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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended June 30, 2003 or

For the transition period from                     to                    

Commission file number: 0-24784

PINNACLE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (650) 526-1600

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

common stock, no par value

Preferred Share Purchase Rights

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No  ¨

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

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

The aggregate market value of the voting common stock held by non-affiliates of the registrant, based upon the closing sale price of the registrant’s common stock on December 31, 2002, the last business day of the registrant’s most recently completed second fiscal quarter, as reported on the Nasdaq National Market System, was approximately $822.4 million. Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status for this purpose is not necessarily a conclusive determination for other purposes. The registrant does not have any non-voting common equities.

As of September 3, 2003, the registrant had 65,678,539 shares of common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant has incorporated by reference into Part III of this Form 10-K portions of its Proxy Statement for its Annual Meeting of Shareholders to be held October 29, 2003.

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PART I

Special Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K, including the information incorporated by reference herein, includes “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include, among other things, statements concerning the expectations, beliefs, plans, intentions, future operations, financial condition and prospects, and business strategies of Pinnacle Systems, Inc. (“Pinnacle”, “we”, “us”, “our” or “our company”). The words “may,” “will,” “continue,” “estimate,” “project,” “intend,” “believe,” “expect,” “anticipate,” “should,” “think,” and other similar expressions or the negative of these terms generally identify forward-looking statements. Forward-looking statements in the section entitled “Business” include, but are not limited to, those statements regarding the following the benefits of our organizational structure; our integration plans for Dazzle’s digital video products; the transition from tape-based systems to information technology-based systems; new and expanding channels of video content distribution; the continued advancement of standard computer platforms and networks; the expansion of our software and hardware technology base; the development of software applications that can run on open architecture environments; the development of standard information technology platforms, the acquisition of complementary businesses, products and technologies; the development of integrated workflow systems; the improvement of the ease of use, functionality and power of our consumer video production software; the price/performance ratio of our products; our incorporation of certain technology into our other product lines; our continued allocation of significant resources to engineering and product development programs; our various sales channels; our service and support organization and our product warranties; the benefits of geographic diversity; the increasing competition in the video production equipment market from new and existing market entrants; the highly competitive consumer video editing market; our reliance on independent subcontractors and our exposure to increased component costs; the relevance of our order backlog as of a particular date to our actual sales for a future period; our ability to successfully compete and achieve future revenue through protection of our proprietary technology; our intention to pursue appropriate patents; the receipt by us of communications asserting that our products infringe the intellectual property rights of third parties; and our exposure to credit, market and foreign currency risk. There can be no assurance that these expectations will prove to have been correct. Certain important factors that could cause actual results to differ materially from our expectations are disclosed in this Annual Report on Form 10-K, including, without limitation, in the section entitled “Factors Affecting Future Operating Results” and in this section. All subsequent written and oral forward-looking statements by or attributable to us or persons acting on our behalf are expressly qualified in their entirety by such factors.

All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Investors are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the forward-looking statements as a result of various factors. These forward-looking statements are made in reliance upon the safe harbor provision of The Private Securities Litigation Reform Act of 1995.

ITEM 1.    BUSINESS

Overview

We are a supplier of digital video products that provide customers, ranging from individuals with little video experience to broadcasters, with simple or advanced products depending on their needs. Our digital video products include capture, editing, storage, play-out, graphics, compact disc (CD) and digital versatile disc (DVD) burning, audio editing and television viewing features for customers, whether they are at home, at work or on the air. Our products are used to create, store, and distribute video content for television programs, television commercials, pay-per-view, sports videos, corporate communications and personal home movies. The dramatic increase in distribution channels including cable television, direct satellite broadcast, video-on-demand, DVDs, and the Internet have led to a rapid increase in demand for video content. This is driving a market need for affordable, easy-to-use video creation, storage, distribution and streaming tools.

Our products use standard computer platforms and networks and combine our technologies to provide digital video solutions to users around the world. In order to address the broadcast market, we offer networked systems solutions based on information technology in four areas: on-air graphics, news and sports, play-out of programs and commercials, and program editing and post-production. Our sports applications include solutions used by sports teams to enhance player training. In order to address the consumer market, we offer low cost, easy-to-use video editing and viewing solutions that allow consumers to view television on their computers and

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to edit their home videos using a personal computer, camcorder and video cassette recorder (VCR), and to output their productions to tape, CD, DVD or the Internet. We offer editing applications for both consumers and business users. These editing applications include intuitive interfaces and streamlined workflows and enable the addition of special effects, graphics and titles. We also offer applications that address CD/DVD burning for audio, video and data and special purpose audio editing applications for consumers and music enthusiasts.

We are organized into two divisions: (1) Broadcast and Professional and (2) Business and Consumer. We believe this organizational structure enables us to effectively address varying product requirements, rapidly implement our core technologies, efficiently manage different distribution channels and anticipate and respond to changes in each of these markets. See Note 10 of Notes to Consolidated Financial Statements for additional information related to our operating segments.

We were incorporated under the laws of the State of California in May 1986. Our principal executive offices are located at 280 North Bernardo Avenue, Mountain View, California 94043 and our telephone number at that location is (650) 526-1600. Information about our company is also available at our website at www.pinnaclesys.com, which includes links to reports we have filed with or furnished to the Securities and Exchange Commission (“SEC”), such as our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports. The contents of our website are not incorporated by reference in this Annual Report on Form 10-K.

The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The public also may read and copy these filings at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C., 20549. Information about this Public Reference Room is available by calling 1-800-SEC-0330.

Industry Background

Sales in the broadcasting marketplace are being driven primarily by broadcasters’ transition from tape-based systems to information technology-based systems. Our growth in the consumer marketplace is being driven primarily by the rapid expansion in the pool of consumers who want to digitally capture, edit, and store home videos. The continued advancement in the power of standard computer platforms and networks at more and more attractive price points has enabled us to address our digital video solutions to millions of users.

The development of a video program involves three distinct processes: pre-production, which involves planning and preparation for the recording of the video program; production, which involves the acquisition of video material (shooting); and post-production, which involves the organization of raw video and audio segments acquired in the production phase into a cohesive and appealing program (editing). During the post-production phase, new elements such as titles, graphics, music, voice and transitions between scenes are incorporated to enhance the overall quality and impact of a video program.

Historically, the high-end video production industry has focused on providing program material for broadcast television and advertising. To create high quality video programs, producers have traditionally used expensive, dedicated video production equipment linked together in a complex interconnected system to form a video-editing suite. Historically, video-editing suites incorporated video recorders, switchers, digital video effects systems, still image management systems, character generators, electronic paint systems and other products, often provided by multiple manufacturers. These video-editing suites required highly skilled personnel to operate and maintain.

Recently, new and expanding channels of video content distribution, including cable television, direct satellite broadcast, video rentals, CD-ROM, DVD, video-on-demand, and the Internet, have led to a rapid increase in demand for video content for a wide variety of applications. This demand has driven the market for editing approaches that are less expensive and easier to use. New commercial and industrial applications for this market include DVDs, video games, music videos, special event videos, education and training and corporate communications. In addition, the popularity of camcorders, VCRs, DVD players and recorders, and personal computers has fueled the growth of an emerging consumer market for low cost solutions that enable consumers to create, edit and share home videos.

New video products, combining personal computers and information technology networks with specialized video technology, can now provide video products with improved workflow and quality comparable to that of traditional high-end tape-based systems, but at significantly lower cost. As a result, these computer and information technology-based video products are replacing the traditional tape-based systems. In addition, such solutions are often easier to use since they incorporate common applications and are based on open-information

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technology platforms. Coupled with innovative and technology-leading software, the lower cost and ease of use of computer-based video tools enable large numbers of creative individuals, previously untrained in video production, to produce professional quality video programming. This programming can be used in traditional ways, such as being broadcast by radio or satellite in homes and businesses. In addition, the growing popularity of DVD and video compact disc (VCD) formats and the Internet provides entirely new channels of communicating through the use of video.

Strategy

Our goal is to take advantage of the growing opportunities in digital video for the home, in the studio and on the air. The ability to create, edit, store, stream and view high-quality digital video continues to become more powerful as software applications become easier to use, computing power increases, storage costs decrease and broadband capability increases. We have a proven ability to successfully migrate and cross leverage technology and products developed for the broadcast markets to the consumer markets and are moving aggressively toward developing more powerful and integrated solutions for those markets. To pursue our goal, we have implemented the following strategies:

Expand and Cross Leverage Technologies.     We have expanded, and expect to continue to expand, our technology through both internal development and acquisitions. We use a modular approach to product development that allows us to cross leverage our research and development costs across multiple products and markets. For example, we leverage technology developed for our broadcast products by using that technology and software in some of our consumer products. Conversely, we use some of the technology developed for our consumer products, such as user interface technology, in some of our broadcast products. We believe this cross leveraging of technology gives us a market advantage over competitors who have a focus limited to only one of these markets.

Develop Open Architecture Software Applications.    We believe that the markets we serve will continue to move toward, and will require applications that operate in, an open architecture information technology-based environment. Those markets need sophisticated software applications that run in an open architecture environment using standard computers, networking, and storage and server technologies. We intend to continue to develop software applications that allow users to create, store, distribute and view video and to take advantage of the decreasing costs of standard information technology platforms. For example, our broadcast applications are designed to run on standard server and network platforms and our consumer products are designed to run on standard Windows based computers. As these platforms become more widely used, we intend to provide additional value to our customers through the continued development and enhancement of our software applications.

Acquire Complementary Businesses, Products and Technologies.    We have grown and intend to continue to grow both internally as well as through the acquisition of complementary businesses, product lines and technologies. We frequently evaluate strategic acquisition opportunities that could enhance our existing product offerings or provide an avenue for developing new complementary product lines. We believe that the video production industry is in a period of consolidation and that strategic acquisition opportunities may arise. We have acquired 20 companies and/or businesses since the company went public in 1994. The most recent acquisitions include Jungle KK, which is a consumer software company based in Japan, and the Dazzle digital video editing business from SCM, both of which we acquired in July 2003. In January 2003, we acquired Steinberg, a leader in audio technology, and in October 2002, we acquired VOB, a leader in technology used to transfer video and audio files to CDs and DVDs. In October 2001, we acquired intellectual property, software rights, products, other tangible assets, and certain liabilities of FAST Multimedia Inc. and FAST Multimedia AG, a pioneer in the non-linear editing market.

Develop Integrated Workflow Solutions for the Broadcast Industry.    We believe broadcasters want integrated systems that allow them to manage their entire workflow in the digital domain without ever having to transfer files to tape. As a result, we have invested significant resources to develop our networked broadcast solutions that allow broadcasters to ingest, edit, browse and broadcast media that is shared from a common digital file system. This workflow and solution is based on our network and storage architecture.

Develop easy to use consumer software applications.    We believe individual consumers want powerful, easy to use tools to create high quality home videos. As a result, we have invested significant resources in developing software with intuitive user interfaces and pull-down menus to edit and create home video. Individual consumers can then save and playback their videos on standard DVDs. We intend to continue to improve the ease of use and the functionality and power of our consumer video production software.

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Value Proposition

We design, manufacture, market and support computer and information technology-based video solutions to serve the broadcast, professional and consumer marketplace. Our products leverage standard computer platforms and information technology networks and are based on proprietary software and hardware technologies that offer the following benefits:

Sophisticated Video Processing.    Our products provide advanced video processing and manipulation capabilities, such as the creation and addition of special effects, graphics and titles. Videographers constantly seek effects to give their programs a new look and to allow them to differentiate and enhance their end product.

Real Time Interactivity.    Our products allow users to create video productions in real time. This real time interactivity gives users the flexibility to try many different effects and fine-tune the resulting content.

Open Systems.    Our products conform to generally accepted industry standards for video input/output and control, allowing interoperability with a wide variety of video processing and storage equipment. Furthermore, we have developed and published, and are encouraging others to adopt, open interface specifications for computer-based video post-production products. These specifications include video input/output, manipulation and control.

Ease of Use.    Our products include menu-driven interfaces for selecting and controlling the various video manipulation functions. This reduces technical obstacles to the operation of the system, permitting the user to focus on the artistic aspects of the post-production process.

Favorable Price/Performance Ratio.    Our products have a favorable price to performance ratio, in part because we use the same proprietary components across our product lines. We intend to continue lowering the cost of our products by further integrating our video manipulation and video capture technologies into application specific integrated circuits, or ASICs.

Recent Acquisitions

In October 2002, we acquired VOB Computersysteme GmbH, or VOB, a privately held company based in Dortmund, Germany that specializes in writable CD and DVD products and technology. We merged VOB into our Business and Consumer division. We have combined VOB’s writable CD and DVD technology with some of our existing technology, which resulted in the introduction of our new Instant products during the quarter ended March 31, 2003. (See Note 5 of Notes to Consolidated Financial Statements).

In January 2003, we acquired Steinberg Media Technologies AG, or Steinberg, a company based in Hamburg, Germany that specializes in digital audio software solutions for consumers and professionals. Steinberg developed, manufactured and sold software products for professional musicians and producers in the music, video and film industry. We integrated Steinberg into our Business and Consumer division. We introduced our new Pinnacle-branded Steinberg audio products during the quarter ended March 31, 2003 (See Note 5 of Notes to Consolidated Financial Statements).

In July 2003, we acquired a 95% interest in Jungle KK, a privately held distribution company based in Tokyo, Japan that specializes in marketing and distributing retail software products in Japan. We plan to continue to sell Jungle’s products and to utilize Jungle’s marketing and distribution channels to sell and distribute our consumer products into the Japanese market. We acquired certain assets and liabilities for a total purchase price of approximately $3.9 million, consisting of approximately $3.0 million in cash and approximately $0.9 million of our common stock. (See Note 13 of Notes to Consolidated Financial Statements).

In July 2003, we acquired certain assets of SCM Microsystems and Dazzle Multimedia in exchange for 1,866,851 shares of our common stock and agreed to register these shares for resale by SCM Microsystems. According to the terms of the Asset Purchase Agreement, in the event that the proceeds from the sale of shares of our common stock by SCM Microsystems exceed $21,550,000, SCM Microsystems would be required to pay us an amount equal to any proceeds in excess of such amount. However, in the event that the proceeds from the sale of shares of our common stock by SCM Microsystems amount to less than $21,550,000, we agreed to pay SCM Microsystems the difference between $21,550,000 and the proceeds received by SCM Microsystems in cash. Given the decline in the market price of our common stock since July 25, 2003, the closing date of the acquisition, we may be obligated to pay SCM Microsystems pursuant to the purchase price adjustment provisions of the Asset Purchase Agreement depending on the then current market price of our common stock. Also, there may be additional purchase price adjustments for inventory and backlog. (See Note 13 of Notes to Consolidated Financial Statements).

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Broadcast and Professional Division

In the fiscal year ended June 30, 2003, our Broadcast and Professional division represented 43.1% of our total sales. This division serves a wide range of customers with products that provide both point solutions and systems solutions. Our products are designed to meet the end-to-end production and distribution needs of live and recorded television broadcasting. We pioneered the blending of capabilities from formerly segmented broadcast functions to provide broadcasters with greater creative flexibility and enhanced value from their equipment investment. Today, many local, national and international broadcasters use our broadcast equipment for digital effects, content creation, news production and character generation, as well as asset storage, management and on-air play-out of video and graphic assets. Major global broadcast, satellite and cable networks utilize our broadcast servers to reliably deliver content to their viewers. Our networked news solutions have been chosen as the backbone for some of the world’s most sophisticated news and information providers. The Broadcast and Professional division also develops and manufactures computer based non-linear editing and special effects systems for post-production facilities, broadcasters and independent producers working on advertising commercials, broadcast program promotions, documentaries and nature programming, and feature films. This division also develops and manufactures proprietary hardware and software for professional and collegiate sports teams in baseball, football, basketball, and hockey, that allow better play analysis and more effective coaching of players, both individually and as a team overall.

Live-to-Air Production Products

We sell a range of products designed to meet the creative challenges confronted by broadcasters. Each of these turnkey systems addresses a specific area within the broadcast operation: digital effects, character generation and video switching, as well as asset storage, management and play out. We design each of our point products to operate together to increase the value of each product within the broadcast workflow. Furthermore, most of our products are designed to work on a network, enabling them to become part of complete solution packages with enhanced features and capabilities. Our products differ from the proprietary nature of traditional production equipment by using the same simplified file structures, high speed networking technologies, and interoperability found in the desktop personal computer industry. Material created on any of our live production products can be played back on any other live-to-air products.

Our live-to-air production products include Deko character generators, digital video effects systems and Thunder Storage products. These products compete with offerings from companies that include Chyron Corporation, Sony Corporation, Thomson Multimedia and others.

Deko Products.    Our Deko products are designed to provide high performance titling, real time effects and character generation for broadcast and on-air applications. Deko is a Windows based system that includes powerful text and graphics tools such as real time text scrolling, text manipulation, font enhancement, and multiple layers for text composition. The Deko product family supports a wide range of standard and international character fonts. The suggested list price for a Deko product ranges from approximately $3,000 to $75,000, depending on the configuration.

Digital Video Effects Products.    DVEXcel is our high performance 10-bit frame based, real time three-dimensional (3D) digital video effects system for broadcast and high-end post-production customers who seek to incorporate unique special effects into their programming. DVEXcel, a Windows based, multi-channel system, can simultaneously manipulate up to four channels of live video and can generate real time effects such as four-corner page peels and turns, highlights and shadows, water ripples, ball effects, wave patterns and other sophisticated visual effects. The suggested list price for a DVEXcel product ranges from approximately $45,000 to $98,000, depending on the configuration.

Thunder Storage Products.    Our Thunder Storage products allow users to store, manage and playout clips and stills using a powerful graphical user interface. The suggested list price for a Thunder Storage product ranges from approximately $22,000 to $90,000, depending on the configuration.

Content Delivery Products

We develop and sell products and systems solutions used by broadcasters, corporations and other video professionals to cost-effectively acquire, edit, and deliver their video content on-air, over satellite, or over broadband internet protocol (IP) networks. Using computer based networking, storage and encoding technologies, these products enable customers to create a program once, at any location, and distribute it to many outlets in a variety of formats. We supply content delivery solutions that meet the needs of customers ranging in size from small web operations to large-scale international broadcast operations serving hundreds of channels.

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MediaStream^™ digital video servers record, store, retrieve and process digital video content for broadcast over conventional mediums. StreamFactory^™ is a real-time web stream encoder that accepts professional video and audio inputs for encoding over an IP network. Palladium^™ Store networked storage solutions are the cornerstone of our video storage architecture. Pinnacle Distributed Broadcast Edge Servers (ES100, ER100 and DekoCast) are combined with our VBase central site software to provide customized large-scale interconnected solutions addressing content distribution, network localization and remote ad insertion applications for major networks.

MediaStream Server Products.    Our MediaStream digital video server is designed to record, store, retrieve, process and playout digital video content for broadcasters. Applications include commercial insertion, program acquisition and playout, store and forward, high-definition transmission, near-video-on-demand and network time delay. Reliability and serviceability continue to be primary design considerations. Single MediaStream servers can handle up to 16 channels of high quality MPEG-2 I/O, including simultaneous support for Standard and High Definition video on the same timeline. With our FreeHD^™ architecture, High Definition video playout capability is standard, easing the migration path to digital transmission for existing broadcasters. Networked configurations based on the MediaStream 900 make up the majority of our server business, underscoring the value associated with shared, networked content. Palladium storage is used to enable over 3000 hours of online video storage. MediaStream Servers are engineered for extreme reliability and have been successfully installed in hundreds of leading broadcast facilities worldwide operating 24 hours per day, 7 days per week. The suggested list prices start at approximately $30,000 but can run as high as a few million dollars for large systems.

StreamFactory Products.    Our StreamFactory product is a real-time web stream encoder that accepts professional video and audio inputs. StreamFactory enables output at a variety of data rates in Microsoft Windows Media, RealNetworks SureStream, QuickTime and most recently, MPEG-4 Packet Video formats. Designed to be a rack-mounted infrastructure appliance, StreamFactory can be configured and managed remotely, either across a LAN, or across the Internet. In conjunction with a video tape recorder, video router, satellite downlink, or other audiovisual source, StreamFactory can convert professional quality programming content to popular streaming formats in real-time. Applications range from corporate training and distance learning, to remote surveillance, to wireless streaming using MPEG-4. The suggested list prices for StreamFactory range from approximately $14,995 to $18,995 depending on the configuration.

Palladium Storage Products.    The Palladium Storage series of networked storage systems complement our growing line of networked video servers, editing, news and sports applications. Palladium is comprised of purpose-built storage and file systems enabling us to provide completely integrated, tested and certified video workflow solutions for collaborative editing, and play to air applications. Applications such as Palladium Exchange and Palladium Works enable multi-format file interchange between our products and third-party products, as well as providing system wide monitoring using SNMP. The suggested list price for a Palladium Store product ranges from approximately $20,000 to several million dollars for massive networked storage systems with mirroring.

Content Creation Products

We offer a complete range of non-linear editing products for both the Apple^® Power Mac^™ G4 or the Windows personal computer. Each product is a combination of hardware and software and can be used for a wide range of applications including broadcast graphics and design, corporate video, webcasting, post-production, visual effects, and DVD authoring. These products enable users to ingest material, edit it, create graphics and ultimately send their completed project to their chosen distribution medium.

We offer three content creation product families. Our Pinnacle Liquid family (Liquid blue, Liquid chrome, Liquid silver, and Liquid purple) provides customers with a range of video format support and capability using a full-featured editing application. CinéWave is an extensible Apple Macintosh-based solution that combines our video processing hardware with a package of software tools including Commotion Pro and CinéAcquire from Pinnacle and Final Cut Pro from Apple. CinéWave is unique in the industry in its easy upgrade ability from standard definition to high definition simply by adding optional hardware attachments. Our TARGA3000, available for retail and as part of original equipment manufacturer (OEM) solutions, is high bandwidth video processing hardware designed to power third-party professional video and audio editing solutions. The suggested list price is approximately $6,595. These products primarily compete with offerings from Avid Technology, Inc., Leitch Technology Corporation, Matrox Electronics Systems, Ltd., Media 100, Inc., Quantel Ltd. and Sony Corporation.

Pinnacle Liquid Products.    Our Pinnacle Liquid brand is comprised of non-linear editing and post-production solutions based on our proprietary hardware and software running on Windows platforms. Liquid blue supports most standard definition video formats, which eliminates transcoding and degradation by

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recompression. Liquid blue products are sold as turnkey systems designed for seamless integration within existing broadcast and post production facilities. Liquid blue supports a variety of networked editing topologies from simple file transfer networks to large storage area networks. Liquid chrome is a real-time, high performance editing system incorporating the TARGA3000 real-time editing hardware and the K2 real-time effects engine. Liquid chrome can be purchased either as a turnkey or as a board and software set. Liquid silver, sold as a bundle of our proprietary hardware and software, is designed for long-form or corporate editing needs using compressed as well as even higher quality uncompressed formats. Liquid silver also offers direct MPEG-2 and integrated export and DVD burning, making this the ideal product for DVD authoring. Liquid purple is a complete DV editing solution for the Windows platform. Based on the Pinnacle Liquid editing software, it has powerful logging tools, color correction, 2D and 3D effects and is network ready. The suggested list price is approximately $2,995 for Liquid purple, $19,995 for Liquid silver, and $49,995 for Liquid blue as a full turnkey system including a computer with a modest amount of storage.

CinéWave Products.    Our CinéWave products are designed for the Apple Macintosh platform and include our own hardware and Commotion Pro and CinéAcquire software, as well as Apple’s award-winning FinalCut Pro non-linear editing application. CinéWave is targeted at digital cinematographers, broadcast designers, post-production specialists, webcasters and special effects artists, as well as the large community of video and multimedia producers working exclusively on the Macintosh platform. The CinéWave product offers professional audio/video tools at an affordable price. The CinéWave product has a suggested list price of approximately $6,495 for standard definition. Complete CinéWave high-definition television production systems, including the computer and a modest amount of storage, start at approximately $30,000, substantially less than previously available post-production systems used for these advanced digital video formats.

News Production Products

Pinnacle Vortex is an integrated digital networked news solution specifically designed to enable the conversion of television news production from traditional tape-based editing and segmented production functions performed by specialists to non-linear server based editing and finishing. It combines many of our products’ strengths in video processing, storage, management, editing and delivery into an integrated and efficient solution for meeting the requirements of broadcast news operations. Vortex is designed to support scaleable operations, sophisticated programming, and the productivity needed to control costs. Vortex makes it possible for multiple editors, graphics designers, directors, producers and journalists to access shared video assets simultaneously over both high-speed production networks and common LAN or Internet connections. Vortex systems include our proprietary software, hardware and storage sub-systems combined with high performance information technology components using standard networking interfaces. This makes Vortex a superior solution for broadcast news originators, both local and national, that require solutions to help them be the first to air with breaking news while still delivering sophisticated on-air looks that differentiate their channel from competitors. Vortex is highly scalable and is configurable to address the modest needs of local broadcasters as well as the constant demands of 24-hour global broadcast news operations. Vortex system prices can range from approximately $100,000 to millions of dollars, depending on the configuration.

Sports Analysis Products

Our Team Sports products are designed for use by professional and collegiate sports teams to capture, edit and view video from team sports events including football, basketball, baseball and hockey. Team Sports products can be used alone or with other products to give the coaching staff access to current and historic video footage of games, practice events and training. Networked Sports products allow users to access and view videos from anywhere on the Internet. The suggested list prices range from approximately $25,000 to one million dollars for a large networked system.

Business and Consumer Division

In the fiscal year ended June 30, 2003, our Business and Consumer division represented 56.9% of our total sales. This division develops and markets products that are aimed at the consumer and business markets, which allow users to create, edit, view and distribute rich media content including video, photographs and audio using a personal computer and camcorder.

Studio Products.    Studio is a non-linear video editing software program that runs on Microsoft Windows and works with standard video capture hardware installed on the user’s personal computer. Studio is specifically designed to allow consumers to edit their “home movies.” With the use of the Studio software, users can “drag and drop” video clips in the order they desire, as well as add simple transitions between scenes, simple graphics, titles, music or audio to the production. The current version of Studio software, version 8, was made available in

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August 2002, and incorporates many significant new features such as integrated DVD authoring, which were not included in the earlier version (version 7). A significant part of our strategy is to sell users of earlier versions of Studio software, upgrades to the current version. Studio software competes with programs such as Ulead’s VideoStudio and Roxio’s VideoWave. The suggested list price for Studio Version 8 software is approximately $99.

In addition to selling Studio as a stand-alone software product, we also sell Studio software bundled with a variety of video input/output hardware. These products include Studio DV, Studio AV, Studio DC10plus, Studio DVplus and Studio Deluxe. The suggested list price for these products ranges from approximately $129 to $299.

Edition Products.    Edition is a video editing software program for prosumers, which runs on standard Microsoft Windows-based personal computers. The Business and Consumer division sells Edition software as a software-only product bundled with its Commotion, Impression DVD-Pro, TitleDeko, Hollywood FX and Alphamagic software. We also sell Edition bundled with video input/output cards developed in partnership with ATI (Edition Pro). Edition software competes with products such as Adobe Premiere, Avid Xpress and Apple Final Cut Pro. The suggested retail price for Edition is $699 and for Edition Pro is $999.

PCTV Receiver Products.    Personal computer television products allow users to view television programming on their computer monitors. The television program can be viewed alone or while the user is using other applications on the computer. The suggested list price for PCTV ranges from approximately $69 to $199.

Instant Products.    InstantCopy is a powerful software tool that lets users create and copy any non-encrypted video, audio, photo and data disc quickly and easily. InstantCD/DVD is a comprehensive software suite of tools, which allows users to create virtually any disc format quickly and easily. InstantCD/DVD provides a wide range of software applications, including: InstantWrite, InstantCopy, InstantBackup, InstantDisc, InstantMusic, InstantDrive and Pinnacle Expression. The suggested retail price for InstantCD/DVD (complete suite) is approximately $99. The suggested retail price for InstantCOPY is approximately $49.

Steinberg Audio Products.    Our Steinberg audio products include a number of computer-based music production tools for both the consumer and professional audio market. Our Steinberg products address three market segments: the creative tools market for home personal computer users, the music instrument market for music professionals, and the high-end audio market for professional recording studios.

We have two major product lines in the creative tool market that cater to home personal computer users, Clean and MyMP3. Clean is software that eliminates hiss and crackle noises from LPs and cassettes. The suggested list price ranges from approximately $19 to $79. MyMP3 is software that allows users to listen to, convert, organize and burn music onto CDs. It also allows users to upload play lists to external hardware players or download music from the Internet, and play and record Internet radio at the same time. The suggested list price ranges from approximately $19 to $59.

Our Steinberg music instrument products are designed for professional musicians, semi-professional musicians, home studios and music schools. We have four different product lines: Cubase, Cubasis, Wavelab, and VST Instruments: Cubase is a virtual studio system which offers sequencing, recording and processing tools for musicians, producers and studios and has a suggested list price from $250 to $550. Cubasis is a simplified version of Cubase and has a suggested retail price of approximately $100. Wavelab is software for sound engineers and mastering studios who need precision editing and handling for audio processing on personal computers. Wavelab also provides comprehensive CD burning capabilities, real-time audio file analysis and batch processing, and has a suggested list price from approximately $250 to $550. VST (Virtual Studio Technology) Instruments is plug-in software developed for third party support products and has a suggested list price ranging from approximately $150 to $350.

Our Pro Audio product, Nuendo, is designed for professional recording studios, post-production studios and broadcasting studios. This product is comprised of a digital Audio workstation for professionals who require high audio quality and surround mixing for recording and post-production. The suggested list price for this product ranges from approximately $1,299 to $1,999.

Technology

We are a technological leader in digital video processing, which includes real time video manipulation, video capture, digital video editing and storage. The National Academy of Television Arts and Sciences’ Outstanding Technical Achievement EMMY award has been awarded to us, and our predecessor companies, on eight occasions.

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Many of our products share a common internal architecture. This design approach allows us to leverage our research and development expenditures by utilizing similar hardware and software modules in multiple products. Our video manipulation architecture is fundamental to the performance and capabilities of our products. As a result of the acquisition of the video division of Miro Computer Products AG in August 1997, we acquired video capture technology that allows high quality live video and audio to be captured and played back from a standard personal computer. We further developed and augmented this technology with the acquisition of Truevision, Inc. in March 1999 and with the acquisition of FAST Multimedia in October 2001. In October 2002, we extended our CD and DVD burning technology with the acquisition of VOB Computersysteme, which enabled us to enter the market for optical recording of video, audio and data. With our Instant products, we now offer consumers an array of solutions to copy, record and preserve their video, audio and data in low cost easily shared digital media. In January 2003, we acquired Steinberg Media Technologies AG, a leading supplier of audio solutions to the music marketplace. The Steinberg technology enables users to create and edit their music using standard computer platforms and requires no special purpose hardware for real time audio processing. We intend to incorporate this technology into many of our other product lines.

All of our products use or work with a standard personal computer for control of video manipulation functions. In all products targeting the broadcast market, the control microprocessor is embedded within the product. The professional and consumer hardware based products are inserted into, or connect externally, to a personal computer. Some of our products aimed primarily at the consumer and business market are now available as software only formats and can be used solely with industry standard computer platforms. The use of industry standard microprocessors offers three main advantages over traditional special purpose video products: lower software development costs due to the availability of powerful off-the-shelf software development tools; lower product manufacturing costs due to the low costs of standard microprocessors; and the ability to integrate third party software, such as networking or 3D rendering software, to provide additional functionality.

Our primary technical expertise includes real time digital video processing, video capture technology, real time software algorithms, video input/output, advanced user interfaces, software control of commercially available camcorders and VCRs, movement of video and audio over information technology network infrastructures, efficient storage of video and audio as data on standard storage arrays, DVD/CD burning, editing workflows and design and implementation of complex networked digital video systems. Some of these technologies incorporate the following capabilities:

Real Time Digital Video Processing.    We have devoted significant resources to the development of proprietary technology for real time video processing, including high-speed digital filters, image transformation buffers, plane and perspective addressing, and non-linear image manipulation. We have patented technology related to real time mapping of live video onto multiple, complex, animated 3D shapes and surfaces. This technology includes a proprietary data compression algorithm that compresses the address information and allows decompression of this data in real time.

CODEC Technology.    We have devoted significant resources to developing and acquiring hardware and software for real time video capture, or CODEC. This technology includes audio/video effect synchronization methodologies, compression algorithms, drivers and software for real time playback from disks.

Real Time Software Algorithms.    The digital video manipulation functions of our products use common core software that perform complex computations in real time under user control. We have developed certain algorithms that enable the high-speed computation of multiple complex equations that are required for real time video effects.

Video Input/Output.    We have developed technology for video input and output of composite analog, component analog and component digital video data streams. All of our products work with the National Television Standards Committee, or NTSC, and Phase Alternating Line, or PAL, which are the two primary television standards in North America and Europe, respectively. In addition, we have developed interfaces to support input/output of video streams stored on computer disks.

User Interface Design.    We have extensive experience in the design of graphical user interfaces for video control and manipulation. We use interactive, menu-driven user interfaces to control video manipulation functions.

We have historically devoted a significant portion of our resources to engineering and product development programs and expect to continue to allocate significant resources to these efforts. In addition, we have acquired certain products and technologies that have aided our ability to more rapidly develop and market new products. Our future operating results will depend to a considerable extent on our ability to continually develop, acquire,

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integrate, introduce and deliver new hardware and software products that offer our customers additional features and enhanced performance at competitive prices. Delays in the introduction or shipment of new or enhanced products, our inability to timely develop and introduce such new products, the failure of such products to gain market acceptance or problems associated with product transitions could adversely affect our business, financial condition and results of operations, particularly on a quarterly basis.

As of June 30, 2003, we had 291 employees engaged in engineering and product development. Our engineering and product development expenses (excluding purchased in-process research and development) in fiscal 2003, 2002 and 2001 were $38.2 million, $31.4 million and $34.3 million respectively, and represented 11.5%, 13.6% and 13.7%, respectively, of net sales.

Employees

As of June 30, 2003, we employed 937 people worldwide.

Customers

End users of our products range from individuals to major corporate and government entities, and to video production and broadcast facilities worldwide. Broadcast customers include domestic and international television and cable networks, satellite networks, local broadcasters and program creators. Professional customers include corporations seeking to develop internal video post-production capabilities, sports teams, professional videographers including those who cover special events, and small production houses serving cable and commercial video markets. Consumer customers include consumer and prosumer users who edit video and audio and create professional looking “home movies,” corporate presentations, and other special events and productions using a standard personal computer and camcorder.

No one customer accounted for more than 10% of net sales during the fiscal years ended June 30, 2003, 2002 and 2001. No one customer accounted for more than 10% of net accounts receivable as of June 30, 2003 and 2002.

International

We conduct business in more than 78 countries around the world. We believe this geographic diversity allows us to draw on business and technical expertise from a worldwide workforce, provides stability to our operations and revenue streams to offset geography-specific economic trends, and offers us an opportunity to exploit new markets for maturing products. Our results of operations could be affected by economic and political uncertainty, or changes in the laws or policies in the countries in which we operate, and by macroeconomic changes, including currency rate fluctuations, recessions and inflation. A summary of our domestic and international revenues and long-lived assets is set forth in Note 10 of Notes to Consolidated Financial Statements.

Seasonality

General economic conditions have an impact on our business and financial results. The markets in which we sell our products have, at times, experienced weak economic conditions that have negatively affected revenues. Our sales usually slow down during the summer months of July and August, especially in our Business and Consumer division in Europe.

Marketing, Sales and Service

Marketing

Our marketing efforts are targeted at users of broadcast and professional production suites, and home video editing enthusiasts. In order to increase awareness of our products, we attend a number of trade shows, such as the National Association of Broadcasters (NAB) show, the International Broadcasters Convention (IBC) show, the National Association of Music Professionals (NAM) in the United States and the Center For Office and Information Technology (CEBIT) show in Europe. We also use targeted direct mail campaigns, the Internet and advertisements in trade and computer publications for most of our product lines and also participate in joint marketing activities with our OEM partners and other professional video companies.

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Sales

We maintain a sales organization consisting of regional sales managers in the United States, Europe, Asia and Latin America. We currently have sales offices in twelve countries that support sales into those countries and a number of other countries. The regional sales managers are primarily responsible for supporting independent dealers and value-added resellers (VARs) and making direct sales in geographic regions without dealer coverage. They also provide services to customers who prefer to transact directly with us.

Our sales organization focuses on a variety of distribution channels, including OEMs, VARs, distributors, retail stores, on-line end users, direct sales and other resellers. We believe that our development of a worldwide sales and distribution organization gives us a strategic advantage in the rapidly changing broadcast, professional and consumer video industry. We intend to continue to strengthen and develop this organization and develop strong strategic relationships with key OEMs and resellers.

We sell our broadcast and professional products to customers through an established domestic and international network of direct sales and professional services personnel who are supplemented by independent video product dealers and VARs. The independent dealers and VARs are selected for their ability to provide effective field sales and technical support to our customers. Dealers and VARs carry our broadcast and professional products as demonstration units, advise customers on system configuration and installation and perform ongoing customer service support. We believe that many customers depend on the technical support offered by these dealers and VARs in making product purchase decisions. We continue to invest resources in developing and supporting our network of independent dealers and VARs.

We also sell and distribute our professional products to OEMs that incorporate our products into their products and resell these products to other resellers and end users. These OEMs generally purchase our products and are responsible for conducting their own marketing, sales and support activities. We attempt to identify, and align with, OEMs that are market share and technology leaders in their target markets.

Our consumer products are sold primarily through large distributors, VARs, OEMs, and large computer and electronic retailers, in addition to direct telemarketing, mail order and the Internet. There can be no assurance that any particular computer retailers will continue to stock and sell our consumer products. If a significant number of computer retailers were to discontinue selling those products or if sales returns are higher than anticipated, our results of operations would be adversely affected. Sales through our consumer retail distribution channel entail a number of risks including inventory obsolescence, product returns and potential price protection obligations.

Sales outside of North America represent a significant portion of our business, and we expect that sales outside of the United States will continue to account for a significant portion of our net sales. We make foreign currency denominated sales in many countries, especially in Europe, exposing us to risks associated with foreign currency fluctuations. This risk is partially hedged since all local selling and marketing expenses are also denominated in those same currencies. International sales and operations may also be subject to risks such as the imposition of governmental controls, export license requirements, restrictions on the export of critical technology, political instability, trade restrictions, changes in tariffs, difficulties in staffing and managing international operations, potential insolvency of international dealers and difficulty in collecting accounts receivable. There can be no assurance that these factors will not have an adverse effect on our future international sales and, consequently, on our business, financial condition and results of operations.

Service and Support

We believe that our ability to provide customer service and support is an important element in the marketing of our products. Our customer service and support operation also provides us with a means of understanding customer requirements for future product enhancements. We maintain an in-house repair facility, supplemented by authorized third-party service providers and also provide telephone access to our technical support staff. Our technical support engineers not only provide assistance in diagnosing problems, but also work closely with customers to address system integration issues and to assist customers in increasing the efficiency and productivity of their systems.

Our customers may choose from a variety of support offerings, including Internet access, telephone support, hardware replacement, software updates and factory repairs. For selected products, we offer 24-hour/7-day emergency phone support and advance parts exchange with same business day shipment. We support our customers in Europe and Asia primarily through our international sales offices, worldwide parts distribution network, and local dealers.

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We typically warrant our products against defects in materials and workmanship for varying periods depending on the product and the sales region. We believe our warranties are similar to those offered by other video production equipment suppliers. To date, we have not encountered any significant product maintenance problems.

Competition

The digital video solutions market is highly competitive and is characterized by rapid technological change, new product development and obsolescence, evolving industry standards and significant price erosion over the life of a product. Competition is fragmented with several hundred manufacturers supplying a variety of products to this market. We anticipate increased competition in the video production equipment market from both existing manufacturers and new market entrants. Increased competition could result in price reductions, reduced margins and loss of market share, any of which could materially and adversely affect our business, financial condition and results of operations. There can be no assurance that we will be able to compete successfully against current and future competitors.

Competition for our broadcast and professional markets is generally based on product features, reliability of product performance, breadth of product line, service and support, market presence, upgrade ability and price. Our principal competitors in this market include Accom, Inc., Avid Technology Inc., Chyron Corporation, Leitch Technology Corporation, Matsushita Electric Industrial Co. Ltd., Media 100 Inc., Quantel Ltd., SeaChange Corporation, Sony Corporation, and Thomson Multimedia, some of which have greater financial, technical, marketing, sales and customer support resources, greater name recognition and larger installed customer bases than us. In addition, some of these companies have established relationships with our current and potential customers. Some of our competitors also offer a wide variety of video equipment, including professional video tape recorders, video cameras and other related equipment. In some cases, these competitors may have a competitive advantage based upon their ability to bundle their equipment in certain large system sales.

Our competition in our business and consumer markets comes from a number of groups of video companies such as traditional video equipment suppliers, providers of desktop editing solutions, video software application companies and others. Suppliers of traditional video equipment such as Matsushita and Sony have the financial resources and technical know-how to develop high quality, real time video manipulation products for the desktop video market. Suppliers of competitive consumer and professional products such as Adobe Systems Inc., Avid Technology Inc., Hauppauge Digital Inc., Matrox Electronics Systems, Ltd., Roxio, Inc. and Sony Corporation, have established video distribution channels and experience in marketing video products and significant financial resources.

There are several established video companies that currently offer products that compete directly or indirectly with our consumer products by providing some or all of the same features and video editing capabilities, such as Microsoft, Roxio, and Ulead Systems, Inc. In addition, we expect that existing manufacturers and new market entrants will develop new, higher performance, lower cost consumer video products that may compete directly with our consumer products. We may also face competition from other computer companies that lack experience in the video production industry but that have substantial resources to acquire or develop technology and products for the video production market. There can be no assurance that any of these companies will not enter into the video production market or that we could successfully compete against them if they did.

Manufacturing and Suppliers

Our manufacturing and logistics operations for our broadcast and professional products, located in the U.S. and Germany, consist primarily of testing printed circuit assemblies, final product assembly, configuration and testing, quality assurance and shipping. Manufacturing of our business and consumer products is performed by independent subcontractors located in the U.S., Germany and China. Each of our products undergoes quality inspection and testing at the board level and final assembly stage. We manage our materials with a software system that integrates purchasing, inventory control and cost accounting.

We rely on independent subcontractors who manufacture to our specifications our consumer and certain of our professional products and major subassemblies used in our broadcast and professional products. This approach allows us to concentrate our manufacturing resources on areas where we believe we can add the most value, such as product testing and final assembly, and reduces the fixed costs of owning and operating a full scale manufacturing facility. We have manufacturing agreements with a number of U.S.-based subcontractors, which include Flash Electronics Inc., Benchmark Electronics Inc., and IQ Systems for the manufacture of our broadcast and professional products. We have manufacturing agreements with Streiff & Helmold GmbH, Braunschweig

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(Germany); Ihlemann AG, Braunschweig (Germany), ZOMAX Inc. (US); ARVATO Inc. (US), Ever-Green Technology Ltd., Shenzhen (China), and Walker Intl. Ltd. (Hong Kong) for the manufacturing, packaging, fulfillment and distribution of our business and consumer products. Our reliance on subcontractors to manufacture products and major subassemblies involves a number of significant risks including the loss of control over the manufacturing process, the potential absence of adequate capacity, the unavailability of or interruptions in access to certain process technologies and reduced control over delivery schedules, manufacturing yields, quality and costs. In the event that any significant subcontractor was to become unable or unwilling to continue to manufacture these products or subassemblies in required volumes, our business, financial condition and results of operations could be materially adversely affected.

To the extent possible, we and our manufacturing subcontractors use standard parts and components available from multiple vendors. However, we and our subcontractors are dependent upon single or limited source suppliers for a number of key components and parts used in our products, including integrated circuits manufactured by Altera Corporation, AuraVision Corporation, LSI Logic Corp., Maxim Integrated Products, Inc., National Semiconductor Corporation, Philips Electronics, Inc., Raytheon Corporation and Zoran Corporation, field programmable gate arrays manufactured by Altera Corporation and Xilinx, Inc. and software applications from Adobe. Our manufacturing subcontractors generally purchase these single or limited source components pursuant to purchase orders placed from time to time in the ordinary course of business, do not carry significant inventories of these components and have no guaranteed supply arrangements with such suppliers. In addition, the availability of many of these components to our manufacturing subcontractors is dependent in part on our ability to provide our manufacturers, and their ability to provide suppliers, with accurate forecasts of our future requirements. We and our manufacturing subcontractors endeavor to maintain ongoing communication with suppliers to guard against interruptions in supply. We and our subcontractors have in the past experienced delays in receiving adequate supplies of single source components. Also, because of the reliance on these single or limited source components, we may be subject to increases in component costs that could have an adverse effect on our results of operations. Any extended interruption or reduction in the future supplies of any key components currently obtained from a single or limited source could have a significant adverse effect on our business, financial condition and results of operations in any given period.

Backlog

Our broadcast and professional customers generally order products as they need them. We generally ship our products within 30 days of receipt of an order, depending on customer requirements, although certain customers, including OEMs, may place substantial orders with the expectation that shipments will be staged over several months. A substantial majority of product shipments in a period relate to orders received in that period, and accordingly, we generally operate with a limited backlog of orders. The absence of a significant historical backlog means that quarterly results are difficult to predict and delays in product delivery and in the closing of sales near the end of a quarter can cause quarterly revenues to fall below anticipated levels. In addition, our customers may cancel or reschedule orders without significant penalty and the prices of products may be adjusted between the time the purchase order is booked into backlog and the time the product is shipped to the customer. As a result of these factors, we believe that the backlog of orders as of any particular date is not necessarily indicative of our actual sales for any future period.

Proprietary Rights and Licenses

Our ability to compete successfully and achieve future revenues and profit growth will depend, in part, on our ability to protect our proprietary technology and operate without infringing the rights of others. We rely on a combination of patent, copyright, trademark and trade secret laws and other intellectual property protection methods to protect our proprietary technology. In addition, we generally enter into confidentiality and nondisclosure agreements with our employees and OEM customers and limit access to and distribution of our proprietary technology. We currently hold a number of United States patents covering certain aspects of our technologies. Although we intend to pursue a policy of obtaining patents for appropriate inventions, we believe that the success of our business will depend primarily on the innovative skills, technical expertise and marketing abilities of our personnel, rather than on the ownership of patents. Certain technology used in our products is licensed from third parties on a royalty-bearing basis. Such royalties to date have not been, and are not expected to be, material. Generally, such agreements grant us nonexclusive, worldwide rights with respect to the subject technology and terminate only upon a material breach by us.

In the course of our business, we may receive and in the past have received communications asserting that our products infringe patents or other intellectual property rights of third parties.

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Our policy is to investigate the factual basis of such communications and to negotiate licenses where appropriate. While it may be necessary or desirable in the future to obtain licenses relating to one or more of our products, or relating to current or future technologies, there can be no assurance that we will be able to do so on commercially reasonable terms or at all. There can be no assurance that such communications can be settled on commercially reasonable terms or that they will not result in protracted and costly litigation.

There has been substantial industry litigation regarding patent, trademark and other intellectual property rights involving technology companies. In the future, litigation may be necessary to enforce any patents issued to us, to protect our trade secrets, trademarks and other intellectual property rights owned by us, or to defend us against claimed infringement. Any such litigation could be costly and a diversion of management’s attention, either of which could have material adverse effect on our business, financial condition and results of operations. Adverse determinations in such litigation could result in the loss of our proprietary rights, subject us to significant liabilities, require us to seek licenses from third parties or prevent us from manufacturing or selling our products, any of which could have a material adverse effect on our business, financial condition and results of operations.

Executive Officers

The names, ages and positions of our executive officers as of September 12, 2003 are as follows: