UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,
 D.C. 20549  FORM 10-K  (Mark One) |X|

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2003OR|_|

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT OF 1934COMMISSION FILE NUMBER: 000-31081TRIPATH TECHNOLOGY INC.(Exact name of registrant as specified in its charter)Delaware

77-0407364(State or other jurisdiction ofincorporation or
 organization)

(I.R.S. EmployerIdentification Number) 2560 Orchard ParkwaySan Jose, CA 95131(408)
 750-3000(Address, including zip code, of registrants principal executive officesand telephone
 number, including area code)  Securities registered pursuant to Section 12(b) of
 the Act: None Securities registered pursuant to Section 12(g) of
 the Act:Common Stock, $0.001 par value per share(Title of Class) Indicate by check mark whether the Registrant (1) has
 filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
 1934 during the preceding 12 months (or for such shorter period that the Registrant was required
 to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes
 |X|   No |_| Indicate by check mark if disclosure of delinquent
 filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
 the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference
 in Part III of this Form 10-K or any amendment to this Form 10-K. |_| Indicate by check mark whether the Registrant is an
 accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes |_|   No |X| State the aggregate market value of the voting and
 non-voting common equity held by non-affiliates computed by reference to the price at which the common
 equity was last sold, or the average bid and asked price of such common equity, as of the last business
 day of the Registrants most recently completed second fiscal quarter:  $43,393,098. There were 47,199,688
 shares of Tripath Technology Inc. common stock outstanding on February 23, 2004. DOCUMENTS INCORPORATED BY REFERENCE Certain Portions of the Registrants Proxy Statement
 for its 2004 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission
 pursuant to Regulation  14A not later than April 29, 2004, are incorporated herein by reference
 to Part III of this Annual Report on Form 10-K.   TRIPATH TECHNOLOGY INC.INDEX TO ANNUAL REPORT
 ON FORM 10-KFOR THE YEAR ENDED DECEMBER 31, 2003 PagePART IITEM 1.
Business
1ITEM 2.
Properties
8ITEM 3.
Legal Proceedings
8ITEM 4.
Submission of Matters to a Vote of Security Holders
8PART IIITEM 5.
Market for Registrants Common Equity and Related Stockholder Matters
9ITEM 6.
Selected Financial Data
10ITEM 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations
11ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risks
25ITEM 8.
Financial Statements and Supplementary Data
26ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
46ITEM 9A.
Controls and Procedures.
46PART IIIITEM 10.
Directors and Officers of the Registrant
47ITEM 11.
Executive Compensation
47ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
47ITEM 13.
Certain Relationships and Related Transactions
47ITEM 14.
Principal Accounting Fees and Services
47PART IVITEM 15.
Exhibits, Financial Statements, Schedules and Reports on Form 8-K
48SIGNATURES
49EXHIBIT INDEX
50   PART I The
 following discussion and analysis contains forward-looking statements.  These statements are based
 on our current expectations, assumptions, estimates and projections about our business and our industry,
 and involve known and unknown risks, uncertainties and other factors that may cause our or our industrys
 results, levels of activity, performance or achievements to be materially different from any future
 results, levels of activity, performance or achievements expressed or implied in, or contemplated by,
 the forward-looking statements.  Words such as believe, anticipate, expect, intend, plan,
 will, may, should, estimate, predict, potential, continue or the negative of such terms
 or other similar expressions, identify forward-looking statements.  In addition, any statements
 that refer to expectations, projections or other characterizations of future events or circumstances
 are forward-looking statements. Our actual results and the timing of events could differ materially
 from those anticipated in such forward-looking statements as a result of several factors, including,
 but not limited to, those factors discussed under the caption Risk Factors and elsewhere in this document. 
 These and many other factors could affect our future financial and operating results.  Tripath
 undertakes no obligation to update any forward-looking statement to reflect events after the date of
 this report. ITEM 1.
BUSINESS We
 are a fabless semiconductor company that focuses on providing highly efficient power amplification to
 the digital media consumer electronics and communications markets. We design and sell digital amplifiers
 based on our proprietary technology, called Digital Power Processing®, which enables us to provide significant
 performance, power efficiency, size and weight advantages over traditional amplifier technology. 
 Our digital amplifiers are branded Class-T® and combine a switching mode approach that generates high
 fidelity sound with low distortion and considerably lower heat dissipation than Class-AB amplifiers.
 We target and provide digital amplifiers for three primary markets where signal fidelity and power efficiency
 are important: Consumer Electronics, Digital Subscriber Line (DSL) and Wireless.  Within the
 Consumer Electronics market, we target multiple market segments, which include consumer audio applications
 such as 5.1  7.1 channel home theater systems, flat panel televisions, personal computers, mini/micro
 component stereo systems, cable set-top boxes and gaming consoles, automotive audio applications such
 as in-dash head units and trunk amplifiers and professional audio applications such as audio distribution
 systems and pro-audio amplifiers. We are currently offering digital amplifiers in the form of line drivers
 for use in DSL equipment.  We also have a research and development program aimed at developing
 amplifiers for digital wireless handsets and base stations to increase talk time and battery life and
 improve overall power efficiency. We
 were incorporated in California in July 1995, and reincorporated in Delaware in July 2000.
 We became a public reporting company in August 2000, and our stock is currently listed on the National
 NASDAQ market under the stock symbol TRPH. Our principal executive office is located at 2560 Orchard
 Parkway, San Jose, CA 95131.  Our telephone number is (408) 750-3000, and our Internet home page
 is located at www.tripath.com; however, the information in, or that can be accessed through, our home
 page is not part of this report. Our annual reports on Form 10-K, quarterly reports on Form 10-Q,
 current reports on Form 8-K, and amendments to such reports are available, free of charge, on our
 Internet home page as soon as reasonably practicable after we electronically file such material with,
 or furnish it to, the Securities and Exchange Commission, or SEC. Markets and Products We
 develop and supply digital amplifiers for three primary markets: Consumer Electronics, DSL and Wireless. 
 Within the Consumer Electronics market, we target the consumer audio and automotive audio market segments. 
 Within the DSL market, we have recently begun offering single and dual channel line driver products. 
 Within the Wireless market, we have a research and development program aimed at developing a family
 of amplifier products for use in wireless handsets, also known as Radio Frequency (RF) Power Amplifiers. Consumer Electronics - Consumer Audio Amplifiers We
 provide a broad range of digital audio amplifiers based on our Digital Power Processing (DPP®) technology.
 Manufacturers are incorporating our digital audio amplifiers in a diverse set of applications, including
 5.1  7.1 channel home theater systems, flat panel televisions, professional amplifiers, DVD and A/V
 receivers, personal computers, mini/micro component stereo systems, cable set-top boxes and gaming consoles. The
 key factors that differentiate our products are the broad range of power levels, the input format to
 the amplifier and the level of integration included in our products. We augment our products with applications
 support that includes reference designs, evaluation kits and consulting services. All of our products
 share similar characteristics in terms of high efficiencies and excellent sound quality as measured
 by total harmonic distortion (THD). 1  Because
 of the broad range of product offering we have in our digital amplifiers, we have created specific products
 to appeal to high-powered applications such as DVD and A/V receivers as well as pro-audio amplifiers. 
 Our proprietary technology helps realize clear sound, almost half the energy consumption of conventional
 professional amplifiers and natural heat dissipation without a cooling fan. We
 offer three categories of digital audio amplifier products, fully integrated audio amplifiers, amplifier
 drivers and chipsets. In our integrated products, the actual power output transistors are included in
 the single integrated circuit package. These products currently support power levels of up to two channels
 of 100 watts per channel. At levels greater than 100 watts per channel, we offer driver products
 that include our proprietary DPP® signal processing integrated circuit and a high voltage integrated
 circuit that drives a range of external power transistors. The use of external power transistors is
 required at these power levels due to the heat dissipation limitations of a single integrated circuit
 package. We offer driver products with power capability that ranges from 100 watts to 2000 watts
 and chipset products with power capability that ranges from 50 watts to 350 watts. We use a four ohm
 load for reference when we specify power. Our
 products support analog inputs to be compatible with existing analog amplifier systems. In some applications,
 a digital input to the amplifier is preferred and we are responding to the market needs by developing
 several new audio amplifiers with digital input. The first of those devices, the TCD6000 was announced
 in 2003 and is currently in the sampling phase of its product life cycle. The
 digital input format that we plan to support across the product line in the table below is referred
 to as I2S. In this interface, the digital content is encoded in a format that is specified
 by the I2S standard. In
 September 2003, we announced the introduction of a new breakthrough low cost power stage architecture
 platform, based on CMOS processes, which we refer to as Godzilla that can be used across the broad
 spectrum of audio amplifiers from 10 Watt per channel PC stereo to greater than 150 Watt per channel
 audio video receivers. We believe that this new architecture will enable us to reduce our manufacturing
 costs in the future and help us compete more effectively with traditional analog amplifiers and other
 digital solutions. In
 January 2004, we announced our first four amplifier devices based on the new Godzilla, CMOS process
 and we are currently sampling these devices with various customers. These four devices can deliver a
 wide range of power from 50 up to 200 Watts per channel. Volume production on all four devices is expected
 to begin during the third quarter of 2004. Consumer Electronics - Automotive Audio Amplifiers Because
 of their ability to decrease the size and weight of audio systems and lower heat dissipation, our products
 can be used in applications in automotive audio systems where these issues are critical.  Our proprietary
 technology allows products to generate high fidelity sound with significantly lower heat dissipation
 making it ideal for compact design applications. We currently offer products specifically targeted for
 automotive applications such as in-dash head units and trunk amplifiers. We
 currently sell two products that are specifically targeted at the automotive market: the TA 2041, a
 4 channel x 70 Watt digital audio amplifier, and the recently announced TAA4100, the Worlds first 4
 channel x 100 Watt digital audio amplifier in a single package. The
 table below summarizes our consumer electronics (consumer audio and automotive) products that we are
 currently selling. Total HarmonicOutput

OperatingProduct

(watts/channel)

Efficiency

Distortion(1)

ApplicationsIntegrated AmplifiersTA2024B

15W

88%

0.045% THD


DVD and A/V Receivers
Flat Panel TVs (Liquid Crystal Display (LCD) and
 Plasma)
Personal Computers
Multimedia Speaker Systems
Gaming ConsolesTA2020

20W

88%

0.03% THD


DVD and A/V Receivers
Flat Panel TVs (LCD and Plasma)
Personal Computers
Multimedia Speaker Systems
Gaming Consoles 2   TA2021B

20W

88%

0.03% THD


DVD and A/V Receivers
Flat Panel TVs (LCD and Plasma)
Personal Computers
Multimedia Speaker Systems
Gaming ConsolesTA2041A

70W

85%

0.02% THD


Automotive Head Units
5.1 Channel Home Theater Systems
DVD and A/V Receivers
Multimedia Speaker SystemsTA2022

100W

92%

0.03% THD


5.1 Channel Home Theater Systems
DVD and A/V Receivers
Mini / Micro Component Systems
Automotive Audio
Cable Set-Top BoxesAmplifier DriversTA3020

300W

95%

0.03% THD


DVD and A/V Receivers
Pro-Audio Amplifiers
Automotive Audio
Subwoofer AmplifiersTA0105A

500W

85%

0.10% THD


Pro-Audio Amplifiers
Automotive Audio
Subwoofer Amplifiers
High Power Stereo AmplifiersChipsetsTK2019

20W

92%

0.03%THD


5.1 Channel Home Theater Systems
DVD and A/V Receivers
Mini / Micro Component Systems
Automotive Audio
Cable Set-Top BoxesTK2050

50W

92%

0.01% THD


5.1 Channel Home Theater Systems
DVD and A/V Receivers
Mini / Micro Component Systems
Automotive Audio
Cable Set-Top BoxesTK2051

50W

92%

0.01% THD


5.1 Channel Home Theater Systems
DVD and A/V Receivers
Mini / Micro Component Systems
Automotive Audio
Cable Set-Top BoxesTK2070

70W

92%

0.05%THD


5.1 Channel Home Theater Systems
DVD and A/V Receivers
Mini / Micro Component Systems
Automotive Audio
Cable Set-Top BoxesTK2150

200W

93%

0.02% THD


5.1 Channel Home Theater Systems
DVD and A/V Receivers
Automotive Audio
Subwoofer AmplifiersTK2350

300W

95%

0.03% THD


Pro-Audio Amplifiers
DVD and A/V Receivers
Automotive Audio
Subwoofer Amplifiers  (1)

Total Harmonic Distortion, or THD, measures the change
 in a signal as it is amplified, expressed as a percentage of a pure input signal.  The more accurate
 an amplifier is, the lower its THD will be. 3  DSL Line Driver Amplifiers Our
 DPP® technology allows us to produce highly linear amplifiers for line cards that use power more efficiently
 than traditional amplifiers with conventional architectures. DSL amplifiers are often called line drivers.
 Because our line drivers are more power efficient, they eliminate the heat sink and other electronic
 components associated with traditional line drivers. As a result, our line drivers can be smaller than
 traditional line drivers. In addition, their efficiency makes them a more attractive solution for DSL
 service providers because the power budgeted for the equipment in such service providers central offices
 is fixed. Our
 initial product is a line driver for use in the Asymmetric DSL (ADSL) market. ADSL, a popular form
 of DSL technology, is designed to allow greater data rates from the central office to the subscriber
 than from the subscriber to the central office. This means that typical users will be able to download
 data faster than they can send data, which is suitable for most residential users. In February 2001,
 we announced our entry into the ADSL chipset market with a new family of central office ADSL line drivers.
 These new products offer full reach and data rate capability and can reduce heat dissipation substantially
 versus conventional line drivers. Our line driver configurations feature: 
power consumption of approximately 680mW per channel
support for full rate and G. LITE data rates
low distortion specifications
low power mode
digitally programmable gain
small footprint package Our
 DSL line drivers offer DSL service providers the following benefits: 
Higher Port Density.  Our line drivers
 enable our customers to increase the number of subscriber lines given fixed power and space constraints.
 This allows DSL service providers to achieve higher port density.
Increased Signal Reach and Connection Speed.The
 distance a signal can travel with an effective usefulness is known as signal reach, and the speed at
 which data can be transferred is known as connection speed. Intermodulation Distortion (IMD), is a
 measure of linearity and indicates how well an amplifier can reduce the impact of undesirable frequencies
 which are produced in the transmission process. Our line drivers, due to their linearity, can more accurately
 reproduce the signal inputs, allowing for improvements in output signal reach and connection speed to
 the consumer. The
 following table provides additional information concerning the specifications of our current and future
 generation of DSL line drivers. Product

Power Consumption(milliwatts/channel)

ApplicationTLD4012 Single channel family

680mW

Central office ADSL line driverTLD4021 Dual channel family

500mW

Central office ADSL line driver We started to ship our TLD4012 DSL line driver in volume
 during the first half of 2003 and we are in the sampling phase of our new dual channel line driver. RF/Wireless Power Amplifiers Our
 expertise in the development of highly linear and energy efficient circuits has allowed us to develop
 an amplifier architecture which we believe is well-suited for use in digital handsets, base stations
 and other wireless products. The initial targeted market is for cellular phones that utilize a digital
 transmission method known as Code Division Multiple Access (CDMA). Linearity is important to this
 technology because CDMA uses a complex signal transmission method that requires more accurate reception
 and reproduction. Additionally, we believe our DPP® technology could provide significant improvements
 to the design of cellular phones in terms of talk-time, data connection time and battery size, which
 are all dependent on the efficiency of the RF Power Amplifier. We are currently working with two companies
 in this area who are in the early stages of evaluating our technology. 4  Core Technology We
 believe that one of our key competitive advantages is our broad base of patented core technologies,
 which are comprised of innovative adaptive and predictive signal processing techniques. These processing
 techniques are derived from algorithms used in communications theories. These unique techniques are
 derived from a confluence of four primary disciplines in mixed signal circuit design, digital signal
 processing (DSP), algorithm development, power semiconductor circuit design and packaging design.
 We intend to continue to build and improve on these four primary technology foundations as we expand
 our product reach into other markets and industries. We
 have implemented unique processing algorithms in a silicon-based processor which we call a Mixed Signal
 Processor. The execution speed of these complex algorithms by our Mixed Signal Processor allows us to
 achieve the required linearity and efficiency in our products. The Mixed Signal Processor functionality
 is a vital component in the architecture of the products we design. Our
 core technologies are characterized by four key areas of competency highlighted below: Mixed Signal Circuit Design Expertise We
 are an innovator in advanced mixed signal circuit design including audio amplifiers, DSL line driver
 amplifiers and RF Power Amplifiers. We have developed significant intellectual property in our mixed
 signal circuit designs, which are applicable across multiple market segments. As such, we have demonstrated
 significant improvements in power efficiency and linearity for audio amplifiers and central office line
 driver integrated circuits. We are also applying this same core technology to the development of highly
 linear and highly efficient RF Power Amplifier integrated circuits for incorporation in cellular
 telephones. DSP Algorithm Expertise We
 have expertise in developing system applications using our DPPâ technology.
 This includes industry standard designs as well as customer specific systems in the DSL and Consumer
 Electronics markets. The high efficiency, high quality power processing products that we design require
 a comprehensive understanding of new and innovative DSP techniques at the system as well as the device
 level. We will continue to research and improve our DPPâ technology. Power Semiconductor Circuit Design Expertise We
 have developed significant expertise in designing power circuits in semiconductors. This requires a
 specialized understanding of complex issues, such as thermal effects and reliability related to the
 control of power. Packaging Design Expertise We
 have developed significant competency and knowledge regarding packaging requirements for various applications
 in different markets. Our customers have specific requirements in terms of form factor and package type
 for their end-use products. 5  Research and Development Our
 research and development efforts are focused on developing products based on our DPP® technology for
 high growth markets, such as the consumer audio, DSL and wireless communications markets. As of December
 31, 2003, our research and development staff consisted of 36 employees, many of whom have experience
 across multiple engineering disciplines. In 2003, 2002 and 2001, our research and development expenses
 were approximately $6.9 million, $11.7 million and $19.9 million, respectively. Manufacturing Wafer Fabrication We
 are able to use independent silicon foundries to manufacture our integrated circuits because our products
 are manufactured with standard processes. By outsourcing our manufacturing requirements, we are able
 to focus our resources on design engineering. Our
 operations group closely manages the interface between manufacturing, design engineering and sales.
 The group provides manufacturing support required for test and product engineering, process and device
 engineering, package engineering, reliability, quality assurance and production control. We maintain
 our organizational structure and quality standards to match with market leading semiconductor manufacturers.
 We use an online work-in-progress control methodology wherever possible, and maintain close reporting
 mechanisms with all of our suppliers to ensure that the manufacturing subcontracting process is transparent
 to our customers. Our
 key silicon foundries are United Microelectronics Corporation in Taiwan, STMicroelectronics Group in
 Europe and Renesas Technology  (Mitsubishi Electric) in Japan. We believe we have adequate capacity
 to support our current sales levels. We continue to work with our existing foundries to obtain more
 production capacity and we are actively qualifying new foundries to procure additional production capacity. Our
 Mixed Signal Processor and high voltage power devices are currently manufactured with Complementary
 Metal Oxide Semiconductor (CMOS) and Diffusion Metal Oxide Semiconductor (DMOS) processes using
 >0.18 micron technology. CMOS and DMOS are industry standard semiconductor manufacturing processes.
 We continuously evaluate the benefits, on a product by product basis, of migrating to smaller design
 technologies to reduce costs and improve performance. In
 September 2003, we announced the introduction of a new breakthrough low cost power stage architecture
 platform, based on CMOS processes, which we refer to as Godzilla that can be used across the broad
 spectrum of audio amplifiers from 10 Watt per channel PC stereo to greater than 150 Watt per channel
 audio video receivers. We believe that this new architecture will enable us to reduce our manufacturing
 costs and continue to improve our gross margins during the latter part of 2004 and during 2005. Assembly and Test We
 currently outsource all of our assembly and testing operations to AMBIT Microsystems Corporation in
 China, Amkor Technology, Inc. in the Philippines, Advanced Semiconductor Engineering (ASE) in Korea,
 Malaysia and Taiwan, Lingsen in Taiwan, STS (formerly ISE Labs Assembly) in China, ST Assembly Test
 Services Ltd. in Singapore and ST Microelectronics Group in Malaysia. Quality Assurance We
 currently rely on our foundries and assembly subcontractors to assist in the qualification process of
 our products. We also participate in quality and reliability monitoring through each stage of the production
 cycle. We closely monitor wafer foundry production, assembly and test manufacturing operations to ensure
 consistent overall quality, reliability and yield levels. 6  Marketing, Sales and Customers Our
 marketing strategy is to target existing and potential customers who are industry leaders in the consumer
 electronics (consumer, automotive and professional audio), DSL communications and wireless communications
 markets.  Currently, our sales and marketing effort is primarily focused on market segments, divided
 among integrated audio products and module-based driver products, and separately divided among the flat
 panel TV, home theater, PC, gaming, professional and automotive audio. We
 rely on our direct sales force and distributors to sell our products in our target markets. Approximately
 73%  of our sales were through distributors in 2003 compared to 67% in 2002. Our
 sales headquarters is located in San Jose, California. In addition, we market and sell our products
 through our regional offices located in Japan and Hong Kong, as well as through independent distributors
 in Asia, Europe and the United States. We incorporated our regional office in Japan as a wholly-owned
 subsidiary in January 2001. Our sales force, together with our engineering and technical staff,
 works closely with customers to integrate our amplifiers into their products. We believe that close
 working relationships with customers will help us to achieve design wins and ultimately achieve high
 volume production. End
 customers for our products are primarily manufacturers of audio electronic components, communications
 infrastructure equipment and wireless communications equipment.  Three, two and four end customers
 accounted for more than 10% of our sales in 2003, 2002 and 2001, respectively. The customers who accounted
 for more than 10% of our sales in 2003 were Kyoshin Technosonic Co., Ltd., (KTS), Samsung Electronics
 Co., Ltd. (Samsung) and Apple Computer. For
 a detailed description of our sales by geographic region, see Note 2 (Segment and geographic information)
 to our consolidated financial statements. Competition We
 currently compete with a number of larger companies in the consumer audio amplifier market. While our
 technology offers distinct advantages over the analog approach, we believe that approximately only 2-3
 percent of the market has converted to digital audio amplifiers at this time.  The primary analog
 amplifier competitors in the market today are National Semiconductor, Philips Electronics, ST Microelectronics
 and Texas Instruments. Philips, ST Microelectronics and Texas Instruments are also our major competitors
 in the digital audio amplifier market.  In addition, a number of companies, such as Cirrus Logic
 Inc., have announced their intention to enter this market. We have been active in the audio amplifier
 market since our inception and we believe that we maintain a strong competitive position. In
 the DSL line driver market, our principal competitors include Analog Devices, Inc., Intersil Corporation,
 Linear Technology Corporation and Texas Instruments Incorporated. This is a new market for us in which
 many of our competitors have longer operating histories. We
 believe that the principal factors of competition in these markets are product capabilities, level of
 integration, reliability, price, power consumption, time-to-market, system cost, intellectual property,
 customer support and reputation. In
 each of these markets, we believe that our main competitive advantages are our product capabilities,
 low power consumption, high signal fidelity and level of integration. However, many of our competitors
 are large public companies that have longer operating histories and significantly greater resources
 than us. As a result, these competitors may compete favorably on factors such as price, customer support
 and reputation. Intellectual Property We
 rely primarily on a combination of patent, copyright, trademark, trade secret and other intellectual
 property laws, nondisclosure agreements and other protective measures to protect our proprietary technologies
 and processes. We have 32 issued United States patents and 12 additional pending United States patent
 applications. In addition, we have 16 international patents issued and an additional 29 international
 patents pending. We expect to continue to file patent applications where appropriate to protect our
 proprietary technologies. To our knowledge, no patents have been contested by third parties thus far. Employees As
 of December 31, 2003, we had 56 full-time employees, including 36 employees engaged in research and
 development, 9 engaged in sales and marketing and 11 engaged in general administration activities.
 None of our employees are represented by a labor union and we have never experienced a work stoppage.
 We consider our employee relations to be good. 7   ITEM 2.
PROPERTIES We
 lease one facility in San Jose, California, which has approximately 65,000 square feet pursuant to the
 lease, which expires on March 31, 2007. This facility comprises our headquarters and includes our administration,
 sales and marketing and research and development departments.  We also lease approximately 2,400
 square feet of office space outside of Tokyo, Japan for our Japanese sales office. The lease for this
 space expires on October 31, 2004. We believe that existing facilities are adequate for our needs. ITEM 3.
LEGAL PROCEEDINGS None ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF
 SECURITY HOLDERS None Executive Officers of the Registrant The
 following table sets forth certain information regarding our executive officers as of December 31,
 2003: Name

Age

PositionDr. Adya S. Tripathi

51

President and Chief Executive Officer, Chairman of
 the BoardDavid P. Eichler

55

Chief Financial Officer, Vice President of Finance
 and Corporate SecretaryDr. Naresh C. Sharma

53

Vice President of OperationsGraham K. Wright

45

Vice President of Sales and Marketing Dr.
 Adya S. Tripathifounded Tripath and has served as our President, Chief Executive Officer and Chairman
 since our inception in 1995. Before founding Tripath, Dr. Tripathi held a variety of senior management
 and engineering positions with Advanced Micro Devices, Hewlett-Packard, International Business Machines
 (IBM), International Microelectronic Products (IMP), National Semiconductor and Vitel Communications.
 Dr. Tripathi holds Bachelor of Science and Master of Science degrees in Electronics Engineering
 from Benaras Hindu University in India. He pursued graduate work at the University of Nevada-Reno and
 the University of California-Berkeley, receiving his doctorate of philosophy in Electrical Engineering
 from the former in 1984. Dr. Tripathi has also taught at the University of California-Berkeley Extension. David
 P. Eichlerhas served as our Chief Financial Officer and Vice President of Finance since October 2002.
 Prior to joining us, Mr. Eichler was Vice President of Finance, Chief Financial Officer and Corporate
 Secretary with Gadzoox Networks from 2001 to 2002, Vice President of Finance and Administration and
 Chief Financial Officer with Alliance Semiconductor from 1999 to 2001 and Vice President of Finance
 and Chief Accounting Officer with Adobe Systems from 1997 through 1998. Mr. Eichler is a Certified Public
 Accountant and received his Master of Business Administration degree from the University of California
 Los Angeles and his Bachelor of Science in Accounting from Northeastern University. Dr.
 Naresh C. Sharma has served as our Vice President of  Operations since August 2001. Dr.
 Sharma joined Tripath in 1998 serving as Director of Process Engineering and Development. Prior to joining
 us, from 1997 to 1998, Dr. Sharma was Director, Foundry FAB Operations at Alliance Semiconductor and
 from 1992 to 1997, he was Senior Manager, Strategic Fabs at Cirrus Logic. Dr. Sharma has also held various
 management and engineering positions at Cypress Semiconductor, National (Fairchild) Semiconductor and
 American Microsystems. He received his Doctorate of Philosophy in Physics from the Indian Institute
 of Technology (Delhi) in 1978 and his Master of Science in Solid State Physics from the Indian Institute
 of Technology (Roorkee) in India. Graham
 K. Wright has served as our Vice President of Sales since September 2002. Prior to joining
 us, Mr. Wright held various positions with Cirrus Logic including Vice President of Sales-Americas from
 2000 to 2002 and Director of Western Area Sales from 1997 to 2000. Mr. Wright holds a Bachelor of Science
 in Electrical Engineering from Michigan Technological University. 8  PART II ITEM 5.
MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our
 common stock has been quoted on the Nasdaq National Market and The Nasdaq SmallCap Market under the
 symbol TRPH since our initial public offering in August 2000. Prior to this time, there was no
 public market for our stock. The following table sets forth for the periods indicated the high and low
 sales prices per share of our common stock as reported on the Nasdaq National Market and The Nasdaq
 SmallCap Market. 2003

2002High

Low

High

LowFirst Quarter

$
0.31

$
0.22

$
2.83

$
1.45Second Quarter

$
0.89

$
0.17

$
2.08

$
0.85Third Quarter

$
5.01

$
0.77

$
1.02

$
0.16Fourth Quarter

$
7.02

$
3.20

$
0.56

$
0.14 We
 have not declared or paid any cash dividends on our capital stock since our inception. We currently
 expect to retain future earnings, if any, for use in the operation and expansion of our business and
 do not anticipate paying any cash dividends in the foreseeable future. As of February 23, 2004 there
 were 289 holders of record of our common stock. Because many of our shares of common stock are held
 by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number
 of stockholders represented by these record holders. 9   ITEM 6.
SELECTED FINANCIAL DATA The following selected historical information has been
 derived from the audited consolidated financial statements of Tripath. The financial information as
 of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003
 are derived from, and are qualified by reference to, our audited consolidated financial statements and
 are included elsewhere in this Annual Report on Form 10-K. The financial information as of December
 31, 2001, 2000 and 1999 and for each of the two years in the period ended December 31, 2000 are derived
 from audited financial statements not included in this report.  The following Selected Financial
 Data should be read in conjunction with Item 7, Managements Discussion and Analysis of Financial Condition
 and Results of Operations and Item 8, Financial Statements and Supplementary Data included elsewhere
 in this Annual Report on Form 10-K.  The historical results are not necessarily indicative of the
 results of operations to be expected in the future. December 31,2003

2002

2001

2000

1999(In thousands, except per share amounts
 )Statement of Operations Data:Revenue

$
13,891

$
16,227

$
13,541

$
9,300

$
648Cost of revenue


9,710


18,494


11,948


11,347


2,463Gross profit (loss)


4,181


(2,267
)

1,593


(2,047
)

(1,815
)Operating expenses:Research and development


6,874


11,650


19,913


26,074


18,320Selling, general and administrative


4,544


5,557


8,664


14,772


12,935Restructuring and other charges (Note 3)








684





Total operating expenses


11,418


17,207


29,261


40,846


31,255Loss from operations


(7,237
)

(19,474
)

(27,668
)

(42,893
)

(33,070
)Interest and other income, net


22


160


687


1,626


1,368Net loss


(7,215
)

(19,314
)

(26,981
)

(41,267
)

(31,702
)Accretion on preferred stock





(14,952
)







Net loss applicable to common stockholders

$
(7,215
)
$
(34,266
)
$
(26,981
)
$
(41,267
)
$
(31,702
)Basic and diluted net loss per share

$
(0.17
)
$
(0.88
)
$
(1.00
)
$
(2.34
)
$
(2.98
)Number of shares used to compute basic and diluted net loss per share


41,993


38,823


27,009


17,625


10,624  December 31,2003


2002


2001


2000


1999Balance Sheet Data:Cash, cash equivalents, short-term investments and restricted cash

$
9,612

$
10,598

$
5,097

$
36,515

$
17,403Working capital


11,198


13,711


12,854


36,160


17,081Total assets


19,468


20,685


22,160


47,111


22,634Long term obligations, net of current portion


1,256


933


262





Convertible preferred stock














49,611Total stockholders equity (deficit)


11,920


15,436


15,347


40,088


(30,262
) No
 dividends have been paid or declared since our inception. 10   ITEM 7.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis
 in conjunction with the Selected Financial Data and the financial statements and notes thereto included
 in this Annual Report on Form 10-K.  Historical operating results are not necessarily indicative
 of results that may occur in future periods. This discussion and analysis contains forward-looking statements
 that involve risks, uncertainties and assumptions. The actual results may differ materially from those
 anticipated in these forward-looking statements as a result of certain factors, including, but not limited
 to, those presented under Risk Factors and elsewhere in this annual report on Form 10-K. We undertake
 no obligation to update any forward-looking statement to reflect events after the date of this report. Overview We
 design and sell digital amplifiers based on our proprietary Digital Power Processing (DPPâ) technology. We currently supply amplifiers for audio electronics applications, and 
 have begun offering amplifiers for DSL applications. We were incorporated in July 1995, began shipping
 products in the first quarter of 1998 and became a public reporting company in August 2000. Accordingly,
 we have limited historical financial information and operating history for use in evaluating Tripath
 and our future prospects. We incurred net losses of approximately $7.2 million in 2003,  $19.3
 million in 2002 (before charge for beneficial conversion of $14.9 million) and $27.0 million in 2001.
 We expect to continue to incur net losses in 2004, and possibly beyond. We
 sell our products to original equipment manufacturers and distributors. We recognize revenue from product
 sales upon shipment to original equipment manufacturers, net of sales returns and allowances. Our sales
 to distributors are made under arrangements allowing for returns or credits under certain circumstances
 and we defer recognition on sales to distributors until products are resold by the distributor to the
 end user. All of our sales are made in  United States (U.S.) dollars. As
 a fabless semiconductor company, we contract with third party semiconductor fabricators to manufacture
 the silicon wafers based on our integrated circuit (IC) designs.  Each wafer contains numerous
 die, which are cut from the wafer to create a chip for an IC.  We also contract with third party
 assembly and test houses to assemble and package our die and conduct final product testing. Cost
 of revenue includes the cost of purchasing finished silicon wafers and die manufactured by independent
 foundries, costs associated with assembly and final product testing, as well as salaries and overhead
 costs associated with employees engaged in activities related to manufacturing. Research and development
 expense consists primarily of salaries and related overhead costs associated with employees engaged
 in research, design and development activities, as well as the cost of wafers and other materials and
 related services used in the development process. Selling, general and administrative expense consists
 primarily of employee compensation and related overhead expenses and advertising and marketing expenses. Stock-based
 compensation expense relates both to stock-based employee and consultant compensation arrangements.
 Employee-related stock-based compensation expense is based on the difference between the estimated fair
 value of our common stock on the date of grant and the exercise price of options to purchase that stock
 and is being recognized on an accelerated basis over the vesting periods of the related options, usually
 four years, or in the case of fully vested options, in the period of grant. Consultant stock-based compensation
 expense is based on the Black-Scholes option pricing model. Future compensation charges will be reduced
 if any employee or consultant terminates employment or consultation prior to the expiration of the option
 vesting period. 11  Critical Accounting Policies Use
 of Estimates: Managements discussion and analysis of financial condition and results of operations
 is based upon our consolidated financial statements, which have been prepared in accordance with accounting
 principles generally accepted in the United States of America. The preparation of these financial statements
 requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
 revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis,
 we evaluate our estimates, including those related to product returns, warranty obligations, bad debts,
 inventory direct costing and valuation, accruals, valuation of stock options and warrants, income taxes
 (including the valuation allowance for deferred taxes) and restructuring costs. We base our estimates
 on historical experience and on various other assumptions that we believe to be reasonable under the
 circumstances, the results of which form the basis for making judgments about the carrying values of
 assets and liabilities that are not readily apparent from the other sources. Actual results may materially
 differ from these estimates under different assumptions or conditions. Material differences may occur
 in our results of operations for any period if we made different judgments or utilized different estimates. Revenue
 Recognition: We recognize revenue in accordance with Securities and Exchange Commission Staff Accounting
 Bulletin No. 104 (SAB 104), Revenue Recognition in Financial Statements.  We recognize
 revenue when all of the following criteria are met: 1) there is persuasive evidence that an arrangement
 exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4) collectibility
 is reasonably assured.  The following policies apply to our major categories of revenue transactions. 
 Sales to OEM Customers: Under our standard terms and conditions of sale, title and risk of loss
 transfer to the customer at the time product is delivered to the customer, FOB shipping point, and revenue
 is recognized accordingly.  We accrue the estimated cost of post-sale obligations, including basic
 product warranties or returns, based on historical experience.  We have experienced minimal warranty
 or other returns to date. Sales to Distributors:  We provide our distributors certain incentives
 such as stock rotation, price protection, and other offerings.  As a result of these incentives,
 we defer recognition of revenue until such time that the distributor sells product to its customer. Allowance for Doubtful Accounts: We provide an allowance for doubtful accounts to ensure trade
 receivables are not overstated due to uncollectibility. The collectibility of our receivables is evaluated
 based on a variety of factors, including the length of time receivables are past due, customers indication
 of willingness to pay, significant one-time events and historical experience. An additional reserve
 for individual accounts is recorded when we become aware of a customers inability to meet its financial
 obligations, such as in the case of bankruptcy filings or substantial deterioration in the customers
 operating results or financial position. If circumstances related to our customers change, estimates
 of the recoverability of receivables would be further adjusted. Inventories:   Inventories
 are stated at the lower of cost or market. This policy requires us to make estimates regarding the market
 value of our inventory, including an assessment of excess or obsolete inventory. We determine excess
 and obsolete inventory  based on an estimate of the future demand and estimated selling prices
 for our products within a specified time horizon, generally 12 months. The estimates we use for expected
 demand are also used for near-term capacity planning and inventory purchasing and are consistent with
 our revenue forecasts. In addition to current inventory of $5.6 million, we have inventory purchase
 commitments of approximately $3.2 million. Our inventory and purchase commitments are based on expected
 demand and not necessarily built for  firm purchase commitments for our customers.  Because
 of the required delivery lead time, we need to carry a high level of inventory in comparison to past
 sales.  Actual demand and market conditions may be different from those projected by our management.
 If our unit demand forecast is less than our current inventory levels and purchase commitments, during
 the specified time horizon, or if the estimated selling price is less than our inventory value, we will
 be required to take additional excess inventory charges or write-downs to net realizable value which
 will decrease our gross margin and net operating results in the future. During the quarter ended March
 31, 2002, we recorded a provision for excess inventory of approximately $5 million related to excess
 inventory for our TA2022 product as a result of a decrease in forecasted sales for this product. 12  Results of Operations Years Ended December 31, 2003, 2002 and 2001 Revenue. 
 Revenues for fiscal year 2003 were $13.9 million, a decrease of $2.3 million or 14% from revenues of
 $16.2 million for fiscal year 2002. The decrease in revenues was primarily due to decreases in sales
 of our TA2022, TA3020 and TK2050 products, reflecting lower sales of low margin home theater products
 in the  China market and decreased demand from Apple Computer, partially offset by increases in
 sales of our TLD4012 and TA2024 products reflecting increased sales of DSL line drivers and digital
 audio amplifier products in the flat panel TV and gaming vertical markets.  Revenues for fiscal
 year 2002 increased by $2.7 million or 20% over revenues of $13.5 million for fiscal year 2001. The
 increase in revenues resulted primarily from increased sales of our TA2024, TA3020 and TK2050 products,
 offset partially by decreased sales of our TA1101B and TA2022 products. Our
 top five end customers accounted for 68% of revenue in 2003 versus 67% and 82% in 2002 and 2001 respectively. 
 Our primary customers in 2003 were Kyoshin Technosonic Co., Ltd. (KTS), Samsung Electronics Co., Ltd.
 (Samsung) and Apple Computer Inc. (Apple), representing 24%, 18% and 15% of revenue, respectively. 
 In  2002 our primary customers were Apple Computer Inc. and Apex Digital inc., representing 31%
 and 19% of revenue, respectively.  Sony Corporation and Apple Computer Inc. were our top two customers
 in 2001, representing 29% and 25% of revenue, respectively. Gross
 Profit (Loss). Gross profit for fiscal year 2003 was $4.2 million (including stock-based compensation
 expense of $4,000) compared to a gross loss of $2.3 million (including stock-based compensation
 expense of  $23,000) for fiscal year 2002 and a gross profit of $1.6 million (including stock-based
 compensation benefit of $95,000) for fiscal year 2001. The increase in gross profit for fiscal year
 2003 reflects ongoing product cost reduction efforts, increased unit volumes for a number of our products
 as well as sales of higher margin products. The gross loss for fiscal year 2002 was primarily due to
 a reserve of $5.0 million for excess inventory during the first quarter of 2002. The inventory charge,
 related to excess inventory for our TA2022 product, was based on a decline in forecasted sales for this
 product. Research
 and Development.  Research and development (R&D) expenses for fiscal year 2003 were $6.9 million
 (including stock-based compensation expense of $20,000), a decrease of $4.8 million or 41% from R&D
 expenses of $11.7 million (including stock-based compensation expense of $195,000) for fiscal year
 2002. The decrease in R&D expenses was due to a decrease in personnel costs, as a result of reduced
 headcount and salary reductions, and a decrease in product development expenses, as well as lower rent
 and insurance expenses.. R&D expenses for fiscal year 2001 totaled $19.9 million (including stock-based
 compensation benefit of $133,000). The  decrease in R&D expenses from 2001 to 2002 was due
 to lower personnel related costs and lower product development costs. We anticipate that our R&D
 expenses will increase in fiscal 2004. Selling,
 General and Administrative Expenses.  Selling, general and administrative (S,G&A) expenses
 for fiscal year 2003 were $4.5 million (including stock-based compensation expense of $57,000),
 a decrease of $1.1 million or 20% from S,G&A expenses of $5.6 million (including stock-based
 compensation benefit of $502,000) in 2002.  The decrease in S,G&A expenses was primarily due
 to decreased headcount and related costs and  lower expenses related to rent, insurance and 
 bad debts. S,G&A expenses for fiscal year 2001 were $8.7 million (including stock-based compensation
 expense of $488,000). The decrease in S,G&A expenses from 2001 to 2002 was primarily due to decreased
 headcount and related costs and lower professional services costs. We anticipate that our S,G&A
 expenses will increase in fiscal 2004, including expenses for legal and financial compliance costs related
 to the Sarbanes-Oxley Act of 2002 and increased insurance costs. Restructuring
 and Other Charges.On August 3, 2001, we announced a restructuring and cost reduction plan which
 included a workforce reduction and write-off of abandoned assets. As a result of the restructuring and
 cost reduction plan, we recorded restructuring and other charges of $684,000 during the quarter ended
 September 30, 2001. Under the restructuring and cost reduction plan, we reduced our workforce by approximately
 40 employees across all functions and mostly located at our former headquarters facility in Santa Clara,
 California. The workforce reduction resulted in a $164,000 charge relating primarily to severance and
 fringe benefits for terminated employees. We also abandoned assets for a charge of $520,000. The restructuring
 was completed by December 31, 2001. 13  A summary of the restructuring
 and other charges is as follows: Total charges

Non-cash charges

Cash paymentsWork force reduction

$
164,000

$


$
164,000Write-off of abandoned assets


520,000


520,000


$
684,000

$
520,000

$
164,000 Interest
 and Other Income, net. Interest income for 2003 was $22,000, a decrease of  $138,000 or 86%
 from interest income of $160,000 in 2002.  Interest income for 2002 decreased $527,000 or 77% from
 interest income of $687,000 in 2001. The decreases in interest income in 2003 and 2002 resulted from
 decreases in our average cash equivalents and short-term investment balances to fund operations, together
 with lower interest rates. Accretion
 on Preferred Stock.Accretion on Preferred Stock for 2002 was $14,952,000. The accretion was due
 to the financing transaction that was completed in January 2002, in which we raised $21 million in gross
 proceeds through a private placement of non-voting Series A Preferred Stock and warrants. The accretion
 related to the beneficial conversion feature represents the difference between the accounting conversion
 price and the fair value of the common stock on the date of the transaction, after valuing the warrants
 issued in connection with the financing transaction. Income
 Taxes.We have incurred no income tax expense to date. As of December 31, 2003, we had available
 federal net operating loss carryforwards of approximately $106 million and state net operating loss
 carryforwards of approximately $35 million. We also had research and development tax credit carryforwards
 of approximately $5 million for federal and state purposes. The net operating loss and credit carryforwards
 will expire at various times through 2021. As of December 31, 2003, we had deferred tax assets of approximately
 $48 million which consisted primarily of net operating loss carryforwards, research and development
 tax credit carryforwards and nondeductible reserves and accruals. We have recorded a full valuation
 allowance against these deferred tax assets. Deferred tax assets will be recognized in future periods
 as any taxable income is realized and consistent profits are reported. Liquidity and Capital Resources Since
 our inception, we have financed our operations through the private sale of our equity securities, primarily
 the sale of preferred stock, through our initial public offering on August 1, 2000 and through a private
 placement in January 2002 and subsequent stock warrant exercises.  Net proceeds to us as a result
 of our initial public offering, our 2002 private placement and subsequent stock warrant exercises were
 approximately $45.4 million, $19.9 million and $5.4 million, respectively. Net
 cash used by operating activities decreased by $8.9 million from $13.0 million for the year ended December
 31, 2002  to $4.1million for the year ended December 31, 2003. The decrease was mainly due to a
 decrease in net loss of $12.1 million primarily as a result of lower operating expenses, partially offset
 by a decrease in the provision for excess inventory of $4.7 million and an increase in accounts payable
 of $1.7 million. Net cash used for operating activities during the year ended December 31, 2001
 was $32.5 million, the majority of which was used to fund the net loss of $27 million and inventory
 purchases of $7.6 million. Cash
 used in investing activities was $487,000 for the year ended December 31, 2003 compared with $201,000
 for the year ended December 31, 2002. The change was primarily due to no cash being provided from the
 sale of short term investments during 2003 whereas $1.1 million had been provided from the sale of short
 term investments during 2002. In 2001 our investing activities provided cash in the amount of $22.1 million
 from the net sale of short-term investments. Cash
 provided by financing activities decreased by $15.7 million from $19.4 million for the year ended December
 31, 2002 to $3.4 million for the year ended December 31, 2003. The higher amount of cash provided by
 financing activities in 2002 was due to the additional financing, details of which are summarized below. 
 In 2001, our financing activities provided cash in the amount of $1.8 million, the majority of
 which was derived from proceeds from issuance of common stock under our Employee Stock Purchase Plan
 and through exercise of stock options. 14  On
 January 24, 2002, we completed a financing in which we raised $21 million in gross proceeds through
 a private placement of non-voting Series A Preferred Stock and warrants, at $30 per unit to a group
 of investors. At a Special Meeting of Stockholders held on March 7, 2002, our stockholders approved
 the issuance and sale of the Series A Preferred Stock and warrants, which then automatically converted
 into 13,999,000 shares of common stock and warrants to purchase 3,303,760 shares of common stock. This
 included unregistered warrants that were issued to the placement agent for the financing transaction
 to purchase 503,960 shares of our common stock.  The 2,799,800 registered warrants have a term
 of three years and an effective Common Stock exercise price of $1.95 per share, whereas 419,968 of the
 503,960 warrants issued to the placement agent have an effective Common Stock exercise price of $1.50
 per share. The remainder of the warrants issued to the placement agent have an effective Common Stock
 exercise price of $1.95 per share. During
 the year ended December 31, 2003, warrants were exercised which resulted in the issuance of 1,896,226
 shares of our common stock with proceeds totaling approximately $3.1 million. The warrants issued to
 the placement agent were exercised on a net issuance basis resulting in 300,438 shares of our common
 stock being issued to the placement agent. The
 warrant agreement contained a provision for the mandatory exercise of the warrants if our common stock
 traded at $5.85 or higher for 20 out of 30 trading days. At the close of business on January 2, 2004
 our common stock had traded at $5.85 or higher for 20 consecutive days and we were able to invoke the
 provision for the mandatory exercise of all outstanding warrants issued in connection with the January
 2002 financing. All outstanding warrants were exercised in January 2004 resulting in the issuance of
 an additional 1.2 million shares of common stock. We received proceeds of approximately $2.3 million
 from the exercise of these warrants. On
 July 12, 2002, we entered into a credit agreement with a financial institution that provided for
 a one-year revolving credit facility in an amount of up to $10 million, subject to certain restrictions
 in the borrowing base based on eligibility of receivables. The credit agreement expired on June 30,
 2003 and was not renewed. The
 credit agreement was used to issue stand-by letters of credit totaling $1.7 million to collateralize
 our obligations to a third party for the purchase of inventory and to provide a security deposit for
 the lease of new office space. Upon the expiration of the credit agreement on June 30, 2003, we entered
 into a Pledge and Security Agreement to provide a security interest in a money market account in the
 amount of $0.7 million for the standby letters of credit, which totaled $0.7 million at December 30,
 2003. Our
 total potential commitments on our operating and capital leases and inventory purchases as of December
 31, 2003, were as follows (in thousands): Year Ending December 31,

OperatingLeases

CapitalLeases

InventoryPurchaseCommitments

Totals2004

$
933

$
551

$
3,235

$
4,7192005


1,083


494





1,5772006


1,046


86





1,1322007


270








2702008 and beyond











$
3,332


1,131

$
3,235

$
7,698Less: amount representing interest





(76
)Present value of minimum lease payments





1,055Less: current portion of capital lease obligations





(496
)Long-term capital lease obligations




$
559 We
 expect our future liquidity and capital requirements will fluctuate depending on numerous factors including:
 market acceptance and demand for current and future products, the timing of new product introductions
 and enhancements to existing products, the success of on-going efforts to reduce our manufacturing costs
 as well as operating expenses and need for working capital for such items as inventory and accounts
 receivable. 15  We
 have incurred substantial losses and have experienced negative cash flow since inception and have an
 accumulated deficit of $179.6 million at December 31, 2003. Beginning in August 2001, we instituted
 programs to reduce expenses including reducing headcount from 144 employees at the end of July 2001
 to 56 employees at the end of December 2003 and reducing employees salaries by 10%. In September 2002
 we relocated our headquarters which reduced rent expense and canceled our D&O policy which reduced
 insurance expense. These actions resulted in significant cost savings in 2003. We reduced our cash used
 in operating activities from approximately $13 million in 2002 to approximately $4 million in 2003. During
 2003, warrants were exercised which resulted in us receiving proceeds totaling approximately $3.1 million.
 At December 31, 2003, we had working capital of $11.2 million, including cash of $9.6 million. Subsequent
 to December 31, 2003 we received proceeds of approximately $2.3 million from the exercise of outstanding
 warrants. We
 may need to raise additional funds to finance our activities through public or private equity or debt
 financings, the formation of strategic partnerships or alliances with other companies or through bank
 borrowings with existing or new banks. We may not be able to obtain additional funds on terms that would
 be favorable to our stockholders and us, or at all. In such instance, we will take measures to reduce
 our operating expenses, such as reducing headcount or canceling selected  research and development
 projects. Without sufficient capital to fund our operations, we will no longer be able to continue as
 a going concern. We believe, based on our current cash balance as well as our ability to implement the
 aforementioned measures, if needed, that we will have liquidity sufficient to meet our operating, working
 capital and financing needs for the next twelve months and perhaps beyond. Our long-term prospects are
 dependent upon obtaining sufficient financing as needed to fund current working capital needs and future
 growth, and ultimately on achieving profitability. Recent Accounting Pronouncements In
 January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, Consolidation
 of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46), which addresses consolidation
 by business enterprises of variable interest entities (VIEs) either: (1) that do not have sufficient
 equity investment at risk to permit the entity to finance its activities without additional subordinated
 financial support, or (2) in which the equity investors lack an essential characteristic of a controlling
 financial interest. In December 2003, the FASB completed deliberations of proposed modifications
 to FIN 46 (Revised Interpretations) resulting in multiple effective dates based on the nature as well
 as the creation date of the VIE. VIEs created after January 31, 2003, but prior to January 1,
 2004, may be accounted for either based on the original interpretation or the Revised Interpretations.
 However, the Revised Interpretations must be applied no later than the first quarter of fiscal year
 2004. VIEs created after January 1, 2004 must be accounted for under the Revised Interpretations. 
 There has been no material impact to our consolidated financial statements from potential VIEs entered
 into after January 31, 2003 and there is no expected impact from the adoption of the deferred provisions
 in the first quarter of fiscal year 2004. In
 June 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 149, Amendment
 of Statement 133 on Derivative Instruments and Hedging Activities  (SFAS 149).  SFAS 149
 amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities. 
 SFAS 149 is effective for contracts entered into or modified after June 30, 2003.  We do not use
 derivative products and the adoption of this statement had no material impact on our consolidated financial
 statements. In
 June 2003, the FASB issued SFAS No. 150,  Accounting for Certain Financial Instruments with Characteristics
 of both Liabilities and Equity (SFAS 150).  SFAS 150 establishes standards on the classification
 and measurement of certain financial instruments with characteristics of both liabilities and equity. 
 The provisions of SFAS 150 are effective for financial instruments entered into or modified after May
 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial
 reporting period beginning after June 15, 2003.  The adoption of SFAS 150 did not have a material
 impact on our results of operations or financial position. In
 December 2003, the SEC issued Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104),
 which codifies, revises and rescinds certain sections of SAB No. 101, Revenue Recognition, in order
 to make this interpretive guidance consistent with current authoritative accounting and auditing guidance
 and SEC rules and regulations. The changes noted in SAB 104 did not have a material effect on our consolidated
 results of operations, consolidated financial position or consolidated cash flows. 16  Risk Factors Set forth below and elsewhere in this annual report
 and in the other documents we file with the Securities and Exchange Commission are risks and uncertainties
 that could cause actual results to differ materially from the results contemplated by the forward looking
 statements contained in this annual report.  Prospective and existing investors are strongly urged
 to carefully consider the various cautionary statements and risks set forth in this annual report and
 our other public filings. Our limited operating history and dependence on
 new technologies make it difficult to evaluate our prospects and future products. We were incorporated in July 1995, began shipping products
 in 1998 and became a public reporting company in August 2000. Accordingly, we have limited historical
 financial information and operating history upon which you may evaluate us and our products. Our prospects
 must be considered in the light of the risks, challenges and difficulties frequently encountered by
 companies in their early stage of development, particularly companies in intensely competitive and rapidly
 evolving markets such as the semiconductor industry. We cannot be sure that we will be successful in
 addressing these risks and challenges. We have a history of losses and may never achieve
 or sustain profitability. As of  December 31, 2003, we had an accumulated
 deficit of $179.6 million. We incurred net losses of approximately $7.2 million in 2003, $19.3 million
 (before accretion on preferred stock of $14.9 million) in 2002 and $27.0 million in 2001.  We may
 continue to incur net losses and these losses may be substantial. Furthermore, we may continue to generate
 significant negative cash flow in the future. We will need to generate substantially higher revenue
 to achieve and sustain profitability and positive cash flow. Our ability to generate future revenue
 and achieve profitability will depend on a number of factors, many of which are described throughout
 this section. If we are unable to achieve or maintain profitability, we will be unable to build a sustainable
 business. In this event, our share price and the value of your investment would likely decline and we
 might be unable to continue as a going concern. We may need to raise additional capital to continue
 to grow our business, which may not be available to us. Because we have had losses, we have funded our operating
 activities to date from the sale of securities, including our most recent financing in January 2002
 as well as from the proceeds from the related exercise of warrants issued in connection with the 2002
 financing.  However, to grow our business significantly, we will need additional capital. We cannot
 be certain that any such financing will be available on acceptable terms, or at all. Moreover, additional
 equity financing, if available, would likely be dilutive to the holders of our common stock, and debt
 financing, if available, would likely involve restrictive covenants. If we cannot raise sufficient additional
 capital, it would adversely affect our ability to achieve our business objectives and to continue as
 a going concern. Our quarterly operating results are likely to fluctuate
 significantly and may fail to meet the expectations of securities analysts and investors, which may
 cause our share price to decline. Our quarterly operating results have fluctuated significantly
 in the past and are likely to continue to do so in the future. The many factors that could cause our
 quarterly results to fluctuate include, in part: 
level of sales and recognition of revenue;
mix of high and low margin products;
availability and pricing of wafers;
timing of introducing new products, including, but
 not limited to, the introduction of new products based on the lower cost Godzilla architecture, lower
 cost versions of existing products, fluctuations in manufacturing yields and other problems or delays
 in the fabrication, assembly, testing or delivery of products; and
rate of development of target markets. 17  A large portion of our operating expenses, including
 salaries, rent and capital lease expenses, are fixed.  If we experience a shortfall in revenues
 relative to our expenses, we may be unable to reduce our expenses quickly enough to offset the reduction
 in revenues during that accounting period, which would adversely affect our operating results. Fluctuations
 in our operating results may also result in fluctuations in our common stock price. If the market price
 of our stock is adversely affected, we may experience difficulty in raising capital or making acquisitions. 
 In addition, we may become the object of securities class action litigation. As a result, we do not
 believe that period-to-period comparisons of our revenues and operating results are necessarily meaningful.
 One should not rely on the results of any one quarter as an indication of future performance. Our stock price may be subject to significant volatility. The stock prices for many technology companies have
 recently experienced large fluctuations, which may or may not be directly related to the operating performance
 of the specific companies. For example, for fiscal 2003, our Common Stock had closing sales prices on
 Nasdaq as low as $0.17 and as high as $7.02 per share. Broad market fluctuations as well as general
 economic conditions may cause our stock price to decline. We believe that fluctuations of our stock
 price may continue to be caused by a variety of factors, including: 
announcements of developments related to our business;
fluctuations in our financial results;
general conditions in the stock market or around the
 world, terrorism or developments in the semiconductor and capital equipment industry and the general
 economy;
sales or purchases of our common stock in the marketplace;
announcements of our technological innovations or new
 products or enhancements or those of our competitors;
developments in patents or other intellectual property
 rights;
developments in our relationships with customers and
 suppliers;
a shortfall or changes in revenue, gross margins or
 earnings or other financial results from analysts expectations or an outbreak of hostilities or natural
 disasters; or
acquisition or merger activity and the success in implementing
 such acquisitions. Our product shipment patterns make it difficult
 to predict our quarterly revenues. As is common in our industry, we frequently ship more
 products in the third month of each quarter than in either of the first two months of the quarter, and
 shipments in the third month are higher at the end of that month.  We believe this pattern is likely
 to continue.  The concentration of sales in the last month of the quarter may cause our quarterly
 results of operations to be more difficult to predict.  Moreover, if sufficient business does not
 materialize or a disruption in our production or shipping occurs near the end of a quarter, our revenues
 for that quarter could be materially reduced. Our customers may cancel or defer product orders,
 which could result in excess inventory. Our sales are generally made pursuant to individual
 purchase orders that may be canceled or deferred by customers on short notice without significant penalty. 
 Thus, orders in backlog may not result in future revenue.  In the past, we have had cancellations
 and deferrals by customers.  Any cancellation or deferral of product orders could result in us
 holding excess inventory, or result in obsolete inventory over time, which could seriously harm our
 profit margins and restrict our ability to fund our operations. For example, during the quarter ended
 March 31, 2002, we recorded a provision for excess inventory of approximately $5.0 million.  Our
 inventory and purchase commitments are based on expected demand and not necessarily built for firm purchase
 commitments for our customers.  Because of the required delivery lead time, we need to carry a
 high level of inventory in comparison to past sales.  We recognize revenue upon shipment of products
 to the end customer. Although we have not experienced customer refusals to accept shipped products or
 material difficulties in collecting accounts receivable, such refusals or collection difficulties are
 possible and could result in significant charges against income, which could seriously harm our revenues
 and our cash flow. 18  We rely on a small number of customers for most
 of our revenue and a decrease in revenue from these customers could seriously harm our business. A relatively small number of customers have accounted
 for most of our revenues to date.  Any reduction or delay in sales of our products to one or more
 of these key customers could seriously reduce our sales volume and revenue and adversely affect our
 operating results.  Our top five end customers accounted for 68% of revenue in 2003 versus 67%
 and 82% in 2002 and 2001 respectively. Our primary customers in 2003 were Kyoshin Technosonic Co., Ltd.
 (KTS), Samsung Electronics Co., Ltd. (Samsung), and Apple Computer Inc. (Apple) representing 24%,
 18% and 15% of revenue, respectively. In 2002 our primary customers were Apple and Apex Digital inc.,
 representing 31% and 19% of revenue, respectively. Sony Corporation and Apple were our top two customers
 in 2001, representing 29% and 25% of revenue, respectively. We expect that we will continue to rely
 on the success of our largest customers and on our success in selling our existing and future products
 to those customers in significant quantities.  However, we cannot be sure that we will retain our
 largest customers or that we will be able to obtain additional key customers or replace key customers
 we may lose or who may reduce their purchases. We currently rely on sales of four products for
 a significant portion of our revenue, and the failure of these products to be successful in the future
 could substantially reduce our sales. We currently rely on sales of our TA1101B, TA2020,
 TA2024 digital audio amplifier products and TLD4012 DSL line driver to generate a significant portion
 of our revenue. Sales of these products amounted to 87% of our revenue for year ended December 31, 2003,
 96% of our revenue in 2002 and 94% of our revenue in 2001. We have developed additional products and
 plan to introduce more products in the future, but there can be no assurance that these products will
 be commercially successful. Consequently, if our existing products are not successful, our sales could
 decline substantially. Our lengthy sales cycle makes it difficult for us
 to predict if or when a sale will be made, to forecast our revenue and to budget expenses, which may
 cause fluctuations in our quarterly results. Because of our lengthy sales cycles, we may continue
 to experience a delay between incurring expenses for research and development, sales and marketing and
 general and administrative efforts, as well as incurring investments in inventory, and the generation
 of revenue, if any, from such expenditures.  In addition, the delays inherent in such a lengthy
 sales cycle raise additional risks of customer decisions to cancel or change product plans, which could
 result in our loss of anticipated sales.  Our new products are generally incorporated into our
 customers products or systems at the design stage.  To try and have our products selected for
 design into new products of current and potential customers, commonly referred to as design wins, often
 requires significant expenditures by us without any assurance of success.  Once we have achieved
 a design win, our sales cycle will start with the test and evaluation of our products by the potential
 customer and design of the customers equipment to incorporate our products.  Generally, different
 parts have to be redesigned to incorporate our devices successfully into our customers products. The sales cycle for the test and evaluation of our
 products can range from a minimum of three to six months, and it can take a minimum of an additional
 six to nine months before a customer commences volume production of equipment that incorporates our
 products.  Achieving a design win provides no assurance that such customer will ultimately ship
 products incorporating our products or that such products will be commercially successful.  Our
 revenue or prospective revenue would be reduced if a significant customer curtails, reduces or delays
 orders during our sales cycle, or chooses not to release products incorporating our products. Our ability to achieve revenue growth will be harmed
 if we are unable to persuade electronic systems manufacturers to adopt our new amplifier technology. We face difficulties in persuading manufacturers to
 adopt our products using our new amplifier technology. Traditional amplifiers use design approaches
 developed in the 1930s.  These approaches are still used in most amplifiers and engineers are familiar
 with these design approaches.  To adopt our products, manufacturers and engineers must understand
 and accept our new technology.  To take advantage of our products, manufacturers must redesign
 their systems, particularly components such as the power supply and heat sinks.  Manufacturers
 must work with their suppliers to obtain modified components and they often must complete lengthy evaluation
 and testing.  In addition, our amplifiers are often more expensive as components than traditional
 amplifiers. For these reasons, prospective customers may be reluctant to adopt our technology. 19  We currently depend on consumer electronics markets
 that are typically characterized by aggressive pricing, frequent new product introductions and intense
 competition. A substantial portion of our current revenue is generated
 from sales of products that address the consumer electronics markets, including home theater, computer
 audio, flat panel TV, gaming, professional amplifiers, set-top box, AV receivers and the automotive
 audio markets.  These markets are characterized by frequent new product introductions, declining
 prices and intense competition. Pricing in these markets is aggressive, and we expect pricing pressure
 to continue.  In the computer audio segment, our success depends on consumer awareness and acceptance
 of existing and new products by our customers and consumers, in particular, the elimination of externally-powered
 speakers.  In the automotive audio segment, we face pressure from our customers to deliver increasingly
 higher-powered solutions under significant engineering limitations due to the size constraints in car
 dashboards.  In addition, our ability to obtain prices higher than the prices of traditional amplifiers
 will depend on our ability to educate manufacturers and their customers about the benefits of our products. 
 Failure of our customers and consumers to accept our existing or new products will seriously harm our
 operating results. The cyclical nature of the semiconductor industry
 could create fluctuations in our operating results. The semiconductor industry has historically been cyclical
 and characterized by wide fluctuations in product supply and demand. From time to time, the industry
 has also experienced significant downturns, often in connection with, or in anticipation of, maturing
 product cycles and declines in general economic conditions. Industry downturns have been characterized
 by diminished product demand, production overcapacity and accelerated decline in average selling prices,
 and in some cases have lasted for more than a year. The industry experienced a downturn of this type
 in 1997 and 1998, and began experiencing a downturn again in 2001. In addition, we may determine to
 lower our prices of our products to increase or maintain market share, which would likely harm our operating
 results. The semiconductor industry also periodically experiences increased demand and production capacity
 constraints.  As a result, we have experienced and may experience in the future substantial period-to-period
 fluctuations in our results of operations due to general semiconductor industry conditions, overall
 economic conditions or other factors, many of which are outside our control.  Due to these risks,
 you should not rely on period-to-period comparisons to predict our future performance. We may experience difficulties in the introduction
 of new or enhanced products, including but not limited to the new Godzilla architecture products,
 that could result in significant, unexpected expenses or delay their launch, which would harm our business. Our failure or our customers failure to develop and
 introduce new products successfully and in a timely manner would seriously harm our ability to generate
 revenues.  Consequently, our success depends on our ability to develop new products for existing
 and new markets, introduce such products in a timely and cost-effective manner and to achieve design
 wins.  The development of these new devices is highly complex, and from time to time we have experienced
 delays in completing the development and introduction of new products. The successful introduction of
 a new product may currently take up to 18 months.  Successful product development and introduction
 depends on a number of factors, including: 
accurate prediction of market requirements and evolving
 standards;
accurate new product definition;
timely completion and introduction of new product designs;
availability of foundry capacity;
achieving acceptable manufacturing yields;
market acceptance of our products and our customers
 products; and
market competition. We cannot guarantee success with regard to these factors. 20  We depend on three outside foundries for our semiconductor
 device manufacturing requirements. We do not own or operate a fabrication facility, and
 substantially all of our semiconductor device requirements are currently supplied by three outside foundries,
 United Microelectronics Corporation, in Taiwan, STMicroelectronics Group in Europe and Renesas Technology
 (Mitsubishi Electric) in Japan.  Although we primarily utilize these three outside foundries, most
 of our components are not manufactured at these foundries at the same time.  As a result, each
 foundry is a sole source for certain products. There are significant risks associated with our reliance
 on outside foundries, including: 
the lack of guaranteed wafer supply;
limited control over delivery schedules, quality assurance
 and control, manufacturing yields and production costs; and
the unavailability of or delays in obtaining access
 to key process technologies. In addition, the manufacture of integrated circuits
 is a highly complex and technologically demanding process.  Although we work closely with our foundries
 to minimize the likelihood of reduced manufacturing yields, our foundries have from time to time experienced
 lower than anticipated manufacturing yields, particularly in connection with the introduction of new
 products and the installation and start-up of new process technologies. We provide our foundries with continuous forecasts
 of our production requirements; however, the ability of each foundry to provide us with semiconductor
 devices is limited by the foundrys available capacity.  In many cases, we place our orders on
 a purchase order basis, and foundries may allocate capacity to the production of other companies products
 while reducing the deliveries to us on short notice.  In particular, foundry customers that are
 larger and better financed than us or that have long-term agreements with our foundries may cause such
 foundries to reallocate capacity in a manner adverse to us. While capacity at our foundries has been
 available during the last several years, the cyclical nature of the semiconductor industry could result
 in capacity limitations in a cyclical upturn or otherwise. If we use a new foundry, several months would be typically
 required to complete the qualification process before we can begin shipping products from the new foundry.
 In the event any of our current foundries suffers any damage or destruction to their respective facilities,
 or in the event of any other disruption of foundry capacity, we may not be able to qualify alternative
 manufacturing sources for existing or new products in a timely manner.  Even our current outside
 foundries would need to have certain manufacturing processes qualified in the event of disruption at
 another foundry, which we may not be able to accomplish in a timely enough manner to prevent an interruption
 in supply of the affected products. If we encounter shortages or delays in obtaining semiconductor
 devices for our products in sufficient quantities when required, delivery of our products could be delayed,
 resulting in customer dissatisfaction and decreased revenues. We depend on third-party subcontractors for most
 of our semiconductor assembly and testing requirements and any unexpected interruption in their services
 could cause us to miss scheduled shipments to customers and to lose revenues. Semiconductor assembly and testing are complex processes,
 which involve significant technological expertise and specialized equipment.  As a result of our
 reliance on third-party subcontractors for assembly and testing of our products, we cannot directly
 control product delivery schedules, which has in the past, and could in the future, result in product
 shortages or quality assurance problems that could increase the costs of manufacture, assembly or testing
 of our products.  Almost all of our products are assembled and tested by one of seven subcontractors:
 AMBIT Microsystems Corporation in China, Amkor Technology, Inc. in the Philippines, ASE in Korea, Malaysia
 and Taiwan, Lingsen in Taiwan, STMicroelectronics Group in Malaysia,  STS in China, and ST Assembly
 Test Services Ltd. in Singapore.  We do not have long-term agreements with any of these suppliers
 and retain their services on a per order basis.  The availability of assembly and testing services
 from these subcontractors could be adversely affected in the event a subcontractor suffers any damage
 or destruction to their respective facilities, or in the event of any other disruption of assembly and
 testing capacity.  Due to the amount of time normally required to qualify assemblers and testers,
 if we are required to find alternative manufacturing assemblers or testers of our components, shipments
 could be delayed.  Any problems associated with the delivery, quality or cost of our products could
 seriously harm our business. 21  Failure to transition our products to more effective
 and/or increasingly smaller semiconductor chip sizes and packaging could cause us to lose our competitive
 advantage and reduce our gross margins. We evaluate the benefits, on a product-by-product basis,
 of migrating to smaller semiconductor process technologies in order to reduce costs and have commenced
 migration of some products to smaller semiconductor processes.  We believe that the transition
 of our products to increasingly smaller semiconductor processes will be important for us to reduce manufacturing
 costs and to remain competitive. Moreover, we are dependent on our relationships with our foundries
 to migrate to smaller semiconductor processes successfully.  We cannot be sure that our future
 process migrations will be achieved without difficulties, delays or increased expenses.  Our gross
 margins would be seriously harmed if any such transition is substantially delayed or inefficiently implemented. Our international operations subject us to risks
 inherent in doing business on an international level that could harm our operating results. We currently obtain almost all of our manufacturing,
 assembly and test services from suppliers located outside the United States and may expand our manufacturing
 activities abroad.  Approximately 78% of our total revenue for the year ended December 31, 2003,
 was derived from sales to end customers based outside the United States.  In 2002 and 2001, 61%
 and 72%, respectively, of our total revenue was derived from sales to end customers based outside of
 the United States.  In addition, we often ship products to our domestic customers international
 manufacturing divisions and subcontractors. Accordingly, we are subject to risks inherent in international
 operations, which include: 
political, social and economic instability;
trade restrictions and tariffs;
the imposition of governmental controls;
exposure to different legal standards, particularly
 with respect to intellectual property;
import and export license requirements;
unexpected changes in regulatory requirements; and
difficulties in collecting receivables. All of our international sales to date have been denominated
 in U.S. dollars.  As a result, an increase in the value of the U.S. dollar relative to foreign
 currencies could make our products less competitive in international markets.  Conversely, a decrease
 in the value of the U.S. dollar relative to foreign currencies would increase the cost of our overseas
 manufacturing, which would reduce our gross margins. If we are not successful in developing and marketing
 new and enhanced products for the DSL high speed communications markets that keep pace with technology
 and our customers needs, our operating results will suffer. The market for our DSL products is new and emerging,
 and is characterized by rapid technological advances, intense competition and a relatively small number
 of potential customers. This will likely result in price erosion on existing products and pressure for
 cost-reduced future versions. We recently started to ship our TA4012 DSL line driver in volume and are
 in the sampling phase of our new dual channel line driver. Implementation of our products require manufacturers
 to accept our technology and redesign their products.  If potential customers do not accept our
 technology or experience problems implementing our devices in their products, our products could be
 rendered obsolete and our business would be harmed.  If we are unsuccessful in introducing future
 products with enhanced performance, our ability to achieve revenue growth will be seriously harmed. 22  We may experience difficulties in the development
 and introduction of a new amplifier product for use in the cellular phone market, which could result
 in significant expenses or delay in its launch. We are currently developing an amplifier product for
 use in the cellular phone market.  We currently have no design wins or customers for this product.
 We may not introduce our amplifier product for the cellular phone market on time, and this product may
 never achieve market acceptance.  Furthermore, competition in this market is likely to result in
 price reductions, shorter product life cycles, reduced gross margins and longer sales cycles compared
 with what we have experienced to date with our other products. Intense competition in the semiconductor industry
 and in the consumer electronics and communications markets could prevent us from achieving or sustaining
 profitability. The semiconductor industry and the consumer audio and
 communications markets are highly competitive.  We compete with a number of major domestic and
 international suppliers of semiconductors in the consumer electronics and communications markets. 
 We also may face competition from suppliers of products based on new or emerging technologies. 
 Many of our competitors operate their own fabrication facilities and have longer operating histories
 and presence in key markets, greater name recognition, access to larger customer bases and significantly
 greater financial, sales and marketing, manufacturing, distribution, technical and other resources than
 us.  As a result, such competitors may be able to adapt more quickly to new or emerging technologies
 and changes in customer requirements or devote greater resources to the promotion and sale of their
 products than us.  Current and potential competitors have established or may establish financial
 or strategic relationships among themselves or with existing or potential customers, resellers or other
 third parties.  Accordingly, it is possible that new competitors or alliances among competitors
 could emerge and rapidly acquire significant market share.  In addition, existing or new competitors
 may in the future develop technologies that more effectively address the transmission of digital information
 through existing analog infrastructures at a lower cost or develop new technologies that may render
 our technology obsolete.  There can be no assurance that we will be able to compete successfully
 in the future against our existing or potential competitors, or that our business will not be harmed
 by increased competition. Our products are complex and may have errors and
 defects that are detected only after deployment in customers products, which may harm our business. Products such as those that we offer may contain errors
 and defects when first introduced or as new versions are released.  We have in the past experienced
 such errors and defects, in particular in the development stage of a new product.  Delivery of
 products with production defects or reliability, quality or compatibility problems could significantly
 delay or hinder market acceptance of such products, which could damage our reputation and seriously
 harm our ability to retain our existing customers and to attract new customers and therefore impact
 our revenues.  Moreover, such errors and defects could cause problems, interruptions, delays or
 a cessation of sales to our customers.  Alleviating such problems may require substantial redesign,
 manufacturing and testing which would result in significant expenditures of capital and resources. 
 Despite testing conducted by us, our suppliers and our customers, we cannot be sure that errors and
 defects will not be found in new products after commencement of commercial production.  Such errors
 and defects could result in additional development costs, loss of, or delays in, market acceptance,
 diversion of technical and other resources from our other development efforts, product repair or replacement
 costs, claims by our customers or others against us or the loss of credibility with our current and
 prospective customers.  Any such event could result in the delay or loss of market acceptance of
 our products and would likely harm our business. If we are unable to retain key personnel, we may
 not be able to operate our business successfully. We may not be successful in retaining executive officers
 and other key management and technical personnel.  A high level of technical expertise is required
 to support the implementation of our technology in our existing and new customers products. In addition,
 the loss of the management and technical expertise of Dr. Adya S. Tripathi, our founder, president and
 chief executive officer, could seriously harm us. We do not have any employment contracts with our employees. Our intellectual property and proprietary rights
 may be insufficient to protect our competitive position. Our business depends, in part, on our ability to protect
 our intellectual property.  We rely primarily on patent, copyright, trademark and trade secret
 laws to protect our proprietary technologies.  We cannot be sure that such measures will provide
 meaningful protection for our proprietary technologies and processes. As of December 31, 2003, we have
 32 issued United States patents, and 12 additional United States patent applications which are pending. 
 In addition, we have 16 international patents issued and an additional 29 international patents pending.
 We cannot be sure that any patent will issue as a result of these applications or future applications
 or, if issued, that any claims allowed will be sufficient to protect our technology.  In addition,
 we cannot be sure that any existing or future patents will not be challenged, invalidated or circumvented,
 or that any right granted thereunder would provide us meaningful protection.  The failure of any
 patents to provide protection to our technology would make it easier for our competitors to offer similar
 products.  In connection with our participation in the development of various industry standards,
 we may be required to agree to license certain of our patents to other parties, including our competitors,
 that develop products based upon the adopted standards. 23  We also generally enter into confidentiality agreements
 with our employees and strategic partners, and generally control access to and distribution of our documentation
 and other proprietary information.  Despite these precautions, it may be possible for a third party
 to copy or otherwise obtain and use our products, services or technology without authorization, develop
 similar technology independently or design around our patents.  In addition, effective copyright,
 trademark and trade secret protection may be unavailable or limited in certain foreign countries. 
 Some of our customers have entered into agreements with us pursuant to which such customers have the
 right to use our proprietary technology in the event we default in our contractual obligations, including
 product supply obligations, and fail to cure the default within a specified period of time. We may be subject to intellectual property rights
 disputes that could divert managements attention and could be costly. The semiconductor industry is characterized by vigorous
 protection and pursuit of intellectual property rights.  From time to time, we may receive in the
 future notices of claims of infringement, misappropriation or misuse of other parties proprietary rights. 
 We cannot be sure that we will prevail in these actions, or that other actions alleging infringement
 by us of third-party patents, misappropriation or misuse by us of third-party trade secrets or the invalidity
 of one or more patents held by us will not be asserted or prosecuted against us, or that any assertions
 of infringement, misappropriation or misuse or prosecutions seeking to establish the invalidity of our
 patents will not seriously harm our business.  For example, in a patent or trade secret action,
 an injunction could be issued against us requiring that we withdraw particular products from the market
 or necessitating that specific products offered for sale or under development be redesigned.  We
 have also entered into certain indemnification obligations in favor of our customers and strategic partners
 that could be triggered upon an allegation or finding of our infringement, misappropriation or misuse
 of other parties proprietary rights.  Irrespective of the validity or successful assertion of
 such claims, we would likely incur significant costs and diversion of our management and personnel resources
 with respect to the defense of such claims, which could also seriously harm our business.  If any
 claims or actions are asserted against us, we may seek to obtain a license under a third partys intellectual
 property rights.  We cannot be sure that under such circumstances a license would be available
 on commercially reasonable terms, if at all.  Moreover, we often incorporate the intellectual property
 of our strategic customers into our designs, and we have certain obligations with respect to the non-use
 and non-disclosure of such intellectual property. We cannot be sure that the steps taken by us to prevent
 our, or our customers, misappropriation or infringement of intellectual property will be successful. The facilities of several of our key manufacturers
 and the majority of our customers, are located in geographic regions with increased risks of natural
 disasters. Several key manufacturers and a majority of customers
 are located in the Pacific Rim region. The risk of earthquakes in this region, particularly in Taiwan,
 is significant due to the proximity of major earthquake fault lines. Earthquakes, fire, flooding and
 other natural disasters in the Pacific Rim region likely would result in the disruption of our foundry
 partners assembly and testing capacity and the ability of our customers to purchase our products. Labor
 strikes or political unrest in these regions would likely also disrupt operations of our foundries and
 customers.  Any disruption resulting from such events could cause significant delays in shipments
 of our products until we are able to shift our manufacturing, assembly and testing from the affected
 contractor to another third party vendor. We cannot be sure that such alternative capacity could be
 obtained on favorable terms, if at all. Moreover, any such disruptions could also cause significant
 decreases in our sales to these customers until our customers resume normal purchasing volumes. Terrorist attacks and threats, and government responses
 thereto, may negatively impact all aspects of our operations, revenues, costs and stock price. The threat of terrorist attacks involving the United
 States, the instability in the Middle East, a decline in consumer confidence and continued economic
 weakness and geo-political instability have had a substantial adverse effect on the economy.  If
 consumer confidence does not recover, our revenues may be adversely affected for fiscal 2004 and beyond.
 Moreover, any further terrorist attacks involving the U.S., or any additional U.S. military actions
 overseas may disrupt our operations or those of our customers and suppliers.  These events have
 had and may continue to have an adverse impact on the U.S. and world economy in general and consumer
 confidence and spending in particular, which could harm our sales. Any of these events could increase
 volatility in the U.S.and world financial markets which could harm our stock price and may limit the
 capital resources available to us and our customers or suppliers. This could have a significant impact
 on our operating results, revenues and costs and may result in increased volatility in the market price
 of our common stock. We are subject to anti-takeover provisions that
 could delay or prevent an unfriendly acquisition of our company. Provisions of our restated certificate of incorporation,
 equity incentive plans, bylaws and Delaware law may discourage transactions involving an unfriendly
 change in corporate control.  In addition to the foregoing, the stockholdings of our officers,
 directors and persons or entities that may be deemed affiliates and the ability of our board of directors
 to issue preferred stock without further stockholder approval could have the effect of delaying, deferring
 or preventing a third party from acquiring us and may adversely affect the voting and other rights of
 holders of our common stock. 24   Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The primary objective of our investment activities
 is to preserve principal while at the same time maximizing the income we receive from our investments
 without significantly increasing risk of loss.  Some of the securities that we may acquire in the
 future may be subject to market risk for changes in interest rates.  To mitigate this risk, we
 plan to maintain a portfolio of cash equivalents and short-term investments in a variety of securities,
 which may include commercial paper, money market funds, government and non-government debt securities.
 We manage the sensitivity of our results of operations to these risks by maintaining a conservative
 portfolio, which is comprised solely of highly-rated, short-term investments.  We do not hold or
 issue derivative, derivative commodity instruments or other financial instruments for trading purposes.
 Currently we are exposed to minimal market risks. Due to the short-term and liquid nature of our portfolio,
 if interest rates were to fluctuate by 10% from rates at December 31, 2003 and December 31, 2002, our
 financial position and results of operations would not be materially affected. 25   ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of Independent Certified Public Accountants
27Report of Independent Auditors
28Consolidated Balance Sheets
29Consolidated Statements of Operations
30Consolidated Statements of Stockholders Equity
31Consolidated Statements of Cash Flows
32Notes to Consolidated Financial Statements
33 26  Report of Independent Certified Public
 Accountants Board of Directors and StockholdersTripath Technology
 Inc.San Jose, CA We have audited the accompanying consolidated balance
 sheet of Tripath Technology Inc. and its subsidiary as of December 31, 2003 and the related consolidated
 statements of operations, stockholders equity, and cash flows for the year then ended. These financial
 statements are the responsibility of the Companys management. Our responsibility is to express an opinion
 on these financial statements based on our audit. We conducted our audit in accordance with auditing
 standards generally accepted in the United States of America. Those standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the financial statements are free of
 material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
 and disclosures in the financial statements. An audit also includes assessing the accounting principles
 used and significant estimates made by management, as well as evaluating the overall financial statement
 presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements
 referred to above present fairly, in all material respects, the financial position of Tripath Technology
 Inc. and its subsidiary at December 31, 2003 and the results of their operations and their cash flows
 for the year then ended in conformity with accounting principles generally accepted in the United States
 of America. BDO Seidman, LLPSan Francisco, CaliforniaJanuary
 29, 2004 27  Report of Independent Auditors To the Board of Directors and Stockholders of     Tripath
 Technology Inc. In our opinion, the accompanying consolidated balance
 sheets and the related consolidated statements of operations, of stockholders equity and of cash flows
 present fairly, in all material respects, the financial position of Tripath Technology Inc. and its
 subsidiary at December 31, 2002 and the results of their operations and their cash flows for each of
 the two years in the period ended December 31, 2002 in conformity with accounting principles generally
 accepted in the United States of America. These financial statements are the responsibility of the Companys
 management; our responsibility is to express an opinion on these financial statements based on our audits.
 We conducted our audits of these statements in accordance with auditing standards generally accepted
 in the United States of America, which require that we plan and perform the audit to obtain reasonable
 assurance about whether the financial statements are free of material misstatement. An audit includes
 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
 assessing the accounting principles used and significant estimates made by management, and evaluating
 the overall financial statement presentation. We believe that our audits provide a reasonable basis
 for our opinion. PricewaterhouseCoopers LLPSan Jose, CaliforniaJanuary
 30, 2003 28  TRIPATH TECHNOLOGY INC.CONSOLIDATED
 BALANCE SHEETS(in thousands, except share data) December 31,2003

2002ASSETSCurrent assets:Cash and cash equivalents

$
8,951

$
10,112Restricted cash


661


486Accounts receivable, net of allowances for doubtful accounts of $50 and $345 at December 31, 2003 and 2002 respectively


2,041


1,471Inventories


5,574


5,252Prepaid expenses and other current assets


263


706Total current assets


17,490


18,027Property and equipment, net


1,897


2,474Other assets


81


184Total assets

$
19,468

$
20,685LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
4,069

$
2,395Current portion of capital lease obligations


496


225Accrued expenses


602


1,070Deferred distributor revenue


1,125


626Total current liabilities


6,292


4,316Deferred rent


697


195Capital lease obligations


559


7381,256


933Commitments and contingencies (Note 9)Stockholders equity :Preferred stock, $0.001 par value, 5,000,000 shares authorized; 0 shares issued and outstanding





Common stock, $0.001 par value, 100,000,000 shares authorized; 45,709,740 and 41,326,760 shares issued and outstanding at December 31, 2003 and 2002 respectively


45


41Additional paid-in capital


191,656


187,835Deferred stock-based compensation


(217
)

(91
)Accumulated deficit


(179,564
)

(172,349
)Total stockholders equity


11,920


15,436Total liabilities and stockholders equity

$
19,468

$
20,685 The accompanying notes are an integral part of these
 consolidated financial statements. 29  TRIPATH TECHNOLOGY INC.CONSOLIDATED
 STATEMENTS OF OPERATIONS(in thousands, except per share data) Year Ended December 31,2003

2002

2001Revenue

$
13,891

$
16,227

$
13,541Cost of revenue


9,710


18,494


11,948Gross profit (loss)


4,181


(2,267
)

1,593Operating expenses:Research and development


6,874


11,650


19,913Selling, general and administrative


4,544


5,557


8,664Restructuring and other charges








684Total operating expenses


11,418


17,207


29,261Loss from operations


(7,237
)

(19,474
)

(27,668
)Interest and other income, net


22


160


687Net loss


(7,215
)

(19,314
)

(26,981
)Accretion on preferred stock





(14,952
)

Net loss applicable to common stockholders

$
(7,215
)
$
(34,266
)
$
(26,981
)Basic and diluted net loss per share

$
(0.17
)
$
(0.88
)
$
(1.00
)Number of shares used to compute basic and diluted net loss per share


41,993


38,823


27,009Stock-based compensation included in:Cost of revenue

$
4

$
23

$
(95
)Research and development


20


195


(133
)Selling, general and administrative


57


(502
)

488$
81

$
(284
)
$
260 The accompanying notes are an integral part of these
 consolidated financial statements. 30  TRIPATH TECHNOLOGY INC.CONSOLIDATED
 STATEMENTS OF STOCKHOLDERS EQUITY(in thousands) Common

AdditionalPaid-inCapital

DeferredStock-basedCompensation

AccumulatedDeficit

TotalStockholdersEquityShares

AmountBalance at  December 31, 2000


26,217

$
26

$
158,533

$
(7,369
)
$
(111,102
)
$
40,088Issuance of common stock upon exercise of stock options


865


1


1,270








1,271Issuance of common stock upon exercise of warrants


90














Issuance of common stock through the ESPP


87





709








709Reversal of previously recognized compensation due to forfeitures








(5,837
)

1,529





(4,308
)Amortization of deferred stock-based compensation











4,568





4,568Net loss














(26,981
)

(26,981
)Balance at  December 31, 2001


27,259


27


154,675


(1,272
)

(138,083
)

15,347Issuance of common stock upon exercise of stock options


4





6








6Issuance of common stock through the ESPP


65





90








90Reversal of previously recognized compensation due to forfeitures








(1,465
)

266





(1,199
)Amortization of deferred stock-based compensation











915





915Issuance of common stock warrants








6,046








6,046Beneficial conversion feature on issuance of preferred stock (Note 6)








13,545








13,545Accretion on preferred stock














(14,952
)

(14,952
)Conversion of preferred stock to common stock


13,999


14


14,938








14,952Net Loss














(19,314
)

(19,314
)Balance at  December 31, 2002


41,327


41


187,835


(91
)

(172,349
)

15,436Issuance of common stock upon exercise of stock options


660





498








498Issuance of common stock upon exercise of warrants


1,896


2


3,111








3,113Issuance of common stock through the ESPP


27





7








7Issuance of restricted stock


1,800


2


322








324Deferred stock-based compensation











(324
)




(324
)Reversal of previously recognized compensation due to forfeitures








(117
)

10





(107
)Amortization of deferred stock-based compensation











188





188Net loss














(7,215
)

(7,215
)Balance at  December 31, 2003


45,710

$
45

$
191,656

$
(217
)
$
(179,564
)
$
11,920 The accompanying notes are an integral part of these
 consolidated financial statements. 31  TRIPATH TECHNOLOGY INC.CONSOLIDATED
 STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31,2003

2002

2001Cash flows from operating activities:Net loss

$
(7,215
)
$
(19,314
)
$
(26,981
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


1,206


1,396


2,086Non-cash restructuring and other charges








520Loss on disposal of equipment





3


182Allowance for doubtful accounts





700


117Write-off of excess inventory


243


4,977


Stock-based compensation


81


(284
)

260Changes in assets and liabilities:Accounts receivable


(570
)

350


(372
)Inventories


(565
)

729


(7,638
)Prepaid expenses and other assets


546


313


112Accounts payable


1,674


(1,957
)

425Accrued expenses


(468
)

27


(1,052
)Deferred distributor revenue


499


14


(194
)Deferred rent


502





Net cash used in operating activities


(4,067
)

(13,046
)

(32,535
)Cash flows from investing activities:Purchases of short-term investments








(15,065
)Sales of short-term investments





1,100


37,829Restricted cash


(175
)

(486
)

Purchase of property and equipment


(312
)

(840
)

(667
)Sale of property and equipment





25


Net cash provided by (used in) investing activities


(487
)

(201
)

22,097Cash flows from financing activities:Proceeds from issuance of preferred stock and warrants





19,591


Proceeds from issuance of common stock under ESPP and upon exercise of options


505


96


1,980Issuance of common stock upon exercise of warrants


3,113





Principal payments on capital lease obligations


(225
)

(325
)

(196
)Net cash provided by financing activities


3,393


19,362


1,784Net increase (decrease) in cash and cash equivalents


(1,161
)

6,115


(8,654
)Cash and cash equivalents at beginning of year


10,112


3,997


12,651Cash and cash equivalents at end of year

$
8,951

$
10,112

$
3,997Supplemental disclosure of cash flow information:Interest

$
23

$
69

$
102Non-cash investing and financing activities:Property and equipment acquired by capital lease

$
317

$
677

$
807Conversion of preferred stock into common stock

$


$
14,952

$
Issuance of common stock warrants

$


$
6,046

$
 The accompanying notes are an integral part of these
 consolidated financial statements. 32  TRIPATH TECHNOLOGY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1THE COMPANY AND BASIS OF PRESENTATION: The Company Tripath
 Technology Inc. (the Company or Tripath) was incorporated in California in July 1995. The Company
 was reincorporated in Delaware in July 2000. The Company designs, develops and markets integrated
 circuit devices for the Consumer Electronics,  DSL and Wireless markets. On August 1, 2000,
 the Company completed its initial public offering of 5 million shares of common stock at $10.00 per
 share. Basis of Presentation The
 consolidated financial statements include the accounts of Tripath and its wholly owned subsidiary, Tripath
 Technology Japan Ltd. All significant intercompany accounts and transactions have been eliminated. Accounts
 denominated in foreign currency have been remeasured using the U.S. dollar as the functional currency. The
 preparation of financial statements in conformity with accounting principles generally accepted in the
 United States of America requires management to make estimates and assumptions that affect the reported
 amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
 the financial statements and reported amounts of revenues and expenses during the reporting period.
 Actual results could differ from those estimates, and such differences could affect the results of operations
 reported in future periods and such differences could be material. Liquidity The
 Companys consolidated financial statements have been prepared on the basis of a going concern, which
 contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
 The Company has incurred substantial losses and has experienced negative cash flow since inception and
 has an accumulated deficit of $179.6 million at December 31, 2003. Beginning in August 2001, the Company instituted programs to reduce expenses including reducing headcount
 from 144 employees at the end of July 2001 to 56 employees at the end of December 2003 and reducing
 employees salaries by 10%. In September 2002 the Company relocated its headquarters which reduced rent
 expense and canceled its D&O policy which reduced insurance expense. These actions resulted in significant
 cost savings in 2003. The Company reduced its cash used in operating activities from approximately $13
 million in 2002 to approximately $4 million in 2003. During 2003, warrants were exercised which resulted in the Company receiving proceeds totaling approximately
 $3.1 million. At December 31, 2003, the Company had working capital of $11.2 million, including cash
 of $9.6 million. Subsequent to December 31, 2003 the Company received proceeds of approximately $2.3
 million from the exercise of outstanding warrants. Should
 the Company require more cash during 2004 to fund its operations than is currently planned, management
 believes that such additional cash requirements could be met by first obtaining additional financing
 or by taking measures to reduce operating expenses such as reducing headcount or canceling research
 and development projects. However, the Company may not be able to obtain additional funds on terms that
 would be favorable to its stockholders and the Company, or at all. The Companys long term prospects
 are dependent upon obtaining sufficient financing as needed to fund current working capital needs and
 future growth, and ultimately on achieving profitability. The
 Company believes that its existing working capital at December 31, 2003, together with subsequent proceeds
 recovered from exercise of options and warrants will be sufficient to meet its operating, working capital,
 investing and financing needs for at least the next twelve months until fiscal 2005. The Company has
 not made any adjustment to its consolidated financial statements as a result of the outcome of the uncertainty
 described above. Foreign Currency Translation The
 U.S. dollar is the functional currency for the Companys Japanese wholly-owned subsidiary. Assets and
 liabilities that are not denominated in the functional currency are remeasured into U.S. dollars and
 the resulting gains or losses are included in Interest and other income, net. Such gains or losses
 have not been material for any period presented. 33  NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Revenue Recognition The
 Company recognizes revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin
 No. 104 (SAB 104), Revenue Recognition in Financial Statements.  The Company recognizes
 revenue when all of the following criteria are met: 1) there is persuasive evidence that an arrangement
 exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4) collectibility
 is reasonably assured.  The following policies apply to the Company's major categories of revenue
 transactions. Sales to OEM Customers:   Under the
 Companys standard terms and conditions of sale, title and risk of loss transfer to the customer at
 the time product is delivered to the customer, FOB shipping point, and revenue is recognized accordingly. 
 The Company accrues the estimated cost of post-sale obligations, including basic product warranties
 or returns, based on historical experience.  The Company has experienced minimal warranty or other
 returns to date. Sales to Distributors:  The Company provides
 its distributors certain incentives such as stock rotation, price protection, and other offerings. 
 As a result of these incentives, the Company defers recognition of revenue until such time that the
 distributor sells product to its customer. Costs related to shipping and handling are included
 in cost of revenue for all periods presented. Allowance for Doubtful Accounts The
 Company provides an allowance for doubtful accounts to ensure trade receivables are not overstated due
 to uncollectibility. The collectibility of the Companys receivables is evaluated based on a variety
 of factors, including the length of time receivables are past due, indication of the customers willingness
 to pay, significant one-time events and historical experience. An additional reserve for individual
 accounts is recorded when the Company becomes aware of a customer's inability to meet its financial
 obligations, such as in the case of bankruptcy filings or substantial deterioration in the customer's
 operating results or financial position. If circumstances related to the Companys customers change,
 estimates of the recoverability of receivables would be further adjusted. Cash and cash equivalents and restricted cash The
 Company considers all highly liquid investments with a maturity of three months or less from the date
 of purchase to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks,
 money market funds and commercial paper, bonds and notes, the fair value of which approximates cost. The
 following table summarizes the Companys cash and cash equivalents (in thousands): December 31,2003

2002Cash and cash equivalents:Cash

$
1,480

$
394Money market funds


7,471


9,718$
8,951

$
10,112 The
 Company entered into a credit facility with a financial institution that had certain restrictions in
 the borrowing base.  The credit facility was used to issue standby letters of credit to collateralize
 the Companys obligations to a third party for the purchase of inventory and to provide a security deposit
 for the lease of new office space. The amount by which the aggregate face amount of all outstanding
 stand-by letters of credit exceeded the borrowing base, as determined by eligible receivables, represented
 the amount of restricted cash necessary to secure the standby letters of credit. At December 31, 2002,
 the Company had $486,000 in restricted cash. The credit facility  expired on June 30, 2003 and
 was not renewed. Upon the expiration of the credit agreement on June 30, 2003, the Company entered into
 a Pledge and Security Agreement to provide a security interest in a money market account in the amount
 of $0.7 million for the standby letters of credit, which totaled $0.7 million at December 31, 2003. 34  Fair value of financial instruments Carrying
 amounts of certain of the Companys financial instruments, including cash and cash equivalents, accounts
 receivable and accounts payable, approximate their fair values due to their relative short maturities
 and based upon comparable market information available at the respective balance sheet dates. The Company
 does not hold or issue financial instruments for trading purposes. Concentration of credit risk and significant
 customers Financial
 instruments that potentially subject the Company to concentrations of credit risk consist primarily
 of cash, cash equivalents and short-term investments. Substantially all of the Companys cash and cash
 equivalents are invested in highly-liquid money market funds. The Company sells its products through
 distributors and directly to original equipment manufacturers. The Company performs ongoing credit evaluations
 of its customers and maintains an allowance for potential credit losses, as considered necessary by
 management. Credit losses to date have been consistent with managements estimates. During the years
 ended December 31, 2003 and December 31, 2002, the Company wrote-off bad debts which had previously
 been reserved totaling approximately $295,000 and $622,000, respectively. The Company had no significant
 write-offs or recoveries during the year ended December 31, 2001. The
 following table summarizes sales to end customers comprising 10% or more of the Companys total revenue
 for the periods indicated : % of Revenue for the Year
 Ended December 31,2003

2002

2001Customer A


24
%




Customer B


18
%




Customer C


15
%

31
%

25
%Customer D





19
%

Customer E








29
%Customer F








13
%Customer G








12
% The
 Companys accounts receivable were concentrated with five customers at December 31, 2003 representing
 49%, 19%, 15%, 6% and 5% of aggregate gross receivables, five customers at December 31, 2002 representing
 17%, 16%, 14%, 14% and 14% of aggregate gross receivables, and five customers at December 31, 2001 representing
 15%, 15%, 13%, 12%, and  12% of aggregate gross receivables. Inventories Inventories
 are stated at the lower of cost or market. This policy requires the Company to make estimates regarding
 the market value of the Companys inventory, including an assessment of excess or obsolete inventory.
 The Company determines excess and obsolete inventory based on an estimate of the future demand and estimated
 selling prices for the Companys products within a specified time horizon, generally 12 months. The
 estimates the Company uses for expected demand are also used for near-term capacity planning and inventory
 purchasing and are consistent with the Companys revenue forecasts. Actual demand and market conditions
 may be different from those projected by the Companys management. If the Companys unit demand forecast
 is less than the Companys current inventory levels and purchase commitments, during the specified time
 horizon, or if the estimated selling price is less than the Companys inventory value, the Company will
 be required to take additional excess inventory charges or write-downs to net realizable value which
 will decrease the Companys gross margin and net operating results in the future. During the quarter
 ended March 31, 2002, the Company recorded a provision for excess inventory of approximately $5 million
 related to excess inventory for the Companys TA2022 product as a result of a decrease in forecasted
 sales for this product. Inventory purchase commitment losses The
 Company accrues for estimated losses on non-cancelable purchase orders. The estimated losses result
 from anticipated future sale of products for sales prices less than the estimated cost to manufacture.
 Inventory purchase commitment losses accrued at December 31, 2003, 2002 and 2001 were $0, $38,000 and
 $190,000, respectively. 35  Research and development expenses Research
 and development costs are charged to expense as incurred. Property and equipment Property
 and equipment, including leasehold improvements, are stated at historical cost, less accumulated depreciation
 and amortization. Amortization of leasehold improvements is computed using the straight-line method
 over the shorter of the estimated useful lives of the assets or the term of the lease. Depreciation
 is computed using the straight-line method over the estimated useful lives of the assets as follows: Furniture and fixtures
5 yearsSoftware
Shorter of three years or term of licenseEquipment
2-5 years Long-lived
 assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances
 indicate that their net book value may not be recoverable. An impairment loss is recognized if the sum
 of the expected future cash flows (undiscounted and before interest) from the use of the assets is less
 than the net book value of the asset. The amount of the impairment loss, if any, will generally be measured
 as the difference between net book value of the assets and their estimated fair values. Comprehensive income Statement
 of Financial Accounting Standards No. 130, Reporting Comprehensive Income,  establishes standards
 for reporting and displaying comprehensive income and its components in a full set of general-purposes
 financial statements. There was no difference between the Companys net loss and its total comprehensive
 loss for the years ended December 31, 2003, 2002 and 2001. Accounting for stock-based compensation At
 December 31, 2003, the Company has two stock-based employee compensation plans, which are described
 more fully in Note 7.  The Company accounts for those plans under the recognition and measurement
 principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. 
 No stock-based employee compensation cost related to stock options is reflected in net income for the
 three years ended December 31, 2003, as all options granted under those plans had an exercise price
 equal to the market value of the underlying common stock on the date of grant.  The following table
 illustrates the effect on net income and earnings per share if the Company had applied the fair value
 recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation,
 to stock-based employee compensation. Year Ended December 31,2003

2002

2001Net loss applicable to common stockholders, as reported

$
(7,215
)
$
(34,266
)
$
(26,981
)Total stock-based employee compensation expense included in the net loss, determined under the recognition and measurement principles of APB Opinion No.25, net of related tax effects


(81
)

(284
)

260Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects


(1211
)

(1,527
)

(5,625
)Proforma net loss applicable to common stockholders

$
(8,507
)
$
(36,077
)
$
(32,346
)As reported

$
(0.17
)
$
(0.88
)
$
(1.00
)Proforma

$
(0.20
)
$
(0.93
)
$
(1.20
) 36  The
 fair value for these options was estimated using the Black-Scholes option pricing model. The
 Black-Scholes option pricing model was developed for use in estimating the fair value of traded options
 that have no vesting restrictions and are fully transferable. Option pricing models require the input
 of highly subjective assumptions, including the expected stock price volatility. Accordingly, option
 pricing models may not necessarily provide a reliable single measure of the fair value of options. The
 fair value of options at the date of grant was estimated on the date of grant based on the method prescribed
 by SFAS No. 123. The following table summarizes the estimated fair value of options and assumptions
 used in the SFAS No. 123 calculations for stock option plans: Year Ended December 31,2003

2002

2001Estimated fair value

$
0.73

$
0.14

$
2.21Expected lives (in years)


5


5


5Volatility


157
%

110
%

110
%Risk-free interest rate


2.96
%

3.83
%

4.56
%Dividend yield








 The
 following table summarizes the estimated fair value of employees purchase rights and assumptions used
 in the SFAS No. 123 calculations: Year Ended December 31,2003

2002

2001Estimated fair value

$
0.15

$
0.38

$
0.70Expected lives (in years)


0.5


0.5


0.5Volatility


157
%

110
%

110
%Risk-free interest rate


2.96
%

3.83
%

4.56
%Dividend yield








 The
 following tables sets forth, for each of the periods presented, deferred stock-based compensation recorded
 and the amortization of deferred stock-based compensation (in thousands): Year Ended December 31,2003

2002

2001Deferred stock-based compensation

$
(315
)
$
(1,465
)
$
(5,837
)Amortization of deferred stock-based compensation


189


915


4,568Reversal of previously recognized compensation due to forfeitures


(98
)

(1,199
)

(4,308
) Unamortized
 deferred stock-based compensation at December 31, 2003 and December 31, 2002 was 217,000 and $91,000,
 respectively. Stock-based
 compensation attributable to individuals that worked in the following functions is as follows (in thousands): Year Ended December 31,2003

2002

2001Manufacturing/operations (cost of revenues)

$
4

$
23

$
(95
)Research and development


20


195


(133
)Selling, general and administrative


57


(502
)

488Total stock-based compensation

$
81

$
(284
)
$
260 37  Segment and geographic information The
 Company has determined that it has one reportable business segment: the design, license and marketing
 of integrated circuits. The
 following is a geographic breakdown of the Companys sales by shipping destination for the following
 periods: Year Ended December 31,2003

2002

2001United States

$
909

$
566

$
872Japan


6,117


3,816


6,460Singapore


522


3,097


1,569Taiwan


1,325


2,615


2,686China


797


3,666


273Korea


3,146





Rest of world


1,075


2,467


1,681$
13,891

$
16,227

$
13,541 Net
 property and equipment by country was as follows: December 31,2003

2002United States

$
1,532

$
2,405Korea


317


Japan


48


69$
1,897

$
2,474 Recent Accounting Pronouncements In
 January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities,
 an Interpretation of ARB No. 51 (FIN 46), which addresses consolidation by business enterprises of
 variable interest entities (VIEs) either: (1) that do not have sufficient equity investment at risk
 to permit the entity to finance its activities without additional subordinated financial support, or
 (2) in which the equity investors lack an essential characteristic of a controlling financial interest.
 In December 2003, the FASB completed deliberations of proposed modifications to FIN 46 (Revised
 Interpretations) resulting in multiple effective dates based on the nature as well as the creation date
 of the VIE. VIEs created after January 31, 2003, but prior to January 1, 2004, may be accounted
 for either based on the original interpretation or the Revised Interpretations. However, the Revised
 Interpretations must be applied no later than the first quarter of fiscal year 2004. VIEs created after
 January 1, 2004 must be accounted for under the Revised Interpretations.  There has been no
 material impact to the Companys consolidated financial statements from potential VIEs entered into
 after January 31, 2003 and there is no expected impact from the adoption of the deferred provisions
 in the first quarter of fiscal year 2004. In
 June 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
 Activities  (SFAS 149).  SFAS 149 amends and clarifies financial accounting and reporting
 for derivative instruments and for hedging activities.  SFAS 149 is effective for contracts entered
 into or modified after June 30, 2003.  The Company does not use derivative products and the adoption
 of this statement had no material impact on the Companys consolidated financial statements. In
 June 2003, the FASB issued SFAS No. 150,  Accounting for Certain Financial Instruments with Characteristics
 of both Liabilities and Equity (SFAS 150).  SFAS 150 establishes standards on the classification
 and measurement of certain financial instruments with characteristics of both liabilities and equity. 
 The provisions of SFAS 150 are effective for financial instruments entered into or modified after May
 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial
 reporting period beginning after June 15, 2003.  The adoption of SFAS 150 did not have a material
 impact on the Companys results of operations or financial position. In
 December 2003, the SEC issued Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104),
 which codifies, revises and rescinds certain sections of SAB No. 101, Revenue Recognition, in order
 to make this interpretive guidance consistent with current authoritative accounting and auditing guidance
 and SEC rules and regulations. The changes noted in SAB 104 did not have a material effect on the Companys
 consolidated results of operations, consolidated financial position or consolidated cash flows. 38  Net loss per share Basic
 net loss per share is computed by dividing the net loss available to common stockholders for the period
 by the weighted average number of common stock outstanding during the period. Diluted net loss per share
 is computed based on the weighted average number of common stock and dilutive potential common stock
 outstanding. The calculation of diluted net loss per share excludes potential common stock if the effect
 is anti-dilutive. Potential common stock consist of incremental common stock issuable upon the exercise
 of stock options, shares issuable upon conversion of convertible preferred stock and common stock issuable
 upon the exercise of common stock warrants. The
 following table sets forth the computation of basic and diluted net loss per share for the periods presented
 (in thousands, except per share amounts): Year Ended December 31,2003

2002

2001Numerator:Net loss applicable to common stockholders

$
(7,215
)
$
(34,266
)
$
(26,981
)Denominator:Weighted average common stock


41,993


38,823


27,009Net loss per share:Basic and diluted

$
(0.17
)
$
(0.88
)
$
(1.00
) The
 following table sets forth potential shares of common stock that are not included in the diluted net
 loss per share calculation above because to do so would be anti-dilutive for the periods presented (in
 thousands): December 31,2003

2002

2001Common stock options


8,501


7,535


7,117Common stock under Employee Stock Purchase Plan


322


349


413Common stock warrants


1,229


3,329


25Restricted Stock


1,800





 NOTE 3RESTRUCTURING AND OTHER CHARGES: On
 August 3, 2001, the Company announced a restructuring and cost reduction plan which included a workforce
 reduction and write-off of abandoned assets. As a result of the restructuring and cost reduction plan,
 the Company recorded restructuring and other charges of $684,000 during the quarter ended September
 30, 2001. Under
 the restructuring and cost reduction plan, the Company reduced its workforce by approximately 40 employees
 across all functions and mostly located at its former headquarters facility in Santa Clara, California.
 The workforce reduction resulted in a $164,000 charge relating primarily to severance and fringe benefits.
 The Company also abandoned assets resulting in a charge of  $520,000. A
 summary of the restructuring and other charges is as follows: Total charges

Non-cash charges

Cash paymentsWork force reduction

$
164,000

$


$
164,000Write-off of abandoned assets


520,000


520,000


$
684,000

$
520,000

$
164,000 39  NOTE 4BALANCE SHEET COMPONENTS (in thousands): December 31,2003

2002Accounts receivable, net:Accounts receivable

$
2,091

$
1,816Less: allowance for doubtful accounts


(50
)

(345
)$
2,041

$
1,471Inventories:Raw materials

$
1,692

$
1,868Work-in-process


1,007


551Finished goods


2,229


2,409Inventory held by distributors


646


424$
5,574

$
5,252Property and equipment, net:Furniture and fixtures

$
221

$
220Software


4,175


4,175Equipment


4,233


3,629Leasehold improvements


152


1288.781


8,152Less: accumulated depreciation and amortization


(6,884
)

(5,678
)$
1,897

$
2,474 Property and equipment includes assets under capital
 leases and accumulated amortization of assets under capital leases of $1,801,000 and $877,000, respectively,
 at December 31, 2003 and $1,484,000 and $555,000, respectively at December 31, 2002. Accrued expenses:Accrued compensation and related benefits

$
218

$
245Other accrued expenses


384


825$
602

$
1,070 NOTE 5LINE OF CREDIT: On
 July 12, 2002, the Company entered into a credit agreement with a financial institution that provided
 for a one-year revolving credit facility in an amount of up to $10 million, subject to certain
 restrictions in the borrowing base based on eligibility of receivables. The credit agreement expired
 on June 30, 2003 and has not been renewed. NOTE 6COMMON STOCK: The
 Companys Amended and Restated Articles of Incorporation authorize the Company to issue 100,000,000
 shares of common stock. At December 31, 2003 and 2002, there were 45,709,740 shares and 41,326,760 shares,
 respectively, of common stock issued and outstanding. The
 Company has reserved the following number of shares of common stock for future issuance (in thousands): December 31,2003

2002

2001Common stock warrants


1,229


3,329


25Common stock under Employee Stock Purchase Plan


322


349


413Common stock upon exercise of outstanding stock options


8,501


7,535


7,11710,052


11,213


7,555 40  On
 January 24, 2002, the Company completed a financing in which it raised $21 million in gross
 proceeds through a private placement of non-voting Series A Preferred Stock and warrants, at $30
 per unit to a group of investors, which was convertible into 13,999,000 shares of common stock and warrants
 to purchase 3,303,760 shares of common stock. Each share of Series A Preferred Stock was convertible
 into 20 shares of Common Stock (or an effective Common Stock price of $1.50 per share). Investors also
 received warrants to purchase up to an additional 20 percent of shares of Series A Preferred
 Stock. The warrants have a term of three years and an exercise price equal to $39.00 per share (or an
 effective Common Stock exercise price of $1.95 per share). At
 a Special Meeting of Stockholders held on March 7, 2002, the stockholders approved the issuance
 and sale of 699,950 shares of Series A Preferred Stock and warrants. As a result, the Preferred
 Stock and warrants automatically converted into 13,999,000 shares of common stock and warrants to purchase
 3,303,760 shares of common stock. As
 a result of the favorable conversion price of the preferred shares at the date of issuance, the Company
 recorded accretion of approximately $15 million (thus increasing the net loss applicable to common
 stockholders for the year ended December 31, 2002) relating to the beneficial conversion feature
 representing the difference between the accounting conversion price and the fair value of the common
 stock on the date of the transaction, after valuing the warrants issued in connection with the financing
 transaction. The Company valued the warrants using the Black-Scholes option pricing model, applying
 an expected life of three years, a weighted average risk-free rate of 3.61%, an expected dividend
 yield of zero percent, a volatility of 130% and a deemed fair value of common stock of $2.35, which
 was the value of the Companys common stock on the date of grant. Stock Repurchase Program In
 August 2002, the Companys Board of Directors approved a Stock Repurchase Program and authorized the
 repurchase of up to one million shares of the Companys common stock in the open market over the next
 year. No shares were repurchased under the Stock Repurchase Program. Common stock warrants In
 connection with the financing that was completed on January 24, 2002, the Company issued warrants to
 purchase 3,303,760 shares of the Companys common stock. This included unregistered warrants that were
 issued to the placement agent for the financing transaction to purchase 503,960 shares of the Companys
 common stock. The 2,799,800 registered warrants have a term of three years and an effective Common Stock
 exercise price of $1.95 per share, whereas 419,968 of the 503,960 warrants issued to the placement agent
 have an effective Common Stock exercise price of $1.50 per share. The remainder of the warrants issued
 to the placement agent have an effective Common Stock exercise price of $1.95 per share. During
 the year ended December 31, 2003, warrants were exercised which resulted in the issuance of 1,896,226
 shares of the Companys common stock with proceeds to the Company totaling approximately $3.1 million.
 These amounts included the exercise of warrants issued to the placement agent on a net issuance basis
 resulting in 300,438 shares of the Companys common stock being issued to the placement agent. The
 warrant agreement contained a provision for the mandatory exercise of the warrants if the Companys
 common stock traded at $5.85 or higher for 20 out of 30 trading days. At the close of business on January
 2, 2004 the Companys common stock had traded at $5.85 or higher for 20 consecutive days and the Company
 was able to invoke the provision for the mandatory exercise of all outstanding warrants issued in connection
 with the January 2002 financing. All outstanding warrants were exercised in January 2004 resulting in
 the issuance of an additional 1.2 million shares of common stock. The Company received proceeds of approximately
 $2.3 million from the exercise of these warrants. Restricted stock In April 2003, the Company issued 1.8 million shares of restricted stock, pursuant to the 2000 Stock
 Plan. The Company determined the value of the restricted stock grant to be $324,000 by reference to
 the quoted market price at the time of issuance and is amortizing this amount over two years. Compensation
 expense related to the issuance of restricted stock was $108,000 for the year ended December 31, 2003. 41  NOTE 7EMPLOYEE BENEFIT PLANS: Stock Option Plans In
 April 2000, the Company adopted the 2000 Stock Option Plan (the 2000 Plan). Upon adoption of
 the 2000 Plan, shares reserved for issuance under the 1995 Stock Option Plan relating to ungranted options
 were cancelled, and outstanding options under the 1995 Plan became subject to the 2000 Plan. The 2000
 Plan authorizes the Board of Directors to grant incentive stock options (ISOs) and nonstatutory stock
 options (NSOs) to employees, directors and consultants for up to 17,300,000 shares of common stock.
 ISOs may be granted only to employees of the Company (including officers and directors who are also
 employees). NSOs may be granted to employees, non-employee directors and consultants of the Company.
 No person will be eligible to receive more than 500,000 shares in any fiscal year pursuant to awards
 under the 2000 Plan other than a new employee of the Company who will be eligible to receive no more
 than 1,000,000 shares in the fiscal year in which such employee commences employment. Under
 the 2000 Plan, ISOs and NSOs are granted at a price that is not to be less than 100% of the fair market
 value of the common stock on the date of grant, as determined by the Board of Directors. Initial hire-on
 stock options generally vest at 25% on the first anniversary date from the date of grant and then monthly
 thereafter over the remaining 36 months. Subsequent discretionary stock options, generally vest equally
 each month over 48 months.  Options granted to shareholders who own more than 10% of the outstanding
 stock of the Company at the time of grant must be issued at prices not less than 110% of the estimated
 fair value of the stock on the date of grant. Options under the 2000 Plan may be granted for periods
 up to 10 years. The
 following table summarizes stock option activity under the Companys Stock Option Plans (in thousands,
 except per share data): Options OutstandingOptionsAvailableforGrant

Shares

Weighted AverageExercise PricePer ShareBalance at December 31, 2000


4,008


7,315

$
7.36Granted


(5,515
)

5,515

$
2.77Additional shares reserved


1,300




$
Canceled


4,848


(4,848
)
$
7.67Exercised





(865
)
$
1.47Balance at December 31, 2001


4,641


7,117

$
4.30Granted


(3,282
)

3,282

$
0.19Additional shares reserved


2,000




$
Canceled


2,860


(2,860
)
$
3.33Exercised





(4
)
$
1.50Balance at December 31, 2002


6,219


7,535

$
2.88Granted


(2,955
)

2,955

$
0.83Grant of restricted stock


(1,800
)




Additional shares reserved


2,000




$
Canceled


1,329


(1,329
)
$
2.53Exercised





(660
)
$
0.72Balance at December 31, 2003


4,793


8,501

$
2.40 42  Significant
 options groups outstanding at December 31, 2003 and related weighted average exercise prices and contractual
 life information are as follows: Options Outstanding

Options Vested andExercisableRange of Exercise Prices



WeightedAverageContractualLife (Years)

WeightedAverageExercise PricePer
 Share

NumberVestedandExercisable

WeightedAverageExercise PricePer
 ShareNumberOutstanding$   0.14-$   0.21


2,592,546


8.4

$
0.16


862,618

$
0.15$   0.22-$   2.50


4,131,095


8.4

$
0.81


1,381,301

$
0.96$   2.51-$   4.50


400,497


6.8

$
4.35


228,005

$
4.50$   4.51-$   8.00


303,000


3.8

$
5.56


278,580

$
5.48$   8.01-$ 12.00


802,203


6.0

$
11.85


711,682

$
11.84$ 12.01-$ 19.88


266,562


2.5

$
13.48


265,936

$
13.46$ 20.89-$ 22.35


5,000


6.8

$
21.75


3,958

$
21.758,500,903


7.8

$
2.40


3,732,080

$
4.31 2000 Employee Stock Purchase Plan In
 April 2000 the Company adopted the 2000 Employee Stock Purchase Plan (the Purchase Plan) under
 which 500,000 shares of common stock have been reserved for issuance. Eligible employees may elect to
 withhold up to 15% of their salary to purchase shares of the Companys common stock at a price equal
 to 85% of the market value of the stock at the beginning or ending of a six month offering period, whichever
 is lower. No more than 5,000 shares may be purchased by an eligible employee during any calendar year.
 The Purchase Plan will terminate in 2010. Under the Purchase Plan, 27,184, 64,606 and 86,566 shares
 were issued during the years ended December 31, 2003, 2002 and 2001. The
 Company did not recognize compensation expense related to employee purchase rights in 2003, 2002 or
 2001. 401(k) Plan The
 Company sponsors a 401(k) Plan (the 401(k) Plan) which provides tax-deferred salary deductions for
 eligible employees. Employees may contribute up to 15% of their annual compensation to the 401(k) Plan,
 limited to a maximum annual amount as set periodically by the Internal Revenue Service. The 401(k) Plan
 permits, but does not require, the Company to make matching contributions. To date, no such matching
 contributions have been made. NOTE 8INCOME TAXES: At
 December 31, 2003, the Company had net operating loss carryforwards for federal and state income tax
 purposes of approximately $106,000,000 and $35,000,000 respectively, which expire in varying amounts
 beginning in 2005 through 2021. In addition, the Company has credit carryforwards of approximately $5,200,000
 for federal and state purposes. The federal and state carryforwards expire in varying amounts through
 2021. Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss and tax
 credit carryforwards may be impaired or limited in certain circumstances. Events which could cause limitations
 in the use of net operating loss and tax credit carryforwards that the Company may utilize in any one
 year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over
 a three-year period. Deferred
 taxes comprise the following (in thousands): December 31,2003

2002Net operating loss carryforwards

$
38,108

$
36,533Non-deductible reserves and accruals


2,433


2,163Credit carryforwards


4,311


3,774Capitalized research and development


2,849


2,089Depreciation


226


185Net deferred tax assets


47,927


44,744Less: Valuation allowance


(47,927
)

(44,744
)Net deferred tax assets





 43  The
 Company believes that, based on number of factors, the available objective evidence creates sufficient
 uncertainty regarding the realizability of the deferred tax assets such that a full valuation allowance
 has been recorded. These factors include the Companys history of losses, and relatively high expense
 levels, the fact that the market in which the Company competes is intensely competitive and characterized
 by rapidly changing technology, the lack of carryback capacity to realize deferred tax assets and the
 uncertainty regarding market acceptance of the Companys products. The Company will continue to assess
 the realizability of the deferred tax assets based on actual and forecasted operating results. NOTE 9COMMITMENTS AND CONTINGENCIES: Lease
 commitments The
 Company leases office space and equipment under non-cancelable operating leases with various expiration
 dates through 2007. Rent expense for operating leases was as follows (in thousands): Year Ended December 31,2003

2002

2001Rent expense

$
837

$
1,812

$
1,583 On
 July 18, 2002, the Company entered into a sublease agreement for the lease of new office space.
 Under the terms of the sublease agreement, commencing September 1, 2002 the Company became entitled
 to free rent until June 30, 2003. Subsequently, the Company will make monthly payments ranging from
 $0.65 per square foot to $1.35 per square foot until the sublease expires on March 31, 2007. As
 a result, the Company had $697,000 and $195,000 of deferred rent at December 31, 2003 and 2002, respectively.
 The Companys lease for the old office space expired on November 30, 2002. On
 November 30, 2003, the Company entered into a capital lease for test equipment. The lease has a term
 of 38 months and at the end of the lease the Company may purchase the test equipment for $1.00. The
 Company may also purchase the test equipment after 14 months for $166,000 or after 20 months for $133,000. The
 value of the assets and related obligation recorded under the capital leases is $1,801,000 and $1,055,000
 respectively at as of December 31, 2003 and $1,005,000 and $1,026,000 respectively at December 31, 2002. Future minimum lease payments under non-cancelable
 operating leases and the capital lease are as follows (in thousands): Year Ending December 31,

OperatingLeases

CapitalLeases2004

$
933

$
5512005


1,083


4942006


1,046


862007


270


2008and beyond





Total minimum lease payments

$
3,332


1,131Less: amount representing interest





(76
)Present value of minimum lease payments





1,055Less: current portion of capital lease obligations





(496
)Long-term capital lease obligations




$
559 Inventory purchase commitments At
 December 31, 2003 the Company had open purchase orders for the purchase of inventory totaling approximately
 $3.2 million. These purchase orders may only be cancelled if the foundry has not yet started production
 of the wafers to which the open purchase orders relate. Contingencies From
 time to time, in the normal course of business, various claims are made against the Company. In the
 opinion of the Companys management, there are no pending claims, the outcome of which is expected to
 result in a material adverse effect on the financial position or results of operations of the Company.
 The Company is self insured for certain potential claims against the Company, directors or officers. Guarantees 44  In
 November 2002, the FASB issued FIN No. 45 Guarantors Accounting and Disclosure Requirements for Guarantees,
 including Indirect Guarantees of Indebtedness of Others  an interpretation of FASB Statements No. 5,
 57 and 107 and rescission of FIN 34. The following is a summary of the Companys agreements that the
 Company has determined are within the scope of FIN 45. The
 Company provides a limited warranty for up to one year for any defective products. During the years
 ended December 31, 2003 and December 31, 2002, warranty expense was insignificant. The Company has a
 reserve for warranty costs of $30,000, which has not changed in the past year. On
 June 30, 2003, the Company entered into a Pledge and Security Agreement to provide collateral for outstanding
 standby letters of credit which totaled $0.7 million at December 31, 2003. Pursuant
 to its bylaws, the Company has agreed to indemnify its officers and directors for certain events or
 occurrences arising as a result of the officer or director serving in such capacity. The term of the
 indemnification period is for the officers or directors lifetime. To date, the Company has not incurred
 any costs as there have been no lawsuits or claims that would invoke these indemnification agreements.
 Accordingly, the Company has no liabilities recorded for these agreements as of December 31, 2003. The
 Company is self-insured for these and similar claims. The
 Company enters into indemnification provisions under (i) its agreements with other companies in its
 ordinary course of business, typically with business partners, contractors and customers, its sublandlord
 and (ii) its agreements with investors. Under these provisions the Company has agreed to generally indemnify
 and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as
 a result of the Companys activities or, in some cases, as a result of the indemnified partys activities
 under the agreement. These indemnification provisions often include indemnifications relating to representations
 made by the Company with regard to intellectual property rights. These indemnification provisions generally
 survive termination of the underlying agreement. The maximum potential amount of future payments the
 Company could be required to make under these indemnification provisions is unlimited. To date, the
 Company has not incurred any costs as there have been no lawsuits or claims related to these indemnification
 agreements. Accordingly, the Company has no liabilities recorded for these agreements as of December
 31, 2003. NOTE 10  SUPPLEMENTARY FINANCIAL INFORMATION (unaudited) Summarized
 quarterly financial information for the two years ended December 31, 2003 is as follows (in thousands,
 except per share data): 2003 First Quarter

Second Quarter

Third Quarter

Fourth QuarterNet revenues


$
2,952



$
3,139



$
3,674



$
4,126Gross profit


$
745



$
919



$
1,160



$
1,357Operating loss


$
(2,479
)


$
(1,819
)


$
(1,545
)


$
(1,394
)Net loss


$
(2,477
)


$
(1,816
)


$
(1,536
)


$
(1,386
)Basic and diluted net loss per share


$
(0.06
)


$
(0.04
)


$
(0.04
)


$
(0.03
) 2002 First Quarter

Second Quarter

Third Quarter

Fourth QuarterNet revenues


$
4,555



$
6,052



$
2,718



$
2,902Gross profit


$
(3,999
)


$
810



$
265



$
657Operating loss


$
(9,355
)


$
(4,065
)


$
(3,162
)


$
(2,892
)Net loss


$
(9,307
)


$
(4,013
)


$
(3,140
)


$
(2,854
)Accretion on preferred stock


$
(14,952
)


$




$




$
Net loss applicable to common stockholders


$
(24,259
)


$
(4,013
)


$
(3,140
)


$
(2,854
)Basic and diluted net loss per share


$
(0.78
)


$
(0.10
)


$
(0.08
)


$
(0.07
) 45   ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
 ACCOUNTING AND FINANCIAL DISCLOSURE On
 April 10, 2003, PricewaterhouseCoopers LLP, the independent accounting firm previously engaged
 as our auditing firm to audit our financial statements, resigned. The
 reports of PricewaterhouseCoopers LLP on the financial statements for the fiscal years ending December
 31, 2001 and 2002 contained no adverse opinion or disclaimer of opinion and were not qualified or modified
 as to uncertainty, audit scope or accounting principle, except that the reports for each of the fiscal
 years ending December 31, 2001 and 2002 included an explanatory paragraph expressing substantial doubt
 about our ability to continue as a going concern. The
 decision by PricewaterhouseCoopers LLP to terminate the client-auditor relationship was not recommended
 or approved by the audit committee of our board of directors. In
 connection with its audits for the fiscal years ending December 31, 2001 and 2002 and through April 10,
 2003, there were no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles
 or practices, financial statement disclosure or auditing scope or procedure which disagreements if not
 resolved to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make reference
 thereto in their report on the financial statements for such years. In connection with the audit for
 the fiscal year ended December 31, 2002, our chief financial officer made certain public comments
 following the filing of Form 10-K/A on April 1, 2003 indicating management's disagreement
 with PricewaterhouseCoopers LLP including in its audit report on our financial statements for the year
 ended December 31, 2002 a reference to the existence of substantial doubt regarding our ability
 to continue as a going concern. The audit committee of our board of directors did not discuss the subject
 matter of this disagreement with PricewaterhouseCoopers LLP. We have authorized PricewaterhouseCoopers
 LLP to respond fully to the inquiries of its successor accountant concerning the subject matter of such
 disagreement. PricewaterhouseCoopers
 LLP's letter to the Securities and Exchange Commission stating its agreement with the statements made
 in our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 17,
 2003, which are not materially different than the statements made herein, is filed as an exhibit to
 such Current Report on Form 8-K. On
 May 9, 2003, we engaged the services of BDO Seidman, LLP as our new independent auditors for our fiscal
 year ended December 31, 2003. Our Board of Directors, with the recommendation of the Audit Committee
 of the Board of Directors, authorized and approved the engagement of BDO Seidman. In deciding to select
 BDO Seidman, the Audit Committee and our management considered auditor independence issues raised by
 commercial relationships we have or may have with certain accounting firms. With respect to BDO Seidman,
 we do not have any  commercial relationship with BDO Seidman that would impair its independence.
 During our two most recent fiscal years ended December 31, 2002, and the subsequent interim period through
 May 9, 2003, we did not consult with BDO Seidman regarding any of the matters or events set forth in
 Item 304(a)(2)(i) and (ii) of Regulation S-K. ITEM 9A.
CONTROLS AND PROCEDURES Introduction. 
 Rules promulgated under the Securities Exchange Act of 1934, as amended, (the Act) define disclosure
 controls and procedures to mean controls and procedures that are designed to ensure that information
 required to be disclosed by public reporting companies in the reports filed or submitted under the Act
 is recorded, processed, summarized and reported, within the time periods specified in the SECs rules
 and forms (Disclosure Controls).  New rules promulgated under the Act define internal control
 over financial reporting to mean a process designed by, or under the supervision of, a public companys
 principal executive and principal financial officers, or persons performing similar functions, and effected
 by such companys board of directors, management and other personnel, to provide reasonable assurance
 regarding the reliability of financial reporting and the preparation of financial statements for external
 purposes in accordance with generally accepted accounting principles (GAAP), including those policies
 and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and
 fairly reflect the transactions and dispositions of the assets of the company, (ii) provide reasonable
 assurance that transactions are recorded as necessary to permit preparation of financial statements
 in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance
 with authorizations of management and directors of the company and (iii) provide reasonable assurance
 regarding prevention or timely detection of unauthorized acquisition, use or disposition of the companys
 assets that could have a material effect on the financial statements (Internal Controls). We have designed our Disclosure Controls and Internal
 Controls to provide reasonable assurances that their objectives will be met.  A control system,
 no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that
 its objectives will be met.  All control systems are subject to inherent limitations, such as resource
 constraints, the possibility of human error and the possibility of intentional circumvention of these
 controls.  Furthermore, the design of any control system is based in part upon assumptions about
 the likelihood of future events, which assumptions may ultimately prove to be incorrect.  As a
 result, we cannot assure you that our control system will detect every error or instance of fraudulent
 conduct. 46  Evaluation
 of disclosure controls and procedures.  Based on their evaluation as of December 31, 2003,
 our chief executive officer and chief financial officer, with the participation of management, have
 concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of
 the Securities Exchange Act of 1934) were effective, at the level of reasonable assurance,  to
 ensure that the information required to be disclosed by us in this annual report on Form 10-K was recorded,
 processed, summarized and reported within the time periods specified in the SECs rules and Form 10-K. Changes
 in internal controls.There were no changes in our internal controls over financial reporting
 during the quarter ended December 31, 2003, that have materially affected, or are reasonably likely
 to materially affect, our internal controls over financial reporting. PART III ITEM 10.
DIRECTORS AND OFFICERS OF THE REGISTRANT The
 information required by this Item regarding our directors, Section 16 compliance and our code of ethics
 is incorporated by reference to the sections entitled Election of DirectorsDirectors and Nominees,
 Section 16(a) Beneficial Ownership Reporting Compliance and Code of Ethics in our Proxy Statement
 for our 2004 Annual Meeting of Stockholders (the 2004 Proxy Statement).  The information required
 by this Item concerning our executive officers is contained in the section entitled Executive Officers
 of the Registrant in Part I of this Form 10-K. ITEM 11.
EXECUTIVE COMPENSATION The
 information required by this Item is incorporated by reference to the sections entitled Director Compensation
 and Executive Compensation and Other Matters in the 2004 Proxy Statement. ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The
 information required by this Item is incorporated by reference to the sections entitled Equity Compensation
 Plan Information and Security Ownership of Certain Beneficial Owners and Management in the 2004 Proxy
 Statement. ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The
 information required by this Item is incorporated by reference to the section entitled Certain Relationships
 and Related Transactions in the 2004 Proxy Statement. ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES The
 information required by this item is incorporated by reference to the section entitled Ratification
 of Appointment of BDO Seidman, LLP as Independent Accountants for the Fiscal Year Ending December 31,
 2004 in the 2004 Proxy Statement. 47  PART IV ITEM 15.
EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K  (a)
The following documents are filed as part of this Form
 10-K:(1)
Financial Statements:Report of Independent Certified Public AccountantsReport of Independent AuditorsConsolidated Balance Sheets as of December 31,
 2003 and 2002Consolidated Statements of Operations for the years
 ended December 31, 2003, 2002 and 2001Consolidated Statements of Stockholders Equity for
 the years ended December 31, 2003, 2002 and 2001Consolidated Statements of Cash Flows for the years
 ended December 31, 2003, 2002 and 2001Notes to Consolidated Financial Statements(2)
Financial Statement Schedules:Financial statement schedules have been omitted since
 the required information is not present in amounts sufficient to require submission of the schedules
 or because the information required is included in the financial statements or notes thereto.(3)
Exhibits:  The items listed on the Index to Exhibits
 on page 50 is incorporated herein by reference.b)
Reports on Form 8-KOn
 October 30, 2003 we furnished the information under Item 12 of Form 8-K Results of Operations and Financial
 Condition relating to the release of our financial results for the quarter ended September 30, 2003.On
 October 24, 2003 we furnished information under Items 5 and 7 of Form 8-K announcing the transfer of
 the listing of our common stock from The Nasdaq SmallCap Market to the Nasdaq National Market. 48  SIGNATURES Pursuant
 to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly
 caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRIPATH TECHNOLOGY INC.By:
/s/  DR. ADYA S. TRIPATHIDr. Adya S. TripathiPresident and Chief Executive
 Officer,Chairman of the BoardDated: March 9, 2004 POWER OF ATTORNEY KNOW
 ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
 Dr. Adya S. Tripathi and David P. Eichler, and each of them, his true and lawful attorneys-in-fact,
 each with full power of substitution, for him in any and all capacities, to sign any amendments to this
 report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith,
 with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact
 or their substitute or substitutes may do or cause to be done by virtue hereof. Pursuant
 to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
 following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature

Title

Date/s/  DR. ADYA S. TRIPATHI

President and Chief Executive Officer (PrincipalExecutive
 Officer)

March 9, 2004Dr. Adya S. Tripathi/s/  DAVID P. EICHLER

Chief Financial Officer (Principal Financial and Accounting
 Officer), Vice President of Finance and Corporate Secretary

March 9, 2004David P. Eichler/s/  A.K. ACHARYA

Director

March 9, 2004A.K. Acharya/s/  Y.S. FU

Director

March 9, 2004Y.S. Fu/s/  ANDY JASUJA

Director

March 9, 2004Andy Jasuja 49  Exhibit Index Number

Description of Document3.1

Restated Certificate of Incorporation of Tripath Technology
 Inc. (incorporated by reference to Exhibit 3.1 of Tripaths registration statement on Form S-1, registration
 number 333-35028, as amended)3.2

Bylaws of Tripath Technology Inc.4.1

Specimen common stock certificate (incorporated by
 reference to Exhibit 4.1 of Tripaths registration statement on Form S-1, registration number 333-35028,
 as amended)4.2

Second Amended and Restated Shareholder Rights Agreement,
 dated September 15, 1998, between Tripath Technology Inc. and Certain Stockholders of Tripath Technology
 Inc. (incorporated by reference to Exhibit 10.6 of Tripaths registration statement on Form S-1, registration
 number 333-35028, as amended)4.3

Registration Rights Agreement, dated January 24, 2002,
 by and among Tripath Technology Inc. and Certain Stockholders of Tripath Technology Inc. (incorporated
 by reference to Exhibit 4.1 of Tripaths current report on Form 8-K filed on January 30, 2002)10.1*

Form of Indemnification Agreement, between Tripath
 Technology Inc. and each of its directors and officers (incorporated by reference to Exhibit 10.1 of
 Tripaths registration statement on Form S-1, registration number 333-35028, as amended)10.2

License and Supply Agreement, dated July 9, 1999, between
 STMicroelectronics, Inc. and Tripath Technology Inc. (incorporated by reference to Exhibit 10.2 of Tripaths
 registration statement on Form S-1, registration number 333-35028, as amended)10.3*

1995 Stock Plan and form of option agreement (incorporated
 by reference to Exhibit 4.8 of Tripaths registration statement on Form S-8, registration number 333-108178)10.4*

2000 Stock Plan and form of option agreement (incorporated
 by reference to Tripaths definitive proxy statement on Schedule 14A filed on May 19, 2003)10.5*

2000 Employee Stock Purchase Plan, as amended (incorporated
 by reference to Exhibit 10.5 of Tripaths quarterly report on Form 10-Q for the quarter ended September
 30, 2003)10.6*

Form of Restricted Stock Purchase Agreement between
 Tripath Technology Inc. and an Executive Officer.10.7

Sublease Agreement, dated July 18, 2002, between Nortel
 Networks, Inc. and Tripath Technology Inc. (incorporated by reference to Exhibit 10.11 of Tripaths
 quarterly report on Form 10-Q for the quarter ended September 30, 2002)10.8

Distributor Agreement, dated July 1, 1998 between Uniquest
 Corporation and Tripath Technology Inc.10.9

Distributor Agreement, dated February 3, 1999 between
 Macnica, Inc and Tripath Technology Inc.16.1

Letter, dated as of April 17, 2003, from PricewaterhouseCoopers LLP
 regarding its concurrence with Tripaths statement regarding change of accountants (incorporated by
 reference to Exhibit 16.1 of Tripaths current report on Form 8-K filed April 17, 2003)21.1

List of subsidiaries of Tripath23.1

Consent of BDO Seidman, LLP, Independent Certified
 Public Accountants23.2

Consent of PricewaterhouseCoopers LLP, Independent
 Accountants24.1

Power of Attorney (See Form 10-K Signature Page)31.1

Certification of Chief Executive Officer pursuant to
 Section 302 of the Sarbanes-Oxley Act of 2002.31.2

Certification of Chief Financial Officer pursuant to
 Section 302 of the Sarbanes-Oxley Act of 2002.32.1

Certification of Chief Executive Officer and Chief
 Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
 the Sarbanes-Oxley Act of 2002   *
Indicates management contract or compensatory plan or arrangement. 50