<PAGE>

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                                 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, 2000

                                      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
April 30, 2000 was 81,815,525.

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<PAGE>

                      INTERTRUST TECHNOLOGIES CORPORATION

                                     INDEX

<TABLE>
<CAPTION>
                                                                           Page
                                                                           No.
                                                                           ----
 <C>      <S>                                                              <C>
 Part I.  Financial Information

 Item 1.  Condensed Consolidated Balance Sheets as of March 31, 2000 and
          December 31, 1999.............................................     3

          Condensed Consolidated Statements of Operations for the Three
           Months Ended March 31, 2000 and 1999 ........................     4

          Condensed Consolidated Statements of Cash Flows for the Three
           Months Ended March 31, 2000 and 1999.........................     5

          Notes to Consolidated Financial Statements....................     6

 Item 2.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations.....................................     8

 Item 3.  Qualitative and Quantitative Disclosures about Market Risk ...    20

 Part II. Other Information

 Item 1.  Legal Proceedings ............................................    21

 Item 2.  Changes in Securities and Use of Proceeds ....................    21

 Item 3.  Defaults Upon Senior Securities ..............................    21

 Item 4.  Submission of Matters to a Vote of Security Holders ..........    21

 Item 5.  Other Information ............................................    21

 Item 6.  Exhibits and Reports on Form 8-K .............................    21

 Signature...............................................................   24

 Exhibit Index...........................................................   25
</TABLE>

                                       2
<PAGE>

                         PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

                      INTERTRUST TECHNOLOGIES CORPORATION

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                     March 31,  December 31,
                                                       2000         1999
                                                    ----------- ------------
                                                    (unaudited)
<S>                                                 <C>         <C>          <C>
ASSETS

Current assets:
  Cash and cash equivalents........................  $ 86,801     $ 98,286
  Short-term investments...........................    26,715       42,548
  Accounts receivable..............................     1,240        2,562
  Other current assets.............................     2,226        1,182
                                                     --------     --------
    Total current assets...........................   116,982      144,578
Property and equipment, net........................     4,166        3,356
Long-term investments..............................    19,591          --
Other assets.......................................       417          137
Goodwill and other intangible assets...............    21,820        3,426
                                                     --------     --------
                                                     $162,976     $151,497
                                                     ========     ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
  Accounts payable.................................  $  2,487     $  2,184
  Accrued compensation.............................     1,106        1,113
  Other accrued liabilities........................     2,653        1,678
  Deferred revenue.................................     3,576        3,052
                                                     --------     --------
    Total current liabilities......................     9,822        8,027
Deferred revenue--long-term portion................     9,258       10,118
Commitments:
Stockholders' equity (deficit):
  Convertible preferred stock......................       --           --
  Common stock.....................................        80           79
  Additional paid-in capital.......................   239,632      214,241
  Deferred stock compensation......................    (5,593)      (6,600)
  Notes receivable from stockholders...............      (177)        (196)
  Accumulated other comprehensive income (loss)....      (355)        (107)
  Accumulated deficit..............................   (89,691)     (74,065)
                                                     --------     --------
    Total stockholders' equity (deficit)...........   143,896      133,352
                                                     --------     --------
                                                     $162,976     $151,497
                                                     ========     ========
</TABLE>

                            See accompanying notes.

                                       3
<PAGE>

                      INTERTRUST TECHNOLOGIES CORPORATION

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                                 March 31,
                                                            -----------------
                                                              2000     1999
                                                            --------  -------
                                                              (unaudited)
<S>                                                         <C>       <C>
Revenues:
  Licenses................................................. $    687  $   167
  Software support and training............................      660       65
  Clearinghouse services...................................      --       --
                                                            --------  -------
    Total revenues.........................................    1,347      232
Cost of revenues:
  Licenses.................................................      103       32
  Software support and training............................      147       87
  Clearinghouse services...................................      643      --
                                                            --------  -------
    Total cost of revenues.................................      893      119
                                                            --------  -------
Gross profit (loss)........................................      454      113
Operating costs and expenses:
  Research and development.................................    5,201    3,436
  Sales and marketing......................................    3,657    1,134
  General and administrative...............................    2,228      759
  Purchased in-process research and development............    6,100      --
  Amortization of deferred stock compensation..............    1,006       27
                                                            --------  -------
    Total operating costs and expenses.....................   18,192    5,356
                                                            --------  -------
Loss from operations.......................................  (17,738)  (5,243)
Interest and other income (expense), net...................    2,112       42
                                                            --------  -------
Net loss................................................... $(15,626) $(5,201)
                                                            ========  =======
Basic and diluted net loss per share....................... $  (0.20) $ (0.18)
                                                            ========  =======
Shares used in computing basic and diluted net loss per
 share.....................................................   78,931   29,337
                                                            ========  =======
</TABLE>


                            See accompanying notes.

                                       4
<PAGE>

                      INTERTRUST TECHNOLOGIES CORPORATION

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                             Three Months Ended
                                                                 March 31,
                                                             -----------------
                                                               2000     1999
                                                             --------  -------
                                                               (unaudited)
<S>                                                          <C>       <C>
Operating activities
Net loss.................................................... $(15,626) $(5,201)
Adjustments to reconcile net loss to net cash used in
 operating activities:
  Depreciation and amortization.............................      380      130
  Amortization of deferred stock compensation and other
   stock related compensation charges.......................    1,026       87
  Purchased in-process research and development.............    6,100      --
  Changes in operating assets and liabilities:
    Accounts receivable.....................................    1,322    1,445
    Other current assets....................................   (1,044)     (99)
    Accounts payable........................................      286       41
    Accrued compensation....................................       (7)      82
    Other accrued liabilities...............................      975       61
    Deferred revenue........................................     (336)    (167)
                                                             --------  -------
      Net cash used in operating activities.................   (6,924)  (3,621)
Investing activities
Capital expenditures........................................   (1,052)     (82)
Purchases of short-term investments.........................  (25,270)     --
Proceeds from sales and maturities of short-term
 investments................................................   40,855      --
Purchases of long-term investments..........................  (19,591)     --
Other noncurrent assets.....................................    ( 379)     (49)
                                                             --------  -------
      Net cash used in investing activities.................   (5,437)    (131)

Financing activities
Proceeds from issuance of preferred stock, net..............      --     5,006
Proceeds from issuance of common stock, net.................      876      796
                                                             --------  -------
      Net cash provided by financing activities.............      876    5,802
                                                             --------  -------
Net increase (decrease) in cash and cash equivalents........  (11,485)   2,050
Cash and cash equivalents at beginning of period............   98,286    5,575
                                                             --------  -------
Cash and cash equivalents at end of period.................. $ 86,801  $ 7,625
                                                             ========  =======
Supplemental schedule of noncash financing activities:
  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 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, 1999 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 filed
with the Securities and Exchange Commission on March 30, 1999 (the "Annual
Report"). Results of operations for the three-month period ended March 31,
2000 are not necessarily indicative of operating results for the full year.

 Stock Split

  On January 27, 2000, our Board of Directors approved a two-for-one stock
split (in the form of a 100% stock dividend) of our common stock to
stockholders of record on February 14, 2000. Shares resulting from the split
were distributed by the transfer agent on February 28, 2000. All share and per
share amounts in these consolidated financial statements have been adjusted to
give effect to the stock split.

 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,
                                                            -----------------
                                                              2000     1999
                                                            --------  -------
   <S>                                                      <C>       <C>
   Net loss................................................ $(15,626) $(5,201)
                                                            ========  =======
   Basic and diluted:
     Weighted-average shares of common stock outstanding...   79,468   29,898
     Less weighted-average shares subject to repurchase....     (537)    (561)
                                                            --------  -------
   Weighted-average shares used in computing basic and
    diluted net loss per common share......................   78,931   29,337
                                                            --------  -------
       Basic and diluted net loss per common share......... $  (0.20) $ (0.18)
                                                            ========  =======
</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 15,507,000 at March 31, 2000 and 38,632,000 at March 31, 1999.
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 28%, 22%, and 20% of total revenues in the
first quarter of 2000. Four customers accounted for 42%, 25%, 14%, and 16% of
total revenues in the first quarter of 1999. International revenues accounted
for 57% of total revenues for the first quarter of 2000 and 75% of the
revenues for the comparable period of 1999.

                                       6
<PAGE>

                      INTERTRUST TECHNOLOGIES CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Recent Accounting Pronouncements

  In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements". SAB 101 summarizes
certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. We must adopt SAB
101 in the second quarter of fiscal 2000 and we are currently evaluating the
impact of such adoption, if any, on our results of operations or financial
position.

2. Business Combinations

  On March 9, 2000, we acquired Infinite Ink Corporation ("Infinite Ink"), a
developer of software solutions for rendering and protecting electronic
publishing. Under the terms of the purchase agreement, we acquired all of the
shares of Infinite Ink in exchange for 230,462 shares of our common stock with
aggregate fair value of $18.7 million, and assumed 68,052 stock options with
an aggregate fair value of $5.8 million. The consolidated financial statements
include the operating results of Infinite Ink from the date of acquisition.
Pro forma results of operations have not been presented because the effect of
the acquisition was not material.

  The transaction was accounted for as a purchase with a total purchase price
of $24.5 million. Of this amount, $6.1 million was expensed in March 2000 as
purchased in-process research and development ("IPRD"). We calculated amounts
allocated to IPRD using established valuation techniques in the high-
technology industry and expensed such amounts in the quarter that the
acquisition was consummated because technological feasibility of the in-
process technology had not been achieved and no alternate future uses had been
established. Research and development costs to bring the products from the
acquired companies to technological feasibility are not expected to have a
material impact on our future results of operations or cash flows. We computed
our valuations of IPRD using a discounted cash flow analysis on the
anticipated income stream to be generated by the purchased technology.

  The excess purchase price over the estimated value of the net tangible
assets and IPRD was allocated to various intangible assets. $18 million of the
excess purchase price was capitalized as goodwill, and $400,000 was
capitalized as the cost of the assembled workforce. The value of the assembled
workforce was based upon the cost to replace that workforce. The goodwill and
workforce will be amortized ratably over their estimated useful lives of five
and three years, respectively.

3. Subsequent events

  In April 2000, we purchased approximately $5 million in preferred stock of
magex Holdings Limited, a non public company located in the United Kingdom and
established by National Westminster Bank Plc., for the purpose of digitally
distributing music, video and games via the Internet. The investment
represents less than 5% of the outstanding stock of Magex and will be
accounted for on the cost basis.

  In April 2000, we sold 2,645,000 shares of common stock in an underwritten
public offering. The common stock was sold to the public at a purchase price
of $35 per share resulting in net proceeds of approximately $86.8 million,
after underwriting discounts and offering expenses. On May 11, 2000, the
underwriters exercised a part of their over-allotment option to purchase
175,244 additional shares of common stock from us at an exercise price of $35
per share. Net proceeds from the over-allotment exercise were approximately
$5.8 million after underwriting discounts.

                                       7
<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, as well
as Risk Factors included in our Registration Statement on Form S-1, as
amended, filed with the Securities and Exchange Commission (File No. 333-
32484) on March 15, 2000. 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. The general availability version of our Commerce software was
not delivered to our partners until the end of December 1998, and some of our
partners have conducted or are about to conduct pilot programs using this
software. Some partners began using the technology on a limited commercial
basis in January 2000.

  We license our DRM platform 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 all of our revenues from initial license fees,
associated software support and training services, and TrustNet clearinghouse
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. Some of our license
agreements relating to uses of our technology within enterprises for privately
managing proprietary data require a per-user fee. We do not expect to
recognize any transaction revenue until the second half of 2000. Over time, we
anticipate that our revenues will be derived primarily from transaction fees
and, to a significantly lesser extent, from TrustNet clearinghouse services,
initial license fees and software support and training services fees. However,
for the foreseeable future, we expect that our revenues will be primarily
derived from license fees and support services. Any future transaction fees
are dependent on the success of our licensees and their customers in
commercially deploying services and applications.

  We are targeting relationships that will establish our DRM platform in
several large markets, including entertainment, business information, and
publishing. To date, a significant part of our licensing efforts has been
focused on adoption of our technology by the music industry as we believe it
will be an early implementer of DRM technology. We believe that, if our
general purpose platform is adopted in the music market, we will be positioned
to have our platform adopted in additional entertainment markets, including
games, audio books, video, and other markets, including business information
and publications.

  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,

                                       8
<PAGE>

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 deployment of our software, through March 31, 2000, we have on
three occasions received initial license fees for our Commerce software in the
form of minority equity positions in the licensees. In the future, we may
enter into other equity payment arrangements.

  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 upgrade and do not have vendor specific objective evidence
of fair value of the specified upgrade, all of the license revenue is deferred
until the specified upgrade has been delivered. Upon delivery of the specified
upgrade, license revenue is recognized using the subscription method. We began
recognizing license revenue in January 1999, after shipping the general
availability version of our Commerce software at the end of December 1998. At
March 31, 2000, we had approximately $12.8 million of deferred license revenue
that will be recognized in future periods.

  Through March 31, 2000, on three occasions we received three license fees in
the form of minority equity positions in non-public entities in exchange for
technology licenses. We received approximately 1.7 million shares of common
stock from one licensee, 882,000 shares of common stock from the second
licensee, and 148,300 shares of common stock from the third licensee, which we
believe represents approximately 10%, 18% and 5% of the outstanding shares of
the licensees as of the license date. Because the entities were recently
formed, privately-held companies and we were unable to obtain sufficient
evidence of the fair value of the common stock of the entities, we did not
record revenue or deferred revenue from the license fees. We are obligated to
provide unspecified upgrades and new releases, on a when and if available
basis, to the licensees over a two year period under the agreements for
additional fees. We are not obligated to provide any funding to the licensees
for the development of the licensees' software.

  For contracts entered into before 1998, we recognize revenue as the amounts
are earned under the related agreements, provided no significant obligations
exist and the related receivable is determined to be collectible, consistent
with Statement of Position 91-1, Software Revenue Recognition.

  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

                                       9
<PAGE>

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, 2000.
Prepaid transaction fees may generally be off-set against a portion of
transaction fee amounts due in any given quarter. To date, we have not
recognized any 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, generally two years. Some of our partners were utilizing pre-
commercial versions of our product in the development of their own solutions
and, as a result, were utilizing our software support and training services
before the shipment of the general availability version of our software.

  TrustNet clearinghouse 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.

  Through the end of 1998, we were in the development stage and had a limited
number of licensees. In the three months ended March 31, 2000,
PricewaterhouseCoopers accounted for 28% of total revenues, National Computer
Systems Pte accounted for 22% of total revenues, and Bertelsmann accounted for
20% of total revenues. In the comparable period for 1999, Mitsubishi, a
stockholder, accounted for 42% of total revenues, Reciprocal accounted for 25%
of total revenues, and Computacenter accounted for 14% of total revenues. 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 is new and unproven and has not succeeded in generating sufficient
revenue to sustain or grow 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 increase in future quarters. We expect to incur additional
losses for at least the next several years. 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.

Results of Operations

 Revenues

  Total revenues increased to approximately $1,347,000 in the three months
ended March 31, 2000 from approximately $232,000 in the comparable period of
1999.

  License revenues were approximately $687,000 or 51% of total revenues for
the three month period ended March 31, 2000 as compared to $167,000 or 72% of
total revenues in the three month period ended March 31, 1999, and represent
the amortization of deferred license fees. This increase was due to license
fees from additional partner licensing agreements.

  Revenue from software support and training increased to $660,000 in the
three months ended March 31, 2000 from approximately $65,000 in the three
months ended March 31, 1999. This increase was due to support

                                      10
<PAGE>

and training fees from additional partner licensing agreements. Software
support and training services accounted for 49% of total revenues in the three
month period ended March 31, 2000 and 28% for the three month periods ended
March 31, 1999.

 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 $103,000
during the three months ended March 31, 2000 and approximately $32,000 in the
three months ended March 31, 1999. Cost of license revenue is expected to
increase from the amortization of purchased technology and will 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 $147,000 for the three months ended March 31, 2000 from
approximately $87,000 for the three months ended March 31, 1999. The increase
in cost of software support and training represents the increase in support
personnel time required to provide technical assistance and training to a
greater number of partners. Software support and training services costs are
expected to increase as we license to new partners and may vary significantly
from period to period depending on the support requirements of our partners.

  Cost of clearinghouse services consists primarily of the cost to lease
secure third party web site facilities, related support equipment in order to
provide our partners with a facility to conduct pilot programs, and cost of
personnel to support the site. We began providing these services in the third
quarter of 1999. Clearinghouse service costs incurred to establish and test
the site were approximately $643,000 during the three months ended March 31,
2000.

 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
$5.2 million for the three months ended March 31, 2000 and approximately $3.4
million for the three months ended March 31, 1999. This increase was primarily
attributable to increases in personnel costs 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
significantly 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 $3.7 million for the three months ended March 31, 2000 from $1.1
million for the three months ended March 31, 1999. The increase in sales and
marketing expenses was due primarily to growth in our sales and marketing
organizations, including related salaries, public relations and other
promotional costs, and travel costs. We expect sales and marketing expenses to
increase in absolute dollars due to planned growth of our sales and partner
development organizations, including the establishment of additional domestic
and international offices, and implementation of advertising and promotional
programs.

 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

                                      11
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administrative expenses increased to approximately $2.2 million for the three
months ended March 31, 2000 from approximately $759,000 for the three months
ended March 31, 1999. These increases were primarily attributed to increases
in our legal and business development personnel and costs associated with
being a public company. We expect general and administrative expenses to
increase in absolute dollars as we add personnel, incur additional costs to
support continued growth, and implement additional operating systems necessary
to support our growth.

 Deferred Stock Compensation

  During second half of 1999, we recorded deferred compensation of
approximately $8.3 million, representing the difference between the exercise
price of options granted to employees and the deemed fair value of our common
stock for financial reporting purposes.

  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 $1.0 million of related compensation expense during
the three months ended March 31, 2000. The amortization of deferred
compensation will approximate $3.5 million for 2000, $1.8 million for 2001,
$915,000 for 2002 and $305,000 for 2003.

 Purchased in-process research and development

  In March 2000, we acquired Infinite Ink Corporation ("Infinite Ink"), a
developer of software solutions for rendering and protecting electronic
publishing. Under the terms of the purchase agreement, we acquired all of the
shares of Infinite Ink in exchange for 230,462 shares of our common stock with
aggregate fair value of $18.7 million, and assumed 68,052 stock options with
an aggregate fair value of $5.8 million. The transaction was accounted for as
a purchase with a total purchase price of $24.5 million. Of this amount, $6.1
million was expensed in March 2000 as purchased in-process research and
development, $18 million was capitalized as goodwill, and $400,000 was
capitalized as the cost of work force in place. The goodwill and work force
will be amortized ratably over their estimated useful lives of five and three
years, respectively.

 Interest and other income (expense), net

  Interest and other income (expense), net, consists primarily of interest
earned on cash and cash equivalents and immaterial gains and losses from
foreign currency transactions. We recognized approximately $2.1 million of
interest income in the three months ended March 31, 2000 and $42,000 in the
three months ended March 31, 1999. The increase in interest income results
primarily from increases in the amount of interest-bearing investments
outstanding.

Liquidity and Capital Resources

  As of March 31, 2000 our principal sources of liquidity included
approximately $86.8 million of cash and cash equivalents, $26.7 million in
short-term investments, and $19.6 million in long-term investments. In
addition, in April and May 2000, we sold shares of our common stock in our
second public offering, generating net proceeds of approximately $92.6
million, after underwriting discounts and offering expenses. Net cash used in
operating activities totaled $6.9 million in the three months ended March 31,
2000. The $6.9 million of cash used in the first three months of 2000 is
primarily attributable to the net loss of $15.6 million off-set by non-cash
charges of $6.1 million for purchased in-process research and development and
$1.0 million of deferred compensation, a decrease in accounts receivable of
$1.3 million, an increase in accounts payable and accrued liabilities of $1.3
million. Net cash used in investing activities for the three months ended
March 31, 2000 of $5.4 million primarily reflects a net increase of $4.0
million in short- and long-term investments and an investment of approximately
$1.1 million in capital equipment. Net cash provided by financing activities
totaled $876,000 from the exercise of stock options in the three months ended
March 31, 2000.

                                      12
<PAGE>

  We believe that that our current cash and cash equivalents combined with the
net proceeds from our second public offering will be sufficient to meet our
working capital and capital expenditure requirements for at least the next 12
months.

Other Factors Affecting Operating Results, Liquidity and Capital Resources

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 success of our business depends upon our
ability to generate transaction fees in the form of a percentage of fees
charged by our licensees in commercial transactions. However, our licensees
have not yet used our technology in the commercial distribution of their
products and we have not earned any transaction fees under this business
model. If our technology is commercially released, 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, will 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.

  Our operating results have varied from period to period and, in some future
quarter or quarters, will likely 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:

  .  a quarterly decline in the overall demand for digital goods and
     services;

  .  a quarterly decline in the demand for our Commerce software product;

  .  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;

  .  the nature and types of our licensing arrangements;

  .  expenses related to the issuance of stock to our partners;

  .  higher than expected operating expenses;

  .  the inability of our licensees and their customers to commercialize our
     technology, or delays or deferrals in this commercialization; and

  .  customer budget cycles and changes in these budget cycles.

 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 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 $11.7 million in 1997, $19.7
million in 1998, $28.6 million in 1999, and $15.6 million for the three months
ending March 31, 2000. We expect to significantly increase our research and
development, sales and marketing, and general and administrative expenses. As
a result of these additional expenses, we must significantly increase our
revenues to become profitable. We expect to incur significant losses for the
foreseeable future.

                                      13
<PAGE>

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

  We received approximately 71% of our total revenues in 1999 and 34% of our
total revenues in 1998 from licenses to partners located outside the United
States. Our international sales activities are subject to a variety of risks,
including the adoption 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 us 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 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 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 need to significantly increase the number of companies that license our
 technology to sustain and grow 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 a given accounting
period. 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 May 10, 2000, only 28 companies have licensed our software for
commercial use. None of these companies have commercially deployed 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 and the overall success of the MetaTrust Utility. Many
potential licensees may resist working with us until our, and our

                                       14
<PAGE>

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.

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

  Licensing our Commerce software 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.

 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. 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 software has 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 recently released version 1.2.3 in February 2000. Our
licensees' applications and services based on our Commerce software are in
development or have only been released for evaluation in very limited pilot
programs. Our licensees have not yet commercially deployed their applications
or services. It is 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.

 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 software and the software and services

                                      15
<PAGE>

developed using our software. Without this confidence, potential or current
licensees may not 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 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 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.

                                      16
<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, AT&T,
     IBM, Microsoft, Liquid Audio, Preview Systems, and Xerox;

  .  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, we expect that
future releases of Microsoft's Windows operating system, which manages the
programs on a computer, will include components addressing 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.

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

  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 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

                                      17
<PAGE>

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, 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.

 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.

 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 recently announced that our chief financial
officer, Erwin N. Lenowitz, will be resigning for personal reasons as of the
earlier of hiring a replacement or May 30, 2000. If we are unable to fill this
function, our business could be harmed. In addition, 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.

 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
214 employees at April 21, 2000. 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 maintain close coordination among our executive, engineering,
accounting, finance, marketing, and operations organizations.

                                      18
<PAGE>

Industry-Related Risks

 Our revenues may not grow and our stock price may decline if digital music
 commerce over the Internet does not develop.

  We currently devote a significant portion of our time, resources, and
attention pursuing partnerships and business within the music industry. As a
result, if digital music commerce over the Internet does not develop, our
business and operating results will be significantly harmed. A number of
factors could delay or prevent the development of digital music commerce.
These factors include:

  .  music content providers' inability to attract significant music artists,
     record labels, and recordings to be distributed in their format;

  .  lack of development and adoption of compression technology to facilitate
     digital delivery of music or related information like music videos; and

  .  lack of development and adoption of consumer devices that are able to
     play downloaded digital music.

 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 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.

                                      19
<PAGE>

 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, and Asia. 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.
Transaction revenues from our European and Asian partners will be primarily
denominated in foreign currencies and translated generally on a monthly basis
to United States dollars to determine the amount of fees due to us. As a
result, we could be affected adversely by fluctuations in foreign currency
exchange rates.

  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 short-term investments, we
have concluded that there is no material market risk exposure. Therefore, no
quantitative tabular disclosures are required. At December 31, 1999 and March
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.

                                      20
<PAGE>

                          PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

  None.

Item 2. Changes in Securities and Use of Proceeds.

  (a) Changes in Securities.

  On January 27, 2000, our Board of Directors approved a two-for-one stock
split (in the form of a 100% stock dividend) of our common stock to
stockholders of record on February 14, 2000.

  During the quarter ended March 31, 2000, we issued 230,462 shares of common
stock in exchange for all of the capital stock of Infinite Ink Corporation.
The transaction was accounted for as a purchase at a value of $28.1 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.

  (b) Use of Proceeds.

  On April 12, 2000, we completed a secondary offering in which we sold
2,645,000 shares of common stock at $35 per share. In addition, we sold
175,244 shares of common stock at $35 per share in connection with the
exercise of the underwriters' over-allotment option. The total aggregate
proceeds from these transactions were $98.7 million. Underwriters' discounts
and other related costs were approximately $6.1 resulting in net proceeds
$92.6 million. On November 1, 1999, we completed the initial public offering,
in which we sold 13,000,000 shares of common stock at $9 per share.
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
predominantly held in cash, cash equivalents and short-term investments at
April 30, 2000.

Item 3. Defaults Upon Senior Securities.

  None.

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

  None.

Item 5. Other Information.

  None.

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

  (a) Exhibits.

<TABLE>
<CAPTION>
 Exhibit No.                                             Description
 -----------                                             -----------
 <C>         <S>
     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).
</TABLE>

                                      21
<PAGE>

<TABLE>
<CAPTION>
 Exhibit No.                                              Description
 -----------                                              -----------
 <C>         <S>
    3.2       Amended and Restated Bylaws of the Registrant--incorporated herein by reference to Exhibit 3.4 to
               the Registrant's Registration Statement on Form S-1 (File No. 333-84033).

    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.

   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).

   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.

   27.1       Financial Data Schedule.
</TABLE>
--------
 * 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).

                                       22
<PAGE>

** 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).

 + Confidential treatment requested.

  (b) Reports on Form 8-K.

  We filed one report on Form 8-K during the quarter ended March 31, 2000 in
which we disclosed that Peter van Cuylenberg stepped down from his role as
president and a director of InterTrust for personal family circumstances.

                                      23
<PAGE>

                                   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

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

                                                /s/ Erwin N. Lenowitz
Date: May 12, 2000                        By: _________________________________
                                                    Erwin N. Lenowitz
                                              Vice Chairman of the Board and
                                                  Chief Financial Officer
                                                 (Principal Financial and
                                                    Accounting Officer)

                                       24
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit No.                                              Description
 -----------                                              -----------
 <C>         <S>
     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--incorporated herein by reference to Exhibit 3.4 to
               the Registrant's Registration Statement on Form S-1 (File No. 333-84033).

     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.

    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).

    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).
</TABLE>

                                       25
<PAGE>

<TABLE>
<CAPTION>
 Exhibit No.                                              Description
 -----------                                              -----------
 <C>         <S>
   10.19**    Building Lease Agreement by and between First State Realty of America, Inc. and the Registrant dated
               January 24, 2000.

   27.1       Financial Data Schedule.
</TABLE>
--------
 * 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).

 + Confidential treatment requested.

                                       26