SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
Amendment No. 2

FOR ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2002

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 000-31081

TRIPATH TECHNOLOGY INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

77-0407364
(I.R.S. Employer Identification Number)

2560 Orchard Parkway
San Jose, CA 95131
(408) 750-3000
(Address, including zip code, or registrant’s principal executive offices
and telephone number, including area code)

3900 Freedom Circle
Santa Clara, California 95054
(Former name, former address and former fiscal year if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value per share
(Title of Class)

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 ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter: $43,393,098.

There were 41,360,894 shares of Tripath Technology Inc. common stock outstanding on April 18, 2003.

EXPLANATORY NOTE

This amended filing to the Annual Report on Form 10-K filed by Tripath Technology Inc. with the Securities and Exchange Commission on March 28, 2003, as amended on April 2, 2003, includes Part III information and a revised opinion of the Company’s former independent accountants, PricewaterhouseCoopers LLP. In the previously included opinion, PricewaterhouseCoopers LLP stated that the Company’s recurring losses from operations and net stockholders’ deficit raise substantial doubt about the Company’s ability to continue as a going concern. In the revised opinion, PricewaterhouseCoopers LLP states that the Company's recurring losses from operations and accumulated deficit raise substantial doubt about the Company's ability to continue as a going concern.

In addition, this amended filing to the Annual Report includes revised disclosure of the number of shares of the Company’s common stock issuable upon exercise of outstanding stock options, which had been previously overstated by 3.4 million shares.

Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Item 8, “Consolidated Financial Statements and Supplementary Data,” and Item 14, "Controls and Procedures,'' are amended and restated in their entirety as set forth herein.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis contains forward-looking statements. These statements are based on our current expectations, assumptions, estimates and projections about our business and our industry, and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in, or contemplated by, the forward-looking statements. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “should,” “estimate,” “predict,” “potential,” “continue” or the negative of such terms or other similar expressions, identify forward-looking statements. Our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in “Risk Factors” as well as those discussed elsewhere in this Annual Report on Form 10-K. You should read the following discussion and analysis in conjunction with the “Selected Consolidated Financial Data” and the financial statements and notes thereto included in this Annual Report on Form 10-K. Historical operating results are not necessarily indicative of results that may occur in future periods. The Company undertakes no obligation to update any forward-looking statement to reflect events after the date of this report.

Overview

We design and sell amplifiers based on our proprietary Digital Power Processing technology. We currently supply amplifiers for audio electronics applications, and have begun offering amplifiers for DSL applications. We were incorporated in July 1995, and we began shipping products in the first quarter of 1998. Accordingly, we have limited historical financial information and operating history for use in evaluating our Company and our future prospects. We incurred net losses (before charge for beneficial conversion of $14.9 million) of approximately $19.3 million in 2002, $27.0 million in 2001 and $41.3 million in 2000. We expect to continue to incur net losses in 2003, and possibly beyond.

We sell our products to original equipment manufacturers and distributors. We recognize revenue from product sales upon shipment to original equipment manufacturers and end users, net of sales returns and allowances. Our sales to distributors are made under arrangements allowing for returns or credits under certain circumstances and we defer recognition on sales to distributors until products are resold by the distributor to the end user. All of our sales are made in United States (“U.S.”) dollars.

As a “fabless” semiconductor company, we contract with third party semiconductor fabricators to manufacture the silicon wafers based on our integrated circuit (“IC”) designs. Each wafer contains numerous die, which are cut from the wafer to create a chip for an IC. We also contract with third party assembly and test houses to assemble and package our die and conduct final product testing.

Cost of revenue includes the cost of purchasing finished silicon wafers and die manufactured by independent foundries, costs associated with assembly and final product testing, as well as salaries and overhead costs associated with employees engaged in activities related to manufacturing. Research and development expense consists primarily of salaries and related overhead costs associated with employees engaged in research, design and development activities, as well as the cost of wafers and other materials and related services used in the development process. Selling, general and administrative expense consists primarily of employee compensation and related overhead expenses and advertising and marketing expenses.

Stock-based compensation expense relates both to stock-based employee and consultant compensation arrangements. Employee-related stock-based compensation expense is based on the difference between the estimated fair value of our common stock on the date of grant and the exercise price of options to purchase that stock and is being recognized on an accelerated basis over the vesting periods of the related options, usually four years, or in the case of fully vested options, in the period of grant. Consultant stock-based compensation expense is based on the Black-Scholes option pricing model. Future compensation charges will be reduced if any employee or consultant terminates employment or consultation prior to the expiration of the option vesting period.

Critical Accounting Policies

Use of Estimates: Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to product returns, warranty obligations, bad debts, inventories, accruals, stock options, warrants, income taxes (including the valuation allowance for deferred taxes) and restructuring costs. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from the other sources. Actual results may differ from these estimates under different assumptions or conditions. Material differences may occur in our results of operations for any period if we made different judgments or utilized different estimates.

Revenue Recognition: We recognize revenue from product sales upon shipment to original equipment manufacturers and end users, net of reserves for estimated returns and allowances, provided that persuasive evidence of an arrangement exists, the price is fixed, title has transferred, collectibility of resulting receivables is reasonably assured, there are no acceptance requirements and there are no remaining significant obligations. Sales to distributors are made under arrangements allowing limited rights of return, generally under product warranty provisions, stock rotation rights and price protection on products unsold by the distributor. In addition, the distributor may request special pricing and allowances which may be granted subject to approval by us. As a result of these returns rights and potential pricing adjustments, we defer recognition on sales to distributors until products are resold by the distributor to the end user.

Inventories: Inventories are stated at the lower of cost or market. This policy requires us to make estimates regarding the market value of our inventory, including an assessment of excess or obsolete inventory. We determine excess and obsolete inventory based on an estimate of the future demand and estimated selling prices for our products within a specified time horizon, generally 12 months. The estimates we use for expected demand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue forecasts. Actual demand and market conditions may be different from those projected by our management. If our unit demand forecast is less than our current inventory levels and purchase commitments, during the specified time horizon, or if the estimated selling price is less than our inventory value, we will be required to take additional excess inventory charges or write-downs to net realizable value which will decrease our gross margin and net operating results in the future. During the period ended March 31, 2002, we recorded a provision for excess inventory of approximately $5 million related to excess inventory for our TA2022 product as a result of a decrease in forecasted sales for this product.

Results of Operations

Years Ended December 31, 2002, 2001 and 2000

Revenue. Revenue for 2002 was $16.2 million, an increase of $2.7 million or 20% from revenue of $13.5 million for 2001. The increase in revenue resulted primarily from increased shipments of our TA2024, TA3020 and TK2050 products, offset partially by decreased shipments of our TA1101B and TA2022 products. Revenue for 2001 increased $4.2 million or 45% from revenue of $9.3 million in 2000. The increase in revenue from 2000 to 2001 resulted primarily from increased shipments of our TA2022 product.

Our top five end customers accounted for 67% of revenue in 2002 versus 82% and 90% in 2001 and 2000 respectively. Our primary customers in 2002 were Apple Computer Inc. and Apex Digital Inc., representing 31% and 19% of revenue, respectively. In 2001 our primary customers were Sony Corporation and Apple Computer Inc., representing 29% and 25% of revenue, respectively. Sony Corporation and Apple Computer Inc. were also our top two customers in 2000, representing 60% and 24% of revenue, respectively.

In 2001 we were able to offset the decline in revenue from Sony with increased shipments related to design wins with existing and new customers. The percentage of revenue to end customers located outside of the United States was 61% in 2002, 72% in 2001 and 71% in 2000.

Gross Profit (Loss). Gross loss for 2002 was $2.3 million (including stock-based compensation expense of $23,000) compared to a gross profit of $1.6 million (including stock-based compensation benefit of $95,000) for 2001 and a gross loss of $2.0 million (including stock-based compensation expense of $86,000) for 2000. The gross loss for 2002 was primarily due to a reserve of $5.0 million for excess inventory during the first quarter of 2002. The inventory charge, related to excess inventory for our TA2022 product, was based on a decline in forecasted sales for this product. Excluding the inventory charge, gross profit for the year ended December 31, 2002 was $2.7 million. The increase in gross profit was due to increased revenues and ongoing product cost reduction efforts. The increase in gross profit in 2001 compared with the gross loss in 2000 was due to better product mix, including increased shipments of higher power/higher margin products related to new design wins, as well as ongoing cost reduction efforts.

Research and Development. Research and development (R&D) expenses for 2002 were $11.7 million (including stock-based compensation expense of $195,000), a decrease of $8.2 million or 41% from R&D expenses of $19.9 million (including stock-based compensation benefit of $133,000) in 2001. The decrease in R&D expenses was due to a decrease in personnel costs due to reduced headcount and a decrease in product development expenses. R&D expenses for 2001 decreased $6.2 million or 24% from R&D expenses of $26.1 million (including stock-based compensation expense of $8.1 million) in 2000. Excluding stock-based compensation expense, R&D expenses increased $2.0 million from 2000 to 2001, driven by higher headcount related costs, as well as higher depreciation, rent and insurance expenses.

Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses for 2002 were $5.6 million (including stock-based compensation benefit of $502,000), a decrease of $3.1 million or 36% from SG&A expenses of $8.7 million (including stock-based compensation expense of $488,000) in 2001. The decrease in SG&A expenses was primarily due to decreased headcount and related costs and lower professional services costs. SG&A expenses for 2001 decreased $6.1 million or 41% from SG&A expenses of $14.8 million in 2000 (including stock-based compensation expense of $6.6 million). Excluding stock-based compensation expense, SG&A expenses were unchanged from 2000 to 2001. 2000 included a one-time charge for forgiveness of stockholder notes receivable, which was offset in 2001 by higher headcount related costs and professional services expenses.

Restructuring and Other Charges. On August 3, 2001, we announced a restructuring and cost reduction plan which included a workforce reduction and write-off of abandoned assets. As a result of the restructuring and cost reduction plan, we recorded restructuring and other charges of $684,000 during the quarter ended September 30, 2001. Under the restructuring and cost reduction plan, we reduced our workforce by approximately 40 employees across all functions and mostly located at our headquarters facility in Santa Clara, California. The workforce reduction resulted in a $164,000 charge

relating primarily to severance and fringe benefits. We also abandoned assets for a charge of $520,000.

A summary of the restructuring and other charges is as follows:

	Total charges		Non-cash charges		Cash payments
Work force reduction	$	164,000	$	—	$	164,000
Write-off of abandoned assets	520,000		520,000		—
	$	684,000	$	520,000	$	164,000

Interest and Other Income, net. Interest income for 2002 was $160,000, a decrease of $527,000 or 77% from interest income of $687,000 in 2001. Interest income for 2001 decreased $913,000 or 57% from interest income of $1.6 million in 2000. In 2002 and 2001, the decrease resulted from decreases in our average cash equivalents and short-term investment balances to fund operations, together with lower interest rates.

Accretion on Preferred Stock. Accretion on Preferred stock for 2002 was $14,952,000 compared to $0 for 2001. The year-over-year increase was due to the financing transaction that was completed in January 2002, in which we raised $21 million in gross proceeds through a private placement of non-voting Series A Preferred Stock and warrants. The accretion related to the beneficial conversion feature represents the difference between the accounting conversion price and the fair value of the common stock on the date of the transaction, after valuing the warrants issued in connection with the financing transaction.

Income Taxes. We have incurred no income tax expense to date. As of December 31, 2002, we had available federal net operating loss carryforwards of approximately $100 million and state net operating loss carryforwards of approximately $42 million. We also had research and development tax credit carryforwards of approximately $5 million for federal and state purposes. The net operating loss and credit carryforwards will expire at various times through 2020. As of December 31, 2002, we had deferred tax assets of approximately $45 million which consisted primarily of net operating loss carryforwards, research and development tax credit carryforwards and nondeductible reserves and accruals. We have recorded no tax benefit in our financial statements for these deferred tax assets. Deferred tax assets will be recognized in future periods as any taxable income is realized and consistent profits are reported.

Liquidity and Capital Resources

Since our inception, we have financed our operations through the private sale of our equity securities, primarily the sale of preferred stock, through our initial public offering on August 1, 2000 and through a private placement in January 2002. Net proceeds to us as a result of our initial public offering and our private placement were approximately $45.4 million and $19.9 million, respectively.

Net cash used by operating activities decreased to $13.0 million for the year ended December 31, 2002 from $32.5 million for the year ended December 31, 2001. The decrease was mainly due to a decrease in net loss of $7.7 million, a decrease in inventory purchases of $8.3 million and a provision for excess inventory of $5.0, million, partially offset by a decrease in accounts payable. Net cash used for operating activities during the year ended December 31, 2000 was $24.6 million, the majority of which was used to fund operating losses and working capital.

Cash used in investing activities was $201,000 for the year ended December 31, 2002 as compared to cash provided by investing activities of $22.1 million for the year ended December 31, 2001. The decrease was due to decrease in sale of short-term investments and an increase in purchase of property and equipment. In 2000 our investing activities used cash in the amount of $18.8 million for the purchase of short-term investments and capital equipment.

Cash provided by financing activities increased to $19.4 million for the year ended December 31, 2002 from $1.8 million for the year ended December 31, 2001. The increase was due to the additional financing, details of which are summarized below. In 2000, our financing activities provided cash in the amount of $46.4 million, the majority of which was derived from our initial public offering.

On January 24, 2002, we completed a financing in which we raised $21 million in gross proceeds through a private placement of non-voting Series A Preferred Stock and warrants, at $30 per unit to a group of investors. At a Special Meeting of Stockholders

held on March 7, 2002, our stockholders approved the issuance and sale of the Series A Preferred Stock and warrants, which then automatically converted into 13,999,000 shares of common stock and warrants to purchase 3,303,760 shares of common stock. If our common stock trades at $5.85 per share or greater for a period of 20 out of 30 trading days, we can require the holders to exercise the warrants. As a result of the favorable conversion price of the shares and related warrants at the date of issuance, we recorded accretion of approximately $15 million relating to the beneficial conversion feature at the date of the conversion, thereby increasing the “net loss applicable to common stockholders” for the year ended December 31, 2002.

On July 12, 2002, we entered into a credit agreement with a financial institution that provides for a one-year revolving credit facility in an amount of up to $10 million, subject to certain restrictions in the borrowing base based on eligibility of receivables. Any advances under the credit agreement will be secured by our personal property and will bear interest at the prime rate plus 0.875% per annum. We have agreed to provide a security interest in our intellectual property solely, in the event that a judicial authority holds that this is necessary, to enable the financial institution to perfect the financial institution’s security interest in the rights to payment and proceeds from sale of our personal property. We have also agreed not to pledge our intellectual property to a third party. The credit agreement contains certain financial and reporting covenants. Covenants relating to meeting minimum quarterly revenues, minimum tangible net worth and meeting the deadline for submission of reporting items were violated during the year ended December 31, 2002. Waivers were obtained from the financial institution for each of the covenants that were violated.

The credit agreement was used to issue stand-by letters of credit totaling $1.7 million to collateralize our obligations to a third party for the purchase of inventory and to provide a security deposit for the lease of new office space. At December 31, 2002, there was up to $8.3 million available under the credit facility, subject to certain restrictions in the borrowing base. We believe that we are eligible to borrow up to $1.1 million as of March 15, 2003. The amount by which the aggregate face amount of all outstanding stand-by letters of credit exceeds the borrowing base, as determined by eligible receivables, represents the amount of restricted cash necessary to secure the letters of credit. Subsequent to December 31, 2002, we have reduced the amount of outstanding stand-by letters of credit by $1.0 million, from $1.7 million to $0.7 million.

Our total potential commitments on our operating leases and inventory purchases as of December 31, 2002, were as follows (in thousands):

Year Ending December 31,	Operating Leases		Capital Lease			Inventory Purchase Commitments
2003	$	422	$	299		$	1,216
2004	933		406			—
2005	1,083		408			—
2006	1,046		—			—
2007	270		—			—
Total minimum lease payments	$	3,754	1,113			$	1,216
Less: amount representing interest			(150		)
Present value of minimum lease payments			963
Less: current portion of capital lease obligations			(225		)
Long-term capital lease obligations			$	738

We expect our future liquidity and capital requirements will fluctuate depending on numerous factors including: market acceptance and demand for current and future products, the timing of new product introductions and enhancements to existing products, the success of on-going efforts to reduce our manufacturing costs as well as operating expenses and need for working capital for such items as inventory and accounts receivable.

Our consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred substantial losses and experienced negative cash flow since inception, and have an accumulated deficit of $172.3 million at December 31, 2002. As a result of these circumstances, our independent accountants’ report indicates that there is a substantial doubt about our ability to continue as a going concern.

To conserve cash, we have implemented cost cutting measures, and in August 2001, implemented a restructuring program. In addition, on January 24, 2002, we completed a financing in which we raised $21 million in gross proceeds through a private equity placement. Moreover, in July 2002, we entered into a credit agreement with a financial institution that provides for a one-year revolving credit facility of up to $10 million, subject to certain restrictions in the borrowing base, based on eligibility of receivables. At March 15, 2003, we believe that we are eligible to borrow up to $1.1 million against this credit agreement, of which approximately $0.4 million is still available.

If liquidity problems should arise, we, as a last resort, will take measures to reduce our operating expenses, such as reducing headcount or canceling research and development projects. However, we may need to raise additional funds to finance our activities next year and beyond through public or private equity or debt financings, the formation of strategic partnerships or alliances with other companies or through bank borrowings with existing or new banks. We may not be able to obtain additional funds on terms that would be favorable to us and our stockholders, or at all.

We believe, based on our ability to implement the aforementioned measures, if needed, that we will have liquidity sufficient to meet our operating, working capital and financing needs for the next twelve months and perhaps beyond. We have not made any adjustment to our consolidated financial statements as a result of the outcome of the uncertainty described above.

Recent Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 145, “Rescission of FAS Nos. 4, 44 and 64, Amendment of FAS 13, and Technical Corrections.” SFAS 145 rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” and an amendment of that Statement, FASB Statement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements,” as well as FASB Statement No. 44, “Accounting for Intangible Assets of Motor Carriers.” This Statement amends FASB Statement No. 13, “Accounting for Leases” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The provisions of SFAS 145 will be adopted during fiscal year 2003. We do not anticipate that adoption of this statement will have a material impact on our consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Exit or Disposal Activities” (“SFAS 146”). SFAS 146 addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The scope of SFAS 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002, and early application is encouraged. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS 146. We do not anticipate that adoption of this statement will have a material impact on our consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”).” FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company did not have significant warranty expense for the year ended December 31, 2002. We do not anticipate

that adoption of this standard will have a material impact on our consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure- an amendment of FASB Statement No. 123.” SFASNo. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods ending after December 15, 2002. We will provide disclosures to comply with the requirements of SFAS No. 148.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We do not anticipate that adoption of this standard will have a material impact on our consolidated financial statements.

Risk Factors

Set forth below and elsewhere in this annual report and in the other documents we file with the Securities and Exchange Commission are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward looking statements contained in this annual report. Prospective and existing investors are strongly urged to carefully consider the various cautionary statements and risks set forth in this annual report and our other public filings.

Risks Related to Our Business

Our limited operating history and dependence on new technologies make it difficult to evaluate our future products.

We were incorporated in July 1995 but did not begin shipping products until 1998. Some of our products have only recently been introduced. Accordingly, we have limited historical financial information and operating history upon which you may evaluate us and our products. Our prospects must be considered in the light of the risks, challenges and difficulties frequently encountered by companies in their early stage of development, particularly companies in intensely competitive and rapidly evolving markets such as the semiconductor industry. We cannot be sure that we will be successful in addressing these risks and challenges.

We have a history of losses, expect future losses and may never achieve or sustain profitability.

As of December 31, 2002, we had an accumulated deficit of $172.3 million. We incurred net losses (before charge for beneficial conversion feature of $14.9 million) of approximately $19.3 million in the year ended December 31, 2002, $27.0 million in 2001 and $41.3 million in 2000. We expect to continue to incur net losses and these losses may be substantial. Furthermore, we expect to generate significant negative cash flow in the future. We will need to generate substantially higher revenue to achieve and sustain profitability and positive cash flow. Our ability to generate future revenue and achieve profitability will depend on a number of factors, many of which are described throughout this section. If we are unable to achieve or maintain profitability, we will be unable to build a sustainable business. In this event, our share price and the value of your investment would likely decline and the Company might be unable to continue as a going concern.

We may need to raise additional capital to continue to grow our business, which may not be available to us.

Because we have had losses, we have funded our operating activities to date from the sale of securities, including our most recent financing in January 2002. Additionally, in July 2002 we put in place a $10 million revolving line of credit whose availability is

dependent on meeting certain loan covenants. However, to grow our business significantly, we will need additional capital. We cannot be certain that any such financing will be available on acceptable terms, or at all. Moreover, additional equity financing, if available, would likely be dilutive to the holders of our common stock, and debt financing, if available, would likely involve restrictive covenants. If we cannot raise sufficient additional capital, it would adversely affect our ability to achieve our business objectives and to continue as a going concern.

Our independent accountants have included a going concern explanatory paragraph in their report on our consolidated fianancial statements.

Our independent accountants have included an explanatory paragraph in their audit report on our consolidated financial statements for the fiscal year ended December 31, 2002, which indicates that we have suffered recurring losses from operations and have an accumulated deficit that raises substantial doubt about our ability to continue as a going concern. The inclusion of a going concern explanatory paragraph in our independent auditor’s audit report on our consolidated financial statements for the fiscal year ended December 31, 2002 could have a detrimental effect on our stock price, and our ability to raise new capital.

We may not be able to pay our debt and other obligations, which would cause us to be in default under the terms of our credit facility, which would result in harm to our business and financial condition.

On July 12, 2002, we entered into a credit agreement with a financial institution that provides for a one-year revolving credit facility in an amount of up to $10 million. Any advances under the credit agreement will be secured by our personal property and will bear interest at the prime rate plus 0.875% per annum. We have agreed to provide a security interest in our intellectual property solely, in the event that a judicial authority holds that this is necessary, to enable the financial institution to perfect the financial institution’s security interest in the rights to payment and proceeds from sale of our personal property. We have also agreed not to pledge our intellectual property to a third party. The credit agreement contains certain financial and reporting covenants. Covenants relating to meeting minimum quarterly revenues, minimum tangible net worth and meeting the deadline for submission of reporting items were violated during the year ended December 31, 2002. Waivers were obtained from the financial institution for the covenants that were violated. We intend to fulfill our debt service obligations from cash generated by our operations, if any, and from our existing cash and investments. There can be no assurance that we will be able to meet our debt service obligations of the credit facility.

If our cash flow is inadequate to meet our obligations under the credit facility or otherwise, we could face substantial liquidity problems. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the credit facility, we would be in default under the terms thereof, which would permit the financial institution that provided the credit facility to accelerate the maturity of our obligations. Any such default would harm our business, prospects, financial condition and operating results. In addition, we cannot assure you that we would be able to repay amounts due in respect of the credit facility if payment were to be accelerated following the occurrence of any event of default under the terms of the credit facility.

In addition, in the event of our bankruptcy, liquidation or reorganization or upon acceleration of the payments due under the credit facility due to an event of default, our assets would be available for distribution to our current stockholders only after our indebtedness has been paid in full. As a result, there may not be sufficient assets remaining to make any distributions to our stockholders.

We must continue to reduce our costs and improve our margins in order to reach profitability.

The market for our products is extremely competitive and is characterized by aggressive pricing. As a result, margins in our market are often low. Traditionally, we have experienced low or even negative margins. To reach profitability, we must continue to increase our margins by reducing the cost of our products. We have taken steps in the past and plan to take additional steps in 2003 and beyond to reduce our cost of manufacturing and improve our overall profit margin. These efforts include but are not limited to, reducing the size of the semiconductor die, shifting production to lower cost semiconductor wafer and assembly and test suppliers, using lower cost test equipment and more cost efficient test programs, and moving from higher cost custom to lower cost standard size semiconductor packages. There is no guarantee that we will be successful in our efforts to reduce our manufacturing costs and improve our gross margins in the future.

Our quarterly operating results are likely to fluctuate significantly and may fail to meet the expectations of securities analysts and investors, which may cause our share price to decline.

Our quarterly operating results have fluctuated significantly in the past and are likely to continue to do so in the future. The many factors that could cause our quarterly results to fluctuate include, in part:

• level of sales;

• mix of high and low margin products;

• availability and pricing of wafers;

• timing of introducing new products, including lower cost versions of existing products, fluctuations in manufacturing yields and other problems or delays in the fabrication, assembly, testing or delivery of products; and

• rate of development of target markets.

A large portion of our operating expenses, including salaries, rent and capital lease expenses, are fixed. If we experience a shortfall in revenues relative to our expenses, we may be unable to reduce our expenses quickly enough to off-set the reduction in revenues during that accounting period, which would adversely affect our operating results.

Fluctuations in our operating results may also result in fluctuations in our common stock price. If the market price of our stock is adversely affected, we may experience difficulty in raising capital or making acquisitions. In addition, we may become the object of securities class action litigation.

As a result, we do not believe that period-to-period comparisons of our revenues and operating results are necessarily meaningful. You should not rely on the results of any one quarter as an indication of future performance.

Our stock price may be subject to significant volatility.

The stock prices for many technology companies have recently experienced large fluctuations, which may or may not be directly related to the operating performance of the specific companies. Broad market fluctuations as well as general economic conditions may cause our stock price to decline. We believe that fluctuations of our stock price may continue to be caused by a variety of factors, including:

• announcements of developments related to our business;

• fluctuations in our financial results;

• general conditions in the stock market or around the world, terrorism or developments in the semiconductor and capital equipment industry and the general economy;

• sales or purchases of our common stock in the marketplace;

• announcements of our technological innovations or new products or enhancements or those of our competitors;

• developments in patents or other intellectual property rights;

• developments in our relationships with customers and suppliers;

• a shortfall or changes in revenue, gross margins or earnings or other financial results from analysts’ expectations or an outbreak of hostilities or natural disasters; or

• acquisition or merger activity and the success in implementing such acquisitions.

Our customers may cancel or defer product orders, which could result in excess inventory.

Our sales are generally made pursuant to individual purchase orders that may be canceled or deferred by customers on short notice without significant penalty. Thus, orders in backlog may not result in future revenue. In the past, we have had cancellations and deferrals by customers. Any cancellation or deferral of product orders could result in us holding excess inventory, which could seriously harm our profit margins and restrict our ability to fund our operations. During the quarter ended March 31, 2002, we recorded a provision for excess inventory of approximately $5.0 million. We recognize revenue upon shipment of products to the end customer. Although we have not experienced customer refusals to accept shipped products or material difficulties in collecting accounts receivable, such refusals or collection difficulties are possible and could result in significant charges against income, which could seriously harm our revenues and our cash flow.

Industry-wide overcapacity has caused and may continue to cause our results to fluctuate, and such shifts could result in significant inventory write-downs and adversely affect our relationships with our suppliers.

We must build inventory well in advance of product shipments. The semiconductor industry is highly cyclical and in light of the current downturn, which has resulted in excess capacity and overproduction, there is a risk that we will continue to forecast inaccurately and produce excess inventories of our products. As a result of such inventory imbalances, large future inventory write-downs may occur due to excess inventory or inventory obsolescence. In addition, any adjustment in our ordering patterns resulting from increased inventory may adversely affect our suppliers’ willingness to meet our demand, if our demand increases in the future.

Our product shipment patterns make it difficult to predict our quarterly revenues.

As is common in our industry, we frequently ship more products in the third month of each quarter than in either of the first two months of the quarter, and shipments in the third month are higher at the end of that month. We believe this pattern is likely to continue. The concentration of sales in the last month of the quarter may cause our quarterly results of operations to be more difficult to predict. Moreover, if sufficient business does not materialize or a disruption in our production or shipping occurs near the end of a quarter, our revenues for that quarter could be materially reduced.

We rely on a small number of customers for most of our revenue and a decrease in revenue from these customers could seriously harm our business.

A relatively small number of customers have accounted for most of our revenues to date. Any reduction or delay in sales of our products to one or more of these key customers could seriously reduce our sales volume and revenue and adversely affect our operating results. In particular, sales to three large customers, including Apex Digital Inc., Apple Computer and Aiwa (which became a wholly-owned subsidiary of Sony Corporation in February 2002) accounted for approximately 19%, 31% and 7%, respectively, of revenue for the year ended December 31, 2002, 0%, 25%, and 12% respectively, of total revenue in 2001 and 0%, 24% and 0% respectively in 2000. Moreover, sales to our five largest end customers represented approximately 67% of our total revenue for the year ended December 31, 2002, 82% of our total revenue in 2001 and 89% of our total revenue in 2000. We expect that we will continue to rely on the success of our largest customers and on our success in selling our existing and future products to those customers in significant quantities. However, we cannot be sure that we will retain our largest customers or that we will be able to obtain additional key customers or replace key customers we may lose or who may reduce their purchases.

We currently rely on sales of six products for a significant portion of our revenue, and the failure of these products to be successful in the future could substantially reduce our sales.

We currently rely on sales of our TA1101B, TA2020, TA2022, TA2024, TA3020 and TK2050 digital audio amplifiers to generate a significant portion of our revenue. Sales of these products amounted to 96% of our revenue for the year ended December 31, 2002, 94% of our revenue in 2001 and 93% of our revenue in 2000. We have developed additional products and plan to introduce more products in the future, but there can be no assurance that these products will be commercially successful. Consequently, if our existing products are not successful, our sales could decline substantially.

Our lengthy sales cycle makes it difficult for us to predict if or when a sale will be made, to forecast our revenue and to budget expenses, which may cause fluctuations in our quarterly results.

Because of our lengthy sales cycles, we may continue to experience a delay between increasing expenses for research and development, sales and marketing and general and administrative efforts, as well as increasing investments in inventory, and the generation of revenue, if any, from such expenditures. In addition, the delays inherent in such a lengthy sales cycle raise additional risks of customer decisions to cancel or change product plans, which could result in our loss of anticipated sales. Our new products are generally incorporated into our customers’ products or systems at the design stage. To try and have our products selected for design into new products of current and potential customers, commonly referred to as design wins, often requires significant expenditures by us without any assurance of success. Once we have achieved a design win, our sales

cycle will start with the test and evaluation of our products by the potential customer and design of the customer’s equipment to incorporate our products. Generally, different parts have to be redesigned to incorporate our devices successfully into our customers’ products. The sales cycle for the test and evaluation of our products can range from a minimum of three to six months, and it can take a minimum of an additional six to nine months before a customer commences volume production of equipment that incorporates our products. Achieving a design win provides no assurance that such customer will ultimately ship products incorporating our products or that such products will be commercially successful. Our revenue or prospective revenue would be reduced if a significant customer curtails, reduces or delays orders during our sales cycle, or chooses not to release products incorporating our products.

The current general economic downturn in the semiconductor industry has lead and may continue to lead to decreased revenue.

During 2001 and 2002, slowing worldwide demand for semiconductors has resulted in significant inventory buildups for semiconductor companies. Presently, we have no visibility regarding how long the semiconductor industry downturn will last or how severe the downturn will be. If the downturn continues or worsens, we may experience greater levels of cancellations and/or push-outs of orders for our products in the future, which could adversely affect our business and operating results, including the possibility of additional inventory write-downs, over a prolonged period of time. In addition, we reduced our workforce during fiscal 2002 by approximately 20%, or about 15 people. If we continue to reduce our workforce, it may adversely impact our ability to respond rapidly to any renewed growth opportunities in the future.

We may experience difficulties in the introduction of new or enhanced products that could result in significant, unexpected expenses or delay their launch, which would harm our business.

Our failure or our customers’ failure to develop and introduce new products successfully and in a timely manner would seriously harm our ability to generate revenues. Consequently, our success depends on our ability to develop new products for existing and new markets, introduce such products in a timely and cost-effective manner and to achieve design wins. The development of these new devices is highly complex, and from time to time we have experienced delays in completing the development and introduction of new products.

The successful introduction of a new product may currently take up to 18 months. Successful product development and introduction depends on a number of factors, including:

• accurate prediction of market requirements and evolving standards;

• accurate new product definition;

• timely completion and introduction of new product designs;

• availability of foundry capacity;

• achieving acceptable manufacturing yields;

• market acceptance of our products and our customers’ products; and

• market competition.

We seek but cannot guarantee success with regard to these factors.

If we are unable to retain key personnel, we may not be able to operate our business successfully.

We may not be successful in retaining executive officers and other key management and technical personnel. A high level of technical expertise is required to support the implementation of our technology in our existing and new customers’ products. In addition, the loss of the management and technical expertise of Dr. Adya S. Tripathi, our founder, president and chief executive officer, could seriously harm us. We do not have any employment contracts with our employees.

Our headquarters, as well as the facilities of our principal manufacturers and customers, are located in geographic regions with increased risks of power supply failure, natural disasters, labor strikes and political unrest.

Our headquarters is located in San Jose, California, an area on or near a known earthquake fault within the state. In addition, in the past the State of California has experienced a shortage of available electrical power, which has resulted in electrical blackouts for businesses in certain areas. In the event that California experiences another

shortage of available electrical power, and there are additional blackouts, the operations of our facilities within California could be disrupted.

Our principal manufacturers and customers are located in the Pacific Rim region. The risk of earthquakes in this region, particularly in Taiwan, is significant due to the proximity of major earthquake fault lines. Earthquakes, fire, flooding and other natural disasters in the Pacific Rim region likely would result in the disruption of our foundry partners’ assembly and testing capacity and the ability of our customers to purchase our products. Labor strikes or political unrest in these regions would likely also disrupt operations of our foundries and customers. In particular, there is a recent history of political unrest between China and Taiwan. Any disruption resulting from such events could cause significant delays in shipments of our products until we are able to shift our manufacturing, assembly and testing from the affected contractor to another third party vendor. We cannot be sure that such alternative capacity could be obtained on favorable terms, if at all. Moreover, any such disruptions could also cause significant decreases in our sales to these customers until our customers resume normal purchasing volumes.

Stockholders will incur additional dilution upon the exercise of warrants, and management will have sole discretion to use the proceeds received from exercise of these warrants.

To the extent that the warrants issued in connection with the January 2002 Series A financing are exercised, there will be additional dilution to your shares. If all of the warrants are exercised, we will be required to issue an additional 3,328,760 shares of common stock, or approximately 8% of the common stock outstanding as of December 31, 2002. If all of the warrants are exercised in full, we would receive approximately $6.4 million in proceeds. Our management will have sole discretion over use of these proceeds and may spend the proceeds in ways with which our stockholders may not agree.

The market may be adversely affected due to the large number of shares eligible for sale under the registration statement filed in connection with the January 2002 financing.

The shares of common stock eligible for sale under the registration statement filed in connection with the January 2002 financing represent a large percentage of our outstanding common stock. The market for our common stock may be adversely affected as a result of sales of a large number of shares in the market or the perception that large sales may occur.

We may not maintain The Nasdaq Small Cap Market listing requirements, and as a result, our common stock may be subject to delisting.

On August 13, 2002, we received a deficiency notice from the Nasdaq Stock Market, or Nasdaq, for failing to maintain the Nasdaq National Market’s minimum bid price requirement for continued listing, which includes meeting a $1.00 minimum bid price for 10 consecutive trading days. As we were unable to maintain this requirement, we submitted an application to Nasdaq for transfer to their SmallCap Market. The application was approved and accordingly we are now listed on The Nasdaq SmallCap Market. To remain listed on The Nasdaq SmallCap Market, we must meet the minimum listing requirement that the bid price of our common stock closes at $1.00 per share or higher for a minimum of 10 consecutive trading dates. As we had not met this minimum listing requirement by the initial deadline of February 10, 2003, we applied for and, on February 11, 2002, were provided with, an additional 180 days, or until August 8, 2003, to gain compliance with The Nasdaq SmallCap Market minimum listing requirement. If we are unable to meet the minimum listing requirement prior to August 8, 2003, we may be delisted from The Nasdaq SmallCap Market, or, in the alternative, we may be granted an additional grace period to regain compliance. Furthermore, we may be eligible to transfer back to the Nasdaq National Market if by August 8, 2003 the bid price of our common stock maintains the $1.00 per share requirement for 30 consecutive trading days and we have maintained compliance with all other continued listing requirements of the Nasdaq National Market.

On March 17, 2003, The Nasdaq Stock Market, Inc. extended a pilot program governing bid price rules for all Nasdaq National Market and Nasdaq SmallCap issuers. The pilot program allows issuers that meet core SmallCap initial listing criteria to benefit from extended compliance periods for satisfying minimum bid price requirements. Therefore, if we meet the core SmallCap initial listing criteria, we will be eligible to apply for an extended compliance period for satisfying the minimum bid price requirements. Stock trading on The Nasdaq SmallCap Market is typically less liquid and usually involves larger variations between the bid and ask price than stock trading on the Nasdaq National Market. Therefore, the transfer of our stock from the Nasdaq National Market to The Nasdaq SmallCap Market could have an adverse effect on the liquidity of our common stock and your ability to sell our common stock.

Additionally, if our common stock is delisted from The Nasdaq SmallCap Market, sales of our common stock would likely be conducted only in the over-the-counter market or potentially in regional exchanges. This may have a negative impact on the liquidity and the price of our common stock, and investors may find it more difficult to purchase or dispose of, or to obtain accurate quotations as to the market value of, our common stock. In addition, if our common stock is not listed on the Nasdaq National Market or The Nasdaq SmallCap Market and the trading price of our common stock was to remain below $1.00 per share, trading in our common stock would also be subject to the requirements of certain rules promulgated under the Exchange Act, which require additional disclosures by broker-dealers in connection with any trades involving a stock defined as a “penny stock” (generally, a non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). In such event, the additional burdens imposed upon broker-dealers to effect transactions in our common stock could further limit the market liquidity of our common stock and the ability of investors to trade our common stock.

We also believe that the current per share price level of our common stock has reduced the effective marketability of our shares of common stock because of the reluctance of many leading brokerage firms to recommend low-priced stock to their clients. Certain investors view low-priced stock as speculative and unattractive. In addition, a variety of brokerage house policies and practices tend to discourage individual brokers within those firms from dealing in low-priced stock. Such policies and practices pertain to the payment of broker’s commissions and to time-consuming procedures that make the handling of low-priced stocks unattractive to brokers from an economic standpoint.

In addition, because brokerage commissions on low-priced stock generally represent a higher percentage of the stock price than commissions on higher-priced stock, the current share price of our common stock can result in individual stockholders paying transaction costs (commissions, markups or markdowns) that represent a higher percentage of their total share value than would be the case if the share price were substantially higher. This factor also may limit the willingness of institutions to purchase our common stock at its current low share price.

If we engage in acquisitions, we will incur a variety of costs, and the anticipated benefits of the acquisitions may never be realized.

In the future we may pursue acquisitions of complementary product lines, technologies and businesses. We may have to issue debt or equity securities to pay for future acquisitions, which could be dilutive to our then current stockholders. In addition, we may incur certain liabilities or other expenses in connection with future acquisitions, which could materially adversely affect our business, financial condition and results of operations.

Any future acquisitions may involve numerous other risks, including:

• difficulties assimilating the operations, personnel, technologies and products of the acquired companies;

• diversion of our management’s attention from other business concerns;

• increased complexity and costs associated with internal management structures;

• risks of entering markets in which we have no or limited experience; and

• the potential loss of key employees of the acquired companies.

For these reasons, among others, we cannot be certain what effect future acquisitions may have on our business, financial condition and results of operations.

Terrorist attacks and threats, and government responses thereto, may negatively impact all aspects of our operations, revenues, costs and stock price.

The threat of terrorist attacks in the United States, the current war with Iraq and the related decline in consumer confidence and continued economic weakness have had a substantial adverse impact on the economy. If consumer confidence does not recover, our revenues may be adversely impacted for fiscal 2003 and beyond. Moreover, any further terrorist attacks in the U.S., or any additional U.S. military actions overseas may disrupt our operations or those of our customers and suppliers. These events have had and may continue to have an adverse impact on the U.S. and world economy in general and consumer confidence and spending in particular, which could harm our sales. Any of these events could increase volatility in the U.S. and world financial markets which could harm our stock price and may limit the capital resources available to us and our customers or suppliers. This could have a significant impact on our operating results, revenues and costs and may result in increased volatility in the market price of our common stock.

We are subject to anti-takeover provisions that could delay or prevent an acquisition of our company.

Provisions of our restated certificate of incorporation, shareholder rights plan, equity incentive plans, bylaws and Delaware law may discourage transactions involving a change in corporate control. In addition to the foregoing, the stockholdings of our officers, directors and persons or entities that may be deemed affiliates, our shareholder rights plan and the ability of our board of directors to issue preferred stock without further stockholder approval could have the effect of delaying, deferring or preventing a third party from acquiring us and may adversely affect the voting and other rights of holders of our common stock.

Risks Related to Manufacturing

We depend on three outside foundries for our semiconductor device manufacturing requirements.

We do not own or operate a fabrication facility, and substantially all of our semiconductor device requirements are currently supplied by three outside foundries, United Microelectronics Corporation, or UMC, in Taiwan, STMicroelectronics Group in Europe and Mitsubishi, in Japan. Although we primarily utilize these three outside foundries, most of our components are not manufactured at both foundries at the same time. As a result, each foundry is a sole source for certain products. There are significant risks associated with our reliance on outside foundries, including:

• the lack of guaranteed wafer supply;

• limited control over delivery schedules, quality assurance and control, manufacturing yields and production costs; and

• the unavailability of or delays in obtaining access to key process technologies.

In addition, the manufacture of integrated circuits is a highly complex and technologically demanding process. Although we work closely with our foundries to minimize the likelihood of reduced manufacturing yields, our foundries have from time to time experienced lower than anticipated manufacturing yields, particularly in connection with the introduction of new products and the installation and start-up of new process technologies.

We provide our foundries with continuous forecasts of our production requirements; however, the ability of each foundry to provide us with semiconductor devices is limited by the foundry’s available capacity. In many cases, we place our orders on a purchase order basis, and foundries may allocate capacity to the production of other companies’ products while reducing the deliveries to us on short notice. In particular, foundry customers that are larger and better financed than us or that have long-term agreements with our foundries may cause such foundries to reallocate capacity in a manner adverse to us.

If we use a new foundry, several months would be typically required to complete the qualification process before we can begin shipping products from the new foundry. In the event either of our current foundries suffers any damage or destruction to their respective facilities, or in the event of any other disruption of foundry capacity, we may not be able to qualify alternative manufacturing sources for existing or new products in a timely manner. Even our current outside foundries would need to have certain manufacturing processes qualified in the event of disruption at another foundry, which we may not be able to accomplish in a timely enough manner to prevent an interruption in supply of the affected products.

If we encounter shortages or delays in obtaining semiconductor devices for our products in sufficient quantities when required, delivery of our products could be delayed, resulting in customer dissatisfaction and decreased revenues.

We depend on third-party subcontractors for most of our semiconductor assembly and testing requirements and any unexpected interruption in their services could cause us to miss scheduled shipments to customers and to lose revenues.

Semiconductor assembly and testing are complex processes, which involve significant technological expertise and specialized equipment. As a result of our reliance on third-party subcontractors for assembly and testing of our products, we cannot directly control product delivery schedules, which has in the past, and could in the future, result in product shortages or quality assurance problems that could increase the costs of manufacture, assembly or testing of our products. Almost all of our products are assembled and tested by one of five subcontractors: AMBIT Microsystems Corporation in Taiwan, Amkor Technology, Inc. in the Philippines, ASE in Korea, Malaysia and Taiwan, SGS in China, and ST Assembly Test Services Ltd. in Singapore. We do not have long-term agreements with any of these suppliers and retain their services on a per order basis. The availability of assembly and testing services from these subcontractors could be adversely affected in the event a subcontractor suffers any damage or destruction to their respective facilities, or in the event of any other disruption of assembly and testing capacity. Due to the amount of time normally required to qualify assemblers and testers, if we are required to find alternative manufacturing assemblers or testers of our components, shipments could be delayed. Any problems associated with the delivery, quality or cost of our products could seriously harm our business.

Failure to transition our products to more effective and/or increasingly smaller semiconductor chip sizes and packaging could cause us to lose our competitive advantage and reduce our gross margins.

We evaluate the benefits, on a product-by-product basis, of migrating to smaller semiconductor process technologies in order to reduce costs and have commenced migration of some products to smaller semiconductor processes. We believe that the transition of our products to increasingly smaller semiconductor processes will be important for us to reduce manufacturing costs and to remain competitive. Moreover, we are dependent on our relationships with our foundries to migrate to smaller semiconductor processes successfully. We cannot be sure that our future process migrations will be achieved without difficulties, delays or increased expenses. Our gross margins would be seriously harmed if any such transition is substantially delayed or inefficiently implemented.

Our international operations subject us to risks inherent in doing business on an international level that could harm our operating results.

We currently obtain almost all of our manufacturing, assembly and test services from suppliers located outside the United States and may expand our manufacturing activities abroad. Approximately 61% of our total revenue for the year ended December 31, 2002 was derived from sales to end customers based outside the United States. In 2001 and 2000, 72% and 71%, respectively, of our total revenue was derived from sales to end customers based outside of the United States. In addition, we often ship products to our domestic customers’ international manufacturing divisions and subcontractors.

Accordingly, we are subject to risks inherent in international operations, which include:

• political, social and economic instability;

• trade restrictions and tariffs;

• the imposition of governmental controls;

• exposure to different legal standards, particularly with respect to intellectual property;

• import and export license requirements;

• unexpected changes in regulatory requirements;

• difficulties in collecting receivables; and

• potentially adverse tax consequences.

All of our international sales to date have been denominated in U.S. dollars. As a result, an increase in the value of the U.S. dollar relative to foreign currencies could make our products less competitive in international markets. Conversely, a decrease in the value of the U.S. dollar relative to foreign currencies would increase the cost of our overseas manufacturing, which would reduce our gross margins.

Risks Related to Our Product Lines

Our ability to achieve revenue growth will be harmed if we are unable to persuade electronic systems manufacturers to adopt our new amplifier technology.

We face difficulties in persuading manufacturers to adopt our products using our new amplifier technology. Traditional amplifiers use design approaches developed in the 1930s. These approaches are still used in most amplifiers and engineers are familiar with these design approaches. To adopt our products, manufacturers and engineers must understand and accept our new technology. To take advantage of our products, manufacturers must redesign their systems, particularly components such as the power supply and heat sinks. Manufacturers must work with their suppliers to obtain modified components and they often must complete lengthy evaluation and testing. In addition, our amplifiers are often more expensive as components than traditional amplifiers. For these reasons, prospective customers may be reluctant to adopt our technology.

We currently depend on consumer audio markets that are typically characterized by aggressive pricing, frequent new product introductions and intense competition.

A substantial portion of our current revenue is generated from sales of products that address the consumer audio markets, including home theater, computer audio and the automotive audio markets. These markets are characterized by frequent new product introductions, declining prices and intense competition. Pricing in these markets is aggressive, and we expect pricing pressure to continue. In the computer audio segment, our success depends on consumer awareness and acceptance of existing and new products by our customers and consumers, in particular, the elimination of externally-powered speakers. In the automotive audio segment, we face pressure from our customers to deliver increasingly higher-powered solutions under significant engineering limitations due to the size constraints in car dashboards. In addition, our ability to obtain prices higher than the prices of traditional amplifiers will depend on our ability to educate manufacturers and their customers about the benefits of our products. Failure of our customers and consumers to accept our existing or new products will seriously harm our operating results.

If we are not successful in developing and marketing new and enhanced products for the DSL high speed communications markets that keep pace with technology and our customers’ needs, our operating results will suffer.

The market for our DSL products is new and emerging, and is characterized by rapid technological advances, intense competition and a relatively small number of potential customers. This will likely result in price erosion on existing products and pressure for cost-reduced future versions. We recently started to ship our TA4012 DSL line driver and expect to commence the testing phase of our dual channel line driver in the next couple of months. Implementation of our products require manufacturers to accept our technology and redesign their products. If potential customers do not accept our technology or

experience problems implementing our devices in their products, our products could be rendered obsolete and our business would be harmed. If we are unsuccessful in introducing future products with enhanced performance, our ability to achieve revenue growth will be seriously harmed.

We may experience difficulties in the development and introduction of a new amplifier product for use in the cellular phone market, which could result in significant expenses or delay in its launch.

We are currently developing an amplifier product for use in the cellular phone market. We currently have no design wins or customers for this product. We may not introduce our amplifier product for the cellular phone market on time, and this product may never achieve market acceptance. Furthermore, competition in this market is likely to result in price reductions, shorter product life cycles, reduced gross margins and longer sales cycles compared with what we have experienced to date with our other products.

Intense competition in the semiconductor industry and in the consumer audio and communications markets could prevent us from achieving or sustaining profitability.

The semiconductor industry and the consumer audio and communications markets are highly competitive. We compete with a number of major domestic and international suppliers of semiconductors in the audio and communications markets. We also may face competition from suppliers of products based on new or emerging technologies. Many of our competitors operate their own fabrication facilities and have longer operating histories and presence in key markets, greater name recognition, access to larger customer bases and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than us. As a result, such competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the promotion and sale of their products than us. Current and potential competitors have established or may establish financial or strategic relationships among themselves or with existing or potential customers, resellers or other third parties. Accordingly, it is possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share. In addition, existing or new competitors may in the future develop technologies that more effectively address the transmission of digital information through existing analog infrastructures at a lower cost or develop new technologies that may render our technology obsolete. There can be no assurance that we will be able to compete successfully in the future against our existing or potential competitors, or that our business will not be harmed by increased competition.

Our products are complex and may have errors and defects that are detected only after deployment in customers’ products, which may harm our business.

Products such as those that we offer may contain errors and defects when first introduced or as new versions are released. We have in the past experienced such errors and defects, in particular in the development stage of a new product. Delivery of products with production defects or reliability, quality or compatibility problems could significantly delay or hinder market acceptance of such products, which could damage our reputation and seriously harm our ability to retain our existing customers and to attract new customers. Moreover, such errors and defects could cause problems, interruptions, delays or a cessation of sales to our customers. Alleviating such problems may require substantial redesign, manufacturing and testing which would result in significant expenditures of capital and resources. Despite testing conducted by us, our suppliers and our customers, we cannot be sure that errors and defects will not be found in new products after commencement of commercial production. Such errors and defects could result in additional development costs, loss of, or delays in, market acceptance, diversion of technical and other resources from our other development efforts, product repair or replacement costs, claims by our customers or others against us or the loss of credibility with our current and prospective customers. Any such event could result in the delay or loss of market acceptance of our products and would likely harm our business.

Downturns in the highly cyclical semiconductor industry and rapid technological change could result in substantial period-to-period fluctuations in wafer supply, pricing and average selling prices, which make it difficult to predict our future performance.

We provide semiconductor devices to the audio, personal computer and communications markets. The semiconductor industry is highly cyclical and subject to rapid technological change and has been subject to significant economic downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices and production overcapacity. The semiconductor industry also periodically experiences increased demand and production capacity constraints. As a result, we have experienced and may experience in the future substantial period-to-period fluctuations in our results of operations due to general semiconductor industry conditions, overall economic conditions or other factors, many of which are outside our control. Due to these risks, you should not rely on period-to-period comparisons to predict our future performance.

Risks Related to Our Intellectual Property

Our intellectual property and proprietary rights may be insufficient to protect our competitive position.

Our business depends, in part, on our ability to protect our intellectual property. We rely primarily on patent, copyright, trademark and trade secret laws to protect our proprietary technologies. We cannot be sure that such measures will provide meaningful protection for our proprietary technologies and processes. As of December 31, 2002, we have 20 issued United States patents, and 21 additional United States patent applications which are pending. In addition, we have 13 international patents issued and an additional 63 international patents pending. We cannot be sure that any patent will issue as a result of these applications or future applications or, if issued, that any claims allowed will be sufficient to protect our technology. In addition, we cannot be sure that any existing or future patents will not be challenged, invalidated or circumvented, or that any right granted thereunder would provide us meaningful protection. The failure of any patents to provide protection to our technology would make it easier for our competitors to offer similar products. In connection with our participation in the development of various industry standards, we may be required to agree to license certain of our patents to other parties, including our competitors, that develop products based upon the adopted standards.

We also generally enter into confidentiality agreements with our employees and strategic partners, and generally control access to and distribution of our documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our products, services or technology without authorization, develop similar technology independently or design around our patents. In addition, effective copyright, trademark and trade secret protection may be unavailable or limited in certain foreign countries. Some of our customers have entered into agreements with us pursuant to which such customers have the right to use our proprietary technology in the event we default in our contractual obligations, including product supply obligations, and fail to cure the default within a specified period of time.

We may be subject to intellectual property rights disputes that could divert management’s attention and could be costly.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights. From time to time, we may receive in the future notices of claims of infringement, misappropriation or misuse of other parties’ proprietary rights. We cannot be sure that we will prevail in these actions, or that other actions alleging infringement by us of third-party patents, misappropriation or misuse by us of third-party trade secrets or the invalidity of one or more patents held by us will not be asserted or prosecuted against us, or that any assertions of infringement, misappropriation or misuse or prosecutions seeking to establish the invalidity of our patents will not seriously harm our business. For example, in a patent or trade secret action, an injunction could be

issued against us requiring that we withdraw particular products from the market or necessitating that specific products offered for sale or under development be redesigned. We have also entered into certain indemnification obligations in favor of our customers and strategic partners that could be triggered upon an allegation or finding of our infringement, misappropriation or misuse of other parties’ proprietary rights. Irrespective of the validity or successful assertion of such claims, we would likely incur significant costs and diversion of our management and personnel resources with respect to the defense of such claims, which could also seriously harm our business. If any claims or actions are asserted against us, we may seek to obtain a license under a third party’s intellectual property rights. We cannot be sure that under such circumstances a license would be available on commercially reasonable terms, if at all. Moreover, we often incorporate the intellectual property of our strategic customers into our designs, and we have certain obligations with respect to the non-use and non-disclosure of such intellectual property.

We cannot be sure that the steps taken by us to prevent our, or our customers’, misappropriation or infringement of intellectual property will be successful.

PART II

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Accountants

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of

Tripath Technology Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders’ equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Tripath Technology Inc. and its subsidiary at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

PricewaterhouseCoopers LLP

San Jose, California

January 30, 2003, except as to the fourth, fifth, sixth and seventh paragraphs of Note 1, which are as of April 1, 2003

TRIPATH TECHNOLOGY INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	December 31,
	2002			2001
ASSETS
Current assets:
Cash and cash equivalents	$	10,112		$	3,997
Short-term investments	—			1,100
Restricted cash	486			—
Accounts receivable, net of allowances for doubtful accounts of $345 and $267 at December 31, 2002 and 2001, respectively	1,471			2,521
Inventories	5,252			10,958
Prepaid expenses and other current assets	706			829
Total current assets	18,027			19,405
Property and equipment, net	2,474			2,381
Other assets	184			374
Total assets	$	20,685		$	22,160

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,395		$	4,352
Current portion of capital lease obligations	225			349
Accrued expenses	1,070			1,238
Deferred distributor revenue	626			612
Total current liabilities	4,316			6,551

Accrued rent	195			—
Capital lease obligations	738			262
	933			262

Commitments and contingencies (Note 10)

Stockholders’ equity :
Preferred stock, $0.001 par value, 5,000,000 shares authorized; 0 shares issued and outstanding	—			—
Common stock, $0.001 par value, 100,000,000 shares authorized; 41,326,760 and 27,259,154 shares issued and outstanding at December 31, 2002 and 2001, respectively	41			27
Additional paid-in capital	187,835			154,675
Deferred stock-based compensation	(91		)	(1,272		)
Accumulated deficit	(172,349		)	(138,083		)
Total stockholders’ equity	15,436			15,347
Total liabilities and stockholders’ equity	$	20,685		$	22,160

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

TRIPATH TECHNOLOGY INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Year Ended December 31,
	2002			2001			2000
Revenue	$	16,227		$	13,541		$	9,300
Cost of revenue	18,494			11,948			11,347
Gross profit (loss)	(2,267		)	1,593			(2,047		)
Operating expenses:
Research and development	11,650			19,913			26,074
Selling, general and administrative	5,557			8,664			14,772
Restructuring and other charges	—			684			—
Total operating expenses	17,207			29,261			40,846
Loss from operations	(19,474		)	(27,668		)	(42,893		)
Interest and other income, net	160			687			1,626
Net loss	(19,314		)	(26,981		)	(41,267		)
Accretion on preferred stock	(14,952		)	—			—
Net loss applicable to common stockholders	$	(34,266	)	$	(26,981	)	$	(41,267	)

Basic and diluted net loss per share	$	(0.88	)	$	(1.00	)	$	(2.34	)

Number of shares used to compute basic and diluted net loss per share	38,823			27,009			17,625

Stock-based compensation included in:
Cost of revenue	$	23		$	(95	)	$	86
Research and development	195			(133		)	8,072
Selling, general and administrative	(502		)	488			6,635
	$	(284	)	$	260		$	14,793

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

TRIPATH TECHNOLOGY INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

	Common				Additional Paid-in Capital			Stockholder Notes Receivable			Deferred Stock-based Compensation			Accumulated Deficit			Total Stockholders Equity (Deficit)
	Shares		Amount
Balance at December 31, 1999	10,899		$	11	$	50,854		$	(726	)	$	(10,566	)	$	(69,835	)	$	(30,262	)
Issuance of common stock upon exercise of stock options	1,127		1		1,016			—			—			—			1,017
Repurchase of common stock	(12	)	—		(18		)	—			—			—			(18		)
Issuance of common stock upon exercise of warrants	18		—		26			—			—			—			26
Issuance of common stock from initial public offering	5,100		5		45,387			—			—			—			45,392
Issuance of common stock warrants	—		—		58			—			—			—			58
Deferred stock-based compensation	—		—		11,596			—			(11,596		)	—			—
Amortization of deferred stock-based compensation	—		—					—			14,793			—			14,793
Interest on stockholder notes receivable	—		—		12			(12		)	—			—			—
Forgiveness of stockholder notes receivable and related interest receivable	—		—		—			738			—			—			738
Conversion of preferred stock from initial public offering	9,085		9		49,602			—			—			—			49,611
Net loss	—		—		—			—			—			(41,267		)	(41,267		)
Balance at December 31, 2000	26,217		26		158,533			—			(7,369		)	(111,102		)	40,088
Issuance of common stock upon exercise of stock options	865		1		1,270			—			—			—			1,271
Issuance of common stock upon exercise of warrants	90		—		—			—			—			—			—
Issuance of common stock through the ESPP	87		—		709			—			—			—			709
Reversal of previously recognized compensation due to forfeitures	—		—		(5,837		)	—			1,529			—			(4,308		)
Amortization of deferred stock-based compensation	—		—		—			—			4,568			—			4,568
Net loss	—		—		—			—			—			(26,981		)	(26,981		)
Balance at December 31, 2001	27,259		27		154,675			—			(1,272		)	(138,083		)	15,347
Issuance of common stock upon exercise of stock options	4		—		6			—			—			—			6
Issuance of common stock through the ESPP	65		—		90			—			—			—			90
Reversal of previously recognized compensation due to forfeitures	—		—		(1,465		)	—			266			—			(1,199		)
Amortization of deferred stock-based compensation	—		—					—			915			—			915
Issuance of common stock warrants	—		—		6,046			—			—			—			6,046
Beneficial conversion feature on issuance of preferred stock (Note 6)	—		—		13,545			—			—			—			13,545
Accretion on preferred stock	—		—		—			—			—			(14,952		)	(14,952		)
Conversion of preferred stock to common stock	13,999		14		14,938			—			—			—			14,952
Net Loss	—		—		—			—			—			(19,314		)	(19,314		)
Balance at December 31, 2002	41,327		$	41	$	187,835		$	—		$	(91	)	$	(172,349	)	$	15,436

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

TRIPATH TECHNOLOGY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2002			2001			2000
Cash flows from operating activities:

Net loss	$	(19,314	)	$	(26,981	)	$	(41,267	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,396			2,086			1,155
Non-cash restructuring and other charges	—			520			—
Loss on disposal of equipment	3			182			—
Allowance for doubtful accounts	700			117			120
Provision for excess inventory	4,977			—			—
Stock-based compensation	(284		)	260			14,793
Amortization of warrants	—			—			58
Forgiveness of stockholder notes receivable	—			—			738
Changes in assets and liabilities:
Accounts receivable	350			(372		)	(1,972		)
Inventories	729			(7,638		)	(1,019		)
Prepaid expenses and other assets	313			112			(921		)
Accounts payable	(1,957		)	425			3,181
Accrued expenses	27			(1,052		)	698
Deferred distributor revenue	14			(194		)	(141		)
Net cash used in operating activities	(13,046		)	(32,535		)	(24,577		)
Cash flows from investing activities:
Purchases of short-term investments	—			(15,065		)	(25,829		)
Sales of short-term investments	1,100			37,829			8,800
Restricted cash	(486		)	—			1,000
Purchase of property and equipment	(840		)	(667		)	(2,728		)
Sale of property and equipment	25			—			—
Net cash provided by (used in) investing activities	(201		)	22,097			(18,757		)
Cash flows from financing activities:
Proceeds from initial public offering, net of issuance costs	—			—			45,392
Proceeds from issuance of preferred stock and warrants	19,591			—			—
Proceeds from issuance of common stock	96			1,980			1,017
Repurchase of common stock	—			—			(18		)
Issuance of common stock upon exercise of warrants	—			—			26
Principal payments on capital lease obligations	(325		)	(196		)	—
Net cash provided by financing activities	19,362			1,784			46,417
Net increase (decrease) in cash and cash equivalents	6,115			(8,654		)	3,083
Cash and cash equivalents at beginning of year	3,997			12,651			9,568
Cash and cash equivalents at end of year	$	10,112		$	3,997		$	12,651

Supplemental disclosure of cash flow information:
Interest	$	69		$	102		$	—
Non-cash investing and financing activities:
Property and equipment acquired by capital lease	$	677		$	807		$	—
Interest on stockholder notes receivable	$	—		$	—		$	12
Forgiveness of stockholder notes receivable	$	—		$	—		$	738
Issuance of common stock warrants for services	$	—		$	—		$	58
Conversion of preferred stock into common stock	$	14,952		$	—		$	49,611
Issuance of common stock warrants	$	6,046		$	—		$	—

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

TRIPATH TECHNOLOGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—THE COMPANY AND BASIS OF PRESENTATION:

The Company

Tripath Technology Inc. (the “Company” or “Tripath”) was incorporated in California in July 1995. The Company was reincorporated in Delaware in July 2000. The Company designs, develops and markets integrated circuit devices for the Consumer Electronics, DSL and Wireless markets.

Basis of Presentation

The consolidated financial statements include the accounts of Tripath and its wholly owned subsidiary, Tripath Technology Japan Ltd.. All significant intercompany accounts and transactions have been eliminated. Accounts denominated in foreign currency have been remeasured using the U.S. dollar as the functional currency.

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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences could affect the results of operations reported in future periods and such differences could be material.

Liquidity

The Company’s consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred substantial losses and has experienced negative cash flow since inception and has an accumulated deficit of $172.3 million at December 31, 2002. This raises substantial doubt about its ability to continue as a going concern.

To conserve cash, the Company has implemented cost cutting measures, and in August 2001, implemented a restructuring program. In addition, on January 24, 2002, the Company completed a financing in which it raised $21 million in gross proceeds through a private equity placement and in July 2002, the Company entered into a credit agreement with a financial institution that provides for a one-year revolving credit facility of up to $10 million, subject to certain restrictions in the borrowing base based on eligibility of receivables.

If liquidity problems should arise, the Company will, as a last resort, take measures to reduce operating expenses such as reducing headcount or canceling research and development projects. However, the Company may need to raise additional funds to finance its activities next year and beyond through public or private equity or debt financings, the formation of strategic partnerships or alliances with other companies or through bank borrowings with existing or new banks. The Company may not be able to obtain additional funds on terms that would be favorable to its stockholders and the Company, or at all.

The Company believes, based on its ability to implement the aforementioned measures, if needed, that it will have liquidity sufficient to meet its operating, working capital and financing needs for the next twelve months and perhaps beyond. The Company has not made any adjustment to its consolidated financial statements as a result of the outcome of the uncertainty described above.

Initial Public Offering

On August 1, 2000, the Company completed its initial public offering of 5 million shares of common stock at $10.00 per share. Net proceeds to the Company as a result of the initial public offering, plus the proceeds relating to the exercise of the underwriters’ over-allotment option to purchase 100,000 shares of common stock, were approximately $45.4 million.

Foreign Currency Translation

The U.S. dollar is the functional currency for the Company’s Japanese wholly-owned subsidiary. Assets and liabilities that are not denominated in the functional currency are remeasured into U.S. dollars and the resulting gains or losses are included in “Interest and other income, net." Such gains or losses have not been material for any period presented.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Revenue recognition

The Company recognizes revenue from product sales upon shipment to original equipment manufacturers and end users, net of sales returns and allowances. The Company’s sales to distributors are made under arrangements allowing limited rights of return, generally under product warranty provisions, stock rotation rights and price protection on products unsold by the distributor. In addition, the distributor may request special pricing and allowances which may be granted subject to approval by the Company. As a result of these returns rights and potential pricing adjustments, the Company defers recognition on sales to distributors until products are resold by the distributor to the end user.

Cash and cash equivalents, short-term investments and restricted cash

The Company considers all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks, money market funds and commercial paper, bonds and notes, the fair value of which approximates cost.

The Company categorizes short-term investments as available-for-sale. Accordingly, these investments are carried at fair value. The fair value of such securities approximates cost, and there were no material unrealized gains or losses as of December 31, 2002 and 2001. Short-term investments generally have maturities of less than one year from the date of purchase. The following table summarizes the Company’s cash and cash equivalents and short-term investments (in thousands):

	December 31,
	2002		2001
Cash and cash equivalents:
Cash	$	394	$	230
Money market funds	9,718		3,767
Commercial paper	—		—
	$	10,112	$	3,997

Short-term investments:
U.S. Government bonds and notes	$	—	$	1,100
Commercial paper	—		—
	$	—	$	1,100

The Company has a credit facility with a financial institution that has certain restrictions in the borrowing base. The amount by which the aggregate face amount of all outstanding stand-by letters of credit exceeds the borrowing base, as determined by eligible receivables, represents the amount of restricted cash necessary to secure the letters of credit. At December 31, 2002, the Company had $486,000 in restricted cash.

Concentration of credit risk and significant customers

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. Substantially all of the Company’s cash and cash equivalents are invested in highly-liquid money market funds and commercial securities with major financial institutions. Short-term investments consist of U.S. government and commercial bonds and notes. The Company sells its products principally to original equipment manufacturers. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses, as considered necessary by management. Credit losses to date have been consistent with management’s estimates. During the year ended December 31, 2002, the Company wrote-off bad debts totaling approximately $700,000. The Company had no significant write-offs or recoveries during the years ended December 31, 2001 and 2000.

The following table summarizes sales to end customers comprising 10% or more of the Company’s total revenue for the periods indicated :

	% of Revenue for the Year Ended December 31,
	2002		2001		2000

Customer A	—		29	%	60	%
Customer B	—		12	%	—
Customer C	—		13	%	—
Customer D	31	%	25	%	24	%
Customer E	19	%	—		—

The Company’s accounts receivable were concentrated with five customers at December 31, 2002 representing 17%, 16%, 14%, 14% and 14% of aggregate gross receivables, five customers at December 31, 2001 representing 15%, 15%, 13%, 12% and 12% of aggregate gross receivables, and two customers at December 31, 2000 representing 58% and 33% of aggregate gross receivables.

Fair value of financial instruments

Carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, short-term investments, accounts receivable and accounts payable, approximate their fair value due to their relative short maturities and based upon comparable market information available at the respective balance sheet dates. The Company does not hold or issue financial instruments for trading purposes.

Inventories

Inventories are stated at the lower of cost or market. This policy requires the Company to make estimates regarding the market value of the Company’s inventory, including an assessment of excess or obsolete inventory. The Company determines excess and obsolete inventory based on an estimate of the future demand and estimated selling prices for the Company’s products within a specified time horizon, generally 12 months. The estimates the Company uses for expected demand are also used for near-term capacity planning and inventory purchasing and are consistent with the Company’s revenue forecasts. Actual demand and market conditions may be different from those projected by the Company’s management. If the Company’s unit demand forecast is less than the Company’s current inventory levels and purchase commitments, during the specified time horizon, or if the estimated selling price is less than the Company’s inventory value, the Company will be required to take additional excess inventory charges or write-downs to net realizable value which will decrease the Company’s gross margin and net operating results in the future. During the quarter ended March 31, 2002, the Company recorded a provision for excess inventory of approximately $5 million related to excess inventory for the Company’s TA2022 product as a result of a decrease in forecasted sales for this product.

Inventory purchase commitments

The Company accrues for estimated losses on non-cancelable purchase orders. The estimated losses result from anticipated future sale of products for sales prices less than the estimated cost to manufacture. Inventory purchase commitment losses accrued at December 31, 2002, 2001 and 2000 were $38,000, $190,000 and $821,000, respectively.

Research and development expenses

Research and development costs are charged to expense as incurred.

Property and equipment

Property and equipment, including leasehold improvements, are stated at historical cost, less accumulated depreciation and amortization. Property and equipment under capital leases are stated at the present value of minimum lease payments. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the term of the lease. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Furniture and fixtures		5 years
Software		Shorter of three years or term of license
Equipment		2-5 years

Upon disposal, the assets and related accumulated depreciation and amortization are removed from the Company’s accounts, and the resulting gains or losses are reflected in the statement of operations.

Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. An impairment loss is recognized if the sum of the expected future cash flows (undiscounted and before interest) from the use of the assets is less than the net book value of the asset. The amount of the impairment loss, if any, will generally be measured as the difference between net book value of the assets and their estimated fair values.

Comprehensive income

Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purposes financial statements. There was no difference between the Company’s net loss and its total comprehensive loss for the years ended December 31, 2002, 2001 and 2000.

Accounting for stock-based compensation

At December 31, 2002, the Company has two stock-based employee compensation plans, which are described more fully in Note 7. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation cost is reflected in net income for the years ended December 31, 2002 and 2001, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. For the year ended December 31, 2000 the Company recorded compensation expense totaling $14.8 million for options granted with an exercise price lower than the market value of the underlying common stock on the date of the grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation.

	Year Ended December 31,
	2002			2001			2000
Net loss applicable to common stockholders, as reported	$	(34,266	)	$	(26,981	)	$	(41,267	)
Total stock-based employee compensation expense included in the net loss, determined under the recognition and measurement principles of APB Opinion No. 25, net of related tax effects	(284		)	260			14,793
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(1,527		)	(5,625		)	(26,765		)
Proforma net loss applicable to common stockholders	$	(36,077	)	$	(32,346	)	$	(53,239	)

As reported	$	(0.88	)	$	(1.00	)	$	(2.34	)

Pro forma	$	(0.93	)	$	(1.20	)	$	(3.02	)

Segment and geographic information

The Company has determined that it has one reportable business segment: the design, license and marketing of integrated circuits.

The following is a geographic breakdown of the Company’s sales by shipping destination for the following periods:

	Year Ended December 31,
	2002		2001		2000
United States	$	566	$	872	$	644
Japan	3,816		6,460		5,717
Singapore	3,097		1,569		2,489
Taiwan	2,615		2,686		—
China	3,666		273		—
Rest of world	2,467		1,681		450
	$	16,227	$	13,541	$	9,300

Reclassifications

Certain amounts reported in previous years have been reclassified to conform to the 2002 presentation.

Recent Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 145, “Rescission of FAS Nos. 4, 44 and 64, Amendment of FAS 13, and Technical Corrections.” SFAS 145 rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” and an amendment of that Statement, FASB Statement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements,” as well as FASB Statement No. 44, “Accounting for Intangible Assets of Motor Carriers.” This Statement amends FASB Statement No. 13, “Accounting for Leases” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The provisions of SFAS 145 will be adopted during fiscal year 2003. The Company does not anticipate that adoption of this statement will have a material impact on its consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Exit or Disposal Activities” (“SFAS 146”). SFAS 146 addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The scope of SFAS 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002, and early application is encouraged. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS 146. The Company does not anticipate that adoption of this statement will have a material impact on its consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company did not have significant warranty expense for the year ended December 31, 2002. The Company does not anticipate that adoption of this standard will have a material impact on its consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure- an amendment of FASB Statement No. 123.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods ending after December 15, 2002. The Company will provide disclosures to comply with the requirements of SFAS No. 148.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company does not anticipate that adoption of this standard will have a material impact on its consolidated financial statements.

Net loss per share

Basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common stock outstanding during the period. Diluted net loss per share is computed based on the weighted average number of common stock and dilutive potential common stock outstanding. The calculation of diluted net loss per share excludes potential common stock if the effect is anti-dilutive. Potential common stock consist of incremental common stock issuable upon the exercise of stock options, shares issuable upon conversion of convertible preferred stock and common stock issuable upon the exercise of common stock warrants.

The following table sets forth the computation of basic and diluted net loss per share for the periods presented (in thousands, except per share amounts):

	Year Ended December 31,
	2002			2001			2000
Numerator:

Net loss applicable to common stockholders	$	(34,266	)	$	(26,981	)	$	(41,267	)

Denominator:

Weighted average common stock	38,823			27,009			17,625

Net loss per share:

Basic and diluted	$	(0.88	)	$	(1.00	)	$	(2.34	)

The following table sets forth potential shares of common stock that are not included in the diluted net loss per share calculation above because to do so would be anti-dilutive for the periods presented (in thousands):

	December 31,
	2002	2001	2000
Common stock options	7,535	7,117	7,315
Common stock under Employee Stock Purchase Plan	349	413	500
Common stock warrants	3,329	25	127

NOTE 3—RESTRUCTURING AND OTHER CHARGES:

On August 3, 2001, the Company announced a restructuring and cost reduction plan which included a workforce reduction and write-off of abandoned assets. As a result of the restructuring and cost reduction plan, the Company recorded restructuring and other charges of $684,000 during the quarter ended September 30, 2001.

Under the restructuring and cost reduction plan, the Company reduced its workforce by approximately 40 employees across all functions and mostly located at its former headquarters facility in Santa Clara, California. The workforce reduction resulted in a $164,000 charge relating primarily to severance and fringe benefits. The Company also abandoned assets resulting in a charge of $520,000.

A summary of the restructuring and other charges is as follows:

	Total charges		Non-cash charges		Cash payments
Work force reduction	$	164,000	$	—	$	164,000
Write-off of abandoned assets	520,000		520,000		—
	$	684,000	$	520,000	$	164,000

NOTE 4—BALANCE SHEET COMPONENTS (in thousands):

	December 31,
	2002			2001
Accounts receivable, net:
Accounts receivable	$	1,816		$	2,788
Less: allowance for doubtful accounts	(345		)	(267		)
	$	1,471		$	2,521

Inventories:
Raw materials	$	1,868		$	6,531
Work-in-process	551			273
Finished goods	2,409			3,798
Inventory held by distributors	424			356
	$	5,252		$	10,958

Property and equipment, net:
Furniture and fixtures	$	220		$	384
Software	4,175			3,372
Equipment	3,629			3,050
Leasehold improvements	128			134
	8,152			6,940
Less: accumulated depreciation and amortization	(5,678		)	(4,559		)
	$	2,474		$	2,381

Property and equipment includes assets under capital leases and accumulated amortization of assets under capital leases of $1,484,000 and $555,000, respectively, at December 31, 2002 and $807,000 and $293,000, respectively at December 31, 2001.

Accrued expenses:

Accrued compensation and related benefits	$	245	$	459
Accrued rent	—		116
Inventory purchase commitments	38		190
Other accrued expenses	787		473
	$	1,070	$	1,238

NOTE 5—LINE OF CREDIT:

On July 12, 2002, the Company entered into a credit agreement with a financial institution that provides for a one-year revolving credit facility in an amount of up to $10 million, subject to certain restrictions in the borrowing base based on eligibility of receivables. Any advances under the credit agreement will be secured by the Company’s personal property and will bear interest at the prime rate plus 0.875% per annum. The Company has agreed to provide a security interest in its intellectual property solely, in the event that a judicial authority holds that this is necessary, to enable the financial institution to perfect the financial institution’s security interest in the rights to payment and proceeds from sale of the Company’s personal property. The Company has also agreed not to pledge its intellectual property to a third party. The credit agreement contains certain financial and reporting covenants. Covenants relating to meeting minimum quarterly revenues, minimum tangible net worth and meeting the deadline for submission of reporting items were violated during the year ended December 31, 2002. Waivers were obtained from the financial institution for the covenants that were violated.

The credit agreement was used to issue stand-by letters of credit totaling $1.7 million to collateralize the Company’s obligations to a third party for the purchase of inventory and to provide a security deposit for the lease of new office space. At December 31, 2002, there was up to $8.3 million available under the credit facility, subject to certain restrictions in the borrowing base. The amount by which the aggregate face amount of all outstanding stand-by letters of credit exceeds the borrowing base, as determined by eligible receivables, represents the amount of restricted cash necessary to secure the letters of credit. At December 31, 2002, the Company had outstanding stand-by letters of credit of $1.7 million.

NOTE 6—COMMON STOCK:

The Company’s Amended and Restated Articles of Incorporation authorize the Company to issue 100,000,000 shares of common stock. At December 31, 2002 and 2001, there were 41,326,760 shares and 27,259,154 shares, respectively, of common stock issued and outstanding.

The Company has reserved the following number of shares of common stock for future issuance (in thousands):

	December 31,
	2002	2001	2000
Common stock warrants	3,329	25	127
Common stock under Employee Stock Purchase Plan	349	413	500
Common stock upon exercise of outstanding stock options	7,535	7,117	7,315
	11,213	7,555	7,942

On January 24, 2002, the Company completed a financing in which it raised $21 million in gross proceeds through a private placement of non-voting Series A Preferred Stock and warrants, at $30 per unit to a group of investors, which was convertible into 13,999,000 shares of common stock and warrants to purchase 3,303,760 shares of common stock. Each share of Series A Preferred Stock was convertible into 20 shares of Common Stock (or an effective Common Stock price of $1.50 per share). Investors also received warrants to purchase up to an additional 20 percent of shares of Series A Preferred Stock. The warrants have a term of three years and an exercise price equal to $39.00 per share (or an effective Common Stock exercise price of $1.95 per share). If the common stock trades at $5.85 per share or greater for a period of 20 out of 30 trading days, the Company can require the holders to exercise the warrants.

At a Special Meeting of Stockholders held on March 7, 2002, the stockholders approved the issuance and sale of 699,950 shares of Series A Preferred Stock and warrants. As a result, the Preferred Stock and warrants automatically converted into 13,999,000 shares of common stock and warrants to purchase 3,303,760 shares of common stock.

As a result of the favorable conversion price of the preferred shares at the date of issuance, the Company recorded accretion of approximately $15 million (thus increasing the “net loss applicable to common stockholders” for the year ended December 31, 2002) relating to the beneficial conversion feature representing the difference between the accounting conversion price and the fair value of the common stock on the date of the transaction, after valuing the warrants issued in connection with the financing transaction. The Company valued the warrants using the Black-Scholes option pricing model, applying an expected life of three years, a weighted average risk-free rate of 3.61%, an expected dividend yield of zero percent, a volatility of 130% and a deemed fair value of common stock of $2.35, which was the value of the Company’s common stock on the date of grant.

Stock Repurchase Program

In August 2002, the Company’s Board of Directors approved a Stock Repurchase Program and authorized the repurchase of up to one million shares of the Company’s common stock in the open market over the next year. No shares have been repurchased since the authorization of the Stock Repurchase Program.

Common stock warrants

In August 1997, in connection with a co-operation agreement with Intel Corporation, a shareholder of the Company, the Company issued a fully vested, immediately exercisable and non-forfeitable warrant to purchase 102,250 shares of common stock at $1.00 per share. The Company determined the value of the warrant to be $187,000, based on the Black-Scholes option pricing model, and was recognized as selling, general and administrative expense during the year ended December 31, 1997. During March, 2001, Intel exercised its warrant on a net share basis and the Company issued 90,122 shares of common stock.

In March 1998, in connection with the extension of the Company’s facility lease, and for services provided by consultants to the Company, the Company issued fully vested, immediately exercisable and non-forfeitable warrants to purchase 7,500 and 20,000 shares of common stock, respectively, at $1.50 per share. The warrants expire in March 2008. In March 2000, the Company issued 17,500 shares of common stock upon exercise of 17,500 warrants. The warrants include certain registration rights and provide for exercise on a “net share” basis. The Company determined the value of the warrants to be $264,000, based on the Black-Scholes option pricing model. The value attributable to the warrants for the lease of $79,000 is being recognized as selling, general and administrative expense over the term of the lease, which commenced in March 1998. The value attributable to the warrants for consulting services of $185,000 was recognized as selling, general and administrative expense during the year ended December 31, 1998.

In July 1999, in connection with a marketing agreement, the Company issued a fully vested, immediately exercisable and non-forfeitable warrant to purchase 9,000 shares of common stock at $1.50 per share. The warrant expires in July 2009. The warrant includes certain registration rights and provides for exercise on a “net share” basis. The Company determined the value of the warrant to be $140,000, based on the Black-Scholes option pricing model. The related charge was recognized in selling, general and administrative expenses during the year ended December 31, 1999.

In July 2000, in connection with services provided to the Company, the Company issued a fully vested, immediately exercisable and non forfeitable warrant to purchase 6,000 shares of common stock at $12.00 per share. The warrant expires in July 2010. The warrant includes certain registration rights and provides for exercise on a “net share” basis. The Company determined the value of the warrant to be $58,000, based on the Black-Scholes option pricing model. The related charge was recognized in selling, general and administrative expenses during the year ended December 31, 2000.

Notes receivable from shareholder for the exercise of stock options

In January 1997 and March 1998, the President of the Company exercised stock options by issuing the Company notes totaling $223,000 and $413,000 (the “Notes”), respectively. The Notes were non-recourse, and bore fixed interest at 6.01% and 5.51%, respectively, compounded semi-annually. The Notes were accounted for in accordance with EITF 95-16 “Accounting for Stock Compensation Arrangements with Employer Loan Features Under APB Opinion No. 25.” Due to certain terms of the Notes, the options were accounted for as variable options, with compensation costs associated with shares purchased with non-recourse notes being recorded at each period end. On April 14, 2000, the notes and related interest were forgiven by the Board of Directors and compensation expense of $738,000 was recorded by the Company.

NOTE 7—EMPLOYEE BENEFIT PLANS:

Stock Option Plans

In April 2000, the Company adopted the 2000 Stock Option Plan (the “2000 Plan”). Upon adoption of the 2000 Plan, shares reserved for issuance under the 1995 Stock Option Plan relating to ungranted options were cancelled, and outstanding options under the 1995 Plan became subject to the 2000 Plan. The 2000 Plan authorizes the Board of Directors to grant incentive stock options (“ISOs”) and nonstatutory stock options (“NSOs”) to employees, directors and consultants for up to 17,300,000 shares of common stock. ISOs may be granted only to employees of the Company (including officers and directors who are also employees). NSOs may be granted to employees and consultants of the Company. No person will be eligible to receive more than 200,000 shares in any fiscal year pursuant to awards under the 2000 Plan other than a new employee of the Company who will be eligible to receive no more than 700,000 shares in the fiscal year in which such employee commences employment.

Under the 2000 Plan, ISOs and NSOs are granted at a price that is not to be less than 100% of the fair market value of the common stock on the date of grant, as determined by the Board of Directors. Options generally vest at 25% on the first anniversary of the date of grant and vest in equal monthly installments over the remaining 36 months. Options granted to shareholders who own more than 10% of the outstanding stock of the Company at the time of grant must be issued at prices not less than 110% of the estimated fair value of the stock on the date of grant. Options under the 2000 Plan may be granted for periods up to 10 years.

The following table summarizes stock option activity under the Company’s Stock Option Plans (in thousands, except per share data):

			Options Outstanding
	Options Available for Grant		Shares		Weighted Average Exercise Price Per Share
Balance at December 31, 1999	683		3,767		$	1.22
Additional shares reserved	8,000		—		$	—
Granted	(5,574	)	5,574		$	10.08
Canceled	899		(899	)	$	6.78
Exercised	—		(1,127	)	$	0.89
Balance at December 31, 2000	4,008		7,315		$	7.36
Granted	(5,515	)	5,515		$	2.77
Additional shares reserved	1,300		—		$	—
Canceled	4,848		(4,848	)	$	7.67
Exercised	—		(865	)	$	1.47
Balance at December 31, 2001	4,641		7,117		$	4.30
Granted	(3,282	)	3,282		$	0.19
Additional shares reserved	2,000		—		$	—
Canceled	2,860		(2,860	)	$	3.33
Exercised	—		(4	)	$	1.50
Balance at December 31, 2002	6,219		7,535		$	2.88

Significant options groups outstanding at December 31, 2002 and related weighted average exercise prices and contractual life information are as follows:

	Options Outstanding				Options Vested and Exercisable
Range of Exercise Prices	Number	Weighted Average Contractual Life (Years)	Weighted Average Exercise Price Per Share		Number Vested and Exercisable	Weighted Average Exercise Price Per Share
Range of Exercise Prices	Outstanding	Weighted Average Contractual Life (Years)	Weighted Average Exercise Price Per Share		Number Vested and Exercisable	Weighted Average Exercise Price Per Share
$ 0.14-$ 0.21	3,074,625	8.7	$	0.15	347,605	$	0.14
$ 0.50-$ 1.00	1,759,499	7.8	$	0.54	1,692,200	$	0.54
$ 1.45-$ 2.50	733,387	5.7	$	1.54	733,387	$	1.54
$ 4.50-$ 8.00	735,149	5.7	$	5.22	710,148	$	5.23
$ 8.25-$ 12.00	925,187	7.1	$	11.84	925,187	$	11.84
$ 12.06-$ 19.88	272,500	3.8	$	13.46	272,500	$	13.46
$ 20.00-$ 21.75	35,000	7.7	$	20.36	35,000	$	20.36
	7,535,347				4,716,027

2000 Employee Stock Purchase Plan

In April 2000 the Company adopted the 2000 Employee Stock Purchase Plan (the “Purchase Plan”) under which 500,000 shares of common stock have been reserved for issuance. Eligible employees may elect to withhold up to 10% of their salary to purchase shares of the Company’s common stock at a price equal to 85% of the market value of the stock at the beginning or ending of a six month offering period, whichever is lower. No more than 2,000 shares may be purchased by an eligible employee during any calendar year. The Purchase Plan will terminate in 2010. Under the Purchase Plan, 64,606, 86,566 and 0 shares were issued during the years ended December 31, 2002, 2001 and 2000.

The Company did not recognize compensation expense related to employee purchase rights in 2002, 2001 or 2000.

401(k) Plan

The Company sponsors a 401(k) Plan (the “401(k) Plan”) which provides tax-deferred salary deductions for eligible employees. Employees may contribute up to 15% of their annual compensation to the 401(k) Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Service. The 401(k) Plan permits, but does not require, the Company to make matching contributions. To date, no such matching contributions have been made.

Fair value disclosures

Pro forma information regarding net loss and net loss per share is required by SFAS No. 123, which also requires that the information be determined as if the Company had accounted for its employee stock options under the fair value method. The fair value for these options was estimated using the Black-Scholes option pricing model.

The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option pricing models require the input of highly subjective assumptions, including the expected stock price volatility. Accordingly, option pricing models may not necessarily provide a reliable single measure of the fair value of options.

The fair value of options at the date of grant was estimated on the date of grant based on the method prescribed by SFAS No. 123. The following table summarizes the estimated fair value of options and assumptions used in the SFAS No. 123 calculations for stock option plans:

	Year Ended December 31,
	2002			2001			2000
Estimated fair value	$	0.14		$	2.21		$	5.57
Expected lives (in years)	5			5			5
Volatility	110		%	110		%	70		%
Risk-free interest rate	3.83		%	4.56		%	6.27		%
Dividend yield	—			—			—

The following table summarizes the estimated fair value of employees’ purchase rights and assumptions used in the SFAS No. 123 calculations:

	Year Ended December 31,
	2002			2001			2000
Estimated fair value	$	0.38		$	0.70		$	6.39
Expected lives (in years)	0.5			0.5			0.5
Volatility	110		%	110		%	70		%
Risk-free interest rate	3.83		%	4.56		%	5.36		%
Dividend yield	—			—			—

NOTE 8—DEFERRED STOCK-BASED COMPENSATION:

Employee options and restricted stock

In connection with certain employee stock option grants and issuance of restricted stock to a former officer made since January 1998, the Company recognized deferred stock-based compensation, which is being amortized over the vesting periods of the related options and stock, generally four years, using an accelerated basis. The fair value per share used to calculate deferred stock-based compensation was derived by reference to convertible preferred stock issuance prices and quoted market prices. Future compensation charges are subject to reduction for any employee who terminates employment prior to such employee’s option vesting date.

The following tables sets forth, for each of the periods presented, deferred stock-based compensation recorded and the amortization of deferred stock-based compensation (in thousands):

	Year Ended December 31,
	2002			2001			2000
Deferred stock-based compensation	$	(1,465	)	$	(5,837	)	$	10,256
Amortization of deferred stock-based compensation	915			4,568			13,359
Reversal of previously recognized compensation due to forfeitures	(1,199		)	(4,308		)	—

Non-employee options

During the period from January 1997 through December 2000, the Company granted options to purchase 657,375 shares of common stock to consultants in exchange for services at exercise prices ranging from $0.20 to $12.06 per share.

The Company determined the value of the options granted to consultants based on the Black-Scholes option pricing model. The fair value of options granted to consultants was determined using the following assumptions: expected lives of 10 years, risk free interest rates ranging from 4.45% to 6.80%, dividend yield of 0.00% and volatility of 70.00%. The following table summarizes, for each of the periods presented, the fair values of the options granted, deferred stock-based compensation recorded and the related amortization recorded (in thousands, except per share data):

	Year Ended December 31,
	2002	2001	2000
Weighted average fair value per share of options granted to consultants during the period	—	—	$	10.37
Deferred stock-based compensation	—	—	1,340
Amortization of deferred stock-based compensation	—	—	1,434

Unamortized deferred stock-based compensation at December 31, 2002 and December 31, 2001 was 91,000 and $1,272,000, respectively.

Stock-based compensation attributable to individuals that worked in the following functions is as follows (in thousands):

	Year Ended December 31,
	2002			2001			2000
Manufacturing/operations (cost of revenues)	$	23		$	(95	)	$	86
Research and development	195			(133		)	8,072
Selling, general and administrative	(502		)	488			6,635
Total stock-based compensation	$	(284	)	$	260		$	14,793

NOTE 9—INCOME TAXES:

At December 31, 2002, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $100,000,000 and $42,000,000 respectively, which expire in varying amounts beginning in 2004 through 2020. In addition, the Company has credit carryforwards of approximately $5,000,000 for federal and state purposes. The federal and state carryforwards expire in varying amounts through 2020. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss and tax credit carryforwards may be impaired or limited in certain circumstances. Events which could cause limitations in the amount of net operating loss and tax credit carryforwards that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three-year period.

Deferred taxes comprise the following (in thousands):

	December 31,
	2002			2001
Net operating loss carryforwards	$	36,533		$	30,146
Non-deductible reserves and accruals	2,163			537
Credit carryforwards	3,774			2,691
Capitalized research and development	2,089			985
Depreciation	185			22
Net deferred tax assets	44,744			34,381
Less: Valuation allowance	(44,744		)	(34,381		)
Net deferred tax assets	—			—

The Company believes that, based on number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets such that a full valuation allowance has been recorded. These factors include the Company’s history of losses, and relatively high expense levels, the fact that the market in which the Company competes is intensely competitive and characterized by rapidly changing technology, the lack of carryback capacity to realize deferred tax assets and the uncertainty regarding market acceptance of the Company’s products. The Company will continue to assess the realizability of the deferred tax assets based on actual and forecasted operating results.

NOTE 10—COMMITMENTS AND CONTINGENCIES:

Lease commitments

The Company leases office space and equipment under non-cancelable operating leases with various expiration dates through 2007. Rent expense for operating leases was as follows (in thousands):

	Year Ended December 31,
	2002		2001		2000
Rent expense	$	1,812	$	1,583	$	1,360

On July 18, 2002, the Company entered into a sublease agreement for the lease of new office space. Under the terms of the sublease agreement, commencing September 1, 2002 the Company became entitled to free rent until June 30, 2003. Subsequently, the Company will make monthly payments ranging from $0.65 per square foot to $1.35 per square foot until the sublease expires on March 31, 2007. As a result, the Company had $195,000 of accrued rent at December 31, 2002.The Company’s lease for the old office space expired on November 30, 2002.

On September 26, 2002, the Company renegotiated its existing capital lease for research and development related software to extend the term and defer a portion of the payments beyond the term of the original lease. The remaining values of the asset and obligation of the original lease prior to the renegotiation were $328,000 and $349,000 respectively. The value of the asset and obligation recorded under the new lease as of December 31, 2002 is $1,005,000 and $1,026,000 respectively.

Future minimum lease payments under non-cancelable operating leases and the capital lease are as follows (in thousands):

Year Ending December 31,	Operating Leases		Capital Lease
2003	$	422	$	299
2004	933		406
2005	1,083		408
2006	1,046		—
2007	270		—
Total minimum lease payments	$	3,754	1,113
Less: amount representing interest			(150		)
Present value of minimum lease payments			963
Less: current portion of capital lease obligations			(225		)
Long-term capital lease obligations			$	738

Contingencies

From time to time, in the normal course of business, various claims are made against the Company. In the opinion of the Company’s management, there are no pending claims, the outcome of which is expected to result in a material adverse effect on the financial position or results of operations of the Company.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a brief biography of each director of Tripath Technology Inc. (“Tripath” or the “Company”). Information regarding executive officers of the Company is included in Part I of this Annual Report under a separate item captioned "Executive Officers of the Registrant."

Name	Age	Principal Occupation/ Position Held With the Company
Dr. Adya S. Tripathi	50	President and Chief Executive Officer, Chairman of the Board
Mr. A.K. Acharya	46	President of HTL Co. Japan Ltd.
Mr. Andy Jasuja	52	Founder and Chairman of Sigma Systems Group
Mr. Y.S. Fu	54	President of Wyse Technology (Taiwan Ltd.)

Dr. Adya S. Tripathi, founded Tripath and has served as our President, Chief Executive Officer and Chairman since our inception in 1995. Before founding Tripath, Dr. Tripathi held a variety of senior management and engineering positions with Advanced Micro Devices, Hewlett-Packard, International Business Machines (“IBM”), International Microelectronic Products (“IMP”), National Semiconductor and Vitel Communications. Dr. Tripathi holds Bachelor of Science and Master of Science degrees in Electrical Engineering from Banaras Hindu University in India. He pursued graduate work at the University of Nevada-Reno and the University of California-Berkeley, receiving his doctorate of philosophy in Electrical Engineering from the former in 1984. Dr. Tripathi has also taught at the University of California-Berkeley Extension.

Mr. A.K. Acharya, has served as a director of our company since August 2002. Mr. Acharya is President of HTL Co. Japan Ltd, a software development company for semiconductor capital equipment, a position he has held since 1994. Mr. Acharya holds a Bachelor of Technology in Electrical Engineering from the Indian Institute of Technology in India and a Masters of Technology degree in Electrical Engineering-Control System and Instrumentation from the Institute of Technology, Banaras Hindu University in India.

Mr. Andy Jasuja, has served as a director of our company since September 2002. Mr. Jasuja is the founder and Chief Executive Officer of Sigma Software Solutions, a provider of service management software for cable companies. Between 1994 and 2002, Mr. Jasuja served as Chairman of Sigma Systems Group. Mr. Jasuja is an information technology professional with 27 years of experience in the software industry. Prior to founding Sigma, Mr. Jasuja spent several years in the banking and telecommunications industries in senior management and consulting roles. Mr. Jasuja holds a Bachelor of Science degree in Electrical Engineering from the Institute of Technology in Varansi, India and a Master of Science degree in Systems Design Engineering from the University of Waterloo in Ontario, Canada.

Mr. Y.S. Fu, has served as a director of our company since May 2002. Mr. Fu is President of Wyse Technology (Taiwan) Ltd., a server-centric computing company, a position he has held since 1998. He was previously President of WK Technology Investment Co., a technology investment firm based in Taiwan. Mr. Fu has also held positions with Logitech Far East Ltd., Qume and Texas Instruments. Mr. Fu has a Bachelor of Science degree in Mechanical Engineering from Chung-Yuan Christian University in Taiwan and a Masters of Business Administration from West Coast University in California, U.S.A.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires the Company’s executive officers and directors and persons who own more than ten percent of a registered class of the Company’s equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “Commission”) and the National Association of Securities Dealers, Inc. Executive officers, directors and greater than ten percent stockholders are required by Commission regulation to furnish the Company with copies of all Section 16(a) forms they file. The Company believes that all Executive Officers and Directors of the Company complied with all applicable filing requirements during the fiscal year ended December 31, 2002,

except that Form 4s which were related to a single stock option grant made by the Company in October 2002 to each of A. K. Acharya, Y. S. Fu, Andy Jasuja, Naresh Sharma and Adya Tripathi were not filed on a timely basis. All such Form 4s have since been filed with the Commission.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS

Our directors did not receive any cash compensation for their services as directors during fiscal year 2002. Our 2000 Stock Plan provides for grants of options to purchase common stock to our directors who are not employees. Our non-employee directors each received a grant of options to purchase 100,000 shares of our common stock for their service during fiscal year 2002. Our non-employee directors did not receive any options to purchase shares of our common stock for participation on any committee of the board of directors on which they served during fiscal year 2002. In addition, our directors are reimbursed for expenses incurred in connection with attending board and committee meetings.

SUMMARY OF COMPENSATION

As of December 31, 2002, our directors and Named Executive Officers as a group held options to purchase a total of 1,234,270 shares of common stock, at exercise prices ranging from $0.14 to $13.20 per share. These options are scheduled to expire on various dates between January 27, 2007 and October 2, 2012.

SUMMARY COMPENSATION TABLE

The following table sets forth all compensation awarded to, earned by, or paid to our Chief Executive Officer and the other four most highly paid executive officers, each of whose total cash compensation exceeded $100,000 during the years ended December 31, 2002, 2001 and 2000.

		Annual Compensation					Long-Term Compensation
Name and Principal Position	Year	Salary		Bonus			Securities Underlying Options
Adya S. Tripathi (1) Chief Executive Officer	2002 2001 2000	$ $ $	348,000 360,000 358,875	$ $ $	0 61,182 1,335,401	(1) (1)	200,000 200,000 200,000
John DiPietro (2) Chief Financial Officer	2002 2001 2000	$ $ $	132,081 175,000 155,152	$ $ $	0 4,300 25,000		0 200,000 200,000
Naresh Sharma Vice President of Operations	2002 2001 2000	$ $ $	137,500 140,346 125,000	$ $ $	0 0 0		100,000 170,000 45,000
Alan J. Soucy (2) Vice President of Sales	2002 2001 2000	$ $ $	128,631 200,000 198,875	$ $ $	0 0 5,000		0 200,000 200,000

(1) On April 14, 2000, the board of directors forgave notes and related interest totaling $738,000. Including the gross-up for taxes, total compensation to the Chief Executive Officer related to the forgiveness of indebtedness was $1,335,401. Additional gross-up for taxes yielded $61,182 supplemental compensation in 2001.

In fiscal 2000, 2001 and 2002, Dr. Tripathi was granted options to purchase 1 million, 500,000 and 2.5 million shares of the Company’s common stock, respectively. The Company’s 2000 Stock Option Plan includes a 200,000 share annual limitation on grants. As a result, stock option grants covering an aggregate of 3.4 million shares exceeded the annual limitation under the Company’s 2000 Stock Option Plan, and such grants are invalid. On April 28, 2003, in consideration of the invalid grants and in order to fairly compensate Dr. Tripathi with respect to such invalid grants, the Compensation Committee of the Board of Directors approved a grant of options to purchase 200,000 shares and 1.8 million shares of restricted stock, pursuant to the 2000 Stock Option Plan. Such grants will vest as to 50% on April 28, 2004 and as to the remainder on April 28, 2005.

(2) As of December 31, 2002, these individuals are no longer Tripath employees.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information with respect to stock options granted during fiscal year 2002 to each of our executive officers named in the summary compensation table (the “Named Executive Officers”). The percentage of total options granted to our employees in the last fiscal year is based on options granted to purchase an aggregate of 3,282,500 shares of common stock during fiscal year 2002. We have never granted any stock appreciation rights.

The exercise prices present our board of directors’ estimate of the fair market value of our common stock on the grant date. In establishing these prices, our board of directors considered many factors, including our financial condition and operating results, transactions involving the issuances of shares of our preferred stock, the senior rights and preferences accorded issued shares of preferred stock and the market for comparable stock.

The amounts shown as potential realizable value represent hypothetical gain that could be achieved for the respective options if exercised at the end of the option term. These amounts represent assumed rates of appreciation in the value of our common stock from the fair market value at the date of grant. The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Commission and do not represent our estimate of projection of the future price of our common stock. Actual gains, if any, on stock option exercises depend on the future performance of the trading price of our common stock. The amounts reflected in the table may not necessarily be achieved.

	Individual Grants						Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Options Term
Name	Number of Securities Underlying Options Granted	Percent of Total Options Granted to Employees in Fiscal 2002		Exercise Price Per Share		Expiration Date	5%		10%
Adya Tripathi (1)	200,000	6.09	%	$	0.154	10/02/07	$	4,936	$	14,294
John DiPietro	—	—		$	—	—	$	—	$	—
Alan Soucy	—	—		$	—	—	$	—	$	—
Naresh Sharma	100,000	3.05	%	$	0.140	10/02/12	$	8,805	$	22,312

(1) In fiscal 2002, Dr. Tripathi was granted options to purchase 2.5 million shares of the Company’s common stock. The Company’s 2000 Stock Option Plan includes a 200,000 share annual limitation on grants. As a result, stock option grants covering 2.3 million shares exceeded the annual limitation under the Company’s 2000 Stock Option Plan, and such grants are invalid.

YEAR-END OPTION VALUES

The following table provides information for the Named Executive Officers concerning the number and value of securities underlying exercisable and unexercisable options held as of December 31, 2002. No options were exercised during the year ended December 31, 2002 by any of the Named Executive Officers.

	Number of Securities Underlying Unexercised Options at December 31, 2002 (#)		Value of Unexercised In-the-Money Options at December 31, 2002 ($)
	Exercisable	Unexercisable	Exercisable		Unexercisable
Adya S. Tripathi (1)	391,665	208,335	$	2,100	$	23,100
John DiPietro	—	—	$	—	$	—
Alan J. Soucy	—	—	$	—	$	—
Naresh Sharma	100,827	228,443	$	583	$	13,417

(1) In fiscal 2000, 2001 and 2002, Dr. Tripathi was granted options to purchase 1 million, 500,000 and 2.5 million shares of the Company’s common stock, respectively. The Company’s 2000 Stock Option Plan includes a 200,000 share annual limitation on grants. As a result, stock option grants covering an aggregate of 3.4 million shares exceeded the annual limitation under the Company’s 2000 Stock Option Plan, and such grants are invalid.

The values shown for in-the-money options represent the difference between the respective exercise price of outstanding stock options, and $0.28, which is the fair market value of our common stock as of December 31, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

EQUITY COMPENSATION PLAN INFORMATION

The following table provides certain information with respect to the Company’s equity compensation plans in effect as of December 31, 2002.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by stockholders:
2000 Stock Option Plan	7,535,347	$	2.88	6,219,000
2000 Employee Stock Purchase Plan	—	—		349,000
Equity compensation plans not approved by security holders	—	—		—
Total	7,535,347	$	2.88	6,568,000

The above equity compensation plans of the Company that were in effect as of December 31, 2002 were adopted with the approval of the Company’s stockholders.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of March 31, 2003, certain information as known to the Company with respect to the beneficial ownership of our common stock by (i) any person (including any group as that term is used in Section 13(d)(3) of the Securities Exchange Act), known by the Company to be the beneficial owner of more than 5% of the Company’s voting securities, (ii) each director and each nominee for director to the Company, (iii) each of the executive officers named in the Summary Compensation Table appearing herein, and (iv) all current executive officers and directors of the Company as a group.

Beneficial Ownership+

Beneficial Owner and Address*	Number of Shares**	Percent of Total
Adya S. Tripathi (1)	10,558,333	25.53	%
Manchester Management Company, LLC (2)	2,602,200	6.29	%
Pequot entities (3)	2,400,000	5.80	%
David P. Eichler	—	—
Naresh Sharma (4)	187,800	***
Graham Wright	—	—
Andy Jasuja	34,166	***
A.K. Acharya (5)	50,566	***
Y.S. Fu (6)	29,166	***
Directors and executive officers as a group (7 persons) (7)	10,860,031	26.26	%

* Unless otherwise indicated above, the address for each stockholder on this table is c/o Tripath Technology Inc., 2560 Orchard Parkway, San Jose, CA 95131.

** Unless otherwise indicated below, the persons and entities named in the table have sole voting or investment power with respect to all shares beneficially owned, subject to community property laws where applicable.

*** Less than one percent (1%).

(1) Includes 458,333 shares issuable upon exercise of stock options held by Dr. Tripathi and includes 900,000 shares held in trust for the benefit of Dr. Tripathi’s minor children over which Dr. Tripathi holds sole voting and dispositive power. In fiscal 2000, 2001 and 2002, Dr. Tripathi was granted options to purchase 1 million, 500,000 and 2.5 million shares of the Company’s common stock, respectively. The Company’s 2000 Stock Option Plan includes a 200,000 share annual limitation on grants. As a result, stock option grants covering an aggregate of 3.4 million shares exceeded the annual limitation under the Company’s 2000 Stock Option Plan, and such grants are invalid.

(2) Based on a Schedule 13G filed with the Securities and Exchange Commission on March 15, 2002, Manchester Management Company, LLC has entities have sole voting and sole dispositive power over 2,602,200 shares.

(3) Includes 1,500,000 shares and warrants to purchase 300,000 shares held by Pequot Scout Fund, L.P. and 500,000 shares and warrants to purchase 100,000 shares held by Pequot Navigator Offshore Fund Inc.

(4) Includes 133,642 shares issuable upon the exercise of stock options held by Mr. Sharma.

(5) Includes 29,166 shares issuable upon the exercise of stock options held by Mr. Acharya and 20,000 shares held by HTL Co. Japan Ltd.

(6) Includes 29,166 shares issuable upon the exercise of stock options held by Mr. Fu.

(7) Includes 684,473 shares issuable upon the exercise of stock options held by the Company’s executive officers and directors.

⁺ This table is based upon information supplied by officers, directors and principal stockholders, and Schedules 13D and 13G filed with the Commission. The number and percentage of shares beneficially owned are based on the aggregate of 41,357,145 shares of our common stock outstanding as of March 31, 2003, adjusted as required by the rules promulgated by the Commission.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In the Company’s last fiscal year, there has not been nor is there currently proposed any transaction or series of similar transactions to which the Company was or is to be a party in which the amount involved exceeds $60,000 and in which any director, executive officer, holder of more than 5% of our common stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.

INDEMNIFICATION AGREEMENTS

Our bylaws provide that we shall indemnify our directors and officers and may indemnify our employees and other agents to the fullest extent permitted by Delaware law. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the Delaware General Corporation Law expressly permits indemnification.

We have entered into agreements to indemnify our directors and executive officers, in addition to the indemnification provided for in our bylaws. These agreements, among other things, indemnify our directors and executive officers for certain expenses including attorneys’ fees, judgments, fines and settlement amounts incurred by any director or executive officer in any action or proceeding, including any action by or in our right arising out of that person’s services as a director, officer, employee, agent or fiduciary for us, any subsidiary of ours or any other company or enterprise to which the person provides services at our request. The agreements do not provide for indemnification in cases where

• the claim is brought by the indemnified party;

• the indemnified party has not acted in good faith;

• the expenses have been paid directly to the indemnified party under a policy of officers’ and directors’ insurance maintained by us; or

• the claim arises under Section 16(b) of the Securities Exchange Act.

We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers. It is the position of the Securities and Exchange Commission that indemnification for liabilities arising under federal or state securities laws is against public policy and not enforceable.

At present, there is no pending litigation or proceeding involving any of our directors or officers in which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification.

ITEM 14. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Based on their evaluation as of a date within 90 days of the filing date of this Annual Report on Form 10-K, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act, are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

Changes in internal controls. On April 21, 2003, the Company revised its internal controls and procedures to include a requirement that, where a signed document must be filed with or furnished to the Commission, the Company will receive a manually signed signature page or other document authenticating, acknowledging or otherwise adopting the signature that appears in the filing. Such document will be executed and received by the Company before or at the time the filing is made and will be retained by the Company for a period of five years after the date of filing. Except as described above, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in the Company’s internal controls. Accordingly, no additional corrective actions were required or undertaken.

Limitations on the effectiveness of controls. The Company’s management, including the chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Tripath Technology Inc.
	By:	/s/ DR. ADYA S. TRIPATHI
		Dr. Adya S. Tripathi President and Chief Executive Officer, Chairman of the Board
Dated: April 30, 2003

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ DR. ADYA S. TRIPATHI	President and Chief Executive Officer (Principal Executive Officer)	April 30, 2003
Dr. Adya S. Tripathi

/s/ DAVID P. EICHLER	Chief Financial Officer (Principal Financial and Accounting Officer) Vice President of Finance	April 30, 2003
David P. Eichler

*	Director	April , 2003
A.K. Acharya

*	Director	April , 2003
Y.S. Fu

*	Director	April , 2003
Andy Jasuja

* By: /s/	DAVID P. EICHLER
	David P. Eichler (Attorney-In-Fact)

CERTIFICATIONS

I, Dr. Adya S. Tripathi, certify that:

1. I have reviewed this annual report on Form 10-K/A of Tripath Technology Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 30, 2003

/s/ Dr. Adya S. Tripathi
Dr. Adya S. Tripathi
Chief Executive Officer

CERTIFICATIONS

I, David P. Eichler, certify that:

1. I have reviewed this annual report on Form 10-K/A of Tripath Technology Inc.;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: April 30, 2003

/s/ David P. Eichler
David P. Eichler
Chief Financial Officer

EXHIBIT INDEX

Number		Description of Document
3.1(1)		Restated Certificate of Incorporation of Tripath Technology Inc.
3.2(1)		Bylaws of Tripath Technology Inc.
3.3(2)		Certificate of Designation of Preferences and Rights of Series A Preferred Stock
4.1(1)		Specimen common stock certificate
4.2(1)		Second Amended and Restated Shareholder Rights Agreement, dated September 15, 1998, between Tripath Technology Inc. and Certain Stockholders of Tripath Technology Inc.
4.3(2)		Registration Rights Agreement, dated January 22, 2002, by and among Tripath Technology Inc. and Certain Stockholders of Tripath Technology Inc.
4.4(2)		Form of Certificate for Warrants to Purchase Tripath Technology Inc.’s Series A Preferred Stock, dated January 24, 2002
10.1(1)†		Form of Indemnification Agreement, between Tripath Technology Inc. and each of its directors and officers
10.2(1)		License and Supply Agreement, dated July 9, 1999, between STMicroelectronics, Inc. and Tripath Technology Inc.
10.3(1)		Lease Agreement, by and between Tripath Technology Inc. and Peery/Arrillaga dated October 16, 1997
10.4(1)†		2000 Stock Plan and form of option agreement
10.5(1)†		2000 Employee Stock Purchase Plan
10.6(2)		Securities Purchase Agreement, dated January 22, 2002, by and among Tripath Technology Inc. and certain purchasers of its capital stock
10.7(3)		Loan and Security Agreement, dated July 12, 2002, between Comerica Bank-California and Tripath Technology Inc.
10.8(3)		First Amendment to Loan and Security Agreement, dated July 12, 2002, between Comerica Bank-California and Tripath Technology Inc.
10.9*		Form of Second Amendment to Loan and Security Agreement, dated July 12, 2002, between Comerica Bank-California and Tripath Technology Inc.
10.10(3)		Intellectual Property Agreement, dated July 12, 2002, between Comerica Bank-California and Tripath Technology Inc.
10.11(3)		Sublease Agreement, dated July 18, 2002, between Nortel Networks, Inc. and Tripath Technology Inc.
23.1		Consent of PricewaterhouseCoopers LLP, Independent Accountants
24.1*		Power of Attorney (See Form 10-K Signature Page)
99.1**		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

† Represents a management contract or compensatory plan or arrangement

* Previously filed.

** This certification accompanies this Annual Report on Form 10-K and shall not be deemed “filed” by Tripath Technology Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

(1) Incorporated by reference to Tripath Technology Inc.’s registration statement on Form S-1, registration number 333-35028, as amended.

(2) Incorporated by reference to Tripath Technology Inc.’s Form 8-K filed on January 30, 2002.

(3) Incorporated by reference to Tripath Technology Inc.’s Form 10-Q for the quarter ended September 30, 2002.

Net loss per share

Options Outstanding

COMPENSATION OF DIRECTORS

SUMMARY OF COMPENSATION