SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
-- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2001

__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________

Commission File Number: 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

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

YES __X___ NO _______

The number of shares outstanding of the registrant's Common Stock on
December 10, 2001 was 23,052,890.

SEACHANGE INTERNATIONAL, INC.

Table of Contents

PART I. FINANCIAL INFORMATION
Page
----

Item 1. Consolidated Financial Statements

Consolidated Balance Sheet
at October 31, 2001 and January 31, 2001.............................. 3

Consolidated Statement of Operations
Three and nine months ended October 31, 2001 and October 31, 2000... 4

Consolidated Statement of Cash Flows
Nine months ended October 31, 2001 and October 31, 2000............. 5

Notes to Consolidated Financial Statements............................. 6-11

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 12-19

Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................... 19

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.............................................. 19-20

Item 6. Exhibits and Reports on Form 8-K............................... 20

SIGNATURES...................................................................... 21

EXHIBIT INDEX................................................................... 22

ITEM I. Financial Statements

SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share-related data)

October 31, January 31,
2001 2001
---- ----

Assets
Current assets
Cash and cash equivalents........................ $ 7,280 $ 6,145
Accounts receivable, net of allowance for
doubtful accounts of $687 at October 31, 2001
and $742 at January 31, 2001.................... 24,316 27,112
Inventories...................................... 24,923 24,907
Prepaid expenses and other current assets........ 3,187 2,671
Deferred income taxes............................ 7,001 7,001
---------- ---------
Total current assets............................. 66,707 67,836

Property and equipment, net.......................... 17,526 15,886
Other assets......................................... 1,117 1,159
Deferred income taxes................................ 1,481 674
Goodwill and intangibles, net........................ 4,575 2,698
---------- ---------
$91,406 $88,253
========== =========

Liabilities and Stockholders' Equity
Current liabilities
Line of credit................................... $ - $ 4,000
Current portion of line of credit
and obligations under capital leases........... 316 2,532
Accounts payable................................. 16,131 17,332
Accrued expenses................................. 1,888 1,816
Customer deposits................................ 946 3,946
Deferred revenue................................. 9,362 8,435
Income taxes payable............................. 471 956
---------- ---------
Total current liabilities........................ 29,114 39,017
---------- ---------

Long-term line of credit and
obligations under capital leases................. 6,442 3,934
---------- ---------

Commitments and contingencies (Note 9)

Stockholders' Equity
Common stock, $.01 par value; 100,000,000
shares authorized; 22,962,415 and 22,037,811
shares issued at October 31, 2001 and
January 31, 2001, respectively..................... 230 221
Additional paid-in capital........................... 63,630 50,157
Deferred equity discount (Note 10)................... (1,187) -
Accumulated deficit.................................. (6,619) (4,905)
Accumulated other comprehensive loss................. (204) (171)
---------- ---------
Total stockholders' equity........................... 55,850 45,302
---------- ---------
$ 91,406 $ 88,253
========== =========

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

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

Three months ended Nine months ended
--------------------------------- ------------------------------
October 31, October 31, October 31, October 31,
2001 2000 2001 2000
------ ------ ------ ------

Revenues
Systems............................................ $17,776 $19,110 $60,829 $55,794
Services........................................... 7,445 5,916 21,572 16,892
------- ------- ------- -------
25,221 25,026 82,401 72,686
Cost of revenues
Systems............................................ 10,682 9,684 35,208 30,043
Services........................................... 5,201 4,582 15,644 13,271
------- ------- ------- -------
15,883 14,266 50,852 43,314
------- ------- ------- -------
Gross profit......................................... 9,338 10,760 31,549 29,372
------- ------- ------- -------
Operating expenses
Research and development........................... 5,883 5,101 17,560 14,456
Selling and marketing.............................. 3,410 3,169 10,599 8,284
General and administrative......................... 1,748 1,675 5,579 4,977
------- ------- ------- -------
11,041 9,945 33,738 27,717
------- ------- ------- -------

Income (loss) from operations........................ (1,703) 815 (2,189) 1,655
Interest (expense), net.............................. (80) (54) (332) (30)
------- ------- ------- -------
Income (loss) before income taxes.................. (1,783) 761 (2,521) 1,625
Provision (benefit) for income taxes................. (571) 249 (807) 520
------- ------- ------- -------
Income (loss) before cumulative effect of change
in accounting principle............................ (1,212) 512 (1,714) 1,105
Cumulative effect of change in accounting principle,
net of tax of $732................................. - - - (1,100)
------- ------- ------- -------
Net income (loss).................................... $(1,212) $ 512 $(1,714) $ 5
======= ======= ======= =======
Basic earnings (loss) per share before
cumulative effect of change in accounting
principle.......................................... $ (0.05) $ 0.02 $ (0.08) $ 0.05

Cumulative effect of change in accounting principle.. - - - $ (0.05)
------- ------- ------- -------
Basic earnings (loss) per share...................... $ (0.05) $ 0.02 $ (0.08) $ 0.00
======= ======= ======= =======
Diluted earnings (loss) per share.................... $ (0.05) $ 0.02 $ (0.08) $ 0.00
======= ======= ======= =======
Weighted average common shares outstanding:
Basic........................................... 22,939 21,855 22,796 21,668
======= ======= ======= =======
Diluted......................................... 22,939 23,218 22,796 23,170
======= ======= ======= =======

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

SEACHANGE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE IN CASH AND CASH EQUIVALENTS
(in thousands)

Nine months ended
-------------------------------------------
October 31, October 31,
2001 2000
------------------ -------------------

Cash flows from operating activities:
Net income (loss)..................................................... $(1,714) $ 5
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization................................... 5,268 3,546
Inventory valuation allowance................................... - 149
Amortization of deferred equity discount........................ 1,142 -
Deferred taxes.................................................. (807) -
Changes in operating assets and liabilities:
Accounts receivable.......................................... 2,796 (6,528)
Inventories.................................................. (533) (3,204)
Prepaid expenses and other assets............................ (506) (2,459)
Accounts payable............................................. (1,201) 4,476
Accrued expenses............................................. 72 (804)
Customer deposits............................................ (3,000) 1,445
Deferred revenue............................................. 927 1,888
Income taxes payable......................................... (485) (508)
---------------- -----------------
Net cash provided by (used in) operating activities 1,959 (1,994)
---------------- -----------------

Cash flows from investing activities:
Purchases of property and equipment................................... (5,559) (7,367)
Increase in intangible assets......................................... (2,709) (2,209)
---------------- -----------------
Net cash used in investing activities (8,268) (9,576)
---------------- -----------------

Cash flows from financing activities:
Borrowings under construction loan.................................... - 1,044
Borrowings under line of credit....................................... 5,409 4,324
Repayment of borrowings under revolving line of credit................ (4,000) -
Repayment of borrowings under construction loan and line of credit.... (4,967) (1,017)
Repayment of obligations under capital lease.......................... (150) (181)
Net proceeds from issuance of common stock............................ 11,152 11,923
---------------- -----------------
Net cash provided by financing activities 7,444 16,093
---------------- -----------------

Net increase in cash and cash equivalents................................. 1,135 4,523
Cash and cash equivalents, beginning of period............................ 6,145 2,721
---------------- -----------------
Cash and cash equivalents, end of period.................................. $ 7,280 $ 7,244
================ =================

Supplemental disclosure of noncash activities
Transfer of items originally classified as fixed assets to
inventories......................................................... $ 530 $ 497

Transfer of items originally classified as inventories to
fixed assets........................................................ $ 1,047 $ -

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

SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements include the
accounts of SeaChange International, Inc. and its subsidiaries. SeaChange
believes that the unaudited consolidated financial statements reflect all
adjustments (consisting of only normal recurring adjustments), necessary for a
fair statement of SeaChange's financial position, results of operations and cash
flows at the dates and for the periods indicated. The results of operations for
the periods presented are not necessarily indicative of results expected for the
full fiscal year or any other future periods. The unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes for the year ended January 31, 2001,
included in SeaChange's Annual Report on Form 10-K for such fiscal year.

2. 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 at least 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 calculated 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.

3. Earnings Per Share

For the three and nine months ended October 31, 2001, common shares of
3,503,315 issuable upon the exercise of stock options are antidilutive because
SeaChange recorded a net loss for the periods, and therefore, have been excluded
from the diluted earnings per share computation.

SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

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

Three months ended Nine months ended
------------------------ ------------------------
October 31, October 31, October 31, October 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------

Weighted average shares used in calculating
earnings per share - Basic........................... 22,939 21,855 22,796 21,668
Dilutive common stock equivalents....................... -- 1,363 -- 1,502
---------- ---------- ----------- ----------
Weighted average shares used in calculating earnings
per share - Diluted.................................. 22,939 23,218 22,796 23,170
========== ========== ============ ==========

4. Inventories

Inventories consist of the following:

October 31, January 31,
2001 2001
------------- -----------

Components and assemblies.............................. $ 7,398 $ 18,695
Finished products ..................................... 17,525 6,212
------------- -----------
$ 24,923 $ 24,907
============= ===========

5. Comprehensive Income (Loss)

SeaChange's comprehensive income (loss) was as follows:

Three months ended Nine months ended
------------------------ -------------------------
October 31, October 31, October 31, October 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------

Net income (loss) ...................................... $ (1,212) $ 512 $ (1,714) $ 5

Other comprehensive income (expense), net of tax:
Foreign currency translation adjustment, net of
tax of $4, $(9), $(11) and $(34), respectively ......... 7 (18) (22) (72)
-------- --------- --------- --------
Other comprehensive income (expense) ................... 7 (18) (22) (72)
-------- --------- --------- --------
Comprehensive income (loss) ............................ $ (1,205) $ 494 $ (1,736) $ (67)
======== ========= ========= ========

6. Deferred Legal Costs

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. In July 2001,
approximately $2.7 million in deferred legal costs were capitalized into
intangible assets as a result of the successful defense of patents.

SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

7. 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
nine months ended October 31, 2000. The results for the nine months ended
October 31, 2000 have been restated to conform with SAB 101.

8. 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 management, post-contract support services 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 during the periods
presented. Long-lived assets are principally located in the United States. The
following summarizes the revenues and cost of revenues by reportable segment:

Three months ended Nine months ended
-------------------------- --------------------------
October 31, October 31, October 31, October 31,
2001 2000 2001 2000
--------- ---------- ---------- ----------

Revenues
Broadband...................... $ 13,629 $ 11,377 $ 48,158 $ 39,273
Broadcast...................... 4,147 7,733 12,671 16,521
Services....................... 7,445 5,916 21,572 16,892
--------- ---------- ---------- ----------
Total.......................... $ 25,221 $ 25,026 $ 82,401 $ 72,686
--------- ---------- ---------- ----------

Costs of revenues
Broadband...................... $ 8,256 $ 5,650 $ 27,956 $ 20,885
Broadcast...................... 2,426 4,034 7,252 9,158
Services....................... 5,201 4,582 15,644 13,271
--------- ---------- ---------- ----------
Total.......................... $ 15,883 $ 14,266 $ 50,852 $ 43,314
========= ========== ========== ==========

The following summarizes revenues by geographic locations:

Revenues
United States.................. $ 21,635 $ 17,622 $ 71,313 $ 57,969
Canada and South America....... 406 986 940 2,988
Europe......................... 1,292 2,828 5,185 5,802
Asian Pacific and rest
of world.................... 1,888 3,590 4,963 5,927
--------- ---------- ---------- ---------
$ 25,221 $ 25,026 $ 82,401 $ 72,686
========= ========== ========== =========

SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

For the three and nine months ended October 31, 2001 and 2000, certain customers
each accounted for more than 10% of SeaChange's revenue. Individual customers
each accounted for 38% of revenues in the three months ended October 31, 2001,
14% of revenues in the three months ended October 31, 2000, 20% and 17%
of revenues in the nine months ended October 31, 2001, and 11%, 11%, 10% and 10%
in the nine months ended October 31, 2000.

Three months ended Nine months ended
------------------------- --------------------------
October 31, October 31, October 31, October 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------

Customer A........................... 14% 20%
Customer B........................... 38% 17% 11%
Customer C........................... 11%
Customer D........................... 10%
Customer E........................... 10%

9. Legal Proceedings

On June 13, 2000, SeaChange filed in the United States District Court for the
District of Delaware a lawsuit against one of its competitors, nCube Corp.,
whereby SeaChange alleged that nCube's MediaCube-4 product infringed a patent
held by SeaChange (Patent No. 5,862,312) relating to SeaChange's MediaCluster
technology. In instituting the claim, SeaChange sought both a permanent
injunction and damages in an unspecified amount. nCube made a counterclaim
against SeaChange that the patent held by SeaChange was invalid and that nCube's
MediaCube-4 product did not infringe SeaChange's patent. On September 6, 2000,
nCube conceded, based on a claim construction ruling, that nCube's MediaCube-4
product infringed SeaChange's patent. On September 25, 2000, a jury upheld the
validity of SeaChange's 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, SeaChange is 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 SeaChange in the
United States District Court for the District of Delaware alleging that
SeaChange's use of SeaChange's 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. SeaChange responded on January 26, 2001, denying that
claim of infringement. SeaChange also asserted a counterclaim seeking a
declaration from the District Court that U.S. Patent No. 5,805,804 is invalid
and not infringed. Currently discovery on this claim is scheduled to be
completed in December 2001, following which will be a claim construction
hearing.

On June 14, 1999, SeaChange 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 SeaChange's business and reputation in the
marketplace. The complaint further alleges that Mr. Putterman and Lathrop
Investment Management, Inc. defamed SeaChange 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 SeaChange seeking unspecified damages. On July 28, 2000, Concurrent
filed a motion for summary judgement on the claim of civil conspiracy and on
January 4, 2001, the trial court entered an order granting summary judgement for
Concurrent on that claim. SeaChange immediately requested reconsideration of
this order or, in the alternative, recertification for immediate appeal. On
June 12, 2001, the trial court denied the motion for reconsideration but made
findings which permitted an immediate appeal and on July 11, 2001 SeaChange
filed an appeal. The motions relating to these claims and counterclaims are
currently pending and no trial date has been set.

SeaChange cannot be certain of the outcome of the foregoing litigation, but
SeaChange plans to oppose allegations against it and assert its 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, SeaChange is
unable to estimate the impact to its business, financial condition, and results
of operations or cash flows.

SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

10. 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
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 the
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 the 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 determined the intrinsic value of $586,000 related to the 756,144
shares of common stock purchased on February 28, 2001 and measured the fair
value of $1.1 million related to the 100,000 common stock purchase warrants as
of the closing date and recorded these amounts as contra-equity. On April 30,
2001, SeaChange recorded an additional contra-equity amount of $325,000 for the
fair value of the additional 25,000 common stock purchase warrants of SeaChange
common stock as the registration statement had not been declared effective on or
before March 31, 2001. As of June 13, 2001 SeaChange recorded an additional
contra-equity amount of $335,000 for the fair value of the additional 14,667
common stock purchase warrants of SeaChange common stock. Based on the closing
market price on the date of effectiveness of the registration statement and the
five trading days preceding the date of effectiveness of this registration
statement, no additional shares were issued to Comcast SC pursuant to the terms
of the purchase agreement and Comcast is not entitled to the issuance in the
future of additional shares pursuant to the terms of the purchase agreement. The
contra-equity amount is being amortized 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. During the three and nine months ended
October 31, 2001, SeaChange amortized $18,000 and $1.1 million, respectively, of
the deferred equity discount. 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.

SEACHANGE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

11. New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interest method.
SeaChange believes that the adoption of SFAS 141 will not have a material impact
on its current financial position and results of operations.

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets", which is effective for SeaChange on February 1, 2002. SFAS
142 requires, among other things, the discontinuance of goodwill amortization
and includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, and reclassification of certain intangibles out of previously
reported goodwill. SeaChange believes that the adoption of SFAS 142 will not
have a material impact on its current financial position and results of
operations.

In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting
for obligations associated with the Retirement of Long-Lived Assets." SFAS 143
provides the accounting requirements for retirement obligations associated with
tangible long-lived assets. SFAS 143 is effective for financial statements for
fiscal years beginning after June 15, 2002. SeaChange believes that the adoption
of SFAS 143 will not have a material impact on its current financial position
and results of operations.

In October 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS 144 requires one
method of accounting for long-lived assets disposed of by sale. SFAS 144 is
effective for financial statements for fiscal years beginning after December 15,
2001. SeaChange believes that the adoption of SFAS 144 will not have a material
impact on its current financial position and results of operations.

12. Income Taxes

At October 31, 2001, SeaChange had net deferred tax assets of $8.5 million.
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 assets
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 assets considered realizable,
however, could be reduced in the near term if SeaChange does not generate
sufficient taxable income in future periods.

13. Debt Agreement

SeaChange has entered into a $10.0 million revolving line of credit with a bank
that expires in October 2003. Loans made under this revolving line of credit
would generally bear interest at a rate per annum equal to the bank's prime
rate, 5.50% at October 31, 2001. At October 31, 2001, SeaChange has outstanding
borrowings of $5.4 million under this revolving line of credit. Borrowings under
this line of credit are collateralized by substantially all of SeaChange's
assets. The loan agreement requires that SeaChange provide the bank with certain
periodic financial reports and comply with certain financial ratios including a
minimum level of earnings before interest, taxes and depreciation and
amortization on a trailing twelve month basis. At October 31, 2001, SeaChange
was in compliance with these financial covenants.

The line of credit replaces SeaChange's prior revolving line of credit and
equipment line with a different bank. In conjunction with entering into the new
bank line, SeaChange repaid to its prior lender all outstanding borrowings under
the equipment line of financing in an amount of $3.4 million.

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

Factors That May Affect Future Results

Any statements contained in this Form 10-Q that do not describe historical
facts, including without limitation statements concerning expected revenues,
earnings, product introductions and general market conditions, may constitute
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Any such forward-looking statements contained
herein are based on current expectations, but are subject to a number of risks
and uncertainties that may cause actual results to differ materially from
expectations. The factors that could cause actual future results to differ
materially from current expectations include the following: the development of
the video-on-demand market; SeaChange's significant concentration of customers;
fluctuations in demand for SeaChange's products and services; Seachange's
ability to manage its growth; the sensitivity of the video-on-demand market to
continued content licensing from content providers; SeaChange's ability to
develop, market and introduce new and enhanced products and services on a timely
basis; SeaChange's dependence on certain sole source suppliers and third party
manufacturers; the ability of SeaChange to compete successfully in the future;
the rapid technology change which characterizes SeaChange's markets; SeaChange's
ability to protect its intellectual property and expenses incurred with
defending these rights; the risks associated with international sales as
SeaChange expands its markets; SeaChange's ability to integrate the operations
of acquired subsidiaries; changes in the current regulatory environment in which
SeaChange operates; SeaChange's ability to hire and retain skilled employees;
and increasing political and social turmoil. Further information on factors that
could cause actual results to differ from those anticipated is detailed in
various filings made by SeaChange from time to time with the Securities and
Exchange Commission, including but not limited to, those appearing under the
caption "Risk Factors" in SeaChange's Registration Statement on Form S-3 filed
with the Securities and Exchange Commission on December 5, 2001. Any forward-
looking statements should be considered in light of those factors.

Overview

SeaChange is a leading developer, manufacturer and marketer of systems, known as
video storage servers, that automate the management and distribution of
long-form video streams, such as movies or other feature presentations, and
short-form video streams, such as advertisements.

SeaChange has three reportable segments: broadband systems, broadcast systems
and services. The broadband systems segment includes products, such as digital
advertising and video-on-demand products, that digitally manage, store and
distribute digital video for cable system operators and telecommunications
companies. The broadcast systems segment includes products for the storage,
archival, on-air playback of advertising and other video programming for the
broadcast television industry. System revenues are comprised of sales of
SeaChange's broadband and broadcast systems. The service segment is comprised of
revenue related to product development contracts, installation, training,
product maintenance and technical support for all of the above systems, and
content which is distributed by the broadband product segment.

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. 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.

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) the customer's 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.

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

THREE MONTHS ENDED OCTOBER 31, 2001 COMPARED TO THE THREE MONTHS ENDED
OCTOBER 31, 2000

Revenues

Systems. SeaChange's systems revenues consist of sales of SeaChange's broadband
and broadcast products. Systems revenues decreased 7% to $17.8 million in the
three months ended October 31, 2001 as compared to $19.1 million in the three
months ended October 31, 2000. Revenues from the broadband segment, which
accounted for 54% and 45% of total revenues in the three months ended October
31, 2001 and 2000, respectively, increased to $13.6 million for the comparable
periods in 2001 as compared to $11.4 million for the comparable periods in 2000.
Interactive television system revenues were $10.2 million for the three months
ended October 31, 2001 as compared to $3.2 million in the comparable period in
the prior year primarily due to the initial deployment of residential video-on-
demand systems in the U.S. for cable operators. Included in the interactive
television systems revenue was the amortization of $18,000 related to the
deferred equity discount associated with the Comcast equity investment. Digital
advertising system revenues were $3.4 million for the three months ended October
31, 2001 as compared to $8.1 million in the prior year. The decrease resulted
primarily from the decline in the number of expansion systems purchased by U.S.
cable operators. Broadcast system segment revenues were $4.1 million in the
three months ended October 31, 2001 as compared to $7.7 million in the three
months ended October 31, 2000. The decrease in broadcast revenues is primarily
attributable to the decrease in advertising revenues earned by the broadcast
companies resulting in a decrease in their capital expenditures for new
broadcast systems. 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 and broadcast increase, the digital advertising
products will become a smaller portion of total system revenues. However,
SeaChange believes that there will be a continuing demand for expansions to
existing digital advertising insertion systems within the U.S.

Services. SeaChange's services revenues consist of fees for installation,
training, product maintenance, technical support services, product development
services and movie content fees. SeaChange's services revenues increased 26% to
$7.4 million in the three months ended October 31, 2001 from $5.9 million in the
three months ended October 31, 2000. This increase in services revenues
primarily resulted from the renewals of technical support and maintenance
services, price increases on certain technical support and maintenance services,
the impact of a growing installed base of systems and a higher level of product
development services.

For the three-month periods ended October 31, 2001 and October 31, 2000, a
limited number of our customers each accounted for more than 10% of SeaChange's
total revenues. Single customers accounted for 38% of total revenues in three
months ended October 31, 2001 and 14% of total revenues in the three months
ended October 31, 2000. Revenue from these customers was primarily in the
broadband segment. SeaChange believes that a significant portion of SeaChange's
revenues will continue to be derived from a limited number of large customers.

International sales accounted for approximately 14% and 30% of total revenues in
the three-month periods ended October 31, 2001 and October 31, 2000,
respectively. SeaChange expects that international sales will remain a
significant portion of SeaChange's business in the future. As of October 31,
2001, substantially all sales of SeaChange's products were made in United States
dollars. Therefore, SeaChange has not experienced, nor does it expect to
experience in the near term, any material impact from fluctuations in foreign
currency exchange rates on its results of operations or liquidity. If this
practice changes in the future, SeaChange will reevaluate its 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 10% to $10.7 million in the three months ended October 31, 2001 as
compared to $9.7 million in the three months ended October 31, 2000. In the
three months ended October 31, 2001, the increase in costs of systems revenues
reflects higher material costs within the interactive television system
products. SeaChange expects 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 SeaChange improves its manufacturing
and material purchasing efficiencies.

Systems gross profit as a percentage of systems revenues was 40% and 49% in the
three months ended October 31, 2001 and October 31, 2000, respectively. The
decrease in systems gross profit in the three months ended October 31, 2001 was
primarily due to the shift within broadband product sales from higher gross
profit ad insertion systems to lower gross profit interactive television
systems. Gross profit for the broadband segment decreased to 39% for the three
months ended October 31, 2001 from 50% for the three months ended October 31,
2000 primarily as a result of lower broadcast system revenues. Gross profit for
the broadcast segment decreased to 42% for the three months ended October 31,
2001 compared to 48% for the three months ended October 31, 2000.

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 SeaChange and costs associated with
providing movie content. Costs of services revenues increased 14% to $5.2
million in the three months ended October 31, 2001 from $4.6 million in the
three months ended October 31, 2000 primarily as a result of increased revenues
and the costs associated with SeaChange 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 30% in
the three months ended October 31, 2001 and 23% in the three months ended
October 31, 2000. The increase in services gross profit was primarily due to the
increase in services revenues. Product development service revenues contributed
approximately $1.0 million for the three months ended October 31, 2001 compared
to $524,000 for the three months ended October 31, 2000. SeaChange expects that
it 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 other services to support the growing installed base of systems and the
timing of costs associated with SeaChange's 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
compensation of development personnel, depreciation of equipment and an
allocation of related facilities expenses. Research and development expenses
increased 15% to $5.9 million in the three months ended October 31, 2001 as
compared to $5.1 million in the three months ended October 31, 2000. The
increase in the three months ended October 31, 2001 was primarily attributable
to the hiring and contracting of additional development personnel which reflects
SeaChange's continuing investment in new products. SeaChange expects that
research and development expenses will continue to increase in dollar amount as
SeaChange continues its development and support of new and existing products.

Selling and Marketing. Selling and marketing expenses consist primarily of
compensation expenses, including sales commissions, travel expenses and certain
promotional expenses. Selling and marketing expenses increased 8% to $3.4
million in the three months ended October 31, 2001 from $3.2 million in the
three months ended October 31, 2000. The increase was primarily due to the
hiring of additional sales personnel for SeaChange's interactive television and
broadcast products and related commission costs.

General and Administrative. General and administrative expenses consist
primarily of compensation of executive, finance, human resource and
administrative personnel, legal and accounting services and an allocation of
related facilities expenses. General and administrative expenses remained
constant at $1.7 million in the three months ended October 31, 2001 and October
31, 2000.

Interest expense, net. Interest expense, net was $80,000 for the three months
ended October 31, 2001 and $54,000 for the three months ended October 31, 2000.
The increase primarily resulted from interest expense on borrowings under
SeaChange's lines of credit.

Provision (benefit) for Income Taxes. SeaChange's effective tax benefit rate was
32% in the three months ended October 31, 2001. The effective tax rate for the
three months ended October 31, 2001 was favorably impacted by the utilization of
research and development tax credits.

SeaChange had net deferred tax assets of $8.5 million at October 31, 2001 and
$7.7 million at January 31, 2001. 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 assets 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 assets
considered realizable, however, could be reduced in the near term if SeaChange
does not generate sufficient taxable income in future periods. Any reduction of
the amount of the deferred tax assets would reduce net income in the period in
which the reduction occurs.

NINE MONTHS ENDED OCTOBER 31, 2001 COMPARED TO THE NINE MONTHS ENDED OCTOBER 31,
2000

Revenues

Systems. Systems revenues increased 9% to $60.8 million in the nine months ended
October 31, 2001 from $55.8 million in the nine months ended October 31, 2000.
Revenues from the broadband segment, which accounted for 58% and 54% of total
revenues in the nine months ended October 31, 2001 and 2000, respectively,
increased to $48.2 million in 2001 as compared to $39.3 million in 2000.
Interactive television system revenues were $32.8 million for the nine months
ended October 31, 2001 as compared to $10.0 million in the comparable period in
the prior year primarily due to the initial deployment of residential video-on-
demand systems in the United States for cable operators. Included in the
interactive television systems revenue for the nine months ended October 31,
2001 was the amortization of $1.1 million related to the deferred equity
discount associated with the Comcast equity investment. As of October 31, 2001,
the balance of the deferred equity discount was 1.2 million. Digital advertising
system revenues were $15.4 million for the nine months ended October 31, 2001 as
compared to $29.3 million in the prior year. The decrease resulted primarily
from the decline in the number of expansion systems purchased by U.S. cable
operators. Broadcast system segment revenues were $12.7 million in the nine
months ended October 31, 2001 as compared to $16.5 million in the nine months
ended October 31, 2000. The decrease in broadcast revenues is primarily
attributable to a decrease in capital expenditures by broadcast companies that
we believe is tied to declining advertising revenues earned by those companies.
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 continuing demand for expansions to existing digital
advertising insertion systems within the United States.

Services. SeaChange's services revenues increased 28% to $21.6 million in the
nine months ended October 31, 2001 from $16.9 million in the nine months ended
October 31, 2000. This increase in services revenues primarily resulted from the
renewals of technical support and maintenance services, price increases on
certain technical support and maintenance services, the impact of a growing
installed base of systems and a higher level of product development services.

For the nine month periods ended October 31, 2001 and October 31, 2000, a
limited number of our customers each accounted for more than 10% of SeaChange's
total revenues. Single customers accounted for 20% and 17% of total revenues in
nine months ended October 31, 2001 and 11%, 11%, 10% and 10% of total revenues
in the nine months ended October 31, 2000. Revenue from these customers was
primarily in the broadband segment. SeaChange believes that a significant amount
of its revenues will continue to be derived from a limited number of large
customers.

International sales accounted for approximately 14% and 20% of total revenues in
the nine-month periods ended October 31, 2001 and October 31, 2000,
respectively. SeaChange expects that international sales will remain a
significant portion of SeaChange's business in the future. As of October 31,
2001, substantially all sales of SeaChange's products were made in United States
dollars. Therefore, SeaChange has not experienced, nor does it expect to
experience in the near term, any material impact from fluctuations in foreign
currency exchange rates on its results of operations or liquidity. If this
practice changes in the future, SeaChange will reevaluate its foreign currency
exchange rate risk.

Gross Profit

Systems. Costs of systems revenues increased 17% to $35.2 million in the nine
months ended October 31, 2001 as compared to $30.0 million in the nine months
ended October 31, 2000. In the nine months ended October 31, 2001, the increase
in costs of systems revenues reflects higher systems revenue and higher material
costs within the interactive television products. SeaChange expects 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 SeaChange improves its manufacturing and material purchasing
efficiencies.

Systems gross profit as a percentage of systems revenues was 42% and 46% in the
nine months ended October 31, 2001 and October 31, 2000, respectively. The
decrease in systems gross profit in the nine months ended October 31, 2001 was
primarily due to the shift within the broadband segment from product sales of
higher gross profit ad insertion systems to lower gross profit interactive
television systems. Gross profit for the broadband segment decreased to 42% for
the nine months ended October 31, 2001 as compared to 47% for the nine months
ended October 31, 2000 primarily due to lower ad insertion systems revenues.
Gross profit for the broadcast segment decreased to 43% for the nine months
ended October 31, 2001 as compared to 45% for the nine months ended October 31,
2000.

Services. Costs of services revenues increased 18% to $15.6 million in the nine
months ended October 31, 2001 from $13.3 million in the nine months ended
October 31, 2000 primarily as a result of increased revenues and the costs
associated with SeaChange 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 27% in the nine months
ended October 31, 2001 and 21% in the nine months ended October 31, 2000.
The increase in gross profit was primarily due to the increase in services
revenues. SeaChange expects that it will continue to experience fluctuations in
services gross profit as a percentage of services revenue as a result of the
timing of revenues from technical support and other services to support the
growing installed base of systems and the timing of costs associated with
SeaChange's 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 21% to
$17.6 million in the nine months ended October 31, 2001 as compared to $14.5
million in the nine months ended October 31, 2000. The increase in the nine
months ended October 31, 2001 was primarily attributable to the hiring and
contracting of additional development personnel which reflects SeaChange's
continuing investment in new products. The second quarter also included
additional prototype expenses associated with new board development efforts.
SeaChange expects that research and development expenses will continue to
increase in dollar amount as SeaChange continues its development and support of
new and existing products.

Selling and Marketing. Selling and marketing expenses increased 28% to $10.6
million in the nine months ended October 31, 2001 from $8.3 million in the nine
months ended October 31, 2000. The increase was primarily due to the hiring of
additional sales personnel for SeaChange's interactive television and broadcast
products and related commission costs.

General and Administrative. General and administrative expenses increased 12% to
$5.6 million in the nine-month period ended October 31, 2001, as compared to
$5.0 million in the nine-month period ended October 31, 2000. This increase is
primarily due to the amortization of capitalized patent costs and fees related
to the registration statement covering the shares of SeaChange common stock in
the Comcast transaction.

Interest expense, net. Interest expense, net was $332,000 for the nine months
ended October 31, 2001 and $30,000 for the nine months ended October 31, 2000.
The increase in interest expense, net in the nine months ended October 31, 2001
primarily resulted from interest expense on borrowings under SeaChange's lines
of credit and construction loan.

Provision (benefit) for Income Taxes. SeaChange's effective tax benefit rate was
32% in the nine months ended October 31, 2001. The effective tax rate for the
nine months ended October 31, 2001 was favorably impacted by the utilization of
research and development tax credits.

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 nine months
ended October 31, 2000.

LIQUIDITY AND CAPITAL RESOURCES

SeaChange has financed its operations and capital expenditures primarily with
the proceeds of SeaChange's common stock, borrowings and cash flows generated
from operations. Cash and cash equivalents increased $1.1 million from $6.1
million at January 31, 2001 to $7.3 million at October 31, 2001. Working capital
increased from approximately $28.8 million at January 31, 2001 to approximately
$37.6 million at October 31, 2001.

Net cash provided by operating activities for the nine months ended October 31,
2001 was approximately $2.0 million and net cash used in operating activities
for the nine months ended October 31, 2000 was $2.0 million. The net cash
provided by operating activities in the nine months ended October 31, 2001 was
the result of the net loss adjusted for non-cash expenses including depreciation
and amortization of $6.4 million and the changes in certain operating assets and
liabilities. The significant net changes in assets and liabilities that provided
cash from operations included a decrease in accounts receivable of $2.8 million
and an increase in deferred revenues of approximately $900,000. These items that
generated cash from operations were offset by a decrease in accounts payable of
$1.2 million, a decrease in customer deposits of $3.0 million and an increase in
inventories of approximately $500,000. 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.

Net cash used in investing activities was approximately $8.3 million and $9.6
million for the nine months ended October 31, 2001 and October 31, 2000,
respectively. Intangible assets increased by $2.7 million as a result of the
successful defense of its patents. Investment activity consisted primarily of
capital expenditures related to capital equipment required to support the
expansion and growth of the business. SeaChange had no material capital
expenditure commitments as of October 31, 2001.

Net cash provided by financing activities was approximately $7.4 million and
approximately $16.1 million for the nine months ended October 31, 2001 and
October 31, 2000, respectively. In the nine months ended October 31, 2001, the
cash provided by financing activities included $10.0 million in connection with
the issuance of common stock issued on February 28, 2001, from a private
placement sale of common stock and a warrant to Comcast SC Investment, Inc. (See
Note 10 to the Consolidated Financial Statements) and an additional $5.4 million
in borrowings under the line of

credit with a bank. During the same period, cash used in financing activities
included approximately $4.0 million in repayments under SeaChange's revolving
line of credit and $5.0 million in principal payments under its equipment line
of credit and capital lease obligations.

In October 2001, SeaChange entered into a $10.0 million revolving line of credit
with a bank that expires in October 2003. Loans made under this revolving line
of credit will bear interest at a rate per annum equal to the bank's
prime rate, 5.50% at October 31, 2001. As of October 31, 2001, SeaChange has
borrowings of $5.4 million under this revolving line of credit. Borrowings under
this line of credit are collateralized by substantially all of SeaChange's
assets. The loan agreement requires that SeaChange provide the bank with certain
periodic financial reports and comply with certain financial ratios including a
minimum level of earnings before interest, taxes and depreciation and
amortization on a trailing twelve month basis. As of October 31, 2001, SeaChange
was in compliance with these financial covenants. The line of credit replaces
SeaChange's prior revolving line of credit and equipment line with a different
bank. In conjunction with entering into the new bank line, SeaChange repaid to
its prior lender all outstanding borrowings under the equipment line of
financing in an amount of $3.4 million.

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 was accrued and paid
at a per annum rate of 8.875%. Upon occupancy of the building in November 2000,
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 October 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 October 31, 2001,
SeaChange was in compliance with all covenants. As of October 31, 2001,
borrowings outstanding under the loan were $1.1 million.

It is typical for SeaChange to experience fluctuations in its 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,
SeaChange may experience an increase in its inventories as a result of
procurement of both short and long lead components for anticipated orders for
both its product segments, a decrease in its 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.

SeaChange believes that existing funds are adequate to satisfy its working
capital and capital expenditure requirements for the foreseeable future.

Effects of Inflation

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

Recent Accounting Pronouncements

recognized intangibles, and reclassification of certain intangibles out of
previously reported goodwill. SeaChange believes that the adoption of SFAS 142
will not have a material impact on its current financial position and results of
operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

SeaChange faces 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 SeaChange's financial results. SeaChange's primary
exposure has been related to local currency revenue and operating expenses in
Europe and Asia. Historically, SeaChange has not hedged specific currency
exposures as gains and losses on foreign currency transactions have not been
material to date. At October 31, 2001, SeaChange had approximately $6,500,000
outstanding related to variable rate U.S. dollar denominated 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 approximately $36,000.

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

SeaChange maintains investment portfolio holdings of various issuers, types, and
maturities. SeaChange's cash and marketable securities include cash equivalents,
which SeaChange considers investments to be purchased with original maturities
of three months or less given the short maturities and investment grade quality
of the portfolio holdings at October 31, 2001, a sharp rise in interest rates
should not have a material adverse impact on the fair value of SeaChange's
investment portfolio. As a result, SeaChange does not currently hedge these
interest rate exposures.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

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.
SeaChange responded on January 26, 2001, denying that claim of infringement.
SeaChange also asserted a counterclaim seeking a declaration from the District
Court that U.S. Patent No. 5,805,804 is invalid and not infringed. Currently
discovery on this claim is scheduled to be completed in December 2001, following
which will be a claim construction hearing.

On June 14, 1999, SeaChange 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 SeaChange's business and reputation in the
marketplace. The complaint further alleges that Mr. Putterman and Lathrop
Investment Management, Inc. defamed SeaChange 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 SeaChange seeking unspecified damages. On July 28, 2000, Concurrent
filed a motion for summary judgement on the claim of civil conspiracy and on
January 4, 2001, the trial court entered an order granting summary judgement for
Concurrent on that claim. SeaChange immediately requested reconsideration of
this order or, in the alternative, recertification for immediate appeal. On June
12, 2001, the trial court denied the motion for reconsideration but made
findings which permitted an immediate appeal and on July 11, 2001 SeaChange
filed an appeal. The motions relating to these claims and counterclaims are
currently pending and no trial date has been set.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.1 Loan and Security Agreement, dated October 22, 2001, by and
between SeaChange and Citizens Bank of Massachusetts (filed as
Exhibit 10.1 to SeaChange's Registration Statement on Form S-3
previously filed on December 5, 2001 with the Commission
(File No. 333-74534) and incorporated herein by reference).

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: December 13, 2001

SEACHANGE INTERNATIONAL, INC.

by: /s/ William L. Fiedler
----------------------
William L. Fiedler
Vice President, Finance and Administration,
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer;
Authorized Officer)

EXHIBIT INDEX

Exhibit No. Description
- ----------- -----------

10.1 Loan and Security Agreement, dated October 22, 2001, by and
between SeaChange and Citizens Bank of Massachusetts (filed as
Exhibit 10.1 to SeaChange's Registration Statement on Form S-3
previously filed on December 5, 2001 with the Commission (File
No. 333-75434) and incorporated herein by reference).