##### Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-K

|   |  |                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended
    March 31, 2005                                                    
|  
|OR
|  
|o  |  | TRANSITION REPORT PURSUANT TO
    SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934
|  
|   |  | For the transition period
    from           to                                                 

Commission file number: 0-30539


TVIA, INC.


(Exact name of registrant as specified in its charter)


|                                                                                                |  |                                                                           
|----------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------
|Delaware                                                                                        |  | 94-3175152                                                                
|(State or other jurisdiction
    of
    incorporation or organization)                          |  | (IRS Employer
    Identification No.)                                     
|                                                                                               
|4001 Burton Drive
    Santa Clara, California 95054(Address of
    principal executive offices) |  | (408) 982-8588(Registrants
    telephone number,
    including area code)

Securities registered to Section 12(b) of the Act:


None


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


Common Stock, par value $0.001 per share


þ o


o


o þ






DOCUMENTS INCORPORATED BY REFERENCE












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TVIA, INC. AND SUBSIDIARY

TABLE OF CONTENTS

2005 FORM 10-K

|                |  |                                                                                                         |    |      |    | 
|--------------- |  | ------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                |  |                                                                                                         |    | Page |   
|                |  |                                                                                                         |    |      |   
|PART I          |  |                                                                                                         | 3  |     
|Item 1.         |  | Business                                                                                                |    |      | 3  | 
|Item 2.         |  | Properties                                                                                              |    |      | 9  | 
|Item 3.         |  | Legal
    Proceedings                                                                                   |    |      | 9  | 
|Item 4.         |  | Submission of
    Matters to a Vote of Security Holders                                                 |    |      | 10 | 
|PART II         |  |                                                                                                         | 10 |     
|Item 5.         |  | Market for
    Registrants Common Equity and Related Stockholder
    Matters                           |    |      | 10 | 
|Item 6.         |  | Selected
    Financial Data                                                                             |    |      | 12 | 
|Item 7.         |  | Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations           |    |      | 13 | 
|Item 8.         |  | Financial
    Statements and Supplementary Data                                                         |    |      | 31 | 
|Item 9.         |  | Changes In and
    Disagreements With Accountants on Accounting and Financial
    Disclosure            |    |      | 53 | 
|Item 9A.        |  | Controls and
    Procedures                                                                             |    |      | 53 | 
|PART III        |  |                                                                                                         | 53 |     
|Item 10.        |  | Directors and
    Executive Officers of the Registrant                                                  |    |      | 53 | 
|Item 11.        |  | Executive
    Compensation                                                                              |    |      | 54 | 
|Item 12.        |  | Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholders Matters |    |      | 54 | 
|Item 13.        |  | Certain
    Relationships and Related Transactions                                                      |    |      | 55 | 
|Item 14.        |  | Principal
    Accountant Fees and Services                                                              |    |      | 55 | 
|PART IV         |  |                                                                                                         | 55 |     
|Item 15.        |  | Exhibits and
    Financial Statement Schedules                                                          |    |      | 55 | 
|EXHIBIT 3(II).1
|EXHIBIT 10.11  
|EXHIBIT 10.12  
|EXHIBIT 10.13  
|EXHIBIT 23.1   
|EXHIBIT 31.1   
|EXHIBIT 31.2   
|EXHIBIT 32.1   
|EXHIBIT 32.2   



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This document contains forward-looking statements that
involve risks and uncertainties. Tvias (the
Companys) actual results may differ materially from
the results discussed in such forward-looking statements.
Factors that might cause such differences include, but are not
limited to, fluctuations in customer demand, risks associated
with competition, risks associated with product development,
reliance on foreign manufacturers, foreign business, political
and economic risks and risks identified in the Companys
Securities and Exchange Commission, filings, including, but not
limited to, those discussed elsewhere in this Form 10-K
under the heading Risk Factors located at the end of
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, of this
Form 10-K.

All references to Tvia, we,
us, our or the Company mean
Tvia, Inc. and its subsidiary, except where it is made
clear that the term means only the parent company.







Item 1.
    BusinessTvia, Inc. is a fabless semiconductor company focused on
designing, producing and marketing display processors for the
digital and interactive TV market. The Company offers a family
of flexible, high-quality display processors to TV
manufacturers, creating next-generation digital high definition
(HD) LCD TV, enhanced definition (ED) progressive-scan
CRT TV and interactive multimedia display processors for
Interactive Set Top Boxes.

We currently offer five product families: the TrueView 5700
family, introduced in fiscal year 2005; the TrueView 5600
family, introduced in fiscal year 2004; the CyberPro 5202
family, introduced in calendar year 2002; the CyberPro 5300
family, introduced in calendar year 1999; and the
CyberPro 5000 family, introduced in calendar year 1998.
These product families currently generate most of our revenues.
We sell our products through two channels. First, we sell our
products directly to original equipment manufacturers, or OEMs,
and recognize revenues at the time of shipment to these OEMs. We
also sell our products to a number of distributors. We defer
recognition of revenues for sales to our distributors until they
have sold our products to end-users. We also generate revenues
from licensing our proprietary software which we believe will
continue to constitute a small percentage of total revenues in
the future.

Tvia was originally incorporated in California as Intergraphics
Systems, Inc. in March 1993. In August 1997, we changed our name
to IGS technologies. In March 2000, we changed our name to
Tvia, Inc. In August 2000, we incorporated in Delaware. The
Company has a subsidiary in the Peoples Republic of China
that supports the Companys research and development
activities and performs product testing and sales and marketing
functions. Tvia operates in one principal industry segment.

Available Information

Our internet address is http://www.tvia.com. Tvia
makes the following filings available on its website as soon as
reasonably practicable after they are electronically filed with
or furnished to the SEC: our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Forms 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) of the Exchange Act.

Industry Background

There are more than 2 billion standard analog televisions
in the world today. All broadcast TV stations in the country
have temporary use of a second, separate channel so that they
can transition from analog broadcasting to digital. The target
deadline for ending analog broadcasting is December 31,
2006, but this date may be extended. When analog broadcasting
ends, consumers with analog sets will need to obtain a separate
converter box to watch over-the-air TV. Analog sets equipped
with a converter box will display the digital broadcasts, but
not in full digital quality.

Digital Television (DTV) is a new type of broadcasting that will
transform your television viewing experience. Images and sound
will be captured using digital technology, delivering a
movie-quality experience with multicasting and interactive
capabilities. That means better quality, more choices, and

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more control over your television. There are many quality levels
of digital television programming. The most common are:




    Standard Definition TV (SDTV)  SDTV is the
    basic level of quality display and resolution for both analog
    and digital. Transmission of SDTV may be in either the
    traditional (4:3) or widescreen (16:9) format.
    Enhanced Definition TV (EDTV)  EDTV is a step
    up from Analog Television. EDTV comes in 480p widescreen (16:9)
    or traditional (4:3) format and provides better picture quality
    than SDTV, but not as high as HDTV.
    High Definition TV (HDTV)  HDTV in widescreen
    format (16:9) provides the highest resolution and picture
    quality of all digital broadcast formats. Combined with
    digitally enhanced sound technology, HDTV sets new standards for
    sound and picture quality in television. (Note: HDTV and digital
    TV are not the same thing  HDTV is one format of
    digital TV.)Over the next decade, we anticipate that digital television, or
DTV, penetration will increase from 12 percent in 2004 to
44 percent by 2007. We believe this mass-scale global
technology expansion will produce unique opportunities for
superior display processor revenue growth. Several technologies
are competing for a share of the DTV market including cathode
ray tube (CRT), digital light processing (DLP), and plasma
displays (PDP, and LCD).

According to the market-research firm DisplaySearch, DTV is
expected to follow a similar path to that of digital video disks
(DVDs). DVD players have enjoyed rapid acceptance over the last
few years. There are several factors that have contributed to
the success of the DVD player, including ubiquitous content,
smaller form factor, improved audio and visual quality and
falling prices, a by-product of silicon integration. By
comparison, the DTV market is small, but rapidly increasing.
Based on current market conditions, we believe DTV unit
shipments will increase over the next five years from
22 million in 2004 to 89 million in 2007.

DTV growth drivers will largely mirror those of DVD players.
Importantly, two of the largest components of DTV are glass and
silicon, which we expect to drop materially in price over the
next few years due to new capacity and better integration.

Industry analysts define advanced television, or DTV, or digital
displays, as displays that do not contain a digital tuner and
integrated MPEG-2 decoder. In the case of LCD televisions, they
tune and receive analog video signals and through the use of
silicon-based processes such as 3D digital comb filtering and
de-interlacing, significantly enhance the content so that it
approaches the quality of DTV. At higher price points, the DTV
televisions may include add-in board slots for DTV tuners and
MPEG-2 decoders.

According to SDI Marketing and Samsung, worldwide sales of DTVs,
which include LCD, PDP, PJTV (projection televisions) and HDTV
(CRT), are expected to grow from 22 million units in 2004
to 89 million units in 2007. Currently, television pictures
are made up of lines that are scanned horizontally. HDTV
pictures are created by scanning up to twice as many lines. This
resolution and other technical factors improve the sharpness of
the pictures, allowing you to read on your television small text
commonly seen on your computer. HDTV sets have wider,
movie-theater like screens that more closely resemble human
peripheral vision, making it a better viewing experience.

Within the emerging DTV market, LCD television is the largest
and fastest growing sub-segment. Moreover, LCD televisions best
illustrate the semi-conductor sales opportunities resulting from
the transition to digital video through the use of silicon
chips. LCD televisions principally receive analog television
broadcasts and employ analog interfaces, yet they are incapable
of scanning video in an interlaced manner. Interlaced video
means that only half the image is scanned in or at any given
frame or moment and as such, a viewer is only seeing half an
image comprised of either odd or evenly scanned lines. LCDs only
scan video progressively, and are fed interlaced or
non-progressively with

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poor quality analog video signals or are fed digital signals
through analog interfaces. As a result, they require silicon
de-interlacers to create a high-definition, high-quality video
image.

Our Solution




    We believe our display processors provide high quality,
    efficient silicon de-interlacing and scaling that allow our
    customers to produce high-quality progressive scan CRT
    television and LCD television at an attractive price.
    We believe our display processors, software and reference design
    and design support enable our OEM customers to accelerate their
    time to market by reducing their systems engineering
    development. Our engineers work closely with our customers
    engineers to facilitate systems design. These benefits enable
    our OEM customers to bring products with rich features and
    differentiated systems to market quickly.Products

Our products are based on advanced architecture integrated
circuits and system designs that provide real time, cost
effective and high quality display processing. We currently
offer five product families: the TrueView 5700 family,
introduced in calendar year 2004; the TrueView 5600 family,
introduced in calendar year 2004; the CyberPro 5202 family,
introduced in calendar year 2002; the CyberPro 5300 family,
introduced in calendar year 1999; and the CyberPro 5000 family,
introduced in calendar year 1998. Each of our semiconductor
solutions include different features, which OEMs can select for
inclusion in their products.

The TrueView 5700 is a low pin count, low-cost, highly
integrated digital video image display processor providing the
key features necessary to design ED progressive scan CRT
television.

The TrueView 5600 product line targets the HD LCD television
market and other LCD based applications such as, Multimedia
displays, Web-pads, in-flight entertainment systems, and
info-tainment system displays that process enhanced
picture-in-picture and multiple source capabilities. Features
that are optimized specifically for LCDs include superior
de-interlacing, advanced scaler performance and exceptional
alpha blending features and multiple independent media streams.
The strong alpha blending feature allows for transparent layers
of media content used in creating outstanding menus and guides.

The CyberPro 5202 incorporates all the features of our CyberPro
5000, 5005, 5050 and 5055 products. In addition, a 24-bit
digital interface directly supports LCDs, and other digital
interfaces. Enhanced, flexible alpha-blending capabilities allow
overlay of different windows with programmable levels of
opacity. Two advanced television encoders allow the user to
configure the recording picture in personal video recorder, or
PVR, applications. The processor maintains crisp text
presentation, even as the opacity of the window is varied. The
CyberPro 5202 is designed for displays to multiple devices
such as traditional cathode ray tube televisions, advanced
televisions, panel displays, emerging interactive displays and
LCD products.

The CyberPro 5300 is the first product in the
CyberPro 5300 family designed for broadband set-top boxes
that require 3D animation, 3D effects or 3D graphics processing
capability.

The CyberPro 5305, 5350 and 5355 are similar to our
CyberPro 5005, 5050 and 5055 products, but also provide 3D
animation, 3D effects, or 3D graphics processing capability.

The CyberPro 5000 is the first product of the
CyberPro 5000 family designed for broadband digital set-top
boxes and advanced televisions. The CyberPro 5000 has
enhanced text, graphics and video processing engines. It also
includes two video ports for two simultaneous video streams,
high picture quality of broadband video on television,
hardware-magnified view of web pages on television and a
flexible transparency algorithm for blending multiple video,
text, graphics, pictures and animation on screen.

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The CyberPro 5005 is designed for broadband set-top boxes
and advanced televisions with Internet and DVD capability. In
addition to CyberPro 5000 features, the 5005 provides
MacroVision encryption for copy protection.

The CyberPro 5050 is designed for broadband set-top boxes
and advanced televisions that have integrated audio capability.
Additional features include an audio digital signal processor
engine with audio synthesis, MIDI, I2S, PCM and stereo audio.

The CyberPro 5055 combines all of the features of our
CyberPro 5000, 5005 and 5050 products. The
CyberPro 5055 provides a solution for broadband set-top
boxes and advanced televisions that process multiple media
streams including DVD and full duplex audio.

Customers

We target customers in the advanced television and emerging
interactive display markets. We began to focus on the emerging
interactive display market in 1997, and later expanded our focus
to include the advanced digital television markets. The majority
of our sales in fiscal 2005 were to manufacturers and
distributors of DVR, electronic gaming, CRT-DTV, TV converter
boxes, security market and transportation entertainment systems
(airplanes, taxi and trains). In prior years, the majority of
our sales were to the IPTV (TV over the internet) interactive
set top market. Many of our customers manufacture or distribute
products in more than one of our target markets.

In fiscal 2005, sales to SMS Electronics, Ltd., Kanematsu
Devices Corporation and Micro Network Korea Co., Ltd.
represented 34%, 17% and 10% of revenues, respectively. In
fiscal 2004, sales to Kanematsu Devices Corporation,
SMS Electronics, Ltd., Weikeng Industrial Co., and
Fujitsu-Siemens Computers Gmbh represented 15%, 12%, 12% and 10%
of revenues, respectively. In fiscal 2003, sales to Siemens
Communications Ltd., Kanematsu Devices Corporation and Micro
Network Korea Co., Ltd. represented 24%, 17% and 10% of
revenues, respectively. In fiscal 2005, sales to customers in
the Europe, Japan, China, the United States and Korea comprised
34%, 20%, 13%, 11% and 10% of revenues, respectively. In fiscal
2004, sales to customers in the United States, Europe, Taiwan
and Japan comprised 24%, 24%, 18%, and 15% of revenues,
respectively. In fiscal 2003, sales to customers in Europe,
Taiwan, Japan, the United States and Korea comprised 35%, 25%,
16%, 14% and 10% of revenues, respectively.

Sales and Marketing

We sell and market our display processors through our direct
sales force, sales representatives and distributors.

Our products are marketed primarily through reference platforms
and evaluation kits designed internally and with industry
leading microprocessors, real-time operating systems and other
strategic partners directly or indirectly through our
partners channels to OEMs for evaluation and development.
These reference platforms and evaluation kits (hardware and
software) have proven to be vital to our success in obtaining
new design wins. We also promote our products through our
website, trade shows, articles, press releases and joint
promotions with our strategic partners.

Our personnel work closely with customers, sales representatives
and authorized distributors to define product features,
performance, price and market timing of new products. We provide
technical support and design assistance directly to OEM
customers, regardless of the sales channels used. We believe
that a high level of customer support is necessary to
successfully develop and maintain long-term relationships with
our customers. These relationships begin at the design phase and
develop, as customer needs change and evolve. We provide support
through both on-site customer service and remote support from
our facilities.

As of March 31, 2005, we employed a sales and marketing
force of 24 people. We believe these personnel have the
technical expertise and industry knowledge necessary to support
a lengthy and complex sales process. We also employed ten field
applications engineers to assist customers in

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designing, testing and qualifying system designs that
incorporate our integrated circuits and software products. We
believe that the depth and quality of this design support team
are key to improving our customers time to market and
maintaining a high level of customer satisfaction. Our direct
sales offices are located in Santa Clara, California and
Shenzhen and Hefei, Peoples Republic of China. All of our
sales offices provide hardware and software applications support.

Research and Development

Our research and development efforts are focused on four areas:
device architecture and logic design, physical layer design,
software development and device testing. As of March 31,
2005, our research and development staff consisted of 76
employees, (12 of whom were located in the United States and 64
of whom were located in the Peoples Republic of China).
Our research and development efforts have centered on
architecture design, streaming media processing modes,
high-speed digital and mixed signal design and software.

We conduct research and development at our design centers in
Santa Clara, California and Hefei, Peoples Republic
of China. Our Peoples Republic of China facility is
located in a science park near Hefei University of Technology,
where employee costs are lower than in the San Francisco
Bay Area.

Our research and development expenses for fiscal years 2005,
2004 and 2003 were $5.8 million, $6.8 million and
$9.0 million, respectively. Research and development
expenses consist mainly of personnel and other costs associated
with the development of product designs, process technology,
software and programming hardware. We anticipate that we will
continue to commit substantial resources to research and
development in the future.

Manufacturing

We have adopted a fabless semiconductor manufacturing model and
therefore we outsource all of our semiconductor manufacturing
and assembly. This approach allows us to focus our resources on
the design, development, testing and marketing of our products
and significantly reduces our capital requirements.We
develop our designs to be compatible with three foundries,
United Manufacturing Corporation, or UMC, and Taiwan
Semiconductor Manufacturing Corporation, or TSMC, both of which
are located in Hsin Chu, Taiwan, and HuaHong NEC located in the
Peoples Republic of China. This allows us to shift
production from one facility to the other in the event of a
capacity constraint at one foundry. We currently use 0.35 micron
technology for production of our CyberPro 5000,
TrueView 5600 and Trueview 5700 families. We use 0.3
micron technology for production of our CyberPro 5300
family and 0.18 micron technology for production of our
CyperPro 5202 family.

We internally design and optimize digital and analog cells
through our physical layer design group. We believe this allows
us to reduce the size of the semiconductor and therefore the
cost. This also gives us greater control over the quality and
reliability of our multi-media display processors.

Assembly of our devices is performed by Advance Semiconductor
Engineering, Inc. in Kaohsiung, Taiwan, and Belling Corp., Ltd.
in ShangHai, Peoples Republic of China. We may also use
Siliconware Precision Industries Ltd., located in Hsin Chu,
Taiwan. Final testing is primarily performed by us at our
subsidiary in Hefei, Peoples Republic of China.

Competition

The semiconductor industry and the market for integrated
circuits for advanced televisions and emerging interactive
displays is highly competitive. We believe we can compete
favorably in each of the key competitive factors in our target
markets. These factors are:




    Functionality;
    Performance;
    Time to market;7



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
    Price;
    Conformity to industry standards;
    Product road maps; and
    Technical support.Our current and primary competitors are ATI Technologies,
Inc., Broadcom Corporation, Genesis Microchip, Inc., Pixelworks,
Inc., Trident Microsystems, Inc. MediaTek Inc.(TWN), Morning
Star (TWN), and Silicon Image, Inc. In addition to these
competitors, we expect other major semiconductor manufacturers
will enter the market as the advanced television and emerging
interactive display markets develop. A number of companies,
including International Business Machines Corporation,
STMicroelectronics N.V., National Semiconductor, Equator
Technologies, Inc., LSI Logic and Philips Electronics N.V.,
have announced that they are developing or plan to introduce
competing products in the advanced television and emerging
interactive display markets which could result in significant
competition. We expect competition to intensify as current
competitors expand their product offerings and new competitors
enter the market.

Intellectual Property

We rely on a combination of patent, copyright, trademark and
trade secret laws and contractual restrictions to establish and
protect our intellectual property and proprietary rights that we
develop and license from others.

We have been granted two United States patents, containing
claims covering various aspects of combining digital streams of
video and graphics for presentation on an output display and for
changing the size of graphic data for presentation on a
television output display. We expect to file patent applications
as we deem appropriate to protect our technology and products.
We cannot be sure that our patent applications will result in
the issuance of patents, or that any issued patents will provide
commercially significant protection to our technology.

We also license from others certain audio, graphics and
semiconductor technology that is incorporated in our
semiconductors and certain intellectual property rights. These
licenses are perpetual and survive the termination of the
agreements under which we obtained such licenses. The
protections we receive from others against infringement under
the terms of these licensing agreements are limited and we
cannot be sure that alternative technology exists.

In December 2000, we entered into an agreement with Oak
Technology, Inc. or Oak, which has proprietary 3D graphics
technology that permits incorporation of the 3D graphics
function onto our chips. As a result of our agreement, we were
granted the right to use this 3D graphics technology for 3D
graphics integration in our products and to manufacture,
distribute and sublicense products using the 3D graphics
technology.

In April 2001, we amended the agreement with Oak Technology, in
order to license Oaks proprietary MPEG-2 technology that
permits the incorporation of MPEG-2 decoding functions onto our
chips. As a result of our agreement, we were granted the right
to use this MPEG-2 technology for MPEG-2 integration in our
products and to manufacture, distribute and sublicense products
using the MPEG-2 decoding technology. In December 2003, we
postponed the development of product related to this technology
indefinitely; accordingly, we wrote off $1.5 million of
license technology related to this MPEG-2 technology.

In July 2003, we sold our software business and software-related
assets to MediaTek, Inc. The software assets were developed
internally to support our products, including Home IT, advanced
digital video broadcasting, MPEG 4 software, SDK software
and software drivers. In connection with this transaction,
MediaTek granted to us a royalty-free license to continue to use
those software assets to support our existing products and
fulfill our maintenance obligations to our existing customers.

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We attempt to avoid infringing known proprietary rights of third
parties in our product development efforts. It is difficult to
proceed with certainty in a rapidly evolving technological
environment in which there may be numerous patent applications
pending, with regard to similar technologies, many of which are
confidential when filed. If our products violate third-party
proprietary rights, we might not be able to obtain licenses to
continue offering these products without substantial
reengineering. Efforts to undertake this reengineering might not
be successful, licenses might be unavailable on commercially
reasonable terms, if at all, and litigation might not be avoided
or settled without substantial expense and damage awards.

CyberPro and Tvia are registered trademarks, and the Tvia logo
is a trademark of Tvia, Inc. in the United States and other
jurisdictions.

Backlog

Our sales are made primarily pursuant to standard purchase
orders for delivery of products. Due to industry practice which
allows customers to cancel or change orders with limited advance
notice prior to shipment, we believe that backlog is not a
reliable indicator of future revenue levels.

Seasonality

The electronics industry has historically been subject to
seasonal and cyclical fluctuations in demand for its products,
and this trend may continue in the future. The seasonal peak
occurs prior to the Christmas holidays and the seasonal downturn
occurs primarily during the June, July period. Industry
downturns may be caused by adverse economic conditions. These
industry downturns have been, and may continue to be,
characterized by diminished product demand, excess manufacturing
capacity and subsequent erosion of average selling prices.

Employees

As of March 31, 2005, we had 151 full time employees
including 76 engaged in research and development, 24 engaged in
sales and marketing, 26 engaged in operations and 25 engaged in
general management and administration activities. Of these
employees, 28 work in our Santa Clara facility, two work in
Japan and 121 work at our facility in the Peoples Republic
of China. Our employees are not represented by any collective
bargaining agreement and we have never experienced a work
stoppage. We believe our relations with our employees are good.







Item 2.
    PropertiesOur headquarters, which also serves as our principal
administrative, selling, marketing, customer support,
applications engineering and product development facility, is
located in Santa Clara, California, and consists of one
building of approximately 16,500 square feet under a lease
that expires on December 31, 2006. We also lease a building
located in Hefei, Peoples Republic of China of
approximately 15,000 square feet under a lease that expires
in June 2007 for our research and development operations in
China; a building in Beijing, Peoples Republic of China of
approximately 650 square feet that expires in November
2005, used for marketing and customer support purposes in China;
and a building located in Shenzhen, Peoples Republic of
China of approximately 2,500 square feet that expires in
August 2005 for our marketing and customer support in China.

We believe our existing facilities are adequate to meet our
needs for the near future and that future growth can be
accomplished by leasing additional or alternative space on
commercially reasonable terms.







Item 3.
    Legal ProceedingsFrom time to time we may be involved in litigation relating to
claims arising in the ordinary course of business. As of the
date of this filing, we do not believe that any of the legal
proceedings pending

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against us or, to the best of our knowledge, threatened against
us, will have a significant adverse effect on our financial
position or results of operations.







Item 4.
    Submission of Matters to a Vote of Security HoldersNot applicable.

Executive Officers

The executive officers of the Company are as follows:

Eli Porat, 59, was elected Chairman of the Board
effective April 1, 2005 and succeeded Kenny Liu who
resigned effective April 1, 2005. Mr. Porat has also
served as our Chief Executive Officer since November 2001 and as
President since February 2002. Mr. Porat has served as a
director of our Company since March 2001. From January 1997 to
November 2001, Mr. Porat was Chief Executive Officer of
OpenGrid, Inc., a mobile business solutions company. From 1991
to 1996, Mr. Porat was Chief Executive Officer of DSP
Group, an audio digital signal processing company. From 1972 to
1983, Mr. Porat was with Intel Corporation. Mr. Porat
earned B.S. and M.S. degrees in Electrical Engineering and
Computer Science from the University of California, Berkeley.

Diane Bjorkstrom, 49, joined the Company in September
2004 as Chief Financial Officer and Vice President of
Administration. Prior to joining the Company, she served as an
independent financial consultant from August 2002 to September
2004. From January 2002 to July 2002, Ms. Bjorkstrom served
as the Chief Financial Officer of Blend MediaWorks, Inc., a
software company. From October 1997 to January 2002,
Ms. Bjorkstrom was employed by the Brenner Group Inc., an
executive management firm. While there, she was the interim
Chief Financial Officer of various high-tech companies.
Ms. Bjorkstrom holds a B.S. in Commerce/ Accounting from
Rider University. Ms. Bjorkstrom is a Certified Public
Accountant.

Jhi-Chung Kuo, 52, a co-founder of the Company, has
served as our Vice President of Engineering since April 2002.
From July 2000 to March 2002, he served as our Chief Technology
Officer. From March 1993 to June 2000, Mr. Kuo served as
our Vice President of Engineering. Mr. Kuo received a B.S.
in Physics from National Central University in Taiwan and an
M.S. in Electrical Engineering from Mississippi State University.

Benjamin. Silva, 44, joined the Company in September 2004
prior to being appointed Vice President of Worldwide Sales. From
January 2004 through September 2004, he was the Executive Vice
President of Marketing and Business Development at DG2L
Technologies, Inc., a provider of next-generation digital media
technologies. From October 2001 through December 2003,
Mr. Silva served as the Vice President of Worldwide Sales
and Business Development at iVAST, Inc., a digital media
software company. From September 1999 through September 2001, he
was the Vice President of Worldwide Sales and Business
Development at Streaming 21, Inc., an Internet streaming
video technology company. Mr. Silva holds a B.A. degree in
communication/theatre with a minor in business administration
from Boston University.





PART II







Item 5.
    Market for Registrants Common Equity and Related
    Stockholder MattersThe Companys common stock, par value $0.001 (Common
Stock), was traded on the Nasdaq National Market
(Nasdaq) under the symbol TVIA, until
December 4, 2002, when it began to trade on the Nasdaq
SmallCap Market under the same ticker symbol. The following
table sets forth, for the

10



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##### Table of Contents

periods indicated, the range of high and low sales prices for
the Common Stock on the SmallCap Market during the
Companys 2004 and 2005 fiscal years.

|             |  |             |      |  |             |  |      |      |  |  |      |  |  |  |      | 
|------------ |  | ----------- | ---- |  | ----------- |  | ---- | ---- |  |  | ---- |  |  |  | ---- | 
|             |  | Fiscal 2005 |      |  | Fiscal 2004 | 
|             |  |             |      |  |             | 
|             |  | High        |      |  | Low         |  |      | High |  |  | Low  | 
|             |  |             |      |  |             |  |      |      |  |  |      | 
|March 31     |  |             | 2.19 |  |             |  | 1.32 |      |  |  | 3.30 |  |  |  | 1.97 | 
|December 31  |  |             | 2.30 |  |             |  | 1.07 |      |  |  | 3.25 |  |  |  | 1.57 | 
|September 30 |  |             | 2.04 |  |             |  | 1.27 |      |  |  | 2.20 |  |  |  | 1.03 | 
|June 30      |  |             | 2.73 |  |             |  | 1.59 |      |  |  | 1.08 |  |  |  | 0.65 | 



Securities Authorized for Issuance Under Compensation
Plans




Purchase of Equity Securities by the Issuer and Affiliated
Purchasers






11



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##### Table of Contents

Item 6.
    Selected Financial DataThe following selected consolidated financial data should be
read in conjunction with the consolidated financial statements,
the notes to the consolidated financial statements, and
Managements Discussion and Analysis of Financial
Condition and Results of Operations, which are included
elsewhere in this report. The consolidated statements of
operations data for each of the five fiscal years in the period
ended March 31, 2005, and the consolidated balance sheet
data as of the end of each such fiscal year, are derived from
our audited consolidated financial statements.

|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |         |         |        |   |        |        |        | 
|----------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------- | ------ | ------ | ----- | - | ---- | ------ | ----- | - | ------- | ------- | ------ | ---- | ------- | ------- | ------ | - | ------ | ------ | ------ | 
|                                                                                                      |                                                 | Year Ended March 31,                  |       
|                                                                                                      |                                                 |                                       |       
|                                                                                                      |                                                 | 2005                                  |        |        | 2004  |   |      | 2003   |       |   | 2002    |         |        | 2001 |        
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|                                                                                                      |                                                 | (In thousands, except per share data) |       
|Consolidated Statements of
    Operations Data:                                                       |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |         |         |        |   |        |       
|Revenues:                                                                                             |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |         |         |        |   |        |       
|                                                                                                      | Product sales                                   |                                       | $      | 3,098  |       |   | $    | 2,042  |       |   | $       | 1,771   |        |      | $       | 11,342  |        |   | $      | 12,743 |       
|                                                                                                      | Development contracts and other                 |                                       |        | 183    |       |   |      | 267    |       |   |         | 461     |        |      |         | 498     |        |   |        | 701    |       
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|                                                                                                      |                                                 | Total revenues                        |        |        | 3,281 |   |      |        | 2,309 |   |         |         | 2,232  |      |         |         | 11,840 |   |        |        | 13,444 | 
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|Cost of revenues:                                                                                     |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |         |         |        |   |        |       
|                                                                                                      | Product sales                                   |                                       |        | 1,587  |       |   |      | 1,235  |       |   |         | 1,460   |        |      |         | 8,522   |        |   |        | 7,650  |       
|                                                                                                      | Development contracts and other                 |                                       |        | 198    |       |   |      | 88     |       |   |         | 83      |        |      |         | 109     |        |   |        | 68     |       
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|                                                                                                      |                                                 | Total cost of revenues                |        |        | 1,785 |   |      |        | 1,323 |   |         |         | 1,543  |      |         |         | 8,631  |   |        |        | 7,718  | 
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|Gross profit                                                                                          |                                                 |                                       | 1,496  |        |       |   | 986  |        |       |   | 689     |         |        |      | 3,209   |         |        |   | 5,726  |       
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|Operating expenses:                                                                                   |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |         |         |        |   |        |       
|                                                                                                      | Research and development                        |                                       |        | 5,829  |       |   |      | 6,823  |       |   |         | 8,983   |        |      |         | 12,664  |        |   |        | 6,774  |       
|                                                                                                      | Sales, general and administrative               |                                       |        | 3,703  |       |   |      | 2,667  |       |   |         | 3,545   |        |      |         | 5,056   |        |   |        | 5,695  |       
|                                                                                                      | Amortization of deferred stock
    compensation |                                       |        |       |       |   |      |       |       |   |         | 595     |        |      |         | 1,572   |        |   |        | 2,701  |       
|                                                                                                      | Restructuring costs                             |                                       |        |       |       |   |      |       |       |   |         | 950     |        |      |         |        |        |   |        |       |       
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|                                                                                                      |                                                 | Total operating expenses              |        |        | 9,532 |   |      |        | 9,490 |   |         |         | 14,073 |      |         |         | 19,292 |   |        |        | 15,170 | 
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|                                                                                                      | Operating loss                                  |                                       |        | (8,036 | )     |   |      | (8,504 | )     |   |         | (13,384 | )      |      |         | (16,083 | )      |   |        | (9,444 | )     
|Other income (expense), net                                                                           |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |         |         |        |   |        |       
|                                                                                                      | Interest income                                 |                                       |        | 406    |       |   |      | 401    |       |   |         | 703     |        |      |         | 1,818   |        |   |        | 2,105  |       
|                                                                                                      | Interest expense                                |                                       |        | (10    | )     |   |      | (11    | )     |   |         | (14     | )      |      |         |        |        |   |        | (459   | )     
|                                                                                                      | Gain on sale of software business               |                                       |        |       |       |   |      | 9,075  |       |   |         |        |        |      |         |        |        |   |        |       |       
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|Net income (loss) before
    extraordinary item                                                       |                                                 |                                       | (7,640 | )      |       |   | 961  |        |       |   | (12,695 | )       |        |      | (14,265 | )       |        |   | (7,798 | )     
|Extraordinary item, net of income
    taxes                                                           |                                                 |                                       |       |        |       |   |     |        |       |   |        |         |        |      |        |         |        |   | 672    |       
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|Income (loss) before taxes                                                                            |                                                 |                                       | (7,640 | )      |       |   | 961  |        |       |   | (12,695 | )       |        |      | (14,265 | )       |        |   | (8,470 | )     
|Income taxes                                                                                          |                                                 |                                       |       |        |       |   | 25   |        |       |   |        |         |        |      |        |         |        |   |       |       
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|Net income (loss)                                                                                     |                                                 |                                       | (7,640 | )      |       |   | 936  |        |       |   | (12,695 | )       |        |      | (14,265 | )       |        |   | (8,470 | )     
|Dividend related to convertible
    preferred stock                                                   |                                                 |                                       |       |        |       |   |     |        |       |   |        |         |        |      |        |         |        |   | 671    |       
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|Net income (loss)                                                                                     |                                                 | $                                     | (7,640 | )      |       | $ | 936  |        |       | $ | (12,695 | )       |        | $    | (14,265 | )       |        | $ | (9,141 | )     
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|Basic and diluted net income (loss)
    attributable to common stockholders before extraordinary item |                                                 | $                                     | (0.33  | )      |       | $ | 0.04 |        |       | $ | (0.58   | )       |        | $    | (0.66   | )       |        | $ | (0.56  | )     
|Extraordinary item, net of income
    taxes                                                           |                                                 |                                       |       |        |       |   |     |        |       |   |        |         |        |      |        |         |        |   | 0.05   |       
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        
|Basic and diluted net income (loss)
    attributable to common stockholders                           |                                                 | $                                     | (0.33  | )      |       | $ | 0.04 |        |       | $ | (0.58   | )       |        | $    | (0.66   | )       |        | $ | (0.61  | )     
|                                                                                                      |                                                 |                                       |        |        |       |   |      |        |       |   |         |         |        |      |        

12



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##### Table of Contents



|                                                                               |  |                                       |        |  |      |  |        |      |  |  |        |  |  |      |        |  |  |  |        | 
|------------------------------------------------------------------------------ |  | ------------------------------------- | ------ |  | ---- |  | ------ | ---- |  |  | ------ |  |  | ---- | ------ |  |  |  | ------ | 
|                                                                               |  | Year Ended March 31,                  |       
|                                                                               |  |                                       |       
|                                                                               |  | 2005                                  |        |  | 2004 |  |        | 2003 |  |  | 2002   |  |  | 2001 |       
|                                                                               |  |                                       |        |  |      |  |        |      |  |  |        |  |  |      |       
|                                                                               |  | (In thousands, except per share data) |       
|Shares used in computing basic net
    loss per share to common stockholders   |  |                                       | 22,827 |  |      |  | 22,323 |      |  |  | 21,952 |  |  |      | 21,631 |  |  |  | 15,052 | 
|                                                                               |  |                                       |        |  |      |  |        |      |  |  |        |  |  |      |       
|Shares used in computing diluted
    net loss per share to common stockholders |  |                                       | 22,827 |  |      |  | 23,982 |      |  |  | 21,952 |  |  |      | 21,631 |  |  |  | 15,052 | 
|                                                                               |  |                                       |        |  |      |  |        |      |  |  |        |  |  |      |       

|                                                         |  |                                       |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|-------------------------------------------------------- |  | ------------------------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                                         |  | Year Ended March 31,                  |       
|                                                         |  |                                       |       
|                                                         |  | 2005                                  |        |  | 2004 |   |        | 2003 |  |   | 2002   |  |  | 2001 |       
|                                                         |  |                                       |        |  |      |   |        |      |  |   |        |  |  |      |       
|                                                         |  | (In thousands, except per share data) |       
|Consolidated Balance Sheet
    Data:                     |  |                                       |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Cash and cash equivalents and
    short-term investments |  | $                                     | 21,742 |  |      | $ | 27,206 |      |  | $ | 24,417 |  |  | $    | 35,505 |  |  | $ | 46,682 | 
|Working capital                                          |  |                                       | 21,513 |  |      |   | 28,000 |      |  |   | 24,273 |  |  |      | 35,979 |  |  |   | 50,305 | 
|Total assets                                             |  |                                       | 25,487 |  |      |   | 31,403 |      |  |   | 31,193 |  |  |      | 43,387 |  |  |   | 57,435 | 
|Long term liabilities                                    |  |                                       | 345    |  |      |   |       |      |  |   | 486    |  |  |      |       |  |  |   |       | 
|Total stockholders equity                               |  | $                                     | 22,642 |  |      | $ | 30,059 |      |  | $ | 28,766 |  |  | $    | 40,925 |  |  | $ | 53,422 | 

Quarterly Financial Data:


|             |                                     |                                          |   |        |             |  |   |             |   |  |             |        |   |  |   |        |  
|------------ | ----------------------------------- | ---------------------------------------- | - | ------ | ----------- |  | - | ----------- | - |  | ----------- | ------ | - |  | - | ------ | -
|             |                                     | 4th Quarter                              |   |        | 3rd Quarter |  |   | 2nd Quarter |   |  | 1st Quarter |       
|             |                                     |                                          |   |        |             |  |   |             |   |  |             |       
|             |                                     | (In thousands, except per share amounts) |  
|Fiscal 2005: |                                     |                                          |   |        |             |  |   |             |   |  |             |        |   |  |   |       
|             | Revenues                            |                                          | $ | 1,046  |             |  | $ | 1,090       |   |  | $           | 617    |   |  | $ | 528    |  
|             | Gross margin                        |                                          | $ | 493    |             |  | $ | 501         |   |  | $           | 266    |   |  | $ | 236    |  
|             | Net income (loss)                   |                                          | $ | (2,937 | )           |  | $ | (1,580      | ) |  | $           | (1,598 | ) |  | $ | (1,525 | )
|             | Basic net income (Loss) per share   |                                          | $ | (0.13  | )           |  | $ | (0.07       | ) |  | $           | (0.07  | ) |  | $ | (0.07  | )
|             | Diluted net income (loss) per share |                                          | $ | (0.13  | )           |  | $ | (0.07       | ) |  | $           | (0.07  | ) |  | $ | (0.07  | )

|             |                                     |             |   |        |             |  |   |             |   |  |             |       |  |  |   |        |  
|------------ | ----------------------------------- | ----------- | - | ------ | ----------- |  | - | ----------- | - |  | ----------- | ----- |  |  | - | ------ | -
|             |                                     | 4th Quarter |   |        | 3rd Quarter |  |   | 2nd Quarter |   |  | 1st Quarter |      
|             |                                     |             |   |        |             |  |   |             |   |  |             |      
|Fiscal 2004: |                                     |             |   |        |             |  |   |             |   |  |             |       |  |  |   |       
|             | Revenues                            |             | $ | 481    |             |  | $ | 628         |   |  | $           | 620   |  |  | $ | 580    |  
|             | Gross margin                        |             | $ | 214    |             |  | $ | 269         |   |  | $           | 266   |  |  | $ | 237    |  
|             | Net income (loss)                   |             | $ | (1,496 | )           |  | $ | (2,946      | ) |  | $           | 7,442 |  |  | $ | (2,064 | )
|             | Basic net income (Loss) per share   |             | $ | (0.07  | )           |  | $ | (0.13       | ) |  | $           | 0.34  |  |  | $ | (0.09  | )
|             | Diluted net income (loss) per share |             | $ | (0.07  | )           |  | $ | (0.13       | ) |  | $           | 0.32  |  |  | $ | (0.09  | )






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

The following discussion and analysis should be read in
conjunction with Selected Financial Data and our
Consolidated Financial Statements and Notes thereto included
elsewhere in this Form 10-K. This document contains
forward-looking statements that involve risks and uncertainties.
Tvias (the Companys) actual results may
differ materially from the results discussed in such
forward-looking statements. Factors that might cause such
differences include, but are not limited to, fluctuations in
customer demand, risks associated with competition, risks
associated with product development, reliance on foreign
manufacturers, foreign business, political and economic risks
and risks identified in the Companys Securities and
Exchange Commission, filings, including, but not limited to,
those discussed elsewhere in this Form 10-K under the
heading Risk Factors located at the end of
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, of this
Form 10-K.


13



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##### Table of Contents

Overview

We design, develop and market display processors for the
interactive-television market as well as a family of flexible,
high-quality display processors tailored to the Asia Pacific
television manufacturers creating next-generation digital LCD,
HD, and progressive-scan televisions.

We currently offer five product families: the TrueView 5700
family, introduced in calendar year 2004; the TrueView 5600
family, introduced in calendar year 2003; the CyberPro 5202
family, introduced in calendar year 2002; the CyberPro 5300
family, introduced in calendar year 1999; and the CyberPro 5000
family, introduced in calendar year 1998. These product families
currently generate most of our revenues. We sell our products
through two channels. First, we sell our products directly to
original equipment manufacturers, or OEMs, and recognize
revenues at the time of shipment to these OEMs. Second, we sell
our products to a number of distributors. We defer recognition
of revenues for sales to our distributors until they have sold
our products to end-users. Historically, a relatively small
number of customers and distributors have accounted for a
significant portion of our product sales. In fiscal 2005, sales
to SMS Electronics, Ltd., Kanematsu Devices Corporation and
Micro Network Korea Co., Ltd. represented 34%, 17% and 10% of
revenues, respectively. In fiscal 2004, sales to Kanematsu
Devices Corporation, SMS Electronics, Ltd., Weikeng Industrial
Co., and Fujitsu-Siemens Computers Gmbh represented 15%, 12%,
12% and 10% of revenues, respectively. In fiscal 2003, sales to
Siemens Communications Ltd., Kanematsu Devices Corporation and
Micro Network Korea Co., Ltd. represented 24%, 17% and 10% of
revenues, respectively. Various factors have affected and may
continue to affect our gross margin. These factors include, but
are not limited to, our product mix, the position of our
products in their respective life cycles, yields and the mix of
our product sales and development contracts and other revenues.
For example, newly introduced products generally have higher
average selling prices and generate higher gross margins. Both
average selling prices and the related gross margins typically
decline over product life cycles due to competitive pressures
and volume price agreements. Our gross margin and operating
results in the future may continue to fluctuate as a result of
these and other factors.

The sales cycle for the test and evaluation of our products can
range from three months to nine months or more, plus an
additional three to nine months or more before an OEM customer
commences volume production of equipment incorporating our
products, if ever. Due to these lengthy sales cycles, we may
experience a delay between incurring operating expenses and
inventory costs and the generation of revenues from design wins.

We have sustained operating losses on a quarterly and annual
basis since inception. As of March 31, 2005, we had an
accumulated deficit of approximately $69.7 million. These
losses resulted from significant costs incurred in the planning
and development of our technology and services and from
significant marketing costs. We anticipate higher revenues for
at least the next several quarters as compared to the same
period in the prior fiscal year. We believe that this is due to
an increase in demand in the digital television market.

We have a subsidiary in Hefei, Peoples Republic of China,
which performs final production tests, research and development
and logistics support. There are offices in Shenzhen and
Beijing, Peoples Republic of China, to provide sales and
complete system support including design and integration to our
customers.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the
date of the financial statements and the reported amounts of net
revenue and expenses during the reporting period. We regularly
evaluate our estimates and assumptions related to allowances for
doubtful accounts, sales returns and allowances, inventory
reserves, purchased intangible asset valuations, warranty
reserves, and other contingencies. We base our estimates and
assumptions on historic experience and on various other factors
that we believe to be

14



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##### Table of Contents

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 other
sources. To the extent there are material differences between
our estimates and the actual results, our future results of
operations will be affected.

We believe the following critical accounting policies, among
others, affect the significant judgments and estimates we use in
the preparation of our consolidated financial statements:




    Revenues. We recognize revenues from product sales upon
    shipment to OEMs and end users provided that persuasive evidence
    of an arrangement exists, the price is fixed or determinable,
    title has transferred, collection of resulting receivables is
    reasonably assured, there are no customer acceptance
    requirements, and there are no remaining significant
    obligations. Reserves for sales returns and allowances are
    recorded at the time of shipment. Our sales to distributors are
    made under agreements allowing for returns or credits under
    certain circumstances. We defer recognition of revenue on sales
    to distributors until products are resold by the distributor.

Our revenue reporting is dependent on receiving accurate data
    from our distributors in a timely fashion. Most distributors
    provide us information about the end customer when products are
    purchased for resale. Distributors also provide periodic data
    regarding the products in stock as well as product, price,
    quantity, and end customer when products are resold. In
    determining the appropriate amount of revenue to recognize, we
    use this data and apply judgment in reconciling differences
    between their reported inventories and activities. If
    distributors incorrectly report their inventories or activities
    or if our judgment is in error, it could lead to inaccurate
    reporting of our revenues and deferred income and net income.


    Receivables. We maintain an allowance for doubtful
    accounts for estimated losses resulting from the inability of
    customers to make required payments. As part of the estimation
    process, we analyze various factors, including a review of
    specific transactions, historical experience and current market
    and economic conditions. If the financial condition of our
    customers were to deteriorate, resulting in an impairment of
    their ability to make payments, additional allowances could be
    required.
    Inventory. Inventories are stated at the lower of cost
    (first-in, first-out) or market and include materials, labor and
    overhead. Allowances when required are made to reduce carrying
    values of inventories to their estimated net realizable values.
    The write down of our inventory for estimated obsolescence or
    unmarketable inventory is equal to the difference between the
    cost of inventory and the estimated realizable value based upon
    assumptions about future demand and market conditions. These
    assumptions are based on our analysis of various factors,
    including a review of specific transactions, historical
    experience and current market and economic conditions. If actual
    future demand or market conditions are less favorable than those
    projected by management, additional inventory write-downs could
    be required.
    Impairment of Long-Lived Assets. We evaluate long-lived
    assets for impairment on an annual basis in accordance with
    Statement of Financial Accounting Standards
    (SFAS) No. 142, Goodwill and Other Intangible
    Assets. In addition we perform an impairment assessment
    when indicators of impairment, such as reductions in demand or
    significant economic slowdowns in the semiconductor industry,
    are present. Reviews are performed to determine whether the
    carrying value of assets is impaired based on comparison to the
    undiscounted expected future cash flows. If the comparison
    indicates that there is impairment, the impaired asset is
    written down to fair value. Impairment is based on the excess of
    the carrying amount over the fair value of those assets.
    Significant management judgment is required in the forecast of
    future operating results that is used in the preparation of
    expected discounted cash flows. It is reasonably possible that
    the estimates of anticipated future net revenue, the remaining
    estimated economic life of the products and technologies, or
    both, could differ from those used to assess the recoverability
    of these assets. In that event, additional impairment charges or
    shortened useful lives of certain long-live assets could be
    required.15



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##### Table of Contents

Results of Operations

The following tables set forth, for the periods indicated,
certain consolidated statement of operations data reflected as a
percentage of revenues. Our results of operations are reported
as a single business segment.

|                                               |                                                 |                             |      |     |      |  |      |      |     |  |      |     |     | 
|---------------------------------------------- | ----------------------------------------------- | --------------------------- | ---- | --- | ---- |  | ---- | ---- | --- |  | ---- | --- | --- | 
|                                               |                                                 | Year Ended March 31,        |     
|                                               |                                                 |                             |     
|                                               |                                                 | 2005                        |      |     | 2004 |  |      | 2003 |    
|                                               |                                                 |                             |      |     |      |  |      |      |    
|Consolidated Statement of
    Operations Data: |                                                 |                             |      |     |      |  |      |      |     |  |      |    
|Revenues:                                      |                                                 |                             |      |     |      |  |      |      |     |  |      |    
|                                               | Product sales                                   |                             |      | 94  | %    |  |      | 88   | %   |  |      | 79  | %  
|                                               | Development contracts and other                 |                             |      | 6   |      |  |      | 12   |     |  |      | 21  |    
|                                               |                                                 |                             |      |     |      |  |      |      |    
|                                               |                                                 | Total revenues              |      |     | 100  |  |      |      | 100 |  |      |     | 100 | 
|                                               |                                                 |                             |      |     |      |  |      |      |    
|Cost of revenues:                              |                                                 |                             |      |     |      |  |      |      |     |  |      |    
|                                               | Product sales                                   |                             |      | 48  |      |  |      | 53   |     |  |      | 65  |    
|                                               | Development contracts and other                 |                             |      | 6   |      |  |      | 4    |     |  |      | 4   |    
|                                               |                                                 |                             |      |     |      |  |      |      |    
|                                               |                                                 | Total cost of revenues      |      |     | 54   |  |      |      | 57  |  |      |     | 69  | 
|                                               |                                                 |                             |      |     |      |  |      |      |    
|Gross profit                                   |                                                 |                             | 46   |     |      |  | 43   |      |     |  | 31   |    
|                                               |                                                 |                             |      |     |      |  |      |      |    
|Operating expenses:                            |                                                 |                             |      |     |      |  |      |      |     |  |      |    
|                                               | Research and development                        |                             |      | 178 |      |  |      | 295  |     |  |      | 402 |    
|                                               | Sales, general and administrative               |                             |      | 113 |      |  |      | 116  |     |  |      | 159 |    
|                                               | Amortization of deferred stock
    compensation |                             |      |    |      |  |      |     |     |  |      | 27  |    
|                                               | Restructuring expenses                          |                             |      |    |      |  |      |     |     |  |      | 43  |    
|                                               |                                                 |                             |      |     |      |  |      |      |    
|                                               |                                                 | Total operating expenses    |      |     | 291  |  |      |      | 411 |  |      |     | 631 | 
|                                               |                                                 |                             |      |     |      |  |      |      |    
|Operating Loss                                 |                                                 |                             | (245 | )   |      |  | (368 | )    |     |  | (600 | )  
|                                               |                                                 |                             |      |     |      |  |      |      |    
|Other income (expense), net                    |                                                 |                             |      |     |      |  |      |      |     |  |      |    
|                                               | Interest income                                 |                             |      | 12  |      |  |      | 17   |     |  |      | 31  |    
|                                               | Interest expense                                |                             |      |    |      |  |      |     |     |  |      |    |    
|                                               | Gain on sale of software business               |                             |      |    |      |  |      | 393  |     |  |      |    |    
|                                               |                                                 |                             |      |     |      |  |      |      |    
|                                               |                                                 | Other income (expense), net |      |     | 12   |  |      |      | 410 |  |      |     | 31  | 
|                                               |                                                 |                             |      |     |      |  |      |      |    
|Net income (loss) before taxes                 |                                                 |                             | (233 | )   |      |  | 42   |      |     |  | (569 | )  
|Income taxes                                   |                                                 |                             |     |     |      |  | 1    |      |     |  |     |    
|                                               |                                                 |                             |      |     |      |  |      |      |    
|Net income (loss)                              |                                                 |                             | (233 | )%  |      |  | 41   | %    |     |  | (569 | )% 
|                                               |                                                 |                             |      |     |      |  |      |      |    

Results of Operations for the Fiscal Years Ended
March 31, 2005, 2004 and 2003


Revenues.




16



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##### Table of Contents

years 2005, 2004 and 2003, respectively. All export revenues are
denominated in United States dollars. We believe export sales
will represent a majority of our revenues in the foreseeable
future.

Gross margin. Gross margin increased to 46% in fiscal
year 2005 compared to 43% in fiscal 2004 primarily due to
improved manufacturing yields and lower production costs. Gross
margin increased to 43% in fiscal year 2004 compared to 31% in
fiscal year 2003 primarily due to lower overhead burden and sale
of inventories previously reserved for in fiscal year 2002. The
reduction in overhead burden was due to lower headcount and
facilities costs.

Research and development. Research and development
expenses include personnel and other costs associated with the
development of product designs, process technology, software and
programming hardware. Historically, our research and development
expenses reflect our continuing efforts to develop and bring to
market innovative and cost effective multi-media display
processors that process the rich media content available on the
broadband network. We are now focusing our research and
development efforts on display processors for the interactive
television market.

Research and development expenses were $5.8 million,
$6.8 million and $9.0 million for the fiscal years
ended March 31, 2005, 2004 and 2003, respectively. The
decrease in research and development expense in absolute dollars
and as a percentage of revenues from fiscal 2004 to fiscal 2005
is primarily due to a write-off of license technology totaling
$1.5 million in fiscal 2004 without a comparable write-off
in fiscal 2005. The decrease in research and development expense
in absolute dollars and as a percentage of revenues from fiscal
2003 to fiscal 2004 resulted from the sale of our software
business unit to MediaTek, Inc. in July 2003, partially offset
by a write-off of license technology in fiscal 2004. Our
research and development activities in the Peoples
Republic of China provide software and application specific
integrated circuit development support to our domestic
operations. The costs of our research and development activities
in China are substantially lower than the costs of our research
and development activities in Santa Clara, California. In
the foreseeable future, we expect research and development
expenses in absolute dollars to slightly increase compared to
the fourth quarter of fiscal 2005 expenses on an annualized
basis.

Sales, general and administrative. Sales, general and
administrative expenses consist primarily of personnel and other
costs associated with the management of our business and with
the sale and marketing of our products. Sales, general and
administrative expenses were $3.7 million,
$2.7 million and $3.5 million for the fiscal years
ended March 31, 2005, 2004 and 2003, respectively. The
increase in sales, general and administrative expenses from
fiscal year 2004 to fiscal year 2005 is primarily the result of
hiring a direct sales staff in fiscal 2005, the related travel
incurred by the sales staff, higher sales commission paid to
sales staff and increased legal and audit fees. The decreases in
sales, general and administrative expenses from fiscal year 2003
to fiscal year 2004 resulted from a reduction in workforce and
other cost cutting measures. In the foreseeable future, we
expect sales, general and administrative expenses in absolute
dollars to be higher. This increase is expected to be primarily
associated with the costs of compliance with the requirements
established by the section 404 of the Sarbanes-Oxley Act of
2002.

Amortization of deferred stock compensation. We grant
stock options to hire, motivate and retain employees. We
incurred stock compensation expense of $0.0 million,
$0.0 million and $0.6 million for the fiscal years
ended March 31, 2005, 2004 and 2003, respectively.

Gain on Sale of Software Unit. The Company recorded a
gain on a sale of its software business and software-related
assets to MediaTek, Inc. in exchange for $10 million in
cash in the fiscal year ended March 31, 2004. Expenses
related to this transaction amounted to $0.9 million.

Restructuring Charges. During fiscal 2003, the Company
recorded a restructuring charge of $950,000 relating to a
headcount reduction and termination of an operating lease for an
abandoned building. The restructuring was recorded to align the
cost structure with changing market conditions. The plan
resulted in headcount reduction of approximately 49 employees,
which was made up of 55% of research and development staff, 23%
of operations staff, 16% of general and administrative staff and

17



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##### Table of Contents

6% of sales and marketing staff. The charge in relation to the
operating lease of the abandoned building represents the
estimated difference between the total non-discounted future
sublease income and the non-discounted lease commitments
relating to this building. The restructuring plan was completed
as of March 31, 2004.

The following table summarizes the activity associated with the
restructuring liabilities (in thousands):

|                          |  |            |     |   |            |            |      |          |  |   |       |   |  |   |      |  
|------------------------- |  | ---------- | --- | - | ---------- | ---------- | ---- | -------- |  | - | ----- | - |  | - | ---- | -
|                          |  |            |     |   |            | Severances |      |          | 
|                          |  | License    |     |   | Leased     |            |      | and      |  |   |      
|                          |  | Technology |     |   | Facilities |            |      | Benefits |  |   | Total |  
|                          |  |            |     |   |            |            |      |          |  |   |       |  
|Balance at March 31, 2002 |  | $          |    |   |            | $          |     |          |  | $ |      |   |  | $ |     |  
|Additions                 |  |            | 69  |   |            |            | 162  |          |  |   | 719   |   |  |   | 950  |  
|Non-cash charges          |  |            | (69 | ) |            |            |     |          |  |   |      |   |  |   | (69  | )
|Cash charges              |  |            |    |   |            |            | (139 | )        |  |   | (719  | ) |  |   | (858 | )
|                          |  |            |     |   |            |            |      |          |  |   |       |  
|Balance at March 31, 2003 |  |            |    |   |            |            | 23   |          |  |   |      |   |  |   | 23   |  
|Cash charges              |  |            |    |   |            |            | (23  | )        |  |   |      |   |  |   |     |  
|                          |  |            |     |   |            |            |      |          |  |   |       |  
|Balance at March 31, 2004 |  | $          |    |   |            | $          |     |          |  | $ |      |   |  | $ |     |  
|                          |  |            |     |   |            |            |      |          |  |   |       |  

Other income (expense), net.


Provision for income taxes.


Liquidity and Capital Resources




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##### Table of Contents

Cash flows provided by investing activities were
$6.4 million in the fiscal year 2005 compared to cash flows
used in investing activities of $2.4 million in fiscal year
2004. This increase was primarily due to the sales of short term
investments of $12.3 million, partially offset by purchases
of short term investments of $6.1 million in fiscal year
2005. Cash flows used in investing activities were
$2.4 million in the fiscal year 2004 compared to cash flows
provided by investing activities of $15.3 million in fiscal
year 2003. This decrease was primarily due to the purchase of
investments, partially offset by the proceeds from the sale of
our software business unit.

Net cash flows used in financing activities were
$0.2 million and $0.1 million for the fiscal years
ended March 31, 2005 and 2004 respectively. The increase in
fiscal 2005 compared to fiscal 2004 was primarily the result of
payments of capital leases of $0.5 million, partially
offset by the proceeds from the sale of common stock of
$0.3 million under our Incentive Stock and Employee Stock
Purchase Plans. Net cash flows used in financing activities were
$0.1 million and $0.2 million for the fiscal years
ended March 31, 2004 and 2003 respectively. The financing
activities were primarily payments of capital leases and the
repurchase of company stock, partially offset by the proceeds
from the sale of common stock under our Incentive Stock and
Employee Stock Purchase Plans.

As of March 31, 2005, our principal source of liquidity
consisted of cash and cash equivalents and short-term
investments. Working capital at March 31, 2005 was
$21.5 million.



Off-Balance Sheet ArrangementsWe do not have any financial partnerships with unconsolidated
entities, such as entities often referred to as structured
finance or special purpose entities, which are often established
for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes. Accordingly,
we are not exposed to any financing, liquidity, market or credit
risk that could arise if we had such relationships.

We lease facilities under non-cancelable operating leases
expiring at various dates through June 2007. Under the terms of
the leases, the Company is responsible for a portion of the
facilities operating expenses, insurance and property
taxes.

Future contractual obligations as of March 31, 2005 were as
follows (in thousands):

|                            |       |           |     |     |        |  |           |           |  |  |           |    |  |         |  |   |  |  |  |   | 
|--------------------------- | ----- | --------- | --- | --- | ------ |  | --------- | --------- |  |  | --------- | -- |  | ------- |  | - |  |  |  | - | 
|Payments Due by Period      |      
|                            |      
|                            |       | Less Than |     |     |        |  | More Than |          
|Contractual Obligations     |       | Total     |     |     | 1 Year |  |           | 1-3 Years |  |  | 3-5 Years |    |  | 5 Years | 
|                            |       |           |     |     |        |  |           |           |  |  |           |    |  |         | 
|Operating Lease Obligations |       |           | 165 |     |        |  | 100       |           |  |  | 65        |    |  |         |  |   |  |  |  |  
|                            | Total |           |     | 165 |        |  |           | 100       |  |  |           | 65 |  |         |  |  |  |  |  |  | 



Recently Issued Accounting Pronouncements




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##### Table of Contents

press release issued on April 15, 2005, the Company will be
required to comply with SFAS 123R effective the first
quarter of fiscal 2007. The Company is currently evaluating
which transition method and pricing model to adopt, and
assessing the effects of adopting SFAS 123R. The adoption
of SFAS 123Rs fair value method will have a
significant adverse impact on the Companys results of
operations, although it will have no impact on its overall
financial condition. The impact of the adoption of
SFAS 123R cannot be predicted at this time because it will
depend on levels of share-based payments granted in the future.
However, had the Company adopted SFAS 123R in prior
periods, the impact of that standard would have approximated the
impact of SFAS No. 123 as described under the
Stock-Based Compensation section in Note 1.

In November 2004, the FASB issued SFAS No. 151
Inventory Costs  An Amendment of ARB
No. 43, Chapter 4 (SFAS 151). SFAS 151
clarifies that abnormal amounts of idle facility expense,
freight, handling costs and spoilage should be expensed as
incurred and not included in overhead. Further, SFAS 151
requires that allocation of fixed and production facilities
overheads to conversion costs should be based on normal capacity
of the production facilities. The provisions in SFAS 151
are effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The Company is currently
assessing the effects of adopting this Statement and does not
expect the adoption will have a significant effect on its
financial statements.

In December 2004, the FASB issued SFAS No. 153
Exchanges of Non-monetary Assets  An Amendment
of APB Opinion No. 29 (SFAS 153). The provisions
of this statement are effective for non-monetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005.
SFAS 153 eliminates the exception to fair value for
exchanges of similar productive assets and replaces it with a
general exception for exchange transactions that do not have
commercial substance  that is, transactions that are
not expected to result in significant changes in the cash flows
of the reporting entity. The Company believes that the adoption
of SFAS 153 will not have a significant effect on its
financial statements.

In December 2004, the FASB issued Staff Position
No. FAS 109-2, Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004 (SFAS 109-2).
The American Jobs Creation Act of 2004 introduces a special
one-time dividends received deduction on the repatriation of
certain foreign earnings to a U.S. taxpayer, provided
certain criteria are met. SFAS 109-2 provides accounting
and disclosure guidance for the repatriation provision and was
effective immediately upon issuance. The Company believes that
the adoption of SFAS 109-2 will not have a significant
effect on its financial statements.

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##### Table of Contents

RISK FACTORS

We expect continuing losses and may not achieve profitability
which could affect our ability to expand our business.

We have incurred significant operating losses in each year since
our inception, except in fiscal year 2004. The net income
reported in fiscal year 2004 was primarily due to the sale of
our software business. We expect to continue to incur net losses
for the foreseeable future, primarily as a result of expenses
for research and development. Our losses increased as we
transitioned our focus away from the personal computer market
toward the advanced television and display markets in 1996. We
have incurred net losses of approximately $69.7 million
from our inception in March 1993 through March 31, 2004. If
we continue to incur net losses, we may not be able to expand
our business as quickly as we would like. We do not know when or
if we will become profitable and if we do become profitable, we
may not be able to sustain or increase our profitability.

Because the emergence of the interactive television market
has been slower than anticipated, we may not be able to sell our
products or sustain our business.

Our multi-media display processors are incorporated into
products that allow interactive television. The concept of
interactive television and the market for products that
facilitate it are new and developing. As a result, our profit
potential is unproven and may never materialize. Broad
acceptance of advanced televisions and emerging interactive
displays will depend on the extent to which consumers use
devices other than personal computers to access the Internet. To
date, the market for these products has not developed as quickly
as our customers and we had previously anticipated.
Consequently, certain of our customers have significant
inventory of our semiconductors or products that incorporate our
semiconductors, thereby limiting the opportunity to sell
additional semiconductors to these customers until their present
inventories are depleted. Our success will also depend on the
ability of OEMs and service providers that work with our OEMs to
create demand for and market the products incorporating our
semiconductors. Unless a sufficiently large market for advanced
televisions and emerging interactive displays and other products
that are used for interactive television develops, demand for
products incorporating our semiconductor solutions may not be
sufficient to sustain our business.

A significant amount of our revenues comes from a few
customers and any decrease in revenues from these customers
could significantly impact our financial results.

Historically we have been, and we expect to continue to be,
dependent on a relatively small number of customers for a
significant portion of our total revenues. In fiscal 2005, Sales
to SMS Electronics, Ltd., Kanematsu Devices Corporation and
Micro Network Korea Co., Ltd. represented 34%, 17% and 10% of
total revenues in fiscal year ended March 31, 2005,
respectively. Sales to Kanematsu Devices Corporation, SMS
Electronics, Ltd., Weikeng Industrial Co., and Fujitsu-Siemens
Computers Gmbh represented 15%, 12%, 12% and 10% of total
revenues for the fiscal year ended March 31, 2004,
respectively. Sales to Siemens Communications Ltd., Kanematsu
Devices Corporation, and Micro Network Korea Co, Ltd.
represented 24%, 17% and 10% of our total revenues for the
fiscal year ended March 31, 2003, respectively. We may not
be able to retain our largest customers or to obtain additional
key accounts. Any reduction or delay in sales of our products to
any key customer or our inability to successfully develop
relationships with additional key customers could negatively
impact our financial results.

Our operating expenses may increase as we build our business
and these increased expenses may impact our ability to become
profitable.

We have made substantial expenditures on research and
development and organizational infrastructure consisting of an
executive team, finance, sales, marketing and management
information systems departments and our design center located in
the Peoples Republic of China. For the fiscal

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years ended March 31, 2005, 2004 and 2003, research and
development expenses represented 178%, 295% and 402% of our
revenues, respectively. We expect to continue to spend financial
and other resources on developing and introducing new products
and services, and on our research and development activities in
China. While we have implemented actions to reduce our operating
expenses, our operating expenses may increase as a percentage of
revenues if our revenues decline. If our revenues do not
increase, our business and results of operations could suffer.
We base our expense levels in part on our expectations regarding
future revenues. If our revenues for a particular quarter are
lower than we expect, we may be unable to proportionately reduce
our operating expenses for that quarter.

Customers may cancel or defer significant purchase orders, or
our distributors may return our products, which would cause our
inventory levels to increase and our revenues to decline.

We sell our products on a purchase order basis through our
direct sales channel, sales representatives and distributors,
and our customers may cancel or defer purchase orders at any
time with little or no penalty. We recognize revenues from sales
to our distributors when they have sold our products to their
customers. We recognize revenues on sales to our OEM customers
when we ship our products to the OEM. We permit certain of our
distributors to return products to us. If our customers cancel
or defer significant purchase orders or our distributors return
our products, our inventories would increase and our revenues
would decrease, which would materially harm our business as
increases in inventory reserves could be required. Refusal of
OEM customers to accept shipped products or delays or
difficulties in collecting accounts receivable could have an
adverse effect on our business.

Because of our long product development process and sales
cycle, we incur substantial expenses before we generate revenues
and may not recover our expenditures.

To develop market acceptance of our products, we must dedicate
significant resources to research and development, production
and sales and marketing. We develop products based on forecasts
of demand and we incur substantial product development
expenditures prior to generating associated revenues. Our
customers typically perform numerous tests and extensively
evaluate our products before incorporating them into their
systems. The time required for testing, evaluating and designing
our products into a customers equipment can take up to
nine months or more, with an additional three to nine months or
more before an OEM customer commences volume production of
equipment incorporating our products, if ever. Because of this
lengthy development cycle, we may experience a delay between the
time we accrue expenses for research and development and sales
and marketing efforts and the time when we generate revenues, if
any.

Furthermore, achieving a design win with a customer does not
necessarily mean that this customer will order large volumes of
our products. A design win is not a binding commitment by a
customer to purchase our products. Rather, it is a decision by a
customer to use our products in the design process. In addition,
our customers can choose at any time to discontinue using our
products in that customers designs or product development
efforts. If our products are chosen to be incorporated into a
customers products, we may still not realize significant
revenues from that customer if that customers products are
not commercially successful. As a result, our profitability from
quarter to quarter and from year to year may be materially
affected by the number and timing of our new product
introductions in any period and the level of acceptance gained
by these products.

If we fail to successfully develop, introduce and sell new
products, we may be unable to effectively compete in the
future.

We operate in a highly competitive, quickly changing environment
marked by new and emerging products and technologies. Our
success depends on our ability to develop, introduce and
successfully market new products and enhance our existing
products in the advanced television and emerging interactive
display markets. The development of these new products is highly
complex and, from time to time, we have experienced delays in
completing their development and introduction. Any one of the

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following factors could affect our ability to develop, introduce
and sell new products and could materially harm our business:




    our failure to complete new product designs in a timely manner;
    our inability to manufacture our new products according to
    design specifications;
    our inability to deliver our products to our customers in a
    timely manner for any reason, including a lack of manufacturing
    capacity or the failure of our contracted foundries to meet
    targeted-manufacturing yields; and
    our sales forces and independent distributors
    inability to create adequate demand for our products.Our future operating results are likely to fluctuate and may
fail to meet expectations which could cause our stock price to
decline.

Our operating results have varied in the past and are likely to
do so in the future as we attempt to meet consumer demand in the
markets for advanced televisions and emerging interactive
displays. Our future operating results will depend on many
factors and may fail to meet our expectations for a number of
reasons. Any failure to meet these expectations or those of
securities analysts and investors could cause our stock price to
fluctuate or decline significantly. A number of factors,
including those listed below, may cause fluctuations in our
operating results and stock price:




    the general condition of the semiconductor industry market;
    fluctuations in the volume of product sales, changes in product
    mix and pricing concessions on sales;
    the timing, rescheduling or cancellation of significant customer
    orders;
    the timing of investments in, and the results of, research and
    development;
    changes in industry standards;
    introduction of interactive television services by service
    providers;
    availability of manufacturing capacity and raw materials, and
    inventory write-offs;
    product introductions and price changes by our competitors;
    our ability to specify, develop, introduce and market new
    products with smaller geometries, more features and higher
    levels of design integration in accordance with design
    requirements and design cycles;
    the level of orders received that can be shipped in a given
    period;
    changes in earning estimates or investment recommendations by
    analysts;
    changes in investors perceptions; and
    the effect of the terrorist attacks in the United States and any
    related conflicts or similar events worldwide.Our industry is highly competitive, and we cannot assure you
that we will be able to effectively compete.

The market for advanced televisions and emerging interactive
displays in particular, and the semiconductor industry in
general, are highly competitive. We compete with a number of
domestic and international suppliers of semiconductors in our
targeted markets. We expect competition to intensify as

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current competitors expand their product offerings and new
competitors enter our targeted markets. We believe that we must
compete on the basis of a variety of factors, including:




    functionality;
    performance;
    time to market;
    price;
    conformity to industry standards;
    product road maps; and
    technical support.We currently compete with ATI Technologies, Inc., Broadcom
Corporation, Genesis Microchip, Inc., Pixelworks, Inc., Trident
Microsystems, Inc. and Silicon Image, Inc. In addition to these
competitors, we expect other major semiconductor manufacturers
will enter our targeted markets as the broadband set-top box,
advanced television and information access device markets become
more established. A number of companies, including International
Business Machines Corporation, STMicroelectronics N.V., National
Semiconductor Corporation, Equator Technologies, Inc., LSI Logic
and Philips Electronics N.V., have announced that they are
developing or plan to introduce competing products in the
advanced television and emerging interactive display markets
which could result in significant competition.

Some of our current and potential competitors operate their own
fabrication facilities or have a longer operating history and
significantly greater financial, sales and marketing resources.
They may also have pre-existing relationships with our customers
or potential customers. As a result, these competitors may be
able to adapt more quickly to new or emerging products, develop
new technologies, or address changes in customer requirements or
devote greater resources to the development and promotion of
strategic relationships among themselves or with existing or
potential customers. It is possible that new competitors or
alliances among competitors could emerge and rapidly acquire
significant market share. Increased competition could harm our
business, results of operations and financial condition by, for
example, increasing pressure on our profit margin or causing us
to lose sales opportunities.

We depend on three independent foundries to manufacture our
products based on our forecasts, which could result in an
oversupply or undersupply of products.

We do not own or operate our own fabrication facility. We
currently depend upon two outside foundries for the manufacture
of our products, United Manufacturing Corporation, or UMC,
located in Taiwan and HuaHong NEC in the Peoples Republic
of China. We do not have long term supply agreements with these
foundries to manufacture our semiconductor products and each has
limited manufacturing capacity.

The foundries require us to provide forecasts of our anticipated
manufacturing orders in advance of receiving purchase orders
from our customers. This may result in product shortages or
excess product inventory. Obtaining additional supply in the
face of product shortages may be costly or not possible,
especially in the short term. Our failure to adequately forecast
demand for our products would materially harm our business. For
example, in fiscal 2002 we took an inventory charge related to
slow moving inventory. The foundries may allocate capacity to
the production of other companies products while reducing
delivery to us on short notice.

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We may encounter periods of semiconductor oversupply,
resulting in pricing pressure, as well as undersupply, resulting
in a risk that we could be unable to fulfill our customers
requirements.

The semiconductor industry has historically been characterized
by wide fluctuations in the demand for, and supply of, its
products. These fluctuations have resulted in circumstances when
supply and demand for the industrys products have been
widely out of balance. Our operating results may be materially
harmed by industry wide semiconductor oversupply, which could
result in severe pricing pressure or inventory write-downs. For
example, in fiscal 2002 we took a charge for slow moving
inventory, which negatively impacted our gross margin for fiscal
2002. On the other hand, in a market with undersupply, we would
have to compete with larger companies for limited manufacturing
capacity. If material shortages occur, we may incur additional
costs to procure the scarce components or be unable to have our
products manufactured in a timely manner or in quantities
necessary to meet our requirements. Since we outsource all of
our manufacturing, we are particularly vulnerable to supply
shortages. As a result, we may be unable to fill orders and may
lose customers. Any future industry wide oversupply or
undersupply of semiconductors would materially harm our business
and have a negative impact on our earnings.

If we have to qualify new independent foundries for any of
our products and do not have sufficient supply of our products
on hand, we may lose revenues and damage our customer
relationships.

Processes used to manufacture our products are complex,
customized to our specifications and can only be performed by a
limited number of manufacturing facilities. The foundries we use
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. In addition, the foundries we use
are located in a seismically active area, and earthquakes have
caused these foundries to close for repairs, resulting in a
delay in manufacturing our products.

Although we primarily utilize two independent foundries, most of
our components are not manufactured at both foundries at any
given time. The inability of one of the foundries to provide
components could result in significant delays and harm our
business. In the event either foundry experienced manufacturing
or financial difficulties or suffered any damage or destruction
to its 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. For example, in September 1999, Taiwan experienced a
major earthquake. The earthquake and its resulting aftershocks
caused power outages and significant damage to Taiwans
infrastructure. Similarly, in September 2001, a typhoon hit
Taiwan causing businesses in Taipei and the financial markets to
close for two days. In addition, as a result of the rapid growth
of the semiconductor industry based in the industrial park where
both foundries are located, severe constraints have been placed
on the water and electricity supply in that region. Any
shortages of water or electricity or a natural disaster could
adversely affect these foundries ability to supply our
products, which could have a material adverse effect on our
operating results.

Even our current outside foundries would need to have
manufacturing processes qualified in the event of a disruption
at the other foundry, which we may not be able to accomplish in
a timely manner sufficient to prevent an interruption in the
supply of the affected products. We cannot provide assurance
that any existing or new foundries would be able to produce
integrated circuits with acceptable manufacturing yields in the
future, or will continue to have sufficient capacity to meet our
needs. If our manufacturing requirements are not satisfied, our
business would be materially harmed.

Our semiconductors are complex to manufacture and may have
errors or defects which could be costly to correct.

The manufacture of semiconductors is a complex process.
Foundries may not achieve acceptable product yields from time to
time due to the complexity of the integrated circuit design,
inadequate

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manufacturing processes and other reasons. We refer to the
proportion of final acceptable integrated circuits that have
been processed, assembled and tested relative to the gross
number of integrated circuits that could have been produced from
the raw materials as our product yields. Identifying defects and
determining the reason for low yields may be discovered after
production has begun and at various stages of the production
cycle. Our failure to discover defects early in the production
cycle will result in higher costs and may require a diversion of
our technical personnel and resources away from product
development in order to correct the defect. In addition,
defective products that have been released into the market and
distributed to our customers and end users may result in harm to
our reputation, significant warranty costs, diversion of our
technical and managerial resources and potential product
liability claims that would be costly to defend.

Our software is complex and may have bugs or defects which
could be costly to correct.

Our products depend on complex software that we develop
internally and license from others. Complex software often
contains defects, particularly when first introduced or when new
versions are released. Determining whether our software has
defects may occur after our products are released into the
market and distributed to our customers and end users, and may
result in harm to our reputation, significant warranty costs,
diversion of our technical resources and potential product
liability claims that would be costly to defend and divert
managerial resources.

We face foreign business, political and economic risks
because a majority of our sales are to customers outside of the
United States.

Sales of our products to our OEM customers and to distributors
located outside the United States accounted for 89%, 76% and 86%
of our total revenues in fiscal years 2005, 2004 and 2003. We
anticipate that sales to customers located outside the United
States will continue to represent a significant portion of our
total sales in future periods. In addition, many of our domestic
customers sell their products outside of North America, thereby
indirectly exposing us to risks associated with foreign
commerce. Asian economic instability impacts the sales of
products manufactured by our customers, as does the Chinese New
Year, during which time many manufacturers and businesses close
their operations. We may be negatively impacted by the terrorist
attacks on the United States and the resulting conflicts
worldwide. We could also experience greater difficulties
collecting accounts receivable from customers outside of the
United States. Accordingly, our operations and revenues are
subject to a number of risks associated with foreign commerce.

To date, we have denominated sales of our products in foreign
countries exclusively in United States dollars. As a result, any
increase in the value of the United States dollar relative to
the local currency of a foreign country will increase the price
of our products in that country so that our products become
relatively more expensive to customers in the local currency of
that foreign country. As a result, sales of our products in that
foreign country may decline. To the extent any of these types of
risks materialize, our business would be materially harmed.

If the industries into which we sell our products experience
recession or other cyclical effects impacting our
customers budgets, our operating results could be
negatively impacted.

The primary customers for our products are companies in the
advanced television and emerging display device markets. Any
significant downturn in these particular markets or in general
economic conditions which result in the cutback of research and
development budgets or capital expenditures would likely result
in the reduction in demand for our products and services and
could harm our business. For example, the United States economy,
including the semiconductor industry, has experienced a
recession, which has negatively impact our business and
operating results. A further decline in the United States
economy could result from further terrorist attacks in the
United States. If the economy continues to decline as a result
of the recent economic, political and social turmoil, existing
and perspective customers may continue to reduce their design
budgets or delay implementation of our products, which could
further harm our business and operating results.

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In addition, the markets of semiconductor products are cyclical.
In recent years, some Asian countries have experienced
significant economic difficulties, including devaluation and
instability business failures and a depressed business
environment. These difficulties triggered a significant downturn
in the semiconductor market, resulting in reduced budgets for
chip design tools. In addition, the electronics industry has
historically been subject to seasonal and cyclical fluctuations
in demand for its products, and this trend may continue in the
future. These industry downturns have been, and my continue to
be, characterized by diminished product demand, excess
manufacturing capacity and subsequent erosion of average selling
prices. As a result, our future operating results may reflect
substantial fluctuations from period to period as a consequence
of these industry patterns, general economic conditions
affecting the timing of orders from customers and other factors.
Any negative factors affecting the semiconductor industry,
including the downturns described here, could significantly harm
our business, financial condition and results of operations.

The rapid growth of our business and operations has strained
and may continue to strain our administrative, operational and
financial resources, and our failure to manage our future growth
could affect our operations and our future ability to expand.

We have in the past and may in the future experience rapid
growth and expansion in our business and operations. Our growth
has placed, and may continue to place, a significant strain on
our administrative, operational and financial resources and
increased demands on our systems and controls. Our future growth
may require the implementation of a variety of new and upgraded
operational and financial systems, procedures and controls,
including improvement of our accounting and other internal
management systems, all of which may require substantial
managerial effort. We cannot provide assurance that these
efforts would be accomplished successfully. Our growth has
resulted in a continuing increase in the level of responsibility
for both existing and new management personnel, and may require
that we recruit, hire and train a substantial number of new
personnel. Our failure to manage our past and future growth
could prevent us from successfully achieving market acceptance
for our products, disrupt our operations, delay our expansion
and harm our business.

We depend on key personnel, the loss of whom would impair or
inhibit the growth of our business.

Our success depends on the skills, experience and performance of
our executive officers and other key management and technical
personnel, many of whom would be difficult to replace. We are
particularly dependent on Eli Porat, our Chief Executive Officer
and President. The competition for employees with technical
skills is intense, particularly in the San Francisco Bay Area,
and we may not be able to attract and retain a sufficient number
of such qualified new personnel in the future. The loss of the
service of one or more of our key employees, or our failure to
attract, retain and motivate qualified personnel would inhibit
the growth of our business.

We rely on strategic relationships to commercialize our
products, and these relationships may require that we expend
significant resources without guarantees that our endeavors will
be profitable.

We rely on strategic relationships with some of our customers
who we believe are the market leaders in our target markets.
These relationships often involve the proposed development by us
of new products involving significant technological challenges.
Since the proposed products under development may offer
potential competitive advantages to our customers, considerable
pressure is frequently placed on us to meet development
schedules. While an essential element of our strategy involves
establishing such relationships, these projects require
substantial amounts of our limited resources, with no guarantee
of revenues to us, and could materially detract from or delay
the completion of other important development projects. Delays
in development could impair the relationship between our
customers and us and negatively impact sales of the products
under development. Moreover, our

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customers may develop their own solutions for products currently
supplied by us, which could have an adverse effect on our
business.

We depend on third-party subcontractors for assembly of our
semiconductors which reduces our control over the delivery,
quantity, quality, or cost of our products.

Substantially all of our products are assembled by one of three
subcontractors, two of which are located in Taiwan, and one in
Shanghai, Peoples Republic of China. Typically, we procure
services from these subcontractors on a purchase order basis.
Their availability to assemble our products could be adversely
affected if either subcontractor experiences financial
difficulties or suffers any damage or destruction to its
facilities or any other disruption of its assembly capacity.
Because we rely on third party subcontractors for assembly of
our products, we cannot directly control product delivery
schedules. We have experienced in the past, and may experience
in the future, product shortages or quality assurance problems
that could increase the cost of manufacturing or testing of our
products. It is time consuming and difficult to find and qualify
alternative assemblers. If we are forced to find substitute
subcontractors, shipments of our products could be delayed. Any
problems associated with the delivery, quantity or cost of our
products could harm our business.

Political instability in the Peoples Republic of China
or Taiwan could harm our manufacturing and research and
development capabilities and negatively impact our product
sales.

We operate our research and development facility in the
Peoples Republic of China. In addition, most all of our
products are manufactured and assembled outside of the United
States at facilities operated by third parties in Taiwan. The
political and economic conditions in the region, including the
Peoples Republic of Chinas dispute with Taiwan, may
adversely impact our operations including manufacture and
assembly of our products and research and development efforts.
We cannot assure you that restrictive laws or policies on the
part of either the Peoples Republic of China or the United
States will not constrain our ability to operate in both
countries. If we are required to relocate our facilities, our
business will be disrupted and our costs associated with
research and development will increase.

If our competitors use our intellectual property and
proprietary rights, our ability to compete would be impaired.

Our success depends in part upon our rights in proprietary
technology and processes that we develop and license from, and
to, others. We rely on a combination of patent, copyright,
trademark and trade secret laws, as well as confidentiality
agreements with our employees, consultants and strategic
partners in order to protect proprietary technologies that use
our products. We cannot assure you that these measures will
provide meaningful protection for our proprietary technologies
and processes, and they do not prevent independent third party
development of competitive products. In addition, it is
difficult to monitor unauthorized use of technology,
particularly in foreign countries where laws may not protect our
proprietary rights as fully as in the United States.

We currently have two patents in the United States, and we may
seek additional patents in the future. Because the content of
patent applications in the United States is not publicly
disclosed until the patent is issued, applications may have been
filed which relate to our products or processes. We cannot
assure you that our current patent applications or any future
patent applications will result in a patent being issued with
the scope of the claims we seek, if at all, or whether any
patents we have or may receive will be challenged or
invalidated. The failure of any patents to provide protection to
our technology would make it easier for our competitors to offer
similar products.

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We may face intellectual property infringement claims that
could be costly and could result in the loss of proprietary
rights which are necessary to our business.

Other parties may assert patent infringement claims against us,
including claims against technology that we license from others,
and our products or processes may infringe issued patents of
others. Litigation is common in the semiconductor industry and
any litigation could result in significant expense to us.
Litigation would also divert the efforts of our technical and
management personnel, whether or not the litigation is
determined in our favor. Litigation could also require us to
develop non-infringing technology or enter into royalty or
license agreements. These royalty or license agreements may not
be available on acceptable terms, including limitations on
representations and warranties regarding infringement and
indemnification in the event of infringement claims. Our failure
or inability to develop non-infringing technology, license the
proprietary rights on a timely basis or receive appropriate
protection on licensed technology would harm our business.

Regulation of our customers products may slow the
process of introducing new products and could impair our ability
to compete.

The Federal Communications Commission, or the FCC, has broad
jurisdiction over our target markets. Various international
entities or organizations may also regulate aspects of our
business or the business of our customers. Although our products
are not directly subject to regulation by any agency, the
transmission pipes, as well as much of the equipment into which
our products are incorporated, are subject to direct government
regulation. For example, before they can be sold in the United
States, advanced televisions and emerging interactive displays
must be tested and certified by Underwriters Laboratories and
meet FCC regulations. Accordingly, the effects of regulation on
our customers or the industries in which our customers operate
may, in turn, harm our business. FCC regulatory policies
affecting the ability of cable operators or telephone companies
to offer certain services and other terms on which these
companies conduct their business may impede sales of our
products. In addition, our business may also be adversely
affected by the imposition of tariffs, duties and other import
restrictions on systems of suppliers or by the imposition of
export restrictions on products that we sell internationally.
Changes in current laws or regulations or the imposition of new
laws or regulations in the United States or elsewhere could harm
our business.



Item 7A.
    Quantitative and Qualitative Disclosures about Market
    RiskQuantitative and Qualitative Discussion of Market Interest
Rate Risk

Our cash equivalents and short-term investments are exposed to
financial market risk due to fluctuation in interest rates,
which may affect our interest income and, in the future, the
fair market value of our investments. We manage the exposure to
financial market risk by performing ongoing evaluations of our
investment portfolio and we presently invest entirely in
short-term, investment grade, government and corporate
securities. These securities are highly liquid and generally
mature within 12 months from the purchase date. Due to the
short maturities of our investments, the carrying value should
approximate the fair value. In addition, we do not use our
investments for trading or other speculative purposes. We have
performed an analysis to assess the potential effect of
reasonably possible near term changes in interest and foreign
currency exchange rates. The effect of any change in foreign
currency exchange rates is not expected to be material to our
results of operations, cash flows or financial condition. Due to
the short duration of our investment portfolio, an immediate
100 basis points change in interest rates would not have a
material effect on the fair market value of our portfolio due
mainly to the short-term nature of the major portion of our
investment portfolio. Therefore, we would not expect our
operating results or cash flows to be affected to any
significant degree by the effect of a sudden change in market
interest rates on our securities portfolio.

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Foreign Currency Exchange Risk

We are an international company, selling our products globally
and, in particular, in Japan, Korea, the Peoples Republic
of China and Taiwan. Although we transact our business in United
States dollars, we cannot assure you that future fluctuations in
the value of the United States dollar will not affect the
competitiveness of our products, gross profits realized, and
results of operations. Further, we incur expenses in the
Peoples Republic of China, Taiwan and other countries that
are denominated in currencies other than United States dollars.
We cannot estimate the effect that an immediate 100 basis
points change in foreign currency exchange rates would have on
our future operating results or cash flows as a direct result of
changes in exchange rates. However, we do not believe that we
currently have any significant direct foreign currency exchange
rate risk and have not hedged exposures denominated in foreign
currencies or any derivative financial instruments.

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Item 8.
    Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                    |                                                             |      |  |    | 
|--------------------------------------------------- | ----------------------------------------------------------- | ---- |  | -- | 
|                                                    |                                                             | Page | 
|                                                    |                                                             |      | 
|Consolidated Financial
    Statements of Tvia, Inc. |                                                             |      |  |   
|                                                    | Report of
    Independent Registered Public Accounting Firm |      |  | 32 | 
|                                                    | Consolidated
    Balance Sheets                             |      |  | 33 | 
|                                                    | Consolidated
    Statements of Operations                   |      |  | 34 | 
|                                                    | Consolidated
    Statements of Stockholders Equity         |      |  | 35 | 
|                                                    | Consolidated
    Statements of Cash Flows                   |      |  | 36 | 
|                                                    | Notes to
    Consolidated Financial Statements              |      |  | 37 | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Tvia, 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 Tvia, Inc. and
its subsidiary at March 31, 2005 and 2004, and the results
of their operations and their cash flows for each of the three
years in the period ended March 31, 2005 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 the
standards of the Public Company Oversight Board (United States).
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, 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.



/s/ PricewaterhouseCoopers LLPSan Jose, California

June 17, 2005

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TVIA, INC. AND SUBSIDIARY





CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

|                                            |                                                                                                                       |                                                |       |         |        |  |       |         |        | 
|------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ----- | ------- | ------ |  | ----- | ------- | ------ | 
|                                            |                                                                                                                       | March 31,                                      |      
|                                            |                                                                                                                       |                                                |      
|                                            |                                                                                                                       | 2005                                           |       |         | 2004   | 
|                                            |                                                                                                                       |                                                |       |         |        | 
|ASSETS                                     
|Current assets:                             |                                                                                                                       |                                                |       |         |        |  |       |        
|                                            | Cash and cash equivalents                                                                                             |                                                | $     | 4,078   |        |  | $     | 3,259   |       
|                                            | Short-term investments                                                                                                |                                                |       | 17,664  |        |  |       | 23,947  |       
|                                            | Accounts receivable, net                                                                                              |                                                |       | 792     |        |  |       | 295     |       
|                                            | Inventories                                                                                                           |                                                |       | 598     |        |  |       | 602     |       
|                                            | Other current assets and prepaid
    expenses                                                                         |                                                |       | 881     |        |  |       | 1,241   |       
|                                            |                                                                                                                       |                                                |       |         |        | 
|                                            |                                                                                                                       | Total current assets                           |       |         | 24,013 |  |       |         | 29,344 | 
|Property and equipment, net                 |                                                                                                                       |                                                | 1,088 |         |        |  | 1,947 |        
|Other assets                                |                                                                                                                       |                                                | 386   |         |        |  | 112   |        
|                                            |                                                                                                                       |                                                |       |         |        | 
|                                            |                                                                                                                       | Total assets                                   |       | $       | 25,487 |  |       | $       | 31,403 | 
|                                            |                                                                                                                       |                                                |       |         |        | 
|                                           
|LIABILITIES AND
    STOCKHOLDERS EQUITY   
|Current liabilities:                        |                                                                                                                       |                                                |       |         |        |  |       |        
|                                            | Accounts payable                                                                                                      |                                                | $     | 302     |        |  | $     | 201     |       
|                                            | Accrued liabilities and other                                                                                         |                                                |       | 1,738   |        |  |       | 657     |       
|                                            | Short-term portion of capital leases                                                                                  |                                                |       |        |        |  |       | 486     |       
|                                            | Short-term portion of notes payable                                                                                   |                                                |       | 460     |        |  |       |        |       
|                                            |                                                                                                                       |                                                |       |         |        | 
|                                            |                                                                                                                       | Total current liabilities                      |       |         | 2,500  |  |       |         | 1,344  | 
|                                            | Long-term portion of notes payable                                                                                    |                                                |       | 345     |        |  |       |        |       
|                                            |                                                                                                                       |                                                |       |         |        | 
|                                            |                                                                                                                       | Total liabilities                              |       |         | 2,845  |  |       |         | 1,344  | 
|                                            |                                                                                                                       |                                                |       |         |        | 
|Commitments and contingencies
    (Note 11) |                                                                                                                       |                                                |       |         |        |  |       |        
|Stockholders equity                        |                                                                                                                       |                                                |       |         |        |  |       |        
|                                            | Preferred stock, $0.001 par
    value: 5,000 shares authorized; none outstanding                                      |                                                |       |        |        |  |       |        |       
|                                            | Common stock, $0.001 par
    value: 125,000 shares authorized; 23,171 and
    22,576 shares outstanding, respectively |                                                |       | 23      |        |  |       | 23      |       
|                                            | Additional paid-in-capital                                                                                            |                                                |       | 93,118  |        |  |       | 92,798  |       
|                                            | Accumulated comprehensive income
    (loss)                                                                           |                                                |       | (89     | )      |  |       | 8       |       
|                                            | Accumulated deficit                                                                                                   |                                                |       | (69,660 | )      |  |       | (62,020 | )     
|                                            | Treasury stock                                                                                                        |                                                |       | (750    | )      |  |       | (750    | )     
|                                            |                                                                                                                       |                                                |       |         |        | 
|                                            |                                                                                                                       | Total stockholders equity                     |       |         | 22,642 |  |       |         | 30,059 | 
|                                            |                                                                                                                       |                                                |       |         |        | 
|                                            |                                                                                                                       | Total liabilities and
    stockholders equity |       | $       | 25,487 |  |       | $       | 31,403 | 
|                                            |                                                                                                                       |                                                |       |         |        | 



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TVIA, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |       |   |         |         |       | 
|---------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------ | ------ | ----- | - | ------ | ------ | ----- | - | ------- | ------- | ----- | 
|                                                                 |                                                                                                                                    | Year Ended March 31,        |       
|                                                                 |                                                                                                                                    |                             |       
|                                                                 |                                                                                                                                    | 2005                        |        |        | 2004  |   |        | 2003   |      
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|Revenues:                                                        |                                                                                                                                    |                             |        |        |       |   |        |        |       |   |         |        
|                                                                 | Product sales                                                                                                                      |                             | $      | 3,098  |       |   | $      | 2,042  |       |   | $       | 1,771   |      
|                                                                 | Development contracts and other                                                                                                    |                             |        | 183    |       |   |        | 267    |       |   |         | 461     |      
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|                                                                 |                                                                                                                                    | Total revenues              |        |        | 3,281 |   |        |        | 2,309 |   |         |         | 2,232 | 
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|Cost of revenues:                                                |                                                                                                                                    |                             |        |        |       |   |        |        |       |   |         |        
|                                                                 | Product sales (excluding
    amortization of deferred compensation of $0, $0 and $9,
    respectively)                             |                             |        | 1,587  |       |   |        | 1,235  |       |   |         | 1,460   |      
|                                                                 | Development contracts and other                                                                                                    |                             |        | 198    |       |   |        | 88     |       |   |         | 83      |      
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|                                                                 |                                                                                                                                    | Total cost of revenues      |        |        | 1,785 |   |        |        | 1,323 |   |         |         | 1,543 | 
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|Gross profit                                                     |                                                                                                                                    |                             | 1,496  |        |       |   | 986    |        |       |   | 689     |        
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|Operating expenses:                                              |                                                                                                                                    |                             |        |        |       |   |        |        |       |   |         |        
|                                                                 | Research and development (excluding
    amortization of deferred stock compensation of $0, $0 and $155,
    respectively)          |                             |        | 5,829  |       |   |        | 6,823  |       |   |         | 8,983   |      
|                                                                 | Sales, general and administrative
    (excluding amortization of deferred stock compensation of $0, $0
    and $431, respectively) |                             |        | 3,703  |       |   |        | 2,667  |       |   |         | 3,545   |      
|                                                                 | Amortization of deferred stock
    compensation                                                                                    |                             |        |       |       |   |        |       |       |   |         | 595     |      
|                                                                 | Restructuring charges                                                                                                              |                             |        |       |       |   |        |       |       |   |         | 950     |      
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|                                                                 | Total operating expenses                                                                                                           |                             |        | 9,532  |       |   |        | 9,490  |       |   |         | 14,073  |      
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|                                                                 | Operating loss                                                                                                                     |                             |        | (8,036 | )     |   |        | (8,504 | )     |   |         | (13,384 | )    
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|Other income (expense), net:                                     |                                                                                                                                    |                             |        |        |       |   |        |        |       |   |         |        
|                                                                 | Interest income                                                                                                                    |                             |        | 406    |       |   |        | 401    |       |   |         | 703     |      
|                                                                 | Interest expense                                                                                                                   |                             |        | (10    | )     |   |        | (11    | )     |   |         | (14     | )    
|                                                                 | Sale of software business                                                                                                          |                             |        |       |       |   |        | 9,075  |       |   |         |        |      
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|                                                                 |                                                                                                                                    | Other income (expense), net |        |        | 396   |   |        |        | 9,465 |   |         |         | 689   | 
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|Income (loss) before taxes                                       |                                                                                                                                    |                             | (7,640 | )      |       |   | 961    |        |       |   | (12,695 | )      
|Income taxes                                                     |                                                                                                                                    |                             |       |        |       |   | 25     |        |       |   |        |        
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|Net income (loss) after taxes                                    |                                                                                                                                    | $                           | (7,640 | )      |       | $ | 936    |        |       | $ | (12,695 | )      
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|Basic and diluted net income (loss)
    per share:               |                                                                                                                                    | $                           | (0.33  | )      |       | $ | 0.04   |        |       | $ | (0.58   | )      
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|Shares used in computing basic net
    income (loss) per share   |                                                                                                                                    |                             | 22,827 |        |       |   | 22,323 |        |       |   | 21,952  |        
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      
|Shares used in computing diluted
    net income (loss) per share |                                                                                                                                    |                             | 22,827 |        |       |   | 23,982 |        |       |   | 21,952  |        
|                                                                 |                                                                                                                                    |                             |        |        |       |   |        |        |      



34



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TVIA, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In thousands, except share data)

|                                                                               |  |              |            |     |            |   |         |          |             |       |              |   |               |               |      |             |         |   |          |       |  |               |         |   |  |   |      |   |  |   |         |  
|------------------------------------------------------------------------------ |  | ------------ | ---------- | --- | ---------- | - | ------- | -------- | ----------- | ----- | ------------ | - | ------------- | ------------- | ---- | ----------- | ------- | - | -------- | ----- |  | ------------- | ------- | - |  | - | ---- | - |  | - | ------- | -
|                                                                               |  | Common Stock |            |     |            |   |         |          | Accumulated |       |              |   |               |               |      |            
|                                                                               |  |              |            |     | Additional |   |         | Deferred |             |       | Other        |   |               |               |      |             |         |  
|                                                                               |  |              |            | Par |            |   | Paid-In |          |             | Stock |              |   | Comprehensive |               |      | Accumulated |         |   | Treasury |       |  | Stockholders |        
|                                                                               |  | Shares       |            |     | Amount     |   |         | Capital  |             |       | Compensation |   |               | Income (Loss) |      |             | Deficit |   |          | Stock |  |               | Equity  |  
|                                                                               |  |              |            |     |            |   |         |          |             |       |              |   |               |               |      |             |         |   |          |       |  |               |         |  
|Balance at March 31,
    2002                                                  |  |              | 22,161,748 |     |            |   | 22      |          |             |       | 92,388       |   |               |               | (595 | )           |         |   | 31       |       |  |               | (50,261 | ) |  |   | (660 | ) |  |   | 40,925  |  
|Amortization of deferred stock
    compensation                                |  |              |           |     |            |   |        |          |             |       |             |   |               |               | 595  |             |         |   |         |       |  |               |        |   |  |   |     |   |  |   | 595     |  
|Purchase of treasury stock                                                     |  |              | (143,700   | )   |            |   |        |          |             |       |             |   |               |               |     |             |         |   |         |       |  |               |        |   |  |   | (90  | ) |  |   | (90     | )
|Repurchase of common stock                                                     |  |              | (93,691    | )   |            |   |        |          |             |       | (14          | ) |               |               |     |             |         |   |         |       |  |               |        |   |  |   |     |   |  |   | (14     | )
|Issuance of Common stock under ESPP
    and through exercises of stock options |  |              | 238,865    |     |            |   |        |          |             |       | 70           |   |               |               |     |             |         |   |         |       |  |               |        |   |  |   |     |   |  |   | 70      |  
|Unrealized loss on
    available-for-sale investments                          |  |              |           |     |            |   |        |          |             |       |             |   |               |               |     |             |         |   | (25      | )     |  |               |        |   |  |   |     |   |  |   | (25     | )
|Net loss                                                                       |  |              |           |     |            |   |        |          |             |       |             |   |               |               |     |             |         |   |         |       |  |               | (12,695 | ) |  |   |      |   |  |   | (12,695 | )
|                                                                               |  |              |            |     |            |   |         |          |             |       |              |   |               |               |      |             |         |   |          |       |  |               |         |  
|Balance at March 31,
    2003                                                  |  |              | 22,163,222 |     |            |   | 22      |          |             |       | 92,444       |   |               |               |     |             |         |   | 6        |       |  |               | (62,956 | ) |  |   | (750 | ) |  |   | 28,766  |  
|Issuance of Common stock under ESPP
    and through exercises of stock options |  |              | 412,767    |     |            |   | 1       |          |             |       | 354          |   |               |               |     |             |         |   |         |       |  |               |        |   |  |   |     |   |  |   | 355     |  
|Unrealized gain on
    available-for-sale investments                          |  |              |           |     |            |   |        |          |             |       |             |   |               |               |     |             |         |   | 2        |       |  |               |        |   |  |   |     |   |  |   | 2       |  
|Net Income                                                                     |  |              |           |     |            |   |        |          |             |       |             |   |               |               |     |             |         |   |         |       |  |               | 936     |   |  |   |     |   |  |   | 936     |  
|                                                                               |  |              |            |     |            |   |         |          |             |       |              |   |               |               |      |             |         |   |          |       |  |               |         |  
|Balance at March 31,
    2004                                                  |  |              | 22,575,989 |     |            | $ | 23      |          |             | $     | 92,798       |   |               | $             |     |             |         | $ | 8        |       |  | $             | (62,020 | ) |  | $ | (750 | ) |  | $ | 30,059  |  
|Issuance of Common stock under ESPP
    and through exercises of stock options |  |              | 595,057    |     |            |   |        |          |             |       | 320          |   |               |               |     |             |         |   |         |       |  |               |        |   |  |   |     |   |  |   | 320     |  
|Unrealized loss on
    available-for-sale investments                          |  |              |           |     |            |   |        |          |             |       |             |   |               |               |     |             |         |   | (97      | )     |  |               |        |   |  |   |     |   |  |   | (97     | )
|Net loss                                                                       |  |              |           |     |            |   |        |          |             |       |             |   |               |               |     |             |         |   |         |       |  |               | (7,640  | ) |  |   |     |   |  |   | (7,640  | )
|                                                                               |  |              |            |     |            |   |         |          |             |       |              |   |               |               |      |             |         |   |          |       |  |               |         |  
|Balance at March 31,
    2005                                                  |  |              | 23,171,046 |     |            | $ | 23      |          |             | $     | 93,118       |   |               | $             |     |             |         | $ | (89      | )     |  | $             | (69,660 | ) |  | $ | (750 | ) |  | $ | 22,642  |  
|                                                                               |  |              |            |     |            |   |         |          |             |       |              |   |               |               |      |             |         |   |          |       |  |               |         |  



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TVIA, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

|                                                                                         |                                                                      |                                               |                                           |        |       |        |        |         |      |        |        |         |      |         |  
|---------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | --------------------------------------------- | ----------------------------------------- | ------ | ----- | ------ | ------ | ------- | ---- | ------ | ------ | ------- | ---- | ------- | -
|                                                                                         |                                                                      | Year Ended March 31,                          |                                          
|                                                                                         |                                                                      |                                               |                                          
|                                                                                         |                                                                      | 2005                                          |                                           |        | 2004  |        |        | 2003    |     
|                                                                                         |                                                                      |                                               |                                           |        |       |        |        |         |     
|Cash Flows from Operating
    Activities:                                                |                                                                      |                                               |                                           |        |       |        |        |         |      |        |        |        
|                                                                                         |                                                                      |                                               | Net income (loss)                         |        | $     | (7,640 | )      |         | $    | 936    |        |         | $    | (12,695 | )
|Adjustments to reconcile net income
    (loss) to net cash used in operating activities: |                                                                      |                                               |                                           |        |       |        |        |         |      |        |        |        
|                                                                                         | Depreciation and Amortization                                        |                                               |                                           | 1,276  |       |        |        | 1,748   |      |        |        | 1,565   |     
|                                                                                         | Amortization of deferred stock
    compensation                      |                                               |                                           |       |       |        |        |        |      |        |        | 595     |     
|                                                                                         | Write-down of license technology                                     |                                               |                                           |       |       |        |        | 1,449   |      |        |        | 69      |     
|                                                                                         | Gain on sale of software unit                                        |                                               |                                           |       |       |        |        | (9,075  | )    |        |        |        |     
|                                                                                         | Loss on retirement of fixed assets                                   |                                               |                                           | 104    |       |        |        |         |      |        |        |         |     
|                                                                                         | Changes in operating assets and
    liabilities:                     |                                               |                                           |        |       |        |        |         |      |        |        |         |     
|                                                                                         |                                                                      | Accounts receivable                           |                                           |        | (497  | )      |        |         | 36   |        |        |         | (167 | )      
|                                                                                         |                                                                      | Inventories                                   |                                           |        | 4     |        |        |         | 453  |        |        |         | 455  |        
|                                                                                         |                                                                      | Prepaid expenses and other current
    assets |                                           |        | 126   |        |        |         | (269 | )      |        |         | 598  |        
|                                                                                         |                                                                      | Accounts payable                              |                                           |        | 101   |        |        |         | (150 | )      |        |         | (340 | )      
|                                                                                         |                                                                      | Accrued expenses                              |                                           |        | 1,081 |        |        |         | (518 | )      |        |         | (596 | )      
|                                                                                         |                                                                      |                                               |                                           |        |       |        |        |         |     
|                                                                                         |                                                                      |                                               | Net cash used in operating
    activities |        |       | (5,445 | )      |         |      | (5,390 | )      |         |      | (10,516 | )
|                                                                                         |                                                                      |                                               |                                           |        |       |        |        |         |     
|Cash Flows from Investing
    Activities:                                                |                                                                      |                                               |                                           |        |       |        |        |         |      |        |        |        
|                                                                                         | Purchase of available-for-sale
    investments                       |                                               |                                           | (6,137 | )     |        |        | (39,977 | )    |        |        | (32,220 | )   
|                                                                                         | Proceeds from sale of
    available-for-sale investments             |                                               |                                           | 12,324 |       |        |        | 29,369  |      |        |        | 47,918  |     
|                                                                                         | Proceeds from sale of software unit                                  |                                               |                                           | 753    |       |        |        | 8,373   |      |        |        |        |     
|                                                                                         | Purchase of property and equipment                                   |                                               |                                           | (503   | )     |        |        | (92     | )    |        |        | (366    | )   
|                                                                                         | Purchase of intangible assets                                        |                                               |                                           |       |       |        |        | (44     | )    |        |        | (27     | )   
|                                                                                         |                                                                      |                                               |                                           |        |       |        |        |         |     
|                                                                                         | Net cash provided by (used in)
    investing activities              |                                               |                                           | 6,437  |       |        |        | (2,371  | )    |        |        | 15,305  |     
|                                                                                         |                                                                      |                                               |                                           |        |       |        |        |         |     
|Cash Flows from Financing
    Activities:                                                |                                                                      |                                               |                                           |        |       |        |        |         |      |        |        |        
|                                                                                         | Repayments of capital leases                                         |                                               |                                           | (493   | )     |        |        | (415    | )    |        |        | (120    | )   
|                                                                                         | Proceeds from issuance of common
    stock                           |                                               |                                           | 320    |       |        |        | 355     |      |        |        | 56      |     
|                                                                                         | Treasury stock repurchase                                            |                                               |                                           |       |       |        |        |        |      |        |        | (90     | )   
|                                                                                         |                                                                      |                                               |                                           |        |       |        |        |         |     
|                                                                                         | Net cash used in financing
    activities                            |                                               |                                           | (173   | )     |        |        | (60     | )    |        |        | (154    | )   
|                                                                                         |                                                                      |                                               |                                           |        |       |        |        |         |     
|Net increase (decrease) in cash and
    cash equivalents                                 |                                                                      |                                               | 819                                       |        |       |        | (7,821 | )       |      |        | 4,635  |        
|Cash and cash equivalents at
    beginning of period                                     |                                                                      |                                               | 3,259                                     |        |       |        | 11,080 |         |      |        | 6,445  |        
|                                                                                         |                                                                      |                                               |                                           |        |       |        |        |         |     
|Cash and cash equivalents at end of
    period                                           |                                                                      | $                                             | 4,078                                     |        |       | $      | 3,259  |         |      | $      | 11,080 |        
|                                                                                         |                                                                      |                                               |                                           |        |       |        |        |         |     
|Supplemental Cash Flow Information:                                                      |                                                                      |                                               |                                           |        |       |        |        |         |      |        |        |        
|                                                                                         | Interest paid                                                        |                                               | $                                         | 10     |       |        | $      | 11      |      |        | $      | 14      |     
|                                                                                         |                                                                      |                                               |                                           |        |       |        |        |         |     
|                                                                                         | Acquisition of property and
    equipment under capital leases       |                                               | $                                         |       |       |        | $      |        |      |        | $      | 1,021   |     
|                                                                                         |                                                                      |                                               |                                           |        |       |        |        |         |     
|                                                                                         | Notes payable issued for the right
    to the use of design software |                                               | $                                         | 920    |       |        | $      |        |      |        | $      |        |     
|                                                                                         |                                                                      |                                               |                                           |        |       |        |        |         |     



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##### Table of Contents

TVIA, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Note 1.
    Description of Business and Summary of Significant Accounting
    Policies

Description of BusinessTvia, Inc and its subsidiary. (the Company) is a
fabless semiconductor company focused on designing, producing
and Marketing display processors for the digital and interactive
TV market. The Company offers a family of flexible, high-quality
display processors to TV manufacturers, creating next-generation
digital high definition LCD TV, ED progressive-scan CRT TV and
interactive multimedia display processors for Interactive Set
Top Boxes.

The Company has a subsidiary in the Peoples Republic of
China that supports the companys research and development
activities and performs product testing and sales support
functions.



Use of EstimatesThe preparation of financial statements in accordance with
generally accepted accounting principles accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities
at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period.

On an ongoing basis, the Companys management evaluates its
estimates, including those related to revenue recognition,
provision for doubtful accounts and sales returns, fair value of
investments, fair value of acquired intangible assets, useful
lives of intangible assets and property and equipment, income
taxes, restructuring costs, and contingencies and litigation,
among others. The estimates are based on historical experience
and on various other assumptions that management believes are
reasonable under the circumstances. Actual results could differ
significantly from the estimates made by management with respect
to these items and other items that require managements
estimates.



Principles of ConsolidationThe accompanying consolidated financial statements include the
accounts of Tvia, Inc. and its subsidiary. All significant
intercompany transactions and balances have been eliminated.



Cash and Cash Equivalents and Short-Term
    InvestmentsThe Company considers all highly liquid investment securities
with original maturities of three months or less from the date
of purchase to be cash equivalents. Management determines the
appropriate classification of short-term investments at the time
of purchase. To date, all short-term investments have been
classified as available-for-sale and are carried at fair value
with unrealized gains and losses, if any, included as a
component of accumulated comprehensive loss in
stockholders equity, net of any related tax effects.
Interest, dividends and realized gains and losses are included
in other income (expense) in the consolidated statements of
operations.



Allowance for Sales Returns and Doubtful AccountsSales return allowances are recorded at the time when revenue is
recognized based on historical returns, current economic trends
and changes in customer demand. Such allowances are adjusted
periodically to reflect actual experience and anticipated
returns. No sales return allowances have been recorded during
fiscal years 2005, 2004 and 2003 based on these factors.
Allowance for doubtful accounts is established as
managements best estimate of the amount of probable credit
losses in the Companys existing accounts receivable.
Management determines the allowance based on historical
write-off experience and reviews the allowance for doubtful
accounts monthly. Past due balances over

37



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

90 days are reviewed individually for collectibility.
Account balances are charged off against the allowance when it
is probable that receivable will not be recovered.



InventoriesInventories are stated at the lower of cost (on a first-in,
first-out basis) or market and include materials, labor and
overhead. Allowances when required are made to reduce carrying
values of inventories to their estimated net realizable values.



Property and EquipmentProperty and equipment are carried at cost and are depreciated
using the straight-line method over the assets estimated
useful life of two to five years. Leasehold improvements are
amortized over the shorter of the asset life or the remaining
lease term. Management has determined asset lives based on their
historical experience of technical obsolescence of equipment and
the short life of tooling that is specific to certain product
families.



Impairment of Long-Lived AssetsThe Company reviews long-lived assets and certain identifiable
intangibles for impairment. The Company reviews assets to be
held and used whenever events or changes in circumstances
indicate that the carrying amount of a long-lived asset may not
be recoverable. The Company measures recoverability of assets by
comparing their carrying amount to the future undiscounted cash
flows that they are expected to generate. If an asset is
considered to be impaired, the impairment reflects the amount by
which the carrying value of the asset exceeds its estimated fair
market value.



Revenue RecognitionThe Company recognizes revenue from product sales upon shipment
to the original equipment manufacturers, or OEMs, and end users
provided that persuasive evidence of an arrangement exists, the
price is fixed or determinable, title has transferred,
collection of resulting receivables is reasonably assured, there
are no customer acceptance requirements, and there are no
remaining significant obligations. Reserves for sales returns
and allowances are recorded at the time of shipment. Our sales
to distributors are made under agreements allowing for returns
or credits under certain circumstances. The Company defers
recognition of revenue on sales to distributors until products
are resold by the distributor. The Company warrants its
products, however warranty claims historically have been
insignificant.

Revenue from development contracts (non-recurring engineering
agreements or NRE) is deferred and recognized as revenue upon
achievement of NRE milestones.



Software Development CostsThe Company has expensed all software development costs to date
as substantially all of such development costs have been
incurred prior to the Companys products attaining
technological feasibility.



Research and Development ExpensesResearch and development expenses consist primarily of salaries
and related costs of employees engaged in research, design and
development activities. The Company expenses all research and
development related costs in the period in which such costs are
incurred.

38



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



Income TaxesThe Company accounts for income taxes in accordance with
Statement of Accounting Standards No. 109
(SFAS No. 109), Accounting for Income
Taxes.Deferred tax assets and liabilities are
recognized for the estimated future tax consequences
attributable to the difference between financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recorded or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized as income in the period that
includes the enactment date. Deferred tax assets are reduced, if
necessary, by a valuation allowance for any tax benefits that
are not expected to be realized. As of March 31, 2005 and
2004 the Company recorded a full valuation allowance for the
entire deferred tax asset as a result of uncertainty regarding
the realization of the asset balance due to the net losses
incurred and lack of taxable income.



Comprehensive Income (Loss)Comprehensive income (loss) includes net income (loss), foreign
currency translation adjustments and net unrealized gain (loss)
on available for sale securities. A summary of comprehensive
gain (loss) is as follows (in thousands):

|                                                             |  |                              |        |   |      |   |     |      |  |   |         |  
|------------------------------------------------------------ |  | ---------------------------- | ------ | - | ---- | - | --- | ---- |  | - | ------- | -
|                                                             |  | For the Year Ended March 31, |       
|                                                             |  |                              |       
|                                                             |  | 2005                         |        |   | 2004 |   |     | 2003 | 
|                                                             |  |                              |        |   |      |   |     |      | 
|Net income (loss)                                            |  | $                            | (7,640 | ) |      | $ | 936 |      |  | $ | (12,695 | )
|Unrealized gain (loss) on
    available-for-sale-investments |  |                              | (97    | ) |      |   | 2   |      |  |   | (25     | )
|                                                             |  |                              |        |   |      |   |     |      | 
|Comprehensive income (loss)                                  |  | $                            | (7,737 | ) |      | $ | 938 |      |  | $ | (12,720 | )
|                                                             |  |                              |        |   |      |   |     |      | 



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

Accounting for Stock
Issued to Employees. Accounting for Stock-Based Compensation


39



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table illustrates the effect on our net loss and
net loss per share if the Company had recorded compensation
costs based on the estimated grant date fair value as defined by
SFAS No. 123 for all granted stock-based awards (in
thousands, except per share amounts).

|                                                                        |  |                              |        |   |      |   |        |      |  |   |         |  
|----------------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                        |  | For the Year Ended March 31, |       
|                                                                        |  |                              |       
|                                                                        |  | 2005                         |        |   | 2004 |   |        | 2003 | 
|                                                                        |  |                              |        |   |      |   |        |      | 
|Net income (loss) as reported                                           |  | $                            | (7,640 | ) |      | $ | 936    |      |  | $ | (12,695 | )
|Add: stock-based compensation
    expense included in net income (loss) |  |                              |       |   |      |   |       |      |  |   | 595     |  
|Less: stock based compensation
    determined under SFAS No. 123        |  |                              | (1,071 | ) |      |   | (1,315 | )    |  |   | (2,195  | )
|                                                                        |  |                              |        |   |      |   |        |      | 
|Pro-forma net income (loss)                                             |  | $                            | (8,711 | ) |      | $ | (379   | )    |  | $ | (14,295 | )
|                                                                        |  |                              |        |   |      |   |        |      | 
|Basic and diluted net income (loss)
    per share                       |  |                              |        |   |      |   |        |      |  |   |         |  
|As reported                                                             |  | $                            | (0.33  | ) |      | $ | 0.04   |      |  | $ | (0.58   | )
|Pro-forma                                                               |  | $                            | (0.38  | ) |      | $ | (0.02  | )    |  | $ | (0.65   | )





| |                            
| | ---------------------------
| | Net Income (Loss) Per Share





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





40



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

freight, handling costs and spoilage should be expensed as
incurred and not included in overhead. Further, SFAS 151
requires that allocation of fixed and production facilities
overheads to conversion costs should be based on normal capacity
of the production facilities. The provisions in SFAS 151
are effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The Company is currently
assessing the effects of adopting this Statement and does not
expect the adoption will have a significant effect on its
financial statements.

In December 2004, the FASB issued SFAS No. 153
Exchanges of Non-monetary Assets  An Amendment
of APB Opinion No. 29 (SFAS 153). The provisions
of this statement are effective for non-monetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005.
SFAS 153 eliminates the exception to fair value for
exchanges of similar productive assets and replaces it with a
general exception for exchange transactions that do not have
commercial substance  that is, transactions that are
not expected to result in significant changes in the cash flows
of the reporting entity. The Company believes that the adoption
of SFAS 153 will not have a significant effect on its
financial statements.

In December 2004, the FASB issued Staff Position
No. FAS 109-2, Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004 (SFAS 109-2).
The American Jobs Creation Act of 2004 introduces a special
one-time dividends received deduction on the repatriation of
certain foreign earnings to a U.S. taxpayer, provided
certain criteria are met. SFAS 109-2 provides accounting
and disclosure guidance for the repatriation provision and was
effective immediately upon issuance. The Company believes that
the adoption of SFAS 109-2 will not have a significant
effect on its financial statements.



Note 2.
    Balance Sheet Components (in thousands)

|                                 |                                                     |           |       |        |           |   |       |        |  
|-------------------------------- | --------------------------------------------------- | --------- | ----- | ------ | --------- | - | ----- | ------ | -
|                                 |                                                     | March 31, |       |        | March 31, |  
|                                 |                                                     | 2005      |       |        | 2004      |  
|                                 |                                                     |           |       |        |           |  
|Accounts receivable,
    net:    |                                                     |           |       |        |           |   |       |       
|                                 | Trade receivables                                   |           | $     | 912    |           |   | $     | 298    |  
|                                 | Less: Allowance for doubtful
    accounts           |           |       | (120   | )         |   |       | (3     | )
|                                 |                                                     |           |       |        |           |  
|                                 |                                                     | $         | 792   |        |           | $ | 295   |       
|                                 |                                                     |           |       |        |           |  
|Inventories:                     |                                                     |           |       |        |           |   |       |       
|                                 | Work-in-process                                     |           | $     | 515    |           |   | $     | 207    |  
|                                 | Finished goods                                      |           |       | 83     |           |   |       | 395    |  
|                                 |                                                     |           |       |        |           |  
|                                 |                                                     | $         | 598   |        |           | $ | 602   |       
|                                 |                                                     |           |       |        |           |  
|Property and equipment,
    net: |                                                     |           |       |        |           |   |       |       
|                                 | Furniture and fixtures                              |           | $     | 76     |           |   | $     | 39     |  
|                                 | Machinery and equipment                             |           |       | 2,838  |           |   |       | 2,775  |  
|                                 | Software                                            |           |       | 2,851  |           |   |       | 2,851  |  
|                                 |                                                     |           |       |        |           |  
|                                 |                                                     |           | 5,765 |        |           |   | 5,665 |       
|                                 | Less: Accumulated depreciation and
    amortization |           |       | (4,677 | )         |   |       | (3,718 | )
|                                 |                                                     |           |       |        |           |  
|                                 |                                                     | $         | 1,088 |        |           | $ | 1,947 |       
|                                 |                                                     |           |       |        |           |  

41



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Depreciation expense for fiscal years ended March 31, 2005,
2004 and 2003 was $1,148, $1,559 and $1,312 respectively.

|                  |                            |   |       |      |   |   |     |     |  
|----------------- | -------------------------- | - | ----- | ---- | - | - | --- | --- | -
|Other assets:     |                            |   |       |      |   |   |     |    
|                  | License technology         |   | $     | 482  |   |   | $   | 81  |  
|                  | Less: Amortization         |   |       | (128 | ) |   |     | (1  | )
|                  |                            |   |       |      |   |  
|                  | License technology, net    |   |       | 354  |   |   |     | 80  |  
|                  | Deposits                   |   |       | 32   |   |   |     | 32  |  
|                  |                            |   |       |      |   |  
|                  |                            | $ | 386   |      |   | $ | 112 |    
|                  |                            |   |       |      |   |  
|Accrued expenses: |                            |   |       |      |   |   |     |    
|                  | Accrued compensation costs |   | $     | 492  |   |   | $   | 421 |  
|                  | Accrued license technology |   |       | 700  |   |   |     | 13  |  
|                  | Accrued audit and legal    |   |       | 192  |   |   |     | 15  |  
|                  | Other                      |   |       | 354  |   |   |     | 208 |  
|                  |                            |   |       |      |   |  
|                  |                            | $ | 1,738 |      |   | $ | 657 |    
|                  |                            |   |       |      |   |  



|        |                       
|------- | ----------------------
|Note 3. | Short-term Investments



|                                          |  |                            |        |  |            |   |        |             |  |   |     |  
|----------------------------------------- |  | -------------------------- | ------ |  | ---------- | - | ------ | ----------- |  | - | --- | -
|                                          |  | Mature Less Than 12 Months |       
|                                          |  |                            |       
|                                          |  | Cost                       |        |  | Aggregate  |   |        | Unrealized  | 
|As of March 31, 2005                      |  | Value                      |        |  | Fair Value |   |        | Gain/(Loss) | 
|                                          |  |                            |        |  |            |   |        |             | 
|                                          |  | (In thousands)             |       
|U.S. government and agency
    securities |  | $                          | 7,000  |  |            | $ | 6,958  |             |  | $ | (42 | )
|U.S. corporate and bank debt              |  |                            | 10,753 |  |            |   | 10,706 |             |  |   | (47 | )
|                                          |  |                            |        |  |            |   |        |             | 
|Total                                     |  | $                          | 17,753 |  |            | $ | 17,664 |             |  | $ | (89 | )
|                                          |  |                            |        |  |            |   |        |             | 

|                                          |  |                            |       |  |                             |   |       |             |  |   |       |  |  |            |        |  |             |   |        |  |  |   |   | 
|----------------------------------------- |  | -------------------------- | ----- |  | --------------------------- | - | ----- | ----------- |  | - | ----- |  |  | ---------- | ------ |  | ----------- | - | ------ |  |  | - | - | 
|                                          |  | Mature Less Than 12 Months |       |  | Mature in 12 Months or More |  
|                                          |  |                            |       |  |                             |  
|                                          |  | Cost                       |       |  | Aggregate                   |   |       | Unrealized  |  |   | Cost  |  |  | Aggregate  |        |  | Unrealized  |  
|As of March 31, 2004                      |  | Value                      |       |  | Fair Value                  |   |       | Gain/(Loss) |  |   | Value |  |  | Fair Value |        |  | Gain/(Loss) |  
|                                          |  |                            |       |  |                             |   |       |             |  |   |       |  |  |            |        |  |             |  
|                                          |  | (In thousands)             |       |  | (In thousands)              |  
|U.S. government and agency
    securities |  | $                          |      |  |                             | $ |      |             |  | $ |      |  |  | $          | 6,000  |  |             | $ | 6,000  |  |  | $ |  | 
|U.S. corporate and bank debt              |  |                            | 9,392 |  |                             |   | 9,395 |             |  |   | 3     |  |  |            | 8,547  |  |             |   | 8,552  |  |  |   | 5 | 
|                                          |  |                            |       |  |                             |   |       |             |  |   |       |  |  |            |        |  |             |  
|Total                                     |  | $                          | 9,392 |  |                             | $ | 9,395 |             |  | $ | 3     |  |  | $          | 14,547 |  |             | $ | 14,552 |  |  | $ | 5 | 
|                                          |  |                            |       |  |                             |   |       |             |  |   |       |  |  |            |        |  |             |  



|        |                                                      
|------- | -----------------------------------------------------
|Note 4. | Sale of Software Business and Software-Related Assets



42



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company reported a gain of $9.1 million from this
transaction in the results of operations in the fiscal year
ended March 31, 2004. At March 31, 2004, $750,000 was
in an escrow account and that amount was received in April 2004.



Note 5.
    Restructuring Charges and Impairment Charge

Restructuring Charges.During the fiscal year ended March 31, 2003, the Company
recorded a restructuring charge of $950,000 relating to a
headcount reduction and termination of an operating lease for an
abandoned building. The restructuring was recorded to align the
cost structure with changing market conditions. The plan
resulted in headcount reduction of approximately
49 employees, which was made up of 55% of research and
development staff, 23% of operations staff, 16% of general and
administrative staff and 6% of sales and marketing staff. The
charge in relation to the operating lease of the abandoned
building represents the estimated difference between the total
non-discounted future sublease income and the non-discounted
lease commitments relating to this building. The restructuring
plan was completed as of March 31, 2004.

The following table summarizes the activity associated with the
restructuring liabilities (in thousands):

|                          |  |            |     |   |            |   |      |              |  |   |       |   |  |   |      |  
|------------------------- |  | ---------- | --- | - | ---------- | - | ---- | ------------ |  | - | ----- | - |  | - | ---- | -
|                          |  | License    |     |   | Leased     |   |      | Severances   |  |   |      
|                          |  | Technology |     |   | Facilities |   |      | and Benefits |  |   | Total |  
|                          |  |            |     |   |            |   |      |              |  |   |       |  
|Balance at March 31, 2002 |  | $          |    |   |            | $ |     |              |  | $ |      |   |  | $ |     |  
|Additions                 |  |            | 69  |   |            |   | 162  |              |  |   | 719   |   |  |   | 950  |  
|Non-cash charges          |  |            | (69 | ) |            |   |     |              |  |   |      |   |  |   | (69  | )
|Cash charges              |  |            |    |   |            |   | (139 | )            |  |   | (719  | ) |  |   | (858 | )
|                          |  |            |     |   |            |   |      |              |  |   |       |  
|Balance at March 31, 2003 |  |            |    |   |            |   | 23   |              |  |   |      |   |  |   | 23   |  
|Cash charges              |  |            |    |   |            |   | (23  | )            |  |   |      |   |  |   |     |  
|                          |  |            |     |   |            |   |      |              |  |   |       |  
|Balance at March 31,2004  |  | $          |    |   |            | $ |     |              |  | $ |      |   |  | $ |     |  
|                          |  |            |     |   |            |   |      |              |  |   |       |  



| |                   
| | ------------------
| | Impairment Charges





|        |             
|------- | ------------
|Note 6. | Income Taxes



43



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of the net deferred income tax asset are as
follows:

|                                                       |  |                |         |   |      |   |         |  
|------------------------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | -
|                                                       |  | March 31,      |        
|                                                       |  |                |        
|                                                       |  | 2005           |         |   | 2004 |  
|                                                       |  |                |         |   |      |  
|                                                       |  | (In thousands) |        
|Net operating losses                                   |  | $              | 19,566  |   |      | $ | 16,073  |  
|Reserve for accruals not deducted
    for tax purposes |  |                | 677     |   |      |   | 977     |  
|Available tax credit carry forwards                    |  |                | 2,618   |   |      |   | 2,784   |  
|Other timing differences                               |  |                | 1,818   |   |      |   | 1,870   |  
|                                                       |  |                |         |   |      |  
|Gross deferred tax asset                               |  |                | 24,679  |   |      |   | 21,704  |  
|Valuation allowance                                    |  |                | (24,679 | ) |      |   | (21,704 | )
|                                                       |  |                |         |   |      |  
|Net deferred tax asset                                 |  | $              |        |   |      | $ |        |  
|                                                       |  |                |         |   |      |  









|                                              |  |                |       |    |      |  |       |   
|--------------------------------------------- |  | -------------- | ----- | -- | ---- |  | ----- | --
|                                              |  | March 31,      |      
|                                              |  |                |      
|                                              |  | 2005           |       |    | 2004 | 
|                                              |  |                |       |    |      | 
|                                              |  | (In thousands) |      
|Tax provision (benefit) at
    statutory rate |  |                | (34.0 | )% |      |  | 34.0  | % 
|Valuation allowance                           |  |                | 39.0  | %  |      |  | 25.4  | % 
|Other                                         |  |                | (5.0  | )% |      |  | 3.6   | % 
|Utilization of net operating losses           |  |                | 0.0   | %  |      |  | (60.2 | )%
|                                              |  |                |       |    |      | 
|                                              |  |                | 0.0   | %  |      |  | 2.8   | % 
|                                              |  |                |       |    |      | 

44



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



Note 7.
    Earnings per ShareThe following table presents the calculation of basic and
diluted net income (loss) per share (in thousands, except per
share data):

|                                                                                              |                                                                         |                                 |        |        |      |   |        |        |   |   |         |        |  
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------- | ------ | -
|                                                                                              |                                                                         | Year Ended March 31,            |       
|                                                                                              |                                                                         |                                 |       
|                                                                                              |                                                                         | 2005                            |        |        | 2004 |   |        | 2003   |  
|                                                                                              |                                                                         |                                 |        |        |      |   |        |        |  
|                                                                                              |                                                                         | (In thousands, except per share |       
|                                                                                              |                                                                         | data)                           |       
|Net income (loss)                                                                             |                                                                         | $                               | (7,640 | )      |      | $ | 936    |        |   | $ | (12,695 | )     
|                                                                                              |                                                                         |                                 |        |        |      |   |        |        |  
|Basic and diluted;                                                                            |                                                                         |                                 |        |        |      |   |        |        |   |   |         |       
|                                                                                              | Weighted average shares of common
    stock outstanding                 |                                 |        | 22,827 |      |   |        | 22,340 |   |   |         | 22,053 |  
|                                                                                              | Less: Weighted average shares of
    common stock subject to repurchase |                                 |        |       |      |   |        | (17    | ) |   |         | (101   | )
|                                                                                              |                                                                         |                                 |        |        |      |   |        |        |  
|Weighted average shares used in
    computing basic net income (loss) per share               |                                                                         |                                 | 22,827 |        |      |   | 22,323 |        |   |   | 21,952  |       
|Diluted effect of common share
    equivalents                                                |                                                                         |                                 |       |        |      |   | 1,659  |        |   |   |        |       
|Weighted average shares used in
    computing diluted net income (loss) per share             |                                                                         |                                 | 22,827 |        |      |   | 23,982 |        |   |   | 21,952  |       
|                                                                                              |                                                                         |                                 |        |        |      |   |        |        |  
|Basic and diluted net income (loss)
    per share                                             |                                                                         | $                               | (0.33  | )      |      | $ | 0.04   |        |   | $ | (0.58   | )     
|                                                                                              |                                                                         |                                 |        |        |      |   |        |        |  
|Options and warrants excluded from
    the computation of diluted net income (loss) per share |                                                                         |                                 | 5,382  |        |      |   | 1,364  |        |   |   | 4,710   |       
|                                                                                              |                                                                         |                                 |        |        |      |   |        |        |  





|        |                                                     
|------- | ----------------------------------------------------
|Note 8. | Stockholders Equity and Employee Compensation Plans



| |                   
| | ------------------
| | Stock Option Plans



| |                                                                    
| | -------------------------------------------------------------------
| | 2000 Stock Incentive Plan and 2000 Employee Stock Purchase
    Plan





45



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

were reserved for issuance under the ESPP, plus, commencing on
April 1, 2001, annual increases equal to the least of
83,333 shares, 3% of the outstanding common stock on such
date, or a lesser amount determined by the Board of Directors.
Each participant may purchase up to 4,000 shares on any
purchase date. The ESPP permits eligible employees to contribute
up to 15% of cash compensation toward the semi-annual purchase
of the Companys common stock. The purchase price is 85% of
the fair market value on the day prior to the beginning of the
24 month period at which an eligible employee is enrolled,
or the end of each six-month accumulation period, whichever is
lower. Employees purchased 98,699, 117,745 and 39,851 in fiscal
2005, 2004 and 2003, respectively. As of March 31, 2005,
657,014 shares were available for purchase under the ESPP.



1999 Stock Incentive PlanThe Stock Incentive Plan (the 1999 Plan) provides
for the issuance of up to 5,166,667 shares of the
Companys common stock to directors, employees and
consultants. The 1999 Plan provides for the issuance of
restricted stock bonuses, restricted stock purchase rights,
incentive stock options or non-qualified stock options. Pursuant
to the 1999 Plan, the exercise price for incentive stock options
is at least 100% of the fair market value on the date of grant
or for employees owning in excess of 10% of the voting power of
all classes of stock, 110% of the fair market value on the date
of grant. For non-qualified stock options, the exercise price is
no less than 85% of the fair market value on the date of grant.

Options generally expire in ten years. Vesting periods are
determined by the Board of Directors; however, options generally
vest ratably over four years beginning one year after the date
of grant. Options may be exercised prior to full vesting. Any
unvested shares so exercised are subject to a repurchase right
in favor of the Company with the repurchase price to be equal to
the original purchase price of the stock. The right to
repurchase at the original price lapses at a minimum rate of
20% per year over five years from the date the options
granted. The 2000 Plan is the successor to the
1999 Plan. Since the 2000 Plan became effective the
1999 plan was terminated and no further grants were made
under the 1999 Plan. All shares and future cancellations
were merged into the 2000 Plan.



Out of Plan OptionsIn November 2001, the Company issued two out of plan
non-qualified options to acquire the Companys common
stock. One grant was for 800,000 shares, vesting over a
four-year period. The second grant was for 200,000 shares,
vesting over a six-year period but with a provision for earlier
vesting one year after the grant date provided that certain
criteria are achieved. Both grants had an exercise price of
$1.27 per share, the fair market value on the date of
grant, and expire in ten years.

46



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes activity under all of the
Companys stock option plans and out-of-plan options:

|                          |               |             |           |            |                  |   |      |      | 
|------------------------- | ------------- | ----------- | --------- | ---------- | ---------------- | - | ---- | ---- | 
|                          |               | Outstanding |           |            | Weighted Average |  
|                          |               | Options     |           |            | Exercise Price   |  
|                          |               |             |           |            |                  |  
|Balance at March 31, 2002 |               |             | 4,161,653 |            |                  | $ | 2.62 |     
|                          | Granted       |             |           | 2,33,401   |                  |   |      | 0.86 | 
|                          | Exercised     |             |           | (199,014   | )                |   |      | 0.26 | 
|                          | Cancellations |             |           | (1,746,232 | )                |   |      | 2.81 | 
|                          |               |             |           |            |                  |  
|Balance at March 31, 2003 |               |             | 4,449,808 |            |                  |   | 1.79 |     
|                          | Granted       |             |           | 1,347,333  |                  |   |      | 1.43 | 
|                          | Exercised     |             |           | (295,022   | )                |   |      | 0.64 | 
|                          | Cancellations |             |           | (607,736   | )                |   |      | 1.88 | 
|                          |               |             |           |            |                  |  
|Balance at March 31, 2004 |               |             | 4,894,383 |            |                  |   | 1.74 |     
|                          | Granted       |             |           | 1,714,010  |                  |   |      | 1.44 | 
|                          | Exercised     |             |           | (496,358   | )                |   |      | 0.51 | 
|                          | Cancellations |             |           | (729,501   | )                |   |      | 2.17 | 
|                          |               |             |           |            |                  |  
|Balance at March 31, 2005 |               |             | 5,382,534 |            |                  | $ | 1.71 |     
|                          |               |             |           |            |                  |  

|                    |           |          |                     |  |      |          |  |   |              |  |  |          |           |  |  |   |       | 
|------------------- | --------- | -------- | ------------------- |  | ---- | -------- |  | - | ------------ |  |  | -------- | --------- |  |  | - | ----- | 
|Options Outstanding |           |          | Options Exercisable | 
|                    |           |          |                     | 
|                    |           | Weighted |                     |  |      |          | 
|Number              |           |          | Average             |  |      | Weighted |  |   | Number       |  |  | Weighted |          
|Outstanding         |           |          | Remaining           |  |      | Average  |  |   | Exercisable  |  |  | Average  |          
|at March 31,        |           |          | Contractual         |  |      | Exercise |  |   | at March 31, |  |  | Exercise |          
|2005                |           |          | Life                |  |      | Price    |  |   | 2005         |  |  | Price    |          
|                    |           |          |                     |  |      |          |  |   |              |  |  |          |          
|                    | 545,107   |          |                     |  | 7.26 |          |  | $ | 0.48         |  |  |          | 399,851   |  |  | $ | 0.47  | 
|                    | 513,042   |          |                     |  | 8.23 |          |  |   | 0.75         |  |  |          | 201,728   |  |  |   | 0.60  | 
|                    | 1,000,000 |          |                     |  | 6.67 |          |  |   | 1.27         |  |  |          | 1,000,000 |  |  |   | 1.27  | 
|                    | 675,000   |          |                     |  | 9.55 |          |  |   | 1.43         |  |  |          | 0         |  |  |   | 0.00  | 
|                    | 802,000   |          |                     |  | 9.19 |          |  |   | 1.48         |  |  |          | 50,000    |  |  |   | 1.50  | 
|                    | 5,000     |          |                     |  | 9.86 |          |  |   | 1.51         |  |  |          | 0         |  |  |   | 0.00  | 
|                    | 804,894   |          |                     |  | 8.50 |          |  |   | 1.57         |  |  |          | 431,564   |  |  |   | 1.57  | 
|                    | 559,089   |          |                     |  | 6.71 |          |  |   | 1.91         |  |  |          | 543,883   |  |  |   | 1.91  | 
|                    | 445,735   |          |                     |  | 5.37 |          |  |   | 5.42         |  |  |          | 445,234   |  |  |   | 5.43  | 
|                    | 32,667    |          |                     |  | 5.33 |          |  |   | 11.00        |  |  |          | 32,667    |  |  |   | 11.00 | 
|                    |           |          |                     |  |      |          |  |   |              |  |  |          |          
|                    | 5,382,534 |          |                     |  | 7.78 |          |  | $ | 1.71         |  |  |          | 3,104,927 |  |  | $ | 1.98  | 
|                    |           |          |                     |  |      |          |  |   |              |  |  |          |          



47



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

estimated on the date of the grant using the Black-Scholes
option pricing model with the following assumptions:

|                                             |  |                       |            |   |      |  |            |      |  |  |            |  
|-------------------------------------------- |  | --------------------- | ---------- | - | ---- |  | ---------- | ---- |  |  | ---------- | -
|                                             |  | Stock Incentive Plans |           
|                                             |  | March 31,             |           
|                                             |  |                       |           
|                                             |  | 2005                  |            |   | 2004 |  |            | 2003 | 
|                                             |  |                       |            |   |      |  |            |      | 
|Risk-free Interest Rate                      |  |                       | 3.45       | % |      |  | 2.65       | %    |  |  | 1.25       | %
|Expected Life of Options from Grant
    Date |  |                       | 5.6  years |   |      |  | 4.5  years |      |  |  | 4.5  years |  
|Expected Dividend Yield                      |  |                       | 0.0        | % |      |  | 0.0        | %    |  |  | 0.0        | %
|Expected Stock Volatility                    |  |                       | 92.3       | % |      |  | 92.0       | %    |  |  | 90.0       | %

|                                             |  |                               |            |   |      |  |            |      |  |  |            |  
|-------------------------------------------- |  | ----------------------------- | ---------- | - | ---- |  | ---------- | ---- |  |  | ---------- | -
|                                             |  | Employee Stock Purchase Plans |           
|                                             |  | March 31,                     |           
|                                             |  |                               |           
|                                             |  | 2005                          |            |   | 2004 |  |            | 2003 | 
|                                             |  |                               |            |   |      |  |            |      | 
|Risk-free Interest Rate                      |  |                               | 2.07       | % |      |  | 0.94       | %    |  |  | 1.25       | %
|Expected Life of Options from Grant
    Date |  |                               | 0.5  years |   |      |  | 0.5  years |      |  |  | 0.5  years |  
|Expected Dividend Yield                      |  |                               | 0.0        | % |      |  | 0.0        | %    |  |  | 0.0        | %
|Expected Stock Volatility                    |  |                               | 79.3       | % |      |  | 85.0       | %    |  |  | 90.0       | %





| |                            
| | ---------------------------
| | Deferred Stock Compensation





| |                            
| | ---------------------------
| | Stock Repurchase Agreements





| |            
| | -----------
| | 401(k) Plan



48



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



Note 9.
    Certain RisksThe Company is subject to the risks associated with similar
technology companies. These risks include, but are not limited
to: history of operating losses, dependence on a small number of
key individuals, customers and suppliers, competition from
larger, more established companies, the impact of rapid
technological changes and changes in customer
demand/requirements.

Revenues to significant customers, those representing
approximately 10% or more of total revenues for the respective
periods, are summarized as follows:

|           |  |                    |    |   |      |  |    |      |  |  |    |  
|---------- |  | ------------------ | -- | - | ---- |  | -- | ---- |  |  | -- | -
|           |  | For the Year Ended |   
|           |  | March 31,          |   
|           |  |                    |   
|           |  | 2005               |    |   | 2004 |  |    | 2003 | 
|           |  |                    |    |   |      |  |    |      | 
|Customer A |  |                    | 17 | % |      |  | 15 | %    |  |  | 17 | %
|Customer B |  |                    | 34 | % |      |  | 12 | %    |  |  | *  |  
|Customer C |  |                    | *  |   |      |  | 12 | %    |  |  | *  |  
|Customer D |  |                    | *  |   |      |  | 10 | %    |  |  | *  |  
|Customer E |  |                    | 10 | % |      |  | *  |      |  |  | 10 | %
|Customer F |  |                    | *  |   |      |  | *  |      |  |  | 24 | %








| |                             
| | ----------------------------
| | Concentration of Credit Risk





|           |  |           |    |   |      |  |    |  
|---------- |  | --------- | -- | - | ---- |  | -- | -
|           |  | March 31, |   
|           |  |           |   
|           |  | 2005      |    |   | 2004 | 
|           |  |           |    |   |      | 
|Customer A |  |           | *  |   |      |  | 20 | %
|Customer B |  |           | *  |   |      |  | 15 | %
|Customer C |  |           | *  |   |      |  | 17 | %
|Customer D |  |           | 16 | % |      |  | *  |  
|Customer E |  |           | 27 | % |      |  | *  |  
|Customer F |  |           | 20 | % |      |  | *  |  
|Customer G |  |           | 27 | % |      |  | *  |  






49



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following is a summary of activities in allowance for
doubtful accounts and returns (in thousands)

|                                |  |            |     |  |            |   |     |            |  |            |               |  |  |   |     | 
|------------------------------- |  | ---------- | --- |  | ---------- | - | --- | ---------- |  | ---------- | ------------- |  |  | - | --- | 
|                                |  | Balance at |     |  | Charged to |   |     |            |  |           
|                                |  | Beginning  |     |  | Costs and  |   |     |            |  | Balance at |              
|Description                     |  | of Period  |     |  | Expenses   |   |     | Write-offs |  |            | End of Period | 
|                                |  |            |     |  |            |   |     |            |  |            |               | 
|Year Ended March 31, 2005       |  |            |     |  |            |   |     |            |  |            |               |  |  |   |     | 
|Allowance for doubtful accounts |  | $          | 3   |  |            | $ | 117 |            |  | $          | 0             |  |  | $ | 120 | 
|Year Ended March 31, 2004       |  |            |     |  |            |   |     |            |  |            |               |  |  |   |     | 
|Allowance for doubtful accounts |  | $          | 50  |  |            | $ | 15  |            |  | $          | 62            |  |  | $ | 3   | 
|Year Ended March 31, 2003       |  |            |     |  |            |   |     |            |  |            |               |  |  |   |     | 
|Allowance for doubtful accounts |  | $          | 112 |  |            | $ | 8   |            |  | $          | 70            |  |  | $ | 50  | 



| |                     
| | --------------------
| | Vendor Concentration







|         |                                   
|-------- | ----------------------------------
|Note 10. | Segment and Geographic Information





50



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes revenues by geographic area as a
percentage of total revenues:

|              |  |                    |    |   |      |  |    |      |  |  |    |  
|------------- |  | ------------------ | -- | - | ---- |  | -- | ---- |  |  | -- | -
|              |  | For the Year Ended |   
|              |  | March 31,          |   
|              |  |                    |   
|              |  | 2005               |    |   | 2004 |  |    | 2003 | 
|              |  |                    |    |   |      |  |    |      | 
|United States |  |                    | 11 | % |      |  | 24 | %    |  |  | 14 | %
|Europe        |  |                    | 34 | % |      |  | 24 | %    |  |  | 35 | %
|China         |  |                    | 13 | % |      |  | 18 | %    |  |  | 25 | %
|Japan         |  |                    | 20 | % |      |  | 15 | %    |  |  | 16 | %
|Korea         |  |                    | 10 | % |      |  | *  |      |  |  | 10 | %








|         |                              
|-------- | -----------------------------
|Note 11. | Commitments and Contingencies



| |                 
| | ----------------
| | Stock Repurchase







| |           
| | ----------
| | Litigation





| |                   
| | ------------------
| | Leases Commitments





51



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##### Table of Contents

TVIA, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Future payments due under operating leases as of March 31,
2005 are as follows (in thousands):

|                                   |      |           |      |     |           |   |     |       |  |   |       |     | 
|---------------------------------- | ---- | --------- | ---- | --- | --------- | - | --- | ----- |  | - | ----- | --- | 
|                                   |      | Operating |      |     |           |   |    
|                                   |      | Notes     |      |     | Operating |   |     |      
|Fiscal Year                        |      | Payable   |      |     | Leases    |   |     | Total | 
|                                   |      |           |      |     |           |   |     |       | 
|                                   | 2006 |           | $    | 500 |           |   | $   | 100   |  |   | $     | 600 | 
|                                   | 2007 |           |      | 375 |           |   |     | 65    |  |   |       | 440 | 
|                                   |      |           |      |     |           |   |     |       | 
|Total minimum payments             |      |           | 875  |     |           | $ | 165 |       |  | $ | 1,040 |    
|                                   |      |           |      |     |           |   |     |       | 
|Less: Amount representing interest |      |           | (70  | )   |           |   |     |       |  |   |       |    
|                                   |      |           |      |     |           |   |     |       | 
|Present value of minimum payments  |      |           | 805  |     |           |   |     |       |  |   |       |    
|Less: Current portion              |      |           | (460 | )   |           |   |     |       |  |   |       |    
|                                   |      |           |      |     |           |   |     |       | 
|Long term portion                  |      | $         | 345  |     |           |   |     |       |  |   |       |    
|                                   |      |           |      |     |           |   |     |       | 

52



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##### Table of Contents

Item 9.
    Changes In and Disagreements with Accountants on
    Accounting and Financial DisclosureNone.







Item 9A.
    Controls and Procedures(a) Evaluation of disclosure controls and procedures. We
maintain, and our management is responsible for disclosure
controls and procedures, as such term is defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934
(the Exchange Act), that are designed to ensure that
information required to be disclosed by us in reports that we
file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and that
such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating our
disclosure controls and procedures, management recognized that
disclosure controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute,
assurance that the objectives of the disclosure controls and
procedures are met. Our disclosure controls and procedures have
been designed to meet, and management believes that they meet,
reasonable assurance standards. Additionally, in designing
disclosure controls and procedures, our management necessarily
was required to apply its judgment in evaluating the
cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures
also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions.

Based on their evaluation as of the end of the period covered by
this Annual Report on Form 10-K, our Chief Executive
Officer and Chief Financial Officer have concluded that, subject
to the limitations noted above, our disclosure controls and
procedures were effective to ensure that material information
relating to us, including our consolidated subsidiaries, is made
known to them by others within those entities, particularly
during the period in which this Annual Report on Form 10-K
was being prepared.

(b) Changes in internal controls. There was no change in
our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) identified in
connection with the evaluation described in Item 8A(a)
above that occurred during our last fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.





PART III







Item 10.
    Directors and Executive Officers of the RegistrantThe information required by this item (with respect to
Directors) is incorporated by reference from the information
under the caption Election of Directors contained in
the Companys Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the
solicitation of proxies for the Companys 2005 Annual
Meeting of Stockholders to be held on August 11, 2005 (the
Proxy Statement). Certain information required by
this item concerning executive officers is set forth in
Part I of this Report under the caption Executive
Officers of the Registrant.

Item 405 of Regulation S-K calls for disclosure of any
known late filing or failure by an insider to file a report
required by Section 16(a) of the Exchange Act. This
disclosure is contained in the section entitled
Section 16(a) Beneficial Ownership Reporting
Compliance in the Proxy Statement and is incorporated
herein by reference.

The Company has a separately designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the
Exchange Act. The members of the Audit Committee are James
Bunker (Chairperson), R. David Dicioccio and Mark Mangiola,
all of whom meet the independence standards established by The
Nasdaq Stock Market for serving on an audit committee. The Board
of Directors has

53



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##### Table of Contents

determined that R. David Dicioccio and Mark Mangiola are each an
audit committee financial expert as defined SEC
regulations.

The Company has adopted a code of ethics, the Tvia Code of
Business Conduct and Ethics (the Code), that applies
to all directors and employees, including Tvias principal
executive officer, principle financial officer and controller on
March 22, 2004. The Companys Code of Ethics is
available on the Companys website at http://www.tvia.com.
To date, there have been no waivers under the Companys
Code of Ethics. The Company will post any waivers, if and when
granted, under its Code of Ethics on the Companys website
at http://www.tvia.com.







Item 11.
    Executive CompensationThe information required by this item is incorporated by
reference from the information under the captions Election
of Directors  Director Compensation,
Executive Compensation, and Election of
Directors  Compensation Committee Interlocks and
Insider Participation contained in the Proxy Statement.







Item 12.
    Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholders MattersThe information required by this item is incorporated by
reference from the information under the caption Security
Ownership of Certain Beneficial Owners and Management and
Equity Compensation Plan Information contained in
the Proxy Statement.

EQUITY COMPENSATION PLAN INFORMATION

Set forth in the table below is certain information regarding
the number of shares of Common Stock that were subject to
outstanding stock options or other compensation plan grants and
awards as of March 31, 2005.

|                                                               |  |                      |           |     |                      |                         |                       |                      |  |  |           |    
|-------------------------------------------------------------- |  | -------------------- | --------- | --- | -------------------- | ----------------------- | --------------------- | -------------------- |  |  | --------- | ---
|                                                               |  |                      |           |     |                      | Number of Securities    |                      
|                                                               |  |                      |           |     |                      | Remaining Available for |                      
|                                                               |  | Number of Securities |           |     |                      |                         | Future Issuance Under |                     
|                                                               |  | to be Issued         |           |     | Weighted-Average     |                         |                       | Equity Compensation  | 
|                                                               |  | Upon Exercise of     |           |     | Exercise Price of    |                         |                       | Plans (Excluding     | 
|                                                               |  | Outstanding Options, |           |     | Outstanding Options, |                         |                       | Securities Reflected | 
|Plan Category                                                  |  | Warrants and Rights  |           |     | Warrants and Rights  |                         |                       | In Column (a)        | 
|                                                               |  |                      |           |     |                      |                         |                       |                      | 
|Equity compensation plans
    approved by security holders     |  |                      | 4,382,534 | (1) |                      | $                       | 1.81                  |                      |  |  | 2,654,349 |    
|Equity compensation plans not
    approved by security holders |  |                      | 1,000,000 | (2) |                      | $                       | 1.27                  |                      |  |  |          |    
|                                                               |  |                      |           |     |                      |                         |                       |                      | 
|Totals                                                         |  |                      | 5,382,534 |     |                      | $                       | 1.71                  |                      |  |  | 2,654,349 | (3)






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes shares to be issued upon exercise of outstanding
    options and warrants granted under the 1999 Plan and the 2000
    Plan. Options or warrants to purchase shares of the
    Companys Common Stock are no longer granted under the 1999
    Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(2) | In November 2001, the Company issued two out-of-plan
    non-qualified options. The first grant is for
    800,000 shares of Common Stock, with an exercise price of
    $1.27, the fair market value on the date of grant. The option
    vests over a four year period. The second grant is for
    200,000 shares of Common Stock, with an exercise price of
    $1.27, the fair market value on the date of grant. If certain
    performance objectives are met, the second option will vest
    ratably over 48 months beginning on the last day of the
    first month following the first anniversary of the vesting
    commencement date. If the performance objectives are not met,
    the option will vest in full on the sixth anniversary of the
    vesting commencement date.

54



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##### Table of Contents

(3)
    Includes 657,014 shares reserved for issuance under the
    Companys 2000 Employee Stock Purchase Plan (the
    ESPP). The number of shares reserved for issuance
    under the ESPP increases on April 1, of every year, by the
    lesser of: 83,333 shares; 3% of the outstanding Common
    Stock on such date; or a lesser amount determined by the Board
    of Directors. Each participant may purchase up to
    4,000 shares on any purchase date. The ESPP permits
    eligible employees to contribute up to 15% of cash compensation
    toward the semi-annual purchase of the Companys Common
    Stock. The purchase price is 85% of the fair market value on the
    day prior to the beginning of the six-month period at which an
    eligible employee is enrolled, or the end of each six-month
    accumulation period, whichever is lower.





Item 13.
    Certain Relationships and Related TransactionsThe information required by this item is incorporated by
reference from the information contained under the captions
Certain Relationships and Related Party Transactions
contained in the Proxy Statement.







Item 14.
    Principal Accountant Fees and ServicesThe information required by this item is incorporated by
reference from the information under the caption
Ratification of Independent Auditors  Principal
Accountant Fees and Services and Pre-Approval
Policies and Procedures contained in the Proxy Statement.





PART IV







Item 15.
    Exhibits and Financial Statement Schedules(a)     Documents filed as part of
this report:



(1)
    Financial Statements

Reference is made to the Index to Consolidated Financial
    Statements of Tvia, Inc., under Item 8 of Part II
    hereof.

(2)
    Financial Statement Schedules

Financial statement schedules have been omitted because they are
    not applicable or not required or because the information is
    included elsewhere in the Consolidated Financial Statements or
    the Notes thereto.

(3)
    Exhibits

See Item 15(c) below. Each management contract or
    compensatory plan or arrangement required to be filed has been
    identified.55



---



##### Table of Contents

(b)
    Exhibits

|        |       |                         |  |                                                                                                                                                                                                                                                                               
|------- | ----- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|        | 3(i)  | .1                      |  | Amended and Restated Certificate of
    Incorporation (incorporated by reference to Exhibit 3.3 to
    Amendment No. 8 to the Companys Registration
    Statement on Form S-1 (File No. 333-34024)).                                                                         
|        | 3(ii) | .1                      |  | Amended and Restated Bylaws of
    Tvia, Inc.                                                                                                                                                                                                                                 
|        | 4     | .1                      |  | Form of Common Stock Certificate
    (incorporated by reference to Exhibit 4.1 to Amendment
    No. 2 to the Companys Registration Statement on
    Form S-1 (File No. 333-34024)).                                                                                          
|        | 4     | .2                      |  | Form of Amended and Restated
    Registration Rights Agreement dated as of April 3, 2000
    (incorporated by reference to Exhibit 4.2 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-34024)).                                                     
|        | 10    | .1#                     |  | Amended and Restated 1999 Stock
    Incentive Plan of Tvia, Inc. (incorporated by reference to
    Exhibit 10.1 to Amendment No. 1 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-34024)).                                                         
|        | 10    | .2#                     |  | Amended and Restated 2000 Stock
    Incentive Plan of Tvia, Inc. (incorporated by reference to
    Exhibit 10.2 to the Companys Annual Report on Form
    10-K for the fiscal year ended March 31, 2002).                                                                    
|        | 10    | .3#                     |  | Amended and Restated 2000 Employee
    Stock Purchase Plan of Tvia, Inc. (incorporated by reference to
    Exhibit 10.3 to the Companys Annual Report on Form
    10-K for the fiscal year ended March 31, 2004 (File No.
    000-30539)).                                   
|        | 10    | .4                      |  | Form of Directors and
    Officers Indemnification Agreement (incorporated by
    reference to Exhibit 10.4 to Amendment No. 3 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-34024)).                                                            
|        | 10    | .5                      |  | UMC Wafer Foundry Standard Terms
    and Conditions (incorporated by reference to Exhibit 10.6
    to Amendment No. 1 to the Companys Registration
    Statement on Form S-1 (File No. 333-34024)).                                                                          
|        | 10    | .6#                     |  | Form of Executive Severance
    Agreement (incorporated by reference to Exhibit 10.9 to
    Amendment No. 2 to the Companys Registration
    Statement on Form S-1 (File No. 333-34024)).                                                                                    
|        | 10    | .7#                     |  | Confidential Severance Agreement
    and Change Status Release dated March 11, 2005 by and
    between the Company and Kenny Liu (incorporated by reference to
    Form 8-K, filed March 15, 2005) (File No. 0-30539)                                                         
|        | 10    | .8                      |  | Multi-Tenant Single-Building
    Modified-Net Lease dated October 27, 1995 between
    Koll/Intereal Bay Area and Integraphics System, Inc.
    (incorporated by reference to Exhibit 10.13 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-34024)).
|        | 10    | .9                      |  | First Amendment to Lease Agreement
    dated January 15, 1999 between Koll/Intereal Bay Area and
    IGS Technologies, Inc. (incorporated by reference to
    Exhibit 10.14 to the Companys Registration Statement
    on Form S-1 (File No. 333-34024)).                    
|        | 10    | .10                     |  | Second Amendment to Lease Agreement
    dated May 6, 1999 between Koll/Intereal Bay Area and IGS
    Technologies, Inc. (incorporated by reference to
    Exhibit 10.15 to the Companys Registration Statement
    on Form S-1 (File No. 333-34024)).                        
|        | 10    | .11                     |  | Third Amendment to Lease Agreement
    dated June 27, 2003 between Koll/Intereal Bay Area and IGS
    Technologies, Inc.                                                                                                                                                      
|        | 10    | .12                     |  | Fourth Amendment to Lease Agreement
    dated June 7, 2004 between Koll/Intereal Bay Area and IGS
    Technologies, Inc.                                                                                                                                                      
|        | 10    | .13                     |  | Fifth Amendment to Lease Agreement
    dated May 17, 2005 between Koll/Intereal Bay Area and IGS
    Technologies, Inc.                                                                                                                                                       
|        | 10    | .14#                    |  | Option Agreement between the
    Company and Eli Porat dated November 30, 2001 (incorporated
    by reference to Exhibit 10.18 to the Companys
    Quarterly Report on Form 10-Q for the period ended
    December 31, 2001).                                                

56



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##### Table of Contents



|        |    |                         |  |                                                                                                                                                                                                                                                    
|------- | -- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 10 | .15#                    |  | Option agreement between the
    Company and Eli Porat dated November 30, 2001 (incorporated
    by reference to Exhibit 10.19 to the Companys
    Quarterly Report on Form 10-Q for the period ended
    December 31, 2001).                     
|        | 10 | .16#                    |  | Agreement and Release of Claims by
    and between the Company and Jack Guedj dated January 31,
    2002 (incorporated by reference to Exhibit 10.21 to the
    Companys Annual Report on Form 10-K for the fiscal year
    ended March 31, 2002).
|        | 21 | .1                      |  | Subsidiaries of the Company
    (incorporated by reference to Exhibit 21.1 to the
    Companys Annual Report on Form 10-K for the fiscal year
    ended March 31, 2003).                                                                          
|        | 23 | .1                      |  | Consent of PricewaterhouseCoopers
    LLP, Independent Registered Public Accounting Firm.                                                                                                                                                          
|        | 24 | .1                      |  | Power of Attorney (see page 45
    of this Form 10-K).                                                                                                                                                                                             
|        | 31 | .1                      |  | Rule 13a-14(a) certification
    of Chief Executive Officer                                                                                                                                                                                        
|        | 31 | .2                      |  | Rule 13a-14(a) certification
    of Chief Financial Officer                                                                                                                                                                                        
|        | 32 | .1**                    |  | Statement of Chief Executive
    Officer under Section 906 of the Sarbanes-Oxley Act of 2002
    (18 U.S.C.ss.1350).                                                                                                                               
|        | 32 | .2**                    |  | Statement of Chief Financial
    Officer under Section 906 of the Sarbanes-Oxley Act of 2002
    (18 U.S.C.ss.1350).                                                                                                                               






|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | In accordance with Item 601(b)(32)(ii) of
    Regulation S-K and SEC Release Nos. 33-8238 and 34-47986,
    Final Rule: Managements Reports on Internal Control Over
    Financial Reporting and Certification of Disclosure in Exchange
    Act Periodic Reports, the certifications furnished in
    Exhibits 32.1 and 32.2 hereto are deemed to accompany this
    Form 10-K and will not be deemed filed for
    purpose of Section 18 of the Exchange Act. Such
    certifications will not be deemed to be incorporated by
    reference into any filing under the Securities Act or the
    Exchange Act, except to the extent that the registrant
    specifically incorporates it by reference.
|  
|#  | Indicates management contact or compensatory plan or arrangement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|  | Confidential treatment has been requested or granted with
    respect to certain portions of these agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

(c)     Financial Statement
Schedules.




57



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##### Table of Contents

SIGNATURES

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



TVIA, INC.

By
    /s/ ELI PORATEli PoratChief Executive Officer and PresidentDate: June 17, 2005

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Eli Porat and Diane
Bjorkstrom, and each of them, his true and lawful
attorneys-in-fact, each with full power of substitution, for him
or her 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.

|                                             |  |                                                                                                    |  |               |  | 
|-------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | ------------- |  | 
|Name                                         |  | Title                                                                                              |  | Date         
|                                             |  |                                                                                                    |  |              
|/s/
    ELI PORATEli
    Porat               |  | Chairman of the Board, Chief
    Executive Officer and President
    (Principal Executive Officer) |  | June 17, 2005
|                                            
|/s/
    DIANE BJORKSTROMDiane
    Bjorkstrom |  | Chief Financial Officer
    (Principal Financial and
    Accounting Officer)                       |  | June 17, 2005
|                                            
|/s/
    KENNY LIUKenny
    Liu               |  | Director                                                                                           |  | June 17, 2005
|                                            
|/s/
    YVES FAROUDJAYves
    Faroudja       |  | Director                                                                                           |  | June 17, 2005
|                                            
|/s/
    JAMES BUNKERJames
    Bunker         |  | Director                                                                                           |  | June 17, 2005

58



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|                                                 |  |          |  |               |  | 
|------------------------------------------------ |  | -------- |  | ------------- |  | 
|Name                                             |  | Title    |  | Date         
|                                                 |  |          |  |              
|                                                
|/s/
    MARK MANGIOLAMark
    Mangiola           |  | Director |  | June 17, 2005
|                                                
|/s/
    R. DAVID DICIOCCIOR.
    David Dicioccio |  | Director |  | June 17, 2005

59



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EXHIBIT INDEX

|        |       |                         |  |                                                                                                                                                                                                                                                                               
|------- | ----- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                        
|Number  |       | Description of Document
|        |       |                        
|        | 3(i)  | .1                      |  | Amended and Restated Certificate of
    Incorporation (incorporated by reference to Exhibit 3.3 to
    Amendment No. 8 to the Companys Registration
    Statement on Form S-1 (File No. 333-34024)).                                                                         
|        | 3(ii) | .1                      |  | Amended and Restated Bylaws of
    Tvia, Inc.                                                                                                                                                                                                                                 
|        | 4     | .1                      |  | Form of Common Stock Certificate
    (incorporated by reference to Exhibit 4.1 to Amendment
    No. 2 to the Companys Registration Statement on
    Form S-1 (File No. 333-34024)).                                                                                          
|        | 4     | .2                      |  | Form of Amended and Restated
    Registration Rights Agreement dated as of April 3, 2000
    (incorporated by reference to Exhibit 4.2 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-34024)).                                                     
|        | 10    | .1#                     |  | Amended and Restated 1999 Stock
    Incentive Plan of Tvia, Inc. (incorporated by reference to
    Exhibit 10.1 to Amendment No. 1 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-34024)).                                                         
|        | 10    | .2#                     |  | Amended and Restated 2000 Stock
    Incentive Plan of Tvia, Inc. (incorporated by reference to
    Exhibit 10.2 to the Companys Annual Report on Form
    10-K for the fiscal year ended March 31, 2002).                                                                    
|        | 10    | .3#                     |  | Amended and Restated 2000 Employee
    Stock Purchase Plan of Tvia, Inc. (incorporated by reference to
    Exhibit 10.3 to the Companys Annual Report on Form
    10-K for the fiscal year ended March 31, 2004 (File No.
    000-30539)).                                   
|        | 10    | .4                      |  | Form of Directors and
    Officers Indemnification Agreement (incorporated by
    reference to Exhibit 10.4 to Amendment No. 3 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-34024)).                                                            
|        | 10    | .5                      |  | UMC Wafer Foundry Standard Terms
    and Conditions (incorporated by reference to Exhibit 10.6
    to Amendment No. 1 to the Companys Registration
    Statement on Form S-1 (File No. 333-34024)).                                                                          
|        | 10    | .6#                     |  | Form of Executive Severance
    Agreement (incorporated by reference to Exhibit 10.9 to
    Amendment No. 2 to the Companys Registration
    Statement on Form S-1 (File No. 333-34024)).                                                                                    
|        | 10    | .7#                     |  | Confidential Severance Agreement
    and Change Status Release dated March 11, 2005 by and
    between the Company and Kenny Liu (incorporated by reference to
    Form 8-K, filed March 15, 2005) (File No. 0-30539)                                                         
|        | 10    | .8                      |  | Multi-Tenant Single-Building
    Modified-Net Lease dated October 27, 1995 between
    Koll/Intereal Bay Area and Integraphics System, Inc.
    (incorporated by reference to Exhibit 10.13 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-34024)).
|        | 10    | .9                      |  | First Amendment to Lease Agreement
    dated January 15, 1999 between Koll/Intereal Bay Area and
    IGS Technologies, Inc. (incorporated by reference to
    Exhibit 10.14 to the Companys Registration Statement
    on Form S-1 (File No. 333-34024)).                    
|        | 10    | .10                     |  | Second Amendment to Lease Agreement
    dated May 6, 1999 between Koll/Intereal Bay Area and IGS
    Technologies, Inc. (incorporated by reference to
    Exhibit 10.15 to the Companys Registration Statement
    on Form S-1 (File No. 333-34024)).                        
|        | 10    | .11                     |  | Third Amendment to Lease Agreement
    dated June 27, 2003 between Koll/Intereal Bay Area and IGS
    Technologies, Inc.                                                                                                                                                      
|        | 10    | .12                     |  | Fourth Amendment to Lease Agreement
    dated June 7, 2004 between Koll/Intereal Bay Area and IGS
    Technologies, Inc.                                                                                                                                                      
|        | 10    | .13                     |  | Fifth Amendment to Lease Agreement
    dated May 17, 2005 between Koll/Intereal Bay Area and IGS
    Technologies, Inc.                                                                                                                                                       
|        | 10    | .14#                    |  | Option Agreement between the
    Company and Eli Porat dated November 30, 2001 (incorporated
    by reference to Exhibit 10.18 to the Companys
    Quarterly Report on Form 10-Q for the period ended
    December 31, 2001).                                                
|        | 10    | .15#                    |  | Option agreement between the
    Company and Eli Porat dated November 30, 2001 (incorporated
    by reference to Exhibit 10.19 to the Companys
    Quarterly Report on Form 10-Q for the period ended
    December 31, 2001).                                                



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##### Table of Contents



|        |    |                         |  |                                                                                                                                                                                                                                                    
|------- | -- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                        
|Number  |    | Description of Document
|        |    |                        
|        | 10 | .16#                    |  | Agreement and Release of Claims by
    and between the Company and Jack Guedj dated January 31,
    2002 (incorporated by reference to Exhibit 10.21 to the
    Companys Annual Report on Form 10-K for the fiscal year
    ended March 31, 2002).
|        | 21 | .1                      |  | Subsidiaries of the Company
    (incorporated by reference to Exhibit 21.1 to the
    Companys Annual Report on Form 10-K for the fiscal year
    ended March 31, 2003).                                                                          
|        | 23 | .1                      |  | Consent of PricewaterhouseCoopers
    LLP, Independent Registered Public Accounting Firm.                                                                                                                                                          
|        | 24 | .1                      |  | Power of Attorney (see page 45
    of this Form 10-K).                                                                                                                                                                                             
|        | 31 | .1                      |  | Rule 13a-14(a) certification
    of Chief Executive Officer                                                                                                                                                                                        
|        | 31 | .2                      |  | Rule 13a-14(a) certification
    of Chief Financial Officer                                                                                                                                                                                        
|        | 32 | .1**                    |  | Statement of Chief Executive
    Officer under Section 906 of the Sarbanes-Oxley Act of 2002
    (18 U.S.C.ss.1350).                                                                                                                               
|        | 32 | .2**                    |  | Statement of Chief Financial
    Officer under Section 906 of the Sarbanes-Oxley Act of 2002
    (18 U.S.C.ss.1350).                                                                                                                               






|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | In accordance with Item 601(b)(32)(ii) of
    Regulation S-K and SEC Release Nos. 33-8238 and 34-47986,
    Final Rule: Managements Reports on Internal Control Over
    Financial Reporting and Certification of Disclosure in Exchange
    Act Periodic Reports, the certifications furnished in
    Exhibits 32.1 and 32.2 hereto are deemed to accompany this
    Form 10-K and will not be deemed filed for
    purpose of Section 18 of the Exchange Act. Such
    certifications will not be deemed to be incorporated by
    reference into any filing under the Securities Act or the
    Exchange Act, except to the extent that the registrant
    specifically incorporates it by reference.
|  
|#  | Indicates management contact or compensatory plan or arrangement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|  | Confidential treatment has been requested or granted with
    respect to certain portions of these agreements.