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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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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 March 31, 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 ̈



On May 2,
2005, the Registrant had 13,854,962 shares of common stock outstanding, par value per share $0.001.



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##### Table of Contents

INTERVIDEO, INC.



TABLE OF CONTENTS



|                              |  |                                                                                                        |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | --
|                              |  | Page                                                                                                  
|PART I.
FINANCIAL INFORMATION |  |                                                                                                       
|                              |  |                                                                                                       
|Item 1.                       |  | Financial Statements (unaudited):                                                                      |  |   
|                              |  | (a) Condensed Consolidated Balance Sheets at March 31, 2005 and December 31, 2004                      |  | 3 
|                              |  | (b) Condensed Consolidated Statements of Income for the three months ended March 31, 2005 and 2004     |  | 4 
|                              |  | (c) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 |  | 5 
|                              |  | (d) Notes to Condensed Consolidated Financial Statements                                               |  | 6 
|                              |  |                                                                                                       
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                  |  | 19
|                              |  |                                                                                                       
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                             |  | 43
|                              |  |                                                                                                       
|Item 4.                       |  | Controls and Procedures                                                                                |  | 44
|                              | 
|PART II.
OTHER INFORMATION    |  |                                                                                                       
|                              |  |                                                                                                       
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                            |  | 46
|                              |  |                                                                                                       
|Item 6.                       |  | Exhibits                                                                                               |  | 46
|                              | 
|Signatures                    |  | 48                                                                                                    



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##### Table of Contents

INTERVIDEO, INC.



PART 1  FINANCIAL INFORMATION



ITEM 1  FINANCIAL STATEMENTS



Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

(Unaudited)



|                                                                                                                                   |  |                |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                   |  | March 31, 2005 |         |   | December 31,2004 |  
|ASSETS                                                                                                                             |  |                |         |   |                  |   |         |  
|Current assets:                                                                                                                    |  |                |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                          |  | $              | 34,508  |   |                  | $ | 27,410  |  
|Short-term investments                                                                                                             |  |                | 39,939  |   |                  |   | 47,177  |  
|Accounts receivable, net of allowance for doubtful accounts of $218 and $215, respectively                                         |  |                | 5,002   |   |                  |   | 5,660   |  
|Deferred tax assets                                                                                                                |  |                |        |   |                  |   | 256     |  
|Prepaid expenses and other current assets                                                                                          |  |                | 2,313   |   |                  |   | 2,580   |  
|                                                                                                                                   |  |                |         |   |                  |   |         |  
|Total current assets                                                                                                               |  |                | 81,762  |   |                  |   | 83,083  |  
|                                                                                                                                   |  |               
|Property and equipment, net                                                                                                        |  |                | 2,757   |   |                  |   | 2,606   |  
|Goodwill                                                                                                                           |  |                | 1,018   |   |                  |   | 1,018   |  
|Deferred tax assets                                                                                                                |  |                | 5,446   |   |                  |   | 5,446   |  
|Other assets                                                                                                                       |  |                | 15,920  |   |                  |   | 9,622   |  
|                                                                                                                                   |  |                |         |   |                  |   |         |  
|Total assets                                                                                                                       |  | $              | 106,903 |   |                  | $ | 101,775 |  
|                                                                                                                                   |  |                |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                               |  |                |         |   |                  |   |         |  
|Current liabilities:                                                                                                               |  |                |         |   |                  |   |         |  
|Accounts payable                                                                                                                   |  | $              | 1,186   |   |                  | $ | 1,098   |  
|Accrued liabilities                                                                                                                |  |                | 13,105  |   |                  |   | 13,129  |  
|Income taxes payable                                                                                                               |  |                | 1,632   |   |                  |   | 333     |  
|Deferred revenue                                                                                                                   |  |                | 3,099   |   |                  |   | 4,002   |  
|Deferred tax liabilities                                                                                                           |  |                | 1,269   |   |                  |   |        |  
|                                                                                                                                   |  |                |         |   |                  |   |         |  
|Total current liabilities                                                                                                          |  |                | 20,291  |   |                  |   | 18,562  |  
|                                                                                                                                   |  |                |         |   |                  |   |         |  
|Stockholders equity:                                                                                                              |  |                |         |   |                  |   |         |  
|Common stock, $0.001 par value per share: 150,000 shares authorized; 13,787 and 13,661 shares issued and outstanding, respectively |  |                | 14      |   |                  |   | 14      |  
|Additional paid-in capital                                                                                                         |  |                | 76,026  |   |                  |   | 76,498  |  
|Notes receivable from stockholders                                                                                                 |  |                | (767    | ) |                  |   | (830    | )
|Deferred stock-based compensation                                                                                                  |  |                | (54     | ) |                  |   | (95     | )
|Accumulated other comprehensive income                                                                                             |  |                | 2,219   |   |                  |   | 1,121   |  
|Retained earnings                                                                                                                  |  |                | 9,174   |   |                  |   | 6,505   |  
|                                                                                                                                   |  |                |         |   |                  |   |         |  
|Total stockholders equity                                                                                                         |  |                | 86,612  |   |                  |   | 83,213  |  
|                                                                                                                                   |  |                |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                         |  | $              | 106,903 |   |                  | $ | 101,775 |  
|                                                                                                                                   |  |                |         |   |                  |   |         |  



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 Income

(in thousands, except per share amounts)

(Unaudited)



|                                                           |  |                             |        |      |   |       
|---------------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                                           |  | Three months endedMarch 31,
|                                                           |  | 2005                        |        | 2004
|Revenue                                                    |  | $                           | 21,904 |      | $ | 18,821
|Cost of revenue                                            |  |                             | 9,172  |      |   | 7,935 
|                                                           |  |                             |        |      |   |       
|Gross profit                                               |  |                             | 12,732 |      |   | 10,886
|                                                           |  |                            
|Operating expenses:                                        |  |                             |        |      |   |       
|Research and development                                   |  |                             | 3,010  |      |   | 2,288 
|Sales and marketing                                        |  |                             | 2,751  |      |   | 2,759 
|General and administrative                                 |  |                             | 2,889  |      |   | 1,704 
|Stock-based compensation(1)                                |  |                             | 40     |      |   | 75    
|                                                           |  |                             |        |      |   |       
|Total operating expenses                                   |  |                             | 8,690  |      |   | 6,826 
|                                                           |  |                             |        |      |   |       
|Income from operations                                     |  |                             | 4,042  |      |   | 4,060 
|                                                           |  |                            
|Other income, net                                          |  |                             | 298    |      |   | 173   
|                                                           |  |                             |        |      |   |       
|Income before income taxes                                 |  |                             | 4,340  |      |   | 4,233 
|Provision for income taxes                                 |  |                             | 1,671  |      |   | 1,630 
|                                                           |  |                             |        |      |   |       
|Net income                                                 |  | $                           | 2,669  |      | $ | 2,603 
|                                                           |  |                             |        |      |   |       
|Net income per share:                                      |  |                             |        |      |   |       
|Basic                                                      |  | $                           | 0.19   |      | $ | 0.20  
|                                                           |  |                             |        |      |   |       
|Diluted                                                    |  | $                           | 0.17   |      | $ | 0.17  
|                                                           |  |                             |        |      |   |       
|Number of shares used in net income per share calculation: |  |                             |        |      |   |       
|Basic                                                      |  |                             | 13,791 |      |   | 13,217
|                                                           |  |                             |        |      |   |       
|Diluted                                                    |  |                             | 15,352 |      |   | 15,354
|                                                           |  |                             |        |      |   |       

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



|                                        |  |                             |    |      |   |     |  
|--------------------------------------- |  | --------------------------- | -- | ---- | - | --- | -
|                                        |  | Three months endedMarch 31, |   
|                                        |  | 2005                        |    | 2004 |  
|Research and development                |  | $                           | 14 |      | $ | 41  |  
|Sales and marketing                     |  |                             | 14 |      |   | (13 | )
|General and administrative              |  |                             | 12 |      |   | 47  |  
|                                        |  |                             |    |      |   |     |  
|Total stock-based compensation expenses |  | $                           | 40 |      | $ | 75  |  
|                                        |  |                             |    |      |   |     |  



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)



|                                                                                  |  |                             |        |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                  |  | Three months endedMarch 31, |       
|                                                                                  |  | 2005                        |        |   | 2004 |  
|Cash flows from operating activities:                                             |  |                             |        |   |      |   |         |  
|Net income                                                                        |  | $                           | 2,669  |   |      | $ | 2,603   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                             |        |   |      |   |         |  
|Depreciation and amortization                                                     |  |                             | 376    |   |      |   | 266     |  
|Deferred taxes                                                                    |  |                             |       |   |      |   | (133    | )
|Stock-based compensation                                                          |  |                             | 40     |   |      |   | 75      |  
|Provision for doubtful accounts                                                   |  |                             | (5     | ) |      |   | (70     | )
|Interest income on notes receivable from stockholders                             |  |                             | (9     | ) |      |   | (10     | )
|Equity in net loss of long-term investment                                        |  |                             | 87     |   |      |   |        |  
|Changes in operating assets and liabilities:                                      |  |                             |        |   |      |   |         |  
|Accounts receivable                                                               |  |                             | 662    |   |      |   | (3,929  | )
|Prepaid expenses and other current assets                                         |  |                             | 264    |   |      |   | 225     |  
|Other assets                                                                      |  |                             | (1     | ) |      |   | (8      | )
|Accounts payable                                                                  |  |                             | 84     |   |      |   | (95     | )
|Deferred revenue                                                                  |  |                             | (904   | ) |      |   | 241     |  
|Accrued liabilities and income taxes payable                                      |  |                             | 1,248  |   |      |   | 1,749   |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                             | 4,511  |   |      |   | 914     |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Cash flows from investing activities:                                             |  |                             |        |   |      |   |         |  
|Purchases of property and equipment                                               |  |                             | (438   | ) |      |   | (407    | )
|Purchases of short-term investments                                               |  |                             | (6,190 | ) |      |   | (44,352 | )
|Proceeds from maturities of short-term investments                                |  |                             | 13,324 |   |      |   | 14,985  |  
|Purchase of long-term investments                                                 |  |                             | (3,726 | ) |      |   |        |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Net cash provided by (used in) investing activities                               |  |                             | 2,970  |   |      |   | (29,774 | )
|                                                                                  |  |                             |        |   |      |   |         |  
|Cash flows from financing activities:                                             |  |                             |        |   |      |   |         |  
|Proceeds from issuance of common stock under stock option plans                   |  |                             | 200    |   |      |   | 695     |  
|Proceeds from repayment of notes receivable                                       |  |                             | 71     |   |      |   |        |  
|Payment for repurchased stock                                                     |  |                             | (671   | ) |      |   |        |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Net cash provided by (used in) financing activities                               |  |                             | (400   | ) |      |   | 695     |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Effect of change in exchange rates on cash and cash equivalents                   |  |                             | 17     |   |      |   | 28      |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                              |  |                             | 7,098  |   |      |   | (28,137 | )
|                                                                                  |  |                            
|Cash and cash equivalents, beginning of period                                    |  |                             | 27,410 |   |      |   | 46,875  |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Cash and cash equivalents, end of period                                          |  | $                           | 34,508 |   |      | $ | 18,738  |  
|                                                                                  |  |                             |        |   |      |   |         |  
|Supplementary disclosure:                                                         |  |                             |        |   |      |   |         |  
|Income tax payments, net of refunds                                               |  | $                           | (72    | ) |      | $ | 600     |  



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



Notes to 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 majority of its revenue from sales of
its WinDVD product, a software DVD player for personal computers (PCs) to PC original equipment manufacturers (OEMs). Other products include WinDVD Creator, InstantON, InterVideo Home Theater, InterVideo DVD Copy and
Linux-based versions of its DVD and DVR software designed for Linux-based PCs and consumer electronic (CE) devices. 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.



Note 2. Summary of Significant Accounting Policies:



Basis of presentation



The accompanying condensed consolidated financial statements include the accounts of InterVideo, Inc. and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have been eliminated. All international subsidiaries of the Company 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 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 filed with the Securities and Exchange Commission on March 31, 2005.



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 evaluate them on an on-going basis to ensure they remain reasonable under current conditions.
Actual results could materially differ from these estimates.



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##### Table of Contents

INTERVIDEO, INC.



Foreign currency translation



The functional currency of the Companys international 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 and have not been significant to the Companys operating results in any periods presented.



Fair value of financial instruments



The fair value of the Companys cash equivalents, short-term investments, accounts receivable, marketable equity
securities 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 and auction rate 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 and equipment



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 between three and seven years. Leasehold improvements are amortized over the lesser 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 statement 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 adopted SFAS 142 effective January 1, 2002.



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



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##### Table of Contents

INTERVIDEO, INC.



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.



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 operating and financial policies of the issuer of securities or using the cost
method if the Company cannot assert significant influence over the issuer of securities. Marketable equity investments are accounted for as available-for-sale securities with unrealized gains and losses included in other comprehensive income in
equity. Such investments are also subjected to periodic impairment review. If there are no liquid markets to provide information for valuing such securities, the impairment analysis involves significant judgment on the part of management. Should the
Company determine that a decline in the securities fair value is considered to be other than temporary, a writedown is recorded in other income, net.



Revenue recognition



The Companys revenue is primarily derived from fees received 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 AICPA Statement of Position (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 sell through 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 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, 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 for these types of returns, the Company defers 100% of the revenue until it is able to establish a returns reserve based on historical returns activity, that is specific to the
respective sales channel, product line or country.



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##### Table of Contents

INTERVIDEO, INC.



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 a sales channel partner. The terms of the license agreements generally require the OEMs to notify the Company 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, the Company generally recognizes 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 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 software 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 OEMs
hardware and software configurations. Since the Company provides when and if available upgrade rights to its OEM customers on the products they have licensed from the point in time when they receive the product until the point in time 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. Some OEM agreements provide the OEM with rights to PCS to be provided by InterVideo to the OEMs end customers. This PCS may or may not include the right to unspecified future software upgrades. PCS is typically not available to the
OEMs end users. InterVideo has established vendor specific objective evidence (VSOE) of fair value for PCS for end customer support on a limited number of products sold to OEMs in Japan. On these arrangements, the Company uses the
residual method to account for the allocation between the license revenue and the service revenue. The allocated license revenue is recognized in full upon the OEMs sale of the licensed product to the OEMs sales channel partners and,
where the only undelivered element of the agreement is PCS, the allocated PCS is recognized over the period of the PCS obligation. In all other agreements where InterVideo has sold PCS in which the Company has not been able to establish a VSOE of
fair value for PCS or where there are additional undelivered elements, such as NRE service 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 recognizes the entire arrangement fee 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 for up to 14 days from the date of purchase. The Company currently reserves for returns using a 30-day sales return reserve based on the
historical return percentage.



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 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.



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INTERVIDEO, INC.



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 the Company does not provide support or upgrade rights to that licensee. The Company currently recognizes revenue for these sales upon confirmation of delivery of the product.



Certain customer agreements call for the 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, costs associated with end-user PCS and the cost of settlement of intellectual property matters. Licensed royalties consist of
royalties paid or accrued for payment to third parties for technologies incorporated into the Companys products. In general, the amount of royalties depends on the number of units sold of the Companys product 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 customers 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 per share



Basic net income per share is calculated by dividing net income for the period by the weighted average common shares outstanding during the period, less shares subject to repurchase. Diluted net income per share is calculated by dividing
the net income 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 and shares subject to repurchase to the extent
these shares are dilutive.



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INTERVIDEO, INC.



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



|                                                         |  |                             |        |   |      |   |        |  
|-------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                         |  | Three Months endedMarch 31, |       
|                                                         |  | 2005                        |        |   | 2004 |  
|Numerator:                                               |  |                             |        |   |      |   |        |  
|Net income                                               |  | $                           | 2,669  |   |      | $ | 2,603  |  
|                                                         |  |                             |        |   |      |   |        |  
|Denominator:                                             |  |                             |        |   |      |   |        |  
|Basic:                                                   |  |                             |        |   |      |   |        |  
|Weighted average common shares outstanding               |  |                             | 13,799 |   |      |   | 13,273 |  
|Less: weighted average shares subject to repurchase      |  |                             | (8     | ) |      |   | (56    | )
|                                                         |  |                             |        |   |      |   |        |  
|Denominator for basic calculation                        |  |                             | 13,791 |   |      |   | 13,217 |  
|                                                         |  |                             |        |   |      |   |        |  
|Net income per share - Basic                             |  | $                           | 0.19   |   |      | $ | 0.20   |  
|                                                         |  |                             |        |   |      |   |        |  
|Diluted:                                                 |  |                             |        |   |      |   |        |  
|Weighted average common shares outstanding               |  |                             | 13,799 |   |      |   | 13,273 |  
|Weighted average dilutive effect of common stock options |  |                             | 1,553  |   |      |   | 2,081  |  
|                                                         |  |                             |        |   |      |   |        |  
|Denominator for diluted calculation                      |  |                             | 15,352 |   |      |   | 15,354 |  
|                                                         |  |                             |        |   |      |   |        |  
|Net income per share  Diluted                           |  | $                           | 0.17   |   |      | $ | 0.17   |  
|                                                         |  |                             |        |   |      |   |        |  



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 (in thousands):



|                                               |  |                             |     |      |   |    
|---------------------------------------------- |  | --------------------------- | --- | ---- | - | ---
|                                               |  | Three Months endedMarch 31,
|                                               |  | 2005                        |     | 2004
|Antidilutive options to purchase common shares |  | $                           | 885 |      | $ | 663
|                                               |  |                             |     |      |   |    



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 where 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.



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INTERVIDEO, INC.



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



|                                                                                                                        |  |                             |        |   |      |   |        |  
|----------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|(in thousands, except per share amounts)                                                                                |  | Three months endedMarch 31, |       
|                                                                                                                        |  | 2005                        |        |   | 2004 |  
|Net income, as reported                                                                                                 |  | $                           | 2,669  |   |      | $ | 2,603  |  
|Add: Stock-based employee compensation expenses included in reported net income, net of related tax effects             |  |                             | 40     |   |      |   | 75     |  
|Deduct: Total stock-based employee compensation expenses determined under fair value method, net of related tax effects |  |                             | (1,206 | ) |      |   | (1,081 | )
|                                                                                                                        |  |                             |        |   |      |   |        |  
|Pro forma net income                                                                                                    |  | $                           | 1,503  |   |      | $ | 1,597  |  
|                                                                                                                        |  |                             |        |   |      |   |        |  
|Net income per share                                                                                                    |  |                             |        |   |      |   |        |  
|Basic  as reported                                                                                                     |  | $                           | 0.19   |   |      | $ | 0.20   |  
|                                                                                                                        |  |                             |        |   |      |   |        |  
|Basic  pro forma                                                                                                       |  | $                           | 0.11   |   |      | $ | 0.12   |  
|                                                                                                                        |  |                             |        |   |      |   |        |  
|Diluted  as reported                                                                                                   |  | $                           | 0.17   |   |      | $ | 0.17   |  
|                                                                                                                        |  |                             |        |   |      |   |        |  
|Diluted  pro forma                                                                                                     |  | $                           | 0.10   |   |      | $ | 0.10   |  
|                                                                                                                        |  |                             |        |   |      |   |        |  



The weighted average
fair values of options granted to employees in the three months period ended March 31, 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:



|                                                            |  |                             |         |   |      |   |         |  
|----------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                            |  | Three months endedMarch 31, |        
|                                                            |  | 2005                        |         |   | 2004 |  
|Weighted average fair value of options granted to employees |  | $                           | 9.28    |   |      | $ | 10.62   |  
|                                                            |  |                            
|Black-Scholes model assumptions:                            |  |                             |         |   |      |   |         |  
|Risk-free interest rate                                     |  |                             | 3.61    | % |      |   | 2.17    | %
|Expected life of the option                                 |  |                             | 4 years |   |      |   | 4 years |  
|Dividend yield                                              |  |                             | 0       | % |      |   | 0       | %
|Volatility                                                  |  |                             | 80.0    | % |      |   | 87.5    | %



As 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 for the Companys IPO in January 2002 of a registration statement under the Securities Act of 1933 relating to an initial public offering of the Companys common stock. 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 IPO in July 2003. Subsequent to the July 2003, the volatility factor for grants issued was calculated based on the fluctuation of Companys stock price on the market as well as volatility of other companies
in the same industry.



In July 2003, the Company commenced its
2003 Employee Stock Purchase Plan, 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 the purchase period, through payroll deduction 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 deduction to date.



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INTERVIDEO, INC.



|                                                                      |  |                              |            |   |      |   |            |  
|--------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                      |  | Three months ended March 31, |           
|                                                                      |  | 2005                         |            |   | 2004 |  
|Weighted average fair value of purchased options granted to employees |  | $                            | 5.26       |   |      | $ | 10.97      |  
|                                                                      |  |                             
|Black-Scholes model assumptions:                                      |  |                              |            |   |      |   |            |  
|Risk-free interest rate                                               |  |                              | 3.06       | % |      |   | 1.22       | %
|Expected life                                                         |  |                              | 1.25 years |   |      |   | 1.25 years |  
|Dividend yield                                                        |  |                              | 0          | % |      |   | 0          | %
|Volatility                                                            |  |                              | 76.0       | % |      |   | 76.0       | %



Other income,
net



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



|                                            |  |                             |     |   |      |   |    
|------------------------------------------- |  | --------------------------- | --- | - | ---- | - | ---
|                                            |  | Three months endedMarch 31,
|                                            |  | 2005                        |     |   | 2004
|Interest income                             |  | $                           | 311 |   |      | $ | 163
|Equity in net loss of long-term investments |  |                             | (87 | ) |      |   |   
|Other                                       |  |                             | 74  |   |      |   | 10 
|                                            |  |                             |     |   |      |   |    
|Other income, net                           |  | $                           | 298 |   |      | $ | 173
|                                            |  |                             |     |   |      |   |    



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 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.



For the quarter ended March 31, 2005, the Company calculated its projected effective tax rate for the year ending December 31, 2005 to be 38.5%. This rate
differs from the statutory federal rate of 35% primarily due to state taxes, net of federal benefit and difference between federal and foreign tax rates.



Comprehensive income



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



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



|                                                                        |  |                              |       |      |   |      
|----------------------------------------------------------------------- |  | ---------------------------- | ----- | ---- | - | -----
|                                                                        |  | Three months ended,March 31,
|                                                                        |  | 2005                         |       | 2004
|Net income                                                              |  | $                            | 2,669 |      | $ | 2,603
|Other comprehensive income:                                             |  |                              |       |      |   |      
|Change in unrealized gain of available-for-sale investments, net of tax |  |                              | 1,095 |      |   | 32   
|Change in cumulative translation adjustment                             |  |                              | 3     |      |   | 30   
|                                                                        |  |                              |       |      |   |      
|Comprehensive income                                                    |  | $                            | 3,767 |      | $ | 2,665
|                                                                        |  |                              |       |      |   |      



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INTERVIDEO, INC.



Recent accounting pronouncements



In April 2005, the Securities and Exchange Commission (SEC)
delayed the effective date of SFAS No. 123R, Share-Based Payments. SFAS No. 123R will now be effective for the Company as of the interim reporting period beginning January 1, 2006. Under SFAS 123R, companies must calculate and record in
the income statement the cost of equity instruments, such as stock options awarded to employees for services received; pro forma disclosure is no longer permitted. 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. The Company currently accounts
for stock options granted to employees and shares issued under our employee stock purchase plans in accordance with the intrinsic value method permitted under APB 25. The impact of adopting SFAS 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. However, had we adopted SFAS 123R in a prior period, the impact would approximate the impact of SFAS 123 as described under stock-based compensation
expense in the disclosure of pro forma net income.



Note 3. Balance Sheet
Components:



Short-term investments



Short-term investments consist principally of US
treasury and federal agency notes, state and municipal notes/bonds, corporate bonds and certificates of deposit. 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.



Short-term investments consist of (in thousands):



|                                |  |                         |        |                      |   |                       |  |   |                             |   |  |   |       
|------------------------------- |  | ----------------------- | ------ | -------------------- | - | --------------------- |  | - | --------------------------- | - |  | - | ------
|                                |  | As of March 31, 2005   
|                                |  | Amortizedcost           |        | Grossunrealizedgains |   | Grossunrealizedlosses |  |   | Estimated fair market value
|Available-for-sale securities:  |  |                         |        |                      |   |                       |  |   |                             |   |  |   |       
|Treasury notes                  |  | $                       | 18,500 |                      | $ |                      |  | $ | (227                        | ) |  | $ | 18,273
|State and municipal notes/bonds |  |                         | 8,178  |                      |   |                      |  |   | (62                         | ) |  |   | 8,116 
|Auction rate securities         |  |                         | 13,550 |                      |   |                      |  |   |                            |   |  |   | 13,550
|                                |  |                         |        |                      |   |                       |  |   |                             |   |  |   |       
|Total short-term investments    |  | $                       | 40,228 |                      | $ |                      |  | $ | (289                        | ) |  | $ | 39,939
|                                |  |                         |        |                      |   |                       |  |   |                             |   |  |   |       
|                                | 
|                                |  | As of December 31, 2004
|                                |  | Amortizedcost           |        | Grossunrealizedgains |   | Grossunrealizedlosses |  |   | Estimated fair market value
|Available-for-sale securities:  |  |                         |        |                      |   |                       |  |   |                             |   |  |   |       
|Treasury notes                  |  | $                       | 22,799 |                      | $ |                      |  | $ | (157                        | ) |  | $ | 22,642
|State and municipal notes/bonds |  |                         | 23,063 |                      |   |                      |  |   | (28                         | ) |  |   | 23,035
|Corporate bonds                 |  |                         | 1,500  |                      |   |                      |  |   |                            |   |  |   | 1,500 
|                                |  |                         |        |                      |   |                       |  |   |                             |   |  |   |       
|Total short-term investments    |  | $                       | 47,362 |                      | $ |                      |  | $ | (185                        | ) |  | $ | 47,177
|                                |  |                         |        |                      |   |                       |  |   |                             |   |  |   |       



The available-for-sale
securities at March 31, 2005 have contractual maturities ranging from 2005 to 2007.



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INTERVIDEO, INC.



Property and equipment, net



Property and equipment, net, on the balance sheet consists of the
following (in thousands):



|                                                 |  |                |        |   |                   |   |        |  
|------------------------------------------------ |  | -------------- | ------ | - | ----------------- | - | ------ | -
|                                                 |  | March 31, 2005 |        |   | December 31, 2004 |  
|Equipment                                        |  | $              | 2,223  |   |                   | $ | 2,025  |  
|Furniture and fixtures                           |  |                | 595    |   |                   |   | 415    |  
|Purchased software                               |  |                | 1,873  |   |                   |   | 1,866  |  
|Leasehold improvements                           |  |                | 760    |   |                   |   | 572    |  
|Vehicles                                         |  |                | 186    |   |                   |   | 147    |  
|Construction in process                          |  |                |       |   |                   |   | 142    |  
|                                                 |  |                |        |   |                   |   |        |  
|                                                 |  |                | 5,637  |   |                   |   | 5,167  |  
|Less : Accumulated depreciation and amortization |  |                | (2,880 | ) |                   |   | (2,561 | )
|                                                 |  |                |        |   |                   |   |        |  
|Property and equipment, net                      |  | $              | 2,757  |   |                   | $ | 2,606  |  
|                                                 |  |                |        |   |                   |   |        |  



Other purchased
intangible assets, net



Other purchased intangible
assets, net, on the balance sheet consist of the following (in thousands):



|                                        |  |                |       |   |                   |   |       |  
|--------------------------------------- |  | -------------- | ----- | - | ----------------- | - | ----- | -
|                                        |  | March 31, 2005 |       |   | December 31, 2004 |  
|Purchased development technology        |  | $              | 1,000 |   |                   | $ | 1,000 |  
|Less: Accumulated amortization          |  |                | (967  | ) |                   |   | (917  | )
|                                        |  |                |       |   |                   |   |       |  
|Total other purchased intangible assets |  | $              | 33    |   |                   | $ | 83    |  
|                                        |  |                |       |   |                   |   |       |  



Purchased development
technology is amortized over 5 years from the original purchase date, or until 2005. The annual amortization amount was $200,000 and the remaining amortization will be $33,000 in the second quarter, 2005.



Long-term investments



The Company continued to acquire equity investments for
strategic objectives during the three months ended March 31, 2005. The non-marketable equity investments are accounted for using the equity method because the Company has significant influence over operating and financial policies of the investee.
The Company records its proportionate share of the investees net income or loss on a one-quarter lag, as it is not practical to obtain financial information from these privately-owned investees prior to the issuance of the Companys
current period financial statements. Marketable equity investments are accounted for as available-for-sale securities with unrealized gain and loss included in other comprehensive income in stockholders equity.



During the three months ended March 31, 2005, the Company
acquired additional marketable equity investments (Ulead shares) at a cost of $3.7 million.



The following table summarizes the long-term investments which are included in other assets in the consolidated balance sheet as March 31,
2005 (amounts in thousands):



|                                       |  |         |  |               |   |  |                             |        |                    |                   
|-------------------------------------- |  | ------- |  | ------------- | - |  | --------------------------- | ------ | ------------------ | ------------------
|Name of the Investees                  |  | Country |  | Shareholding% |   |  | Carrying value ofinvestment |        | Accounting Methods
|Master Integrated Appliances Co., Ltd. |  | Taiwan  |  | 35            | % |  | $                           | 706    |                    | Equity method     
|Appro Photoelectron Inc.               |  | Taiwan  |  | 6             | % |  |                             | 827    |                    | Equity method     
|Ulead Systems, Inc.                    |  | Taiwan  |  | 19            | % |  |                             | 13,510 |                    | Available-for-sale
|                                       |  |         |  |               |   |  |                             |        |                    |                   
|                                       |  |         |  |               |   |  | $                           | 15,043 |                    |                   
|                                       |  |         |  |               |   |  |                             |        |                    |                   



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INTERVIDEO, INC.



The carrying value of the Ulead investment includes the cost of $9.4 million and an unrealized gain
of $4.1 million as of March 31, 2005 as compared to the cost of $5.7 million and an amortized gain of $1.4 million as of December 31, 2004. During the three months ended March 31, 2005, a $1.5 million adjustment for
deferred taxes was recorded in other comprehensive income due to the tax liability generated from the unrealized gain associated with the Ulead shares acquired.



Accrued liabilities



Accrued liabilities consist of the following (in thousands):



|                                  |  |                |        |                   |   |       
|--------------------------------- |  | -------------- | ------ | ----------------- | - | ------
|                                  |  | March 31, 2005 |        | December 31, 2004
|Payroll and related benefits      |  | $              | 1,767  |                   | $ | 2,220 
|Royalties                         |  |                | 8,492  |                   |   | 8,414 
|Audit and accounting related fees |  |                | 798    |                   |   | 791   
|Other                             |  |                | 2,048  |                   |   | 1,704 
|                                  |  |                |        |                   |   |       
|Total accrued liabilities         |  | $              | 13,105 |                   | $ | 13,129
|                                  |  |                |        |                   |   |       



Note 4. Stock Repurchase Program:



Pursuant to the stock repurchase program announced in
2004, the Company repurchased 61,500 shares of its common stock for $671,000 through open market transactions in March, 2005.



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 endedMarch 31,
|                               |  | 2005                        |        | 2004
|Revenues by Sales Channel:     |  |                             |        |      |   |       
|OEMs                           |  | $                           | 18,724 |      | $ | 15,780
|Web sales and retail           |  |                             | 3,180  |      |   | 3,041 
|                               |  |                             |        |      |   |       
|Total revenue                  |  | $                           | 21,904 |      | $ | 18,821
|                               |  |                             |        |      |   |       
|Revenues by Geographic Region: |  |                             |        |      |   |       
|United States                  |  | $                           | 12,841 |      | $ | 9,998 
|Europe                         |  |                             | 1,841  |      |   | 1,349 
|Asia:                          |  |                             |        |      |   |       
|Japan                          |  |                             | 6,302  |      |   | 6,397 
|Other Asia                     |  |                             | 920    |      |   | 1,077 
|                               |  |                             |        |      |   |       
|Total revenue                  |  | $                           | 21,904 |      | $ | 18,821
|                               |  |                             |        |      |   |       
|Revenues by Product:           |  |                             |        |      |   |       
|WinDVD                         |  | $                           | 13,793 |      | $ | 14,625
|Other products                 |  |                             | 8,111  |      |   | 4,196 
|                               |  |                             |        |      |   |       
|Total revenue                  |  | $                           | 21,904 |      | $ | 18,821
|                               |  |                             |        |      |   |       



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



|                                 |  |                |       |                   |   |      
|-------------------------------- |  | -------------- | ----- | ----------------- | - | -----
|                                 |  | March 31, 2005 |       | December 31, 2004
|Tangible long-lived assets:      |  |                |       |                   |   |      
|United States                    |  | $              | 1,132 |                   | $ | 1,247
|Asia:                            |  |                |       |                   |   |      
|Japan                            |  |                | 142   |                   |   | 161  
|China                            |  |                | 400   |                   |   | 408  
|Taiwan                           |  |                | 1,083 |                   |   | 790  
|                                 |  |                |       |                   |   |      
|Total tangible long-lived assets |  |                | 2,757 |                   |   | 2,606
|                                 |  |                |       |                   |   |      



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



|              |  |                             |   |  |      |  
|------------- |  | --------------------------- | - |  | ---- | -
|              |  | Three months endedMarch 31, |  
|              |  | 2005                        |   |  | 2004 |  
|Revenue from: |  |                             |   |  |      |  
|Customer A    |  | 36                          | % |  | 19   | %
|Customer B    |  | 12                          | % |  | 13   | %



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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:



|                         |  |                |   |  |                   |  
|------------------------ |  | -------------- | - |  | ----------------- | -
|                         |  | March 31, 2005 |   |  | December 31, 2004 |  
|Account receivable from: |  |                |   |  |                   |  
|Customer C               |  | 21             | % |  | 0                 | %
|Customer D               |  | 5              | % |  | 11                | %



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. Subsequent Events:



On April 20, 2005, the Company acquired 33,284,395 shares of Ulead Systems,
Inc. at a purchase price of 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, the Company 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 had purchased prior to the tender offer, the Company now owns a total of 48,817,395 shares of Ulead, or approximately 62.4%
of the issued shares of Ulead as of April 20, 2005.



Beginning
in the Companys second fiscal quarter of 2005, the Company will report its financial results with those of Ulead on a consolidated basis.



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PART 1  FINANCIAL INFORMATION



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



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, as
amended. 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 to 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 and infrastructure, (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, (14) product sales and prices, (15) our efforts to improve internal controls, (16) settlement of intellectual property claims, (17) stock-based compensation expenses, (18) general and administrative
expenses, and (19) the utility of certain products. 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 sell our products to PC OEMs, CE manufacturers and PC peripherals manufacturers worldwide. We have operations in the United States, Taiwan, Japan and China. We derive revenue primarily from the sale of software licenses to OEMs,
which install our software onto PCs prior to delivery to customers. In addition, we derive revenue from the license of our software to CE manufacturers and manufacturers of PC peripherals that incorporate our software into their own products for
distribution. We also sell our software through retail channels and directly to end users through our websites.



Historically, sales of our WinDVD product, a software DVD player for PCs, to PC OEMs have accounted for a majority of our revenue. We derived 63% of our
revenue for the three months ended March 31, 2005 from sales of our WinDVD product, primarily to PC OEMs, as compared to 78% in the three months ended March 31, 2004. We expect that revenue from sales of our WinDVD product to PC OEMs will continue
to account for a majority of our revenue. However, in the future, we expect to derive an increasing percentage of our revenue from sales of other products, including WinDVD Creator, InstantON, InterVideo Home Theater, InterVideo DVD Copy and
Linux-based versions of our DVD and DVR software designed for Linux-based PCs and CE devices, and products sold through our retail and web-based sales channels. Our recent acquisition of a controlling interest in Ulead Systems, Inc. is expected to
accelerate this trend.



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Our software is generally bundled with products sold by PC OEMs. Our PC OEM customers include, among
others, Dell, Fujitsu, Fujitsu Siemens, Hewlett-Packard, IBM, NEC and Toshiba. Due to concentration in the PC OEM industry, we derive a substantial portion of our revenue from a small number of customers. For the three months ended March 31, 2005,
our two largest customers accounted for 48% of our revenue, with Hewlett-Packard accounting for 36% of our revenue and Toshiba accounting for 12% of our revenue. We expect that a small number of customers will continue to account for a majority of
our revenue and gross profit for the foreseeable future, although the identity of those customers may change from period to period. Because there is only 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 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.



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 have an Internet commerce sales initiative that allows users to purchase products from our websites. We also continue to expand our retail channels.
For the three months ended March 31, 2005, we derived 15% of our revenue from web and retail sales as compared to 16% of revenue for the three months ended March 31, 2004. To increase our web and retail sales in the future, we intend to increase
investments in associated selling and marketing programs. The gross profits associated with our products sold through our websites 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 41% of our revenue for the three months ended March 31, 2005 as
compared to 47% in the three months ended March 31, 2004. Currently, most 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.



InterVideo and WinDVD are registered trademarks and WinDVD Creator, WinDVD Recorder, LinDVD, LinDVR, WinDVR, WinProducer, IntraVideo InstantOn and
InterVideo Home Theater are among the trademarks or service marks of InterVideo.



Tender Offer for Ulead Systems, Inc



On April
20, 2005 we acquired a controlling interest in Ulead Systems, Inc. (Ulead) through a tender offer and a purchase 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 20thwe 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 pursuant to a stock purchase agreement and the 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 of this controlling
interest in Ulead, we expect that our consolidated revenue, cost of revenue and operating expenses will increase substantially and that consolidated balance sheet items such as cash and cash equivalents and land and building will increase as well.
We will commence reporting our financial results and those of Ulead on a consolidated basis beginning the quarter ending June 30, 2005. For the quarter ended March 31, 2005, Ulead reported revenue of NTD 221 million (US$6.9 million) and a net loss
of NTD 111 million (US$3.5 million).



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The majority of the revenue from the Ulead products is derived from sales of software to end users
through retailers. Retailers buy 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
InterVideos tools and enhance our ability to address emerging and rapidly growing markets such as multimedia home networking, high definition DVD and Blu-ray Disc and multimedia mobile phones. 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 quantitative impact on our financial results is difficult to determine due to the uncertainties inherent in the two companies future financial results, uncertainties regarding the amount
of synergies and efficiencies that may be garnered as a result of the consolidation and uncertainties regarding the reconciliation of Uleads financial results from Taiwan GAAP to U.S. GAAP, among other factors. Nonetheless, we believe that the
consolidation will be accretive to our net income for the current fiscal year. 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 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 income taxes.
| | - |  | ----------------------------



Revenue recognition



Our revenue is primarily derived from fees received under software licenses granted to PC OEMs, CE manufacturers,PC peripherals manufacturers, retail distributors, retail customers and directly to end users or businesses. We record
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 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, we defer the recognition of OEM revenue due to ongoing
obligations in association with upgrade rights to end users or significant PCS provided to the



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INTERVIDEO, INC.



OEMs customers. Depending on the specific contractual obligation, we recognize this revenue over a period of the shorter of the contractual obligation
period or the 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 for these types of returns, we defer 100% of the revenue until we are able to establish a returns reserve 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 in
time when they receive the product until the point in time 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. Some OEM agreements provide the OEM with rights to PCS to be provided by us to the OEMs end customers. This PCS may or may not include the right to unspecified
future software upgrades. However, PCS is typically not available to the OEMs end users. We have established vendor specific objective evidence (VSOE) of fair value for PCS for end customer support on a limited number of products
sold to OEMs in Japan. On these arrangements, we use the residual method to account for the allocation between the license revenue and the service revenue. The allocated license revenue is recognized in full upon the OEMs sale of the licensed
product to the OEMs sales channel partners and, where the only undelivered element of the agreement is PCS, the allocated PCS is recognized over the period of the PCS obligation. In all other agreements where we have sold PCS in which we have
not been able to establish a VSOE of fair value for 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.



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



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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 corporation 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 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 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.



Results of Operations  Comparison of the three months ended March 31,
2005 and 2004.



|                            |  |                             |   |  |      |  
|--------------------------- |  | --------------------------- | - |  | ---- | -
|                            |  | Three months endedMarch 31, |  
|                            |  | 2005                        |   |  | 2004 |  
|As a percentage of revenue: |  |                             |   |  |      |  
|Revenue                     |  | 100                         | % |  | 100  | %
|                            |  |                            
|Cost of revenue             |  | 42                          |   |  | 42   |  
|                            |  |                             |   |  |      |  
|Gross profit                |  | 58                          |   |  | 58   |  
|                            |  |                             |   |  |      |  
|Operating expenses:         |  |                             |   |  |      |  
|Research and development    |  | 14                          |   |  | 12   |  
|Sales and marketing         |  | 12                          |   |  | 15   |  
|General and administrative  |  | 13                          |   |  | 9    |  
|Stock-based compensation    |  |                            |   |  |     |  
|                            |  |                             |   |  |      |  
|Total operating expenses    |  | 39                          |   |  | 36   |  
|                            |  |                             |   |  |      |  
|Income from operations      |  | 19                          |   |  | 22   |  
|Other income, net           |  | 1                           |   |  | 1    |  
|                            |  |                             |   |  |      |  
|Income before income taxes  |  | 20                          |   |  | 23   |  
|Provision for income taxes  |  | 8                           |   |  | 9    |  
|                            |  |                             |   |  |      |  
|Net income                  |  | 12                          | % |  | 14   | %
|                            |  |                             |   |  |      |  



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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, PC peripherals manufacturers, 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.



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.



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.



Other income, net: Other income, net consists primarily of
interest earned on our cash and cash equivalent balances, offset by other expenses.



Comparison of the Three Months Ended March 31, 2005 and 2004



Revenue



|        |  |                                  |  |                      |   |  |                                 
|------- |  | -------------------------------- |  | -------------------- | - |  | --------------------------------
|        |  | Three months endedMarch 31, 2005 |  | % Change2004 to 2005 |   |  | Three months endedMarch 31, 2004
|Revenue |  | 21,904                           |  | 16                   | % |  | 18,821                          



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Revenue increased 16% to $21.9 million for the three months ended March 31, 2005 from $18.8 million
for the three months ended March 31, 2004. OEM product sales increased 19% to $18.7 million for the three months ended March 31, 2005 from $15.8 million for the three months ended March 31, 2004. Web and retail sales increased 5% to $3.2 million for
the three months ended March 31, 2005 from $3.0 million for the three months ended March 31, 2004. OEM product sales accounted for approximately 85% of total revenue for the three months ended March 31, 2005 as compared to 84% for the three months
ended March 31, 2004. We derived a substantial portion of our revenue from a small number of customers. For the three months ended March 31, 2005, our two largest customers accounted for 48% of our revenue, with Hewlett-Packard accounting for 36% of
our revenue and Toshiba accounting for 12% of our revenue. In the three months ended March 31, 2004 these same two customers accounted for 32% of our revenue with Hewlett-Packard accounting for 19% of our revenue and Toshiba accounting for 13% of
our revenue. Sales outside the United States accounted for 41% of our revenue for the three months ended March 31, 2005 and 47% of our revenue for the three months ended March 31, 2004. The growth in revenue for the three months ended March 31, 2005
over the same period in the prior year reflects increased revenue from our non-WinDVD product sales, which includes WinDVD Creator, InstantOn, WinCinema, WinDVR and InterVideo DVD Copy of 93%. These increases were offset by a decrease in WinDVD
revenue of 6% mainly due to lower average selling prices on increased unit sales. Revenues for the three months ended March 31, 2004 included approximately $600,000 representing the recognition of previously deferred revenue as a result of changes
in contractual arrangements.



Cost of
revenue



|                            |  |                                  |   |  |                      |   |  |                                  |  
|--------------------------- |  | -------------------------------- | - |  | -------------------- | - |  | -------------------------------- | -
|                            |  | Three months endedMarch 31, 2005 |   |  | % Change2004 to 2005 |   |  | Three months endedMarch 31, 2004 |  
|Cost of revenue             |  | 9,172                            |   |  | 16                   | % |  | 7,935                            |  
|Percentage of total revenue |  | 42                               | % |  |                      |   |  | 42                               | %



Cost of revenue
increased to $9.2 million, or 42% of revenue, for the three months ended March 31, 2005 from $7.9 million, or 42% of revenue, for the three months ended March 31, 2004. The increase in absolute dollars was primarily due to increased unit sales and
increased per unit costs of licensed royalties. 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 by the introduction of our
newer, higher margin products offset by continued price erosion in our WinDVD sales to our OEM customers and higher per-unit royalty costs.



Gross profit



|                            |  |                                  |   |  |                      |   |  |                                  |  
|--------------------------- |  | -------------------------------- | - |  | -------------------- | - |  | -------------------------------- | -
|                            |  | Three months endedMarch 31, 2005 |   |  | % Change2004 to 2005 |   |  | Three months endedMarch 31, 2004 |  
|Gross profit                |  | 12,732                           |   |  | 17                   | % |  | 10,886                           |  
|Percentage of total revenue |  | 58                               | % |  |                      |   |  | 58                               | %



Gross profits were 58%
of revenue for both, the three months ended March 31, 2005 and March 31, 2004. Gross profits in the three months ended March 31, 2005 reflects increased sales of our higher margin products, such as WinDVD Creator, partially offset by increased per
unit costs of licensed royalties. Gross profits in the three months ended March 31, 2004 were positively impacted by 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. While we expect that the shift in our product mix toward higher margin products will have a continued favorable impact on gross profits, we expect our gross profits
to be adversely impacted by continued price erosion in our WinDVD sales to our OEM customers and higher per-unit royalty costs.



Research and development expenses



|                                  |  |                                  |   |  |                      |   |  |                                  |  
|--------------------------------- |  | -------------------------------- | - |  | -------------------- | - |  | -------------------------------- | -
|                                  |  | Three months endedMarch 31, 2005 |   |  | % Change2004 to 2005 |   |  | Three months endedMarch 31, 2004 |  
|Research and development expenses |  | 3,010                            |   |  | 32                   | % |  | 2,288                            |  
|Percentage of total revenue       |  | 14                               | % |  |                      |   |  | 12                               | %



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Research and development expenses were $3.0 million, or 14% of revenue, for the three months ended
March 31, 2005 and $2.3 million, or 12% of revenue, for the three months ended March 31, 2004. The increase in absolute dollars and as a percentage of revenue was primarily attributable to $442,000 in increased payroll and payroll related expenses
due to increased research and development headcount, and increases in communications and facilities charges of $127,000, travel and entertainment expenses of $67,000 and other research and development operating expenses of $86,000. Research and
development headcount grew from 138 as of the three months ended March 31, 2004 to 255 as of the three months ended March 31, 2005 which required us to increase our facilities mainly in Taiwan and China. We believe that a significant level of
research and development expenses will be required to remain competitive, and, as a result, we expect these expenses to increase in absolute dollars in the future. We also expect these expenses, as a percentage of revenue, to increase as we
integrate Ulead engineering resources and aggressively focus on product development.



Sales and marketing expenses



|                             |  |                                  |   |  |                      |   |  |                                  |  
|---------------------------- |  | -------------------------------- | - |  | -------------------- | - |  | -------------------------------- | -
|                             |  | Three months endedMarch 31, 2005 |   |  | % Change2004 to 2005 |   |  | Three months endedMarch 31, 2004 |  
|Sales and marketing expenses |  | 2,751                            |   |  |                     | % |  | 2,759                            |  
|Percentage of total revenue  |  | 12                               | % |  |                      |   |  | 15                               | %



Sales and marketing
expenses were $2.8 million, or 12% of revenue, for the three months ended March 31, 2005 as compared with $2.8 million, or 15% of revenue, for the three months ended March 31, 2004. The decrease as a percentage of revenue reflects not only the
relatively flat level of expenditures as compared with the overall increase in revenue but also a shift in personnel resources 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. Therefore, we expect sales and marketing expenses to increase in absolute dollars and that such expenses may increase as a percentage of revenue in the future as we seek to further establish our retail presence.



General and administrative expenses



|                                    |  |                                  |   |  |                      |   |  |                                  |  
|----------------------------------- |  | -------------------------------- | - |  | -------------------- | - |  | -------------------------------- | -
|                                    |  | Three months endedMarch 31, 2005 |   |  | % Change2004 to 2005 |   |  | Three months endedMarch 31, 2004 |  
|General and administrative expenses |  | 2,889                            |   |  | 70                   | % |  | 1,704                            |  
|Percentage of total revenue         |  | 13                               | % |  |                      |   |  | 9                                | %



General and
administrative expenses increased to $2.9 million, or 13% of revenue, for the three months ended March 31, 2005 from $1.7 million, or 9% of revenue, for the three months ended March 31, 2004. This increase in absolute dollars and as a percentage of
revenue was primarily due to an increase in payroll and payroll related expenses of $254,000 as a result of increased headcount, an increase in outside consulting fees of $375,000 and audit fees of $308,000 largely due to Sarbanes-Oxley compliance
efforts, an increase in tax and legal fees of $153,000 and an increase in investor relations expenses, directors fees and business filing fees of $95,000. We expect general and administrative expenses to remain relatively flat as a percentage of
revenue but to increase in absolute dollars in the future as we build our infrastructure to support our anticipated growth and as we integrate Ulead operational resources.



Stock-based compensation expenses



|                                  |  |                                  |   |  |                      |    |  |                                  |  
|--------------------------------- |  | -------------------------------- | - |  | -------------------- | -- |  | -------------------------------- | -
|                                  |  | Three months endedMarch 31, 2005 |   |  | % Change2004 to 2005 |    |  | Three months endedMarch 31, 2004 |  
|Stock-based compensation expenses |  | 40                               |   |  | (47                  | )% |  | 75                               |  
|Percentage of total revenue       |  |                                 | % |  |                      |    |  |                                 | %



Stock-based
compensation expenses decreased to $40,000 for the three months ended March 31, 2005 from $75,000 for the three months ended March 31, 2004. On December 16, 2004, the FASB issued Statement No. 123 (revised 2004),



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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.



Other income, net



|                            |  |                                  |   |  |                      |   |  |                                  |  
|--------------------------- |  | -------------------------------- | - |  | -------------------- | - |  | -------------------------------- | -
|                            |  | Three months endedMarch 31, 2005 |   |  | % Change2004 to 2005 |   |  | Three months endedMarch 31, 2004 |  
|Other income, net           |  | 298                              |   |  | 72                   | % |  | 173                              |  
|Percentage of total revenue |  | 1                                | % |  |                      |   |  | 1                                | %



Other income, net
increased to $298,000 for the three months ended March 31, 2005 from $173,000 for the three months ended March 31, 2004. This increase is primarily due to the higher interest income on increased levels of cash generated through our operations.



Provision for income taxes



|                            |  |                                  |   |  |                      |   |  |                                  |  
|--------------------------- |  | -------------------------------- | - |  | -------------------- | - |  | -------------------------------- | -
|                            |  | Three months endedMarch 31, 2005 |   |  | % Change2004 to 2005 |   |  | Three months endedMarch 31, 2004 |  
|Provision for income taxes  |  | 1,671                            |   |  | 3                    | % |  | 1,630                            |  
|Percentage of total revenue |  | 8                                | % |  |                      |   |  | 9                                | %



We recorded a
provision for income taxes of $1.7 million for the three months ended March 31, 2005 as compared to $1.6 million for the three months ended March 31, 2004. Our effective tax rate was approximately 38.5% for both the three months ended March 31, 2005
and March 31, 2004. This rate differs from the statutory federal rate primarily due to state taxes, net of federal benefit and difference between federal and foreign tax rates. We expect our effective tax rate to remain at approximately 38% to 40%
of our income before income taxes.



Liquidity and Capital Resources



During the three months ended March 31,
2005, cash, cash equivalents and short-term investments decreased by $140,000 to $74.4 million, representing 70% of our total assets. 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 United States treasury, state and municipal
notes/bonds, corporate bonds and auction rate securities. We may use a portion of our cash, cash equivalents and short-term investments to repurchase up to $10 million of our outstanding common stock under our Stock Repurchase Program approved by
the Board of Directors on April 28, 2004 and for making investments in certain other companies, as approved by the Board of Directors from time to time.



Net cash provided by operating activities was $4.5 million for the three months ended March 31, 2005. Net income of $2.7 million was adjusted for
depreciation and amortization of $376,000, stock-based compensation of $40,000 and the equity investment in the net losses of long term investments of $87,000, a decrease in prepaid expenses and other current assets of $264,000, a decrease in
accounts receivable of $662,000 and increases in accounts payable of $84,000 and accrued liabilities and taxes payable of $1.2 million. This was partially offset by a decrease in deferred revenue of $904,000. The decrease in prepaid expenses and
other current assets is mainly due to the amortization of prepaid directors and officers



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insurance. The decrease in accounts receivable is primarily due to a reduction of retail billings in Q1 2005. The increase in accrued liabilities and taxes
payable is primarily due to the increase in tax payable as a result of higher effective tax rate and the difference between income tax accrued and estimated tax paid. The decrease in deferred revenue is due to the termination and settlement of a
several agreements with our customers.



Net cash provided by
operating activities was $914,000 for the three months ended March 31, 2004. Net income of $2.6 million was adjusted for depreciation and amortization of $266,000, stock-based compensation of $75,000, decreases in prepaid expenses and other current
assets of $225,000 and increases in accrued liabilities and taxes payable of $1.7 million and deferred revenue of $241,000. This was partially offset by deferred taxes and the provision for doubtful accounts of $203,000 an increase in accounts
receivable of $3.9 million and a decrease in accounts payable of $95,000. The decrease in prepaid expenses and other current assets was mainly due to the amortization of prepaid directors and officers insurance and prepaid licenses and royalties.
The increase in accounts receivable was largely attributable to payments totaling $3.1 million from a few major customers that had historically been received prior to the end of the reporting period which were received shortly after the end of this
quarter.



Net cash provided by investing activities was $3.0
million for the three months ended March 31, 2005 due to proceeds from maturities of short-term investments, net of purchases, of $7.1 million, offset by purchases of property and equipment and long-term investments of $4.1 million.



Net cash used in investing activities was $29.8 million for the three months
ended March 31, 2004 due to purchases of short-term investments and property and equipment, offset by proceeds from maturities of short-term investments.



Net cash used in financing activities was $400,000 for the three months ended March 31, 2005 consisting of $671,000 used for the repurchase of common
stock, offset by proceeds from the issuance of common stock under our stock option plans and repayments of notes receivable of $271,000.



Cash provided from financing activities was $695,000 for the three months ended March 31, 2004 as a result of proceeds from the issuance of common stock
under our stock option plans.



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 world-wide roll-out of our ERP system. We anticipate that we will increase our capital
expenditures consistent with our anticipated growth in personnel and infrastructure, including facilities and systems. We had future lease commitments for buildings under non-cancelable operating leases through 2010. We have no other debt
obligations.



We believe that our current cash, cash equivalent
and short-term investments will be sufficient to meet our current working capital and capital expenditure requirements for at least the next twelve months. We have used a total of $42 million to acquire a 62.4% 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 our existing sources of cash and cash flows from operations are not sufficient
to fund our activities, we will need to raise additional funds. If we issue additional stock to raise capital, your percentage ownership in us will be reduced. 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. 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.



Off Balance Sheet Arrangements



As of March
31, 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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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. 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. 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;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | ------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | the costs of litigation and intellectual property claims, including the 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:
| | - |  | ------------------------------------------------------------------------------------



| |  |  | changes in our business model from per unit to revenue share on point of sale revenue; 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
and InstantOn. 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.



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



We did not achieve profitability until our fiscal year ended December 31, 2002. As of March 31, 2005, we had retained earnings of $9.2 million. We expect to incur significant operating expenses over the next several years in connection with
the continued development and expansion of our business. Our 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
sustain or increase profitability on a quarterly or annual basis in the future.



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.



On April 20, 2005, we completed our previously-announced
tender offer to purchase 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 because we only conducted
limited due diligence on Ulead based on publicly available information before the tender offer;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | unanticipated costs associated with the transaction including 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;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | customers acceptance of new technology or product offerings;
| | - |  | ------------------------------------------------------------



| |  |  | problems maintaining internal 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;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | 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.



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. 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.



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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. 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 Hewlett-Packard 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 Hewlett-Packard and a small number of PC OEMs. For the quarter ended March 31, 2005, our
two largest customers accounted for 48% of our revenue, with Hewlett-Packard accounting for 36% and Toshiba accounting for 12% of our revenue during that period. 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 material decrease in revenue from Hewlett-Packard or any of
these customers, would reduce our 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.



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;
| | - |  | ---------------------------------------------------------------------------------



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| |  |  | 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 quarter 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 our second quarter of fiscal 2005, and if they are not, we may be required to report in our Quarterly Report on Form 10-Q for the second quarter of 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 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.



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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 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.



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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 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.



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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 63% of our revenue for the three months ended March 31, 2005 and 78% of our revenue for the three months ended March 31, 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 majority 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 or negative growth in the PC industry were to recur, 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 growth would not likely continue, and 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.



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



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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. 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.
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.



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.



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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. 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 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. To the extent our retail sales increase as a percentage of our revenue, we expect this 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,



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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.



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. We currently have or own the rights to 11 issued U.S. patents, 22
patents issued in Taiwan and three in China and we have 90 pending patent applications, comprised of 35 U.S. patent applications and 55 foreign patent applications. 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.



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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 41% of our revenue for the three months
ended March 31, 2005 and 47% of our revenue for the three months ended March 31, 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;
| | - |  | --------------------------------------------



| |  |  | 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.
| | - |  | ---------------------------------------------------



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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;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | ------------------------------------------------------



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| |  |  | 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.
| | - |  | ----------------------------



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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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



To date, most of our revenue has been 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 March 31, 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, have 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) described below, have not been remediated, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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) inInternal Control-Integrated Framework. Because of the material weaknesses described above, management concluded that the
Companys internal control over financial reporting was not effective as of December 31, 2004. At March 31, 2005, the Company determined that all material weaknesses had not yet been remediated



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INTERVIDEO, INC.



Changes in Internal Control over Financial Reporting



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



| |  |  | During the first quarter of 2005, we hired a full-time general counsel who will have a significant role in the contract review process. We also hired a contracts administrator whose
responsibilities include the monitoring and tracking of all contracts and ensuring that such contracts, including licensing agreements, are properly and timely reviewed by all appropriate personnel. In addition, we are in the process of revising our
contract review process by specifically identifying key positions throughout the Company that will be accountable for providing timely input and comments on all contractual documents. This revised process will be fully documented and provided to the
relevant employees.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | During the first quarter of 2005, we executed a new engagement with our external tax service provider. This new engagement incorporates a documented plan for at least bi-weekly
meetings between management and our tax service provider. As necessary, additional communications will occur to ensure our tax service provider is properly informed of strategic initiatives, latest forecasted information and other ongoing
operational activities that may have a bearing on our tax provision. In addition, we expect to enhance our internal expertise in this area through participation in tax education seminars offered by our service provider and other external sources.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Under the direction of our Director of Information Technology, we have implemented 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 are also developing 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 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 will provide 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. We expect these
remediation activities to be completed during our second quarter of 2005.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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INTERVIDEO, INC.



PART 2  OTHER INF0RMATION



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



Issuer Purchases of Equity Securities



In 2004, we announced a stock repurchase program pursuant to which we may purchase up to $10 million, or 700,000 shares, of our outstanding common stock from time to time. The duration of the repurchase program is
open-ended. Under the program, we may purchase shares of common stock through open market transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under this program depends on market conditions and
corporate and regulatory considerations.



The following table
summarizes the stock repurchases transactions that occurred during the quarter ended March 31, 2005.



|                                     |  |                                |  |                            |       |                                                                     |        |                                                                   |        
|------------------------------------ |  | ------------------------------ |  | -------------------------- | ----- | ------------------------------------------------------------------- | ------ | ----------------------------------------------------------------- | -------
|                                     |  | Total number ofsharespurchased |  | Averageprice paidper share |       | Total number ofshares purchased aspart of publiclyannounced program |        | Maximum numberof shares that mayyet be purchasedunder the program
|March 1, 2005 through March 31, 2005 |  | 61,500                         |  | $                          | 10.87 |                                                                     | 61,500 |                                                                   | 438,300



ITEM 6. EXHIBITS



Exhibits filed
with the Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 are as follows:



|                |  |               |  |                                                                                                                                                    
|--------------- |  | ------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibitfootnote |  | ExhibitNumber |  | Description                                                                                                                                        
|(a)             |  | 2.1           |  | Tender Offer Filing and Tender Offer Circular, as amended                                                                                          
|                |  |              
|(b)             |  | 3.1           |  | Certificate of Incorporation                                                                                                                       
|                |  |              
|(c)             |  | 3.2           |  | Bylaws                                                                                                                                             
|                |  |              
|(d)             |  | 4.1           |  | Investors Rights Agreement, dated July 2, 1999, as amended, by and among Registrant and the parties who are signatories thereto                    
|                |  |              
|(e)             |  | 10.1          |  | Offer Letter with Christine Wong.                                                                                                                  
|                |  |              
|(f)             |  | 10.2          |  | Stock Purchase Agreement dated as of March 12, 2005 among Strong Tops Limited and Strong Ace Limited and InterVideo Digital Technology Corp.       
|                |  |              
|(f)             |  | 10.3          |  | Tender Agreement dated as of March 12, 2005 between Microtek International Inc. and InterVideo Digital Technology Corp.                            
|                |  |              
|(f)             |  | 10.4          |  | Tender Agreement dated as of March 12, 2005 between certain persons named in Schedule 1 of the Agreement and International Digital Technology Corp.
|                |  |              
|                |  | 31.1          |  | Chief Executive Officer Certification                                                                                                              
|                |  |              
|                |  | 31.2          |  | Chief Financial Officer Certification                                                                                                              
|                |  |              
|                |  | 32.1          |  | Section 906 Certification of Chief Executive Officer                                                                                               
|                |  |              
|                |  | 32.2          |  | Section 906 Certification of Chief Financial Officer                                                                                               

---

|(a) | Filed as Exhibit 2.1 to our Form 8-K filed on March 25, 2005 and incorporated herein by reference.
|--- | --------------------------------------------------------------------------------------------------

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

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



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INTERVIDEO, INC.



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

|(e) | Incorporated by reference to our Form 8-K filed on February 17, 2005.
|--- | ---------------------------------------------------------------------

|(f) | Incorporated by reference to our Form 8-K filed on March 14, 2005.
|--- | ------------------------------------------------------------------



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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: May 10, 2005InterVideo, Inc.(Registrant)By:

/s/ STEVE ROSteve Ro Chief Executive Officer




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