Amendment No. 3 to Form S-1

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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, 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, check the following box. ¨

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.

We are selling 2,800,000 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 common stock. We currently estimate that the initial public offering price of our common stock will be between $11.00 and $13.00 per share.

Our common stock has been approved for quotation on the Nasdaq National Market under the symbol “IVII,” subject to official notice of issuance.

Our business and an investment in our common stock involve risks. These risks are described under the caption “ Risk Factors” beginning on page 5 of this prospectus.

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.

The underwriters may also purchase up to 420,000 shares of our common stock from us at the public offering price, less underwriting discounts and commissions, to cover over-allotments.

The underwriters expect to deliver the shares in New York, New York on or about , 2003.

The phrase “A Technology Platform for the Digital Media Cycle” heads the page and the InterVideo logo is located in the bottom right hand corner. An orange arrow curves around the center of the page next to images of a DVR, CD and other CE products. The terms “Capture,” “Edit,” “Author,” “Burn,” “Distribute” and “Watch” are listed around the arrow. Images of InterVideo’s DVD Copy, WinDVD Creator and WinDVD Platinum product boxes are illustrated across the bottom of the page.

Through and including , 2003 (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.

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.”

We are a leading provider of DVD software. We have developed a technology platform from which we have created a broad suite of integrated multimedia software products. These products span the digital video cycle by allowing users to capture, edit, author, distribute, burn and play digital video. Our multimedia software products bring the functionality of popular consumer electronics, or CE, products such as the DVD player and the digital video recorder, or DVR (also known as a PVR), to personal computers, or PCs. Our software is also used to enhance the functionality of next-generation CE devices.

As of March 31, 2003, we had sold more than 50 million copies of our WinDVD product, a software DVD player for PCs. Our strategy for growth is to sell multiple products, for multiple platforms, through multiple channels. We have historically derived nearly all of our revenue from sales of WinDVD to PC original equipment manufacturers, or OEMs. In the future, we expect to derive an increasing percentage of our revenue from sales of other products, including WinCreator, a video editing and DVD authoring and burning application; InterVideo Home Theater, a media center suite for the viewing and managing of digital media content; Linux-based software designed for CE devices and Linux-based PCs; and products sold through our retail and web-based sales channels.

Our software is bundled with products sold by eight of the top ten PC OEMs ranked in terms of sales by IDC. Our PC OEM customers include Dell Products, L.P., Fujitsu Limited, Fujitsu Siemens Computer GmbH, Hewlett-Packard Company (including the former Compaq Computer Corporation), International Business Machines Corporation, or IBM, Sony Corporation and Toshiba Corporation. In addition to PC OEMs, we have recently begun to sell our products to CE manufacturers, such as Sony. We also sell our products to PC peripherals manufacturers worldwide and through leading retailers, including over 1,000 U.S. retail stores, and our websites.

Advances in digital technology, including improvements in storage technology, microprocessor technology and multimedia applications, have enabled the PC to serve as a versatile, feature-rich and reasonably priced digital entertainment platform. The rapid growth in consumer interest in digital multimedia functionality has increased the demand for DVD-ROM and DVD-recordable drives. Gartner Dataquest estimates that the total market for PC DVD-ROM drives, combination DVD-ROM and CD-RW drives as well as DVD-recordable drives will grow from approximately 33 million units in 2001 to approximately 160 million units in 2006, a compound annual growth rate of 37%.

All PC multimedia hardware components require software to operate. As a result, we believe that multimedia software has become a standard PC feature and has enabled PC OEMs to add value to their products, improve margins and differentiate their products from those of their competitors.

As CE 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 the CE market segment as well. We believe that all of these factors will create market opportunities for a complete multimedia software solution in both the PC and CE market segments.

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

We incorporated in California in April 1998 and reincorporated in Delaware in May 2002. Our headquarters are located at 47350 Fremont Boulevard, 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.

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

InterVideo and WinDVD are registered trademarks and WinDVD Creator, WinDVD Recorder, LinDVD, LinDVR, 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.

This prospectus contains market data and industry forecasts that were obtained from industry publications. These publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. While we believe that these market data and industry forecasts are reliable, we have not independently verified, and make no representation as to the accuracy of, such information. Information provided by Gartner Dataquest represents Gartner Dataquest’s estimates. Information provided by IDC is derived from the IDC Worldwide Quarterly PC Tracker, March 2003, and the IDC Worldwide Digital Set-Top Box and PVR Forecast and Analysis, 2001-2006, December 2002.

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 income per common share 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 2,800,000 shares of our common stock in this offering at an assumed initial public offering price of $12.00 per share after deducting the estimated underwriting discounts and commissions and the estimated expenses of this offering.

In May 2002, we terminated Arthur Andersen LLP as our independent auditors. Subsequently, we engaged KPMG LLP and, as a result of their reaudit, restated our financial statements as of December 31, 2000 and 2001 and for each of the years in the two-year period ended December 31, 2001.

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.

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

We have incurred losses since our inception and have only achieved profitability in our fiscal year ended December 31, 2002 and the three months ended March 31, 2003. As of March 31, 2003, we had an accumulated deficit of $8.5 million. We expect to incur significant operating expenses over the next several years in connection with the continued development and expansion of our business. Our expenses include research and development and marketing expenses relating to products that will not be introduced and will not generate revenue until later periods, if at all. We may not sustain or increase profitability on a quarterly or annual basis in the future.

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

We were incorporated in April 1998 and began selling 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. The market for software-based digital video and audio solutions for incorporation in products in the PC and consumer electronics industries is rapidly evolving, and it is difficult to forecast the future growth rate, if any, or size of the market for our products. We may not accurately forecast customer behavior and recognize or respond to emerging trends, changing preferences or competitive factors facing us, and, therefore, we may fail to make accurate financial forecasts. Our current and future expense levels are based largely on our investment plans and estimates of future revenue and are, to a large extent, fixed. As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall, which would harm our operating results.

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

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

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 unit sale increases do not offset anticipated price declines, our revenue will decline. Accordingly, our future success will depend in part on our ability to 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 hold patents that such parties claim cover various aspects of DVD technology incorporated into our and our customers’ products. Our digital video and audio products comply with industry standard DVD specifications. Some third parties have claimed that various aspects of DVD technology incorporated into our and our customers’ products infringe upon patents held by them, including the following:

We and our customers may be subject to additional third-party claims that our and our customers’ products violate the intellectual property rights of those parties. In addition to the claims described above, we may receive notices of claims of infringement of other parties’ proprietary rights. Many companies aggressively use their patent portfolios to bring infringement claims against competitors and other parties. As a result, we may become a party to litigation in the future as a result of an alleged infringement of the intellectual property rights of others, including DVD 6C or Nissim. In addition, we are aware that a consortium of companies, known as “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, or be prohibited from selling products, 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, DVD 6C and 3C, to enforce their proprietary rights and these consortia may seek to enforce their patent rights against us and our customers. Some of our products can be used in connection with the copying of video content, which may include content protected by copyright. Though we believe these products do not contribute to copyright infringement and do not defeat encryption in violation of the Digital Millennium Copyright Act, some content owners have shown a willingness to instigate litigation against producers of products that could be used to copy copyrighted content. Defending such suits could be costly and could cause a serious disruption in our business regardless of the outcome.

We may be required to pay substantial damages and may be restricted or prohibited from selling our products if it is proven that we violate the intellectual property rights of others. If DVD 6C, 3C, Nissim or another third party proves that our technology infringes its patents, we may be required to pay substantial damages for past infringement and may be required to pay license fees or royalties on future sales of our products. If we are required to pay license fees in the amounts that are currently published by, for example, DVD 6C for past sales to our large PC OEM customers, such fees would exceed the revenue we have received from those PC OEM customers. In addition, if it were proven that we willfully infringed on a third party’s patents, we may be held liable for three times the amount of damages we would otherwise have to pay. In addition, intellectual property litigation may require us to:

Furthermore, the defense of infringement claims and lawsuits, regardless of their outcome, would likely be expensive to resolve and could require a significant portion of management’s time. In addition, rather than

litigating an infringement matter, we may determine that it is in our best interests to settle the matter. Terms of a settlement may include restrictions or prohibitions on our ability to sell products incorporating the other party’s technology, the payment of damages and our agreement to license technology in exchange for a license fee and ongoing royalties. These fees may be substantial. If we are forced to take any of the actions described above, defend against any claims from third parties or pay any license fees or damages, our business could be harmed.

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

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 351,780 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 product costs 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 June 2002, we agreed to a cash settlement with Gateway concerning certain amounts that Gateway alleged that we owed it as a result of Gateway’s prior settlements with MPEG LA and Nissim of certain infringement claims brought against Gateway by these parties. Without admitting any liability to Gateway, we settled all past and future claims that Gateway might have against us based on the alleged infringement of certain patents held by MPEG LA and Nissim. In June 2003, we agreed to a cash settlement with Hewlett-Packard (including the former Compaq) concerning certain amounts that Hewlett-Packard alleged that we owed it as a result of Hewlett-Packard’s prior settlement with Nissim of certain infringement claims brought against Hewlett-Packard by Nissim. Without admitting any liability to Hewlett-Packard, we settled all past and future claims that Hewlett-Packard might have against us based on the alleged infringement of certain patents held by Nissim. Notwithstanding these settlement agreements with Dell, Gateway and Hewlett-Packard, we may be liable to these parties for additional damages that fall outside the scope of the settlement agreements. We expect to make additional cash payments to settle similar claims in the future.

As of March 31, 2003, we had accrued $2.1 million for liabilities relating to unlicensed royalty and related intellectual property claims, which included the amounts to be paid in the settlement with Hewlett-Packard, and may continue to accrue for such liabilities in the future. In some cases, our actual liability exceeded amounts that we had accrued. Likewise, our actual liability may exceed the amount we have accrued or accrue in the future, which could harm our business.

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 reduce our revenue and gross profit or otherwise harm our business.

The PC industry is highly concentrated, and we have derived a substantial portion of our revenue from sales of our products to a small number of PC OEMs. For the year ended December 31, 2002, our five largest customers accounted for a majority of our revenue, with Hewlett-Packard (including the former Compaq) accounting for 17% and Dell accounting for 14% of our revenue during that period. For the three months ended March 31, 2003, Hewlett-Packard (including the former Compaq) accounted for 21% of our revenue and Dell accounted for 11% of our revenue. In addition, two customers accounted for 39% of our accounts receivables balance as of December 31, 2002 and 26% of our accounts receivables balance as of March 31, 2003. While a substantial portion of these accounts receivables has been paid, we expect that a small number of customers will continue to account for a majority of our revenue, gross profit and accounts receivables for the foreseeable future because of the concentrated nature of our client base. If our customers dispute the accounts receivables or are otherwise unable to pay the balance, our income from operations could decline. 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 reduce our gross profit or otherwise 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, could harm our operating results.

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

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

We have 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 89% of our revenue for the year ended December 31, 2002 and 84% of our revenue for the three months ended March 31, 2003 from sales of our WinDVD product, primarily to PC OEMs. We expect that revenue from sales of our WinDVD product to PC OEMs will continue to account for a substantial majority of our revenue for the foreseeable future. Accordingly, our business will suffer if our existing PC OEM customers do not continue to incorporate our WinDVD product into the PCs they sell or if we are unable to obtain new PC OEM customers for our WinDVD product.

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

Our revenue depends in large part on the demand for our products by PC OEMs. The PC industry 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 reduce our gross profit.

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

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

Our products are based primarily on the Microsoft Windows operating system, and most of our customers require that the combination of our software products and their PCs be certified by Microsoft’s Windows Hardware Qualification Labs. Accordingly, we are dependent on Microsoft, which exposes us to risks, 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 Windows operating system, and our products might not be compatible with those operating systems. If our products are not compatible with one or more of the operating systems with significant PC market share, we could incur substantial costs and expend significant capital and other resources to adapt our products to one or more operating systems. There is no assurance that we would be able to adapt our products to changes made in the Windows operating system in the future or to a new operating system, and any failure to adapt to changes in operating systems by the PC industry could result in significant harm to our business.

Most of our customers require that the combination of our software products and their PCs be certified by Microsoft’s Windows Hardware Qualification Labs. If certification is not obtained, our revenue could decline or our customers may license a competitor’s software. We sell most of our products through PC OEMs, which bundle our products with their hardware products. Most of our PC OEM customers require Microsoft’s Windows Hardware Qualifications Labs, or WHQL, certification for our products on each PC platform before bundling and distribution. The certification process is entirely under Microsoft’s control, and we may not obtain certification for any product on a timely basis or at all. Furthermore, Microsoft may change the requirements for certification at any time without notice. At various times in the past, Microsoft has changed standards applicable to our products, which caused us to be out of compliance for a period of time. In the future, we may not be able 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 result in price reductions, decreased customer orders, reduced product margins and loss of market share, any of which could harm our business.

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

Our primary competitors are Adobe Systems Incorporated, Cyberlink Corporation, Pinnacle Systems, Inc., Roxio, Inc., Sonic Solutions, Inc. and Ulead Systems, Inc. Additional competitors are likely to enter our industry in the future. We also face competition from the internal research and development departments of other software companies and PC and CE manufacturers, including some of our current customers. Some of our customers have the capability to integrate their operations vertically by developing their own software-based digital and audio solutions or by acquiring our competitors or the rights to develop competitive products or technologies, which may allow these customers to reduce their purchases or cease purchasing from us completely. Operating system providers with an established customer base, such as Microsoft, already offer products in the digital video and audio software markets. Some video and audio capabilities are built directly into their operating systems or are offered as upgrades to those operating systems at no additional charge. If Microsoft or other operating system providers develop or license digital video and audio solutions that compete directly with ours and incorporate the solutions into their operating systems, our products could lose market share.

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

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

Our success depends on our ability to effectively manage the growth of our operations. 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%. Since June 2001, we have increased our headcount by approximately 36%. We cannot be certain that our current cost structure is appropriate for the level of revenue that we generate. Furthermore, we expect to increase the scope of our operations in the future. To manage the growth of our operations and personnel, we will need to improve our operational and financial systems, procedures and controls as well as hire additional qualified personnel. Our current and planned systems,

procedures and controls may not be adequate to support our future operations and expected growth. Delays or problems associated with any improvement or expansion of our operational systems and controls could harm our relationships with customers, reputation and brand.

We may lack the ability to record, process, summarize and report financial data in compliance with our public company reporting requirements if we fail to improve our internal controls and procedures for financial reporting.

Our independent auditors have indicated that they consider there to be the following significant deficiencies in our internal controls and procedures for financial reporting and have made the following recommendations:

In addition, our independent auditors have made other recommendations during their audit, which they did not consider to be significant deficiencies in our internal accounting controls. Specifically, they have advised us that:

As described above, we have taken a number of steps to address the concerns of our independent auditors and continue to evaluate and consider their recommendations as well as additional steps we can take to improve our internal controls and procedures. However, there can be no assurance that these actions and any other actions we may take will be successful. Our failure to implement these recommendations could adversely affect our ability to record, process, summarize and report financial data in compliance with our public company reporting obligations.

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

We license technology for use in our WinDVD product, our WinRip product, our WinCreator product, our WinRecorder 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, a license with MPEG-LA for its MPEG-2 video technology, a license from Thomson Licensing S.A. for its MP3 audio technology and various other license agreements relating to patents, know-how and trademarks that are important to various aspects of the development, marketing and sale of our products. We are obligated to pay royalties under each of the Dolby, DVD Copy Control Association, MPEG-LA and Thomson Licensing S.A. agreements, and Dolby, DVD Copy Control Association, MPEG LA and Thomson Licensing may each terminate its license if we breach any material provision of the license or if other events occur, as specified in the license agreement. If we fail to maintain these license arrangements, we might not be able to ship our products in their present forms and our revenue could decline.

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

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

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

Defects, referred to in the software industry as “bugs,” have been found in our products in the past and may be found in the future. In addition, our products may fail to meet our customers’ design specifications or be incompatible with other software or components contained in our customers’ products, or our customers may change their design specifications or add additional third-party software or components after the production of

our products. We may be required to devote significant financial resources and personnel to correct any defects. A failure to meet our customers’ design specification often results in a loss of sales due to the length of time required to redesign the product. Our products may also be required to interface with defective third-party software or components. If we are unable to detect or fix errors, or meet our customers’ design specifications, our business and results of operations would suffer.

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

Our financial condition and results of operations are likely to be affected by seasonality in the future. Historically, PC OEMs have experienced their highest volume of sales during the year-end holiday season. Because of the timing of our recognition of revenue associated with the sale of our products to OEMs, we expect this seasonality to have a positive effect on our revenue and operating income in the first quarter of each calendar year and a negative effect on our revenue and operating income in the second quarter of that year. To the extent our retail sales increase as a percentage of our revenue, we expect this would also result in greater seasonality in our results of operations.

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

The market for our products is characterized by rapid technological change, new and improved product introductions, changes in customer requirements and evolving industry standards. Our future success will depend to a substantial extent on our ability to develop, introduce and support cost-effective new products and technologies on a timely basis. If we fail to develop and deploy new cost-effective products and technologies or enhancements of existing products on a timely basis, or if we experience delays in the development, introduction or enhancement of our products and technologies, our products will no longer be competitive and our business will suffer.

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

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

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

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

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

Our success depends upon our ability to protect our proprietary rights. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as license and confidentiality agreements with our employees, customers, strategic partners and others to establish and protect our proprietary rights. The protection of patentable inventions is important to our future opportunities. We currently have one issued U.S. patent and three patents issued in Taiwan, and we have 46 pending patent applications, comprised of 34 U.S. patent applications and 12 foreign patent applications. It is possible that:

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 disrupt our operations or otherwise harm our business.

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

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

A substantial majority of our revenue is generated by our PC OEM customers that pay us a license fee based upon the number of copies of our software they bundle with the PCs that they sell. In collecting these fees, preparing our financial reports, projections and budgets and in directing our sales efforts and product development, we rely on our customers to accurately report the number of units licensed. We have never audited any of our customers to verify the accuracy of their reports or payments. Most of our license agreements permit

us to audit our customers, but audits are expensive and time consuming and could harm our customer relationships. From time to time, customers have provided us with inaccurate reports, which resulted in our under-reporting or over-reporting revenue for the associated period and recording an adjustment in a future period. If any of our customer reports are inaccurate, the revenue we collect and report will be inaccurate and we may be required to make an adjustment to our revenue for a subsequent period, which could harm our business and credibility in the financial community.

Our international operations accounted for 50% of our revenue for the year ended December 31, 2002 and 41% of our revenue for the three months ended March 31, 2003, which may expose us to political, regulatory, economic, foreign exchange and operational risks.

Because we sell our products worldwide, our business is subject to risks associated with doing business internationally. International sales (i.e., sales outside the United States) accounted for 50% of our revenue for the year ended December 31, 2002 and 41% of our revenue for the three months ended March 31, 2003, and we expect to continue to derive a significant portion of our revenue from international sales. We intend to expand our international operations in the future. Significant management attention and financial resources are needed to develop our international sales, support and distribution channels and manufacturing. We may not be able to maintain international market demand for our products. Our future results could be harmed by a variety of factors related to international operations, including:

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

In addition, we and certain of our OEM customers maintain significant operations in Asia. Any kind of economic, political or environmental instability in this region of the world could harm our operating results . The recent outbreak of SARS in China, Taiwan and other markets could harm business conditions and slow economic growth in those markets. The expected level of economic growth for this year in markets affected by SARS has declined, and slower growth could result in less demand for our products in these markets. Moreover, if the SARS outbreak leads to quarantines and closures that disrupt our operations or distribution channels or those of our customers, our business could suffer. Further, we may be 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 geopolitical developments in the Middle East and North Korea.

Our business and operating results are subject to uncertainties arising out of geopolitical developments in the Middle East and North Korea, including the recent war in Iraq and the escalation of political tension between the United States and North Korea. These uncertainties include the potential worsening or extension of the current global economic slowdown and the economic consequences of additional military actions. Any similar geopolitical uncertainty in the future could harm our operating results and stock price.

We may not be successful in addressing problems encountered in connection with any acquisitions we may undertake, which could disrupt our operations or otherwise 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:

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

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.

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.

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:

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. Our certificate and bylaws, among other things, provide for a classified board of directors, require that stockholder actions occur at duly called meetings of the stockholders, limit who may call special meetings of stockholders and require advance notice of stockholder proposals and director nominations. These provisions, along with the provisions of the Delaware General Corporation Law, such as Section 203, prohibiting certain business combinations with an interested stockholder, may delay or impede a merger, tender offer or proxy contest involving us. Any delay or prevention of a change of control transaction or changes in management could cause the market price of our common stock to decline. 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 25% 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 general corporate purposes, including working capital and capital expenditures. We currently anticipate spending a portion of the net proceeds on sales and marketing activities, research and development activities, general and administrative matters and on 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. We have not reserved or allocated specific amounts for these purposes, 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 March 31, 2003, upon completion of this offering, we will have 12,397,139 shares of common stock outstanding. Of these shares, the 2,800,000 shares sold in this offering will be freely tradable. Another 9,333,304 shares will be eligible for sale in the public market 180 days from the date of this prospectus, over 99% of which are subject to lock-up agreements with SG Cowen Securities Corporation. SG Cowen Securities Corporation may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements prior to the expiration of such 180-day period. The remaining 263,835 shares are restricted securities that will become eligible for sale in the public market pursuant to Rule 144 at various dates in the future. 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.

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.

We estimate that we will receive net proceeds of approximately $29.6 million, or $34.3 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 $12.00 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 currently anticipate spending a portion of the net proceeds on sales and marketing activities, research and development activities, general and administrative matters and on capital expenditures. We have not yet allocated specific amounts for these purposes. 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 principal purposes of this offering are to obtain additional capital, to enhance our ability to acquire other businesses, products or technologies, to create a public market for our common stock, to facilitate our future access to public equity markets, to provide liquidity for our existing stockholders, to improve the effectiveness of our stock option plans in attracting and retaining key employees, to increase the visibility of our company in a marketplace in which several of our competitors are publicly-held companies and to provide our OEM customers greater assurances as to our long-term viability, which is enhanced by being subject to the financial reporting and disclosure obligations of a public company. 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.

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.

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.”

Our pro forma net tangible book value as of March 31, 2003 was approximately $2.39 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 March 31, 2003. After giving effect to our sale in this offering of shares of our common stock at an assumed initial public offering price of $12.00 per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of March 31, 2003 would have been $4.24 per share of our common stock. This represents an immediate increase in net tangible book value of $1.85 per share to our existing stockholders and an immediate dilution of $7.76 per share to you. The following table illustrates this per share dilution:

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 March 31, 2003 before underwriters’ discount and offering expenses in the following table. The following table does not include 3,192,142 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $2.24 per share as of March 31, 2003. To the extent that outstanding options are exercised, there will be further dilution to new investors.

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 balance sheet data as of December 31, 2001 and 2002 and March 31, 2003 and the selected consolidated statement of operations data for the three-year period ended December 31, 2002 and each of the three-month periods ended March 31, 2002 and 2003 are derived from our audited and unaudited financial statements included in this prospectus. As described in Note 2 of the consolidated financial statements, we have restated our financial statements as of December 31, 1999, 2000 and 2001, for each of the years in the three-year period ended December 31, 2001 and for the three-month period ended March 31, 2002. The selected consolidated balance sheet data as of December 31, 1998, 1999 and 2000, and the selected consolidated statement of operations data for the period from April 28, 1998 (inception) through December 31, 1998 and for the year ended December 31, 1999 are derived from audited financial statements not included in this prospectus. The unaudited information has been prepared on the same basis as our audited financial statements and, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of our operating results for these periods and our financial condition as of March 31, 2002 and 2003. The pro forma data and the pro forma share and income per share data for the year ended December 31, 2002 and the three months ended March 31, 2003 gives effect to the conversion of all outstanding shares of preferred stock into common stock.

	Year ended December 31,										Three months ended March 31,
	1998(1)		1999		2000		2001		2002		2002		2003
(in thousands)			Restated(3)		Restated(3)		Restated(3)				Restated(3)
											(unaudited)
Research and development	$	—	$	25	$	745	$	581	$	969	$	268	$	111
Sales and marketing		—		133		1,523		605		761		377		115
General and administrative		—		181		641		668		739		276		107

	$	—	$	339	$	2,909	$	1,854	$	2,469	$	921	$	333

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. As described in Note 2 to our consolidated financial statements, we have restated our financial statements as of December 31, 2001 and for each of the years in the two-year period ended December 31, 2001. 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.

We are a leading provider of DVD software. We have developed a technology platform from which we have created a broad suite of integrated multimedia software products. These products span the digital video cycle by allowing users to capture, edit, author, distribute, burn and play digital video. We have historically derived nearly all of our revenue from sales of our WinDVD product, a software DVD player for PCs, to PC OEMs. In the future, we expect to derive an increasing percentage of our revenue from sales of other products, including WinDVD Creator, InterVideo Home Theater, InterVideo DVD Copy and Linux-based versions of our DVD and DVR software designed for Linux-based PCs and CE devices, and products sold through our retail and web-based sales channels.

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 Dell, Fujitsu, Fujitsu Siemens, Hewlett-Packard (including the former Compaq), IBM, Sony and Toshiba. We sell our products to PC OEMs, CE manufacturers and PC peripherals manufacturers worldwide and offer our software in up to 27 languages. In addition, we sell our products through retail channels and directly to consumers through our websites.

We derive revenue primarily from the sale of software licenses to OEMs, which install our software onto PCs prior to delivery to consumers. In addition, we derive revenue from the license of our software to CE manufacturers and manufacturers of PC peripherals that incorporate our software into their own products for distribution. We also sell our software through retail channels and directly to end users through our websites. We recognize revenue generated from sales to PC OEMs, CE manufacturers, 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 probable.

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, each OEM will qualify our software on their hardware and software configurations. 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 qualification. 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, these acceptance rights do not impact the amount or timing of revenue recognition.

Most OEMs pay a license fee based on the number of copies of licensed software included in the products sold to their customers. These OEMs pay fees on a per unit basis, and we record associated revenue when we receive notification of the OEMs’ sales of the licensed software to end users. 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.

A small number of OEMs that primarily sell PC components place orders with us for a fixed quantity of units at a fixed price. In such cases, qualification of our products is not required, and these OEMs have no rights to upgrades or returns. We generally recognize revenue upon shipment to these OEMs.

In addition to the per unit license fees discussed above, certain OEM agreements also include non-recurring engineering, or NRE, service fees primarily for porting our software to the OEMs’ hardware and software configurations. The NRE service fees are recognized using the percentage-of-completion method. However, some OEM agreements also provide the OEM with rights to free post contract support, or PCS, including unspecified future software upgrades. PCS is not available to the OEMs’ end users. We have not established vendor specific objective evidence of fair value for PCS and accordingly, if a contract includes both PCS and NRE services, the NRE service fees are deferred until software product acceptance and then recognized as revenue over the PCS period.

End-user sales are made directly through our websites. We do not offer specified upgrade rights to any class of customer, and there are no unspecified upgrade rights associated with end-user sales. We recognize revenue from sales through our websites upon delivery of product and the receipt of payment by means of an authorized credit card. End users who purchase our software from our websites do not have rights of return.

Certain distributors and retailers, primarily in Japan, have limited rights to return products that were purchased in the previous six months. These distributors have no rights to product upgrades. We generally recognize revenue, net of estimated returns, upon shipment to these distributors and retailers. Other distributors and retailers, primarily in the United States, have unlimited rights of return. We generally recognize revenue upon receipt of evidence that the distributors and retailers have sold our products.

Certain customer agreements call for the payment by us of marketing development funds, co-operative advertising fees, rebates or similar charges. We account for such fees as a reduction in revenue. Commissions paid to third-party sales representatives are included in sales and marketing expenses.

Our revenue growth has been achieved in large part due to sales of our WinDVD product to 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, CE manufacturers, PC peripherals manufacturers, smaller PC OEMs and to consumers through retail channels and our websites. Because some of these other revenue opportunities are more fragmented than the PC OEM market and will require more time and effort to penetrate, our revenue may grow at a slower rate than in prior periods.

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, 2002, our five largest customers accounted for a majority of our revenue, with Hewlett-Packard (including the former Compaq) accounting for 17% and Dell accounting for 14% of our revenue during that period. For the three months ended March 31, 2003, Hewlett-Packard (including the former Compaq) accounted for 21% of our revenue and Dell accounted for 11% of our revenue.

We expect that a small number of customers will continue to account for a majority of our revenue and gross profit for the foreseeable future although the identity of those customers may change from period to period.

Sales outside of the United States accounted for 50% of our revenue for the year ended December 31, 2002 and 41% of our revenue for the three months ended March 31, 2003. 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. We also continue to expand our retail channels. For the year ended December 31, 2002 and the three months ended March 31, 2003, we derived 15% and 17%, respectively, of our revenue from web and retail sales. To increase our web and retail sales in the future, we intend to increase investments in associated selling and marketing, capital equipment and research and development. The gross margins in connection with our products sold through our websites are generally higher than those in connection with our OEM sales. Accordingly, fluctuations in our web and retail revenue as a percentage of total revenue will impact our gross margins.

Our financial condition and results of operations are likely to be affected by seasonality in the future. Historically, PC OEMs have experienced their highest volume of sales during the year-end holiday season. Because of the timing of our recognition of revenue associated with the sale of our products to OEMs, we expect this seasonality to have a positive effect on our revenue and operating income in the first quarter of each calendar year and a negative effect on our revenue and operating income in the second quarter of that year. To the extent our retail sales increase as a percentage of our revenue, we expect this could also result in greater seasonality in our results of operations.

Cost of revenue consists of two components: product costs and amortization of software license agreement. Product costs consist primarily of:

Licensed and unlicensed royalties consist of royalties paid or accrued for payment to third parties for technologies incorporated into our products. In general, the amount of royalties depends on the number of our product units sold and the royalty rates associated with the third-party technology incorporated into those products.

Cost of settlement of intellectual property matters consists of amounts that we have agreed to pay to third parties in settlement of alleged infringement of certain patented technology used in our and our customers’ products and accruals for royalties related to our usage of technologies under patent where no agreement exists. In April 2002, we reached a settlement with Dell concerning certain amounts that Dell alleged we owed it as a

result of certain intellectual property infringement claims brought against Dell. In connection with this settlement, we issued shares of preferred stock having a total value at the date of issuance of $3.7 million. These shares are convertible into 351,780 shares of our common stock upon the closing of this offering. We also have reached agreements with other parties in settlement of similar claims. See Note 4 of notes to consolidated financial statements. We expect to make additional cash payments to settle similar claims in the future, although the timing and amount of such payments can not be determined at this time. See “Risk Factors—Risks 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.”

End-user post contract support costs include the costs associated with answering end-user customer inquiries and providing telephone assistance to end users of our products. We do not defer the recognition of any revenue associated with sales to end users, because no updates are provided and the post contract customer support is provided within 90 days after the associated revenue is recognized.

Over the next several quarters, we expect our product costs to increase as a percentage of revenue due to lower selling prices. Certain product costs associated with sales through retailers are deferred until the corresponding revenue has been recognized.

Amortization of software license agreement consists of royalty payments pursuant to a software license agreement that we entered into in December 2000. The license agreement provided for an aggregate of $1.1 million of minimum royalty payments. The associated expense was recognized on a straight-line basis over the agreement term. In September 2001, we determined that a large portion of the minimum royalty payments would be unrealizable and was impaired. Accordingly, during the year ended December 31, 2001, $1.0 million was charged to amortization of software license agreement of which $724,000 represents a charge for impairment. The remaining $50,000 as of December 31, 2001 will be recorded as cost of revenue over the remaining agreement term.

Our gross profit is affected by many factors, including competitive pricing pressures, fluctuations in unit volumes, changes in royalty amounts and changes in the mix of products sold and in our mix of distribution channels. In addition, our gross profit may be impacted by costs associated with the settlement of intellectual property matters.

Research and development expenses consist primarily of personnel and related costs, consulting expenses associated with the development of new products, technology license fees, professional fees and 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, 2000, 2001 and 2002 and the three months ended March 31, 2003, we recorded deferred stock compensation of $3.6 million, $1.6 million, $2.3 million and ($1,000), respectively. 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 using an accelerated method of amortization under FASB Interpretation No. 28 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, 2003 totals $710,000 for the final three quarters of 2003, $444,000 in 2004, $120,000 in 2005, $6,000 in 2006.

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, $1.3 million to goodwill, $150,000 to the assembled work force and $1.0 million to developed technology. Before January 1, 2002, goodwill and other intangible assets were amortized on the straight-line method over their estimated useful life of five years.

On January 1, 2002, we adopted Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142), and no longer amortize goodwill and intangibles with an indefinite life, including our assembled workforce. We will continue to amortize developed technology as a cost of revenue. Developed technology amortization included in the cost of revenue was $200,000, $200,000 and $50,000 for the years ended December 31, 2001 and 2002 and the three months ended March 31, 2003, respectively. Goodwill and assembled workforce amortization was $298,000, $0 and $0 for the years ended December 31, 2001 and 2002 and the three months ended March 31, 2003, respectively.

As a result of implementing SFAS No. 142, we will evaluate our goodwill and indefinite-lived intangibles, with a net book value of approximately $1.0 million as of December 31, 2002 and March 31, 2003, for impairment at least annually and more frequently upon the occurrence of certain events. If at anytime we determine this goodwill to be impaired, we will record an impairment charge in the period in which this determination is made.

In May 2002, with the approval of our board of directors (including the audit committee of the board), we terminated Arthur Andersen LLP as our outside accounting firm and engaged KPMG LLP as our principal accountants. Arthur Andersen’s reports on our 1999, 2000 and 2001 consolidated financial statements contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In addition, during 2000 and 2001 and the interim period of 2002 prior to this change, there were no disagreements with Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Arthur Andersen, would have caused it to make a reference to the subject matter of the disagreements in connection with its reports. We furnished Arthur Andersen with a copy of the above statements and requested that Arthur Andersen furnish a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with the above statements in accordance with Item 304(a)(3) of Regulation S-K. Representatives of Arthur Andersen have informed us, however, that Arthur Andersen is no longer in the business of providing auditing services and is not in a position to furnish the requested letter. We did not consult KPMG LLP on any financial or accounting reporting matters in the period before their appointment.

As a result of a reaudit performed by KPMG LLP, we have restated our consolidated financial statements as of December 31, 2001 and for each of the years in the two-year period ended December 31, 2001. The restatement is explained in more detail in Note 2 of the notes to our consolidated financial statements.

Revenue increased 20% to $13.4 million for the three months ended March 31, 2003 from $11.2 million for the three months ended March 31, 2002. The growth in revenue resulted primarily from increased sales of our WinDVD product in North America, which increased 36%. This increase in sales resulted from increased unit shipments of PCs by our North American OEM customers that bundle our WinDVD product.

Cost of revenue increased to $5.4 million, or 41% of revenue, for the three months ended March 31, 2003 from $4.0 million, or 36% of revenue, for the three months ended March 31, 2002. The increase in absolute dollars is due primarily to higher unlicensed third-party royalties as a result of higher unit shipments. Included in cost of revenue for the three months ended March 31, 2002 was a settlement of intellectual property matters of $103,000.

Gross margin decreased to 59% of revenue for the three months ended March 31, 2003 from 64% for the three months ended March 31, 2002. The decrease resulted primarily from lower average selling prices of our WinDVD product to our major OEM customers during the quarter.

Research and development expenses decreased to $1.7 million, or 13% of revenue, for the three months ended March 31, 2003 from $2.0 million, or 18% of revenue, for the three months ended March 31, 2002. The decrease resulted primarily from a reduction in payroll and consulting spending by $170,000 and a reduction in legal spending by $127,000. The reduction in payroll and consulting spending resulted primarily from a shift in personnel resources to overseas locations with lower cost structures. We believe that a significant level of research and development expenses will be required to remain competitive, and, as a result, we expect these expenses to increase in absolute dollars in the future.

Sales and marketing expenses increased to $2.3 million, or 17% of revenue, for the three months ended March 31, 2003 from $1.8 million, or 16% of revenue, for the three months ended March 31, 2002. The increase was primarily attributable to higher payroll expenses of $315,000 due to increased sales and marketing headcount and higher promotional expenses of $100,000 and higher tradeshow expenses of $93,000. These increased expenses were partially offset by lower commissions paid to outside sales representatives of $267,000. We intend to actively market, sell and promote our products and take actions to further develop our brand name and retail presence. Therefore, we expect sales and marketing expenses to increase in absolute dollars in the future.

General and administrative expenses increased slightly to $951,000, or 7% of revenue, for the three months ended March 31, 2003 from $896,000, or 8% of revenue, for the three months ended March 31, 2002. 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 compensation expenses decreased to $333,000 for the three months ended March 31, 2003 from $921,000 for the three months ended March 31, 2002. Stock compensation expenses related to the issuance of stock options are amortized on an accelerated basis over the four-year vesting period of the options. Also, expenses are primarily incurred when options are granted with exercise prices less than the deemed fair market value of the underlying common stock, which we do not anticipate occurring after the offering. Accordingly, we expect stock compensation expenses to decrease in future periods.

Other income, net consists primarily of interest earned on our cash and cash equivalent balances, offset by other expenses. Other income, net increased to $86,000 for the three months ended March 31, 2003 from $76,000 for the three months ended March 31, 2002.

We recorded a provision for income taxes of $1.1 million for the three months ended March 31, 2003 and a provision for income taxes of $596,000 for the three months ended March 31, 2002. In the first quarter of 2002, the only income tax expense or benefit we recognized was related to foreign withholding taxes, as all tax benefits were fully reserved. In the third quarter of 2002, we recorded a benefit for income taxes as a result of our reassessment of the recoverability of our deferred tax assets as being more likely than not, resulting in the release of a significant portion of our valuation allowance. As such, in the first quarter of 2003, we recorded tax expense on profits at the federal and state statutory rates, with adjustments for permanent book and tax differences. Realization of our deferred tax assets of $5.5 million is dependent on our generating sufficient taxable income in the future. Although realization is not assured, we believe it is more likely than not that the deferred tax assets

will be realized. The amount of the deferred tax assets considered realizable, however, could be reduced in the future if estimates of future taxable income are reduced.

Revenue increased 35% to $45.5 million for the year ended December 31, 2002 from $33.8 million for the year ended December 31, 2001. The growth in revenue resulted primarily from increased sales of our WinDVD product in Asia and to a lesser extent in North America, which increased 65% and 16%, respectively. This increase in sales resulted from increased unit shipments of PCs by our Asian and North American OEM customers that bundle our WinDVD product.

Cost of revenue decreased to $16.9 million, or 37% of revenue, for the year ended December 31, 2002 from $17.9 million, or 53% of revenue, for the year ended December 31, 2001. The decrease in absolute dollars is due primarily to lower costs of unlicensed third-party royalties, lower costs of settlement of intellectual property matters and lower amortization of software license agreement. This decrease was offset somewhat by higher royalties as a result of higher unit shipments. Unlicensed royalties and costs of settlement of intellectual property matters decreased to $620,000 in 2002 from $5.4 million, or 16% of revenue, in 2001. This decrease was offset by a reduction in accrued unlicensed royalties of $363,000 resulting from one of the settlements incurred during the year ended December 31, 2002. For the year ended December 31, 2002, we concluded intellectual property settlements with, and paid in cash or stock $4.4 million to, certain OEM customers and patent holders.

In December 2000, we entered into a software license agreement providing for an aggregate of $1.1 million of minimum royalty payments. The associated expense was recognized on a straight-line basis over the agreement term. In September 2001, we determined that a large portion of the minimum royalty payment would be unrealizable and was impaired. Accordingly, during the year ended December 31, 2001, $1.0 million was charged to amortization of software license agreement of which $724,000 represents a charge for impairment. The remaining $50,000 as of December 31, 2001 is being recorded as cost of revenue over the remaining agreement term.

Gross margin increased to 63% of revenue for the year ended December 31, 2002 from 47% for the year ended December 31, 2001. The increase resulted primarily from lower costs of settlement of intellectual property matters and lower amortization of software license agreement as noted above partially offset by lower average selling prices of our WinDVD product.

Research and development expenses decreased to $7.2 million, or 16% of revenue, for the year ended December 31, 2002 from $9.0 million, or 27% of revenue, for the year ended December 31, 2001. The decrease resulted primarily from a reduction in payroll spending of $1.1 million due to the restructuring we implemented in June 2001, the shift in personnel resources overseas to locations with lower cost structures and lower license fees of $359,000.

Sales and marketing expenses increased slightly to $8.2 million, or 18% of revenue, for the year ended December 31, 2002 from $7.9 million, or 23% of revenue, for the year ended December 31, 2001. The increase was primarily attributable to higher payroll expenses of $607,000 and higher communication expenses of

$120,000 due to increased sales and marketing headcount in the year ended December 31, 2002 offset somewhat by lower promotional expenses of $442,000.

General and administrative expenses increased to $3.8 million, or 8% of revenue, for the year ended December 31, 2002 from $3.0 million, or 9% of revenue, for the year ended December 31, 2001. The increase in absolute dollars was primarily attributable to increased professional services of $619,000, primarily related to our initial public offering and reaudit, and increased payroll costs of $114,000.

Stock compensation expenses increased to $2.5 million for the year ended December 31, 2002 from $1.9 million for the year ended December 31, 2001. The increase was due to additional stock option grants and a full year of amortization expense associated with the prior year’s stock option grants.

Amortization of goodwill decreased to $0 for the year ended December 31, 2002 from $298,000 for the year ended December 31, 2001 as a result of implementing SFAS No. 142. If at any time we determine goodwill to be impaired, we will record an impairment charge in the period in which this determination is made.

During the years ended December 31, 2002 and 2001, we incurred $1.7 million and $710,000, respectively, of professional costs in connection with the preparation of our initial public offering. In September 2002 and also in September 2001, our offering was delayed and all costs previously capitalized were expensed.

In March 2001, we entered into a promotional agreement with an online music provider for our WinRip product. In accordance with the agreement, we were 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 were recorded in sales and marketing expenses. In September 2001, based on the results of the promotion, we determined that the remaining $550,000 of committed promotional expense under the contract was unrealizable. There were no charges recorded during the year ended December 31, 2002.

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, 2002, the remaining accrual of $101,000 related to the future payment of restructuring expenses, all of which was 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.

Other income, net decreased to $24,000 for the year ended December 31, 2002 from $537,000 for the year ended December 31, 2001. The decrease related primarily to a write-down of $200,000 in the carrying value of an investment in a private company that management determined was no longer recoverable, a loss of

$143,000 resulting from the disposal of property and equipment and a reduction of $202,000 in interest income due to lower interest rates recorded for the year ended December 31, 2002.

We recorded a benefit for income taxes of $2.4 million for the year ended December 31, 2002 and a provision for income taxes of $924,000 for the year ended December 31, 2001. In the third quarter of 2002, we recorded a benefit for income taxes as a result of our reassessment of the recoverability of our deferred tax assets as being more likely than not and the resulting release of a significant portion of our valuation allowance. The amount of the valuation allowance that existed at December 31, 2001 and that was reversed in the third quarter of 2002 was $7.4 million. Excluding the effects of this reversal, the current provision for income taxes increased to $3.0 million for the year ended December 31, 2002 from $924,000 for the year ended December 31, 2001 due to higher foreign sales in countries subject to withholding taxes, increased non-deductible expenses and the recording in 2002 of a tax provision for payment of federal and state taxes.

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.

Cost of revenue increased to $17.9 million, or 53% of revenue, for the year ended December 31, 2001 from $5.1 million, or 33% of revenue, for the year ended December 31, 2000. The increase in absolute dollars is due primarily to higher unlicensed third-party royalties, cost of settlement of intellectual property matters and amortization of software license agreement as well as higher revenue and unit shipments compared to the year ended December 31, 2000. Product costs increased to $16.9 million, or 50% of revenue, for the year ended December 31, 2001 from $5.1 million, or 33% of revenue, for the year ended December 31, 2000. The increase was primarily due to higher unlicensed third-party royalties and higher costs of settlement of intellectual property matters of $5.4 million, or 16% of revenue, and an increase in average royalty unit costs owed to third parties for incorporation of their technology into our products. In addition, $1.0 million was included in cost of revenue in 2001 that was charged to amortization of software license agreement as described above.

Gross margin decreased to 47% of revenue for the year ended December 31, 2001 from 67% for the year ended December 31, 2000. The decrease resulted primarily from higher costs of settlement and amortization of software license agreement as noted above.

Research and development expenses increased to $9.0 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 an in-process research and development charge resulting from the AVPD acquisition.

Sales and marketing expenses increased to $7.9 million, or 23% of revenue, for the year ended December 31, 2001 compared to $4.9 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, commissions paid to third-party sales representatives, promotional expenses, consulting costs and facilities-related expenses.

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 increase in absolute dollars was primarily attributable to increased payroll costs and professional services.

Stock compensation expenses decreased to $1.9 million for the year ended December 31, 2001 from $2.9 million for the year ended December 31, 2000, due to a reduction in the number of stock options granted to non-employees during 2001 and the accelerated method of amortizing employee deferred stock compensation in 2000.

Title of Each Class of Securities to be Registered	Number of Shares Registered(1)	Proposed Maximum Offering Price Per Share(2)	Proposed Maximum Aggregate Offering Amount(2)	Amount of Registration Fee(3)

Common Stock, $0.001 par value	3,220,000	$13.00	$41,860,000	$3,387

	Per Share	Total

Public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds, before expenses, to us	$	$

	Year ended December 31,								Three months ended March 31,
	2000(1)			2001			2002		2002		2003
	Restated(2)			Restated(2)					Restated(2)
(in thousands, except per share data)									(unaudited)
Consolidated Statement of Operations Data
Revenue	$	15,426		$	33,763		$	45,494	$	11,167	$	13,373
Product costs		5,133			16,895			16,850		3,956		5,430
Amortization of software license agreement		—			1,000			29		13		5

Gross profit		10,293			15,868			28,615		7,198		7,938
Operating expenses:
Research and development		6,581			9,035			7,185		2,022		1,714
Sales and marketing		4,916			7,878			8,179		1,759		2,275
General and administrative		2,667			2,990			3,778		896		951
Stock compensation(3)		2,909			1,854			2,469		921		333
Other operating expenses(4)		174			2,408			1,708

Total operating expenses		17,247			24,165			23,319		5,598		5,273

Income (loss) from operations	$	(6,954	)	$	(8,297	)	$	5,296	$	1,600	$	2,665

Net income (loss)	$	(6,951	)	$	(8,684	)	$	7,729	$	1,080	$	1,608

Net income (loss) per common share, basic	$	(4.89	)	$	(4.61	)	$	3.15	$	0.47	$	0.63

Net income (loss) per common share, diluted	$	(4.89	)	$	(4.61	)	$	0.65	$	0.09	$	0.13

Pro forma net income per common share, basic (unaudited)							$	0.83			$	0.17

Pro forma net income per common share, diluted (unaudited)							$	0.65			$	0.13

	As of March 31, 2003
	Actual		As adjusted
(in thousands)	(unaudited)
Consolidated Balance Sheet Data
Cash and cash equivalents	$	18,518	$	48,116
Working capital		17,741		47,339
Total assets		38,428		68,026
Total stockholders’ equity		24,386		53,984

	As of March 31, 2003
	Actual			Pro forma			Pro forma as adjusted
	(in thousands, except share data)
	(unaudited)
Stockholders’ equity:
Convertible preferred stock, $0.001 par value: aggregate liquidation preference of $23,855 actual and $0 pro forma and pro forma as adjusted; 13,000,000 shares authorized, 12,838,750 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma as adjusted	$	13		$	—		$	—
Common stock, $0.001 par value: 25,000,000 shares authorized, 2,648,810 shares issued and outstanding, actual; 9,597,139 shares issued and outstanding, pro forma; 12,397,139 shares issued and outstanding, pro forma as adjusted		3			10			12
Additional paid-in capital		35,198			35,204			64,800
Notes receivable from stockholders		(874	)		(874	)		(874	)
Deferred stock compensation		(1,280	)		(1,280	)		(1,280	)
Accumulated other comprehensive loss		(168	)		(168	)		(168	)
Accumulated deficit		(8,506	)		(8,506	)		(8,506	)

Total stockholders’ equity		24,386			24,386			53,984

Total capitalization	$	38,428		$	38,428		$	68,026


Prospectus Summary		1

The Offering		3

Summary Consolidated Financial Data		4

Risk Factors		5

Forward-Looking Information		21

Use of Proceeds		22

Dividend Policy		22

Capitalization		23

Dilution		24

Selected Consolidated Financial Data		25

Management’s Discussion and Analysis of Financial Condition and Results of Operations		27

Business		46

Management		61

Related Party Transactions		70

Principal Stockholders		72

Description of Capital Stock		74

Shares Eligible for Future Sale		77

Underwriting		79

Legal Matters		81

Experts		81

Where You Can Find More Information		82

Index to Consolidated Financial Statements		F-1

Assumed initial public offering price per share			$	12.00
Pro forma net tangible book value per share before this offering	$	2.39
Increase per share attributable to investors in this offering		1.85

Pro forma net tangible book value per share after this offering				4.24

Dilution per share to investors in this offering			$	7.76

	Shares Purchased			Total Consideration				Average Price per Share
	Number	Percent		Amount		Percent		Average Price per Share
Existing shareholders	9,597,139	77.4	%	$	25,303,170	43.0	%	$	2.64
New investors	2,800,000	22.6			33,600,000	57.0			12.00

Total	12,397,139	100.0	%	$	58,903,170	100.0	%	$	4.75

	As of December 31,											As of March 31, 2003
	1998			1999		2000		2001		2002		As of March 31, 2003
(in thousands)				Restated(3)		Restated(3)		Restated(3)				(unaudited)
Consolidated Balance Sheet Data
Cash and cash equivalents	$	195		$	2,628	$	14,668	$	14,348	$	17,137	$	18,518
Working capital		(190	)		1,906		11,544		3,955		15,684		17,741
Total assets		362			3,817		22,134		22,153		34,716		38,428
Convertible preferred stock		6			8		12		12		13		13
Total stockholders’ equity		(36	)		2,634		15,314		8,467		22,441		24,386

	Year ended December 31,						Three months ended March 31,
	2000		2001		2002		2002		2003
	Restated		Restated				Restated
							(unaudited)
As a percentage of revenue:
Revenue	100	%	100	%	100	%	100	%	100	%

Product costs	33		50		37		36		41
Amortization of software license agreement	—		3		—		—		—

Cost of revenue	33		53		37		36		41

Gross margin	67		47		63		64		59

Operating expenses:
Research and development	43		27		16		18		13
Sales and marketing	32		23		18		16		17
General and administrative	17		9		8		8		7
Stock compensation	19		5		5		8		2
Amortization of goodwill	1		1		—		—		—
Cost of delayed public offering	—		2		4		—		—
Impairment of promotional agreement	—		2		—		—		—
Restructuring costs	—		3		—		—		—

Total operating expenses	112		72		51		50		39

Income (loss) from operations	(45	)	(25	)	12		14		20
Other income, net	4		2		—		1		1

Income (loss) before provision for income taxes	(41	)	(23	)	12		15		21
Provision (benefit) for income taxes	4		3		(5	)	5		9

Net income (loss)	(45	)%	(26	)%	17	%	10	%	12	%