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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

|           |  |                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------
|(Mark One)
|[X]        |  | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended September 30, 2002.

OR

|      |  |                                                                                            
|----- |  | -------------------------------------------------------------------------------------------
|[   ] |  | Transitional Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from:  to: .

Commission file number 0-32809

VIALTA, INC.(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

|                                |  |                                     
|------------------------------- |  | ------------------------------------
|Delaware                        |  | 94-3337326                          
|(State or Other Jurisdiction of |  | (I.R.S. Employer Identification No.)
|Incorporation or Organization)  |  |                                     

48461 Fremont Boulevard
Fremont, California 94538
(Address, including zip code, of Registrants principal executive offices)

(510) 870-3088
(Registrants telephone number, including area code)

Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

Yes [ X
]   No [   ]

The number of outstanding shares of the registrants common stock, par
value $0.001 per share, on November 5, 2002 was 82,125,202 shares.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                          |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1: Financial Statements                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                   
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS         
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS         
|                              |                                                                                               | NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | ITEM 3: Quantitative and Qualitative Disclosure About Market Risk                            
|                              | ITEM 4: Controls and Procedures                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 1: Legal Proceedings                                                                    
|                              | ITEM 4: Submission of Matters to a Vote of Security Holders                                  
|                              | ITEM 6: Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   



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##### Table of Contents



VIALTA, INC.

TABLE OF CONTENTS

|           |                                                                                                                                                                                                 |      |    |   
|---------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | -- | --
|           |                                                                                                                                                                                                 | Page
|           |                                                                                                                                                                                                 |     
|PART I.    | FINANCIAL INFORMATION                                                                                                                                                                           |      |    | 3 
|          
|Item 1.    | Financial Statements (unaudited):                                                                                                                                                               |      |    | 3 
|          
|           | Condensed Consolidated Balance Sheets  September 30, 2002 and
December 31, 2001                                                                                                                |      |    | 3 
|          
|           | Condensed Consolidated Statements of Operations  three months and
nine months ended September 30, 2002 and 2001, and period from
April 20, 1999 (date of inception) through September 30, 2002 |      |    | 4 
|          
|           | Condensed Consolidated Statements of Cash Flows  nine months ended
September 30, 2002 and 2001, and period from April 20, 1999
(date of inception) through September 30, 2002                  |      |    | 5 
|          
|           | Notes to Condensed Consolidated Financial Statements                                                                                                                                            |      |    | 6 
|          
|Item 2.    | Managements Discussion and Analysis of Financial Condition and
Results of Operations                                                                                                           |      |    | 11
|          
|Item 3.    | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                      |      |    | 16
|          
|Item 4.    | Controls and Procedures                                                                                                                                                                         |      |    | 16
|          
|PART II.   | OTHER INFORMATION                                                                                                                                                                               |      |    | 16
|          
|Item 1.    | Legal Proceedings                                                                                                                                                                               |      |    | 16
|          
|Item 4.    | Submission of Matters to a Vote of Security Holders                                                                                                                                             |      |    | 17
|          
|Item 5.    | Other Matters                                                                                                                                                                                   |      |    | 17
|          
|Item 6.    | Exhibits and Reports on Form 8-K                                                                                                                                                                |      |    | 17
|          
|SIGNATURES |                                                                                                                                                                                                 |      | 17

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PART I. FINANCIAL INFORMATION




ITEM 1: Financial Statements

VIALTA, INC.
(A Development Stage Company)




CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)


|                                           |                                                  |                            |        |                    |        |                   |        |         |        | 
|------------------------------------------ | ------------------------------------------------ | -------------------------- | ------ | ------------------ | ------ | ----------------- | ------ | ------- | ------ | 
|                                           |                                                  |                            |        | September 30, 2002 |        | December 31, 2001
|                                           |                                                  |                            |        |                    |        |                  
|Assets                                     |                                                  |                            |        |                    |        |                   |        |        
|Current assets:                            |                                                  |                            |        |                    |        |                   |        |        
|                                           | Cash and cash equivalents                        |                            | $      | 25,254             |        |                   | $      | 61,886  |       
|                                           | Short-term investments                           |                            |        | 10,808             |        |                   |        | 5,542   |       
|                                           | Inventory, net                                   |                            |        |                   |        |                   |        |        |       
|                                           | Prepaid expenses and other current assets        |                            |        | 4,451              |        |                   |        | 2,989   |       
|                                           |                                                  |                            |        |                    |        |                   |        |        
|                                           |                                                  | Total current assets       |        |                    | 40,513 |                   |        |         | 70,417 | 
|Property and equipment, net                |                                                  |                            | 3,350  |                    |        |                   | 7,831  |        
|Long term investments                      |                                                  |                            |       |                    |        |                   | 4,064  |        
|Content licenses                           |                                                  |                            | 9,247  |                    |        |                   | 1,342  |        
|Other assets                               |                                                  |                            | 46     |                    |        |                   | 212    |        
|                                           |                                                  |                            |        |                    |        |                   |        |        
|                                           |                                                  | Total assets               |        | $                  | 53,156 |                   |        | $       | 83,866 | 
|                                           |                                                  |                            |        |                    |        |                   |        |        
|Liabilities and Stockholders Equity       |                                                  |                            |        |                    |        |                   |        |        
|Current liabilities:                       |                                                  |                            |        |                    |        |                   |        |        
|                                           | Accounts payable                                 |                            | $      | 3,546              |        |                   | $      | 760     |       
|                                           | Accrued expenses and other current liabilities   |                            |        | 3,852              |        |                   |        | 2,827   |       
|                                           |                                                  |                            |        |                    |        |                   |        |        
|                                           |                                                  | Total current liabilities  |        |                    | 7,398  |                   |        |         | 3,587  | 
|                                           |                                                  |                            |        |                    |        |                   |        |        
|Stockholders equity:                      |                                                  |                            |        |                    |        |                   |        |        
|                                           | Common stock, $0.001 par value                   |                            |        | 94                 |        |                   |        | 92      |       
|                                           | Additional paid-in capital                       |                            |        | 144,104            |        |                   |        | 144,164 |       
|                                           | Deficit accumulated during the development stage |                            |        | (89,312            | )      |                   |        | (60,087 | )     
|                                           | Accumulated other comprehensive income           |                            |        | 28                 |        |                   |        | 156     |       
|                                           | Treasury stock                                   |                            |        | (9,156             | )      |                   |        | (4,046  | )     
|                                           |                                                  |                            |        |                    |        |                   |        |        
|                                           |                                                  | Total stockholders equity |        |                    | 45,758 |                   |        |         | 80,279 | 
|                                           |                                                  |                            |        |                    |        |                   |        |        
|Total liabilities and stockholders equity |                                                  | $                          | 53,156 |                    |        | $                 | 83,866 |        
|                                           |                                                  |                            |        |                    |        |                   |        |        

See accompanying notes to the condensed consolidated financial statements.

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VIALTA, INC.
(A Development Stage Company)




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)


|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         |             |          |  
|------------------------------------------ | -------------------------------- | -------------- | ------- | ------------------ | ------- | ------------------ | ------ | ------------------ | ------ | ------------------ | ------- | ------ | ------- | - | ------- | ------ | ------- | - | ------- | ----------- | -------- | -
|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         | Period from
|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         | April 20,  
|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         | 1999       
|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         | (Date of   
|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         | Inception) 
|                                           |                                  |                |         | Three months ended |         | Nine months ended  |        | Through           
|                                           |                                  |                |         |                    |         |                    |        | September 30,     
|                                           |                                  |                |         | September 30, 2002 |         | September 30, 2001 |        | September 30, 2002 |        | September 30, 2001 |         | 2002  
|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |       
|Operating expenses:                        |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         |            
|                                           | Product costs                    |                | $       | 9,284              |         |                    | $      |                   |        |                    | $       | 10,421 |         |   | $       |       |         |   | $       | 10,421      |         
|                                           | Research and development         |                |         | 2,928              |         |                    |        | 5,446              |        |                    |         | 11,143 |         |   |         | 15,337 |         |   |         | 57,320      |         
|                                           | Amortization of content
licenses |                |         | 948                |         |                    |        |                   |        |                    |         | 2,148  |         |   |         |       |         |   |         | 2,148       |         
|                                           | Sales and marketing              |                |         | 777                |         |                    |        | 838                |        |                    |         | 2,123  |         |   |         | 2,995  |         |   |         | 9,450       |         
|                                           | General and
administrative       |                |         | 1,216              |         |                    |        | 2,412              |        |                    |         | 4,455  |         |   |         | 7,016  |         |   |         | 20,965      |         
|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         |            
|                                           |                                  | Operating loss |         |                    | (15,153 | )                  |        |                    | (8,696 | )                  |         |        | (30,290 | ) |         |        | (25,348 | ) |         |             | (100,304 | )
|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         |            
|Other income (expense):                    |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         |            
|                                           | Interest income, net             |                |         | 330                |         |                    |        | 801                |        |                    |         | 1,065  |         |   |         | 3,086  |         |   |         | 12,871      |         
|                                           | Other expenses                   |                |         |                   |         |                    |        | (1,097             | )      |                    |         | (1     | )       |   |         | (1,101 | )       |   |         | (2,940      | )       
|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         |            
|Loss before income tax
benefit             |                                  |                | (14,823 | )                  |         |                    | (8,992 | )                  |        |                    | (29,226 | )      |         |   | (23,363 | )      |         |   | (90,373 | )          
|Income tax benefit                         |                                  |                |        |                    |         |                    |       |                    |        |                    |        |        |         |   |        |        |         |   | 1,060   |            
|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         |            
|Net loss                                   |                                  | $              | (14,823 | )                  |         | $                  | (8,992 | )                  |        | $                  | (29,226 | )      |         | $ | (23,363 | )      |         | $ | (89,313 | )          
|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         |            
|Net loss per share:                        |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         |            
|                                           | Basic and diluted                |                | $       | (0.18              | )       |                    | $      | (0.13              | )      |                    | $       | (0.35  | )       |   | $       | (0.35  | )       |   | $       | (2.71       | )       
|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         |            
|Weighted average common
shares outstanding |                                  |                | 82,908  |                    |         |                    | 70,945 |                    |        |                    | 83,959  |        |         |   | 67,201  |        |         |   | 32,942  |            
|                                           |                                  |                |         |                    |         |                    |        |                    |        |                    |         |        |         |   |         |        |         |   |         |            

See accompanying notes to the condensed consolidated financial statements.

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VIALTA, INC.
(A Development Stage Company)




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)


|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |                |         |  
|-------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ---------------------------------------------------------- | ------- | ------------------ | ------- | ------------------- | ------- | ------------- | ------- | - | ------ | -------------- | ------- | -
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        | Period from   
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        | April 20, 1999
|                                                                                 |                                                                             |                                                            |         | Nine Months Ended  |         | (Date of Inception)
|                                                                                 |                                                                             |                                                            |         |                    |         | through            
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         | September 30,
|                                                                                 |                                                                             |                                                            |         | September 30, 2002 |         | September 30, 2001  |         | 2002         
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |              
|CASH FLOWS FROM OPERATING ACTIVITIES:                                            |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               
|                                                                                 | Net loss                                                                    |                                                            | $       | (29,226            | )       |                     | $       | (23,363       | )       |   | $      | (89,313        | )      
|                                                                                 | Adjustments to reconcile net loss to
net cash used in operating activities: |                                                            |         |                    |         |                     |         |               |         |   |        |                |        
|                                                                                 | Depreciation and amortization                                               |                                                            |         | 4,778              |         |                     |         | 3,941         |         |   |        | 14,504         |        
|                                                                                 | Amortization of content license fees                                        |                                                            |         | 2,148              |         |                     |         |              |         |   |        | 2,148          |        
|                                                                                 | Write-down of long-term investments                                         |                                                            |         | 39                 |         |                     |         | 1,083         |         |   |        | 2,789          |        
|                                                                                 | Changes in assets and liabilities:                                          |                                                            |         |                    |         |                     |         |               |         |   |        |                |        
|                                                                                 |                                                                             | Prepaid expenses and other assets                          |         |                    | (1,493  | )                   |         |               | (1,747  | ) |        |                | (4,482  | )
|                                                                                 |                                                                             | Accounts payable & accrued liabilities                     |         |                    | 3,734   |                     |         |               | 62      |   |        |                | 7,398   |  
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               
|                                                                                 |                                                                             | Net cash flows used in operating activities                |         |                    | (20,020 | )                   |         |               | (20,024 | ) |        |                | (66,956 | )
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               
|CASH FLOWS FROM INVESTING ACTIVITIES:                                            |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               
|                                                                                 | Purchases of short-term investments                                         |                                                            |         | (8,663             | )       |                     |         | (9,389        | )       |   |        | (145,439       | )      
|                                                                                 | Proceeds from sales of short-term investments                               |                                                            |         | 7,333              |         |                     |         | 27,426        |         |   |        | 134,659        |        
|                                                                                 | Purchases of long-term investments                                          |                                                            |         |                   |         |                     |         | (2,641        | )       |   |        | (6,100         | )      
|                                                                                 | Purchase of content licenses                                                |                                                            |         | (10,042            | )       |                     |         |              |         |   |        | (11,384        | )      
|                                                                                 | Acquisitions of property and equipment                                      |                                                            |         | (149               | )       |                     |         | (1,754        | )       |   |        | (14,568        | )      
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               
|                                                                                 |                                                                             | Net cash flows provided by (used in)
investing activities: |         |                    | (11,521 | )                   |         |               | 13,642  |   |        |                | (42,832 | )
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               
|CASH FLOWS FROM FINANCING ACTIVITIES:                                            |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               
|                                                                                 | Repayment of notes payable to related party                                 |                                                            |         |                   |         |                     |         | (30,000       | )       |   |        |               |        
|                                                                                 | Issuance of preferred stock                                                 |                                                            |         |                   |         |                     |         |              |         |   |        | 142,600        |        
|                                                                                 | Issuance of common stock                                                    |                                                            |         | 19                 |         |                     |         | 16            |         |   |        | 1,598          |        
|                                                                                 | Repurchases of common stock                                                 |                                                            |         | (5,110             | )       |                     |         | (290          | )       |   |        | (9,156         | )      
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               
|                                                                                 |                                                                             | Net cash flows provided by (used in)
financing activities: |         |                    | (5,091  | )                   |         |               | (30,274 | ) |        |                | 135,042 |  
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               
|Net increase (decrease) in cash
and cash equivalents                             |                                                                             |                                                            | (36,632 | )                  |         |                     | (36,656 | )             |         |   | 25,254 |               
|Cash and cash equivalents,
beginning of the period                               |                                                                             |                                                            | 61,886  |                    |         |                     | 109,378 |               |         |   |       |               
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               
|Cash and cash equivalents, end of the period                                     |                                                                             | $                                                          | 25,254  |                    |         | $                   | 72,722  |               |         | $ | 25,254 |               
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
AND NONCASH FINANCING ACTIVITY: |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               
|                                                                                 | Cash paid for interest                                                      |                                                            | $       |                   |         |                     | $       | 194           |         |   | $      | 194            |        
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               
|                                                                                 | Issuance of note receivable in connection
with issuance of common stock     |                                                            | $       |                   |         |                     | $       |              |         |   | $      | 1,475          |        
|                                                                                 |                                                                             |                                                            |         |                    |         |                     |         |               |         |   |        |               

See accompanying notes to the condensed consolidated financial statements.

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VIALTA, INC.
(A Development Stage Company)




NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1. THE COMPANY

Vialta, Inc. (Vialta or the Company) was incorporated in California in
April 20, 1999 and reincorporated in the State of Delaware on April 20, 2001.

Vialta develops, designs and markets consumer electronics products
designed to maximize the advantages of digital technology in a convenient,
affordable and easy-to-use manner. The Company has recently developed and
introduced a personal phone video station, known as Beamer®. Beamer® connects
to a consumers existing phone (including cordless phones) and allows customers
to add video to their phone calls, delivering a live motion color video picture
over standard (analog) phone lines. In addition to Beamer®, the Company has
developed a multi-media DVD player (ViDVD) that offers additional features such
as CD, MP3, karaoke and Internet access. The Company is also developing
ViMagazine®, a proprietary, encrypted, magazine-style DVD-format disc which is
expected to contain a wide variety of entertainment, from feature films to
childrens programming, music and other programming content.

Since its inception, Vialta has been in the development stage and has
incurred substantial losses and negative cash flows from operations in every
fiscal period. Since the Companys inception through September 30, 2002, Vialta
has incurred losses of approximately $89.3 million and cumulative negative cash
flows from operations of $67.0 million. Management expects operating losses and
negative cash flows to continue for the foreseeable future and anticipates that
losses may increase from current levels because of additional costs and
expenses related to marketing activities, continued expansion of operations,
expansion of product offerings and development of relationships with other
businesses. Management believes that Vialta has sufficient cash, cash
equivalents and short-term investments to fund its development and growth
through September 30, 2003. However, in the longer term, failure to generate
sufficient revenues, raise additional capital or reduce spending could have a
material adverse effect on Vialtas ability to achieve its intended business
objectives.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles in the United States of America
(GAAP) have been condensed or omitted pursuant to such rules and regulations.
In the opinion of management, the unaudited interim financial statements
reflect only those normal recurring adjustments necessary for a fair statement
of the financial position, operating results and cash flows of the Company for
the periods presented. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended December 31, 2001 and
the period from April 20, 1999 (date of inception) through December 31, 2001,
included in the Companys Annual Report on Form 10-K filed on March 27, 2002.
The results of operations for the nine months ended September 30, 2002 are not
necessarily indicative of the results that may be expected for any other period
or for the fiscal year ending December 31, 2002.

Interim unaudited information

Preparing the Companys financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities, disclosure of contingent assets and
liabilities at the close of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from these estimates. Certain reclassifications have been made to
present the financial statements on a consistent basis.

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Reclassifications

Certain prior year balances have been reclassified to conform to the
current financial statement presentation.

Cash and cash equivalents

Vialta considers all highly liquid investments with an initial maturity of
90 days or less to be cash equivalents.

Product costs and inventories

Through September 30, 2002, the Company has not recognized any revenue. As
of September 30, 2002, the Company had recently introduced Beamer®. Because
the Company has no historical experience in selling Beamer® or similar
products, there is significant uncertainty regarding the Companys ability to
recover the costs incurred in building inventories. As a result, the Company
has charged the cost of building inventories to expense as incurred. During
the quarters ended June 30 and September 30, 2002, such costs charged to
expense as product costs were $1.1 million and $9.3 million, respectively,
totaling $10.4 million for the nine months ending September 30, 2002. Of this
total, $10.3 million represents inventories held by the Company and held by
retailers on a consigned basis and $0.1 million represents inventories billed to
retailers for which revenue has been deferred. If these inventories are
sold in future periods then the fact that the costs were previously charged to
expense will have a positive effect on gross margin and that effect will be
disclosed in the Companys financial statements.

Comprehensive income (loss)

Comprehensive income is defined to include all changes in equity during a
period from non-owner sources. The difference between net loss and
comprehensive loss for the three months and nine months ended September 30,
2002 was approximately $24,000 and $128,000, respectively, in connection with
unrealized losses on available-for-sale investments. As a result, comprehensive
loss for the three months and nine months ended September 30, 2002 was
approximately $14,847,000 and $29,354,000, respectively. For the three months
and nine months ended September 30, 2001, comprehensive loss approximated net
loss.

NOTE 3. RELATED PARTY TRANSACTIONS

The following is a summary of major transactions between Vialta and ESS
Technology, Inc., which was formerly the parent of Vialta, for the periods
presented (in thousands):

|                                                                                                                                             |                                               |   |                    |        |                   |   |       |      |      |   |       |        |   |   |       |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------- | - | ------------------ | ------ | ----------------- | - | ----- | ---- | ---- | - | ----- | ------ | - | - | ----- | ------ | -
|                                                                                                                                             |                                               |   | Three Months Ended |        | Nine Months Ended
|                                                                                                                                             |                                               |   | September 30,      |        | September 30,    
|                                                                                                                                             |                                               |   |                    |        |                  
|                                                                                                                                             |                                               |   | 2002               |        | 2001              |   | 2002  |      | 2001
|                                                                                                                                             |                                               |   |                    |        |                   |   |       |      |     
|Net receivables (payables) at
beginning of period                                                                                            |                                               | $ | (49                | )      |                   | $ | (632  | )    |      | $ | 64    |        |   | $ | 650   |       
|Charges by Vialta to ESS:                                                                                                                    |                                               |   |                    |        |                   |   |       |      |      |   |       |        |   |   |       |       
|                                                                                                                                             | Administrative & management
service agreement |   |                    | 21     |                   |   |       |     |      |   |       | 223    |   |   |       |       |  
|                                                                                                                                             | Sales of products                             |   |                    | 54     |                   |   |       |     |      |   |       | 54     |   |   |       |       |  
|                                                                                                                                             | Payments made by Vialta on behalf of ESS      |   |                    |       |                   |   |       |     |      |   |       | 14     |   |   |       |       |  
|Charges by ESS to Vialta:                                                                                                                    |                                               |   |                    |        |                   |   |       |      |      |   |       |        |   |   |       |       
|                                                                                                                                             | Research & development service fees           |   |                    |       |                   |   |       | (627 | )    |   |       |       |   |   |       | (1,896 | )
|                                                                                                                                             | Administrative & management service
agreement |   |                    | (32    | )                 |   |       | (848 | )    |   |       | (168   | ) |   |       | (3,000 | )
|                                                                                                                                             | Purchase of products                          |   |                    | (1,335 | )                 |   |       |     |      |   |       | (1,404 | ) |   |       | (1,127 | )
|                                                                                                                                             | Building lease                                |   |                    | (463   | )                 |   |       | (155 | )    |   |       | (1,389 | ) |   |       | (155   | )
|Cash receipts from ESS                                                                                                                       |                                               |   | (11                | )      |                   |   |      |      |      |   | (350  | )      |   |   | (650  | )     
|Cash payments made to ESS                                                                                                                    |                                               |   | 1,529              |        |                   |   | 1,361 |      |      |   | 2,670 |        |   |   | 5,277 |       
|Net receivables (payables) at end of period,
included in prepaid expenses and other current assets or accrued expenses and other liabilities |                                               | $ | (286               | )      |                   | $ | (901  | )    |      | $ | (286  | )      |   | $ | (901  | )     
|                                                                                                                                             |                                               |   |                    |        |                   |   |       |      |      |   |       |        |   |   |       |       

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NOTE 4. BALANCE SHEET COMPONENTS (in thousands)

|                                                                   |                |   |               |       |              |   |        |   | 
|------------------------------------------------------------------ | -------------- | - | ------------- | ----- | ------------ | - | ------ | - | 
|                                                                   |                |   | September
30, |       | December
31,
|                                                                   |                |   | 2002          |       | 2001        
|                                                                   |                |   |               |       |             
|Cash and Cash Equivalents                                          |                |   |               |       |              |   |        |  
|Cash and money market funds, at cost which
approximates fair value |                | $ | 25,254        |       |              | $ | 61,886 |  
|                                                                   |                |   |               |       |              |   |        |  
|Short-term and Long-term Investments                               |                |   |               |       |              |   |        |  
|U. S Government debt securities                                    |                | $ | 1,528         |       |              | $ | 4,274  |  
|Corporate debt securities                                          |                |   | 9,280         |       |              |   | 5,332  |  
|                                                                   |                |   |               |       |              |   |        |  
|                                                                   |                |   | 10,808        |       |              |   | 9,606  |  
|Due between one and two years                                      |                |   |              |       |              |   | 4,064  |  
|                                                                   |                |   |               |       |              |   |        |  
|Due within one year                                                |                | $ | 10,808        |       |              | $ | 5,542  |  
|                                                                   |                |   |               |       |              |   |        |  
|Inventories                                                        |                |   |               |       |              |   |        |  
|Beamer                                                             |                |   |               |       |              |   |        |  
|                                                                   | Raw materials  |   | $             | 4,353 |              |   | $      |  | 
|                                                                   | Finished goods |   |               | 5,905 |              |   |        |  | 
|                                                                   |                |   |               |       |              |   |        |  
|                                                                   |                |   | 10,258        |       |              |   |       |  
|ViDVD                                                              |                |   | 5,621         |       |              |   | 7,710  |  
|Others                                                             |                |   | 1,263         |       |              |   | 1,263  |  
|Less: inventory reserves                                           |                |   | (17,142       | )     |              |   | (8,973 | )
|                                                                   |                |   |               |       |              |   |        |  
|                                                                   |                | $ |              |       |              | $ |       |  
|                                                                   |                |   |               |       |              |   |        |  
|Prepaid Expenses and Other Current Assets                          |                |   |               |       |              |   |        |  
|Accounts receivable                                                |                | $ | 392           |       |              | $ |       |  
|Receivables from related party                                     |                |   |              |       |              |   | 64     |  
|Miscellaneous prepaid expenses                                     |                |   | 814           |       |              |   | 921    |  
|Advances to subcontractors and other                               |                |   | 3,245         |       |              |   | 2,004  |  
|                                                                   |                |   |               |       |              |   |        |  
|                                                                   |                | $ | 4,451         |       |              |   | 2,989  |  
|                                                                   |                |   |               |       |              |   |        |  
|Property and Equipment                                             |                |   |               |       |              |   |        |  
|Machinery and equipment                                            |                | $ | 7,292         |       |              | $ | 7,149  |  
|Furniture and fixtures                                             |                |   | 592           |       |              |   | 607    |  
|Software and web site development cost                             |                |   | 5,173         |       |              |   | 6,663  |  
|                                                                   |                |   |               |       |              |   |        |  
|                                                                   |                |   | 13,057        |       |              |   | 14,419 |  
|Less: Accumulated depreciation                                     |                |   | (9,707        | )     |              |   | (6,588 | )
|                                                                   |                |   |               |       |              |   |        |  
|                                                                   |                | $ | 3,350         |       |              | $ | 7,831  |  
|                                                                   |                |   |               |       |              |   |        |  

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|                                               |  |   |       |  |  |   |       |  | 
|---------------------------------------------- |  | - | ----- |  |  | - | ----- |  | 
|Accrued Expenses and Other Current Liabilities |  |   |       |  |  |   |       | 
|Accrued compensation costs                     |  | $ | 2,044 |  |  | $ | 2,440 | 
|Payables to related party                      |  |   | 286   |  |  |   |      | 
|Deferred revenue                               |  |   | 1,158 |  |  |   | 115   | 
|Other                                          |  |   | 364   |  |  |   | 272   | 
|                                               |  |   |       |  |  |   |       | 
|                                               |  | $ | 3,852 |  |  | $ | 2,827 | 
|                                               |  |   |       |  |  |   |       | 

NOTE 5. NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net
loss per share for the periods presented:

|                                                                                    |                     |   |                                          |        |                           |   |        |        |      |   |         |        |  |   |         |        | 
|----------------------------------------------------------------------------------- | ------------------- | - | ---------------------------------------- | ------ | ------------------------- | - | ------ | ------ | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|                                                                                    |                     |   | For the three months ended               |        | For the nine months ended
|                                                                                    |                     |   | September 30,                            |        | September 30,            
|                                                                                    |                     |   |                                          |        |                          
|                                                                                    |                     |   | 2002                                     |        | 2001                      |   | 2002   |        | 2001
|                                                                                    |                     |   |                                          |        |                           |   |        |        |     
|                                                                                    |                     |   | (in thousands, except per share amounts)
|Net Loss                                                                            |                     | $ | (14,823                                  | )      |                           | $ | (8,992 | )      |      | $ | (29,226 | )      |  | $ | (23,363 | )     
|Basic and diluted weighted average
common shares outstanding                        |                     |   | 82,908                                   |        |                           |   | 70,945 |        |      |   | 83,959  |        |  |   | 67,201  |       
|                                                                                    |                     |   |                                          |        |                           |   |        |        |      |   |         |        |  |   |         |       
|Basic and diluted net loss per share                                                |                     | $ | (0.18                                    | )      |                           | $ | (0.13  | )      |      | $ | (0.35   | )      |  | $ | (0.35   | )     
|                                                                                    |                     |   |                                          |        |                           |   |        |        |      |   |         |        |  |   |         |       
|Anti-dilutive securities excluded
from earnings per earnings per
share calculation: |                     |   |                                          |        |                           |   |        |        |      |   |         |        |  |   |         |       
|                                                                                    | Options outstanding |   |                                          | 11,303 |                           |   |        | 13,581 |      |   |         | 11,303 |  |   |         | 13,581 | 
|                                                                                    |                     |   |                                          |        |                           |   |        |        |      |   |         |        |  |   |         |       
|Total common stock equivalents
excluded                                             |                     |   | 11,303                                   |        |                           |   | 13,581 |        |      |   | 11,303  |        |  |   | 13,581  |       
|                                                                                    |                     |   |                                          |        |                           |   |        |        |      |   |         |        |  |   |         |       



---

|(1) |  | The dilutive net loss per share calculation excludes the effect of the
preferred stock outstanding through July 24, 2001, the date of
re-capitalization. Subsequent to this date, the preferred stock was
included within the weighted basic shares outstanding calculation.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 6. COMMON STOCK

In July 2002, each share of Vialtas Class A and Class B Common Stock was
converted into a single class of Common Stock in accordance with the provisions
of Vialtas Articles of Incorporation. As a result of the above conversion,
approximately 53,141,000 shares, including 10,169,000 of shares held by the Company as treasury stock, of issued Class A Common Stock and
approximately 40,580,000 issued shares of Class B Common Stock were converted
into approximately 93,721,000 shares of the non-classified Common Stock.
Holders of the non-classified Common Stock are entitled to one vote per share
on all matters.

During the quarter ended September 30, 2002, Vialta repurchased
approximately 1,629,000 shares of common stock for an aggregate cost of $1.6
million. For the nine month period ended September 30, 2002, Vialta repurchased
approximately 4,950,000 shares of common stock at an aggregate cost of $5.1
million. From October 1, 2002 through November 13, 2002 Vialta did not
repurchase any additional shares. As of November 13, 2002, approximately
8,814,000 shares remain authorized for repurchase.

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NOTE 7. SEGMENT AND GEOGRAPHIC INFORMATION

Vialta operates as one segment. Information about property and equipment
is as follows (in thousands):

|                             |  |               |       |              |  |   |       | 
|---------------------------- |  | ------------- | ----- | ------------ |  | - | ----- | 
|                             |  | September 30, |       | December 31,
|                             |  | 2002          |       | 2001        
|                             |  |               |       |             
|United States                |  | $             | 2,695 |              |  | $ | 6,896 | 
|Hong Kong                    |  |               | 35    |              |  |   | 40    | 
|Canada                       |  |               | 620   |              |  |   | 895   | 
|                             |  |               |       |              |  |   |       | 
|Total property and equipment |  | $             | 3,350 |              |  | $ | 7,831 | 
|                             |  |               |       |              |  |   |       | 

NOTE 8. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146). This Statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). This Statement requires that a liability for costs associated
with an exit or disposal activity be recognized and measured initially at fair
value only when the liability is incurred. The provisions of this Statement
are effective for exit or disposal activities that are initiated after December
31, 2002. The Company believes that SFAS No. 146 will not have a material
impact on our financial position or results of operations.

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ITEM 2: Managements Discussion and Analysis of Financial Condition and
Results of Operations

The following discussion includes forward-looking statements with respect
to our future financial performance. Actual results may differ materially from
those currently anticipated depending on a variety of factors, including those
described below under the sub-heading Other Factors That May Affect Our
Business and Future Results and the risks discussed in our most recent filing
with the Securities and Exchange Commission. The following discussion should be
read in conjunction with the unaudited Condensed Consolidated Financial
Statements and notes thereto that appear elsewhere in this report. References
herein to we, our, us, and similar words or phrases are references
collectively to Vialta, Inc. and its subsidiaries.

Overview

We were incorporated on April 20, 1999 as a wholly owned subsidiary of ESS
Technology, Inc. On August 21, 2001, we spun off from ESS Technology, Inc. and
operate as a stand-alone entity. We develop, design and market consumer
electronics products designed to maximize the advantages of digital technology
in a convenient, affordable and easy-to-use manner. We have recently developed
and introduced our phone video station, known as Beamer®. Beamer ® connects to
a consumers existing phone (including cordless phones) and allows customers to
add video to their phone calls, delivering a live motion color video picture
over standard (analog) phone lines at no additional cost to a regular call. In
addition to Beamer®, we have developed a multi-media DVD player (ViDVD) that
offers additional features such as CD, MP3, karaoke, and Internet access. We
are currently not marketing ViDVD. We are continuing to develop
ViMagazine®, a proprietary, encrypted, magazine-style DVD-format disc which is
expected to contain a wide variety of entertainment, from feature films to
childrens programming, music and other programming content.

At this time, Beamer® is the product that we are marketing. We began
nationwide retailer distribution of Beamer® during the third quarter of 2002 to
such retailers as Best Buy and Frys Electronics.

Through September 30, 2002, we had no revenues. The funds that we have
used to finance our development stage activities to date were raised through
private offerings of convertible preferred stock, common stock and vendor
credit. For the three months ended September 30, 2002 and 2001, we had net
losses of $14.8 million and $9.0 million, respectively, and expect to continue
to incur losses in the fourth quarter of fiscal year 2002. From our inception
through September 30, 2002, we had a net loss of $89.3 million.

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Results of Operations

For the three months ended September 30, 2002 compared with the three months ended
September 30, 2001

The following table discloses key elements of the statements of
operations, expressed as a percentage of total operating expenses.

|                       |                                  |                |    |                                  |     |      |     |    |     |  
|---------------------- | -------------------------------- | -------------- | -- | -------------------------------- | --- | ---- | --- | -- | --- | -
|                       |                                  |                |    | Three months ended September 30,
|                       |                                  |                |    |                                 
|                       |                                  |                |    | 2002                             |     | 2001
|                       |                                  |                |    |                                  |     |     
|Operating expenses:    |                                  |                |    |                                  |     |      |     |   
|                       | Product costs                    |                |    | 61                               | %   |      |     | 0  | %  
|                       | Research and development         |                |    | 20                               | %   |      |     | 63 | %  
|                       | Amortization of content licenses |                |    | 6                                | %   |      |     | 0  | %  
|                       | Sales and marketing              |                |    | 5                                | %   |      |     | 9  | %  
|                       | General and administrative       |                |    | 8                                | %   |      |     | 28 | %  
|                       |                                  |                |    |                                  |     |      |     |   
|                       |                                  | Operating loss |    |                                  | 100 | %    |     |    | 100 | %
|                       |                                  |                |    |                                  |     |      |     |   
|Other income/(expense) |                                  |                | 2  | %                                |     |      | (3  | )%
|                       |                                  |                |    |                                  |     |      |     |   
|Net loss               |                                  |                | 98 | %                                |     |      | 103 | % 
|                       |                                  |                |    |                                  |     |      |     |   

Product Costs. Product costs were $9.3 million or 61% of operating
expenses for the three months ended September 30, 2002. Product costs
represents inventory expenditures for raw materials and finished goods related
to Beamer®. Because the Company has no historical experience in selling Beamer® or similar products,
there is significant uncertainty regarding the Companys ability to recover the costs incurred in building inventories. As a result, we expense these inventory costs as incurred. There was no comparable expense
for the three months ended September 30, 2001.

Research and Development.Research and development expenses were $2.9
million for the three months ended September 30, 2002, or 20% of operating
expenses, compared to $5.4 million, or 63% of operating expenses for the three
months ended September 30, 2001. The decrease was primarily due to reductions
in research and development personnel and other development
expenditures and the fact that product costs were presented as a
separate category. All costs related to products in development
during the three months ended September 30, 2001 were included in research development. Further reductions were realized in our Internet Service Provider (ISP) business due to operating cost reductions. We expect to discontinue our ISP business during the fourth quarter of 2002.

Amortization of Content Licenses.Amortization of content licenses was
$948,000 in the three months ended September 30, 2002, or 6% of operating
expenses. Starting in the first quarter of fiscal 2002, we began to expense our
content licenses, based on the greater of the royalty amounts due or
amortization on a straight-line basis over an estimated life of three years.

Sales and Marketing.Sales and marketing expenses were $777,000 for the
three months ended September 30, 2002, or 5% of operating expenses, compared to
$838,000, or 9% of operating expenses for the three months ended September 30,
2001. The decrease was primarily due to reductions in sales and marketing
personnel which was partially offset with increased product introduction
expenditures in connection with the commercial launch of Beamer®. We expect
sales and marketing spending to increase in future periods to support expansion
of retail and consumer marketing initiatives, including advertising and
consumer awareness programs, for Beamer® and other new product introductions.

General and Administrative.General and administrative expenses were $1.2
million for the three months ended September 30, 2002, or 8% of operating
expenses, compared to $2.4 million, or 28% of operating expenses for the three
months ended September 30, 2001. The decrease was primarily due to personnel
reductions and other personnel related expenses as a result of company-wide
headcount reductions and lower reimbursements to ESS for administrative and
management services. We expect general and administrative expenses to be
relatively constant in future periods.

Other Income and Expenses.Interest income was $330,000 for the three
months ended September 30, 2002 compared to $801,000 for the three months ended
September 30, 2001. The decrease in interest income was primarily due to lower
cash balances and lower yields on available-for-sale securities during the
third quarter of fiscal year 2002 as compared to the same quarter of fiscal
year 2001. During the three months ended September 30, 2001, we recorded other
expenses of $1.1 million related to investment write-offs. The investments were
written off because we concluded that the investments had suffered a permanent
decline in value based on our assessment of the financial

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condition of the companies in which we had invested and the markets that
they serve. There was no comparable expense for the three months ended
September 30, 2002.

Net Loss.We incurred a net loss of $14.8 million for the three months
ended September 30, 2002, compared to $9.0 million for the three months ended
September 30, 2001. The $5.8 million increase in net loss was primarily due to
product costs of $9.3 million related to inventory expenditures necessary to
support the introduction of Beamer® and $948,000 in amortization of
content licenses. These increases were offset by lower operating expenditures
of $3.8 million for research and development and general and administrative
expenses.

For the nine months ended September 30, 2002 compared with the nine months ended
September 30, 2001

The following table discloses key elements of the statements of
operations, expressed as a percentage of total operating expenses.

|                       |                                  |                |    |                                 |     |      |    |    |     |  
|---------------------- | -------------------------------- | -------------- | -- | ------------------------------- | --- | ---- | -- | -- | --- | -
|                       |                                  |                |    | Nine months ended September 30,
|                       |                                  |                |    |                                
|                       |                                  |                |    | 2002                            |     | 2001
|                       |                                  |                |    |                                 |     |     
|Operating expenses:    |                                  |                |    |                                 |     |      |    |   
|                       | Product costs                    |                |    | 34                              | %   |      |    | 0  | %  
|                       | Research and development         |                |    | 37                              | %   |      |    | 61 | %  
|                       | Amortization of content licenses |                |    | 7                               | %   |      |    | 0  | %  
|                       | Sales and marketing              |                |    | 7                               | %   |      |    | 12 | %  
|                       | General and administrative       |                |    | 15                              | %   |      |    | 27 | %  
|                       |                                  |                |    |                                 |     |      |    |   
|                       |                                  | Operating loss |    |                                 | 100 | %    |    |    | 100 | %
|                       |                                  |                |    |                                 |     |      |    |   
|Other income/(expense) |                                  |                | 4  | %                               |     |      | 8  | % 
|                       |                                  |                |    |                                 |     |      |    |   
|Net loss               |                                  |                | 96 | %                               |     |      | 92 | % 
|                       |                                  |                |    |                                 |     |      |    |   

Product Costs.Product costs were $10.4 million or 34% of operating
expenses for the nine months ended September 30, 2002. Product costs represents
inventory expenditures for raw materials and finished goods related to Beamer®.
Because the Company has no historical experience in selling Beamer® or similar products, there is significant
uncertainty regarding the Companys ability to recover the costs incurred in building inventories. AS a result, we expense
these inventory costs as incurred. There was no comparable expense for the nine
months ended September 30, 2001.

Research and Development.Research and development expenses were $11.1
million for the nine months ended September 30, 2002, or 37% of operating
expenses, compared to $15.3 million, or 61% of operating expenses for the nine
months ended September 30, 2001. The decrease in research and development
expenses was primarily due to reductions in personnel and personnel related
expenses as we shifted our focus to sales and marketing efforts from core
development activities and the fact that product costs were presented as a separate category. All costs related to products in development
during the nine months ended September 30, 2001 were included in research and development. Further reductions were realized in our Internet Service
Provider (ISP) business
due to operating cost reductions. We expect to discontinue our ISP business during the fourth quarter of 2002.

Amortization of Content Licenses.Amortization of content licenses was
$2.1 million in the nine months ended September 30, 2002, or 7% of operating
expenses. Starting in the first quarter of fiscal 2002, we began to expense our
content licenses, based on the greater of the royalty amounts due or
amortization on a straight-line basis over an estimated life of three years.

Sales and Marketing.Sales and marketing expenses were $2.1 million for
the nine months ended September 30, 2002, or 7% of operating expenses, compared
to $3.0 million, or 12% of operating expenses, for the nine months ended
September 30, 2001. The decrease was primarily due to reductions in personnel
and other personnel related expenses as a result of organizational
restructuring initiated in August 2001 and lower marketing expenses due to
improvements in our marketing infrastructure. We expect sales and marketing
spending to increase in future periods to support expansion of retail and
consumer marketing initiatives, including advertising and consumer awareness
programs, for Beamer® and other proposed new product introductions.

General and Administrative.General and administrative expenses were $4.5
million for the nine months ended September 30, 2002, or 15% of operating
expenses, compared to $7.0 million, or 27% of operating expenses for the

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nine months ended September 30, 2001. The decrease was primarily due to
reductions in personnel and other corporate expenses and lower reimbursements
to ESS for administrative and management services. We expect general and
administrative expenses to be relatively constant in future periods.

Other Income and Expenses.Interest income was $1.1 million for the nine
months ended September 30, 2002 compared to $3.1 million for the nine months
ended September 30, 2001. The decrease in interest income was primarily due to
lower cash balances and lower yields on available-for-sale securities during
the nine months ended September 30, 2002 as compared to the same period of
fiscal year 2001. During the nine months ended September 30, 2001, the company
recorded other expenses of $1.1 million related to investment write-offs. The
investments were written off because we concluded that the investments had
suffered a permanent decline in value based on our assessment of the financial
condition of the companies in which we had invested and the markets that they
serve. There was no comparable expense for the nine months ended September 30,
2002.

Net Loss.We incurred a net loss of $29.2 million for the nine months
ended September 30, 2002 compared to $23.4 million for the nine months ended
September 30, 2001. The increase in net loss was primarily due to product costs
of $10.4 million related to inventory expenditures necessary to support the
introduction of Beamer®, $2.1 million in amortization of content
licenses and lower interest income of $2.0 million. These increases were offset
by lower operating expenditures of $7.6 million for research and development,
sales and marketing and general and administrative expenses.

Liquidity and Capital Resources

As of September 30, 2002, we had $36.1 million in cash, cash equivalents
and short-term investments compared to $67.4 million as of December 31, 2001,
representing a decrease of $31.3 million. As of September 30, 2002, we had no
long-term investments compared to $4.1 million as of December 31, 2001. This
decrease of $4.1 million is due to all investments having maturities of less than
12 months.

Our principal sources of liquidity are cash, cash equivalents and
short-term investments. Net cash used in operating activities was approximately
$20.0 million for both the nine months ended September 30, 2002 and 2001. Our
cash used in operating activities during the nine months ended September 30,
2002 was primarily attributable to our losses and prepayment to a vendor. This
was partially offset by an increase in accounts payable and accrued liabilities
primarily related to inventories received but for which payment had not yet been made.
For the nine months ended September 30, 2002 and 2001, we had a net loss of
$29.2 million and $23.4 million, respectively, and we expect to continue to
incur losses in the fourth quarter of fiscal year 2002.

Net cash used in investing activities for the nine months ended September
30, 2002 was $11.5 million compared to $13.6 million of cash provided by
investing activities for the nine months ended September 30, 2001. Net cash
used in investing activities for the nine months ended September 30, 2002 was
primarily related to purchases of content licenses for ViMagazine® and
short-term investments, offset by the purchase of investments. Net cash
provided by investing activities for the nine months ended September 30, 2001
was primarily related to the sales of short-term investments, net of purchases.
This was partially offset by cash used for the purchase of property and
equipment.

Net cash used by financing activities was $5.1 million for the nine months
ended September 30, 2002 and $30.3 million for the nine months ended September
30, 2001. Net cash used in financing activities for the nine months ended
September 30, 2002 was primarily related to repurchases of our common stock in
the open market. Net cash used in financing activities for the nine months
ended September 30, 2001 was related to the repayment of $30.0 million of notes
payable to an entity controlled by Annie M.H. Chan, the spouse
of the Companys chairman.

Capital expenditures for the 12-month period ending September 30, 2003 are
anticipated to be approximately $500,000, primarily budgeted to acquire capital
equipment and content licenses for ViMagazine®. We may also utilize cash to
acquire or invest in complementary businesses or products or to obtain the
right to use complementary technologies and media content which may
significantly increase our planned requirements for capital. In addition, from
time to time, in the ordinary course of business, we may evaluate potential
acquisitions of, or investments in, such businesses, products or technologies
owned by third parties.

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In September 2001, the Board of Directors authorized the repurchase of up
to 10,000,000 shares of our common stock in the open market over a 12-month
period. In June 2002, the Board of Directors authorized the existing stock
repurchase program be extended to include the repurchase of up to an additional
10,000,000 shares of common stock. During the three months ended September 30,
2002, we repurchased a total of 1,629,000 shares of common stock for an
aggregate cost of $1.6 million. For the nine-month period ended September 30,
2002, we repurchased approximately 4,950,000 shares of common stock at an
aggregate cost of $5.1 million. From October 1, 2002 through November 13, 2002,
we did not repurchase any shares. As of November 13, 2002 approximately
8,814,000 shares remain authorized for repurchase.

As of September 30, 2002 we had outstanding purchase commitments totaling
approximately $1.8 million for non-cancelable orders primarily related to
inventory not yet received for Beamer®.

In January 2000, we entered into a non-cancelable lease agreement for our
headquarters that will expire in 2003. Under the terms of this and other
leases, with various expiration dates through 2006, our future minimum rental
payments are as follows (in thousands):

|                         |      |  |   |       | 
|------------------------ | ---- |  | - | ----- | 
|Year ending December 31, |      |  |   |      
|                         | 2002 |  | $ | 2,308 | 
|                         | 2003 |  |   | 2,265 | 
|                         | 2004 |  |   | 349   | 
|                         | 2005 |  |   | 147   | 
|                         | 2006 |  |   | 110   | 

We believe that our existing cash, cash equivalents and short term
investments will be sufficient to fund planned acquisitions of inventory,
property and equipment and to provide adequate working capital through at least
the 12-month period ending September 30, 2003. However, to achieve our
longer-term goals of introducing additional products and services to consumers,
we believe we will need to raise additional capital, which may not be available
on acceptable terms, if at all. We have historically used vendor credit as well
as private offerings of convertible preferred stock and common stock to fund
operations and provide for capital requirements. However, the price per share
of any future equity-related financing will be determined at about the time the
offering is made and cannot be anticipated at this time. If additional funds
are raised through the issuance of equity securities, the percentage ownership
of current stockholders are likely to or will be reduced and such equity
securities may have rights, preferences or privileges better than those of
current stockholders. We cannot assure you that any additional financing will
be available or that, if available, it will be sufficient or it can be obtained
on terms favorable to us or our stockholders. If adequate funds are not
available if and when needed, we would be required to delay, limit or eliminate
some or all of our proposed operations.

Critical Accounting Policies

Our critical accounting policies were disclosed in Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operations, of
our Annual Report on Form 10-K for the year ended December 31, 2001. On an
ongoing basis, we re-evaluate our judgments and estimates including those
related to valuation of inventories, valuation of long-lived assets and certain
risks and concentrations. We base our estimates and judgments on our historical
experience, knowledge of current conditions and our beliefs of what could occur
in the future considering available information. Actual results may differ from
these estimates under different assumptions or conditions. We apply our
estimates and judgments consistently for all periods presented.

Other Factors That May Affect Our Business and Future Results

Factors that could impact our future business, consolidated financial
position, results of operations or cash flows and cause future results to
differ from our expectations include the following: the success of Beamer® and other consumer products we may develop; the ability to achieve
revenues and profitability; the ability to raise additional capital;
competition; the availability of intellectual property licenses; pricing
pressures; the dependence on a limited number of products and the need to
develop new products and features; the success of our
ViMagazine® content delivery system; the availability of content licenses;
component supply shortages; potential conflicts with ESS Technology, Inc., our
previous parent; the success of current distribution and retailing
relationships

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and the ability to enter into additional agreements; risks associated with
the expansion of our business, including increased costs and the strain on
management and other resources; the risk of product defects, system failures or
interruptions; general economic, political and regulatory changes including in
Asia; claims by third parties of intellectual property infringement; dependence
on key management personnel and the need to attract and retain additional
qualified personnel; risks associated with possible business acquisitions;
regulatory changes that affect consumer electronics, telecommunications,
copyrights or the internet; quarterly fluctuations in operating results; risks
of class action lawsuits based on fluctuations in our stock price; seasonal
trends; and risks identified in the our Annual Report on Form 10-K for the
fiscal year ended December 31, 2001 and other filings with the Securities and
Exchange Commission.




ITEM 3: Quantitative and Qualitative Disclosure About Market Risk

Interest Rate Risks.We invest in short-term investments. Consequently, we
are exposed to fluctuation in interest rates on these investments. Increases or
decreases in interest rates generally translate into decreases and increases in
the fair value of these investments. In addition, the credit worthiness of the
issuer, relative values of alternative investments, the liquidity of the
instrument, and other general market conditions may affect the fair values of
interest rate sensitive investments. In order to reduce the risk from
fluctuation in rates, we invest in highly liquid governmental notes and bonds
with contractual maturities of less than two years. All of the investments have
been classified as available for sale, and at September 30, 2002, are recorded
at market values.

Foreign Exchange Risks.Because our products are manufactured primarily in
Asia, we are exposed to market risk from changes in foreign exchange rates,
which could affect its results of operations and financial condition. In order
to reduce the risk from fluctuation in foreign exchange rates, our product
sales and all of our arrangements with our third party manufacturers and
component vendors are denominated in U.S. dollars. We do not engage in any
currency hedging activities.




ITEM 4: Controls and Procedures

Within ninety days prior to the filing of this report, an evaluation was
performed of the effectiveness of the design and operation of the Companys
disclosure controls and procedures. This evaluation was conducted under the
supervision and with the participation of the Companys Chief Executive Officer
and its Chief Financial Officer. Based on that evaluation, the Companys Chief
Executive Officer and its Chief Financial Officer concluded that the design and operation of the Companys
disclosure controls and procedures were effective in timely alerting them to material information required to be included in our periodic SEC reports. There have been no
significant changes in the Companys internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation.




PART II. OTHER INFORMATION




ITEM 1: Legal Proceedings

In August 2001, Professional Staffing Corporation (PSC) filed a lawsuit
against the Company in The Superior Court of California, County of Alameda,
Case No. 2001-22331, alleging causes of action for breach of contract and
fraud. In December 2001, we answered and filed a cross-complaint alleging cause
of action for breach of contract, breach of the covenant of good faith and fair
dealing, fraud, unfair competition, and abuse of process. In the past, PSC had
provided temporary information technology workers to the Company on an ongoing
basis, and prior to the suit being filed; in July of 2001 we withheld payment
to PSC on $92,095 of invoices pending the results of an in-house audit. In
October of 2002, the parties negotiated and signed a comprehensive settlement
agreement and mutual release of all claims with prejudice. Performance of the
settlement agreement has been completed by all parties, and dismissals to the
complaint and cross-complaint were filed on or about November 1, 2002.

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

There were no matters submitted to a vote of security holders during the
quarter ended September 30, 2002.




ITEM 6: Exhibits and Reports on Form 8-K

(a)  Exhibits. None.

(b)  Reports on Form 8-K. No reports were filed on Form 8-K for the quarter
ended September 30, 2002.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized.

|                        |                           |                                                   
|----------------------- | ------------------------- | --------------------------------------------------
|                        | VIALTA, INC. (Registrant)
|                       
|Date: November 14, 2002 | By:                       | /s/ Didier Pietri                                 
|                        |                           |                                                   
|                        |                           | Didier Pietri
President and CEO                   
|                       
|                        | By:                       | /s/ William M. Scharninghausen                    
|                        |                           |                                                   
|                        |                           | William M. Scharninghausen
Chief Financial Officer

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CERTIFICATIONS

I, Didier Pietri, President and Chief Executive Officer of Vialta, Inc.,
certify that:

1. I have reviewed this quarterly report on Form 10-Q of Vialta, Inc. (the
registrant);

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

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

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

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

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

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

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

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

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

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002



| | /s/ Didier Pietri
Didier Pietri
President and Chief Executive Officer
| | ---------------------------------------------------------------------

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CERTIFICATIONS

I, William M. Scharninghausen, Chief Financial Officer of Vialta, Inc.,
certify that:

1. I have reviewed this quarterly report on Form 10-Q of Vialta, Inc. (the
registrant);

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

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

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

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

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

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

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

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

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

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002



| | /s/ William M. Scharninghausen
William M. Scharninghausen
Chief Financial Officer
| | ---------------------------------------------------------------------------------

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