As filed with the Securities and Exchange Commission on April 26, 2002

Registration No. 333-76640
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTERVIDEO, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 7372 94-3300070
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code Number)
Organization)

47350 Fremont Boulevard
Fremont, California 94538
(510) 651-0888
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-----------------
Steve Ro
Chief Executive Officer
InterVideo, Inc.
47350 Fremont Boulevard
Fremont, California 94538
(510) 651-0888
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:

Matthew W. Sonsini, Esq. Timothy R. Curry, Esq.
Craig D. Norris, Esq. Evan B. Sloves, Esq.
Christine S. Wong, Esq. Brent D. Johnson, Esq.
Ritu K. Tariyal, Esq. Brobeck, Phleger & Harrison LLP
Barbara A. Wiseman, Esq. 2000 University Ave.
Wilson Sonsini Goodrich & Rosati, P.C. East Palo Alto, CA 94303
650 Page Mill Road (650) 331-8000
Palo Alto, CA 94304
(650) 493-9300

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE

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- ------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Number of Maximum Maximum
Title of Each Class of Securities to be Shares Offering Price Aggregate Amount of
Registered Registered (1) Per Share (2) Offering Price (2) Registration Fee (3)
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Common Stock $0.001 par value............... 4,025,000 $14.00 $56,350,000 $5,185
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(1) Includes 525,000 shares subject to the underwriters' over-allotment option.

(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.

(3) A registration fee of $12,369 was paid with the initial filing. The
registration fee paid with the initial filing was calculated using a fee
rate of .000239 of the aggregate offering amount at that time, $51,750,000.
Subsequent to such filing, the fee rate was retroactively reduced to
.000092, resulting in a reduced fee of $4,761. The listed registration fee
of $5,185 includes a fee of $424 relating to an increase in the aggregate
offering amount of $4,600,000.
-----------------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment that specifically states that this registration
statement shall then become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
================================================================================

The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS

(Subject to Completion) April 26, 2002

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3,500,000 Shares

[LOGO] "Inter Video"

Common Stock

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We are selling 3,500,000 shares of our common stock. This is our initial public
offering of shares of our common stock. No public market currently exists for
any shares of our capital stock. We currently estimate that the initial public
offering price of our common stock will be between $12.00 and $14.00 per share.

We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol "IVDO."

Before buying any shares you should read the discussion of material risks of
investing in our common stock in "Risk factors" beginning on page 6.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

Per Share Total
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Public offering price $ $
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Underwriting discounts and commissions $ $
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Proceeds, before expenses, to us $ $
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The underwriters may also purchase up to 525,000 shares of our common stock
from us at the public offering price, less underwriting discounts and
commissions, within 30 days from the date of this prospectus. The underwriters
may exercise this option only to cover over-allotments, if any.

The underwriters are offering our common stock on a firm commitment basis as
described under "Underwriting." Delivery of the shares will be made on or about
, 2002.

UBS Warburg

CIBC World Markets

Raymond James

EDGAR DESCRIPTION OF INSIDE FRONT COVER ARTWORK

The InterVideo logo appears in the middle of the page. Images of InterVideo's
WinDVD, WinDVR and WinDTV products appear above the logo. Images of InterVideo's
WinCoder, WinRip and WinProducer products appear below the logo.

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Through and including , 2002 (25 days after the date of this prospectus),
all dealers selling shares of our common stock, whether or not participating in
this offering, may need to deliver a prospectus. This delivery requirement is
in addition to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

TABLE OF CONTENTS
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Prospectus summary..................... 1 Business.................................. 42
The offering........................... 4 Management................................ 54
Summary consolidated financial data.... 5 Related party transactions................ 64
Risk factors........................... 6 Principal stockholders.................... 66
Forward-looking information............ 21 Description of capital stock.............. 67
Use of proceeds........................ 22 Shares eligible for future sale........... 70
Dividend policy........................ 22 Underwriting.............................. 72
Capitalization......................... 23 Legal matters............................. 74
Dilution............................... 24 Experts................................... 74
Selected consolidated financial data... 25 Where you can find more information....... 74
Management's discussion and analysis of Index to consolidated financial statements F-1
financial condition and results of
operations........................... 27

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Prospectus summary

This summary highlights the information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, especially the risks of
investing in our common stock discussed under "Risk factors."

OUR BUSINESS

Our software is bundled with products sold by eight of the top ten PC original
equipment manufacturers, or OEMs, ranked in terms of sales by IDC. Our OEM
customers include Compaq Computer Corporation, Dell Products L.P., Fujitsu
Limited, Fujitsu Siemens Computers GmbH, Hewlett-Packard Company, Medion AG,
Sony Corporation and Toshiba Corporation. We sell our products to PC OEMs,
consumer electronics manufacturers and PC peripherals manufacturers worldwide
and offer our software in up to 27 languages.

MARKET OPPORTUNITY

Advances in digital technology enable the PC to serve as a versatile,
feature-rich and reasonably priced digital entertainment platform. All PC
multimedia hardware components require software to operate. As a result,
multimedia software not only has become a necessary component of the PC, but
also serves as an opportunity for OEMs to add value to their products, improve
margins and differentiate their products from those of their competitors. As
consumer electronics manufacturers migrate from dedicated hardware solutions to
a PC architecture in order to reduce the cost and increase the flexibility of
their products, we expect the market opportunity for multimedia software to
grow in this market segment as well. We believe that all of these factors will
create market opportunities for a complete multimedia software solution.

THE INTERVIDEO SOLUTION

We provide advanced digital video and audio multimedia software products that
we believe enable PC OEMs, consumer electronics manufacturers and PC
peripherals manufacturers to add value to their products, improve margins and
differentiate their products from those of their competitors. Key elements of
our solution include the following:

... A broad, integrated multimedia software solution for the PC. Our broad
suite of software provides OEMs and consumers with a single solution for a
variety of multimedia functions. PCs running our integrated multimedia
software can replace several expensive, dedicated hardware components such
as separate DVD players, digital video recorders, or DVRs, MP3 players,
compact disc, or CD, players and digital TV set-top boxes.

... Core technology that operates on a variety of platforms. Our core
technology is based on a layered architecture that allows our suite of
products to operate on a variety of hardware and software platforms. WinDVD
has been certified by Microsoft's Windows Hardware Quality Lab, or WHQL, as
a Motion Video Device on more than 800 PC hardware and software
configurations, which is more than any other PC DVD software provider. We
believe that our layered architecture also enables OEMs to offer their
customers highly customized PCs with lower customer service costs.

... Layered architecture that we have adapted to new technologies and upgraded
to incorporate new features. Our layered architecture enables us to
respond and adapt to new technologies in an industry characterized by rapid
change. Because our architecture has allowed us to efficiently develop new
products incorporating additional functionality, such as digital video
recording, we have provided our customers with the ability to increase the
functionality of their products at a low cost and in a short time frame,
which we believe has enabled them to differentiate their products from
competitors' product offerings.

OUR STRATEGY

Our goal is to be the leading global provider of advanced digital video and
audio multimedia software solutions for PCs, consumer electronics devices, PC
peripherals, home networks and other emerging markets. Key elements of our
strategy include the following:

... Increase market penetration of our multimedia software. We will seek to
increase our market share by aggressively pursuing additional OEM
relationships, entering into creative marketing arrangements and exploiting
new sales channels. We have recently implemented joint marketing
arrangements with select OEMs under which we share revenue generated by
user upgrades or new product purchases and intend to enter into similar
arrangements with other OEMs. We also intend to expand the sale of our
products through retail channels and through our websites.

... Leverage existing and prospective OEM relationships to promote adoption of
our new products. We plan to leverage our strong market position and
broad, integrated product suite to encourage our PC OEM customers to
license additional software products and to encourage prospective PC OEMs
to adopt our products. We have begun implementing this strategy with two of
our largest customers, both of which first installed our WinDVD product on
their PCs and have now added our WinDVR product.

... Capitalize on emerging product markets. We intend to closely monitor
evolving technologies and identify additional markets for our products. We
believe that we can adapt our technology effectively for use in a variety
of emerging consumer electronics and network devices, such as cable and
satellite TV set-top boxes, devices being developed for use within home
networks and MPEG-4 wireless devices.

... Maintain and enhance strategic relationships, and acquire complementary
companies and technologies. We have established strategic relationships
with several technology and market leaders, including Microsoft and Nvidia,
and intend to maintain and enhance these relationships. We also intend to
pursue acquisitions of complementary products, technologies and companies.

... Continue to expand global presence. A substantial portion of our sales
come from outside the United States, and we believe that significant
revenue growth opportunities exist for our business in Europe, Asia and
elsewhere. We intend to continue to target OEMs and end users outside the
United States to capitalize on these opportunities.

COMPANY INFORMATION

We were incorporated in California in April 1998 and intend to reincorporate in
Delaware prior to the completion of this offering. Unless otherwise noted, the
information in this prospectus assumes that the reincorporation has been
completed.

Our principal executive offices are located at 47350 Fremont Blvd., Fremont, CA
94538. Our telephone number is (510) 651-0888. Our website is
www.intervideo.com. The information found on our website is not a part of this
prospectus.

RECENT OPERATING RESULTS

The following table sets forth selected unaudited quarterly consolidated
financial information for the quarter ended March 31, 2002. The unaudited
quarterly consolidated financial information has been prepared on substantially
the same basis as the audited consolidated financial statements included
elsewhere in this prospectus and, in our opinion, includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for this period. Historical results
are not necessarily indicative of the results to be expected in the future, and
results of this period are not necessarily indicative of our results of
operations for the entire year.

Three months ended
March 31, 2002
(unaudited)
(in thousands)
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Revenue......................................................... $10,860

Direct product costs............................................ 3,899
Cost of settlement of intellectual property matters............. 103
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Cost of revenue.............................................. 4,002
-------
Gross profit............................................... 6,858
Operating expenses:
Research and development..................................... 2,023
Sales and marketing.......................................... 1,768
General and administrative................................... 896
Stock compensation........................................... 725
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Total operating expenses................................... 5,412
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Income from operations.......................................... 1,446
Other income, net............................................... 84
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Net income before income taxes.................................. 1,530
Provision for income taxes...................................... 414
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Net income................................................. $ 1,116
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Net income per share, basic..................................... $ 0.60
=======
Pro forma net income per share, basic........................... $ 0.15
=======
Net income per share, diluted................................... $ 0.12
=======
Weighted average common shares outstanding, basic............... 1,859
=======
Pro forma weighted average common shares outstanding, basic..... 7,222
=======
Weighted average common shares outstanding, diluted............. 9,262
=======

Revenue for the quarter ended March 31, 2002 was $10.9 million, an increase of
8% from revenue of $10.1 million for the quarter ended December 31, 2001. The
growth in revenue resulted primarily from increased sales of our WinDVD product
in Japan and North America. Product gross margin, which represents revenue
minus direct product costs, increased to 64% of revenue from 63% in the
previous quarter. The increase in product gross margin was primarily due to
lower third-party royalty costs. The quarter ended March 31, 2002 included cost
of settlement of intellectual property matters of $103,000 related to our
settlement with MPEG LA. Operating expenses for the quarter ended March 31,
2002 were $5.4 million, an increase of 7% from $5.1 million in the prior
quarter. The increase in dollar amount was primarily due to increased stock
compensation expenses, salaries and payroll related expenses, and professional
fees, partially offset by a decrease in license fees paid for intellectual
property used in research and development.

The offering

Common stock we are offering........... 3,500,000 shares

Common stock to be outstanding after
this offering........................ 11,122,974 shares

Proposed Nasdaq National Market symbol. IVDO

Use of proceeds........................ For general corporate purposes,
including working capital and capital
expenditures. In addition, we may use
a portion of the net proceeds to
acquire or invest in complementary
businesses or products or to obtain
the right to use complementary
technologies. See "Use of proceeds."

Except as otherwise indicated, whenever we present the number of shares of our
common stock outstanding, we have:

... based this information on the shares outstanding as of December 31, 2001,
excluding:

. as of December 31, 2001, 2,361,791 shares of common stock issuable upon
exercise of outstanding options at a weighted average exercise price of
$1.40 per share;

. as of December 31, 2001, 1,040,535 shares of common stock available for
issuance under our existing stock option plan;

. an additional 352,000 shares of common stock reserved for issuance under
our stock option plan and employee stock purchase plan adopted in
connection with this offering;

... included 286,000 shares of common stock issuable upon conversion of shares
of preferred stock issued to Dell in April 2002;

... given effect to a 0.44-for-one reverse stock split of our common stock to
be effected prior to the completion of this offering;

... given effect to the automatic conversion of our outstanding preferred stock
into common stock upon completion of this offering;

... assumed no exercise of stock options after December 31, 2001; and

... assumed no exercise of the underwriters' over-allotment option.

InterVideo and WinDVD are registered trademarks and WinDVR, WinProducer, WinDTV
and WinRip are trademarks or service marks of InterVideo. This prospectus also
contains brand names, trademarks and service marks of companies other than
InterVideo, and these brand names, trademarks and service marks are the
property of their respective holders.

Summary consolidated financial data

Our summary consolidated financial data is presented in the following table to
aid you in your analysis of a potential investment in our common stock. You
should read this data in conjunction with "Management's discussion and analysis
of financial condition and results of operations," our consolidated financial
statements and the notes to those consolidated financial statements appearing
elsewhere in this prospectus. Pro forma net loss per share applicable to common
stockholders reflects the conversion of all outstanding preferred stock into
common stock from the beginning of the period presented or at the date of
original issuance, if later. The as adjusted balance sheet data reflects our
receipt of the estimated net proceeds from the sale of 3,500,000 shares of our
common stock in this offering at an assumed initial public offering price of
$13.00 per share after deducting the estimated underwriting discounts and
commissions and the estimated expenses of this offering.

Year ended December 31,
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1999(1) 2000(1) 2001
Consolidated statement of operations data (in thousands, except per share data)
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Revenue................................................................ $ 3,036 $15,426 $33,763
Direct product costs................................................... 1,118 5,361 12,908
Cost of settlement of intellectual property matters.................... -- -- 4,233
Cost of impairment of software license agreement....................... -- -- 958
------- ------- -------
Gross profit........................................................... 1,918 10,065 15,664
Operating expenses:
Research and development........................................... 1,300 6,585 9,117
Sales and marketing................................................ 1,194 4,978 7,896
General and administrative......................................... 773 2,667 2,990
Stock compensation(2).............................................. 53 1,411 2,063
Other operating expenses(3)........................................ -- 174 2,408
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Total operating expenses............................................... 3,320 15,815 24,474
------- ------- -------
Loss from operations................................................... $(1,402) $(5,750) $(8,810)
------- ------- -------
Net loss............................................................... $(1,434) $(5,745) $(9,177)
------- ------- -------
Net loss per common share, basic and diluted........................... $ (5.83) $ (4.97) $ (5.99)
Pro forma net loss per common share, basic and diluted (unaudited)..... $ (1.33)
Weighted average common shares outstanding, basic and diluted.......... 246 1,155 1,532
Pro forma weighted average common shares outstanding, basic and diluted
(unaudited)........................................................... 6,895

As of December 31, 2001
-----------------------
Actual As adjusted
Consolidated balance sheet data (in thousands)
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Cash and cash equivalents.......................... $14,348 $54,763
Working capital.................................... 3,447 43,862
Total assets....................................... 22,153 62,568
Long-term obligations, net of current portion...... -- --
Total stockholders' equity......................... 7,959 48,374

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(1)Excludes the results of operations of the Audio Visual Products Division of
Formosoft International Inc., or AVPD, prior to our acquisition on June 7,
2000. See the financial statements of AVPD included elsewhere in this
prospectus, as well as the related unaudited pro forma condensed combined
statement of operations of InterVideo for the year ended December 31, 2000
as if the acquisition of AVPD had been completed on January 1, 2000.

(2)Stock compensation is allocated among the operating expense classifications
as follows:

Year ended December 31,
------------------------
1999 2000 2001
(in thousands)
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Research and development............... $14 $ 546 $ 756
Sales and marketing.................... 3 521 535
General and administrative............. 36 344 772
--- ------ ------
$53 $1,411 $2,063
=== ====== ======

(3)See "Selected Consolidated Financial Data" and "Consolidated Financial
Statements."

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Risk factors

You should carefully consider the risks described below together with all of
the other information included in this prospectus before making an investment
decision. The risks and uncertainties described below are not the only ones
facing us. Additional risks and uncertainties that we are unaware of, or that
we may currently deem immaterial, may become important factors that harm our
business. If any of the following risks actually occurs, our business could be
harmed. In that case, the trading price of our common stock could decline, and
you may lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

We have a history of losses, and we may not sustain profitability or achieve
profitability on an annual basis.

We have incurred losses since our inception and have only achieved
profitability in our most recent fiscal quarter ended March 31, 2002. As of
December 31, 2001, we had an accumulated deficit of $16.9 million. We expect to
incur significant operating expenses over the next several years in connection
with the continued development and expansion of our business. Our expenses
include research and development and marketing expenses relating to products
that will not be introduced and will not generate revenue until later periods,
if at all. We may never achieve profitability on an annual basis. Even if we
achieve profitability on an annual basis, we may not sustain or increase
profitability on a quarterly or annual basis in the future.

Our limited operating history and the rapidly evolving nature of our industry
make the forecasting of our future results difficult.

We were incorporated in April 1998 and began shipping our products in February
1999. Prior to February 1999, our operations consisted primarily of research
and development efforts. As a result of our limited operating history, our
historical financial and operating information is of limited value in
predicting our future operating results. In addition, any evaluation of our
business and prospects must be made in light of the risks and difficulties
encountered by companies offering products or services in new and rapidly
evolving markets. Licensing software-based digital video and audio solutions
for incorporation in products in the PC and consumer electronics industries is
new, and it is difficult to forecast the future growth rate, if any, or size of
the market for our products. We may be unable to accurately forecast customer
behavior and recognize or respond to emerging trends, changing preferences or
competitive factors facing us. Our current and future expense levels are based
largely on our investment plans and estimates of future revenue and are, to a
large extent, fixed. As a result, we may fail to make accurate financial
forecasts, and we may be unable to adjust our spending in a timely manner to
compensate for any unexpected revenue shortfall, which would harm our operating
results.

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

... fluctuations in demand for, and sales of, our products and the PCs and
consumer electronics devices with which our products are bundled;

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

... changes in the timing of orders or the completion of customer contracts
with significant OEM customers;

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Risk factors
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... competitive factors, including introductions of new products, product
enhancements and the introduction of new technologies by our competitors
and the entry of new competitors into the digital video and audio software
markets;

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

... declines in selling prices of our products to our OEM customers or other
customers;

... market acceptance of new products developed by us;

... changes in the relative portion of our revenue represented by our various
products and customers;

... the mix of international and domestic revenue;

... the costs of litigation and intellectual property claims, including the
settlement of claims based upon our violation or alleged violation of
others' intellectual property rights; and

... economic conditions specific to the PC, consumer electronics and related
industries.

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

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

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

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

... MPEG LA. DVD specifications include technology known as "MPEG-2" that
governs the process of storing video input in digital form. A group of
companies, comprised primarily of consumer electronics manufacturers, has
formed a consortium known as "MPEG LA, LLC" to enforce the proprietary
rights of member companies in patents covering certain aspects of MPEG-2
technology. MPEG LA, and certain members of the consortium, have notified
us that they believe that our products infringe on patents owned by members
of the consortium. In March 2002, we entered into a license agreement with
MPEG LA pursuant to which we obtained a license, retroactive to our
inception, to MPEG LA's patents necessary to the MPEG-2 standard in
exchange for a cash payment

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Risk factors
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and our agreement to make ongoing royalty payments. In addition, MPEG LA,
and certain members of the consortium, have notified a number of PC OEMs,
including some of our customers, that they believe MPEG LA members' patents
are infringed when those PC OEMs distribute products that incorporate MPEG-2
technology. We are aware that a number of PC OEMs, including some of our
customers, have settled the MPEG LA claims and entered into license
agreements with MPEG LA.

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

... Others. Other third parties, including Nissim Corporation, have notified a
number of PC OEMs, including some of our customers, that they believe their
patents are infringed when these PC OEMs distribute products that
incorporate their technology.

We may be subject to additional third-party claims that our products violate
the intellectual property rights of those parties. In addition to the claims
described above, we may receive notices of claims of infringement of other
parties' proprietary rights. Many companies aggressively use their patent
portfolios to bring infringement claims against competitors and other parties.
As a result, we may become a party to litigation in the future as a result of
an alleged infringement of the intellectual property rights of others,
including 6C or Nissim. In addition, we are aware that a consortium of
companies, known as "3C," has been formed for the purpose of asserting the
patent rights of its members covering some aspects of DVD technology. 3C may
demand that PC OEMs or other companies manufacturing or licensing DVD-related
products, including us and our customers, pay license fees and damages for the
use of the technology covered by the 3C patents. Similarly, other parties have
alleged that aspects of MPEG-2 and other multimedia technologies infringe upon
patents held by them. We may be required to pay license fees and damages or be
prohibited from selling our products in the future if it is determined that our
products infringe on patents owned by these third parties. In addition, other
companies may form consortia in the future, similar to MPEG LA, 6C and 3C, to
enforce their proprietary rights and these consortia may seek to enforce their
patent rights against us and our customers.

We may be required to pay substantial damages and may be restricted or
prohibited from selling our products if it is proven that we violate the
intellectual property rights of others. If 6C, 3C, Nissim or another third
party proves that our technology infringes its proprietary rights, we may be
required to pay substantial damages for past infringement and may be required
to pay license fees or royalties on future sales of our products. If we are
required to pay license fees in the amounts that are currently published by,
for example, 6C for past sales to our large PC OEM customers, because such PC
OEMs were not themselves licensed, such fees would exceed the revenue we have
received from those customers. In addition, if it were proven that we willfully
infringed on a third party's proprietary rights, we may be held liable for
three times the amount of damages we would otherwise have to pay. In addition,
intellectual property litigation may require us to:

... stop selling, incorporating or using our products that use the infringed
intellectual property;

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

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

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

We may be liable to some of our customers for damages that they incur in
connection with intellectual property claims. Some of our license agreements,
including many of the agreements we have entered into with our large PC OEM
customers, contain warranties of non-infringement and commitments to indemnify
our customers against liability arising from infringement of third-party
intellectual property, such as the patents held by members of MPEG LA, 6C, 3C
and Nissim. These commitments may require us to indemnify or pay damages to our
customers for all or a portion of any license fees or other damages, including
attorneys' fees, they are required to pay or agree to pay these or other third
parties. We have received notices from several of our customers asserting that
we are required to indemnify them under our agreements with them, or providing
notice that they have received from third parties infringement claims that are
related to our product. These customers include Acer Incorporated, Afreey Inc.,
Compaq, Dell, Gateway, Inc., Fujitsu Limited, Hewlett-Packard, Micron
Electronics, Inc. and Sharp. Although MPEG LA has stated that some of our
customers, including Compaq, Dell, Fujitsu Limited, Gateway, Hewlett-Packard,
Sony and Toshiba, are currently MPEG LA licensees, not all of our PC OEM
customers are current MPEG LA licensees. Notwithstanding the fact that we have
signed a license agreement with MPEG LA, we may continue to be liable to some
of our customers for amounts that those customers pay or have paid to MPEG LA
in settlement of any claims of infringement brought by MPEG LA against those
customers. Even with respect to those PC OEM customers that may have become
licensees, we may have liability to those customers for prior infringement and
future royalty payments. If we are required to pay damages to our customers or
indemnify our customers for damages they incur, our business could be harmed.
If our customers are required to pay license fees in the amounts that are
currently published by some claimants, and we are required to pay damages to
our customers or indemnify our customers for such amounts, such payments would
exceed our revenue from these customers. Even if a particular claim falls
outside of our indemnity or warranty obligations to our customers, our
customers may be entitled to additional contractual remedies against us.
Furthermore, even if we are not liable to our customers, our customers may
attempt to pass on to us the cost of any license fees or damages owed to third
parties, by reducing the amounts they pay for our products. These price
reductions could harm our business.

In April 2002, we agreed to a settlement with Dell concerning certain amounts
that Dell alleged we owed to it as a result of Dell's prior settlements with
MPEG LA and Nissim of certain infringement claims brought against Dell by these
parties. Without admitting any liability to Dell, we issued shares of preferred
stock convertible into 286,000 shares of our common stock to Dell in settlement
of all past and future claims that Dell might have against us based upon the
alleged infringement of certain patents held by MPEG LA and Nissim. We
accounted for the issuance of these shares as a charge to our cost of revenue
under cost of settlement of intellectual property matters for the year ended
December 31, 2001 in an amount equal to the fair market value of the shares, or
$3.7 million. See "Management's discussion and analysis of financial condition
and results of operations."

In addition, we have accrued $2.2 million at December 31, 2001 for liabilities
relating to royalty and related intellectual property claims and expect to
continue to accrue for such liabilities in the future. Our actual liability may
exceed the amount we have accrued or accrue in the future, which could harm our
business.

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Risk factors
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Because there is a small number of large PC OEMs, we have only a limited number
of potential new large OEM customers for our WinDVD product, which will likely
cause our revenue to grow at a slower rate than in recent periods.
Our revenue growth has been achieved in large part due to sales of our WinDVD
product to new, large PC OEM customers. Our software is bundled with products
sold by eight of the top ten PC OEMs ranked in terms of sales by IDC. Because
there is only a limited number of potential new, large PC OEM customers for our
WinDVD product, we must derive any future revenue growth principally from
increased sales of WinDVD or other products to existing PC OEMs and PC
peripherals manufacturers and from sales to smaller regional PC OEMs and
directly to consumers through retail channels and our websites. Because some of
these other revenue opportunities are more fragmented than the PC OEM market
and will take more time and effort to penetrate, we expect that our revenue
will grow at a slower rate than in recent periods.

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

The PC industry is highly concentrated, and we have derived a substantial
portion of our revenue from sales of our products to a small number of PC OEMs.
For the year ended December 31, 2001, our four largest customers accounted for
a majority of our revenue, with Dell accounting for 29% and Fujitsu accounting
for 12%. Compaq and Hewlett-Packard, which have announced an agreement to
merge, together accounted for more than 10% of our revenue during that period.
In addition, as of December 31, 2001, our three largest customers accounted for
56% of our accounts receivable. We expect that a small number of customers will
account for a majority of our revenue and gross profit, if any, for the
foreseeable future. If the PC industry continues to consolidate, the number of
customers accounting for the majority of our revenue could decrease further.
Our agreements with our customers typically do not contain minimum purchase
commitments and are of limited duration or are terminable with little or no
notice. The loss of any of these customers, or a material decrease in revenue
from these customers, would harm our business.

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

As a result of our dependency on a small number of large PC OEMs, any problems
those customers experience, or their failure to promote products that contain
our software, may harm our business.
As a result of our concentrated customer base, problems that our PC OEM
customers experience may harm our business. Some of the factors that affect the
business of our PC OEM customers, all of which are beyond our control, include:

... the competition these customers face and the market acceptance of their
products;

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

... the financial and other resources of these customers;

... new governmental regulations or changes in taxes or tariffs applicable to
these customers; and

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

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

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

We derived approximately 90% of our revenue during the year ended December 31,
2001 from the sale of our WinDVD product, primarily to PC OEMs. We expect that
revenue from the sale of our WinDVD product to PC OEMs will continue to account
for a substantial portion of our revenue for the foreseeable future.
Accordingly, our business will suffer if our existing PC OEM customers do not
continue to incorporate our WinDVD product into the PCs they sell or if we are
unable to obtain new PC OEM customers for our WinDVD product.

Continued slow growth, or negative growth, in the PC industry could harm our
business.

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

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

Our continued success in generating revenue depends on growth in the use of
software solutions to add features and functionality to PCs and consumer
electronics devices. Our software is currently used primarily in PCs, and we
expect it to be useful for consumer electronics products. These markets are
rapidly evolving, and it is difficult to predict their potential size or future
growth rate. In addition, we are uncertain as to the extent to which software
products such as ours will be used in these markets in the future. Their market
acceptance may be impacted by the performance, cost and availability of
semiconductors that perform similar functions and the level of copy protection
that can be attained and maintained in software products. Our success in
generating revenue in these markets will depend on increased adoption of
software solutions based on the same standards as ours. If the PC and consumer
electronics markets adopt software solutions more slowly than we expect, or if
content providers are dissatisfied with the level of copy protection available
in software products, our growth would not likely continue, and our business
would likely suffer.

Our products are based primarily on the Microsoft Windows operating system, and
most of our customers require that the combination of our software products and
their PCs be certified by Microsoft's Windows Hardware Qualification Labs.
Accordingly, we are dependent on Microsoft, which exposes us to risks,
particularly if Microsoft chooses to compete with us in the future.
Our products are based primarily on the Microsoft Windows operating system. If
industry and customer preferences in operating systems shift, our products may
not be compatible with other operating systems and our business could be
harmed. Our revenue is highly dependent upon acceptance of products that are
based on the Microsoft Windows operating system, which is currently the
dominant operating system used in the PC industry. Microsoft could make changes
to its operating system that could render our products incompatible. Other
industry participants could develop operating systems to replace the

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Risk factors
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Windows operating system, and our products might not be compatible with those
operating systems. If our products are not compatible with one or more of the
operating systems with significant PC market share, we could incur substantial
costs and expend significant capital and other resources to adapt our products
to one or more operating systems. There is no assurance that we would be able
to adapt our products to changes made in the Windows operating system in the
future or to a new operating system, and any failure to adapt to changes in
operating systems by the PC industry could result in significant harm to our
business.

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

If Microsoft develops or licenses digital video and audio solutions that
compete directly with ours, our business could suffer. Microsoft currently
offers products in the digital video and audio software markets. Some video and
audio capabilities are built directly into their operating systems or are
offered as upgrades to those operating systems at no additional charge. If
Microsoft develops or licenses digital video and audio solutions that compete
directly with ours and incorporates the solutions into its operating system, or
otherwise changes its operating system or its Windows Hardware Qualification
Labs standards to render our products incompatible, our business could be
harmed.

Competition in our industry is intense and is likely to continue to increase,
which could harm our business.
Our industry is intensely competitive, and we expect competition to intensify
in the future. Our competitors include:

... software companies that offer digital video or audio applications;

... companies offering hardware or semiconductor solutions as alternatives to
our software products; and

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

Our primary competitor is Cyberlink Corporation. Additional competitors are
likely to enter our industry in the future. We also face competition from the
internal research and development departments of other software companies and
PC and consumer electronics manufacturers, including some of our current
customers. Some of our customers have the capability to integrate their
operations vertically by developing their own software-based digital and audio
solutions or by acquiring our competitors or the rights to develop competitive
products or technologies, which may allow these customers to reduce their
purchases or cease purchasing from us completely. Operating system providers
with an established customer base, such as Microsoft, already offer products in
the digital video and audio software markets.

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Risk factors
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Some video and audio capabilities are built directly into their operating
systems or are offered as upgrades to those operating systems at no additional
charge. If Microsoft or other operating system providers develop or license
digital video and audio solutions that compete directly with ours, and
incorporate the solutions into their operating systems, our business could be
harmed.

We expect our current competitors to introduce improved products at lower
prices, and we will need to do the same to remain competitive. We may not be
able to compete successfully against either current or future competitors with
respect to new or improved products. We believe that competitive pressures may
result in price reductions, reduced margins and our loss of market share.

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

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

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

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

Our success depends on our ability to manage effectively the growth of our
operations. During 2000 and the first half of 2001, we experienced significant
headcount growth, which exceeded the level that our revenue could support. In
June 2001, we reduced our headcount by approximately 25%. We cannot be certain
that our current cost structure is appropriate for the level of revenue that we
generate. Furthermore, we expect to increase the scope of our operations for
the foreseeable future. To manage the actual and expected growth of our
operations and personnel, we will need to improve our operational and financial
systems, procedures and controls. Our current and planned systems, procedures
and controls may not be adequate to support our future operations and expected
growth. For example, we have recently purchased sophisticated software to
manage our financial systems, and our operations may be disrupted if we do not
implement this software in an orderly manner. Delays or problems associated
with any improvement or expansion of our operational systems and controls could
harm our relationships with customers, reputation and brand and could also
result in errors in our financial and other reporting.

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Risk factors
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We license technology from third parties for use in our WinDVD and other
standards-based products, and our business will suffer if we fail to maintain
these license arrangements.

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

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

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

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

We may experience seasonality in our business, which could cause our operating
results to fluctuate.
Our financial condition and results of operations are likely to be affected by
seasonality in the future. Historically, PC OEMs have experienced their highest
volume of sales during the year end holiday season. Because of the timing of
our recognition of revenue associated with the sale of our products to OEMs, we
expect to experience our highest revenue and operating income in the first
quarter of each calendar year, followed by lower revenue and operating income
in the second quarter of that year. To the extent our retail sales increase as
a percentage of our revenue, we expect that revenue from retail sales in the
fourth quarter will increase relative to other quarters.

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Risk factors
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The market for our products is new and constantly changing. If we do not
respond to changes in a timely manner, our products likely will no longer be
competitive.
The market for our products is characterized by rapid technological change, new
and improved product introductions, changes in customer requirements and
evolving industry standards. Our future success will depend to a substantial
extent on our ability to develop, introduce and support cost-effective new
products and technologies on a timely basis. If we fail to develop and deploy
new cost-effective products and technologies or enhancements of existing
products on a timely basis, or if we experience delays in the development,
introduction or enhancement of our products and technologies, our products will
no longer be competitive and our business will suffer.

The development of new, technologically advanced products is a complex and
uncertain process requiring high levels of innovation and highly skilled
engineering and development personnel, as well as the accurate anticipation of
technological and market trends. We may not be able to identify, develop,
manufacture, market or support new or enhanced products on a timely basis, if
at all. Furthermore, our new products may never gain market acceptance, and we
may not be able to respond effectively to product announcements by competitors,
technological changes or emerging industry standards. Our failure to respond to
product announcements, technological changes or changes in industry standards
would likely prevent our products from gaining market acceptance and harm our
business.

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

We believe that establishing and strengthening the InterVideo brand is critical
to achieving widespread acceptance of our products and to establishing key
strategic relationships. The importance of brand recognition will increase as
current and potential competitors enter the market with competing products. Our
ability to promote and position our brand depends largely on the success of our
marketing efforts and our ability to provide high quality products and customer
support. These activities are expensive and we may not generate a corresponding
increase in customers or revenue to justify these costs. If we fail to
establish and maintain our brand, or if our brand value is damaged or diluted,
we may be unable to attract new customers and compete effectively.

Historically, we have relied primarily on a limited direct sales force,
supported by third party manufacturers' representatives and distributors, to
sell our products. Our sales strategy focuses primarily on our corporate
customers bundling our products with their hardware and distributing our
products through their own distribution channels. We rely on our customers'
sales forces, marketing budgets and brand images to promote sales of bundled
products. If our corporate customers fail to successfully market and sell their
products bundled with our products, or if our relationship with our corporate
customers are terminated, we may be unable to effectively market and distribute
our products and services.

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

Our success depends upon the ability to protect our proprietary rights. We rely
on a combination of patent, copyright, trademark and trade secret laws, as well
as license and confidentiality agreements with our employees, customers,
strategic partners and others to establish and protect our proprietary rights.
The protection of patentable inventions is important to our future
opportunities. We currently have one patent issued in Taiwan, and we have 27
pending patent applications in various jurisdictions. It is possible that:

... our pending patent applications may not result in the issuance of patents;

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Risk factors
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... we may not apply for or obtain effective patent protection in every country
in which we do business;

... our patents may not be broad enough to protect our proprietary rights;

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

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

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

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

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

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

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

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

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

Our international operations may expose us to regulatory, financial and
operational risks.

Because we sell our products worldwide, our business is subject to risks
associated with doing business internationally. International sales accounted
for approximately 45% of our revenue for the year ended

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Risk factors
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December 31, 2001, and we expect to continue to derive a significant portion of
our revenue from sales outside of the United States. We intend to expand our
international operations in the future. Significant management attention and
financial resources are needed to develop our international sales, support and
distribution channels and manufacturing. We may not be able to maintain
international market demand for our products. Our future results could be
harmed by a variety of factors related to international operations, including:

... foreign currency exchange rate fluctuations;

... seasonal fluctuations in sales;

... changes in a specific country's or region's political or economic
condition, particularly in emerging markets;

... unusual or burdensome foreign laws or regulatory requirements or unexpected
changes to those laws or requirements;

... trade protection measures and import or export licensing requirements;

... potentially adverse tax consequences;

... longer accounts receivable collection cycles and difficulties in collecting
accounts receivables;

... difficulty in managing widespread sales, development and manufacturing
operations; and

... less effective protection of intellectual property.

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

In addition, we and certain of our OEM customers maintain significant
operations in Asia. Any kind of economic, political or environmental
instability in this region of the world can have a severe negative impact on
our operating results due to the large concentration of production and sales
activities in this region. We may be greatly impacted by the political,
economic and military conditions in Taiwan. Taiwan and China are engaged in
political disputes, and both countries have continued to conduct military
exercises in or near the other's territorial waters and airspace. These
disputes may continue and even escalate, resulting in an economic embargo, a
disruption in shipping or even military hostilities.

Our business and future operating results are subject to a broad range of
uncertainties arising out of the terrorist attacks on the United States.

Our business and operating results are subject to uncertainties arising out of
the terrorist attacks on the United States. These uncertainties include the
potential worsening or extension of the current global economic slowdown and
the economic consequences of military action or additional terrorist
activities. Any similar activity of this nature or even rumors of such activity
in the future could harm our operating results and stock price.

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Risk factors
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We may not be successful in addressing problems encountered in connection with
any acquisitions we may undertake, which could harm our business.

In the past, we have made acquisitions. We expect to continue to review
opportunities to buy or make investments in other businesses, products or
technologies that would enhance our technical capabilities, complement our
current products or expand the breadth of our markets or that may otherwise
offer growth opportunities. Our continued acquisitions of businesses or
technologies will require significant commitment of resources. We may be
required to pay for any acquisitions with cash, but we cannot be certain that
additional capital will be available to us on favorable terms, if at all. In
lieu of paying cash, we could issue stock as consideration for an acquisition
that would dilute existing stockholders' percentage ownership, incur
substantial debt or assume contingent liabilities. We have limited experience
in acquiring other businesses and technologies. Potential and completed
acquisitions and investments also involve numerous risks, including:

... problems assimilating the purchased operations, technologies or products;

... problems maintaining uniform standards, procedures, controls and policies;

... unanticipated costs associated with the acquisition;

... diversion of management's attention from our core business;

... adverse effects on existing business relationships with suppliers and
customers;

... risks associated with entering markets in which we have no or limited prior
experience; and

... potential loss of key employees of purchased organizations.

We may require substantial additional capital, which may not be available on
acceptable terms or at all.
Our capital requirements will depend on many factors, including:

... acceptance of, and demand for, our products;

... the costs of developing new products;

... the need to license new technology or to enter into license agreements for
existing technology;

... the extent to which we invest in new technology and research and
development projects;

... the number and timing of acquisitions; and

... the costs associated with our expansion.

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

- --------------------------------------------------------------------------------

Risk factors
- --------------------------------------------------------------------------------

RISKS RELATED TO THIS OFFERING

There has been no prior public market for our common stock, and a public market
may not develop.
Prior to this offering, there has been no public market for our common stock.
We cannot assure you that an active trading market will develop or be sustained
or that the market price of our common stock will not decline. The initial
public offering price for the shares of our common stock will be determined by
us and the representatives of the underwriters and may not be indicative of
prices that will prevail in the trading market. We do not know the extent to
which investor interest will lead to the development of an active public
market. The lack of an active market may impair your ability to sell your
shares at the time you wish to sell them or at a price which you consider
reasonable. The lack of an active market may also reduce the fair market value
of your shares. An inactive market may also impair our ability to raise capital
by selling shares and may impair our ability to acquire other companies or
technology by using our shares as consideration.

We expect our stock price to be volatile.
The price at which our common stock will trade after this offering is likely to
be highly volatile and may fluctuate substantially due to many factors, some of
which are:

... actual or anticipated fluctuations in our results of operations;

... changes in securities analysts' expectations or our failure to meet those
expectations;

... developments with respect to intellectual property rights;

... announcements of technological innovations or significant contracts by us
or our competitors;

... introduction of new products by us or our competitors;

... commencement of or our involvement in litigation;

... our sale of common stock or other securities in the future;

... conditions and trends in technology industries;

... changes in market valuation or earnings of our competitors;

... the trading volume of our common stock;

... changes in the estimation of the future size and growth rate of our
markets; and

... general economic conditions.

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

We have implemented anti-takeover provisions that could discourage a third
party from acquiring us and consequently decrease the market value of your
investment.
Our certificate of incorporation and bylaws contain provisions that may have
the effect of delaying or preventing a change of control or changes in
management that a stockholder might consider favorable. The certificate and
bylaws, among other things, provide for a classified board of directors,
require that stockholder actions occur at duly called meetings of the
stockholders, limit who may call special meetings of stockholders and require
advance notice of stockholder proposals and director nominations. These
provisions, along with the provisions of the Delaware General Corporation Law,
such as Section 203, prohibiting certain business combinations with an
interested stockholder, may delay or impede a merger,

- --------------------------------------------------------------------------------

Risk factors
- --------------------------------------------------------------------------------

tender offer or proxy contest involving us. Any delay or prevention of a change
of control transaction or changes in management could cause the market price of
our common stock to decline. For more information about particular
anti-takeover provisions, see "Description of capital stock."

Because of their significant stock ownership, our officers and directors will
be able to exert significant influence over our future direction.

Executive officers, directors and entities affiliated with them will, in the
aggregate, beneficially own approximately 20.9% of our outstanding common stock
following the completion of this offering. These stockholders, if acting
together, would be able to significantly influence all matters requiring
approval by our stockholders, including the election of directors and the
approval of mergers or other business combination transactions. See "Principal
stockholders."

Management will have broad discretion over the use of proceeds from this
offering.
The net proceeds from this offering will be used for working capital and other
general corporate purposes. In particular, we intend to use the net proceeds of
the offering for working capital, marketing, research and development, and
capital expenditures. We may also use certain of the proceeds to acquire other
products, technology or businesses that would complement our existing products,
enhance our technological capabilities or expand our market coverage. We have
not reserved or allocated the net proceeds for any specific transaction, and we
cannot specify with certainty how we will use the net proceeds. Accordingly,
our management will have considerable discretion in the application of the net
proceeds, and you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used appropriately. The net
proceeds may be used for corporate purposes that do not increase our operating
results or market value. Until the net proceeds are used, they may be placed in
investments that do not produce income or that lose value.

Sales of substantial amounts of our common stock could harm the market price of
our stock.

A substantial amount of our shares will be eligible for sale shortly after this
offering. If our stockholders sell substantial amounts of common stock in the
public market soon after the lock-up period ends, the market price of our
common stock could fall. Based on shares outstanding as of December 31, 2001,
upon completion of this offering, we will have 11,122,974 shares of common
stock outstanding. Of these shares, the 3,500,000 shares sold in this offering
will be freely tradable. Another 7,323,774 shares will be eligible for sale in
the public market 180 days from the date of this prospectus, substantially all
of which are subject to lock-up agreements. UBS Warburg LLC may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. The remaining 299,200 shares are
restricted securities that will become eligible for sale in the public market
pursuant to Rule 144 at various dates in the future. In addition, 286,000
shares of common stock held by Dell are subject to a two-year lock-up period.
Of these shares, 71,500 shares shall be released from the lock-up agreement 180
days from the date of this prospectus and an additional 35,750 shares shall be
released each 90 days thereafter, such that all of the shares shall be released
from the lock-up agreement two years following the date of this prospectus. The
sale of a significant number of these shares could cause the price of our
common stock to decline. See "Shares eligible for future sale" for more
detailed information.

Our financial statements are audited by Arthur Andersen LLP, which has been
indicted by the Department of Justice, and we may need to change auditors,
which would be expensive and could have other adverse consequences.

Our financial statements for the year ended December 31, 2001 were audited by
Arthur Andersen. Arthur Andersen has been indicted by the Department of Justice
on federal obstruction of justice charges arising from the government's
investigation of Enron Corporation. The SEC has stated that it will

- --------------------------------------------------------------------------------

Risk factors

- --------------------------------------------------------------------------------

continue accepting financial statements audited, and interim financial
statements reviewed, by Arthur Andersen, so long as Arthur Andersen makes
certain representations concerning audit quality controls. If Arthur Andersen
is unable to meet SEC auditing requirements or is otherwise unable to perform
required audit-related services for us in a timely manner in the future, or if
our board of directors decides that it is in our and our stockholders' best
interests to disengage Arthur Andersen, we may have reduced access to capital
markets, we could incur significant costs and delays in filing audited
financial statements and we may be unable to satisfy our SEC filing
requirements (including meeting requirements that are necessary for continued
listing on Nasdaq and that permit sales of stock pursuant to Rule 144), any of
which could harm our business. Certain investors, including significant mutual
funds and institutional investors, may choose not to hold or invest in
securities of issuers that engage Arthur Andersen as auditors or that do not
have then current financial reports available. Furthermore, relief that may be
available to stockholders under the federal securities laws against auditing
firms may not be available as a practical matter against Arthur Andersen should
it cease to operate or be financially impaired.

Forward-looking information

This prospectus contains forward-looking statements. When used in this
prospectus, the words "anticipate," "believe," "estimate," "will," "intend" and
"expect" and similar expressions identify forward-looking statements. Although
we believe that our plans, intentions and expectations reflected in those
forward-looking statements are reasonable, we can give no assurance that these
plans, intentions or expectations will be achieved. Our actual results,
performance or achievements could differ materially from those contemplated,
expressed or implied, by the forward-looking statements contained in this
prospectus. Important factors that could cause actual results to differ
materially from our forward-looking statements are set forth in this
prospectus, including under the heading "Risk factors." All forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements set forth in this
prospectus. Other than as required by federal securities laws, we are under no
obligation to update any forward-looking statement, whether as a result of new
information, future events or otherwise.

You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell and seeking offers to buy
shares of our common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.

- --------------------------------------------------------------------------------

Use of proceeds

We estimate that we will receive net proceeds of approximately $40.4 million,
or $46.8 million if the underwriters exercise their over-allotment option in
full, from this offering of our common stock, based on an assumed initial
public offering price of $13.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. We
expect to use the net proceeds of the offering for general corporate purposes,
including working capital and capital expenditures. We have not yet allocated
any specific amounts for these purposes. However, we currently anticipate that
we will spend between $9 million and $11 million for sales and marketing
expenses, between $9 million and $11 million for research and product
development activities and between $4 million and $5 million for general and
administrative expenses, during the year ending December 31, 2002 and between
$1 million and $3 million on capital expenditures during that year associated
with infrastructure upgrades and expansion of our business. In addition, we may
use a portion of the net proceeds to acquire or invest in complementary
businesses or products or to obtain the right to use complementary
technologies. We have no commitments with respect to any acquisition or
investment, and we are not involved in any negotiations with respect to any
similar transaction. The amounts and timing of our actual expenditures will
depend on numerous factors, including the status of our product development
efforts, sales and marketing activities, technological advances, amount of cash
generated or used by our operations and competition. We may find it necessary
or advisable to use the net proceeds for other purposes, and we will have broad
discretion in the application of the balance of the net proceeds. Pending the
uses described above, we intend to invest the net proceeds in short-term,
interest-bearing, investment grade securities.

Dividend policy

We have never declared or paid any cash dividends on our capital stock and do
not intend to pay dividends in the foreseeable future. We anticipate that we
will retain any earnings to support operations and to finance the growth and
development of our business.

- --------------------------------------------------------------------------------

Capitalization

Our capitalization as of December 31, 2001 is set forth in the following table:

... on an actual basis;

... on a pro forma basis to reflect the conversion of all outstanding preferred
stock into shares of our common stock; and

... on the same pro forma basis as adjusted to give effect to the receipt of
the estimated net proceeds from this offering, at an assumed initial public
offering price of $13.00 per share.

You should read this table in conjunction with "Management's discussion and
analysis of financial condition and results of operations," our financial
statements and the notes to those financial statements and "Description of
capital stock."

December 31, 2001
---------------------------------
Pro forma
Actual Pro forma as adjusted
(in thousands, except share data)
- ------------------------------------------------------------------------------------

Long-term obligations, excluding current portion. $ -- $ -- $ --
Stockholder's equity:
Convertible preferred stock, 13,000,000 shares
authorized, 12,188,750 shares issued and
outstanding, actual; 13,000,000 shares
authorized, pro forma and pro forma as adjusted;
no shares issued and outstanding, pro forma and
pro forma as adjusted........................... 21,186 -- --
-------- -------- ---------
Common stock, 25,000,000 shares authorized,
1,973,924 shares issued and outstanding, actual;
150,000,000 shares authorized, pro forma and pro
forma as adjusted; 7,336,974 shares issued and
outstanding, pro forma; shares authorized, pro
forma as adjusted; 10,836,974 shares issued and
outstanding, pro forma as adjusted.............. 6,579 27,765 68,180
Notes receivable from officers and directors..... (667) (667) (667)
Deferred stock compensation...................... (2,070) (2,070) (2,070)
Accumulated other comprehensive loss............. (188) (188) (188)
Accumulated deficit.............................. (16,881) (16,881) (16,881)
-------- -------- ---------
Total stockholder's equity.................... 7,959 7,959 48,374
-------- -------- ---------
Total capitalization....................... $ 7,959 $ 7,959 $ 48,374
======== ======== =========

- --------------------------------------------------------------------------------

Dilution

Our pro forma net tangible book value as of December 31, 2001 was approximately
$0.82 per share of our common stock. Our pro forma net tangible book value per
share represents the amount of our total tangible assets reduced by the amount
of our total liabilities and divided by the total number of shares of our
common stock outstanding as of December 31, 2001 (including shares of common
stock issuable upon conversion of outstanding preferred stock and shares issued
to Dell in April 2002). After giving effect to our sale in this offering of
shares of our common stock at an assumed initial public offering price of
$13.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value as of December 31, 2001 would have been $4.20 per share of our common
stock. This represents an immediate increase in net tangible book value of
$3.38 per share to our existing stockholders and an immediate dilution of $8.80
per share to you. The following table illustrates this per share dilution:

Assumed initial public offering price per share...................... $13.00
Pro forma net tangible book value per share before this offering.... $0.82
Increase attributable to investors in this offering................. 3.38
-----
Pro forma net tangible book value per share after this offering...... 4.20
------
Dilution per share to investors in this offering..................... $ 8.80
======

The differences between our existing stockholders and investors with respect to
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid for both common and preferred
stock is summarized on a pro forma basis, as of December 31, 2001 before
underwriters' discount and offering expenses in the following table. The
following table does not include 2,361,791 shares of common stock issuable upon
the exercise of outstanding options with a weighted average exercise price of
$1.40 per share as of December 31, 2001. To the extent that outstanding options
are exercised, there will be further dilution to new investors.

Average
Shares purchased Total consideration price per

-----------------------------------------
Number Percent Amount Percent share
(in thousands)
------------------------------------------------------------------------------
Existing shareholders..... 7,622,974 68.5% $26,011,299 36.4% $ 3.41
New investors............. 3,500,000 31.5 45,500,000 63.6 13.00
---------- ----- ----------- -----
Total.................... 11,122,974 100.0% $71,511,299 100.0%
========== ===== =========== =====

- --------------------------------------------------------------------------------

Selected consolidated financial data

The selected consolidated financial data set forth below should be read in
conjunction with our consolidated financial statements and related notes
thereto and "Management's discussion and analysis of financial condition and
results of operations" included elsewhere in this prospectus. The selected
consolidated statement of operations data and balance sheet data are derived
from our audited financial statements. The pro forma data and the pro forma
share and earnings per share data for the year ended December 31, 2001 gives
effect to the conversion of all outstanding shares of preferred stock into
common stock.

Revenue................................................... $ 3,036 $15,426 $33,763
Direct product costs...................................... 1,118 5,361 12,908
Cost of settlement of intellectual property matters....... -- -- 4,233
Cost of impairment of software license agreement.......... -- -- 958
------- ------- -------
Cost of Revenue........................................ 1,118 5,361 18,099
------- ------- -------
Gross profit........................................... 1,918 10,065 15,664

Operating expenses:
Research and development............................... 1,300 6,585 9,117
Sales and marketing.................................... 1,194 4,978 7,896
General and administrative............................. 773 2,667 2,990
Stock compensation(2).................................. 53 1,411 2,063
Amortization of goodwill............................... -- 174 298
Cost of delayed public offering........................ -- -- 710
Impairment of promotional agreement.................... -- -- 550
Restructuring.......................................... -- -- 850
------- ------- -------
Total operating expenses............................ 3,320 15,815 24,474
------- ------- -------
Loss from operations...................................... (1,402) (5,750) (8,810)
Other income, net......................................... 32 557 557
------- ------- -------
Loss before provision for income taxes.................... (1,370) (5,193) (8,253)
Provision for income taxes................................ 64 552 924
------- ------- -------
Net loss............................................... $(1,434) $(5,745) $(9,177)
======= ======= =======
Net loss per common share, basic and diluted.............. $ (5.83) $ (4.97) $ (5.99)
======= ======= =======
Pro forma net loss per common share, basic and diluted
(unaudited).............................................. $ (1.33)
=======
Weighted average common shares outstanding, basic and
diluted.................................................. 246 1,155 1,532
======= ======= =======
Pro forma weighted average common shares outstanding,
basic and diluted (unaudited)............................ 6,895
=======

- --------------------------------------------------------------------------------

Selected consolidated financial data
- --------------------------------------------------------------------------------

As of December 31,
------------------
2000 2001
Consolidated balance sheet data (in thousands)
---------------------------------------------------------------------

Cash and cash equivalents........................ $14,668 $14,348
Working capital.................................. 10,419 3,447
Total assets..................................... 22,134 22,153
Long-term obligations, net of current portion.... -- --
Convertible preferred stock...................... 21,286 21,186
Total stockholders' equity....................... 15,189 7,959

- --------

(1) Excludes the results of operations of AVPD prior to its acquisition on June
7, 2000. See the financial statements of AVPD included elsewhere in this
prospectus, as well as the related unaudited pro forma condensed combined
statement of operations of InterVideo for the year ended December 31, 2000
as if the acquisition of AVPD had been completed on January 1, 2000.

(2) Stock compensation is allocated among the operating expense classifications
as follows:

Year ended December 31,
----------------------------
1999 2000 2001
(in thousands)
-----------------------------------------------------------------------------

- --------------------------------------------------------------------------------

Management's discussion and analysis of financial condition and results of
operations

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with "Selected consolidated financial
data" and our consolidated financial statements and related notes appearing
elsewhere in this prospectus. In addition to historical information, this
discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including but not limited to, those set forth under "Risk factors" and
elsewhere in this prospectus.

OVERVIEW

We are a leading provider of DVD software and offer a broad suite of advanced
digital video and audio multimedia software products that allow users to
record, edit, author, distribute and play digital multimedia content on PCs and
consumer electronics devices. We derive a substantial majority of our revenue
from sales of our WinDVD product, a software DVD player for PCs. Our other
major products include WinDVR, a digital video recorder, WinProducer, a video
recording and editing software application, and WinRip, a digital music
recorder and player. We began operations in 1998 and shipped our first products
in 1999. Our software is bundled with products sold by eight of the top ten PC
OEMs ranked in terms of sales by IDC. Our OEM customers include Compaq, Dell,
Fujitsu, Fujitsu Siemens, Hewlett-Packard, Medion, Sony and Toshiba. We sell
our products to PC OEMs, consumer electronics manufacturers and PC peripherals
manufacturers worldwide and offer our software in up to 27 languages. In
addition, we sell our products directly to consumers through our websites,
which currently operate in English, French, German, Japanese and Chinese, and
through retail channels.

We derive revenue primarily from the sale of software licenses to OEMs, which
install our software onto PCs prior to delivery to consumers. We also derive
revenue from the license of our software to consumer electronics manufacturers
and manufacturers of PC peripherals that incorporate our products into their
own products for distribution as well as sales directly to users through retail
channels and our website. We recognize revenue generated from sales to OEMs, PC
peripherals manufacturers and end users in accordance with Statement of
Position (SOP) 97-2, "Software Revenue Recognition," as amended, under which
revenue is recognized when evidence of an arrangement exists, delivery of the
software has occurred, the fee is fixed and determinable and collection is
reasonably assured.

Under the terms of our license agreements with OEMs, they are entitled only to
unspecified upgrades on a when and if available basis, prior to sell through to
end users. Under the terms of our revenue recognition policy, we recognize
revenue based on evidence of products being sold by the OEMs. We do not have
any obligation to provide upgrades to the OEMs' customers. Accordingly, we do
not defer any revenue as we no longer have an obligation once the OEM's
products have been shipped and we have recorded revenue. Under the terms of the
OEM license agreements, the OEM will qualify the software on its then current
platform. Once the software has been qualified, the OEM will begin to ship
products, and report sales to us, at which point we will record revenue. The
OEM will have the right to return the software prior to it being qualified.
Once the software has been shipped, the OEM does not have a right of return to
us. Therefore, we do not maintain a returns reserve related to OEM sales. Under
the terms of our OEM license agreements, the OEM has certain inspection and
acceptance rights. These rights lapse once the product has been qualified and
the shipment reported to us. Therefore we do not believe that these acceptance
rights impact the amount or timing of revenue recognition.

- --------------------------------------------------------------------------------

Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

Most OEMs pay a license fee based on the amount of licensed software included
in the products sold to their customers. OEMs pay these fees on a per unit
basis, and we record associated revenue when we receive notification of the
OEMs' sales of the licensed software to the user. The terms of our license
agreements generally require the OEMs to notify us of sales of their products
within 30 to 45 days after the end of the month or quarter in which the sales
occur. As a result, we generally recognize revenue in the month or quarter
following the sale of the product to the OEMs' customers.

End-user sales are primarily sales made directly from our website. There are no
unspecified upgrade rights related to these sales, we do not offer specified
upgrade rights to any class of customer. The end users who purchase our
software from our website do not have rights of return.

We expect prices for our products to decline over the next few years. Because
of competition from other software providers, competition in the PC industry
and diminishing margins experienced by PC OEMs as a result of decreased selling
prices and lower unit sales, we have reduced the prices we charge PC OEMs for
our WinDVD product. We expect this trend to continue, which will make it more
difficult to increase or maintain our revenue and may cause a decline in our
gross margins even if our WinDVD unit sales increase.

Our revenue growth has been achieved in large part due to sales of our WinDVD
product to new, large PC OEM customers. Because there is only a limited number
of potential new, large PC OEM customers for our WinDVD product, we must derive
any future revenue growth principally from increased sales of WinDVD or other
products to existing PC OEMs and PC peripherals manufacturers and from sales to
smaller regional PC OEMs and directly to consumers through retail channels and
our websites. Because some of these other revenue opportunities are more
fragmented than the PC OEM market and will take more time and effort to
penetrate, we expect that our revenue will grow at a slower rate than in recent
periods.

Due to concentration in the PC OEM industry, we derive a substantial portion of
our revenue from a small number of customers. For the year ended December 31,
2001, our four largest customers accounted for a majority of our revenue.
During that period, Dell and Fujitsu each accounted for more than 10% of our
revenue. We expect that a small number of customers will continue to account
for a majority of our revenue and gross profit for the foreseeable future.

International sales accounted for 45% of our revenue for the year ended
December 31, 2001. We expect to continue to derive a significant portion of our
revenue from sales outside of the United States. Currently, most of our
international sales are denominated in U.S. dollars. Therefore, a strengthening
of the dollar could make our products less competitive in foreign markets. Our
current distribution agreements shift foreign exchange risk to our foreign
distributors. We do not use derivative instruments to hedge foreign exchange
risk. In the future, a portion of our international revenue and expenses may be
denominated in foreign currencies.

In 2000, we started an Internet commerce sales initiative that allows users to
purchase products from our websites. For the year ended December 31, 2001, we
derived 8% of our revenue from sales on our websites. To increase our web-based
sales in the future, we intend to increase investments in associated selling
and marketing, capital equipment and research and development.

- --------------------------------------------------------------------------------

Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

Cost of revenue consists of three components: direct product costs, cost of
settlement of intellectual property matters and cost of impairment of software
license agreement. Direct product costs consist primarily of royalties paid or
accrued for payment to third parties for technologies incorporated into our
products, expenses incurred to manufacture, package and distribute our software
products, the amortization of developed technology and costs associated with
end-user customer support. Customer service and technical support costs include
the costs associated with answering end-user customer inquires and providing
telephone assistance. In connection with the sale of some products, we provide
a limited amount of free telephone support service to customers. We do not
defer the recognition of any revenue associated with sales of these products,
because the cost of providing this free support is insignificant. The support
is provided within 90 days after the associated revenue is recognized. Direct
product costs also include estimated accruals for royalties due on technology
for which we have no license and related intellectual property claims. We may
adjust the rate at which we accrue these amounts in the future. Over the next
several quarters, we expect our direct product costs to increase as a
percentage of revenue due to lower selling prices.

Cost of settlement of intellectual property matters consists of amounts accrued
for settlement of alleged infringement of certain patents used in our and our
customers' products in periods prior to December 31, 2001. We reached a
settlement with one customer for shares of preferred stock convertible into
286,000 shares of our common stock upon the closing of this offering with a
total value of $3.7 million. We issued these shares in April 2002. We also have
paid, or expect to pay, approximately $515,000 in cash to other parties for
settlement of similar claims.

Cost of impairment of software license agreement consists of royalty payments
for licensed technology, the benefit of which we have deemed unrealizable.

Our gross profit is affected by many factors, including competitive pricing
pressures, fluctuations in unit volumes, changes in third party license fees
and changes in the mix of products sold and in our mix of distribution channels.

Research and development expenses consist primarily of personnel and related
costs, consulting expenses associated with the development of new products,
technology license fees and quality assurance and testing. To date, we have not
capitalized any research and development expenses.

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

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

For the years ended December 31, 2001, 2000 and 1999, we recorded deferred
stock compensation of $1.8 million, $3.5 million and $218,000. Deferred stock
compensation represents the difference between the deemed fair market value of
our common stock at the time of option grants during these periods and the
exercise prices of these options. We amortize deferred stock compensation, as
stock-based compensation expense, using a multiple option award valuation
approach over the vesting periods of the applicable options, which is generally
four years. See Note 8 of notes to consolidated financial statements. The
amortization of deferred stock compensation for options granted through March
31, 2002 for the next four years totals $2.6 million in 2002, $1.1 million in
2003, $454,000 in 2004 and $109,000 in 2005.

- --------------------------------------------------------------------------------
29

Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

We completed the acquisition of the business and assets of AVPD, a developer of
audio and video software products, in 2000. The purchase cost of the
acquisition was $3.2 million, including legal, valuation and accounting fees of
$200,000, and was accounted for as a purchase. The purchase price was allocated
as follows: $700,000 to in-process research and development, $1.4 million to
goodwill, $150,000 to the assembled work force and $1.0 million to developed
technology. Goodwill and other intangibles are amortized on the straight-line
method over their estimated useful life of five years. Total amortization
expense was $290,000 and $498,000 for the years ended December 31, 2000 and
2001. Amortization expense related to developed technology is charged to cost
of revenue in the amount of $116,000 and $200,000 for the years ended December
31, 2000 and 2001.

We adopted Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" (SFAS No. 142), on January 1, 2002. As required by
this statement, effective January 1, 2002, we no longer amortize goodwill, but
will evaluate it for impairment at least annually. Goodwill with a net book
value of approximately of $1.0 million at December 31, 2001 will be subject to
the provisions of SFAS No. 142.

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

RESULTS OF OPERATIONS

Year ended December 31,
--------------------
1999 2000 2001
------------------------------------------------------------------

As a percentage of revenue:
Revenue................................... 100 % 100 % 100 %

Direct product costs...................... 37 35 38
Cost of settlement of intellectual
property matters......................... -- -- 13
Cost of impairment of software license
agreement................................ -- -- 3
--- --- ---
Cost of revenue........................ 37 35 54
--- --- ---
Gross margin........................ 63 65 46
--- --- ---
Operating expenses:
Research and development............... 43 43 27
Sales and marketing.................... 39 32 23
General and administrative............. 25 17 9
Stock compensation..................... 2 9 6
Amortization of goodwill............... -- 1 1
Cost of delayed public offering........ -- -- 2
Impairment of promotional agreement.... -- -- 2
Restructuring.......................... -- -- 3
--- --- ---
Total operating expenses............ 109 102 73
--- --- ---
Operating loss...................... (46) (37) (27)
Other income, net......................... 1 4 2
--- --- ---
Loss before provision for income taxes.... (45) (33) (25)
Provision for income taxes................ 2 4 2
--- --- ---
Net loss............................ (47)% (37)% (27)%
=== === ===

Comparison of years ended December 31, 2001 and 2000

Revenue

Revenue increased 119% to $33.8 million for the year ended December 31, 2001
from $15.4 million for the year ended December 31, 2000. The growth in revenue
resulted primarily from increased sales of our WinDVD product.

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Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

Gross margin

Gross margin decreased to 46% of revenue in the year ended December 31, 2001
from 65% in the year ended December 31, 2000. The decrease in gross margin
resulted from an increase in cost of revenue to $18.1 million for the year
ended December 31, 2001 from $5.4 million for the year ended December 31, 2000.
Direct product costs increased to $12.9 million, or 38% of revenue, for the
year ended December 31, 2001 from $5.4 million, or 35% of revenue, for the year
ended December 31, 2000. This increase was primarily due to increased average
royalty unit costs owed to third parties for incorporation of their technology
into our products. Costs of settlement of intellectual property matters
increased to $4.2 million, or 13% of revenue, for the year ended December 31,
2001 from $0 for the year ended December 31, 2000. Cost of settlement of
intellectual property matters in the year ended December 31, 2001 consisted of
amounts accrued in settlement with certain OEM customers and patent holders for
intellectual property claims. These settlement payments are for past
liabilities, and we believe we have no future obligations to these customers
related to the matters covered by those settlement agreements. However, we may
be subject to additional claims in the future for which we will have to accrue
and pay additional amounts. See "Risk factors--Risk related to our business--We
have received notices of claims, and may receive additional notices of claims
in the future, regarding the alleged infringement of third parties'
intellectual property rights that may result in restrictions or prohibitions on
the sale of our products and cause us to pay license fees and damages."

In December 2000, we entered into a license agreement providing for an
aggregate of $1.1 million of minimum royalty payments through October 31, 2002.
We recognized the associated expense under the agreement based on the number of
customer registrations received during the relevant period. As of September 30,
2001, we had expensed approximately $35,000 of royalty payments based on
customer registrations through that date. In September 2001, we determined that
a large portion of the minimum royalty payments would be unrealizable.
Accordingly, we recorded a cost of impairment of software license agreement of
$958,000 in the third quarter of 2001, of which $613,000 related to royalty
payments already made and $345,000 related to future liabilities under the
agreement. We expect to record the remaining $57,000 related to this agreement
as a direct product cost during 2002.

Research and development

Research and development expenses increased to $9.1 million, or 27% of revenue,
for the year ended December 31, 2001 from $6.6 million, or 43% of revenue, for
the year ended December 31, 2000. The increase in absolute dollars resulted
primarily from increased personnel and consulting costs, facilities-related
expenses, and outside professional fees. Research and development expenses for
the year ended December 31, 2000 include a special in-process research and
development charge resulting from the AVPD acquisition. We believe that a
significant level of research and development expenses will be required to
remain competitive, and, as a result, we intend to increase these expenses in
absolute dollars in the future.

Sales and marketing

Sales and marketing expenses increased to $7.9 million, or 23% of revenue, for
the year ended December 31, 2001 compared to $5.0 million, or 32% of revenue,
for the year ended December 31, 2000. The increase in absolute dollars was
primarily attributable to supporting our higher level of sales, which included
higher personnel costs, commission costs paid to third-party sales
representatives, promotional expenses, consulting costs and facilities-related
expenses. We intend to actively market, sell and promote our products and
further develop our brand name. Therefore, we expect expenses related to these
programs to continue to increase in absolute dollars in the future.

General and administrative

General and administrative expenses increased to $3.0 million, or 9% of
revenue, for the year ended December 31, 2001 from $2.7 million, or 17% of
revenue, for the year ended December 31, 2000. The

- --------------------------------------------------------------------------------

Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

increase in absolute dollars was primarily attributable to increased personnel
costs and professional services. We expect general and administrative expenses
to continue to increase in absolute dollars as we build our infrastructure to
support our anticipated growth and operations as a public company.

Stock-based compensation

Stock-based compensation expenses increased to $2.1 million for the year ended
December 31, 2001 from $1.4 million for the year ended December 31, 2000. The
stock-based compensation charges for the issuance of stock options will be
amortized on an accelerated basis over the next four years.

Amortization of goodwill

The amortization of goodwill increased to $298,000 for the year ended December
31, 2001 from $174,000 for the year ended December 31, 2000. The year ended
December 31, 2000 includes seven months of amortization expense compared to
twelve months included in the year ended December 31, 2001.

Cost of delayed public offering

During the year ended December 31, 2001, we incurred $710,000 of professional
costs in connection with the preparation of our initial public offering. In
September 2001, this offering was delayed and all costs were expensed.

Impairment of promotional agreement

During the third quarter of 2001, we accelerated the amortization for promotion
costs of our WinRip product that have been deemed unrealizable, recording a
total charge of $550,000. In March 2001, we entered into a promotional
agreement with an online music provider for exclusive marketing and promotion
space. In accordance with the agreement, we are required to pay $1.1 million
over 12 months and provide a $600,000 standby line of credit. During the period
from March 2001 to August 2001, we incurred $550,000 for promotional costs,
which have been recorded in sales and marketing expenses. Based on the results
of the promotion, we believe that the remaining $550,000 of promotional expense
is unrealizable.

Restructuring

We incurred a one-time restructuring charge of $850,000 in the year ended
December 31, 2001, related to a restructuring of our business that occurred in
the second quarter.

During the second quarter of 2001, management approved a restructuring plan to
reduce our workforce and consolidate offices to align our cost structure with
our projected revenue growth and economic and industry conditions at the time.
A one-time charge of $850,000 related to this plan was recorded in operating
expenses in the second quarter. This charge included $257,000 related to
employee terminations and $593,000 related to office closures. As of December
31, 2001, the remaining accrual was $307,000 related to the future payment of
restructuring expenses, of which $2,000 related to employee terminations and
$305,000 related to office closures.

This restructuring eliminated approximately 25% of our worldwide employee
workforce, including employees in research and development, sales and marketing
and general and administrative. This plan is expected to result in annual
savings of nearly $3.0 million. The estimated cost savings have been calculated
based upon expected cost reductions related to employee terminations and
reduced facilities expenses. We will continue to manage our operating expenses
relative to expected revenue growth and will undertake additional cost-cutting
actions if necessary to optimize profitability.

- --------------------------------------------------------------------------------

Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

Other income, net

Other income, net primarily consists of interest income, offset by loss on
fixed assets disposal and other expense, if any. Other income, net remained
consistent at $557,000 for the years ended December 31, 2001 and 2000. Interest
income decreased to $481,000 for the year ended December 31, 2001 compared to
$652,000 for the year ended December 31, 2000. This decrease in interest income
was primarily attributable to lower average cash and cash equivalent balances
offset by an increase in non-operating expenses for the year ended December 31,
2000. This increase in non-operating expense in 2000 was primarily due to
recording a $134,000 loss on fixed assets disposed during this period. No
significant fixed assets were disposed of in the year ended December 31, 2001
excluding assets disposed of as a result of restructuring.

Provision for income taxes

The provision for income taxes increased to $924,000 in the year ended December
31, 2001 from $552,000 in the year ended December 31, 2000 due to higher
withholding tax generated from foreign sales in Japan and Taiwan and taxable
income generated in our Japanese subsidiary. Although we have not generated
taxable income in the United States, we are subject to foreign withholding
taxes in Japan and Taiwan.

Comparison of years ended December 31, 2000 and 1999

Revenue

Revenue increased 408% to $15.4 million for the year ended December 31, 2000
from $3.0 million for the year ended December 31, 1999. The growth in revenue
resulted primarily from increased sales of our WinDVD product. Product sales in
the years ended December 31, 2000 and 1999 were highly concentrated, with 52%
of revenue in the year ended December 31, 2000 coming from five customers and
60% of revenue in the year ended December 31, 1999 coming from five customers.

Gross margin
Gross margin increased to 65% of revenue for the year ended December 31, 2000
compared to 63% for the year ended December 31, 1999. This was primarily due to
a decrease in the average royalty unit cost owed to third parties for
incorporation of their technology into our products, partially offset by a
slight decrease in average selling prices.

Research and development
Research and development expenses increased to $6.6 million, or 43% of revenue,
for the year ended December 31, 2000 from $1.3 million, or 43% of revenue, for
the year ended December 31, 1999. This increase primarily resulted from our
continued research and development efforts including increase in personnel
costs, consulting and professional fees, facilities related expenses, travel
costs and the licensing of certain software. In connection with the purchase of
AVPD in 2000, we recorded a special in-process research and development charge
of $700,000. The value of the acquired in-process technology was computed using
a discounted cash flow analysis rate of 35% on the anticipated income stream of
the related product revenue. The discounted cash flow analysis was based on an
estimate of relevant market sizes and growth factors, expected trends in
technology and the nature and expected timing of new product introductions.

Sales and marketing
Sales and marketing expenses increased to $5.0 million, or 32% of revenue, for
the year ended December 31, 2000 from $1.2 million, or 39% of revenue, for the
year ended December 31, 1999. The increase in absolute dollars was primarily
attributable to support our higher level of sales, including increased
personnel costs, promotional expenses, outside commission costs, professional
fees, facilities-related expenses and travel expenses.

- --------------------------------------------------------------------------------

Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

General and administrative
General and administrative expenses increased to $2.7 million, or 17% of
revenue, for the year ended December 31, 2000 compared to $773,000, or 25% of
revenue, for the year ended December 31, 1999. This increase was primarily
attributable to increased personnel costs and professional fees.

Stock-based compensation
Stock-based compensation expenses increased to $1.4 million for the year ended
December 31, 2000 compared to $53,000 for the year ended December 31, 1999.

Amortization of goodwill
The amortization of goodwill increased to $174,000 for the year ended December
31, 2000 from $0 for the year ended December 31, 1999. We started to amortize
goodwill in June 2000, after completion of the AVPD purchase.

Other income, net

Other income, net increased to $557,000 for the year ended December 31, 2000
from $32,000 for the year ended December 31, 1999. This increase was primarily
attributable to an increase in interest income resulting from higher cash
balances received from the sale of our preferred stock, which was partially
offset by a disposal of fixed assets.

Provision for income taxes
Although we have not generated taxable income in the United States, our revenue
from Japan and Taiwan is subject to withholding taxes in those countries. The
provision for income taxes increased to $552,000 for the year ended December
31, 2000 from $64,000 for the year ended December 31, 1999. This increase was
due to greater foreign sales.

- --------------------------------------------------------------------------------

Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited consolidated statements of operations
data for the eight quarters ended December 31, 2001. The unaudited consolidated
information for each of these quarters has been prepared on substantially the
same basis as the audited consolidated financial statements included elsewhere
in this prospectus and, in our opinion, includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results of operations for these periods. Historical results are not necessarily
indicative of the results to be expected in the future, and results of the
interim periods are not necessarily indicative of our results of operations for
the entire year.

Three months ended
---------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
2000 2000 2000 2000 2001 2001 2001 2001
(unaudited) (in thousands)
- -------------------------------------------------------------------------------------------------------------------

Revenue........................ $2,445 $ 3,171 $ 4,145 $ 5,665 $ 7,722 $ 7,725 $ 8,226 $10,090

Direct product costs........... 788 1,095 1,485 1,993 3,114 2,974 3,058 3,762
Cost of settlement of
intellectual property matters. -- -- -- -- -- -- -- 4,233
Cost of impairment of
software license agreement.... -- -- -- -- -- -- 958 --
------ ------- ------- ------- ------- ------- ------- -------
Cost of revenue............. 788 1,095 1,485 1,993 3,114 2,974 4,016 7,995
------ ------- ------- ------- ------- ------- ------- -------
Gross profit............... 1,657 2,076 2,660 3,672 4,608 4,751 4,210 2,095
Operating expenses:
Research and development.... 699 1,785 1,840 2,261 2,469 2,368 2,098 2,182
Sales and marketing......... 799 1,112 1,180 1,887 2,008 2,211 2,088 1,589
General and administrative.. 451 737 456 1,023 675 777 773 765
Stock compensation.......... 235 297 375 504 541 502 569 451
Amortization of goodwill.... -- 25 74 75 74 74 74 76
Cost of delayed public
offering................... -- -- -- -- -- -- 710 --
Impairment of promotional
agreement.................. -- -- -- -- -- -- 550 --
Restructuring............... -- -- -- -- -- 850 -- --
------ ------- ------- ------- ------- ------- ------- -------
Total operating expenses... 2,184 3,956 3,925 5,750 5,767 6,782 6,862 5,063
------ ------- ------- ------- ------- ------- ------- -------
Loss from operations........... (527) (1,880) (1,265) (2,078) (1,159) (2,031) (2,652) (2,968)
Other income (expense), net.... (80) 199 185 253 178 114 151 114
------ ------- ------- ------- ------- ------- ------- -------
Loss before income taxes....... (607) (1,681) (1,080) (1,825) (981) (1,917) (2,501) (2,854)
Provision for income taxes..... 117 97 168 170 151 269 89 415
------ ------- ------- ------- ------- ------- ------- -------
Net loss................... $ (724) $(1,778) $(1,248) $(1,995) $(1,132) $(2,186) $(2,590) $(3,269)
====== ======= ======= ======= ======= ======= ======= =======

Over the eight quarters presented, our quarterly revenue grew to $10.1 million
for the quarter ended December 31, 2001 from $2.4 million for the quarter ended
March 31, 2000. Revenue has increased in each successive quarter as we have
increased OEM and retail sales of our products and expanded our product line.
In the quarter ended June 30, 2001, revenue remained relatively constant
compared to the prior quarter at $7.7 million due to lower average selling
prices offset by increased unit sales. The growth over the periods presented
was primarily the result of increased sales of our WinDVD product.

Our product gross profit, excluding charges for cost of impairment of software
license agreement and cost of settlement of intellectual property matters,
increased in absolute dollars in each successive quarter. Our product gross
margin, excluding the two charges mentioned above, fluctuated between quarters
but generally decreased to 63% for the quarter ended December 31, 2001 from 68%
for the

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Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

quarter ended March 31, 2000. This decrease primarily resulted from declining
selling prices partially offset by higher margin sales in Japan in 2001.
Overall gross profit declined in the quarters ended September 30, 2001 and
December 31, 2001. Overall gross margin for the quarter ended September 30,
2001 was 51%, with the decrease primarily resulting from a charge of $958,000
relating to the impairment of a software license agreement. Overall gross
margin for the quarter ended December 31, 2001 was 21%, with the decrease
primarily resulting from a charge of $4.2 million relating to the settlement of
intellectual property matters. Without these charges, our gross margin for the
quarters ended September 30, 2001 and December 31, 2001 would have been 63%.

Our total operating expenses have increased in absolute dollars in each
successive quarter referred to in the table above, except for the quarters
ended September 30, 2000 and March 31, 2001, when total operating expenses
remained relatively constant, and for the quarter ended December 31, 2001, when
total operating expenses declined primarily due to a decrease in marketing
activities such as trade show and other promotional activities and the absence
of non-recurring charges. The overall increases primarily resulted from
increased research and development expenses to introduce new products and
enhance existing products, increased selling and marketing costs associated
with higher revenue levels, increased general and administrative expenses
primarily associated with the hiring of key management and other personnel. The
decrease in general and administrative expenses from the second to the third
quarter of 2000 was primarily due to a decline in professional and other
miscellaneous expenses including communications expenses and bad debt. The
increase in general and administrative expenses from the third to the fourth
quarter of 2000 was primarily due to higher personnel expense from bonuses and
outside professional fees, including fees paid to outside recruiters. The
decrease in general and administrative expenses from the fourth quarter of 2000
to the first quarter of 2001 was primarily due to decreases in personnel
expense and professional fees. The decrease in research and development
expenses from the first quarter of 2001 to the second quarter of 2001 was
primarily attributable to lower consulting expenses due to the completion of
WinRip. In the second quarter of 2001, we enacted a corporate restructuring and
recorded an associated charge of $850,000. In the third quarter of 2001, we
recorded a charge of $710,000 related to a delayed public offering and $550,000
related to the impairment of a promotional agreement.

Our financial condition and results of operations are likely to be affected by
seasonality in the future. Historically, PC OEMs have experienced their highest
volume of sales during the year end holiday season. Because of the timing of
our recognition of revenue associated with the sale of our products to OEMs, we
expect to experience our highest revenue and operating income in the first
quarter of each calendar year, followed by lower revenue and operating income
in the second quarter of that year. To the extent our retail sales increase as
a percentage of our revenue, we expect that revenue from retail sales in the
fourth quarter will increase relative to other quarters.

We expect our operating results to fluctuate on an annual and quarterly basis
in the future due to a variety of factors, many of which are outside our
control. The license of software-based digital video and audio solutions for
incorporation in products in the PC and consumer electronics industries is new,
and it is difficult to predict the future growth rate, if any, or size of the
market for our products. We may be unable to accurately forecast customer
behavior and recognize or respond to emerging trends, changing preferences or
competitive factors facing us. Our current and future expense levels are based
largely on our investment plans and estimates of future revenue and are, to a
large extent, fixed. As a result, we may fail to make accurate financial
forecasts and adjust our spending in a timely manner to compensate for any
unexpected revenue shortfall, which would harm our operating results. Due to
these and other factors, quarter-to-quarter comparisons of our operating
results may not be meaningful, and you should not rely on our results for any
one quarter as an indication of our future performance.

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Management's discussion and analysis of financial condition and results of
operations
- --------------------------------------------------------------------------------

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily through private
sales of convertible preferred stock, which generated gross proceeds of $21.2
million, and the sale of our products. At December 31, 2001, we had cash and
cash equivalents of $14.3 million.

Net cash provided by operating activities was $1.4 million for the year ended
December 31, 2001. This primarily resulted from the sales of our WinDVD
product. Net cash used in operating activities was $330,000 in 2000 and
$573,000 in 1999. Cash used in operating activities resulted primarily from net
losses from operations in each period.

Net cash used in investing activities was $1.7 million for the year ended
December 31, 2001. Of the

$1.7 million expended in 2001, $1.0 million was the final payment for the
purchase of AVPD and the remainder was property and equipment purchases. Net
cash used in investing activities was $4.4 million in 2000 and $657,000 in
1999. Of the $4.4 million used in 2000, $2.2 million was partial payment for
the purchase of AVPD and $2.2 million was purchases of property and equipment
and long-term investments. Cash used in investing activities in 1999 was due to
the purchases of property and equipment and long-term investment.

Cash provided by financing activities for the year ended December 31, 2001 was
$111,000, primarily due to the issuance of common stock upon the exercise of
stock options. Cash provided by financing activities was $16.8 million in 2000
and $3.7 million in 1999. Cash provided by financing activities in 2000 and
1999 was primarily due to sales of convertible preferred stock and, to a lesser
extent, the issuance of common stock upon the exercise of stock options.

We currently have no significant commitments for capital expenditures. We
anticipate that we will increase our capital expenditures consistent with our
anticipated growth in personnel and infrastructure, including facilities and
systems.

We believe that the net proceeds from the sale of common stock in this
offering, together with our current cash and cash equivalents, will be
sufficient to meet our working capital and capital expenditure requirements for
at least the next 12 months. To the extent the proceeds of this offering and
our existing sources of cash and cash flow from operations are not sufficient
to fund our activities, we will need to raise additional funds. If we issue
additional stock to raise capital, your percentage ownership in us would be
reduced. Additional financing may not be available when needed and, if such
financing is available, it may not be available on terms acceptable to us. If
we raise funds through debt financing, we will have to pay interest and may be
subject to restrictive covenants, which could limit our ability to take
advantage of future opportunities, respond to competitive pressures or
unanticipated industry changes. In addition, although we have no present
understandings, commitments or agreements with respect to any acquisitions of
other businesses, services, products and technologies, we may from time to time
evaluate potential acquisitions. These acquisitions may increase our capital
requirements.

CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are as follows:

Revenue recognition

Our revenue is derived from fees paid under software licenses granted primarily
to OEMs, distributors, and directly to end users. We record revenue generated
from these sales in accordance with SOP 97-2, "Software Revenue Recognition,"
as amended, under which revenue is recognized when evidence of an

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Management's discussion and analysis of financial condition and results of
operations
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arrangement exists, delivery of the software has occurred, the fee is fixed and
determinable, and collectibility is reasonably assured.

We sell to OEMs and directly to end users. Under the terms of our license
agreements with the OEMs, they are entitled only to unspecified upgrades on a
when and if available basis prior to sell through to end users. Under the terms
of our revenue recognition policy, we recognize revenue based on evidence of
products being sold by the OEMs. We do not have any obligation to provide
upgrades to the OEMs' customers. Accordingly, we do not defer any revenue as we
no longer have an obligation once an OEM's product has been shipped and we have
recorded revenue.

Under the terms of each OEM license agreement, the OEM will "qualify" the
software on its then current platform. The OEM will have the right to return
the software prior to it being qualified. Once the software has been qualified,
the OEM will begin to ship product and report sales to us at which point we
will record revenue. Once it has been shipped, the OEM does not have a right of
return to us. Therefore, we do not maintain a returns reserve related to OEM
sales.

Most OEMs pay a license fee based on the number of copies of licensed software
included in the products sold to their customers. OEMs pay these fees on a
per-unit basis, and we record associated revenue when we receive notification
of the OEMs' sales of the licensed software to the end users. The terms of the
license agreements generally require the OEMs to notify us of sales of our
products within 30 to 45 days after the end of the month or quarter in which
the sales occur. As a result, we generally recognize revenue in the month or
quarter following the sales of the product to the OEMs' customers.

Sales to end users are primarily made directly through our website. There are
no unspecified upgrade rights related to these sales. We do not offer specified
upgrade rights to any class of customer.

The end users who purchase our software from our website do not have rights of
return.

We believe that this revenue recognition policy is supported by reasonable and
appropriate assumptions and that a different methodology would not result in
material differences in either timing or amount of revenue recognized.

Valuation of accounts receivable

We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowance may be required.

Impairment of long-lived assets

When events and circumstances warrant a review, we evaluate the carrying value
of long-lived assets to be held and used. The carrying value of an asset is
considered impaired when the anticipated undiscounted cash flow from such an
asset is less than its carrying value. In that event, a loss is recognized
based on the amount by which the carrying value exceeds the fair market value.
Fair market value is determined using the anticipated cash flows discounted at
a rate commensurate with the risk involved. Losses on long-lived assets to be
disposed of are determined in a similar manner, except that fair market values
are reduced by the cost to dispose of such assets.

Impairment of goodwill and other intangible assets

We perform a review of the value of goodwill and intangible assets whenever
events and circumstances indicate that impairment may have occurred. Indicators
of impairment of such assets include, among

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Management's discussion and analysis of financial condition and results of
operations
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other things, a failure to integrate the related products into our existing
products or use the acquired assets as a basis to further develop our product
offerings. We do not believe that an impairment of any of our goodwill and
intangible assets has occurred. In 2002, we will modify our impairment
measurement policy to comply with SFAS No. 142, discussed below under "Recent
Accounting Pronouncements."

Accruals for unsigned agreements

We utilize technology in our products for which we do not currently hold, or
have not in the past held, a license. We have accrued amounts for such usage as
a component of cost of revenue based upon units sold under arrangements where
we believe that we have a probable and estimatable legal obligation and upon
published rates for such amounts. We recognized expense of approximately
$900,000 and $1.3 million for the year ended December 31, 2000 and 2001,
respectively. These published rates have remained consistent but are expected
to decrease in the future which will impact the accrual in future periods. It
is not known when agreements will ultimately be signed. Should the final
arrangements result in royalty rates significantly different from these
assumptions, our business could be harmed.

Determination of fair value of options granted to employees

We have recorded stock-based compensation charges representing the difference
between the deemed fair value of our common stock for accounting purposes and
the option exercise price. We determined the deemed fair value based upon
several factors including our operating performance, significant events in our
history, issuances of our convertible preferred stock, trends in the broad
market for technology stocks and the expected valuation we would obtain in an
initial public offering. We recorded stock-based deferred compensation of
$218,000, $3.5 million, and $1.8 million and amortization of such expense of
$53,000, $1.4 million and $2.0 million in the years ended December 31, 1999,
2000 and 2001, respectively. Had different assumptions or criteria been used to
determine the deemed fair value of the stock options, materially different
amounts of stock-based compensation could have been reported.

Valuation allowance for deferred tax assets

We provided a valuation allowance of $3.2 million and $6.9 million against the
entire amount of our deferred tax assets as of December 31, 2000 and 2001,
respectively. The valuation allowance was recorded given the losses we incurred
through December 31, 2001 and our uncertainties regarding future operating
profitability and taxable income. Had we assumed that our deferred tax assets
were fully realizable, deferred tax benefits of $2.5 million and $3.6 million
would have been recognized in the statements of operations for the years ended
December 31, 2000 and 2001, respectively.

DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

As of December 31, 2001, for each fiscal year described below, future minimum
commitments under operating leases are as follows (in thousands):

Fiscal Year Lease

-------------------------------------------------------------------
2002........................................................ $ 851
2003........................................................ 607
2004........................................................ --
2005........................................................ --
------
$1,458
======

We have no other fixed contractual obligations or commercial commitments that
are not already accrued for in our financial statements.

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Management's discussion and analysis of financial condition and results of
operations

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DISCLOSURES ABOUT EFFECTS OF TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES

See "Related party transactions" for a discussion of transactions with related
and certain other parties.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk
To date, all of our revenue has been denominated in U.S. dollars. We expect,
however, to begin denominating revenue from selected international markets in
the currency of the applicable market. As a result, our operating results may
become subject to significant fluctuations based upon changes in the exchange
rates of some currencies in relation to the U.S. dollar. Although we will
continue to monitor our exposure to currency fluctuations and, when
appropriate, may use financial hedging techniques to minimize the effect of
these fluctuations, exchange rate fluctuations may harm our financial results.

Interest Rate Risk
We have limited exposure to financial market risks, including changes in
interest rates. Our interest income is sensitive to changes in the general
level of U.S. interest rates, particularly because the majority of our
investments are in short-term instruments. Due to the short-term nature of our
investments, we believe that we are not exposed to any material market risk.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement No. 133
of Financial Accounting Standards, "Accounting for Derivative Instruments and
Hedging Activities," which requires companies to record derivative financial
instruments on their balance sheets as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. In July 1999, the
Financial Accounting Standards Board issued Statement No. 137 of Financial
Accounting Standards, "Accounting For Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133," which
deferred the effective date of Statement No. 133 to the first fiscal quarter
ending June 30, 2000. We adopted Statement No. 133, as amended, in the first
quarter of 2001. Because we do not engage in derivatives or hedging activities,
the adoption of SFAS No. 133 did not have a material impact on our financial
position or results of operations.

In March 2000, the Financial Accounting Standards Board issued interpretation
No. 44. "Accounting for Certain Transactions involving Stock Compensation--an
interpretation of APB Opinion No. 25," or FIN 44. This interpretation clarifies
the definition of employee for purposes of applying Accounting Practice Board
Opinion No. 25. "Accounting for Stock issued to Employees," the criteria for
determining whether a plan qualifies as a noncompensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation
awards in a business combination. This interpretation is effective July 1,
2000, but certain conclusions in this interpretation cover specific events that
occur after either December 15, 1998 or January 12, 2000. We believe that the
impact of FIN 44 will not have a material effect on our financial position or
results of operations.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. These new standards are
effective for fiscal years beginning after December 15, 2001. Under the

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Management's discussion and analysis of financial condition and results of
operations
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new standards, goodwill will no longer be amortized, but will be subject to an
annual impairment test. The standards also promulgate, among other things, new
requirements for accounting for other intangible assets. We do not believe that
these new standards will have a material impact on our financial position and
results of operations.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. We will adopt SFAS No. 143 effective December 31, 2002 and do
not expect to have a material impact on our financial position and results of
operations.

In August 2001, the Financial Accounting Standards Board issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. This new
standard is effective for fiscal years beginning after December 15, 2001. This
new standard affirms and clarifies certain accounting for long-lived assets and
broadens the application of discontinued operations treatment. We do not
believe that these new standards will have a material impact on our financial
position and results of operations.

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Business

COMPANY OVERVIEW

Our software is bundled with products sold by eight of the top ten PC OEMs
ranked in terms of sales by IDC. Our OEM customers include Compaq, Dell,
Fujitsu, Fujitsu Siemens, Hewlett-Packard, Medion, Sony and Toshiba. We sell
our products to PC OEMs, consumer electronic manufacturers and PC peripherals
manufacturers worldwide and offer our software in up to 27 languages. In
addition, we sell our products directly to consumers through retail channels
and our websites, which currently operate in English, French, German, Japanese
and Chinese.

We intend to expand our product offerings to include additional digital
multimedia features, such as the ability to deliver digital video and audio
through a home network and to wireless electronic devices. We believe that we
have developed the core technologies and products to enable rapid migration to
future consumer devices.

We began operations in 1998 and shipped our first products in 1999. In 2000, we
completed the acquisition of the business and assets of AVPD, a developer of
audio and video software products.

INDUSTRY BACKGROUND

Adoption and growth of digital technologies for multimedia content
Consumers have rapidly adopted digital technologies for recording, editing,
authoring, distributing and playing multimedia content, beginning with the CD
and continuing with DVD technology. Manufacturers have incorporated these
digital technologies into PCs and consumer electronics devices to meet this
growing demand. According to the Consumer Electronics Association, the DVD
player, which can be used for playing both CDs and DVDs, is the fastest growing
consumer electronics product of all time.

The functionality of multimedia hardware and software for the PC continues to
grow. Users increasingly consider multimedia hardware and software to be
necessary components of a PC. For instance, a large percentage of new PCs
include DVD drives or other multimedia functionality. Gartner Dataquest
estimates that the total market for PC DVD drives, combination DVD-ROM and
CD-RW drives as well as DVD-writeable drives will grow from approximately 35
million units in 2000 to approximately 150 million units in 2005, a compound
annual growth rate of approximately 34%. All of these hardware PC components or
peripheral devices require software to function and must share operating
standards with other components of the PC.

The establishment of common standards by government and private organizations
has helped drive the growth of digital technologies for multimedia content. The
consumer electronic, computer, broadcast and telecommunications industries have
recognized that broad consumer acceptance of products embodying new digital
technologies depends upon the adoption of industry-wide technical and

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performance standards. The standards that have driven, and we believe will
continue to drive, the growth of digital technologies for multimedia content
include:

... DVD format--digital encoding of high quality digital video and audio
content on optically readable discs, with multiple language options,
subtitle options and other navigation and entertainment features;

... MPEG-1--compression of still images and real-time, low-cost compression and
decompression of moving images;

... MPEG-2--compression of video and audio data for broadcast and playback
applications used in DVD and HDTV;

... MP3--compression of audio data for playback applications, technically
referred to as MPEG-1 Layer 3;

... MPEG-4--a developing standard for compression of video and audio under low
transmission rates particularly used in wireless applications; and

... Dolby Digital and Digital Theater Systems, or DTS--compression of audio for
use in multi-channel digital surround sound systems.

The personal computer as a digital multimedia platform
PCs are well suited for high-quality multimedia entertainment and have emerged
as a pervasive platform for digital multimedia technologies primarily due to
improvements in storage technology and advances in microprocessor technology.
In the mid-1980s, consumer electronics companies pioneered digital multimedia
technologies, such as CD technology, which paved the way for the growth of high
quality multimedia content. In recent years, DVD technology has emerged as an
important format for portable distribution of high quality video and audio.
DVDs can store up to 18 gigabytes of compressed data on a single disc. In
comparison to hard disk drives, DVDs and DVD drives also offer a cost effective
means of storing and playing professional broadcast-quality video and audio
content. In addition, the increased capacity of hard disk drives and
corresponding decrease in the cost of storage have enabled consumers to use the
PC as a tool to manage multimedia content, which often requires large amounts
of storage capacity. At the same time, the advent of high-powered, low-cost
microprocessors has enabled consumers to record, edit, author, distribute and
play high quality digital video and audio on PCs at a more reasonable cost.

With the continuing improvements of PC performance relative to price, the PC is
an increasingly attractive platform for digital multimedia. According to
Gartner Dataquest, desktop PC configurations will include 3.5 GHz
microprocessors, 512 MB of random access memory and 300GB of hard disk space by
the end of 2002, and PCs with 2 GHz microprocessors will be considered low end
by the end of 2002. The following are some of the specific benefits of using
the PC as a universal platform for digital multimedia:

... Ability to play multiple media formats. A single PC with the proper
hardware and software can play most media formats, including movies, MP3s,
CDs, games, television and streaming media. Because PCs can be bundled with
complementary applications, the total cost to the user can be lower than
buying each consumer electronics device separately.

... Broad range of multimedia functionality. A PC can provide a variety of
advanced multimedia hardware and software components. For instance, PCs not
only can record and play digital multimedia content, but they can also be
used to edit, author and distribute digital multimedia content.

... Cost-effectiveness and convenience. As new multimedia features emerge,
consumers can often simply download software upgrades, which are more
cost-effective and convenient than purchasing a dedicated hardware device.
In addition, software solutions enable PCs to perform the capabilities of
several different media products on a single hardware platform.

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The proliferation of digital multimedia consumer electronics devices
In addition to the rapid growth in popularity of PCs offering full-featured
digital multimedia functionality, demand for consumer electronics devices that
provide digital multimedia functions is also growing rapidly. For instance,
DVRs, also known as personal video recorders, or PVRs, which record and time
shift television programming, are growing in popularity. According to IDC, the
total PVR installed base will reach nearly 30 million by the end of 2005 from
slightly over one million in 2001, representing a compound annual growth rate
of 130%. As home networking becomes more popular, many of the functions of
these dedicated devices may be incorporated into the PC and distributed through
home consumer electronics devices called set-top boxes, which can receive
signals from the central home computer acting as the home multimedia
entertainment gateway.

Market opportunity for a complete multimedia software solution

Advances in digital technology enable the PC to serve as a versatile,
feature-rich and reasonably priced digital entertainment platform. All PC
multimedia hardware components require software to operate. As a result, we
believe that multimedia software not only has become a necessary component of
the PC, but also serves as an opportunity for OEMs to add value to their
products, improve margins and differentiate their products from those of their
competitors. As consumer electronics manufacturers migrate from dedicated
hardware solutions to a PC architecture in order to reduce the cost and
increase the flexibility of their products, we expect the market opportunity
for multimedia software to grow in this market segment as well. We believe that
all of these factors will create market opportunities for a complete multimedia
software solution that:

... consists of an integrated and interoperable suite of multimedia software
products providing broad functionality;

... works with a variety of PC operating systems and multimedia devices,
thereby reducing costs and improving time to market for OEMs; and

... can be upgraded rapidly to incorporate new features, technologies and
products, thereby reducing development time and costs and mitigating the
risk of obsolescence for consumers.

THE INTERVIDEO SOLUTION

We are a leading provider of DVD software, and we offer a broad suite of
advanced digital video and audio multimedia software products that allow users
to record, edit, author, distribute and play digital multimedia content on PCs
and consumer electronics devices. We help PC OEMs, consumer electronics
manufacturers and PC peripherals manufacturers add value to their products,
improve margins and differentiate their products from those of their
competitors.

Key elements of our solution include the following:

A broad, integrated multimedia software solution for the PC

Our broad software suite provides OEMs and consumers with a single solution for
a variety of multimedia functions. PCs running our integrated multimedia
software can replace several expensive dedicated hardware components such as
separate DVD players, DVRs, MP3 players, CD players and digital television
set-top boxes. Our multimedia software solution is compatible with a broad
variety of highly customized PC configurations. Our products have a common look
and feel and allow users to toggle quickly and seamlessly between multimedia
functions, such as viewing TV and listening to music.

Core technology that operates on a variety of platforms
Our core technology is based on a layered architecture that allows our suite of
products to operate on a variety of hardware and software platforms. Over 90%
of our code is platform independent, which

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allows us to quickly port our existing products to new operating systems or
hardware platforms. Our "single build" approach allows the current version of
our software to be used with multiple Windows operating systems, including
Windows 95, 98, NT4.0, 2000, ME and XP editions. We have also developed
versions of our key products for the Linux operating system. WinDVD has been
certified by Microsoft's Windows Hardware Quality Lab, or WHQL, as a Motion
Video Device on more than 800 PC hardware and software configurations, which is
more than any other PC DVD software provider. In addition, our software is
compatible with a broad range of multimedia hardware products, including
specialized graphics chips, audio cards and DVD drives from various suppliers
and in various configurations. We believe this is a significant benefit to OEMs
because they do not have to undertake as time-consuming and cost-intensive a
qualification process for each new combination of multimedia software and
hardware. We believe that our layered architecture also enables OEMs to offer
their customers highly customized PCs with lower customer service costs than
would be required if they had to support multiple builds.

Layered architecture that we have adapted to new technologies and upgraded to
incorporate new features

Our layered architecture enables us to respond and adapt to new technologies in
an industry characterized by rapid change. Because our modular components are
arranged in layered structures, we can add new features to a product and create
new products by plugging in new components into appropriate layers. For
example, our WinDTV product reuses the WinDVD architecture with the addition of
only a few components. Because we generally customize only a small portion of
code in order to develop a new product, we have been able to meet OEM demand
for a variety of new products efficiently. Moreover, because our architecture
has allowed us to efficiently develop new products incorporating additional
functionality, such as digital video recording, we have provided our customers
with the ability to increase the functionality of their products at a low cost
and in a short time frame, which we believe has enabled them to differentiate
their products from competitors' product offerings. Our proprietary layered
architecture also generally enables consumers to update or upgrade multimedia
features and capabilities without replacing hardware components, which
decreases the risk of obsolescence.

OUR STRATEGY

Increase market penetration of our multimedia software

We will seek to increase our market share by aggressively pursuing additional
OEM relationships, entering into creative marketing arrangements and exploiting
new sales channels. With eight of the world's top ten PC OEMs ranked in terms
of sales by IDC currently using WinDVD or our other products, we intend to
target smaller OEMs that are leaders in their regional markets. We have
recently implemented joint marketing arrangements with select OEMs under which
we share revenue generated by user upgrades or new product purchases and intend
to enter into similar arrangements with other OEMs. We also intend to expand
the sale of our products through retail channels and through our websites.

Leverage existing and prospective OEM relationships to promote adoption of new
products

We plan to leverage our strong market position and broad, integrated product
suite to encourage our PC OEM customers to license additional software products
and to encourage prospective PC OEMs to adopt our products. We have begun
implementing this strategy with two of our largest customers, both of which
first installed our WinDVD product on their PCs and have now added our WinDVR
product. We believe that existing and prospective OEM customers will find our
broad suite of integrated products

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with similar user interfaces more attractive than discrete products with
different user interfaces, because the similarity of the user interfaces allows
end users to learn how to use the software more quickly and easily. We believe
this reduces customer support calls to our OEMs, which, in turn, reduces their
costs.

Capitalize on emerging product markets

We believe that our flexible product design architecture allows us to respond
rapidly to changes in technology, adapt our products to new hardware platforms
and operating systems and develop new products in a cost-effective manner. We
intend to closely monitor evolving technologies and identify additional markets
for our products. We believe that we can adapt our technology effectively for
use in a variety of emerging consumer electronics and network devices, such as
cable and satellite TV set-top boxes, devices being developed for use within
home networks and MPEG-4 wireless devices. We are developing a home networking
product that would allow the PC to be used as the central multimedia
entertainment gateway for an entire household, eliminating the need for
consumers to purchase redundant consumer electronics devices.

Maintain and enhance strategic relationships, and acquire companies and
technologies
We have established strategic relationships with several technology and market
leaders, including Microsoft and Nvidia. Under our arrangement with Microsoft,
consumers are prompted automatically to download WinDVD when they upgrade from
older Windows operating systems to the new Windows XP operating system. In
addition, we licensed our WinDVD, WinDVR and WinRip solutions to Nvidia as the
primary underlying multimedia software platform for Nvidia's Personal Cinema
product. We intend to maintain existing and pursue additional strategic
relationships with technology providers, such as providers of operating
systems, microprocessors and graphic chips. We believe these relationships will
continue to enable us to achieve our design objectives, produce interoperable
products and provide information concerning customer preferences and evolving
industry standards and trends. In addition, we intend to pursue acquisitions of
complementary products, technologies and companies to gain further OEM
penetration, capitalize on emerging product markets, maintain and extend our
technology leadership and expand our global presence and distribution channels.

Continue to expand global presence

For the year ended December 31, 2001, 45% of our sales came from outside the
United States. We believe that significant revenue growth opportunities for our
business exist in Europe, Asia and elsewhere. Accordingly, we intend to
continue to target OEMs and end users outside the United States. We have
established a presence in China, Japan and Taiwan and intend to open other
regional offices in strategic locations to support our international marketing
efforts. In addition, we expect to continue to develop foreign language
software interfaces for our products and intend to increase our marketing
efforts in Asia and Europe. We are also creating additional websites in
different languages to facilitate direct sales to end users outside of the
United States.

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PRODUCTS

We offer a broad suite of advanced digital video and audio software solutions.
Our products are based on industry standards and incorporate a graphical user
interface with a common look and feel.

The following table lists the products that we currently license to OEMs, PC
peripherals manufacturers and end users:

Product Function Compatible Operating Systems Introduction
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WinDVD DVD player software Windows 95, February 1999
98 Second Edition (SE),
Millennium Edition (ME),
NT 4.0, 2000, XP, Linux

WinDVR Digital video recorder Windows 98SE, ME, 2000, XP September 2000
software

WinCoder Real-time video encoder Windows 98SE, ME, 2000, XP March 2001

WinProducer Digital video editing, Windows 98SE, ME, 2000, XP July 2001
distribution and DVD
authoring software

WinRIP MP3 audio player, Windows 98SE, ME, 2000, XP February 2001
organizer and encoder

WinDTV Digital TV software Windows 98SE, ME, 2000, XP July 2001

WinDVD--Our DVD player software

We currently derive a substantial majority of our revenue from sales of our
WinDVD product. Our OEM customers bundle WinDVD with PCs equipped with DVD
drives and Microsoft Windows compatible software to enable those PCs to decode
and play DVDs. WinDVD software allows users to enjoy the advantages of DVDs
such as high picture quality, Dolby Digital and DTS surround sound audio
decoding, multiple language and subtitle options, navigation and other
entertainment options. Our user interface, which appears on the computer
screen, resembles the controls for a stand-alone DVD player and other home
electronics devices.

WinDVD has been Microsoft WHQL certified as a Motion Video Device on more than
800 PC hardware and software configurations, which is more than any other PC
DVD software provider. We offer WinDVD in 27 different languages, including the
most common languages in Europe, South America and Asia, including Japanese,
Korean and both traditional and simplified Chinese.

WinDVR--Our digital video recorder software
Our WinDVR software permits PC users to create high-quality digital recordings
of broadcast, cable and satellite television programming. Combined with a TV
tuner card, WinDVR permits users to manage
their television viewing experience by recording programs, movies or sporting
events. Users also may utilize sophisticated time shifting features such as
live TV pause, simultaneous record and playback, commercial skip, instant
replay and multiple-channel preview.

WinCoder--Our real-time video encoder
Our WinCoder software permits PC users to record and edit digital video and
audio feeds from video cameras, webcams, camcorders, DV camcorders and other
PC-based video and audio input devices. WinCoder captures and compresses the
video and audio from these sources into a standard format, MPEG-2, so that the
content consumes far less space on the PC's hard drive or other storage medium.

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WinProducer--Our digital editing software

WinProducer enables users to edit and create video clips and digital audio
files. WinProducer provides an easy-to-use user interface using a drag-and-drop
scheme combined with powerful video editing functions including transition
effects, filters, scene change detection, overlays, text titling and music
sound tracks. The software includes an integrated video capture capability that
allows users to easily transfer external video materials to the PC from various
devices including VCRs, camcorders, DV camcorders and webcams. Users can also
edit and enhance home movies and transfer them to DVDs or Video CDs.
WinProducer also enables the transfer of video data to CD-RW or DVD writeable
devices.

WinRip--Our audio player and encoder
Our audio player and encoder software, WinRip, enables PC users to play and
record MP3, Windows Media Audio, or WMA, format and WAV audio content and to
play WMA and Musical Instrument Digital Interface, or MIDI, clips and audio
CDs. WinRip provides the ability to move music from CDs to digital files, to
access an online music database to automatically add information, such as
artist and track names, to the "ripped" music files, and to turn digital music
into audio CDs or to output files to portable devices.

WinDTV--Our digital TV software
WinDTV enables PC users to watch high definition television, or HDTV, digital
video broadcast, or DVB, or other digital video and audio input. With a digital
TV tuner card and our WinDTV software, users can watch digital broadcasts on a
PC or on a DTV-ready television set. WinDTV supports all 18 ATSC, or American
Television Systems Committee, formats and DVB formats used in Europe and Asia.
It also offers data-enhanced digital television for interactive DTV
broadcasting on the PC.

INTERVIDEO TECHNOLOGY PLATFORM

Our technology platform incorporates the following principles:

... Modular and layered design for greater expandability and reusability;

... Generic design and portable implementation for greater platform
independence; and

... Utilization of industry standards whenever possible to promote market
acceptance of our products.

Our modular and layered design approach enhances product expandability and
component reusability. Because we arrange modular components in layered
structures, we can more quickly and efficiently add new features to a product
by plugging in new components into appropriate layers. For example, we
incorporated the Video CD feature into our WinDVD product with the addition of
only a few new components. Similarly, we created our WinDTV product by reusing
components of WinDVD. Because of component reusability, these products were
developed with fewer resources and less time than would have been required to
design them using entirely new components. As a result, we have been able to
develop new products such as WinDVR, WinCoder, WinProducer and WinRip more
efficiently and with less development time.

Our flexible design approach and portable implementation allow our software to
support a significant number of PC platforms and to work with a broad variety
of PC configurations. Over 90% of the code that is used to implement our
products is platform independent. As a result, we can efficiently port an
existing product to a new operating system or hardware platform and
cost-effectively support many customers and varied product lines.

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CUSTOMERS

Our customer base consists primarily of PC OEMs and manufacturers of PC
peripherals that incorporate our software into their products. The following PC
and peripherals manufacturers each contributed more than $600,000 in revenue
for the year ended December 31, 2001:

Canopus Co., Ltd.
Compaq Computer Corporation
Dell Products, L.P.
Fujitsu Limited
Fujitsu Siemens Computers GmbH
Hewlett-Packard Company
Medion AG
Sony Corporation
Toshiba Corporation

Our software is bundled with products sold by eight of the top ten PC OEMs
ranked in terms of sales by IDC. For the year ended December 31, 2001, our four
largest customers accounted for a majority of our revenue, with Dell accounting
for 29% and Fujitsu accounting for 12%. Compaq and Hewlett-Packard, which have
announced an agreement to merge, together accounted for more than 10% of our
revenue during that period. Our license agreements with customers are typically
for a term of one or two years and do not contain any minimum volume
commitments.

Consumers may purchase products and product upgrades directly through our
Internet commerce sites. Revenue derived from our websites accounted for 8% of
our revenue in 2001. We also license our products to distributors that sell our
products to consumers through retail distribution channels.

SALES, MARKETING AND TECHNICAL SUPPORT

Our sales and marketing strategy focuses on establishing and maintaining
license arrangements with PC, peripherals and consumer electronics
manufacturers. We license our digital multimedia solutions on a non-exclusive
worldwide basis to PC, peripherals and consumer electronics manufacturers that
sell products incorporating these technologies to end users. Members of our
sales force, located in China, Japan, the Netherlands, Taiwan and the United
States, work closely with our OEM customers to define and customize products,
conduct on-site testing and provide engineering and field application
engineering support. We have also established a network of independent sales
representatives and manufacturing representatives in the United States, Asia
and Europe to assist in OEM sales. We supplement our distribution channels
through the Internet to increase direct contact with our customers, facilitate
electronic sales of our products and sell associated products directly to
consumers. We also distribute free trial versions of our software through
consumer distribution channels, including media and computer magazines,
corporate, educational and training DVD titles and on our Internet commerce
site.

We believe the technical assistance that we provide to OEMs represents an
important part of our competitive advantage in maintaining strong relationships
with these OEMs. We have built a customer assistance infrastructure composed of
sales staff, program managers and quality assurance engineers. We have also
created an efficient, cost-effective Internet-based system for the delivery of
software and software fixes to OEMs. This infrastructure reduces duplication of
effort and fosters better communication channels between the OEMs and
ourselves. This infrastructure enables us to provide technical assistance to
OEMs with a relatively small staff.

Our on-line technical support group provides direct customer support to users
that purchase our products through retail channels or our websites. Our on-line
technical support group also trains the

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technical support groups of our OEM customers so that they can provide more
effective telephone and on-line support for their customers.

As of December 31, 2001, we had 40 sales, marketing and technical support
personnel residing in our offices in Fremont, California; Taipei, Taiwan;
Shenzhen, China; and Tokyo, Japan.

RESEARCH AND DEVELOPMENT

We have assembled a qualified team of engineers with core competencies in
software architecture and development for the Windows, Windows CE and Linux
operating systems and digital video and audio encoders and decoders. Our
engineers are located in Fremont, California; Taipei, Taiwan; and Shenzhen,
China. We will continue to focus our research and development activities on
enhancing our existing products and developing new products to meet the
evolving needs of our customers within the PC and the consumer electronics
markets.

We believe that interaction with our OEM customers throughout the product
design process enables us to anticipate technology trends and focus our
research and development efforts on addressing these emerging needs. We design
products to meet our OEM customers' specifications and current industry
standards and will continue to support emerging standards that are
complementary to our product strategy. For example, we meet periodically with
members of the Intel microprocessor architecture team, and they provide details
about upcoming products and give us source code libraries of new microprocessor
instructions that can help us anticipate future market trends and improve the
performance and the capabilities of our multimedia software.

We believe that our competitive position will depend in large part on our
ability to develop new and enhanced digital entertainment solutions and our
ability to meet the evolving and rapidly changing needs of PC, peripherals and
consumer electronics manufacturers and consumers. We expect to increase our
total research and development expenses in the future to provide resources for
enhancement of existing and development of new product lines.

As of December 31, 2001, we employed 86 research and development personnel in
three offices. For the year ended December 31, 2001, our research and
development expenditures totaled $9.1 million. Of the 69 research and
development personnel who are engineers, 12 hold PhDs. We intend to recruit,
hire and retain highly qualified engineers and technicians to support our
further research and development efforts.

COMPETITION

Our industry is intensely competitive, and we expect competition to intensify
in the future. Our competitors include software companies that offer digital
video or audio applications, companies offering hardware or semiconductor
solutions as alternatives to our software products and operating system
providers that may develop and integrate applications into their products.

Additional competitors are likely to enter our industry in the future. We also
face competition from the internal research and development departments of
other software companies and personal computer and consumer electronics
manufacturers, including some of our current customers. Some of our customers
have the capability to integrate their operations vertically by developing
their own software-based digital and audio solutions or by acquiring our
competitors or the rights to develop competitive products or technologies,
which may allow these customers to reduce their purchases or cease purchasing
from us completely. Operating system providers with an established customer
base, such as Microsoft, already offer products in the digital video and audio
software markets. Some video and audio capabilities are built directly into
their operating systems or are offered as upgrades to those operating systems
at no

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additional charge. If Microsoft or other operating system providers developed
or licensed digital video and audio solutions that compete directly with ours,
and incorporate the solutions into their operating systems, our business could
be harmed.

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

We believe the primary competitive factors impacting our business are the
quality and reputation of products; the quality of the program management team;
relationships with OEMs; compatibility with emerging industry standards; scope
and responsiveness of service and technical support; ability to offer
cost-effective products that balance performance and cost; timeliness and
relevance of new product introductions; timeliness and quality of modifications
and enhancements to existing products to comply with new and evolving hardware
and software; technical innovation; breadth of product offerings; and price
structure and business model characteristics. Although we believe our products
compete favorably with respect to each of these factors, the market for our
products is rapidly evolving, and we may not be able to maintain our
competitive position against current and potential competitors, especially
those with greater resources.

INTELLECTUAL PROPERTY

Our success depends upon our ability to protect our proprietary rights. We rely
on a combination of patent, copyright, trademark and trade secret laws, as well
as license and confidentiality agreements with our employees, customers,
strategic partners and others, to establish and protect our proprietary rights.
The protection of patentable inventions is important to our competitive
position. We currently have one patent issued in Taiwan, and we have 27 pending
patent applications in various jurisdictions.

Existing patent, copyright, trademark and trade secret laws and license and
confidentiality agreements afford only limited protection. In addition, the
laws of some foreign countries do not protect our proprietary rights to the
same extent as do the laws of the United States, and detecting and preventing
the unauthorized use of our products is difficult. Any failure to adequately
protect our proprietary rights could result in our competitors offering similar
products, potentially resulting in the loss of revenue and some of our
competitive advantage. Infringement claims and lawsuits to protect our
proprietary rights would likely be expensive to resolve and would require
management's time and resources, and, therefore, could harm our business.

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Business
- --------------------------------------------------------------------------------

Our digital video and audio solutions comply with industry standard DVD
specifications. Some third parties have claimed that various aspects of DVD
technology incorporated into our and our customers' products infringe upon
patents held by them, including MPEG LA, a consortium formed to enforce the
proprietary rights of certain holders of patents covering certain aspects of
MPEG-2 technology and a consortium known as "6C," formed by a separate group of
companies to enforce the proprietary rights of certain holders of patents
covering some aspects of DVD technology. In March 2002, we entered into a
license agreement with MPEG LA pursuant to which we obtained a license,
retroactive to our inception, to MPEG LA's patents related to the MPEG-2
standard in exchange for a cash payment and our agreement to make ongoing
royalty payments. In addition to these claims, we may receive notices of claims
of infringement of other parties' proprietary rights, including Nissim or 3C,
another consortium formed to enforce the proprietary rights of certain holders
of patents covering some aspects of DVD technology. Many companies aggressively
use their patent portfolios to bring infringement claims against competitors
and other parties. As a result, we may become a party to litigation in the
future as a result of an alleged infringement of the intellectual property
rights of others, including 6C, 3C or Nissim. Similarly, other parties have
alleged that aspects of MPEG-2 and other multimedia technologies infringe upon
patents held by them. We may be required to pay license fees and damages or be
prohibited from selling our products in the future if it is determined that our
products infringe on patents owned by these third parties. In addition, other
companies may form consortia in the future, similar to MPEG LA, 6C and 3C, to
enforce their proprietary rights and these consortia may seek to enforce their
patent rights against us and our customers. If 6C, 3C, Nissim or another third
party proves that our technology infringes its proprietary rights, we may be
required to pay substantial damages for past infringement and may be required
to pay license fees or royalties on future sales of our products. If we are
required to pay license fees in the amounts that are currently published by,
for example, 6C for past sales to our large PC OEM customers, because such PC
OEMs were not themselves licensed, such fees would exceed the revenue we have
received from those customers. In addition, if it were proven that we willfully
infringed on a third party's proprietary rights, we may be held liable for
three times of amount of damages we would otherwise have to pay. In addition,
intellectual property litigation may require us to stop selling our products,
obtain a license from the owner of the infringed intellectual property or
redesign our products.

Some of our license agreements, including many of the agreements we have
entered into with our large PC OEM customers, contain warranties of
non-infringement and commitments to indemnify our customers against liability
arising from infringement of third-party intellectual property, such as the
patents held by members of MPEG LA, 6C, 3C and Nissim. These commitments may
require us to indemnify or pay damages to our customers for all or a portion of
any license fees or other damages, including attorneys' fees, they are required
to pay or agree to pay these or other third parties. If we are required to pay
damages to our customers or indemnify our customers for damages they incur, our
business could be harmed. If our customers are required to pay license fees in
the amounts that are currently published by some claimants, and we are required
to pay damages to our customers or indemnify our customers for such amounts,
such payments would exceed our revenue from these customers. Even if a
particular claim falls outside of our indemnity or warranty obligations to our
customers, our customers may be entitled to additional contractual remedies
against us. Furthermore, even if we are not liable to our customers, our
customers may attempt to pass on to us the cost of any license fees or damages
owed to third parties, by reducing the amounts they pay for our products.
Notwithstanding the fact that we have signed a license agreement with MPEG LA,
we may continue to be liable to some of our customers for amounts that those
customers pay or have paid to MPEG LA in settlement of any claims of
infringement brought by MPEG LA against those customers.

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Business
- --------------------------------------------------------------------------------

preferred stock convertible into 286,000 shares of our common stock upon the
closing of this offering to Dell in settlement of all past and future claims
that Dell might have against us based upon the alleged infringement of certain
patents held by MPEG LA and Nissim. We accounted for the issuance of these
shares as a charge to our cost of revenue under cost of settlement of
intellectual property matters for the year ended December 31, 2001 in an amount
equal to the fair market value of the shares, or $3.7 million. See
"Management's discussion and analysis of financial condition and results of
operations;" and "Risk factors--We have received notice of claims, and may
receive additional notices of claims in the future, regarding the alleged
infringement of third parties' intellectual properly rights that may result in
restrictions or prohibitions on the sale of our products and cause us to pay
license fees and damages."

We license technology from Dolby Laboratories for the audio format that is used
in all DVD-related products. We pay a royalty to Dolby on a lump-sum and
per-unit shipped basis. The technology is comprised of Dolby Pro Logic, Dolby
Digital AC-3, Virtual Technology, MLP Lossless, Dolby Digital AC-3 Audio
System, Dolby Headphone System and other related technologies which create
"theater quality" sound by routing audio signals from a DVD to different
speakers in a multi-speaker setup. This technology from Dolby Laboratories is
part of the industry standard DVD specification.

We license encryption software technology from the DVD Copy Control
Association, Inc. This technology is designed to provide protection for content
encoded onto DVD discs. We pay DVD Copy Control Association, Inc. an annual
license fee for this technology.

If any of the licenses for the technologies and software described above
terminate and are not renewed on commercially reasonable terms, our business
could be harmed, and we could be prevented from shipping products using the
MPEG-2 standards.

EMPLOYEES

As of December 31, 2001, we employed 156 people, of whom 73 worked in the
United States and 83 worked in our various international locations. Of the U.S.
employees, 18 were in sales and marketing, 38 were in research and development
and 17 were in general and administration. Of the international employees, 22
were in sales and marketing, 48 were in research and development and 13 were in
general and administration.

FACILITIES

We currently lease the following properties:

Location Primary Use Square Footage Date Lease Expires
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Fremont, California Corporate/Research and Development/Sales 19,395 October 30, 2003
Torrance, California Research and Development/Sales and Marketing 5,567 September 1, 2003
Tokyo, Japan Sales and Marketing 2,428 September 30, 2003
Shenzhen, China Research and Development/Sales and Marketing 6,058 May 31, 2003
Taipei, Taiwan Research and Development/Sales and Marketing 4,625 June 14, 2003

We believe that our existing space is adequate for our current operations. We
believe that suitable replacement and additional space will be available in the
future on commercially reasonable terms.

LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

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Management

EXECUTIVE OFFICERS AND DIRECTORS

Set forth below is information concerning our directors and executive officers
as of December 31, 2001.

Name Age Position(s)
- -------------------------------------------------------------------------------

Steve Ro................... 44 President, Chief Executive Officer and Director
Randall Bambrough.......... 46 Chief Financial Officer
Honda Shing................ 39 Chief Technology Officer
Chinn Chin................. 41 Vice President of Engineering
Raul Diaz.................. 39 Vice President of Marketing
Jesse Lechuga.............. 42 Vice President of Sales
George Haber(2)............ 48 Director
Joseph Liu(1)(2)........... 50 Director
Henry Shaw(1)(2)........... 47 Director

- --------
(1) Member of our compensation committee.

(2) Member of our audit committee.

Steve (Sencuo) Ro has served on our board of directors since July 1998 and has
served as our President and Chief Executive Officer since April 1999. From
April 1998 to November 2000, Mr. Ro served as Chairman and Chief Executive
Officer of Rosun Technologies, Inc., a manufacturer of ADSL chipsets, and
served as a director of Rosun Technologies until March 2001. Rosun Technologies
filed for bankruptcy in November 2001. Mr. Ro was the co-founder of LuxSonor
Semiconductors (which was acquired by Cirrus Logic, Inc.), a company that
designs VCD and DVD semiconductors for the PC and consumer markets. Mr. Ro
served as Vice President of Marketing and Sales at LuxSonor from August 1995 to
April 1998. Prior to LuxSonor, Mr. Ro served as the Director of Sales and
Marketing at NexGen Microsystems, Inc. (which went public in 1995 and was later
acquired by Advanced Micro Devices, Inc.), a manufacturer of CPU chipsets, from
January 1988 to August 1995. Mr. Ro holds an MBA from National University in
San Jose, California and an MS in computer science from California State
University at Chico.

Randall Bambrough joined us in March 2001 as Chief Financial Officer. Prior to
joining us, Mr. Bambrough was Chief Financial Officer at ViewGraphics,
Incorporated (which was acquired by Optibase Ltd.), a provider of digital media
transmission devices from June 2000 to March 2001. From January 1999 to June
2000, Mr. Bambrough was Chief Financial Officer at Decide.com, a company that
sold consumer telecommunications products. Mr. Bambrough served as Chief
Financial Officer and Secretary from August 1995 to January 1999 and in various
senior financial management roles from June 1992 to July 1995 at Castelle, a
manufacturer of specialized network devices. Mr. Bambrough earned a BS degree
in business management from Brigham Young University, another BS in accounting
from Weber State University and also holds an MBA from Utah State University.

Honda Shing joined us in July 1998 as our Chief Technology Officer. From
December 1995 to April 1998, Dr. Shing worked as an independent consultant
developing tools for the rapid development of application software systems.
From May 1992 to November 1995, Dr. Shing served as Senior Software Engineer at
Unisys Corporation, a company that develops and markets computer hardware,
software and services. Dr. Shing earned his PhD in computer science from
Michigan State University.

Chinn Chin has served as our Vice President of Engineering since July 1998. Mr.
Chin was the Director of Software Engineering for LuxSonor Semiconductors from
July 1996 to July 1998, where he was in charge of firmware, chip verification
and driver and application development. Mr. Chin holds a BS in

- --------------------------------------------------------------------------------

Management
- --------------------------------------------------------------------------------

computer engineering from National Chiao Tung University and an MS in computer
science from California State University at Chico.

Raul Diaz has served as our Vice President of Marketing since June 2001. He
served as our Vice President of Business Development from September 1999 to
June 2001. Mr. Diaz was the Senior Director of the Advanced Technology Lab
Group, responsible for research and development relating to multimedia
products, at STMicroelectronics, a semiconductor company, from July 1998 to
September 1999. From June 1996 to June 1998, Mr. Diaz was the Director of
Marketing at LuxSonor Semiconductors. From October 1988 to June 1996, Mr. Diaz
served in many capacities at
STMicroelectronics, most recently as the Director of Strategic Programs, where
he was responsible for research and development relating to DVD products. Mr.
Diaz earned his BS in electrical engineering from Yale University.

Jesse Lechuga has served as our Vice President of Worldwide Sales since June
2001. Prior to that, Mr. Lechuga served as our Vice President of North America
OEM Sales from November 2000 to June 2001. Prior to joining us, Mr. Lechuga
served as the Vice President of Worldwide Sales at Rosun Technologies from May
2000 to November 2000. Rosun Technologies filed for bankruptcy in November
2001. Mr. Lechuga was Vice President of Business Development at Harman
Multimedia, a company that specializes in audio products, where he was in
charge of worldwide business development for JBL, Infinity and Harman/Kardon
multimedia speakers, from October 1998 to May 2000. From August 1996 to
September 30, 1998 Mr. Lechuga was Vice President of Sales and Marketing at
Lite-On Peripherals, Inc., a company specializing in computer peripherals,
where he was responsible for the sale and marketing of computer keyboards. Mr.
Lechuga earned his BS in industrial engineering from California Polytechnic
State University.

George Haber has served on our board of directors since June 2001. Mr. Haber is
the chairman of Mobilygen, a company that specializes in digital hardware and
software development for the wireless communications and digital TV markets. In
August 1997, Mr. Haber founded GigaPixel, a provider of
3-D graphics technology, and served as its President and Chief Executive
Officer from August 1997 to September 2000. GigaPixel was subsequently acquired
by 3Dfx. In 1993, Mr. Haber co-founded CompCore Multimedia, a provider of
technology for multimedia compression, and served as its President and Chief
Executive Officer from 1993 to 1996. CompCore Multimedia was subsequently
merged with Zoran Corporation. From 1992 to 1993, he managed the SGI-Toshiba
project which culminated in the 3-D engine for SGI's INDY-2 professional
workstation. From 1989 to 1992, Mr. Haber was with Sun Microsystems as a
project manager responsible for the design and integration of the
floating-point unit in the UltraSPARC chip. Mr. Haber serves on the board of
directors of Mobilygen. Mr. Haber received his BSEE from Technion Israel
Institute of Technology.

Joseph Liu has served on our board of directors since June 2001. Mr. Liu is one
of the founders of Oplink Communications Inc., a company that manufactures
fiber optic networking components and integrated optical modules, and served as
its Chief Executive Officer from September 1999 to November 2001, Mr. Liu also
served as Chairman of the Board of Oplink Communications from 1995 to May 2000
and from November 2001 to the present. From 1994 to August 1999, Mr. Liu was
the General Partner of Techlink Technology Ventures. Prior to 1994, Mr. Liu
spent ten years as Chairman and Chief Executive Officer of Techlink
Semiconductor and Equipment Corp., a semiconductor equipment and technology
company. In addition to serving on the boards of directors of Oplink
Communications and Syscan, Inc., Mr. Liu also serves as a director for several
privately-held companies involved in semiconductor integrated circuit design
and manufacturing. Mr. Liu received his BS from Chinese Cultural University in
Taiwan and his MS from California State University, Chico.

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Management
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Henry Shaw has served on our board of directors since September 2000. Since
August 1996, Mr. Shaw has served as the Executive Vice President of TCW/YFY
Investment Partners (Taiwan), Ltd., which specializes in venture capital
investment, where Mr. Shaw is responsible for assessing potential investments.
Mr. Shaw was Vice President of Tanspac Capital Pte. Ltd., which specializes in
regional equity investment, from 1993 to 1996 and the Chief Financial Officer
of Mosel-Vitelic Inc., a publicly listed semiconductor memory company in
Taiwan, from 1984 to 1993. Mr. Shaw serves on the board of directors of a
number of companies in Taiwan, including Amtran Technology Co., Ltd, ABIT
Computer Corporation, Taiwan Memory Technology Inc., and Prolink Microsystems
Corporation. Mr. Shaw received his MBA from National Cheng-Chi University in
Taiwan in 1978.

BOARD COMPOSITION

Our board of directors is composed of five members, including four directors
who are not employees and who are otherwise independent. Following this
offering, the directors will be divided into three classes, each serving
staggered three year terms. Mr. Haber has been designated a Class I director
whose term expires at the 2003 annual meeting of stockholders. Mr. Shaw has
been designated a Class II director whose term expires at the 2004 annual
meeting of stockholders. Messrs. Liu and Ro have been designated Class III
directors whose terms expire at the 2005 annual meeting of stockholders. This
classification of our board of directors may delay or prevent a change in
control of our company or a change in our management.

BOARD COMMITTEES

... Audit committee--The audit committee of our board of directors is composed
of Messrs. Haber, Liu and Shaw. The audit committee oversees and monitors
our management and independent auditors and their activities with respect
to our financial management and financial reporting process and reports to
and advises our board of directors on financial matters.

... Compensation committee--The compensation committee of our board of
directors is composed of Messrs. Liu and Shaw. The compensation committee
is responsible for designing, reviewing and recommending compensation
arrangements for our directors, executive officers and employees, for
administering various incentive compensation and benefit plans. Prior to
the formation of a compensation committee, compensation decisions were be
made by our entire board of directors.

Our board of directors may establish other committees to facilitate the
management of our business.

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Management
- --------------------------------------------------------------------------------

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

We did not have a compensation committee or other board committee performing
equivalent functions in fiscal year 2001. Compensation for our executive
officers was determined by the entire board of directors. All members of our
board of directors, including Mr. Ro, who served as an executive officer in
fiscal year 2001, participated in deliberations concerning executive officer
compensation during fiscal year 2001. No interlocking relationship exists in
connection with this offering, or has existed in the past, between our board of
directors and the board of directors or compensation committee of any other
company.

DIRECTOR COMPENSATION

We do not currently compensate our directors in cash for their service as
members of our board of directors. Employee and non-employee directors are
eligible to receive option grants under our 2002 Stock Option Plan as
determined by our board of directors. In June 2001, we granted an option to
purchase 22,000 shares of our common stock to Mr. Haber, an option to purchase
22,000 shares of our common stock to Mr. Liu and options to purchase 4,400
shares of our common stock to Mr. Shaw for their services as directors. Each of
these options has an exercise price of $4.55 per share and vested immediately
as to 50% of the shares subject to the option with the remainder vesting over a
period of four years. All unvested shares will accelerate in the event of a
change of control. In addition, Dr. Eli Sternheim, a former director, was paid
$25,000 in consulting fees during each of the last two fiscal years under a
contract that has since terminated.

Our 2002 Stock Option Plan will also provide for the automatic grant of options
to our non-employee directors. After the completion of this offering each new
non-employee director will receive an initial option to purchase 16,500 shares
upon appointment to the board, except for those directors who become
non-employee directors by ceasing to be employee directors. In addition,
beginning in 2003, non-employee directors who have been directors for at least
six months will receive a subsequent option to purchase 4,400 shares following
each annual meeting of our stockholders. All options granted under the
automatic grant provisions will have a term of ten years and an exercise price
equal to fair market value on the date of grant. Each initial option becomes
exercisable as to 5,500 of the shares subject to the option on the first
anniversary of the date of grant and becomes exercisable as to 458 of the
shares each full month thereafter, provided the non-employee director remains a
service provider on such dates. Each subsequent option becomes exercisable as
to 100% of the shares subject to the option on the first anniversary of the
date of grant, provided the non-employee director remains a service provider on
such date.

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Management
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EXECUTIVE COMPENSATION

Summary of cash and other compensation
The following summary compensation table indicates the cash and non-cash
compensation earned during the fiscal year ended December 31, 2001 by our Chief
Executive Officer and the four other most highly compensated executive officers
whose total compensation exceeded $100,000 on an annualized basis during the
fiscal year ended December 31, 2001. These individuals are referred to as the
"named executive officers."

Summary compensation table

Long-term
compensation
------------
Awards
------------
Annual
compensation Securities
---------------- underlying All other
Name and Principal Position Salary Bonus options compensation(1)
- -------------------------------------------------------------------------------------

Steve Ro............................... $150,000 $ -- -- $3,714
President and Chief Executive Officer
Honda Shing............................ 150,000 3,000 -- 290
Chief Technology Officer
Raul Diaz.............................. 140,000 20,000 -- 357
Vice President of Marketing
Chinn Chin............................. 150,000 -- -- 300
Vice President of Engineering
Jesse Lechuga.......................... 140,000 16,000 35,200 255
Vice President of Sales

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(1) Represents life insurance premiums paid by us for policies under which we
are not the beneficiary.

Option grants in last fiscal year
The following table sets forth information regarding options granted to our
named executive officers during the fiscal year ended December 31, 2001. We
have never granted any stock appreciation rights. All options were granted
pursuant to the 1998 Stock Option Plan.

Individual grants
--------------------------------------------------------
Potential realizable
Number of Percent of value at assumed annual
shares of total options rates of stock
common stock granted to price appreciation
underlying employees for option term (4)
options in fiscal Exercise price Expiration -----------------------
Name granted year(2) per share(3) date 5% 10%
- ----------------------------------------------------------------------------------------------------

Jesse Lechuga...... 35,200(1) 8.4% $4.55 1/5/11 $585,222 $1,026,737

- --------
(1) These options vest as to 25% of the shares at the end of Mr. Lechuga's
first year of employment and as to 1/48 of the shares at the end of each
successive month of employment.

(2) The percentage of total options granted is based on an aggregate of 421,608
options granted by us during the fiscal year ended December 31, 2001 to our
employees.

(3) Options were granted with an exercise price per share equal to the fair
market value of our common stock on the date of grant, as determined by our
board of directors.

(4) The potential realizable values are net of exercise price, but before the
payment of taxes associated with exercise. Amounts represent hypothetical
gains that could be achieved for the respective options if exercised at the
end of the option term. The 5% and 10% assumed annual rates of compounded
stock price appreciation are mandated by rules of the Securities and
Exchange Commission and do not represent our estimate or projection of our
future common stock prices. These amounts represent assumed rates of
appreciation in the value of our common stock from the date of grant based
on the assumed initial public offering price of $13.00 per share. Actual
gains, if any, on stock option exercises are dependent on the future
performance of our common stock and overall stock market conditions and the
option holders continued service through the vesting period.

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Management
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Aggregate option exercises during fiscal year 2001 and values at December 31,
2001
The following table sets forth the number of options exercised during the
fiscal year ended December 31, 2001 and the value of unexercised options held
by our named executive officers on December 31, 2001.

Number of shares of
common stock underlying Value of unexercised
unexercised options at in-the-money options
Shares December 31, 2001 at December 31, 2001
acquired on Value ------------------------- -------------------------
Name exercise realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------

Steve Ro................ -- $ -- 176,000 -- $ 345,000 $ --
Honda Shing............. -- -- 39,416 4,583 174,239 20,261
Raul Diaz............... -- -- 65,266 40,333 266,749 161,251
Chinn Chin.............. 44,000 195,000 696,666 73,333 2,892,479 325,001
Jesse Lechuga........... -- -- 11,733 23,466 51,999 104,001

- --------
(1) The value realized reflects the fair market value of our common stock
underlying the option on the date of exercise, as determined by our board
of directors, minus the exercise price of the option.

(2) The value of unexercised in-the-money options is based on the assumed
initial public offering price of $13.00 per share.

1998 Stock Option Plan

Our 1998 Stock Option Plan was adopted by our board of directors and approved
by our stockholders in June 1998. Our 1998 Stock Option Plan provides for the
grant of incentive stock options, within the meaning of Section 422 of the
Internal Revenue Code, to our employees, and for the grant of nonstatutory
stock options to our employees, directors and consultants. As of December 31,
2001, options to purchase 2,335,391 shares of common stock were outstanding and
1,040,535 shares were available for future grant under the plan. We will not
grant any additional options under our 1998 Stock Option Plan following this
offering. Instead we will grant options under our 2002 Stock Option Plan. The
1998 Stock Option Plan provides that in the event of a merger, consolidation or
reorganization in which our company is not the surviving corporation, the
successor corporation may assume all outstanding options or, after giving 30
days notice to the optionees, the options will terminate. Following a
dissolution, liquidation or the sale of substantially all of the assets of our
company, outstanding options will terminate upon an optionee's termination of
employment with us.

2002 Stock Option Plan
In connection with this offering, our board of directors intends to adopt the
2002 Stock Option Plan subject to the approval of our stockholders. Our 2002
Stock Option Plan provides for the grant of incentive stock options, within the
meaning of Section 422 of the Internal Revenue Code, to our employees, and for
the grant of nonstatutory stock options and stock purchase rights to our
employees, directors and consultants.

Number of Shares of Common Stock Available under the 2002 Stock Option
Plan. We have reserved a total of 176,000 shares of our common stock for
issuance pursuant to the 2002 Stock Option Plan plus (a) any shares which have
been reserved but not issued under our 1998 Stock Option Plan as of the
effective date of this offering, and (b) any shares returned to our 1998 Stock
Option Plan on or after the effective date of this offering as a result of
termination of options or the repurchase of unvested shares issued under the
1998 Stock Option Plan. In addition, our 2002 Stock Option Plan provides for
annual increases in the number of shares available for issuance under our 2002
Stock Option Plan on the first day of each fiscal year, beginning with our
fiscal year 2003, equal to the lesser of (i) 5% of the outstanding shares of
our common stock on the first day of the applicable fiscal year, (ii) 880,000
shares, or (iii) another amount as our board may determine.

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Management
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Administration of the 2002 Stock Option Plan. Our board of directors or, with
respect to different groups of optionees, different committees appointed by our
board, will administer the 2002 Stock Option Plan. In the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Internal Revenue Code, the committee will consist of two
or more "outside directors" within the meaning of Section 162(m). The
administrator has the power to determine the terms of the options and stock
purchase rights granted, including the exercise price (which may be changed by
the administrator after the date of grant), the number of shares subject to
each option or stock purchase right, the exercisability of the options and
stock purchase rights and the form of consideration payable upon exercise. The
administrator has the authority to institute an option exchange program by
which outstanding options are surrendered in exchange for options with a lower
exercise price.

Options. The administrator determines the exercise price of options granted
under the 2002 Stock Option Plan, but with respect to nonstatutory stock
options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) and all incentive stock options, the exercise price
must be at least equal to the fair market value of our common stock on the date
of grant. The term of an incentive stock option may not exceed ten years,
except that with respect to any participant who owns 10% of the voting power of
all classes of our outstanding capital stock, the term must not exceed five
years and the exercise price must equal at least 110% of the fair market value
on the grant date. The administrator determines the term of all other options.
The terms of 2002 Stock Option Plan allows the administrator to grant options
at exercise prices that are below, equal to or above market.

No optionee may be granted an option to purchase more than 880,000 shares in
any fiscal year. In connection with his or her initial service as an employee,
an optionee may be granted an additional option to purchase up to 440,000
shares.

After termination of one of our employees, directors or consultants, he or she
may exercise his or her option for the period of time stated in the option
agreement. Generally, if termination is due to death or disability, the option
will remain exercisable for 12 months. In all other cases, the option will
generally remain exercisable for three months. However, an option may never be
exercised later than the expiration of its term.

Stock Purchase Rights. Stock purchase rights, which represent the right to
purchase our common stock, may be issued under our 2002 Stock Option Plan. The
administrator determines the purchase price of stock purchase rights granted
under our 2002 Stock Option Plan. Unless the administrator determines
otherwise, a restricted stock purchase agreement, an agreement between us and
an optionee which governs the terms of stock purchase rights, will grant us a
repurchase option that we may exercise upon the voluntary or involuntary
termination of the purchaser's service with us for any reason, including death
or disability. The purchase price for shares we repurchase will generally be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to us. The administrator determines the rate at
which our repurchase option will lapse. The terms of our 2002 Stock Option Plan
allows the administrator to issue stock purchase rights at purchase prices
which are below, equal to or above market.

Automatic Option Grants to Outside Directors. Our 2002 Stock Option Plan also
provides for the automatic grant of options to our non-employee directors. Each
non-employee director appointed to the board after the completion of this
offering will receive an initial option to purchase 16,500 shares upon such
appointment except for those directors who become non-employee directors by
ceasing to be employee directors. In addition, beginning in 2003, non-employee
directors who have been directors for at least six months will receive a
subsequent option to purchase 4,400 shares following each annual meeting of our
stockholders.

- --------------------------------------------------------------------------------

Management
- --------------------------------------------------------------------------------

All options granted under the automatic grant provisions have a term of ten
years and an exercise price equal to fair market value on the date of grant.
Each initial option becomes exercisable as to 5,500 of the shares subject to
the option on the first anniversary of the date of grant and becomes
exercisable as to 458 of the shares each full month thereafter, provided the
non-employee director remains a service provider on such dates. Each subsequent
option becomes exercisable as to 100% of the shares subject to the option on
the anniversary of the date of grant, provided the non-employee director
remains a service provider on such date.

Transferability of Options and Stock Purchase Rights. Our 2002 Stock Option
Plan generally doesn't allow for the transfer of options or stock purchase
rights and only the optionee may exercise an option or stock purchase right
during his or her lifetime.

Adjustments upon Change in Control. Our 2002 Stock Option Plan provides that
in the event of a change of control, the successor corporation will assume or
substitute each option or stock purchase right. If the outstanding options or
stock purchase rights are not assumed or substituted, the administrator will
provide notice to the optionee that he or she has the right to exercise the
option or stock purchase right as to all of the shares subject to the option or
stock purchase right, including shares which would not otherwise be
exercisable, for a period of 15 days from the date of the notice. The option or
stock purchase right will terminate upon the expiration of the 15-day period.
In the event an outside director is terminated following a change in control,
other than pursuant to a voluntary resignation, his or her options will fully
vest and become immediately exercisable.

Amendment and Termination of our 2002 Stock Option Plan. Our 2002 Stock Option
Plan will automatically terminate in 2012, unless we terminate it sooner. In
addition, the administrator has the authority to amend, suspend or terminate
the 2002 Stock Option Plan provided such amendment does not impair the rights
of any optionee.

2002 Employee Stock Purchase Plan
Concurrently with this offering, we intend to establish an Employee Stock
Purchase Plan. The 2002 Employee Stock Purchase Plan was adopted by our board
in January 2002, subject to the approval of our stockholders.

Number of Shares of Common Stock Available under the Plan. A total of 176,000
shares of our common stock will be made available for sale under the 2002
Employee Stock Purchase Plan. In addition, the plan provides for annual
increases in the number of shares available for issuance under the plan on the
first day of each fiscal year, beginning with our fiscal year 2003, equal to
the lesser of (i) 1 1/2% of the outstanding shares of our common stock on the
first day of the applicable fiscal year, (ii) 176,000 shares, or (iii) another
amount as our board may determine.

Administration of the Plan. Our board of directors or a committee established
by our board will administer the 2002 Employee Stock Purchase Plan. Our board
of directors or its committee has full and exclusive authority to interpret the
terms of the plan and determine eligibility.

Eligibility to Participate. Our employees and employees of designated
subsidiaries are eligible to participate in the 2002 Employee Stock Purchase
Plan if they are customarily employed for at least 20 hours per week and more
than five months in any calendar year. However, an employee may not be granted
an option to purchase stock under the 2002 Employee Stock Purchase Plan if:

... the employee immediately after grant owns stock possessing 5% or more of
the total combined voting power or value of all classes of our capital
stock, or

- --------------------------------------------------------------------------------

Management
- --------------------------------------------------------------------------------

... if the employee's rights to purchase stock under all of our employee stock
purchase plans accrues at a rate that exceeds $25,000 worth of stock for
each calendar year.

Offering Periods and Contributions. Our 2002 Employee Stock Purchase Plan is
intended to qualify under Section 423 of the Internal Revenue Code and contains
consecutive, overlapping 24-month offering periods. Each offering period
includes four six-month purchase periods. The offering periods generally start
on the first trading day on or after May 1 and November 1 of each year, except
for the first such offering period which will commence on the first trading day
on or after the effective date of this offering and will most likely end on the
last trading day on or before May 1, 2004 and the second offering period which
will commence on November 1, 2002. All eligible employees will be automatically
enrolled in the first offering period, but payroll deductions and continued
participation in the first offering period will not be determined until after
the effective date of the Form S-8 registration statement which is intended to
register the shares reserved for issuance under the plan.

The plan permits participants to purchase common stock through payroll
deductions of up to 15% of their eligible compensation which includes a
participant's base salary, bonuses and commissions, but excludes all other
compensation. A participant may purchase a maximum of 4,400 shares during a
six-month purchase period.

Purchase of Shares. Amounts deducted and accumulated by the participant are
used to purchase shares of our common stock at the end of each six-month
purchase period. The price is 85% of the lower of the fair market value of our
common stock at the beginning of an offering period or at the end of a purchase
period. If the fair market value at the end of a purchase period is less than
the fair market value at the beginning of the offering period, participants
will be withdrawn from the current offering period following their purchase of
shares on the purchase date and will be automatically re-enrolled in a new
offering period. Participants may end their participation at any time during an
offering period, and will be paid their payroll deductions to date.
Participation ends automatically upon termination of employment with us.

Transferability of Rights. A participant may not transfer rights granted under
the 2002 Employee Stock Purchase Plan other than by will, the laws of descent
and distribution or as otherwise provided under the plan.

Adjustments upon Change in Control. In the event of a change of control, a
successor corporation may assume or substitute each outstanding option. If the
successor corporation refuses to assume or substitute for the outstanding
options, the offering period then in progress will be shortened, and a new
exercise date will be set. In such event, the administrator will provide notice
of the new exercise date to each optionee at least ten business days before the
new exercise date.

Amendment and Termination of the plan. The administrator has the authority to
amend or terminate our plan, except that, subject to certain exceptions
described in the 2002 Employee Stock Purchase Plan, no such action may
adversely affect any outstanding rights to purchase stock under the plan.

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Management
- --------------------------------------------------------------------------------

EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS

We entered into an agreement with Dr. Honda Shing that provides for full
acceleration of all unvested shares of restricted common stock held by Dr.
Shing in the event of a change of control. A change of control means the merger
or consolidation of our company, or the sale of all or substantially all of our
assets or stock, where less than 51% of the capital stock of the successor
corporation is owned by persons who are holders of shares of our capital stock
immediately before such merger, consolidation or sale.

Under an agreement with Randall Bambrough, if Mr. Bambrough's employment is
terminated without cause, or Mr. Bambrough leaves his employment for good
reason, we are required to pay his base salary and benefits for a period of 12
months. In addition, if such termination occurs prior to a change of control,
the vesting of Mr. Bambrough's stock options will accelerate as to 50% of the
unvested shares. If such termination occurs within twelve months after a change
of control, all remaining unvested stock options will immediately vest. Change
of control means a sale of substantially all our assets, a merger or
consolidation in which we are not the surviving corporation or any transaction
involving the transfer of greater than 50% of our voting power.

We have entered into change of control agreements with Steve Ro, Chinn Chin,
Raul Diaz and Jesse Lechuga to provide for full acceleration of all unvested
options in the event the employee is involuntarily terminated without cause or
for good reason within one month prior to or 13 months following a change of
control. A change of control means a plan of complete liquidation, a sale of
all or substantially all of our assets or a merger or consolidation involving
the transfer of more than 50% of the total voting power represented by our then
outstanding voting securities.

- --------------------------------------------------------------------------------

Related party transactions

Other than compensation agreements and other arrangements, which are described
as required in "Management," and the transactions described below, since
January 1, 1999, there has not been, and there is not currently proposed, any
transaction or series of similar transactions to which we were or will be a
party; in which the amount involved exceeded or will exceed $60,000; and in
which any director, executive officer, holder of 5% or more of any class of our
voting stock or any member of their immediate family had or will have a direct
or indirect material interest.

INVESTORS RIGHTS AGREEMENT

We have entered into an agreement with the holders of our preferred stock,
including entities with which certain of our directors are affiliated, that
provides the holders of the preferred stock certain rights relating to the
registration of their shares of common stock issuable upon conversion of the
preferred stock. These rights will survive this offering and will terminate at
such time as all holders' securities can be sold within a six month period
without compliance with the registration requirements of the Securities Act
pursuant to Rule 144, but in any event no later than July 2, 2007.

INDEMNIFICATION AGREEMENTS

We expect to enter into an indemnification agreement with each of our directors
and officers prior to completing this offering. The indemnification agreements
and our certificate of incorporation and bylaws require us to indemnify our
directors and officers to the fullest extent permitted by Delaware law.

RECENT OPTION GRANTS

Since January 1, 1999, we have granted stock options to the following executive
officers and directors:

Shares
Date of underlying Exercise Term of
Name grant options price option
- ----------------------------------------------------------------------------

Eli Sternheim.......................... 3/15/99 22,000 $0.12 10 years
Raul Diaz.............................. 3/15/99 17,600 0.12 10 years
Honda Shing............................ 3/15/99 44,000 0.13 5 years
Chinn Chin............................. 3/15/99 924,000 0.12 10 years
Steve Ro............................... 3/15/99 352,000 0.13 5 years
Eli Sternheim.......................... 6/1/99 44,000 0.12 10 years
Henry Shaw............................. 6/1/99 13,200 0.12 10 years
Steve Ro............................... 8/30/99 88,000 0.63 5 years
Raul Diaz.............................. 1/10/00 88,000 0.57 10 years
Henry Shaw............................. 7/1/00 17,600 4.55 10 years
Steve Ro............................... 10/1/00 88,000 5.00 5 years
Jesse Lechuga.......................... 1/5/01 35,200 4.55 10 years
Randall Bambrough...................... 3/21/01 132,000 4.55 10 years
George Haber........................... 6/15/01 22,000 4.55 10 years
Joseph Liu............................. 6/15/01 22,000 4.55 10 years
Henry Shaw............................. 6/15/01 4,400 4.55 10 years
Chinn Chin............................. 1/10/02 22,000 6.82 10 years
Raul Diaz.............................. 1/10/02 22,000 6.82 10 years
Steve Ro............................... 1/10/02 66,000 7.50 5 years
Randall Bambrough...................... 1/10/02 22,000 6.82 10 years
Honda Shing............................ 1/10/02 22,000 6.82 10 years
Jesse Lechuga.......................... 1/10/02 13,200 6.82 10 years

Options for employees generally vest over four years. Options for directors
generally vest immediately as to 50% of the shares with the remainder vesting
over four years.

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Related party transactions
- --------------------------------------------------------------------------------

PRIVATE PLACEMENT FINANCINGS

In July 1999, a trust for the benefit of Eli Sternheim, a former director,
purchased shares of Series C Preferred Stock convertible into 176,000 shares of
common stock at an effective price of $4.55 per share in connection with our
Series C financing. In April 2000, a trust for the benefit of Dr. Sternheim
purchased shares of our Series D Preferred Stock convertible into 71,000 shares
of common stock at an effective price of $9.09 per share in connection with our
Series D financing. These prices were the same as those paid by unaffiliated
investors.

INDEBTEDNESS OF MANAGEMENT

In March 2001, in connection with the purchase by Randall Bambrough, our Chief
Financial Officer, of 132,000 shares of our common stock, we loaned Mr.
Bambrough $600,000 at an interest rate of 5.07%. This note is secured by the
shares purchased and is full recourse. Principal and interest on the note
become due and payable on the earlier of March 22, 2006 or the first
anniversary of the termination of his employment.

In December 2001, in connection with the purchase by each of George Haber and
Joe Liu, two of our directors, of 22,000 shares of our common stock, we loaned
each of Mr. Haber and Mr. Liu $100,000 at an interest rate of 5.07%. These
notes are secured by the shares purchased and are full recourse. Principal and
interest on the notes become due and payable on December 11, 2006 or the first
anniversary of the termination of their service.

It is our current policy that all transactions between us and our officers,
directors, 5% stockholders and their affiliates will be entered into only if
these transactions are approved by a majority of the disinterested directors,
are on terms no less favorable to us than could be obtained from unaffiliated
parties and are reasonably expected to benefit us.

Our board of directors has approved a loan to Honda Shing, our Chief Technology
Officer, of $100,000 at an interest rate of 10%. The loan will be full recourse
and will be secured by the shares of common stock held by Mr. Shing. Principal
and interest on the note shall become due and payable one year from the date of
issuance.

MISCELLANEOUS

During 2001, we provided services to Fundwatch Global Financial Ltd. for
approximately $51,000. In addition, during 2001 we sold equipment to Fundwatch
Global Financial for approximately $80,000. The chief executive officer of
Fundwatch Global Financial Ltd. is the brother of Steve Ro, our chief executive
officer.

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Principal stockholders

The following table sets forth information regarding the beneficial ownership
of our common stock as of December 31, 2001, as adjusted to reflect the sale of
3,500,00 additional shares of our common stock in this offering and the
automatic conversion of all shares of our preferred stock to shares of our
common stock prior to the completion of this offering, for each of the
following persons:

... all named executive officers;

... all directors; and

... each person who is known by us to own beneficially five percent or more of
our common stock assuming conversion of our preferred stock prior to this
offering.

Unless otherwise indicated, the address of each beneficial owner listed below
is InterVideo, Inc., 47350 Fremont Boulevard, Fremont, CA 94538.

Percentage of shares
beneficially owned(1)
------------------
Number of shares Before After
Name of Beneficial Owner beneficially owned offering offering
- ---------------------------------------------------------------------------------------------------------------

Executive Officers and Directors
Steve Ro(2)....................................................... 528,000 6.8% 4.7%
Honda Shing(3).................................................... 922,167 12.0 8.3
Chinn Chin(4)..................................................... 806,667 9.6 6.8
Raul Diaz(5)...................................................... 70,033 * *
Jesse Lechuga(6).................................................. 13,200 * *
Henry Shaw(7)..................................................... 24,933 * *
George Haber(8)................................................... 22,000 * *
Joe Liu(9)........................................................ 22,000 * *
All directors and executive officers as a group (9 persons)(10)... 2,540,099 29.3 20.9

Other 5% Stockholders
Spot Master Investment Limited(11)................................ 1,694,000 22.2 15.2
6F, #16 Mucha St. Alley 9, Section 4
Mucha Wenshan District
Taipei, Taiwan ROC

- --------

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that
person, shares of common stock subject to options held by that person that
are currently exercisable or become exercisable within 60 days of December
31, 2001 are considered to be beneficially owned by such person. Those
shares, however, are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. Each stockholder's
percentage ownership in the following table is based upon 7,622,974 shares
of common stock outstanding as of December 31, 2001, including shares
issued to Dell in April 2002, and 11,122,974 shares of common stock
outstanding immediately after the offering, in each case assuming
conversion of all outstanding shares of preferred stock into common stock.
Unless otherwise indicated in the table, the persons and entities named in
the table have sole voting and sole investment power with respect to the
shares set forth opposite the stockholder's name. The (*) indicates less
than one percent ownership.

(2) Includes 176,000 shares of our common stock issuable under options
exercisable within 60 days of December 31, 2001.

(3) Includes 42,167 shares of our common stock issuable under options
exercisable within 60 days of December 31, 2001.

(4) Includes 740,667 shares of our common stock issuable under options
exercisable within 60 days of December 31, 2001.

(5) Represents 70,033 shares of our common stock issuable under options
exercisable within 60 days of December 31, 2001.

(6) Includes 13,200 shares of our common stock issuable under options
exercisable within 60 days of December 31, 2001.

(7) Includes 11,733 shares of our common stock issuable under options
exercisable within 60 days of December 31, 2001.

(8) Includes 9,625 shares of our common stock subject to our right of
repurchase as of December 31, 2001.

(9) Includes 9,625 shares of our common stock subject to our right of
repurchase as of December 31, 2001.

(10) Includes 1,053,799 shares of our common stock issuable under options
exercisable within 60 days of December 31, 2001 and 121,000 shares subject
to our right of repurchase as of December 31, 2001.

(11) Li-Chun Lo, Steve Ro's brother, has the sole voting and dispositive powers
over the shares held of record by Spot Master Investment Limited.

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Description of capital stock
- --------------------------------------------------------------------------------

Description of capital stock

Upon completion of this offering, our authorized capital stock will consist of
150,000,000 shares of common stock, $0.001 par value and 5,000,000 shares of
preferred stock, $0.001 par value. Prior to this offering, there were 7,622,974
shares of our common stock outstanding, as adjusted to reflect the conversion
of all outstanding shares of our preferred stock into common stock on the
closing of this offering, that were held of record by approximately 177
stockholders, and options to purchase 2,361,791 shares of common stock were
outstanding. We will have a total of 11,122,974 shares of common stock
outstanding following this offering.

The following description assumes the filing of an amended and restated
certificate of incorporation and the conversion of all our preferred stock into
common stock upon the closing of this offering. This description is only a
summary. You should also refer to our certificate of incorporation and bylaws,
both of which have been filed with the SEC as exhibits to our registration
statement, of which this prospectus forms a part.

COMMON STOCK

Subject to preferences that may apply to shares of preferred stock outstanding
at the time, the holders of outstanding shares of common stock are entitled to
receive dividends out of assets legally available therefor at the times and in
the amounts as our board of directors may from time to time determine. All
dividends are non-cumulative. In the event of the liquidation, dissolution or
winding up of our company, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to the
prior distribution rights of preferred stock, if any, then outstanding. Each
stockholder is entitled to one vote for each share of common stock held on all
matters submitted to a vote of stockholders. Cumulative voting for the election
of directors is not provided for in our certificate of incorporation, which
means that the holders of a majority of the shares voted can elect all of the
directors then standing for election. Our board of directors is divided into
three classes, with each director serving a three-year term and one class being
elected at each year's annual meeting of stockholders. The common stock is not
entitled to preemptive rights and is not subject to conversion or redemption.
There are no sinking fund provisions applicable to our common stock. Each
outstanding share of common stock is, and all shares of common stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.

PREFERRED STOCK

Pursuant to our certificate of incorporation, our board of directors has the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of preferred stock in one or more series and to fix the designations,
powers, preferences, privileges, and relative participating, optional or
special rights as well as the qualifications, limitations or restrictions of
the preferred stock, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences, any or all of which
may be greater than the rights of the common stock. Our board of directors,
without stockholder approval, can issue preferred stock with voting, conversion
or other rights that could adversely affect the voting power and other rights
of the holders of common stock. Preferred stock could thus be issued quickly
with terms calculated to delay or prevent a change in control or make removal
of management more difficult. Additionally, the issuance of preferred stock may
have the effect of decreasing the market price of our common stock, and may
adversely affect the voting and other rights of the holders of common stock. At
present, we have no plans to issue any preferred stock following this offering.

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Description of capital stock
- --------------------------------------------------------------------------------

REGISTRATION RIGHTS

Holders of 5,649,050 shares of our common stock are entitled to certain rights
with respect to the registration of their shares under the Securities Act.
Specifically, at any time that we plan to register our securities, these
holders have a right to require that we include their securities in the
registration at our expense, subject to specified limitations. Furthermore,
under the terms of the agreement between us and these stockholders, to the
extent that we are qualified under applicable SEC rules to register our shares
for public resale on Form S-3 or a similar short form registration, if holders
of at least 2% of our common stock request that their securities be registered,
and provided that that the value of the securities requested to be registered
is at least $500,000, we have agreed to use our best efforts to register such
securities on Form S-3, subject to specified limitations. All fees, costs and
expenses of the registrations mentioned above will be borne by us and all
selling expenses, including underwriting discounts, selling commissions and
stock transfer taxes, will be borne by the holders of the securities being
registered. These registration rights terminate at such time as all such
holders' securities can be sold within a six- month period without compliance
with the registration requirements of the Securities Act pursuant to Rule 144
or on July 2, 2007.

DELAWARE ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS

Delaware Statute. We are subject to the provisions of Section 203 of the
Delaware General Corporation Law. In general, this statute prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date
that the person became an interested stockholder unless (with certain
exceptions) the business combination or the transaction in which the person
became an interested stockholder is approved in a prescribed manner. Generally,
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock. These provisions may have the effect of delaying,
deferring or preventing a change in control of us without further action by our
stockholders.

Charter Provisions. Our amended and restated certificate of incorporation and
bylaws contain provisions that could have the effect of discouraging potential
acquisition proposals or making a tender offer or delaying or preventing a
change in control of our company, including changes a stockholder might
consider favorable. These could have the effect of decreasing the market price
of our common stock. In particular, our amended and restated certificate of
incorporation and bylaws, as applicable, among other things, will:

... divide our board of directors into three separate classes serving staggered
three-year terms;

... provide that special meetings of stockholders can only be called by our
board of directors, chairman of the board, chief executive officer or
president (in the absence of a chief executive officer). In addition, the
business permitted to be conducted at any special meeting of stockholders
is limited to the business specified in the notice of such meeting to the
stockholders;

... provide for an advance notice procedure with regard to business to be
brought before a meeting of stockholders;

... eliminate the right of stockholders to act by written consent;

... provide that vacancies on our board of directors may be filled by a
majority of directors in office, although less than a quorum; and

... allow our board of directors to issue shares of preferred stock with rights
senior to those of the common stock and that otherwise could adversely
affect the rights and powers, including voting rights, of the holders of
common stock, without any further vote or action by the stockholders.

- --------------------------------------------------------------------------------

Description of capital stock
- --------------------------------------------------------------------------------

These provisions may have the effect of discouraging a third party from
acquiring us, even if doing so would be beneficial to our stockholders. These
provisions are intended to enhance the likelihood of continuity and stability
in the composition of our board of directors and in the policies formulated by
them, and to discourage some types of transactions that may involve an actual
or threatened change in control of our company. These provisions are designed
to reduce our vulnerability to an unsolicited acquisition proposal and to
discourage some tactics that may be used in proxy fights. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure
our company outweigh the disadvantages of discouraging such proposals because,
among other things, negotiation of such proposals could result in an
improvement of their terms. However, these provisions could have the effect of
discouraging others from making tender offers for our shares that could result
from actual or rumored takeover attempts. These provisions also may have the
effect of preventing changes in our management.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.

NASDAQ NATIONAL MARKET QUOTATION

We have applied to have our common stock approved for quotation on the Nasdaq
National Market under the symbol "IVDO."

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Shares eligible for future sale

Prior to this offering, there has been no market for our common stock. Future
sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices.

Upon completion of this offering, we will have outstanding 11,122,974 shares of
our common stock. Of these shares, the 3,500,000 shares sold in the offering
(plus any shares issued upon exercise of the underwriters' over-allotment
option) will be freely tradable without restriction under the Securities Act,
unless purchased by our "affiliates" as that term is defined in Rule 144 under
the Securities Act (generally, our officers, directors and 10% stockholders).
Shares purchased by affiliates may generally only be sold pursuant to an
effective registration statement under the Securities Act or in compliance with
limitations of Rule 144 as described below.

The remaining 7,622,974 shares outstanding are "restricted securities" within
the meaning of Rule 144 under the Securities Act. Restricted securities may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under
the Securities Act, which are summarized below. All of these shares are subject
to lock-up agreements pursuant to which the stockholder has agreed not to
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of our common stock or any securities exercisable for or convertible
into our common stock owned by them for a period of 180 days after the date of
the underwriting agreement related to this offering without the prior written
consent of UBS Warburg LLC. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements may not be sold
until such agreements expire or are waived by UBS Warburg LLC. Taking into
account the lock-up agreements, and assuming UBS Warburg LLC does not release
stockholders from these agreements, the following shares will be eligible for
sale in the public market at the following times:

... beginning on the effective date of the offering, only the shares sold in
this offering will be immediately available for sale in the public market;

... an additional 7,323,774 shares will become eligible for sale pursuant to
Rule 144 beginning on , 2002, 180 days after the date of the
underwriting agreement related to this offering. Shares eligible to be sold
by affiliates pursuant to Rule 144 are subject to volume restrictions as
described below; and

... an additional 299,200 shares will become eligible for sale in the public
market pursuant to Rule 144 at various dates in the future.

In addition, 286,000 shares of common stock held by Dell are subject to a
two-year lock-up period. Of these shares, 71,500 shares shall be released from
the lock-up agreement 180 days from the date of this prospectus and an
additional 35,750 shares shall be released each 90 days thereafter, such that
all of the shares shall be released from the lock-up agreement two years
following the date of this prospectus.

Immediately after the completion of this offering, we intend to file a
registration statement on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under our
stock option plans and our stock purchase plan. Based upon the number of shares
subject to outstanding options as of December 31, 2001 and currently reserved
for issuance under our stock plans, this registration statement would cover
approximately 3,727,926 shares in addition to annual increases in the number of
shares available under the stock option plans and stock purchase plan pursuant
to the terms of such plans. Shares registered under the registration statement
will generally be available for sale in the open market immediately after the
180-day lock-up agreements expire or earlier in UBS Warburg LLC's sole
discretion.

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Shares eligible for future sale
- --------------------------------------------------------------------------------

Holders of 5,649,050 shares of our common stock will be entitled to rights with
respect to registration of these shares for sale in the public market. See
"Description of Capital Stock--Registration Rights." Registration of these
shares under the Securities Act would result in these shares becoming freely
tradable without restriction under the Securities Act immediately upon
effectiveness of the registration.

Rule 144

In general, under Rule 144 as currently in effect, and beginning after the
expiration of the lock-up agreements, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of: one percent of the number of shares of common
stock then outstanding (which will equal approximately 111,230 shares
immediately after the offering) or the average weekly trading volume of the
common stock during the four calendar weeks preceding the sale. Sales under
Rule 144 are also subject to manner of sale provisions and notice requirements
and to the availability of current public information about us. Under Rule
144(k), a person who is not deemed to have been an affiliate of us at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

Rule 701
Beginning 90 days after the effective date, any employee, officer or director
of or consultant to us who purchased shares pursuant to a written compensatory
plan or contract may be entitled to rely on the resale provisions of Rule 701.
Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144
without complying with the holding period requirements of Rule 144. Rule 701
further provides that non-affiliates may sell such shares in reliance on Rule
144 without having to comply with the holding period, public information,
volume limitation or notice provisions of Rule 144.

- --------------------------------------------------------------------------------

Underwriting

We and the underwriters for the offering named below have entered into an
underwriting agreement concerning the shares being offered. Subject to
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. UBS Warburg LLC, CIBC World Markets
Corp. and Raymond James & Associates, Inc. are the representatives of the
underwriters.

Underwriter Number of Shares
- ----------------------------------------------------------------------------

UBS Warburg LLC............................................
CIBC World Markets Corp....................................
Raymond James & Associates, Inc............................
---------
Total................................................ 3,500,000
=========

If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to buy from us up to an
additional 525,000 shares at the initial public offering price less the
underwriting discounts and commissions to cover these sales. If any shares are
purchased under this option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above. The
following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase up
to an additional 525,000 shares.

No Exercise Full Exercise
- ---------------------------------------------------------------------------

Per share........................................ $ $
Total............................................ $ $

We estimate that the total expenses of the offering payable by us, excluding
underwriting discounts and commissions, will be approximately $1,900,000.

Shares sold by the underwriters to the public will initially be offered at the
initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and
the other selling terms. The underwriters have informed us that they do not
expect discretionary sales to exceed 5% of the shares of common stock to be
offered.

We, each of our directors, officers and stockholders holding 7,215,974 shares
and each of our optionholders have agreed with the underwriters not to offer,
sell, contract to sell, hedge or otherwise dispose of, directly or indirectly,
or file with the SEC a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable for shares of common stock during the period from the date of this
prospectus continuing through the date 180 days after the date of the
underwriting agreement without the prior written consent of UBS Warburg LLC.
Among the factors that UBS Warburg LLC may consider in consenting to an early
release of shares from this lock-up are the condition of the securities markets
in general and the market price and trading activity of our common stock and
the personal requirements of the subject stockholder in particular. UBS Warburg
LLC has advised us that they have no present intention to release any of the
shares subject to the lock-up agreements prior to the expiration of the lock-up
period.

In addition, Dell, which holds 286,000 shares of common stock, has entered into
a lock-up agreement with us pursuant to which 71,500 shares become eligible for
sale 180 days from the date of this

- --------------------------------------------------------------------------------

Underwriting
- --------------------------------------------------------------------------------

prospectus and an additional 35,750 shares become eligible for sale each 90
days thereafter, such that all of the shares held by Dell become eligible for
sale two years following the date of this prospectus.

The underwriters have reserved for sale, at the initial public offering price,
up to 150,000 shares of our common stock being offered for sale to our
customers and business partners. At the discretion of our management, other
parties, including our employees, may participate in this reserved shares
program. The number of shares available for sale to the general public in the
offering will be reduced to the extent these persons purchase reserved shares.
Any reserved shares not so purchased will be offered by the underwriters to the
general public on the same terms as the other shares.

Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be negotiated by us and the
representatives. The principal factors to be considered in determining the
initial public offering price will include:

... the information set forth in this prospectus and otherwise available to the
representatives;

... the history and the prospects for the industry in which we compete;

... the ability of our management;

... our prospects for future earnings, the present state of our development and
our current financial position;

... the general condition of the securities markets at the time of this
offering; and

... recent market prices of, and demand for, publicly traded common stock of
comparable companies.

In connection with the offering, the underwriters may purchase and sell shares
of our common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. "Covered"
short sales are sales made in an amount not greater than the underwriters'
option to purchase additional shares from us in the offering. The underwriters
may close out any covered short position by either exercising their option to
purchase additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the overallotment option. "Naked" short sales are any
sales in excess of the overallotment option. The underwriters must close out
any naked short position by purchasing shares in the open market. A naked short
position is more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock in the open
market after pricing that could adversely affect investors who purchase in the
offering.

Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of our common stock while
the offering is in progress. The underwriters also may impose a penalty bid.
This occurs when a particular underwriter repays to the underwriters a portion
of the underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of that underwriter in
stabilizing or short covering transactions. These activities by the
underwriters may stabilize, maintain or otherwise affect the market price of
our common stock. As a result, the price of our common stock may be higher than
the price that otherwise might exist in the open market. If these activities
are commenced, they may be discontinued by the underwriters at any time. These
transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.

We have agreed to indemnify the several underwriters against liabilities,
including liabilities under the Securities Act and to contribute to payments
that the underwriters may be required to make in respect thereof.

- --------------------------------------------------------------------------------

Legal matters

Wilson Sonsini Goodrich & Rosati, a professional corporation, Palo Alto,
California, will pass for us on the validity of the common stock offered
hereby. Brobeck, Phleger & Harrison LLP, East Palo Alto, California, is acting
as counsel for the underwriters in connection with selected legal matters
relating to the shares of common stock offered by this prospectus.

Experts

The consolidated balance sheets of InterVideo, Inc. as of December 31, 2000 and
2001 and the related consolidated statements of operations, shareholders'
equity and cash flows for the years ended December 31, 1999, 2000 and 2001
included in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving such reports.

The balance sheets of Audit/Video Products Division of Formosoft International
Inc. as of December 31, 1998 and 1999, and the related statements of operations
and comprehensive loss, and cash flows for the period from April 14, 1998 (date
of incorporation) to December 31, 1998 and for the year ended December 31, 1999
included in this prospectus have been audited by TN Soong & Co., an associated
member firm of Deloitte Touche Tohmatsu and formerly a member firm of Andersen
Worldwide, SC, independent public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving such reports. TN Soong & Co. has not consented
to the inclusion of their report in this prospectus, and we have dispensed with
the requirement to file their consent in reliance upon Rule 437a of the
Securities Act. Because TN Soong & Co. has not consented to the inclusion of
their report in this prospectus, you will not be able to recover against TN
Soong & Co. under Section 11 of the Securities Act for any untrue statements of
a material fact contained in the financial statements audited by TN Soong & Co.
or any omissions to state a material fact required to be stated therein.

Where you can find more information

We filed a registration statement on Form S-1 under the Securities Act with the
SEC to register the shares of our common stock offered by this prospectus. This
prospectus does not contain all of the information set forth in the
registration statement and the exhibits to the registration statement. You
should refer to the registration statement and the exhibits to the registration
statement for more information about us and our common stock. Our statements in
this prospectus concerning the contents of any document are not necessarily
complete, and in each instance, we refer you to the copy of the document filed
as an exhibit to the registration statement. Each statement about those
documents is qualified in its entirety by this reference.

Following the offering, we will become subject to the reporting requirements of
the Securities Exchange Act of 1934. In accordance with that law, we will be
required to file reports and other information with the SEC. The registration
statement and exhibits, as well as those reports and other information when we
file them, may be inspected without charge at the Public Reference Room
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
Public Reference Room. Copies of all or any part of the registration statement
may be obtained from the SEC's offices upon payment of fees prescribed by the
SEC. The SEC maintains an Internet site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC. The address of the site is http://www.sec.gov.

- --------------------------------------------------------------------------------

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following financial statements are filed as part of this report:

CONSOLIDATED FINANCIAL STATEMENTS OF INTERVIDEO, INC.

Report of Independent Public Accountants................................... F-2

Consolidated Balance Sheets................................................ F-3

Consolidated Statements of Operations...................................... F-4

Consolidated Statements of Stockholders' Equity............................ F-5

Consolidated Statements of Cash Flows...................................... F-6

Notes to Consolidated Financial Statements................................. F-7

FINANCIAL STATEMENTS OF AUDIO/VISUAL PRODUCTS DIVISION OF FORMOSOFT
INTERNATIONAL, INC.

Report of Independent Public Accountants................................... F-26

Balance Sheets............................................................. F-27

Statements of Operations and Comprehensive Loss............................ F-28

Statements of Cash Flows................................................... F-29

Notes to Financial Statements.............................................. F-30

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Basis of Presentation...................................................... F-36

Unaudited Pro Forma Condensed Combined Statement of Operations............. F-36

- --------------------------------------------------------------------------------

F-1

INTERVIDEO, INC.

- --------------------------------------------------------------------------------

After the reverse stock split discussed in Note 2 to the accompanying
consolidated financial statements is effected, we expect to be in a position to
render the following audit report.

/s/ ARTHUR ANDERSEN LLP

San Francisco, California, April 26, 2002

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of

InterVideo, Inc.:

We have audited the accompanying consolidated balance sheets of InterVideo,
Inc. (a California corporation) as of December 31, 2000 and 2001, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1999, 2000 and 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InterVideo, Inc. as of
December 31, 2000 and 2001, and the results of its operations and its cash
flows for the years ended December 31, 1999, 2000 and 2001, in conformity with
accounting principles generally accepted in the United States.

San Francisco, California

- --------------------------------------------------------------------------------

F-2

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

Pro Forma
- ------------
As of December 31,
----------------- December 31,
2000 2001 2001
- -------------------------------------------------------------------------------------------------------------------

ASSETS
Current assets:
Cash and cash equivalents..................................................... $14,668 $ 14,348
Accounts receivable, net of allowance for doubtful accounts of $152 and
$319, respectively........................................................... 2,413 2,753
Prepaid expenses and other current assets..................................... 283 540
------- --------
Total current assets....................................................... 17,364 17,641
Property and equipment, net....................................................... 1,991 1,725
Other assets...................................................................... 2,779 2,787
------- --------
Total assets............................................................... $22,134 $ 22,153
======= ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 484 $ 594
Accrued liabilities........................................................... 6,461 13,600
------- --------
Total liabilities.......................................................... 6,945 14,194
------- --------
Stockholders' equity:
Convertible preferred stock, no par value: aggregate liquidation preference
of $21,255 at December 31, 2001; 13,000,000 shares authorized;
12,213,750, 12,188,750 and zero shares issued and outstanding,
respectively................................................................. 21,286 21,186 $ --
Common stock, no par value: 25,000,000 shares authorized; 1,629,050
1,973,924 and 7,336,974 shares issued and outstanding, respectively.......... 3,897 6,579 27,765
Notes receivable from officer and directors................................... -- (667) (667)
Deferred stock compensation................................................... (2,206) (2,070) (2,070)
Accumulated other comprehensive loss.......................................... (84) (188) (188)
Accumulated deficit........................................................... (7,704) (16,881) (16,881)
------- -------- --------
Total stockholders' equity................................................. 15,189 7,959 $ 7,959
------- -------- ========
Total liabilities and stockholders' equity................................. $22,134 $ 22,153
======= ========

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

- --------------------------------------------------------------------------------

F-3

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

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

Year ended December 31,
-------------------------
1999 2000 2001
- --------------------------------------------------------------------------------------------------

Revenue................................................................ $ 3,036 $15,426 $33,763

Direct product costs................................................... 1,118 5,361 12,908
Cost of settlement of intellectual property matters.................... -- -- 4,233
Cost of impairment of software license agreement....................... -- -- 958
------- ------- -------
Cost of revenue.................................................... 1,118 5,361 18,099
------- ------- -------
Gross profit.................................................... 1,918 10,065 15,664
Operating expenses:
Research and development(1)........................................ 1,300 6,585 9,117
Sales and marketing(1)............................................. 1,194 4,978 7,896
General and administrative(1)...................................... 773 2,667 2,990
Stock compensation................................................. 53 1,411 2,063
Amortization of goodwill........................................... -- 174 298
Cost of delayed public offering.................................... -- -- 710
Impairment of promotional agreement................................ -- -- 550
Restructuring...................................................... -- -- 850
------- ------- -------
Total operating expenses........................................ 3,320 15,815 24,474
------- ------- -------
Loss from operations................................................... (1,402) (5,750) (8,810)
Other income, net...................................................... 32 557 557
------- ------- -------
Loss before provision for income taxes................................. (1,370) (5,193) (8,253)
Provision for income taxes............................................. 64 552 924
------- ------- -------
Net loss........................................................... $(1,434) $(5,745) $(9,177)
======= ======= =======
Net loss per common share, basic and diluted........................... $ (5.83) $ (4.97) $ (5.99)
======= ======= =======
Pro forma net loss per common share, basic and diluted (unaudited)..... $ (1.33)
=======
Weighted average common shares outstanding, basic and diluted.......... 246 1,155 1,532
======= ======= =======
Pro forma weighted average common shares outstanding, basic and diluted
(unaudited)........................................................... 6,895
=======

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

Year ended December 31,
-----------------------
1999 2000 2001
(in thousands)
--------------------------------------------------------------------------

Research and development......................... $14 $ 546 $ 756
Sales and marketing.............................. 3 521 535
General and administrative....................... 36 344 772
--- ------ ------
$53 $1,411 $2,063
=== ====== ======

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

- --------------------------------------------------------------------------------

F-4

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

Notes Accum-
Receivable ulated Total
Convertible from Deferred Other Stock- Compre-
Preferred Stock Common Stock Officer Stock Compre- Accum- holders' hensive
------------------- ---------------- and Compen- hensive ulated Equity Loss For
Shares Amount Shares Amount Directors sation Loss Deficit (Deficit) the Year
- ---------------------------------------------------------------------------------------------------------------------------------

BALANCE, December 31, 1998... 6,000,000 $ 488 880,000 $ 1 $ -- $ -- $ -- $ (525) $ (36)
Issuance of Series C
convertible preferred
stock, net of issuance cost
of $12..................... 2,000,000 3,988 -- -- -- -- -- -- 3,988
Exercise of common stock
options.................... -- -- 240,540 25 -- -- -- -- 25
Issuance of common stock
options to consultants and
other nonemployees......... -- -- -- 38 -- -- -- -- 38
Deferred stock compensation. -- -- -- 218 -- (218) -- -- --
Amortization of deferred
stock compensation expense. -- -- -- -- -- 53 -- -- 53
Net loss.................... -- -- -- -- -- -- -- (1,434) (1,434) $(1,434)
---------- ------- --------- ------ ----- ------- ----- -------- ------- -------
BALANCE, December 31, 1999... 8,000,000 4,476 1,120,540 282 -- (165) -- (1,959) 2,634 $(1,434)
=======
Issuance of Series D
convertible preferred
stock, net of issuance cost
of $45..................... 4,213,750 16,810 -- -- -- -- -- -- 16,810
Exercise of common stock
options.................... -- -- 508,510 94 -- -- -- -- 94
Issuance of common stock
options to consultants and
other nonemployees......... -- -- -- 69 -- -- -- -- 69
Deferred stock compensation. -- -- 3,452 -- (3,452) -- -- --
Amortization of deferred
stock compensation expense. -- -- -- -- -- 1,411 -- -- 1,411
Foreign currency translation
adjustment................. -- -- -- -- -- -- (84) -- (84) $ (84)
Net loss.................... -- -- -- -- -- -- -- (5,745) (5,745) (5,745)
---------- ------- --------- ------ ----- ------- ----- -------- ------- -------
BALANCE, December 31, 2000... 12,213,750 21,286 1,629,050 3,897 -- (2,206) (84) (7,704) 15,189 $(5,829)
=======
Exercise of common stock
options.................... -- -- 168,874 111 -- -- -- -- 111
Notes receivable from
officer and directors for
exercised
options.................... -- -- 176,000 800 (623) (177) -- -- --
Redemption of Series D from
AVPD Purchase.............. (25,000) (100) -- -- -- -- -- -- (100)
Issuance of common stock
options to consultants and
other nonemployees......... -- -- -- 21 -- -- -- -- 21
Interest income on notes
receivable for officer and
directors.................. -- -- -- -- (44) -- -- -- (44)
Deferred stock compensation. -- -- -- 1,750 -- (1,750) -- -- --
Amortization of deferred
stock compensation expense. -- -- -- -- -- 2,063 -- -- 2,063
Foreign currency translation
adjustment................. -- -- -- -- -- -- (104) -- (104) $ (104)
Net loss.................... -- -- -- -- -- -- -- (9,177) (9,177) (9,177)
---------- ------- --------- ------ ----- ------- ----- -------- ------- -------
BALANCE, December 31, 2001... 12,188,750 $21,186 1,973,924 $6,579 $(667) $(2,070) $(188) $(16,881) $ 7,959 $(9,281)
========== ======= ========= ====== ===== ======= ===== ======== ======= =======

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

- --------------------------------------------------------------------------------
F-5

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Year ended December 31,
-------------------------
1999 2000 2001
- ---------------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
Net loss...................................................................... $(1,434) $(5,745) $(9,177)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 89 746 1,220
Cost of settlement of intellectual property matters........................ -- -- 3,718
Long term investment reserve............................................... -- -- 100
In-process research and development........................................ -- 700 --
Deferred stock compensation................................................ 53 1,411 2,063
Provision for doubtful accounts............................................ 42 110 185
Loss from disposal of assets............................................... 16 112 235
Other...................................................................... 38 69 (21)
Changes in assets and liabilities:
Accounts receivable..................................................... (425) (2,149) (522)
Prepaid expenses and other current assets............................... (66) (204) (214)
Other assets............................................................ (21) (252) (649)
Accounts payable........................................................ 123 353 115
Accrued liabilities..................................................... 1,012 4,519 4,331
------- ------- -------
Net cash provided by (used in) operating activities.................. (573) (330) 1,384
------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment............................................ (557) (1,976) (712)
Purchase of Audio Visual Products Division (AVPD)............................. -- (2,200) (1,000)
Purchase of long-term investments............................................. (100) (200) --
------- ------- -------
Net cash used in investing activities................................ (657) (4,376) (1,712)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of Series C preferred stock, net....................... 3,638 -- --
Proceeds from issuance of Series D preferred stock, net....................... -- 16,710 --
Proceeds from exercise of common stock options................................ 25 94 111
------- ------- -------
Net cash provided by financing activities............................ 3,663 16,804 111
------- ------- -------
Effect of change in exchange rates on cash........................................ -- (58) (103)
------- ------- -------
Net increase (decrease) in cash and cash equivalents.............................. 2,433 12,040 (320)
Cash and cash equivalents, beginning of year...................................... 195 2,628 14,668
------- ------- -------
Cash and cash equivalents, end of year............................................ $ 2,628 $14,668 $14,348
======= ======= =======
Supplementary disclosures of noncash investing and financing activities:
Conversion of deposit to Series C convertible preferred stock................. $ 350 $ -- $ --
Issuance (repurchase) of Series D convertible preferred stock................. -- 100 (100)
Notes receivable and accrued interest from officer and directors.............. -- -- 800

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

- --------------------------------------------------------------------------------

F-6

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2000 and 2001

1. ORGANIZATION AND BUSINESS:

InterVideo, Inc. (the "Company") is a leading provider of DVD software and
offers a broad suite of advanced digital video and audio multimedia software
products that allow users to record, edit, author, distribute and play digital
multimedia content on personal computers, or PCs, and consumer electronics
devices. The Company currently derives a substantial majority of its revenue
from sales of its WinDVD product, a software DVD player for PCs. The Company's
other major products in its product suite include WinDVR, a digital video
recorder, WinProducer, a video recording and editing software application, and
WinRip, a digital music recorder and player.

During the first quarter of 2000, the Company created wholly owned subsidiaries
to market its products in Japan and Taiwan. The Taiwan subsidiary includes the
business and assets acquired in June 2000 from the Audio Visual Products
Division (AVPD) of Formosoft International, Inc., as discussed in Note 13.
During the fourth quarter of 2001, the Company created a wholly owned
subsidiary to market its products in China.

The Company is subject to a number of risks associated with technology
companies, including, but not limited to, a history of net losses; limited
operating history; fluctuating operating results; declining selling prices;
third-party intellectual property claims; potential competition from larger
more established companies; and dependence on key employees.

The Company's fiscal year is a calendar year and therefore contains 52 weeks.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

Foreign currency translation

The functional currency of the Company's subsidiaries is the local currency.
Accordingly, all assets and liabilities are translated into U.S. dollars at the
current exchange rate at the applicable balance sheet date. Revenue and
expenses are translated at the average exchange rate prevailing during the
period. Gains and losses resulting from the translation of the financial
statements are reported as a separate component of shareholders' equity.
Foreign currency transaction gains and losses are included in other income
(expense). Through December 31, 2001, such transactions have not been material.

Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Reverse stock split

In April 2002, the Board of Directors approved a .44-for-one reverse stock
split for the holders of common stock. This stock split has been retroactively
reflected in the accompanying consolidated financial statements for all years
presented.

- --------------------------------------------------------------------------------

F-7

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

Cash and cash equivalents

For purposes of the consolidated balance sheets and statements of cash flows,
the Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. Cash and cash equivalents
consist of cash in banks and money market accounts, and commercial paper with
an original maturity date of less than 90 days.

Significant concentrations

Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of accounts receivable. The Company generally
does not require its customers to provide collateral or other security to
support accounts receivable. To reduce credit risk, management performs ongoing
credit evaluations of its customers' financial condition and maintains
allowances for estimated potential bad debt losses. Two customers' accounts
receivable balances were individually greater than 10% of total accounts
receivable at December 31, 2000, and together comprised 29% of total accounts
receivable. Three customers' accounts receivable balances were individually
greater than 10% of total accounts receivable at December 31, 2001, and
together comprised 56% of total accounts receivable.

The following individual customers accounted for greater than 10% of revenue:

For the year ended December 31,
---------------------------
1999 2000 2001
- -----------------------------------------------------------------------

Customer A............................. 22% -- --
Customer B............................. 12% -- --
Customer C............................. 12% -- --
Customer D............................. -- 21% 29%
Customer E............................. -- -- 12%

Valuation accounts

The Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of its customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowance may be
required. Below is a summary of the changes in the Company's allowance for
doubtful accounts for the years ended December 31, 2000 and 2001.

Balance at Balance
Beginning of at End of
the Period Additions Write-off the Period
Allowance for Doubtful Accounts (amounts in thousands)
- ------------------------------------------------------------------------------------

December 31, 2000...................... $ 42 $110 $-- $152
December 31, 2001...................... $152 $185 $18 $319

- --------------------------------------------------------------------------------

F-8

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

Property and equipment

Property and equipment are recorded at cost and are depreciated using the
straight-line method based on estimated useful lives of between three and seven
years. Depreciation expense for property and equipment was $86,000, $416,000
and $721,000 for the years ended December 31, 1999, 2000, and 2001,
respectively. Property and equipment consists of the following as of December
31, 2000 and 2001, (in thousands):

December 31,
---------------
2000 2001
---------------------------------------------------------

Equipment............................... $1,121 $ 1,240
Furniture and fixtures.................. 506 445
Purchased software...................... 682 693
Leasehold improvements.................. 153 173
Construction in process................. -- 274
Other................................... 46 46
------ -------
2,508 2,871
Less: Accumulated depreciation.......... (517) (1,146)
------ -------
Property and equipment, net...... $1,991 $ 1,725
====== =======

Impairment of long-lived assets

When events and circumstances warrant a review, the Company evaluates the
carrying value of long-lived assets to be held and used. The carrying value of
an asset is considered impaired when the anticipated undiscounted cash flow
from such an asset is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value. Fair market value is determined using the anticipated cash flows
discounted at a rate commensurate with the risk involved. Losses on long-lived
assets to be disposed of are determined in a similar manner, except that fair
market values are reduced by the cost to dispose of such assets.

Goodwill and other intangible assets
Goodwill and other intangibles are amortized using the straight-line method
over their estimated useful life of five years.

The Company performs a review of the value of its goodwill and intangible
assets whenever events and circumstances indicate that impairment may have
occurred. Indicators of impairment of such assets include, among other things,
a failure to integrate the related products into our existing products or use
the acquired assets as a basis to further develop the Company's product
offerings. The Company does not believe that an impairment of any of its
goodwill and intangible assets has occurred. In 2002, the Company will modify
its impairment measurement policy and cease amortizing goodwill to comply with
SFAS No. 142, discussed below under "Recent accounting pronouncements."

Revenue recognition

The Company's revenue is derived from fees paid under software licenses granted
primarily to OEMs, distributor, and directly to end users. The Company records
revenue generated from these sales in accordance with SOP 97-2, "Software
Revenue Recognition," as amended, under which revenue is recognized when
evidence of an arrangement exists, delivery of the software has occurred, the
fee is fixed and determinable, and collectibility is reasonably assured.

Under the terms of the Company's license agreements with the OEMs, the OEMs are
entitled only to unspecified upgrades on a when and if available basis prior to
sell through to end users. Under the terms

- --------------------------------------------------------------------------------

F-9

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

of the Company's revenue recognition policy, we recognize revenue based on
evidence of products being sold by the OEMs. The Company does not have any
obligation to provide upgrades to the OEMs' customers. Accordingly, the Company
does not defer any revenue as the company no longer has an obligation once the
OEM's product has been shipped and revenue has been recorded.

Under the terms of each OEM license agreement, the OEM will "qualify" the
software on its then current platform. (The OEM will have the right to return
the software prior to being qualified.) Once the software has been qualified,
the OEM will begin to ship product and report sales to the Company at which
point revenue will be recorded. Once it has been shipped, the OEM does not have
a right of return. Therefore the Company does not maintain a returns reserve
related to OEM sales.

Most OEMs pay a license fee based on the number of copies of licensed software
included in the products sold to their customers. OEMs pay these fees on a
per-unit basis, and the Company records associated revenue when it receives
notification of the OEMs' sales of the licensed software to the end users. The
terms of the license agreements generally require the OEMs to notify the
Company of sales of their products within 30 to 45 days after the end of the
month or quarter in which the sales occur. As a result, the Company generally
recognizes revenue in the month or quarter following the sale of the product to
the OEMs' customers.

Under the terms of our OEM license agreements, the OEM has certain inspection
and acceptance rights. These rights lapse once the product has been qualified
and the shipment reported to the Company. Therefore the Company does not
believe that these acceptance rights impact the amount or timing of revenue
recognition.

Sales to end users are primarily made directly through the Company's websites.
There are no unspecified upgrade rights related to these sales. The Company
does not offer specified upgrade rights to any class of customer. The endusers
who purchase software from websites do not have rights of return.

Cost of Revenue

Cost of revenue is comprised of direct product cost, cost of settlement of
intellectual property matters, and cost of impairment of software license
agreement.

Direct product cost consists primarily of royalties paid to third parties for
technologies incorporated into the Company's products, expenses incurred to
manufacture, package and distribute the Company's software products, the
amortization of developed technology, and costs associated with post-contract
customer support. These amounts are accrued in the period of the related sales
and are included in accrued liabilities.

Cost of settlement of intellectual property matters consists of amounts that
the Company has agreed to pay to third parties in settlement of alleged
infringement of certain patents used in the Company's and the customer's
products in periods prior to December 31, 2001.

Cost of impairment of software license agreement consists of royalty payments
for a license royalty agreement that the Company has determined to be
unrealizable. In December 2000, the Company entered into a software license
agreement providing for an aggregate of $1.1 million of minimum royalty
payments through October 2002. The associated expense is recognized as a direct
product cost based upon the number of customer registrations received during
the relevant period. As of September 30, 2001 $35,000 of royalty payments had
been expensed based on customer registrations received through that date. In
September 2001, the Company determined that a large portion of the minimum
royalty payment

- --------------------------------------------------------------------------------

F-10

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

would be unrealizable. Accordingly, $958,000 has been charged to cost of
impairment of software license agreement of which $613,000 relates to royalty
payments already made and $345,000 relate to future liabilities under the
agreement. The remaining $57,000 will be recorded in direct product cost during
2002.

Software development costs
Under SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," costs incurred in the research and development
of software are expensed as incurred until technological feasibility has been
established. Software development costs incurred subsequent to the
establishment of technological feasibility through the period of general
marketability of the products are capitalized. The Company defines
establishment of technological feasibility as the completion of a working
model. The establishment of technological feasibility and the ongoing
assessment of recoverability of these costs require considerable judgment by
management with respect to certain external factors, including, but not limited
to, anticipated future gross product revenues, estimated economic life, and
changes in software and hardware technologies. Amounts that were capitalizable
under SFAS No. 86 were insignificant, and therefore no costs have been
capitalized to date.

Customer service and technical support

Customer service and technical support costs include the costs associated with
answering customer inquires and providing telephone assistance to end users of
the Company's products. In connection with the sale of certain products, the
Company provides a limited amount of free telephone support service to end
users. This free service, also referred to as post-contract customer support
("PCS"), is included in cost of revenue. The Company does not defer the
recognition of any revenue associated with sales to end users, because no
separate charge is made for the PCS and PCS is provided within 90 days after
the associated revenue is recognized.

- --------------------------------------------------------------------------------

F-11

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

Net loss per share

Basic net loss per common share is calculated by dividing net loss for the
period by the weighted average common shares outstanding during the period,
less shares subject to repurchase. Diluted income per share is calculated by
dividing the net income for the period by the weighted average common shares
outstanding, adjusted for all potential common shares, which includes shares
issuable upon the exercise of outstanding common stock options, convertible
preferred stock, warrants, and other contingent issuances of common stock to
the extent these shares are dilutive. The Company has losses for all periods
presented and, accordingly, has excluded all convertible preferred stock,
outstanding stock options, and shares subject to repurchase from the
calculation of diluted net loss per common share because all such securities
are antidilutive for all periods presented. A reconciliation of the numerator
and denominator used in the calculation of basic and dilutive net income (loss)
per share available to common stockholders is as follows (in thousands, except
for share and per share amounts):

Years ended December 31,
---------------------------------
1999 2000 2001
- ----------------------------------------------------------------------------------------------------------

Numerator
Net loss (in thousands)................................................ $ (1,434) $ (5,745) $ (9,177)
========= ========== ==========
Denominator
Basic and diluted:
Weighted average common shares outstanding......................... 948,424 1,575,730 1,839,423
Less: Weighted average unvested shares subject to repurchase..... (702,644) (420,666) (307,362)
--------- ---------- ----------
Denominator on basic and diluted calculation....................... 245,780 1,155,064 1,532,061
========= ========== ==========
Basic and diluted net loss per share................................... $ (5.83) $ (4.97) $ (5.99)
========= ========== ==========
Shares used above to compute basic and diluted net loss per share...... 245,780 1,155,064 1,532,061
========= ==========
Pro forma adjustment to reflect weighted average effect of assumed
conversion of convertible preferred stock (unaudited)................. 5,363,050
----------
Shares used in computing pro forma basic and diluted net loss per
common share (unaudited).............................................. 6,895,111
==========
Pro forma basic and diluted net loss per common share (unaudited)...... $ (1.33)
==========

The following table summarizes weighted average shares of common stock
equivalents that are not included in the denominator used in the diluted net
loss per share calculation because to do so would be antidilutive for the
periods presented:

As of December 31,
-----------------------------
Effect of Common Stock Equivalents 1999 2000 2001
---------------------------------------------------------------------

Common stock subject to repurchase..... 702,644 420,666 307,362
Options to purchase common stock....... 1,074,966 2,068,609 1,810,803
Series A preferred stock............... 2,200,000 2,200,000 2,200,000
Series B preferred stock............... 440,000 440,000 440,000
Series C preferred stock............... 441,206 880,000 880,000
Series D preferred stock............... -- 1,245,470 1,843,050
--------- --------- ---------
Total............................ 4,858,816 7,254,745 7,481,215
========= ========= =========

Pursuant to SEC Staff Accounting Bulletin No. 98, convertible preferred stock
and common stock issued or granted for nominal consideration prior to the
anticipated effective date of an initial public offering must be included in
the calculation of basic and diluted net loss per common share as if they had
been

- --------------------------------------------------------------------------------

F-12

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

outstanding for all periods presented. To date, the Company has not made any
issuances or grants for nominal consideration.

Unaudited pro forma net loss per share

The unaudited pro forma basic and diluted net loss per common share and pro
forma basic and diluted weighted average common shares outstanding reflect the
automatic conversion of all outstanding shares of convertible preferred stock
upon the completion of the Company's proposed initial public offering (using
the if-converted method).

Unaudited pro forma presentation

The unaudited pro forma information in the accompanying consolidated balance
sheet assumes the conversion of the outstanding shares of convertible preferred
stock into 5,363,050 shares of common stock as though the completion of an
initial public offering had occurred on December 31, 2001. Common shares
resulting from such initial public offering and its related estimated net
proceeds are excluded from such pro forma information.

Stock based compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board Opinion ("APB") No.
25, "Accounting for Stock Issued to Employees" and complies with the disclosure
requirement of SFAS No. 123, "Accounting for Stock Based Compensation."

Options granted to consultants and other nonemployees are accounted for at fair
value determined using the Black-Scholes method in accordance with the
provision of SFAS No. 123 and EITF consensus No. 96-78, "Accounting for
Instruments That Are Issued to Other Than Employees for Acquiring, or In
Connection with Selling, Goods, or Services," which requires that such equity
instruments are recorded at their fair value on the measurement date, typically
the date of grant.

Income tax
The Company accounts for income taxes in accordance with the asset and
liability method.

Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities.

A valuation allowance is provided to reduce tax assets to an amount that would
be reasonably realizable in the future periods.

Comprehensive loss
Comprehensive loss is the total of net loss and all other nonowner changes in
shareholders' equity. The Company's only component of other comprehensive loss
is net loss attributed to foreign currency translation adjustments. Such
amounts are excluded from net loss and are reported in accumulated other
comprehensive loss in the accompanying statements of operations and
shareholders' equity.

Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 and its amendments establish
accounting and reporting standards for derivatives and similar instruments,
requiring that every derivative instrument be recorded in the balance sheet as
either

- --------------------------------------------------------------------------------

F-13

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

an asset or liability measured at its fair value. The Company implemented SFAS
No. 133 on January 1, 2001. Because the Company does not engage in derivatives
or hedging activities, SFAS No. 133 did not have a material impact on the
Company's financial position or results of operations.

In March 2000, the FASB issued Interpretation No. 44 (FIN 44), "Accounting for
Certain Stock Transactions Involving Stock Compensation, an Interpretation of
APB Opinion No. 25 (Opinion 25)." FIN 44 provides guidance for certain issues
that arise in applying Opinion 25. Management believes that the Company's
policies are in compliance with the guidelines of FIN 44, and therefore the
adoption of FIN 44 has not significantly affected the Company's results of
operations.

In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No.
142, Goodwill and Other Intangible Assets. These new standards are effective
for fiscal years beginning after December 15, 2001. Under the new standards,
goodwill will no longer be amortized, but will be subject to an annual
impairment test. The standards also promulgate, among other things, new
requirements for accounting for other intangible assets. Management believes
these new standards will not significantly affect the Company's results of
operations.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. The Company will adopt SFAS No. 143 effective December 31,
2002, and does not expect it to have a material impact on the Company's
financial position and results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets. This new standard is effective for fiscal years
beginning after December 15, 2001. This new standard affirms and clarifies
certain accounting for long-lived assets and broadens the application of
discontinued operations treatment. Management does not believe that these new
standards will have a material impact on the Company's financial position and
results of operations.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to
the presentation of the year ended December 31, 2001.

3. OTHER ASSETS:

Other assets consist of the following (in thousands):

As of December 31,
-----------------
2000 2001
- --------------------------------------------------------------------

Deposits......................................... $ 218 $ 886
Investments...................................... 300 200
Assembled work force............................. 150 150
Purchased developed technology................... 1,000 1,000
Goodwill......................................... 1,339 1,339
Other............................................ 62 --
Less: Accumulated amortization................... (290) (788)
------ ------
$2,779 $2,787
====== ======

Goodwill arose from the acquisition of AVPD as discussed in Note 13.

- --------------------------------------------------------------------------------

F-14

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

4. ACCRUED LIABILITIES:

Accrued liabilities consist of the following (in thousands):

As of December 31,
------------------
2000 2001
- ------------------------------------------------------------------------------

Accrued payroll and related benefits....................... $ 927 $ 1,097
Royalties for signed agreements............................ 2,604 3,722
Accruals for unsigned agreements........................... 900 2,250
Accrued settlement of intellectual property claims......... -- 4,233
AVPD acquisition price payable............................. 900 --
Accrued promotion.......................................... -- 600
Accrued restructuring...................................... -- 307
Other...................................................... 1,130 1,391
---------- -------
Total................................................ $ 6,461 $13,600
========== =======

During the year ended December 31, 2001, the Company accrued $4.2 million for
payment of settlement of alleged contributory infringement of certain patents
allegedly used in the Company's products or its customers' products. The
Company has agreed to pay to one customer a settlement of shares of preferred
stock convertible into 286,000 shares of our common stock upon the closing of
this offering, with a total value of approximately $3.7 million for claims
relating to products sold prior to December 31, 2001. The Company expects to
issue these shares in 2002. The Company also expects to pay approximately
$515,000 in cash to other parties for settlement of similar claims. There can
be no assurance that there will not be additional claims in the future.

During the years ended December 31, 2000 and 2001, the Company accrued $900,000
and $1.4 million respectively, for royalties for unsigned agreements. These
accruals represent amounts payable based upon (i) units sold under arrangements
where the Company believes that is has a probable and estimatable legal
obligation times (ii) royalty unit price that the relevant patent holders have
published. These published amounts have remained consistent but are expected to
decrease in the future which will impact the accrual in future periods. It is
not known when agreements will ultimately be signed, if ever. Should the final
arrangements result in royalty rates significantly different from these
assumptions, the business, operating results and financial condition of the
Company could be materially and adversely affected.

The Company has received notices of claims, and may receive notices of claims
in the future, regarding the alleged infringement of third parties'
intellectual property rights that may result in restrictions or prohibitions on
the sale of its products and cause it to pay license fees and damages. Some
third parties claim to hold patents covering various aspects of DVD technology.
Some third parties have claimed that various aspects of DVD technology
incorporated into the Company's and its customers' products infringe upon
patents held by them.

The Company may be subject to additional third-party claims that its products
violate the intellectual property rights of those parties. In addition to the
claims described above, the Company may receive notices of claims of
infringement of other parties' proprietary rights. Many companies aggressively
use their patent portfolios to bring infringement claims against competitors
and other parties. As a result, the Company may become a party to litigation in
the future as a result of an alleged infringement of the intellectual property
of others. The Company may be required to pay license fees and damages in the
future if it is determined that its products infringe on patents owned by these
third parties.

The Company may be required to pay substantial damages and may be restricted or
prohibited from selling its products if it is proven that it has violated the
intellectual property rights of others. If a third

- --------------------------------------------------------------------------------

F-15

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

party proves that the Company's technology infringes its proprietary rights,
the Company may be required to pay substantial damages for past infringement
and may be required to pay license fees or royalties on future sales of its
products. In addition, if it were proven that the Company willfully infringed
on a third party's proprietary rights, it may be held liable for three times
the amount of damages it would otherwise have to pay. Intellectual property
litigation may require the Company to: stop selling, incorporating or using its
products that use the infringed intellectual property; obtain a license to
make, sell or use the relevant technology from the owner of the infringed
intellectual property, which license may not be available on commercially
reasonable terms, if at all; and redesign its products so as not to use the
infringed intellectual property, which may not be technically or commercially
feasible and may cause the Company to expend significant resources.

The defense of infringement claims and lawsuits, regardless of their outcome,
would likely be expensive to resolve and could require a significant portion of
management's time. Rather than litigating an infringement matter, the Company
may determine that it is in its best interests to settle the claim. Terms of a
settlement could include the payment of damages and an agreement to license
technology in exchange for a license fee and ongoing royalties. These fees may
be substantial. If the Company is forced to take any of the actions described
above, defend against any claims from third parties or pay any license fees or
damages, its business and financial position could be materially and adversely
affected.

The Company may be liable to some of its customers for damages that they incur
in connection with intellectual property claims. Some of its license
agreements, including many of the agreements it has entered into with its large
PC OEM customers, contain warranties of non-infringement and commitments to
indemnify our customers against liability arising from infringement of
third-party intellectual property. These commitments may require the Company to
indemnify or pay damages to its customers for all or a portion of any license
fees or other damages, including attorneys' fees, they are required to pay or
agree to pay these or other third parties. The Company has received notices
asserting rights under the indemnification provisions and warranty provisions
of its license agreements with several customers. If the Company is required to
pay damages to its customers or indemnify its customers for damages they incur,
its business could be harmed. If customers are required to pay license fees in
the amounts that are currently published by claimants, and the Company is
required to pay damages to its customers or indemnify its customers for such
amounts, such payments would exceed its revenue from such customers. Even if a
particular claim falls outside of an indemnity or warranty obligation to its
customers, the customers may be entitled to additional contractual remedies
against the Company. Furthermore, even if the Company is not liable to its
customers, they may attempt to pass on to the Company the cost of any license
fees or damages owed to third parties, by reducing the amounts they pay for the
Company's products. These price reductions could harm the Company's business.

5. COMMITMENTS AND CONTINGENCIES:

Lease commitments

As of December 31, 2001, future minimum commitments under operating leases are
as follows (in thousands):

Fiscal Year Lease
----------------------------------------------------------- ------

2002....................................................... $ 851
2003....................................................... 607
2004....................................................... --
2005....................................................... --
------
$1,458
======

- --------------------------------------------------------------------------------

F-16

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

Rent expense was $113,000, $347,000 and $898,000 for the years ended December
31, 1999, 2000 and 2001, respectively, and is included in operating expenses on
the accompanying statements of operations.

6. CONVERTIBLE PREFERRED STOCK:

As of December 31, 2001, convertible preferred stock consists of the following,
net of issuance costs (in thousands, except share amounts):

December 31,
---------------
2000 2001
- ---------------------------------------------------------------------------------------

Series A:
Authorized--5,000,000 shares.......................................
Outstanding--5,000,000 shares; liquidation preference of $250...... $ 245 $ 245
Series B:
Authorized--1,000,000 shares.......................................
Outstanding--1,000,000 shares; liquidation preference of $250...... 243 243
Series C:
Authorized--2,000,000 shares.......................................
Outstanding--2,000,000 shares; liquidation preference of $4,000.... 3,988 3,988
Series D:
Authorized--5,000,000 shares.......................................
Outstanding--4,188,750 shares; liquidation preference of $16,755... 16,810 16,710
------- -------
$21,286 $21,186
======= =======

The rights, restrictions, and preferences of the convertible preferred stock
are as follows:

... Each share of convertible preferred stock is convertible, at the option of
the holder, into such number of fully paid and nonassessable shares of
common stock as is determined by dividing the number of shares outstanding
by the initial conversion price of $0.05 per Series A, $0.25 per Series B,
$2.00 per Series C, and $4.00 per Series D. Such initial conversion price
shall be subject to adjustment.

... Each share of convertible preferred stock will be automatically converted
into shares of common stock at the then-effective conversion price on the
effective date of a firm commitment to underwrite the public offering of
the Company's common stock.

... The holders of convertible preferred stock are entitled to the number of
votes equal to the number of shares of common stock into which their shares
of preferred stock would convert.

... Each preferred stockholder is entitled to receive annual dividends at a
rate of $0.005 per Series A shares, $0.025 per Series B shares, $0.20 per
Series C shares, and $0.4 per Series D shares, when and if declared by the
Board of Directors, prior to payment of dividends on common stock.
Dividends are noncumulative. No dividends have been declared to date.

... In the event of liquidation, dissolution, or winding up of the affairs of
the Company, the holders of Series A, Series B, Series C, and Series D
convertible preferred stock are entitled to receive a liquidation
preference of $0.05 per Series A share, $0.25 per Series B share, $2.00 per
Series C share, and $4.00 per Series D share, prior to any distribution to
the holders of the common stock. After this distribution, all remaining
assets of the Company will be distributed to all stockholders on a share
for share basis (assuming conversion of all outstanding preferred stock
into common stock).

- --------------------------------------------------------------------------------

F-17

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

7. COMMON STOCK:

In May 1998, the Company issued 880,000 shares of common stock to one employee
of the Company, all of which were subject to repurchase rights at the option of
the Company. The shares are repurchasable at $0.00114 per share in the event of
termination of employment for any reason. The repurchase rights began to lapse
12 months after the vesting commencement date (May 15, 1998). Beginning on May
15, 1999, the remaining shares vest ratably each month over the remaining 36
months of the term. At December 31, 1999, 2000 and 2001, 348,333, 568,333 and
788,333 shares, respectively, had vested.

In February 1999, the Board of Directors approved a two-for-one stock split of
all common and preferred stock. All share and per share information has been
retroactively adjusted to reflect the stock split.

As of December 31, 2001, the Company had reserved shares of authorized but
unissued common stock for the following:

Conversion of Series A preferred stock..................... 2,200,000
Conversion of Series B preferred stock..................... 440,000
Conversion of Series C preferred stock..................... 880,000
Conversion of Series D preferred stock..................... 2,200,000
Stock Options......................................... 3,402,326
---------
Total shares reserved................................ 9,122,326
=========

8. STOCK OPTIONS:

During 1998, the Company established the 1998 Stock Option Plan (the Plan)
covering key employees and consultants of the Company. Under the terms of the
Plan, incentive and nonstatutory stock options and stock purchase rights may be
granted for up to 880,000 shares of the Company's authorized but unissued
common stock. In 1999, the Company amended the Plan to grant up to 3,520,000
shares of the Company's authorized but unissued common stock. In 2000, the
Company amended the Plan to grant up to 4,400,000 shares of the Company's
authorized but unissued common stock. Options issued under the Plan generally
have a maximum term of 10 years and vest over schedules determined by the Board
of Directors. Options issued under the Plan to stockholders owning 10 percent
of the total combined voting power of all classes of stock shall have a maximum
term of five years from the date of grant.

Nonstatutory stock options may be granted to employees and consultants at no
less than 85 percent of the fair market value of the stock as determined by the
Board of Directors at the date of grant. Incentive stock options may be granted
only to employees at the fair market value of the stock at the date of the
grant. Stock options granted to a person owning more than 10 percent of the
total combined voting power of all classes of stock of the Company must be
issued at 110 percent of the fair market value of the stock on the day of grant.

The Company granted 425,194, 129,800 and 1,320 nonstatutory stock options to
consultants in 1999, 2000 and 2001, respectively. The options either vest
immediately or over four years.

- --------------------------------------------------------------------------------

F-18

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

Option activity is as follows:

Option Option
Shares Activity Activity Total
Available for Under Outside of Outstanding
Grant the Plan the Plan Options
- ------------------------------------------------------------------------------------------

December 31, 1998...................... 880,000 -- -- --
Authorized.......................... 2,640,000 -- -- --
Options granted..................... (2,561,504) 2,561,504 25,850 2,587,354
Options exercised................... -- (227,890) (12,650) (240,540)
Options canceled.................... 4,400 (4,400) -- (4,400)
---------- --------- ------- ---------
December 31, 1999...................... 962,896 2,329,214 13,200 2,342,414
Authorized.......................... 880,000 -- -- --
Options granted..................... (972,664) 972,664 44,000 1,016,664
Options exercised................... -- (508,510) -- (508,510)
Options canceled.................... 99,743 (99,743) -- (99,743)
---------- --------- ------- ---------
December 31, 2000...................... 969,975 2,693,625 57,200 2,750,825
Authorized.......................... -- -- -- --
Options granted..................... (444,928) 444,928 26,400 471,328
Options exercised................... -- (287,674) (57,200) (344,874)
Options canceled.................... 515,488 (515,488) -- (515,488)
---------- --------- ------- ---------
December 31, 2001...................... 1,040,535 2,335,391 26,400 2,361,791
========== ========= ======= =========

The following table summarizes the stock options outstanding and exercisable as
of December 31, 2001:

Weighted Average
Number of Options Remaining Options
Outstanding at Contractual Life Weighted Average Exercisable as of
Range of Exercise Prices December 31, 2001 (Years) Exercise Price December 31, 2001
- ----------------------------------------------------------------------------------------------

$0.11-0.13 1,438,929 7.26 $0.11 1,252,122
0.57-0.63 279,586 7.89 0.59 190,880
4.55-5.00 643,276 8.89 4.61 257,892
- ------------------------ ----------------- ---------------- ---------------- -----------------
$0.11-5.00 2,361,791 7.78 $1.40 1,700,894
======================== ================= ================ ================ =================

SFAS No. 123, "Accounting for Stock-Based Compensation," establishes a
fair-value-based method of accounting for stock-based compensation plans and
requires additional disclosures for those companies that elect not to adopt the
new method of accounting. In accordance with the provision of SFAS No. 123, the
Company has elected to apply APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Had compensation cost for the plans been
determined consistent with SFAS No. 123, pro forma net loss would be as follows:

Year ended December 31,
--------------------------
1999 2000 2001
-----------------------------------------------------------------------------

Net Loss:
As reported................................... $(1,434) $(5,745) $ (9,177)
======= ======= ========
Pro Forma..................................... $(1,447) $(6,464) $(11,062)
======= ======= ========

Net loss per share--Basic and Diluted:
As reported................................... $ (5.83) $ (4.97) $ (5.99)
======= ======= ========
Pro Forma..................................... $ (5.88) $ (5.60) $ (7.22)
======= ======= ========

- --------------------------------------------------------------------------------

F-19

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

The weighted average exercise price of options granted during 1999, 2000 and
2001 was $0.14, $3.35 and $4.30, respectively. The fair value of each option
granted was estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions used for grants in 1999, 2000 and
2001: risk-free interest rates ranging from 5.6 percent to 6.4 percent;
expected dividend yields of zero; expected lives of four years beyond grant
date; and expected volatility of zero percent. The Black-Scholes option
valuation model requires the input of subjective assumptions, the resulting pro
forma compensation cost may not be representative of that to be expected in
future periods.

The Company also issues options to consultants and other nonemployees. Stock
options issued to consultants and other nonemployees are valued under the
provisions of SFAS No. 123. The fair value of each option granted was estimated
on the date of grant using the Black-Scholes option pricing model with the
following assumptions used for grants in 1999 and 2000: risk-free interest
rates ranging from 5.6 percent to 6.5 percent; expected dividend yields of
zero; expected lives of four years beyond grant date; and expected volatility
of 70 percent. Because the Black-Scholes option valuation model requires the
input of subjective assumptions, the resulting pro forma compensation cost may
not be representative of that to be expected in future periods. The
compensation expense related to these options was $38,000, $69,000 and $21,000
for the years ended December 31, 1999, 2000 and 2001, respectively, and is
included in operating expenses in the accompanying statements of operations.

Deferred stock compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees," and its related
interpretations in accounting for its employee stock options. Under APB 25,
when the exercise price of employee stock options is less than the market price
of the underlying stock on the date of grant, compensation expense is recorded
for the difference between
market value and the exercise price. Expense associated with stock-based
compensation is being amortized over the vesting period of the individual award
using an accelerated method of amortization consistent with the method
described in FASB Interpretation No. 28.

The value of warrants, options, or stock exchanged for services is expensed
over the period benefited. To calculate the expense, the Company uses the more
objectively determinable method between the fair value of the equity instrument
based on the Black-Scholes pricing model or the value of the services.

In connection with the grant of certain stock options to employees for the
years ended December 31, 1999, 2000 and 2001, the Company recorded deferred
stock compensation within stockholders' equity of $218,000, $3.4 million and
$1.7 million, respectively, representing the difference between the estimated
fair value of the common stock for accounting purposes and the option exercise
price of those options at the date of grant. Such amount is presented as a
reduction of stockholders' equity and will be amortized over the vesting period
of the applicable options using an accelerated method of amortization under
FASB Interpretation No 28. The Company recorded amortization of deferred
compensation expense of $53,000, $1.4 million and $2 million for the years
ended December 31, 1999, 2000 and 2001, respectively.

Notes receivable from officer and directors

In March 2001, the Company granted a senior executive an option to purchase
132,000 shares of common stock exercisable with a promissory note. These
options were exercised at the time of grant and the Company recorded a note
receivable and a reduction in stockholder's equity. The note bears interest at
5.07% per annum and is due on the earlier of March 22, 2006 or the first
anniversary of the termination of services. The note is secured by the
underlying stock and is with full recourse. The Company has imputed interest on
the note in excess of the stated interest rate and has recorded a

- --------------------------------------------------------------------------------

F-20

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

corresponding discount. This imputed interest will be recognized over the four
year vesting term of the stock (which is subject to a right of repurchase) as
additional compensation expense. The deemed market rate on the note is 10%. The
Company records interest income at the deemed market rate. All interest is due
upon maturity of the note.

In June 2001, the Company granted two directors of the Company options to each
purchase 22,000 shares of common stock exercisable with a promissory note.
These options were exercised in December 2001. The notes bear interest at 5.07%
per annum and become payable in full upon the earlier of December 11, 2006 or
the first anniversary of the termination of services with the Company. These
notes will be accounted for at the same deemed market rate and in the same
manner as the note received in March 2001.

9. 401(K) PLAN:

The Company has a defined contribution savings plan under Section 401(k) of the
Internal Revenue Code. The plan provides for tax-deferred salary deductions and
after-tax employee contributions. There have been no contributions made by the
Company to date.

10. INCOME TAXES:

The Company applies the asset and liability approach to accounting for income
taxes under which deferred income taxes are provided based upon enacted tax
laws and rates applicable to the periods in which the taxes become payable.

The net deferred income tax asset consists of the following (in thousands):

December 31,
----------------
2000 2001
- -----------------------------------------------------------------------------

Deferred income tax assets:
Federal net operating loss carryforwards................ $ 1,412 $ 1,231
State net operating loss carryforwards.................. 242 127
Start-up costs capitalized for tax...................... 110 74
Research and development credit......................... 500 961
Depreciation and amortization........................... 150 1,091
Other temporary differences............................. 180 3,276
Other tax credits....................................... 627 107
------- -------
3,221 6,867
Valuation allowance..................................... (3,221) (6,867)
------- -------
Net deferred income tax asset........................... $ -- $ --
======= =======

All deferred tax assets carried a 100% valuation allowance at December 31, 2000
and 2001.

Federal and state net operating loss carryforwards at December 31, 2001, were
approximately $3.6 million and $2.2 million, respectively. The federal net
operating loss carryforwards expire on various dates through 2021, while the
state net operating loss carryforwards expire beginning in 2006. The Company
also has federal and state research and development tax credit carryforwards of
approximately $476,000 and $485,000, respectively. The federal tax credit
carryforwards expire on various dates through 2021, while the state tax credits
carry forward indefinitely. The Company has provided an offsetting valuation
allowance for the amount of these deferred income tax assets because of the
uncertainty surrounding the realizability of such amounts.

- --------------------------------------------------------------------------------

F-21

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

The Internal Revenue Code contains provisions that may limit the net operating
losses and tax credit carryforward to be used in any given year upon the
occurrence of certain events, including a significant change in ownership
interest.

The provision for income taxes from the expected tax benefit amount computed by
applying the statutory federal income tax rate of 34 percent to loss before
taxes is as follows:

December 31,
-------------------
1999 2000 2001
- --------------------------------------------------------------------------------

Federal statutory rate..................................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit........................ 5.8 5.8 5.8
Foreign tax rates.......................................... 0.1 9.0 22.3
Change in valuation allowance.............................. (39.9) (39.8) (39.8)
----- ----- -----
Total................................................ 0.0% 9.0% 22.3%
===== ===== =====

The significant components of income tax expense for 1999 are as follows (in
thousands):

Current Deferred Total
--------------------------------------------------------------

Federal.............................. $-- $(316) $(316)
State................................ -- (82) (82)
Foreign.............................. 64 -- 64
Valuation allowance.................. -- 398 398
--- ----- -----
Total income tax expense...... $64 $ -- $ 64
=== ===== =====

The significant components of income tax expense for 2000 are as follows (in
thousands):

Current Deferred Total
----------------------------------------------------------------

Federal.............................. $ -- $(2,007) $(2,007)
State................................ 1 (459) (458)
Foreign.............................. 552 -- 552
Valuation allowance.................. -- 2,465 2,465
---- ------- -------
Total income tax expense...... $553 $ (1) $ 552
==== ======= =======

The significant components of income tax expense for 2001 are as follows (in
thousands):

Current Deferred Total
----------------------------------------------------------------

Federal.............................. $ -- $(2,906) $(2,906)
State................................ -- (740) (740)
Foreign.............................. 924 -- 924
Valuation allowance.................. -- 3,646 3,646
---- ------- -------
Total income tax expense...... $924 $ -- $ 924
==== ======= =======

11. RELATED-PARTY TRANSACTIONS:

Prior to November 1999, the Company received limited administrative and
accounting services from an affiliated company in which the Company's chief
executive officer and his spouse (who is also a member of the Company's Board
of Directors) have been significant stockholders. No amounts were charged to
the Company by the affiliate for the services provided during the period from
April 1998 to November 1999, and the Company has not recorded a charge for the
fair value of the services received.

- --------------------------------------------------------------------------------

F-22

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

The Company provided services to Fundwatch Global Financial Ltd. that amounted
to approximately $20,000 and $51,000 in 2000 and 2001, respectively, and sold
equipment to Fundwatch Global Financial for approximately $80,000 in 2001.
Fundwatch Global Financial's chief executive officer is the brother of the
Company's chief executive officer.

12. SEGMENT AND GEOGRAPHIC INFORMATION:

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

The Company has one operating segment: multimedia software. Sales of licenses
to this software occur in three geographic locations. International revenues
are based on the country in which the end-user is located. The following is a
summary of international license revenue by geographic region (in thousands):

Year ended December 31,
-----------------------
1999 2000 2001
---------------------------------------------------------------

Americas............................... $1,398 $ 6,959 $18,622
Europe................................. 265 2,388 3,824
Asia:
Japan............................... 543 2,931 8,579
Other Asia.......................... 830 3,148 2,738
------ ------- -------
Total............................ $3,036 $15,426 $33,763
====== ======= =======

13. ACQUISITION OF AVPD:

On June 7, 2000, the Company completed the acquisition of the business and
assets of AVPD, a developer of audio and video software products. AVPD was
founded in 1998 and released its first product, GAMUT98, in August 1998. Its
second-generation product, GAMUT2000, was released in February 2000. This
purchase is intended to result in the combination of GAMUT technological assets
that would accelerate the Company's development and introduction of next
generation multimedia software products. The results of operations of AVPD are
included in the consolidated statements of operations for the period from
June 7, 2000 to December 31, 2000, and for the year ended December 31, 2001.

The purchase cost of the acquisition was $3.2 million, including legal,
valuation and accounting fees of $200,000, and was accounted for as a purchase.
The Company paid $2.2 million during 2000 and accrued $1 million for payment in
stock, with tentative delivery of 11,000 shares of preferred stock at the
closing. In January 2001, in accordance with the provisions of the purchase
agreement, the seller returned these shares and received $1 million in U.S.
dollars.

The purchase price was allocated as follows: $700,000 to in-process research
and development, $1.3 million to goodwill, $150,000 to assembled work force,
and $1 million to developed technology. In performing this allocation, the
Company considered, among other factors, AVPD's technology research and
development projects in process at the date of acquisition. With regard to the
in-process research and development projects, the Company considered factors
such as the overall objectives of the project, progress towards the objectives
at the time of acquisition, the uniqueness of the development projects, and
contributions from existing technology and projects.

- --------------------------------------------------------------------------------

F-23

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

The income approach was the primary technique utilized in valuing the purchased
research and development. Each of the in-process research and development
projects was identified and valued through detailed interviews and analysis of
product development data provided by management concerning developmental
projects, their respective stages of development, the time and resources needed
to complete the projects, their expected income-generating ability and
associated risks.

Revenue projections used to value the developed technology and in-process
research and development were based on estimates of relevant market sizes and
growth factors, expected trends in technology and the nature and expected
timing of new product introductions by AVPD. The discount rate selected for
developed and in-process technology was 30 percent and 35 percent, respectively.

The analysis of the assembled work force primarily considered the replacement
cost associated with recruiting and training a work force with comparable
experience and qualifications.

All of the in-process technology projects acquired from AVPD were completed by
the end of 2000 and incorporated into the Company's WinRip product, which began
shipping in February 2001.

Total amortization expense was $290,000 and $498,000 for the years ended
December 31, 2000 and 2001.

Following is unaudited pro forma combined consolidated financial information,
as though the acquisition had occurred on January 1, 1999, (amounts in
thousands, except per share data):

Year ended
December 31,
----------------
1999 2000
-----------------------------------------------------------------------------

Net revenues............................................... $ 3,218 $15,575
Net loss................................................... $(2,252) $(6,061)
Basic and diluted weighted average net loss per share...... $ (9.15) $ (5.25)

The pro forma net losses include amortization of goodwill and purchased
intangibles of approximately $500,000 and $208,000 for each of the years ended
December 31, 1999 and 2000, respectively. This unaudited pro forma combined
consolidated financial information is presented for illustrative purposes only
and is not necessarily indicative of the consolidated results of operations in
future periods or the results that actually would have been realized.

14. IMPAIRMENT OF PROMOTIONAL AGREEMENT:

In March 2001 the Company entered into a promotional agreement with an online
music provider for exclusive marketing and promotion space. In accordance with
the agreement, the Company is required to pay $1.1 million over 12 months and
provide a $600,000 standby letter of credit. During the period from March 2001
to August 2001, the Company incurred $550,000 for promotional costs, which have
been recorded in sales and marketing expense. Based on the results of the
promotion, the Company determined that there was minimal future promotional
benefit to be derived from this contract, even though the payments had been
made or were still due. The Company has classified the remaining $550,000 of
promotional expense separately as impairment of promotional agreement.

15. RESTRUCTURING:

During the second quarter of 2001, the Company approved a restructuring plan to
reduce its workforce and consolidate offices to align its cost structure with
the Company's projected revenue growth and

- --------------------------------------------------------------------------------

F-24

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

economic and industry conditions at the time. A one-time charge of $850,000
related to this plan was recorded in operating expense in the second quarter.
This charge included $257,000 related to employee terminations and $593,000
related to office closures.

This restructuring eliminated approximately 25% of the Company's worldwide
employee workforce, including employees in research and development, sales and
marketing and general and administrative. This plan is expected to result in
annual savings of approximately $3.0 million. The estimated cost savings have
been calculated based upon expected cost reductions related to employee
termination and reduced facilities expenses.

Accrued restructuring expenses related to the future payment of restructuring
expenses are as follow (in thousands):

As of
December 31,
2001
--------------------------------------------------------------

Severance........................................ $ 2
Office closures.................................. 305
----
Total...................................... $307
====

16. SUBSEQUENT EVENTS:

Approval to file registration statement

In January 2002, the Board of Directors of the Company approved the filing of a
registration statement by the Company under the Securities Act of 1933 relating
to an initial public offering of the Company's common stock.

Stock option issuances

In January 2002, the Company granted to employees and consultants options to
purchase 248,996 and 88,000 shares of common stock at an exercise price of
$6.82 and $7.50 per share respectively. These options have a term of up to 10
years and the options either vest immediately or over four years from the date
of grant. In connection with these options, deferred stock compensation of $2.1
million has been recorded.

In March 2002, the Company granted to employees and consultants options to
purchase 79,816 shares of common stock at an exercise price of $9.09 per share.
These options have a term of up to 10 years and the options vest over four
years from the date of grant. In connection with these options, deferred stock
compensation of $355,000 has been recorded.

In April 2002, the Company granted to employees and consultants options to
purchase 21,340 shares of common stock at an exercise price of $11.36 per
share. These options have a term of up to 10 years and the options vest over
four years from the date of grant. In connection with these options, deferred
stock compensation of $44,000 has been recorded.

The Board of Directors has approved a loan Honda Shing $100,000 at an interest
rate of 10%. The loan will be full recourse and will be secured by the shares
of common stock held by Mr. Shing. Principal and interest on the note shall
become due and payable one year from the date of issuance.

Reincorporation

In April 2002, the Board of Directors approved the Company's plans to
reincorporate in Delaware prior to the completion of this offering.

- --------------------------------------------------------------------------------

F-25

INTERVIDEO, INC.
- --------------------------------------------------------------------------------

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
Formosoft International Inc.:

We have audited the accompanying balance sheets of the Audio/Video Products
Division of Formosoft International Inc. as of December 31, 1998 and 1999, and
the related statements of operations and comprehensive loss and cash flows for
the period from April 14, 1998 (date of incorporation), to December 31, 1998,
and for the year ended December 31, 1999. These financial statements are the
responsibility of the Formosoft International Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Audio/Video Products
Division of Formosoft International, Inc.as of December 31, 1998 and 1999, and
the results of its operations and comprehensive loss and its cash flows for the
period from April 14, 1998 (date of incorporation), to December 31, 1998, and
for the year ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.

TN SOONG & CO.
A Member Firm of Andersen Worldwide, SC

Taipei, Taiwan, the Republic of China,
March 19, 2001

- --------------------------------------------------------------------------------

F-26

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.
- --------------------------------------------------------------------------------

BALANCE SHEETS
(in thousands of U.S. dollars)

December 31,
------------ June 7,
1998 1999 2000
(unaudited)
- ----------------------------------------------------------------------------------
ASSETS

Current Assets:
Accounts receivable................................ $ 24 $ -- $ 20
Related-party receivable: Formosa.................. -- 47 26
Inventory.......................................... 15 4 3
----- ----- -----
Total current assets............................ 39 51 49
Computer Equipment, net................................ 15 17 19
Other Assets: Deferred pension cost.................... 3 -- --
----- ----- -----
Total assets.................................... $ 57 $ 68 $ 68
===== ===== =====

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes and accounts payable......................... $ 7 $ 22 $ 10
Accrued expenses and other current liabilities..... 34 68 59
----- ----- -----
Total current liabilities....................... 41 90 69
Accrued Pension Cost................................... 3 6 10
Parent's Equity In Division............................ 174 464 600
----- ----- -----
Total liabilities............................... 218 560 679
----- ----- -----
Shareholders' Equity:
Foreign currency translation adjustments........... (6) (19) (30)
Accumulated deficit................................ (155) (473) (581)
----- ----- -----
Total shareholders' equity...................... (161) (492) (611)
----- ----- -----
Total liabilities and shareholders' equity...... $ 57 $ 68 $ 68
===== ===== =====

The accompanying notes are an integral part of these statements.

- --------------------------------------------------------------------------------

F-27

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.
- --------------------------------------------------------------------------------

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands of U.S. dollars)

For the period
from For the period
April 14, For the year from
1998 to ended January 1,
December 31, December 31, 2000 to
1998 1999 June 7, 2000
- ------------------------------------------------------------------------------------------------

Sales............................................. $ 27 $ 182 $ 149
Cost of Sales..................................... -- (13) (1)
----- ----- -----
Gross profit............................... 27 169 148
----- ----- -----
Operating Expenses:
Research and development...................... 102 275 138
Selling, general, and administrative.......... 114 211 116
----- ----- -----
Total operating expenses................... 216 486 254
----- ----- -----
Loss from operations....................... (189) (317) (106)
----- ----- -----
Nonoperating Income (Loss):
Foreign currency exchange loss................ -- (1) (2)
Subsidy income................................ 34 -- --
----- ----- -----
Total nonoperating income (loss), net...... 34 (1) (2)
----- ----- -----
Net loss................................ (155) (318) (108)
Other Comprehensive Loss:
Foreign currency translation adjustments...... (6) (13) (11)
----- ----- -----
Comprehensive loss......................... $(161) $(331) $(119)
===== ===== =====

The accompanying notes are an integral part of these statements.

- --------------------------------------------------------------------------------

F-28

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.
- --------------------------------------------------------------------------------

STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)

For the period
from April 14, For the year For the period
1998 to ended from
December 31, December 31, January 1, 2000
1998 1999 to June 7, 2000
(unaudited)
- ----------------------------------------------------------------------------------------------------------------

Operating Activities:
Net loss..................................................... $(155) $(318) $(108)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 3 8 9
Accrued pension cost...................................... -- 6 4
Changes in operating assets and liabilities:
Accounts receivable.................................... (24) 24 (20)
Accounts receivable: related parties................... -- (47) 21
Inventories............................................ (15) 11 1
Notes and accounts payable............................. 7 15 (12)
Accrued expenses and other current liabilities......... 34 34 (9)
----- ----- -----
Net cash used in operating activities............... (150) (267) (114)
----- ----- -----
Investing and Financing Activities:
Working capital from owner................................... 174 290 136
Acquisitions of computer equipment........................... (17) (12) (10)
----- ----- -----
Net cash provided by investing and
financing activities............................... 157 278 126
----- ----- -----
Effects of Change in Exchange Rate on Cash....................... $ (7) $ (11) $ (12)
===== ===== =====
Net Change in Cash............................................... $ -- $ -- $ --
===== ===== =====

The accompanying notes are an integral part of these statements.

- --------------------------------------------------------------------------------

F-29

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS

1. GENERAL:

Business

On June 7, 2000, InterVideo Inc. acquired the Audio/Video Products Division
(AVPD) of Formosoft International Inc. (Formosoft) in Taiwan in exchange for a
cash payment of $3.2 million. The acquisition consisted of AVPD's business,
including information equipment, intellectual property rights and products, and
customers. AVPD's business was integrated with the businesses of Formosoft;
consequently, the financial statements have been derived from the financial
statements and accounting records of Formosoft and reflect significant
assumptions and allocations. Moreover, AVPD relied on Formosoft and its other
businesses for administrative, management, research and other services.
Accordingly, the financial statements do not necessarily reflect the financial
position, results of operations, and cash flows of AVPD had it been a
stand-alone company.

AVPD is a developer of audio and video coding and decoding technologies. It
develops and sells software that encodes, transcodes, and decodes digital audio
and video data on a real-time basis. AVPD was established at the same time when
Formosoft was incorporated on April 14, 1998, and released its first software,
GAMUT98, in August 1998, then its second-generation product, GAMUT2000, in
February 2000.

2. BASIS OF PRESENTATION:

AVPD's financial statements were "carved out" from the financial statements and
accounting records of Formosoft using the historical results of operations and
historical basis of assets and liabilities of AVPD's business activities.
Management believes that the assumptions underlying the financial statements
are reasonable. However, the financial statements included herein may not
necessarily reflect what AVPD's results of operations, financial position and
cash flows would have been had AVPD been a stand-alone company during the
periods presented. Because a direct ownership relationship did not exist among
all the various divisions comprising Formosoft, Formosoft's net investment in
AVPD is shown as "working capital from owner" in lieu of shareholders' equity
in the financial statements.

The financial statements include allocations of certain Formosoft expenses,
assets and liabilities, including the items described below.

Costs of centralized general expenses

Centralized general expenses are allocated based on headcounts for the
respective periods and are reflected in selling, general and administrative,
and research and development expenses. The general corporate expense allocation
is primarily for cash management, rent, utilities, accounting, insurance,
public relations, advertising, human resources and data services. Management
believes that costs of these services charged to AVPD are a reasonable
representation of the costs that would have been incurred if AVPD had performed
these functions as a stand-alone company.

Basic research
Research and development expenses were allocated based on the number of
individuals conducting the research and development for AVPD. Management
believes that the costs of this research charged to AVPD are a reasonable
representation of the costs that would have been incurred if AVPD had performed
this research as a stand-alone company. Following the acquisition by
InterVideo, Inc., AVPD will satisfy its basic research requirements using its
own resources or through purchased services.

- --------------------------------------------------------------------------------

F-30

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.
- --------------------------------------------------------------------------------

Sales and cost of sales
Sales and costs of sales are clearly identifiable as applicable to AVPD's
business.

Income tax
Income taxes are calculated as if AVPD was a stand-alone legal entity.

Pension costs
These costs are allocated based on AVPD's active employee population for each
of the years presented.

Cash and accounts receivable and payable

Formosoft uses a centralized approach to cash management. As a result,
Formosoft's cash, cash equivalents or short-term investments have not been
allocated in AVPD's financial statements. Receivables and payables in the
financial statements are directly related to sales and purchases made by AVPD.
No allowance for doubtful accounts was recorded in any period presented.
Changes in investing and financing activities represent any funding required
from Formosoft for working capital and acquisition or capital expenditure
requirements.

3. ACCOUNTING POLICIES:

Unaudited interim financial statements

The interim financial information contained herein for the period from January
1, 2000, to June 7, 2000, is unaudited but, in the opinion of management,
reflects all adjustments that are necessary for a fair presentation of the
financial position, results of operations and cash flows for the period
presented. All adjustments are of a normal, recurring nature. Results of
operations for interim periods presented herein are not necessarily indicative
of results of operations for the entire year.

Use of estimates

Formosoft maintains its accounting books and records in conformity with
accounting principles generally accepted in the Republic of China (ROC). The
accompanying financial statements of AVPD have been "carved out" from the
financial statements and accounting records of Formosoft and were then prepared
to reflect its financial position, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States,
which require management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could differ from
those estimates.

Concentration of credit risk
Financial instruments that potentially subject AVPD to a concentration of
credit risk consist primarily of accounts receivable. To mitigate this risk,
AVPD performs ongoing credit evaluations of its customers' financial condition
and maintains an allowance for doubtful accounts receivable based upon review
of the expected collectibility of individual accounts receivable.

Fair value of financial instruments
AVPD's financial instruments, including accounts receivable and notes and
accounts payable, are carried at cost, which approximates fair value because of
the short-term maturity of these instruments.

Inventories
Inventories consist solely of finished goods and are stated at the lower of
weighted-average cost or market value. Market value represents net realizable
value.

- --------------------------------------------------------------------------------

F-31

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

- --------------------------------------------------------------------------------

Computer equipment
Computer equipment is stated at cost less accumulated depreciation. The
equipment is depreciated using the straight-line method based on estimated
useful lives of over three years.

Asset impairment
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of,"
requires recognition of impairment of long-lived assets in the event the net
book value of these assets exceeds the future undiscounted cash flows
attributable in use to these assets. Management reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. No impairment losses have been recorded
in any period presented.

Revenue recognition
AVPD generates software revenues mainly from product licensing fees. Revenue
from products licensed to original equipment manufacturers (OEMs) based on the
number of sales by the OEMs is recorded when the OEMs ship the licensed
products. Revenue from periodic software licenses, under which fees are paid on
a recurring, periodic basis, is generally recognized ratably over the
respective license periods. Revenue from packaged product sales to and through
distributors and resellers is recorded when related products are shipped,
provided that the license agreement has been signed, there are no uncertainties
surrounding product acceptance, the fees are fixed and determinable, and
collection is considered probable.

In December 1999, the United States Securities Exchange Commission (U.S. SEC)
issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements.'' SAB No. 101 provides additional guidance on revenue
recognition, as well as criteria for when revenue is generally realized and
earned. AVPD's revenue recognition policies are fully compliant with SAB No.
101 for all periods presented.

Research and development
Research and development costs are expensed as incurred. In accordance with
SFAS No. 86, AVPD has evaluated the establishment of technological feasibility
of its various products during the development phase. Due to dynamic changes in
the market, AVPD has concluded that it cannot determine, with any reasonable
degree of accuracy, technological feasibility until the development phase of
the project is nearly complete. The time period during which costs could be
capitalized from the point of reaching technological feasibility until the time
of general product release is generally very short, and consequently, the
amount that could be capitalized pursuant to SFAS No. 86 is not material to
AVPD's financial position or results of operations. Therefore, AVPD charges all
research and development expenses to operations in the period incurred.

Pension costs
Employees of AVPD are included in the Formosoft defined benefit pension plan.
The plan covers all regular employees, and provides benefits based on length of
service and salary levels upon retirement. Pension costs, including services
costs, interest costs, projected return on plan assets, and amortization, are
recorded on the basis of actuarial calculations in accordance with SFAS No. 87,
"Employers' Accounting for Pension." Under SFAS No. 87, Formosoft recognizes a
minimum pension liability equivalent to the unfunded accumulated benefit
obligation. AVPD has been allocated its share of this pension liability based
upon its employee population.

- --------------------------------------------------------------------------------

F-32

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

- --------------------------------------------------------------------------------

Advertising costs
Advertising costs are expensed as incurred. Advertising expense was $8,000 in
1998, $15,000 in 1999, and $160 (unaudited) for the period ended June 7, 2000.

Income tax
Formosoft is subject to income tax in the ROC. Therefore, the income tax of
AVPD was calculated based on a separate tax return basis subject to income tax
in the ROC. The asset and liability approach is used to recognize deferred tax
assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities. A valuation allowance was provided for these deferred income tax
assets because of the uncertainty surrounding the realizability of such amounts.

Subsidy income
AVPD received subsidy income from the Institute for Information Industry (III),
a bureau of the ROC government, for qualified software development projects
upon review and approval by III. The subsidy contract period was from July 1,
1998, to November 30, 1998. AVPD recognized subsidy income ratably over the
term of the agreement. All related income was received in 1998.

Foreign currency translations
The functional currency of AVPD is the local currency, the New Taiwan dollar.
Thus, foreign currency transactions are recorded in New Taiwan dollars at the
rates of exchange in effect when the transactions occur. Gains or losses,
resulting from the application of different foreign exchange rates when cash in
a foreign currency is converted into New Taiwan dollars or when foreign
currency receivables and payables are settled, are credited or charged to
income in the year of conversion or settlement. At year-end, the balances of
foreign currency assets and liabilities are restated based on prevailing
exchange rates, and any resulting gains or losses are credited or charged to
income.

The financial statements of AVPD are translated into U.S. dollars at the
following exchange rates: (a) assets and liabilities--current rate and (b)
income and expenses--weighted-average rate during the year. The resulting
translation adjustment is recorded as a separate component of shareholders'
equity.

Comprehensive loss
AVPD adopted the provisions of SFAS No. 130 "Reporting Comprehensive Income."
Comprehensive income, as defined, includes all changes in equity during a
period from nonowner sources. To date, a foreign currency translation
adjustment is the only income component required to be reported in other
comprehensive loss for AVPD.

4. COMPUTER EQUIPMENT, NET
(amounts in thousands of US dollars):

December 31,
------------ June 7,
1998 1999 2000
(unaudited)
- --------------------------------------------------------------------------

Computer equipment
Cost.......................................... $18 $28 $36
Accumulated depreciation...................... 3 11 17
--- --- ---
$15 $17 $19
=== === ===

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F-33

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

- --------------------------------------------------------------------------------

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
(amounts in thousands of U.S. dollars):

December 31,
------------ June 7,
1998 1999 2000
(unaudited)
- --------------------------------------------------------------------------

Salaries and bonus............................... $34 $65 $58
Others........................................... -- 3 1
--- --- ---
$34 $68 $59
=== === ===

6. RETIREMENT PLAN:

Employees of AVPD are included in the Formosoft defined benefit pension plan.
The plan covers substantially all of the employees in AVPD. Future retirement
payments are based on the employee's salary level upon retirement and length of
service with Formosoft. At the end of each year, an actuarial calculation is
prepared in accordance with SFAS No. 87, "Employers' Accounting for Pensions."
Based on this calculation, Formosoft transferred funds to the Central Trust of
China, a government institution, equal to the projected benefit obligation. The
plan was not funded at June 7, 2000. Accordingly, pension costs of $6,000 and
$4,000 (unaudited) attributable to AVPD were recorded for the year ended 1999
and for the period ended June 7, 2000, respectively.

7. INCOME TAX:

No provision for income taxes has been recorded for any period presented, as
AVPD has incurred net operating losses for tax purposes.

Deferred tax assets and liabilities consist of the following (amounts in
thousands of U.S. dollars):

December 31,
----------- June 7,
1998 1999 2000
(unaudited)
- ---------------------------------------------------------------------------

Net operating loss carryforwards................. $ 31 $ 95 $ 116
Valuation allowance.............................. (31) (95) (116)
---- ---- -----
$ -- $ -- $ --
==== ==== =====

AVPD provides a valuation allowance for deferred tax assets when it is more
likely than not that some portion or all of the net deferred tax assets will
not be realized. Based on a number of factors (a lack of a history of profits;
the market in which AVPD competes is intensely competitive; the industry is
characterized by rapidly changing technology), management believes that there
is sufficient uncertainty regarding the realization of deferred tax assets that
a full valuation allowance is appropriate.

These operating loss carryforwards are available to offset future taxable
income and expire from 2003 to 2005 as if AVPD was a stand-alone legal entity.

8. RELATED-PARTY TRANSACTIONS:

Sales made by AVPD to Formosa Industrial Computing, Inc. (Formosa), a
shareholder and director of Formosoft, for the year ended December 31, 1999,
and for the period ended June 7, 2000, amounted to $117,000 and $49,000
(unaudited), respectively. Since no other bundle contracts were signed by AVPD
other than Formosa, market prices are not available for comparison.

- --------------------------------------------------------------------------------

F-34

AUDIO/VIDEO PRODUCTS DIVISION OF FORMOSOFT INTERNATIONAL INC.

- --------------------------------------------------------------------------------

9. SEGMENT INFORMATION:

AVPD is engaged in a single industry segment--the development and marketing of
audio and video coding and decoding software products. AVPD's revenues are all
from ROC. Major customers that accounted for more than 10 percent of total
revenues are as follows (amounts in thousands of U.S. dollars):

Years ended December 31,
------------------------------ Period ended
1998 1999 June 7, 2000
-------------- -------------- --------------
Amount Percent Amount Percent Amount Percent
(unaudited)
- ------------------------------------------------------------------------------

Customers:
Softchina................. $22 79% $ 22 12% $20 13%
Formosa................... -- -- 117 64 49 33
Hsing-Tech................ -- -- 30 16 78 52

- --------------------------------------------------------------------------------

F-35

- --------------------------------------------------------------------------------

Unaudited Pro Forma Condensed Combined
Financial Statements

Basis of Presentation

In the opinion of our management, all adjustments necessary to fairly present
this pro forma information have been made. The unaudited Pro Forma Condensed
Combined Financial Statements are based upon, and should be read in connection
with, the historical financial statements of InterVideo, Inc. and AVPD, and the
respective notes to such financial statements presented elsewhere in this
Prospectus.

AVPD was acquired by InterVideo, Inc. on June 7, 2000 in a transaction
accounted for as a purchase. The unaudited Pro Forma Condensed Combined
Statements of Operations for the year ended
December 31, 2000 are presented as if InterVideo, Inc. had completed the
acquisition of AVPD as of January 1, 2000.

Year Ended December 31, 2000
- -------------------------------------------------------------------------------------------------
InterVideo, Pro Forma Pro Forma
Inc. AVPD Adjustments(a) Combined
InterVideo, Inc.
Unaudited pro forma condensed combined
statement of operations (amounts in thousands, except share and per share data)
- -------------------------------------------------------------------------------------------------

Revenue................................. $15,426 149 $15,575
Cost of revenue......................... $ (5,361) (1) (208) $(5,570)
Gross profit............................ $10,065 148 (208) $10,005
Operating expenses:
Research and development............ $ 6,585 138 $ 6,723
Selling and marketing............... $ 4,978 $ 4,978
General and administrative.......... $ 2,667 116 $ 2,783
Stock compensation.................. $ 1,411 $ 1,411
Amortization of goodwill............ $ 174 $ 174
Total operating expense................. $ 15,815 254 $16,069
Loss from operations.................... $ (5,750) (106) (208) $(6,064)
Other income (expense).................. $ 557 (2) $ 555
Income taxes............................ $ (552) $ (552)
Net loss................................ $ (5,745) (108) (208) $(6,061)
Net loss per share:
Basic and diluted................... $ (4.97) $ (5.25)
Weighted average number of common shares
outstanding:
Basic and diluted................... 1,155 1,155

- --------
(a) Represents the amortization of goodwill of $208 that would have been
recorded for the period from January 1, 2000 to June 7, 2000, if the
acquisition of AVPD occurred on January 1, 2000. Goodwill is amortized on a
straight-line basis over a period of five years. No other significant fair
value purchase price adjustments were recorded in connection with the
acquisition of AVPD.

- --------------------------------------------------------------------------------

F-36

[LOGO] InterVideo

Part II
- --------------------------------------------------------------------------------

INFORMATION NOT REQUIRED IN PROSPECTUS

Unless otherwise defined, all capitalized terms contained in this Part II shall
have the meanings ascribed to them in the prospectus which forms a part of this
registration statement. InterVideo is sometimes referred to in this Part II as
the "registrant."

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by the registrant in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.

Securities and Exchange Commission registration fees....... $ 5,185
NASD filing fee............................................ 6,135
Printing and engraving expenses............................ 300,000
Legal fees and costs....................................... 800,000
Accounting fees and costs.................................. 400,000
Nasdaq National Market listing fees........................ 100,000
Transfer agent and registrar fees and expenses............. 15,000
Road show expenses......................................... 250,000
Miscellaneous expenses..................................... 23,680
----------
Total................................................... $1,900,000
==========

Item 14. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article IX of the registrant's
Amended and Restated Certificate of Incorporation (Exhibit 3.2 hereto) and
Article IX of the registrant's Amended and Restated Bylaws (Exhibit 3.4 hereto)
provide for indemnification of the registrant's directors, officers, employees
and other agents to the extent and under the circumstances permitted by the
Delaware General Corporation Law. The registrant intends to enter into
agreements with its directors and certain officers that will require the
registrant, among other things, to indemnify them against certain liabilities
that may arise by reason of their status or service as director for officers to
the fullest extent not prohibited by law. The underwriting Agreement (Exhibit
1.1) provides for indemnification by the underwriters of the registrant, its
directors and officers, and by the registrant of the underwriters, for certain
liabilities, including liabilities arising under the Act and affords certain
rights of contribution with respect thereto.

Item 15. Recent Sales of Unregistered Securities.

Since December 31, 1998, we have sold and issued the following unregistered
securities:

In April, 2002, the registrant declared a stock split in the amount of .44
shares for every share of common stock outstanding, carried out on a
certificate-by-certificate basis. All references to shares of common stock in
this Registration Statement reflect this stock split.

(1) From March 1999 to December 2001, we have granted stock options to purchase
an aggregate of 3,979,096 shares of common stock at exercise prices ranging
from $0.11 to $5.00 per share to employees, consultants and directors pursuant
to our 1998 Plan. In addition, we have granted stock options to purchase an
aggregate of 96,250 shares of common stock outside of the 1998 Plan. The
options issued

- --------------------------------------------------------------------------------

II-1

Part II
- --------------------------------------------------------------------------------

outside of the 1998 Plan were issued at exercise prices ranging from $0.11 to
$0.57 per share to consultants and other service providers (including the
registrant's former legal counsel and financial advisors).

(2) From May to August 1999, we sold an aggregate of 2,000,000 shares of Series
C preferred stock convertible into 880,000 shares of common stock, to 39
investors, 26 of which are non-U.S. persons, at a price of $2.00 per share for
an aggregate purchase price of $4,000,000.

(3) From April 2000 to June 2000, we sold an aggregate of 4,213,750 shares of
Series D preferred stock, convertible into 1,854,050 shares of common stock, to
68 investors, 54 of which are non-U.S. persons, at a price of $4.00 per share
for an aggregate purchase price of $16,855,000. All shares of the preferred
stock are convertible into shares of common stock at the rate of one share of
common stock for each share of preferred stock outstanding.

(4) In April, 2002, we issued shares of Series D Preferred Stock, convertible
into 286,000 shares of common stock, to Dell Products, L.P., pursuant to a
settlement and release agreement between the registrant and Dell Products, L.P.

Of the securities described in paragraph (1) above, 135,850 shares were exempt
from registration under Section 4(2) of the Securities Act and 3,939,496 shares
were exempt by virtue of Rule 701 in that they were offered and sold either
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation. The sale and issuance of securities
described in paragraphs (2) and (3) and (4) above were sold to accredited or
sophisticated persons and were exempt from registration under the Securities
Act by virtue of Section 4(2) of the Securities Act, Regulation D and
Regulation S.

Item 16. Exhibits and Financial Statements Schedules.

(a) Exhibits

Exhibit
Number Description
- --------------------------------------------------------------------------------------------------------------

1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation, to be effective upon the reincorporation.
3.2 Amended and Restated Certificate of Incorporation, to be effective upon consummation of this offering.
3.3** Bylaws, to be effective upon the reincorporation.
3.4** Amended and Restated Bylaws, to be effective upon consummation of this offering.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati.
10.1** Registrant's 1998 Stock Option Plan and form of option agreement.
10.2 Registrant's 2002 Stock Plan and form of option agreement.
10.3 Registrant's 2002 Employee Stock Purchase Plan and form of subscription agreement.
10.4** Form of Directors and Officers' Indemnification Agreement.
10.5** Investor Rights Agreement, dated July 2, 1999, as amended, by and among the registrant and the parties
who are signatories thereto.
10.6**+ Digital Audio System License Agreement between the Registrant and Dolby Laboratories Licensing
Corporation dated March 4, 1999.
10.7**+ CSS License Agreement between the registrant and DVD Copy Control Association dated December 22,
2000.
10.8** Lease Agreement between the registrant and ProLogis Limited Partnership-1, dated December 7, 2000.
10.9** Employment offer letter with Randall Bambrough.
10.10** Form of Nonstatutory Stock Option Agreement for grants to Joe Liu and George Haber.
10.11** Nonstatutory Stock Option Agreement for Henry Shaw.
10.12** Form of Promissory Notes issued by George Haber, Joe Liu and Randall Bambrough.
10.13** Common Stock Purchase Agreement with Honda Shing, dated May 15, 1998.

- --------------------------------------------------------------------------------

II-2

Part II
- --------------------------------------------------------------------------------

Exhibit
Number Description
- --------------------------------------------------------------------------------------------------------------

10.14+ Software License Agreement between the registrant and Dell Products L.P., dated August 4, 1999, as
amended.
10.15 Settlement Agreement and Release between the registrant and Dell Products, L.P., dated April 26, 2002.
21.1** Subsidiaries of the registrant.
23.1 Consent of Arthur Andersen.
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
24.1** Power of Attorney.
99.1 Letter from the registrant to the Securities and Exchange Commission dated April 26, 2002.

- --------

**Previously filed.
+ Confidential treatment requested for a portion of this agreement.

(b) Financial Statement Schedules.

Schedules other than those referred to above have been omitted because they are
not applicable or not required or because the information is included elsewhere
in the Financial Statements or the notes thereto.

Item 17. Undertakings.

The undersigned registrant hereby undertakes to provide to the underwriters at
the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1), or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

- --------------------------------------------------------------------------------

II-3

Part II
- --------------------------------------------------------------------------------

Signatures

Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Fremont, State of
California, on April 26, 2002.

INTERVIDEO, INC.

By: /s/ RANDALL BAMBROUGH
-----------------------------------
Randall Bambrough, Chief Financial
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed by the following persons on April 26,
2002 in the capacities indicated.

Signature Title
-----------------------------------------------------------------------------

* President, Chief Executive Officer and
-------------------------------------- Director
Steve Ro (Principal Executive Officer)

/s/ RANDALL BAMBROUGH Chief Financial Officer (Principal
-------------------------------------- Financial and Accounting Officer)
Randall Bambrough

* Director
--------------------------------------
Henry Shaw

* Director
--------------------------------------
George Haber

* Director
--------------------------------------
Joseph Liu

*By: /s/ RANDALL BAMBROUGH
_________________________________
Randall Bambrough
ATTORNEY-IN-FACT

- --------------------------------------------------------------------------------

II-4

- --------------------------------------------------------------------------------

Exhibit index

Exhibit
Number Description
- --------------------------------------------------------------------------------------------------------------

- --------

**Previously filed.
+ Confidential treatment requested for a portion of this agreement.

- --------------------------------------------------------------------------------