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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended March 31, 2005

OR

For the Transition Period From              To             

Commission File Number: 000-49809

INTERVIDEO, INC.

(Exact name of registrant as specified in its charter)

46430 Fremont Blvd., Fremont, CA 94538

(Address of principal executive offices, Zip Code)

(510)-651-0888

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

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

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INTERVIDEO, INC.

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INTERVIDEO, INC.

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

(Unaudited)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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INTERVIDEO, INC.

PART 1 – FINANCIAL INFORMATION

Condensed Consolidated Statements of Income

(in thousands, except per share amounts)

(Unaudited)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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INTERVIDEO, INC.

PART 1 – FINANCIAL INFORMATION

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements.

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INTERVIDEO, INC.

PART 1 – FINANCIAL INFORMATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1. Organization and Business:

InterVideo, Inc. (“InterVideo” or the “Company”) is a provider of multimedia software products. These products span the digital video cycle by allowing users to capture, edit, author, distribute, burn and play digital video. The Company has historically derived a majority of its revenue from sales of its WinDVD product, a software DVD player for personal computers (“PCs”) to PC original equipment manufacturers (“OEMs”). Other products include WinDVD Creator, InstantON, InterVideo Home Theater, InterVideo DVD Copy and Linux-based versions of its DVD and DVR software designed for Linux-based PCs and consumer electronic (“CE”) devices. The Company’s software is bundled with products sold by PC OEMs. The Company sells its products to PC OEMs, CE manufacturers and PC peripherals manufacturers worldwide. In addition, the Company sells products through retail channels and directly to consumers through its websites.

Note 2. Summary of Significant Accounting Policies:

Basis of presentation

The accompanying condensed consolidated financial statements include the accounts of InterVideo, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. All international subsidiaries of the Company have established a month end cut-off period that is three working days prior to the end of any given month.

The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements.

The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2004, and notes thereto, included in InterVideo’s 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2005.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company based its estimates and assumptions on historical experience and on various other assumptions believed to be applicable and evaluate them on an on-going basis to ensure they remain reasonable under current conditions. Actual results could materially differ from these estimates.

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Foreign currency translation

The functional currency of the Company’s international subsidiaries is the local currency. Accordingly, all assets and liabilities are translated into U.S. dollars at the current exchange rate at the applicable balance sheet date. Revenue and expenses are translated at the average exchange rate prevailing during the period. The effects of these translation adjustments are recorded in accumulated other comprehensive income as a separate component of stockholders’ equity. Exchange gains or losses arising from transactions denominated in a currency other than the functional currency of an entity are included in other income, net and have not been significant to the Company’s operating results in any periods presented.

Fair value of financial instruments

The fair value of the Company’s cash equivalents, short-term investments, accounts receivable, marketable equity securities and accounts payable approximate their respective carrying amounts due to their relatively short-term maturities.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less, at the date of purchase, to be cash equivalents.

Short-term investments

Short-term investments consist principally of United States treasury, state and municipal notes/bonds, corporate bonds and auction rate securities. The Company currently classifies all investment securities as available-for-sale. Securities classified as available-for-sale are required to be reported at fair value with unrealized gains and losses excluded from earnings and included in other comprehensive income (loss).

Property and equipment

Property and equipment are recorded at cost less accumulated depreciation or amortization. Depreciation is calculated using the straight-line method based on estimated useful lives of between three and seven years. Leasehold improvements are amortized over the lesser of the lease terms or the estimated useful lives of the improvements. Expenditures for maintenance and repairs are charged to expense as incurred. Cost and accumulated depreciation of assets sold or retired are removed from the respective property accounts, and the gain or loss is reflected in the statement of operations

Goodwill

The Company accounts for goodwill in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 142 requires that intangible assets with an indefinite life should not be amortized until their life is determined to be finite. SFAS 142 also requires that goodwill not be amortized but instead tested for impairment at least annually and more frequently upon the occurrence of certain events. The Company adopted SFAS 142 effective January 1, 2002.

The Company tests goodwill for impairment at the reporting unit level at least annually and more frequently upon the occurrence of certain events, as defined by SFAS 142. Consistent with the Company’s determination that it has only one operating segment, the Company has determined that it has only one reporting unit. Goodwill is tested for impairment

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annually, in the fourth quarter, in a two-step process. First, the Company determines if the carrying amount of its reporting unit exceeds the “fair value” of the reporting unit, which would indicate that goodwill may be impaired. If the Company determines that goodwill may be impaired, the Company compares the “implied fair value” of the goodwill, as defined by SFAS 142, to its carrying amount to determine if there is an impairment loss.

Impairment of long-lived assets and other purchased intangibles

The Company accounts for intangible assets with finite lives in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. In accordance with SFAS 144, when events and circumstances warrant a review, the Company evaluates the carrying value of long-lived assets to be held and used. The carrying value of an asset is considered impaired when the anticipated undiscounted cash flow from such an asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds its fair value. Fair value is determined using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner except that fair values are reduced by the cost to dispose of such assets.

Long-term investments

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

Revenue recognition

The Company’s revenue is primarily derived from fees received under software licenses granted to PC OEMs, CE manufacturers, PC peripherals manufacturers, retail distributors, retail customers and directly to end users or businesses. The Company records revenue generated from these sales in accordance with AICPA Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended, under which revenue is recognized when evidence of an arrangement exists, delivery of the software has occurred, the fee is fixed or determinable, and collectibility is probable.

Typically, under the terms of the Company’s license agreements with its OEM customers, they are entitled only to unspecified upgrades on a when and if available basis, prior to sale into the OEM’s sales channel partners or sell through to the OEM’s end customers. Under the terms of the Company’s revenue recognition policy, the Company recognizes revenue based on evidence of products sold by our OEM customers to end customers or to the OEM’s sales channel partners. The Company does not typically provide upgrades or post contract support (“PCS”) to the OEMs’ customers or sales channel partners. Accordingly, under such agreements the Company does not defer any revenue, as the Company no longer has an obligation once an OEM’s products have been shipped from the OEM to the OEM’s sales channel partners or to an OEM’s end customer. Under certain other agreements, the Company defers the recognition of OEM revenue due to ongoing obligations in association with upgrade rights to end users or significant PCS provided to the OEM’s customers. Depending on the specific contractual obligation, the Company recognizes this revenue over a period of the shorter of the contractual obligation period or the estimated life of the product. In general, the Company considers the estimated life of our products to be three years.

Typically, the Company’s OEM customers do not have the right to claim a credit or refund for returns from the OEM’s sales channel partners or end customers back to the OEM. However, in the few instances where InterVideo has granted its OEM customers with the right to claim a refund or credit for these types of returns, the Company defers 100% of the revenue until it is able to establish a returns reserve based on historical returns activity, that is specific to the respective sales channel, product line or country.

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Under the terms of the OEM license agreements, each OEM qualifies InterVideo’s software on their hardware and software configurations. Once the Company’s software has been qualified, the OEM begins shipping products and reports net sales to the Company, at which point the Company records revenue. Most OEMs pay a license fee based on the number of copies of licensed software included in the products sold to their customers. These OEMs pay fees on a per-unit basis, and the Company records associated revenue when it receives notification of the OEMs’ sales of the licensed software to an end customer or a sales channel partner. The terms of the license agreements generally require the OEMs to notify the Company of sales of our products within 30 to 45 days after the end of the month or quarter in which the sales occur. As a result, the Company generally recognizes revenue in the month or quarter following the sales of the software to these OEMs’ customers.

A small number of OEMs that sell PC components, place orders with the Company for a fixed quantity of units at a fixed price based on an agreed-upon purchase order or contract. In such cases, qualification of the Company’s software is not required, and these OEMs have no rights to upgrades or returns. The Company generally recognizes revenue upon the completion of shipment, in accordance with the terms of the respective agreement, to these OEMs.