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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q/A



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended June 30, 2005

OR



| ̈ | 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: 000-49809



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INTERVIDEO, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 94-3300070                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

46430 Fremont Blvd., Fremont, CA 94538

(Address of principal executive offices, Zip Code)

(510)-651-0888

(Registrants telephone number, including area
code)



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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 whether Registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act).    Yes  x    No ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act.):    Yes ̈No ̈

On July 31, 2005, the Registrant had 14,157,755 shares of common stock
outstanding, $0.001 par value per share.



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##### Table of Contents

INTERVIDEO, INC.

FORM 10-Q/A

QUARTER ENDED JUNE 30, 2005

EXPLANATORY NOTE:

This Amendment No. 1 on Form 10-Q/A amends
and restates Part I, Items 1, 2 and 4, and Part II, Item 6 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, as filed with the Securities and Exchange Commission on August 15, 2005 (the
Original Filing). The Company is filing this Amendment No. 1 to reflect the restatement of our condensed consolidated financial statements as of and for the three and six month periods ended June 30, 2005.

As discussed in more detail in Note 2 of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Amendment No. 1 on
Form 10-Q/A, this restatement was due to the misapplication of certain complex accounting principles to the Companys purchase of Ulead Systems, Inc. (Ulead) with non-controlling interest and other purchase accounting related
adjustments pertaining to amortization charges of intangible assets and deferred taxes. The misapplication of accounting principles concern the manner in which the Company accounted for the purchase of its controlling interest in Ulead in April
2005. Ulead is a publicly traded company in Taiwan and a leading developer of innovative video, imaging and DVD authoring software. InterVideos review of its application of purchase accounting under Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations, and the completion of its purchase price allocation has resulted in the determination to apply the partial goodwill method (or parent company theory) instead of the previously applied full goodwill method
(or entity theory). The application of the partial goodwill method requires the Company to record its share of Uleads assets, liabilities and resulting intangible assets, including goodwill, at the proportionate share acquired based upon the
purchase price. The overstated amortization charges are the result of the Company incorrectly calculating the amount of purchase related in-process research and development costs and intangibles amortization. The deferred tax adjustments resulted
from the finalization of the deferred income tax analysis associated with the Ulead purchase.

The purpose of the restatement is to correctly reflect such
changes, including but not limited to the computation of goodwill, other purchased intangible assets, deferred tax assets and liabilities, minority interest, and several expense items. The effect of the restatement is to decrease total assets as of
June 30, 2005 by $9.5 million and to decrease the Companys net loss for the three and six month periods ended June 30, 2005 by $2.3 million. Additional detail regarding the restatement is included in Note 2 of the Notes to the
Condensed Consolidated Financial Statements included in Part I, Item 1 of this Amendment No. 1 on Form 10-Q/A.

Pursuant to SEC Rule 12b-15, this
Form 10-Q/A sets forth the complete text of each item of Form 10-Q listed above as amended, and includes as Exhibits 31 and 32 new certifications by the Chief Executive Officer and Chief Financial Officer.

In order to preserve the nature and character of the disclosures set forth in such items as originally filed, this Amendment No. 1 does not reflect events occurring
after the filing of the original Quarterly Report on Form 10-Q on August 15, 2005, or modify or update the disclosures presented in the original Quarterly Report on Form 10-Q, except to reflect the revisions as described above. Accordingly,
this Form 10-Q/A should be read in conjunction with our filings made subsequent to the filing of the original Form 10-Q, including any amendments to those filings.



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##### Table of Contents

INTERVIDEO, INC.

TABLE OF CONTENTS



|                              |  |                                                                                                                                                          |  |     
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                                                          |  | Page
|PART I. FINANCIAL INFORMATION |  |                                                                                                                                                         
|                              |  |                                                                                                                                                         
|Item 1.                       |  | Financial Statements                                                                                                                                     |  |     
|                              |  | (a)Condensed Consolidated Balance Sheets at June 30, 2005 (restated and unaudited, see Note 2) and December 31, 2004                                     |  | 4   
|                              |  | (b)Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2005 (restated and unaudited, see Note 2) and 2004 |  | 5   
|                              |  | (c)Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 (restated and unaudited, see Note 2) and 2004                  |  | 6   
|                              |  | (d)Notes to Condensed Consolidated Financial Statements (restated and unaudited)                                                                         |  | 7   
|                              |  |                                                                                                                                                         
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                    |  | 24  
|                              |  |                                                                                                                                                         
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                               |  | 52  
|                              |  |                                                                                                                                                         
|Item 4.                       |  | Controls and Procedures                                                                                                                                  |  | 53  
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                                                         
|                              |  |                                                                                                                                                         
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                                                      |  | 55  
|                              |  |                                                                                                                                                         
|Item 6.                       |  | Exhibits                                                                                                                                                 |  | 56  
|                              | 
|Signatures                    |  | 57                                                                                                                                                      



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##### Table of Contents

INTERVIDEO, INC.

PART 1  FINANCIAL INFORMATION

ITEM 1  FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets

(unaudited; in thousands, except per share amounts)



|                                                                                           |  |                                     |         |   |                      |   |         |  
|------------------------------------------------------------------------------------------ |  | ----------------------------------- | ------- | - | -------------------- | - | ------- | -
|                                                                                           |  | June 30, 2005 Restated (See Note 2) |         |   | December 31, 2004(1) |  
|ASSETS                                                                                     |  |                                     |         |   |                      |   |         |  
|Current assets:                                                                            |  |                                     |         |   |                      |   |         |  
|Cash and cash equivalents                                                                  |  | $                                   | 35,696  |   |                      | $ | 27,410  |  
|Short-term investments                                                                     |  |                                     | 35,322  |   |                      |   | 47,177  |  
|Accounts receivable, net of allowance for doubtful accounts of $294 and $215, respectively |  |                                     | 17,379  |   |                      |   | 5,660   |  
|Deferred tax assets                                                                        |  |                                     | 252     |   |                      |   | 256     |  
|Inventory                                                                                  |  |                                     | 1,864   |   |                      |   | 444     |  
|Prepaid expenses and other current assets                                                  |  |                                     | 2,902   |   |                      |   | 2,136   |  
|                                                                                           |  |                                     |         |   |                      |   |         |  
|Total current assets                                                                       |  |                                     | 93,415  |   |                      |   | 83,083  |  
|                                                                                           |  |                                    
|Property, plant and equipment, net                                                         |  |                                     | 23,994  |   |                      |   | 2,606   |  
|Goodwill                                                                                   |  |                                     | 1,018   |   |                      |   | 1,018   |  
|Other purchased intangible assets                                                          |  |                                     | 7,772   |   |                      |   | 83      |  
|Deferred tax assets                                                                        |  |                                     | 4,676   |   |                      |   | 5,446   |  
|Other assets                                                                               |  |                                     | 4,245   |   |                      |   | 9,539   |  
|                                                                                           |  |                                     |         |   |                      |   |         |  
|Total assets                                                                               |  | $                                   | 135,120 |   |                      | $ | 101,775 |  
|                                                                                           |  |                                     |         |   |                      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                       |  |                                     |         |   |                      |   |         |  
|Current liabilities:                                                                       |  |                                     |         |   |                      |   |         |  
|Accounts payable                                                                           |  | $                                   | 2,147   |   |                      | $ | 1,098   |  
|Accrued liabilities                                                                        |  |                                     | 19,054  |   |                      |   | 13,462  |  
|Deferred revenue                                                                           |  |                                     | 8,346   |   |                      |   | 4,002   |  
|                                                                                           |  |                                     |         |   |                      |   |         |  
|Total current liabilities                                                                  |  |                                     | 29,547  |   |                      |   | 18,562  |  
|                                                                                           |  |                                     |         |   |                      |   |         |  
|Long-term liabilities:                                                                     |  |                                     |         |   |                      |   |         |  
|Deferred tax liabilities                                                                   |  | $                                   |        |   |                      | $ |        |  
|Other long term liabilities                                                                |  |                                     | 1,207   |   |                      |   |        |  
|                                                                                           |  |                                     |         |   |                      |   |         |  
|                                                                                           |  |                                     | 1,207   |   |                      |   |        |  
|                                                                                           |  |                                     |         |   |                      |   |         |  
|Minority interests                                                                         |  | $                                   | 19,934  |   |                      | $ |        |  
|                                                                                           |  |                                     |         |   |                      |   |         |  
|Stockholders equity:                                                                      |  |                                     |         |   |                      |   |         |  
|Common stock, $0.001 par value:                                                            |  |                                     |         |   |                      |   |         |  
|150,000 shares authorized; 14,157 and 13,661 shares issued and outstanding, respectively   |  |                                     | 14      |   |                      |   | 14      |  
|Additional paid-in capital                                                                 |  |                                     | 77,684  |   |                      |   | 76,498  |  
|Notes receivable from stockholders                                                         |  |                                     | (611    | ) |                      |   | (830    | )
|Deferred stock-based compensation                                                          |  |                                     | (26     | ) |                      |   | (95     | )
|Accumulated other comprehensive income                                                     |  |                                     | 35      |   |                      |   | 1,121   |  
|Retained earnings                                                                          |  |                                     | 7,336   |   |                      |   | 6,505   |  
|                                                                                           |  |                                     |         |   |                      |   |         |  
|Total stockholders equity                                                                 |  |                                     | 84,432  |   |                      |   | 83,213  |  
|                                                                                           |  |                                     |         |   |                      |   |         |  
|Total liabilities and stockholders equity                                                 |  | $                                   | 135,120 |   |                      | $ | 101,775 |  
|                                                                                           |  |                                     |         |   |                      |   |         |  

---

|(1) | December 31, 2004 financials are obtained from audited financials in the 2004 10-K
|--- | ----------------------------------------------------------------------------------

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.



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##### Table of Contents

INTERVIDEO, INC.

PART 1  FINANCIAL INFORMATION

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)



|                                                                  |  |                             |        |   |                           |   |        |                            |  |   |        |   |  |   |        |  
|----------------------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | -------------------------- |  | - | ------ | - |  | - | ------ | -
|                                                                  |  | Three months ended June 30, |        |   | Six months ended June 30, |  
|                                                                  |  | 2005 Restated (see Note 2)  |        |   | 2004                      |   |        | 2005 Restated (see Note 2) |  |   | 2004   |  
|Revenue                                                           |  | $                           | 27,606 |   |                           | $ | 16,704 |                            |  | $ | 49,510 |   |  | $ | 35,525 |  
|Cost of revenue                                                   |  |                             | 10,407 |   |                           |   | 7,669  |                            |  |   | 19,529 |   |  |   | 15,553 |  
|Amortization of intangible assets                                 |  |                             | 287    |   |                           |   | 50     |                            |  |   | 337    |   |  |   | 100    |  
|                                                                  |  |                             |        |   |                           |   |        |                            |  |   |        |   |  |   |        |  
|Gross profit                                                      |  |                             | 16,912 |   |                           |   | 8,985  |                            |  |   | 29,644 |   |  |   | 19,872 |  
|                                                                  |  |                             |        |  
|Operating expenses:                                               |  |                             |        |   |                           |   |        |                            |  |   |        |   |  |   |        |  
|Research and development                                          |  |                             | 5,427  |   |                           |   | 2,608  |                            |  |   | 8,437  |   |  |   | 4,897  |  
|Sales and marketing                                               |  |                             | 5,306  |   |                           |   | 2,713  |                            |  |   | 8,057  |   |  |   | 5,471  |  
|General and administrative                                        |  |                             | 3,941  |   |                           |   | 1,975  |                            |  |   | 6,830  |   |  |   | 3,680  |  
|Acquired in-process research and development                      |  |                             | 2,574  |   |                           |   |       |                            |  |   | 2,574  |   |  |   |       |  
|Stock-based compensation(1)                                       |  |                             | 27     |   |                           |   | 74     |                            |  |   | 67     |   |  |   | 149    |  
|                                                                  |  |                             |        |   |                           |   |        |                            |  |   |        |   |  |   |        |  
|Total operating expenses                                          |  |                             | 17,275 |   |                           |   | 7,370  |                            |  |   | 25,965 |   |  |   | 14,197 |  
|                                                                  |  |                             |        |   |                           |   |        |                            |  |   |        |   |  |   |        |  
|Income (loss) from operations                                     |  |                             | (363   | ) |                           |   | 1,615  |                            |  |   | 3,679  |   |  |   | 5,675  |  
|                                                                  |  |                             |        |  
|Other income (expense), net                                       |  |                             | (1,010 | ) |                           |   | 262    |                            |  |   | (712   | ) |  |   | 435    |  
|                                                                  |  |                             |        |   |                           |   |        |                            |  |   |        |   |  |   |        |  
|Income (loss) before income taxes                                 |  |                             | (1,373 | ) |                           |   | 1,877  |                            |  |   | 2,967  |   |  |   | 6,110  |  
|                                                                  |  |                             |        |  
|Provision for income taxes                                        |  |                             | (761   | ) |                           |   | (747   | )                          |  |   | (2,432 | ) |  |   | (2,377 | )
|                                                                  |  |                             |        |  
|Minority interests                                                |  |                             | 296    |   |                           |   |       |                            |  |   | 296    |   |  |   |       |  
|                                                                  |  |                             |        |  
|Net income (loss)                                                 |  | $                           | (1,838 | ) |                           | $ | 1,130  |                            |  | $ | 831    |   |  | $ | 3,733  |  
|                                                                  |  |                             |        |   |                           |   |        |                            |  |   |        |   |  |   |        |  
|Net income (loss) per share:                                      |  |                             |        |   |                           |   |        |                            |  |   |        |   |  |   |        |  
|Basic                                                             |  | $                           | (0.13  | ) |                           | $ | 0.08   |                            |  | $ | 0.06   |   |  | $ | 0.28   |  
|                                                                  |  |                             |        |   |                           |   |        |                            |  |   |        |   |  |   |        |  
|Diluted                                                           |  | $                           | (0.13  | ) |                           | $ | 0.07   |                            |  | $ | 0.05   |   |  | $ | 0.24   |  
|                                                                  |  |                             |        |   |                           |   |        |                            |  |   |        |   |  |   |        |  
|Number of shares used in net income (loss) per share calculation: |  |                             |        |   |                           |   |        |                            |  |   |        |   |  |   |        |  
|Basic                                                             |  |                             | 13,980 |   |                           |   | 13,410 |                            |  |   | 13,886 |   |  |   | 13,314 |  
|                                                                  |  |                             |        |   |                           |   |        |                            |  |   |        |   |  |   |        |  
|Diluted                                                           |  |                             | 13,980 |   |                           |   | 15,366 |                            |  |   | 15,406 |   |  |   | 15,371 |  
|                                                                  |  |                             |        |   |                           |   |        |                            |  |   |        |   |  |   |        |  

---

|(1) | Stock-based compensation expense is allocated among the operating expense classifications as
follows:
|--- | -----------------------------------------------------------------------------------------------------



|                                        |  |                             |    |                           |   |      |  |      |    |  |   |    
|--------------------------------------- |  | --------------------------- | -- | ------------------------- | - | ---- |  | ---- | -- |  | - | ---
|                                        |  | Three months ended June 30, |    | Six months ended June 30,
|                                        |  | 2005                        |    | 2004                      |   | 2005 |  | 2004
|Research and development                |  | $                           | 9  |                           | $ | 15   |  | $    | 23 |  | $ | 56 
|Sales and marketing                     |  |                             | 10 |                           |   | 27   |  |      | 24 |  |   | 15 
|General and administrative              |  |                             | 8  |                           |   | 32   |  |      | 20 |  |   | 78 
|                                        |  |                             |    |                           |   |      |  |      |    |  |   |    
|Total stock-based compensation expenses |  | $                           | 27 |                           | $ | 74   |  | $    | 67 |  | $ | 149
|                                        |  |                             |    |                           |   |      |  |      |    |  |   |    

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these
financial statements.



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##### Table of Contents

INTERVIDEO, INC.

PART 1  FINANCIAL INFORMATION

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



|                                                                                  |  |                            |         |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                  |  | Six months ended June 30,  |        
|                                                                                  |  | 2005 Restated (see Note 2) |         |   | 2004 |  
|Cash flows from operating activities:                                             |  |                            |         |   |      |   |         |  
|Net income                                                                        |  | $                          | 831     |   |      | $ | 3,733   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                            |         |   |      |   |         |  
|Depreciation and amortization                                                     |  |                            | 1,407   |   |      |   | 663     |  
|Deferred taxes                                                                    |  |                            | 38      |   |      |   | (182    | )
|Acquired in-process research and development                                      |  |                            | 2,574   |   |      |   |        |  
|Minority interests in loss                                                        |  |                            | (296    | ) |      |   |        |  
|Non cash investment loss                                                          |  |                            | 1,088   |   |      |   |        |  
|Stock-based compensation                                                          |  |                            | 67      |   |      |   | 149     |  
|Provision for doubtful accounts                                                   |  |                            | 129     |   |      |   | (58     | )
|Gain (Loss) from disposal of property and equipment                               |  |                            | (1      | ) |      |   | 25      |  
|Interest income on notes receivable from stockholders                             |  |                            | (16     | ) |      |   | (20     | )
|Changes in assets and liabilities:                                                |  |                            |         |   |      |   |         |  
|Accounts receivable                                                               |  |                            | (5,655  | ) |      |   | (1,452  | )
|Prepaid expenses and other current assets                                         |  |                            | 511     |   |      |   | 439     |  
|Other assets                                                                      |  |                            | (777    | ) |      |   | 99      |  
|Accounts payable                                                                  |  |                            | 57      |   |      |   | (122    | )
|Deferred revenue                                                                  |  |                            | 3,729   |   |      |   | 655     |  
|Accrued liabilities and income taxes payable                                      |  |                            | (305    | ) |      |   | 528     |  
|                                                                                  |  |                            |         |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                            | 3,381   |   |      |   | 4,457   |  
|                                                                                  |  |                            |         |   |      |   |         |  
|Cash flows from investing activities:                                             |  |                            |         |   |      |   |         |  
|Purchases of property and equipment                                               |  |                            | (863    | ) |      |   | (664    | )
|Purchases of short-term investments                                               |  |                            | (13,708 | ) |      |   | (54,428 | )
|Proceeds from maturities of short-term investments                                |  |                            | 39,754  |   |      |   | 40,491  |  
|Acquisition of Ulead, net of cash acquired of $13.6 million                       |  |                            | (22,744 | ) |      |   | (1,662  | )
|                                                                                  |  |                            |         |   |      |   |         |  
|Net cash provided by (used in) investing activities                               |  |                            | 2,439   |   |      |   | (16,263 | )
|                                                                                  |  |                            |         |   |      |   |         |  
|Cash flows from financing activities:                                             |  |                            |         |   |      |   |         |  
|Proceeds from issuance of common stock under stock option plans                   |  |                            | 2,706   |   |      |   | 1,166   |  
|Proceeds from repayment of notes receivable                                       |  |                            | 235     |   |      |   |        |  
|Payment for repurchased stock                                                     |  |                            | (671    | ) |      |   | (2,596  | )
|                                                                                  |  |                            |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                               |  |                            | 2,270   |   |      |   | (1,430  | )
|                                                                                  |  |                            |         |   |      |   |         |  
|Effect of change in exchange rates on cash and cash equivalents                   |  |                            | 196     |   |      |   | 13      |  
|                                                                                  |  |                            |         |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                              |  |                            | 8,286   |   |      |   | (13,223 | )
|                                                                                  |  |                           
|Cash and cash equivalents, beginning of period                                    |  |                            | 27,410  |   |      |   | 46,875  |  
|                                                                                  |  |                            |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                          |  | $                          | 35,696  |   |      | $ | 33,652  |  
|                                                                                  |  |                            |         |   |      |   |         |  
|Supplementary disclosure:                                                         |  |                            |         |   |      |   |         |  
|Income tax payments, net of refunds                                               |  | $                          | 1,269   |   |      | $ | 1,899   |  

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these
financial statements.



6



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##### Table of Contents

INTERVIDEO, INC.

PART 1  FINANCIAL INFORMATION

Notes to Restated Condensed Consolidated Financial Statements

(unaudited)

Note 1. Organization and Business:

InterVideo, Inc. (InterVideo or the Company) is a provider of multimedia software products. These products span the digital video cycle by allowing users to capture, edit, author, distribute,
burn and play digital video. The Company has historically derived a substantial majority of its revenue from sales of its WinDVD product, a software DVD player for personal computers (PCs) to PC original equipment manufacturers
(OEMs). While the Company expects that revenue from sales of our WinDVD product to PC OEMs will continue to account for a substantial portion of its revenue, in the future, it is expected an increasing percentage of its revenue will be
derived from sales of other products, including WinDVD Creator, InstantON, MediaOne, InterVideo Home Theater, InterVideo DVD Copy and Linux-based versions of our DVD and DVR software designed for Linux-based PCs and CE devices as well as products
sold through its retail and web-based sales channels. The Companys recent acquisition of a controlling interest in Ulead Systems, Inc. (Ulead) is expected to accelerate this trend with the addition of its products, including
PhotoImpact, VideoStudio, DVD Movie Factory, DVD Workshop and Media Studio Pro. The Companys software is bundled with products sold by PC OEMs. The Company sells its products to PC OEMs, CE manufacturers and PC peripherals manufacturers
worldwide. In addition, the Company sells products through retail channels and directly to consumers through its websites. Intervideos acquisition of Ulead has allowed the Company to expand these channels with a broader range of product
offerings and the combined marketing efforts of the two companies.

Note 2. Summary of Significant Accounting Policies:

Basis of presentation

The accompanying
condensed consolidated financial statements include the accounts of InterVideo and its majority and wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. All international subsidiaries of the Company
except for Ulead have established a month end cut-off period that is three working days prior to the end of any given month.

The condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements.

The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2004, and notes thereto, included in InterVideos 2004 Annual Report
on Form 10-K.

Restatement

The
Company has restated its Unaudited Condensed Consolidated Financial Statements as of June 30, 2005 including the Condensed Consolidated Balance Sheet as of June 30, 2005, the Condensed Consolidated Statements of Operations for the three
and six month periods ended June 30, 2005, the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and the related Notes to Condensed Consolidated Financial Statements.

The restatement on this Form 10-Q/A was due to the misapplication of certain complex accounting principles to Intervideos purchase of Ulead Systems, Inc.
(Ulead) with non-controlling interest and other purchase accounting related adjustments pertaining to amortization charges of intangible assets and deferred taxes. The misapplication of accounting principles concern the manner in which
the Company accounted for the purchase of its controlling interest in Ulead in April 2005. Ulead is a publicly traded company in Taiwan and a leading developer of innovative video, imaging and DVD authoring software. InterVideos review of its
application of purchase accounting under Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, and the completion of its purchase price allocation has resulted in the determination to apply the partial goodwill
method (or parent company theory) instead of the previously applied full goodwill method (or entity theory). The application of the partial goodwill method requires the Company to record its share of Uleads assets, liabilities and resulting
intangible assets, including goodwill, at the proportionate share acquired based upon the purchase price. The overstated amortization charges are the result of the Company incorrectly calculating the amount of purchase related research and
development costs and intangibles amortization. The deferred tax adjustments resulted from the finalization of the deferred income tax analysis associated with the Ulead purchase.

The effect of the restatement is to decrease total assets as of June 30, 2005 by $9.5 million and to decrease the Companys net loss for the three and six month periods ended June 30, 2005 by $2.3
million. Since the Ulead acquisition occurred during the current quarter, the total adjustment amount for the three and six month periods ended June 30, 2005 is the same. The following table shows the Condensed Consolidated Statement of
Operations for the three and six month periods ended June 30, 2005 and Condensed Consolidated Balance Sheet as of June 30, 2005 as previously reported and the adjustments made to arrive at the restated Condensed Consolidated Statement of
Operations for the three and six month periods ended June 30, 2005 and Condensed Consolidated Balance Sheet as of June 30, 2005. The Adjustments column of the table reflects changes in accounts including, but not limited to,
amortization of intangible assets, and general and administrative expenses of the Condensed Consolidated Statement of Operations, and other purchased intangible assets and goodwill of the Condensed Consolidated Balance Sheet due to the
Companys application of the partial goodwill method under SFAS No. 141 and other purchase accounting related adjustments pertaining to amortization charges of intangible assets and deferred taxes. The restated financial and other
information included in this Form 10-Q/A should be read together with the Form 10-K.



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|                                                                                           |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------------------------ | ------- | - | ----------- | - | ------ | -------------------------------------- |  | - | ------- | -
|                                                                                           |  | As Previously Reported June 30, 2005 |         |   | Adjustments |   |        | As Restated June 30, 2005 (See Note 2) | 
|ASSETS                                                                                     |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Current assets:                                                                            |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Cash and cash equivalents                                                                  |  | $                                    | 35,696  |   |             | $ |       |                                        |  | $ | 35,696  |  
|Short-term investments                                                                     |  |                                      | 35,322  |   |             |   |       |                                        |  |   | 35,322  |  
|Accounts receivable, net of allowance for doubtful accounts of $294 and $215, respectively |  |                                      | 17,379  |   |             |   |       |                                        |  |   | 17,379  |  
|Deferred tax assets                                                                        |  |                                      | 252     |   |             |   |       |                                        |  |   | 252     |  
|Inventory                                                                                  |  |                                      | 1,864   |   |             |   |       |                                        |  |   | 1,864   |  
|Prepaid expenses and other current assets                                                  |  |                                      | 2,902   |   |             |   |       |                                        |  |   | 2,902   |  
|                                                                                           |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Total current assets                                                                       |  |                                      | 93,415  |   |             |   |       |                                        |  |   | 93,415  |  
|Property, plant and equipment, net                                                         |  |                                      | 24,075  |   |             |   | (81    | )                                      |  |   | 23,994  |  
|Goodwill                                                                                   |  |                                      | 2,290   |   |             |   | (1,272 | )                                      |  |   | 1,018   |  
|Other purchased intangible assets                                                          |  |                                      | 14,528  |   |             |   | (6,756 | )                                      |  |   | 7,772   |  
|Deferred tax assets                                                                        |  |                                      | 5,642   |   |             |   | (966   | )                                      |  |   | 4,676   |  
|Other assets                                                                               |  |                                      | 4,645   |   |             |   | (400   | )                                      |  |   | 4,245   |  
|                                                                                           |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Total assets                                                                               |  | $                                    | 144,595 |   |             | $ | (9,475 | )                                      |  | $ | 135,120 |  
|                                                                                           |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                       |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Current liabilities:                                                                       |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Accounts payable                                                                           |  | $                                    | 2,147   |   |             |   |       |                                        |  | $ | 2,147   |  
|Accrued liabilities                                                                        |  |                                      | 18,496  |   |             |   | 558    |                                        |  |   | 19,054  |  
|Deferred revenue                                                                           |  |                                      | 7,796   |   |             |   | 550    |                                        |  |   | 8,346   |  
|                                                                                           |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Total current liabilities                                                                  |  |                                      | 28,439  |   |             |   | 1,108  |                                        |  |   | 29,547  |  
|                                                                                           |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Long-term liabilities:                                                                     |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Deferred tax liabilities                                                                   |  |                                      | 6,606   |   |             |   | (6,606 | )                                      |  |   |        |  
|Other long term liabilities                                                                |  |                                      | 1,207   |   |             |   |       |                                        |  |   | 1,207   |  
|                                                                                           |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|                                                                                           |  |                                      | 7,813   |   |             |   | (6,606 | )                                      |  |   | 1,207   |  
|                                                                                           |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Minority interests                                                                         |  |                                      | 26,344  |   |             |   | (6,410 | )                                      |  |   | 19,934  |  
|                                                                                           |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Stockholders equity:                                                                      |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Common stock, $0.001 par value:                                                            |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|150,000 shares authorized; 14,157 and 13,661 shares issued and outstanding, respectively   |  |                                      | 14      |   |             |   |       |                                        |  |   | 14      |  
|Additional paid-in capital                                                                 |  |                                      | 77,684  |   |             |   |       |                                        |  |   | 77,684  |  
|Notes receivable from stockholders                                                         |  |                                      | (611    | ) |             |   |       |                                        |  |   | (611    | )
|Deferred stock-based compensation                                                          |  |                                      | (26     | ) |             |   |       |                                        |  |   | (26     | )
|Accumulated other comprehensive income                                                     |  |                                      | (88     | ) |             |   | 123    |                                        |  |   | 35      |  
|Retained earnings                                                                          |  |                                      | 5,026   |   |             |   | 2,310  |                                        |  |   | 7,336   |  
|                                                                                           |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Total stockholders equity                                                                 |  |                                      | 81,999  |   |             |   | 2,433  |                                        |  |   | 84,432  |  
|                                                                                           |  |                                      |         |   |             |   |        |                                        |  |   |         |  
|Total liabilities and stockholders equity                                                 |  | $                                    | 144,595 |   |             |   | (9,475 | )                                      |  | $ | 135,120 |  
|                                                                                           |  |                                      |         |   |             |   |        |                                        |  |   |         |  



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|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|-------------------------------------------- |  | --------------------------------------------------- | ------ | - | ----------- | - | ------ | ---------------------------------------- |  | - | ------ | -
|                                             |  | As Previously Reported 3-months Ended June 30, 2005 |        |   | Adjustments |   |        | As Restated 3-months Ended June 30, 2005 | 
|Revenue                                      |  | $                                                   | 27,606 |   |             | $ |       |                                          |  | $ | 27,606 |  
|Cost of revenue                              |  |                                                     | 10,407 |   |             |   |       |                                          |  |   | 10,407 |  
|Amortization of intangible assets            |  |                                                     | 515    |   |             |   | (228   | )                                        |  |   | 287    |  
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Gross profit                                 |  |                                                     | 16,684 |   |             |   | 228    |                                          |  |   | 16,912 |  
|                                             |  |                                                     |       
|Operating expenses:                          |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Research and development                     |  |                                                     | 5,427  |   |             |   |       |                                          |  |   | 5,427  |  
|Sales and marketing                          |  |                                                     | 5,306  |   |             |   |       |                                          |  |   | 5,306  |  
|General and administrative                   |  |                                                     | 3,946  |   |             |   | (5     | )                                        |  |   | 3,941  |  
|Acquired in-process research and development |  |                                                     | 4,800  |   |             |   | (2,226 | )                                        |  |   | 2,574  |  
|Stock-based compensation                     |  |                                                     | 27     |   |             |   |       |                                          |  |   | 27     |  
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Total operating expenses                     |  |                                                     | 19,506 |   |             |   | (2,231 | )                                        |  |   | 17,275 |  
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Income (loss) from operations                |  |                                                     | (2,822 | ) |             |   | 2,459  |                                          |  |   | (363   | )
|                                             |  |                                                     |       
|Other income (expense), net                  |  |                                                     | (1,010 | ) |             |   |       |                                          |  |   | (1,010 | )
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Income (loss) before income taxes            |  |                                                     | (3,832 | ) |             |   | 2,459  |                                          |  |   | (1,373 | )
|                                             |  |                                                     |       
|Provision for income taxes                   |  |                                                     | (612   | ) |             |   | (149   | )                                        |  |   | (761   | )
|                                             |  |                                                     |       
|Minority interests                           |  |                                                     | 296    |   |             |   |       |                                          |  |   | 296    |  
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Net income (loss)                            |  | $                                                   | (4,148 | ) |             | $ | 2,310  |                                          |  | $ | (1,838 | )
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Net income (loss) per share:                 |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Basic                                        |  | $                                                   | (0.30  | ) |             |   |        |                                          |  | $ | (0.13  | )
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Diluted                                      |  | $                                                   | (0.30  | ) |             |   |        |                                          |  | $ | (0.13  | )
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|                                             |  |                                                     |       
|                                             |  | As Previously Reported 6-months Ended June 30, 2005 |        |   | Adjustments |   |        | As Restated 6-months Ended June 30, 2005 | 
|Revenue                                      |  | $                                                   | 49,510 |   |             | $ |       |                                          |  | $ | 49,510 |  
|Cost of revenue                              |  |                                                     | 19,529 |   |             |   |       |                                          |  |   | 19,529 |  
|Amortization of intangible assets            |  |                                                     | 565    |   |             |   | (228   | )                                        |  |   | 337    |  
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Gross profit                                 |  |                                                     | 29,416 |   |             |   | 228    |                                          |  |   | 29,644 |  
|                                             |  |                                                     |       
|Operating expenses:                          |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Research and development                     |  |                                                     | 8,437  |   |             |   |       |                                          |  |   | 8,437  |  
|Sales and marketing                          |  |                                                     | 8,057  |   |             |   |       |                                          |  |   | 8,057  |  
|General and administrative                   |  |                                                     | 6,835  |   |             |   | (5     | )                                        |  |   | 6,830  |  
|Acquired in-process research and development |  |                                                     | 4,800  |   |             |   | (2,226 | )                                        |  |   | 2,574  |  
|Stock-based compensation                     |  |                                                     | 67     |   |             |   |       |                                          |  |   | 67     |  
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Total operating expenses                     |  |                                                     | 28,196 |   |             |   | (2,231 | )                                        |  |   | 25,965 |  
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Income (loss) from operations                |  |                                                     | 1,220  |   |             |   | 2,459  |                                          |  |   | 3,679  |  
|                                             |  |                                                     |       
|Other income (expense), net                  |  |                                                     | (712   | ) |             |   |       |                                          |  |   | (712   | )
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Income (loss) before income taxes            |  |                                                     | 508    |   |             |   | 2,459  |                                          |  |   | 2,967  |  
|                                             |  |                                                     |       
|Provision for income taxes                   |  |                                                     | (2,283 | ) |             |   | (149   | )                                        |  |   | (2,432 | )
|                                             |  |                                                     |       
|Minority interests                           |  |                                                     | 296    |   |             |   |       |                                          |  |   | 296    |  
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Net income (loss)                            |  | $                                                   | (1,479 | ) |             | $ | 2,310  |                                          |  | $ | 831    |  
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Net income (loss) per share:                 |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Basic                                        |  | $                                                   | (0.11  | ) |             |   |        |                                          |  | $ | 0.06   |  
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  
|Diluted                                      |  | $                                                   | (0.11  | ) |             |   |        |                                          |  | $ | 0.05   |  
|                                             |  |                                                     |        |   |             |   |        |                                          |  |   |        |  



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Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company based its estimates and
assumptions on historical experience and on various other assumptions believed to be applicable and evaluates them on an on-going basis to ensure they remain reasonable under current conditions. Actual results could differ materially from these
estimates.

Foreign currency translation

The functional currency of the Companys subsidiaries is the local currency. Accordingly, all assets and liabilities are translated into U.S. dollars at the current exchange rate at the applicable balance sheet date. Revenue and
expenses are translated at the average exchange rate prevailing during the period. The effects of these translation adjustments are recorded in accumulated other comprehensive income as a separate component of stockholders equity. Exchange
gains or losses arising from transactions denominated in a currency other than the functional currency of an entity are included in other income, net.



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INTERVIDEO, INC.

Fair value of financial instruments

The fair value of the Companys cash, cash equivalents, short-term
investments, accounts receivable and accounts payable approximate their respective carrying amounts due to their relatively short-term maturities.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less, at
the date of purchase, to be cash equivalents.

Short-term investments

Short-term investments consist principally of United States treasury, state and municipal notes/bonds, corporate bonds, auction rate securities, mutual funds and OTC
securities. The Company currently classifies all investment securities as available-for-sale. Securities classified as available-for-sale are required to be reported at fair value with unrealized gains and losses excluded from earnings and included
in other comprehensive income (loss).

Property, plant and equipment

Land is recorded at cost, and property and equipment are recorded at cost less accumulated depreciation or amortization. Depreciation is calculated using the
straight-line method based on estimated useful lives of the respective assets. Leasehold improvements are amortized over the shorter of the lease terms or the estimated useful lives of the improvements. Expenditures for maintenance and repairs are
charged to expense as incurred. Cost and accumulated depreciation of assets sold or retired are removed from the respective property accounts, and the gain or loss is reflected in the condensed consolidated statements of operations.

Goodwill

The Company accounts for goodwill in
accordance with Statement of Financial Accounting Standards (SFAS) No. 142 Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 requires that intangible assets with an indefinite life should not be
amortized until their life is determined to be finite. SFAS 142 also requires that goodwill not be amortized but instead tested for impairment at least annually and more frequently upon the occurrence of certain events.

The Company tests goodwill for impairment at the reporting unit level at least annually and more frequently upon the occurrence of certain events, as defined by SFAS
142. Consistent with the Companys determination that it has only one operating segment, the Company has determined that it has only one reporting unit. Goodwill is tested for impairment annually, in the fourth quarter, in a two-step process.
First, the Company determines if the carrying amount of its reporting unit exceeds the fair value of the reporting unit, which would indicate that goodwill may be impaired. If the Company determines that goodwill may be impaired, the
Company compares the implied fair value of the goodwill, as defined by SFAS 142, to its carrying amount to determine if there is an impairment loss.

Impairment of long-lived assets and other purchased intangibles

The Company accounts for intangible assets
with finite lives in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. In accordance with
SFAS 144, when events and circumstances warrant a review, the Company evaluates the carrying value of long-lived assets to be held and used. The carrying value of an asset is considered impaired when the anticipated undiscounted cash flow from such
an asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds its fair value. Fair value is determined using the anticipated cash flows discounted at a rate commensurate with
the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner except that fair values are reduced by the cost to dispose of such assets.



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INTERVIDEO, INC.

Long term investments

The Company from time to time acquires certain equity investments for the promotion of
business and strategic objectives. Non-marketable equity investments are accounted for using the equity method if the Company has significant influence over the investee, or using the cost method if the Company cannot assert significant influence
over the investee. Such investments are also subjected to periodic impairment review. As there is no liquid market to provide information for valuing such securities, the impairment analysis involves significant judgment on the part of management.
Should the Company determine that there has been a decline in the securities fair value that is considered to be other than temporary, a writedown is recorded in other income, net. Marketable equity investments are accounted for as
available-for-sale securities with unrealized gains and losses included in other comprehensive income in equity.

Revenue recognition

The Companys revenue is primarily derived from fees paid under software licenses granted to PC OEMs, CE manufacturers, PC peripherals
manufacturers, retail distributors, retail customers and directly to end users or businesses. The Company records revenue generated from these sales in accordance with SOP 97-2, Software Revenue Recognition, as amended, under which
revenue is recognized when evidence of an arrangement exists, delivery of the software has occurred, the fee is fixed or determinable, and collectibility is probable.

Typically, under the terms of the Companys license agreements with its OEM customers, they are entitled only to unspecified upgrades on a when and if available basis, prior to sale into the OEMs sales
channel partners or sale to the OEMs end customers. Under the terms of the Companys revenue recognition policy, the Company recognizes revenue based on evidence of products sold by our OEM customers to end customers or to the OEMs
sales channel partners. The Company does not typically provide upgrades or post contract support (PCS) to the OEMs customers or sales channel partners. Accordingly, under such agreements the Company does not defer any revenue, as
the Company no longer has an obligation once an OEMs product has been shipped from the OEM to the OEMs sales channel partners or to an OEMs end customer. Under certain other agreements, the Company defers the recognition of OEM
revenue due to ongoing obligations in association with upgrade rights to end users or significant PCS provided to the OEMs customers. Depending on the specific contractual obligation, the Company recognizes this revenue over a period of the
shorter of the contractual obligation period or the estimated life of the product. In general, the Company considers the estimated life of our products to be three years.

Typically, the Companys OEM customers do not have the right to claim a credit or refund for returns from the OEMs sales channel partners or end customers back to the OEM. However, in the few instances
where InterVideo has granted its OEM customers with the right to claim a refund or credit to a certain percentage cap, the Company defers revenue based on the contractual return cap until it is able to establish a reasonable returns estimate based
on historical returns activity, that is specific to the respective sales channel, product line or country.

Under the terms of the OEM license agreements,
each OEM qualifies InterVideos software on their hardware and software configurations. Once the Companys software has been qualified, the OEM begins shipping products and reports net sales to the Company, at which point the Company
records revenue. Most OEMs pay a license fee based on the number of copies of licensed software included in the products sold to their customers. These OEMs pay fees on a per-unit basis, and the Company records associated revenue when it receives
notification of the OEMs sales of the licensed software to an end customer or sales channel partner. The terms of the license agreements generally require the OEMs to notify the Company of sales of their products within 30 to 45 days after the
end of the month or quarter in which the sales occur. As a result, the Company generally recognizes revenue in the month or quarter following the sale of the product to the OEMs customers.

A small number of OEMs that sell PC components place orders with the Company for a fixed quantity of units at a fixed price based on an agreed-upon purchase order or
contract. In such cases, qualification of the Companys product is not required, and these OEMs have no rights to upgrades or returns. The Company generally recognizes revenue upon the completion of shipment in accordance with the terms of the
respective agreement, to these OEMs.

In addition to the per unit license fees discussed above, certain OEM agreements also include prepaid license fees
and/or non-recurring engineering (NRE) service fees primarily for porting the Companys software to the OEMs hardware and software configurations. Since the Company provides when and if



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INTERVIDEO, INC.

available upgrade rights to its OEM customers on the products they have licensed from the point when they receive the product until the point when they have sold the product to their sales channel partners or end
customers, any prepaid license fees are recognized based on actual shipments after the upgrade rights have lapsed. The NRE service fees are recognized upon completion and acceptance of NRE service. In agreements where InterVideo has sold PCS or
where there are additional undelivered elements such as NRE fees, the Company defers all of the revenue until the additional undelivered elements are accepted and the only undelivered element is PCS. Once the only undelivered element is PCS the
Company will recognize the entire agreement over the PCS period.

End-user sales are made directly through the Companys websites. The Company does
not offer specified upgrade rights to any class of customer, and there are no unspecified upgrade rights associated with end-user sales. The Company recognizes revenue from sales through its websites upon delivery of product and the receipt of
payment by means of an authorized credit card. End users who purchase InterVideos software from the Companys websites have limited rights of return for products they have purchased in the previous 14 days. The Company has established a
30-day sales return reserve based upon historical return percentages.

The Company sells its products to retailers and retail distributors either on a
consignment or non-consignment basis. For consignment product shipments, in general, the distributor will not take ownership of the product at the point in time when InterVideo ships the product to the distributor. Once the distributor sells the
consignment-based product to a retailer or an end customer ownership is transferred from the Company to the retailer or end customer, the distributor will report those sales to the Company and InterVideo invoices the distributor. For non-consignment
product shipments, the distributor will take ownership of the product at the point in time when the Company ships the product to the distributor and the Company invoices the distributor upon such shipment. Since the Company does not have
contractually obligated minimum orders or payment terms with our distributors, the Company does not recognize revenue for retail product distribution prior to invoicing. Certain distributors and retailers, primarily in Japan, have limited rights to
return products that were purchased in the previous six months. These distributors have no rights to product upgrades. The Company generally recognizes revenue, net of contractually obligated return rights and any additional required rebate or
pricing reserves, upon completion of shipment to these distributors and retailers. Other distributors and retailers, primarily in the United States and Europe, have unlimited rights of return. The Company generally recognizes revenue upon receipt of
evidence that the distributors and retailers have sold our products through to end users, less any required rebate or pricing reserves.

The Company has
begun selling licenses of its products to corporations and other business in the United States. This corporate licensing program is generally conducted either directly between InterVideo and the licensee or through a reseller. For these sales the
Company does not provide the licensee a right to return the product once it has been delivered and we do not provide support or upgrade rights to that licensee. The Company currently recognizes revenue for these license sales upon confirmation of
delivery or acceptance of the product.

Certain customer agreements require payment by the Company of marketing development funds, co-operative advertising
fees, rebates or similar charges. The Company accounts for such fees in accordance with Emerging Issues Task Force (EITF) Issue No. 01-09 as a reduction in revenue, unless there is an identifiable benefit and the fair value of the
charges can be reasonably estimated in which case the Company records these transactions as marketing expense. Commissions paid to third-party sales representatives are included in sales and marketing expenses.

Cost of revenue

Cost of revenue consists
primarily of licensed royalties, expenses incurred to manufacture, package and distribute the Companys software products, the amortization of developed technology and costs associated with end-user PCS and the



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INTERVIDEO, INC.

cost of settlement of intellectual property matters. Licensed royalties consist of royalties paid or accrued for payment to third parties for technology incorporated into the Companys products. In general, the
amount of royalties depends on the number of the Companys product units sold and the royalty rates associated with the third-party technology incorporated into those products. The Company sometimes prepays for the right to bundle and
distribute certain licensed technologies. In general, these prepayments are at a flat rate and are not associated with the number of units of the bundled product that is shipped. In general, the license rights are granted for one year and the
estimated useful life of the technology is three years. End-user PCS costs include the costs associated with providing assistance to end users of the Companys products. With the exception of packaging and distribution costs, the cost of
revenue is generally the same for each product, regardless of sales channel. Certain product costs associated with sales to distributors, retailers and end users are deferred until the corresponding revenue has been recognized. Cost of settlement of
intellectual property matters consists of amounts that we have agreed to pay to third-parties in settlement of alleged infringement of certain patented technology used in our products and accruals for royalties related to our usage of technologies
under patent where no agreement exists.

Software development costs

Under SFAS 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, costs incurred in the research and development of
software are expensed as incurred until technological feasibility has been established. Software development costs incurred subsequent to the establishment of technological feasibility through the period of general marketability of the products are
capitalized. The Company defines establishment of technological feasibility as the completion of a working model. The establishment of technological feasibility and the ongoing assessment of recoverability of these costs require considerable
judgment by management. Because the period of time between development of a working model and the products general release is short, amounts that were capitalizable under SFAS 86 were insignificant, and therefore no costs have been capitalized
to date.

Net income (loss) per share

Basic net income (loss) per share is calculated by dividing net income (loss) for the period by the weighted average common shares outstanding during the period, less shares subject to repurchase. Diluted net income (loss) per share is
calculated by dividing the net income (loss) for the period by the weighted average shares outstanding, adjusted for all potential common shares, which include shares issuable upon the exercise of outstanding common stock options, convertible
preferred stock and other contingent issuances of common stock to the extent these shares are dilutive.

A reconciliation of the numerator and denominator
used in the calculation of basic and diluted net income (loss) per share is as follows (unaudited, in thousands, except per share amounts):



|                                                                |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|--------------------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | --------------- |  | - | ------ | - |  | - | ------ | -
|                                                                |  | Three months ended June 30, |        |   | Six months ended June 30, |  
|                                                                |  | 2005 (Restated)             |        |   | 2004                      |   |        | 2005 (Restated) |  |   | 2004   |  
|Numerator:                                                      |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Net income (loss)                                               |  | $                           | (1,838 | ) |                           | $ | 1,130  |                 |  | $ | 831    |   |  | $ | 3,733  |  
|                                                                |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Denominator:                                                    |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Basic:                                                          |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Weighted average common shares outstanding                      |  |                             | 13,981 |   |                           |   | 13,454 |                 |  |   | 13,891 |   |  |   | 13,363 |  
|Less: weighted average shares subject to repurchase             |  |                             | (1     | ) |                           |   | (44    | )               |  |   | (5     | ) |  |   | (49    | )
|                                                                |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Denominator for basic calculation                               |  |                             | 13,980 |   |                           |   | 13,410 |                 |  |   | 13,886 |   |  |   | 13,314 |  
|                                                                |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Net income (loss) per share  Basic                             |  | $                           | (0.13  | ) |                           | $ | 0.08   |                 |  | $ | 0.06   |   |  | $ | 0.28   |  
|                                                                |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Diluted:                                                        |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Weighted average common shares outstanding                      |  |                             | 13,980 |   |                           |   | 13,454 |                 |  |   | 13,886 |   |  |   | 13,363 |  
|Weighted average dilutive effect of convertible preferred stock |  |                             |       |   |                           |   |       |                 |  |   |       |   |  |   |       |  
|Weighted average dilutive effect of common stock options        |  |                             |        |   |                           |   | 1,912  |                 |  |   | 1,520  |   |  |   | 2,008  |  
|                                                                |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Denominator for diluted calculation                             |  |                             | 13,980 |   |                           |   | 15,366 |                 |  |   | 15,406 |   |  |   | 15,371 |  
|                                                                |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Net income (loss) per share  Diluted                           |  | $                           | (0.13  | ) |                           | $ | 0.07   |                 |  | $ | 0.05   |   |  | $ | 0.24   |  
|                                                                |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  



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INTERVIDEO, INC.

The following are potential common shares not included in the denominator used in the dilutive net income per share calculation, because to do so would be antidilutive for the periods presented (unaudited, in
thousands):



|                                               |  |                             |  |                           |  |                 |  |     
|---------------------------------------------- |  | --------------------------- |  | ------------------------- |  | --------------- |  | ----
|                                               |  | Three months ended June 30, |  | Six months ended June 30,
|                                               |  | 2005                        |  | 2004                      |  | 2005 (restated) |  | 2004
|Antidilutive options to purchase common shares |  | 2,337                       |  | 858                       |  | 861             |  | 796 

Stock-based compensation expenses

The Company accounts for stock-based compensation to employees under the recognition and measurement principles of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations, and the disclosure requirements SFAS 148, Accounting for Stock-Based Compensation  Transition and Disclosure, an
amendment of SFAS 123, Accounting for Stock-Based Compensation. No stock-based compensation expense is recorded for options granted for which the exercise price equals or exceeds the market price of the underlying stock on the date of
grant in accordance with the provisions of APB 25.

The following table illustrates the effect on net income (loss) and net income (loss) per share had the
Company applied the fair value recognition provisions of SFAS 123 to stock-based compensation to employees.



|                                                                                                                        |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | --------------- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                        |  | Three months ended June 30, |        |   | Six months ended June 30, |  
|(unaudited; in thousands, except per share amounts)                                                                     |  | 2005 (Restated)             |        |   | 2004                      |   |        | 2005 (Restated) |  |   | 2004   |  
|Net income (loss), as reported                                                                                          |  | $                           | (1,838 | ) |                           | $ | 1,130  |                 |  | $ | 831    |   |  | $ | 3,733  |  
|Add: Stock-based employee compensation expenses included in reported net income, net of related tax effects             |  |                             | 27     |   |                           |   | 74     |                 |  |   | 67     |   |  |   | 149    |  
|Deduct: Total stock-based employee compensation expenses determined under fair value method, net of related tax effects |  |                             | (1,179 | ) |                           |   | (1,513 | )               |  |   | (2,385 | ) |  |   | (2,594 | )
|                                                                                                                        |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Pro forma net income (loss)                                                                                             |  | $                           | (2,990 | ) |                           | $ | (309   | )               |  | $ | (1,487 | ) |  | $ | 1,288  |  
|                                                                                                                        |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Net income (loss) per share                                                                                             |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Basic  as reported                                                                                                     |  | $                           | (0.13  | ) |                           | $ | 0.08   |                 |  | $ | 0.06   |   |  | $ | 0.28   |  
|                                                                                                                        |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Basic  pro forma                                                                                                       |  | $                           | (0.21  | ) |                           | $ | (0.02  | )               |  | $ | (0.11  | ) |  | $ | 0.10   |  
|                                                                                                                        |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Diluted  as reported                                                                                                   |  | $                           | (0.13  | ) |                           | $ | 0.07   |                 |  | $ | 0.05   |   |  | $ | 0.24   |  
|                                                                                                                        |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  
|Diluted  pro forma                                                                                                     |  | $                           | (0.21  | ) |                           | $ | (0.02  | )               |  | $ | (0.11  | ) |  | $ | 0.08   |  
|                                                                                                                        |  |                             |        |   |                           |   |        |                 |  |   |        |   |  |   |        |  

The weighted average fair values of options granted to employees in the three and six months ended June 30,
2005 and 2004 are summarized in the following table, and were estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions (unaudited):



|                                                            |  |                             |         |   |                           |   |         |      |  |   |            |   |  |   |            |  
|----------------------------------------------------------- |  | --------------------------- | ------- | - | ------------------------- | - | ------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                            |  | Three months ended June 30, |         |   | Six months ended June 30, |  
|                                                            |  | 2005                        |         |   | 2004                      |   |         | 2005 |  |   | 2004       |  
|Weighted average fair value of options granted to employees |  | $                           | 7.61    |   |                           | $ | 8.76    |      |  | $ | 8.07       |   |  | $ | 10.44      |  
|                                                            |  |                             |         |  
|Black-Scholes model assumptions:                            |  |                             |         |   |                           |   |         |      |  |   |            |   |  |   |            |  
|Risk-free interest rate                                     |  |                             | 3.61    | % |                           |   | 2.97    | %    |  |   | 3.61%-3.34 | % |  |   | 2.97%-2.17 | %
|Expected life of the option                                 |  |                             | 4 years |   |                           |   | 4 years |      |  |   | 4 years    |   |  |   | 4 years    |  
|Dividend yield                                              |  |                             | 0       | % |                           |   | 0       | %    |  |   | 0          | % |  |   | 0          | %
|Volatility                                                  |  |                             | 80.0    | % |                           |   | 87.5    | %    |  |   | 80.0       | % |  |   | 87.5       | %



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INTERVIDEO, INC.

Because the Black-Scholes option valuation model requires the input of subjective assumptions, the resulting pro forma compensation cost may not be representative of that to be expected in future periods. The Company
used the minimum value method to determine the fair value of options granted prior to its initial filing of a registration statement for its Initial Public Offering (IPO) in January 2002. This method does not consider the expected
volatility of the underlying stock, and is only available to non-public entities. Accordingly, the Company has used an estimated volatility factor of 90% for grants issued subsequent to the initial filing date of the registration statement and up to
the completion of the Companys IPO in July 2003. Subsequent to the IPO in July 2003, the volatility factor is adjusted to reflect the fluctuation of the Companys stock price on the Nasdaq National Market.

In July 2003, the Company commenced its 2003 Employee Stock Purchase Plan (the ESPP), which has an overlapping 24-month offering period, and includes four
6-month purchase periods. Purchases are to be made twice a year, in the months of May and November. The plan permits participants to purchase common stock at 85% of the lower of the fair market value of common stock at the beginning of an offering
period, or at the end of purchase period, through payroll deductions of up to 15% of their eligible compensation. If the fair market value of common stock at the end of a purchase period is less than the fair market value at the beginning of the
offering period, participants will be withdrawn from the current offering period following their purchase of shares on the purchase date and will be automatically re-enrolled in a new offering period. Participants may end their participation at any
time during an offering period and will be refunded their payroll deductions to date.

The first ESPP offering period began in July 2003 and ended in April
2004. The weighted average fair value of each common stock purchase right was $4.84 for the three and six months ended June 30, 2005, estimated on the beginning of the offering period using the Black-Scholes option pricing model with the
following assumptions (unaudited):



|                                                 |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------ |  | --------------------------- | ---------- | - | ------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                 |  | Three months ended June 30, |            |   | Six months ended June 30, |  
|                                                 |  | 2005                        |            |   | 2004                      |   |            | 2005 |  |   | 2004       |  
|Weighted average fair value of purchased options |  | $                           | 4.84       |   |                           | $ | 5.29       |      |  | $ | 4.84       |   |  | $ | 5.29       |  
|                                                 |  |                             |            |  
|Black-Scholes model assumptions:                 |  |                             |            |   |                           |   |            |      |  |   |            |   |  |   |            |  
|Risk-free interest rate                          |  |                             | 3.34       | % |                           |   | 2.97       | %    |  |   | 3.34       | % |  |   | 2.97       | %
|Expected life                                    |  |                             | 1.25 years |   |                           |   | 1.25 years |      |  |   | 1.25 years |   |  |   | 1.25 years |  
|Dividend yield                                   |  |                             | 0          | % |                           |   | 0          | %    |  |   | 0          | % |  |   | 0          | %
|Volatility                                       |  |                             | 76.0       | % |                           |   | 76.0       | %    |  |   | 76.0       | % |  |   | 76.0       | %

Other income (expense), net

Other income (expense), net consists of the following (unaudited, in thousands):



|                            |  |                             |        |   |                           |   |     |      |  |   |      |   |  |   |     |  
|--------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | --- | ---- |  | - | ---- | - |  | - | --- | -
|                            |  | Three months ended June 30, |        |   | Six months ended June 30, |  
|                            |  | 2005                        |        |   | 2004                      |   |     | 2005 |  |   | 2004 |  
|Interest income             |  | $                           | 236    |   |                           | $ | 197 |      |  | $ | 547  |   |  | $ | 360 |  
|Equity investment loss      |  |                             | (899   | ) |                           |   |    |      |  |   | (986 | ) |  |   | (17 | )
|Currency gain (loss)        |  |                             | (364   | ) |                           |   | (2  | )    |  |   | (329 | ) |  |   | (20 | )
|Other                       |  |                             | 17     |   |                           |   | 67  |      |  |   | 56   |   |  |   | 112 |  
|                            |  |                             |        |   |                           |   |     |      |  |   |      |   |  |   |     |  
|Other income (expense), net |  | $                           | (1,010 | ) |                           | $ | 262 |      |  | $ | (712 | ) |  | $ | 435 |  
|                            |  |                             |        |   |                           |   |     |      |  |   |      |   |  |   |     |  

Income taxes

The Company accounts for income taxes using the asset and liability method. Deferred income taxes are recognized by applying enacted statutory tax rates applicable to future years to differences between the financial
statement carrying



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amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain.

Comprehensive income (loss)

Comprehensive
income (loss) is the total of net income (loss) and all other non-owner changes in stockholders equity. The Companys components of other comprehensive income and loss are foreign currency translation adjustments and unrealized gain or
loss on available-for-sale investments. Such amounts are excluded from net income (loss) and are reported in accumulated other comprehensive income (loss) in the accompanying condensed consolidated financial statements.

The components of comprehensive income (loss) were as follows (unaudited, in thousands):



|                                                                   |  |                              |        |   |                            |   |       |                |  |   |        |   |  |   |       |  
|------------------------------------------------------------------ |  | ---------------------------- | ------ | - | -------------------------- | - | ----- | -------------- |  | - | ------ | - |  | - | ----- | -
|                                                                   |  | Three months ended, June 30, |        |   | Six months ended, June 30, |  
|                                                                   |  | 2005(Restated)               |        |   | 2004                       |   |       | 2005(Restated) |  |   | 2004   |  
|Net income (loss)                                                  |  | $                            | (1,838 | ) |                            | $ | 1,130 |                |  | $ | 831    |   |  | $ | 3,733 |  
|Other comprehensive income (loss):                                 |  |                              |        |   |                            |   |       |                |  |   |        |   |  |   |       |  
|Change in unrealized gain (loss) of available-for-sale investments |  |                              | (2,289 | ) |                            |   | (209  | )              |  |   | (1,194 | ) |  |   | (177  | )
|Change in cumulative translation adjustment                        |  |                              | 104    |   |                            |   | (16   | )              |  |   | 108    |   |  |   | 14    |  
|                                                                   |  |                              |        |   |                            |   |       |                |  |   |        |   |  |   |       |  
|Comprehensive income (loss)                                        |  | $                            | (4,023 | ) |                            | $ | 905   |                |  | $ | (255   | ) |  | $ | 3,570 |  
|                                                                   |  |                              |        |   |                            |   |       |                |  |   |        |   |  |   |       |  

Note 3. Acquisition of Ulead Systems

On April 20, 2005, InterVideo and its wholly-owned subsidiary, InterVideo Digital Technology Corp., acquired 33,284,395 shares of Ulead Systems, Inc. (Ulead) at 30 NT (US$0.95) per share pursuant to
InterVideos previously-announced tender offer for the issued shares of Ulead and pursuant to stock purchase agreements with Microtek International Inc. and certain other shareholders of Ulead. Also on April 20, 2005, InterVideo acquired
an additional 1,000,000 shares of Ulead at a purchase price of 30 NT (US$0.95) per share through its acquisition of a holding company, Strong Ace Limited. The aggregate purchase price for the 34,284,395 shares of Ulead was US $32.6 million and was
paid in cash. Together with the shares that InterVideo purchased prior to the tender offer, InterVideo now owns a total of 48,817,395 shares of Ulead, or approximately 63% of the issued shares of Ulead, which were acquired for total cash payments of
US$42.0 million. The Company believes its acquisition of the shares of Ulead supports its long-term strategic direction, strengthens its competitive position in the multimedia software market, expands its retail presence and provides greater scale
to increase its investment in research and development to accelerate product innovation and increase shareholder value.

We have included the financial
results of Ulead in our consolidated financial statements beginning April 20, 2005, the date we acquired a majority interest in Ulead (the Acquisition Date).

The acquisition has been accounted for using the purchase method of accounting in accordance with SFAS No.141, Business Combinations. Assets acquired and liabilities assumed were recorded at their fair
values as of April 20, 2005. The following summarizes the total purchase price for Ulead (unaudited, in thousands):



|                                   |  |            |       
|---------------------------------- |  | ---------- | ------
|                                   |  | (Restated)
|Cash consideration                 |  | $          | 42,012
|Estimated direct transaction costs |  |            | 843   
|                                   |  |            |       
|Total purchase price               |  | $          | 42,855
|                                   |  |            |       

Under the purchase method of accounting, the total estimated purchase price is allocated to
Uleads net tangible and identifiable intangible assets based on the book value as of April 20, 2005 and the step up value at the percentage of ownership interest acquired as set forth below. The excess of the fair value of the net assets
to the extent of the ownership interest acquired, over the purchase price equals the negative goodwill amount that has been allocated, on a pro rata basis, to certain of the acquired non-current assets. Based upon the estimated purchase price and
review of the net assets acquired and liabilities assumed, the preliminary price allocation is as follows (unaudited, in thousands):



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|                                        |  |            |         |  
|--------------------------------------- |  | ---------- | ------- | -
|                                        |  | (restated) |        
|Current assets                          |  | $          | 36,854  |  
|Property, plant and equipment           |  |            | 20,556  |  
|Intangible assets                       |  |            | 7,942   |  
|In-process research and development     |  |            | 2,543   |  
|Other non-current assets                |  |            | 2,865   |  
|                                        |  |            |         |  
|Total assets                            |  |            | 70,760  |  
|                                        | 
|Current liabilities                     |  |            | (6,895  | )
|Long term liabilities                   |  |            | (1,852  | )
|Minority interest                       |  |            | (19,158 | )
|                                        |  |            |         |  
|Total liabilities and minority interest |  |            | (27,905 | )
|                                        |  |            |         |  
|Net assets:                             |  | $          | 42,855  |  
|                                        |  |            |         |  
|Total purchase price                    |  |            | 42,855  |  

Intangible

The fair value of intangible assets was based, in part, on a valuation completed by Standard & Poors Corporate Value Consulting, an independent third-party appraiser using both an income and a cost
approach and estimates and assumptions provided by management when estimating the fair value. Their analysis was performed in accordance with SFAS 141 and other appropriate accounting and valuation guidelines. The rates utilized to discount net cash
flows to their present values were based on our weighted average cost of capital and the internal rate of return. The discount rates ranged from 25% to 50%. The following table sets forth the components of intangible assets associated with the
acquisition on April 20, 2005:



|                                                                 |  |                       |       |                                     |   |      |                           |  |             |       |  |            
|---------------------------------------------------------------- |  | --------------------- | ----- | ----------------------------------- | - | ---- | ------------------------- |  | ----------- | ----- |  | -----------
|                                                                 |  |                       |       |                                     |   |      | June 30, 2005             |  |            
|Intangible Assets (unaudited, in thousands) at approximately 63% |  | Fair Value (Restated) |       | Accumulated Amortization (restated) |   |      | Net Book Value (restated) |  | Useful Life
|Existing technology  Photo, Video & DVD                         |  | $                     | 3,804 |                                     | $ | (98  | )                         |  | $           | 3,705 |  | 5 & 6 years
|Customer contracts and related relationships                     |  |                       | 2,019 |                                     |   | (27  | )                         |  |             | 1,993 |  | 8 years    
|Trade name                                                       |  |                       | 2,119 |                                     |   | (45  | )                         |  |             | 2,074 |  | 6 years    
|                                                                 |  |                       |       |                                     |   |      |                           |  |             |       |  |            
|Total intangible assets                                          |  | $                     | 7,942 |                                     | $ | (170 | )                         |  | $           | 7,772 |  |            
|                                                                 |  |                       |       |                                     |   |      |                           |  |             |       |  |            

Intangible assets are being amortized using the straightline method. The weighted average useful life of
such intangibles is 6.3 years.

In-process research and development

In-process research and development (IPR&D) represents incomplete Ulead research and development projects that had not reached technological feasibility and had no
alternate future use as of the Acquisition Date. Technological feasibility is established when an enterprise has completed all planning, designing, coding and testing activities that are necessary to establish that a product can be produced to meet
its design specifications including functions, features, and technical performance requirements. The value assigned to IPR&D was determined by considering the importance of each project to our overall development plan, estimating costs to
develop the purchased IPR&D into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value based on the percentage of completion of the
IPR&D projects. Purchased IPR&D relates primarily to projects associated with the development of Uleads new products which had not yet reached technological feasibility as of the Acquisition and have no alternative future use.



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INTERVIDEO, INC.

Deferred revenue

In connection with the purchase price allocation, we have estimated the fair
value of the support obligation to provide upgrades related to the deferred revenue assumed from Ulead in connection with the acquisition. We based our determination of the fair value of the obligation, in part, on a valuation completed by
Standard & Poors Corporate Value Consulting using estimates and assumptions provided by management. The estimated fair value of the support obligation was determined utilizing a cost build-up approach. The cost build-up approach
determines fair value by estimating the costs relating to fulfilling the obligation plus a normal profit margin. The estimated costs to fulfill the support obligation were based on the historical direct costs related to providing the support
services and costs associated with research and development. As a result, in allocating the acquisition purchase price, we recorded an adjustment to reduce the carrying value of Uleads April 20, 2005 deferred support revenue from $1.9
million to $170,000 which represents our estimate of the fair value of the support obligation assumed.

Pro Forma Financial Information (unaudited)

Supplemental unaudited pro forma information reflecting the acquisition of Ulead as if it occurred on January 1, 2004 is as follows (in thousands,
except per share amounts):



|                                    |  |                            |        |                 |   |        |  
|----------------------------------- |  | -------------------------- | ------ | --------------- | - | ------ | -
|                                    |  | Six months ended, June 30, |       
|                                    |  | 2005 (restated)            |        | 2004 (restated) |  
|Total revenue                       |  | $                          | 58,925 |                 | $ | 54,862 |  
|Net income (loss)                   |  | $                          | 1,341  |                 | $ | (631   | )
|Basic net income (loss) per share   |  | $                          | 0.10   |                 | $ | (0.05  | )
|Diluted net income (loss) per share |  | $                          | 0.09   |                 | $ | (0.05  | )

The above pro forma results include adjustments for amortization expense related to intangible assets arising from
the acquisition, tax benefits related to the amortization of intangibles and the minority interest adjustment based on our less than 100% ownership in Ulead.

Note 4. Balance Sheet Components:

Short-term investments

Short-term investments consist of the following available-for-sale securities (unaudited, in thousands):



|                                |  |                         |        |                        |   |                         |  |   |                             |   |  |   |       
|------------------------------- |  | ----------------------- | ------ | ---------------------- | - | ----------------------- |  | - | --------------------------- | - |  | - | ------
|                                |  | As of June 30, 2005    
|                                |  | Amortized cost          |        | Gross unrealized gains |   | Gross unrealized losses |  |   | Estimated fair market value
|Treasury notes                  |  | $                       | 2,000  |                        | $ |                        |  | $ | (22                         | ) |  | $ | 1,978 
|State and municipal notes/bonds |  |                         | 2,000  |                        |   |                        |  |   | (3                          | ) |  |   | 1,997 
|Auction Rate Securities         |  |                         | 17,100 |                        |   |                        |  |   |                            |   |  |   | 17,100
|Mutual fund securities          |  |                         | 12,928 |                        |   |                        |  |   |                            |   |  |   | 12,928
|Corporate securities            |  |                         | 675    |                        | $ | 644                     |  |   |                            |   |  |   | 1,319 
|                                |  |                         |        |                        |   |                         |  |   |                             |   |  |   |       
|Total short-term investments    |  | $                       | 34,703 |                        | $ | 644                     |  | $ | (25                         | ) |  | $ | 35,322
|                                |  |                         |        |                        |   |                         |  |   |                             |   |  |   |       
|                                | 
|                                |  | As of December 31, 2004
|                                |  | Amortized cost          |        | Gross unrealized gains |   | Gross unrealized losses |  |   | Estimated fair market value
|Treasury notes                  |  | $                       | 22,799 |                        | $ |                        |  | $ | (157                        | ) |  | $ | 22,642
|Corporate bonds                 |  |                         | 1,500  |                        |   |                        |  |   |                            |   |  |   | 1,500 
|State and municipal notes/bonds |  |                         | 23,063 |                        |   |                        |  |   | (28                         | ) |  |   | 23,035
|                                |  |                         |        |                        |   |                         |  |   |                             |   |  |   |       
|Total short-term investments    |  | $                       | 47,362 |                        | $ |                        |  | $ | (185                        | ) |  | $ | 47,177
|                                |  |                         |        |                        |   |                         |  |   |                             |   |  |   |       

The available-for-sale securities at June 30, 2005 have contractual maturities ranging from 2005 to 2006.



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INTERVIDEO, INC.

Property and equipment, net

Property and equipment, net, consists of the following (unaudited, in thousands):



|                                                |  |                          |        |   |                   |   |        |  
|----------------------------------------------- |  | ------------------------ | ------ | - | ----------------- | - | ------ | -
|                                                |  | June 30, 2005 (Restated) |        |   | December 31, 2004 |  
|Equipment                                       |  | $                        | 3,167  |   |                   | $ | 2,025  |  
|Furniture and fixtures                          |  |                          | 596    |   |                   |   | 415    |  
|Purchased software                              |  |                          | 5,162  |   |                   |   | 1,866  |  
|Land                                            |  |                          | 12,219 |   |                   |   |       |  
|Buildings                                       |  |                          | 7,467  |   |                   |   |       |  
|Leasehold improvements                          |  |                          | 773    |   |                   |   | 572    |  
|Vehicles                                        |  |                          | 163    |   |                   |   | 147    |  
|Construction in process                         |  |                          |       |   |                   |   | 142    |  
|                                                |  |                          |        |   |                   |   |        |  
|                                                |  |                          | 29,547 |   |                   |   | 5,167  |  
|Less: Accumulated depreciation and amortization |  |                          | (5,553 | ) |                   |   | (2,561 | )
|                                                |  |                          |        |   |                   |   |        |  
|Property and equipment, net                     |  | $                        | 23,994 |   |                   | $ | 2,606  |  
|                                                |  |                          |        |   |                   |   |        |  

Other purchased intangible assets, net

Other purchased intangible assets, net, consist of the following (unaudited, in thousands):



|                                            |  |                          |        |   |                   |   |       |  
|------------------------------------------- |  | ------------------------ | ------ | - | ----------------- | - | ----- | -
|                                            |  | June 30, 2005 (Restated) |        |   | December 31, 2004 |  
|Purchased development technology            |  | $                        | 3,839  |   |                   | $ | 1,000 |  
|In-process research and development         |  |                          | 2,574  |   |                   |   |      |  
|Customer contracts and related relationship |  |                          | 2,043  |   |                   |   |      |  
|Trade name                                  |  |                          | 2,145  |   |                   |   |      |  
|Less: Accumulated amortization              |  |                          | (2,829 | ) |                   |   | (917  | )
|                                            |  |                          |        |   |                   |   |       |  
|Total other purchased intangible assets     |  | $                        | 7,772  |   |                   | $ | 83    |  
|                                            |  |                          |        |   |                   |   |       |  

Long-term investments

The Company has invested in the following privately-held companies in Taiwan: Appro Photoelectron Inc. and Master Integrated Appliances Co., Ltd. The total cost of these investments was $1.7 million. These investments
have been accounted for under the equity method of accounting because the Company has significant influence over the investees. The Company will record its proportionate share of the investees net income or loss on a one-quarter lag since it
is not practical to obtain financial information from the investee prior to the issuance of the current quarters financial statements. During the quarter ended June 30, 2005, Master Integrated Appliances Co., Ltd. terminated their
business operations and employees due to a lack of funding and, as a result, the Company assessed its equity investment in Master Integrated Appliances Co., Ltd. and determined there was an other-than temporary, or permanent loss in the value of the
carrying amount in the amount of $672,077. The investment balance of $672,077 has been written off and charged against other income, net in the consolidated statement of operations during the quarter.



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INTERVIDEO, INC.

Accrued liabilities

Accrued liabilities consist of the following (unaudited, in thousands):



|                                  |  |                          |        |                   |   |       
|--------------------------------- |  | ------------------------ | ------ | ----------------- | - | ------
|                                  |  | June 30, 2005 (Restated) |        | December 31, 2004
|Payroll and related benefits      |  | $                        | 2,562  |                   | $ | 2,220 
|Royalties                         |  |                          | 8,754  |                   |   | 8,414 
|Audit and accounting related fees |  |                          | 2,041  |                   |   | 791   
|Taxes Payable                     |  |                          | 2,034  |                   |   | 333   
|Other                             |  |                          | 3,663  |                   |   | 1,704 
|                                  |  |                          |        |                   |   |       
|Total accrued liabilities         |  | $                        | 19,054 |                   | $ | 13,462
|                                  |  |                          |        |                   |   |       

Note 5. Segment and Geographic Information:

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in
deciding how to allocate resources and in assessing performance. The Companys chief operating decision maker is the chief executive officer of the Company.

The Company has one operating segment: multimedia software. The Company sells its products primarily through OEMs and to end users through the Companys websites and through retail channels. Sales of licenses to the Companys
software occur in three geographic locations, namely the United States, Europe and Asia. International revenues are based on the country in which the customer is located.



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INTERVIDEO, INC.

The following is a summary of revenue by sales channel and geographic region (in thousands):



|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|------------------------------ |  | --------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                               |  | Three months ended June 30, |        | Six months ended June 30,
|                               |  | 2005                        |        | 2004                      |   | 2005   |  | 2004
|Revenues by Sales Channel:     |  |                             |        |                           |   |        |  |      |        |  |   |       
|OEMs                           |  | $                           | 19,046 |                           | $ | 14,015 |  | $    | 37,770 |  | $ | 29,795
|Web sales and retail           |  |                             | 8,560  |                           |   | 2,689  |  |      | 11,740 |  |   | 5,730 
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Total revenue                  |  | $                           | 27,606 |                           | $ | 16,704 |  | $    | 49,510 |  | $ | 35,525
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Revenues by Geographic Region: |  |                             |        |                           |   |        |  |      |        |  |   |       
|United States                  |  | $                           | 11,837 |                           | $ | 8,521  |  | $    | 24,678 |  | $ | 18,519
|Europe                         |  |                             | 3,026  |                           |   | 947    |  |      | 4,867  |  |   | 2,296 
|Asia:                          |  |                             |        |                           |   |        |  |      |        |  |   |       
|Japan                          |  |                             | 11,180 |                           |   | 5,815  |  |      | 17,482 |  |   | 12,212
|Other Asia                     |  |                             | 1,563  |                           |   | 1,421  |  |      | 2,483  |  |   | 2,498 
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Total revenue                  |  | $                           | 27,606 |                           | $ | 16,704 |  | $    | 49,510 |  | $ | 35,525
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Revenues by Products:          |  |                             |        |                           |   |        |  |      |        |  |   |       
|WinDVD                         |  | $                           | 12,500 |                           | $ | 12,206 |  | $    | 26,293 |  | $ | 26,831
|VideoStudio                    |  |                             | 3,282  |                           |   |       |  |      | 3,282  |  |   |      
|Other products                 |  |                             | 11,824 |                           |   | 4,498  |  |      | 19,935 |  |   | 8,694 
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       
|Total revenue                  |  | $                           | 27,606 |                           | $ | 16,704 |  | $    | 49,510 |  | $ | 35,525
|                               |  |                             |        |                           |   |        |  |      |        |  |   |       

The following is a summary of tangible long-lived assets by geographic region (unaudited, in thousands):



|                                 |  |                        |        |                  |   |      
|-------------------------------- |  | ---------------------- | ------ | ---------------- | - | -----
|                                 |  | June 30,2005(restated) |        | December 31,2004
|Tangible long-lived assets:      |  |                        |        |                  |   |      
|United States                    |  | $                      | 1,143  |                  | $ | 1,247
|Europe                           |  |                        | 102    |                  |   |     
|Asia:                            |  |                        |        |                  |   |      
|Japan                            |  |                        | 293    |                  |   | 161  
|China                            |  |                        | 418    |                  |   | 408  
|Taiwan                           |  |                        | 22,038 |                  |   | 790  
|                                 |  |                        |        |                  |   |      
|Total tangible long-lived assets |  | $                      | 23,994 |                  | $ | 2,606
|                                 |  |                        |        |                  |   |      



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INTERVIDEO, INC.

The following individual customers accounted for greater than 10% of revenue in any of the periods presented (unaudited):



|              |  |                             |   |  |                           |   |  |      |   |  |      |  
|------------- |  | --------------------------- | - |  | ------------------------- | - |  | ---- | - |  | ---- | -
|              |  | Three months ended June 30, |   |  | Six months ended June 30, |  
|              |  | 2005                        |   |  | 2004                      |   |  | 2005 |   |  | 2004 |  
|Revenue from: |  |                             |   |  |                           |   |  |      |   |  |      |  
|Customer A    |  | 24                          | % |  | 24                        | % |  | 29   | % |  | 22   | %
|Customer B    |  | 9                           | % |  | 13                        | % |  | 10   | % |  | 13   | %
|Customer C    |  | 11                          | % |  | 3                         | % |  | 6    | % |  | 3    | %

Customers with accounts receivable balances that were individually greater than 10% of total accounts receivable,
before allowances for doubtful accounts, at any of the periods presented were (unaudited):



|                         |  |               |   |  |                   |  
|------------------------ |  | ------------- | - |  | ----------------- | -
|                         |  | June 30, 2005 |   |  | December 31, 2004 |  
|Account receivable from: |  |               |   |  |                   |  
|Customer C               |  | 22            | % |  | 11                | %
|Customer D               |  | 22            | % |  | 0                 | %

Note 6. Contingencies:

In the normal course of business, the Company is involved in various legal claims, actions and complaints, including matters involving patent infringement and other intellectual property claims and various other risks. It is not possible to
predict with certainty whether or not the Company will ultimately be successful in any of these legal matters, or if not, what the impact might be. InterVideos license agreements include certain warranties and indemnification provisions for
claims from certain customers to InterVideos intellectual property. Such indemnification provisions are accounted for in accordance with SFAS No. 5. The indemnification is generally limited to the amount paid by the customer. To date,
claims under such indemnification provisions have not been significant.

Note 7. Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123R (Revised 2004),Share-Based Payment, which requires that the compensation cost relating to share-based payment transactions be recognized in financial statements based on alternative fair value models. The share-based compensation cost will be measured based on
the fair value of the equity or liability instruments issued. We currently disclose pro forma compensation expense quarterly and annually by calculating the stock option grants fair value using the Black-Scholes model. Upon adoption, pro forma
disclosure will no longer be an alternative. SFAS No. 123R was originally effective for reporting periods that began after June 15, 2005. In April 2005, the SEC announced the adoption of a new rule allowing companies to implement SFAS
No. 123R at the beginning of their next fiscal year that begins after June 15, 2005. We will begin to apply SFAS No. 123R using the most appropriate fair value model beginning January 1, 2006. We are evaluating the requirements
under SFAS 123R and expect the adoption to have a significant adverse impact on our results of operations, but not on our cash flows.



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INTERVIDEO, INC.

PART 1  FINANCIAL INFORMATION

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

The
Managements Discussion and Analysis of Financial Condition and Results of Operations set forth in this Item 2 has been restated to reflect certain adjustments to the Companys condensed consolidated financial statements as of and for
the three and six months ended June 30, 2005 as previously reported in the Companys Form 10-Q for the quarter ended June 30, 2005. See Note 2 of the Notes to the Condensed Consolidated Financial Statements included in Part I,
Item 1 of this Amendment No. 1 on Form 10-Q/A.

The following Managements Discussion and Analysis of Financial Condition and Results
of Operation, as well as information contained in Risk Factors below and elsewhere in this Quarterly Report on Form 10-Q, contains forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those projected in the
forward-looking statements as a result of various factors. These risks, uncertainties and other factors include, among others, those identified under Risk Factors. Forward-looking statements are generally written in the future tense
and/or are preceded by words such as will, may, should, could, expect, suggest, believe, anticipate, intend, plan, or other
similar words. Forward-looking statements contained in this Quarterly Report include, among others, statements regarding (1) the anticipated impact on our business, operations and financial conditions of our acquisition of a controlling
interest in Ulead Systems, Inc., (2) research and development expenses, (3) sales and marketing expenses, (4) other operating and capital expenditures, (5) anticipated growth of operations, personnel, infrastructure and
acceleration of product innovation, (6) exercise prices of future option grants, (7) the sufficiency of our capital resources, (8) future sources of revenue, (9) growth, decline and seasonality of revenue, (10) deferrals of
revenue, (11) interest income, (12) competition and competitive pressures, (13) general market and economic outlook, (13) product sales and prices, (15) our ability to comply with public company reporting requirements
(16) settlement of intellectual property claims, (17) stock based compensation expenses, (18) general and administrative expenses, (19) the utility of certain products, (20) certain customer concentration trends and changes
in the composition of our customer mix, (21) the revenue growth expected to result from our agreements with Microsoft, Inc. and (22) Sarbanes-Oxley compliance costs. The Company disclaims any obligation to update information in any
forward-looking statement.

Overview

Founded in
1998, InterVideo is a provider of DVD software, video editing and DVD burning software, television viewing and recording software and InstantON software. We have developed a technology platform from which we have created a broad suite of integrated
multimedia software products. These products span the digital video cycle by allowing users to capture, edit, author, distribute, burn and play digital video. We have operations in the United States, Taiwan, Japan, China and Germany. We derive a
substantial portion of our revenue from the sale of software licenses to OEMs, which install our software onto PCs prior to delivery to customers. We also sell our software through retail channels and directly to end users through our websites. In
addition, we derive revenue from the license of our software to consumer electronics (CE) manufacturers, manufacturers of PC peripherals and other software and internet companies that incorporate our software into their own products for
distribution.

Historically, sales of our WinDVD product, a software DVD player for PCs, to PC OEMs have accounted for a majority of our revenue. While we
expect that revenue from sales of our WinDVD product to PC OEMs will continue to account for a substantial portion of our revenue, in the future, we expect to derive an increasing percentage of our revenue from sales of other products, including
WinDVD Creator, InstantON, MediaOne, InterVideo Home Theater, InterVideo DVD Copy and Linux-based versions of our DVD and DVR software designed for Linux-based PCs and CE devices as well as products sold through our retail and web-based sales
channels. Our recent acquisition of a controlling interest in Ulead Systems, Inc. (Ulead) is expected to accelerate this trend with the addition of their products, including PhotoImpact, VideoStudio, DVD Movie Factory, DVD Workshop and
Media Studio Pro. We derived 45% and 53% of our revenue for the three and six months ended June 30, 2005, respectively, from sales of our WinDVD product, primarily to PC OEMs, as compared to 73% and 76% in the three and six months ended
June 30, 2004, respectively. For the three months ended June 30, 2005, we derived 12% of our revenue from sales of Uleads Video Studio product. There are no Ulead sales reflected in the three and six month periods ended
June 30, 2004 because this was prior to us acquiring a controlling interest.

Our software is generally bundled with products sold by PC OEMs. Our PC
OEM customers include, among others, Dell, Fujitsu, Fujitsu Siemens, Hewlett-Packard (HP), Lenovo (formerly IBM), NEC and Toshiba. For the three and six months ended June 30, 2005, we derived 69% and 76%, respectively, of our
revenue from OEM sales as compared to 84% of revenue for the three and six months ended June 30, 2004. Due to concentration in the PC OEM industry, we derive a substantial portion of our revenue from a small number of OEM customers. For the
three months ended June 30, 2005, our two largest OEM customers accounted for 33% of our revenue, HP accounting for 24% of our revenue and Toshiba accounting for 9% of our revenue. For the six months ended June 30, 2005, our two largest
OEM customers accounted for 39% of our revenue, with HP accounting for 29% of our revenue and Toshiba accounting for



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INTERVIDEO, INC.

10% of our revenue. We expect that a small number of OEM customers will continue to account for a substantial portion of our revenue and gross profit for the foreseeable future, although the identity of those
customers may change from period to period. We expect our revenue from HP to decline beginning in the fourth quarter of 2005 and into 2006 because we have been informed by HP that they will not incorporate certain of our products into certain future
HP notebook models. At this time we are unable to determine the impact this will have on our financial statements. A significant decrease in revenue from HP, or the loss of any of our large customers, would reduce our revenue and gross profit and
otherwise harm our business without an increase in revenue from other customers.

Due to a limited number of potential new, large PC OEM customers for our
WinDVD product, we must derive any future revenue growth principally from increased sales of WinDVD or other products to existing PC OEMs, CE manufacturers, PC peripherals manufacturers, smaller PC OEMs, other software and internet companies and to
consumers through retail channels and our websites. Because some of these other revenue opportunities are more fragmented than the PC OEM market and will require more time and effort to penetrate, our revenue may grow at a slower rate than in prior
periods or may even decline.

Historically, prices for our products have declined because of competition from other software providers, competition in the
PC industry and diminishing margins experienced by PC OEMs as a result of decreased selling prices and periodic declines in unit sales. Accordingly, we have reduced the prices we charge PC OEMs for our WinDVD, WinDVD Creator and other products, and
expect such price reductions will continue in the future. As a matter of policy, we evaluate such price reductions on a continual basis and, in certain circumstances may determine it will not be in the best interests of the Company to reduce prices
below a certain level. We may decide not to lower our product prices, even if a loss of revenue will result. As a result of declining prices, it may be more difficult for us to increase or maintain our revenue levels and price declines may cause a
decline in our gross profits even if our WinDVD and other product unit sales increase.

We currently sell our products through internet commerce and retail
channels. Our acquisition of Ulead has allowed us to expand these channels with a broader range of product offerings and marketing efforts. We intend to continue to invest in selling and marketing programs in these channels to further increase our
sales opportunities. For the three and six months ended June 30, 2005, we derived 31% and 24%, respectively, of our revenue from web and retail sales as compared to 16% of revenue for the three and six months ended June 30, 2004. The
amounts shown for the three and six months ended June 30, 2005 include related Ulead sales activity since April 20, 2005, the date we acquired a controlling interest in Ulead. Softbank Commerce, the largest software retail distributor in
Japan, accounted for 11% of our revenue for the three months ended June 30, 2005. The gross profits associated with our products sold through our web and retail channels are generally higher than those associated with our OEM sales.
Accordingly, fluctuations in our web and retail revenue as a percentage of total revenue will impact our gross profits.

We derive and expect to continue
to derive a significant portion of our revenue from sales outside of the United States. Sales outside of the United States accounted for 57% and 50% of our revenue for the three and six months ended June 30, 2005 as compared to 49% and 48% in
the three and six months ended June 30, 2004. Revenue from sales outside of the United States for the three and six months ended June 30, 2005 include related Ulead sales activity since April 20, 2005. Ulead accounted for 44% of all
non-US sales for the three months ended June 30, 2005. Currently, a significant portion of our international sales are denominated in U.S. dollars. Therefore, a strengthening dollar could make our products less competitive in foreign markets.
Our current distribution agreements shift foreign exchange risk to our foreign distributors. In the future, an increasing portion of our international revenue may be denominated in foreign currencies and we may use derivative instruments to hedge
foreign exchange risk.

Our financial condition and results of operations are likely to be affected by seasonality in the future. Historically, PC OEMs
have experienced their highest volume of sales during the year-end holiday season. Because we generally recognize revenue associated with the sale of our products to our OEMs customers in the month or quarter following the sales of our
products to these OEMs customers, we expect this seasonality to have a positive effect on our revenue and operating income in the first quarter of each calendar year and a negative effect on our revenue and operating income in the second
quarter of that year. We expect our recent acquisition of a controlling interest in Ulead will impact this trend in future periods because a substantial portion of their revenues are derived from web and retail sales which are typically recognized
in the period in which they occur.

InterVideo and WinDVD are registered trademarks and WinDVD Creator, WinDVD Recorder, LinDVD, LinDVR, WinDVR, InterVideo
InstantON, InterVideo Home Theater and InterVideo MediaOne are among the trademarks or service marks of InterVideo. Ulead, Ulead DVD MovieFactory, DVD Workshop, MediaStudio Pro, VideoStudio and PhotoImpact are among the registered trademarks of
Ulead Systems, Inc.



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INTERVIDEO, INC.

Acquisition of controlling interest in Ulead Systems, Inc.

On April 20, 2005 we acquired a controlling interest
in Ulead through a tender offer and purchases of shares outside of the tender offer. Through the tender offer, we purchased a total of 33,284,395 shares of Ulead common stock at the price of 30 NT (US$0.95) per share. In addition, on April 20,
2005 we acquired another 1,000,000 shares outside the tender offer at a price of 30 NT (US$0.95) per share. Previously, we had acquired by means of open market purchases 14,533,000 shares at an average price per share of US$0.65. Therefore,
following the completion of the tender offer, the purchase of additional shares in private transactions outside of the tender offer and open market purchases, we had acquired in total 48,817,395 shares, or 62.4% of the total issued shares of Ulead,
at a total cost of $42 million. As a result, the financial data presented herein include the financial results of Ulead, shown on a consolidated basis, for the period commencing with the date of acquisition on April 20, 2005.

Ulead was founded in 1989 and is a leading developer of innovative video, imaging and DVD authoring software for desktop, server, mobile and internet platforms.
Headquartered in Taipei, Taiwan, Ulead maintains offices in the United States, Germany, Japan and China and, in March 1999, became the first publicly traded software company in Taiwan. The majority of Uleads product revenue derives from sales
of software to end users through retailers which purchase the products from national and international distributors, including Softbank Commerce Corp. of Japan. Uleads strengths in professional DVD authoring, video editing and still image
processing complement our tools and enhance our ability to address emerging and rapidly growing markets such as multimedia home networking, high definition DVD, Blu-ray Disc and multimedia mobile phones markets. We believe our acquisition of the
shares of Ulead supports our long-term strategic direction, strengthens our competitive position in the multimedia software market, expands our retail presence and provides greater scale to increase our investment in research and development to
accelerate product innovation and increase shareholder value. However, the future quantitative impact on our financial results is difficult to determine at this time due to the uncertainties inherent in the two companies future financial
results, uncertainties regarding the amount of synergies and efficiencies that may result from the consolidation and uncertainties regarding the reconciliation of Uleads financial results from Taiwan GAAP to U.S. GAAP, among other factors.
Please see Risk Factorswe may not be successful in addressing problems encountered in connection with our transaction with Ulead or any other acquisitions we may undertake, which could disrupt our operations or otherwise harm our
business.

Critical Accounting Estimates

We base
the discussions and analysis of our financial condition and results of operations upon our condensed consolidated financial statements, which we prepare in accordance with United States generally accepted accounting principles. In preparing these
financial statements, we must make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates
based on historical experiences and various other assumptions we believe are reasonable under the circumstances. Our actual results may differ from these estimates.

The accounting policies that most frequently require us to make estimates and judgments, and therefore are critical to understanding the results of our operations are:



| |  |  | Revenue recognition;
| | - |  | --------------------



| |  |  | Accounting for acquisitions;
| | - |  | ----------------------------



| |  |  | Accounting for income taxes.
| | - |  | ----------------------------

Revenue recognition

Our revenue is primarily derived from fees paid under software licenses granted to PC OEMs, CE manufacturers, manufacturers of PC peripherals and other software and
internet companies that incorporate our software into their own products for distribution, retail distributors, retail customers and directly to end users. We record revenue generated from



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INTERVIDEO, INC.

these sales in accordance with SOP 97-2, Software Revenue Recognition, as amended, under which revenue is recognized when:



| |  |  | Evidence of an arrangement exists;
| | - |  | ----------------------------------



| |  |  | Delivery of the software has occurred;
| | - |  | --------------------------------------



| |  |  | The fee is fixed or determinable; and
| | - |  | -------------------------------------



| |  |  | Collectibility is probable.
| | - |  | ---------------------------

Typically, under the terms of our license
agreements with our OEM customers, they are entitled only to unspecified upgrades on a when and if available basis, prior to sale into the OEMs sales channel partners or sell through to the OEMs end customers. Under the terms of our
revenue recognition policy, we recognize revenue based on evidence of products sold by the OEMs to end customers or to the OEMs sales channel partners. We do not typically provide upgrades or post contract support (PCS) to the
OEMs customers or sales channel partners. Accordingly, under such agreements we do not defer any revenue, as we no longer have an obligation once an OEMs products have been shipped from the OEM to the OEMs sales channel partners or
to an OEMs end customer. Under certain other agreements, where the OEM is granted PCS including upgrades, revenue is recognized ratably over the shorter of the contractual PCS period or estimated life of the product In general, we consider the
estimated life of our products to be three years.

Typically, our OEM customers do not have the right to claim a credit or refund for returns from the
OEMs sales channel partners or end customers back to the OEM. However, in the few instances where we have granted our OEM customers with the right to claim a refund or credit to a certain percentage cap, we defer revenue based on the
contractual return cap until we are able to establish a reliable and reasonable returns estimate based on historical returns activity that is specific to the respective sales channel, product line or country.

Under the terms of the OEM license agreements, each OEM qualifies our software on their hardware and software configurations. Once our software has been qualified, the
OEM begins shipping products and reports net sales to us, at which point we record revenue. Most OEMs pay a license fee based on the number of copies of licensed software included in the products sold to their customers. These OEMs pay fees on a
per-unit basis, and we record associated revenue when we receive notification of the OEMs sales of the licensed software to an end customer or sales channel partner. The terms of the license agreements generally require the OEMs to notify us
of sales of our products within 30 to 45 days after the end of the month or quarter in which the sales occur. As a result, we generally recognize revenue in the month or quarter following the sales of the software to these OEMs customers.

A small number of OEMs that sell PC components, place orders with us for a fixed quantity of units at a fixed price based on an agreed-upon purchase order
or contract. In such cases, qualification of our software is not required, and these OEMs have no rights to upgrades or returns. We generally recognize revenue upon the completion of shipment, in accordance with the terms of the respective
agreement, to these OEMs.

In addition to the per unit license fees discussed above, certain OEM agreements also include prepaid license fees and/or
non-recurring engineering (NRE) service fees primarily for porting our software to the OEMs hardware and software configurations. Since we provide when and if available upgrade rights to our OEM customers on the products they have
licensed from the point when they receive the product until the point when they have sold the product to their sales channel partners or end customers, any prepaid license fees are recognized based on actual shipments after the upgrade rights have
lapsed. The NRE service fees are recognized upon completion and acceptance of the NRE service. In agreements where we have sold PCS or where there are additional undelivered elements, such as NRE service fees, we defer all of the revenue until the
additional undelivered elements are accepted and the only undelivered element is PCS. Once the only undelivered element is PCS, we recognize the entire arrangement fee over the PCS period.



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INTERVIDEO, INC.

End-user sales are made directly through our websites. We do not offer specified upgrade rights to any class of customer, and there are no unspecified upgrade rights associated with end-user sales. We recognize
revenue from sales through our websites upon delivery of product and the receipt of payment by means of an authorized credit card. End users who purchase our software from our websites have limited rights of return for products for up to 14 days
from the date of purchase. We currently reserve for returns using a 30-day sales return reserve based upon historical return percentages.

We sell our
products to retailers and distributors either on a consignment or non-consignment basis. For consignment product shipments, in general, the distributor will not take ownership of the product at the point in time when we ship product to the
distributor. Once the distributor sells the consignment-based product to a retailer or an end customer and ownership is transferred from us to the retailer or end customer, the distributor will report those sales to us and we invoice the
distributor. For non-consignment product shipments, the distributor will take ownership of the product at the point in time when we ship the product to the distributor and we invoice the distributor upon such shipment. Since we do not have
contractually obligated minimum orders or payment terms with our distributors, we do not recognize revenue for retail product distribution prior to invoicing. Certain distributors and retailers, primarily in Japan, have limited rights to return
products that were purchased in the previous six months. These distributors have no rights to product upgrades. We generally recognize revenue, net of contractually obligated return rights and any additional required rebate or pricing reserves, upon
completion of shipment to these distributors and retailers. Other distributors and retailers, primarily in the United States and Europe, have unlimited rights of return. We generally recognize revenue upon receipt of evidence that the distributors
and retailers have sold our products through to end users, less any required rebate or pricing reserves.

We have begun selling licenses of our products to
corporations and other businesses in the United States. This corporate licensing program is generally conducted either directly between InterVideo and the licensee or through a reseller. For these sales we do not provide the licensee a right to
return the product once it has been delivered and we do not provide support or upgrade rights to that licensee. We currently recognize revenue for these sales upon confirmation of delivery or acceptance of the product.

Certain customer agreements call for the payment by us of marketing development funds, co-operative advertising fees, rebates or similar charges. We account for such
fees in accordance with Emerging Issues Task Force Issue No. 01-09 as a reduction in revenue unless there is an identifiable benefit and the fair value of the charges can be reasonably estimated in which case we record these transactions as
marketing expense. Commissions paid to third-party sales representatives are included in sales and marketing expenses.

Accounting for Acquisitions

Accounting for acquisitions requires management to make judgments and estimates in determining the purchase price, the fair value of the assets and
liabilities acquired and merger-related and restructuring expenses. In recording the Ulead acquisition during the quarter, significant judgment was required in estimating:



| |  |  | valuation of deferred revenue,
| | - |  | ------------------------------



| |  |  | valuation of intangible assets and acquired in-process research and development,
| | - |  | --------------------------------------------------------------------------------

Changes to purchase price estimates, prior to the completion of the final purchase price allocation, are reflected as adjustments to goodwill and/or other acquired assets. Subsequent adjustments are reflected in our results of operations.
In accordance with Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets, goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually
or as circumstances indicate their value may no longer be recoverable.

As discussed in more detail in Note 2 of the Notes to the Condensed Consolidated
Financial Statements included in Part I, Item 1 of this Amendment No. 1 on Form 10-Q/A, our review of the purchase accounting method under SFAS No. 141 has resulted in a determination to apply the partial goodwill method instead of
the full goodwill method to our acquisition of Ulead due to the existence of the non-controlling interest in Ulead after this acquisition. The application of the partial goodwill method requires the Company to record its share of Uleads
assets, liabilities and resulting intangible assets, including goodwill, at the proportionate share acquired based upon the purchase price.

Accounting for income taxes

In preparing our consolidated financial statements, we assess the likelihood that our deferred tax
assets will be realized from future taxable income. We establish a valuation allowance if we determine that it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Changes in the valuation allowance
are included in our consolidated statements of income as provision for income taxes. We exercise significant judgment in determining our provision for income taxes, our deferred tax assets and liabilities and our future taxable income for purposes
of assessing our ability to utilize any future tax benefits from our deferred tax assets. If actual circumstances differ from our expectations, we may be required to adjust our estimates in future periods and our financial position, cash flows and
results of operations could be materially affected.



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INTERVIDEO, INC.

Results of Operations  Comparison of the three and six months ended June 30, 2005 and 2004 (unaudited).



|                                    |  |                             |    |  |                           |   |  |                |   |  |      |  
|----------------------------------- |  | --------------------------- | -- |  | ------------------------- | - |  | -------------- | - |  | ---- | -
|                                    |  | Three months ended June 30, |    |  | Six months ended June 30, |  
|                                    |  | 2005(Restated)              |    |  | 2004                      |   |  | 2005(Restated) |   |  | 2004 |  
|As a percentage of revenue:         |  |                             |    |  |                           |   |  |                |   |  |      |  
|Revenue                             |  | 100                         | %  |  | 100                       | % |  | 100            | % |  | 100  | %
|                                    |  |                             |    | 
|Cost of revenue                     |  | 39                          |    |  | 46                        |   |  | 40             |   |  | 44   |  
|                                    |  |                             |    |  |                           |   |  |                |   |  |      |  
|Gross profit                        |  | 61                          |    |  | 54                        |   |  | 60             |   |  | 56   |  
|                                    |  |                             |    |  |                           |   |  |                |   |  |      |  
|Operating expenses:                 |  |                             |    |  |                           |   |  |                |   |  |      |  
|Research and development            |  | 20                          |    |  | 16                        |   |  | 17             |   |  | 14   |  
|Sales and marketing                 |  | 19                          |    |  | 16                        |   |  | 16             |   |  | 15   |  
|General and administrative          |  | 14                          |    |  | 12                        |   |  | 14             |   |  | 10   |  
|Stock-based compensation            |  |                            |    |  |                          |   |  |               |   |  | 1    |  
|In-process research and development |  | 9                           |    |  |                          |   |  | 6              |   |  |     |  
|                                    |  |                             |    |  |                           |   |  |                |   |  |      |  
|Total operating expenses            |  | 62                          |    |  | 44                        |   |  | 53             |   |  | 40   |  
|                                    |  |                             |    |  |                           |   |  |                |   |  |      |  
|Income (loss) from operations       |  | (1                          | )  |  | 10                        |   |  | 7              |   |  | 16   |  
|Other income (expense), net         |  | (4                          | )  |  | 1                         |   |  | (1             | ) |  | 1    |  
|                                    |  |                             |    |  |                           |   |  |                |   |  |      |  
|Income (loss) before income taxes   |  | (5                          | )  |  | 11                        |   |  | 6              |   |  | 17   |  
|Minority interests                  |  | 1                           |    |  |                          |   |  | 1              |   |  |     |  
|                                    |  |                             |    |  |                           |   |  |                |   |  |      |  
|Provision for income taxes          |  | 3                           |    |  | 4                         |   |  | 5              |   |  | 6    |  
|                                    |  |                             |    |  |                           |   |  |                |   |  |      |  
|Net income (loss)                   |  | (7                          | )% |  | 7                         | % |  | 2              | % |  | 11   | %
|                                    |  |                             |    |  |                           |   |  |                |   |  |      |  

The following describes certain line items in our statement of operations:

Revenue: Revenue is primarily derived from fees paid under software licenses granted to PC OEMs, CE manufacturers, manufacturers of PC peripherals and other
software and internet companies that incorporate our software into their own products for distribution, retail distributors, retail customers and directly to end users or businesses.

Cost of Revenue: Cost of revenue consists primarily of license royalties, expenses incurred to manufacture, package and distribute our software products, the amortization of developed technology, costs
associated with end-user PCS and the cost of settlement of intellectual property matters. License royalties consist of royalties paid or accrued for payment to third parties for technologies incorporated into our products. In general, the amount of
royalties depends on the number of our product units sold and the royalty rates associated with the third-party technology incorporated into those products. We sometimes prepay for the right to bundle and distribute certain licensed technologies. In
general, these prepayments are at a flat rate and are not determined by the number of units of the bundled product that are shipped. In general, the license rights are granted for one year and the estimated useful life of the technology is three
years. End-user PCS costs include the costs associated with providing assistance to end users of our products. With the exception of packaging and distribution costs, the cost of revenue is generally the same for each product, regardless of sales
channel. Certain product costs associated with sales to distributors, retailers and end users are deferred until the corresponding revenue has been recognized. Cost of settlement of intellectual property matters consists of amounts that we have
agreed to pay to third parties in settlement of alleged infringement of certain patented technology used in our customers products and accruals for royalties related to our usage of technologies under patent where no agreement exists.

Gross Profit: Gross profit is affected by competitive price pressures, fluctuations in unit volumes, changes in royalty amounts and changes in the
mix of products sold and in our mix of distribution channels. Differences in gross profits by sales channel are primarily a reflection of product pricing differences, which can be impacted by distribution and marketing rebates, associated with each
sales channel. In addition, our gross profit may be affected by costs associated with the settlement of intellectual property matters.



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INTERVIDEO, INC.

Research and development expenses: Research and development expenses consist primarily of personnel and related costs, consulting expenses associated with the development of new products, technology license
fees, professional fees and product evaluation and testing costs.

Sales and marketing expenses: Sales and marketing expenses consist primarily of
personnel and related costs, including salaries and commissions, travel expenses, commissions paid to third party sales representatives and costs associated with trade shows, advertising and other marketing efforts.

General and administrative expenses: General and administrative expenses consist primarily of personnel and related costs, support costs for finance, human
resources, legal, operations, information systems and administration departments and professional fees, including legal and accounting fees.

Stock-based compensation expenses: Deferred stock-based compensation is recorded when options are granted with exercise prices less than the fair market value of the underlying common stock. Stock-based compensation expenses are
recognized as deferred stock-based compensation is amortized on an accelerated basis over the vesting period of the related options, which is generally four years.

In-process research and development: In-process research and development represents incomplete research and development projects that had not reached technological feasibility and had no alternate future use as of the acquisition
date of Ulead.

Other income (expense), net: Other income, net consists primarily of interest earned on our cash and cash equivalent balances and
realized gains and losses on investments offset by other expenses.

Comparison of the Three Months and Six Months Ended June 30, 2005 and 2004

Revenue (unaudited, dollars in thousands)



|        |  |                             |  |               |  |    |                           |  |               |  |        |  |    |  
|------- |  | --------------------------- |  | ------------- |  | -- | ------------------------- |  | ------------- |  | ------ |  | -- | -
|        |  | Three months ended June 30, |  | PercentChange |  |    | Six months ended June 30, |  | PercentChange | 
|        |  | 2005                        |  | 2004          |  |    | 2005                      |  | 2004          | 
|Revenue |  | 27,606                      |  | 16,704        |  | 65 | %                         |  | 49,510        |  | 35,525 |  | 39 | %

Revenue increased 65% to $27.6 million for the three months ended June 30, 2005 from $16.7 million for the
three months ended June 30, 2004 with Ulead accounting for approximately 77% of this increase. OEM product sales increased 36% to $19.0 million for the three months ended June 30, 2005 from $14.0 million for the three months ended
June 30, 2004 and accounted for approximately 69% of total revenue for the three month period ended June 30, 2005 and 84% for the three month period ended June 30, 2004. Web and retail sales increased 218% to $8.6 million for the
three months ended June 30, 2005 from $2.7 million for the three months ended June 30, 2004. Ulead revenue accounted for approximately 56% of the increase in OEM revenue and 96% of the increase in web and retail sales for the three months
ended June 30, 2005. We derived a substantial portion of our revenue from a small number of customers. For the three months ended June 30, 2005, our three largest customers accounted for 44% of our revenue, with HP accounting for 24% of
our revenue, Softbank Commerce accounting for 11% of our revenue and Toshiba accounting for 9% of our revenue. In the three months ended June 30, 2004 two customers accounted for 37% of our revenue with HP accounting for 24% of our revenue and
Toshiba accounting for 13% of our revenue. Sales outside the United States accounted for 57% of our revenue for the three months ended June 30, 2005 with Ulead representing approximately 44% of this amount. Sales outside of the United States
were 49% of our revenue for the three months ended June 30, 2004. The growth in revenue for the three months ended June 30, 2005 over the same period in the prior year reflects increased revenue from our WinDVD product sales of 2%
representing 45% of our total revenue and an increase of 48% in sales of our non-WinDVD and non-Ulead products, which include WinDVD Creator, WinCinema, WinDVR and InterVideo DVD Copy. This increase in revenue is largely the result of increases in
volume shipments for the respective products.



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For the six months ended June 30, 2005, including Ulead, revenue increased 39% to $49.5 million as compared to $35.5 million for the six months ended June 30, 2004. This increase was partly attributable to
our OEM product sales, which increased 27% to $37.8 million for the six months ended June 30, 2005 from $29.8 million for the six months ended June 30, 2004. Web and retail sales increased 105% to $11.7 million for the six months ended
June 30, 2005 from $5.7 million for the six months ended June 30, 2004. This overall revenue increase for the six months ended June 30, 2005 as compared with the six months ended June 30, 2004 reflects 41% growth in WinDVD
Creator, InstantON, InterVideo DVD Copy and other product offerings, excluding WinDVD and Ulead revenue. Revenue from our WinDVD product was relatively flat for the six months ended June 30, 2005 as compared with the same period of a year ago.
Included in the six months ended June 30, 2004 is approximately $600,000 representing the recognition of previously deferred revenue as a result of changes in contractual agreements. We derived a substantial portion of our revenue from a small
number of customers. For the six months ended June 30, 2005, our two largest customers accounted for 39% of our revenue, with HP accounting for 29% of our revenue and Toshiba accounting for 10% of our revenue. In the six months ended
June 30, 2004 these same two customers accounted for 35% of our revenue with HP accounting for 22% of our revenue and Toshiba accounting for 13% of our revenue. We expect our revenue from HP to decline beginning in the fourth quarter of 2005
and into 2006 because we have been informed by HP that they will not incorporate certain of our products into certain future HP notebook models. A significant decrease in revenue from HP, or the loss of any of our large customers without an increase
in sales from other customers, would reduce our revenue and gross profit and otherwise harm our business. In addition, sales outside the United States accounted for 50% of our revenue for the six months ended June 30, 2005 and 48% of our
revenue for the six months ended June 30, 2004.

During the second quarter of 2005, we announced two agreements with Microsoft Inc. pursuant to which
(i) we will be the provider of DVD playback software for the Xbox 360video game and entertainment system
from Microsoft Inc. and (ii) we granted to Microsoft Inc. a worldwide right and license to use, copy, create derivative works of, publicly perform or display, import, broadcast, transmit, offer to sell, sell, have sold, rent, lease, lend,
transfer or otherwise distribute certain key components of our DVD, audio and video decoding technology. We expect these agreements will generate significant revenue over the next several quarters.

Cost of revenue (Unaudited, dollars in thousands)



|                            |  |                             |   |  |               |   |  |                           |                |  |               |      |  |        |   |  |    |  
|--------------------------- |  | --------------------------- | - |  | ------------- | - |  | ------------------------- | -------------- |  | ------------- | ---- |  | ------ | - |  | -- | -
|                            |  | Three months ended June 30, |   |  | PercentChange |   |  | Six months ended June 30, |                |  | PercentChange |     
|                            |  | 2005(Restated)              |   |  | 2004          |   |  |                           | 2005(Restated) |  |               | 2004 |  |       
|Cost of revenue             |  | 10,694                      |   |  | 7,719         |   |  | 39                        | %              |  | 19,866        |      |  | 15,653 |   |  | 27 | %
|Percentage of total revenue |  | 39                          | % |  | 46            | % |  |                           |                |  | 40            | %    |  | 44     | % |  |    |  

Cost of revenue increased to $10.7 million, or 39% of revenue, for the three months ended June 30, 2005 from
$7.7 million, or 46% of revenue, for the three months ended June 30, 2004. For the six months ended June 30, 2005, cost of revenue increased 27% to $19.9 million as compared to $15.7 million for the six months ended June 30, 2004. The
increase in absolute dollars for both the three and six month periods ended June 30, 2005 was primarily due to cost of revenue from Ulead operations and overall increased unit sales. The decrease as a percentage of revenue was largely due to
the lower per unit costs as a percentage of revenue on Ulead product sales offset somewhat by an overall decline in selling prices of our WinDVD products and an increase in per unit royalties paid to Dolby Laboratories.

Cost of revenue in absolute dollars will continue to be impacted by per unit costs of royalties. We expect that cost of revenue as a percentage of revenue will be
impacted favorably by the integration and growth of Ulead product sales that complaint our own and the introduction of our newer, higher margin products offset by continued price erosion in our WinDVD sales to our OEM customers.

As discussed in Note 2 of the Notes to the Condensed Consolidated Financial Statements, we have restated our financial statements to reflect a reduction of amortization
expense due to the application of the partial goodwill method to the Ulead acquisition in accordance with the provisions of SFAS 141. As a result, cost of revenue as a percentage of revenue has been reduced, from 40% and 41% to 39% and 40% for the
three and six month periods ended June 30, 2005, respectively. Cost of revenue decreased in absolute dollars by $228,000 from $10.9 million and $20.1 million to $10.7 million and $19.9 million for the three and six month periods ended
June 30, 2005, respectively.



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Gross profit (unaudited, dollars in thousands)



|                            |  |                             |   |  |       |   |  |                           |   |  |                |   |  |        |   |  |               |  
|--------------------------- |  | --------------------------- | - |  | ----- | - |  | ------------------------- | - |  | -------------- | - |  | ------ | - |  | ------------- | -
|                            |  | Three months ended June 30, |   |  |       |   |  | Six months ended June 30, |   |  |                |  
|                            |  | 2005(Restated)              |   |  | 2004  |   |  | PercentChange             |   |  | 2005(Restated) |   |  | 2004   |   |  | PercentChange |  
|Gross profit                |  | 16,912                      |   |  | 8,985 |   |  | 88                        | % |  | 29,644         |   |  | 19,872 |   |  | 49            | %
|Percentage of total revenue |  | 61                          | % |  | 54    | % |  |                           |   |  | 60             | % |  | 56     | % |  |               |  

Gross profits were 61% of revenue for the three months ended June 30, 2005 as compared to 54% for the three
months ended June 30, 2004. The increase reflects the sale of higher margin Ulead products and an increase in revenues from other products that typically enjoy higher gross profits. These increases were offset somewhat by the lower average
selling prices of our WinDVD products to our major OEM customers, an increase in per unit royalties paid to Dolby Laboratories and higher amortization of intangible assets associated with the acquisition of Ulead.

For the six months ended June 30, 2005, gross profits were $29.6 million or 60% of revenue as compared with $19.9 million or 56% of revenue for the six months ended
June 30, 2004. The increase reflects the sale of higher margin Ulead products and an increase in revenues from other products that typically enjoy higher gross profits. These increases were offset somewhat by the lower average selling prices of
our WinDVD products to our major OEM customers, an increase in per unit royalties paid to Dolby Laboratories. Also reflected in the gross profits for the six month period ended June 30, 2004 was the aforementioned recognition of approximately
$600,000 of previously deferred revenue as a result of changes in contractual arrangements wherein the related product costs were recorded in an earlier period.

We expect that the full integration of the Ulead products into our product mix and the continued movement of our InterVideo product sales toward higher margin products will continue to have a favorable impact on gross profits. However,
increased revenue through our OEM channels and from the sale of our products through other software and internet companies at lower margins will somewhat offset these higher margins.

As discussed in Note 2 of the Notes to the Condensed Consolidated Financial Statements, we have restated our financial statements to reflect a reduction of amortization expense due to the application of the partial
goodwill method to the Ulead acquisition in accordance with the provisions of SFAS 141. As a result, gross profit as a percentage of revenue has increased, accordingly, from 60% and 59% to 61% and 60% for the three and six month periods ended
June 30, 2005, respectively. Gross profit increased in absolute dollars by $228,000 from $16.7 million and $29.4 million to $16.9 million and $29.6 million for the three and six month periods ended June 30, 2005, respectively.

Research and development expenses (unaudited, dollars in thousands)



|                                  |  |                             |   |  |               |   |  |                           |      |  |               |      |  |       |   |  |    |  
|--------------------------------- |  | --------------------------- | - |  | ------------- | - |  | ------------------------- | ---- |  | ------------- | ---- |  | ----- | - |  | -- | -
|                                  |  | Three months ended June 30, |   |  | PercentChange |   |  | Six months ended June 30, |      |  | PercentChange |     
|                                  |  | 2005                        |   |  | 2004          |   |  |                           | 2005 |  |               | 2004 |  |      
|Research and development expenses |  | 5,427                       |   |  | 2,608         |   |  | 108                       | %    |  | 8,437         |      |  | 4,897 |   |  | 72 | %
|Percentage of total revenue       |  | 20                          | % |  | 16            | % |  |                           |      |  | 17            | %    |  | 14    | % |  |    |  

Research and development expenses were $5.4 million, or 20% of revenue, for the three months ended June 30,
2005 and $2.6 million, or 16% of revenue, for the three months ended June 30, 2004. This increase in absolute dollars and as a percentage of revenue reflects an increase of $2.2 million as a result of increased headcount associated with the
acquisition of Ulead and $655,000 in increased payroll and payroll related expenses due to increased research and development headcount in Taiwan and China. These increases were partially offset by a decrease in spending on outside consulting,
professional services and related fees of $131,000 largely due to a decrease in legal fees. Included in the Ulead research and development expenses for the three months ended June 30, 2005 are $154,000 related to reduction in force activities
in conjunction with the acquisition. The overall increase as a percentage of revenues is primarily a result of the increased headcount with the Ulead acquisition without a proportionate increase in revenues for the period.

For the six months ended June 30, 2005, research and development expenses were $8.4 million or 17% of revenue as compared with $4.9 million or 14% of revenue for
the six months ended June 30, 2004. In addition to the increase in research and development expenses attributable to the Ulead acquisition, this increase also reflects $1.1 of additional payroll and payroll related expenses due to increased
research and development headcount in our Asian facilities, an increase of $129,000 of facilities and related costs mainly due to expanded operations in Asia and an increase in travel expenses of $142,000. These increases were offset by a decrease
in spending on outside consulting, professional services and related fees of $179,000 largely due to a decrease in legal fees.

We believe that a
significant level of research and development expenses will be required for us to remain competitive, and, as a result, we expect these expenses to continue to increase in absolute dollars in the future while remaining relatively consistent with the
six month period as a percentage of revenue.



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INTERVIDEO, INC.

Sales and marketing expenses (unaudited, dollars in thousands)



|                             |  |                             |   |  |               |   |  |                           |      |  |               |      |  |       |   |  |    |  
|---------------------------- |  | --------------------------- | - |  | ------------- | - |  | ------------------------- | ---- |  | ------------- | ---- |  | ----- | - |  | -- | -
|                             |  | Three months ended June 30, |   |  | PercentChange |   |  | Six months ended June 30, |      |  | PercentChange |     
|                             |  | 2005                        |   |  | 2004          |   |  |                           | 2005 |  |               | 2004 |  |      
|Sales and marketing expenses |  | 5,306                       |   |  | 2,713         |   |  | 96                        | %    |  | 8,057         |      |  | 5,471 |   |  | 47 | %
|Percentage of total revenue  |  | 19                          | % |  | 16            | % |  |                           |      |  | 16            | %    |  | 15    | % |  |    |  

Sales and marketing expenses increased to $5.3 million, or 19% of revenue, for the three months ended
June 30, 2005 from $2.7 million, or 16% of revenue, for the three months ended June 30, 2004. The amount for the period ended June 30, 2005 includes $2.8 million as a result of the Ulead acquisition, including $138,000 associated with
reduction in force activities. Additionally, an increase in outside contractor fees of $111,000 primarily in Japan was partially offset by a $91,000 decrease in commissions paid to external sales representatives and a $133,000 decrease in
advertising, promotional tradeshow and related travel expenses due to the timing and scheduling of trade shows. The increase as a percentage of revenue is primarily attributable to the increase in expenses from the Ulead acquisition without a
proportionate increase in revenue.

For the six months ended June 30, 2005, sales and marketing expenses were $8.1 million or 16% of revenue as
compared to $5.5 million or 15% of revenue. In addition to the increase attributable to the Ulead acquisition in the six months ended June 30, 2005, outside contractor fees, primarily in Japan, increased by $126,000. These increases were offset
by a $135,000 decrease in commissions paid to external sales representatives, a $75,000 decrease in advertising, promotional tradeshow and related travel expenses due to the timing and scheduling of trade shows and a $68,000 decrease in payroll and
payroll related expenses due to some shifting of personnel to lower cost regions,

We intend to actively market, sell and promote our products and take
actions to further develop our brand name and retail presence in conjunction with the coordinated marketing efforts of the combined InterVideo and Ulead entities. Therefore, we expect sales and marketing expenses to increase in absolute dollars in
the future as we seek to further establish our retail presence.

General and administrative expenses (unaudited, dollars in thousands)



|                                    |  |                             |   |  |               |   |  |                           |                |  |               |      |  |       |   |  |    |  
|----------------------------------- |  | --------------------------- | - |  | ------------- | - |  | ------------------------- | -------------- |  | ------------- | ---- |  | ----- | - |  | -- | -
|                                    |  | Three months ended June 30, |   |  | PercentChange |   |  | Six months ended June 30, |                |  | PercentChange |     
|                                    |  | 2005(Restated)              |   |  | 2004          |   |  |                           | 2005(Restated) |  |               | 2004 |  |      
|General and administrative expenses |  | 3,941                       |   |  | 1,975         |   |  | 100                       | %              |  | 6,830         |      |  | 3,680 |   |  | 86 | %
|Percentage of total revenue         |  | 14                          | % |  | 12            | % |  |                           |                |  | 14            | %    |  | 10    | % |  |    |  

General and administrative expenses increased to $3.9 million, or 14% of revenue, for the three months ended
June 30, 2005 from $2.0 million, or 12% of revenue, for the three months ended June 30, 2004. The amount for the period ended June 30, 2005 includes $1.4 million as a result of the Ulead acquisition, including $222,000 associated with
reduction in force activities, as well as increases in payroll and payroll related costs of $496,000 due to increases in headcount primarily in the United States and Taiwan operations and audit, legal and other professional fees of $372,000 related
to our annual report filings. These increases were partially offset by a decrease in outside consulting fees of $226,000 primarily because of the reduction in consulting hours required for Sarbanes-Oxley compliance in the current period.

For the six months ended June 30, 2005, general and administrative expenses were $6.8 million or 14% of revenue as compared to $3.7 million or 10% of revenue for
the six months ended June 30, 2004. In addition to the increase in general and administrative expenses attributable to the Ulead acquisition of $1.4 million, the amount for the six months ended June 30, 2005 includes increases in payroll
and payroll related costs of $751,000 due to increases in headcount primarily in the United States and Taiwan operations, audit, legal and other professional fees of $833,000 related to our annual report filings and Sarbanes-Oxley compliance efforts
and $148,000 in outside consulting fees also related to Sarbanes-Oxley compliance efforts.

We expect general and administrative expenses to increase in
absolute dollars as we build our infrastructure to support our anticipated growth and operations with the combined InterVideo and Ulead entities and as we incur increased legal expenses to defend and protect our intellectual property position.
However, we expect these increases will be offset somewhat as our expenses related to Sarbanes-Oxley compliance decrease in future periods.

As discussed
in Note 2 of the Notes to the Condensed Consolidated Financial Statements, we have restated our financial statements to reflect a reduction of amortization expense due to the application of the partial goodwill method to the Ulead acquisition in
accordance with the provisions of SFAS 141. The impact on general and administrative expenses as a percentage of revenue and in absolute dollars for the three and six month periods ended June 30, 2005 was immaterial.



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Stock-based compensation expenses (unaudited, dollars in thousands)



|                                  |  |                             |   |  |               |   |  |                           |      |  |               |      |  |     |   |  |     |   
|--------------------------------- |  | --------------------------- | - |  | ------------- | - |  | ------------------------- | ---- |  | ------------- | ---- |  | --- | - |  | --- | --
|                                  |  | Three months ended June 30, |   |  | PercentChange |   |  | Six months ended June 30, |      |  | PercentChange |     
|                                  |  | 2005                        |   |  | 2004          |   |  |                           | 2005 |  |               | 2004 |  |    
|Stock-based compensation expenses |  | 27                          |   |  | 74            |   |  | (64                       | )%   |  | 67            |      |  | 149 |   |  | (55 | )%
|Percentage of total revenue       |  |                            | % |  |              | % |  |                           |      |  |              | %    |  | 1   | % |  |     |   

Stock-based compensation expenses decreased to $27,000 for the three months ended June 30, 2005 from $74,000
for the three months ended June 30, 2004.

For the six months ended June 30, 2005, stock-based compensation expenses decreased to $67,000 from
$149,000 for the six months ended June 30, 2004.

In 2005, we have continued to grant our stock options at exercise prices equal to the fair market
value of our common stock on the date of grant, and therefore no additional deferred stock-based compensation has been recorded. Additionally, employee terminations have further reduced the amount being amortized. Accordingly, we expect stock-based
compensation expenses to continue to decrease through the remainder of 2005.

On December 16, 2004, the FASB issued Statement No. 123 (revised
2004), Share Based Payments (SFAS No. 123R), which is a revision of SFAS No. 123 and supersedes APB No. 25 and will require us to calculate and record in the income statement the cost of equity instruments,
such as stock options awarded to employees for services received which we have previously disclosed as pro forma information in the Notes to the Consolidated Financial Statements. The cost of the equity instruments is to be measured based on the
fair value of the instruments on the date they are granted (with certain exceptions) and is required to be recognized over the period during which the employees are required to provide services in exchange for the equity instruments. On
April 14, 2005, the Securities and Exchange Commission (SEC) announced a delay of up to six months in the effective date of SFAS 123R and, as such, the statement will be effective beginning with the first quarter of our fiscal year 2006. The
impact of adopting SFAS No. 123R cannot be accurately estimated at this time, as it will depend on the market value and the amount of share based awards granted in future periods but it is expected that the impact will increase our stock-based
compensation expenses once it has been adopted.

In-Process Research and Development (unaudited, dollars in thousands)



|                                    |  |                             |   |  |               |   |                           |     |                |                |   |      |   |   |  |    
|----------------------------------- |  | --------------------------- | - |  | ------------- | - | ------------------------- | --- | -------------- | -------------- | - | ---- | - | - |  | ---
|                                    |  | Three months ended June 30, |   |  | PercentChange |   | Six months ended June 30, |     |                | Percent Change
|                                    |  | 2005(Restated)              |   |  | 2004          |   |                           |     | 2005(Restated) |                |   | 2004 |   |  
|In-process research and development |  | 2,574                       |   |  | 0             |   |                           | N/A |                | 2,574          |   |      | 0 |   |  | N/A
|Percentage of total revenue         |  | 9                           | % |  |              | % |                           |     |                | 6              | % |      |  | % |  |    

During the three and six month periods ended June 30, 2005, a $2.6 million charge to operating expenses was
incurred in connection with the Ulead acquisition because we identified research projects in areas for which technological feasibility had not been established and no alternative future uses existed.

As discussed in Note 2 of the Notes to the Condensed Consolidated Financial Statements, we have restated our financial statements to reflect a reduction of amortization
expense due to the application of the partial goodwill method to the Ulead acquisition in accordance with the provisions of SFAS 141. As a result, in-process research and development as a percentage of revenue has decreased, from 17% and 10% to 9%
and 6% for the three and six month periods ended June 30, 2005, respectively. In-process research and development decreased in absolute dollars by $2.2 million from $4.8 million to $2.6 million for the three and six month periods ended
June 30, 2005, respectively



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INTERVIDEO, INC.

Other income (expense), net (unaudited, dollars in thousands)



|                            |  |                             |    |  |               |   |  |                           |      |  |               |      |  |     |   |  |      |   
|--------------------------- |  | --------------------------- | -- |  | ------------- | - |  | ------------------------- | ---- |  | ------------- | ---- |  | --- | - |  | ---- | --
|                            |  | Three months ended June 30, |    |  | PercentChange |   |  | Six months ended June 30, |      |  | PercentChange |     
|                            |  | 2005                        |    |  | 2004          |   |  |                           | 2005 |  |               | 2004 |  |    
|Other income (expense), net |  | (1,010                      | )  |  | 262           |   |  | (486                      | )%   |  | (712          | )    |  | 435 |   |  | (264 | )%
|Percentage of total revenue |  | (4                          | )% |  | 1             | % |  |                           |      |  | (1            | )%   |  | 1   | % |  |      |   

Other income (expense), net decreased to a loss of $1.0 million for the three months ended June 30, 2005 from
income of $262,000 for the three months ended June 30, 2004.

For the six months ended June 30, 2005, other income (loss), net decreased to a
loss of $712,000 from income of $435,000 for the six months ended June 30, 2004.

The three and six months ended June 30, 2005 includes a
$267,000 loss from Ulead which includes a $355,000 charge for foreign currency translation losses offset by $91,000 in rental income, a $297,000 realized loss from the liquidation of short term investments for purposes of generating cash for the
purchase of Ulead and the $672,000 write-off of the Master Integrated Appliances Co., Ltd. long-term investment. These amounts are offset primarily by interest income of $239,000 and $551,000 for the three and six months ended June 30, 2005,
respectively. For the three and six months ended June 30, 2004 other income (expense), net consisted primarily of interest income earned on our cash and cash equivalent balances.

Provision for income taxes (unaudited, dollars in thousands)



|                            |  |                             |   |  |               |   |  |                           |               |  |               |      |  |       |   |  |   |  
|--------------------------- |  | --------------------------- | - |  | ------------- | - |  | ------------------------- | ------------- |  | ------------- | ---- |  | ----- | - |  | - | -
|                            |  | Three months ended June 30, |   |  | PercentChange |   |  | Six months ended June 30, |               |  | PercentChange |     
|                            |  | 2005(Restated)              |   |  | 2004          |   |  |                           | 2005(Restated |  |               | 2004 |  |      
|Provision for income taxes  |  | 761                         |   |  | 747           |   |  | 2                         | %             |  | 2,432         |      |  | 2,377 |   |  | 2 | %
|Percentage of total revenue |  | 3                           | % |  | 4             | % |  |                           |               |  | 5             | %    |  | 6     | % |  |   |  

We recorded a provision for income taxes of $761,000 and $2.4 million for the three and six months ended
June 30, 2005, respectively as compared to $747,000 and $2.4 million for the three and six months ended June 30, 2004. Our effective tax rate for the six months ended June 30, 2005 differs from the statutory federal rate primarily due
to the in-process research and development charge, state taxes, net of federal benefit, difference between federal and foreign tax rates and foreign withholding taxes.

As discussed in Note 2 of the Notes to the Condensed Consolidated Financial Statements, we have restated our financial statements to reflect a reduction in amortization expense due to the application of the partial
goodwill method to the Ulead acquisition in accordance with the provisions of SFAS 141. This restatement resulted in higher income before income taxes and caused the provision for income taxes to increase by $149,000 to $761,000 and $2.4 million for
the three and six month periods ended June 30, 2005, respectively. Provision for income taxes as a percentage of revenue increased from 2% to 3% for the three month period ended June 30, 2005.

Liquidity and Capital Resources

During the six months ended
June 30, 2005, cash, cash equivalents and short-term investments decreased by $3.6 million to $71.0 million, representing 52% of our total assets. Included in this amount is cash, cash equivalents and short-term investments from the acquisition
of Ulead of $26.0 million. Our cash, cash equivalents and short-term investments totaled $74.6 million at December 31, 2004 and represented 73% of our total assets. Cash and cash equivalents are highly liquid investments with an original
maturity of 90 days or less at the date of purchase. Short-term investments consist principally of US treasury and federal agency notes, state and municipal notes/bonds, corporate bonds and certificates of deposit.

Net cash provided by operating activities was $3.4 million for the six months ended June 30, 2005. Net income of $831,000 was adjusted for depreciation and
amortization of $1.4 million, non-cash investment loss of $1.1 million, the write-off of in-process research and development of $2.6 million, stock-based compensation of $67,000, provision for doubtful accounts of $129,000, decreases in prepaid
expenses and other current assets of $511,000, and an increase in deferred revenue of $3.7 million. These amounts were offset by the minority interest in losses of subsidiary of $296,000, increases in accounts receivable of $5.7 million and other
assets of $777,000 and a decrease in accrued liabilities and income taxes payable of $305,000. The adjustment for depreciation and amortization includes $337,000 for amortization of intangible assets arising primarily as a result of the Ulead
acquisition. Non-cash investment loss includes $672,000 write-off of a long term investment and $295,000 realized loss on the sale of securities in connection with the acquisition of Ulead. The write-off of in-process research and development
represents a charge to operating expenses in conjunction with the Ulead acquisition whereby we identified research projects in areas for which technological feasibility had not been established and no alternative future uses existed. The decrease in
prepaid expenses and other current assets includes $270,000 of amortization of directors and officers insurance premiums and a decrease in deferred costs related to the realization of deferred retail revenue of $294,000. The increase in
deferred revenue and accounts receivable is primarily due to the Microsoft, Inc. agreement signed during the quarter. The remaining increase in accounts receivable is primarily due to Ulead accounts receivable changes since the acquisition.

As part of the purchase price allocation, we acquired assets and assumed liabilities for a total purchase price of $42.8 million as of the date of the
acquisition that did not impact the post acquisition cash flows.

Net cash provided by operating activities was $4.5 million for the six months ended
June 30, 2004. Net income of $3.7 million was adjusted for depreciation and amortization of $663,000, stock-based compensation of $149,000, decreases in prepaid expenses and other assets of $538,000, increases in accrued liabilities and taxes
payable of $528,000 and deferred revenue of $655,000. This was partially offset by deferred taxes and the provision for doubtful accounts of $240,000 an increase in accounts receivable of $1.5 million and a decrease in accounts payable of $122,000.
The increase in accounts receivable is primarily due to increased shipment activity in the retail sector as well as changes in payment cycles with certain customers. The decrease in prepaid expenses and other current assets is mainly due to the
amortization of prepaid directors and officers insurance and prepaid licenses and royalties.



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INTERVIDEO, INC.

Net cash provided by investing activities was $2.4 million for the six months ended June 30, 2005 primarily due to proceeds from the sale and maturities of short-term investments in the amount of $39.8 million
which included $32.0 million related to the Ulead acquisition in addition to normal investment activities. This amount was offset by the use of $22.7 million, net of $13.6 million in cash acquired, to execute the Ulead tender offer. Additionally, we
used $13.7 million in the purchase of short-term investments and $863,000 for the purchase of property and equipment

Net cash used in investing activities
was $16.3 million for the six months ended June 30, 2004 due to purchases of short-term investments, net of proceeds from maturities of short-term investments of $13.9 million and purchases of property and equipment of $664,000, which was
largely attributable to the implementation of our new ERP system, and expanded operations in Asia. Additionally, we invested $1.7 million in two private companies in Taiwan.

Net cash provided by financing activities was $2.3 million for the six months ended June 30, 2005 as a result of proceeds from the issuance of common stock under our stock option and employee stock purchase plans
of $2.7 million, including $847,000 attributable to Ulead stock plans, and proceeds from the repayment of employee notes receivables of $235,000 offset by the use of $671,000 for the repurchase of common stock. Cash used in financing activities was
$1.4 million for the six months ended June 30, 2004 as a result of $2.6 million used for the repurchase of common stock offset by $1.2 million in proceeds from the issuance of common stock under our stock option and employee stock purchase
plans.

The effect of the aforementioned restatement as a result of the application of the partial goodwill method in accordance with the provisions of
SFAS 141 to the Ulead acquisition was to decrease the net loss of $1.5 million by $2.3 million resulting in net income of $831,000, decrease depreciation and amortization charges by $233,000, decrease the acquired in-process research and development
charge by $2.2 million and reduce the decrease in accrued liabilities and income taxes payable by $149,000. The restatement had no overall impact on the net cash provided by operating, investing and financing activities or the overall net increase
in cash and cash equivalents for the six month period ended June 30, 2005.

We currently have no significant commitments for capital expenditures, but
we expect to spend approximately $1 million to $2 million on capital expenditures in 2005, which will include the upgrading and expansion of our world-wide facilities. We anticipate that we will increase our capital expenditures consistent with our
anticipated growth in personnel and infrastructure, including facilities and systems. We have future lease commitments for buildings under non-cancelable operating leases through 2010. We have no other debt obligations.

We believe that our existing cash, cash equivalents and short-term investments will be sufficient to meet our working capital and capital expenditure requirements for at
least the next 12 months. We have used a total of $42 million to acquire a controlling interest in Ulead, including $32.6 million in April 2005, and we may continue to spend more cash to acquire additional shares of Ulead or to fund other
acquisition activities. To the extent that our existing sources of cash and cash flow from operations are not sufficient to fund our activities, we will need to raise additional funds. If we raise funds through debt financing, we will have to pay
interest and may be subject to restrictive covenants, which could limit our ability to take advantage of future opportunities or respond to competitive pressures or unanticipated industry changes. If we raise funds through an equity financing, it
may have a dilutive effect on our existing stockholders. Additional financing may not be available when needed and, even if such financing is available, it may not be available on terms acceptable to us. In addition, although we have no present
understandings, commitments or agreements with respect to any acquisitions of other businesses, services, products or technologies, we may from time to time evaluate potential acquisitions. These acquisitions may increase our capital requirements
and reduce your percentage ownership in us.

Off Balance Sheet Arrangements

As of June 30, 2005, we had no off balance sheet arrangements as defined in Item 303(a)(4) of the Securities and Exchange Commissions Regulation S-K.



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INTERVIDEO, INC.

Risk Factors

We are subject to a number of risks. Some of these risks are endemic to the DVD software industry.
The fact that certain risks are endemic to the industry does not lessen the significance of these risks. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that
we may currently deem immaterial, may become important factors that harm our business. If any of the following risks actually occurs, our business could be harmed. In that case, the trading price of our common stock could decline, and you may lose
all or part of your investment. You should carefully consider each of the Risk Factors and the other information in this Quarterly Report on Form 10-Q.

The rapidly evolving nature of our industry makes it difficult to forecast our future results.

The market for our products is
characterized by rapid changes in technology. Demand for our products depends on our ability to maintain competitive pricing and to provide new or improved products that keep up with changes in technology. Any evaluation of our business and
prospects must be made in light of the risks and difficulties encountered by companies offering products or services in new and rapidly evolving markets. The market for software-based digital video and audio solutions for incorporation in products
in the PC and consumer electronics industries is rapidly evolving, and it is difficult to forecast the future growth rate, if any, or size of the market for our products. For example, our future growth will depend on our ability to compete in
emerging and rapidly growing markets, such as multimedia home networking, high definition DVD, Blu-ray Disc and multimedia mobile phone markets. We may not accurately forecast customer behavior and recognize or respond to emerging trends, changing
preferences or competitive factors facing us, and, therefore, we may fail to make accurate financial forecasts. In addition, our acquisition of a controlling interest in Ulead has made it more difficult to make accurate financial forecasts. Our
current and future expense levels are based largely on our investment plans and estimates of future revenue and are, to a large extent, fixed. As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected
revenue shortfall, which would harm our operating results.

We expect our operating results to fluctuate on an annual and quarterly basis, which may
result in volatility of our stock price.

We expect our operating results to fluctuate on an annual and quarterly basis, which may cause our stock
price to be volatile. Important factors, many of which are outside our control, that could cause our operating results to fluctuate include:



| |  |  | fluctuations in demand for, and sales of, our products and the PCs and CE devices with which our products are bundled;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | timely and accurate reporting to us by our OEM customers of units shipped, which determines the timing and level of revenue received from these customers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the timing of orders or the completion of customer contracts with significant OEM customers;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | entering into contracts with customers that result in non-recurring revenue;
| | - |  | ----------------------------------------------------------------------------



| |  |  | competitive factors, including introductions of new products, product enhancements and the introduction of new technologies by our competitors and the entry of new competitors into
the digital video and audio software markets, which may result in our loss of business;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | decisions to acquire other companies, including non-accretive or non-synergetic results from the acquisition of Ulead;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | increases in third party license fees, such as the increase in royalties paid to Dolby;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | changes in consumer demand for our products due to the marketing of alternative technologies by our OEM customers;
| | - |  | ------------------------------------------------------------------------------------------------------------------



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INTERVIDEO, INC.



| |  |  | declines in selling prices of our products to our OEM or other customers;
| | - |  | -------------------------------------------------------------------------



| |  |  | market acceptance of new products developed by us, such as our InstantOn product;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | changes in the relative portion of our revenue represented by our various products and customers including the mix of OEM, retail and web sales;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | timing of revenue recognition, including deferrals of revenue;
| | - |  | --------------------------------------------------------------



| |  |  | the mix of international and domestic revenue;
| | - |  | ----------------------------------------------



| |  |  | the costs of litigation and intellectual property claims, including the legal costs incurred to protect our intellectual property rights and settlement of claims based upon our
violation or alleged violation of others intellectual property rights;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | economic conditions specific to the PC, consumer electronics and related industries; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | changes in accounting regulations that will require us to expense stock options.
| | - |  | --------------------------------------------------------------------------------

Due to these and other factors, period-to-period comparisons of our operating results may not be meaningful, and you should not rely on our results for any one period as an indication of our future performance. In addition, our future
operating results may fall below the expectations of public market analysts or investors. In this event, our stock price could decline significantly.

Changes in our product and service offerings could cause us to defer the recognition of revenue, which could harm our operating results and adversely impact our ability to forecast revenue.

We have created, and intend to continue to create, new software and software bundles such as WinDVD Creator, InterVideo Home Theater, InterVideo DVD Copy, MediaOne and
InstantON. Our recent acquisition of a controlling interest in Ulead is expected to accelerate this trend with the addition of their products, including PhotoImpact, VideoStudio, DVD Movie Factory, DVD Workshop and Media Studio Pro. These products
contain advanced features and functionality that have required and may continue to require us to provide an increased level of end-user support. In the future, as these new products become more complex, we may also be obligated to provide additional
support to our OEM customers to bundle our software with their products. These potential increases in OEM and end-user support obligations could require us to defer both license and PCS revenues to future periods, which could harm our operating
results and adversely impact our ability to accurately forecast revenue.

We expect our product prices to decline, which could harm our operating
results.

We expect prices for our products to continue to decline over the next few years. Because of competition from other software providers,
competition in the PC industry and diminishing margins experienced by PC OEMs as a result of decreased selling prices and lower unit sales, we have reduced the prices we charge PC OEMs for our WinDVD product, WinDVD Creator and other products. We
expect this trend to continue, which will make it more difficult to increase or maintain our revenue and may cause a decline in our gross profits, even if unit sales of any particular product increase. If unit sale increases do not offset
anticipated price declines, our revenue will decline. Accordingly, our future success will depend in part on our ability to increase sales of our higher-margin products and to introduce and sell new products and upgrades to our existing products,
which could increase our revenue and could improve our profit margins.



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INTERVIDEO, INC.

We may not achieve profitability on a quarterly or annual basis.

We incurred a net loss of $1.8 million for
the quarter ended June 30, 2005. As of June 30, 2005, we had retained earnings of $7.3 million. We expect to incur significant operating expenses over the next several years in connection with the continued development and expansion of our
business. These expenses include research and development and marketing expenses relating to products that will not be introduced and will not generate revenue until later periods, if at all. We may not achieve profitability on a quarterly or annual
basis in the future.

We may not be successful in addressing problems encountered in connection with our acquisition of a controlling interest in
with Ulead or any other acquisitions we may undertake, which could disrupt our operations or otherwise harm our business.

On April 20, 2005,
we acquired a controlling percentage of the issued shares of Ulead. We have limited experience in acquiring businesses and technologies, including businesses with international operations. The transaction with Ulead is our largest acquisition to
date. The transaction with Ulead and any other proposed or completed acquisitions and investments involve numerous risks, including:



| |  |  | unanticipated developments or events concerning the financial condition, assets, liabilities, operations, business or prospects of Ulead might arise;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | unanticipated costs and accounting errors associated with the transaction including the restatement of financial results and other issues associated with complicated cross-border
transactions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse effects on existing business relationships with suppliers and customers;
| | - |  | --------------------------------------------------------------------------------



| |  |  | diversion of managements attention from our core business including international travel to Taiwan;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | customer acceptance of new technology or product offerings from the Ulead business;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | problems maintaining internal accounting and disclosure controls and procedures and other uniform standards or policies with a company that was not subject to U.S.
generally-accepted accounting principles or disclosure requirements prior to the consummation of the transaction and that has operations outside of the United States;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | problems integrating the operations, personnel, technologies or products of the companies;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | challenges in providing accurate financial forecasts;
| | - |  | -----------------------------------------------------



| |  |  | conflicts of interest issues that might arise between InterVideo and Ulead as a majority-owned subsidiary; and
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | potential loss of key management, engineers and other employees.
| | - |  | ----------------------------------------------------------------

We
expect to continue to review opportunities to buy or make investments in other businesses, products or technologies that would enhance our technical capabilities, complement our current products or expand the breadth of our markets or that may
otherwise offer growth opportunities. We have utilized $42 million of our working capital to purchase 62.4% of the issued shares of Ulead. Any additional purchase of shares of Ulead or other acquisitions of businesses or technologies will require
significant commitment of resources beyond the substantial portion of our cash already spent for the Ulead transaction. We may be required to pay for any acquisitions with cash, but we cannot be certain that additional capital will be available to
us on favorable terms, if at all. In lieu of paying cash, we could issue stock as consideration for an acquisition that would dilute existing stockholders percentage ownership, incur substantial debt or assume contingent liabilities.



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INTERVIDEO, INC.

If Microsoft develops or licenses digital video and audio solutions that compete directly with ours, our business could suffer.

Microsoft currently offers products in the digital video and audio software markets. Some video and audio capabilities are built directly into their operating systems or are offered as upgrades to those operating
systems at no additional charge. During the second quarter of 2005, we granted to Microsoft, Inc. a worldwide right and license to use, copy, create derivative works of, publicly perform or display, import, broadcast, transmit, offer to sell, sell,
have sold, rent, lease, lend, transfer or otherwise distribute certain key components of our DVD, audio and video decoding technology. If Microsoft develops or licenses digital video and audio solutions that compete directly with ours and
incorporates the solutions into its operating system, or otherwise changes its operating system to render our products incompatible, our business could be harmed.

We license technology from third parties for use in our WinDVD and other standards-based products, and we might not be able to ship our products in their present forms if we fail to maintain these license arrangements.

We license technology for use in our WinDVD, WinDVD Creator and InterVideo Home Theater products and other existing and planned products from third
parties under agreements, some of which have a limited duration. For example, we have a license agreement with Dolby Laboratories for its audio technology and logo, a license agreement with the DVD Copy Control Association, Inc. for the content
scrambling system designed to prevent the copying of DVDs, a license with MPEG-LA for its MPEG-2 video technology, a license from Thomson Licensing S.A. for its MP3 audio technology and various other license agreements relating to patents, know-how
and trademarks that are important to various aspects of the development, marketing and sale of our products. We are obligated to pay royalties under each of the Dolby, DVD Copy Control Association, MPEG-LA and Thomson Licensing S.A. agreements, and
Dolby, DVD Copy Control Association, MPEG LA and Thomson Licensing may each terminate its license if we breach any material provision of the license or if other events occur, as specified in the license agreement. If we fail to maintain these
license arrangements, we might not be able to ship our products in their present forms and our revenue could decline.

Because there is a small
number of large PC OEMs, we have only a limited number of potential new large OEM customers for our WinDVD product, which will likely cause our revenue to grow at a slower rate than in recent periods.

Historically, our revenue growth has been achieved in large part due to sales of our WinDVD product to new, large PC OEM customers. More recently, we have derived an
increasing percentage of our revenue from sales of our non-WinDVD products, which include WinDVD Creator, InterVideo Home Theater, InterVideo DVD Copy and our InstantON product, and from retail sales as a result of the Ulead transaction. Because
there is only a limited number of potential new, large PC OEM customers for our products, we must derive any future revenue growth principally from increased sales of WinDVD or other products to existing PC OEMs and PC peripherals manufacturers and
from sales to smaller regional PC OEMs and directly to consumers through retail channels and our websites. Because some of these other revenue opportunities are more fragmented than the PC OEM market and will take more time and effort to penetrate,
our revenue may grow at a slower rate than historically. Additionally, if the rate of such expansion via retail channels and our website proceeds slower than we anticipate, our financial position could be adversely affected.

We depend substantially on our relationships with HP and a small number of PC OEMs, and our failure to maintain or expand these relationships would reduce our
revenue and gross profit or otherwise harm our business.

The PC industry is highly concentrated, and we have derived a substantial portion of our
revenue from sales of our products to HP and a small number of PC OEMs. For the quarter ended June 30, 2005, our two largest OEM customers accounted for 33% of our revenue, with HP accounting for 24% and Toshiba accounting for 9% of our revenue
during that period. However, we expect our revenue from HP to decline beginning in the fourth quarter of 2005 and into 2006 because we have been informed by HP that they will not incorporate certain of our products into certain future HP notebook
models. A significant decrease in revenue from HP, or the loss of any of our large customers without an increase in sales from other customers, would reduce our revenue and gross profit and otherwise harm our business.

We expect that a small number of customers will continue to account for a majority of our revenue, gross profit and accounts receivables for the foreseeable future
because of the concentrated nature of our client base. If the PC industry continues to consolidate, the number of customers accounting for the majority of our revenue could decrease further. Our agreements with our customers typically do not contain
minimum purchase commitments and are of limited duration or are terminable with little or no notice. The loss of any of these customers, or a significant decrease in revenue from any of these customers, including HP, would reduce our revenue and
gross profit or otherwise harm our business. If our customers dispute the accounts receivables or are otherwise unable to pay the balance, our income from operations could decline.



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If our competitors offer our OEM customers more favorable terms than we do or if our competitors are able to take advantage of their existing relationships with these OEMs, then these OEMs may not include our software
with their PCs. If we are unable to maintain or expand our relationships with PC OEMs, our business will suffer.

As a result of our dependency on a
small number of large PC OEMs, any problems those customers experience, or their failure to promote products that contain our software, could harm our operating results.

As a result of our concentrated customer base, problems that our PC OEM customers experience could harm our operating results. Some of the factors that affect the business of our PC OEM customers, all of which are
beyond our control, include:



| |  |  | the competition these customers face and the market acceptance of their products;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the engineering, marketing and management capabilities of these customers and the technical challenges that they face in developing their products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the financial and other resources of these customers;
| | - |  | -----------------------------------------------------



| |  |  | new governmental regulations or changes in taxes or tariffs applicable to these customers; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | the failure of third parties to develop and introduce content for DVD and other digital media applications in a timely fashion.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

The inability of our PC OEM customers to successfully address any of these risks could harm our business. In addition, we have little or no influence over the degree to
which these customers promote products that incorporate our software or the prices at which these products are sold to end users. If our PC OEM customers fail to adequately promote products that incorporate our software, our revenue could decline.

We have material weaknesses in our disclosure controls and internal controls over financial reporting that may prevent us from being able to
accurately report our financial results or prevent fraud, which could harm our business and operating results.

Effective disclosure and internal
controls are necessary for us to provide reliable and accurate financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 requires that we assess, and our independent registered public accounting firm attest
to, the design and operating effectiveness of our controls over financial reporting. If we cannot provide reliable and accurate financial reports and prevent fraud, our business and operating results could be harmed. We have in the past discovered,
and may in the future discover, areas of our internal controls that need improvement. The material weaknesses in our internal control over financial reporting that we identified at December 31, 2004, as well as our remediation efforts to date,
are more fully discussed in Item 4 of this report, Controls and Procedures.

While we have taken steps to remediate the identified
material weaknesses during the first six months of 2005, we cannot be certain that any remedial measures we take will ensure that we design, implement, and maintain adequate disclosure and internal controls over our financial processes and reporting
in the future or will be sufficient to address and eliminate the material weaknesses in next years annual assessment. Remedying the material weaknesses that have been identified, and any additional deficiencies, significant deficiencies or
material weaknesses that we or our independent registered public accounting firm may identify in the future, could require us to incur significant costs, expend significant time and management resources or make other changes. We are currently unable
to determine whether any of the material weaknesses identified in this report will be remediated by the end of fiscal 2005, and if they are not, we may be required to report in our Annual Report on Form 10-K for fiscal 2005 or in subsequent reports
filed with the Securities and Exchange Commission that material weaknesses in our internal controls over financial reporting continue to exist. Any delay or failure to design and implement new or improved controls, or difficulties



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encountered in their implementation or operation, could harm our operating results, cause us to fail to meet our financial reporting obligations, or prevent us from providing reliable and accurate financial reports or
avoiding or detecting fraud. Disclosure of our material weaknesses or our failure to remediate such material weaknesses in a timely fashion could cause investors to lose confidence in our reported financial information, which could have a negative
effect on the trading price of our stock and our access to capital.

We have received notices of claims, and may receive additional notices of claims
in the future, regarding the alleged infringement of third parties intellectual property rights that may result in restrictions or prohibitions on the sale of our products and cause us to pay license fees and damages.

Some third parties hold patents that such parties claim cover various aspects of DVD technology incorporated into our and our customers products.

Our digital video and audio products comply with industry standard DVD specifications. Some third parties have claimed that various aspects of DVD
technology incorporated into our and our customers products infringe upon patents held by them, including the following:



| |  |  | MPEG LA. DVD specifications include technology known as MPEG-2 that governs the process of storing video in digital form. A group of companies, comprised
primarily of CE manufacturers, has formed a consortium known as MPEG LA, LLC to enforce member companies patents covering certain aspects of MPEG-2 technology. MPEG LA, and certain members of the consortium, have notified us that
they believe that our products infringe on patents owned by members of the consortium. In March 2002, we entered into a license agreement with MPEG LA pursuant to which we obtained a license, retroactive to our inception, to MPEG LAs patents
necessary to the MPEG-2 standard in exchange for a cash payment and our agreement to make ongoing royalty payments. This license requires that we pay a royalty to MPEG LA on our sales to end users and that we notify the OEMs to whom we sell our
products that they are obligated to obtain a license from MPEG LA for any use of our products that comply with the MPEG-2 standard. In addition, MPEG LA, and certain members of the consortium, have notified a number of PC OEMs, including some of our
customers, that they believe MPEG LA members patents are infringed by those PC OEM products that incorporate MPEG-2 technology. We are aware that a number of PC OEMs, including some of our customers, have settled the MPEG LA claims and entered
into license agreements with MPEG LA.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | DVD 6C. Another group of companies has formed a consortium known as DVD 6C to enforce the proprietary rights of holders of patents covering some aspects of DVD
technology. DVD 6C has notified us that we may need a license so that our products that incorporate DVD technology do not infringe patents owned by members of the consortium. In addition, DVD 6C or its members may demand that PC OEMs or other
companies manufacturing or licensing DVD-related products, including our customers, pay license fees or stop selling products covered by the patents of the member companies.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Others. Other third parties, including Nissim Corporation, have notified a number of PC OEMs, including some of our customers, that they believe their patents are infringed
by the products of these PC OEMs that incorporate certain DVD-related technology. Nissim and the other third parties making such claims may demand that these PC OEMs pay license fees or stop selling products that are covered by the third
partys patents.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We and our customers may be subject to additional third-party claims that our and our customers products
violate the intellectual property rights of those parties.

In addition to the claims described above, we may receive notices of claims of infringement
of other parties proprietary rights. Many companies aggressively use their patent portfolios to bring infringement claims against competitors and other parties. As a result, we may become a party to litigation in the future as a result of an
alleged infringement of the intellectual property rights of others, including DVD 6C or Nissim. In addition, we are aware that a consortium of companies, known as 4C, has been formed for the purpose of asserting the patent rights of its
members covering some aspects of DVD technology. 4C may demand that PC OEMs or other companies manufacturing or licensing DVD-related products, including us and our customers, pay license fees and damages for the use of the technology, or be
prohibited from selling products, covered by the 4C patents. Similarly, other parties have alleged that aspects of MPEG-2 and other multimedia technologies infringe upon patents held by them. We may be required to pay license fees and damages or be
prohibited from selling our products in the future if it is determined that our products infringe on patents owned by these



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third parties. In addition, other companies may form consortia in the future, similar to MPEG LA, DVD 6C and 4C, to enforce their proprietary rights and these consortia may seek to enforce their patent rights against
us and our customers. Some of our products can be used in connection with the copying of video content, which may include content protected by copyright. Though we believe these products do not contribute to copyright infringement and do not defeat
encryption in violation of the Digital Millennium Copyright Act, some content owners have shown a willingness to instigate litigation against producers of products that could be used to copy copyrighted content. Defending such suits could be costly
and could cause a serious disruption in our business regardless of the outcome.

We may be required to pay substantial damages and may be restricted or
prohibited from selling our products if it is proven that we violate the intellectual property rights of others.

If DVD 6C, 4C, Nissim or another third
party proves that our technology infringes its patents, we may be required to pay substantial damages for past infringement and may be required to pay license fees or royalties on future sales of our products. If we are required to pay license fees
in the amounts that are currently published by, for example, DVD 6C for past sales to our large PC OEM customers, such fees would exceed the revenue we have received from those PC OEM customers. In addition, if it were proven that we willfully
infringed on a third partys patents, we may be held liable for three times the amount of damages we would otherwise have to pay. In addition, intellectual property litigation may require us to:



| |  |  | stop selling, incorporating or using our products that use the infringed intellectual property;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | obtain a license to make, sell or use the relevant technology from the owner of the infringed intellectual property, which license may not be available on commercially reasonable
terms, or at all; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | redesign our products so as not to use the infringed intellectual property, which may not be technically or commercially feasible and may cause us to expend significant resources.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Furthermore, the defense of infringement claims and lawsuits, regardless of their outcome, would likely be expensive to resolve and could
require a significant portion of managements time. In addition, rather than litigating an infringement matter, we may determine that it is in our best interests to settle the matter. Terms of a settlement may include restrictions or
prohibitions on our ability to sell products incorporating the other partys technology, the payment of damages and our agreement to license technology in exchange for a license fee and ongoing royalties. These fees may be substantial. If we
are forced to take any of the actions described above, defend against any claims from third parties or pay any license fees or damages, our business could be harmed.

We may be liable to some of our customers for damages that they incur in connection with intellectual property claims.

Our license agreements, including the agreements we have entered into with our large PC OEM customers, generally contain warranties of non-infringement and commitments to indemnify our customers against liability arising from infringement
of third-party intellectual property rights. Examples of third-party intellectual property rights include the patents held by Nissim and by members of MPEG LA, DVD 6C and 4C. These commitments may require us to indemnify or pay damages to our
customers for all or a portion of any license fees or other damages, including attorneys fees, our customers are required to pay, or agree to pay, these or other third parties. We have received notices from some of our customers asserting that
we are required to indemnify them under our agreements with them, or providing notice that they have received from third parties infringement claims that are related to our products. These customers include, among others, Micron Electronics and MPC
LLC (formerly known as Micron PC LLC), as well as other customers with which we have settled. We expect to make additional cash payments to settle similar claims in the future. Although MPEG LA has stated that some of our PC OEM customers, including
Dell, Fujitsu Limited, Gateway, Hewlett-Packard, Sony and Toshiba, are currently MPEG LA licensees, not all of our PC OEM customers are MPEG LA licensees. Notwithstanding that we have signed a license agreement with MPEG LA, we may continue to be
liable to some of our customers for amounts that those customers pay or have paid to MPEG LA in settlement of claims of infringement brought by MPEG LA against those customers. Even with respect to those PC OEM customers that have become licensees,
we may have liability to these customers for prior infringement and future royalty payments. If we are required to pay damages to our customers or indemnify our customers for damages they incur, our business could be harmed. If our customers are
required to pay license



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fees in the amounts that are currently published by some claimants, and we are required to pay damages to our customers or indemnify our customers for such amounts, such payments would exceed our revenue from these
customers. Even if a particular claim falls outside of our indemnity or warranty obligations to our customers, our customers may be entitled to additional contractual remedies against us. Furthermore, even if we are not liable to our customers, our
customers may attempt to pass on to us the cost of any license fees or damages owed to third parties by reducing the amounts they pay for our products. These price reductions could harm our business.

We rely on patents, trademarks, copyrights, trade secrets and license agreements to protect our proprietary rights, which afford only limited protection.

Our success depends upon our ability to protect our proprietary rights. We rely on a combination of patent, copyright, trademark and trade secret
laws, as well as license and confidentiality agreements with our employees, customers, strategic partners and others to establish and protect our proprietary rights. The protection of patentable inventions is important to our future opportunities.
It is possible that:



| |  |  | our pending patent applications may not result in the issuance of patents;
| | - |  | --------------------------------------------------------------------------



| |  |  | we may not apply for or obtain effective patent protection in every country in which we do business;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | our patents may not be broad enough to protect our proprietary rights;
| | - |  | ----------------------------------------------------------------------



| |  |  | any issued patent could be successfully challenged by one or more third parties, which could result in our loss of the right to prevent others from using the inventions claimed in
those patents;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be required to grant cross-licenses to our patents in accordance with the terms of the agreements we enter into with customers or strategic partners;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | for business reasons we may choose not to enforce our patents against certain third parties; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | current and future competitors may independently develop similar technology, duplicate our products or design new products in a way that circumvents our patents.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

Existing copyright, trademark and trade secret laws and license and confidentiality agreements afford only limited protection. In addition,
the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States, and policing the unauthorized use of our products is difficult. Any failure to adequately protect our proprietary rights
could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue. Infringement claims and lawsuits would likely be expensive to resolve and would require
managements time and resources and, therefore, could harm our business. In addition, legal actions to enforce our intellectual property rights may be expensive, distract management, and ultimately prove unsuccessful.

We have derived a majority of our revenue from the sale of our WinDVD product to PC OEMs, and these customers may not continue to purchase this product or we may
fail to attract new customers for this product.

We derived 45% and 53% of our revenue for the three and six months ended June 30, 2005 and 73%
and 76% of our revenue for the three and six months ended June 30, 2004 from sales of our WinDVD product, primarily to PC OEMs. We expect that revenue from sales of our WinDVD product to PC OEMs will continue to account for a significant
portion of our revenue for the foreseeable future. Accordingly, our business will suffer if our existing PC OEM customers do not continue to incorporate our WinDVD product into the PCs they sell or if we are unable to obtain new PC OEM customers for
our WinDVD product.

Slow growth, or negative growth, in the PC industry could reduce demand for our products and reduce our gross profit.

Our revenue depends in large part on the demand for our products by PC OEMs. The PC industry has experienced slow or negative growth in the recent
past due to general economic slowdowns, market saturation and other factors. If slow growth in the PC industry continues or negative growth occurs, demand for our products may decrease. Furthermore, if a reduction in demand for our products occurs,
we may not be able to reduce expenses commensurately, due in part to the continuing need for research and development. Accordingly, continued slow growth or negative growth in the PC industry could reduce our gross profit.

Our success in generating revenue depends on the growth of the use of software solutions in the PC and consumer electronics industries.

Our continued success in generating revenue depends on growth in the use of software solutions to add features and functionality to PCs and CE devices. Our software is
currently used primarily in PCs, and we expect it to be useful for CE products. These markets are rapidly evolving, and it is difficult to predict their potential size or future growth rate. In addition, we are uncertain as to the extent to which
software products such as ours will be used in these markets in the future. Their market acceptance may be impacted by the performance, cost and availability of semiconductors that perform similar functions and the level of copy protection that can
be attained and maintained in software products. Our success in generating revenue in these markets will depend on increased adoption of software solutions based on the same standards as ours. If the PC and consumer electronics markets adopt
software solutions more slowly than we expect, or if content providers are dissatisfied with the level of copy protection available in software products our business would likely suffer.

Our products are based primarily on the Microsoft Windows operating system, and most of our customers require that the combination of our software products and their PCs be certified by Microsofts Windows
Hardware Qualification Labs. Accordingly, we are dependent on Microsoft, which exposes us to risks.

Our products are based primarily on the
Microsoft Windows operating system. If industry and customer preferences in operating systems shift, our products may not be compatible with other operating systems and our business could be harmed.

Our revenue is highly dependent upon acceptance of products that are based on the Microsoft Windows operating system, which is currently the dominant operating system
used in the PC industry. Microsoft could make changes to its operating system that could render our products incompatible. Other industry participants could develop operating systems to replace the Windows operating system, and our products might
not be compatible with those operating systems. If our products are not compatible with one or more of the operating systems with significant PC market share, we could incur substantial costs and expend significant capital and other resources to
adapt our products to one or more operating systems. There is no assurance that we would be able to adapt our products to changes made in the Windows operating system in the future or to a new operating system, and any failure to adapt to changes in
operating systems by the PC industry could result in significant harm to our business.



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Most of our customers require that the combination of our software products and their PCs be certified by Microsofts Windows Hardware Qualification Labs. If certification is not obtained, our revenue could
decline or our customers may license a competitors software.

We sell most of our products through PC OEMs, which bundle our products with their
hardware products. Most of our PC OEM customers require Microsofts Windows Hardware Qualifications Labs, or WHQL, certification for our products on each PC platform before bundling and distribution. The certification process is entirely under
Microsofts control, and we may not obtain certification for any product on a timely basis or at all. Furthermore, Microsoft may change the requirements for certification at any time without notice. At various times in the past, Microsoft has
changed standards applicable to our products, which caused us to be out of compliance for a period of time. In the future, we may not be able to obtain necessary certification on a timely basis, if at all, for new PC models introduced by our
customers, for any of our products under development or for existing products, if the current standards are changed. Any delays in receipt of, or failure to receive, such certification could cause our revenue to decline or our customers to license a
competitors software.

Competition in our industry is intense and is likely to continue to increase, which could result in price reductions,
decreased customer orders, reduced product margins and loss of market share, any of which could harm our business.

Our industry is highly
competitive, and we expect competition to intensify in the future. Our competitors include:



| |  |  | software companies that offer digital video or audio applications;
| | - |  | ------------------------------------------------------------------



| |  |  | companies offering hardware or semiconductor solutions as alternatives to our software products; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | operating system providers that may develop and integrate applications into their products.
| | - |  | -------------------------------------------------------------------------------------------

Our primary competitors are Adobe Systems Incorporated, Cyberlink Corporation, Pinnacle Systems, Inc. and Sonic Solutions, Inc. Additional competitors are likely to enter our industry in the future. We also face
competition from the internal research and development departments of other software companies and PC and CE manufacturers, including some of our current customers. Some of our customers have the capability to integrate their operations vertically
by developing their own software-based digital and audio solutions or by acquiring our competitors or the rights to develop competitive products or technologies, which may allow these customers to reduce their purchases or cease purchasing from us
completely. Operating system providers with an established customer base, such as Microsoft, already offer products in the digital video and audio software markets. Some video and audio capabilities are built directly into their operating systems or
are offered as upgrades to those operating systems at no additional charge. During the second quarter of 2005, we granted to Microsoft, Inc. a worldwide right and license to use, copy, create derivative works of, publicly perform or display, import,
broadcast, transmit, offer to sell, sell, have sold, rent, lease, lend, transfer or otherwise distribute certain key components of our DVD, audio and video decoding technology. If Microsoft or other operating system providers develop or license
digital video and audio solutions that compete directly with ours and incorporate the solutions into their operating systems, our products could lose market share.

We expect our current competitors to introduce similar or improved products at lower prices, and we will need to do the same to remain competitive. For example, we expect revenues from Dell to decline in successive quarters with the
possibility of no revenue from Dell in the future periods, because our current portion of their business is moving to one of our competitors. Further, we expect our revenue from HP to decline beginning in the fourth quarter of 2005 and into 2006
because we have been informed by HP that they will not incorporate certain of our products into certain future HP notebook models. We may not be able to compete successfully against either current or future competitors with respect to new or
improved products. We believe that competitive pressures may result in price reductions, reduced margins and our loss of market share.

Many of our current
competitors and potential competitors have longer operating histories and significantly greater financial, technical, sales and marketing resources or greater name recognition than we do. As a result, these competitors are able to devote greater
resources to the development, promotion, sale and support of their products. In addition, our competitors that have large market capitalizations or cash reserves are in a better position to acquire other companies in order to gain new technologies
or products that may displace our products. Any of these potential acquisitions could give our competitors a strategic advantage. In addition, some of our current competitors and potential competitors have greater brand name recognition, a more
extensive customer base, more developed distribution channels and broader product offerings than we do. These companies can use their broader customer base and product offerings, or adopt aggressive pricing policies, to gain market share. Increased
competition in the market may result in price reductions, decreased customer orders, reduced profit margins and loss of market share, any of which could harm our business.



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If we do not provide acceptable customer support, our reputation will suffer and it will be difficult to retain existing customers or to acquire new customers.

We will need to continue to provide acceptable customer support to our customers. An inability to do so will harm our reputation and make it difficult to retain existing
customers or acquire new customers. Most of our experience to date has been with corporate customers, some of which require significant support when familiarizing themselves with the features and functionality of our products. We intend to increase
sales of our products directly to consumers. We have limited experience with widespread distribution of our products directly to consumers, and we may not have adequate experience or personnel to provide the levels of support that these customers
require. Our failure to provide adequate customer support for our products to either our corporate or consumer customers could damage our reputation and brand in the marketplace and strain our relationships with customers. This could prevent us from
retaining existing customers or acquiring new customers.

Our ability to achieve profitability will suffer if we fail to manage our growth
effectively.

Our success depends on our ability to effectively manage the growth of our operations, including successfully integrating the
operations of Ulead. We cannot be certain that our current cost structure is appropriate for the level of revenue that we generate. Furthermore, we expect to increase the scope of our operations in the future. To manage the growth of our operations
and personnel, we will need to improve our operational and financial systems, procedures and controls as well as hire additional qualified personnel. Our current and planned systems, procedures and controls may not be adequate to support our future
operations and expected growth. Delays or problems associated with any improvement or expansion of our operational systems and controls could harm our relationships with customers, reputation and brand.

The loss of any of our strategic relationships would make it more difficult to design competitive products and keep pace with evolving industry standards, which
could reduce demand for our products and harm our business.

We must design our software products to interoperate effectively with a variety of
hardware and software products, including operating system software, graphics chips, DVD drives, PCs and PC chipsets. We depend on strategic relationships with software developers and manufacturers of these products, particularly Microsoft and
Intel, to achieve our design objectives, to produce products that interoperate successfully, to provide us with information concerning customer preferences and evolving industry standards and trends, and to assist us in distributing our products to
users. For example, we have been able to learn about future product lines being developed by some of our OEM customers in advance so that we were able to more efficiently design products that our customers, and the ultimate end users, find valuable.
However, we generally do not have any agreements with these third parties to ensure that such information will be provided to us, and these relationships may not continue in the future. The loss of any one of these relationships could reduce demand
for our products and harm our business.

Our products may have defects or may be incompatible with other software or components contained in our
customers products, which could cause us to lose customers, damage our reputation and create substantial costs.

Defects, referred to in the
software industry as bugs, have been found in our products in the past and may be found in the future. In addition, our products may fail to meet our customers design specifications or be incompatible with other software or
components contained in our customers products, or our customers may change their design specifications or add additional third-party software or components after the production of our products. We may be required to devote significant
financial resources and personnel to correct any defects. A failure to meet our customers design specification often results in a loss of sales due to the length of time required to redesign the product. Our products may also be required to
interface with defective third-party software or components. If we are unable to detect or fix errors, or meet our customers design specifications, our business and results of operations would suffer.

We may experience seasonality in our business, which could cause our operating results to fluctuate.

Our financial condition and results of operations are likely to be affected by seasonality in the future. Historically, PC OEMs have experienced their highest volume of
sales during the year-end holiday season. Because of the timing of our recognition of revenue associated with the sale of our products to OEMs, we expect this seasonality to have a positive effect on our revenue and



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operating income in the first quarter of each calendar year and a negative effect on our revenue and operating income in the second quarter of each year. We expect our recent acquisition of a controlling interest in
Ulead will impact this trend in future periods because a substantial portion of their revenues are derived from web and retail sales which are typically recognized in the period in which they occur. Our retail sales is expected to increase as a
percentage of our revenue as a result of the Ulead transaction, which would also result in greater seasonality in our results of operations.

The
market for our products is new and constantly changing. If we do not respond to changes in a timely manner, our products likely will no longer be competitive.

The market for our products is characterized by rapid technological change, new and improved product introductions, changes in customer requirements and evolving industry standards. Our future success will depend to a
substantial extent on our ability to develop, introduce and support cost-effective new products and technologies on a timely basis. If we fail to develop and deploy new cost-effective products and technologies or enhancements of existing products on
a timely basis, or if we experience delays in the development, introduction or enhancement of our products and technologies, our products will no longer be competitive and our business will suffer. The development of new, technologically advanced
products is a complex and uncertain process requiring high levels of innovation and highly skilled engineering and development personnel, as well as the accurate anticipation of technological and market trends. We may not be able to identify,
develop, manufacture, market or support new or enhanced products on a timely basis, if at all. Furthermore, our new products may never gain market acceptance, and we may not be able to respond effectively to product announcements by competitors,
technological changes or emerging industry standards. Our failure to respond to product announcements, technological changes or changes in industry standards would likely prevent our products from gaining market acceptance and harm our business.

If we do not successfully establish strong brand identity in the PC and consumer electronics markets, we may be unable to achieve widespread
acceptance of our products.

We believe that establishing and strengthening the InterVideo brand is critical to achieving widespread acceptance of
our products and to establishing key strategic relationships. The importance of brand recognition will increase as current and potential competitors enter the market with competing products. Our ability to promote and position our brand depends
largely on the success of our marketing efforts and our ability to provide high quality products and customer support. These activities are expensive and we may not generate a corresponding increase in customers or revenue to justify these costs. If
we fail to establish and maintain our brand, or if our brand value is damaged or diluted, we may be unable to attract new customers and compete effectively. Historically, we have relied primarily on a limited direct sales force, supported by
third-party manufacturers representatives and distributors, to sell our products. Our sales strategy focuses primarily on our corporate customers bundling our products with their hardware and distributing our products through their own
distribution channels. We rely on our customers sales forces, marketing budgets and brand images to promote sales of bundled products. If our corporate customers fail to successfully market and sell their products bundled with our products, or
if our relationship with our corporate customers are terminated, we may be unable to effectively market and distribute our products and services.



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Our success depends on retaining our key personnel, including our executive officers, the loss of any of whom could disrupt our operations or otherwise harm our business.

Our success depends on the continued contributions of our senior management and other key engineering, sales and marketing and operations personnel. Competition for
employees in our industry can be intense. We do not have employment agreements with, or key man life insurance policies covering, any of our executives. In addition, significant portions of the capital stock and options held by the members of our
management are vested, and some of our executives are parties to agreements that provide for the acceleration of the vesting of a portion of their unvested shares and options under certain circumstances in connection with a change of control. There
can be no assurance that we will retain our key employees or be able to hire replacements. Our loss of any key employee or an inability to replace lost key employees and add new key employees as we grow could disrupt our operations or otherwise harm
our business.

We rely on the accuracy of our customers sales reports for collecting and reporting revenue. If these reports are not accurate,
our reported revenue will be inaccurate.

A substantial majority of our revenue is generated by our PC OEM customers that pay us a license fee based
upon the number of copies of our software they bundle with the PCs that they sell. In collecting these fees, preparing our financial reports, projections and budgets and in directing our sales efforts and product development, we rely on our
customers to accurately report the number of units licensed. We have never audited any of our customers to verify the accuracy of their reports or payments. Most of our license agreements permit us to audit our customers, but audits are expensive
and time consuming and could harm our customer relationships. >From time to time, customers have provided us with inaccurate reports, which resulted in our under-reporting or over-reporting revenue for the associated period and recording an
adjustment in a future period. If any of our customer reports are inaccurate, the revenue we collect and report will be inaccurate and we may be required to make an adjustment to our revenue for a subsequent period, which could harm our business and
credibility in the financial community.

Our international operations accounted for 57% and 50% of our revenue for the three and six months ended
June 30, 2005 and 49% and 48% of our revenue for the three and six months ended June 30, 2004, which may expose us to political, regulatory, economic, foreign exchange and operational risks.

Because we sell our products worldwide, our business is subject to risks associated with doing business internationally. We expect to continue to derive a significant
portion of our revenue from international sales. We intend to expand our international operations in the future. Significant management attention and financial resources are needed to develop our international sales, support and distribution
channels and manufacturing. We may not be able to maintain international market demand for our products. Our future results could be harmed by a variety of factors related to international operations, including:



| |  |  | foreign currency exchange rate fluctuations;
| | - |  | --------------------------------------------



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INTERVIDEO, INC.



| |  |  | seasonal fluctuations in sales;
| | - |  | -------------------------------



| |  |  | changes in a specific countrys or regions political or economic condition, particularly in emerging markets;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | unusual or burdensome foreign laws or regulatory requirements or unexpected changes to those laws or requirements;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | trade protection measures and import or export licensing requirements;
| | - |  | ----------------------------------------------------------------------



| |  |  | potentially adverse tax consequences;
| | - |  | -------------------------------------



| |  |  | longer accounts receivable collection cycles and difficulties in collecting accounts receivables;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | difficulty in managing widespread sales, development and manufacturing operations; and
| | - |  | --------------------------------------------------------------------------------------



| |  |  | less effective protection of intellectual property.
| | - |  | ---------------------------------------------------

Currently, most of
our international sales are denominated in U.S. dollars. Therefore, a strengthening of the dollar could make our products less competitive in foreign markets. Our current distribution agreements shift foreign exchange risk to our foreign
distributors. This exchange risk may harm the businesses of those distributors or make them less willing to carry and sell our products. We do not use derivative instruments to hedge foreign exchange risk. In the future, a portion of our
international revenue and expenses may be denominated in foreign currencies. Accordingly, we could experience the risks of fluctuating currencies and may choose to engage in currency hedging activities. In addition, if we conduct sales in local
currencies, we may engage in hedging activities, which may not be successful and could expose us to additional risks.

In addition, we and certain of our
OEM customers maintain significant operations in Asia. Any kind of economic, political or environmental instability in this region of the world could harm our operating results. Further, we may be impacted by the political, economic and military
instability in Taiwan.

We may require substantial additional capital, which may not be available on acceptable terms or at all.

Our capital requirements will depend on many factors, including:



| |  |  | acceptance of, and demand for, our products;
| | - |  | --------------------------------------------



| |  |  | the costs of developing new products;
| | - |  | -------------------------------------



| |  |  | the need to license new technology, to enter into license agreements for existing technology or to settle intellectual property matters;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the extent to which we invest in new technology and research and development projects;
| | - |  | --------------------------------------------------------------------------------------



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INTERVIDEO, INC.



| |  |  | the number and timing of acquisitions, including the recent Ulead transaction; and
| | - |  | ----------------------------------------------------------------------------------



| |  |  | the costs associated with our expansion.
| | - |  | ----------------------------------------

To the extent the proceeds of
this offering and our existing sources of cash and cash flow from operations are not sufficient to fund our activities, we may need to raise additional funds. If we issue additional stock to raise capital, each stockholders percentage
ownership in the Company would be reduced. Additional financing may not be available when needed on terms acceptable to us or at all. If we raise funds through debt financing, we will have to pay interest and may be subject to restrictive covenants,
which could limit our ability to take advantage of future opportunities, respond to competitive pressures or unanticipated industry changes. If we cannot raise necessary additional capital on acceptable terms, we may not be able to develop or
enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated industry changes.

Our stock price
is volatile.

The price at which our common stock trades is likely to be highly volatile and may fluctuate substantially due to many factors, some
of which are:



| |  |  | actual or anticipated fluctuations in our results of operations;
| | - |  | ----------------------------------------------------------------



| |  |  | changes in securities analysts expectations or our failure to meet those expectations;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | developments with respect to intellectual property rights;
| | - |  | ----------------------------------------------------------



| |  |  | announcements of technological innovations or significant contracts by us or our competitors;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | introduction of new products by us or our competitors;
| | - |  | ------------------------------------------------------



| |  |  | commencement of or our involvement in litigation;
| | - |  | -------------------------------------------------



| |  |  | our sale of common stock or other securities in the future;
| | - |  | -----------------------------------------------------------



| |  |  | conditions and trends in technology industries;
| | - |  | -----------------------------------------------



| |  |  | changes in market valuation or earnings of our competitors;
| | - |  | -----------------------------------------------------------



| |  |  | the trading volume of our common stock;
| | - |  | ---------------------------------------



| |  |  | changes in the estimation of the future size and growth rate of our markets; and
| | - |  | --------------------------------------------------------------------------------



| |  |  | general economic conditions.
| | - |  | ----------------------------



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INTERVIDEO, INC.

In addition, the stock market has experienced significant price and volume fluctuations that has affected the market prices for the common stock of technology companies. In the past, these market fluctuations were
often unrelated or disproportionate to the operating performance of these companies. Any significant fluctuations in the future might result in a significant decline in the market price of our common stock.

We have implemented anti-takeover provisions that could discourage a third party from acquiring us and consequently cause our stock price to decline.

Our certificate of incorporation and bylaws contain provisions that may have the effect of delaying or preventing a change of control or changes in
management that a stockholder might consider favorable. Our certificate and bylaws, among other things, provide for a classified board of directors, require that stockholder actions occur at duly called meetings of the stockholders, limit who may
call special meetings of stockholders and require advance notice of stockholder proposals and director nominations. These provisions, along with the provisions of the Delaware General Corporation Law, such as Section 203, prohibiting certain
business combinations with an interested stockholder, may delay or impede a merger, tender offer or proxy contest involving us. Any delay or prevention of a change of control transaction or changes in management could cause the market price of our
common stock to decline.



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INTERVIDEO, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of changes in foreign
currency exchange rates and changes in interest rates.

Foreign currency risk

A substantial portion of our revenue is denominated in U.S. dollars. We may, however, begin denominating revenue from selected international markets in the currency of
the applicable market. As a result, our operating results may become subject to significant fluctuations based upon changes in the exchange rates of some currencies in relation to the U.S. dollar. We will continue to monitor our exposure to currency
fluctuations and in the future, we may use economic hedging techniques to minimize the effect of these exchange rate fluctuations that may harm our financial results. For the quarter ended June 30, 2005, we did not have significant foreign
currency denominated net assets or net liabilities positions, and had no foreign currency contracts outstanding.

Interest rate risk

We have limited exposure to financial market risks, including changes in interest rates. Due to the short-term nature of our investments, we
believe that we are not exposed to any material market risk. In addition, our investment portfolio consists of investment-grade securities diversified among security types, industries, and issuers. Our cash and investments are held and managed by
recognized financial institutions that follow InterVideos investment policy. Our policy limits the amount of market exposure to any one security issue or issuer, and we believe no significant concentration of market risk exists with respect to
these investments.



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INTERVIDEO, INC.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Due to the fact that the material weaknesses in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934) that existed as of December 31, 2004 described below, have not been remediated, and in addition, our management has determined that a material weakness (within the meaning of the Public Company Accounting
Oversight Board (PCAOB) Auditing Standard No. 2) in our internal control over financial reporting, described below, existed as of June 30, 2005. Accordingly, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were not effective as of June 30, 2005.

Material weaknesses in our internal control over
financial reporting that were identified at December 31, 2004 are related to:



| |  |  | Inadequate controls and procedures in place to effectively identify and monitor amendments to software license arrangements. As a result of these deficiencies, our accounting
personnel may not be made aware of changes to software license arrangements that require recognition in our financial accounting records. Accordingly, errors in our accounting for revenue may occur and not be detected. As a result of these
deficiencies, more than a remote likelihood exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis by employees during the normal course of performing their assigned
functions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Insufficient processes and controls, including management oversight and review, over our income tax accounting practices, estimates, calculations and required disclosures. As a
result of these deficiencies, material errors were identified in the computation of our current period income tax expense and in amounts reported as deferred income taxes in our income tax disclosures. These errors were identified and corrected
prior to the issuance of our financial statements as of and for the year ended December 31, 2004.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Inadequate controls within our accounting and financial information systems over user access, segregation of duties and monitoring of information systems. As a result of these
deficiencies, we identified instances whereby users had access to and authority to initiate transactions within certain modules and applications of our accounting and financial systems that were not consistent with their respective roles and
responsibilities. Such inappropriate access rights and inappropriate segregation of duties give rise to the potential for unauthorized and undetected activity within our information systems and results in more than a remote likelihood that a
material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis by employees during the normal course of performing their assigned functions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Material weakness in our internal control over financial reporting that was identified at June 30, 2005 is related to:



| |  |  | Insufficient processes and controls over financial accounting and disclosures in connection with the Ulead acquisition. The Ulead acquisition posed complexities associated with the
application of purchase accounting under SFAS No. 141, Business Combinations due to the Companys non-controlling interest ownership and consequently resulted in adjustments pertaining to the purchase related in-process
research and development costs and intangibles amortization attributable to minority interest holders. These control deficiencies resulted in the restatement of the Companys consolidated financial statements for the periods ended June 30,
2005, and September 30, 2005. We identified the necessary adjustments subsequent to the issuance of the Forms 10-Q for the aforementioned periods.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal
control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability, preparation and fair presentation of published financial statements in accordance with generally accepted accounting
principles.

A material weakness (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) is
a control deficiency, or aggregation of control deficiencies, that results in more than a remote risk that a material misstatement in our annual or interim financial statements will not be prevented or detected.

In making our assessment of the internal control over financial reporting, our management used the criteria issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework. In connection with this restatement, management determined that the material weakness existed as of June 30, 2005 and it has not been remediated.



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INTERVIDEO, INC.

Changes in Internal Control over Financial Reporting

During the second quarter of 2005, we have taken the
following steps to remediate the material weaknesses identified above:



| |  |  | We have completed and implemented the revised contract review process by specifically identifying key positions throughout the Company that are accountable for providing timely
input and comments on all contractual documents. The contract administrator that was hired in the first quarter of 2005 is monitoring and tracking all contracts and ensuring that such contracts, including licensing agreements, are properly and
timely reviewed by all appropriate personnel. This revised process has been fully documented and provided to the relevant employees.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have successfully implemented the parameters outlined in the engagement letter, which was signed during the first quarter of 2005, enhancing the communications between us and our
external tax service provider. These enhancements have included frequent discussions and regular dissemination of pertinent information to ensure the service providers knowledge of our business is current in order that appropriate guidance can
be provided to our management. Additionally, several members of management have participated in tax education seminars offered by our service provider and other external sources.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under the direction of our Director of Information Technology, we have completed the implementation of limitations over user access to certain applications and modules within our
information systems to more appropriately segregate certain individuals authority in a manner consistent with their respective roles and responsibilities. We have also developed a user and job function matrix to clearly identify and limit
specific application user access consistent with the roles and responsibilities of a given job function. Additionally, we have purchased and implemented a software tool that allows for the monitoring of our critical application environment including
databases, application functions, scheduled processes and the overall system environment. This tool provides us with an audit trail and log of any unauthorized access to our systems as well as notification when an unauthorized change within these
systems occurs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In relation to the adjustments required pertaining to the accounting and disclosures associated with the Ulead acquisition, we announced the restatement of our financial statements
for the quarters ended June 30, 2005 and September 30, 2005 and publicly released the effect of these adjustments on our financial statements, accordingly. While we identified the necessary adjustments, we acknowledge that these
adjustments were not identified until after the filing of our Forms 10-Q for the quarters ended June 30, 2005 and September 30, 2005. As such, we have engaged outside consultants to provide additional expertise in the financial reporting
area and are re-assessing our current expertise and staffing needs in the event complex transactions such as the ones described herein arise in the future.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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INTERVIDEO, INC.

PART II  OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We held our Annual Meeting of Stockholders on June 9,
2005. At the meeting, the following proposals received the votes listed below:

Proposal I. Election of Directors, Henry Shaw and Joseph Zaelit, for
three-year terms expiring 2008.



|                |  |            |  |              
|--------------- |  | ---------- |  | -------------
|                |  | Henry Shaw |  | Joseph Zaelit
|Votes for:      |  | 11,898,788 |  | 11,936,088   
|Votes withheld: |  | 170,167    |  | 132,867      

The Companys Board of Directors is currently comprised of five members.

Proposal II.Approval of ratification of the appointment of KPMG LLP as independent auditors of the Company for the fiscal year ending December 31, 2005.



|               |  |           
|-------------- |  | ----------
|Votes for:     |  | 12,042,522
|Votes against: |  | 26,233    
|Abstentions:   |  | 200       



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INTERVIDEO, INC.

ITEM 6. EXHIBITS

(a) Exhibits

Exhibits filed with the Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2005 are as follows:



|                 |  |                |   |  |                                                                                                                                                      
|---------------- |  | -------------- | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit footnote |  | Exhibit Number |   |  | Description                                                                                                                                          
|(a)              |  | 3.1            |   |  | Certificate of Incorporation                                                                                                                         
|                 |  |               
|(b)              |  | 3.2            |   |  | Bylaws                                                                                                                                               
|                 |  |               
|(c)              |  | 4.1            |   |  | Investors Rights Agreement, dated July 2, 1999, as amended, by and among Registrant and the parties who are signatories thereto                      
|                 |  |               
|                 |  | 10.1           | + |  | DVD Playback Technology License Agreement with Microsoft Corporation dated June 28, 2005.                                                            
|                 |  |               
|(d)              |  | 10.2           |   |  | Management Bonus Plan                                                                                                                                
|                 |  |               
|                 |  | 31.1           |   |  | Certification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002                                            
|                 |  |               
|                 |  | 31.2           |   |  | Certification of the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002                                            
|                 |  |               
|                 |  | 32.1           |   |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|                 |  |               
|                 |  | 32.2           |   |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

---

|(a) | Filed as Exhibit 3.2 to Registrants S-1 Registration Statement filed on July 16, 2003 and incorporated herein by reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(b) | Filed as Exhibit 3.4 to Registrants S-1 Registration Statement filed on July 16, 2003 and incorporated herein by reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(c) | Filed as Exhibit 10.5 to Registrants S-1 Registration Statement filed on July 16, 2003 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------

|(d) | Filed as Exhibit 10.1 to our Form 8-K filed on May 6, 2005 and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------

|+ | Confidential treatment requested for certain portions of agreement.
|- | -------------------------------------------------------------------



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INTERVIDEO, INC.

SIGNATURES

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



Date: March 10, 2006InterVideo, Inc.(Registrant)By:

/s/ STEVE ROSteve RoChief Executive OfficerBy:

/s/ RANDALL BAMBROUGHRandall BambroughChief Financial Officer




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INTERVIDEO, INC.

EXHIBIT INDEX



|                 |  |                |   |  |                                                                                                                                                      
|---------------- |  | -------------- | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit footnote |  | Exhibit Number |   |  | Description                                                                                                                                          
|(a)              |  | 3.1            |   |  | Certificate of Incorporation                                                                                                                         
|                 |  |               
|(b)              |  | 3.2            |   |  | Bylaws                                                                                                                                               
|                 |  |               
|(c)              |  | 4.1            |   |  | Investors Rights Agreement, dated July 2, 1999, as amended, by and among Registrant and the parties who are signatories thereto                      
|                 |  |               
|                 |  | 10.1           | + |  | DVD Playback Technology License Agreement with Microsoft Corporation dated June 28, 2005.                                                            
|                 |  |               
|(d)              |  | 10.2           |   |  | Management Bonus Plan                                                                                                                                
|                 |  |               
|                 |  | 31.1           |   |  | Certification of the Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002                                            
|                 |  |               
|                 |  | 31.2           |   |  | Certification of the Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002                                            
|                 |  |               
|                 |  | 32.1           |   |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|                 |  |               
|                 |  | 32.2           |   |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

---

|(a) | Filed as Exhibit 3.2 to Registrants S-1 Registration Statement filed on July 16, 2003 and incorporated herein by reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(b) | Filed as Exhibit 3.4 to Registrants S-1 Registration Statement filed on July 16, 2003 and incorporated herein by reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(c) | Filed as Exhibit 10.5 to Registrants S-1 Registration Statement filed on July 16, 2003 and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------

|(d) | Filed as Exhibit 10.1 to our Form 8-K filed on May 6, 2005 and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------

|+ | Confidential treatment requested for certain portions of agreement.
|- | -------------------------------------------------------------------



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