<PAGE>

================================================================================

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                             _____________________

                                   Form 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

                             EXCHANGE ACT OF 1934

                 For the quarterly period ended March 31, 2001

                                      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 000-27287

                      INTERTRUST TECHNOLOGIES CORPORATION
            (Exact name of registrant as specified in its charter)

              Delaware                              52-1672106
       (State of incorporation)        (IRS Employer Identification No.)


             4750 Patrick Henry Dr., Santa Clara, California 95054
         (Address of principal executive offices, including ZIP code)

                                (408) 855-0100
             (Registrant's telephone number, including area code)

                                     None
  (Former name, former address and former fiscal year, if changed since last
                                    report)

     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) Yes    X    No ___, and (2)  has
                                                   ------
been subject to such filing requirements for the past 90 days.  Yes  X   No ___.
                                                                    ----

     The number of shares outstanding of the Registrant's Common Stock as of May
15, 2001 was 93,887,083.


================================================================================
<PAGE>

                      INTERTRUST TECHNOLOGIES CORPORATION

                                     INDEX

                                                                     Page No.
                                                                     -------
Part I.  Financial Information                                            3

Item 1.   Condensed Consolidated Balance Sheets as of
          March 31, 2001 and December 31, 2000                            3

          Condensed Consolidated Statements of Operations for the
          Three Months Ended March 31, 2001 and 2000                      4

          Condensed Consolidated Statements of Cash Flows for the
          Three Months Ended March 31, 2001 and 2000                      5

          Notes to Consolidated Financial Statements                      6

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                             9

Item 3.   Qualitative and Quantitative Disclosures About Market Risk     22

Part II. Other Information                                               23

Item 1.   Legal Proceedings                                              23

Item 2.   Changes in Securities and Use of Proceeds                      23

Item 3.   Defaults Upon Senior Securities                                23

Item 4.   Submission of Matters to a Vote of Security Holders            23

Item 5.   Other Information                                              24

Item 6.   Exhibits and Reports on Form 8-K                               24

Exhibit Index                                                            24

Signature                                                                26
<PAGE>

PART I.    FINANCIAL INFORMATION
Item 1.    Consolidated Financial Statements


                                INTERTRUST TECHNOLOGIES CORPORATION

                               CONDENSED CONSOLIDATED BALANCE SHEETS
                               (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                  March 31,             December 31,
                                                                     2001                   2000
                                                                     ----                   ----
                                                                 (unaudited)             (Note 1)
<S>                                                              <C>                     <C>
ASSETS
Current assets:
    Cash and cash equivalents                                      $  23,513              $  23,811
    Short-term investments                                           124,625                134,707
    Accounts receivable, net of allowance of $1,029
     in 2001 and $178 in 2000                                          3,126                  3,928
    Other current assets                                               3,509                  2,771
                                                                   ---------             ----------
    Total current assets                                             154,773                165,217
    Property and equipment, net                                       10,950                  8,919
    Restricted long-term investment                                      944                    944
    Long-term investments                                             26,766                 16,783
    Goodwill and other intangible assets, net                         39,216                 29,453
    Other assets                                                       5,914                  5,557
                                                                   ---------             ----------
                                                                   $ 238,563              $ 226,873
                                                                   =========             ==========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
    Accounts payable                                               $   2,089              $   2,728
    Accrued compensation                                               2,955                  2,155
    Other accrued liabilities                                          3,378                  1,110
    Deferred revenue                                                   4,536                  5,915
                                                                   ---------             ----------
    Total current liabilities                                         12,958                 11,908
Deferred revenue--long-term portion                                    7,948                  7,617
Other long-term liabilities                                            2,008                     --
                                                                   ---------             ----------
Commitments                                                               --                     --

Stockholders' equity:
    Common stock, $0.001 par value, 120,000,000
     authorized 93,670,545 and 79,216,996 issued
     and outstanding at March 31, 2001 and 2000                          119                     88
    Additional paid-in capital                                       372,635                340,380
    Deferred stock compensation                                       (5,873)                (3,274)
    Notes receivable from stockholders                                  (475)                  (516)
    Accumulated other comprehensive income                               544                    376
    Accumulated deficit                                             (151,301)              (129,706)
                                                                   ---------   --------------------
    Total stockholders' equity                                       215,649                207,348
                                                                   ---------   --------------------
                                                                   $ 238,563              $ 226,873
                                                                   =========   ====================
 </TABLE>

                            See accompanying notes.

                                       3
<PAGE>

                      INTERTRUST TECHNOLOGIES CORPORATION

                     CONSOLIDATED STATEMENT OF OPERATIONS
              (in thousands, except share and per share amounts)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                 Three Months Ended March 31,
                                                            -------------------------------------
                                                             2001                            2000
                                                             ----                            ----
<S>                                                         <C>                             <C>
Revenues:
   Licenses                                                $  1,387                      $    687
   Software support and training                                730                           660
   Services                                                     276                             -
   Hardware                                                      12                             -
                                                           --------                      --------
       Total revenues                                         2,405                         1,347

Cost of revenues:
   Licenses                                                     137                           103
   Software support and training                                438                           147
   Services                                                   1,915                           643
   Hardware                                                     417                             -
                                                           --------                      --------
       Total cost of revenues                                 2,907                           893
                                                           --------                      --------
Gross (loss) profit                                            (502)                          454

Operating costs and expenses:
   Research and development                                   9,391                         5,201
   Sales and marketing                                        7,610                         3,657
   General and administrative                                 3,946                         2,228
   Purchased in-process research and development                  -                         6,100
   Amortization of goodwill and other intangible assets       2,193                             -
   Amortization of deferred compensation                        723                         1,006
                                                           --------                      --------
       Total operating costs and expenses                    23,863                        18,192
                                                           --------                      --------

Loss from operations                                        (24,365)                      (17,738)
Interest and other income, net                                2,770                         2,112
                                                           --------                      --------
Net loss                                                   $(21,595)                     $(15,626)
                                                           ========                      ========

Basic and diluted net loss per share                       $  (0.24)                     $  (0.20)
                                                           ========                      ========
Shares used in computing basic and diluted net loss
 per share                                                   91,485                        78,931
                                                           ========                      ========
</TABLE>

                            See accompanying notes.

                                       4
<PAGE>

                      INTERTRUST TECHNOLOGIES CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (in thousands)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                             Three Months Ended March 31,
                                                                           -------------------------------
                                                                              2001                  2000
                                                                              ----                  ----
<S>                                                                         <C>                    <C>
Operating activities
Net loss                                                                   $(21,595)              $(15,626)
Adjustments to reconcile net loss to net cash used in
 operating activities:
     Depreciation and amortization of property and equipment                    824                    380
     Amortization of goodwill and other intangible assets                     2,331                      -
     Amortization of deferred stock compensation                                723                  1,026
     Compensation expense related to forgiveness of notes
      receivable from stockholders                                               41                      -
     Gain from sales of long-term investments                                   (93)                     -
     Purchased in-process research and development                                -                  6,100
     Changes in operating assets and liabilities
          Accounts receivable                                                   807                  1,322
          Other current assets                                                 (586)                (1,044)
          Accounts payable                                                   (1,019)                   286
          Accrued compensation                                                  800                     (7)
          Other accrued liabilities                                            (301)                   975
          Deferred revenue                                                   (1,048)                  (336)
                                                                           --------               --------
Net cash used in operating activities                                       (19,116)                (6,924)

Investing activities
     Capital expenditures                                                    (1,887)                (1,052)
     Business acquisition, net of cash acquired                                  53                      -
     Purchases of short-term investments                                    (24,051)               (25,270)
     Sales and maturities of short-term investments                          34,300                 40,855
     Purchases of long-term investments                                     (34,448)               (19,591)
     Sales and maturities of long-term investments                           24,559                      -
     Issuance of note receivable                                               (435)                     -
     Other noncurrent assets, net                                               (58)                  (379)
                                                                           --------               --------
Net cash used in investing activities                                        (1,967)                (5,437)

Financing activities
     Proceeds from issuance of common stock, net                             19,963                    876
     Proceeds from  exercise of stock options and warrants                      822                      -
                                                                           --------               --------
Net cash provided by financing activities                                    20,785                    876

Net decrease in cash and cash equivalents                                      (298)               (11,485)
Cash and cash equivalents at beginning of period                             23,811                 98,286
                                                                           --------               --------
Cash and cash equivalents at end of period                                 $ 23,513               $ 86,801
                                                                           ========               ========

Supplemental schedule of noncash investing and financing
 activities:
     Purchase of Publish One
          Issuance of common stock and options                             $ 11,501               $      -
                                                                           ========               ========
          Tangible assets acquired, net of cash received                   $  1,529               $      -
                                                                           ========               ========
          Goodwill and other intangible assets acquired                    $ 11,988               $      -
                                                                           ========               ========
          Liability assumed                                                $  5,392               $      -
                                                                           ========               ========
          Deferred stock compensation                                      $  3,323               $      -
                                                                           ========               ========

     Purchase of Infinite Ink
          Issuance of common stock                                         $      -               $ 24,516
                                                                           ========               ========
          Assets acquired                                                  $      -               $     18
                                                                           ========               ========
          Liabilities assumed                                              $      -               $     17
                                                                           ========               ========
</TABLE>

                            See accompanying notes.

                                       5
<PAGE>

                      INTERTRUST TECHNOLOGIES CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have
been prepared by us and reflect all adjustments, consisting only of normal
recurring adjustments, which in the opinion of management are necessary to
present fairly the financial position and the results of operations for the
interim periods. The balance sheet at December 31, 2000 has been derived from
audited financial statements at that date. The financial statements have been
prepared in accordance with the regulations of the Securities and Exchange
Commission, but omit certain information and footnote disclosures necessary to
present the statements in accordance with generally accepted accounting
principles. For further information, refer to the Consolidated Financial
Statements and Notes thereto included in our Annual Report on Form 10K for the
year ended December 31, 2000 filed with the Securities and Exchange Commission
on April 2, 2001 (the "Annual Report"). Results of operations for the three
month period ended March 31, 2001 are not necessarily indicative of operating
results for the full year.

Net Loss Per Share

     Basic and diluted net loss per share is computed using the weighted-average
number of shares of common stock outstanding during the period less shares
subject to repurchase. The following table presents the basic and diluted net
loss per share (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED
                                                                           MARCH 31,
                                                           ---------------------------------------
                                                                   2001                  2000
                                                           -----------------      ----------------
<S>                                                          <C>                    <C>

Net loss                                                            $(21,595)             $(15,626)
                                                           =================      ================

Basic and diluted:
 Weighted-average shares of common stock outstanding                  91,553                79,468
 Less weighted-average shares subject to repurchase                      (68)                 (537)
                                                           -----------------      ----------------

 Weighted-average shares used in computing basic and                  91,485                78,931
  diluted net loss per common share
                                                           -----------------      ----------------

   Basic and diluted net loss per common share                      $  (0.24)             $  (0.21)
                                                           =================      ================
</TABLE>

     We excluded all outstanding convertible preferred stock, warrants, and
stock options from the calculation of diluted net loss per share because all
such securities are antidilutive for all periods presented. The total number of
weighted average shares excluded from the calculations of diluted net loss per
share was 5,116,000 and 15,507,000 for the three months March 31, 2001 and 2000,
respectively. Warrants and stock options, had they been dilutive, would have
been included in the computation of diluted net loss per share using the
treasury stock method.

Revenue Concentration

     Three customers accounted for 18%, 19% and 9% of total revenues in the
first quarter of 2001. Three customers accounted for 28%, 22%, and 20% of total
revenues in the first quarter of 2000. International revenues accounted for 54%
of total revenues for the first three months of 2001 and 57% of the revenues for
the comparable period of 2000.

Recent Accounting Pronouncements

                                       6
<PAGE>
     On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including foreign exchange contracts, and
hedging activities. Because we currently hold no derivative financial
instruments and do not currently engage in hedging activities, the adoption of
SFAS 133 did not have a material impact on our financial position or results or
operations.

2.  BUSINESS COMBINATIONS

     On January 30, 2001, the Company acquired the remaining 92.1% of the
outstanding shares and all of the outstanding options of PublishOne, Inc.
("PublishOne"), a privately-held company that develops online publishing
software solutions and distribution services for business information
publishers. Prior to the acquisition date, the Company owned approximately 7.9%
of PublishOne's outstanding stock. The transaction was accounted for as a
purchase and the results of PublishOne's operations have been included in the
condensed consolidated financial statements from the date of acquisition.  The
purchase price was $16.9 million and consisted of 1,130,00 shares of InterTrust
common stock at a fair value of $5.31 per share, the assumption of options to
purchase 1,155,221 shares of InterTrust common stock at a fair value of $4.84
per share, assumed liabilities of $5.2 million, and acquisition costs of
approximately $250,000. Additionally, the agreement includes contingent
consideration of 320,000 shares of InterTrust common stock to be issued upon the
achievement of certain milestones.  As of March 31, 2001, no milestones have
been met.

     The Company allocated PublishOne's purchase price based on the relative
fair value of the net tangible and intangible assets acquired.  No amount was
allocated to in-process research and development.  The purchase price was
allocated based on an independent valuation to tangible and intangible assets as
follows (in thousands):

               Tangible assets          $ 1,581
               Purchased technology       1,671
               Acquired workforce         1,452
               Other intangible assets      610
               Deferred compensation      3,323
               Goodwill                   8,255
                                        -------
                                        $16,892

     Goodwill, purchased technology and other intangibles are being amortized on
a straight-line basis over four years.  The acquired workforce is being
amortized on a straight-line basis over two years.

     The fair value of the unvested common stock subject to restricted stock
agreements and the intrinsic value of the unvested options held by PublishOne
employees was allocated to deferred stock compensation. The deferred stock
compensation will be amortized to compensation expense over the remaining
vesting term using a graded method.

                                       7
<PAGE>

     The following pro forma data summarizes the results of operations for the
periods indicated as if PublishOne had been completed as of the beginning of the
periods presented. The pro forma data gives effect to actual operating results
prior to the acquisition. No effect has been given to cost reductions or
operating synergies in this presentation. Prior to the acquisition, PublishOne
was a customer of InterTrust.  The pro forma amounts exclude revenues and
expenses recognized in transactions between PublishOne and InterTrust.  These
pro forma amounts do not purport to be indicative of the results that would have
actually been obtained if the acquisition had occurred as of the beginning of
the periods presented or that may be obtained in the future.

     Pro forma results for the three months ended March 31, 2001 and 2000 are as
follows (in thousands, except per share amounts):

                                              Three Months Ended
                                              ------------------
                                                  March 31,
                                                  ---------
                                             2001            2000
                                             ----            ----
Revenues                                       2,408           1,322
Net loss                                    $(22,509)       $(16,504)
Net loss per share - basic and diluted      $  (0.25)       $  (0.21)

3.   SALE OF SECURITIES

     In January 2001, InterTrust sold 4,000,000 shares of common stock at $5.00
per share to Nokia Finance International B.V, a subsidiary of Nokia Corporation
("Nokia"), for total cash consideration of $20,000,000. In connection with its
investment, Nokia agreed to license InterTrust DRM solutions and select
InterTrust as its preferred DRM technology. Additionally per agreement,
InterTrust has appointed an executive officer of Nokia to the InterTrust Board
of Directors.

4.   COMPREHENSIVE INCOME

     Total comprehensive income was $168,000 and $355,000 for the three months
ended March 31, 2001 and 2000, respectively.

5.   SUBSEQUENT EVENTS

     On April 30, 2001, we announced plans to reduce our current operating
expense levels by approximately 15%. The plan provides for the reduction of
about 50 employees and reductions in other discretionary spending. The company
will record a restructuring charge in the quarter ending June 30, 2001.

     On April 26, 2001, we filed a patent infringement complaint against
Microsoft Corporation in the United States District Court for the Northern
District of California. In the complaint, we have alleged that certain of
Microsoft's products infringe our United States Patent No. 6,185,683 and we are
seeking an injunction in addition to monetary damages.

                                       8
<PAGE>

Item 2.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The information in this discussion contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Act of 1934, as amended. Such statements are based
upon current expectations that involve risks and uncertainties. Any statements
contained herein that are not statements of historical fact may be deemed to be
forward-looking statements. For example, the words "believes," "anticipates,"
"plans," "expects," "intends" and similar expressions are intended to identify
forward-looking statements. InterTrust's actual results and the timing of
certain events may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a discrepancy include,
but are not limited to, those discussed in "Other Factors Affecting Operating
Results, Liquidity and Capital Resources" below.  All forward-looking statements
in this document are based on information available to InterTrust as of the date
hereof and InterTrust assumes no obligation to update any such forward-looking
statements.

Overview

  We have developed a general purpose digital rights management, or DRM,
platform to serve as a foundation for providers of digital information,
technology, and commerce services to participate in a global e-commerce system.
InterTrust was formed and incorporated in January 1990. From inception through
1998, our efforts were principally devoted to research and development, raising
capital, recruiting personnel, and establishing licensing relationships. As a
result, we were considered a development stage enterprise during this period.
The general availability version of our Commerce software was not delivered to
our partners until December 1998. Some partners began using the technology on a
limited commercial basis in January 2000.

  We license our DRM platform and software to companies to build digital
commerce services and applications. Our goal is to license to content,
technology, and commerce services partners to achieve widespread dissemination
of our technology, an expanding consumer base, and broad participation by
digital information providers. We currently derive our revenues from initial
license fees, associated software support and training services, TrustNet
clearinghouse services and professional services. Our license agreements also
generally require our partners to pay a transaction fee that is a percentage of
amounts paid by users or charged by our partners in commercial transactions and
services that use our technology, and for sales of products incorporating our
technology. Within the next several years, we anticipate that a significant
portion of our revenues will be derived primarily from transaction fees and from
license fees associated with the license of products that we are developing. Any
future transaction fees are dependent on the success of our licensees and their
customers in commercially deploying services and applications.

  We have four basic types of license agreements: commerce service licenses,
business licenses, applications licenses and hardware licenses. These agreements
provide different rights and technology depending on the commercial plans of our
partners. Initial license fees received from these agreements may vary in amount
depending on factors such as partner commitments, scope of the license as it
relates to commercial markets, territory, and term of agreement. Examples of
partner commitments include deploying licensed products within a specified time
frame, exclusively using portions of our technology, and using and publicly
promoting us as the partner's preferred digital rights management technology. We
have in the past decided, and may in the future decide, to reduce or eliminate
initial license fees based on these factors. We do not believe that we can
determine the amount of foregone revenue due to reduced or eliminated license
fees with any reliable degree of certainty. Our license fees are negotiated
based on the terms and conditions of each individual agreement and take into
account the scope of the license, the term, and the other commitments made by
our partners that provide strategic value to us. In addition, we have entered
into a limited number of license agreements which have varying license scopes
and terms and which do not provide adequate comparable data to determine the
amount of foregone revenue. In connection with our strategy to promote
widespread use of our technology, through March 31, 2001, we have on four
occasions received initial license fees for our Commerce software in the form of
minority equity positions in the licensees. Additionally, on five occasions we
received initial license fees in the form of convertible promissory notes. In
the future, we may enter into other equity payment arrangements.

                                       9
<PAGE>

  Licenses of our Commerce software generally require the payment of an initial
license fee. Initial license revenue, net of any discounts granted, is
recognized upon execution of a license agreement and delivery of our software if
we have no remaining obligations relating to development, upgrades, new
releases, or other future deliverables, if the license fee is fixed or
determinable, and if collection of the fee is probable. Our license agreements
generally include the right to obtain access to upgrades and new releases, on a
when and if available basis, for a specified period. Under these circumstances,
the license payments received, net of any discounts granted, in advance of
revenue recognition are deferred and recognized on a subscription basis over the
period of obligation beginning upon delivery of the licensed product. In
addition, under license agreements where we are obligated to provide a specified
custom development deliverable and do not have vendor specific objective
evidence of fair value of the specified deliverable, all of the license revenue
is deferred until the specified upgrade has been delivered. Upon delivery of the
specified deliverable, license revenue is recognized using the subscription
method. We began recognizing revenue under some license agreements in January
1999, after shipping the general availability version of our Commerce software
at the end of December 1998. At March 31, 2001, we had approximately $12.5
million of deferred license revenue that will be recognized in future periods.

  Through March 31, 2001, on four occasions we received license fees in the form
of minority equity positions in non-public entities. On five occasions we
received license fees in the form of convertible promissory notes from non-
public entities in exchange for technology licenses. One of these convertible
promissory notes was already converted into 125,000 shares of common stock,
which we believe represented approximately 1% of the outstanding shares of the
licensee as of the conversion date. Because the entities were recently formed,
privately held companies, and InterTrust was unable to obtain sufficient
evidence of the fair value of the common stock of the entity or sufficient
evidence of the fair value of the convertible promissory notes and
collectibility was not probable, InterTrust did not record revenue or deferred
revenue from the license fees. InterTrust is obligated to provide unspecified
upgrades and new releases, on a when and if available basis, to the licensees
over a one to two year period under the agreements for additional fees.
InterTrust is not obligated to provide any funding to any licensee for the
development of the licensee's software.

  Our license agreements also require the payment of a transaction fee that is a
percentage of revenues received by our partners from transactions and services
that use our technology and sales of products incorporating our technology.
Transactions involving the use of our technology to conduct the sale, lease,
rental, or licensing of commercial content require the payment of a transaction
fee based on the amounts paid by users or charged by our partners for selling or
distributing the content. Transactions involving the use of our technology for
commercial services generally require the payment of a transaction fee based on
the amounts paid by users or charged by our partners for the services.
Transactions involving the sale, lease, rental, or licensing of products
incorporating our technology generally require the payment of a transaction fee
based on the amounts paid by users or charged by our partners for the product.
Our partners are required to pay all amounts due for transaction fees within
specified periods, depending on the licensing arrangement. Our revenue
recognition policy relating to transaction fees is to recognize the revenue when
the amounts due are known, which will generally be in the quarter after the
transaction. Prepaid transaction fees are recorded as deferred revenue and will
be recognized when the related transactions occur. We have received $1.5 million
in prepaid transaction fees, which are included in deferred revenue as of March
31, 2001. Prepaid transaction fees may generally be offset against a portion of
transaction fee amounts due in any given quarter. To date, we have not
recognized any material transaction fees from commercial transactions or
services, or sales of products.

  Software support and training services, which typically include the right to
telephone and online support and customer training, are generally provided for
in the license agreements for an agreed-upon amount. Software support and
training service revenue is recognized over the period in which the services are
provided.

  TrustNet clearinghouse service revenues represent primarily service fees from
our customers for the use of our TrustNet clearinghouse infrastructure in pilot
and test applications and services. Service revenues generally include
consulting and system integration services provided to the customer to establish
an interface with the TrustNet clearinghouse and monthly service fees to use
TrustNet for the clearing of commercial transactions. Consulting and system
integration fees are recognized as services are performed and monthly service
fees are recognized over the term of the service period.

                                       10
<PAGE>

  Professional services represent fees for consulting services provided to our
customers for development and system integration not essential to the
functionality of the software licensed. The revenue from these services is
recognized as services are performed.

  PricewaterhouseCoopers, National Computer Systems of Singapore, and Magex
accounted for 18%, 19% and 8% of total revenues respectively, for the three
months ended March 31, 2001. PricewaterhouseCoopers, National Computer Systems
of Singapore, and Bertelsmann accounted for 28%, 22%, and 20% of total revenues,
respectively, in the comparable period for 2000. Our success depends on
significantly increasing the number of companies that license our technology and
use it for the sale and management of digital content and services.

  In view of the rapidly changing nature of our industry and our new and
unproven business model, we believe that period-to-period comparisons of
revenues and operating results are not necessarily meaningful and should not be
relied upon as indications of future performance. In addition, our business
model has not succeeded in generating sufficient revenue to sustain our
business. We also operate in an intensely competitive market for highly
qualified technical, sales and marketing, and management personnel and
periodically make salary and other compensation adjustments to retain and hire
employees. We anticipate that our operating expenses will substantially increase
in future quarters. As a result, we will need to generate significant additional
revenue to achieve and maintain profitability. In addition, we have limited and
delayed insight on consumer trends and sales, which makes prediction of our
future revenues difficult. We expect to incur additional losses for at least the
next several years.

     On January 30, 2001, the Company acquired the remaining 92.1% of the
outstanding shares and all of the outstanding options of PublishOne, Inc.
("PublishOne"), a privately-held company that develops online publishing
software solutions and distribution services for business information
publishers. Prior to the acquisition date, the Company owned approximately 7.9%
of PublishOne's outstanding stock. The transaction was accounted for as a
purchase and the results of PublishOne's operations have been included in the
condensed consolidated financial statements from the date of acquisition.  The
purchase price was $16.9 million and consisted of 1,130,00 shares of InterTrust
common stock at a fair value of $5.31 per share, the assumption of options to
purchase 1,155,221 shares of InterTrust common stock at a fair value of $4.84
per share, assumed liabilities of $5.2 million, and acquisition costs of
approximately $250,000. Additionally, the agreement includes contingent
consideration of 320,000 shares of InterTrust common stock to be issued upon the
achievement of certain milestones.  As of March 31, 2001, no milestones have
been met.

     The Company allocated PublishOne's purchase price based on the relative
fair value of the net tangible and intangible assets acquired.  No amount was
allocated to in-process research and development.  The purchase price was
allocated based on an independent valuation to tangible and intangible assets as
follows (in thousands):

               Tangible assets          $ 1,581
               Purchased technology       1,671
               Acquired workforce         1,452
               Other intangible assets      610
               Deferred compensation      3,323
               Goodwill                   8,255
                                        -------
                                        $16,892

     Goodwill, purchased technology and other intangibles are being amortized on
a straight-line basis over four years.  The acquired workforce is being
amortized on a straight-line basis over two years.

     The fair value of the unvested common stock subject to restricted stock
agreements and the intrinsic value of the unvested options held by employees was
allocated to deferred stock compensation.  The deferred stock compensation will
be amortized to compensation expense over the remaining vesting term using a
graded method.

Results of Operations

                                       11
<PAGE>

Revenues

     Total revenues increased to approximately $2.4 million in the three months
ended March 31, 2001 from approximately $1.3 million in the comparable period of
2000.

     License revenues were approximately $1.4 million or 58% of total revenues
for the three months ended March 31, 2001 as compared to $687,000 or 51% of
total revenues in the three months ended March 31, 2000, and represent the
amortization of deferred license fees. This increase was due to license fees
fromnew licensing agreements.

     Revenue from software support and training increased to $730,000 in the
three months ended March 31, 2001 from approximately $660,000 in the three
months ended March 31, 2000.  This increase was due to support and training fees
from new support agreements. Software support and training services accounted
for 30% and 49% of total revenues in the three months ended March 31, 2001 and
2000, respectively.

     Services revenues were approximately $276,000 for the three months ended
March 31, 2001, and no services revenues were recognized in the three months
ended March 31, 2000.  Services revenues represents monthly service fees for
TrustNet clearinghouse services, transaction royalties, consulting and system
integration services.  Services revenues accounted for 11% of total revenues in
the three months ended March 31, 2001.

     Hardware revenue was approximately $12,000 for the three months ended March
31, 2001.  This revenue was the result from chips sold to one customer under the
terms of a short-term purchase agreement to provide chips for testing and trial
production.  No hardware revenue was recognized in the three months ended March
31, 2000.

Cost of Revenues

     Cost of license revenue consists primarily of the costs incurred to
manufacture, package, and distribute our products, related documentation and
purchased technology. Cost of license revenue was approximately $137,000 during
the three months ended March 31, 2001 and approximately $103,000 in the three
months ended March 31, 2000. Cost of license revenue is expected to fluctuate
from period to period depending on the number of new partners, the number of
software releases, and the amount of software documentation provided to our
partners during the period.

     Cost of software support and training consists primarily of the cost of
personnel, travel related expenditures, and training materials. These
expenditures are incurred both at our facilities as well as at partner
locations. Cost of software support and training revenue increased to
approximately $438,000 for the three months ended March 31, 2001 from
approximately $147,000 for the three months ended March 31, 2000.  The increase
in cost of software support and training represents the increase in support
personnel required to provide technical assistance and training to a greater
number of partners. Software support and training services costs are expected to
vary from period to period depending on the support requirements of our
partners.

     Cost of services consists primarily of the outside services, personnel, and
equipment to operate our clearinghouse, as well as personnel costs to provide
professional services.  Costs of services were approximately $1,915,000 during
the three months ended March 31, 2001. Cost of services were approximately
$643,000 during the three months ended March 31, 2000.  This increase is
primarily attributable to investment in clearinghouse infrastructure and
personnel.

     Cost of hardware was approximately $417,000 for the three months ended
March 31, 2001.  These costs are related to the purchase of chips from a third
party, customization, transport of the chips. During the three months ended
March 31, 2001, the cost includes a reserve for inventory due to cancellation of
the supply agreement with our customer. There were no hardware costs for the
three months ended March 31, 2000.

                                       12
<PAGE>

Research and Development

     Research and development expenses consist principally of salaries and
related personnel expenses, consultant fees, and the cost of software used in
product development. Research and development expenses are expensed to
operations as incurred. Research and development spending was approximately $9.4
million for the three months ended March 31, 2001 and approximately $ 5.2
million for the three months ended March 31, 2000.  This increase was primarily
attributable to increases in personnel costs, recent business acquisitions, and
consultant services associated with both product research and development.  We
believe that continued investment in research and development is critical to
attaining our strategic product objective and we expect these expenses to
increase in absolute dollars in future periods.

Sales and Marketing

     Sales and marketing expenses consist of salaries and related expenses for
personnel engaged in direct sales, partner development, marketing, field service
support, consultant fees and advertising, promotional material, and trade show
exhibit expenses. Sales and marketing expenses increased to approximately $7.6
million for the three months ended March 31, 2001 from $3.7 million for the
three months ended March 31, 2000.  The increase in sales and marketing expenses
was due primarily to an increase in sales and marketing personnel, and to a
lesser extent, public relations, promotional costs, and travel costs.  We expect
sales and marketing expense to vary in future periods based upon the
implementation of marketing and promotional programs related to the release of
new products.

General and Administrative

     General and administrative expenses consist primarily of salaries and
related expenses for executive, legal, accounting and administrative personnel,
professional service fees, and general corporate expenses. General and
administrative expenses increased to approximately $4.0 million for the three
months ended March 31, 2001 from approximately $2.2 million for the three months
ended March 31, 2000.  The increase was primarily attributed to increases in
legal expenses, business development personnel, costs associated with being a
public company, and bad debt expense.  We expect general and administrative
expenses to increase as a result of litigation costs related to a claim of
patent infringement we filed against Microsoft in April 2001 (see further
discussion in Risk Related to Our Business).

Amortization of Goodwill and Other Intangible Assets

     Amortization of goodwill and other intangible assets was $2.2 million for
the three months ended March 31, 2001; there was no amortization of goodwill and
other intangible assets for the three months ended March 31, 2000. Amortization
of goodwill and intangible assets is related to the business acquisitions in
2000 and 2001.

Deferred Stock Compensation

     Deferred compensation represents the difference between the exercise price
of options granted to employees and the deemed fair value of our common stock
for financial reporting purposes. Additionally, in conjunction with the
acquisition of PublishOne, the fair value of the unvested common stock subject
to restricted stock agreements and the intrinsic value of the unvested options
held by PublishOne employees was allocated to deferred stock compensation.
Deferred compensation is being amortized over the vesting periods of the options
on a graded vesting method. This compensation expense relates to options awarded
to individuals in all operating expense categories. We recognized approximately
$723,000 of such compensation expense during the three months ended March 31,
2001 and $ 1 million in the comparable period of 2000.

Interest and Other Income, net

     Interest and other income consists primarily of interest earned on cash and
cash equivalents, short and long-term investments. Interest and other income
increased to $2.8 million during the three months ended March 31, 2001 from $2.1
million in the comparable period in 2000 due to higher cash and investment
balances.

Liquidity and Capital Resources

                                       13
<PAGE>

  Cash, cash equivalents and marketable and restricted investments totaled
$175.8 million at March 31, 2001, a decrease of $500,000 from December 2000. The
change during the three months ended March 31, 2001 is primarily attributable to
$20.0 million of cash generated from the sale of 4.0 million shares to Nokia
Finance International B.V., a subsidiary of Nokia Corporation, in January 2001
and from proceeds from the exercise of employee stock options and employee stock
purchases, offset by our net loss for the quarter of $21.6 million.

  Net cash used in operating activities totaled $19.1 million in the three
months ended March 31, 2001. The cash used the quarter is primarily attributable
to the net loss of $21.6 million, partially offset by various non-cash charges
such as depreciation and amortization of $800,000, amortization of goodwill and
other intangible assets of $2.3 million, and stock related compensation of
$700,000.

  Net cash used in investing activities totaled $2.0 million in the three months
ended March 31, 2001. The cash used in 2000 is primarily attributable to capital
expenditures totaling $1.9 million. Capital acquisitions were principally
comprised of computer equipment and software used to support our product
development and growing employee base.

  Net cash provided by financing activities was $20.8 million for 2001, due to
cash generated from issuing common stock to Nokia Finance International B.V., a
susidiary of Nokia Corporation and, to a lesser extant, from the exercise of
employee stock options.

     At March 31, 2001, our principal source of liquidity was $175.8 million in
cash and cash equivalents and marketable and restricted investments.  We believe
that our cash and cash equivalents will be sufficient to meet our working
capital needs for at least the next 12 months. In the future, we may require
additional funds to support our working capital requirements or for other
purposes and may seek to raise additional funds through public or private equity
financing or from other sources. Additional financing may not be available at
all or, if available, may not be obtainable on terms favorable to us. In
addition, any additional financing may be dilutive and new equity securities
could have rights senior to those of existing holders of our common stock. If we
need to raise funds and cannot do so on acceptable terms, we may not be able to
respond to competitive pressures or anticipated requirements or take advantage
of future opportunities.

Other Factors Affecting Operating Results, Liquidity and Capital Resources

     In addition to the other information in this report, the following risk
factors should be considered carefully in evaluating our business and us:

Risk Related to Our Business

Our business model is new and unproven and we may not succeed in generating
sufficient revenue to sustain or grow our business.

  Our business model is new and unproven and may not generate sufficient revenue
for us to be successful. The market for digital commerce services and
applications has not developed as quickly as anticipated and, as a result, we
might not meet analysts' expectations of our future operating results. The
success of our business depends partly upon our ability to generate transaction
fees in the form of a percentage of fees charged by our licensees in commercial
transactions. However, some of our licensees have just begun using our
technology in the commercial distribution of their products and we have not
earned any material transaction fees under this business model. The volume of
products and services distributed using our technology may be too small to
support or grow our business. While some companies have licensed our technology,
other companies may wish to use other technology based on different business
models, including the payment of a one-time license fee without sharing in
ongoing revenues. If we are unable to generate revenues from transaction fees,
our current revenues, consisting of initial license fees and support fees, may
be insufficient to sustain our business.

Our quarterly operating results are volatile and difficult to predict. If we
fail to meet the expectations of public market analysts or investors, the market
price of our common stock may decrease significantly.

                                       14
<PAGE>

  Our operating results have varied from period to period and, in some future
quarter or quarters, may fall below the expectations of securities analysts or
investors, causing the market price of our common stock to decline.  Our
quarterly operating results may fail to meet these expectations for a number of
reasons, including:

 . the inability of our licensees and their customers to commercialize our
  technology, or delays or deferrals in this commercialization;
 . the inability of our licensees to pay our license and other fees;
 . our inability to develop or commercialize our technology to meet our
  customers' requirements on a timely basis;
 . a decline in the demand for digital goods and services;
 . a decline in the demand for our Commerce or Rights/System software products;
 . our failure to quickly reduce costs in the event of unanticipated declines
  in revenues in a given period;
 . delays or failure to license our Commerce software and services to one or
  more partners;
 . expenses related to the issuance of stock to our partners;
 . higher than expected operating expenses, including expenses related to the
  patent infringement litigation we recently initiated against Microsoft;
 . higher spending on deployment programs; and
 . customer budget cycles and changes in these budget cycles.

We are dependent on international sales which subject us to a variety of risks.

  We received approximately 54% of our total revenues in the three months ended
March 31, 2001, 45% of our total revenues in 2000 and 61% of our total revenues
in 1999 from sales to customers located outside the United States. Our
international business activities are subject to a variety of risks, including
the adoption and changes of laws, actions by third parties and political and
economic conditions that could restrict or eliminate our ability to do business
in certain jurisdictions. Although we currently transact business in U.S
dollars, if we transact business in foreign currencies in the future, we will
become subject to the risks associated with transacting in foreign currencies,
including potential negative effects of exchange rate fluctuations. To date, we
have not adopted a hedging program to protect from risks associated with foreign
currency fluctuations.

  Government regulation and requirements influence our sales internationally.
Current or new government laws and regulations, or the application of existing
laws and regulations including those related to property ownership, content and
taxation, could expose us to significant liabilities, significantly slow our
growth or otherwise seriously harm our business and results of operations.

If we or third parties do not deploy our technology and create a market for
digital commerce, our business will be harmed.

  Relationships with leading content, technology, and commerce service providers
are critical to our success. Our business and operating results would be harmed
to the extent we or our licensees fail, in whole or in part, to:

  .  deploy our technology;
  .  develop an infrastructure for the sale and delivery of digital goods and
     services;
  .  generate transaction fees from the sale of digital content and services;
  .  develop and deploy new applications; and
  .  promote brand preference for InterTrust products and services and the
     MetaTrust Utility.

We have a history of losses, and we expect our operating expenses and losses to
increase significantly.

  Our failure to increase our revenues significantly would seriously harm our
business. We derive most of our revenues from the sale of a small number of
licenses. As a result, any delay in the recognition of revenue from a license
would have a material adverse effect on our results of operations for subsequent
accounting periods. We have experienced operating losses in each quarterly and
annual period since inception, and we expect to incur significant and increasing
losses in the future. We incurred net losses of $21.6 million for the three
months ended March 31, 2001, $55.6 million for the year ended December 31, 2000
and $28.6 million for the year-ended December 31, 1999. We expect to continue to
have significant research and development, sales and marketing, and general and

                                       15
<PAGE>

administrative expenses.  In addition, we expect to incur significant expenses
related to the patent litigation we recently initiated against Microsoft. As a
result of these expenses, we must significantly increase our revenues to become
profitable. We expect to incur significant losses for at least the foreseeable
future.

We need to significantly increase the number of companies that license our
technology to sustain and grow our business.

  We will not generate sufficient revenue to grow our business unless we
maintain relationships with existing licensees and significantly increase the
number of companies that license our technology and use it for the sale and
management of digital information and services. We have not yet attracted, and
may not in the future be able to attract, a sufficient number of these
companies. As of March 31, 2001, only 64 companies have licensed our software
for commercial use. As of March 31, 2001, approximately 27 companies have
been involved in the limited commercial deployment of our technology. Our
ability to attract new licensees will depend on a variety of factors, including
the following:

  .  the performance, reliability and security of our products and services;
  .  the scalability of our products and services--the ability to rapidly
     increase deployment size from a limited number of end-users to a very large
     number of end-users;
  .  the cost-effectiveness of our products and services; and our ability to
     market our products and services effectively.

  Our ability to attract new licensees will also depend on the performance of
our initial licensees. Many potential licensees may resist working with us until
our and our licensees' applications and services have been successfully
introduced into the market and have achieved market acceptance. We may not be
able to attract a critical mass of licensees that will develop products and
establish clearinghouses and other commerce services, and our licensees may not
achieve the widespread deployment of users we believe is necessary for us to
become successful.

  In addition, we may not be able to establish relationships with important
potential customers if we have already established relationships with their
competitors. Therefore, it is important that we are perceived as a neutral and
trusted technology and service provider. In addition, we require that products
and services operating within the MetaTrust Utility comply with specifications
administered by us. Potential licensees may be unwilling to be subject to the
control of these specifications.

Our operating results could be harmed if our licensees or potential licensees
suffer from downward economic cycles.

  Our ability to license our technology depends on the economic strength and
budgetary cycles of potential licensees. Many of our licensees are Internet-
related and start-up companies that currently face unfavorable market conditions
and budgetary pressures. Some of our licensees might default on their payment
obligations to us. This may be disruptive to our business and may adversely
affect our business, financial condition and results of operations.

The long and complex process of licensing our Commerce and other software and
hardware products could delay the deployment of our technology and harm our
business.

  Licensing our Commerce and other software and hardware products is a long and
complex process. If initial license fees are delayed or reduced as a result of
this process, our future revenue and operating results could be impaired. Before
committing to license our product, our licensees must generally consider a wide
range of issues including product benefits, installation and infrastructure
requirements, ability to work with existing computer systems, ability to support
a large user base, functionality, security, and reliability. The process of
entering into a licensing agreement with a company typically involves lengthy
negotiations. As a result of our long sales cycle, which in the past has
generally ranged from six months to 18 months, it is difficult for us to predict
the quarter in which a particular prospect might sign a license agreement. In
addition, in some cases we develop specific software applications for our
licensees. We cannot predict if we will deliver these applications in a timely
manner or at all.

                                       16
<PAGE>

  Because our technology must be integrated into the products and services of
our licensees, there will be significant delay between our licensing the
software and our licensees' commercial deployment of their products and
services, which will delay our receipt of transaction fee revenue.

  Our success depends upon the deployment of our technology by a potential
licensee in the use and sale of digital content. Our licensees undertake a
lengthy process of integrating our technology into their existing systems or a
new system. The integration often receives re-engineering of these business
processes, which may delay the deployment of our technology. Until a licensee
deploys our technology, we do not receive transaction fees from that licensee.

  We expect that the period between entering into a licensing arrangement and
the time our licensee commercially deploys applications based on our Commerce
software will be lengthy and will vary, which makes it difficult for us to
predict when revenue will be recognized.

Our Commerce and other software and hardware products have only recently been
used by our licensees in pilot programs, making evaluation of our business and
prospects difficult.

  We began offering the general availability release of our Commerce software in
December 1998, and released version 1.5 in April 2001.  Our and our licensees'
applications and services based on our Commerce and other software and hardware
products are in development or have only been released for evaluation in very
limited commercial launches. It is still possible that we or our licensees may
uncover serious technical and other problems resulting in the delay or failure
of the commercial deployment of our licensees' implementation of our Commerce
software, including problems relating to security, the ability to support a
large user base, and interoperability of our software or the combination of our
software with our licensees' software. We may not successfully address any of
these problems and the failure to do so would seriously harm our business and
operating results.

Protection of our intellectual property is limited and efforts to protect our
intellectual property may be inadequate, time consuming, and expensive.

  Our success and ability to compete are substantially dependent on our
proprietary technology and trademarks, which we attempt to protect through a
combination of patent, copyright, trade secret, and trademark laws, as well as
confidentiality procedures and contractual provisions. These legal protections
afford only limited protection and may be time consuming and expensive.
Furthermore, despite our efforts, we may be unable to prevent third parties from
infringing upon or misappropriating our intellectual property. Also, our
competitors may independently develop similar, but not infringing, technology,
duplicate our products, or design around our patents or our other intellectual
property.

  Our patent applications or trademark registrations may not be approved.
Moreover, even if approved, the resulting patents or trademarks may not provide
us with any competitive advantage or may be challenged by third parties. If
challenged, our patents might not be upheld or their claims could be narrowed.
Any litigation surrounding our rights could force us to divert important
financial and other resources away from our business operations. In addition, we
license our products internationally, and the laws of many countries do not
protect our proprietary rights as well as the laws of the United States.

  In April 2001, we filed a claim against Microsoft Corporation alleging that
certain of their technology infringes our United Stated Patent NO. 6,185,683.
The claim is in the early stages and while the litigation is pending,
significant financial resources and management attention will be diverted for
that purpose.  There is no assurance that we will be successful in this claim,
and an unfavorable result would have a significant adverse affect on our results
of operations by reducing the value of our proprietary technology and reducing
demand for our products.

Security breaches of our software and our licensees' software could result in
decreased demand for our technology by our licensees or their customers or in
litigation.

  The secure transmission and trusted management of proprietary or confidential
information over the Internet are essential to establishing and maintaining
confidence in our Commerce and other software and hardware and the software and
services developed using our software. Without this confidence, potential or
current licensees may not

                                       17
<PAGE>

use our technology and their customers may not trust and use our licensees'
products. Therefore, security concerns and security breaches of our and our
licensees' software could harm our business and operating results. Advances in
computer capabilities, new discoveries, or other developments could result in a
compromise or breach of the security technology, including cryptography
technology, that we and our licensees use to protect customer digital content
and transaction data. Security breaches could damage our reputation and expose
us to a risk of loss or litigation. Our insurance policies have low coverage
limits that may not be adequate to reimburse us for losses caused by security
breaches. We cannot guarantee that our security measures will prevent security
breaches.

Defects in our software and the software of our licensees could delay deployment
of our technology and reduce our revenues.

  Defects or errors in current or future products could result in delayed or
failed deployment of our technology, lost revenues, or a delay in or failure to
achieve market acceptance, any of which could seriously harm our business and
operating results. Complex software products like ours often contain errors or
defects, including errors relating to security, particularly when first
introduced or when new versions or enhancements are released. Because this is a
system used for commerce, we believe the standards for reliability and
performance will be very high.

  If our or our licensees' products and services contain errors or defects not
discovered in the process of development and pilot programs, it could seriously
undermine the perceived trust and security needed for a commercial system and
could delay or prevent market acceptance of digital commerce resulting in
serious harm to our business and operating results.

  The deployment and use of our products expose us to substantial risks of
product liability claims because our products are expected to be used in
sensitive and valuable digital commerce transactions and because we require our
partners to comply with our specifications. Although our license agreements
typically contain provisions designed to limit our exposure to product liability
claims, it is possible that these limitations of liability provisions may not be
effective as a result of existing or future laws or unfavorable judicial
decisions. A product liability claim brought against us, even if not successful,
would likely be time consuming and costly to defend and could significantly harm
our business and operating results.

If we are unable to continue obtaining third-party software and applications, we
could be forced to change our product offering or find alternative suppliers,
which could delay shipment of our product.

  We integrate third-party software with our software. We would be seriously
harmed if the providers from which we license software ceased to deliver and
support reliable products, enhance their current products, or respond to
emerging industry standards. In addition, the third-party software may not
continue to be available to us on commercially reasonable terms or at all. The
loss of, or inability to maintain or obtain this software, could result in
shipment delays or reductions, or could force us to limit the features available
in our current or future product offerings. Either alternative could seriously
harm our business and operating results.

The market for digital rights management will be subject to rapid technological
change and new product introductions and enhancements that we may not be able to
address. We need to develop and introduce new products, technologies, and
services.

  The market for digital rights management solutions is fragmented and marked by
rapid technological change, frequent new product introductions and enhancements,
uncertain product life cycles, and changes in customer demands. To succeed, we
must develop and introduce, in response to customer and market demands, new
releases of our Commerce software and other products that offer features and
functionality that we do not currently provide. Any delays in our ability to
develop and release enhanced or new products could seriously harm our business
and operating results. In the past we have experienced delays in new product
releases, and we may experience similar delays in the future.

     In particular, we are currently increasing our focus on our new
Rights/System platform, which we believe is important to meeting our customer
and market demands. Delays in our ability to develop and release the
Rights/System software could seriously harm our operating results.

                                       18
<PAGE>

Our markets are highly competitive and we may not be able to compete
successfully against current or potential competitors, reducing our market share
and revenue growth.

  Our markets are new, rapidly evolving, and highly competitive, and we expect
this competition to persist and intensify in the future. Our failure to maintain
and enhance our competitive position could reduce our market share and cause our
revenues to grow more slowly than anticipated or not at all. We encounter
current or potential competition from a number of sources, including:

  .  providers of secure digital distribution technology like Adobe, IBM,
     Microsoft, Liquid Audio, Preview Systems, and Content Guard;
  .  providers of hardware-based content metering and copy protection systems,
     including Sony and the 4C Entity, comprised of IBM, Intel, Matsushita, and
     Toshiba; and
  .  operating system manufacturers, including Microsoft or Sun Microsystems,
     that may develop or license digital rights management solutions for
     inclusion in their operating systems.

  Potential competitors may bundle their products or incorporate a digital
rights management component into existing products in a manner that discourages
users from purchasing our products. For example, Microsoft's Windows operating
system, which manages the programs on a computer, includes components addressing
limited digital rights management functions. Furthermore, new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. Our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements than we do.

  Some of our competitors have longer operating histories and significantly
greater financial, technical, marketing, and other resources than we do. Many of
these companies have more extensive customer bases and broader partner
relationships that they could leverage, including relationships with many of our
current and potential partners. These companies also have significantly more
established customer support and professional services organizations than we do.
In addition, these companies may adopt aggressive pricing policies.

Any acquisitions that we make could disrupt our business and harm our operating
results.

  We have made acquisitions of and investments in other companies in the past
and we may continue to acquire or make investments in complementary companies,
products or technologies. In the event of any such investments, acquisitions or
joint ventures, we could:

  .  issue stock that would dilute our current stockholders' percentage
     ownership;
  .  incur debt;
  .  assume liabilities;
  .  incur amortization expenses related to goodwill and other intangible
     assets; or
  .  incur large and immediate write-offs.

  These investments, acquisitions or joint ventures also involve numerous risks,
including:

  .  problems combining the purchased operations, technologies or products with
     ours;
  .  unanticipated costs;
  .  division of management's attention from our core business;
  .  adverse effects on existing business relationships with suppliers and
     customers;
  .  potential loss of key employees, particularly those of the acquired
     organizations; and
  .  reliance to our disadvantage on the judgement and decisions of third
     parties and lack of control over the operations of a joint venture partner.

  Any acquisition or joint venture may cause our financial results to suffer as
a result of these risks.

We and our licensees may be found to infringe proprietary rights of others,
resulting in litigation, redesign expenses, or costly licenses.

                                       19
<PAGE>

  Digital rights management is an emerging field in which our competitors, may
obtain patents or other proprietary rights that would prevent, or limit or
interfere with, our, or our licensees', ability to make, use, or sell products.
Furthermore, companies in the software market are increasingly bringing suits
alleging infringement of their proprietary rights, particularly patent rights.
We and our licensees could incur substantial costs to defend or settle any
litigation, and intellectual property litigation could force us to do one or
more of the following:

  .  cease selling, incorporating, or using products or services that
     incorporate the infringed intellectual property;
  .  obtain a license from the holder of the infringed intellectual property
     right; or
  .  redesign products or services to avoid infringement.

Our or our licensees' products and services may be subject to a claim of patent
infringement independent of any infringement by our software.

  In the past, we have received notices alleging potential infringement by us of
the proprietary rights of others. In January 1996, we received a letter from an
attorney representing E-Data Corporation containing an allegation of
infringement of a patent E-Data allegedly owns. We exchanged correspondence with
E-Data's attorneys ending in September 1996. We have not heard from any
representative of E-Data since that time. In November 1997, we received a letter
from representatives of TAU Systems Corporation informing us of two patents held
by TAU Systems. In the letter, the representatives stated their opinion that our
Commerce software contained various elements recited in the two patents and
requested that we discuss licensing the technology of these patents. We
responded to the letter stating that, although we had not undertaken a detailed
review of the patents, 23 we were unaware of any of our products having one of
the elements required by the patent claims. We have not received any further
correspondence from TAU Systems. In May 1999, we received a letter from
representatives of TechSearch LLC offering us a license to a patent held by
TechSearch. We have reviewed the patent and do not believe that we need to
obtain a license to this patent. In the future, however, we or our licensees
could be found to infringe upon the patent rights of E-Data, TAU Systems,
TechSearch, or other companies.

To successfully license our product and grow our business, we must retain and
attract key personnel; competition for these personnel is intense.

  Our success depends largely on the skills, experience, and performance of the
members of our senior management and other key personnel, including our chairman
of the board and chief executive officer, Victor Shear. None of our senior
management or other key personnel must remain employed for any specific time
period. If we lose key employees, our business and operating results could be
significantly harmed. In addition, our future success will depend largely on our
ability to continue attracting, integrating, and retaining highly skilled
personnel. We have recently hired many key personnel, including our president
and our chief financial officer. Our ability to effectively execute our
strategies will depend in part upon our ability to integrate new personnel into
our operations. Further, competition for qualified sales and marketing personnel
is intense. We may not be able to hire enough qualified individuals in the
future or in a timely manner. New employees require extensive training and
typically take at least four to six months to achieve full productivity.
Although we provide compensation packages that include stock options, cash
incentives, and other employee benefits, the volatility and current market price
of our stock may make it difficult for us to attract, assimilate, and retain
highly qualified employees.   For example, due to the current volatility of our
stock price, many of our employees hold options with exercise prices well above
the current fair market value of our stock.

Failure to appropriately manage our growth and expansion could seriously harm
our business and operating results.

  Our historical growth has placed, and any further growth is likely to continue
to place, a significant strain on our resources. Any failure to manage growth
effectively could seriously harm our business and operating results. We have
grown from 87 employees at December 31, 1997 to approximately  353 employees at
March 31, 2001.  On April 30, 2001, we announced a plan to reduce our workforce
by approximately 15% in order to reduce costs and increase efficiency.  To be
successful, we will need to implement additional management information systems,
improve our operating, administrative, financial and accounting systems and
controls, train new employees, and

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<PAGE>

maintain close coordination among our executive, engineering, accounting,
finance, marketing, and operations organizations.

Our stock price has been volatile in the past and is likely to continue to be
volatile.

  The market price of our common stock has been volatile in the past and is
likely to continue to be volatile. In addition, the securities markets in
general, and Internet stocks in particular, have experienced significant price
volatility and accordingly the trading price of our common stock is likely to be
affected by this activity.

We have implemented anti-takeover provisions that could make it more difficult
to acquire us.

  Our sixth amended and restated certificate of incorporation, our amended and
restated bylaws, and Delaware law contain provisions that could make it more
difficult for a third party to acquire us, even if its doing so would be
beneficial to our stockholders. These provisions include:

  .  authorizing the issuance of shares of undesignated preferred stock without
     a vote of stockholders;
  .  prohibiting stockholder action by written consent; and
  .  limitations on stockholders' ability to call special stockholder meetings.

  We are also currently considering other anti-takeover measures, including a
stockholders' rights plan.

Stockholders may incur dilution as a result of future equity issuances.

  We have in the past and may in the future issue equity securities to our
partners. If we issue additional equity securities, stockholders may experience
dilution, and the new equity securities could have rights senior to those of
existing holders of our common stock.

Industry-Related Risks

We may not receive sufficient revenues to be successful and our stock price will
decline if use of the Internet for commercial distribution of digital content is
not widely accepted.

  Acceptance and use of the Internet for commercial distribution of digital
content may not continue to develop at recent rates, and a sufficiently broad
base of consumers may not adopt, and continue to use, the Internet and other
online services as a medium for digital commerce. Because our transaction fees
are derived from digital commerce transactions, if digital commerce is not
accepted for any reason, our revenues would not grow sufficiently and our
business and operating results would be significantly harmed.

  We depend on the widespread acceptance of commerce in digital information over
the Internet, through DVD, and other means. These methods for distribution of
digital information may not be commercially accepted for a number of reasons,
including:

  .  failure to develop the necessary infrastructure for communication of
     digital information and for payment processing;
  .  failure to develop or deploy enabling technologies, including compression
     or broadband technology necessary for distribution of particular digital
     content over the Internet;
  .  reduced demand for paid digital content due to the widespread availability
     of free content online and the ability to use and distribute this content
     without restriction; and
  .  insufficient speed, access, and server reliability, as well as lengthy
     download time for content.

If standards for digital rights management are not adopted, confusion among
content providers, distributors, and consumers may depress the level of digital
commerce, which would reduce our revenues.

  If standards for digital rights management are not adopted or complied with,
content providers may delay distributing content until they are confident that
the technology by which the content is to be distributed will be

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<PAGE>

commercially accepted. Standards for the distribution of various digital content
might not develop or might be found to violate antitrust laws or fair use of
copyright policies. In addition, the failure to develop a standard among device
manufacturers may affect the market for digital goods and services. As a result,
consumers may delay purchasing products and services that include our technology
if they are uncertain of commercial acceptance of the standards with which our
technology complies. There is uncertainty in the market as to the best way to
offer music digitally. For example, there are a number different software
formats available and it is possible that not all music will play on the same
devices. Consumer acceptance of digital delivery of music depends upon the
ability of the various software formats to work together. Consequently, if a
standard format for the secure delivery of content on the Internet is not
adopted, or if the standards are not compatible with our digital rights
management technology, our business and operating results would likely be
harmed.

We may face increased governmental regulation and legal uncertainties that could
increase our costs and provide a barrier to doing business.

  Exports of software products utilizing encryption technology are generally
restricted by the United States and various foreign governments. Although we
have obtained approval to export our Commerce software, changes in export laws
and regulations may impose restrictions that affect our ability to distribute
products and services internationally, limiting our ability to gain revenue and
grow our business.

  It is also possible that Congress or individual states could enact laws
regulating or taxing Internet commerce. In addition, several telecommunications
companies have petitioned the Federal Communications Commission to regulate
Internet service providers in a manner similar to long distance telephone
carriers and to impose access fees on these companies. Access fees, sales taxes
or any other taxes or fees could increase the cost of transmitting data over the
Internet and reduce the number or amount of transactions from which we get our
transaction fees.

Item 3.  Qualitative and Quantitative Disclosures about Market Risk

         We develop products in the United States and license our products to
partners in North America, Europe, Asia and Australia. As a result, our
financial results could be affected adversely by various factors, including
foreign currency exchange rates or weak economic conditions in foreign markets.

         Our interest income is sensitive to changes in the general level of
United States interest rates, particularly since the majority of our investments
are in short-term instruments. Due to the nature of our investments in
marketable securities, we have concluded that there is no material market risk
exposure. Therefore, no quantitative tabular disclosures are required. At March
31, 2001 and December 31, 2000, our cash and cash equivalents consisted
primarily of demand deposits and money market funds held by two large
institutions in the United States.

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<PAGE>

PART II.  OTHER INFORMATION


                      INTERTRUST TECHNOLOGIES CORPORATION

Item 1.  Legal Proceedings.

  On April 26, 2001, we filed a patent infringement complaint against Microsoft
Corporation in the United States District Court for the Northern District of
California. In the complaint, we have alleged that certain of Microsoft's
products infringe our United States Patent No. 6,185,683 and we are seeking an
injunction in addition to monetary damages.

Item 2.  Changes in Securities and Use of Proceeds.

     (a) Changes in Securities.

     On January 30, 2001, we issued 1,130,000 shares of common stock in
exchange for all of the capital stock of PublishOne, Inc. The transaction was
accounted for as a purchase and the fair value of the common stock issued was
$6 million. The shares were issued pursuant to an exemption by reason of
Section 4(2) of the Securities Act of 1933. These sales were made without
general solicitation or advertising. Each purchaser was an accredited investor
or a sophisticated investor (either alone or through its representative) with
access to all relevant information necessary. These shares have not been
registered for resale by us.

     On February 1, 2001, we issued 4,000,000 shares of common stock to Nokia
Finance International B.V. for an aggregate purchase price of $20,000,000. The
shares were issued pursuant to an exemption by reason of Regulation S of the
Securities Act of 1933. This sale was made without general solicitation or
advertising. The purchaser was not a U.S. person within the meaning of Rule 903
of the Securities Act of 1933. These shares have not been registered for resale
by us.

     (b) Use of Proceeds.

     On April 12, 2000 we completed a public offering in which we sold 2,820,244
shares of common stock at $35 per share pursuant to a Registration Statement on
Form S-1 (File No. 333-32484) that was declared effective on April 6, 2000.  The
total aggregate proceeds from these transactions were $98.7 million.
Underwriters' discounts and other related costs were approximately $6.5 million
resulting in net proceeds $92.2 million.

     On November 1, 1999, we completed our initial public offering, in which we
sold 13,000,000 shares of common stock at $9 per share pursuant to a
Registration Statement on Form S-1 (File No. 333-84033) that was declared
effective on October 26, 1999.  Additionally, we sold 1,950,000 shares of common
stock at $9 per share in connection with the exercise of the underwriters'
over-allotment option. The total aggregate proceeds from these transactions were
$134.6 million. Underwriters' discounts and other related costs were
approximately $11.2 resulting in net proceeds $123.4 million.

     The net proceeds were used for working capital and general corporate
purposes.  Remaining proceeds were predominantly held in cash, cash equivalents
and marketable securities at March 31, 2001.

Item 3.  Defaults Upon Senior Securities.

     None.

Item 4.  Submission of Matters to a Vote of Security Holders.

     None.

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<PAGE>

Item 5.    Other Information.

     None.

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

(a)    Exhibits.

    Exhibit
      No.                                   Description
      ---                                   -----------
     3.1         Sixth Amended and Restated Certificate of Incorporation filed
                 with the Secretary of State of Delaware on November 1, 1999 --
                 incorporated herein by reference to Exhibit 3.2 to the
                 Registrant's Registration Statement on Form S-1 (File No. 333-
                 84033).
     3.2***      Amended and Restated Bylaws of the Registrant.
     4.1         Reference is made to Exhibits 3.1 and 3.2.
     4.2*        Form of Registrant's Common Stock certificate.
     4.3*        Form of Registration Rights under select Convertible Promissory
                 Notes.
     4.4*        Form of Registration Rights under select Class A Common Stock
                 Purchase Agreements.
     4.5*        Form of Series A Preferred Stock Registration Rights.
     4.6*        Form of Series B, C, D and E Preferred Stock Registration
                 Rights.
     4.7*        Form of Registration Rights found in a Class B Non-Voting
                 Common Stock Warrant.
     4.8         Stockholder Rights Agreement, by and between the Registrant and
                 Nokia Finance International B.V., dated January 31, 2001 --
                 incorporated herein by reference to Exhibit 4.1 to the
                 Registrant's Form 8-K filed February 20, 2001.
    10.1*        Form of Indemnification Agreement entered into by the
                 Registrant with each of its directors and executive officers.
    10.2*        1999 Equity Incentive Plan and forms of agreements thereunder.
    10.3*        1999 Employee Stock Purchase Plan.
    10.4*        1999 Non-Employee Directors Option Plan.
    10.5         Lease between Mission West Properties, L.P. and the Registrant
                 dated July 21, 1999 --incorporated herein by reference to
                 Exhibit 10.11 to the Registrant's Registration Statement on
                 Form S-1 (File No. 333-84033).
    10.6+        Technology Development, Marketing, and License Agreement by and
                 between the Registrant and National Westminster Bank PLC dated
                 August 18, 1998 -- incorporated herein by reference to Exhibit
                 10.12 to the Registrant's Registration Statement on Form S-1
                 (File No. 333-84033).
    10.7+        Technology Development and License Agreement by and between the
                 Registrant and Universal Music Group, Inc. dated April 13,
                 1999 -- incorporated herein by reference to Exhibit 10.13 to
                 the Registrant's Registration Statement on Form S-1 (File No.
                 333-84033).
    10.8+        Technology Development and License Agreement by and between the
                 Registrant and Upgrade Corporation of America dated August 7,
                 1996 -- incorporated herein by reference to Exhibit 10.14 to
                 the Registrant's Registration Statement on Form S-1 (File No.
                 333-84033).
    10.9+        Technology Development and License Agreement by and between the
                 Registrant and Mitsubishi Corporation dated October 7, 1996 --
                 incorporated herein by reference to Exhibit 10.15 to the
                 Registrant's Registration Statement on Form S-1 (File No. 333-
                 84033).
   10.10         Warrant for the purchase of Class A Voting Common Stock made by
                 the Registrant and held by Allen & Company Incorporated, dated
                 September 7, 1999 -- incorporated herein by reference to
                 Exhibit 10.16 to the Registrant's Registration Statement on
                 Form S-1 (File No. 333-84033).
   10.11         Amendment to Technology, Development, Marketing and License
                 Agreement by and between the Registrant and National
                 Westminster Bank dated August 18, 1998 -- incorporated herein
                 by reference to Exhibit 10.17 to the Registrant's Registration
                 Statement on Form S-1 (File No. 333-84033).

                                       24
<PAGE>

    Exhibit
      No.                                   Description
      ---                                   -----------
  10.12          Amendment to Technology Development and License Agreement by
                 and between the Registrant and Universal Music Group, Inc.
                 dated April 13, 1999 -- incorporated herein by reference to
                 Exhibit 10.18 to the Registrant's Registration Statement on
                 Form S-1 (File No. 333-84033).
  10.19**        Building Lease Agreement by and between First State Realty of
                 America, Inc. and the Registrant dated January 24, 2000.
  10.20***       Employment Agreement by and between the Company and David
                 Ludvigson dated August 4, 2000.
  10.21****      2000 Supplemental Option Plan.
  10.22****      Full-Recourse Promissory Note dated December 7, 2000 from Bruce
                 Fredrickson to the Company.


*    Incorporated herein by reference to the exhibit of the same number in the
     Registrant's Registration Statement on Form S-1 (File No. 333-84033).
**   Incorporated herein by reference to the exhibit of the same number in the
     Registrant's Registration Statement on Form S-1 (File No. 333-32484).
***  Incorporated herein by reference to the exhibit of the same number of the
     Registrant's Form 10-Q for the quarter ended September 30, 2001.
**** Incorporated herein by reference to the exhibit of the same number of the
     Registrant's Form 10-K for the year ended December 31, 2000.
+    Confidential treatment requested.


   (b)  Reports on Form 8-K.

        On May 1, 2001, the Company filed a report on Form 8-K in which it
        disclosed that the Registrant had filed a claim against Microsoft
        Corporation alleging patent infringement.

        On February 20, 2001, the Company filed a report on Form 8-K in which it
        disclosed that the Registrant had sold common stock to Nokia Finance
        International B.V. for an aggregate purchase price of $20,000,000.

                                       25
<PAGE>

                      INTERTRUST TECHNOLOGIES CORPORATION
                                   SIGNATURE

     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.


                               INTERTRUST TECHNOLOGIES CORPORATION

                          By:  /s/ Victor Shear
                               -------------------------------------------------
                               Victor Shear
                               Chairman of the Board and Chief Executive Officer
                               (Principal Executive Officer)

Date:  May 15, 2001       By:  /s/ Gregory S. Wood
                               -------------------------------------------------
                               Gregory S. Wood
                               Chief Financial Officer
                               (Principal Financial and Accounting Officer)

                                       26