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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 March 31, 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
(State or Other Jurisdiction of
Incorporation or Organization) |  | 94-3337326
(I.R.S. Employer Identification No.)

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

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

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 [   ] No [X]

The number of outstanding shares of the registrants Class A common stock,
par value $0.001 per share, on April 23, 2002 was 43,010,959 shares. The
number of outstanding shares of the registrants Class B common stock, par
value $0.001 per share, on April 23, 2002 was 40,580,375 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                            
|PART II. OTHER INFORMATION   
|                              | ITEM 3: 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                                                               
|Item 1. Financial Statements (unaudited):                                                   
|                                                                                             | Condensed Consolidated Balance Sheets  March 31, 2002 and December 31, 2001                                                                                              
|                                                                                             | Condensed Consolidated Statements of Operations  three months ended March 31, 2002
and 2001, and period from
   April 20, 1999 (date of inception) through March 31, 2002
|                                                                                             | Condensed Consolidated Statements of Cash
Flows  three months ended March 31, 2002 and
2001, and period from
   April 20, 1999 (date of inception) through March 31, 2002
|                                                                                             | Notes to Condensed Consolidated Financial Statements                                                                                                                      
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                          
|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






PART I. FINANCIAL INFORMATION




ITEM 1: FINANCIAL STATEMENTS




VIALTA, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)

|                      |                                      |                                                  |                                            |   |                |        |              |   |         |        | 
|--------------------- | ------------------------------------ | ------------------------------------------------ | ------------------------------------------ | - | -------------- | ------ | ------------ | - | ------- | ------ | 
|                      |                                      |                                                  |                                            |   | March 31,      |        | December 31,
|                      |                                      |                                                  |                                            |   | 2002           |        | 2001        
|                      |                                      |                                                  |                                            |   |                |        |             
|                      |                                      |                                                  |                                            |   | (in thousands)
|                      |                                      |                                                  | ASSETS                                     |   |                |        |              |   |         |        | 
|Current assets:       |                                      |                                                  |                                            |   |                |        |              |  
|                      |                                      | Cash and cash equivalents                        |                                            | $ | 49,970         |        |              | $ | 61,886  |       
|                      |                                      | Short-term investments                           |                                            |   | 9,459          |        |              |   | 5,542   |       
|                      |                                      | Prepaid expenses and other current assets        |                                            |   | 3,193          |        |              |   | 2,989   |       
|                      |                                      |                                                  |                                            |   |                |        |              |  
|                      |                                      |                                                  | Total current assets                       |   |                | 62,622 |              |   |         | 70,417 | 
|                      |                                      | Property and equipment, net                      |                                            |   | 6,307          |        |              |   | 7,831   |       
|                      |                                      | Long term investments and other assets           |                                            |   | 84             |        |              |   | 4,276   |       
|                      |                                      | Content licenses                                 |                                            |   | 6,131          |        |              |   | 1,342   |       
|                      |                                      |                                                  |                                            |   |                |        |              |  
|                      |                                      |                                                  | Total assets                               |   | $              | 75,144 |              |   | $       | 83,866 | 
|                      |                                      |                                                  |                                            |   |                |        |              |  
|                      | LIABILITIES AND STOCKHOLDERS EQUITY |                                                  |                                            |   |                |        |              |   |        
|Current liabilities:  |                                      |                                                  |                                            |   |                |        |              |  
|                      |                                      | Accounts payable                                 |                                            | $ | 682            |        |              | $ | 760     |       
|                      |                                      | Accrued expenses and other current liabilities   |                                            |   | 2,981          |        |              |   | 2,827   |       
|                      |                                      |                                                  |                                            |   |                |        |              |  
|                      |                                      |                                                  | Total current liabilities                  |   |                | 3,663  |              |   |         | 3,587  | 
|                      |                                      |                                                  |                                            |   |                |        |              |  
|Stockholders equity: |                                      |                                                  |                                            |   |                |        |              |  
|                      |                                      | Common stock                                     |                                            |   | 93             |        |              |   | 92      |       
|                      |                                      | Additional paid-in capital                       |                                            |   | 144,096        |        |              |   | 144,164 |       
|                      |                                      | Deficit accumulated during the development stage |                                            |   | (66,626        | )      |              |   | (60,087 | )     
|                      |                                      | Accumulated other comprehensive income           |                                            |   | 66             |        |              |   | 156     |       
|                      |                                      | Treasury stock                                   |                                            |   | (6,148         | )      |              |   | (4,046  | )     
|                      |                                      |                                                  |                                            |   |                |        |              |  
|                      |                                      |                                                  | Total stockholders equity                 |   |                | 71,481 |              |   |         | 80,279 | 
|                      |                                      |                                                  |                                            |   |                |        |              |  
|                      |                                      |                                                  | Total liabilities and stockholders equity |   | $              | 75,144 |              |   | $       | 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
(unaudited)

|                                           |                                  |   |                                       |        |               |   |        |        |   |   |             |         |  
|------------------------------------------ | -------------------------------- | - | ------------------------------------- | ------ | ------------- | - | ------ | ------ | - | - | ----------- | ------- | -
|                                           |                                  |   |                                       |        |               |   |        |        |   |   | Period from
|                                           |                                  |   |                                       |        |               |   |        |        |   |   | April 20,  
|                                           |                                  |   |                                       |        |               |   |        |        |   |   | 1999       
|                                           |                                  |   |                                       |        |               |   |        |        |   |   | (Date of   
|                                           |                                  |   | Three months ended                    |        | of Inception)
|                                           |                                  |   | March 31,                             |        | Through      
|                                           |                                  |   |                                       |        | March 31,    
|                                           |                                  |   | 2002                                  |        | 2001          |   | 2002  
|                                           |                                  |   |                                       |        |               |   |       
|                                           |                                  |   | (in thousands, except per share data)
|Operating expenses:                        |                                  |   |                                       |        |               |   |        |        |   |   |             |        
|                                           | Research and development         |   | $                                     | 4,223  |               |   | $      | 4,528  |   |   | $           | 50,400  |  
|                                           | Amortization of content licenses |   |                                       | 253    |               |   |        |       |   |   |             | 253     |  
|                                           | Sales and marketing              |   |                                       | 614    |               |   |        | 995    |   |   |             | 7,941   |  
|                                           | General and administrative       |   |                                       | 1,812  |               |   |        | 2,357  |   |   |             | 18,322  |  
|                                           |                                  |   |                                       |        |               |   |        |        |   |   |             |        
|                                           | Operating loss                   |   |                                       | (6,902 | )             |   |        | (7,880 | ) |   |             | (76,916 | )
|                                           |                                  |   |                                       |        |               |   |        |        |   |   |             |        
|Interest income, net                       |                                  |   | 363                                   |        |               |   | 1,230  |        |   |   | 12,169      |        
|Other expenses                             |                                  |   |                                      |        |               |   | (19    | )      |   |   | (2,939      | )      
|                                           |                                  |   |                                       |        |               |   |        |        |   |   |             |        
|Loss before income tax benefit             |                                  |   | (6,539                                | )      |               |   | (6,669 | )      |   |   | (67,686     | )      
|Income tax benefit                         |                                  |   |                                      |        |               |   |       |        |   |   | 1,060       |        
|                                           |                                  |   |                                       |        |               |   |        |        |   |   |             |        
|Net loss                                   |                                  | $ | (6,539                                | )      |               | $ | (6,669 | )      |   | $ | (66,626     | )      
|                                           |                                  |   |                                       |        |               |   |        |        |   |   |             |        
|Net loss per share:                        |                                  |   |                                       |        |               |   |        |        |   |   |             |        
|                                           | Basic and diluted                |   | $                                     | (0.08  | )             |   | $      | (1.07  | ) |   | $           | (2.74   | )
|                                           |                                  |   |                                       |        |               |   |        |        |   |   |             |        
|Weighted average common
shares outstanding |                                  |   | 85,240                                |        |               |   | 6,231  |        |   |   | 24,297      |        
|                                           |                                  |   |                                       |        |               |   |        |        |   |   |             |        

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
(unaudited)

|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        |             |        | 
|-------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------------------- | ------- | ------------------ | ----- | ---------- | ------- | ------- | ----- | - | ------ | ----------- | ------ | 
|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        | Period from
|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        | April 20,  
|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        | 1999       
|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        | (Date of   
|                                                                                 |                                                                             |                                                     |         | Three months ended |       | Inception)
|                                                                                 |                                                                             |                                                     |         | March 31,          |       | Through   
|                                                                                 |                                                                             |                                                     |         |                    |       | March 31, 
|                                                                                 |                                                                             |                                                     |         | 2002               |       | 2001       |         | 2002   
|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |        
|                                                                                 |                                                                             |                                                     |         | (in thousands)    
|CASH FLOWS FROM OPERATING ACTIVITIES:                                            |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        |            
|                                                                                 | Net loss                                                                    |                                                     | $       | (6,539             | )     |            | $       | (6,669  | )     |   | $      | (66,626     | )     
|                                                                                 | Adjustments to reconcile net loss to net cash used in
operating activities: |                                                     |         |                    |       |            |         |         |       |   |        |             |       
|                                                                                 |                                                                             | Depreciation
and amortization                       |         |                    | 1,818 |            |         |         | 1,235 |   |        |             | 11,544 | 
|                                                                                 |                                                                             | Amortization
of
content
license fees                |         |                    | 253   |            |         |         |      |   |        |             | 253    | 
|                                                                                 |                                                                             | Write-down
of
long-term investment                  |         |                    |      |            |         |         |      |   |        |             | 2,750  | 
|                                                                                 |                                                                             | Changes in assets and liabilities:                  |         |                    |       |            |         |         |       |   |        |             |        | 
|                                                                                 |                                                                             | Inventories                                         |         |                   |       |            |         | (504    | )     |   |        |            |       
|                                                                                 |                                                                             | Prepaid expenses and other current assets           |         | (204               | )     |            |         | 1,177   |       |   |        | (3,116      | )     
|                                                                                 |                                                                             | Accounts payable and accrued liabilities            |         | (1                 | )     |            |         | 95      |       |   |        | 3,586       |       
|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        |            
|                                                                                 |                                                                             | Net cash used in operating activities               |         | (4,673             | )     |            |         | (4,666  | )     |   |        | (51,609     | )     
|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        |            
|CASH FLOWS FROM INVESTING ACTIVITIES                                             |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        |            
|                                                                                 | Purchase of available-for-sale investments                                  |                                                     |         |                   |       |            |         |        |       |   |        | (136,776    | )     
|                                                                                 | Proceeds from maturity and sale of available-for-sale investments           |                                                     |         | 57                 |       |            |         | 27,112  |       |   |        | 127,383     |       
|                                                                                 | Purchase of long-term investments                                           |                                                     |         |                   |       |            |         | (2,000  | )     |   |        | (6,100      | )     
|                                                                                 | Purchase of content licenses                                                |                                                     |         | (5,042             | )     |            |         | (231    | )     |   |        | (6,384      | )     
|                                                                                 | Acquisition of property and equipment                                       |                                                     |         | (166               | )     |            |         | (1,584  | )     |   |        | (14,585     | )     
|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        |            
|                                                                                 |                                                                             | Net cash provided by (used in) investing activities |         | (5,151             | )     |            |         | 23,297  |       |   |        | (36,462     | )     
|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        |            
|CASH FLOWS FROM FINANCING ACTIVITIES                                             |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        |            
|                                                                                 | Repayment of notes payable to related party                                 |                                                     |         |                   |       |            |         | (30,000 | )     |   |        |            |       
|                                                                                 | Proceeds from issuance of redeemable convertible
preferred stock            |                                                     |         |                   |       |            |         |        |       |   |        | 142,600     |       
|                                                                                 | Proceeds from issuance of common stock                                      |                                                     |         | 10                 |       |            |         |        |       |   |        | 1,589       |       
|                                                                                 | Repurchase of common stock                                                  |                                                     |         | (2,102             | )     |            |         |        |       |   |        | (6,148      | )     
|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        |            
|                                                                                 |                                                                             | Net cash provided by (used in) financing activities |         | (2,092             | )     |            |         | (30,000 | )     |   |        | 138,041     |       
|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        |            
|Net increase in cash and cash equivalents                                        |                                                                             |                                                     | (11,916 | )                  |       |            | (11,369 | )       |       |   | 49,970 |            
|Cash and cash equivalents, beginning of the period                               |                                                                             |                                                     | 61,886  |                    |       |            | 109,378 |         |       |   |       |            
|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        |            
|Cash and cash equivalents, end of the period                                     |                                                                             | $                                                   | 49,970  |                    |       | $          | 98,009  |         |       | $ | 49,970 |            
|                                                                                 |                                                                             |                                                     |         |                    |       |            |         |         |       |   |        |            
|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
(unaudited)

NOTE 1. THE COMPANY

Vialta, Inc.
(Vialta or the Company) was incorporated in California on
April 20, 1999 and reincorporated in the State of Delaware on April 20, 2001.
Vialta has developed a multi-purpose DVD player (ViDVD) that offers Internet
access and other features, such as CD, MP3, karaoke, and support for other
audio and video formats. These features differentiate it from most DVD players
currently available in the U.S. consumer market. This ViDVD player is the first
product offering from Vialtas digital home entertainment platform, which the
Company anticipates will grow to support a family of multimedia Internet
appliances. Vialta commenced shipments of the ViDVD through retail distribution
channels in the third quarter of 2001. The Company is also developing
a videophone converter, known as BeamerTM, that will allow
consumers to transform their standard phone into a videophone,
delivering a live motion color video picture over regular phone lines
at no additional cost to a regular call.

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 inception. For the cumulative period ended March 31, 2002,
Vialta incurred a loss from operations of approximately $76.9 million and
negative cash flows from operations of $51.6 million. Management expects
operating losses and negative cash flows to continue for the foreseeable future
and anticipates that losses will increase significantly from current levels
because of additional costs and expenses related to marketing activities,
continued expansion of operations, continued development of Vialtas web site
and information technology infrastructure, 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 March 31, 2003. However, in the longer
term, failure to generate sufficient revenues, raise additional capital or
reduce certain discretionary 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 operation for the three months ended March 31, 2002 are not
necessarily indicative of the results that may be expected for any
other periods
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.

Reclassifications

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





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Comprehensive Income (Loss)

Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS 130) establishes standards for the reporting and
display of comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity during a
period from non-owner sources. The difference between net loss and
comprehensive loss at March 31, 2002 was $90,000 related to unrealized losses
on available-for-sale investments. Comprehensive loss for the three months
ended March 31, 2002 was approximately $6,629,000. For the three months
ended March 31, 2001, comprehensive loss approximated net loss.

NOTE 3. RELATED PARTY TRANSACTIONS

Effective August 1, 1999, the Company entered into a Research and
Development Service Agreement with ESS whereby ESS provides certain research
and development services to the Company in exchange for a service fee. In
addition, the Company signed a reciprocal agreement with ESS whereby Vialta
provides certain non-recurring expense services for the design and development
of Internet related products and technologies to ESS in exchange for a service
fee. In the periods presented, the Company did not provide such services to
ESS.

Effective August 1, 1999, the Company entered into an Administrative and
Management Service Agreement with ESS whereby ESS provides certain
administrative and managerial services to Vialta including, without limitation,
sales support, marketing support, production and logistical support, financial
oversight, accounting assistance, contract review, personnel services
(including training of employees) and such other general and administrative
services as Vialta requires. ESS performs these services in consideration for a
service fee. In addition, Vialta signed a reciprocal agreement whereby Vialta
provides the services mentioned above to ESS in exchange for a service fee.

Effective August 1, 1999, the Company entered into a Purchase Agreement
with ESS whereby Vialta will purchase certain products from ESS.

In January 2000, Vialta entered into an Assignment of Intellectual
Property Agreement with ESS whereby Vialta paid ESS $2.0 million for the
transfer of the Videophone and EnReach-based web browser technologies. Such
transfer was done based on actual costs incurred. No fees were paid
under this agreement for each of the three months ended
March 31, 2002 and 2001.

In April 2000, Vialta loaned to an officer of Vialta $60,000, which,
together with accrued interest at the annual rate of 6%, was due and payable on
April 20, 2001. The loan, along with accrued interest, was repaid in August
2001.

On December 18, 2000, Vialta received a $30.0 million loan from a related
party controlled by Annie M.H. Chan, a director of ESS and the spouse of Fred
S.L. Chan, Chairman of ESS and Chairman and Chief Executive Officer of Vialta.
The short-term loan along with approximately $194,000 accrued interest at 5.25%
was repaid on January 31, 2001.

On August 20, 2001, Vialta re-executed the aforementioned existing
agreements with ESS as a result of the spin-off of Vialta from ESS. Under the
re-executed Administrative and Management Service Agreement, Vialta provided
services to ESS in the amount of $102,600 for the three months ended March 31,
2002.

On August 20, 2001, Vialta entered into a Commercial Lease Agreement with
ESS whereby ESS will lease a freestanding building in Fremont, California to
Vialta for a fixed monthly fee. The lease expires on December 31, 2003.

On August 20, 2001, Vialta entered into an Employee Matters Agreement with
ESS whereby Vialta will continue to provide employment and employee benefits to
all active employees and former employees subject to certain limitations. No fees were paid
under this agreement for each of the three months ended
March 31, 2002 and 2001.





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The Company anticipates that it will continue to receive such services
from ESS under the terms of the agreements. The following table
summarizes the activities between the Company and ESS for the periods
presented:

|                                            |  |   |                        |   |      |   |        |   | 
|------------------------------------------- |  | - | ---------------------- | - | ---- | - | ------ | - | 
|                                            |  |   | Three Months Ended    
|                                            |  |   | March 31,             
|                                            |  |   |                       
|                                            |  |   | 2002                   |   | 2001
|                                            |  |   |                        |   |     
|                                            |  |   | (Amounts in thousands)
|Net
receivables at beginning of period      |  | $ | 64                     |   |      | $ | 650    |  
|                                           
|Charges
by Vialta to ESS:                  
|Administrative
& management service fees    |  |   | 103                    |   |      |   |       |  
|Spin-off
related charges                    |  |   | 125                    |   |      |   |       |  
|Payments
made by Vialta on behalf of ESS    |  |   | 79                     |   |      |   |       |  
|                                           
|Charges
by ESS to Vialta                   
|Research
& development service fees         |  |   |                       |   |      |   | (602   | )
|Administrative
& management service fees    |  |   | (88                    | ) |      |   | (1,075 | )
|Purchase
agreement                          |  |   | (16                    | ) |      |   | (637   | )
|Commercial
lease agreement                  |  |   | (463                   | ) |      |   |       |  
|                                           
|Cash
receipts from ESS                      |  |   | (185                   | ) |      |   | (650   | )
|                                           
|Cash
payments made to ESS                   |  |   | 480                    |   |      |   | 1,982  |  
|                                            |  |   |                        |   |      |   |        |  
|Net
receivables (payables) at end of period |  | $ | 99                     |   |      | $ | (332   | )
|                                            |  |   |                        |   |      |   |        |  

NOTE 4. BALANCE SHEET COMPONENTS

|                                                                   |  |                        |        |              |  |   |        |  
|------------------------------------------------------------------ |  | ---------------------- | ------ | ------------ |  | - | ------ | -
|                                                                   |  | March 31,              |        | December 31,
|                                                                   |  | 2002                   |        | 2001        
|                                                                   |  |                        |        |             
|                                                                   |  | (Amounts in thousands)
|Cash and Cash Equivalents                                          |  |                        |        |              |  |   |        |  
|Cash and money market funds, at cost which approximates fair value |  | $                      | 49,970 |              |  | $ | 61,886 |  
|                                                                   |  |                        |        |              |  |   |        |  
|Marketable Securities                                              |  |                        |        |              |  |   |        |  
|U.S. Government debt securities                                    |  | $                      | 4,242  |              |  | $ | 4,274  |  
|Corporate debt securities                                          |  |                        | 5,217  |              |  |   | 5,332  |  
|                                                                   |  |                        |        |              |  |   |        |  
|                                                                   |  |                        | 9,459  |              |  |   | 9,606  |  
|Due between one and two years                                      |  |                        |       |              |  |   | 4,064  |  
|                                                                   |  |                        |        |              |  |   |        |  
|Due within one year                                                |  | $                      | 9,459  |              |  | $ | 5,542  |  
|                                                                   |  |                        |        |              |  |   |        |  
|Property and Equipment                                             |  |                        |        |              |  |   |        |  
|Machinery and equipment                                            |  | $                      | 7,305  |              |  | $ | 7,149  |  
|Furniture and fixtures                                             |  |                        | 607    |              |  |   | 607    |  
|Software and web site development cost                             |  |                        | 5,173  |              |  |   | 6,663  |  
|                                                                   |  |                        |        |              |  |   |        |  
|                                                                   |  |                        | 13,085 |              |  |   | 14,419 |  
|Less: Accumulated depreciation                                     |  |                        | (6,778 | )            |  |   | (6,588 | )
|                                                                   |  |                        |        |              |  |   |        |  
|                                                                   |  | $                      | 6,307  |              |  | $ | 7,831  |  
|                                                                   |  |                        |        |              |  |   |        |  
|Long-term Investments and Other Assets                             |  |                        |        |              |  |   |        |  
|Long-term investments in marketable securities                     |  | $                      |       |              |  | $ | 4,064  |  
|Other investments                                                  |  |                        | 38     |              |  |   | 166    |  
|Deposit                                                            |  |                        | 46     |              |  |   | 46     |  
|                                                                   |  |                        |        |              |  |   |        |  
|                                                                   |  | $                      | 84     |              |  | $ | 4,276  |  
|                                                                   |  |                        |        |              |  |   |        |  
|Accrued Expenses and Other Current Liabilities                     |  |                        |        |              |  |   |        |  
|Accrued compensation costs                                         |  | $                      | 2,300  |              |  | $ | 2,441  |  
|Other                                                              |  |                        | 681    |              |  |   | 386    |  
|                                                                   |  |                        |        |              |  |   |        |  
|                                                                   |  | $                      | 2,981  |              |  | $ | 2,827  |  
|                                                                   |  |                        |        |              |  |   |        |  





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##### Table of Contents



NOTE 5. NET INCOME (LOSS) PER SHARE

Net income (loss) per share is calculated in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, Earnings
per Share (SFAS 128). SFAS 128, requires the Company to report both basic
net income (loss) per share, which is based on the weighted-average number of
common shares outstanding, and diluted net income per share, which is based on
the weighted average number of common shares outstanding and all dilutive
potential common shares outstanding. Diluted net income per share reflects the
potential dilution that would occur if securities or other contracts to issue
common stock were exercised or converted into common stock.

|                                                             |  |   |                                                  |   |                      |   |        |   |  |   |                     |   | 
|------------------------------------------------------------ |  | - | ------------------------------------------------ | - | -------------------- | - | ------ | - |  | - | ------------------- | - | 
|                                                             |  |   |                                                  |   |                      |   |        |   |  |   | For the Period from
|                                                             |  |   | For the three months ended                       |   | April 20, 1999 (Date
|                                                             |  |   | March 31,                                        |   | of inception)       
|                                                             |  |   |                                                  |   | Through March 31,   
|                                                             |  |   | 2002                                             |   | 2001                 |   | 2002  
|                                                             |  |   |                                                  |   |                      |   |       
|                                                             |  |   | (Amounts in thousands, except per share amounts)
|                                                            
|                                                            
|                                                            
|                                                            
|Net loss                                                     |  | $ | (6,539                                           | ) |                      | $ | (6,669 | ) |  | $ | (66,626             | )
|Basic and diluted weighted average common shares outstanding |  |   | 85,240                                           |   |                      |   | 6,231  |   |  |   | 24,297              |  
|Basic and diluted net loss per share                         |  | $ | (0.08                                            | ) |                      | $ | (1.07  | ) |  | $ | (2.74               | )

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

|                                        |  |  |                            |  |                      |  |         |  |  |  |                     |  | 
|--------------------------------------- |  |  | -------------------------- |  | -------------------- |  | ------- |  |  |  | ------------------- |  | 
|                                        |  |  |                            |  |                      |  |         |  |  |  | For the Period from
|                                        |  |  | For the three months ended |  | April 20, 1999 (Date
|                                        |  |  | March 31,                  |  | of inception)       
|                                        |  |  |                            |  | Through March 31,   
|                                        |  |  | 2002                       |  | 2001(1)              |  | 2002(1)
|                                        |  |  |                            |  |                      |  |        
|                                        |  |  | (Amounts in thousands)    
|                                       
|                                       
|                                       
|                                       
|Effect
of common stock equivalents:     |  |  |                            |  |                      |  |         |  |  |  |                     | 
|Options
outstanding                     |  |  | 11,823                     |  |                      |  | 2,102   |  |  |  | 11,823              | 
|Preferred stock outstanding             |  |  |                           |  |                      |  | 91,000  |  |  |  | 91,000              | 
|                                        |  |  |                            |  |                      |  |        
|Total
common stock equivalents excluded |  |  | 11,823                     |  |                      |  | 93,102  |  |  |  | 102,823             | 
|                                        |  |  |                            |  |                      |  |        



---

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

NOTE 6. COMMON STOCK REPURCHASES

From January 1, 2002 through March 31, 2002, Vialta repurchased
approximately 1,625,000 shares of common stock for an aggregate cost of $2.1
million. From April 1, 2002 through May 8, 2002 Vialta repurchased
approximately 1,448,000 shares of common stock for an aggregate cost of $1.2
million, and approximately 691,000 remaining shares are authorized for
repurchase.





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##### Table of Contents



NOTE 7. SEGMENT AND GEOGRAPHIC INFORMATION

Vialta operates as one segment. Information about long-lived assets,
excluding content licenses, long-term investments and other assets is as
follows:

|                                                                                            |  |                        |       |              |  |   |       | 
|------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ------------ |  | - | ----- | 
|                                                                                            |  | March 31,              |       | December 31,
|                                                                                            |  | 2002                   |       | 2001        
|                                                                                            |  |                        |       |             
|                                                                                            |  | (Amounts in thousands)
|                                                                                            |  |                        |       |             
|United States                                                                               |  | $                      | 5,445 |              |  | $ | 6,896 | 
|Hong Kong                                                                                   |  |                        | 37    |              |  |   | 40    | 
|Canada                                                                                      |  |                        | 825   |              |  |   | 895   | 
|                                                                                            |  |                        |       |              |  |   |       | 
|Total long-lived assets, excluding content licenses,
long-term investments and other assets |  | $                      | 6,307 |              |  | $ | 7,831 | 
|                                                                                            |  |                        |       |              |  |   |       | 

NOTE 8. CONTENT LICENSES

On January 17,
2002, Vialta entered into a licensing agreement with an
entertainment company under which Vialta was granted a non-exclusive license to
reproduce and distribute motion picture titles from the entertainment companys
library over a five year period. Under this agreement, Vialta agreed to pay the
entertainment company $10.0 million, of which $5.0 million was paid during the
quarter ended March 31, 2002 and $5.0 million was paid in April 2002. The first
$5.0 million payment has been accounted for as the costs of acquiring content
licenses. Such costs are to be expensed based on the greater of the royalty
amounts due to the entertainment company based on actual usage or amortization
on a straight-line basis over the estimated life of three years. The
second $5.0 million payment is initially for a promissory note
to Vialta in the amount of $5.0 million bearing
interest of 7.5% and due at the end of three years. If Vialta makes certain
elections, the promissory note will be cancelled in exchange for additional
content licenses.

NOTE 9. LEGAL MATTERS

From time to time, Vialta is involved in litigation in the normal course
of business. The Company believes that the outcome of matters to date will not
have a material adverse effect on Vialtas consolidated financial position,
results of operations or cash flows.




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, Cautionary Statement Regarding
Forward-Looking Statements as well as Other Factors That May Affect Our
Business and Future Results and the risks discussed in our most recent filing
with the Securities and Exchange Commission. The following discussion should be
read in conjunction with the Selected Consolidated Financial Data and the
Consolidated Financial Statements and notes thereto that appear elsewhere in
this report. 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. We develop and market consumer electronics products designed to maximize
the advantages of digital technology in a convenient, affordable and
easy-to-use manner. We have developed a multi-media DVD player that offers
Internet access and other features that differentiate it from most DVD players
currently available in the U.S. consumer market. Our ViDVD player is the first
product offering to utilize our digital home entertainment platform, which we
anticipate will grow to support a family of products, as well as a
complementary system for the delivery of home entertainment content. The ViDVD
is a multi-purpose home entertainment device that enables consumers to play
DVD, CD, MP3, karaoke and other audio and video formats and to browse the
Internet through their television. We also expect to introduce our proprietary,
encrypted ViMagazine discs, which will provide consumers with the opportunity
to purchase





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##### Table of Contents



one or more selections from a variety of movies, karaoke
titles and other home entertainment content. Our goal is to
make the ViDVD the centerpiece of home entertainment systems, combining
Internet access with the features of several current consumer electronics
devices into a single affordable product.

We are also developing, as part of our consumer electronics focus, a
videophone converter, known as Beamer, that will allow consumers to transform
their standard phone into a videophone, delivering a live motion color video
picture over regular phone lines at no additional cost to a regular call.

Through March 31, 2002, we have had no revenues from operations and have
historically used vendor credit and private offerings of convertible preferred
stock and common stock to fund our operations and provide for capital
requirements during our development stage. For the three months ended March 31,
2002 and 2001, we had net losses of $6.5 million and $6.7 million,
respectively, and expect to continue to incur losses in the second, third and
fourth quarters of fiscal year 2002. The losses reflect our cash burn rate and
amortization of content licenses and investments for the periods indicated. From
inception through March 31, 2002, we had a net loss of $66.6 million. We
commenced shipments of the ViDVD during the third quarter of 2001 and, as a
result, experienced a significant increase in working capital requirements due
to internal inventory requirements, which were partially offset by
extended credit terms from suppliers and purchases of content licenses.

Results of Operations

For the three months ended March 31, 2002 compared with three months ended
March 31, 2001

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

|                                        |                                  |  |                    |     |      |  |    |     |  
|--------------------------------------- | -------------------------------- |  | ------------------ | --- | ---- |  | -- | --- | -
|                                        |                                  |  | Three months ended
|                                        |                                  |  | March 31,         
|                                        |                                  |  |                   
|                                        |                                  |  | 2002               |     | 2001
|                                        |                                  |  |                    |     |     
|Operating expenses:                     |                                  |  |                    |     |      |  |    |    
|                                        | Research and development         |  |                    | 61  | %    |  |    | 57  | %
|                                        | Amortization of content licenses |  |                    | 4   | %    |  |    |    |  
|                                        | Sales and marketing              |  |                    | 9   | %    |  |    | 13  | %
|                                        | General and administrative       |  |                    | 26  | %    |  |    | 30  | %
|                                        |                                  |  |                    |     |      |  |    |    
|                                        | Operating loss                   |  |                    | 100 | %    |  |    | 100 | %
|Interest income and other expenses, net |                                  |  | 5                  | %   |      |  | 15 | %  
|Net loss                                |                                  |  | 95                 | %   |      |  | 85 | %  
|                                        |                                  |  |                    |     |      |  |    |    

Research and Development.Research and development expenses were $4.2
million for the three months ended March 31, 2002, or 61% of operating
expenses, compared to $4.5 million, or 57% of operating expenses for the three
months ended March 31, 2001. The decrease in absolute dollars was primarily due
to reductions in payroll and payroll related expenses as a result of
organizational restructuring initiated in August 2001. We expect
research and development spending, in absolute dollars, to be approximately
flat in future periods since we have completed the core development of our
first series of products.

Amortization of Content Licenses.Amortization of content licenses was
$0.3 million in the three months ended March 31, 2002, or 4% of operating
expenses. Starting in the current fiscal quarter, we began to
amortize our content
licenses, over a three year period in anticipation of the launch of ViMagazine
to registered users of our ViDVD. We expense content license fees
paid to one entertainment company based on the greater of the royalty
amounts due to the entertainment company based on actual usage or
amortization on a straight-line basis over the estimated life of
three years. Content license fees paid to other companies are
amortized over the estimated life of three years on a straight-line
basis.

Sales and Marketing.Sales and marketing expenses were $0.6 million for
the three months ended March 31, 2002, or 9% of operating expenses, compared to
$1.0 million, or 13% of operating expenses, for the first three months of
fiscal year 2001. The decrease was primarily due to reductions in payroll and
payroll related expenses as a result of organizational restructuring initiated
in August 2001 and lower marketing expenses due to productivity
gains through the build out of marketing infrastructure. We expect sales
and marketing spending to increase in future periods due to the marketing of
the ViDVD, Beamer and additional products in 2002 and 2003.





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##### Table of Contents



General and Administrative.General and administrative expenses were $1.8
million for the three months ended March 31, 2002, or 26% of operating
expenses, compared to $2.4 million, or 30% of operating expenses, for the three
months ended March 31, 2001. The decrease was primarily due to reductions in
payroll and other expenses, due to reduced headcount, productivity gains
through the build out of general and administrative infrastructure, and lower
reimbursements to ESS for administrative and management services. We expect
general and administrative expense spending to be relatively
constant, in terms of absolute dollars, in future
periods as our build out of infrastructure moderates.

Nonoperating Income.Net nonoperating income was $0.4 million for the
three months ended March 31, 2002 compared to $1.2 million for the three months
ended March 31, 2001. Net nonoperating income consists primarily of net
interest income. The decrease in net interest income was primarily due to lower
cash balances and lower yields on marketable securities during the first three
months of fiscal year 2002 as compared to the first three months of fiscal
year 2001.

Net Loss.We incurred a net loss of $6.5 million for the three months
ended March 31, 2002, compared to $6.7 million for the three months ended March
31, 2001. The decrease in net loss was primarily due to reductions in
payroll and other expenses, due to reduced headcount, and productivity gains through the build out of our
infrastructure to meet our administrative and operational needs as a
stand-alone company. Offsetting these gains was lower interest income
associated with lower cash balances during the first quarter of fiscal year
2002.

Liquidity and Capital Resources

As of March 31, 2002, we had $59.4 million in cash, cash equivalents and
available-for-sale investments compared to $71.5 million as of December 31, 2001,
reflecting a decrease of $12.1 million.

Our principal sources of liquidity are cash, cash equivalents and
available-for-sale investments. Net cash used in operating activities was approximately
$4.7 million for each of the three months ended March 31, 2002 and 2001. For
the three months ended March 31, 2002 and 2001, we had a net loss of $6.5
million and $6.7 million, respectively, and we expect to continue to incur
losses in each of the remaining quarters of fiscal year 2002. The losses
reflect our cash burn rate and amortization of content licenses and investments
for the periods indicated. In the first quarter of 2001, we had not begun
shipments of our first product. Shipments began during the third quarter of
2001 and, as a result, we experienced a significant increase in working capital
requirements due to internal inventory requirements and purchases of content
licenses.

Capital expenditures for the 12-month period ending March 31, 2003 are
anticipated to be approximately $5.9 million, primarily budgeted to acquire
content licenses for ViMagazine and capital equipment. Net inventory build
requirements are expected to be approximately $7.8 million during the 12-month
period ending March 31, 2003. 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.

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. During the three months ended March 31, 2002, Vialta
repurchased approximately 1,625,000 shares of common stock for an aggregate cost of $2.1
million. As of March 31, 2002, approximately 2,139,000 shares remained
authorized for repurchase.

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

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





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##### Table of Contents



We believe that our existing cash and cash equivalents, and short-term
investments will be sufficient to fund planned acquisitions of inventory,
property and equipment and to provide adequate working capital, at current
operating levels, through at least the 12-month period ending March 31, 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 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 Vialtas future business, consolidated financial
position, results of operations or cash flows and cause future results to
differ from our expectations include the following: market acceptance of our
current and future product offerings; 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 the ViMedia content delivery system and its impact
on the demand for the ViDVD player; component supply shortages; the
availability of content licenses; potential conflicts with ESS Technology,
Inc., our previous parent; the success of current distribution and retailing
relationships 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 uncertainties raised by the tax-free status
of our spin-off from ESS, as well as risks identified in the Companys 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 and long 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





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##### Table of Contents



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 March 31, 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.




PART II. OTHER INFORMATION




ITEM 3: Legal Proceedings

In August 2001, Professional Staffing Corporation (PSC) filed a lawsuit
against Vialta 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, Vialta 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 Vialta on an ongoing
basis, and prior to the suit being filed, Vialta in July voluntarily withheld
payment to PSC of $92,095 of outstanding invoices pending the results of an
in-house audit. Vialta believes that PSC has in fact breached the contract and
that we may have been substantially overcharged for services provided by PSC.
This matter is in pre-trial discovery, and currently there is no date set for
trial. Vialta will vigorously defend the litigation, and is engaging in
settlement negotiations.




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 March 31, 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 March 31, 2002.





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##### Table of Contents






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: May 15, 2002 | By:                       | /s/ Fred S.L. Chan                                     
|                   |                           |                                                        
|                   |                           | Fred S.L. Chan
Chairman of the Board of Directors      
|                  
|                  
|                   | By:                       | /s/ James Allison                                      
|                   |                           |                                                        
|                   |                           | James Allison
Controller
(principal accounting officer)