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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|           |  |                                                                                                
|---------- |  | -----------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934.      
|           |  | For the Fiscal Year ended December 31, 2004.                                                   
|          
|OR        
|          
|o          |  | TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934.
|          
|           |  | For the transition period
    from:           to:           .                                  

Commission file number 0-32809


Vialta, Inc.


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 94-3337236                              
|(State or Other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification No.)

48461 Fremont Boulevard


Fremont, California 94538


(Address, including zip code, of Registrants principal
executive offices)


(510) 870-3088


(Registrants telephone number, including area code)


þ o


o


o þ






DOCUMENTS INCORPORATED BY REFERENCE












---










VIALTA, INC.


FORM 10-K


For the Fiscal Year Ended December 31, 2004


INDEX


|             |  |                                                                                                                          |    |      |    | 
|------------ |  | ------------------------------------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|             |  |                                                                                                                          |    | Page |   
|             |  |                                                                                                                          |    |      |   
|PART I       |  |                                                                                                                          |    |     
|Item 1.      |  | Business                                                                                                                 |    |      | 4  | 
|Item 2.      |  | Properties                                                                                                               |    |      | 7  | 
|Item 3.      |  | Legal Proceedings                                                                                                        |    |      | 7  | 
|Item 4.      |  | Submission of Matters to a Vote of Security
    Holders                                                                  |    |      | 7  | 
|            
|PART II      |  |                                                                                                                          |    |     
|Item 5.      |  | Market for the Registrants Common
    Equity, Related Shareholder Matters and Issuer Purchases of
    Equity Securities |    |      | 8  | 
|Item 6.      |  | Selected Financial Data                                                                                                  |    |      | 9  | 
|Item 7.      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                                |    |      | 10 | 
|Item 7A.     |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                           |    |      | 25 | 
|Item 8.      |  | Financial Statements and Supplementary
    Data                                                                          |    |      | 26 | 
|Item 9.      |  | Changes In and Disagreements with
    Accountants on Accounting and Financial Disclosure                                 |    |      | 49 | 
|Item 9A.     |  | Controls and Procedures                                                                                                  |    |      | 49 | 
|            
|PART III     |  |                                                                                                                          |    |     
|Item 10.     |  | Directors and Executive Officers of the
    Registrant                                                                   |    |      | 50 | 
|Item 11.     |  | Executive Compensation                                                                                                   |    |      | 50 | 
|Item 12.     |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                       |    |      | 50 | 
|Item 13.     |  | Certain Relationships and Related
    Transactions                                                                       |    |      | 50 | 
|Item 14.     |  | Principle Accountants Fees and Services                                                                                  |    |      | 50 | 
|            
|PART IV      |  |                                                                                                                          |    |     
|Item 15.     |  | Exhibits and Financial Statement
    Schedules                                                                           |    |      | 51 | 
|Signatures   |  |                                                                                                                          | 52 |     
|EXHIBIT 23.1
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1
|EXHIBIT 32.2



2



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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS




3



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PART I





Item 1:Business


tm tm








Products




tm tm Good Housekeeping






4



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Sales and Marketing






Product Development




Intellectual Property










5



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Manufacturing




Seasonality




Competition






Financial Information about Segments and Geographic Areas




6



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Employees







Item 2:Properties







Item 3:Legal
Proceedings







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




7



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PART II







|        |                                                                                                                         
|------- | ------------------------------------------------------------------------------------------------------------------------
|Item 5: | Market for the Registrants Common Equity, Related
    Shareholder Matters and Issuer Purchases of Equity
    Securities



|             |                                        |      |   |      |     |  |   |      | 
|------------ | -------------------------------------- | ---- | - | ---- | --- |  | - | ---- | 
|             |                                        | High |   |      | Low | 
|             |                                        |      |   |      |     | 
|Fiscal 2002: |                                        |      |   |      |     |  |   |     
|             | First Quarter ended March 31, 2002     |      | $ | 1.50 |     |  | $ | 1.01 | 
|             | Second Quarter ended June 30, 2002     |      | $ | 1.07 |     |  | $ | 0.45 | 
|             | Third Quarter ended September 30, 2002 |      | $ | 1.18 |     |  | $ | 0.59 | 
|             | Fourth Quarter ended December 31, 2002 |      | $ | 0.72 |     |  | $ | 0.26 | 
|Fiscal 2003: |                                        |      |   |      |     |  |   |     
|             | First Quarter ended March 31, 2003     |      | $ | 0.45 |     |  | $ | 0.30 | 
|             | Second Quarter ended June 30, 2003     |      | $ | 0.51 |     |  | $ | 0.28 | 
|             | Third Quarter ended September 30, 2003 |      | $ | 0.49 |     |  | $ | 0.33 | 
|             | Fourth Quarter ended December 31, 2003 |      | $ | 0.81 |     |  | $ | 0.35 | 
|Fiscal 2004: |                                        |      |   |      |     |  |   |     
|             | First Quarter ended March 31, 2004     |      | $ | 0.70 |     |  | $ | 0.32 | 
|             | Second Quarter ended June 30, 2004     |      | $ | 0.39 |     |  | $ | 0.32 | 
|             | Third Quarter ended September 30, 2004 |      | $ | 0.35 |     |  | $ | 0.23 | 
|             | Fourth Quarter ended December 31, 2004 |      | $ | 0.25 |     |  | $ | 0.16 | 





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Item 6:Selected
Consolidated Financial Data




|                                            |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |         |        |        |   |         |        |        | 
|------------------------------------------- | ----------------------------------------------- | ---------------------------------------- | ------ | ----- | ----- | - | ------ | ----- | ------ | - | ------- | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                                            |                                                 | Years Ended December 31,                 |       
|                                            |                                                 |                                          |       
|                                            |                                                 | 2004                                     |        |       | 2003  |   |        | 2002  |        |   | 2001    |        |        | 2000 |        
|                                            |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |        
|                                            |                                                 | (In thousands, except per share amounts) |       
|Consolidated Statement of Operations Data:  |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |         |        |        |   |         |       
|Revenue, net                                |                                                 | $                                        | 12,747 |       |       | $ | 10,331 |       |        | $ |        |        |        | $    |        |        |        | $ |        |       
|Cost of good sold                           |                                                 |                                          | 8,022  |       |       |   | 2,941  |       |        |   |        |        |        |      |        |        |        |   |        |       
|                                            |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |        
|Gross profit                                |                                                 |                                          | 4,725  |       |       |   | 7,390  |       |        |   |        |        |        |      |        |        |        |   |        |       
|                                            |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |        
|Operating expenses:                         |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |         |        |        |   |         |       
|                                            | Product costs                                   |                                          |        |      |       |   |        |      |        |   |         | 10,421 |        |      |         |       |        |   |         |       |       
|                                            | Engineering and development                     |                                          |        | 1,247 |       |   |        | 2,557 |        |   |         | 13,264 |        |      |         | 25,250 |        |   |         | 19,558 |       
|                                            | Sales and marketing                             |                                          |        | 2,011 |       |   |        | 4,427 |        |   |         | 3,100  |        |      |         | 3,738  |        |   |         | 2,927  |       
|                                            | General and administrative                      |                                          |        | 4,573 |       |   |        | 5,753 |        |   |         | 5,643  |        |      |         | 9,301  |        |   |         | 6,699  |       
|                                            | Amortization and impairment of content licenses |                                          |        |      |       |   |        |      |        |   |         | 11,395 |        |      |         |       |        |   |         |       |       
|                                            |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |        
|                                            |                                                 | Total operating expenses                 |        |       | 7,831 |   |        |       | 12,737 |   |         |        | 43,823 |      |         |        | 38,289 |   |         |        | 29,184 | 
|                                            |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |        
|Operating loss                              |                                                 |                                          | (3,106 | )     |       |   | (5,347 | )     |        |   | (43,823 | )      |        |      | (38,289 | )      |        |   | (29,184 | )     
|Interest income, net                        |                                                 |                                          | 717    |       |       |   | 733    |       |        |   | 1,244   |        |        |      | 3,606   |        |        |   | 7,688   |       
|Gain on investment                          |                                                 |                                          |       |       |       |   | 571    |       |        |   |        |        |        |      |        |        |        |   |        |       
|Other income (expense)                      |                                                 |                                          |       |       |       |   |       |       |        |   |        |        |        |      | (1,266  | )      |        |   | (1,682  | )     
|                                            |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |        
|Loss before income tax benefit              |                                                 |                                          | (2,389 | )     |       |   | (4,043 | )     |        |   | (42,579 | )      |        |      | (35,949 | )      |        |   | (23,178 | )     
|Income tax benefit                          |                                                 |                                          |       |       |       |   |       |       |        |   |        |        |        |      |        |        |        |   | 260     |       
|                                            |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |        
|Net loss                                    |                                                 | $                                        | (2,389 | )     |       | $ | (4,043 | )     |        | $ | (42,579 | )      |        | $    | (35,949 | )      |        | $ | (22,918 | )     
|                                            |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |        
|Net loss per share:                         |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |         |        |        |   |         |       
|                                            | Basic and diluted                               |                                          | $      | (0.03 | )     |   | $      | (0.05 | )      |   | $       | (0.51  | )      |      | $       | (0.83  | )      |   | $       | (3.68  | )     
|                                            |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |        
|Weighted average common shares outstanding: |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |         |        |        |   |         |       
|Basic and diluted                           |                                                 |                                          | 82,930 |       |       |   | 82,285 |       |        |   | 83,578  |        |        |      | 43,248  |        |        |   | 6,222   |       
|                                            |                                                 |                                          |        |       |       |   |        |       |        |   |         |        |        |      |        

|                                                     |  |                |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |         |  
|---------------------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------- | -
|                                                     |  | December 31,   |       
|                                                     |  |                |       
|                                                     |  | 2004           |        |  | 2003 |   |        | 2002 |  |   | 2001   |  |  | 2000 |       
|                                                     |  |                |        |  |      |   |        |      |  |   |        |  |  |      |       
|                                                     |  | (In thousands) |       
|Consolidated Balance Sheet Data:                     |  |                |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |         |  
|Cash and cash equivalents and short-term investments |  | $              | 18,402 |  |      | $ | 24,308 |      |  | $ | 32,701 |  |  | $    | 67,428 |  |  | $ | 136,490 |  
|Restricted cash                                      |  |                | 3,057  |  |      |   | 2,226  |      |  |   |       |  |  |      |       |  |  |   |        |  
|Working capital                                      |  |                | 22,261 |  |      |   | 25,365 |      |  |   | 30,201 |  |  |      | 66,830 |  |  |   | 109,870 |  
|Total assets                                         |  |                | 29,402 |  |      |   | 37,114 |      |  |   | 40,327 |  |  |      | 83,866 |  |  |   | 153,691 |  
|Total current liabilities                            |  |                | 3,753  |  |      |   | 9,061  |      |  |   | 7,949  |  |  |      | 3,587  |  |  |   | 33,594  |  
|Redeemable convertible preferred stock               |  |                |       |  |      |   |       |      |  |   |       |  |  |      |       |  |  |   | 142,600 |  
|Total stockholders equity (deficit)                 |  |                | 25,649 |  |      |   | 28,053 |      |  |   | 32,378 |  |  |      | 80,279 |  |  |   | (22,503 | )

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Item 7:Managements
Discussion and Analysis of Financial Condition and Results of
Operations


The following discussion includes forward-looking statements
with respect to our future financial performance. Actual results
may differ materially from those currently anticipated depending
on a variety of factors, including those described below under
the sub-heading, Cautionary Statement Regarding
Forward-Looking Statements as well as Other Factors
That May Affect Our Business and Future Results and the
risks discussed in our most recent filing with the Securities
and Exchange Commission. This following discussion should be
read in conjunction with the Selected Consolidated Financial
Data and the Consolidated Financial Statements and notes thereto
that appear elsewhere in this report.


Overview


tm tm tm tm








Results of Operations




| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | For the year ended December 31, 2004 compared with
    the year ended December 31, 2003

Net revenue.


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Cost of goods sold.


Gross profit.


Engineering and development.


Sales and marketing.


General and administrative.


Interest income and other, net.


Gain on Investment.




| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | For the year ended December 31, 2003 compared with
    the year ended December 31, 2002

Net revenue.


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Cost of goods sold.


Gross profit.


Product Costs.


Engineering and development.


Sales and Marketing.


General and Administrative.


Amortization and Impairment of Content Licenses.


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Interest Income, Net.


Gain on Investment.


Off-Balance Sheet Arrangements






Liquidity and Capital Resources














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Critical Accounting Policies and Estimates






Revenue recognition






Allowances for sales returns and for doubtful accounts






14



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|                  |  |            |     |  |           |   |            |            |  |                |         |   |  |   |    | 
|----------------- |  | ---------- | --- |  | --------- | - | ---------- | ---------- |  | -------------- | ------- | - |  | - | -- | 
|                  |  | Balance at |     |  |           |   | Write-offs |            |  |               
|                  |  | Beginning  |     |  |           |   | Net of     |            |  | Balance at End |        
|                  |  | of Year    |     |  | Additions |   |            | Recoveries |  |                | of Year |  
|                  |  |            |     |  |           |   |            |            |  |                |         |  
|December 31, 2004 |  | $          | 63  |  |           | $ | 14         |            |  | $              |        |   |  | $ | 77 | 
|December 31, 2003 |  | $          | 30  |  |           | $ | 33         |            |  | $              |        |   |  | $ | 63 | 
|December 31, 2002 |  | $          | 665 |  |           | $ |           |            |  | $              | (635    | ) |  | $ | 30 | 

Warranty






|                                               |  |              |      |   |              |   |      |  
|---------------------------------------------- |  | ------------ | ---- | - | ------------ | - | ---- | -
|                                               |  | December 31, |      |   | December 31, |  
|                                               |  | 2004         |      |   | 2003         |  
|                                               |  |              |      |   |              |  
|Beginning balance                              |  | $            | 484  |   |              | $ |     |  
|Accruals for warranties issued during the year |  |              | 564  |   |              |   | 814  |  
|Settlements made during the year               |  |              | (649 | ) |              |   | (330 | )
|                                               |  |              |      |   |              |  
|Ending balance                                 |  | $            | 399  |   |              | $ | 484  |  
|                                               |  |              |      |   |              |  



| |                         
| | ------------------------
| | Valuation of Inventories









| |                       
| | ----------------------
| | Property and Equipment



|                                        |  |  |            | 
|--------------------------------------- |  |  | ---------- | 
|Computer equipment                      |  |  | 3-5  years | 
|Furniture and fixtures                  |  |  | 5 years    | 
|Software and web site development costs |  |  | 1-3  years | 



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| |                         
| | ------------------------
| | Stock-Based Compensation



Recent Accounting Pronouncements








We do not expect the
adoption of FAS No. 153 to have material impact on our
consolidated financial position, results of operations or cash
flows.


Other Factors That May Affect Our Business and Future
Results






| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | If our products do not achieve broad market acceptance, we
    may not be able to continue operating our business.





| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | educate consumers on the advantages of our Beamer videophone
    products and VistaFrame;

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| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | commit a substantial amount of human and financial resources to
    support the retail distribution of our products;
|
| |  | continue to develop our sales, marketing and support activities
    to consumers and retailers; and                 
|
| |  | expand the number and location of retailers carrying our
    products.                                              





| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | We have incurred net losses and may never achieve
    significant revenues or profitability.





| |                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | It may take a substantial amount of time and resources to
    achieve broad market acceptance of our products, and we cannot
    be sure that these efforts will generate the level of broad
    market acceptance necessary to generate sufficient revenues to
    sustain our business.





| |                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to raise additional capital on acceptable
    terms, our ability to develop and market our products and
    operate our business could be harmed.



17



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| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | Our limited operating history may make it difficult for us
    or investors to evaluate trends and other factors that affect
    our business.





| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | We face intense competition from participants in the
    consumer electronics market, which may impair our revenues and
    ability to generate customers.





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| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to create consumer demand and consumer
    acceptance of our Beamer videophone products and VistaFrame, we
    may not be able to generate sufficient revenues to sustain our
    business.





| |                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to develop and introduce new products, we
    may not be able to generate sufficient revenues to sustain and
    grow our business.





| |                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on two contract manufacturers and a limited
    number of other third parties, including ESS, to manufacture and
    supply critical components for our products, and we may be
    unable to operate our business if those parties do not perform
    their obligations.





| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may have potential business conflicts of interest with
    ESS with respect to the companies ongoing relationships,
    and we may not be able to resolve these conflicts on terms
    favorable to us.





| |   |                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Although we entered into agreements with ESS that govern our
    business relationship after the distribution of our stock to ESS
    shareholders, ESS has no obligation to extend the terms of those
    agreements beyond their stated duration;
|
| |  | ESS may supply semiconductors to competitors, which may affect
    ESS capacity to supply semiconductors to us;                                                                                                                                   

19



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| |   |                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We may compete with ESS with respect to business opportunities
    that are attractive to both companies, and ESS is not restricted
    from competing with our business.



| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to maintain satisfactory relationships
    with, or increase the number of, retailers and distributors that
    sell our products, our business will suffer.





| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may need to expand our operations for future growth,
    and our failure to manage any such growth could disrupt business
    and impair our ability to generate revenues.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We may need to attract and retain qualified personnel, and any
    failure to do so may impair our ability to offer new products or
    grow our business. We may be unable to successfully attract,
    integrate or retain sufficiently qualified personnel. If we are
    unable to hire, train, retain or manage the necessary personnel,
    we may be unable to successfully introduce new products or
    otherwise implement our business strategy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | We may need to provide acceptable customer support, and any
    inability to do so will impair our ability to develop consumer
    acceptance of our products. We expect that some of our customers
    will require support when using our products. We also anticipate
    that purchasers of any future products will require support in
    their use of such products. We do not have experience with
    widespread deployment of our products to a diverse customer
    base, and we may not have adequate personnel to provide the
    levels of support that our customers will require. Our failure
    to provide adequate customer support for our products will
    damage our reputation in the consumer electronics marketplace
    and strain our relationships with customers and strategic
    partners. This could prevent us from gaining new or retaining
    existing customers and could harm our reputation and brand.
|
| |  | We may need to improve our operational and financial systems,
    procedures and controls to support our expected growth, and any
    inability to do so will adversely impact our ability to grow our
    business. Our current and planned systems, procedures and
    controls may not be adequate to support our future operations
    and expected growth. Delays or problems associated with any
    improvement or expansion of our operational systems and controls
    could adversely impact our relationships with customers and harm
    our reputation and brand.                                                                                                                                                                                                                                                                                                                                                                



| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Product defects, system failures or interruptions may have
    a negative impact on our revenues, reputation and ability to
    attract new customers.



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| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our future results could be harmed by economic, political,
    regulatory and other risks associated with our reliance on
    international sales and operations.





| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in political and strategic relations between China,
    Taiwan and the U.S.;                                                                 
|
| |  | changes in foreign currency exchange rates;                                                                                                          
|
| |  | changes in a specific countrys or regions political
    or economic conditions, particularly in China, Taiwan and other
    emerging Asian markets;
|
| |  | trade protection measures and import or export licensing
    requirements;                                                                           
|
| |  | potentially negative consequences from changes in tax laws;                                                                                          
|
| |  | difficulty in managing widespread sales and manufacturing
    operations;                                                                            
|
| |  | less effective protection of intellectual property.                                                                                                  



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Our success partly depends on our ability to secure and
    protect our proprietary rights.







| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be subject to claims that our intellectual property
    infringes upon the proprietary rights of others, and a
    successful claim could harm our ability to sell and develop our
    products.





| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | If we lose key management personnel, we may not be able to
    successfully operate our business.



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| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | Any future business acquisitions may disrupt our business,
    dilute stockholder value or distract management
    attention.





| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | difficulty of integrating the operations, products and personnel
    of the acquired businesses;                                
|
| |  | potential disruption of our ongoing business;                                                                                   
|
| |  | unanticipated costs associated with the acquisition;                                                                            
|
| |  | inability of management to manage the financial and strategic
    position of acquired or developed products and technologies;  
|
| |  | inability to maintain uniform standards, controls, policies and
    procedures; and                                             
|
| |  | impairment of relationships with employees and customers that
    may occur as a result of integration of the acquired business.





| |                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Laws or regulations that govern the consumer electronics
    industry, the telecommunications industry, copyrighted works or
    the Internet could expose us to legal action if we fail to
    comply or could require us to change our business.





| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | Federal Communications Commission regulations relating to the
    electronic emissions of consumer products;                                
|
| |  | Federal Communications Commission regulations relating to
    consumer products that connect to the public telephone network;               
|
| |  | federal export regulations relating to the export of sensitive
    computer technologies such as encryption and authentication
    software.





| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our stock may be subject to the requirements for penny
    stocks, which could adversely affect your ability to sell and
    the market price of our shares.



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| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our quarterly operating results may fluctuate
    significantly, which may adversely affect the market prices of
    our stock and could lead to us becoming the target of costly
    securities class action litigation.





| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | consumer awareness and demand for our products;                                                                                                                             
|
| |  | ongoing demand and supply for our products;                                                                                                                                 
|
| |  | seasonality and other consumer and advertising trends;                                                                                                                      
|
| |  | changes in the economic terms of our relationships with our
    strategic partners;                                                                                         
|
| |  | shortfalls in the supply of components necessary for the
    manufacture of our products;                                                                                   
|
| |  | changes in our pricing policies, the pricing policies of our
    competitors and general pricing trends in the consumer
    electronics market;                             
|
| |  | unanticipated shortfalls in revenue due to the fact that our
    expenses precede associated revenues;                                                                      
|
| |  | changes in estimates of our financial performance or changes in
    recommendations by securities analysts;                                                                 
|
| |  | release of new or enhanced products or services or introduction
    of new marketing initiatives by us or our competitors;                                                  
|
| |  | announcements by us or our competitors of the creation or
    termination of significant strategic partnerships, joint
    ventures, significant contracts, or acquisitions;
|
| |  | the market price generally for consumer electronics and retail
    industry stocks;                                                                                         
|
| |  | market conditions affecting the consumer electronics industry;                                                                                                              
|
| |  | additions or departures of key personnel;                                                                                                                                   
|
| |  | demand for and consumer acceptance of other anticipated future
    products offerings; and                                                                                  
|
| |  | general economic conditions.                                                                                                                                                



23



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| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | Seasonal trends may cause our quarterly operating results
    to fluctuate, which may adversely affect the market price of our
    stock.





| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | Our historical financial information may not be
    representative of our future operating results as a separate
    company.





| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Conflicts of interest may arise because our Chairman is
    also the Chairman of ESS and both he and another director own
    securities of both companies.





| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ESS submitted a request to the Internal Revenue Service
    (IRS) to rule that its distribution of our shares to ESS
    shareholders was tax-free. The IRS determined that it would not
    provide such a ruling.







24



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Item 7A:Quantitative
and Qualitative Disclosure About Market Risk


Interest Rate Risks.




Foreign Exchange Risks.


25



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Item 8:Financial
Statements and Supplementary Data




|                                                            |                                                                                                                                                                             |      |    |  | 
|----------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | -- |  | 
|                                                            |                                                                                                                                                                             | Page |   
|                                                            |                                                                                                                                                                             |      |   
|REPORT OF INDEPENDENT REGISTERED PUBLIC
    ACCOUNTING FIRM |                                                                                                                                                                             |      | 27 | 
|CONSOLIDATED BALANCE SHEETS                                 |                                                                                                                                                                             |      | 28 | 
|CONSOLIDATED STATEMENTS OF OPERATIONS                       |                                                                                                                                                                             |      | 29 | 
|CONSOLIDATED STATEMENTS OF
    STOCKHOLDERS EQUITY         |                                                                                                                                                                             |      | 30 | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS                       |                                                                                                                                                                             |      | 31 | 
|NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS              |                                                                                                                                                                             |      | 32 | 
|Financial Statements Schedules                              |                                                                                                                                                                             |      |    | 
|                                                            | All schedules have been omitted because they are not applicable,
    not required, or the information required is included in the
    financial statements or notes thereto |      |    |  | 
|SUPPLEMENTARY FINANCIAL DATA                                |                                                                                                                                                                             |      | 47 | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












27



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VIALTA, INC.





CONSOLIDATED BALANCE SHEETS


|                                                                                                                                      |                                                                                                                                          |                            |                                                                                        |          |        |        |     |          |        |        | 
|------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | -------------------------------------------------------------------------------------- | -------- | ------ | ------ | --- | -------- | ------ | ------ | 
|                                                                                                                                      |                                                                                                                                          | December 31,               |                                                                                       
|                                                                                                                                      |                                                                                                                                          |                            |                                                                                       
|                                                                                                                                      |                                                                                                                                          | 2004                       |                                                                                        |          | 2003   |       
|                                                                                                                                      |                                                                                                                                          |                            |                                                                                        |          |        |       
|                                                                                                                                      |                                                                                                                                          | (In thousands)             |                                                                                       
|ASSETS                                                                                                                               
|Current assets:                                                                                                                       |                                                                                                                                          |                            |                                                                                        |          |        |        |     |         
|                                                                                                                                      | Cash and cash equivalents                                                                                                                |                            | $                                                                                      | 7,296    |        |        | $   | 9,356    |       
|                                                                                                                                      | Restricted cash                                                                                                                          |                            |                                                                                        | 3,057    |        |        |     | 2,226    |       
|                                                                                                                                      | Short-term investments                                                                                                                   |                            |                                                                                        | 11,106   |        |        |     | 14,952   |       
|                                                                                                                                      | Accounts receivable, net                                                                                                                 |                            |                                                                                        | 2,761    |        |        |     | 3,941    |       
|                                                                                                                                      | Inventories                                                                                                                              |                            |                                                                                        | 4,500    |        |        |     | 5,196    |       
|                                                                                                                                      | Prepaid expenses and other current assets                                                                                                |                            |                                                                                        | 351      |        |        |     | 729      |       
|                                                                                                                                      |                                                                                                                                          |                            |                                                                                        |          |        |       
|                                                                                                                                      |                                                                                                                                          | Total current assets       |                                                                                        |          | 29,071 |        |     |          | 36,400 |       
|Property and equipment, net                                                                                                           |                                                                                                                                          |                            | 302                                                                                    |          |        |        | 685 |         
|Other assets                                                                                                                          |                                                                                                                                          |                            | 29                                                                                     |          |        |        | 29  |         
|                                                                                                                                      |                                                                                                                                          |                            |                                                                                        |          |        |       
|                                                                                                                                      |                                                                                                                                          | Total assets               |                                                                                        | $        | 29,402 |        |     | $        | 37,114 |       
|                                                                                                                                      |                                                                                                                                          |                            |                                                                                        |          |        |       
|                                                                                                                                     
|LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
    AND STOCKHOLDERS EQUITY                                                     
|Current liabilities:                                                                                                                  |                                                                                                                                          |                            |                                                                                        |          |        |        |     |         
|                                                                                                                                      | Accounts payable                                                                                                                         |                            | $                                                                                      | 373      |        |        | $   | 1,915    |       
|                                                                                                                                      | Accrued expenses and other current liabilities                                                                                           |                            |                                                                                        | 2,070    |        |        |     | 3,149    |       
|                                                                                                                                      | Deferred profit                                                                                                                          |                            |                                                                                        | 1,310    |        |        |     | 3,997    |       
|                                                                                                                                      |                                                                                                                                          |                            |                                                                                        |          |        |       
|                                                                                                                                      |                                                                                                                                          | Total current liabilities  |                                                                                        |          | 3,753  |        |     |          | 9,061  |       
|                                                                                                                                      |                                                                                                                                          |                            |                                                                                        |          |        |       
|Commitments (Note 15)                                                                                                                 |                                                                                                                                          |                            |                                                                                        |          |        |        |     |         
|Redeemable convertible preferred stock, $0.001 par value;
    30,000 shares authorized, no shares issued and outstanding
    (Note 8) |                                                                                                                                          |                            |                                                                                       |          |        |        |    |         
|Stockholders equity:                                                                                                                 |                                                                                                                                          |                            |                                                                                        |          |        |        |     |         
|                                                                                                                                      | Common stock, $0.001 par value, 400,000 shares
    authorized, 95,017 and 94,702 shares issued, 83,053 and
    82,738 shares outstanding |                            |                                                                                        | 95       |        |        |     | 95       |       
|                                                                                                                                      | Additional paid-in capital                                                                                                               |                            |                                                                                        | 144,122  |        |        |     | 144,114  |       
|                                                                                                                                      | Treasury stock                                                                                                                           |                            |                                                                                        | (9,458   | )      |        |     | (9,458   | )     
|                                                                                                                                      | Accumulated deficit                                                                                                                      |                            |                                                                                        | (109,098 | )      |        |     | (106,709 | )     
|                                                                                                                                      | Accumulated other comprehensive income (loss)                                                                                            |                            |                                                                                        | (12      | )      |        |     | 11       |       
|                                                                                                                                      |                                                                                                                                          |                            |                                                                                        |          |        |       
|                                                                                                                                      |                                                                                                                                          | Total stockholders equity |                                                                                        |          | 25,649 |        |     |          | 28,053 |       
|                                                                                                                                      |                                                                                                                                          |                            |                                                                                        |          |        |       
|                                                                                                                                      |                                                                                                                                          |                            | Total liabilities, redeemable convertible preferred stock and
    stockholders equity |          | $      | 29,402 |     |          | $      | 37,114 | 
|                                                                                                                                      |                                                                                                                                          |                            |                                                                                        |          |        |       



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VIALTA, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                            |                                                 |                                 |        |        |       |   |        |        |        |   |         |        |        | 
|------------------------------------------- | ----------------------------------------------- | ------------------------------- | ------ | ------ | ----- | - | ------ | ------ | ------ | - | ------- | ------ | ------ | 
|                                            |                                                 | Years Ended December 31,        |       
|                                            |                                                 |                                 |       
|                                            |                                                 | 2004                            |        |        | 2003  |   |        | 2002   |       
|                                            |                                                 |                                 |        |        |       |   |        |        |       
|                                            |                                                 | (In thousands, except per share |       
|                                            |                                                 | amounts)                        |       
|Revenue, net                                |                                                 | $                               | 12,747 |        |       | $ | 10,331 |        |        | $ |        |       
|Cost of goods sold                          |                                                 |                                 | 8,022  |        |       |   | 2,941  |        |        |   |        |       
|                                            |                                                 |                                 |        |        |       |   |        |        |       
|Gross profit                                |                                                 |                                 | 4,725  |        |       |   | 7,390  |        |        |   |        |       
|                                            |                                                 |                                 |        |        |       |   |        |        |       
|Operating expenses:                         |                                                 |                                 |        |        |       |   |        |        |        |   |         |       
|                                            | Product costs                                   |                                 |        |       |       |   |        |       |        |   |         | 10,421 |       
|                                            | Engineering and development                     |                                 |        | 1,247  |       |   |        | 2,557  |        |   |         | 13,264 |       
|                                            | Sales and marketing                             |                                 |        | 2,011  |       |   |        | 4,427  |        |   |         | 3,100  |       
|                                            | General and administrative                      |                                 |        | 4,573  |       |   |        | 5,753  |        |   |         | 5,643  |       
|                                            | Amortization and impairment of content licenses |                                 |        |       |       |   |        |       |        |   |         | 11,395 |       
|                                            |                                                 |                                 |        |        |       |   |        |        |       
|                                            |                                                 | Total operating expenses        |        |        | 7,831 |   |        |        | 12,737 |   |         |        | 43,823 | 
|                                            |                                                 |                                 |        |        |       |   |        |        |       
|Operating loss                              |                                                 |                                 | (3,106 | )      |       |   | (5,347 | )      |        |   | (43,823 | )     
|Interest income, net                        |                                                 |                                 | 717    |        |       |   | 733    |        |        |   | 1,244   |       
|Gain on investment                          |                                                 |                                 |       |        |       |   | 571    |        |        |   |        |       
|                                            |                                                 |                                 |        |        |       |   |        |        |       
|Net loss                                    |                                                 | $                               | (2,389 | )      |       | $ | (4,043 | )      |        | $ | (42,579 | )     
|                                            |                                                 |                                 |        |        |       |   |        |        |       
|Net loss per share:                         |                                                 |                                 |        |        |       |   |        |        |        |   |         |       
|                                            | Basic and diluted                               |                                 | $      | (0.03  | )     |   | $      | (0.05  | )      |   | $       | (0.51  | )     
|                                            |                                                 |                                 |        |        |       |   |        |        |       
|Weighted average common shares outstanding: |                                                 |                                 |        |        |       |   |        |        |        |   |         |       
|                                            | Basic and diluted                               |                                 |        | 82,930 |       |   |        | 82,285 |        |   |         | 83,578 |       
|                                            |                                                 |                                 |        |        |       |   |        |        |       



29



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VIALTA, INC.





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                                |                                                     |                          |        |   |            |   |    |          |  |   |             |       |  |               |               |   |        |   |          |               |   |   |      |      |   |   |        |         |   |  |   |         |         |  
|--------------------------------------------------------------- | --------------------------------------------------- | ------------------------ | ------ | - | ---------- | - | -- | -------- |  | - | ----------- | ----- |  | ------------- | ------------- | - | ------ | - | -------- | ------------- | - | - | ---- | ---- | - | - | ------ | ------- | - |  | - | ------- | ------- | -
|                                                                |                                                     | Common Stock             |        |   |            |   |    |          |  |   | Accumulated |       |  | Total         |               |   |       
|                                                                |                                                     | (See Note 8)             |        |   | Additional |   |    |          |  |   |             | Other |  |               | Stockholders |   |        |  
|                                                                |                                                     |                          |        |   | Paid In    |   |    | Treasury |  |   | Accumulated |       |  | Comprehensive |               |   | Equity |   |          | Comprehensive |  
|                                                                |                                                     | Shares                   |        |   | Amount     |   |    | Capital  |  |   | Stock       |       |  | Deficit       |               |   | Income |   |          | (Deficit)     |   |   | Loss |     
|                                                                |                                                     |                          |        |   |            |   |    |          |  |   |             |       |  |               |               |   |        |   |          |               |   |   |      |     
|                                                                |                                                     | (In thousands)           |       
|Balance at December 31, 2001                                    |                                                     |                          | 85,625 |   |            | $ | 92 |          |  | $ | 144,164     |       |  | $             | (4,046        | ) |        | $ | (60,087  | )             |   | $ | 156  |      |   | $ | 80,279 |         |   |  |   |        
|Shares transferred to ESS Technology, Inc                       |                                                     |                          | 612    |   |            |   |   |          |  |   |            |       |  |               |              |   |        |   |         |               |   |   |     |      |   |   |       |         |   |  |   |        
|Exercise of stapled stock options                               |                                                     |                          | 1,419  |   |            |   | 1  |          |  |   | (1          | )     |  |               |              |   |        |   |         |               |   |   |     |      |   |   |       |         |   |  |   |        
|Exercise of stock options                                       |                                                     |                          | 69     |   |            |   | 1  |          |  |   | 19          |       |  |               |              |   |        |   |         |               |   |   |     |      |   |   | 20     |         |   |  |   |        
|Repurchase of common stock                                      |                                                     |                          | (4,969 | ) |            |   |   |          |  |   |            |       |  |               | (5,117        | ) |        |   |         |               |   |   |     |      |   |   | (5,117 | )       |   |  |   |        
|Income tax benefit on disqualified disposition of stock options |                                                     |                          |       |   |            |   |   |          |  |   | (77         | )     |  |               |              |   |        |   |         |               |   |   |     |      |   |   | (77    | )       |   |  |   |        
|Components of comprehensive loss:                               |                                                     |                          |        |   |            |   |    |          |  |   |             |       |  |               |               |   |        |   |          |               |   |   |      |      |   |   |        |         |   |  |   |        
|                                                                | Net loss                                            |                          |        |  |            |   |    |         |  |   |             |      |  |               |               |  |        |   |          | (42,579       | ) |   |      |     |   |   |        | (42,579 | ) |  | $ | (42,579 | )      
|                                                                | Unrealized losses on available-for-sale investments |                          |        |  |            |   |    |         |  |   |             |      |  |               |               |  |        |   |          |              |   |   |      | (148 | ) |   |        | (148    | ) |  |   | (148    | )      
|                                                                |                                                     |                          |        |   |            |   |    |          |  |   |             |       |  |               |               |   |        |   |          |               |   |   |      |     
|                                                                |                                                     | Total comprehensive loss |        |   |            |   |    |          |  |   |             |       |  |               |               |   |        |   |          |               |   |   |      |      |   |   |        |         |   |  |   | $       | (42,727 | )
|                                                                |                                                     |                          |        |   |            |   |    |          |  |   |             |       |  |               |               |   |        |   |          |               |   |   |      |     
|Balance at December 31, 2002                                    |                                                     |                          | 82,756 |   |            |   | 94 |          |  |   | 144,105     |       |  |               | (9,163        | ) |        |   | (102,666 | )             |   |   | 8    |      |   |   | 32,378 |         |   |  |   |        
|Exercise of stapled stock options                               |                                                     |                          | 701    |   |            |   |   |          |  |   |            |       |  |               |              |   |        |   |         |               |   |   |     |      |   |   |       |         |   |  |   |        
|Exercise of stock options                                       |                                                     |                          | 40     |   |            |   | 1  |          |  |   | 9           |       |  |               |              |   |        |   |         |               |   |   |     |      |   |   | 10     |         |   |  |   |        
|Repurchase of common stock                                      |                                                     |                          | (759   | ) |            |   |   |          |  |   |            |       |  |               | (295          | ) |        |   |         |               |   |   |     |      |   |   | (295   | )       |   |  |   |        
|Components of comprehensive loss:                               |                                                     |                          |        |   |            |   |    |          |  |   |            |       |  |               |               |   |        |   |          |               |   |   |      |      |   |   |        |         |   |  |   |        
|                                                                | Net loss                                            |                          |        |  |            |   |    |         |  |   |             |      |  |               |               |  |        |   |          | (4,043        | ) |   |      |     |   |   |        | (4,043  | ) |  | $ | (4,043  | )      
|                                                                | Unrealized gains on available-for-sale investments  |                          |        |  |            |   |    |         |  |   |             |      |  |               |               |  |        |   |          |              |   |   |      | 3    |   |   |        | 3       |   |  |   | 3       |        
|                                                                |                                                     |                          |        |   |            |   |    |          |  |   |             |       |  |               |               |   |        |   |          |               |   |   |      |     
|                                                                |                                                     | Total comprehensive loss |        |   |            |   |    |          |  |   |             |       |  |               |               |   |        |   |          |               |   |   |      |      |   |   |        |         |   |  |   | $       | (4,040  | )
|                                                                |                                                     |                          |        |   |            |   |    |          |  |   |             |       |  |               |               |   |        |   |          |               |   |   |      |     
|Balance at December 31, 2003                                    |                                                     |                          | 82,738 |   |            |   | 95 |          |  |   | 144,114     |       |  |               | (9,458        | ) |        |   | (106,709 | )             |   |   | 11   |      |   |   | 28,053 |         |   |  |   |        
|Exercise of stapled stock options                               |                                                     |                          | 283    |   |            |   |   |          |  |   |            |       |  |               |              |   |        |   |         |               |   |   |     |      |   |   |       |         |   |  |   |        
|Exercise of stock options                                       |                                                     |                          | 32     |   |            |   |   |          |  |   | 8           |       |  |               |              |   |        |   |         |               |   |   |     |      |   |   | 8      |         |   |  |   |        
|Components of comprehensive loss:                               |                                                     |                          |        |   |            |   |    |          |  |   |            |       |  |               |               |   |        |   |          |               |   |   |      |      |   |   |        |         |   |  |   |        
|                                                                | Net loss                                            |                          |        |  |            |   |    |         |  |   |             |      |  |               |               |  |        |   |          | (2,389        | ) |   |      |     |   |   |        | (2,389  | ) |  | $ | (2,389  | )      
|                                                                | Unrealized losses on available-for-sale investments |                          |        |  |            |   |    |         |  |   |             |      |  |               |               |  |        |   |          |              |   |   |      | (23  | ) |   |        | (23     | ) |  |   | (23     | )      
|                                                                |                                                     |                          |        |   |            |   |    |          |  |   |             |       |  |               |               |   |        |   |          |               |   |   |      |     
|                                                                |                                                     | Total comprehensive loss |        |   |            |   |    |          |  |   |             |       |  |               |               |   |        |   |          |               |   |   |      |      |   |   |        |         |   |  |   | $       | (2,412  | )
|                                                                |                                                     |                          |        |   |            |   |    |          |  |   |             |       |  |               |               |   |        |   |          |               |   |   |      |     
|Balance at December 31, 2004                                    |                                                     |                          | 83,053 |   |            | $ | 95 |          |  | $ | 144,122     |       |  | $             | (9,458        | ) |        | $ | (109,098 | )             |   | $ | (12  | )    |   | $ | 25,649 |         |   |  |   |        
|                                                                |                                                     |                          |        |   |            |   |    |          |  |   |             |       |  |               |               |   |        |   |          |               |   |   |      |     



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VIALTA, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                   |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |       |        |         |         |        |        |         |  
|-------------------------------------------------- | ------------------------------------------------------------------------------- | --------------------------------------------------- | ---------------------------------------- | ---------------------------------------------------------- | ---- | ------ | ------- | ------- | ----- | ------ | ------- | ------- | ------ | ------ | ------- | -
|                                                   |                                                                                 | Years Ended December 31,                            |                                         
|                                                   |                                                                                 |                                                     |                                         
|                                                   |                                                                                 | 2004                                                |                                          |                                                            | 2003 |        |         | 2002    |      
|                                                   |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |      
|                                                   |                                                                                 | (In thousands)                                      |                                         
|Cash flows from operating activities:              |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |       |        |         |        
|                                                   | Net loss                                                                        |                                                     | $                                        | (2,389                                                     | )    |        | $       | (4,043  | )     |        | $       | (42,579 | )     
|                                                   | Adjustments to reconcile net loss to net cash used in operating
    activities: |                                                     |                                          |                                                            |      |        |         |         |       |        |         |         |       
|                                                   |                                                                                 | Depreciation and amortization                       |                                          |                                                            | 389  |        |         |         | 1,638 |        |         |         | 6,036  |       
|                                                   |                                                                                 | Amortization and impairment of content license fees |                                          |                                                            |     |        |         |         |      |        |         |         | 11,395 |       
|                                                   |                                                                                 | Changes in assets and liabilities:                  |                                          |                                                            |      |        |         |         |       |        |         |         |        |       
|                                                   |                                                                                 |                                                     | Accounts receivables, net                |                                                            |      | 1,180  |         |         |       | (2,579 | )       |         |        | (1,362 | )      
|                                                   |                                                                                 |                                                     | Related party receivables/payables, net  |                                                            |      | (154   | )       |         |       | 248    |         |         |        | 97     |        
|                                                   |                                                                                 |                                                     | Inventories                              |                                                            |      | 696    |         |         |       | (2,362 | )       |         |        | (2,834 | )      
|                                                   |                                                                                 |                                                     | Prepaid expense and other assets         |                                                            |      | 378    |         |         |       | 540    |         |         |        | 1,672  |        
|                                                   |                                                                                 |                                                     | Restricted cash deposit                  |                                                            |      | (831   | )       |         |       | (2,226 | )       |         |        |       |        
|                                                   |                                                                                 |                                                     | Deferred profit                          |                                                            |      | (2,687 | )       |         |       | 767    |         |         |        | 3,115  |        
|                                                   |                                                                                 |                                                     | Accounts payable and accrued liabilities |                                                            |      | (2,467 | )       |         |       | 97     |         |         |        | 1,137  |        
|                                                   |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |      
|                                                   |                                                                                 |                                                     |                                          | Net cash flows used in operating activities                |      |        | (5,885  | )       |       |        | (7,920  | )       |        |        | (23,323 | )
|                                                   |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |      
|Cash flows from investing activities:              |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |       |        |         |        
|                                                   | Purchase of short-term investments                                              |                                                     |                                          | (11,448                                                    | )    |        |         | (25,835 | )     |        |         | (36,677 | )     
|                                                   | Proceeds from sales of short-term investments                                   |                                                     |                                          | 15,271                                                     |      |        |         | 23,624  |       |        |         | 33,397  |       
|                                                   | Purchase of content licenses                                                    |                                                     |                                          |                                                           |      |        |         |        |       |        |         | (10,053 | )     
|                                                   | Acquisition of property and equipment                                           |                                                     |                                          | (6                                                         | )    |        |         | (191    | )     |        |         | (170    | )     
|                                                   |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |      
|                                                   |                                                                                 |                                                     |                                          | Net cash flows provided by (used in) investing activities: |      |        | 3,817   |         |       |        | (2,402  | )       |        |        | (13,503 | )
|                                                   |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |      
|Cash flows from financing activities:              |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |       |        |         |        
|                                                   | Issuance of common stock                                                        |                                                     |                                          | 8                                                          |      |        |         | 10      |       |        |         | 20      |       
|                                                   | Repurchase of common stock                                                      |                                                     |                                          |                                                           |      |        |         | (295    | )     |        |         | (5,117  | )     
|                                                   |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |      
|                                                   |                                                                                 |                                                     |                                          | Net cash flows provided by (used in) financing activities: |      |        | 8       |         |       |        | (285    | )       |        |        | (5,097  | )
|                                                   |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |      
|Net decrease in cash and cash equivalents          |                                                                                 |                                                     | (2,060                                   | )                                                          |      |        | (10,607 | )       |       |        | (41,923 | )      
|Cash and cash equivalents, beginning of the period |                                                                                 |                                                     | 9,356                                    |                                                            |      |        | 19,963  |         |       |        | 61,886  |        
|                                                   |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |      
|Cash and cash equivalents, end of the period       |                                                                                 | $                                                   | 7,296                                    |                                                            |      | $      | 9,356   |         |       | $      | 19,963  |        
|                                                   |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |      
|Supplemental disclosure of cash flow information:  |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |       |        |         |        
|                                                   | Unrealized gains (losses) on available-for-sale investments                     |                                                     | $                                        | (23                                                        | )    |        | $       | 3       |       |        | $       | (148    | )     
|                                                   |                                                                                 |                                                     |                                          |                                                            |      |        |         |         |      



31



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VIALTA, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|         |            
|-------- | -----------
|Note 1  | The Company

tm tm








|         |                                           
|-------- | ------------------------------------------
|Note 2  | Summary of Significant Accounting Policies



| |                 
| | ----------------
| | Use of Estimates





| |                            
| | ---------------------------
| | Principles of Consolidation





| |                                 
| | --------------------------------
| | Cash Equivalents and Investments



32



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##### Table of Contents



VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments





| |            
| | -----------
| | Inventories





| |                       
| | ----------------------
| | Property and Equipment



|                                        |  |  |           | 
|--------------------------------------- |  |  | --------- | 
|Computer equipment                      |  |  | 3-5 years | 
|Furniture and fixtures                  |  |  | 5 years   | 
|Software and web site development costs |  |  | 1-3 years | 





| |                  
| | -----------------
| | Long-Lived Assets





| |                            
| | ---------------------------
| | Comprehensive Income (Loss)





| |                    
| | -------------------
| | Revenue Recognition



33



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VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                                                          
| | ---------------------------------------------------------
| | Allowances for Sales Return and for Doubtful
    Accounts







|                  |  |            |     |  |           |   |            |            |  |            |             |   |  |   |    | 
|----------------- |  | ---------- | --- |  | --------- | - | ---------- | ---------- |  | ---------- | ----------- | - |  | - | -- | 
|                  |  | Balance at |     |  |           |   | Write-offs |            |  |           
|                  |  | Beginning  |     |  |           |   | Net of     |            |  | Balance at |            
|                  |  | of Year    |     |  | Additions |   |            | Recoveries |  |            | End of Year |  
|                  |  |            |     |  |           |   |            |            |  |            |             |  
|December 31, 2004 |  | $          | 63  |  |           | $ | 14         |            |  | $          |            |   |  | $ | 77 | 
|December 31, 2003 |  | $          | 30  |  |           | $ | 33         |            |  | $          |            |   |  | $ | 63 | 
|December 31, 2002 |  | $          | 665 |  |           | $ |           |            |  | $          | (635        | ) |  | $ | 30 | 



| |         
| | --------
| | Warranty



|                                               |  |              |      |   |              |   |      |  
|---------------------------------------------- |  | ------------ | ---- | - | ------------ | - | ---- | -
|                                               |  | December 31, |      |   | December 31, |  
|                                               |  | 2004         |      |   | 2003         |  
|                                               |  |              |      |   |              |  
|Beginning balance                              |  | $            | 484  |   |              | $ |     |  
|Accruals for warranties issued during the year |  |              | 564  |   |              |   | 814  |  
|Settlements made during the year               |  |              | (649 | ) |              |   | (330 | )
|                                               |  |              |      |   |              |  
|Ending balance                                 |  | $            | 399  |   |              | $ | 484  |  
|                                               |  |              |      |   |              |  

34



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VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                            
| | ---------------------------
| | Engineering and Development





| |                  
| | -----------------
| | Advertising Costs





| |             
| | ------------
| | Income Taxes





| |                             
| | ----------------------------
| | Foreign Currency Translation





| |                   
| | ------------------
| | Net Loss Per Share





| |                         
| | ------------------------
| | Stock-Based Compensation



35



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##### Table of Contents



VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                              |             |                          |        |       |      |   |        |       |   |   |         |       |  
|------------------------------------------------------------------------------------------------------------- | ----------- | ------------------------ | ------ | ----- | ---- | - | ------ | ----- | - | - | ------- | ----- | -
|                                                                                                              |             | Years Ended December 31, |       
|                                                                                                              |             |                          |       
|                                                                                                              |             | 2004                     |        |       | 2003 |   |        | 2002  |  
|                                                                                                              |             |                          |        |       |      |   |        |       |  
|Net loss, as reported                                                                                         |             | $                        | (2,389 | )     |      | $ | (4,043 | )     |   | $ | (42,579 | )    
|Deduct: Stock-based employee compensation expense determined
    under fair value based method for all awards |             |                          | (672   | )     |      |   | (1,738 | )     |   |   | (3,208  | )    
|                                                                                                              |             |                          |        |       |      |   |        |       |  
|Pro forma net loss                                                                                            |             | $                        | (3,061 | )     |      | $ | (5,781 | )     |   | $ | (45,787 | )    
|                                                                                                              |             |                          |        |       |      |   |        |       |  
|Net loss per share  basic and diluted:                                                                       |             |                          |        |       |      |   |        |       |   |   |         |      
|                                                                                                              | As reported |                          | $      | (0.03 | )    |   | $      | (0.05 | ) |   | $       | (0.51 | )
|                                                                                                              | Pro forma   |                          | $      | (0.04 | )    |   | $      | (0.07 | ) |   | $       | (0.55 | )



| |                                                 
| | ------------------------------------------------
| | Revision in Classification of Certain Securities





| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements









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VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|         |                        
|-------- | -----------------------
|Note 3  | Risks and Uncertainties











37



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VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                      
|-------- | ---------------------
|Note 4  | Marketable Securities



|                                    |  |                               |        |            |                               |            |        |  |  |            |     |   |            |   |        |            |  |   |        |  |            |   |    |  |  |   |   |  |  |   |        | 
|----------------------------------- |  | ----------------------------- | ------ | ---------- | ----------------------------- | ---------- | ------ |  |  | ---------- | --- | - | ---------- | - | ------ | ---------- |  | - | ------ |  | ---------- | - | -- |  |  | - | - |  |  | - | ------ | 
|                                    |  | 2004                          |        |            | 2003                          |           
|                                    |  |                               |        |            |                               |           
|                                    |  | Available-for-Sale Securities |        |            | Available-for-Sale Securities |           
|                                    |  |                               |        |            |                               |           
|                                    |  |                               |        | Gross      |                               | Gross      |        |  |  |            |     |   | Gross      |   |        | Gross      |  |  
|                                    |  |                               |        | Unrealized |                               | Unrealized |        |  |  |            |     |   | Unrealized |   |        | Unrealized |  |  
|                                    |  | Cost                          |        |            | Gains                         |            | Losses |  |  | Fair Value |     |   | Cost       |   |        | Gains      |  |   | Losses |  | Fair Value |  
|                                    |  |                               |        |            |                               |            |        |  |  |            |     |   |            |   |        |            |  |   |        |  |            |  
|Money market funds                  |  | $                             | 4      |            |                               | $          |       |  |  | $          |    |   |            | $ | 4      |            |  | $ | 2      |  |            | $ |   |  |  | $ |  |  |  | $ | 2      | 
|Commercial paper                    |  |                               | 2,542  |            |                               |            |       |  |  |            |    |   |            |   | 2,542  |            |  |   | 4,101  |  |            |   |   |  |  |   |  |  |  |   | 4,101  | 
|Cash                                |  |                               | 4,750  |            |                               |            |       |  |  |            |    |   |            |   | 4,750  |            |  |   | 5,253  |  |            |   |   |  |  |   |  |  |  |   | 5,253  | 
|                                    |  |                               |        |            |                               |            |        |  |  |            |     |   |            |   |        |            |  |   |        |  |            |   |    | 
|Total cash and cash equivalents     |  | $                             | 7,296  |            |                               | $          |       |  |  | $          |    |   |            | $ | 7,296  |            |  | $ | 9,356  |  |            | $ |   |  |  | $ |  |  |  | $ | 9,356  | 
|                                    |  |                               |        |            |                               |            |        |  |  |            |     |   |            |   |        |            |  |   |        |  |            |   |    | 
|Market auction preferred securities |  | $                             | 5,300  |            |                               | $          |       |  |  | $          |    |   |            | $ | 5,300  |            |  | $ | 4,400  |  |            | $ |   |  |  | $ |  |  |  | $ | 4,400  | 
|U.S. government debt securities     |  |                               | 4,741  |            |                               |            |       |  |  |            | (10 | ) |            |   | 4,731  |            |  |   | 3,470  |  |            |   | 10 |  |  |   |  |  |  |   | 3,480  | 
|Corporate debt securities           |  |                               | 1,077  |            |                               |            |       |  |  |            | (2  | ) |            |   | 1,075  |            |  |   | 7,071  |  |            |   | 1  |  |  |   |  |  |  |   | 7,072  | 
|                                    |  |                               |        |            |                               |            |        |  |  |            |     |   |            |   |        |            |  |   |        |  |            |   |    | 
|Total short-term investments        |  | $                             | 11,118 |            |                               | $          |       |  |  | $          | (12 | ) |            | $ | 11,106 |            |  | $ | 14,941 |  |            | $ | 11 |  |  | $ |  |  |  | $ | 14,952 | 
|                                    |  |                               |        |            |                               |            |        |  |  |            |     |   |            |   |        |            |  |   |        |  |            |   |    | 



|         |                 
|-------- | ----------------
|Note 5  | Content Licenses





38



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VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                              
|-------- | -----------------------------
|Note 6  | Inventories and Product Costs



|                        |                                |       |        |         |         |   |        |        |   |   |       |        |  
|----------------------- | ------------------------------ | ----- | ------ | ------- | ------- | - | ------ | ------ | - | - | ----- | ------ | -
|                        |                                | Gross |        |         | Reserve |   |        | Net    |  
|                        |                                |       |        |         |         |   |        |        |  
|As of December 31, 2002 |                                | $     | 11,866 |         |         | $ | (9,032 | )      |   | $ | 2,834 |       
|                        | Purchase of inventories        |       |        | 5,369   |         |   |        |       |   |   |       | 5,369  |  
|                        | Shipments, net                 |       |        | (7,361  | )       |   |        | 4,603  |   |   |       | (2,758 | )
|                        | Use or disposal of inventories |       |        | (542    | )       |   |        | 293    |   |   |       | (249   | )
|                        |                                |       |        |         |         |   |        |        |  
|As of December 31, 2003 |                                |       | 9,332  |         |         |   | (4,136 | )      |   |   | 5,196 |       
|                        |                                |       |        |         |         |   |        |        |  
|                        | Purchase of inventories        |       |        | 10,906  |         |   |        |       |   |   |       | 10,906 |  
|                        | Additional reserves            |       |        |        |         |   |        | (3,390 | ) |   |       | (3,390 | )
|                        | Shipments, net                 |       |        | (10,205 | )       |   |        | 2,395  |   |   |       | (7,810 | )
|                        | Use or disposal of inventories |       |        | (493    | )       |   |        | 91     |   |   |       | (402   | )
|                        |                                |       |        |         |         |   |        |        |  
|As of December 31, 2004 |                                | $     | 9,540  |         |         | $ | (5,040 | )      |   | $ | 4,500 |       
|                        |                                |       |        |         |         |   |        |        |  
|                        | Raw material                   |       | $      | 4,041   |         |   | $      | (1,615 | ) |   | $     | 2,426  |  
|                        | Finished goods                 |       |        | 5,499   |         |   |        | (3,425 | ) |   |       | 2,074  |  
|                        |                                |       |        |         |         |   |        |        |  
|                        |                                | $     | 9,540  |         |         | $ | (5,040 | )      |   | $ | 4,500 |       
|                        |                                |       |        |         |         |   |        |        |  





39



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##### Table of Contents



VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                                               
|-------- | ----------------------------------------------
|Note 7  | Other Balance Sheet Components (in thousands):

|                                       |  |              |        |   |              |   |         |  
|-------------------------------------- |  | ------------ | ------ | - | ------------ | - | ------- | -
|                                       |  | December 31, |        |   | December 31, |  
|                                       |  | 2004         |        |   | 2003         |  
|                                       |  |              |        |   |              |  
|Short-term investments                 |  |              |        |   |              |   |         |  
|US Government debt securities          |  | $            | 4,731  |   |              | $ | 3,480   |  
|Market auction preferred securities    |  |              | 5,300  |   |              |   | 4,400   |  
|Corporate debt securities              |  |              | 1,075  |   |              |   | 7,072   |  
|                                       |  |              |        |   |              |  
|                                       |  | $            | 11,106 |   |              | $ | 14,952  |  
|                                       |  |              |        |   |              |  
|Due after one year                     |  | $            | 3,385  |   |              | $ | 3,989   |  
|Due within one year                    |  |              | 7,721  |   |              |   | 10,963  |  
|                                       |  |              |        |   |              |  
|                                       |  | $            | 11,106 |   |              | $ | 14,952  |  
|                                       |  |              |        |   |              |  
|Accounts receivable, net               |  |              |        |   |              |   |         |  
|Accounts receivable                    |  | $            | 2,838  |   |              | $ | 4,004   |  
|Less: Allowance for doubtful accounts  |  |              | (77    | ) |              |   | (63     | )
|                                       |  |              |        |   |              |  
|                                       |  | $            | 2,761  |   |              | $ | 3,941   |  
|                                       |  |              |        |   |              |  
|Prepaid expenses and other             |  |              |        |   |              |   |         |  
|Prepaid insurance                      |  | $            | 207    |   |              | $ | 308     |  
|Other receivables from supplier        |  |              |       |   |              |   | 296     |  
|Other current assets                   |  |              | 144    |   |              |   | 125     |  
|                                       |  |              |        |   |              |  
|                                       |  | $            | 351    |   |              | $ | 729     |  
|                                       |  |              |        |   |              |  
|Property and equipment, net            |  |              |        |   |              |   |         |  
|Machinery and equipment                |  | $            | 1,037  |   |              | $ | 5,918   |  
|Furniture and fixtures                 |  |              | 551    |   |              |   | 561     |  
|Software and web site development cost |  |              | 259    |   |              |   | 5,323   |  
|                                       |  |              |        |   |              |  
|                                       |  |              | 1,847  |   |              |   | 11,802  |  
|Less: Accumulated depreciation         |  |              | (1,545 | ) |              |   | (11,117 | )
|                                       |  |              |        |   |              |  
|                                       |  | $            | 302    |   |              | $ | 685     |  
|                                       |  |              |        |   |              |  
|Accrued liabilities and other          |  |              |        |   |              |   |         |  
|Accrued compensation costs             |  | $            | 880    |   |              | $ | 1,241   |  
|Customer deposits                      |  |              | 12     |   |              |   | 764     |  
|Product return/warranty liability      |  |              | 399    |   |              |   | 484     |  
|Accrued charges, related party         |  |              | 127    |   |              |   | 281     |  
|Professional fees                      |  |              | 274    |   |              |   | 216     |  
|Other current liabilities              |  |              | 378    |   |              |   | 163     |  
|                                       |  |              |        |   |              |  
|                                       |  | $            | 2,070  |   |              | $ | 3,149   |  
|                                       |  |              |        |   |              |  
|Deferred profit                        |  |              |        |   |              |   |         |  
|Deferred revenue                       |  | $            | 3,086  |   |              | $ | 5,198   |  
|Deferred costs                         |  |              | (1,776 | ) |              |   | (1,201  | )
|                                       |  |              |        |   |              |  
|Deferred profit                        |  | $            | 1,310  |   |              | $ | 3,997   |  
|                                       |  |              |        |   |              |  

40



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##### Table of Contents



VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                                        
|-------- | ---------------------------------------
|Note 8  | Spin-Off and Recapitalization of Equity









|                                                                                                               |  |           |        |  |            |         |          |        |         |  |        |   |  |             |        |  |  |  |        |  
|-------------------------------------------------------------------------------------------------------------- |  | --------- | ------ |  | ---------- | ------- | -------- | ------ | ------- |  | ------ | - |  | ----------- | ------ |  |  |  | ------ | -
|                                                                                                               |  |           |        |  |            | Class A |          |        | Class B |  |        |  
|                                                                                                               |  | Preferred |        |  | Conversion |         |          | Common |         |  | Common |   |  | Outstanding |       
|Capital Stock                                                                                                  |  | Shares    |        |  | Ratio      |         |          | Stock  |         |  | Stock  |   |  | Total       |       
|                                                                                                               |  |           |        |  |            |         |          |        |         |  |        |   |  |             |       
|Series A  ESS owned                                                                                           |  |           | 40,000 |  |            |         | 1 to 1   |        |         |  | 40,000 |   |  |             |       |  |  |  | 40,000 |  
|Series B  ESS owned                                                                                           |  |           | 20,000 |  |            |         | 1 to 1   |        |         |  | 20,000 |   |  |             |       |  |  |  | 20,000 |  
|Series B  third party owned                                                                                   |  |           | 31,000 |  |            |         | 1.1 to 1 |        |         |  |       |   |  |             | 34,100 |  |  |  | 34,100 |  
|                                                                                                               |  |           |        |  |            |         |          |        |         |  |        |   |  |             |       
|                                                                                                               |  |           | 91,000 |  |            |         |          |        |         |  | 60,000 |   |  |             | 34,100 |  |  |  | 94,100 |  
|Shares returned to Vialta by ESS, reserved for issuance upon
    exercise of stapled options                   |  |           |        |  |            |         |          |        |         |  | (9,840 | ) |  |             |       |  |  |  | (9,840 | )
|Additional shares transferred by ESS as part of the spin-off
    transaction                                   |  |           |        |  |            |         |          |        |         |  | (612   | ) |  |             |       |  |  |  | (612   | )
|Issuance of common stock upon exchange of third party owned
    common stock for Class B common stock          |  |           |        |  |            |         |          |        |         |  |       |   |  |             | 589    |  |  |  | 589    |  
|Conversion of original common stock to Class A and
    Class B common stock                                    |  |           |        |  |            |         |          |        |         |  | 400    |   |  |             | 5,892  |  |  |  | 6,292  |  
|                                                                                                               |  |           |        |  |            |         |          |        |         |  |        |   |  |             |       
|Total effect of re-capitalization and spin-off transaction on
    Class A and Class B common stock outstanding |  |           |        |  |            |         |          |        |         |  | 49,948 |   |  |             | 40,581 |  |  |  | 90,529 |  
|                                                                                                               |  |           |        |  |            |         |          |        |         |  |        |   |  |             |       



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VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|         |                           
|-------- | --------------------------
|Note 9  | Related Party Transactions



|                                                  |                                          |                         |       |      |      |   |       |        |   |   |       |        |  
|------------------------------------------------- | ---------------------------------------- | ----------------------- | ----- | ---- | ---- | - | ----- | ------ | - | - | ----- | ------ | -
|                                                  |                                          | Year Ended December 31, |      
|                                                  |                                          |                         |      
|                                                  |                                          | 2004                    |       |      | 2003 |   |       | 2002   |  
|                                                  |                                          |                         |       |      |      |   |       |        |  
|Net receivables (payables) at beginning of period |                                          | $                       | (281  | )    |      | $ | (33   | )      |   | $ | 64    |       
|Charges by Vialta to ESS:                         |                                          |                         |       |      |      |   |       |        |   |   |       |       
|                                                  | Administrative & management service fees |                         |       |     |      |   |       |       |   |   |       | 223    |  
|                                                  | Other                                    |                         |       | 26   |      |   |       | 4      |   |   |       | 77     |  
|Charges by ESS to Vialta:                         |                                          |                         |       |      |      |   |       |        |   |   |       |       
|                                                  | Administrative & management service fees |                         |       | (14  | )    |   |       | (73    | ) |   |       | (201   | )
|                                                  | Purchase of products                     |                         |       | (782 | )    |   |       | (412   | ) |   |       | (1,403 | )
|                                                  | Building lease                           |                         |       | (502 | )    |   |       | (1,182 | ) |   |       | (1,852 | )
|Cash receipts from ESS                            |                                          |                         | (26   | )    |      |   | (4    | )      |   |   | (424  | )     
|Cash payments made to ESS                         |                                          |                         | 1,452 |      |      |   | 1,419 |        |   |   | 3,483 |       
|                                                  |                                          |                         |       |      |      |   |       |        |  
|Net payables at end of period                     |                                          | $                       | (127  | )    |      | $ | (281  | )      |   | $ | (33   | )     
|                                                  |                                          |                         |       |      |      |   |       |        |  



|          |                   
|--------- | ------------------
|Note 10  | Net Loss Per Share



|                                                             |  |                          |        |   |      |   |        |      |  |   |         |  
|------------------------------------------------------------ |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                             |  | Years Ended December 31, |       
|                                                             |  |                          |       
|                                                             |  | 2004                     |        |   | 2003 |   |        | 2002 | 
|                                                             |  |                          |        |   |      |   |        |      | 
|Net loss                                                     |  | $                        | (2,389 | ) |      | $ | (4,043 | )    |  | $ | (42,579 | )
|Basic and diluted weighted average common shares outstanding |  |                          | 82,930 |   |      |   | 82,285 |      |  |   | 83,578  |  
|Basic and diluted net loss per share                         |  | $                        | (0.03  | ) |      | $ | (0.05  | )    |  | $ | (0.51   | )



|                                            |                     |                          |        |        |      |  |        |        |  |  |        |        | 
|------------------------------------------- | ------------------- | ------------------------ | ------ | ------ | ---- |  | ------ | ------ |  |  | ------ | ------ | 
|                                            |                     | Years Ended December 31, |       
|                                            |                     |                          |       
|                                            |                     | 2004                     |        |        | 2003 |  |        | 2002   | 
|                                            |                     |                          |        |        |      |  |        |        | 
|Effect of potential shares of common stock: |                     |                          |        |        |      |  |        |        |  |  |        |       
|                                            | Options outstanding |                          |        | 11,609 |      |  |        | 12,149 |  |  |        | 11,255 | 
|                                            |                     |                          |        |        |      |  |        |        | 
|Total potential shares of common stock      |                     |                          | 11,609 |        |      |  | 12,149 |        |  |  | 11,255 |       
|                                            |                     |                          |        |        |      |  |        |        | 



|          |                               
|--------- | ------------------------------
|Note 11  | Common Stock and Stock Options



| |                         
| | ------------------------
| | Common Stock Repurchases



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VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                          
| | -------------------------
| | 1999 Stock Incentive Plan





| |                                 
| | --------------------------------
| | 2000 Directors Stock Option Plan







| |                                     
| | ------------------------------------
| | 2001 Non-Statutory Stock Option Plan



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VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                             |  |               |            |                     |            |          |            |          |  |  |      | 
|---------------------------- |  | ------------- | ---------- | ------------------- | ---------- | -------- | ---------- | -------- |  |  | ---- | 
|                             |  |               |            | Options Outstanding |           
|                             |  |               |            |                     |           
|                             |  |               |            |                     |            | Weighted |           
|                             |  |               |            |                     |            | Average  |           
|                             |  | Available for |            |                     | Numbers of |          |            | Exercise | 
|                             |  | Grant         |            |                     | Options    |          |            | Price    | 
|                             |  |               |            |                     |            |          |            |          | 
|Balance at December 31, 2001 |  |               | 5,789,995  |                     |            |          | 13,106,606 |          |  |  | 0.29 | 
|Granted                      |  |               | (913,957   | )                   |            |          | 913,957    |          |  |  | 0.85 | 
|Cancelled                    |  |               | 1,277,205  |                     |            |          | (1,277,205 | )        |  |  | 0.79 | 
|Exercised                    |  |               |           |                     |            |          | (1,488,670 | )        |  |  | 0.01 | 
|                             |  |               |            |                     |            |          |            |          | 
|Balance at December 31, 2002 |  |               | 6,153,243  |                     |            |          | 11,254,688 |          |  |  | 0.31 | 
|                             |  |               |            |                     |            |          |            |          | 
|Granted                      |  |               | (2,510,595 | )                   |            |          | 2,510,595  |          |  |  | 0.35 | 
|Cancelled                    |  |               | 875,842    |                     |            |          | (875,842   | )        |  |  | 0.71 | 
|Exercised                    |  |               |           |                     |            |          | (740,697   | )        |  |  | 0.02 | 
|                             |  |               |            |                     |            |          |            |          | 
|Balance at December 31, 2003 |  |               | 4,518,490  |                     |            |          | 12,148,744 |          |  |  | 0.31 | 
|                             |  |               |            |                     |            |          |            |          | 
|Granted                      |  |               | (210,009   | )                   |            |          | 210,009    |          |  |  | 0.21 | 
|Cancelled                    |  |               | 434,474    |                     |            |          | (434,474   | )        |  |  | 0.49 | 
|Exercised                    |  |               |           |                     |            |          | (314,341   | )        |  |  | 0.03 | 
|                             |  |               |            |                     |            |          |            |          | 
|Balance at December 31, 2004 |  |               | 4,742,955  |                     |            |          | 11,609,938 |          |  |  | 0.31 | 
|                             |  |               |            |                     |            |          |            |          | 



|               |  |                     |            |           |                     |  |          |          |  |   |             |          |  |          |           |  |  |   |      | 
|-------------- |  | ------------------- | ---------- | --------- | ------------------- |  | -------- | -------- |  | - | ----------- | -------- |  | -------- | --------- |  |  | - | ---- | 
|               |  | Options Outstanding |            |           | Options Exercisable | 
|               |  |                     |            |           |                     | 
|               |  |                     |            | Weighted  |                     |  |          |          | 
|               |  |                     |            | Average   |                     |  | Weighted |          |  |   |             | Weighted | 
|               |  |                     |            | Remaining |                     |  | Average  |          |  |   |             | Average  | 
|               |  | Number              |            |           | Contractual         |  |          | Exercise |  |   | Number      |          |  | Exercise |          
|Exercise Price |  | Outstanding         |            |           | Life (Years)        |  |          | Price    |  |   | Exercisable |          |  | Price    |          
|               |  |                     |            |           |                     |  |          |          |  |   |             |          |  |          |          
|$0.00          |  |                     | 4,995,312  |           |                     |  | 3.60     |          |  | $ |            |          |  |          | 4,622,488 |  |  | $ |     | 
|$0.25  $0.34  |  |                     | 3,201,750  |           |                     |  | 7.21     |          |  |   | 0.32        |          |  |          | 2,386,792 |  |  |   | 0.31 | 
|$0.36  $1.18  |  |                     | 3,250,876  |           |                     |  | 7.08     |          |  |   | 0.70        |          |  |          | 2,389,973 |  |  |   | 0.76 | 
|$1.20  $1.95  |  |                     | 100,000    |           |                     |  | 6.41     |          |  |   | 1.69        |          |  |          | 98,000    |  |  |   | 1.70 | 
|$2.01          |  |                     | 62,000     |           |                     |  | 4.07     |          |  |   | 2.01        |          |  |          | 62,000    |  |  |   | 2.01 | 
|               |  |                     |            |           |                     |  |          |          |  |   |             |          |  |          |          
|               |  |                     | 11,609,938 |           |                     |  | 5.60     |          |  | $ | 0.31        |          |  |          | 9,559,253 |  |  | $ | 0.30 | 
|               |  |                     |            |           |                     |  |          |          |  |   |             |          |  |          |          





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VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                       
| | ----------------------
| | Fair Value Disclosures



|                         |  |              |      |   |      |  |      |      |  |  |      |  
|------------------------ |  | ------------ | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                         |  | Years Ended  |     
|                         |  | December 31, |     
|                         |  |              |     
|                         |  | 2004         |      |   | 2003 |  |      | 2002 | 
|                         |  |              |      |   |      |  |      |      | 
|Expected dividend yield  |  |              | 0.00 | % |      |  | 0.00 | %    |  |  | 0.00 | %
|Risk-free interest rate  |  |              | 3.69 | % |      |  | 1.29 | %    |  |  | 3.50 | %
|Expected volatility      |  |              | 88   | % |      |  | 99   | %    |  |  | 96   | %
|Expected life (in years) |  |              | 3    |   |      |  | 4    |      |  |  | 4    |  





|          |             
|--------- | ------------
|Note 12  | Income Taxes





|                                              |                              |              |      |   |      |   |        |      |  |   |         |   | 
|--------------------------------------------- | ---------------------------- | ------------ | ---- | - | ---- | - | ------ | ---- |  | - | ------- | - | 
|                                              |                              | December 31, |     
|                                              |                              |              |     
|                                              |                              | 2004         |      |   | 2003 |   |        | 2002 | 
|                                              |                              |              |      |   |      |   |        |      | 
|Benefit from income taxes at statutory rate   |                              | $            | 836  |   |      | $ | 1,415  |      |  | $ | 14,903  |  
|State income taxes net of federal tax benefit |                              |              | 45   |   |      |   | 232    |      |  |   | 1,971   |  
|Other                                         |                              |              | (448 | ) |      |   | 636    |      |  |   | 359     |  
|Tax losses not benefited                      |                              |              | (433 | ) |      |   | (2,283 | )    |  |   | (17,233 | )
|                                              |                              |              |      |   |      |   |        |      | 
|                                              | Income tax benefit/(expense) |              | $    |  |      |   | $      |     |  |   | $       |  | 
|                                              |                              |              |      |   |      |   |        |      | 



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VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                       |                         |              |         |   |      |   |         |   | 
|-------------------------------------- | ----------------------- | ------------ | ------- | - | ---- | - | ------- | - | 
|                                       |                         | December 31, |        
|                                       |                         |              |        
|                                       |                         | 2004         |         |   | 2003 |  
|                                       |                         |              |         |   |      |  
|Net operating loss carryforwards       |                         | $            | 33,919  |   |      | $ | 31,161  |  
|Depreciation and amortization          |                         |              | 2,102   |   |      |   | 3,519   |  
|Accruals and reserves                  |                         |              | 3,140   |   |      |   | 3,806   |  
|Federal and state credits carryforward |                         |              | 1,121   |   |      |   | 1,232   |  
|Other                                  |                         |              | 3,211   |   |      |   | 3,209   |  
|                                       |                         |              |         |   |      |  
|Gross deferred tax assets              |                         |              | 43,493  |   |      |   | 42,927  |  
|Valuation allowance                    |                         |              | (43,493 | ) |      |   | (42,927 | )
|                                       |                         |              |         |   |      |  
|                                       | Net deferred tax assets |              | $       |  |      |   | $       |  | 
|                                       |                         |              |         |   |      |  





|          |                       
|--------- | ----------------------
|Note 13  | Employee Benefit Plans





|          |                                   
|--------- | ----------------------------------
|Note 14  | Segment and Geographic Information







|          |                              
|--------- | -----------------------------
|Note 15  | Commitments and Contingencies



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VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|          |                  
|--------- | -----------------
|Note 16  | Subsequent Events






Selected Quarterly Operation Results (unaudited):




|                                                                                |                         |                            |        |       |          |   |        |               |   |   |              |        |   |   |        |      |  
|------------------------------------------------------------------------------- | ----------------------- | -------------------------- | ------ | ----- | -------- | - | ------ | ------------- | - | - | ------------ | ------ | - | - | ------ | ---- | -
|                                                                                |                         | For the Three Months Ended |       
|                                                                                |                         |                            |       
|                                                                                |                         | March 31,                  |        |       | June 30, |   |        | September 30, |   |   | December 31, |       
|                                                                                |                         | 2004                       |        |       | 2004     |   |        | 2004          |   |   | 2004         |       
|                                                                                |                         |                            |        |       |          |   |        |               |   |   |              |       
|Revenue                                                                         |                         | $                          | 4,974  |       |          | $ | 2,782  |               |   | $ | 1,365        |        |   | $ | 3,626  |     
|Cost of goods sold                                                              |                         |                            | 1,396  |       |          |   | 997    |               |   |   | 3,718        |        |   |   | 1,911  |     
|                                                                                |                         |                            |        |       |          |   |        |               |   |   |              |       
|Gross profit (loss)                                                             |                         |                            | 3,578  |       |          |   | 1,785  |               |   |   | (2,353       | )1     |   |   | 1,715  |     
|                                                                                |                         |                            |        |       |          |   |        |               |   |   |              |       
|Operating expenses:                                                             |                         |                            |        |       |          |   |        |               |   |   |              |        |   |   |        |     
|Engineering and development                                                     |                         |                            | 336    |       |          |   | 266    |               |   |   | 321          |        |   |   | 324    |     
|Sales and marketing                                                             |                         |                            | 605    |       |          |   | 511    |               |   |   | 284          |        |   |   | 611    |     
|General and administrative                                                      |                         |                            | 1,360  |       |          |   | 1,333  |               |   |   | 845          |        |   |   | 1,035  |     
|                                                                                |                         |                            |        |       |          |   |        |               |   |   |              |       
|Total operating expenses                                                        |                         |                            | 2,301  |       |          |   | 2,110  |               |   |   | 1,450        |        |   |   | 1,970  |     
|                                                                                |                         |                            |        |       |          |   |        |               |   |   |              |       
|                                                                                | Operating income (loss) |                            |        | 1,277 |          |   |        | (325          | ) |   |              | (3,803 | ) |   |        | (255 | )
|Interest income, net                                                            |                         |                            | 209    |       |          |   | 160    |               |   |   | 171          |        |   |   | 177    |     
|                                                                                |                         |                            |        |       |          |   |        |               |   |   |              |       
|Net income (loss)                                                               |                         | $                          | 1,486  |       |          | $ | (165   | )             |   | $ | (3,632       | )      |   | $ | (78    | )   
|                                                                                |                         |                            |        |       |          |   |        |               |   |   |              |       
|Net income (loss) per share attributable to common
    shares  basic & diluted |                         | $                          | 0.02   |       |          | $ | (0.00  | )             |   | $ | (0.04        | )      |   | $ | (0.00  | )   
|                                                                                |                         |                            |        |       |          |   |        |               |   |   |              |       
|Weighted average common shares outstanding                                      |                         |                            | 82,803 |       |          |   | 82,907 |               |   |   | 82,985       |        |   |   | 83,025 |     
|                                                                                |                         |                            |        |       |          |   |        |               |   |   |              |       

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VIALTA, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                                                                |                |                            |        |      |          |   |        |               |   |   |              |        |   |   |        |        |  
|------------------------------------------------------------------------------- | -------------- | -------------------------- | ------ | ---- | -------- | - | ------ | ------------- | - | - | ------------ | ------ | - | - | ------ | ------ | -
|                                                                                |                | For the Three Months Ended |       
|                                                                                |                |                            |       
|                                                                                |                | March 31,                  |        |      | June 30, |   |        | September 30, |   |   | December 31, |       
|                                                                                |                | 2003                       |        |      | 2003     |   |        | 2003          |   |   | 2003         |       
|                                                                                |                |                            |        |      |          |   |        |               |   |   |              |       
|Revenue                                                                         |                | $                          | 3,843  |      |          | $ | 2,520  |               |   | $ | 1,284        |        |   | $ | 2,684  |       
|Cost of goods sold                                                              |                |                            | 863    |      |          |   | 570    |               |   |   | 517          |        |   |   | 991    |       
|                                                                                |                |                            |        |      |          |   |        |               |   |   |              |       
|Gross profit                                                                    |                |                            | 2,980  |      |          |   | 1,950  |               |   |   | 767          |        |   |   | 1,693  |       
|                                                                                |                |                            |        |      |          |   |        |               |   |   |              |       
|Operating expenses:                                                             |                |                            |        |      |          |   |        |               |   |   |              |        |   |   |        |       
|Engineering and development                                                     |                |                            | 968    |      |          |   | 621    |               |   |   | 480          |        |   |   | 488    |       
|Sales and marketing                                                             |                |                            | 442    |      |          |   | 641    |               |   |   | 547          |        |   |   | 2,797  |       
|General and administrative                                                      |                |                            | 1,730  |      |          |   | 1,974  |               |   |   | 1,091        |        |   |   | 958    |       
|                                                                                |                |                            |        |      |          |   |        |               |   |   |              |       
|Total operating expenses                                                        |                |                            | 3,140  |      |          |   | 3,236  |               |   |   | 2,118        |        |   |   | 4,243  |       
|                                                                                |                |                            |        |      |          |   |        |               |   |   |              |       
|                                                                                | Operating loss |                            |        | (160 | )        |   |        | (1,286        | ) |   |              | (1,351 | ) |   |        | (2,550 | )
|Interest income, net                                                            |                |                            | 188    |      |          |   | 178    |               |   |   | 168          |        |   |   | 199    |       
|Gain on investment                                                              |                |                            |       |      |          |   |       |               |   |   |             |        |   |   | 571    |       
|                                                                                |                |                            |        |      |          |   |        |               |   |   |              |       
|Net income (loss)                                                               |                | $                          | 28     |      |          | $ | (1,108 | )             |   | $ | (1,183       | )      |   | $ | (1,780 | )     
|                                                                                |                |                            |        |      |          |   |        |               |   |   |              |       
|Net income (loss) per share attributable to common
    shares  basic & diluted |                | $                          | 0.0    |      |          | $ | (0.01  | )             |   | $ | (0.01        | )      |   | $ | (0.02  | )     
|                                                                                |                |                            |        |      |          |   |        |               |   |   |              |       
|Weighted average common shares outstanding                                      |                |                            | 82,238 |      |          |   | 82,151 |               |   |   | 82,227       |        |   |   | 82,523 |       
|                                                                                |                |                            |        |      |          |   |        |               |   |   |              |       



|  |                                                                                                                                                                          
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 | The gross loss for the three months ended September 30,
    2004 includes additional inventory reserves of $3.4 million
    on raw materials and finished good inventory.

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Item 9:Changes In and
Disagreements with Accountants on Accounting and Financial
Disclosure







Item 9A:Controls and
Procedures






49



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##### Table of Contents






PART III







Item 10:Directors and
Executive Officers of the Registrant







Item 11:Executive
Compensation









|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12: | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters





|                                                           |  |                      |            |  |                      |   |                         |                           |  |  |           | 
|---------------------------------------------------------- |  | -------------------- | ---------- |  | -------------------- | - | ----------------------- | ------------------------- |  |  | --------- | 
|                                                           |  | Number of            |            |  |                      |   | Number of Securities    |                          
|                                                           |  | Securities to be     |            |  |                      |   | Remaining Available for |                          
|                                                           |  | Issued upon Exercise |            |  | Weighted Average     |   |                         | Future Issuance under     | 
|                                                           |  | of Outstanding       |            |  | Exercise Price of    |   |                         | Equity Compensation Plans | 
|                                                           |  | Options, Warrants    |            |  | Outstanding Options, |   |                         | (Excluding Securities     | 
|                                                           |  | and Rights(1)        |            |  | Warrants and Rights  |   |                         | Reflected in Column (a))  | 
|                                                           |  | (a)                  |            |  | (b)                  |   |                         | (c)                       | 
|                                                           |  |                      |            |  |                      |   |                         |                           | 
|Equity compensation plans approved by security holders     |  |                      | 11,609,938 |  |                      | $ | 0.31                    |                           |  |  | 4,742,955 | 
|Equity compensation plans not approved by security holders |  |                      |           |  |                      |   |                        |                           |  |  |          | 
|                                                           |  |                      |            |  |                      |   |                         |                           | 
|                                                           |  |                      | 11,609,938 |  |                      | $ | 0.31                    |                           |  |  | 4,742,955 | 
|                                                           |  |                      |            |  |                      |   |                         |                           | 






|    |                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes only options outstanding under our stock option plans,
    as no stock warrants or rights were outstanding as of
    December 31, 2004.




Item 13:Certain
Relationships and Related Transactions







Item 14:Principle
Accountant Fees and Services




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PART IV







|         |                                        
|-------- | ---------------------------------------
|Item 15: | Exhibits, Financial Statement Schedules

Financial Statements




Financial Statement Schedules




Exhibits




Reports on Form 8-K






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SIGNATURES






| |             
| | ------------
| | Vialta, Inc.



| |     |                  
| | --- | -----------------
| | By: | /s/ Didier Pietri

| |                        
| | -----------------------
| |                        
| | Didier Pietri          
| | Chief Executive Officer





|                                                                 |  |                                                           |  |                |  | 
|---------------------------------------------------------------- |  | --------------------------------------------------------- |  | -------------- |  | 
|Signature                                                        |  | Title                                                     |  | Date          
|                                                                 |  |                                                           |  |               
|                                                                
|/s/ Didier PietriDidier
    Pietri                               |  | Chief Executive Officer
    (principal executive officer) |  | March 31, 2005
|                                                                
|/s/ William M.
    ScharninghausenWilliam
    M. Scharninghausen |  | Chief Financial Officer
    (principal financial officer) |  | March 31, 2005
|                                                                
|/s/ Fred S.L. ChanFred
    S.L. Chan                             |  | Chairman of the Board                                     |  | March 31, 2005
|                                                                
|/s/ George M. CainGeorge
    M. Cain                             |  | Director                                                  |  | March 31, 2005
|                                                                
|/s/ Herbert ChangHerbert
    Chang                               |  | Director                                                  |  | March 31, 2005
|                                                                
|/s/ Michael S. DubesterMichael
    S. Dubester                   |  | Director                                                  |  | March 31, 2005
|                                                                
|/s/ Matthew K. FongMatthew
    K. Fong                           |  | Director                                                  |  | March 31, 2005

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##### Table of Contents






EXHIBIT INDEX


|        |    |                        |  |                                                                                                                                                                                                                            
|------- | -- | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|        | 2  | .1                     |  | Form of Master Distribution Agreement between the Registrant and
    ESS Technology, Inc. (Exhibit No. 2.1 to Form 10 File No.
    000-32809)                                                                              
|        | 2  | .2                     |  | Form of Master Technology Ownership and License Agreement
    between the Registrant and ESS Technology, Inc. (Exhibit
    No. 2.2 to Form 10 File No. 000-32809)                                                          
|       
|        | 2  | .3                     |  | Form of Employee Matters Agreement between the Registrant and
    ESS Technology, Inc. (Exhibit No. 2.3 to Form 10 File No.
    000-32809)                                                                                 
|       
|        | 2  | .4                     |  | Form of Tax Sharing and Indemnity Agreement between the
    Registrant and ESS Technology, Inc. (Exhibit No. 2.4 to
    Form 10 File No. 000-32809)                                                                        
|       
|        | 2  | .5                     |  | Form of Real Estate Matters Agreement between the Registrant and
    ESS Technology, Inc. (Exhibit No. 2.5 to Form 10 File No.
    000-32809)                                                                              
|       
|        | 2  | .6                     |  | Form of Master Confidential Disclosure Agreement between the
    Registrant and ESS Technology, Inc. (Exhibit No. 2.6 to
    Form 10 File No. 000-32809)                                                                   
|       
|        | 2  | .7                     |  | Form of Master Transitional Services Agreement between the
    Registrant and ESS Technology, Inc. (Exhibit No. 2.7 to
    Form 10 File No. 000-32809)                                                                     
|       
|        | 3  | .1                     |  | Amended and Restated Certificate of Incorporation of the
    Registrant (Exhibit No. 4.1 to Form S-8 File
    No. 333-65752)                                                                                               
|       
|        | 3  | .2                     |  | Amended and Restated Bylaws of the Registrant (Exhibit
    No. 4.2 to Form S-8 File No. 333-65752)                                                                                                                         
|       
|        | 4  | .1                     |  | Form of Class A Common Stock Certificate of the Registrant
    (Exhibit No. 4.1 to Form 10 File No. 000-32809)                                                                                                             
|       
|        | 4  | .2                     |  | Form of Class B Common Stock Certificate of the Registrant
    (Exhibit No. 4.2 to Form 10 File No. 000-32809)                                                                                                             
|       
|        | 10 | .1                     |  | 1999 Stock Incentive Plan (Exhibit No. 10.1 to Form 10 File
    No. 000-32809)*                                                                                                                                            
|       
|        | 10 | .2                     |  | 2000 Directors Stock Option Plan, as amended and restated
    (Exhibit No. 10.2 to Form 10 File No. 000-32809)*                                                                                                            
|       
|        | 10 | .3                     |  | 2001 Nonstatutory Stock Option Plan, as amended on
    August 1, 2001 (Exhibit No. 10.3 to Form 10 File No.
    000-32809)*                                                                                                
|       
|        | 10 | .4                     |  | 2001 Employee Stock Purchase Plan (Exhibit No. 10.4 to Form
    10 File No. 000-32809)*                                                                                                                                    
|       
|        | 10 | .5                     |  | Lease Agreement between the Registrant and ESS Technology, Inc.
    for the premises located at 48461 Fremont Boulevard, Fremont,
    California (Exhibit No. 10.5 to Form 10 File No. 000-32809)                          
|       
|        | 10 | .6                     |  | Purchase Agreement between the Registrant and ESS Technology,
    Inc. (Exhibit No. 10.6 to Form 10 File No. 000-32809)                                                                                                    
|       
|        | 10 | .7                     |  | DVD Manufacturing License Agreement between the Registrant and
    Macrovision Corporation (Exhibit No. 10.7 to Form 10 File
    No. 000-32809)                                                                            
|       
|        | 10 | .8                     |  | Offer Letter Agreement between the Registrant and Charles Root
    (Exhibit No. 10.8 to Form 10 File No. 000-32809)*                                                                                                       
|       
|        | 10 | .9                     |  | Lease Agreement between the Registrant and 235 Investments
    Limited for the premises located at 235 Yorkland Boulevard,
    Ontario, Canada (Exhibit No. 10.9 to Form 10 File No.
    000-32809)                        
|       
|        | 10 | .10                    |  | Lease Agreement between Vialta.com Hong Kong Company Limited and
    Upcentre Investments Limited for the premises located at 238
    Nathan Road, Kowloon, Hong Kong (Exhibit No. 10.10 to Form
    10 File No. 000-32809)
|       
|        | 10 | .11                    |  | Trademark License Agreement between the Registrant and Digital
    Theater Systems, Inc. (Exhibit No. 10.11 to Form 10 File
    No. 000-32809)                                                                             
|       
|        | 10 | .12                    |  | Software License Agreement between the Registrant and EnReach
    Technology, Inc. (Exhibit No. 10.12 to Form 10 File No.
    000-32809)                                                                                   
|       
|        | 10 | .13                    |  | Offer Letter Agreement between the Registrant and Didier Pietri
    (Exhibit No. 10.13 to Form 10 File No. 000-32809)*                                                                                                     

53



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##### Table of Contents



|        |    |     |                        |                                                                                                                                                                                       
|------- | -- | --- | ---------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |                       
|Number  |    |     | Description of Exhibit
|        |    |     |                       
|       
|        | 10 | .14 |                        | Offer Letter Agreement between the Registrant and Steve Charng
    (Exhibit No. 10.5 to Form 10 File No. 000-32809)                                                                   
|       
|        | 10 | .15 |                        | Offer Letter Agreement between the Registrant and Michael Wang
    (Exhibit No. 10.9 to Form 10 File No. 000-32809)                                                                   
|       
|        | 10 | .16 |                        | Agreement and Plan of Reorganization, dated March 28, 2005,
    by and between Victory Acquisition Corp. and Vialta, Inc.
    (Exhibit No. 10.1 to Form 8-K filed March 31,
    2005).
|       
|        | 21 | .1  |                        | Subsidiaries of the Registrant (Exhibit No. 21.1 to Form 10
    File No. 000-32809)                                                                                                   
|       
|        | 23 | .1  |                        | Consent of PricewaterhouseCoopers LLP (filed herewith)                                                                                                                                
|       
|        | 31 | .1  |                        | Certification pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002                                                                                                           
|       
|        | 31 | .2  |                        | Certification pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002                                                                                                           
|       
|        | 32 | .1  |                        | Certification of Chief Executive Officer Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                
|        | 32 | .2  |                        | Certification of Chief Financial Officer Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                






|  |                                                      
|- | -----------------------------------------------------
|* | Indicates a management contract or compensatory plan.

54