SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended January 31, 2001

                         Commission File Number: 0-21393

                          SEACHANGE INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

                    Delaware                            04-3197974
        (State or other jurisdiction of       (IRS Employer Identification No.)
         incorporation or organization)

                       124 Acton Street, Maynard, MA 01754
          (Address of principal executive offices, including zip code)

       Registrant's telephone number, including area code: (978) 897-0100

        Securities Registered Pursuant To Section 12(b) Of The Act: None

           Securities Registered Pursuant To Section 12(g) Of The Act:


                          Common Stock, $.01 par value
                          ----------------------------
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 preceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X]     No [_]

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

As of April 25, 2001 the aggregate market value of the voting stock held by non-
affiliates of the registrant, based upon the closing price for the registrant's
Common Stock on the Nasdaq National Market on such date was $321,498,851.
The number of shares of the registrant's Common Stock outstanding as of the
close of business on April 25, 2001 was 22,804,983.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive Proxy Statement in connection with the Annual Meeting
of Stockholders to be held on or about June 7, 2001 to be filed pusuant to
Regulation 14A are incorporated by reference into Part III of this Form 10-K.



                                     PART I

This Annual Report on Form 10-K includes certain statements of a forward-looking
nature which reflect the Company's current views relating to future events or
the future financial performance of the Company. These forward-looking
statements are only predictions and are subject to risks and uncertainties,
particularly the matters set forth in "Certain Risk Factors" below, which could
cause actual events or results to differ materially from historical results or
those indicated by such forward-looking statements.

ITEM 1.    BUSINESS

           Incorporated in Delaware in July 1993, we develop, manufacture and
sell systems, known as video storage servers, that automate the management and
distribution of both short-form video streams, such as advertisements, and
long-form video streams, such as movies or other feature presentations, each of
which requires precise, accurate and continuous execution, to television
operators, telecommunications companies and broadcast television companies. Our
systems utilize both standard industry components and our embedded proprietary
software that performs the specific functions of information processing such as
order processing, invoicing and other similar functions. Our digital video
systems with their state-of-the-art electronic storage and retrieval
capabilities are designed to provide a higher image quality and to be more
reliable, easier to use and less expensive than analog tape-based systems that
are based on transmission of a continuous electronic signal that may vary in
both frequency and amplitude. We believe that by automating the management and
distribution process our systems help our customers reduce their ongoing
operating costs while simultaneously allowing our customers to increase revenues
by offering more targeted services such as local advertising segments, known as
geography-specific spot advertising, inserted into cable programming; movies,
known as video-on-demand movies, that the subscriber is able to watch at any
time with pause, rewind and fast forward features; and other services, known as
interactive television services, that allow consumers to customize and/or
interact with their television viewing experience in a manner similar to that of
using a personal computer.

           In our broadband or high bandwidth network or facility systems
business segment, we have one existing movie product and two video-on-demand
products for the interactive television markets. Our Movie System product
provides long-form video storage and delivery for the pay-per-view movie
markets. Our GuestServe System product delivers video-on-demand and other guest
services, Internet access and personal computer games in a hotel environment for
cable television and telecommunications companies. Our ITV System product
provides residential video on demand or interactive television system services,
including accessing movies and other programs, purchasing products and
retrieving Internet content through the television, to digitally manage, store
and distribute digital video for cable television operators and
telecommunications companies. Starting in 1998, our ITV System business grew
when we entered into agreements with several cable companies to provide our ITV
System for demonstration and testing of their video-on-demand systems. In 2000,
several of these cable operators began deploying our ITV System. We also have
agreements with producers of digital set-top boxes to test and integrate their
products with our ITV System. Examples of these agreements include our
relationships with Scientific-Atlanta, Motorola and Sony Corporation whereby we
developed integrated interactive television systems to ensure our video server
systems interfaced with the set-top boxes to provide long form video content to
the potential subscriber.

           In addition to our video on demand systems, our broadband system
business segment includes our SPOT System product, which we believe, based on
currently available industry sources and our internal data, we believe to be the
leading system in the United States based on market share for the transmission
of video content, known as a video insertion system, in the multichannel
television market for digital advertisement and other short-form video. Our SPOT
System converts analog video forms such as advertisements and news updates to
digital video forms, stores the digital video forms in remote or local storage
devices, known as digital libraries, and inserts them automatically into
television network streams. The SPOT System provides both high accuracy relative
to the volume of video being played and high video image quality, permits
geographic and demographic specificity of advertisements and we believe reduces
operating costs by automating the management and distribution process. Our
Advertising Management Software product operates in conjunction with our SPOT
System to automate and simplify complex sales, scheduling and billing processes
for the multichannel television market. A majority of our customers for these
products consist of major cable television operators and telecommunications
companies in the United States.

           In our broadcast or cable network systems business segment, our
Broadcast MediaCluster product offers call letter stations, such as KSTP-Saint
Paul, the ability to directly transmit content, such as commercials and
syndicated or other programming for broadcast television companies, to their
viewers. Today, the technology utilized by broadcasters is going through a
transition away from analog tape libraries to digital server based storage of
content. We believe that our broadcast MediaCluster system eliminates the need
for analog tape libraries and provides broadcasters the automated storage and
playback features that they require. Since 1998, we have installed broadcast
systems at customer locations including network affiliates and multi-channel
operations in the United States, Europe and the Far East.

                                       2

           Financial information regarding our business segments is located in
the footnotes to our financial statements included with this prospectus under
the heading "Segment Information."


Industry Background

           Television operators, the largest users of professional quality
video, historically have relied on videotape technology such as reel-to-reel
technology and tape cassettes for the storage and distribution of video streams.
We believe these systems, which use videotape as the primary mechanism for the
storage and distribution of video, have substantial limitations. Videotapes and
their associated recording playback mechanisms are subject to mechanical failure
and generational loss of video quality. Tape-based systems also require
significant manual intervention, which makes them expensive and cumbersome to
operate and limits their flexibility for programming and schedule changes.
Finally, videotapes are bulky and have limited storage capacity.

           Over the past decade, the limitations of video tape-based systems
have become increasingly apparent. Changes in government regulation and
increased competition have forced television operators to seek new revenue
sources and reduce costs. In addition, competition has forced television
operators to find and offer new and enhanced video services while simultaneously
improving the efficiency of their operations. While video tape-based systems are
sufficient for some traditional applications, they do not meet the performance
and cost requirements of video-on-demand, Internet and other applications.


Cable Television Operators & Telecommunications Companies

           According to industry sources, there are approximately 12,000 cable
television systems currently in the United States, serving over 70 million
subscribers. In 1999, 96% of all cable systems provided over 30 channels of
programming to their subscribers and most systems provided fifty or more
channels. The number of cable subscribers world-wide has been estimated at 150
million. Over the last several years, cable operators have spent billions of
dollars to upgrade their networks from analog to digital yielding a significant
increase in available bandwidth, channel capacity and two-way capability. We
believe this investment by the cable operators reflects their commitment to
video on demand, advertising insertion, Internet and other applications.

           Video on demand represents a new opportunity for cable television
operators. The increased channel capacity through the installation of fiber
optic cables is providing many cable television operators with the capacity to
offer specific video on demand services to residential cable subscribers. In
2000, cable operators and telecommunications companies began the deployment of
residential video on demand services which allows the subscriber the ability to
watch video programming at any time with pause, rewind and fast forward
capabilities. The first application offered by these cable operators has been
movies on demand.

           Because cable television programming is sent over broadband or high
bandwidth network or facility lines, operators have the opportunity to segment
and target their programming to viewers in selected geographies. In addition,
the continuing growth in cable television's multiple specialized programming
networks, such as CNN, MTV and ESPN and other networks such as Black
Entertainment Television, the Discovery Channel and Nickelodeon, allow
advertisers to target viewers in selected demographic profiles.

           Despite this advantage over television broadcasters, cable television
operators historically have not realized advertising revenues in proportion to
their share of television viewers. According to industry sources, in 1999, 48%
of all television viewers were watching cable networks, yet cable television
advertising revenue accounted for only 24% of the total television advertising
revenue. In addition, advertising represents the major source of revenue for
television broadcasters, while most cable television operators derive less than
5% of their gross revenue from advertising. The limitations of video tape-based
technology were a major factor which had prevented cable television operators
from historically exploiting their advantages over television broadcasters as
these systems are difficult to manage in multichannel and multi-zone
environments, resulting in relatively poor video insertion accuracy and high
operating costs.

           The Telecommunications Act of 1996 has lowered the legal barriers to
entry for telecommunications companies to enter the multichannel video delivery
market. Telecommunications companies are attempting to capitalize on the new
growth opportunities by acquiring existing cable television operators and by
leveraging their existing telephony networks to establish new multichannel video
delivery operations. However, telecommunications companies face the same
limitations as cable television operators in offering targeted, value-added
services with analog tape-based systems on a cost-effective basis.

           Increased demand for video and audio content over the Internet will
require a substantial increase in storage capacity and bandwidth over time. We
believe that cable television operators and telecommunications companies will
play an integral role

                                       3

in providing these broadband Internet applications. We also believe that in
order to offer high quality video applications over the Internet, cable
television operators and telecommunications companies will need storage and
distribution products capable of complex management and scheduling of video data
streams. We believe that our patented video server technology is well suited to
meet this market opportunity.


Television Broadcasters

           The more than 1,500 broadcast stations in the United States,
including network affiliates and independent stations, face many of the same
technological issues as cable television operators. Additionally, television
broadcasters rely on advertising for nearly all of their revenue and require
high accuracy relative to the volume of video being played and high image
quality. To date, television broadcasters have utilized tape-based systems with
robotic libraries, which are cumbersome and require high levels of maintenance
and manual intervention to ensure that the needed performance requirements are
met. Also, the videotapes in these systems need to be replaced frequently due to
repeated use.

           In addition, many television broadcasters are beginning to use the
recently available digital bandwidth to originate multiple program streams. As
this application develops further, television operators will require video
storage and delivery systems that can effectively manage and deliver these
multiple television signals. As television broadcasters continue to automate
their entire programming in order to reduce overall operating costs and improve
reliability, we believe that our Broadcast MediaCluster products provide a
unique solution that addresses these requirements.


The SeaChange Solution

           We develop, manufacture and sell systems, known as video storage
servers, that automate the management and distribution of both short-form video
streams, such as advertisements, and long-form video streams, such as movies or
other feature presentations, each of which requires precise, accurate and
continuous execution, and the related services and movie content to television
operators, telecommunications companies and broadcast television companies. Our
solutions are based on the following five core areas of functionality:

      .    real-time conversion of analog video into digital video format;

      .    storage and retrieval of video content to and from digital libraries;

      .    scheduled distribution of video streams between digital libraries by
           means of local and wide area data networks;

      .    delivery of video streams over single and multiple channels; and

      .    Management of video sales, scheduling, billing and execution of
           related business transactions.

           We use these core areas of functionality to provide solutions to a
number of commercial markets. Our systems are designed to provide a consistent
set of features and benefits, including:

      .    Viewer Targeting. Our digital video products enable television
           operators to efficiently target viewers in specific demographic or
           geographic groups. The ability to target selected viewers enables
           television operators to increase revenues by offering more targeted
           services. Our ITV and GuestServe systems make it possible for
           television operators to offer video-on-demand movies to individual
           residences or hotel rooms, our SPOT System offers this capability to
           television operators and our Broadcast MediaCluster offers this
           capability to broadcast television networks companies.

      .    Cost Reduction. Our products are designed to provide our customers
           the opportunity to lower operating cost as compared to analog
           tape-based systems by, among other things, the elimination of
           videotapes and their storage and lowering operating personnel
           requirements. We are also able to price our products on a competitive
           basis by using standard operating systems and components. We believe
           that the combination of competitive pricing of our products and
           reductions in the operating costs of our customers results in
           attractive payback periods on the initial capital outlay by our
           customers for our products.

      .    Scalability. Our products are scalable to the needs of a particular
           cable television operator or television broadcaster whether operating
           in a single channel system concentrated in one specific zone or a
           system with hundreds of channels serving multiple zones and markets.
           Moreover, our proprietary storage technology enables the scalability
           of storage of digital video from a few minutes to hundreds of hours
           of video.

                                       4

      .    Reliability. Our products eliminate the need for traditional
           mechanical tape-based systems, thereby reducing the likelihood of
           breakdowns. Furthermore, through the use of redundant low cost
           standard computer industry components and proprietary storage
           technology and application software, our products are designed to be
           fault resilient, providing the high reliability required for
           television operations.

      .    Scheduling Flexibility. The digitizing and storage of video streams
           allows advertisements, news updates and movies to be inserted on
           channels in local communities and allows cable television operators
           to insert or delete video content rapidly. This flexibility enables
           the provision of services such as video-on-demand movies and provides
           advertisers and television broadcasters the opportunity to insert new
           video content on short notice.

      .    Video Image Quality. Because digital video streams do not degrade
           with playback, image content and quality remain at the original
           professional level even after multiple airings.

      .    Ease of Use. We believe our products are simple to learn, require
           less maintenance, and are less personnel intensive than analog
           systems. Due to their innovative architecture, our products offer a
           number of features that simplify their use, including remote
           monitoring and service and automated short- and long-form video
           distribution.


Strategy

           Our objective is to be the leader in the emerging market for the
storage, management and distribution of professional quality digital video for
the television marketplace. The key elements of our strategy are to:

      .    Develop long-term Customer Relationships. We are focusing our product
           development, marketing and direct sales efforts on developing
           long-term customer relationships with cable television operators,
           telecommunications companies and television broadcasters in the
           United States and internationally. We have formed our customer
           relationships by providing digital video solutions to address
           customers' immediate problems, such as advertisement and other
           short-form video insertion. We intend to continue to leverage our
           customer relationships to offer new, compatible products to meet
           evolving market needs, such as video-on-demand programming. We
           believe that the fundamental shift from analog to digital video and
           the growing emphasis on interactive technologies will continue to
           present opportunities for us to develop, market and support our
           products to both our existing customer base and to customers in
           additional markets.

      .    Offer Complete Solutions. Our customers operate complex networks that
           require the delivery and management of video programming across
           multiple channels and target zones. We believe television operators
           desire complete solutions that integrate all steps of digital video
           delivery from scheduling to post-air verification and billing. To
           address these needs, we provide integrated applications and support
           services, which are more effective than individual functional
           products not specifically designed to work together. We believe that
           providing complete integrated solutions has been a significant factor
           in our success and will be an increasingly important competitive
           advantage.

      .    Establish and Maintain Technological Leadership Through Systems
           Integration. We believe our competitive position is dependent in a
           large part on the features and performance of our integrated systems.
           As a result, we focus our research and development efforts on
           introducing systems with improved hardware and software capabilities.

      .    Provide Superior Customer Service and Support. Our products operate
           in customer environments where continuous operation is critical. As a
           result, we believe that providing a high level of service and support
           give us a competitive advantage and is a differentiating factor in
           developing and maintaining key customer relationships. Our in- depth
           industry and application knowledge allows us to better understand the
           service needs of our customers. As of January 31, 2001 more than 34%
           of our employees were dedicated to customer service and support,
           including project design and implementation, installation and
           training. In addition, using remote diagnostic and communications
           features embedded in our products, the service organization has the
           ability to monitor the performance of customer installations and, in
           most cases, rectify problems remotely. Customers have access to
           service personnel via 24-hour, seven-day a week telephone support.


                                       5

Products

           We integrate standard industry components and embedded proprietary
software with television components into our products. These products are
marketed to cable television operators, telecommunication companies, television
broadcasters, systems integrators and value-added resellers.


Broadband Products

        Interactive Television Products

           SeaChange ITV System. We have developed and are deploying our
interactive television system. This system is sold to cable television operators
and other telecommunications companies and enables them to offer video on demand
and other interactive services, including accessing movies and other programs,
purchasing products and retrieving Internet content through the television, to
their subscribers who have digital set-top boxes and access two way cable
plants. This system consists of our MediaCluster product which resides at
headends or nodes in the cable system, our Command Center control software to
manage and control the system, and interfaces to digital headend modulators and
control systems and subscriber management systems.

           The delivery of video content to the subscriber utilizes our
proprietary MediaCluster technology through the following steps:

      .    Customer selection: When a customer selects from their set top box a
           video title to view, a message is transmitted from the set top box to
           our MediaCluster video server system located at the headend of the
           cable system.

      .    Video selection execution: The MediaCluster video server system
           receives the video title request and retrieves the selection from the
           storage disk; which is an MPEG-2 compressed digital video file. The
           video file is loaded on the video server, which then executes the
           program.

      .    Transmission to the customer: A network management device assesses
           the best route along the operator's network to deliver the video
           selection. The video file is delivered to a modulator, which formats
           the video file so that it can be delivered across the broadband
           network. The video file is then delivered back to the customer's set
           top box.

      .    Customer viewing: The set top box receives the video file and
           decrypts the signal and delivers it to the television for viewing.
           The software in the set top box provides the subscriber with the
           functionality of a traditional video cassette recorder, allowing the
           customer to pause, fast-forward and rewind the video file. Some set
           top boxes have storage capabilities that enable the customer to store
           the video file for an extended period of time.

           SeaChange Guestserve System. Our Guestserve System product is a
platform for the storage and delivery of long-form video streams, particularly
movies on demand and interactive guest services such as hotel checkout, Internet
access and personal computer games. We are marketing our Guestserve System to
cable television operators as part of an integrated product that allows these
operators to package full-scale video on demand systems for hotels and
apartments. The integrated system consists of user interfaces and application
hardware and software, including set-top boxes, remote control devices, and our
MediaCluster product that contains software architecture for the delivery and
storage of movies. The video servers are installed at the cable headend and the
video is delivered over a dedicated fiber optic line. The integrated system is
designed to provide cable television operators with a new source of revenue and
a competitive advantage over the encroaching services of direct broadcast
satellite companies.

           SeaChange Movie System. Our Movie System product provides cable
television operators, pay-per-view movie service providers and direct-to-home
providers with capability to originate multiple pay-per-view movie channels or
any other scheduled video programming. Our Movie System includes both our
MediaCluster products that contains technology for storage and delivery of the
video programming and an MPEG-2 encoder for capturing movies from video tape,
and scheduling software and hardware to enable creating programming schedules
for the pay-per-view channels. This system includes fault resiliency in both the
video server technology and scheduling technology so as to ensure the highest
levels of up time.


        SeaChange SPOT System Product

           Our SPOT System product automates the complex process of
advertisement and other video insertion across multiple channels and geographic
zones for cable television operators and telecommunications companies. Through
our embedded proprietary software, our SPOT System allows cable television
operators to insert local and regional advertisements and other

                                       6

short-form video streams into the time allocated for these video streams by
cable television networks such as CNN, MTV, ESPN, Black Entertainment
Television, the Discovery Channel and Nickelodeon.

           Our SPOT System is an integrated solution composed of software
applications, hardware platforms, data networks and easy to use graphical
interfaces. Our SPOT System is designed to be installed at local cable
transmission sites, known as headends, and advertising sales business offices.
Our video insertion process consists of six steps:

      .    Encoding: The process begins with our Encoding Station product which
           uses our embedded proprietary encoding software and hardware that
           embodies MPEG-2, the industry standard for digital video and audio
           compression, to transform in real time and compress analog to digital
           short-and long-form video.

      .    Storage: Digital video is then stored in a disk-based video library,
           capable of storing thousands of spots, where our SPOT System
           organizes, manages and stores these video streams.

      .    Scheduling: Our advertising management software coordinates with the
           traffic and billing application to determine the designated time
           slot, channel and geographic zone for each video stream.

      .    Distribution: Our strategic digital video software then copies the
           video files from the master video library and distributes them over
           the operator's data network to appropriate headends, where they are
           stored in video servers for future play.

      .    Insertion: Following a network cue, our video switch module
           automatically inserts the video stream into the network feed
           (initiating the analog conversion, if necessary), where they are then
           seen by television viewers.

      .    Verification: After the video streams run, our proprietary software
           and hardware verifies the content, accuracy, timing and placement of
           these video streams to facilitate proper customer billing.

           We have developed a variety of different models of the SPOT System to
support operators' differing requirements. The selling price for our SPOT
Systems ranges from under $100,000 to several million dollars; the average
system selling price of approximately $250,000.


        SeaChange Advertising Management Software

           Our Advertising Management Software product, referred to in the past
as our Traffic and Billing Software product, is designed to permit television
operators to manage advertising sales, scheduling, packaging and billing
operations. This product provides advertising sales executives with management
performance reports, inventory tracking, and order entry, billing and accounts
receivable management. Our Advertising Management Software can be integrated
with our SPOT System and is also compatible with many other commercially
available third party advertisement insertion systems.


Broadcast Products

           SeaChange Broadcast MediaCluster System. Our Broadcast MediaCluster
System product provides high quality, MPEG-2 based video storage and playback
for use with automation systems in broadcast television stations. This product
is intended to replace on-air tape decks used to store and play back
advertising, movies and other programming from video tape cart systems and, in
some cases, to replace the cart systems themselves. Our Broadcast MediaCluster
System is designed for use by customers both in larger broadcast television
markets, which use station automation systems, and in smaller markets, which use
control software included in the system.

           As with the ITV System in the broadband segment, our Broadcast
MediaCluster System is designed to simultaneously record, encode, store to a
disk and play video content using compression and decompression hardware. This
product is designed to seamlessly integrate into television broadcasters'
current tape-based operations and meet the high performance requirements of
television broadcasters.

           Currently, our Broadcast MediaCluster system is composed of three to
seven individual video servers arranged in a cluster acting as one system. Each
video server in a cluster is connected to every other video server in the
cluster creating a system with no single point of failure. Our broadcast system
utilizes parity data to ensure fault tolerance in the event of component or
video server failure and provides for more efficient data storage and eliminates
the need for mirrored back-up video

                                       7

servers. Our Broadcast MediaCluster system also has other features that enable
the broadcaster to have end to end functionality and reliability. One feature
enables the broadcasters to schedule its programming for a week of television
content.


Customer Service and Support

           We install, maintain and support our products in North America, Asia,
South America and Europe. We offer basic and advanced formal on-site training
for customer employees. We currently provide installation, maintenance and
support to international customers and also provide movie content in conjunction
with sales of our GuestServe System. We offer technical support to customers,
agents and distributors on a 24-hour, seven-day a week basis. Our systems sales
include always one year of free maintenance.


Customers

           We currently sell our products primarily to cable television
operators, broadcast and telecommunications companies.

           Our customer base is highly concentrated among a limited number of
large customers, primarily due to the fact that the cable, movie, broadcast, and
telecommunications industries in the United States are dominated by a limited
number of large companies. A significant portion of our revenues in any given
fiscal period have been derived from substantial orders placed by these large
organizations. In the years ended December 31, 1998 and 1999, the one month
ended January 31, 2000, and the year ended January 31, 2001, revenues from our
five largest customers represented approximately 55%, 47%, 47% and 44%,
respectively, of our total revenues. Customers accounting for more than 10% of
total revenues consisted of AT&T Media Services (formerly Tele-Communications)
(24%) and Time Warner (15%) in 1998; AT&T Media Services (15%) and Time Warner
(10%) in 1999; AT&T Media Services (16%) and Time Warner (11%) in the one month
ended January 31, 2000; and Time Warner (12%) and Cox Communications (10%) in
the twelve months ended January 31, 2001. We expect that we will continue to be
dependent upon a limited number of customers for a significant portion of our
revenues in future periods. As a result of this customer concentration, our
business, financial condition and results of operations could be materially
adversely affected by the failure of anticipated orders to materialize and by
deferrals or cancellations of orders as a result of changes in customer
requirements or new product announcements or introductions. In addition, the
concentration of customers may make variations in revenue, expenses and
operating results due to seasonality of orders more pronounced.

           We believe that our backlog at any particular time is not meaningful
as an indicator of our future level of sales for any particular period. Because
of the nature of our products and our use of standard components, substantially
all of the backlog at the end of a quarter can be manufactured by us and is
intended to be shipped by the end of the following quarter. However, because of
the requirements of particular customers these backlogs may not be shipped or,
if shipped, the related revenues may not be recognized in that quarter.
Therefore, there is no direct correlation between the backlog at the end of any
quarter and our total sales for the following quarter or other periods.


Selling and Marketing

           We sell and market our products in the United States primarily
through a direct field sales organization and internationally primarily through
independent agents and distributors, complemented by a coordinated marketing
effort of our marketing group. Direct sales activities in the United States are
conducted from our Massachusetts headquarters and seven field offices. In
October 1996, we entered into an exclusive sales and marketing services
agreement with a private Italian company to provide these services throughout
continental Europe. We also market certain of our products, namely our
MediaCluster, to systems integrators and value-added resellers. As of January
31, 2001, our selling and marketing organization consisted of 40 people.

           In light of the complexity of our digital video products, we
primarily employ a consultative direct sales process. Working closely with
customers to understand and define their needs enables us to obtain better
information regarding market requirements, enhance our expertise in our
customers' industries, and more effectively and precisely convey to customers
how our solutions address the customer's specific needs. In addition to the
direct sales process, customer references and visits by potential customers to
sites where our products are in place are often critical in the sales process.

           We use several marketing programs focused on our targeted markets to
support the sale and distribution of our products. We use exhibitions at a
limited number of prominent industry trade shows and conferences and
presentations at technology seminars to promote awareness of us and our
products. We also publish technical articles in trade and technical journals and
promotional product literature.

                                       8

Research and Product Development

           Our management believes that our success will depend to a substantial
degree upon our ability to develop and introduce in a timely fashion new
products and enhancements to our existing products that meet changing customer
requirements in our current and new markets. We have in the past made, and
intend to continue to make, substantial investments in product and technological
development. Through our direct sales process we monitor changing customer
needs, changes in the marketplace and emerging industry standards, and are
therefore better able to focus our research and development efforts to address
these evolving industry requirements.

           Our research and development expenditures totaled approximately $15.8
million, $16.3 million, $1.8 million, and $20.3 million for the years ended
December 31, 1998 and 1999, the one month ended January 31, 2000, and the year
ended January 31, 2001, respectively. At January 31, 2001, 157 employees were
engaged in research and product development. We believe that the experience of
our product development personnel is an important factor in our success. We
perform our research and product development activities at our headquarters and
in offices in Greenville, New Hampshire; Atlanta, Georgia; and Fort Washington,
Pennsylvania. We have historically expensed our direct research and development
costs as incurred.

           We have a variety of new products being developed and tested,
including interactive television products for cable television operators and
telecommunications companies, digital play-to-air systems for television
broadcasters and the next version of our MediaCluster software. In December
1999, we enhanced our research and development capabilities through the
acquisition of Digital Video Arts, Ltd., a developer of custom software products
specializing in digital video and interactive television. However, in the future
we may not be able to successfully develop and market these products, or to
identify, develop, manufacture, market or support other new products or
enhancements to our existing products successfully or on a timely basis. In
addition, our products may not gain market acceptance, or we may be unable to
respond effectively to product announcements by competitors or technological
changes.


Manufacturing

           Our manufacturing operations are located at facilities in Maynard,
Massachusetts and in Greenville, New Hampshire. The manufacturing operations in
Massachusetts consist primarily of component and subassembly procurement, system
integration and final assembly, testing and quality control of the complete
systems. Our operations in New Hampshire consist primarily of component and
subassembly procurement, video server integration and final assembly, testing
and quality control of the video servers. We rely on independent contractors to
manufacture components and subassemblies to our specifications. Each of our
products undergoes testing and quality inspection at the final assembly stage.

           We attempt to use standard parts and components available from
multiple vendors. Certain components used in our products, however, are
currently purchased from a single source, including a computer chassis
manufactured by Trimm Technologic, a disk controller manufactured by Mylex, a
decoder card for MPEG-2, the standard for digital video and audio compression,
manufactured by Vela Research and an MPEG-2 encoder manufactured by Optivision,
Inc. While we believe that there are alternative suppliers available for these
components, we believe that the procurement of these components from alternative
suppliers would take anywhere from 45-120 days. However, these alternative
components may not be functionally equivalent or may be unavailable on a timely
basis or on similar terms. In addition, we purchase several other components
from a single supplier, although we believe that alternative suppliers for these
components are readily available on a timely basis. We generally purchase sole
source or other components pursuant to purchase orders placed from time to time
in the ordinary course of business and have no written agreements or guaranteed
supply arrangements with our sole source suppliers. We have experienced quality
control problems and supply shortages for sole source components in the past
and, in the future, it is possible that we may again experience significant
quality control problems or supply shortages for these components. However, any
interruption in the supply of these single source components could have a
material adverse effect on our business, financial condition and results of
operations. Because of our reliance on these vendors, we may also be subject to
increases in component costs which could adversely affect our business,
financial condition and results of operations.


Competition

           The markets in which we compete are characterized by intense
competition, with a large number of suppliers providing different types of
products to different segments of the markets. We currently compete principally
on the basis of the breadth of our products' features and benefits, including
the ability to precisely target viewers in specific geographic or demographic
groups, and the flexibility, scalability, professional quality, ease of use,
reliability and cost effectiveness of our products; and our

                                       9

reputation and the depth of our expertise, customer service and support. While
we believe that we currently compete favorably overall with respect to these
factors and that our ability to provide solutions to manage, store and
distribute digital video differentiates us from our competitors, in the future
we may not be able to continue to compete successfully with respect to these
factors.

           In the digital advertisement insertion market, we generally compete
only with nCube (formerly SkyConnect, Inc.). In the market for long-form video
products including video-on-demand, we compete with various companies offering
video server platforms such as Concurrent Computer Corp., nCube, Diva Systems
Corp. and more traditional movie application providers like The Ascent
Entertainment Group, Panasonic Company, and Lodgenet Entertainment. In addition,
our Advertising Management Software competes against certain products of
Columbine Cable Systems, Inc., Cable Computerized Management Systems, Inc., a
subsidiary of Indenet Inc., CAM Systems, Inc., a subsidiary of Starnet Inc., LAN
International USA, Inc., Visiontel, Inc. and various suppliers of sales,
scheduling and billing software products. In the television broadcast market, we
compete against Grass Valley Group, Inc., Pinnacle Systems, Inc., Sony
Corporation, and ASC Incorporated. We expect the competition in each of these
markets to intensify in the future.

           Many of our current and prospective competitors have significantly
greater financial, technical, manufacturing, sales, marketing and other
resources than us. As a result, these competitors may be able to devote greater
resources to the development, promotion, sale and support of their products than
us. Moreover, these companies may introduce additional products that are
competitive with ours or enter into strategic relationships to offer complete
solutions, and in the future our products may not be able to compete effectively
with these products.

           Although we believe that we have certain technological and other
advantages over our competitors, maintaining these advantages will require
continued investment by us in research and development, selling and marketing
and customer service and support. In addition, as we enter new markets,
distribution channels, technical requirements and competition levels may be
different than those in our current markets. In the future we not be able to
compete successfully against either current or potential competitors.


Proprietary Rights

           Our success and our ability to compete is dependent, in part, upon
our proprietary rights. We have been granted one U.S. patent for our
MediaCluster technology and have filed a foreign patent application for the same
technology. We also have other patent applications in process for other
technologies. In addition, we rely on a combination of contractual rights,
trademark laws, trade secrets and copyright laws to establish and protect our
proprietary rights in our products. It is possible that in the future not all of
these patents will be issued or that, if issued, the validity of these patents
would be upheld. It is also possible that the steps taken by us to protect our
intellectual property will be inadequate to prevent misappropriation of our
technology or that our competitors will independently develop technologies that
are substantially equivalent or superior to our technology. In addition, the
laws of some foreign countries in which our products are or may be distributed
do not protect our proprietary rights to the same extent as do the laws of the
United States.

           We are also subject to the risk of adverse claims and litigation
alleging infringement of intellectual property rights of others. We attempt to
ensure that our products do not infringe any existing proprietary rights of
others.

           A version of our Advertising and Management Software that is in
limited distribution was based on software we licensed from Summit Software
Systems, Inc. of Boulder, Colorado in May 1996. We have been granted a
perpetual, nonexclusive license to this software in return for the payment of an
up-front license fee and royalties for sales occurring prior to June 1998.


Employees

           As of January 31, 2001, we employed 448 persons, including 157 in
research and development, 153 in customer service and support, 40 in selling and
marketing, 64 in manufacturing and 34 in finance and administration. One of our
employees is represented by a collective bargaining arrangement. We believe that
our relations with our employees are good.

                                       10

                   CERTAIN RISKS THAT MAY AFFECT OUR BUSINESS


      If we are unable to manage our growth and the related expansion in our
operations effectively, our business may be harmed through a decreased ability
to monitor and control effectively our operations, and a decrease in the quality
of work and innovation of our employees.

           Our ability to successfully offer products and services and implement
our business plan in a rapidly evolving market requires effective planning and
management. Not only are we growing in size, but we are also continuing to
transition towards greater reliance on our video-on-demand products for an
increased portion of our revenue. Our growth has placed, and our anticipated
future operations will continue to place, a significant strain on our
management, administrative, operational and other resources. To manage future
growth effectively, we must continue to improve our management and operational
controls, enhance our reporting systems and procedures, integrate new personnel
and manage expanded operations. A failure to manage our growth may harm our
business through a decreased ability to monitor and control effectively our
operations, and a decrease in the quality of work and innovation of our
employees upon which our business is dependent.


      We may not be able to hire and retain highly skilled employees,
particularly managerial, engineering, selling and marketing, finance and
manufacturing personnel, which could affect our ability to compete effectively
because our business is technology-based and there is a shortage of these
employees within the New England area.

           Our success depends to a significant degree upon the continued
contributions of our key management, engineering, selling and marketing and
manufacturing personnel, many of whom would be difficult to replace given the
shortage within the New England area of qualified persons for these positions.
We do not have employment contracts with our key personnel. We believe that our
future success will also depend in large part upon our ability to attract and
retain highly skilled managerial, engineering, selling and marketing, finance
and manufacturing personnel, as our business is technology-based. Because
competition for these personnel is intense, we may not be able to attract and
retain qualified personnel in the future. The loss of the services of any of the
key personnel, the inability to attract or retain qualified personnel in the
future or delays in hiring required personnel, particularly software engineers
and sales personnel, could have a material adverse effect on our business,
financial condition and results of operations because our business is
technology-based.


      Cancellation or deferral of purchases of our products could cause our
operating results to be below the expectations of the public market stock
analysts who cover our stock, resulting in a decrease in the market price of our
common stock.

           Any significant cancellation or deferral of purchases of our products
could have a material adverse effect on our business, financial condition and
results of operations in any particular quarter due to the resulting decrease in
revenue and our relatively fixed costs. In addition, to the extent significant
sales occur earlier than expected, operating results for subsequent quarters may
be adversely affected because our expense levels are based, in part, on our
expectations as to our future revenues, and we may be unable to adjust spending
in a timely manner to compensate for any revenue shortfall. Because of these
factors, in some future quarter our operating results may be below the
expectations of public market analysts and investors which may adversely affect
the market price of our common stock.


      Seasonal trends may cause our quarterly operating results to fluctuate,
making period-to-period comparisons of our operating results meaningless.

           We have experienced significant variations in the revenue, expenses
and operating results from quarter to quarter and these variations are likely to
continue. We believe that fluctuations in the number of orders being placed from
quarter to quarter are principally attributable to the buying patterns and
budgeting cycles of television operators and broadcast companies, the primary
buyers of the digital advertising systems and broadcast systems, respectively.
We expect that there will continue to be fluctuations in the number and value of
orders received. As a result, our results of operations have in the past and
likely will, at least in the near future, fluctuate in accordance with this
purchasing activity making period-to-period comparisons of our operating results
meaningless. In addition, because these factors are difficult for us to
forecast, our business, financial condition and results of operations for one
quarter or a series of quarters may be adversely affected and below the
expectations of public market analysts and investors, resulting in a decrease in
the market price of our common stock.

                                       11

      Due to the lengthy sales cycle involved in the sale of our products, our
quarterly results may vary and should not be relied on as an indication of
future performance.

           Digital video, movie and broadcast products are relatively complex
and their purchase generally involves a significant commitment of capital, with
attendant delays frequently associated with large capital expenditures and
implementation procedures within an organization. Moreover, the purchase of
these products typically requires coordination and agreement among a potential
customer's corporate headquarters and its regional and local operations. For
these and other reasons, the sales cycle associated with the purchase of our
digital video, movie and broadcast products are typically lengthy and subject to
a number of significant risks, including customer's budgetary constraints and
internal acceptance reviews, over which we have little or no control. Based upon
all of the foregoing, we believe that our quarterly revenues, expenses and
operating results are likely to vary significantly in the future, that
period-to-period comparisons of our results of operations are not necessarily
meaningful and that, in any event, these comparisons should not be relied upon
as indications of future performance.


      If we are unable to successfully compete in our marketplace, our financial
condition and operating results may be adversely affected.

           We currently compete against suppliers of both analog tape-based and
digital systems in the digital advertisement insertion market and against both
computer companies offering video server platforms and more traditional movie
application providers in the movie system market. In the television broadcast
market, we compete against various computer companies offering video server
platforms and television equipment manufacturers.

           Due to the rapidly evolving markets in which we compete, additional
competitors with significant market presence and financial resources, including
computer hardware and software companies and television equipment manufacturers,
may enter those markets, thereby further intensifying competition. Increased
competition could result in price reductions and loss of market share which
would adversely affect our business, financial condition and results of
operations. Many of our current and potential competitors have greater
financial, selling and marketing, technical and other resources than we do.
Moreover, our competitors may also foresee the course of market developments
more accurately than us. Although we believe that we have certain technological
and other advantages over our competitors, realizing and maintaining these
advantages will require a continued high level of investment by us in research
and product development, marketing and customer service and support. In the
future we may not have sufficient resources to continue to make these
investments or to make the technological advances necessary to compete
successfully with our existing competitors or with new competitors.

           If we are unable to compete effectively, our business, prospects,
financial condition and operating results would be materially adversely affected
because of the difference in our operating results from the assumptions on which
our business model is based.


      If the emerging digital video market does not gain commercial acceptance,
our business, financial condition and results of operations would be negatively
affected because the market for our products would be more limited than we
currently believe and have communicated to the financial markets.

           Cable television operators and television broadcasters have
historically relied on traditional analog technology for video management,
storage and distribution. Digital video technology is still a relatively new
technology and requires a significant initial investment of capital. Our future
growth will depend on the rate at which television operators convert to digital
video systems.

           In addition, to date our products have been purchased primarily by
cable television operators and telecommunications companies. An inability to
penetrate new markets would have a material adverse effect on our business,
financial condition and results of operations because the market for our
products would be more limited than we currently believe and have communicated
to the financial markets.


      If there were a decline in sales of our SPOT System, our revenues could be
materially affected because we currently derive a large percentage of our
revenues from this product.

           Sales of our SPOT System have historically accounted for a large
percentage of our revenues, and this product and related enhancements are
expected to continue to account for a significant portion of our revenues in the
remainder of fiscal year 2000 and in fiscal year 2001. Our success depends in
part on continued sales of our SPOT System product. Accordingly, a decline in
demand or average selling prices for our SPOT System product line, whether as a
result of new product introductions by others,

                                       12

price competition, technological change, inability to enhance the products in a
timely fashion, or otherwise, would have a material adverse effect on our
business, financial condition and results of operations.


      If we fail to respond to rapidly changing technologies related to digital
video, our business, financial condition and results of operations would be
materially adversely affected because the competitive advantage of our products
relative to those of our competitors would decrease.

           The markets for our products are characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions
and enhancements. Future technological advances in the television and video
industries may result in the availability of new products or services that could
compete with the solutions provided by us or reduce the cost of existing
products or services, any of which could enable our existing or potential
customers to fulfill their video needs better and more cost efficiently than
with our products. Our future success will depend on our ability to enhance our
existing digital video products, including the development of new applications
for our technology, and to develop and introduce new products to meet and adapt
to changing customer requirements and emerging technologies. In the future, we
may not be successful in enhancing our digital video products or developing,
manufacturing and marketing new products which satisfy customer needs or achieve
market acceptance. In addition, there may be services, products or technologies
developed by others that render our products or technologies uncompetitive,
unmarketable or obsolete, or announcements of currently planned or other new
product offerings either by us or our competitors that cause customers to defer
or fail to purchase our existing solutions.


      If we are unable to successfully introduce to our marketplace new products
or enhancements to existing products, our financial condition and operating
results may be adversely effected by a decrease in purchases of our products.

           Because our business plan is based on technological development in
the form of both development of new products and enhancements to our existing
products, our future success is dependent on our successful introduction to the
marketplace of these products and enhancements. In the future we may experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these and other new products and enhancements, or
find that our new products and enhancements do not adequately meet the
requirements of the marketplace or achieve market acceptance. Announcements of
currently planned or other new product offerings may cause customers to defer
purchasing our existing products. Moreover, despite testing by us, and by
current and potential customers, errors or failures may be found in our
products, or, if discovered, successfully corrected in a timely manner. These
errors or failures could cause delays in product introductions and shipments, or
require design modifications that could adversely affect our competitive
position. Our inability to develop on a timely basis new products, enhancements
to existing products or error corrections, or the failure of these new products
or enhancements to achieve market acceptance could have a material adverse
effect on our business, financial condition and results of operations.


      Because our customer base is highly concentrated among a limited number of
large customers, the loss of or reduced demand of these customers could have a
material adverse effect on our business, financial condition and results of
operations.

           Our customer base is highly concentrated among a limited number of
large customers, and, therefore, a limited number of customers account for a
significant percentage of our revenues in any year. In the years ended December
31, 1998 and 1999, the one month ended January 31, 2000, and the year ended
January 31, 2001 revenues from our five largest customers represented
approximately 55%, 47%, 47%, and 44% respectively, of our total revenues. In the
years ended December 31, 1998 and 1999, the one month ended January 31, 2000 and
the year ended January 31, 2001, two customers each accounted for more than 10%
of our revenues. We generally do not have written continuing purchase agreements
with our customers and do not generally have written agreements that require
customers to purchase fixed minimum quantities of our products. Our sales to
specific customers tend to vary significantly from year to year depending upon
these customers' budgets for capital expenditures and new product introductions.
In addition, we derive a substantial portion of our revenues from products that
have a selling price in excess of $200,000. We believe that revenue derived from
current and future large customers will continue to represent a significant
proportion of our total revenues. The loss of, or reduced demand for products or
related services from, any of our major customers could have a material adverse
effect on our business, financial condition and results of operations.

      Because we purchase certain of the components used in manufacturing our
product from a sole supplier and we use a limited number of third party
manufacturers to manufacture our product, our business, financial condition and
results of operation could be materially adversely affected by a failure of this
supplier or these manufacturers.

           Certain key components of our products are currently purchased from a
sole supplier, including a computer chassis manufactured by Trimm Technologic
Inc., a different computer chassis manufactured by JMR Electronics, Inc., a
switch chassis

                                       13

manufactured by Ego Systems, a decoder card manufactured by Vela Research, Inc.
for MPEG-2, the industry standard for digital video and audio compression, and
an MPEG-2 encoder manufactured by Optibase, Inc. We have in the past experienced
quality control problems, where products did not meet specifications or were
damaged in shipping, and delays in the receipt of these components. These
problems were generally of short duration and did not have a material adverse
effect on us. However, we may in the future experience similar types of problems
which could be more severe or more prolonged. The inability to obtain sufficient
key components as required, or to develop alternative sources if and as required
in the future, could result in delays or reductions in product shipments which,
in turn, could have a material adverse effect on our business, financial
condition and results of operations.

           In addition, we rely on a limited number of third parties who
manufacture certain components used in our products. While to date there has
been suitable third party manufacturing capacity readily available at acceptable
quality levels, in the future there may not be manufacturers that are able to
meet our future volume or quality requirements at a price that is favorable to
us. Any financial, operational, production or quality assurance difficulties
experienced by these third party manufacturers that result in a reduction or
interruption in supply to us could have a material adverse effect on our
business, financial condition and results of operations.

      The success of our business model depends on both the response of the
market to the current regulatory structure and the continued deregulation of the
telecommunications and television industries.

           The telecommunications and television industries are subject to
extensive regulation which may limit the growth of our business, both in the
United States and other countries. Although recent legislation has lowered the
legal barriers to entry for telecommunications companies into the United States
multichannel television market, telecommunications companies may either choose
not to enter or be unable to successfully enter this or related markets.
Moreover, the growth of our business internationally in the manner and to the
extent currently contemplated by our business model is dependent in part on
similar deregulation of the telecommunications industry abroad, the timing and
magnitude of which is uncertain.

           Television operators are also subject to extensive government
regulation by the Federal Communications Commission and other federal and state
regulatory agencies. These regulations could have the effect of limiting capital
expenditures by television operators and thus could have a material adverse
effect on our business, financial condition and results of operations. The
enactment by federal, state or international governments of new laws or
regulations, changes in the interpretation of existing regulations or a reversal
of the trend toward deregulation in these industries could adversely affect our
customers, and thereby materially adversely affect our business, financial
condition and results of operations.


      If we are unable to protect our intellectual property we may lose valuable
assets on which our business is based or incur costly litigation to protect our
rights.

           Our success and ability to compete depends upon our intellectual
property, including our proprietary technology and confidential information, as
the broadband and broadcast systems that we develop, market, license and sell
are dependent on this technology and information. We rely on patent, trademark,
trade secret and copyright laws to protect our intellectual property. Despite
our efforts to protect our intellectual property, a third party could copy or
otherwise obtain our proprietary information without authorization. Our means of
protecting our proprietary rights may not be adequate and our competitors may
independently develop similar technology, or duplicate our products or our other
intellectual property. We may have to resort to litigation to enforce our
intellectual property rights, to protect our trade secrets or know-how or to
determine their scope, validity or enforceability. Enforcing or defending our
proprietary technology is expensive, could cause the diversion of our resources,
and may not prove successful. Our protective measures may prove inadequate to
protect our proprietary rights, and any failure to enforce or protect our rights
could cause us to lose a valuable asset.


      Future acquisitions may be difficult to integrate, disrupt our business,
dilute stockholder value or divert management attention.

           As part of our business strategy, we may seek to acquire or invest in
businesses, products or technologies that we believe could complement or expand
our business, augment our market coverage, enhance our technical capabilities or
otherwise offer growth opportunities. Acquisitions could create risks for us,
including:

      .    difficulties in assimilation of acquired personnel, operations,
           technologies or products which may affect our ability to develop new
           products and services and compete in our rapidly changing marketplace
           due to a resulting decrease in the quality of work and innovation of
           our employees upon which our business is dependent; and

                                       14

      .    adverse effects on our existing business relationships with suppliers
           and customers, which may be of particular importance to our business
           because our customer base is highly concentrated among a limited
           number of large customers and we purchase certain of the components
           used in manufacturing our product from a sole supplier and we use a
           limited number of third party manufacturers to manufacture our
           product.

           In addition, if we consummate acquisitions through an exchange of our
securities, our existing stockholders could suffer significant dilution. Any
future acquisitions, even if successfully completed, may not generate any
additional revenue or provide any benefit to our business.


      Because our business is susceptible to risks associated with international
operations, we may not be able to maintain or increase international sales of
our products.

           International sales accounted for approximately 13%, 23%, 18% and 20%
of our revenues for the years ended December 31, 1998 and 1999, the one month
ended January 31, 2000 and the year ended January 31, 2001, respectively. We
expect that international sales will account for a significant portion of our
business in the future. However, in the future we may be unable to maintain or
increase international sales of our products. International sales are subject to
a variety of risks, including:

      .    difficulties in establishing and managing international distribution
           channels;

      .    difficulties in selling, servicing and supporting overseas products
           and in translating products into foreign languages;

      .    the uncertainty of laws and enforcement in certain countries relating
           to the protection of intellectual property;

      .    multiple and possibly overlapping tax structures;

      .    currency and exchange rate fluctuations; and

      .    economic or political changes in international markets.


      Our executive officers, directors and major stockholders possess
significant control over us which may lead to conflicts with other stockholders
over corporate governance matters.

           Our officers, directors and their affiliated entities, and other
holders of 5% or more of our outstanding capital stock, together beneficially
owned approximately 26.83% of the outstanding shares of our common stock as of
April 23, 2001. As a result, these persons will strongly influence the
composition of our board of directors and the outcome of corporate actions
requiring stockholder approval, irrespective of how other of our stockholders
may vote. This concentration of ownership may have the effect of delaying or
preventing a change in control of us which may be favored by a majority of the
remaining stockholders, or cause a change of control not favored by our other
stockholders.


ITEM 2.    Properties

           Our corporate headquarters, which is also our principal
administrative, selling, marketing, customer service and support and product
development facility, is located in Maynard, Massachusetts and consists of
approximately 105,000 square feet under a lease which expires on March 31, 2005
with annual base rent of $610,000. We purchased approximately 24,000 square feet
of office and manufacturing space in Greenville, New Hampshire on February 15,
2000 for $280,000. We also lease two facilities totaling approximately 13,000
square feet in Greenville, New Hampshire that are used for the development and
final assembly of our video servers. In connection with the acquisition in
December 1999 of Digital Video Arts, we entered into a lease for approximately
8,000 square feet of office space in Fort Washington, Pennsylvania, which is
primarily used for the development of custom software products for companies
specializing in digital video and interactive television. We also lease small
research and development and/or sales and support offices in Atlanta, Georgia,
Denver, Colorado, St. Louis, Missouri, Reno, Nevada, Valbonne, France, Japan,
United Kingdom, and Singapore.

                                       15

ITEM 3.   Legal Proceedings

           On March 17, 2000, Beam Laser Systems, Inc. and Frank L. Beam
instituted a claim (Civil Action No. 2:00-CV-195) in the federal courts in the
Eastern District of Virginia against one of our customers, Cox Communications,
Inc. This claim was later amended by Beam Laser on June 16, 2000 to also include
two related companies of Cox Communications: CableRep, Inc. and CoxCom, Inc.
Beam Laser has asserted that the ad insertion technology, which includes our
spot ad insertion system, used by Cox Communications, CableRep and CoxCom
infringes two of the patents held by Beam Laser (Patents No. 4,814,883 and
5,200,825). Beam Laser is seeking both an injunction and monetary damages from
the defendants in that case. The defendants have made a counterclaim against
Beam Laser seeking a declaration of non-infringement, invalidity and
unenforceability of the two patents held by Beam Laser that are at question. On
May 19, 2000, we filed a motion seeking to intervene in the action between our
customer and Beam Laser, and to transfer the case to the District Court of
Massachusetts. On June 23, 2000, the court granted our intervention motion and
deferred ruling on the issue of transfer. Also on June 23, 2000, we filed our
intervenor complaint in the Virginia action seeking, among other things, a
declaratory judgment of non-infringement, invalidity and unenforceability
regarding the two patents of Beam Laser that are at question. In addition, we
have agreed to indemnify our customer for claims brought against the customer
that are related to the customer's use of our products. On October 23, 2000, the
court denied our motion to transfer. On November 29, 2000, Beam Laser filed a
motion to amend its pleading to add claims against us seeking equitable relief,
a finding of willful or contributory infringement, and attorneys' fees. On
January 26, 2001, the magistrate denied Beam Laser's motion to amend. Beam Laser
has filed an objection to this denial, and on March 16, 2001, the court allowed
Beam's motion to amend the complaint, to add charges of infringement against
SeaChange, but not allowing any claims for damages or willful infringement. In
addition, on April 20, 2001, the court denied a motion for summary judgement of
laches, stating it will schedule an evidentiary hearing. This dispute has no
scheduled trial date, though one is expected this calendar year.

           On June 13, 2000, we filed in the United States District Court for
the District of Delaware a lawsuit against one of our competitors, nCube Corp.,
whereby we alleged that nCube's MediaCube-4 product infringed a patent held by
us (Patent No. 5,862,312). In instituting the claim, we sought both a permanent
injunction and damages in an unspecified amount. nCube made a counterclaim
against us that the patent held by us was invalid and that nCube's MediaCube-4
product did not infringe our patent. On September 6, 2000, nCube conceded, based
on the District Court's prior claim construction ruling, that its MediaCube-4
product infringed our patent. On September 25, 2000 the court upheld the
validity of our patent. nCube has filed motions challenging both the jury's
verdict and the District Court's claim construction ruling. The District Court
has yet to rule on nCube's motions. At this time we are awaiting the court's
decision regarding a permanent injunction. Damages will be determined in future
proceedings.

           On January 8, 2001, nCube Corp. filed a complaint against us in the
United States District Court for the District of Delaware alleging that our use
of our Media Cluster, Media Express and Media Server technology each infringe a
patent held by nCube (Patent No. 5,805,804). In instituting the claim, nCube has
sought both an injunction and monetary damages in an unspecified amount. We
responded on January 26, 2001, denying that the claim of infringement. We also
asserted a counterclaim seeking a declaration from the District court that U.S.
Patent No. 5,805,804 is invalid and not infringed.

           On June 14, 1999, we filed a defamation complaint against Jeffrey
Putterman, Lathrop Investment Management, Inc. and Concurrent Computer
Corporation in the Circuit Court of Pulaski County, Arkansas alleging that the
defendants conspired to injure our business and reputation in the marketplace.
The complaint further alleges that Mr. Putterman and Lathrop Investment
Management, Inc. defamed us through false postings on an Internet message board.
The complaint seeks unspecified amounts of compensatory and punitive damages. On
June 14, 2000, Concurrent filed a counterclaim under seal against us seeking
unspecified damages. These motions are currently pending and no trial date has
been set.

           We cannot be certain of the outcome of the foregoing litigation, but
do plan to oppose allegations against us and assert our claims against other
parties vigorously. In addition, as these claims are in the early stages of
discovery and certain claims for damages are as yet unspecified, we are unable
to estimate the impact to our business, financial condition, and results of
operations or cash flows.


ITEM 4.  Submission of Matters To A Vote Of Securities Holders

No matters were submitted during the fourth quarter of the fiscal year ended
January 31, 2001 to a vote of security holders of the Company through the
solicitation of proxies or otherwise.

                                       16

                                     PART II

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

          Our common stock is traded on the Nasdaq National Market under the
symbol "SEAC." The following table sets forth the high and low closing sale
prices for the Common Stock for the periods indicated, as reported on the Nasdaq
National Market.

                                                               High      Low
                                                              ------   ------
          Three Month Period Ended:
               March 31, 1999............................    $ 6.088  $ 4.000
               June 30, 1999.............................     12.078    5.300
               September 30, 1999........................     14.203    8.750
               December 31, 1999.........................     35.375   10.672

          One Month Period Ended January 31, 2000........     46.750   27.750
          Three Month Period Ended:
               April 30, 2000............................     73.500   30.000
               July 31, 2000.............................     41.188   21.078
               October 31, 2000..........................     40.750   19.063
               January 31, 2001..........................     34.750   16.375

          On April 25, 2001, the last reported sale price of our common stock
on the Nasdaq National Market was $19.250.

          We have not paid any cash dividends on our capital stock since its
inception, and do not expect to pay cash dividends on our common stock in the
foreseeable future. We currently intend to retain all of our future earnings for
use in the operation and expansion of the business.

          As of January 31, 2001, we had 126 stockholders of record. We believe
that the number of beneficial holders of our common stock exceeds 2,500.

                                       17

ITEM 6.  SELECTED FINANCIAL DATA

     The selected consolidated financial data set forth below should be read in
conjunction with our consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," appearing elsewhere in this prospectus. The consolidated statement
of operations data for each of the five years ended December 31, 1996, 1997,
1998, 1999 and January 31, 2001 and for the one month period ended January 31,
2000 and the consolidated balance sheet data at December 31, 1996, 1997, 1998,
1999 and at January 31, 2000 and 2001 are detailed below.  During the fourth
quarter of twelve months ended January 31, 2001, SeaChange implemented the SEC's
SAB 101 guidelines, retroactive to the beginning of the year (see Note 3 of the
consolidated financial statements).  The pro forma results for prior periods
presented below were calculated assuming the accounting change was made
retroactively to all prior periods presented.  An explanation of the
determination of the number of shares used in computing net income (loss) per
share is given in the notes to the consolidated financial statements.

<TABLE>
<CAPTION>
                                                                                                    One month
                                                                           Year Ended                 ended        Year ended
                                                                           December 31,             January 31,    January 31,
                                                           -------------------------------------    -----------    -----------
                                                           1996       1997       1998       1999        2000           2001
                                                           ----       ----       ----       ----        ----           ----
                                                                            (in thousands, except per share data)
<S>                                                     <C>         <C>         <C>        <C>          <C>          <C>
Consolidated Statement of Operations Data:
  Revenues
    Systems...........................................   $ 45,745    $ 60,414    $ 58,033    $ 68,457    $    226    $ 74,986
    Services..........................................      4,378       8,268      14,891      16,764       1,484      23,482
                                                         --------    --------    --------    --------    --------    --------
                                                           50,123      68,682      72,924      85,221       1,710      98,468
                                                         --------    --------    --------    --------    --------    --------
  Costs of revenues
    Systems...........................................     27,133      34,740      35,772      38,889         633      39,928
    Services..........................................      4,538       7,898      13,611      14,962       1,445      18,798
                                                         --------    --------    --------    --------    --------    --------
                                                           31,671      42,638      49,383      53,851       2,078      58,726
                                                         --------    --------    --------    --------    --------    --------
Gross profit (loss)...................................     18,452      26,044      23,541      31,370        (368)     39,742
                                                         --------    --------    --------    --------    --------    --------
Operating expenses:
  Research and development............................      5,393      11,758      15,763      16,302       1,764      20,283
  Selling and marketing...............................      4,694       6,248       8,566       8,595       1,034      12,472
  General and administrative..........................      2,364       3,932       6,132       5,335         457       7,372
  Restructuring of operations.........................         --          --         676          --          --          --
  Write-off of acquired in-process research and
   development........................................         --       5,290          --          --          --          --
  Acquisition costs...................................         --          --          --         684          --          --
                                                         --------    --------    --------    --------    --------    --------
                                                           12,451      27,228      31,137      30,916       3,255      40,127
                                                         --------    --------    --------    --------    --------    --------
Income (loss) from operations.........................      6,001      (1,184)     (7,596)        454      (3,623)       (385)
Interest income (expense), net........................        375         663         235          28           9        (212)
                                                         --------    --------    --------    --------    --------    --------
Income (loss) before income taxes and cumulative
 effect of change in accounting principle.............      6,376        (521)     (7,361)        482      (3,614)       (597)
Provision (benefit) for income taxes..................      2,483       1,776      (2,789)        (15)     (1,156)       (690)
                                                         --------    --------    --------    --------    --------    --------
Income (loss) before cumulative effect of change in
 accounting principle.................................      3,893      (2,297)     (4,572)        497      (2,458)         93
Cumulative effect change in accounting principle,
 net of tax of $732...................................         --          --          --          --          --      (1,100)
                                                         --------    --------    --------    --------    --------    --------
Net income (loss).....................................   $  3,893    $ (2,297)   $ (4,572)   $    497    $ (2,458)   $ (1,007)
                                                         ========    ========    ========    ========    ========    ========

Basic earnings (loss) per share before cumulative
 effect of change in accounting principle.............   $   0.48    $  (0.15)   $  (0.24)   $   0.02    $  (0.12)   $   0.00
Cumulative effect of change in accounting principle-
 Basic................................................         --          --          --          --          --       (0.05)
                                                         --------    --------    --------    --------    --------    --------
Basic earnings (loss) per share.......................   $   0.48    $  (0.15)   $  (0.24)   $   0.02    $  (0.12)   $  (0.05)
                                                         ========    ========    ========    ========    ========    ========

Diluted earnings (loss) per share before cumulative
 change in accounting principle.......................   $   0.22    $  (0.15)   $  (0.24)   $   0.02    $  (0.12)   $   0.00
Cumulative effect of change in accounting principle-
 Diluted..............................................         --          --          --          --          --       (0.05)
                                                         --------    --------    --------    --------    --------    --------
Diluted earnings (loss) per share.....................   $   0.22    $  (0.15)   $  (0.24)   $   0.02    $  (0.12)   $  (0.05)
                                                         ========    ========    ========    ========    ========    ========
</TABLE>

                                       18

<TABLE>
<CAPTION>
                                                                                                      One month
                                                                         Year Ended                     ended         Year ended
                                                                         December 31,                 January 31,     January 31,
                                                        -----------------------------------------     -----------     -----------
                                                        1996        1997        1998        1999         2000             2001
                                                        ----        ----        ----        ----         ----             ----
                                                                            (in thousands, except per share data)
<S>                                                     <C>            <C>            <C>        <C>        <C>        <C>
Pro forma amounts assuming the change in accounting
 principle is applied retroactively:
 Revenue............................................   $ 49,884    $ 68,634    $ 71,790    $ 85,052     $  2,144        $ 98,468
 Net income (loss)..................................   $  3,747    $ (2,509)   $ (5,276)   $    323     $ (2,163)       $     93
 Basic earnings (loss) per share....................   $   0.46    $  (0.16)   $  (0.28)   $   0.02     $  (0.10)       $   0.00
 Diluted earnings (loss) per share..................   $   0.21    $  (0.16)   $  (0.28)   $   0.01     $  (0.10)       $   0.00

<CAPTION>
                                                                     December 31,
                                                   -----------------------------------------------        January 31,    January 31,
                                                   1996          1997           1998          1999           2000           2001
                                                   ----          ----           ----          ----           ----           ----
<S>                                              <C>           <C>            <C>           <C>            <C>            <C>
                    (in thousands)
    Working capital.............................. $ 26,943      $ 24,949       $ 22,871      $ 23,365      $ 20,983       $ 28,819
    Total assets.................................   46,467        52,512         54,527        62,304        56,712         88,253
    Long-term liabilities........................       --            --          1,027         1,231         1,144          3,934
    Deferred revenue.............................    2,192         3,851          3,939         4,380         6,292          8,435
    Total liabilities............................   14,240        17,510         23,207        27,963        24,761         42,951
    Total stockholders' equity...................   32,227        35,004         31,320        34,341        31,951         45,302

Pro forma amounts assuming the change in
accounting principle is applied retroactively:
    Working capital.............................. $ 26,797      $ 24,737       $ 22,167      $ 23,191      $ 21,278       $ 28,819
    Total assets.................................   46,467        52,512         54,527        62,304        56,712         88,253
    Long-term liabilities........................       --            --          1,027         1,231         1,144          3,934
    Deferred revenue.............................    2,431         3,899          5,073         4,549         5,857          8,435
    Total liabilities............................   14,386        17,722         23,911        28,137        24,466         42,951
    Total stockholders' equity...................   32,081        34,792         30,616        34,167        32,246         45,302
</TABLE>

ITEM 7.   MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS

          You should read the following discussion and analysis together with
our financial statements, related notes and other financial information
appearing elsewhere in this prospectus. In addition to historical information,
the following discussion and other parts of this prospectus contain forward-
looking information that involves risks and uncertainties. Our actual results
could differ materially from those anticipated by such forward-looking
information due to competitive factors and other factors discussed under
"Certain Risks That May Affect Our Business" and elsewhere in this Form 10-K.

OVERVIEW

          We develop, manufacture and sell systems, known as video storage
servers, that automate the management and distribution of both short-form video
streams, such as advertisements, and long-form video streams, such as movies or
other feature presentations, each of which requires precise, accurate and
continuous execution, and the related services and movie content to television
operators, telecommunications companies and broadcast television companies.
Revenues from sales of systems are recognized upon shipment provided title and
risk of loss has passed to the customer, there is evidence of an arrangement,
fees are fixed or determinable and collection of the related receivable is
probable. Installation, project management and training revenue is deferred and
recognized as these services are performed. Revenue from technical support and
maintenance is deferred and recognized ratably over the period of the related
agreements, generally twelve months. Customers are billed for installation,
project management, training and maintenance at the time of the product sale. If
a portion of the sales price is not due until installation of the system is
complete, that portion of the sales price is deferred until installation is
complete. Revenue from content fees, primarily movies, is recognized based on
the volume of monthly purchases that are made by hotel guests. Revenue from
product development contract services is recognized based on the time and
materials incurred to complete the work. Shipping and handling costs are
included in revenue and cost of revenues.

          Our transactions frequently involve the sales of systems and services
under multiple element arrangements. Systems sales always include one year of
free technical support and maintenance services. Revenue under multiple element
arrangements is allocated to all elements except systems based upon the fair
value of those elements. The amounts allocated to training, project management,
technical support and maintenance and content fees is based upon the price
charged when these elements are sold separately and unaccompanied by the other
elements. The amount allocated to installation revenue is based upon hourly
rates and the estimated time required to complete the service. The amount
allocated to systems is done on a residual method basis. Under this method, the
total arrangement value is allocated first to undelivered elements, based on
their fair values, with the remainder being allocated to systems revenue.
Installation, training and project management services are not essential to the
functionality of

                                       19

systems as these services do not alter the equipment's capabilities, are
available from other vendors and the systems are standard products.

           SeaChange has experienced fluctuations in its systems revenues from
quarter to quarter due to the timing of receipt of customer orders and the
shipment of those orders. The factors that impact the timing of receipt of
customer orders include among other factors: (1) customer obtaining authorized
signatures on their purchase orders, (2) budgetary approvals within the
customer's company for capital purchases and (3) the ability to process the
purchase order within the customer's organization in a timely manner. Factors
that may impact the shipment of customer orders include: (1) the availability of
material to produce the product, and (2) the time required to produce and test
the system before delivery. Because the average sales price of a SeaChange
system is high, the delay in the timing of receipt and shipment of any one
customer order can result in quarterly fluctuations in SeaChange's revenue.

           Our results are significantly influenced by a number of factors,
including our pricing, the costs of materials used in our products and the
expansion of our operations. We price our products and services based upon our
costs as well as in consideration of the prices of competitive products and
services in the marketplace. The costs of our products primarily consist of the
costs of components and subassemblies that have generally declined over time. As
a result of the growth of our business, our operating expenses have increased in
the areas of research and development, selling and marketing, customer service
and support and administration.

           On December 30, 1999, we acquired all of the outstanding capital
stock of Digital Video Arts, Ltd. in exchange for 330,000 shares of our common
stock using an exchange ratio of 0.033 of one share of our common stock for each
share of Digital Video Arts. The acquisition was accounted for as a pooling of
interests. Digital Video Arts is a developer of custom software products
specializing in digital video and interactive television. As a result of the
acquisition, Digital Video Arts became our wholly-owned subsidiary. The
accompanying consolidated financial statements for all the periods presented
have been restated to include the results of operations, financial position and
cash flows of Digital Video Arts.


Year Ended December 31, 1999 Compared to the Year Ended January 31, 2001

       Systems. Our systems revenues consist of sales of our broadband and
broadcast products. Systems revenues increased 10% from $68.5 million in the
twelve months ended December 31, 1999 to $75.0 million in the twelve months
ended January 31, 2001. Revenues from the broadband segment, which accounted for
55% of total revenues in the twelve months ended January 31, 2001 and 61% of
total revenues in the twelve months ended December 31, 1999, increased from
$51.7 million in 1999 to $54.4 million in 2001. The increase in broadband
revenues is primarily attributable to the sale of interactive television systems
to U.S. cable operators who began to deploy residential video-on-demand services
to their subscriber base during the twelve months ended January 31, 2001.
Broadcast system segment revenues were $20.6 million in the twelve months ended
January 31, 2001 compared to $16.8 million in the twelve months ended December
31, 1999. The 23% increase in broadcast revenues for the twelve months ended
January 31, 2001 was primarily due to shipments for new broadcast customers in
the U.S., Europe and the Far East. We expect future revenue growth, if any, to
come principally from our interactive television and broadcast system products
as cable and telecommunications companies continue to offer new video-on-demand
applications for their customers and the market for digital video servers within
the broadcast industry continues to expand. As revenues from broadcast and
interactive television products increase, the digital advertising products will
become a smaller portion of total system revenues. However, SeaChange believes
that there will be a continued demand for expansions to existing digital
advertising insertion systems within the U.S. and growth potential for new
interactive advertising systems in the future.

           Services. Our services revenues consist of fees for installation,
training, product maintenance, technical support services and movie content
fees. Our services revenues increased 40% to $23.5 million in twelve months
ended January 31, 2001 from $16.8 million in the twelve months ended December
31, 1999. This increase in services revenues primarily resulted from the
renewals of existing technical support and maintenance, price increases on
certain technical support and maintenance services, the impact of a growing
installed base of systems and a higher volume of product development services.

           For the twelve-month periods ended January 31, 2001 and December 31,
1999, certain customers each accounted for more than 10% of our total revenues.
Single customers each accounted for 12% and 10% of total revenues in the twelve
months ended January 31, 2001 and 15% and 10% of total revenues in the twelve
months ended December 31, 1999. Revenue from these customers was primarily in
the broadband segment. We believe that revenues from current and future large
customers will continue to represent a significant proportion of total revenues.

           International sales accounted for approximately 21% and 23% of total
revenues in the twelve-month periods ended January 31, 2001 and December 31,
1999, respectively. We expect that international sales will remain a significant
portion of our business in the future. As of January 31, 2001, substantially all
sales of our products were made in United States dollars. We do

                                       20

not expect to change this practice in the foreseeable future. Therefore, we have
not experienced, nor do we expect to experience in the near term, any material
impact from fluctuations in foreign currency exchange rates on our results of
operations or liquidity. If this practice changes in the future, we will
reevaluate our foreign currency exchange rate risk.

Gross Profit

           Systems. Costs of systems revenues consist primarily of the cost of
purchased components and subassemblies, labor and overhead relating to the final
assembly and testing of complete systems and related expenses. Costs of systems
revenues increased to $39.9 million in the twelve months ended January 31, 2001
as compared to $38.9 million in the twelve months ended December 31, 1999. In
the twelve months ended January 31, 2001, the cost of systems revenues increased
from the prior year primarily as a result of higher systems revenues. We expect
the cost of systems revenues for the interactive television products within the
broadband segment to be higher as a percentage of revenues as the products are
first deployed and to decrease as a percentage of revenues as the revenue level
increases and we improve our manufacturing and material purchasing efficiencies.

           Systems gross profit as a percentage of systems revenues was 47% and
43% in the twelve months ended January 31, 2001 and December 31, 1999,
respectively. The increase in systems gross profit in the twelve months ended
January 31, 2001 was primarily due to lower material and other manufacturing
costs as a percentage of systems revenue within the broadband segment and
specifically for system revenues for the digital advertising insertion products.
SeaChange was able to reduce manufacturing material costs principally through
improved purchasing methods despite the continued trend towards the purchase of
smaller scale digital advertising insertion systems and expansions to existing
systems that have higher material content. Gross profit for the broadband
segment improved from 43% for the twelve months ended December 31, 1999 to 48%
for the twelve months ended January 31, 2001 while gross profit for the
broadcast segment was 44% and 45% for the twelve months ended January 31, 2001
and the twelve months ended December 31, 1999, respectively. SeaChange does not
know if the reductions in material and labor costs as a percentage of revenues
for the broadband segment will continue in the future.

           Services. Costs of services revenues consist primarily of labor,
materials and overhead relating to the installation, training, product
maintenance and technical support services provided by us and costs associated
with providing movie content. Costs of services revenues increased 26% from
$15.0 million in the twelve months ended December 31, 1999 to $18.8 million in
the twelve months ended January 31, 2001, primarily as a result of increased
revenues and the costs associated with our hiring and training additional
service personnel to provide worldwide support for the growing installed base of
broadband and broadcast systems and costs associated with providing movie
content. Services gross profit as a percentage of services revenue was 20% in
the twelve months ended January 31, 2001 and 11% in the twelve months ended
December 31, 1999. Improvements in the services gross profit in the twelve
months ended January 31, 2001 reflect the increase in the installed base of
systems under maintenance, price increases on certain annual technical support
and maintenance services and higher product development revenues. We expect that
we will continue to experience fluctuations in gross profit as a percentage of
services revenue as a result of the timing of revenues from product and
maintenance support and other services to support the growing installed base of
systems and the timing of costs associated with our ongoing investment required
to build a service organization to support the installed base of systems and new
products.

           Research and Development. Research and development expenses consist
primarily of the compensation of development personnel, depreciation of
development and test equipment and an allocation of related facilities expenses.
Research and development expenses increased 24% from approximately $16.3 million
in the twelve months ended December 31, 1999 to $20.3 million in the twelve
months ended January 31, 2001. The increase in the dollar amount was primarily
attributable to the hiring and contracting of additional development personnel
which reflects our continuing investment in new products. We expect that
research and development expenses will continue to increase in dollar amount as
we continue to focus on the development of new technology and support of new and
existing products.

           Selling and Marketing. Selling and marketing expenses consist
primarily of the compensation expenses, including sales commissions, travel
expenses and certain promotional expenses. Selling and marketing expenses
increased 45% from $8.6 million in the twelve months ended December 31, 1999 to
$12.5 million in the twelve months ended January 31, 2001. This increase is
primarily due to the hiring of additional sales personnel for our broadcast and
interactive television products, increased sales commissions on higher revenues
and higher marketing expenses specifically for tradeshow and other promotional
activities.

           General and Administrative. General and administrative expenses
consist primarily of the compensation of executive, finance, human resource and
administrative personnel, legal and accounting services and an allocation of
related facilities expenses. General and administrative expenses increased 38%
from $5.3 million in the twelve months ended December 31, 1999

                                       21

to $7.4 million in the twelve months ended January 31, 2001. This increase is
primarily due to increased legal expenses associated with various litigation
matters and accounting expenses associated primarily with tax matters.

           Interest expense(income), net. Interest expense, net, was
approximately $212,000 in the twelve months ended January 31, 2001 and interest
income, net was approximately $28,000 in the twelve months ended December 31,
1999. The increase in 2001 in interest expense, net, primarily resulted from
interest expense on increased borrowings under SeaChange's lines of credit and
new borrowings under SeaChange's construction loan.

           Provision (benefit) for Income Taxes. SeaChange's effective tax rate
for the twelve months ended January 31, 2001 differed from the U.S. federal
statutory tax rate due to the utilization of research and development tax
credits. SeaChange's effective tax benefit rate was 116% for the twelve months
ended January 31, 2001 as compared to 3% for the twelve months ended December
31, 1999.

           SeaChange had net deferred tax assets of $2.9 million, $4.1 million
and $7.7 million at December 31, 1999, January 31, 2000 and January 31, 2001,
respectively. Although realizability is not assured, based on the weight of
available evidence, SeaChange believes it is more likely than not that all
remaining deferred tax assets will be realized. The amount of the deferred tax
asset considered realizable is subject to change based on future events,
including generating taxable income in future periods. SeaChange will continue
to assess the need for the valuation allowance at each balance sheet date based
on all available evidence. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if SeaChange does not
generate sufficient taxable income in future periods.

           Cumulative effect change in accounting principle. During the fourth
quarter of the twelve months ended January 31, 2001, SeaChange implemented the
SEC's SAB 101 guidelines, retroactive to the beginning of the year. This was
reported as a cumulative effect of a change in accounting principle as of
February 1, 2000. Historically, for some of SeaChange's sales transactions, a
portion of the sales price, typically 25%, was not due until installation
occurred. SeaChange now defers the portion of the sales price not due until
installation is complete. The cumulative effect of the change in accounting
principle on prior years resulted in a charge to income of $1.1 million (net of
income taxes of $732,000) or $0.05 per diluted share which has been included in
income for the fiscal year ending January 31, 2001. For the twelve months ended
January 31, 2001, SeaChange recognized $1.5 million in revenue that is included
in the cumulative effect adjustment as of February 1, 2000.

Year Ended December 31, 1998 Compared to the Year Ended December 31, 1999

Revenues

           Systems. Systems revenues increased 18% from $58.0 million in 1998 to
$68.5 million in 1999. Revenues from the digital advertising insertion products
or SPOT Systems, which accounted for 61% and 52% of total revenues in 1998 and
1999, respectively, increased slightly from $44.1 million in 1998 to $44.6
million in 1999. The most significant increase in systems revenues in 1999
compared to 1998 resulted primarily from the sale of broadcast systems, a
product that was first introduced and sold by us in the second quarter of 1998.
Broadcast product revenues increased from $4.2 million, or 6% of total revenues,
in 1998 to $16.8 million, or 20% of total revenues, in 1999. In addition, during
the third quarter of 1999, we sold our first interactive television systems
which are used by cable operators and telecommunications companies to provide
movie and other interactive services directly to the home of the cable
subscriber. Revenues from the interactive television products were $500,000 in
1999. These increases in systems revenues were offset in part by a $3.1 million
decrease in systems revenues from the movies products which was principally due
to the timing of receiving a relatively small number of orders with a high
average value per order. We expect future revenue growth, if any, to come
principally from our broadcast and interactive television segments as the market
for digital video servers within the broadcast industry continues to expand and
cable and telecommunications companies continue to offer new video-on-demand
applications for their customers. As revenues from broadcast and interactive
television segments increase, the digital advertising segment will become a
smaller portion of total system revenues. However, we believe that there will be
a continued demand for expansions to existing digital advertising insertion
systems within the U.S. and growth potential for new interactive advertising
systems in the future.

           For the years ended December 31, 1998 and 1999, certain customers
accounted for more than 10% of our total revenues. Individual customers
accounted for 24% and 15% of total revenues in 1998 and 15% and 10% of total
revenues in 1999. Revenues from these customers were predominantly in the
digital advertising insertion segment. We believe that revenues from current and
future large customers will continue to represent a significant proportion of
our total revenues.

           International sales accounted for approximately 13% and 23% of total
revenues in the years ended December 31, 1998 and 1999, respectively. We expect
that international sales will remain a significant portion of our business in
the future. As of December 31, 1999, substantially all sales of our products
were made in United States dollars. We do not expect to change this practice in
the foreseeable future. Therefore, we have not experienced, nor do we expect to
experience in the near term, any material impact from fluctuations in foreign
currency exchange rates on our results of operations or liquidity. If this
practice changes in the future, we will reevaluate our foreign currency exchange
rate risk.

                                       22

           Services. Our services revenues increased 13% to $16.8 million in
1999 from $14.9 million in 1998. This increase in services revenues primarily
resulted from the renewals of maintenance and support contracts and the impact
of a growing installed base of systems.


Gross Profit

           Systems. Costs of systems revenues increased 9% from $35.8 million in
1998 to $38.9 million in 1999. In 1999, the increase in costs of systems
revenues reflects the higher revenue level of systems sales and increased
manufacturing labor and overhead costs incurred to support changes in the
product mix, including the introduction of the new broadcast and video on demand
products. We expect costs of systems revenues for broadcast and interactive
television products to be higher as a percentage of revenue when the products
are first introduced and to decrease as a percentage of revenues as we improve
manufacturing efficiencies, spread fixed costs over a larger production volume
and achieve lower material costs through improved purchasing efficiencies.

           Systems gross profit as a percentage of systems revenues were 38% and
43% in 1998 and 1999, respectively. Gross profit for the digital advertising
insertion and the movies products increased from 40% and 30% in 1998 to 43% and
38% in 1999, respectively, primarily as a result of continued reductions in
manufacturing material and labor costs as a percentage of segment revenues.
SeaChange was able to reduce manufacturing material costs principally through
improved purchasing methods despite the continued trend towards the purchase of
smaller scale digital advertising insertion systems and expansions to existing
systems that have higher material content. Gross profit for the broadcast
product also improved from 43% in 1998 to 45% in 1999 as a result of higher
revenues and lower material and labor manufacturing costs as a percentage of
revenues. SeaChange does not know if the reductions in material and labor costs
as a percentage of revenues for the advertising insertion products will continue
in the future. The gross profits in 1998 and 1999 were impacted by increases of
approximately $2.0 million and $500,000, respectively, in our inventory
valuation allowance. These increases were within the digital advertising
insertion product and were the result of new product introductions within this
area and the identification and anticipation of inventory write-downs of
slower turning excess and obsolete materials. SeaChange does not anticipate a
significant amount of inventory write-offs in the future because we have
established inventory controls which provides for better inventory management
during the transition period of new product introductions. We evaluate inventory
levels and expected usage on a periodic basis and provide a valuation allowance
for estimated inactive, obsolete and surplus inventory.

           Services. Costs of services revenues increased 10% from $13.6 million
in 1998 to $15.0 million in 1999, primarily as a result of the costs associated
with our hiring and training additional service personnel to provide worldwide
support for the growing installed base of digital ad insertion, movie, broadcast
and video on demand systems and costs associated with providing movie content.
Services gross profit margin as a percentage of services revenue was 9% in 1998
and 11% in 1999. The higher services gross profit in 1999 is primarily due to
higher level of services revenue. We expect that we will continue to experience
fluctuations in gross profit as a percentage of services revenue as a result of
the timing of revenues from product and maintenance support and other services
to support the growing installed base of systems and the timing of costs
associated with our ongoing investment required to build a service organization
to support the installed base of systems and new products.

           Research and Development. Research and development expenses increased
3% from $15.8 million in 1998 to $16.3 million in 1999. The increase in the
dollar amount in 1999 was primarily attributable to the hiring and contracting
of additional development personnel which reflects our continuing investment in
new products. All internal software development costs to date have been
expensed. We expect that research and development expenses will continue to
increase in dollar amount as we continue our development and support of new and
existing products.

           Selling and Marketing. Selling and marketing expenses remained flat
at $8.6 million in 1998 and 1999.

           General and Administrative. General and administrative expenses
decreased 13% from $6.1 million in 1998 to $5.3 million in 1999. The decrease in
the dollar amounts was primarily attributable to lower payroll and related costs
related to the centralization of accounting and administrative functions and
lower legal costs.

           Restructuring of Operations. In March 1998, we recorded a charge of
$676,000 for the restructuring of operations as part of a planned consolidation
of the operations of SC Asia. The charge for restructuring included $569,000
related to the termination of 13 employees, a provision of $60,000 related to
the planned vacating of premises and $47,000 of compensation expense associated
with stock options for certain terminated employees. At March 31, 1998, we had
notified all terminated employees. All restructuring charges were paid as of
December 31, 1998.

           Acquisition Costs. On December 30, 1999, we acquired all of the
authorized and outstanding common stock of Digital Video Arts, Ltd. in exchange
for 330,000 shares of our common stock using an exchange ratio of 0.033 of one
share of our

                                       23

common stock for each share of Digital Video Arts. The acquisition was accounted
for as a pooling of interests. Digital Video Arts is a developer of custom
software products specializing in digital video and interactive television. As a
result of the acquisition, Digital Video Arts became our wholly-owned
subsidiary. Total revenues of $85.2 million for the year ended December 31, 1999
consisted of $84.2 million of our revenues and $1.0 million of Digital Video
Arts' revenues. Net income of $497,000 for the same period consisted of our net
income of $1.1 million and a Digital Video Arts net loss of $592,000. Included
in net income were acquisition costs of $684,000 consisting primarily of
professional service fees. Due to the acquisition, Digital Video Arts'
previously unrecognized tax benefits of operating loss carryforwards were
recognized in our consolidated results in the applicable period.

           Interest Income, net. Interest income, net was approximately $235,000
and $28,000 in 1998 and 1999, respectively. The decrease in interest income, net
in 1999 primarily resulted from lower average invested balances in 1999 and
interest expense on borrowings.

           Provision (Benefit) for Income Taxes. Our effective tax benefit rate
was 38% and 3% in 1998 and 1999, respectively, due to the taxable loss in 1998
and the utilization of operating tax loss carryforwards associated with the
acquisition of Digital Video Arts in 1999.

One Month Ended January 31, 2000 Compared to the One Month Ended January 31,
1999

Revenues

           Systems. Systems revenues decreased 68% from $697,000 in the one
month ended January 31, 1999 to $226,000 in the one month ended January 31,
2000. This decrease in systems revenues resulted primarily from the timing of
receipt of customer orders and related shipment within both the broadband and
broadcast segments.

           Services. Our services revenues increased 23% from approximately $1.2
million in the one month ended January 31, 1999 to $1.5 million in the one month
ended January 31, 2000. This increase in services revenues resulted primarily
from renewals of technical support and maintenance, higher product development
revenues and the impact of a growing installed base of systems.

           For the one month period ended January 31, 2000 and January 31, 1999,
certain individual customers accounted for more than 10% of our total revenues.
Single customers accounted for 16% and 11% of total revenues in one month ended
January 31, 2000 and 17%, 12% and 10% of total revenues in the one month ended
January 31, 1999. Revenues from these customers were primarily in the broadband
segment. We believe that revenues from current and future large customers will
continue to represent a significant proportion of total revenues.

           International sales accounted for approximately 18% and 38% of total
revenues for the one month ended January 31, 2000 and January 31, 1999,
respectively. We expect that international sales will remain a significant
portion of our revenues in the future. As of January 31, 2000, substantially all
sales of our products were made in United States dollars. We do not expect any
material change to this practice in the foreseeable future. Therefore, we have
not experienced, nor do we expect to experience in the near term, any material
impact from fluctuations in foreign currency exchange rates on our results of
operations or liquidity. If this practice changes in the future, we will
reevaluate our foreign currency exchange rate risk.


Gross Profit

           Systems. Costs of systems revenues decreased 6% from $670,000 in the
one month ended January 31, 1999 to $633,000 in the one month ended January 31,
2000. For the one month ended January 31, 2000, the decrease in cost of systems
revenues primarily reflects lower systems revenue offset in part by fixed
manufacturing labor and overhead costs.

           Systems gross profit as a percentage of systems revenues was a
negative 180% in the one month ended January 31, 2000. In the one month ended
January 31, 1999, gross profit as a percentage of systems revenues was 4%. The
decrease in systems gross profit in 2000 was primarily due to lower systems
revenue and higher material and fixed manufacturing costs as a percentage of
systems revenues.

           Services. Costs of services revenues increased 38% from approximately
$1.0 million in the one month ended January 31, 1999 to $1.4 million in the one
month ended January 31, 2000, primarily as a result of the costs associated with
our hiring and training additional service personnel to provide worldwide
support for the growing installed base of broadband and broadcast systems and
costs associated with providing movie content. Services gross profit as a
percentage of services revenue decreased to 3% in the one month ended January
31, 2000 compared to a gross profit margin of 13% in the one month ended January
31, 1999.

                                       24

We expect that we will continue to experience fluctuations in gross profit as a
percentage of services revenue as a result of the timing of revenues from
technical support and maintenance and other services to support the growing
installed base of systems and the timing of costs associated with our ongoing
investment required to build a service organization to support the installed
base of systems and new products.

           Research and Development. Research and development expenses increased
33% from approximately $1.3 million, in the one month ended January 31, 1999 to
$1.8 million in the one month ended January 31, 2000. The increase in the dollar
amount was primarily attributable to the hiring and contracting of additional
development personnel which reflects our continuing investment in new products.
We expect that research and development expenses will continue to increase in
dollar amount as we continue our development and support of new and existing
products.

           Selling and Marketing. Selling and marketing expenses increased 98%
from $522,000 in the one month ended January 31, 1999 to $1.0 million in the one
month ended January 31, 2000. This increase is primarily due to the hiring of
additional sales personnel for our broadcast and interactive television products
and higher tradeshow expenses.

           General and Administrative. General and administrative expenses
increased 2% from $447,000 in the one month ended January 31, 1999 to $457,000
in the one month ended January 31, 2000.

           Interest Income, net. Interest income, net, was approximately $9,000
in the one month ended January 31, 2000 and January 31, 1999, respectively.

           Benefit for Income Taxes. Our effective tax benefit rate was 32% and
33% in the one month ended January 31, 2000 and January 31,1999, respectively.

Quarterly Results of Operations

           The following tables present certain unaudited quarterly information
for the quarterly periods in the years ended January 31, 2001, January 31, 2000
and December 31, 1999. Previously reported amounts for the first, second and
third quarters of 2001 have been restated to give effect to the cumulative
change in accounting principle (see Note 3 to the Consolidated Financial
Statements) and the adoption of EITF 00-10, "Accounting for Shipping and
Handling Revenues and Costs." In addition, previously reported amounts for the
year ended December 31, 1999 have been recast to present prior year periods on a
basis comparable with the current year-end. This information is derived from
unaudited financial statements and has been prepared on the same basis as our
audited financial statements which appear elsewhere in this document. In the
opinion of our management, this data reflects all adjustments (consisting only
of normal recurring adjustments) necessary for a fair statement of the
information when read in conjunction with our consolidated financial statements
and notes thereto. The results for any quarter are not necessarily indicative of
future quarterly results, and we believe that period-to-period comparisons
should not be relied upon as an indication of future performance.

                                       25

<TABLE>
<CAPTION>
                                                            Quarterly Financial Data
                                                          Year ended January 31, 2001

                                                                  As Reported
                                        ----------------------------------------------------------------

                                          April 30,         July 31,       October 31,       January 31,
(000'S)                                     2000              2000            2000              2001
<S>                                     <C>              <C>              <C>              <C>
Revenue                                 $      22,336    $      25,567    $      24,222    $      25,782
Gross profit                                    8,832           10,182           10,005           10,370
Operating expenses                              8,346            9,426            9,945           12,410
Net income (loss)                       $         349    $         512    $           4    $      (1,012)
                                        =============    =============    =============    =============
Earnings (loss) per share - Basic       $        0.02    $        0.02    $        0.00    $       (0.05)
                                        =============    =============    =============    =============
Earnings (loss) per share - Diluted     $        0.02    $        0.02    $        0.00    $       (0.05)
                                        =============    =============    =============    =============
<CAPTION>
                                                           Year ended January 31, 2001
                                                                  As Adjusted
                                         ---------------------------------------------------------------
                                          April 30,         July 31,       October 31,      January 31,
                                            2000              2000             2000             2001
<S>                                     <C>              <C>              <C>              <C>
Revenue                                 $      22,304    $      25,356    $      25,026    $      25,782
Gross profit                                    8,706            9,906           10,760           10,370
Operating expenses                              8,346            9,426            9,945           12,410
Income (loss) before cumulative effect
 of change in accounting principle                263    $         330    $         512    $      (1,012)
Cumulative effect of change in
 accounting principle net of tax of
 $732                                          (1,100)              --               --               --
Net income (loss)                       $        (837)   $         330    $         512    $      (1,012)
                                        =============    =============    =============    =============
Earnings (loss) per share - Basic       $       (0.04)   $        0.02    $        0.02    $       (0.05)
                                        =============    =============    =============    =============
Earnings (loss) per share - Diluted     $       (0.04)   $        0.01    $        0.02    $       (0.05)
                                        =============    =============    =============    =============
<CAPTION>
                                                           Year ended December 31, 1999
                                        ----------------------------------------------------------------
                                           March 31,       June 30,       September 30,     December 31,
                                             1999            1999             1999             1999
<S>                                     <C>              <C>              <C>              <C>
Revenue                                 $      20,811    $      21,674    $      21,709    $      21,027
Gross profit                                    7,494            7,961            8,001            7,914
Operating expenses                              7,504            7,665            7,465            8,282
Net income (loss)                       $         (32)   $         400    $         292    $        (163)
                                        =============    =============    =============    =============
Earnings (loss) per share - Basic       $       (0.00)   $        0.02    $        0.01    $       (0.01)
                                        =============    =============    =============    =============
Earnings (loss) per share - Diluted     $       (0.00)   $        0.02    $        0.01    $       (0.01)
                                        =============    =============    =============    =============
<CAPTION>
                                                           Year ended January 31, 2000
                                        ----------------------------------------------------------------
                                           April 30,       July 31,        October 31,      January 31,
                                             1999            1999             1999             2000
<S>                                     <C>              <C>              <C>              <C>
Revenue                                 $      21,289    $      22,628    $      20,030    $      21,076
Gross profit                                    7,792            8,133            6,544            8,344
Operating expenses                              7,763            7,418            7,521            9,176
Net income (loss)                       $           1    $         813    $        (614)   $        (757)
                                        =============    =============    =============    =============
Earnings (loss) per share - Basic       $        0.00    $        0.04    $       (0.03)   $       (0.04)
                                        =============    =============    =============    =============
Earnings (loss) per share - Diluted     $        0.00    $        0.04    $       (0.03)   $       (0.04)
                                        =============    =============    =============    =============
</TABLE>

     We have experienced significant variations in revenues, expenses and
operating results from quarter to quarter and such variations are likely to
continue. A significant portion of our revenues have been generated from a
limited number of customers and it is difficult to predict the timing of future
orders and shipments to these and other customers. Customers can cancel or
reschedule shipments, and development or production difficulties could delay
shipments. During the quarterly periods for the last two years, we experienced
variations in our revenues from quarter to quarter primarily related to the
significant growth of our interactive television products in the broadband
segment and broadcast segment products. The broadcast segment revenues increased
from $3.1 million in the first quarter of 1999 to a high of $7.2 million in the
third quarter of fiscal year January 31, 2001. During this same time period,
interactive television system revenues increased from $1.3 million in the first
quarter of 1999 to $4.6 million in the fourth quarter of the twelve months ended
January 31, 2001.

     We have also experienced significant variations in our quarterly systems
gross margins. Changes in pricing policies, the product mix, the timing and
significance of new product introductions and product enhancements, and
fluctuations in the number of systems so affects manufacturing efficiencies and,
accordingly, the gross profits. Quarterly services gross margins have
historically fluctuated significantly because installation and training service
revenue varies by quarter while the related costs are relatively consistent by
quarter. During the quarterly periods in 1999 and fiscal year 2001, the gross
margins improved significantly from a low of 37% in the first quarter of 1999 to
a high of 41% in the third quarter of the twelve months ended January 31, 2001
as a result of a reduction in prices of hardware components for digital
advertising insertion and broadcast segment products and increased revenues.

                                       26

           Operating expenses also vary with the number, timing and significance
of new product and product enhancement introductions by us and our competitors,
increased competition, the gain or loss of significant customers, the hiring of
new personnel and general economic conditions. During the quarterly periods in
1999 and in the twelve months ended January 31, 2001, we experienced certain
fluctuations in our operating expenses. Specifically, acquisition costs related
to our purchase of Digital Video Arts in the fourth quarter of 1999 resulted in
increased operating expenses. During the twelve months ended January 31, 2001,
we increased headcount within our research and development and sales and
marketing areas to reflect our continued investment in future product
development and our desire to increase our interactive television and broadcast
revenues. As a result, our expenses in both of these areas increased during the
year. In addition, our selling and marketing costs fluctuate from quarter to
quarter as a result of large tradeshows that take place in the first and third
quarter of the year and significant promotional costs that are incurred for new
product introductions. All of the above factors are difficult for us to
forecast, and these or other factors may materially adversely effect our
business, financial condition and results of operations for one quarter or a
series of quarters. Only a small portion of our expenses vary with revenues in
the short-term and there would likely be a material adverse effect on our
operating results if future revenues are lower than expectations.

           Based upon all of the foregoing, we believe that quarterly revenues
and operating results are likely to vary significantly in the future and that
period-to-period comparisons of our results of operations are not necessarily
meaningful and, therefore, should not be relied upon as indications of future
performance. For the quarter ended April 30, 2001, SeaChange expects to generate
revenues of approximately $29.0 to $30.0 million and net income of a penny per
share.


Liquidity and Capital Resources


           We have financed our operations and capital expenditures primarily
with the proceeds of our common stock, borrowings and cash flows generated from
operations. Cash and cash equivalents increased $3.4 million from $2.7 million
at January 31, 2000 to $6.1 million at January 31, 2001. Working capital
increased from approximately $21.0 million at January 31, 2000 to approximately
$28.8 million at January 31, 2001.

           Net cash used in operating activities was approximately $4.9 million
for the twelve months ended January 31, 2001. Net cash provided by operating
activities was approximately $8.6 million for the twelve months ended December
31, 1999. The net cash used in operating activities in the twelve months ended
January 31, 2001 was the result of the net loss adjusted for non-cash expenses
including depreciation and amortization of $4.9 million offset by changes in
certain operating assets and liabilities. The significant net changes in assets
and liabilities that used cash in operations included an increase in accounts
receivable of $10.4 million, an increase in inventories of $5.1 million and an
increase in prepaid expenses and other assets of $2.1 million. Inventory levels
increased during the period principally as a result of new product introductions
within the interactive television and broadcast product areas. Increases of
inventory levels occurred in each of these product areas specifically for
customer demonstration equipment and procurement commitments in component
inventories with an average order to delivery requirement of twelve to fifteen
weeks. We expect these inventory levels to decrease and then stabilize as
revenues from both these products increase. We expect that the broadcast segment
and the interactive television products within the broadband segment will
continue to require a significant amount of cash to fund future product
development, to manufacture and deploy customer test and demonstration equipment
and to meet higher revenue levels in both product segments. These items that
used cash in operations were partially offset by an increase in accounts payable
of $6.9 million and an increase in deferred revenue of $2.1 million.


           Net cash used in investing activities was approximately $12.8 million
and $3.1 million for the twelve months ended January 31, 2001 and December 31,
1999, respectively. Investment activity consisted primarily of capital
expenditures related to construction to expand the current manufacturing
facility and the acquisition of computer equipment, office furniture, and other
capital equipment required to support the expansion and growth of the business.

           Net cash provided by financing activities was approximately $21.1
million and $364,000 for the twelve months ended January 31, 2001 and December
31, 1999, respectively. In the twelve months ended January 31, 2001, the cash
provided by financing included $12.8 million received in connection with the
issuance of common stock ($10 million of which was issued to Microsoft
Corporation) and $10.0 million in borrowings under the lines of credit and our
construction loan. Microsoft entered into an agreement with us to collaborate on
extending Microsoft Windows Media Technologies from Broadband Internet delivery
to cable and broadcast television systems. Concurrent with this agreement,
Microsoft purchased 277,162 shares of our common stock for $10 million at 8%
below the average closing price of our common stock over ten trading days ending
one trading day prior to the date of the relevant commercial milestones.
Microsoft has agreed to purchase additional shares of our common stock based
upon the achievement of mutually agreed upon development milestones including
the development of software that meets specific streaming performance

                                       27

levels and the commercial release of an enhanced version of the software that
will be used with Microsoft's Next Generation Media Server. During the same
period, cash used in financing activities included approximately $1.7 million in
principal payments under our equipment line of credit and capital lease
obligations.

           SeaChange had a $6.0 million revolving line of credit and a $5.0
million equipment line of credit with a bank. This revolving line of credit
expired in March 2000 and SeaChange's ability to make purchases under the
equipment line of credit expired in March 2000. In July 2000, SeaChange renewed
its revolving line of credit and equipment line of credit with a bank. The
revolving line of credit was extended until March 2001 and borrowings under the
facility increased to $7.5 million. The equipment line of credit was extended to
provide SeaChange additional equipment financing of $4.0 million through March
2001. In addition, SeaChange entered into a $3.0 million line of credit facility
with the Export-Import Bank of the United States ("EXIM") which allows SeaChange
to borrow money based upon eligible foreign customer account balances. The
ability to borrow funds by SeaChange under this facility also expired in March
2001. SeaChange is currently in the process of negotiating the renewal of all
its lines of credit. Borrowings under all the lines of credit are collateralized
by substantially all of SeaChange's assets. Loans made under the revolving line
of credit would generally bear interest at a rate per annum equal to the LIBOR
rate plus 2% (9.05% at January 31, 2001). Loans under the EXIM line of credit
bear interest at a rate per annum equal to the prime rate (9.5% at January 31,
2001). Loans made under the equipment line of credit bear interest at a rate per
annum equal to the bank's base rate plus 1.0% (10.5% at January 31, 2001). The
loan agreement relating to the lines of credit requires that SeaChange provide
the bank with certain periodic financial reports and comply with certain
financial ratios including the maintenance of total liabilities, excluding
deferred revenue, to net worth ratio of at least .80 to 1.0. At January 31,
2001, SeaChange was not in compliance with certain financial covenants of the
loan agreement for all the lines of credit. Subsequent to year-end, SeaChange
received a waiver of non-compliance from the bank. As of January 31, 2001, there
were $4.0 million in borrowings against the revolving line of credit and
borrowings outstanding under the equipment line of credit were $4.9 million.
There were no borrowings outstanding under the EXIM line of credit at January
31, 2001.

           In October 2000, SeaChange entered into an agreement with a bank to
finance $1.2 million of the construction costs related to the purchase and
renovation of a manufacturing mill in New Hampshire that SeaChange previously
purchased in February 2000. During the construction period, interest is accrued
and payable at a per annum rate of 8.875%. Upon occupancy of the building , the
loan converted into two promissory notes whereby SeaChange will pay principal
and interest based upon a fixed interest rate per annum over a five and ten year
period, respectively (8.875% at January 31, 2001). Borrowings under the loan are
secured by the land and buildings of the renovated mill. The loan agreement
requires that SeaChange provide the bank with certain periodic financial reports
and comply with certain financial ratios. At January 31, 2001, SeaChange were in
compliance with all covenants. As of January 31, 2001, borrowings outstanding
under the loan were $1.2 million.

           On February 28, 2001, SeaChange received $10.0 million from a private
placement sale of common stock and a warrant to Comcast SC Investment, Inc. (See
Note 14 to the Consolidated Financial Statements). We believe that existing
funds together with available borrowings under the revolving lines of credit are
adequate to satisfy our working capital and capital expenditure requirements for
the foreseeable future.

           We had no material capital expenditure commitments as of January 31,
2001. We had non-cancelable purchase commitments for inventories of
approximately $5,400,000 at January 31, 2001.


   One month ended January 31, 2000

           During the one month periods ended January 31, 2000 and January 31,
1999, we used cash in operations of $8.3 million, and $1.3 million,
respectively. It is typical for us to experience fluctuations in our monthly
operating results primarily due to the timing of receiving customer orders and
the related shipment of these customer orders. As a result of these monthly
fluctuations, we may experience an increase in our inventories as a result of
procurement of both short and long lead components for anticipated orders for
both our product segments, a decrease in our accounts payable balance primarily
due to the timing of payments for materials purchased for prior month shipments,
a decrease in accounts receivable amounts as a result of customer payments
without corresponding customer shipments and a resulting decrease in cash and
cash equivalents.


Effects of Inflation

           Our management believes that financial results have not been
significantly impacted by inflation and price changes.

                                       28

Recent Accounting Pronouncements.

           In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, collectively referred to as
derivatives, and for hedging activities. In June 2000, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities, an
amendment of SFAS No. 133. This accounting standard amended the accounting and
reporting standards of SFAS No. 133 for certain derivative instruments and
hedging activities. We will adopt SFAS No. 133, as amended, in fiscal year 2002.
To date we have not utilized derivative instruments or hedging activities and,
therefore, the adoption of SFAS 133 is not expected to have a material impact on
our financial position or results of operations.

                                       29

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

           We face exposure to financial market risks, including adverse
movements in foreign currency exchange rates and changes in interest rates.
These exposures may change over time as business practices evolve and could have
a material adverse impact on our financial results. Our primary exposure has
been related to local currency revenue and operating expenses in Europe and
Asia. Historically, we have not hedged specific currency exposures as gains and
losses on foreign currency transactions have not been material to date. At
December 31, 1999 and January 31, 2001, we had $1.7 million and $10.1 million
outstanding related to variable rate U.S. dollar denominated short-term debt.
The carrying value of these short-term borrowings approximates fair value due to
the short maturities of these instruments. Assuming a hypothetical 10% adverse
change in the interest rate, interest expense on these short-term borrowings
would increase by $16,000 and $95,000 for the twelve month periods ended
December 31, 1999 and January 31, 2001.

           The carrying amounts reflected in the consolidated balance sheet of
cash and cash equivalents, trade receivables, and trade payables approximates
fair value at December 31, 1999 and January 31, 2001 due to the short maturities
of these instruments.

           We maintain investment portfolio holdings of various issuers, types,
and maturities. Our cash and marketable securities include cash equivalents,
which we consider to be securities purchased with original maturities of three
months or less. Given the short maturities and investment grade quality of the
portfolio holdings at December 31, 1999 and January 31, 2001, a sharp rise in
interest rates should not have a material adverse impact on the fair value of
our investment portfolio. As a result, we do not currently hedge these interest
rate exposures.


ITEM 8.  Financial Statements and Supplementary Data

The Company's Financial Statements and Schedules, together with the auditors'
report thereon, appear at pages F-1 through F-20, and S-1, respectively, of this
Form 10-K.

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

Not applicable.

PART III

ITEM 10.  Directors and Executive Officers of the Registrant

Information concerning the directors of SeaChange is hereby incorporated by
reference from the information contained under the heading "Election of
Directors" in SeaChange's definitive proxy statement related to SeaChange's 2000
Annual Meeting of Stockholders which will be filed with the Commission within
120 days after the close of the fiscal year (the "Definitive Proxy Statement").

Certain information concerning directors and executive officers of SeaChange is
hereby incorporated by reference to the information contained under the heading
"Occupations of Directors and Executive Officers" in SeaChange's Definitive
Proxy Statement.

Item 11.  Executive Compensation

Information concerning executive compensation is hereby incorporated by
reference to the information contained under the heading "Compensation and Other
Information Concerning Directors and Officers" in the Definitive Proxy
Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Information concerning security ownership of certain beneficial owners and
management is hereby incorporated by reference to the information contained
under the heading "Securities Ownership of Certain Beneficial Owners and
Management" in the Definitive Proxy Statement.

Item 13. Certain Relationships and Related Transactions

Information concerning certain relationships and related transactions is hereby
incorporated by reference to the information

                                       30

contained under the heading "Certain Relationships and Related Transactions" in
the Definitive Proxy Statement.


ITEM 14.  Exhibits and Financial Statement Schedules

                                     PART IV

(a)(1) INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following Consolidated Financial Statements of the Registrant are filed as
part of this report:

<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                         ----
<S>                                                                                                      <C>
Report of Independent  Accountants                                                                        F-1
Consolidated Balance Sheet as of December 31, 1999, January 31, 2000 and
January 31, 2001                                                                                          F-2
Consolidated  Statement of Operations  for the years ended December 31, 1998
and 1999, the one month ended January 31, 2000, the year ended January 31, 2001
and the one month  ended  January 31, 1999 (unaudited)                                                    F-3
Consolidated  Statement of  Stockholders' Equity for the years
ended December 31, 1998 and 1999, the one month ended January 31, 2000,
the year ended January 31, 2001 and the one month ended January 31, 1999
(unaudited)                                                                                               F-4
Consolidated Statement of Cash Flows for the years ended December 31, 1998 and 1999,
the one month ended January 31, 2000, the year ended January 31, 2001 and the one month
ended January 31, 1999 (unaudited)                                                                        F-5
Notes to Consolidated Financial Statements                                                                F-6
</TABLE>

(a)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES

The following Financial Statement Schedule of the Registrant is filed as part of
this report:

<TABLE>
<CAPTION>
                                                                                                         Page
                                                                                                         ----
<S>                                                                                                      <C>
Schedule II - Valuation and Qualifying Accounts and Reserves                                              S-1
</TABLE>

Schedules not listed above have been omitted because the information requested
to be set forth therein is not applicable or is shown in the accompanying
Consolidated Financial Statements or notes thereto.

(a)(3) INDEX TO EXHIBITS

See attached Exhibit Index of this Annual Report on Form 10-K.

EXHIBITS

           The Company hereby files as part of this Form 10-K the Exhibits
           listed in Item 14 (a) (3) above. Exhibits which are incorporated
           herein by reference can be inspected and copied at the public
           reference facilities maintained by the Securities and Exchange
           Commission (the "Commission"), 450 Fifth Street, N.W., Washington,
           D.C. 20549 and at the Commission's regional offices located at Seven
           World Trade Center, 13th Floor, New York, New York 10048, and at the
           Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
           Illinois 60661. Copies of such material can also be obtained from the
           Public Reference Section of the Commission, 450 Fifth Street, N.W.,
           Washington, D.C. 20549, at prescribed rates. In addition the Company
           is required to file electronic versions of certain of these documents
           with the Commission through the Commission's Electronic Data
           Gathering, Analysis and Retrieval (EDGAR) system. The Commission
           maintains a World Wide Web site at http://www.sec.gov that contains
           the report, proxy and information statements and other information
           regarding registrants that file electronically with the Commission.
           The Common Stock of the Company is traded on the Nasdaq National
           Market. Reports and other information concerning the Company may be
           inspected at the National Association of Securities Dealers, Inc.
           1801 K Street, N.W., Washington, D.C. 20006.

           FINANCIAL STATEMENT SCHEDULES The Company hereby files as part of
           this Form 10-K the consolidated financial statements schedules listed
           in Item 14 (a) (2) above, which are attached hereto.

                                       31

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, SeaChange International, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

Dated:   APRIL 30, 2001
                                SEACHANGE INTERNATIONAL, INC.

                                by:    /s/ William C. Styslinger, III
                                       ------------------------------

                                          William C. Styslinger, III
                                        President, Chief Executive Officer,
                                        Chairman of the Board and Director.

                        POWER OF ATTORNEY AND SIGNATURES

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints William C. Styslinger, III and William L. Fiedler,
jointly and severally, his attorney-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K and to file same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.

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

<TABLE>
<CAPTION>
                   Signature                                  Title(s)                                      Date
<S>                                              <C>                                                       <C>
/s/ William C. Styslinger, III                   President, Chief Executive Officer,                       April 30, 2001
- ------------------------------
William C. Styslinger, III                       Chairman of the Board and Director
                                                 (Principal Executive Officer)

/s/ William L. Fiedler                           Vice President, Finance and                               April 30, 2001
- ----------------------

                                                 Administration, Chief Financial
William L. Fiedler                               Officer and Treasurer (Principal
                                                 Financial and Accounting Officer)

/s/ Martin R. Hoffmann                           Director                                                  April 30, 2001
- ----------------------


Martin R. Hoffmann

/s/ Carmine Vona                                 Director                                                  April 30, 2001
- ----------------

Carmine Vona
</TABLE>

                                       32

                                  EXHIBIT INDEX

  Exhibit No.                             Description
  -----------        -----------------------------------------------
      3.1       --Amended and Restated Certificate of Incorporation of the
                Company (filed as Exhibit 3.3 to the Company's Registration
                Statement on Form S-1 previously filed on November 4, 1996 with
                the Commission (File No. 333-12233) and incorporated herein by
                reference).


      3.2       --Certificate of Amendment, filed May 25, 2000 with the
                Secretary of State in the State of Delaware, to the Amended and
                Restated Certificate of Incorporation of the Company (filed as
                Exhibit 4.1 to the Company's Quarterly Report on 10-Q previously
                filed on December 15, 2000 with the Commission (Filed No.
                000-21393) and incorporated herein by reference).


      3.3       --Amended and Restated By-laws of the Company (filed as Exhibit
                3.5 to the Company's Registration Statement on Form S-1
                previously filed on November 4, 1996 with the Commission (File
                No. 333-12233) and incorporated herein by reference).


      4.1       --Specimen certificate representing the Common Stock (filed as
                Exhibit 4.1 to the Company's Registration Statement on Form S-1
                previously filed on November 4, 1996 with the Commission (File
                No. 333-12233) and incorporated herein by reference).


      4.2       --Amended and Restated Certificate of Incorporation of the
                Company (filed as Exhibit 3.3 to the Company's Registration
                Statement on Form S-1 previously filed on November 4, 1996 with
                the Commission (File No. 333-12233) and incorporated herein by
                reference).


      4.3       --Certificate of Amendment, filed May 25, 2000 with the
                Secretary of State in the State of Delaware, to the Amended and
                Restated Certificate of Incorporation of the Company (filed as
                Exhibit 4.2 to the Company's registration statement on Form S-3
                previously filed on December 6, 2000 with the Commission (Filed
                No. 333-51386) and incorporated herein by reference).



      10.1      --Amended and Restated 1995 Stock Option Plan (filed as Annex A
                to the Company's Proxy Statement on Form 14a previously filed on
                April 28, 2000 with the Commission (File No. 000-21393) and
                incorporated herein by reference).


      10.2      --1996 Non-Employee Director Stock Option Plan (filed as Exhibit
                10.2 to the Company's Registration Statement on Form S-1
                previously filed on November 4, 1996 with the Commission (File
                No. 333-12233) and incorporated herein by reference).


      10.3      --Second Amended and Restated 1996 Employee Stock Purchase Plan
                of the Company (filed as Exhibit 10.3 to the Company's
                Registration Statement on Form S-1 previously filed on March 1,
                2001 with the Commission (File No. 333-56410) and incorporated
                herein by reference).

      10.4      --Loan Agreement, dated as of October 16, 2000, by and between
                the Company and the Bank of New Hampshire, N.A. (filed as
                Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
                previously filed on December 15, 2000 with the Commission (File
                No. 000-21393) and incorporated herein by reference).

                                       33

  Exhibit
  -------
    No.                              Description
    ----                -------------------------------------------------
      10.5      --Loan and Security Agreement, dated as of November 10, 1998, by
                and between Silicon Valley Bank and the Company (filed as
                Exhibit 10.5 to the Company's Annual Report on Form 10-K
                previously filed on March 24, 1999 with the Commission (File No.
                000-21393) and incorporated herein by reference).


      10.6      --First Loan Modification Agreement, dated as of March 27, 2000,
                by and between the Company and Silicon Valley Bank (filed as
                Exhibit 10.12 to the Company's Annual Report on Form 10-K/A
                previously filed on April 14, 2000 with the Commission (File
                No.000-21393) and incorporated herein by reference).


      10.7      --Second Loan Modification Agreement, dated as of July 25, 2000,
                by and among the Company, Silicon Valley Bank and Silicon Valley
                Bank, doing business as Silicon Valley East (filed as Exhibit
                10.1 to the Company's Quarterly Report on Form 10-Q previously
                filed on September 14, 2000 with the Commission (File No.
                000-21393) and incorporated herein by reference).


      10.8      --Revolving Line of Credit Amendment, dated as of March 1, 2000,
                by and between the Company and Silicon Valley Bank (filed as
                Exhibit 10.13 to the Company's Annual Report on Form 10-K/A
                previously filed on April 14, 2000 with the Commission (File
                No.000-21393) and incorporated herein by reference).


      10.9      --Export-Import Bank Loan and Security Agreement, dated as of
                July 25, 2000, by and among the Company, Silicon Valley Bank and
                Silicon Valley Bank, doing business as Silicon Valley East
                (filed as Exhibit 10.2 to the Company's Quarterly Report on Form
                10-Q previously filed on September 14, 2000 with the Commission
                (File No. 000-21393) and incorporated herein by reference).


      10.10     --Common Stock Purchase Agreement, dated as of May 23, 2000, by
                and between the Company and Microsoft Corporation (filed as
                Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
                previously filed on September 14, 2000 with the Commission (File
                No. 000-21393) and incorporated herein by reference).


      10.11     --Registration Rights Agreement, dated as of May 23, 2000, by
                and between the Company and Microsoft Corporation (filed as
                Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
                previously filed on September 14, 2000 with the Commission (File
                No. 000-21393) and incorporated herein by reference).


      10.12**   --License and Development Agreement, dated as of May 8, 2000, by
                and between the Company and Microsoft Licensing, Inc. (filed as
                Exhibit 10.5 to the Company's Amended Quarterly Report on 10-Q
                for the quarterly period ended July 31, 2000 filed on March 1,
                2001 with the Commission (File No. 000-21393) and incorporated
                herein by reference).


      10.13**   --Investment Term Sheet, dated as of May 8, 2000, by and between
                the Company and Microsoft Corporation (filed as Exhibit 10.6 to
                the Company's Amended Quarterly Report on 10-Q for the quarterly
                period ended July 31, 2000 filed on March 1, 2001 with the
                Commission (File No. 000-21393) and incorporated herein by
                reference).


                                       34

  Exhibit
  -------
    No.                           Description
    ---             -----------------------------------------
      10.14**   --Video-on-Demand Purchase Agreement, dated as of December 1,
                2000, by and between the Company and Comcast Cable
                Communications of Pennsylvania, Inc. (filed as Exhibit 10.1 to
                the Company's Quarterly Report on Form 10-Q filed on December
                15, 2000 with the Commission (File No. 000-21393) and
                incorporated herein by reference).


      10.15     --Stock Purchase Agreement, dated as of February 28, 2001, by
                and between the Company and Comcast SC Investment, Inc. (filed
                as Exhibit 10.15 to the Company's Registration Statement on Form
                S-1 previously filed on March 1, 2001 with the Commission (File
                No. 333-56410) and incorporated herein by reference).


      10.16     --Amended and Restated Registration Rights Agreement, dated as
                of February 28, 2001, by and between the Company and Comcast SC
                Investment, Inc. (filed as Exhibit 10.16 to the Company's
                Registration Statement on Form S-1 previously filed on March 1,
                2001 with the Commission (File No. 333-56410) and incorporated
                herein by reference).


      10.17     --Stock Purchase Agreement, dated as of December 10, 1997, by
                and among the Company, IPC Interactive Pte. Ltd. and the
                shareholders of IPC Interactive Pte. Ltd. (filed as Exhibit 2.1
                to the Company's Current Report on Form 8-K previously filed on
                December 24, 1997 with the Commission (File No. 000-21393) and
                incorporated herein by reference).


      10.18     --Stock Purchase Agreement, dated as of December 30, 1999, by
                and among the Company, Digital Video Arts, Ltd. and the
                stockholders of Digital Video Arts, Ltd. and Corum Group Ltd.
                (filed as Exhibit 2.1 to the Company's Current Report on Form
                8-K previously filed on January 14, 2000 with the Commission
                (File No. 000-21393) and incorporated herein by reference).


      10.19     --Registration Rights Agreement, dated as of December 30, 1999,
                by and among the Company, Digital Video Arts, Ltd. and the
                stockholders of Digital Video Arts, Ltd. and Corum Group Ltd.
                (filed as Exhibit 2.2 to the Company's Current Report on Form
                8-K previously filed on January 14, 2000 with the Commission
                (File No. 000-21393) and incorporated herein by reference).


      10.20     --License Agreement dated May 30, 1996 between Summit Software
                Systems, Inc. and the Company (filed as Exhibit 10.7 to the
                Company's Registration Statement on Form S-1 previously filed on
                November 4, 1996 with the Commission (File No. 333-12233) and
                incorporated herein by reference).


      10.21     --Lease Agreement dated May 28, 1998 between Robert Quirk,
                Trustee of Maynard Industrial Properties Associates Trust and
                the Company (filed as Exhibit 10.3 to the Company's Annual
                Report on Form 10-K previously filed on March 24, 1999 with the
                Commission (File No. 000-21393) and incorporated herein by
                reference).


      21.1      --List of Significant Subsidiaries (filed as Exhibit 21.1 to the
                Company's Annual Report on Form 10-K/A previously filed on April
                14, 2000 with the Commission (File No.000-21393) and
                incorporated herein by reference).


      23.1*     --Consent of PricewaterhouseCoopers LLP


      23.2      --Consent of Testa, Hurwitz & Thibeault, LLP (included in
                Exhibit 5.1)


      24.1      --Power of Attorney (included on signature page).
     *  Filed herewith.

     ** Confidential treatment requested as to certain portions of the document,
        which portions have been omitted and filed separately with the
        Commission.


                                      35

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of SeaChange International, Inc.:


           In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)(1) present fairly, in all material respects,
the financial position of SeaChange International, Inc. and its subsidiaries at
December 31, 1999, January 31, 2000 and January 31, 2001, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1999, the one month ended January 31, 2000 and the year ended
January 31, 2001 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 14(a)(2) presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

           As discussed in Note 3 to the consolidated financial statements,
during the year ended January 31, 2001, the Company changed its method of
recognizing revenue.



/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 5, 2001 (except for the
information presented in Note 12
for which the date is April 30, 2001)

                                      F-1

                         SEACHANGE INTERNATIONAL, INC.
                          CONSOLIDATED BALANCE SHEET

                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                        December 31,  January 31,  January 31,
                                                                                        ------------  -----------  -----------
                                                                                           1999          2000          2001
                                                                                           ----          ----          ----
<S>                                                                                     <C>           <C>          <C>
Assets
Current assets
     Cash and cash equivalents........................................................      $11,318     $ 2,721       $ 6,145
     Accounts receivable, net of allowance for doubtful accounts of $908 at
        December 31, 1999 and January 31, 2000 and $742 at January 31, 2001...........       17,840      16,756        27,112
     Inventories......................................................................       17,128      20,089        24,907
     Prepaid expenses and other current assets........................................        1,568       1,634         2,671
     Deferred income taxes............................................................        2,243       3,400         7,001
                                                                                            -------     -------       -------
          Total current assets........................................................       50,097      44,600        67,836
Property and equipment, net...........................................................       10,538      10,492        15,886
Other assets..........................................................................          884         869         1,833

Goodwill and intangibles..............................................................          785         751         2,698
                                                                                            -------     -------       -------
                                                                                            $62,304     $56,712       $88,253
                                                                                            =======     =======       =======
Liabilities and Stockholders' Equity
Current liabilities
     Line of credit...................................................................      $   --      $   --        $ 4,000
     Current portion of equipment line of credit and obligations under capital lease.         1,048       1,045         2,532
     Accounts payable.................................................................       15,038      10,451        17,332
     Accrued expenses.................................................................        3,499       2,776         1,816
     Customer deposits................................................................        2,092       2,428         3,946
     Deferred revenue.................................................................        4,380       6,292         8,435
     Income taxes payable.............................................................          675         625           956
                                                                                            -------     -------       -------
          Total current liabilities...................................................       26,732      23,617        39,017
                                                                                            -------     -------       -------
Long-term portion of equipment line of credit and obligations under capital lease.....        1,231       1,144         3,934
                                                                                            -------     -------       -------
Commitments and contingencies (Note 12)
Stockholders' Equity
Convertible preferred stock, 5,000,000 shares authorized, none outstanding............           --          --            --
Common stock, $.01 par value; 100,000,000 shares authorized; 21,285,855, 21,300,185
   and 22,037,811 shares issued at December 31, 1999 and January 31, 2000 and 2001,             213         213           221
     respectively.....................................................................
Additional paid-in capital............................................................       35,633      35,695        50,157
Accumulated deficit...................................................................       (1,440)     (3,898)       (4,905)
Accumulated other comprehensive loss..................................................          (65)        (59)         (171)
                                                                                            -------     -------       -------
          Total stockholders' equity..................................................       34,341      31,951        45,302
                                                                                            -------     -------       -------
                                                                                            $62,304     $56,712       $88,253
                                                                                            =======     =======       =======
</TABLE>

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

                                      F-2

                         SEACHANGE INTERNATIONAL, INC.
                     CONSOLIDATED STATEMENT OF OPERATIONS
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                One                          One
                                                                       Year ended           Month ended    Year ended    Month ended
                                                                      ------------          -----------    ----------    -----------
                                                                      December 31,          January 31,    January 31,   January 31,
                                                                  ---------------------     -----------    -----------   -----------
                                                                   1998          1999          2000           2001          1999
                                                                  -------       -------       -------        -------       -------
<S>                                                               <C>           <C>           <C>            <C>           <C>
Revenues                                                                                                                 (unaudited)
  Systems..................................................       $58,033       $68,457       $   226       $74,986        $   697
  Services.................................................        14,891        16,764         1,484        23,482          1,211
                                                                  -------       -------       -------       -------        -------
                                                                   72,924        85,221         1,710        98,468          1,908
                                                                  -------       -------       -------       -------        -------
Costs of revenues
  Systems..................................................        35,772        38,889           633        39,928            670
  Services.................................................        13,611        14,962         1,445        18,798          1,049
                                                                  -------       -------       -------       -------        -------
                                                                   49,383        53,851         2,078        58,726          1,719
                                                                  -------       -------       -------       -------        -------
  Gross profit (loss)......................................        23,541        31,370          (368)       39,742            189
                                                                  -------       -------       -------       -------        -------
Operating expenses
  Research and development.................................        15,763        16,302         1,764        20,283          1,324
  Selling and marketing....................................         8,566         8,595         1,034        12,472            522
  General and administrative...............................         6,132         5,335           457         7,372            447
  Restructuring of operations..............................           676            --            --            --             --
  Acquisition costs........................................            --           684            --            --             --
                                                                  -------       -------       -------       -------        -------
                                                                   31,137        30,916         3,255        40,127          2,293
                                                                  -------       -------       -------       -------        -------
Income (loss) from operations..............................        (7,596)          454        (3,623)         (385)        (2,104)
Interest income (expense), net.............................           235            28             9          (212)             9
                                                                  -------       -------       -------       -------        -------
  Income (loss) before income taxes........................        (7,361)          482        (3,614)         (597)        (2,095)
Provision (benefit) for income taxes.......................        (2,789)          (15)       (1,156)         (690)          (691)
                                                                  -------       -------       -------       -------        -------
Income (loss) before cumulative effect of change in
 accounting principle......................................        (4,572)          497        (2,458)           93         (1,404)
Cumulative effect of change in accounting principle,
 net of tax of $732.......................................             --            --            --        (1,100)            --
                                                                  -------       -------       -------       -------        -------
Net income (loss)..........................................       $(4,572)      $   497       $(2,458)      $(1,007)       $(1,404)
                                                                  =======       =======       =======       =======        =======

Basic and diluted earnings (loss) per share before
 cumulative effect of change in accounting principle.......       $ (0.24)      $  0.02       $ (0.12)      $  0.00         $(0.07)
Cumulative effect of change in accounting principle........            --            --            --         (0.05)            --
                                                                  -------       -------       -------       -------        -------
Basic and diluted earnings (loss) per share................       $ (0.24)      $  0.02       $ (0.12)      $ (0.05)        $(0.07)
                                                                  =======       =======       =======       =======        =======

Pro forma amounts assuming the change in accounting
 principle is applied retroactively:
 Net income (loss).........................................       $(5,276)      $   323       $(2,163)      $    93
                                                                  =======       =======       =======       =======
 Earnings (loss) per share - Basic..........................      $ (0.28)      $  0.02       $ (0.10)      $  0.00
                                                                  =======       =======       =======       =======
 Earnings (loss) per share - Diluted........................      $ (0.28)      $  0.01       $ (0.10)      $  0.00
                                                                  =======       =======       =======       =======
Shares used in calculating:
  Basic earnings (loss) per share..........................        18,982        20,883        21,269        21,745         20,901
                                                                  =======       =======       =======       =======        =======
  Diluted earnings (loss) per share........................        18,982        21,774        21,269        23,234         20,901
                                                                  =======       =======       =======       =======        =======
</TABLE>

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

                                      F-3

                         SEACHANGE INTERNATIONAL, INC.

                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                       (in thousands, except share data)


<TABLE>
<CAPTION>

                                                                               Retained                      Total      Compre-
                                                                               --------                      -----      -------
                                             Common Stock        Additional    earnings      Cumulative      stock-     hensive
                                             ------------        ----------    --------      ----------      ------     -------
                                           Number        Par       paid-in   (accumulated)   translation    holders'     income
                                           ------        ---       -------   -------------   -----------    --------     ------
                                         of shares      value      capital      deficit      adjustment      equity      (Loss)
                                         ---------      -----      -------      -------      ----------      ------      ------
<S>                                       <C>          <C>        <C>           <C>            <C>          <C>          <C>
Balance at December 31, 1997............  20,703,313    $  207    $  32,148     $  2,635        $  14       $  35,004
Issuance of common stock pursuant
   to exercise of stock options.........     135,790         1          507           --           --             508
Issuance of common stock in
   connection with employee stock
   purchase plan........................      79,157         1          405           --           --             406
Compensation expense associated
   with stock issuance..................          --        --           47            --          --              47
Translation adjustment..................          --        --           --            --         (73)            (73)        (73)
Net loss................................          --        --           --        (4,572)         --          (4,572)     (4,572)
                                          ----------    ------    ---------      --------       -----       ---------     -------
Comprehensive loss......................                                                                                  $(4,645)
Balance at December 31, 1998............  20,918,260       209       33,107        (1,937)        (59)         31,320
Issuance of common stock pursuant.......      13,905        --           50                                        50
   to exercise of stock options
Translation adjustment..................                                                           25              25          25
Net loss................................          --        --           --        (1,404)         --          (1,404)     (1,404)
                                          ----------    ------    ---------      --------       -----       ---------     -------
Comprehensive loss......................                                                                                   (1,379)
Balance at January 31, 1999
   (unaudited)..........................  20,932,165       209       33,157        (3,341)        (34)         29,991
Issuance of common stock pursuant
   to exercise of stock options.........     296,848         3        1,145            --          --           1,148
Issuance of common stock in
   connection with employee stock
   purchase plan........................      87,014         1          422            --          --             423
Issuance of common stock in
   connection with Digital Video
   Arts, Ltd. acquisition...............      17,078        --          528            --          --             528
  Purchase and retirement of
    treasury stock......................     (47,250)       --           (1)           --          --              (1)
Tax benefit from stock options..........          --        --          382            --          --             382
Translation adjustment..................          --        --           --            --         (31)            (31)        (31)
Net income..............................          --        --           --         1,901          --           1,901       1,901
                                          ----------    ------    ---------      --------       -----       ---------     -------
Comprehensive income....................                                                                                  $ 1,870
Balance at December 31, 1999............  21,285,855       213       35,633        (1,440)        (65)         34,341
Issuance of common stock pursuant
   to exercise of stock options.........      14,330        --           62            --          --              62
Translation adjustment..................          --        --           --            --           6               6           6
Net loss................................          --        --           --        (2,458)         --          (2,458)     (2,458)
                                          ----------    ------    ---------      --------       -----       ---------     -------
Comprehensive loss......................                                                                                  $(2,452)
Balance at January 31, 2000.............  21,300,185       213       35,695        (3,898)        (59)         31,951
Issuance of common stock pursuant
 to exercise of stock options...........     392,669         4        1,802            --          --           1,806
Issuance of common stock in
 connection with employee stock
 purchase plan..........................      67,795         1        1,013            --          --           1,014
Issuance of common stock in
 connection with Microsoft
 Corporation investment.................     277,162         3        9,997            --          --          10,000
Tax benefit from stock options..........          --        --        1,650            --          --           1,650
Translation adjustment..................          --        --           --            --        (112)           (112)       (112)
Net loss................................          --        --           --        (1,007)         --          (1,007)     (1,007)
                                          ----------    ------    ---------      --------       -----        --------     -------
Comprehensive loss......................                                                                                  $(1,119)

Balance at January 31, 2001.............  22,037,811    $  221    $  50,157      $ (4,905)      $(171)      $  45,302
                                          ==========    ======    =========      ========       =====       =========
</TABLE>

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

                                      F-4

                         SEACHANGE INTERNATIONAL, INC.

                     CONSOLIDATED STATEMENT OF CASH FLOWS

        Increase (Decrease) in Cash and Cash Equivalents (in thousands)



<TABLE>
<CAPTION>
                                                                                          One                          One
                                                                      Year ended      Month ended     Year ended     Month ended
                                                                      -----------     -----------     ----------     ------------
                                                                      December 31,    January 31,     January 31,    January 31,
                                                                      ------------    -----------     -----------    -----------

                                                                     1998      1999       2000           2001          1999
                                                                     ----      ----       ----           ----          ----
<S>                                                                  <C>       <C>        <C>             <C>          <C>
Cash flows from operating activities............................                                                    (UNAUDITED)
 Net income (loss)..............................................   $(4,572)   $   497   $(2,458)       $ (1,007)    $ (1,404)
 Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
  Depreciation and amortization.................................     4,813      4,218        355          4,920          379
  Inventory valuation allowance.................................     2,016        458         --            823           --
  Compensation expense associated with stock and
   stock options................................................        47         --         --             --           --
  Acquisition costs.............................................        --        684         --             --           --
  Deferred income taxes.........................................      (876)      (933)    (1,156)        (3,601)        (691)
  Changes in operating assets and liabilities:
   Accounts receivable..........................................    (6,525)      (177)     1,084        (10,356)       5,019
   Inventories..................................................    (4,368)    (4,257)    (2,961)        (5,126)      (1,630)
   Prepaid expenses and other current assets and other assets...    (1,610)     2,249        (46)        (2,113)        (743)
   Accounts payable.............................................     1,255      4,935     (4,587)         6,881       (2,678)
   Accrued expenses.............................................       656        (61)      (723)          (960)        (652)
   Customer deposits............................................      (345)       388        336          1,518          188
   Deferred revenue.............................................     1,644        441      1,912          2,143        1,037
   Income taxes payable.........................................       390        200        (50)         1,981         (115)
                                                                   -------    -------    -------       --------     --------
    Net cash provided by (used in) operating activities.........    (7,475)     8,642     (8,294)        (4,897)      (1,290)
                                                                   -------    -------    -------       --------     --------
Cash flows from investing activities
 Purchases of property and equipment............................    (3,816)    (3,130)      (275)       (10,276)         (62)
 Proceeds from sale and maturity of marketable securities.......    10,212         --         --             --           --
 Purchases of marketable securities.............................      (902)        --         --             --           --
 Increase in intangible assets..................................        --         --         --         (2,500)          --
                                                                   -------    -------    -------       --------     --------
    Net cash provided by (used in) investing activities.........     5,494     (3,130)      (275)       (12,776)         (62)
                                                                   -------    -------    -------       --------     --------
Cash flows from financing activities
 Proceeds from borrowings under line of credit..................     2,000         --         --          4,000           --
 Proceeds from borrowings under equipment line of credit........     1,226      1,106         --          4,823           --
 Proceeds from borrowings under construction loan...............        --         --         --          1,183           --
 Repayments under line of credit and equipment line of credit...        --     (2,245)       (72)        (1,569)      (2,039)
 Repayment of obligation under capital lease....................       (18)      (500)       (18)          (160)         (11)
 Proceeds from issuance of common stock.........................       914      2,003         62         12,820           50
                                                                   -------    -------    -------       --------     --------
    Net cash provided by (used in) financing activities.........     4,122        364        (28)        21,097       (2,000)
                                                                   -------    -------    -------       --------     --------
 Net increase (decrease) in cash and cash equivalents...........     2,141      5,876     (8,597)         3,424       (3,352)
 Cash and cash equivalents, beginning of period.................     3,301      5,442     11,318          2,721        5,442
                                                                   -------    -------    -------       --------     --------
 Cash and cash equivalents, end of period.......................   $ 5,442    $11,318    $ 2,721       $  6,145     $  2,090
                                                                   =======    =======    =======       ========     ========
Supplemental disclosure of cash flow information:
 Income taxes paid..............................................   $   132    $    81    $    --       $    303     $     --
 Interest paid..................................................   $    35    $   210    $    19       $    473     $     17
Supplemental disclosure of noncash activity:
 Transfer of items originally classified as
   inventories to fixed assets..................................   $   584    $   227    $    --       $     --     $    109
 Transfer of items originally classified as
   fixed assets to inventories..................................   $   668    $ 3,055    $    --       $    515     $     --
 Equipment acquired under capital lease.........................   $   374    $   336    $    --       $     --     $     --
</TABLE>

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

                                      F-5

                          SEACHANGE INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Nature of Business

           SeaChange develops, manufactures and sells systems, known as video
storage servers, that automate the management and distribution of both
short-form video streams, such as advertisements, and long-form video streams,
such as movies or other feature presentations, each of which requires precise,
accurate and continuous execution, to television operators, telecommunications
companies and broadcast television companies. Through January 31, 2001,
substantially all of SeaChange's revenues were derived from the sale of
broadband and broadcast systems and related services and content to cable
television operators, broadcast and telecommunications companies in the United
States and internationally.

     In April 2000, SeaChange's Board of Directors voted to change SeaChange's
fiscal accounting year from December 31 to January 31, such that its fiscal year
began on February 1, 2000 and ended on January 31, 2001.

2.   Summary of Significant Accounting Policies

           Significant accounting policies followed in the preparation of the
accompanying consolidated financial statements are as follows:

   Principles of Consolidation

           The consolidated financial statements include the accounts of
SeaChange and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

   Revenue Recognition

           Revenues from sales of systems are recognized upon shipment provided
title and risk of loss has passed to the customer, there is evidence of an
arrangement, fees are fixed or determinable and collection of the related
receivable is probable. Installation, project management and training revenue is
deferred and recognized as these services are performed. Revenue from technical
support and maintenance is deferred and recognized ratably over the period of
the related agreements, generally twelve months. Customers are billed for
installation, project management, training and maintenance at the time of the
product sale. If a portion of the sales price is not due until installation of
the system is complete, that portion of the sales price is deferred until
installation is complete. Revenue from content fees, primarily movies, is
recognized based on the volume of monthly purchases that are made by hotel
guests. Revenue from product development contract services is recognized based
on the time and materials incurred to complete the work. Shipping and handling
costs are included in revenue and cost of revenues.

           SeaChange's transactions frequently involve the sales of systems and
services under multiple element arrangements. Systems sales always include one
year of free technical support and maintenance services. Revenue under multiple
element arrangements is allocated to all elements except systems based upon the
fair value of those elements. The amounts allocated to training, project
management, technical support and maintenance and content fees is based upon the
price charged when these elements are sold separately and unaccompanied by the
other elements. The amount allocated to installation revenue is based upon
hourly rates and the estimated time required to complete the service. The amount
allocated to systems is done on a residual method basis. Under this method, the
total arrangement value is allocated first to undelivered elements, based on
their fair values, with the remainder being allocated to systems revenue.
Installation, training and project management services are not essential to the
functionality of systems as these services do not alter the equipment's
capabilities, are available from other vendors and the systems are standard
products.

   Concentration of Credit Risk

           Financial instruments which potentially expose SeaChange to
concentrations of credit risk include trade accounts receivable. To minimize
this risk, SeaChange evaluates customers' financial condition, requires advance
payments from certain of its customers and maintains reserves for potential
credit losses. At December 31, 1998 and 1999, and at January 31, 2000 and 2001,
SeaChange had an allowance for doubtful accounts of $870,000, $908,000,
$908,000, and $742,000, respectively, to provide for potential credit losses and
such losses to date have not exceeded management's expectations.

           In the years ended December 31, 1998 and 1999, the month ended
January 31, 2000, and the year ended January 31, 2001, revenues from SeaChange's
five largest customers represented approximately 55%, 47%, 47%, and 44%
respectively, of SeaChange's total revenues. In the years ended December 31,
1998 and 1999, the one month ended January 31, 2000, and the year ended January
31, 2001, two customers each accounted for more than 10% of SeaChange's
revenues. The same two

                                      F-6

                          SEACHANGE INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

customers accounted for more than 10% of SeaChange's revenues in the years ended
December 31, 1998 and 1999, and the one month ended January 31, 2000.

   Use of Estimates

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


   Cash, Cash Equivalents and Marketable Securities

           SeaChange considers all highly liquid investments purchased with an
original maturity of three months or less at the date of purchase to be cash
equivalents. SeaChange invests its excess cash in money market funds, municipal
securities and corporate debt securities that are subject to minimal credit and
market risk. Marketable securities are classified as available-for-sale and are
carried at market value, and any unrealized gains or losses are recorded as a
part of stockholders' equity. Gross unrealized gains and losses on securities
for the years ended December 31, 1998 and 1999, the one month ended January 31,
2000 and the year ended January 31, 2001, the cost of which is based upon the
specific identification method, were not significant.


   Property and Equipment

           Property and equipment consist of land and buildings, office and
computer equipment, leasehold improvements, demonstration equipment, deployed
assets and spare components and assemblies used to service SeaChange's installed
base. Demonstration equipment consists of systems manufactured by SeaChange for
use in marketing and selling activities. Property and equipment are recorded at
cost and depreciated using the straight-line method over their estimated useful
lives. Leasehold improvements are amortized over the shorter of their estimated
useful lives or the term of the respective leases by use of the straight-line
method. Deployed assets are the movie systems owned and manufactured by us that
are installed in a hotel environment. Deployed assets are depreciated over the
life of the related service agreements ranging from 3 to 7 years. Maintenance
and repair costs are expensed as incurred. Significant improvements are
capitalized and depreciated. Upon retirement or sale, the cost of the assets
disposed of, and the related accumulated depreciation, are removed from the
accounts, and any resulting gain or loss is included in the determination of net
income.


   Inventories

           Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Inventories consist
primarily of components and subassemblies and finished products held for sale.
Rapid technological change and new product introductions and enhancements could
result in excess or obsolete inventory. To minimize this risk, SeaChange
evaluates inventory levels and expected usage on a periodic basis and records
valuation allowances as required.

           SeaChange is dependent upon certain vendors for the manufacture of
significant components of its digital advertising insertion, movie and broadcast
systems. If these vendors were to become unwilling or unable to continue to
manufacture these products in required volumes, SeaChange would have to identify
and qualify acceptable alternative vendors. The inability to develop alternate
sources, if required in the future, could result in delays or reductions in
product shipments and thereby adversely affect SeaChange's revenue and profits.

   Goodwill and Intangible Assets

           Goodwill and assembled workforce are amortized on a straight-line
basis over five to seven years. Software acquired in connection with
acquisitions is amortized over the greater of the amount computed using (a) the
ratio that current gross revenues for related products bear to total current and
anticipated future gross revenues for that product or (b) on a straight-line
basis over the estimated remaining life of the software. The carrying value of
goodwill and intangible assets is reviewed on a quarterly basis for the
existence of facts and circumstances both internally and externally that may
suggest impairment or that the useful lives of these assets are no longer
appropriate. To date, no such impairment has occurred. SeaChange determines
whether an impairment

                                      F-7

                          SEACHANGE INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


has occurred based on gross expected future cash flows and measures the amount
of impairment based on the related future flow estimated discounted cash flows.
The cash estimates used to determine the impairment, if any, contain
management's best estimates, using appropriate and customary assumptions and
projections at that time.

           SeaChange defers legal costs associated with defending its existing
patents. If the patent defense is successful, the costs are capitalized and
amortized over their estimated remaining useful life. If the patent defense is
unsuccessful, the amounts deferred are charged to operating expense. Included in
goodwill and intangible assets at January 31, 2001 is approximately $2,500,000
of capitalized legal costs associated with the successful defense of SeaChange's
patents. The patent intangible is being amortized over four years. Included in
other assets at January 31, 2001 is approximately $715,000 in deferred legal
costs associated with the on-going defense of certain of our patents.
Accumulated amortization of goodwill and intangible assets was $850,000,
$884,000 and $1,438,000 at December 31, 1999, January 31, 2000 and January 31,
2001, respectively.

   Research and Development and Software Development Costs

           Costs incurred in the research and development of SeaChange's
products are expensed as incurred, except for certain software development
costs. Costs associated with the development of computer software are expensed
prior to establishing technological feasibility and capitalized thereafter until
the product is released for sale. Software development costs eligible for
capitalization to date have not been material to SeaChange's financial
statements. Costs associated with acquired software rights are capitalized if
technological feasibility of the software has been established.

   Stock Compensation

           Employee stock awards under SeaChange's and its subsidiaries'
compensation plans are accounted for in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", ("APB 25") and
related interpretations. SeaChange provides the disclosure requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", ("SFAS 123") and related interpretations. Non-employee stock
awards are accounted for in accordance with Emerging Issues Task Force Issue No.
96-18, "Accounting for Equity Instruments That are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services".

   Foreign Currency Translation

           SeaChange has determined that the functional currency of its foreign
subsidiaries is the local currency. Accordingly, assets and liabilities are
translated to U.S. dollars at current exchange rates as of each balance sheet
date. Income and expense items are translated using average exchange rates
during the year. Cumulative currency translation adjustments are presented as a
separate component of stockholders' equity. Transaction gains and losses and
unrealized gains and losses on intercompany receivables are recognized in the
Statement of Operations and have not been material to date.

   Comprehensive Income

           Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") requires that changes in comprehensive income
be shown in a financial statement that is displayed with the same prominence as
other financial statements. SeaChange has presented accumulated other
comprehensive income and other comprehensive income in the Statement of
Stockholders' (Deficit) Equity. Other comprehensive loss consists primarily of
cumulative translation adjustments.

   Advertising Costs

           Advertising costs are charged to expense as incurred. Advertising
costs were $624,000, $857,000, $40,000, and $1,089,000, for the years ended
December 31, 1998 and 1999, the month ended January 31, 2000, and the year ended
January 31, 2001, respectively.

   Earnings Per Share

           Earnings per share are presented in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share", ("SFAS 128") which
requires the presentation of "basic" earnings per share and "diluted" earnings
per share. Basic earnings per share is computed by dividing income available to
common shareholders by the weighted-average shares of common

                                      F-8

                         SEACHANGE INTERNATIONAL, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

stock outstanding during the period. For the purposes of calculating diluted
earnings per share the denominator includes both the weighted average number of
shares of common stock outstanding during the period and the weighted average
number of potential common stock, such as stock options and restricted stock.

     For the year ended December 31, 1998, the one month ended January 31, 2000
and the one month ended January 31, 1999, 2,114,000, 2,055,000 and 2,057,000
common shares issuable upon the exercise of stock options, respectively, and
1,792,000 shares of unvested restricted common stock for the year ended December
31, 1998, are antidilutive because SeaChange recorded a net loss for the periods
and, therefore, have been excluded from the diluted earnings per share
computations.

  Below is a summary of the shares used in calculating basic and diluted
earnings per share for the periods indicated:

<TABLE>
<CAPTION>
                                                                 Year  Ended         Month Ended   Year Ended  Month Ended
                                                                 -----------         -----------   ----------  -----------
                                                                December 31,         January 31,  January 31,  January 31,
                                                                ------------         -----------  -----------  -----------
                                                              1998        1999         2000         2001          1999
                                                            ----------  ----------  ----------   ----------   ------------
                                                                                                              (unaudited)
      <S>                                                   <C>         <C>         <C>          <C>          <C>
      Weighted average shares used in calculating
       earnings per share--Basic.......................     18,982,000  20,883,000  21,269,000   21,745,000    20,901,000
      Dilutive common stock equivalents................             --     891,000          --    1,489,000            --
                                                            ----------  ----------  ----------   ----------    ----------
      Weighted average shares used in calculating
       earnings per share--Diluted.....................     18,982,000  21,774,000  21,269,000   23,234,000    20,901,000
                                                            ==========  ==========  ==========   ==========    ==========
</TABLE>

 New Accounting Pronouncements


     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, collectively referred to as
derivatives, and for hedging activities. In June 2000, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities, an
amendment of SFAS No. 133. This accounting standard amended the accounting and
reporting standards of SFAS No. 133 for certain derivative instruments and
hedging activities. We will adopt SFAS No. 133, as amended, in fiscal year 2002.
To date we have not utilized derivative instruments or hedging activities and,
therefore, the adoption of SFAS 133 is not expected to have a material impact on
our financial position or results of operations.

3. Change in Accounting Principle

     In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes
certain areas of the Staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Historically, for
some of SeaChange's sales transactions, a portion of the sales price, typically
25%, was not due until installation occurred. Under SAB 101 and the new
accounting method adopted retroactive to February 1, 2000, SeaChange now defers
the portion of the sales price not due until installation is complete. During
the fourth quarter of the twelve months ended January 31, 2001, SeaChange
implemented the SEC's SAB 101 guidelines, retroactive to the beginning of the
year. This was reported as a cumulative effect of a change in accounting
principle as of February 1, 2000. The cumulative effect of the change in
accounting principle on prior years resulted in a charge to income of $1.1
million (net of income taxes of $732,000), or $0.05 per diluted share, which has
been included in income for the twelve months ended January 31, 2001. For the
twelve months ended January 31, 2001, SeaChange recognized $1.5 million in
revenue that is included in the cumulative effect adjustment as of February 1,
2000. During the twelve months ended January 31, 2001, SeaChange changed its
standard payment terms such that no portion of the sales price is due upon
installation. The results for the first three quarters of twelve months ended
January 31, 2001 have been restated to conform with SAB 101. The pro forma
results for prior periods presented in the consolidated statement of operations
were calculated assuming the accounting change was made retroactively to all
prior periods presented.

                                      F-9

                         SEACHANGE INTERNATIONAL, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


4. Consolidated Balance Sheet Detail


     Inventories consist of the following:
<TABLE>
<CAPTION>
                                                December 31,            January 31,
                                                -----------     ---------------------------
                                                   1999             2000           2001
                                                -----------     -----------     -----------
<S>                                            <C>              <C>             <C>
      Components and assemblies............     $14,739,000     $17,602,000     $18,695,000
      Finished products....................       2,389,000       2,487,000       6,212,000
                                                -----------     -----------     -----------
                                                $17,128,000     $20,089,000     $24,907,000
                                                ===========     ===========     ===========
</TABLE>

 Property and equipment consist of the following:
<TABLE>
<CAPTION>
                                                         Estimated
                                                        -----------
                                                        useful life         December 31,                 January 31,
                                                        -----------         ------------       --------------------------------
                                                          (years)               1999                 2000               2001
                                                          -------           ------------       ----------------     -----------
      <S>                                                      <C>           <C>             <C>                  <C>
      Land.............................................                      $         -          $         -     $   283,000
      Buildings........................................         20                     -                    -       1,201,000
      Office furniture and equipment...................          5             1,645,000            2,268,000       2,454,000
      Computer and demonstration equipment.............          3            12,213,000           11,752,000      17,317,000
      Deployed assets .................................        3-7             4,065,000            4,209,000       5,413,000
      Service and spare components.....................          5             2,584,000            2,584,000       2,951,000
      Leasehold improvements...........................        1-7             1,096,000            1,065,000       1,676,000
      Automobiles......................................          5                56,000               56,000         101,000
                                                                             -----------          -----------     -----------
                                                                              21,659,000           21,934,000      31,396,000
      Less--Accumulated depreciation and
       amortization....................................                       11,121,000           11,442,000      15,510,000
                                                                             -----------          -----------     -----------
                                                                             $10,538,000          $10,492,000     $15,886,000
                                                                             ===========          ===========     ===========
</TABLE>

     Depreciation expense was $3,857,000, $3,806,000, $319,000, and $4,345,000
for the years ended December 31, 1998 and 1999, for the month ended January 31,
2000, and the year ended January 31, 2001, respectively.

     Accrued expenses consist of the following:
<TABLE>
<CAPTION>
                                               December 31,          January 31,
                                               ------------  --------------------------
                                                   1999          2000           2001
                                               ------------  ------------    ----------
     <S>                                        <C>            <C>           <C>
      Accrued software license fees ........     $1,565,000    $1,565,000    $  157,000
      Accrued sales and use taxes...........        647,000            --       581,000
      Other accrued expenses................      1,287,000     1,211,000     1,078,000
                                                 ----------    ----------    ----------
                                                 $3,499,000    $2,776,000    $1,816,000
                                                 ==========    ==========    ==========
</TABLE>

5. Segment Information

     SeaChange has three reportable segments: broadband systems, broadcast
systems and services. The broadband systems segment provides products to
digitally manage, store and distribute digital video for television operators
and telecommunications companies. The broadcast systems segment provides
products for the storage, archival, on-air playback of advertising and other
video programming for the broadcast television industry. The service segment
provides installation, training, product maintenance and technical support for
all of the above systems and content which is distributed by the broadband
product segment. SeaChange does not measure the assets allocated to the
segments. SeaChange measures results of the segments based on the respective
gross profits. There were no inter-segment sales or transfers. Long-lived assets
are principally located in the United States. SeaChange has changed its
reportable segments from the prior year and has reclassed prior period amounts
to conform to these current segments. The following summarizes the revenues and
cost of revenues by reportable segment:

                                     F-10

                         SEACHANGE INTERNATIONAL, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
                                                                       One month ended      Year  ended    One month ended
                                                                       ---------------      -----------    ---------------
                                         Year ended December 31,         January 31,        January 31,      January 31,
                                        ----------------------------     -----------        -----------      ----------
                                           1998             1999            2000                2001            1999
                                        -----------      -----------     -----------        -----------      ----------
                                                                                                             (unaudited)
<S>                                     <C>              <C>               <C>               <C>             <C>
Revenues
      Broadband.............            $53,810,000      $51,664,000         $  190,000       $54,412,000      $  467,000
      Broadcast.............              4,223,000       16,793,000             36,000        20,574,000         230,000
      Services..............             14,891,000       16,764,000          1,484,000        23,482,000       1,211,000
                                        -----------      -----------         ----------       -----------      ----------
                                        $72,924,000      $85,221,000         $1,710,000       $98,468,000      $1,908,000
                                        ===========      ===========         ==========       ===========      ==========
Costs of revenues
      Broadband..............           $33,352,000      $29,702,000         $  503,000       $28,481,000      $  463,000
      Broadcast..............             2,420,000        9,187,000            130,000        11,447,000         207,000
      Services...............            13,611,000       14,962,000          1,445,000        18,798,000       1,049,000
                                        -----------      -----------         ----------       -----------      ----------
                                        $49,383,000      $53,851,000         $2,078,000       $58,726,000      $1,719,000
                                        ===========      ===========         ==========       ===========      ==========
</TABLE>

     The following summarizes revenues by geographic locations:

<TABLE>
<CAPTION>
                                                                       One month ended      Year  ended    One month ended
                                                                       ---------------      -----------    ---------------
                                         Year ended December 31,         January 31,        January 31,      January 31,
                                        ----------------------------     -----------        -----------      ----------
                                           1998             1999             2000               2001             1999
                                        -----------      -----------     -----------        -----------      ----------
Revenues                                                                                                     (unaudited)
<S>                                 <C>                  <C>               <C>               <C>              <C>
      United States.................    $63,497,000      $65,730,000         $1,398,000       $78,025,000     $1,185,000
      Canada and South America......        691,000        5,371,000             44,000         4,161,000        626,000
      Europe........................      4,272,000        9,777,000            234,000         8,827,000         19,000
      Rest of world.................      4,464,000        4,343,000             34,000         7,455,000         78,000
                                        -----------      -----------         ----------       -----------     ----------
                                        $72,924,000      $85,221,000         $1,710,000       $98,468,000     $1,908,000
                                        ===========      ===========         ==========       ===========     ==========
</TABLE>

      For the years ended December 31, 1998 and 1999, the one month ended
January 31, 2000, and the year ended January 31, 2001, certain customers
accounted for more than 10% of SeaChange's revenues. Individual customers
accounted for 24% and 15% in 1998; 15% and 10% in 1999; 16% and 11% in the one
month ended January 31, 2000; and 12% and 10% in twelve months ended January 31,
2001. The following summarizes revenues by significant customer:

<TABLE>
<CAPTION>
                                                                          One month ended       Year  ended
                                                                          ---------------     ---------------
                                         Year ended December 31,            January 31,         January 31,
                                         -----------------------            -----------         -------------
                                          1998              1999                2000               2001
                                      -----------        ----------         -----------         ----------
      <S>                             <C>                <C>                <C>                 <C>
      Customer A..............              24%               15%                16%                 --
      Customer B..............              15%               10%                11%                 12%
      Customer C..............              --                --                 --                  10%
</TABLE>

6.   ACQUISITION AND RESTRUCTURING OF OPERATIONS

 Acquisition

      On December 30, 1999, SeaChange acquired all of the authorized and
outstanding common stock of Digital Video Arts, Ltd. in exchange for 330,000
shares of SeaChange's common stock using an exchange ratio of 0.033 of one share
of SeaChange's common stock for each share of Digital Video Arts.  The
acquisition was accounted for as a pooling of interests. Digital Video Arts is a
developer of custom software products specializing in digital video and
interactive television. As a result of the acquisition, Digital Video Arts
became a wholly-owned subsidiary of SeaChange. Total revenues of $85.2 million
for the year ended December 31, 1999 consisted of $84.2 million of SeaChange's
revenues and $1.0 million of Digital Video Arts' revenues. Net income of
$497,000 for the same period consisted of SeaChange's net income of $1.1 million
and Digital Video Arts' net loss of $592,000. Included in net income were
acquisition costs of $684,000 consisting primarily of professional service fees.
All intercompany transactions were eliminated in consolidation. Due to the
acquisition, Digital Video Arts' previously unrecognized tax benefits of
operating loss carryforwards were recognized by the combined Company in the
applicable period. The

                                      F-11

                          SEACHANGE INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

accompanying consolidated financial statements for all the periods presented
have been restated to include the results of operations, financial position and
cash flows of Digital Video Arts.

   Restructuring of Operations

           In March 1998, SeaChange recorded a charge of $676,000 for the
restructuring of operations as part of a planned consolidation of the operations
of SC Asia. The charge for restructuring included $569,000 related to the
termination of 13 employees, a provision of $60,000 related to the planned
vacating of premises and $47,000 of compensation expense associated with stock
options for certain terminated employees. At March 31, 1998, SeaChange had
notified all terminated employees. All restructuring charges were paid as of
December 31, 1998.

7.   Lines of Credit and Long-Term Bank Debt

           SeaChange had a $6.0 million revolving line of credit and a $5.0
million equipment line of credit with a bank. This revolving line of credit
expired in March 2000 and SeaChange's ability to make purchases under the
equipment line of credit expired in March 2000. In July 2000, SeaChange renewed
its revolving line of credit and equipment line of credit with a bank. The
revolving line of credit was extended until March 2001 and borrowings under the
facility increased to $7.5 million. The equipment line of credit was extended to
provide SeaChange additional equipment financing of $4.0 million through March
2001. In addition, SeaChange entered into a $3.0 million line of credit facility
with the Export-Import Bank of the United States ("EXIM") which allows SeaChange
to borrow money based upon eligible foreign customer account balances. The
ability to borrow funds by SeaChange under this facility also expired in March
2001. SeaChange is currently in the process of negotiating the renewal of all
the lines of credit. Borrowings under all the lines of credit are collateralized
by substantially all of SeaChange's assets. Loans made under the revolving line
of credit would generally bear interest at a rate per annum equal to the LIBOR
rate plus 2% (9.05% at January 31, 2001). Loans under the EXIM line of credit
bear interest at a rate per annum equal to the prime rate (9.5% at January 31,
2001). Loans made under the equipment line of credit bear interest at a rate per
annum equal to the bank's base rate plus 1.0% (10.5% at January 31, 2001). The
loan agreement relating to the lines of credit requires that SeaChange provide
the bank with certain periodic financial reports and comply with certain
financial ratios including the maintenance of total liabilities, excluding
deferred revenue, to net worth ratio of at least .80 to 1.0. At January 31,
2001, SeaChange was not in compliance with certain financial covenants of the
loan agreement for all the lines of credit. Subsequent to year-end, SeaChange
received a waiver of non-compliance from the bank. As of January 31, 2001, there
were $4.0 million in borrowings against the revolving line of credit and
borrowings outstanding under the equipment line of credit were $4.9 million.
There were no borrowings outstanding under the EXIM line of credit at January
31, 2001.

           In October 2000, SeaChange entered into an agreement with a bank to
finance $1.2 million of the construction costs related to the purchase and
renovation of a manufacturing mill in New Hampshire that SeaChange previously
purchased in February 2000. During the construction period, interest is accrued
and payable at a per annum rate of 8.875%. Upon occupancy of the building, the
loan converted into two promissory notes whereby SeaChange will pay principal
and interest based upon a fixed interest rate per annum over a five and ten year
period, respectively (8.875% at January 31, 2001). Borrowings under the loan are
secured by the land and buildings of the renovated mill. The loan agreement
requires that SeaChange provide the bank with certain periodic financial reports
and comply with certain financial ratios. At January 31, 2001, SeaChange were in
compliance with all covenants. As of January 31, 2001, borrowings outstanding
under the loan were $1.2 million.

           Principal payments under the lines of credit and the construction
loan are payable over the next five years as follows:

                                                       Payments
                                                       ---------
            Year ended January 31, 2002...........     $6,329,000
                 2003.............................      2,074,000
                 2004.............................        938,000
                 2005.............................        186,000
                 2006.............................        203,000
                 Thereafter.......................        349,000
                                                          -------

            Total.................................    $10,079,000
                                                      ===========

                                      F-12

                         SEACHANGE INTERNATIONAL, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)



8. INCOME TAXES

     The components of income (loss) before income taxes are as follows:

<TABLE>
<CAPTION>
                                                          Month ended     Year ended
                             Year ended December 31,      January 31,     January 31,
                             -----------------------      -----------     -----------
                                1998          1999           2000             2001
                            -----------     --------      -----------     -----------
      <S>                   <C>             <C>           <C>
      Domestic.........     $(7,361,000)    $331,000      $(3,614,000)    $(2,704,000)
      Foreign..........              --      151,000               --       2,107,000
                            -----------     --------      -----------     -----------
                            $(7,361,000)    $482,000      $(3,614,000)    $  (597,000)
                            ===========     ========      ===========     ===========
</TABLE>

      The components of the provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
                                                                              Month ended        Year ended
                                                                            --------------      ------------
                                               Year ended December 31,        January 31,        January 31,
                                               -----------------------      --------------      ------------
                                                  1998            1999           2000               2001
                                              -----------       ---------    -----------         ----------
      <S>                                     <C>               <C>            <C>              <C>
      Current provision (benefit):
         Federal........................      $(1,913,000)      $ 532,000       $     --         $     --
         State..........................               --         354,000             --               --
         Foreign........................               --          56,000             --               --
                                              --------------------------------------------------------------
                                               (1,913,000)        942,000             --               --
                                              --------------------------------------------------------------
      Deferred benefit:
         Federal........................         (124,000)       (586,000)        (889,000)         (538,000)
         State..........................         (752,000)       (371,000)        (267,000)          (86,000)
         Foreign........................               --              --               --           (66,000)
                                              --------------------------------------------------------------
                                                 (876,000)       (957,000)      (1,156,000)         (690,000)
                                              --------------------------------------------------------------
                                              $(2,789,000)      $ (15,000)     $(1,156,000)        $(690,000)
                                              ==============================================================
</TABLE>

 The components of deferred income taxes are as follows:

<TABLE>
<CAPTION>
                                                                               December 31,      January 31,    January 31,
                                                                               --------------   ------------    ------------
                                                                                    1999            2000             2001
                                                                               -------------    -----------    -----------
      <S>                                                                      <C>             <C>             <C>
      Deferred tax assets:
       Inventories........................................................       $ 1,282,000     $ 1,133,000     $ 1,396,000
       Allowance for doubtful accounts....................................           405,000         366,000         207,000
       Deferred revenue...................................................           115,000              --              --
       Software...........................................................           107,000         106,000          97,000
       Accrued expenses...................................................           135,000         335,000           8,000
       Property and equipment.............................................           104,000         200,000          57,000
       Research and development credit carryforwards......................           198,000         268,000       1,358,000
       Federal net operating loss carryforwards...........................                --       1,339,000       3,769,000
       State net operating loss carryforwards.............................           554,000         573,000         717,000
       Foreign net operating loss carryforwards...........................                --              --          66,000
       Acquired net operating loss carryforwards and basis
        differences.......................................................         3,361,000       3,361,000       3,361,000
                                                                                 -----------     -----------     -----------
                                                                                   6,261,000       7,681,000      11,036,000
       Valuation allowance................................................        (3,361,000)     (3,361,000)     (3,361,000)
                                                                                 -----------     -----------     -----------
          Total deferred tax assets.......................................         2,900,000       4,320,000       7,675,000
                                                                                 -----------     -----------     -----------
      Deferred tax liabilities:
       Property and equipment.............................................                --              --              --
       Deferred Revenue...................................................                --         246,000              --
                                                                                 -----------     -----------     -----------
          Total deferred tax liabilities..................................                --         246,000              --
                                                                                 -----------     -----------     -----------
      Net deferred income taxes...........................................       $ 2,900,000     $ 4,074,000     $ 7,675,000
                                                                                 ===========     ===========     ===========
</TABLE>

                                      F-13

                         SEACHANGE INTERNATIONAL, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Deferred income taxes reflect the tax impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. Under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," the benefit
associated with future deductible temporary differences is recognized if it is
more likely than not that the benefit will be realized. The measurement of
deferred tax assets is reduced by a valuation allowance if, based upon the
weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.

     The valuation allowance of $3,361,000 at December 31, 1999, January 31,
2000 and January 31, 2001 relates to net operating loss carryforwards and tax
basis differences acquired in SeaChange's purchase of SC Asia. These acquired
deferred tax assets may only be utilized to offset future taxable income
attributable to SC Asia. In addition, the recognition of these deferred tax
assets are subject to Internal Revenue Code change in ownership rules which may
limit the amount that can be utilized to offset future taxable income. SeaChange
believes that the valuation allowance is appropriate given the weight of
objective evidence, including the historical operating results of IPC. Any tax
benefits subsequently recognized related to these assets will first reduce the
remaining balance in goodwill and then other acquired intangible assets.

     Although realizability is not assured, based on the weight of available
evidence, SeaChange believes it is more likely than not that all remaining
deferred tax assets will be realized. The amount of the deferred tax asset
considered realizable is subject to change based on future events, including
generating taxable income in future periods. SeaChange will continue to assess
the need for the valuation allowance at each balance sheet date based on all
available evidence. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if SeaChange does not generate
sufficient taxable income in future periods.

     In accordance with APB 23, SeaChange does not provide for U.S. federal
income taxes on the earnings of its non-U.S. subsidiaries, as it is management's
plan to permanently reinvest in operations outside the U.S. At January 31, 2001,
undistributed earnings of approximately $163,000 are considered by SeaChange to
be permanently invested in certain foreign subsidiaries. The amount of tax that
would be owed if the profits were distributed is $56,000.

     At January 31, 2001, SeaChange had federal and state net operating loss
carryforwards of approximately $10,341,000 and $15,467,000, respectively, which
expire at various dates through 2021. Of these amounts, $4,030,000 and
$4,030,000, respectively, relate to deductions for disqualifying dispositions of
incentive stock options that will be credited to paid-in capital, when realized.

     At January 31, 2001, SeaChange had federal and state research and
development tax credit carryforwards of approximately $1,098,000 and $359,000,
respectively, which expire at various dates through 2016. Of these amounts,
$38,000 and $0, respectively, relate to qualified wage expenses incurred as a
result of disqualifying dispositions of incentive stock options by employees
that will be credited to paid-in capital, when realized.

  The income tax provision (benefit) computed using the federal statutory income
tax rate differs from SeaChange's effective tax rate primarily due to the
following:
<TABLE>
<CAPTION>
                                                                                                 Month Ended      Year Ended
                                                                                                 -----------     ------------
                                                                       Year Ended December 31     January 31,     January 31,
                                                                       ----------------------     -----------     -----------
                                                                         1998           1999          2000           2001
                                                                        ------         ------        ------         -----
<S>                                                                   <C>            <C>            <C>              <C>
Statutory U.S. federal tax rate...................................... $(2,552,000)   $ 164,000    $(1,239,000)    $(203,000)
   State taxes after state tax credits, net of federal tax benefits..    (496,000)     (12,000)      (176,000)      (28,000)
   Other.............................................................     355,000       98,000        278,000       (93,000)
   Research and development tax credits..............................    (316,000)    (446,000)       (25,000)     (443,000)
   Non-deductible acquisition costs..................................          --      233,000             --            --
Acquired net operating losses........................................          --     (192,000)            --            --
   Nondeductible expenses, including write-off of acquired
     in-process research and development in 1997.....................     220,000      140,000          6,000        77,000
                                                                      -----------------------------------------------------
                                                                      $(2,789,000)   $ (15,000)   $(1,156,000)    $(690,000)
                                                                      ======================================================
</TABLE>
     SeaChange's effective tax benefit rate was 38% and 3% in the year ended
December 31, 1998 and 1999, respectively, 32% in the month ended January 31,
2000 and 116% in the year ended January 31, 2001. In the second quarter of
1999, the separate return limitation year (SRLY) regulations were finalized to
allow for the use of acquired net operating loss carryforwards where an
ownership change and an acquisition has taken place within a six month period.
As a result of SeaChange's acquisition of Digital Video Arts, SeaChange recorded
a tax benefit of $192,000 in the second quarter of 1999 related to the use of
Digital Video Arts net operating loss carryforwards. In the fourth quarter of
1999, the federal research and development tax credit was retroactively extended
through June 30, 2004. As a result, SeaChange recorded a tax benefit of $446,000
in the fourth quarter of 1999 related to the utilization of these tax credits.

                                     F-14

                          SEACHANGE INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 9.   Convertible Preferred Stock

   Stock Authorization

           The Board of Directors is authorized to issue from time to time up to
an aggregate of 5,000,000 shares of preferred stock, in one or more series. Each
such series of preferred stock shall have the number of shares, designations,
preferences, voting powers, qualifications and special or relative rights or
privileges to be determined by the Board of Directors, including dividend
rights, voting rights, redemption rights and sinking fund provisions,
liquidation preferences, conversion rights and preemptive rights.

 10.  Common Stock

     Microsoft investment

           On May 8, 2000, SeaChange and Microsoft Licensing, Inc. entered into
a licensing and development agreement whereby Microsoft agreed to license to
SeaChange certain technology to be used by SeaChange in connection with the
development by SeaChange of plug-ins for the streaming media server software
update currently being developed by Microsoft to its Windows NT/Windows 2000
operating system. Under the terms of the agreement, SeaChange is also entitled
to use the Microsoft technology to enhance SeaChange's software to use the
updated streaming media server software being developed by Microsoft. The
parties intend that SeaChange will be able to promote and ship the enhanced
SeaChange software as its primary streaming media system for all Microsoft
Windows 2000-based SeaChange systems.

In addition to the ability to use the technology owned by Microsoft and licensed
to SeaChange  pursuant to the licensing  and  development  agreement,  Microsoft
purchased  277,162  shares  of  SeaChange's  common  stock for $10  million.  In
addition, under the terms of the agreement, Microsoft may purchase approximately
$10  million  of  additional  shares  of  SeaChange's   common  stock  upon  the
satisfaction of certain commercial milestones.  The initial shares purchased for
$10 million was completed by SeaChange and Microsoft on May 23, 2000.

   Stock Split

           On December 10, 1999, the Board of Directors authorized a 3-for-2
stock split of SeaChange's common stock, which became effective on December 27,
1999. All shares of common stock, common stock options, preferred stock
conversion ratios and per share amounts included in the accompanying
consolidated financial statements have been adjusted to give retroactive effect
to the stock split for 1999.

Treasury Stock

           In 1999, SeaChange repurchased and retired 47,250 shares of its
common stock from employees of SeaChange. All of the shares were held for more
than six months from the time the shares became vested. Accordingly, no
compensation expense was recorded for the difference between the repurchase
price and the original purchase price paid by the stockholder.

   Reserved Shares

           At January 31, 2001, SeaChange had 3,982,183 shares of common stock
reserved for issuance upon the exercise of common stock options and the purchase
of stock under the Employee Stock Purchase Plan.

 11.  Stock Plans

   Employee Stock Purchase Plan

           In September 1996, SeaChange's Board of Directors adopted and the
stockholders approved an employee stock purchase plan (the "Stock Purchase
Plan"), effective January 1, 1997, which provides for the issuance of a maximum
of 450,000 shares of common stock to participating employees who meet
eligibility requirements. Employees who would immediately after the grant own 5%
or more of the total combined voting power or value of SeaChange's stock and
directors who are not employees of SeaChange may not participate in the Stock
Purchase Plan. The purchase price of the stock is 85% of the lesser of the
average market price of the common stock on the first or last business day of
each six-month plan period. During the year ended December 31, 1998, and 1999,
the one month ended January 31, 2000 and the year ended January 31, 2001,
79,157, 87,014, --

                                      F-15

                         SEACHANGE INTERNATIONAL, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and 67,795 shares of common stock, respectively, were issued under the Stock
Purchase Plan. As of January 31, 2001, 171,992 shares are available under the
Stock Purchase Plan for issuance.

 1995 Stock Option Plan

     The Amended and Restated 1995 Stock Option Plan (the "1995 Stock Option
Plan") provides for the grant of incentive stock options and nonqualified stock
options for the purchase of up to an aggregate of 4,800,000 shares of
SeaChange's common stock by officers, employees, consultants and directors of
SeaChange. The Board of Directors is responsible for administration of the 1995
Stock Option Plan and determining the term of each option, option exercise
price, number of shares for which each option is granted and the rate at which
each option is exercisable. Options generally vest ratably over five years.
SeaChange may not grant an employee incentive stock options with a fair value in
excess of $100,000 that are initially exercisable during any one calendar year.

     Incentive stock options may be granted to employees at an exercise price
per share of not less than the fair value per common share on the date of the
grant (not less than 110% of the fair value in the case of holders of more than
10% of SeaChange's voting stock). Nonqualified stock options may be granted to
any officer, employee, director or consultant at an exercise price per share as
determined by SeaChange's Board of Directors.

     Options granted under the 1995 Stock Option Plan generally expire ten years
from the date of the grant (five years for incentive stock options granted to
holders of more than 10% of SeaChange's voting stock).

Director Stock Option Plan

     In June 1996, SeaChange's Board of Directors adopted and the stockholders
approved a director stock option plan (the "Director Option Plan") which
provides for the grant of options to full time directors of SeaChange to
purchase a maximum of 45,000 shares of common stock under the Director Option
Plan. Under the Director Option Plan, participating directors receive an option
to purchase 5,062 shares of common stock per annum. Options granted under the
Director Option Plan vest as to 33 1/3% of the shares underlying the option
immediately upon the date of the grant, and vest as to an additional 8 1/3% of
the shares underlying the option at the end of each of the next 8 quarters,
provided that the optionee remains a director. Directors will also receive, on
each three-year anniversary of such director's option grant date, an additional
option to purchase 5,062 shares of common stock, provided that such director
continues to serve on the Board of Directors. All options granted under the
Director Option Plan have an exercise price equal to the fair value of the
common stock on the date of grant and a term of ten years from the date of
grant.

  Transactions under the 1995 Stock Option Plan and the Director Option Plan
during the years ended December 31, 1998 and 1999, the one month ended January
31, 2000 and the year ended January 31, 2001 are summarized as follows:

<TABLE>
<CAPTION>
                                             Year ended December 31,             Month ended January 31,   Year ended January 31,
                                          -----------------------------          -----------------------  ------------------------
                                           1998                   1999                    2000                       2001
                                          ------                 ------                  ------                     ------
                                                  Weighted              Weighted               Weighted                   Weighted
                                                  --------              --------               --------                   --------
                                                   average               average                average                    average
                                                  --------              --------               --------                   --------
                                                  exercise              exercise                exercise                  exercise
                                                  --------              --------                --------                  --------
                                         Shares     price      Shares     price       Shares      price       Shares        price
                                        ---------   ------  ----------   -------     ---------    ------     ---------     -------
<S>                                     <C>        <C>      <C>         <C>          <C>        <C>          <C>          <C>
Outstanding at beginning of period..    1,714,586   $7.60    2,113,824    $ 5.34     2,040,053    $ 7.79     2,054,539      $ 8.29
Granted.............................    1,334,594    4.95      524,739     14.76        35,400     35.50     2,006,977       26.82
Exercised...........................     (135,790)   3.71     (310,753)     3.94       (14,330)     4.28      (392,669)       4.57
Cancelled...........................     (799,566)   9.99     (287,757)     6.00        (6,584)     6.61      (203,883)      19.57
                                        =========           ==========               =========               =========
Outstanding at period end...........    2,113,824   $5.34    2,040,053    $ 7.79     2,054,539    $ 8.29     3,464,964      $18.80
                                        =========           ==========               =========               =========
Options exercisable at period end...      473,465              594,265                 625,387                 834,024
Weighted average fair value of
 options granted during the period..                $3.54                 $ 7.11                  $26.57                    $22.36
</TABLE>

                                     F-16

                         SEACHANGE INTERNATIONAL, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The following table summarizes information about employee and director stock
options outstanding at January 31, 2000 and January 31, 2001:

<TABLE>
<CAPTION>
                                       Options outstanding at January 31, 2000        Options outstanding at January 31, 2001
                                     -------------------------------------------  ------------------------------------------------
                                                    Weighted                                   Weighted average
                                                    --------                                   ----------------
                                                     average                                      remaining
                                                     -------                                      ---------
                                                    remaining    Weighted average    Number    contractual life    Weighted average
                                                    ---------    ----------------    ------    ----------------    ----------------
                                        Number     contractual    exercise price  outstanding       (years)         exercise price
                                        ------     -----------    --------------  -----------       -------         --------------
                                     outstanding      life
                                     -----------      ----
                                                    (years)
                                                     -----
     <S>                                <C>             <C>              <C>        <C>                   <C>              <C>
      Range of exercise prices
         $0.33 to  0.82...........       142,580         3.48             $ 0.75       34,496              4.68             $ 0.70
          2.80 to  4.00...........       540,831         8.51               3.87      393,814              7.72               3.95
          4.45 to  6.25...........       697,412         8.01               5.48      543,049              7.02               5.47
          6.58 to 10.00...........       285,505         8.50               7.47      237,247              7.59               7.49
         10.33 to 14.33...........       143,677         9.17              11.55      128,271              8.24              11.46
         19.17 to 23.31...........        74,138         6.73              19.46    1,017,361              9.60              23.08
         26.75 to 39.13...........       170,396         9.91              33.92    1,110,726              9.22              30.49
                                       ---------         ----             ------    ---------              ----             ------
                                       2,054,539         8.09             $ 8.29    3,464,964              8.62             $18.80
                                       =========         ====             ======    =========              ====             ======
</TABLE>


<TABLE>
<CAPTION>
                                                 Options exercisable at                   Options exercisable at
                                                -----------------------                  -----------------------
                                                    January 31, 2000                         January 31, 2001
                                                    ----------------                         ----------------
                                               Number         Weighted average         Number         Weighted average
                                               ------         ----------------         ------         ----------------
                                            exercisable        exercise price       exercisable        exercise price
                                            -----------        --------------       -----------        --------------
     <S>                                           <C>                   <C>              <C>                    <C>
      Range of exercise prices
         $0.33 to  0.82................       117,781              $ 0.76              34,496              $ 0.70
          2.80 to  4.00................       152,791                3.72             143,364                3.87
          4.45 to  6.25................       250,966                5.41             288,960                5.41
          6.58 to 10.00................        48,899                7.64              97,122                7.54
         10.33 to 14.33................        12,812               12.91              41,847               11.63
         19.17 to 23.31................        42,138               19.33              39,343               19.47
         26.75 to 39.13................            --                  --             188,892               30.68
                                              -------              ------             -------              ------
                                              625,387              $ 5.39             834,024              $11.90
                                              =======              ======             =======              ======
</TABLE>

 Fair Value Disclosures


     SeaChange applies APB 25 in accounting for employee stock awards.
Compensation expense associated with equity awards of $47,000 has been recorded
for the year ended December 31, 1998. Had compensation expense for SeaChange's
employee stock plans been determined based on the fair value at the grant dates,
as prescribed in SFAS 123, SeaChange's net income (loss) and earnings (loss) per
share would have been as follows:


<TABLE>
<CAPTION>
                                              Year ended December 31,         Month ended January 31,        Year ended January 31,
                                              ------------------------       -------------------------      -----------------------
                                                    1998           1999                2000                         2001
                                                 ----------       --------         -----------                   -----------
     <S>                                        <C>               <C>              <C>                             <C>
      Net income (loss)
         As reported.......................      $(4,572,000)      $497,000         $(2,458,000)                 $ (1,007,000)
         Pro forma.........................      $(6,456,000)      $122,000         $(2,703,000)                 $(14,825,000)
      Basic earnings (loss) per share
         As reported.......................      $     (0.24)      $   0.02         $     (0.12)                 $      (0.05)
         Pro forma.........................      $     (0.34)      $   0.01         $     (0.13)                 $      (0.68)
      Diluted earnings (loss) per share
         As reported.......................      $     (0.24)      $   0.02         $     (0.12)                 $      (0.05)
         Pro forma.........................      $     (0.34)      $   0.01         $     (0.13)                 $      (0.68)
</TABLE>

                                     F-17

                          SEACHANGE INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The fair value of each option granted was estimated on the date of grant
assuming a weighted average volatility factor of 67% for the year ended December
31, 1998, 46% for the year ended December 31, 1999, and 100% for the month ended
January 31, 2000 and twelve months ended January 31, 2001. Additional weighted
average assumptions used for grants during the years ended December 31, 1998 and
1999, the one month ended January 31, 2000 and the year ended January 31, 2001
included: dividend yield of 0.0% for all periods; risk-free interest rates of
6.00% for options granted during the year ended December 31, 1998, 5.54% for
options granted during the year ended December 31, 1999 and the one month ended
January 31, 2000 and 4.94% for option granted the year ended January 31, 2001;
and an expected option term of 5 years for all periods.

           Because additional option grants are expected to be made each year
and options vest over several years, the above pro forma disclosures are not
representative of pro forma effects of reported net income for future years.

   Stock Option Repricing

           On January 23, 1998, the Compensation and Option Committee of the
Board of Directors of SeaChange ("Committee") determined that, because certain
stock options held by employees of SeaChange had an exercise price significantly
higher than the fair market value of SeaChange's common stock, such stock
options were not providing the desired long-term incentive to employees.
Accordingly, the Committee granted those employees whose options were between
$10.00 and $16.42 per share an opportunity to cancel their existing options for
new options on a 1-for-1 basis, with a new five-year vesting schedule beginning
on January 23, 1998. Employees whose options were above $16.42 were offered an
opportunity to cancel their existing options for new options on a 2-for-3 basis,
with no change in their original vesting schedule. As a result of this stock
option repricing, new options were granted to purchase 319,169 shares of common
stock and the average exercise price of such options was reduced from $14.79 per
share to $5.50 per share, the fair market value of SeaChange's common stock at
the close of the market on January 22, 1998. With the exception of one executive
officer, SeaChange's directors and executive officers were not eligible to
participate in this stock option repricing. During the execution of the stock
option repricing plan, SeaChange's stock price was below $5.50 per share and,
therefore, no compensation charge was recorded as a result of the stock option
repricing.

12.   Commitments and Contingencies

           SeaChange leases its operating facilities and certain office
equipment under non-cancelable capital and operating leases, which expire at
various dates through 2007. Rental expense under operating leases was
approximately $1,341,000, $1,681,000, $167,000, and $2,307,000 for the years
ended December 31, 1998 and 1999, the month ended January 31, 2000, and the year
ended January 31, 2001, respectively. Future commitments under minimum lease
payments as of January 31, 2001 are as follows:


                                                        Capital   Operating
                                                       --------   ----------
            Year ended January 31, 2002...........     $221,000   $1,638,000
                 2003.............................      145,000    1,334,000
                 2004.............................       60,000      871,000
                 2005.............................           --      861,000
                 2006.............................           --      295,000
            Thereafter............................           --      327,000
                                                     ----------      -------
            Minimum lease payments................      426,000   $5,326,000
                                                                  ==========
            Less: Amount representing interest....       39,000
                                                     ----------
                                                       $387,000
                                                     ==========

           SeaChange had non-cancelable purchase commitments for inventories of
approximately $5,400,000 at January 31, 2001.

           On March 17, 2000, Beam Laser Systems, Inc. and Frank L. Beam
instituted a claim (Civil Action No. 2:00-CV-195) in the federal courts in the
Eastern District of Virginia against one of our customers, Cox Communications,
Inc. This claim was later amended by Beam Laser on June 16, 2000 to also include
two related companies of Cox Communications: CableRep, Inc. and CoxCom, Inc.
Beam Laser has asserted that the ad insertion technology, which includes our
spot ad insertion system, used by Cox Communications, CableRep and CoxCom
infringes two of the patents held by Beam Laser (Patents No. 4,814,883 and
5,200,825). Beam Laser is seeking both an injunction and monetary damages from
the defendants in that case. The defendants

                                      F-18

                          SEACHANGE INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

have made a counterclaim against Beam Laser seeking a declaration of
non-infringement, invalidity and unenforceability of the two patents held by
Beam Laser that are at question. On May 19, 2000, we filed a motion seeking to
intervene in the action between our customer and Beam Laser, and to transfer the
case to the District Court of Massachusetts. On June 23, 2000, the court granted
our intervention motion and deferred ruling on the issue of transfer. Also on
June 23, 2000, we filed our intervenor complaint in the Virginia action seeking,
among other things, a declaratory judgment of non-infringement, invalidity and
unenforceability regarding the two patents of Beam Laser that are at question.
In addition, we have agreed to indemnify our customer for claims brought against
the customer that are related to the customer's use of our products. On October
23, 2000, the court denied our motion to transfer. On November 29, 2000, Beam
Laser filed a motion to amend its pleading to add claims against us seeking
equitable relief, a finding of willful or contributory infringement, and
attorneys' fees. On January 26, 2001, the magistrate denied Beam Laser's motion
to amend. Beam Laser has filed an objection to this denial, and on March 16,
2001, the court allowed Beam's motion to amend the complaint, to add charges of
infringement against SeaChange, but not allowing any claims for damages or
willful infringement. In addition, on April 20, 2001, the court denied a motion
for summary judgement of laches, stating it will schedule an evidentiary
hearing. This dispute has no scheduled trial date, though one is expected this
year.

           On June 13, 2000, we filed in the United States District Court for
the District of Delaware a lawsuit against one of our competitors, nCube Corp.,
whereby we alleged that nCube's MediaCube-4 product infringed a patent held by
us (Patent No. 5,862,312). In instituting the claim, we sought both a permanent
injunction and damages in an unspecified amount. nCube made a counterclaim
against us that the patent held by us was invalid and that nCube's MediaCube-4
product did not infringe our patent. On September 6, 2000, nCube conceded, based
on the District Court's prior claim construction ruling, that its MediaCube-4
product infringed our patent. On September 25, 2000 the court upheld the
validity of our patent. nCube has filed motions challenging both the jury's
verdict and the District Court's claim construction ruling. The District Court
has yet to rule on nCube's motions. At this time we are awaiting the court's
decision regarding a permanent injunction. Damages will be determined in future
proceedings.

           On January 8, 2001, nCube Corp. filed a complaint against us in the
United States District Court for the District of Delaware alleging that our use
of our Media Cluster, Media Express and Media Server technology each infringe a
patent held by nCube (Patent No. 5,805,804). In instituting the claim, nCube has
sought both an injunction and monetary damages in an unspecified amount. We
responded on January 26, 2001, denying that the claim of infringement. We also
asserted a counterclaim seeking a declaration from the District court that U.S.
Patent No. 5,805,804 is invalid and not infringed.

           On June 14, 1999, we filed a defamation complaint against Jeffrey
Putterman, Lathrop Investment Management, Inc. and Concurrent Computer
Corporation in the Circuit Court of Pulaski County, Arkansas alleging that the
defendants conspired to injure our business and reputation in the marketplace.
The complaint further alleges that Mr. Putterman and Lathrop Investment
Management, Inc. defamed us through false postings on an Internet message board.
The complaint seeks unspecified amounts of compensatory and punitive damages. On
June 14, 2000, Concurrent filed a counterclaim under seal against us seeking
unspecified damages. These motions are currently pending and no trial date has
been set.

           We cannot be certain of the outcome of the foregoing litigation, but
do plan to oppose allegations against us and assert our claims against other
parties vigorously. In addition, as these claims are in the early stages of
discovery and certain claims for damages are as yet unspecified, we are unable
to estimate the impact to our business, financial condition, and results of
operations or cash flows.

13.   Employee Benefit Plan

           SeaChange sponsors a 401(k) retirement savings plan (the "Plan").
Participation in the Plan is available to full-time employees who meet
eligibility requirements. Eligible employees may contribute up to 15% of their
annual salary, subject to certain limitations. SeaChange matches contributions
up to 25% of the first 6% of compensation contributed by the employee to the
Plan. During the years ended December 31, 1998 and 1999, the month ended January
31, 2000, and the year ended January 31, 2001, SeaChange contributed $189,000,
$225,000, $19,000, and $286,000, respectively, to the Plan.

14.   Comcast Equity Investment and Video-on-Demand Purchase Agreements

           On December 1, 2000, SeaChange and Comcast Cable Communications, Inc.
entered into a video-on-demand purchase agreement for SeaChange's interactive
television video servers and related services. Under the terms of the
video-on-demand purchase agreement, Comcast has committed to purchase
SeaChange's equipment capable of serving a minimum of one million cable
subscribers by approximately December 2002. In addition, Comcast may earn up to
an additional 450,000 incentive common stock purchase warrants through December
2003 based on the number of cable subscribers in excess of one million who are
served by SeaChange's equipment which has been purchased by Comcast. In
connection with the execution of this commercial agreement, SeaChange entered
into a common stock and warrant purchase agreement, dated as of December 1,
2000, with Comcast SC Investment, Inc., whereby Comcast SC agreed to purchase,
subject to certain closing conditions including registration of the shares
purchased thereby, 466,255 shares of SeaChange's common stock for approximately
$10 million and

                                      F-19

                          SEACHANGE INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Comcast SC would receive a warrant to purchase 100,000 shares, exercisable at
$21.445 per share, of SeaChange's common stock. This stock and warrant purchase
agreement was terminated by SeaChange and Comcast SC on February 28, 2001. The
terms and conditions of the video-on-demand purchase agreement have not been
modified.

On February 28, 2001, SeaChange and Comcast SC signed and closed a new common
stock and warrant purchase agreement on terms similar to the prior agreement.
Under the terms of this new agreement, SeaChange sold in a private placement to
Comcast SC for approximately $10,000,000 an aggregate of 756,144 shares of
SeaChange's common stock and a warrant to purchase 100,000 shares of SeaChange's
common stock with an exercise price of $13.225 per share. Under certain
conditions determined upon the effectiveness of the registration of the shares,
the number of common shares purchased and the number of common stock purchase
warrants and related exercise price are subject to adjustment. An additional
number of shares of common stock shall be issued to Comcast SC without any
additional consideration as is equal to the difference between 756,144, the
number of shares of common stock issued on February 28, 2001, and the number of
shares obtained by dividing $10,000,000 by the lower of 1) 92% of the closing
market price of SeaChange's common stock on the date of effectiveness of this
registration statement, and 2) the average of the closing market price of
SeaChange's common stock for the five trading days ending on the effective date
of this registration statement, if either of such prices is lower than $13.225.
The warrant agreement contains an adjustment mechanism such that the warrant is
exercisable for an additional 25,000 shares of SeaChange's common stock if the
registration statement has not been declared effective on or before March 31,
2001 and an additional 333.33 shares of SeaChange's common stock per day
beginning on and including May 1, 2001 for each day up to and including the day
the registration statement is declared effective. The warrant agreement also
provides that the exercise price of the warrant will be reduced on the effective
date of the registration statement to the lower of 1) 92% of the closing market
price of SeaChange's common stock on the effective date of the registration
statement, and 2) the average of the closing market prices of SeaChange's common
stock for the five trading days ending on the date of effectiveness of the
registration statement, if either of such prices is lower than $13.225, the
exercise price as of the closing date.

SeaChange will determine the intrinsic value of the common stock purchase and
will measure the fair value of the 100,000 common stock purchase warrants at the
closing date and will record these amounts as contra-equity. Upon effectiveness
of the registration statement, SeaChange will measure the fair value of the
additional common shares issued, if any, and the incremental fair value of the
common stock warrants, and will add those amounts to the amount of contra-equity
initially recorded at the closing date. The contra-equity amount will be
amortized in future periods as an offset to gross revenue in proportion to the
revenue recognized from the sale of equipment with respect to the first one
million subscribers Comcast has committed to under the video-on-demand purchase
agreement. The fair value of the additional incentive common stock purchase
warrants will also be recorded as an offset to gross revenue as the warrants are
earned by Comcast, if any.

                                      F-20

                                   Schedule II

                          SEACHANGE INTERNATIONAL, INC.
                  VALUATION OF QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>

                                           Balance at   Charged to                              Balance at
                                           ----------   ----------                               ---------
                                          beginning of   costs and    Deductions                  end of
                                          ------------   ---------    ----------                  ------
                                             period     expenses     and write-offs    Other      period
                                             -------    ----------   --------------    ------     ------
<S>                                       <C>           <C>          <C>               <C>      <C>
Allowance for Doubtful Accounts:
     Year ended December 31, 1998........    $  559,000   $  497,000    $ (186,000)      $  --    $  870,000
     Year ended December 31, 1999........    $  870,000   $  225,000    $ (187,000)      $  --    $  908,000
     Month ended January 31, 2000........    $  908,000   $       --    $       --       $  --    $  908,000
     Year ended January 31, 2001.........    $  908,000   $  516,000    $ (682,000)      $  --    $  742,000
Inventory Valuation Allowance:
     Year ended December 31, 1998........    $1,504,000   $2,016,000    $ (919,000)      $  --    $2,601,000
     Year ended December 31, 1999........    $2,601,000   $  458,000    $ (395,000)      $  --    $2,664,000
     Month ended January 31, 2000........    $2,664,000   $   11,000    $       --       $  --    $2,675,000
     Year ended January 31, 2001.........    $2,675,000   $  823,000    $ (722,000)      $  --    $2,776,000
</TABLE>

                                      S-1