.

     SONICblue may not be able to retain its key personnel or attract other
qualified personnel in the future. SONICblue's success will depend upon the
continued service of key management personnel. The loss of services of any of
the key members of SONICblue's management team or its failure to attract and
retain other key personnel could disrupt operations and have a negative effect
on employee productivity and morale, decreasing production and harming its
financial results. In addition, the competition to attract, retain and motivate
qualified technical personnel, such as engineers, as well as qualified sales and
operations personnel is intense. SONICblue has at times experienced difficulty
recruiting qualified software and hardware development engineers.

                                        33
<PAGE>

  SONICBLUE DEPENDS ON A LIMITED NUMBER OF THIRD PARTY DEVELOPERS AND PUBLISHERS
  THAT DEVELOP SOFTWARE PRODUCTS THAT WILL OPERATE WITH AND FULLY UTILIZE THE
  CAPABILITIES OF ITS RIO PLAYERS.

     Only a limited number of software developers are producing software that
enables the download and use of digital audio players. SONICblue does not create
the software that is required to download or convert from CDs music to run on
its players but bundles third party software with its players. If SONICblue is
not able to license and bundle the software, or if users are not otherwise able
to obtain software free of charge or at an acceptable price, then demand for
SONICblue's digital audio players will decline. Likewise, difficult to use or
defective software could negatively impact SONICblue's product sales and
revenues.

  SONICBLUE HAS EXPOSURE TO INTERNATIONAL MARKETS.

     International sales accounted for 4% of SONICblue's net sales for the three
months ended March 31, 2002, and 24% of SONICblue's net sales in 2001. In
addition, a substantial proportion of SONICblue's products are manufactured,
assembled and tested by independent third parties in Asia. As a result,
SONICblue is subject to the risks of conducting business internationally,
including:

     - unexpected changes in, or impositions of, legislative or regulatory
       requirements;

     - fluctuations in the U.S. dollar, which could increase the price in local
       currencies of SONICblue's products in foreign markets or increase the
       cost of components purchased by SONICblue;

     - delays resulting from difficulty in obtaining export licenses for certain
       technology;

     - tariffs and other trade barriers and restrictions;

     - potentially longer payment cycles;

     - greater difficulty in accounts receivable collection;

     - potentially adverse tax treatment; and

     - the burdens of complying with a variety of foreign laws.

     In the past, SONICblue has experienced an adverse impact associated with
the economic downturn in Asia that contributed to decreases in net sales. In
addition, SONICblue's international operations are subject to general
geopolitical risks, such as political and economic instability and changes in
diplomatic and trade relationships. The People's Republic of China and Taiwan
have in the past experienced and are currently experiencing strained relations,
and a worsening of relations or the development of hostilities between them
could disrupt operations at the manufacturing facilities of SONICblue's
subcontractors and affect its Asian customers.

  SONICBLUE HAS A SIGNIFICANT LEVEL OF DEBT, WHICH MAY HARM ITS ABILITY TO
  OBTAIN ADDITIONAL FINANCING OR ADVERSELY AFFECT ITS LIQUIDITY. IF THE COMPANY
  IS UNABLE TO GENERATE OR OTHERWISE OBTAIN SUFFICIENT FUNDS, ITS FINANCIAL
  CONDITION AND OPERATIONS MAY BE HARMED.

     At March 31, 2002, SONICblue had total debt and other liabilities
outstanding of $312.0 million. In addition, in April 2002 SONICblue completed a
private placement of $75.0 million in aggregate principal amount of 7 3/4%
secured senior subordinated convertible debentures due 2005. The degree to which
SONICblue is leveraged could harm its ability to obtain additional financing for
working capital or other purposes and could make SONICblue more vulnerable to
economic downturns and competitive pressures. SONICblue's significant leverage
could also adversely affect its liquidity, as a substantial portion of available
cash from operations may have to be applied to meet debt service requirements.
In the event of a cash shortfall, SONICblue could be forced to reduce other
expenditures to be able to meet such debt service requirements.

     If SONICblue is unable to raise sufficient funds for working capital needs,
it may not be able to fund product development and expansion, take advantage of
future opportunities, meet its existing debt obligations or respond to
competitive pressures or unanticipated events or needs. SONICblue may also be
required to

                                        34
<PAGE>

consider curtailing its operations significantly or to seek arrangements with
strategic partners or other parties that may require SONICblue to relinquish
significant rights to products, technologies or markets.

  MINORITY INVESTMENTS COULD ADVERSELY AFFECT SONICBLUE'S LIQUIDITY AND
  EARNINGS.

     SONICblue holds minority interests in companies having operations or
technology in areas within its strategic focus. Some of these investments are in
research and development, start-up or development stage companies or companies
where operations are not yet sufficient to establish them as going concerns. As
a result, SONICblue may be called upon under contractual or other terms to
provide funding for operations of these companies and may share in their losses.
Further adverse changes in market conditions or poor operating results of
underlying investments could result in SONICblue incurring additional losses or
an inability to recover the carrying value of its investments.

  SONICBLUE MAY PURSUE STRATEGIC ACQUISITIONS AND COULD FAIL TO SUCCESSFULLY
  INTEGRATE ACQUIRED BUSINESSES.

     SONICblue has engaged in acquisitions in the past, including its recent
acquisitions of Sensory Science and ReplayTV, and expects to evaluate
acquisition opportunities in the future that could provide additional product or
services offerings, technologies or additional industry expertise. Any proposed
or future acquisition could result in difficulties assimilating acquired
operations and products, diversion of capital and management's attention away
from other business issues and opportunities and amortization of acquired
intangible assets. Integration of acquired companies may result in problems
related to integration of technology and management teams. SONICblue could fail
to integrate the operations, personnel or products that it may acquire in the
future. If SONICblue fails to successfully integrate acquisitions or achieve any
anticipated benefits of an acquisition, its operations and business could be
harmed.

  SYSTEM FAILURES, INTERRUPTIONS TO THE REPLAYTV SERVICE OR PRODUCT DEFECTS MAY
  HAVE A NEGATIVE IMPACT ON SONICBLUE'S REVENUES, DAMAGE ITS REPUTATION AND
  DECREASE ITS ABILITY TO ATTRACT NEW VIEWERS.

     SONICblue's ability to provide high quality products, service and customer
support is critical to its success because consumers of television-related
products are not accustomed to, and may not accept, interruptions in their
television service. SONICblue's network, communications hardware and other
operating systems for the ReplayTV service are vulnerable to damage or
interruption from earthquakes, floods, fires, power loss, telecommunication
failures and similar events. They are also subject to break-ins, sabotage,
intentional acts of vandalism and similar misconduct. These types of
interruptions in the ReplayTV service may reduce SONICblue's revenues and
profits. In addition to placing increased burdens on SONICblue's engineering
staff, service outages will create numerous customer questions and complaints
that must be responded to by SONICblue's or its partners' customer support
personnel. Any frequent or persistent system failures could irreparably damage
SONICblue's reputation and brand.

     In addition, any delivery by SONICblue of products or upgrades with
undetected material product defects or software errors could harm SONICblue's
credibility. For example, the hard disk used in the ReplayTV-enabled digital
video recorder was originally designed for use in personal computers, and as a
result exhibits behaviors that are viewed as typical and minimally disruptive
when using a personal computer, but may result in the viewer momentarily facing
a black television screen when using the ReplayTV service. Any errors and
product defects can result in delays in releasing new versions of ReplayTV
digital video recorders, affect system uptime, result in returns and significant
warranty and repair costs and cause customer relations problems. Correcting
errors in software and hardware design requires significant time and resources,
which could delay future product releases and affect market acceptance of
ReplayTV digital video recorders.

  SONICBLUE NEEDS TO SAFEGUARD THE SECURITY AND PRIVACY OF REPLAYTV VIEWERS'
  CONFIDENTIAL DATA, AND ANY INABILITY TO DO SO MAY HARM SONICBLUE'S REPUTATION
  AND BRAND AND COULD RESULT IN LAWSUITS.

     The ReplayTV digital video recorder collects and stores viewer preferences
and other data that viewers may consider confidential. Any compromise or breach
of the encryption and other security measures that

                                        35
<PAGE>

SONICblue uses to protect this data could harm SONICblue's reputation and expose
it to potential liability. Advances in computer capabilities, new discoveries in
the field of cryptography or other events or developments could compromise or
breach the systems SONICblue uses to protect its viewers' confidential
information. SONICblue may be required to make significant expenditures to
protect against security breaches or to remedy problems caused by any breaches.

     Viewers may be concerned about the use of personal information gathered by
the ReplayTV digital video recorder. SONICblue does not currently archive this
data or release it to third parties, and SONICblue is committed to complying
with all privacy laws and to protecting the confidentiality of its viewers. On
April 26, 2002, a magistrate judge ordered SONICblue to create software that
will collect data about how SONICblue's customers use their ReplayTV 4000
digital video recorders, including information about which television programs
they record and view, whether they choose to skip commercials and their use of
other features and to deliver this data to 28 motion picture studio and
television networks. The order requires SONICblue to implement the software
within 60 days. SONICblue has filed a motion with the trial court seeking review
of the magistrate judge's ruling and a hearing on this issue is scheduled for
June 3, 2002. The motion picture studios and television networks seek anonymous
user data but privacy concerns, such as those raised by the magistrate's order,
could create uncertainty in the marketplace for personal television and ReplayTV
products. In addition, privacy concerns or breaches, or consumers'
dissatisfaction with any privacy policy SONICblue may adopt, could reduce demand
for ReplayTV products, increase the cost of doing business as a result of
litigation costs or increased service delivery costs, or otherwise harm
SONICblue's reputation and business.

  ONE OF SONICBLUE'S RECENTLY ANNOUNCED PRODUCTS IS THE SUBJECT OF A COPYRIGHT
  INFRINGEMENT CLAIM. IF THIS OR FUTURE CLAIMS AGAINST SONICBLUE'S PRODUCTS ARE
  DECIDED AGAINST SONICBLUE, SALES OF SONICBLUE'S PRODUCTS AND ITS REVENUES
  COULD DECREASE.

     In October and November 2001, a group of entertainment companies filed suit
against SONICblue to prevent shipment of the ReplayTV 4000 so long as the
product includes features that those companies allege would result in violations
of the entertainment companies' video programming copyrights. Litigation may be
costly and can divert the efforts of management. Furthermore, SONICblue may be
forced to delay the release, or eliminate certain features of, its digital video
recorders, which could result in decreased sales of the product and a negative
impact on SONICblue's revenues.

     Sensory Science, acquired by SONICblue in June 2001, has designed and
markets its dual-deck VCRs and combination DVD/VCRs for use as full-featured
videocassette recorders. The marketing literature and owner manuals caution
consumers that the dual-deck VCR should not be used in a manner that infringes
on the rights of owners of copyrighted material. However, SONICblue cannot
predict the likelihood that distribution of current or future dual-deck VCRs or
DVD/VCR models will be challenged. Federal legislation affecting all VCRs was
passed in October 1998, commonly referred to as The Digital Millennium Copyright
Act. As a result, Sensory Science modified the operations of its dual-deck VCRs
sold after April 2000, so that the VCRs would recognize a type of anticopying
signal to prevent consumers from making a usable copy of videotapes with that
type of signal. However, models purchased prior to April 2000 continued to
operate as originally designed for the lifetime of the VCR. SONICblue is unable
to determine what the effect of this or future required modifications may be on
future sales of dual-deck VCRs or combination DVD/VCRs.

  SONICBLUE IS A PARTY TO LEGAL PROCEEDINGS THAT COULD HAVE A NEGATIVE FINANCIAL
  IMPACT ON SONICBLUE.

     Beginning in November 1997, a number of complaints were filed in federal
and state courts seeking unspecified damages on behalf of an alleged class of
persons who purchased shares of SONICblue's common stock at various times
between April 18, 1996, and November 3, 1997. The complaints named as defendants
SONICblue, certain of its officers and former officers, certain directors of
SONICblue, and Deloitte & Touche, the company's former auditors, and asserted
that they violated federal and state securities laws by misrepresenting and
failing to disclose certain information about SONICblue's business. In addition,
certain stockholders filed derivative actions in the state courts of California
and Delaware seeking recovery on behalf of SONICblue, alleging, among other
things, breach of fiduciary duties by such individual defendants. The
                                        36
<PAGE>

plaintiffs in the derivative action in Delaware took no steps to pursue their
case. The derivative cases in California State court were consolidated, and
plaintiffs filed a consolidated amended complaint. The court entered a
stipulated order in those derivative cases suspending court proceedings and
coordinating discovery in them with discovery in the class actions in California
State courts. In late 2001, the derivative plaintiffs gave notice terminating
that stay, and the parties stipulated that a second amended consolidated
complaint might be filed in April 2002. On plaintiffs' motion, the federal court
dismissed the federal class actions without prejudice. The class actions in
California State court were consolidated, and plaintiffs filed a consolidated
amended complaint. SONICblue answered that complaint and discovery proceeded. In
January 2001, four of the insurance carriers which issued directors and officers
insurance to SONICblue filed suit against all parties named as defendants in the
securities litigation, claiming that the carriers have no obligation to provide
coverage under the California Insurance Code. In May 2001, the court entered an
order staying the insurance action pending resolution of the securities
litigation. In February 2002, the California Superior Court for Santa Clara
County entered its preliminary approval of an agreement to settle the
consolidated state court class action lawsuit. Under the terms of the class
action settlement, SONICblue will contribute 2,401,501 shares of SONICblue
common stock and Deloitte & Touche will contribute up to $250,000 in full
settlement of all claims. In April 2002, the Superior Court granted final
approval to that settlement, dismissing the case. In May 2002, the Superior
Court also approved the settlement of the related California derivative
litigation. The derivative settlement calls for the defendants to contribute to
the settlement their respective benefits under certain directors and officers
insurance policies in an amount of approximately $4.6 million which, net of
attorneys' fees and litigation costs, would be paid to SONICblue. The total net
cost of these settlements to SONICblue, net of insurance, is expected to
approximate $8.6 million. These charges were recorded in SONICblue's fourth
quarter ended December 31, 2001. In addition the Company settled the claim of a
purchaser of the Company's common stock in 1996 and 1997, by payment of $100,000
and 300,000 shares of the Company's common stock, the net cost of which was
recorded in the quarter ended March 31, 2002.

     SONICblue has also been defending several putative class action lawsuits
naming Diamond, which were filed in June and July 1996 and June 1997 in the
California Superior Court for Santa Clara County and the U.S. District Court for
the Northern District of California. The plaintiffs alleged that Diamond and the
other defendants made various material misrepresentations and omissions during
the class period. The parties have agreed to settle this matter for a payment of
$15.0 million, and final court approval of that settlement was obtained, and the
cases dismissed, in April 2002. SONICblue funded $4.5 million of the settlement
in November 2000. SONICblue previously accrued this amount in connection with
the merger with Diamond. SONICblue believes that Diamond's insurance covers the
remaining $10.5 million of the settlement; Diamond's insurers have funded that
amount into the settlement, although one of these insurers has commenced
arbitration disputing its obligation to pay $3.0 million of the $10.5 million.
The contesting insurer maintains that indemnification of its share of the
settlement is barred by virtue of a recent California appellate decision. The
arbitration tribunal issued an order in April 2002, stating that the California
state law claim in the class action was uninsurable, but that factual questions
were presented as to the allocation of the settlement amount as between the
state law claim and other claims included in the settlement documents. Further
proceedings are contemplated before the tribunal, but no schedule has as yet
been set.

     In November 2001, four former holders of ReplayTV preferred shares filed a
petition for appraisal in the Chancery Court in the State of Delaware asserting
their dissenters rights of appraisal and seeking the fair value of their
ReplayTV shares in cash in lieu of the SONICblue shares to be issued to them as
provided in SONICblue's merger agreement with ReplayTV. In December 2001,
ReplayTV filed its response to plaintiffs' petition. In addition, in December
2001, the same four former holders of ReplayTV preferred shares filed a
complaint in the Chancery Court in the State of Delaware asserting that ReplayTV
and its former directors breached their fiduciary duties in connection with
Replay's merger by engaging in self-dealing, failing to make appropriate
disclosures to shareholders and failing to maximize the value for them in the
merger, resulting in an allocation of an insufficient amount of the merger
consideration to the ReplayTV preferred stockholders. The complaint seeks "at
least $7,249,990.50" in damages. In its merger agreement with ReplayTV,
SONICblue agreed to indemnify ReplayTV's former directors against this type of
lawsuit, among other things. In February 2002, ReplayTV and the former ReplayTV
directors filed their answer. SONICblue and

                                        37
<PAGE>

ReplayTV intend to dispute the plaintiffs' claims and vigorously defend these
actions. The cases are currently in the pretrial discovery stage.

     On June 19, 2000, an individual, Valentin Pepelea, filed a lawsuit against
ReplayTV, Inc. in Santa Clara County Superior Court alleging that ReplayTV and
its founders misappropriated trade secrets allegedly disclosed by Mr. Pepelea in
discussions with the founders in the spring of 1997, and that he had been
promised a founder's share in ReplayTV. On January 17, 2001, Mr. Pepelea amended
his complaint to seek licensing royalties as a remedy. The parties entered into
a written settlement agreement in this matter in March 2002 and Mr. Pepelea has
dismissed his complaint.

     On December 12, 2001, SONICblue filed a complaint for patent infringement
against TiVo, Inc. in the United States District Court for the Northern District
of California. SONICblue's complaint generally alleges that TiVo is infringing
one of its patents by licensing and offering to license its DVR technology and
offering its program guide service. In response, TiVo filed an answer and
counterclaim against SONICblue that denies infringement of SONICblue's patent
and that alleges that the patent is invalid. On January 23, 2002, TiVo filed a
separate action in the same court, but assigned to a different judge, that
generally alleges that SONICblue is infringing one of TiVo's patents by making,
selling, offering to sell its ReplayTV DVRs. SONICblue intends to vigorously
defend itself against the allegations made in TiVo's complaint and counterclaim.

     On November 28, 2001, Techsearch, LLC filed a complaint for patent
infringement against a number of consumer electronics companies, including
SONICblue, in the United States District Court for the Northern District of
Illinois. Techsearch's complaint generally alleges that SONICblue is infringing
one of its patents by making, selling, and offering to sell its Rio Volt CD
players that are capable of playing CDs encoded with audio tracks in the MP3
format. SONICblue intends to dispute the plaintiff's claims and vigorously
defend itself against the allegations made in Techsearch's complaint. This
action was stayed by order of the Court on or about May 1, 2002, pending a
reexamination of the patent asserted by Techsearch by the U.S. Patent and
Trademark Office.

     On February 14, 2000, Robert C. Price filed a purported class action
lawsuit in the Circuit Court of Monroe County, State of Indiana against the
Company and Diamond alleging violations of the California Business and
Professions Code section 17200 and the California Song-Beverly Act, which covers
consumer warranties. The lawsuit alleges that certain of the Company's Rio 300
MP3 player retail boxes, which were discontinued in approximately 1999, are
misleading because the boxes indicate that computer software included in the
package allows the purchaser to convert audio tracks on CDs to the MP3 audio
format, but the software included with the product permitted only 50
conversions. The Company answered the complaint on April 27, 2000, denying
plaintiff's allegations. Status conferences were conducted on July 26, 2000,
January 10, 2001, and April 17, 2002. Discovery has commenced. No class has been
certified, but the briefing on the plaintiff's motion for class certification is
expected to be completed by early October 2002, with a hearing on class
certification issues to be scheduled thereafter. SONICblue intends to contest
the certification of the purported class, dispute the lawsuit's allegations and
defend this action vigorously.

     In November 2001, Pac Tec, a division of La France Corporation, filed a
civil action against the Company and one of its suppliers, Manufacturers'
Services Limited, in the United States District Court for the Eastern District
of Pennsylvania, alleging claims against both defendants jointly for breach of
contract and promissory estoppel. The plaintiff seeks damages in excess of $2.5
million, plus prejudgment interest and costs of suit. In February 2002, the
Company filed a motion to dismiss the complaint, which the plaintiff has
opposed. The judge has not set a hearing date for the motion. SONICblue intends
to dispute the plaintiff's claims and vigorously defend itself against this
action.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

     The Company's exposure to market risk for changes in interest rates relates
primarily to its investment portfolio and its convertible subordinated notes.
The Company's investment portfolio principally consists of

                                        38
<PAGE>

short term fixed income securities. The primary objective of the Company's
investment activities is to maintain the safety of principal and preserve
liquidity while maximizing yields without significantly increasing risk. This is
accomplished by investing in marketable investment grade securities, and by
limiting exposure to any one issue or issuer. The Company does not use
derivative financial instruments in its investment portfolio and due to the
nature of its investments, does not expect its operating results or cash flows
to be significantly affected by potential changes in interest rates. At March
31, 2002, the market value of these investments which were classified as cash
equivalents, approximated cost.

     In September 1996, the Company completed a private placement of $103.5
million aggregate principal amount of convertible subordinated notes. The notes
mature in 2003. Interest is payable semi-annually at 5 3/4% per annum. The notes
are convertible at the option of the note holders into the Company's common
stock at an initial conversion price of $19.22 per share, subject to adjustment.
During 2000, $0.2 million in notes were converted into common stock. Beginning
in October 1999, the notes became redeemable at the option of the Company at an
initial redemption price of 102% of the principal amount. The market value of
the convertible subordinated notes at March 31, 2002 and 2001 was approximately
$88.0 million and $117.1 million, respectively.

EQUITY PRICE RISK

     The Company's largest financial asset is its UMC shares, which are traded
on the Taiwan Stock Exchange. The market price of UMC's stock is subject to
volatility due to general market conditions, including changes in the
semiconductor industry and the Taiwanese market, as well as actual or
anticipated changes in UMC's business prospects or quarterly or yearly operating
results. Because the UMC shares are SONICblue's largest asset, when the price
per share of UMC's stock increases or declines, the price of SONICblue's common
stock on the Nasdaq National Market tends to follow changes in UMC's stock
price. Fluctuations in the price of SONICblue common stock caused by changes in
UMC's stock price may or may not reflect SONICblue's actual or anticipated
business prospects or quarterly results. Also, fluctuations in UMC's stock price
may cause fluctuations in SONICblue's stock price when there is no material news
regarding SONICblue or any change in its results. Future fluctuations in the
value of SONICblue's UMC shares could negatively impact SONICblue's financial
condition.

FOREIGN CURRENCY EXCHANGE RATE RISK

     The Company invoices its customers in U.S. dollars for all products. The
Company is exposed to foreign exchange rate fluctuations as the financial
results of its foreign subsidiaries are translated into U.S. dollars in
consolidation. The foreign subsidiaries maintain their accounts in the local
currency of the foreign location in order to centralize the foreign exchange
risk with the parent company. To date this risk has not been material.

                          PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     The Internet, digital media, entertainment and consumer electronics
industries are characterized by frequent litigation, including litigation
regarding patent and other intellectual property rights. SONICblue is party to
various legal proceedings that arise in the ordinary course of business. While
we currently believe that the ultimate outcome of these proceedings,
individually and in the aggregate, will not have a material adverse effect on
the Company's financial position or overall trends in results of operations,
litigation is subject to inherent uncertainties. There can be no assurance that
an adverse result or settlement with regard to these lawsuits would not have a
material adverse effect on SONICblue's financial condition or results of
operations.

     Beginning in November 1997, a number of complaints were filed in federal
and state courts seeking unspecified damages on behalf of an alleged class of
persons who purchased shares of SONICblue's common stock at various times
between April 18, 1996, and November 3, 1997. The complaints named as defendants
SONICblue, certain of its officers and former officers, certain directors of
SONICblue, and Deloitte & Touche, the company's former auditors, and asserted
that they violated federal and state securities laws by
                                        39
<PAGE>

misrepresenting and failing to disclose certain information about SONICblue's
business. In addition, certain stockholders filed derivative actions in the
state courts of California and Delaware seeking recovery on behalf of SONICblue,
alleging, among other things, breach of fiduciary duties by such individual
defendants. The plaintiffs in the derivative action in Delaware took no steps to
pursue their case. The derivative cases in California State court were
consolidated, and plaintiffs filed a consolidated amended complaint. The court
entered a stipulated order in those derivative cases suspending court
proceedings and coordinating discovery in them with discovery in the class
actions in California State courts. In late 2001, the derivative plaintiffs gave
notice terminating that stay, and the parties stipulated that a second amended
consolidated complaint might be filed in April 2002. On plaintiffs' motion, the
federal court dismissed the federal class actions without prejudice. The class
actions in California State court were consolidated, and plaintiffs filed a
consolidated amended complaint. SONICblue answered that complaint and discovery
proceeded. In January 2001, four of the insurance carriers which issued
directors and officers insurance to SONICblue filed suit against all parties
named as defendants in the securities litigation, claiming that the carriers
have no obligation to provide coverage under the California Insurance Code. In
May 2001, the court entered an order staying the insurance action pending
resolution of the securities litigation. In February 2002, the California
Superior Court for Santa Clara County entered its preliminary approval of an
agreement to settle the consolidated state court class action lawsuit. Under the
terms of the class action settlement, SONICblue will contribute 2,401,501 shares
of SONICblue common stock and Deloitte & Touche will contribute up to $250,000
in full settlement of all claims. In April 2002, the Superior Court granted
final approval to that settlement, dismissing the case. In May 2002, the
Superior Court also approved the settlement of the related California derivative
litigation. The derivative settlement calls for the defendants to contribute to
the settlement their respective benefits under certain directors and officers
insurance policies in an amount of approximately $4.6 million which, net of
attorneys' fees and litigation costs, would be paid to SONICblue. The total net
cost of these settlements to SONICblue, net of insurance, is expected to
approximate $8.6 million. These charges were recorded in SONICblue's fourth
quarter ended December 31, 2001. In addition the Company settled the claim of a
purchaser of the Company's common stock in 1996 and 1997, by payment of $100,000
and 300,000 shares of the Company's common stock, the net cost of which was
recorded in the quarter ended March 31, 2002.

     SONICblue has also been defending several putative class action lawsuits
naming Diamond, which were filed in June and July 1996 and June 1997 in the
California Superior Court for Santa Clara County and the U.S. District Court for
the Northern District of California. The plaintiffs alleged that Diamond and the
other defendants made various material misrepresentations and omissions during
the class period. The parties have agreed to settle this matter for a payment of
$15.0 million, and final court approval of that settlement was obtained, and the
cases dismissed, in April 2002. SONICblue funded $4.5 million of the settlement
in November 2000. SONICblue previously accrued this amount in connection with
the merger with Diamond. SONICblue believes that Diamond's insurance covers the
remaining $10.5 million of the settlement; Diamond's insurers have funded that
amount into the settlement, although one of these insurers has commenced
arbitration disputing its obligation to pay $3.0 million of the $10.5 million.
The contesting insurer maintains that indemnification of its share of the
settlement is barred by virtue of a recent California appellate decision. The
arbitration tribunal issued an order in April 2002, stating that the California
state law claim in the class action was uninsurable, but that factual questions
were presented as to the allocation of the settlement amount as between the
state law claim and other claims included in the settlement documents. Further
proceedings are contemplated before the tribunal, but no schedule has as yet
been set.

     In November 2001, four former holders of ReplayTV preferred shares filed a
petition for appraisal in the Chancery Court in the State of Delaware asserting
their dissenters rights of appraisal and seeking the fair value of their
ReplayTV shares in cash in lieu of the SONICblue shares to be issued to them as
provided in SONICblue's merger agreement with ReplayTV. In December 2001,
ReplayTV filed its response to plaintiffs' petition. In addition, in December
2001, the same four former holders of ReplayTV preferred shares filed a
complaint in the Chancery Court in the State of Delaware asserting that ReplayTV
and its former directors breached their fiduciary duties in connection with
Replay's merger by engaging in self-dealing, failing to make appropriate
disclosures to shareholders and failing to maximize the value for them in the
merger, resulting in an allocation of an insufficient amount of the merger
consideration to the ReplayTV preferred stockholders. The complaint seeks "at
least $7,249,990.50" in damages. In its merger agreement with ReplayTV,
                                        40
<PAGE>

SONICblue agreed to indemnify ReplayTV's former directors against this type of
lawsuit, among other things. In February 2002, ReplayTV and the former ReplayTV
directors filed their answer. SONICblue and ReplayTV intend to dispute the
plaintiffs' claims and vigorously defend these actions. The cases are currently
in the pretrial discovery stage.

     On June 19, 2000, an individual, Valentin Pepelea, filed a lawsuit against
ReplayTV, Inc. in Santa Clara County Superior Court alleging that ReplayTV and
its founders misappropriated trade secrets allegedly disclosed by Mr. Pepelea in
discussions with the founders in the spring of 1997, and that he had been
promised a founder's share in ReplayTV. On January 17, 2001, Mr. Pepelea amended
his complaint to seek licensing royalties as a remedy. The parties entered into
a written settlement agreement in this matter in March 2002 and Mr. Pepelea has
dismissed his complaint.

     In October and November, 2001, a group of 28 entertainment companies
including, among others, Paramount Pictures Corporation, Disney Enterprises,
Inc. and the three major television networks filed four lawsuits against
SONICblue and its ReplayTV, Inc. subsidiary in the U.S. District Court in Los
Angeles, California. The lawsuits allege that the Company's planned manufacture
and sale of the ReplayTV 4000, which allows users to skip commercials and to use
the Internet to send recorded material to other ReplayTV 4000 users, constitutes
copyright infringement, among other claims. The plaintiffs in the lawsuits are
seeking an injunction prohibiting the Company from including these features in
its video products. Although one of the lawsuits originally alleged that the
Company's Go-Video VCRs featuring the commercial skipping technology similarly
violate the copyright laws, in their amended complaint plaintiffs eliminated
these claims in November 2001. The parties have commenced discovery. The
District Court preliminarily scheduled a consolidated trial in August 2002 but
removed the trial from its calendar in April 2002 and has not set a new trial
date. On April 26 2002, a magistrate judge granted the plaintiffs request for an
order requiring SONICblue to create software that will collect data about how
SONICblue's customers use their ReplayTV 4000 digital video recorders, including
information about which television programs they record and view, whether they
choose to skip commercials and their use of other features and to deliver this
data to the plaintiffs. The order requires SONICblue to implement the software
within 60 days of the order. SONICblue has filed a motion with the trial court
seeking review of the Magistrate Judge's ruling and a hearing on this issue is
scheduled for June 3, 2002. SONICblue intends to dispute the plaintiffs' claims
and defend this action vigorously.

     On December 12, 2001, SONICblue filed a complaint for patent infringement
against TiVo, Inc. in the United States District Court for the Northern District
of California. SONICblue's complaint generally alleges that TiVo is infringing
one of its patents by licensing and offering to license its DVR technology and
offering its program guide service. In response, TiVo filed an answer and
counterclaim against SONICblue that denies infringement of SONICblue's patent
and that alleges that the patent is invalid. On January 23, 2002, TiVo filed a
separate action in the same court, but assigned to a different judge, that
generally alleges that SONICblue is infringing one of TiVo's patents by making,
selling, offering to sell its ReplayTV DVRs. SONICblue intends to vigorously
defend itself against the allegations made in TiVo's complaint and counterclaim.

     On November 28, 2001, Techsearch, LLC filed a complaint for patent
infringement against a number of consumer electronics companies, including
SONICblue, in the United States District Court for the Northern District of
Illinois. Techsearch's complaint generally alleges that SONICblue is infringing
one of its patents by making, selling, and offering to sell its Rio Volt CD
players that are capable of playing CDs encoded with audio tracks in the MP3
format. SONICblue intends to dispute the plaintiff's claims and vigorously
defend itself against the allegations made in Techsearch's complaint. This
action was stayed by order of the Court on or about May 1, 2002, pending a
reexamination of the patent asserted by Techsearch by the U.S. Patent and
Trademark Office.

     On February 14, 2000, Robert C. Price filed a purported class action
lawsuit in the Circuit Court of Monroe County, State of Indiana against the
Company and Diamond alleging violations of the California Business and
Professions Code section 17200 and the California Song-Beverly Act, which covers
consumer warranties. The lawsuit alleges that certain of the Company's Rio 300
MP3 player retail boxes, which were

                                        41
<PAGE>

discontinued in approximately 1999, are misleading because the boxes indicate
that computer software included in the package allows the purchaser to convert
audio tracks on CDs to the MP3 audio format, but the software included with the
product permitted only 50 conversions. The Company answered the complaint on
April 27, 2000, denying plaintiff's allegations. Status conferences were
conducted on July 26, 2000, January 10, 2001, and April 17, 2002. Discovery has
commenced. No class has been certified, but the briefing on the plaintiff's
motion for class certification is expected to be completed by early October
2002, with a hearing on class certification issues to be scheduled thereafter.
SONICblue intends to contest the certification of the purported class, dispute
the lawsuit's allegations and defend this action vigorously.

     In November 2001, Pac Tec, a division of La France Corporation, filed a
civil action against the Company and one of its suppliers, Manufacturers'
Services Limited, in the United States District Court for the Eastern District
of Pennsylvania, alleging claims against both defendants jointly for breach of
contract and promissory estoppel. The plaintiff seeks damages in excess of $2.5
million, plus prejudgment interest and costs of suit. In February 2002, the
Company filed a motion to dismiss the complaint, which the plaintiff has
opposed. The judge has not set a hearing date for the motion. SONICblue intends
to dispute the plaintiff's claims and vigorously defend itself against this
action.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits:

<Table>
<Caption>
EXHIBIT
NUMBER    NOTES                     DESCRIPTION OF DOCUMENT
-------   -----                     -----------------------
<C>       <C>     <S>
10.1       (1)    Second Amended and Restated Loan and Security Agreement,
                  dated as of August 19, 1998, by and among Congress Financial
                  Corporation (Western), Go-Video, Inc. and California Audio
                  Labs, LLC.
10.2       (2)    Amendment Number Four to Second Amended and Restated Loan
                  and Security Agreement, dated as of May 30, 2000, by and
                  among Congress Financial Corporation (Western), Sensory
                  Science Corporation and California Audio Labs, LLC.
10.3       (3)    Amendment Number Five to Second Amended and Restated Loan
                  and Security Agreement, dated as of June 30, 2000, by and
                  among Congress Financial Corporation (Western), Sensory
                  Science Corporation and California Audio Labs, LLC.
10.4#             Amendment Number Six to Second Amended and Restated Loan and
                  Security Agreement, dated as of March 6, 2002, by and among
                  Congress Financial Corporation (Western), Sensory Science
                  Corporation and California Audio Labs, LLC.
10.5#             Amendment Number Seven to Second Amended and Restated Loan
                  and Security Agreement, dated as of March 25, 2002, by and
                  among Congress Financial Corporation (Western), Sensory
                  Science Corporation and California Audio Labs, LLC.
10.6#             Amendment Number Eight to Second Amended and Restated Loan
                  and Security Agreement, dated as of April 22, 2002, by and
                  among Congress Financial Corporation (Western), Sensory
                  Science Corporation and California Audio Labs, LLC.
</Table>

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

 #  Filed herewith.

(1) Incorporated by reference to Exhibit 10.31 to Go-Video, Inc.'s Quarterly
    Report on Form 10-Q for the quarter ended September 30, 1998.

(2) Incorporated by reference to Exhibit 10.32 to Sensory Science Corporation's
    Annual Report on Form 10-K for the year ended March 31, 2000.

(3) Incorporated by reference to Exhibit 10.33 to Sensory Science Corporation's
    Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

     (b) Reports on Form 8-K:

     On March 22, 2002, SONICblue filed a current report on Form 8-K reporting
under Item 5 updating information with respect to certain legal proceedings.

                                        42
<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.

                                          SONICBLUE INCORPORATED
                                          (Registrant)

                                                   /s/ MARCUS SMITH
                                          --------------------------------------
                                                       Marcus Smith
                                             Vice President and Interim Chief
                                                    Financial Officer
                                               (Duly Authorized Officer and
                                            Principal Financial and Accounting
                                                         Officer)

Date: May 15, 2002

                                        43
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT
NUMBER   NOTES                     DESCRIPTION OF DOCUMENT
-------  -----                     -----------------------
<C>      <C>     <S>
10.1     (1)     Second Amended and Restated Loan and Security Agreement,
                 dated as of August 19, 1998, by and among Congress Financial
                 Corporation (Western), Go-Video, Inc. and California Audio
                 Labs, LLC.
10.2     (2)     Amendment Number Four to Second Amended and Restated Loan
                 and Security Agreement, dated as of May 30, 2000, by and
                 among Congress Financial Corporation (Western), Sensory
                 Science Corporation and California Audio Labs, LLC.
10.3     (3)     Amendment Number Five to Second Amended and Restated Loan
                 and Security Agreement, dated as of June 30, 2000, by and
                 among Congress Financial Corporation (Western), Sensory
                 Science Corporation and California Audio Labs, LLC.
10.4#            Amendment Number Six to Second Amended and Restated Loan and
                 Security Agreement, dated as of March 6, 2002, by and among
                 Congress Financial Corporation (Western), Sensory Science
                 Corporation and California Audio Labs, LLC.
10.5#            Amendment Number Seven to Second Amended and Restated Loan
                 and Security Agreement, dated as of March 25, 2002, by and
                 among Congress Financial Corporation (Western), Sensory
                 Science Corporation and California Audio Labs, LLC.
10.6#            Amendment Number Eight to Second Amended and Restated Loan
                 and Security Agreement, dated as of April 22, 2002, by and
                 among Congress Financial Corporation (Western), Sensory
                 Science Corporation and California Audio Labs, LLC.
</Table>

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

 #  Filed herewith.

(1) Incorporated by reference to Exhibit 10.31 to Go-Video, Inc.'s Quarterly
    Report on Form 10-Q for the quarter ended September 30, 1998.

(2) Incorporated by reference to Exhibit 10.32 to Sensory Science Corporation's
    Annual Report on Form 10-K for the year ended March 31, 2000.

(3) Incorporated by reference to Exhibit 10.33 to Sensory Science Corporation's
    Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

                                        44