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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q/A

AMENDMENT NO. 1



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(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, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|- | --------------------------------------------------------------------------------------------



For the transition period from              to
            .



Commission File Number 000-31081



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TRIPATH TECHNOLOGY INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 77-0407364                          
|(State or other jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



2560 Orchard Parkway

San Jose, California 95131

(Address of Principal Executive Office including (Zip Code)



(408) 750-3000

(Registrants telephone number, including area code)



---



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange
Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
    Yes ̈No  x



47,366,712 shares of the Registrants common stock were outstanding as of April 22,
2004.



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##### Table of Contents

TABLE OF CONTENTS



EXPLANATORY NOTE



|                              |  |               |  |                                                                                                    |  |   
|----------------------------- |  | ------------- |  | -------------------------------------------------------------------------------------------------- |  | --
|PART I.
Financial Information |  |              
|                              |  |               | 
|                              |  | Item 1.       |  | Financial Statements (unaudited)                                                                   |  |   
|                              |  |               | 
|                              |  |               |  | Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003                   |  | 1 
|                              |  |               | 
|                              |  |               |  | Condensed Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003 |  | 2 
|                              |  |               | 
|                              |  |               |  | Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 |  | 3 
|                              |  |               | 
|                              |  |               |  | Notes to Condensed Interim Consolidated Financial Statements                                       |  | 4 
|                              |  |               | 
|                              |  | Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations              |  | 10
|                              |  |              
|                              |  | Risk Factors  |  | 14                                                                                                
|                              |  |               | 
|                              |  | Item 3.       |  | Quantitative and Qualitative Disclosures about Market Risk                                         |  | 22
|                              |  |               | 
|                              |  | Item 4.       |  | Controls and Procedures                                                                            |  | 22
|                              | 
|PART II.
Other Information    |  |              
|                              |  |               | 
|                              |  | Item 6.       |  | Exhibits and Reports on Form 8-K                                                                   |  | 23
|                              |  |              
|                              |  | Signature     |  | 24                                                                                                
|                              |  |              
|                              |  | Exhibit Index |  | 25                                                                                                



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##### Table of Contents

EXPLANATORY NOTE



This Form 10-Q/A is being filed
to: (1) correct the total current liabilities as of March 31, 2004 (from $7,361 to $7,393, in thousands) and the number of shares of Common Stock outstanding as of December 31, 2003 (from 41,357,145 to 45,709,740) previously reported on our
Condensed Consolidated Balance Sheets in Part I Item I; (2) correct the weighted average common stock figure for the three months ended March 31, 2004 (from 45,226 to 45,266, in thousands) previously reported in Note 3 of the Notes to Condensed
Interim Consolidated Financial Statements; (3) correct certain numbers in the contractual obligations table previously reported in Note 10 of the Notes to Condensed Interim Consolidated Financial Statements and in Managements Discussion and
Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources; (4) update the risk factor entitled We depend on third-party subcontractors for most of our semiconductor assembly and testing requirements and any
unexpected interruption in their services could cause us to miss scheduled shipments to customers and to lose revenues to reflect the fact that our products are currently assembled and tested by six subcontractors (rather than seven
subcontractors, as previously reported); and (5) file Exhibit 10.1. No other changes have been made to Form 10-Q.



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##### Table of Contents

|PART I. |  | Financial Information
|------- |  | ---------------------



Item 1. Financial Statements



TRIPATH TECHNOLOGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

Unaudited



|                                                                                                                       |  |               |          |   |                  |   |          |  
|---------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | ---------------- | - | -------- | -
|                                                                                                                       |  | March 31,2004 |          |   | December 31,2003 |  
|ASSETS                                                                                                                 |  |               |          |   |                  |   |          |  
|Current assets:                                                                                                        |  |               |          |   |                  |   |          |  
|Cash, cash equivalents and restricted cash                                                                             |  | $             | 9,183    |   |                  | $ | 9,612    |  
|Accounts receivable, net                                                                                               |  |               | 2,692    |   |                  |   | 2,041    |  
|Inventories                                                                                                            |  |               | 7,016    |   |                  |   | 5,574    |  
|Prepaid expenses and other current assets                                                                              |  |               | 257      |   |                  |   | 263      |  
|                                                                                                                       |  |               |          |   |                  |   |          |  
|Total current assets                                                                                                   |  |               | 19,148   |   |                  |   | 17,490   |  
|Property and equipment, net                                                                                            |  |               | 1,949    |   |                  |   | 1,897    |  
|Other assets                                                                                                           |  |               | 83       |   |                  |   | 81       |  
|                                                                                                                       |  |               |          |   |                  |   |          |  
|Total assets                                                                                                           |  | $             | 21,180   |   |                  | $ | 19,468   |  
|                                                                                                                       |  |               |          |   |                  |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                   |  |               |          |   |                  |   |          |  
|Current liabilities:                                                                                                   |  |               |          |   |                  |   |          |  
|Accounts payable                                                                                                       |  | $             | 4,742    |   |                  | $ | 4,069    |  
|Current portion of capital lease obligations                                                                           |  |               | 477      |   |                  |   | 496      |  
|Current portion of deferred rent                                                                                       |  |               | 140      |   |                  |   | 24       |  
|Accrued expenses                                                                                                       |  |               | 922      |   |                  |   | 602      |  
|Deferred distributor revenue                                                                                           |  |               | 1,112    |   |                  |   | 1,125    |  
|                                                                                                                       |  |               |          |   |                  |   |          |  
|Total current liabilities                                                                                              |  |               | 7,393    |   |                  |   | 6,316    |  
|                                                                                                                       |  |               |          |   |                  |   |          |  
|Long term liabilities                                                                                                  |  |               | 1,011    |   |                  |   | 1,232    |  
|                                                                                                                       |  |               |          |   |                  |   |          |  
|Commitments and contingencies (see Note 10)                                                                            |  |               |          |   |                  |   |          |  
|Stockholders equity:                                                                                                  |  |               |          |   |                  |   |          |  
|Common stock, $0.001 par value, 100,000,000 shares authorized; 47,316,712 and 45,709,740 shares issued and outstanding |  |               | 47       |   |                  |   | 45       |  
|Additional paid-in capital                                                                                             |  |               | 194,254  |   |                  |   | 191,656  |  
|Deferred stock-based compensation                                                                                      |  |               | (176     | ) |                  |   | (217     | )
|Accumulated deficit                                                                                                    |  |               | (181,349 | ) |                  |   | (179,564 | )
|                                                                                                                       |  |               |          |   |                  |   |          |  
|Total stockholders equity                                                                                             |  |               | 12,776   |   |                  |   | 11,920   |  
|                                                                                                                       |  |               |          |   |                  |   |          |  
|Total liabilities and stockholders equity                                                                             |  | $             | 21,180   |   |                  | $ | 19,468   |  
|                                                                                                                       |  |               |          |   |                  |   |          |  



The accompanying notes
are an integral part of these condensed interim consolidated financial statements.



1



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TRIPATH TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Unaudited



|                                                                        |  |                             |        |   |      |   |        |  
|----------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                        |  | Three Months EndedMarch 31, |       
|                                                                        |  | 2004                        |        |   | 2003 |  
|Revenue                                                                 |  | $                           | 4,166  |   |      | $ | 2,952  |  
|Cost of revenue                                                         |  |                             | 2,972  |   |      |   | 2,207  |  
|                                                                        |  |                             |        |   |      |   |        |  
|Gross profit                                                            |  |                             | 1,194  |   |      |   | 745    |  
|                                                                        |  |                             |        |   |      |   |        |  
|Operating expenses:                                                     |  |                             |        |   |      |   |        |  
|Research and development                                                |  |                             | 1,718  |   |      |   | 1,978  |  
|Selling, general and administrative                                     |  |                             | 1,269  |   |      |   | 1,246  |  
|                                                                        |  |                             |        |   |      |   |        |  
|Total operating expenses                                                |  |                             | 2,987  |   |      |   | 3,224  |  
|                                                                        |  |                             |        |   |      |   |        |  
|Loss from operations                                                    |  |                             | (1,793 | ) |      |   | (2,479 | )
|Interest and other income, net                                          |  |                             | 8      |   |      |   | 2      |  
|                                                                        |  |                             |        |   |      |   |        |  
|Net loss                                                                |  | $                           | (1,785 | ) |      | $ | (2,477 | )
|                                                                        |  |                             |        |   |      |   |        |  
|Basic and diluted net loss per share                                    |  | $                           | (0.04  | ) |      | $ | (0.06  | )
|                                                                        |  |                             |        |   |      |   |        |  
|Number of shares used in computing basic and diluted net loss per share |  |                             | 45,266 |   |      |   | 41,352 |  
|                                                                        |  |                             |        |   |      |   |        |  



The accompanying notes
are an integral part of these condensed interim consolidated financial statements.



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TRIPATH TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Unaudited



|                                                                               |  |                             |        |   |      |   |        |  
|------------------------------------------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                               |  | Three Months EndedMarch 31, |       
|                                                                               |  | 2004                        |        |   | 2003 |  
|Cash flows from operating activities:                                          |  |                             |        |   |      |   |        |  
|Net loss                                                                       |  | $                           | (1,785 | ) |      | $ | (2,477 | )
|Adjustments to reconcile net loss to net cash used in operating activities:    |  |                             |        |   |      |   |        |  
|Depreciation and amortization                                                  |  |                             | 266    |   |      |   | 320    |  
|Deferred Rent                                                                  |  |                             | 52     |   |      |   |       |  
|Stock-based compensation                                                       |  |                             | 42     |   |      |   | (36    | )
|Changes in assets and liabilities:                                             |  |                             |        |   |      |   |        |  
|Accounts receivable                                                            |  |                             | (651   | ) |      |   | 239    |  
|Inventories                                                                    |  |                             | (1,442 | ) |      |   | 1,012  |  
|Prepaid expenses and other assets                                              |  |                             | 4      |   |      |   | 710    |  
|Accounts payable                                                               |  |                             | 673    |   |      |   | (1,106 | )
|Accrued expenses                                                               |  |                             | 320    |   |      |   | (20    | )
|Deferred distributor revenue                                                   |  |                             | (13    | ) |      |   | 46     |  
|                                                                               |  |                             |        |   |      |   |        |  
|Net cash used in operating activities                                          |  |                             | (2,534 | ) |      |   | (1,312 | )
|                                                                               |  |                             |        |   |      |   |        |  
|Cash flows from investing activities:                                          |  |                             |        |   |      |   |        |  
|Purchase of property and equipment                                             |  |                             | (318   | ) |      |   | (13    | )
|                                                                               |  |                             |        |   |      |   |        |  
|Net cash used in investing activities                                          |  |                             | (318   | ) |      |   | (13    | )
|                                                                               |  |                             |        |   |      |   |        |  
|Cash flows from financing activities:                                          |  |                             |        |   |      |   |        |  
|Proceeds from issuance of common stock under ESPP and upon exercise of options |  |                             | 251    |   |      |   | 7      |  
|Proceeds from issuance of common stock upon exercise of warrants               |  |                             | 2,348  |   |      |   |       |  
|Principal payments on capital lease obligations                                |  |                             | (176   | ) |      |   | (48    | )
|                                                                               |  |                             |        |   |      |   |        |  
|Net cash provided by (used in) financing activities                            |  |                             | 2,423  |   |      |   | (41    | )
|                                                                               |  |                             |        |   |      |   |        |  
|Net decrease in cash and cash equivalents                                      |  |                             | (429   | ) |      |   | (880   | )
|Cash, cash equivalents, and restricted cash, beginning of period               |  |                             | 9,612  |   |      |   | 10,598 |  
|                                                                               |  |                             |        |   |      |   |        |  
|Cash, cash equivalents, and restricted cash, end of period                     |  | $                           | 9,183  |   |      | $ | 9,232  |  
|                                                                               |  |                             |        |   |      |   |        |  



The accompanying notes
are an integral part of these condensed interim consolidated financial statements.



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Tripath Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

(Unaudited)



|1. | Basis of Presentation
|-- | ---------------------



The unaudited condensed interim consolidated financial statements included herein have been prepared by Tripath Technology Inc. (the Company) in accordance
with accounting principles generally accepted in the United States of America and reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary to state fairly the Companys financial
position, results of operations and cash flows for the periods presented. These interim financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Companys Annual Report
on Form 10-K for the year ended December 31, 2003. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year.



The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements.



The unaudited condensed interim consolidated financial statements include the accounts of the Company and its wholly-owned Japanese
subsidiary, which was incorporated in January 2001. All significant intercompany balances and transactions have been eliminated in consolidation. The U.S. dollar is the functional currency for the Companys Japanese wholly-owned subsidiary.
Assets and liabilities that are not denominated in the functional currency are remeasured into U.S. dollars and the resulting gains or losses are included in Interest and other income, net. Such gains or losses have not been material for
any period presented.



The Companys consolidated financial statements
have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred substantial losses and has experienced negative cash flow
since inception and has an accumulated deficit of $181.3 million at March 31, 2004.



Beginning in August 2001, the Company instituted programs to reduce expenses including reducing headcount from 144 employees at the end of July 2001 to 56 employees at the end of December 2003 and reducing employees salaries by 10%.
In September 2002 the Company relocated its headquarters which reduced rent expense and canceled its D&O policy which reduced insurance expense. These actions resulted in significant cost savings in 2003. The Company reduced its cash used in
operating activities from approximately $13 million in 2002 to approximately $4 million in 2003.



During 2003, warrants were exercised which resulted in the Company receiving proceeds totaling approximately $3.1 million. Subsequent to December 31, 2003 the Company received additional proceeds of approximately $2.3
million from the exercise of outstanding warrants. At March 31, 2004, the Company had working capital of $11.8 million, including cash of $9.2 million.



Should the Company require more cash during 2004 to fund its operations than is currently planned, management believes that such additional cash requirements could be met
by first obtaining additional financing or by taking measures to reduce operating expenses such as reducing headcount or canceling research and development projects. However, the Company may not be able to obtain additional funds on terms that would
be favorable to its stockholders and the Company, or at all. The Companys long term prospects are dependent upon obtaining sufficient financing as needed to fund current working capital needs and future growth, and ultimately on achieving
profitability.



The Company believes that its existing working capital at March
31, 2004, together with proceeds from additional financings or debt transactions, if necessary, will be sufficient to meet its operating, working capital, investing and financing needs for at least the next twelve months. The Company has not made
any adjustment to its consolidated financial statements as a result of the outcome of the uncertainty described above.



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|2. | Revenue recognition
|-- | -------------------



The Company recognizes revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition. The Company recognizes revenue when all of
the following criteria are met: 1) there is persuasive evidence that an arrangement exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4) collectibility is reasonably assured. The following policies apply to
the Companys major categories of revenue transactions.



Sales to OEM
Customers: Under the Companys standard terms and conditions of sale, title and risk of loss transfer to the customer at the time product is shipped to the customer, FOB shipping point, and revenue is recognized accordingly. The Company
accrues the estimated cost of post-sale obligations, including basic product warranties or returns, based on historical experience. The Company has experienced minimal warranty or other returns to date.



Sales to Distributors: The Company provides its distributors certain incentives such
as stock rotation, price protection, and other offerings. As a result of these incentives, the Company defers recognition of revenue until such time that the distributor sells product to its customer.



Costs related to shipping and handling are included in cost of revenue for all periods
presented.



|3. | Net loss per share
|-- | ------------------



Basic net loss per share is computed by dividing the net loss attributable to common stockholders for the period by the weighted average number of common stock outstanding during the period. Diluted net loss per share
is computed based on the weighted average number of common stock and dilutive potential common stock outstanding. The calculation of diluted net loss per share excludes potential common stock if the effect is anti-dilutive. Potential common stock
consist of incremental common stock issuable upon the exercise of stock options and common stock issuable upon the exercise of common stock warrants.



Total potential common stock of 8,912,000 and 10,338,000 shares were not included in the diluted net loss per share calculation for the periods ended March 31, 2004 and
2003, respectively, because to do so would be anti-dilutive.



The following
table sets forth the computation of basic and diluted net loss per share for the periods presented (in thousands, except per share amounts):



|                                     |  |                             |        |   |      |   |        |  
|------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                     |  | Three Months EndedMarch 31, |       
|                                     |  | 2004                        |        |   | 2003 |  
|Numerator:                           |  |                             |        |   |      |   |        |  
|Net loss                             |  | $                           | (1,785 | ) |      | $ | (2,477 | )
|                                     |  |                             |        |   |      |   |        |  
|Denominator:                         |  |                             |        |   |      |   |        |  
|Weighted average common stock        |  |                             | 45,266 |   |      |   | 41,352 |  
|                                     |  |                             |        |   |      |   |        |  
|Basic and diluted net loss per share |  | $                           | (0.04  | ) |      | $ | (0.06  | )
|                                     |  |                             |        |   |      |   |        |  



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|4. | Deferred stock-based compensation
|-- | ---------------------------------



The Company recognized deferred stock-based compensation in connection with certain employee stock option grants and the issuance of restricted stock. The deferred
stock-based compensation related to the employee stock option grants is being amortized over the vesting periods of the related options, generally four years, using an accelerated basis while the deferred stock-based compensation related to the
issuance of restricted stock is being amortized over two years on a straight line basis. The fair value per share used to calculate deferred stock-based compensation was derived by reference to the share quoted price. Future compensation charges are
subject to reduction for any employee who terminates employment prior to such employees option vesting date.



The Company has granted options to purchase shares of common stock to consultants in exchange for services. The Company determined the value of the options granted to
consultants based on the Black-Scholes option pricing model.



The following
table sets forth, for each of the periods presented, the deferred stock-based compensation recorded and the amortization of deferred stock-based compensation (in thousands):



|                                                  |  |                             |    |      |   |     |  
|------------------------------------------------- |  | --------------------------- | -- | ---- | - | --- | -
|                                                  |  | Three Months EndedMarch 31, |   
|                                                  |  | 2004                        |    | 2003 |  
|Deferred stock-based compensation                 |  | $                           | 1  |      | $ | (88 | )
|Amortization of deferred stock-based compensation |  | $                           | 42 |      | $ | (36 | )



Unamortized deferred stock-based
compensation at March 31, 2004 and December 31, 2003 was $176,000 and $ 217,000 respectively.



|5. | Accounting for stock-based compensation
|-- | ---------------------------------------



The Company accounts for its stock-based compensation plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income for the periods ended March 31, 2004 and 2003, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.



The following table illustrates the effect on net loss and loss per share as if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation to stock-based employee compensation.



|                                                                                                                                                                                                  |  |                             |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                                                                                                  |  | Three Months EndedMarch 31, |       
|                                                                                                                                                                                                  |  | 2004                        |        |   | 2003 |  
|Net loss applicable to common stockholders, as reported                                                                                                                                           |  | $                           | (1,785 | ) |      | $ | (2,477 | )
|Total stock-based employee compensation expense (benefit) included in the net loss, determined under the recognition and measurement
principles of APB Opinion No. 25, net of related tax effects |  |                             | 42     |   |      |   | (36    | )
|Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects                                                               |  |                             | (708   | ) |      |   | (94    | )
|                                                                                                                                                                                                  |  |                             |        |   |      |   |        |  
|Pro forma net loss applicable to common stockholders                                                                                                                                              |  | $                           | (2,451 | ) |      | $ | (2,607 | )
|                                                                                                                                                                                                  |  |                             |        |   |      |   |        |  
|Loss per share:                                                                                                                                                                                   |  |                             |        |   |      |   |        |  
|Basic - as reported                                                                                                                                                                               |  | $                           | (0.04  | ) |      | $ | (0.06  | )
|                                                                                                                                                                                                  |  |                             |        |   |      |   |        |  
|Basic  pro forma                                                                                                                                                                                 |  | $                           | (0.05  | ) |      | $ | (0.06  | )
|                                                                                                                                                                                                  |  |                             |        |   |      |   |        |  



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|6. | Cash, cash equivalents and restricted cash
|-- | ------------------------------------------



The Company considers all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents
consist of cash on deposit with banks, money market funds and commercial paper, bonds and notes, the fair value of which approximates cost.



The Company has entered into Security Agreements with two financial institutions to provide collateral for outstanding standby letters of credit which totaled $0.8
million at March 31, 2004. At March 31, 2003, the Company had no restricted cash.



|7. | Concentration of credit risk and significant customers
|-- | ------------------------------------------------------



Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. Substantially all of the
Companys cash and cash equivalents are invested in highly-liquid money market funds with major financial institutions. The Company sells its products principally to original equipment manufacturers. The Company performs ongoing credit
evaluations of its customers and maintains an allowance for potential credit losses, as considered necessary by management. During the quarters ended March 31, 2004 and 2003, the Company had minimal bad debts write-offs.



The following table summarizes sales to end customers comprising 10% or more of the
Companys total revenue for the periods indicated:



|           |  |                                            |   |  |      |  
|---------- |  | ------------------------------------------ | - |  | ---- | -
|           |  | % of Revenuefor the QuarterEnded March 31, |  
|           |  | 2004                                       |   |  | 2003 |  
|Customer A |  | 32                                         | % |  | 21   | %
|Customer B |  | 22                                         | % |  | 0    | %
|Customer C |  | 10                                         | % |  | 11   | %
|Customer D |  |                                           |   |  | 25   | %



The Companys accounts receivable
were concentrated with two customers at March 31, 2004 representing 71% and 10% of aggregate gross receivables and with three customers at December 31, 2003 representing 49%, 19%, and 15% of aggregate gross receivables.



|8. | Inventories
|-- | -----------



Inventories are stated at the lower of cost or market. This policy requires the Company to make estimates regarding the market value of the Companys inventory, including an assessment of excess or obsolete
inventory. The Company determines excess and obsolete inventory based on an estimate of the future demand and estimated selling prices for the Companys products within a specified time horizon, generally 12 months. The estimates the Company
uses for expected demand are also used for near-term capacity planning and inventory purchasing and are consistent with the Companys revenue forecasts. Actual demand and market conditions may be different from those projected by the
Companys management. If the Companys unit demand forecast is less than the Companys current inventory levels and purchase commitments during the specified time horizon, or if the estimated selling price is less than the
Companys inventory value, the Company will be required to take additional excess inventory charges or write-downs to net realizable value which will decrease the Companys gross margin and net operating results in the future.



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Inventories are comprised of the following (in thousands):



|                               |  |               |       |                  |   |      
|------------------------------ |  | ------------- | ----- | ---------------- | - | -----
|                               |  | March 31,2004 |       | December 31,2003
|Raw materials                  |  | $             | 2,709 |                  | $ | 1,692
|Work-in-process                |  |               | 481   |                  |   | 1,007
|Finished goods                 |  |               | 3,214 |                  |   | 2,229
|Inventory held by distributors |  |               | 612   |                  |   | 646  
|                               |  |               |       |                  |   |      
|Total                          |  | $             | 7,016 |                  | $ | 5,574
|                               |  |               |       |                  |   |      



|9. | Segment and geographic information
|-- | ----------------------------------



The Company has determined that it has one reportable business segment: the design, license and marketing of integrated circuits.



The following is a geographic breakdown of the Companys sales by shipping destination
for the following periods:



|              |  |                             |       |      |   |      
|------------- |  | --------------------------- | ----- | ---- | - | -----
|              |  | Three Months EndedMarch 31,
|              |  | 2004                        |       | 2003
|United States |  | $                           | 121   |      | $ | 171  
|Japan         |  |                             | 3,016 |      |   | 1,239
|Singapore     |  |                             |      |      |   | 307  
|Taiwan        |  |                             | 71    |      |   | 442  
|China         |  |                             | 149   |      |   | 274  
|Europe        |  |                             | 331   |      |   |     
|Korea         |  |                             | 439   |      |   |     
|Rest of world |  |                             | 39    |      |   | 519  
|              |  |                             |       |      |   |      
|              |  | $                           | 4,166 |      | $ | 2,952
|              |  |                             |       |      |   |      



Approximately 97% and 78% of the
Companys total revenue for the three months ended March 31, 2004 and March 31, 2003, respectively, was derived from sales to end customers based outside the United States.



|10. | Commitments and contingencies
|--- | -----------------------------



Lease commitments: The Company leases office space and equipment under non-cancelable operating leases. The Company also has a capital lease for research and development
related software and a capital lease for manufacturing test equipment.



The
Companys total commitments on its operating and capital leases and inventory purchases as of March 31, 2004, were as follows (in thousands):



|                                                   |  |                  |       |                |   |      |                              |  |   |      
|-------------------------------------------------- |  | ---------------- | ----- | -------------- | - | ---- | ---------------------------- |  | - | -----
|As of March 31, 2004                               |  | Operating Leases |       | Capital Leases |   |      | InventoryPurchaseCommitments
|2004                                               |  | $                | 753   |                | $ | 380  |                              |  | $ | 3,548
|2005                                               |  |                  | 1,083 |                |   | 473  |                              |  |   |     
|2006                                               |  |                  | 1,046 |                |   | 64   |                              |  |   |     
|2007                                               |  |                  | 270   |                |   | 43   |                              |  |   |     
|                                                   |  |                  |       |                |   |      |                              |  |   |      
|Total minimum lease payments                       |  | $                | 3,152 |                |   | 960  |                              |  | $ | 3,548
|                                                   |  |                  |       |                |   |      |                              |  |   |      
|Less: amount representing interest                 |  |                  |       |                |   | (81  | )                            |  |   |      
|                                                   |  |                  |       |                |   |      |                              |  |   |      
|Present value of minimum lease payments            |  |                  |       |                |   | 879  |                              |  |   |      
|Less: current portion of capital lease obligations |  |                  |       |                |   | (477 | )                            |  |   |      
|                                                   |  |                  |       |                |   |      |                              |  |   |      
|Long-term capital lease obligations                |  |                  |       |                | $ | 402  |                              |  |   |      
|                                                   |  |                  |       |                |   |      |                              |  |   |      



Contingencies: From time to time, in
the normal course of business, various claims could be made against the Company. At March 31, 2004, there were no pending claims the outcome of which is expected to result in a material adverse effect on the financial position or results of
operations of the Company.



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##### Table of Contents

|11. | Guarantees
|--- | ----------



In November 2002, the FASB issued FIN No. 45 Guarantors Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others  an interpretation of FASB
Statements No. 5, 57 and 107 and rescission of FIN 34. The following is a summary of the Companys agreements that the Company has determined are within the scope of FIN 45.



The Company provides a limited warranty for up to one year for any defective products. During the quarter ended March 31, 2004 and for the
year ended December 31, 2003, warranty expense was insignificant. The Company has a reserve for warranty costs of $30,000, which has not changed in the past quarter.



The Company has entered into Security Agreements with two financial institutions to provide collateral for outstanding standby letters of
credit which totaled $0.8 million at March 31, 2004.



Pursuant to its bylaws,
the Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. The term of the indemnification period is for the officers or
directors lifetime. To date, the Company has not incurred any costs as there have been no lawsuits or claims that would invoke these indemnification agreements. Accordingly, the Company has no liabilities recorded for these agreements as of
March 31, 2004.



The Company is self-insured for these and similar claims. The
Company enters into indemnification provisions under (i) its agreements with other companies in its ordinary course of business, typically with business partners, contractors and customers, its sublandlord and (ii) its agreements with investors.
Under these provisions the Company has agreed to generally indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Companys activities or, in some cases, as a result of the
indemnified partys activities under the agreement. These indemnification provisions often include indemnifications relating to representations made by the Company with regard to intellectual property rights. These indemnification provisions
generally survive termination of the underlying agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. To date, the Company has not incurred any costs as
there have been no lawsuits or claims related to these indemnification agreements. Accordingly, the Company has no liabilities recorded for these agreements as of March 31, 2004.



|12. | Recent Accounting Pronouncements
|--- | --------------------------------



In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN
46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31,
2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company adopted FIN 46 on January 1, 2003. The
adoption of this standard did not have a material impact on the Companys consolidated financial statements as the Company had no interest in any variable interest entities.



In June 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities
(SFAS 149). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. Adoption of this
statement did not have a material impact on the Companys consolidated financial statements, as the Company has not entered into any derivative contracts.



In June 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS
150). SFAS 150 establishes standards for how an issue classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Adoption of this statement did not have a material impact on the Companys consolidated financial statements.



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##### Table of Contents

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.



This report contains forward looking statements (as such term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934) and information relating to us that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. In addition, when used in this report, the words likely,
will, suggests, target, may, would, could, anticipate, believe, estimate, expect, intend, plan,
predict, and similar expressions and their variants, as they relate to us or our management, may identify forward looking statements. Such statements reflect our judgment as of the date of this quarterly report on Form 10-Q with respect
to future events, the outcome of which are subject to certain known and unknown risks and uncertainties, including the factors discussed under the caption Risk Factors, and those discussed elsewhere in this quarterly report on Form 10-Q,
which may have a significant impact on our business, operating results or financial condition. Investors are cautioned that these forward looking statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. Although we believe that the expectations reflected in these forward looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward looking statements. All forward looking statements included in this
report are based on information available to us as of the date of this report. We undertake no obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise, unless we are required
to do so by law.



The following discussion and analysis should be read in
connection with the condensed consolidated financial statements and the notes thereto included in Item 1 in this quarterly report and our annual report on Form 10-K for the year ended December 31, 2003.



Critical Accounting Policies



Use of Estimates: Managements discussion and analysis of financial condition
and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those
related to product returns, warranty obligations, bad debts, inventories, accruals, stock options, warrants, and income taxes (including the valuation allowance for deferred taxes). We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. Material differences may occur in our results of operations for any period if we made different judgments or utilized different estimates.



Revenue Recognition: The Company recognizes revenue in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition in Financial Statements. The Company recognizes revenue when all of the following criteria are met: 1) there is persuasive evidence that an
arrangement exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4) collectibility is reasonably assured. The following policies apply to the Companys major categories of revenue transactions.



Sales to OEM Customers: Under the Companys standard terms and conditions of
sale, title and risk of loss transfer to the customer at the time product is shipped to the customer, FOB shipping point, and revenue is recognized accordingly. The Company accrues the estimated cost of post-sale obligations, including basic product
warranties or returns, based on historical experience. The Company has experienced minimal warranty or other returns to date.



Sales to Distributors: The Company provides its distributors certain incentives such as stock rotation, price protection, and other offerings. As a result of these
incentives, the Company defers recognition of revenue until such time that the distributor sells product to its customer.



Costs related to shipping and handling are included in cost of revenue for all periods presented.



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##### Table of Contents

Allowance for Doubtful Accounts: The Company provides an allowance for doubtful accounts to ensure trade
receivables are not overstated due to uncollectibility. The collectibility of the Companys receivables is evaluated based on a variety of factors, including the length of time receivables are past due, indication of the customers
willingness to pay, significant one-time events and historical experience. An additional reserve for individual accounts is recorded when the Company becomes aware of a customers inability to meet its financial obligations, such as in the case
of bankruptcy filings or substantial deterioration in the customers operating results or financial position. If circumstances related to the Companys customers change, estimates of the recoverability of receivables would be further
adjusted.



Inventories: Inventories are stated at the lower of
cost or market. This policy requires us to make estimates regarding the market value of our inventory, including an assessment of excess or obsolete inventory. We determine excess and obsolete inventory based on an estimate of the future demand and
estimated selling prices for our products within a specified time horizon, generally 12 months. The estimates we use for expected demand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue
forecasts. Actual demand and market conditions may be different from those projected by our management. If our unit demand forecast is less than our current inventory levels and purchase commitments during the specified time horizon, or if the
estimated selling price is less than our inventory value, we will be required to take additional excess inventory charges or write-downs to net realizable value, which will decrease our gross margin and net operating results in the future.



Results of Operations



Three months ended March 31, 2004 and 2003



Revenue. Revenue for the three months ended March 31, 2004 was $4.2 million, an
increase of $1.2 million or 40% over revenues of $3.0 million for the three months ended March 31, 2003. The increase in revenue resulted primarily from an increase in sales of our TA2020, TA2024 and TLD4012 products which reflects growth in the
flat panel TV, gaming, automotive and communications markets.



Sales to Kyoshin
Technosonic Co., Ltd., (KTS), JVC, and Samsung Electronics Co. Ltd. (Samsung) accounted for approximately 32%, 22% and 10%, respectively, of revenue in the three months ended March 31, 2004 and 21%, 0%, and 11%, respectively, in the corresponding
prior year quarter. Sales to our five largest customers represented approximately 76% of revenue in the three months ended March 31, 2004 and 70% of revenue in the three months ended March 31, 2003.



Gross Profit. Gross profit for the three months ended March 31, 2004 was $1.2 million
or 29%, compared with a gross profit of $745,000 or 25% for the three months ended March 31, 2003. The increase in the gross profit for the three months ended March 31, 2004 reflects ongoing product cost reduction efforts, increased unit volumes for
a number of our products as well as sales of higher margin products.



Research and Development. Research and development expenses for the three months ended March 31, 2004 were $1.7 million, a decrease of $0.3 million from $2.0 million for the three months ended March 31, 2003. The year over year
decrease for the three month periods resulted primarily from a decrease in allocated expenses related to rent, insurance, legal fees and depreciation. We anticipate that our R&D expenses will increase in fiscal 2004.



Selling, General and Administrative Expenses. Selling, general and administrative
expenses for the three months ended March 31, 2004 were $1.3 million, an increase of $100,000 from $1.2 million for the three months ended March 31, 2003. The slight increase in selling, general and administrative expenses is mostly due to the
fluctuation in stock-based compensation. We anticipate that our S,G&A expenses will increase in fiscal 2004, including expenses for legal and financial compliance costs related to the Sarbanes-Oxley Act of 2002 and increased insurance costs.



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Liquidity and Capital Resources



Since our inception, we have financed our operations through the sale of our equity securities, primarily the sale of preferred stock,
through our initial public offering on August 1, 2000 and through a private placement in January 2002. Net proceeds to us as a result of our initial public offering, our private placement and subsequent stock warrant exercises were approximately
$45.4 million, $19.9 million and $5.4 million, respectively.



Net cash used by
operating activities increased to $2.5 million for the quarter ended March 31, 2004 from $1.3 million for the quarter ended March 31, 2003. The increase was mainly due to an increase in inventory of $2.8 million and an increase in accounts
receivable of $1.5 million partially offset by an increase in accounts payable and accrued expenses of $3.5 million and a decrease in the net loss of $692,000.



Cash used in investing activities was $318,000 for the quarter ended March 31, 2004 compared to $13,000 for the quarter ended March 31, 2003. The increase was due to
an increase in purchase of property and equipment.



Cash provided by financing
activities increased to $2.4 million for the quarter ended March 31, 2004 from cash used of $41,000 for the quarter ended March 31, 2003. The increase was due primarily to the proceeds received from the exercise of warrants which are summarized
below.



On January 24, 2002, we completed a financing in which we raised $21
million in gross proceeds through a private placement of non-voting Series A Preferred Stock and warrants, at $30 per unit to a group of investors. At a Special Meeting of Stockholders held on March 7, 2002, our stockholders approved the issuance
and sale of the Series A Preferred Stock and warrants, which then automatically converted into 13,999,000 shares of common stock and warrants to purchase 3,303,760 shares of common stock. This included unregistered warrants that were issued to the
placement agent for the financing transaction to purchase 503,960 shares of our common stock. The 2,799,800 registered warrants had a term of three years and an effective Common Stock exercise price of $1.95 per share, whereas 419,968 of the 503,960
warrants issued to the placement agent had an effective Common Stock exercise price of $1.50 per share. The remainder of the warrants issued to the placement agent had an effective Common Stock exercise price of $1.95 per share.



During the year ended December 31, 2003, warrants were exercised which resulted in the
issuance of 1,896,226 shares of our common stock with proceeds totaling approximately $3.1 million. The warrants issued to the placement agent were exercised on a net issuance basis resulting in 300,438 shares of our common stock being issued to the
placement agent.



The warrant agreement contained a provision for the mandatory
exercise of the warrants if our common stock traded at $5.85 or higher for 20 out of 30 trading days. At the close of business on January 2, 2004 our common stock had traded at $5.85 or higher for 20 consecutive days and we were able to invoke the
provision for the mandatory exercise of all outstanding warrants issued in connection with the January 2002 financing. All outstanding warrants were exercised in January 2004 resulting in the issuance of an additional 1.2 million shares of common
stock. We received proceeds of approximately $2.3 million from the exercise of these warrants.



Our total commitments on our operating and capital leases and inventory purchases as of March 31, 2004, were as follows (in thousands):



|                                                   |  |                 |       |               |   |      |                              |  |        |       |  |   |      
|-------------------------------------------------- |  | --------------- | ----- | ------------- | - | ---- | ---------------------------- |  | ------ | ----- |  | - | -----
|As of March 31, 2004                               |  | OperatingLeases |       | CapitalLeases |   |      | InventoryPurchaseCommitments |  | Totals
|2004                                               |  | $               | 753   |               | $ | 380  |                              |  | $      | 3,548 |  | $ | 4,681
|2005                                               |  |                 | 1,083 |               |   | 473  |                              |  |        |      |  |   | 1,556
|2006                                               |  |                 | 1,046 |               |   | 64   |                              |  |        |      |  |   | 1,110
|2007                                               |  |                 | 270   |               |   | 43   |                              |  |        |      |  |   | 313  
|2008 and beyond                                    |  |                 |      |               |   |     |                              |  |        |      |  |   |     
|                                                   |  |                 |       |               |   |      |                              |  |        |       |  |   |      
|Total minimum lease payments                       |  | $               | 3,152 |               |   | 960  |                              |  | $      | 3,548 |  | $ | 7,660
|                                                   |  |                 |       |               |   |      |                              |  |        |       |  |   |      
|Less: amount representing interest                 |  |                 |       |               |   | (81  | )                            |  |        |       |  |   |      
|                                                   |  |                 |       |               |   |      |                              |  |        |       |  |   |      
|Present value of minimum lease payments            |  |                 |       |               |   | 879  |                              |  |        |       |  |   |      
|Less: current portion of capital lease obligations |  |                 |       |               |   | (477 | )                            |  |        |       |  |   |      
|                                                   |  |                 |       |               |   |      |                              |  |        |       |  |   |      
|Long-term capital lease obligations                |  |                 |       |               | $ | 402  |                              |  |        |       |  |   |      
|                                                   |  |                 |       |               |   |      |                              |  |        |       |  |   |      



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We expect our future liquidity and capital requirements will fluctuate depending on numerous factors including: market
acceptance and demand for current and future products, the timing of new product introductions and enhancements to existing products, the success of on-going efforts to reduce our manufacturing costs as well as operating expenses and need for
working capital for such items as inventory and accounts receivable.



We have
incurred substantial losses and have experienced negative cash flow since inception and have an accumulated deficit of $181.3 million at March 31, 2004. Beginning in August 2001, we instituted programs to reduce expenses including reducing headcount
from 144 employees at the end of July 2001 to 56 employees at the end of December 2003 and reducing employees salaries by 10%. In September 2002 we relocated our headquarters, which reduced rent expense and canceled our D&O policy, which reduced
insurance expense. These actions resulted in significant cost savings in 2003. We reduced our cash used in operating activities from approximately $13 million in 2002 to approximately $4 million in 2003.



During 2003, warrants were exercised which resulted in us receiving proceeds totaling
approximately $3.1 million. At December 31, 2003, we had working capital of $11.2 million, including cash of $9.6 million. Subsequent to December 31, 2003 we received proceeds of approximately $2.3 million from the exercise of outstanding warrants.



We may need to raise additional funds to finance our activities through public
or private equity or debt financings, the formation of strategic partnerships or alliances with other companies or through bank borrowings with existing or new banks. We may not be able to obtain additional funds on terms that would be favorable to
our stockholders and us, or at all. In such instance, we will take measures to reduce our operating expenses, such as reducing headcount or canceling selected research and development projects. Without sufficient capital to fund our operations, we
will no longer be able to continue as a going concern. We believe, based on our current cash balance as well as our ability to implement the aforementioned measures, if needed, that we will have liquidity sufficient to meet our operating, working
capital and financing needs for the next twelve months and perhaps beyond. Our long-term prospects are dependent upon obtaining sufficient financing as needed to fund current working capital needs and future growth, and ultimately on achieving
profitability.



Recent Accounting Pronouncements



In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51 (FIN 46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new
variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June
15, 2003. We adopted FIN 46 on January 1, 2003. The adoption of this standard did not have a material impact on our consolidated financial statements as we have no interest in any variable interest entities.



In June 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities (SFAS 149). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities. SFAS 149 is effective for contracts entered into or modified
after June 30, 2003. Adoption of this statement did not have a material impact on our consolidated financial statements, as we have not entered into any derivative contracts.



In June 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity (SFAS 150). SFAS 150 establishes standards for how an issue classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Adoption of this statement did not have a material impact on our consolidated financial statements.



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Risk Factors



Set forth below and elsewhere in
this quarterly report and in the other documents we file with the Securities and Exchange Commission are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward looking statements
contained in this quarterly report. Prospective and existing investors are strongly urged to carefully consider the various cautionary statements and risks set forth in this quarterly report and our other public filings.



Our limited operating history and dependence on new technologies make it difficult to
evaluate our prospects and future products.



We were incorporated in July
1995, began shipping products in 1998 and became a public reporting company in August 2000. Accordingly, we have limited historical financial information and operating history upon which you may evaluate our products and us. Our prospects must be
considered in the light of the risks, challenges and difficulties frequently encountered by companies in their early stage of development, particularly companies in intensely competitive and rapidly evolving markets such as the semiconductor
industry. We cannot be sure that we will be successful in addressing these risks and challenges.



We have a history of losses and may never achieve or sustain profitability.



As of March 31, 2004, we had an accumulated deficit of $181.3 million. We incurred net losses of approximately $7.2 million in 2003 and $19.3 million (before accretion on
preferred stock of $14.9 million) in 2002. We may continue to incur net losses and these losses may be substantial. Furthermore, we may continue to generate significant negative cash flow in the future. We will need to generate substantially higher
revenue to achieve and sustain profitability and positive cash flow. Our ability to generate future revenue and achieve profitability will depend on a number of factors, many of which are described throughout this section. If we are unable to
achieve or maintain profitability, we will be unable to build a sustainable business. In this event, our share price and the value of your investment would likely decline and we might be unable to continue as a going concern.



We may need to raise additional capital to continue to grow our business, which may not be
available to us.



Because we have had losses, we have funded our operating
activities to date from the sale of securities, including our most recent financing in January 2002 as well as from the proceeds from the related exercise of warrants issued in connection with the 2002 financing. However, to grow our business
significantly, we will need additional capital. We cannot be certain that any such financing will be available on acceptable terms, or at all. Moreover, additional equity financing, if available, would likely be dilutive to the holders of our common
stock, and debt financing, if available, would likely involve restrictive covenants. If we cannot raise sufficient additional capital, it would adversely affect our ability to achieve our business objectives and to continue as a going concern.



Our quarterly operating results are likely to fluctuate significantly and
may fail to meet the expectations of securities analysts and investors, which may cause our share price to decline.



Our quarterly operating results have fluctuated significantly in the past and are likely to continue to do so in the future. The many factors that could cause our
quarterly results to fluctuate include, in part:



| |  | level of sales and recognition of revenue;
| | - | ------------------------------------------



| |  | mix of high and low margin products;
| | - | ------------------------------------



| |  | availability and pricing of wafers;
| | - | -----------------------------------



| |  | timing of introducing new products, including, but not limited to, the introduction of new products based on the lower cost Godzilla architecture, lower cost versions of
existing products, fluctuations in manufacturing yields and other problems or delays in the fabrication, assembly, testing or delivery of products; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | rate of development of target markets.
| | - | --------------------------------------



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A large portion of our operating expenses, including salaries, rent and capital lease expenses, are fixed. If we
experience a shortfall in revenues relative to our expenses, we may be unable to reduce our expenses quickly enough to offset the reduction in revenues during that accounting period, which would adversely affect our operating results. Fluctuations
in our operating results may also result in fluctuations in our common stock price. If the market price of our stock is adversely affected, we may experience difficulty in raising capital or making acquisitions. In addition, we may become the object
of securities class action litigation. As a result, we do not believe that period-to-period comparisons of our revenues and operating results are necessarily meaningful. One should not rely on the results of any one quarter as an indication of
future performance.



Our stock price may be subject to significant
volatility.



The stock prices for many technology companies have recently
experienced large fluctuations, which may or may not be directly related to the operating performance of the specific companies. For example, since the beginning of fiscal 2003, our Common Stock had closing sales prices on Nasdaq as low as $0.17 and
as high as $8.20 per share. Broad market fluctuations as well as general economic conditions may cause our stock price to decline. We believe that fluctuations of our stock price may continue to be caused by a variety of factors, including:



| |  | announcements of developments related to our business;
| | - | ------------------------------------------------------



| |  | fluctuations in our financial results;
| | - | --------------------------------------



| |  | general conditions in the stock market or around the world, terrorism or developments in the semiconductor and capital equipment industry and the general economy;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | sales or purchases of our common stock in the marketplace;
| | - | ----------------------------------------------------------



| |  | announcements of our technological innovations or new products or enhancements or those of our competitors;
| | - | -----------------------------------------------------------------------------------------------------------



| |  | developments in patents or other intellectual property rights;
| | - | --------------------------------------------------------------



| |  | developments in our relationships with customers and suppliers;
| | - | ---------------------------------------------------------------



| |  | a shortfall or changes in revenue, gross margins or earnings or other financial results from analysts expectations or an outbreak of hostilities or natural disasters; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | acquisition or merger activity and the success in implementing such acquisitions.
| | - | ---------------------------------------------------------------------------------



Our product shipment patterns make it difficult to predict our quarterly revenues.



As is common in our industry, we frequently ship more products in the third month of each
quarter than in either of the first two months of the quarter, and shipments in the third month are higher at the end of that month. We believe this pattern is likely to continue. The concentration of sales in the last month of the quarter may cause
our quarterly results of operations to be more difficult to predict. Moreover, if sufficient business does not materialize or a disruption in our production or shipping occurs near the end of a quarter, our revenues for that quarter could be
materially reduced.



Our customers may cancel or defer product orders, which
could result in excess inventory.



Our sales are generally made pursuant
to individual purchase orders that may be canceled or deferred by customers on short notice without significant penalty. Thus, orders in backlog may not result in future revenue. In the past, we have had cancellations and deferrals by customers. Any
cancellation or deferral of product orders could result in us holding excess inventory, or result in obsolete inventory over time, which could seriously harm our profit margins and restrict our ability to fund our operations. For example, during the
quarter ended March 31, 2002, we recorded a provision for excess inventory of approximately $5.0 million. Our inventory and purchase commitments are based on expected demand and not necessarily built for firm purchase commitments for our customers.
Because of the required delivery lead time, we need to carry a high level of inventory in comparison to past sales. We recognize revenue upon shipment of products to the end customer. Although we have not experienced customer refusals to accept
shipped products or material difficulties in collecting accounts receivable, such refusals or collection difficulties are possible and could result in significant charges against income, which could seriously harm our revenues and our cash flow.



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We rely on a small number of customers for most of our revenue and a decrease in revenue from these customers could
seriously harm our business.



A relatively small number of customers have
accounted for most of our revenues to date. Any reduction or delay in sales of our products to one or more of these key customers could seriously reduce our sales volume and revenue and adversely affect our operating results. Our top five end
customers accounted for 76% of revenue in the three months ended March 31, 2004. In particular, sales to three large customers, Kyoshin Technosonic Co. Ltd., (KTS), JVC and Samsung Electronics Co., Ltd., accounted for 32%, 22% and 10%, respectively,
of revenue for the quarter ended March 31,2004 and 21%, 0% and 11%, respectively, in the corresponding quarter ended March 31, 2003. Our top five end customers accounted for 68% of revenue in 2003 and 67% of revenue in 2002. Our primary customers in
2003 were Kyoshin Technosonic Co., Ltd. (KTS), Samsung Electronics Co., Ltd. (Samsung), and Apple Computer Inc. (Apple) representing 24%, 18% and 15% of revenue, respectively. We expect that we will continue to rely on the success of our
largest customers and on our success in selling our existing and future products to those customers in significant quantities. However, we cannot be sure that we will retain our largest customers or that we will be able to obtain additional key
customers or replace key customers we may lose or who may reduce their purchases.



We currently rely on sales of four products for a significant portion of our revenue, and the failure of these products to be successful in the future could substantially reduce our sales.



We currently rely on sales of our TA1101B, TA2020, TA2024 digital audio amplifier products
and TLD4012 DSL line driver to generate a significant portion of our revenue. Sales of these products amounted to 86% of our revenue for the quarter ended March 31, 2004, 87% of our revenue in 2003 and 96% of our revenue in 2002. We have developed
additional products and plan to introduce more products in the future, but there can be no assurance that these products will be commercially successful. Consequently, if our existing products are not successful, our sales could decline
substantially.



Our lengthy sales cycle makes it difficult for us to predict
if or when a sale will be made, to forecast our revenue and to budget expenses, which may cause fluctuations in our quarterly results.



Because of our lengthy sales cycles, we may continue to experience a delay between incurring expenses for research and development, sales and marketing and general and
administrative efforts, as well as incurring investments in inventory, and the generation of revenue, if any, from such expenditures. In addition, the delays inherent in such a lengthy sales cycle raise additional risks of customer decisions to
cancel or change product plans, which could result in our loss of anticipated sales. Our new products are generally incorporated into our customers products or systems at the design stage. To try and have our products selected for design into
new products of current and potential customers, commonly referred to as design wins, often requires significant expenditures by us without any assurance of success. Once we have achieved a design win, our sales cycle will start with the test and
evaluation of our products by the potential customer and design of the customers equipment to incorporate our products. Generally, different parts have to be redesigned to incorporate our devices successfully into our customers products.



The sales cycle for the test and evaluation of our products can range from a
minimum of three to six months, and it can take a minimum of an additional six to nine months before a customer commences volume production of equipment that incorporates our products. Achieving a design win provides no assurance that such customer
will ultimately ship products incorporating our products or that such products will be commercially successful. Our revenue or prospective revenue would be reduced if a significant customer curtails, reduces or delays orders during our sales cycle,
or chooses not to release products incorporating our products.



Our ability
to achieve revenue growth will be harmed if we are unable to persuade electronic systems manufacturers to adopt our new amplifier technology.



We face difficulties in persuading manufacturers to adopt our products using our new amplifier technology. Traditional amplifiers use design approaches developed in the
1930s. These approaches are still used in most amplifiers and engineers are familiar with these design approaches. To adopt our products, manufacturers and engineers must understand and accept our new technology. To take advantage of our products,
manufacturers must redesign their systems, particularly components such as the power supply and heat sinks. Manufacturers must work with their suppliers to obtain modified components and they often must complete lengthy evaluation and testing. In
addition, our amplifiers are often more expensive as components than traditional amplifiers. For these reasons, prospective customers may be reluctant to adopt our technology.



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We currently depend on consumer electronics markets that are typically characterized by aggressive pricing, frequent
new product introductions and intense competition.



A substantial portion
of our current revenue is generated from sales of products that address the consumer electronics markets, including home theater, computer audio, flat panel TV, gaming, professional amplifiers, set-top box, AV receivers and the automotive audio
markets. These markets are characterized by frequent new product introductions, declining prices and intense competition. Pricing in these markets is aggressive, and we expect pricing pressure to continue. In the computer audio segment, our success
depends on consumer awareness and acceptance of existing and new products by our customers and consumers, in particular, the elimination of externally-powered speakers. In the automotive audio segment, we face pressure from our customers to deliver
increasingly higher-powered solutions under significant engineering limitations due to the size constraints in car dashboards. In addition, our ability to obtain prices higher than the prices of traditional amplifiers will depend on our ability to
educate manufacturers and their customers about the benefits of our products. Failure of our customers and consumers to accept our existing or new products will seriously harm our operating results.



The cyclical nature of the semiconductor industry could create fluctuations in our
operating results.



The semiconductor industry has historically been
cyclical and characterized by wide fluctuations in product supply and demand. From time to time, the industry has also experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles and declines in
general economic conditions. Industry downturns have been characterized by diminished product demand, production overcapacity and accelerated decline in average selling prices, and in some cases have lasted for more than a year. The industry
experienced a downturn of this type in 1997 and 1998, and began experiencing a downturn again in 2001. In addition, we may determine to lower our prices of our products to increase or maintain market share, which would likely harm our operating
results. The semiconductor industry also periodically experiences increased demand and production capacity constraints. As a result, we have experienced and may experience in the future substantial period-to-period fluctuations in our results of
operations due to general semiconductor industry conditions, overall economic conditions or other factors, many of which are outside our control. Due to these risks, you should not rely on period-to-period comparisons to predict our future
performance.



We may experience difficulties in the introduction of new or
enhanced products, including but not limited to the new Godzilla architecture products, that could result in significant, unexpected expenses or delay their launch, which would harm our business.



Our failure or our customers failure to develop and introduce new products
successfully and in a timely manner would seriously harm our ability to generate revenues. Consequently, our success depends on our ability to develop new products for existing and new markets, introduce such products in a timely and cost-effective
manner and to achieve design wins. The development of these new devices is highly complex, and from time to time we have experienced delays in completing the development and introduction of new products. The successful introduction of a new product
may currently take up to 18 months. Successful product development and introduction depends on a number of factors, including:



| |  | accurate prediction of market requirements and evolving standards;
| | - | ------------------------------------------------------------------



| |  | accurate new product definition;
| | - | --------------------------------



| |  | timely completion and introduction of new product designs;
| | - | ----------------------------------------------------------



| |  | availability of foundry capacity;
| | - | ---------------------------------



| |  | achieving acceptable manufacturing yields;
| | - | ------------------------------------------



| |  | market acceptance of our products and our customers products; and
| | - | ------------------------------------------------------------------



| |  | market competition.
| | - | -------------------



We cannot guarantee success with regard to these factors.



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We depend on three outside foundries for our semiconductor device manufacturing requirements.



We do not own or operate a fabrication facility, and substantially all of our semiconductor
device requirements are currently supplied by three outside foundries, United Microelectronics Corporation, in Taiwan, STMicroelectronics Group in Europe and Renesas Technology (Mitsubishi Electric) in Japan. Although we primarily utilize these
three outside foundries, most of our components are not manufactured at these foundries at the same time. As a result, each foundry is a sole source for certain products. There are significant risks associated with our reliance on outside foundries,
including:



| |  | the lack of guaranteed wafer supply;
| | - | ------------------------------------



| |  | limited control over delivery schedules, quality assurance and control, manufacturing yields and production costs; and
| | - | ----------------------------------------------------------------------------------------------------------------------



| |  | the unavailability of or delays in obtaining access to key process technologies.
| | - | --------------------------------------------------------------------------------



In addition, the manufacture of integrated circuits is a highly complex and technologically demanding process. Although we work closely with
our foundries to minimize the likelihood of reduced manufacturing yields, our foundries have from time to time experienced lower than anticipated manufacturing yields, particularly in connection with the introduction of new products and the
installation and start-up of new process technologies.



We provide our
foundries with continuous forecasts of our production requirements; however, the ability of each foundry to provide us with semiconductor devices is limited by the foundrys available capacity. In many cases, we place our orders on a purchase
order basis, and foundries may allocate capacity to the production of other companies products while reducing the deliveries to us on short notice. In particular, foundry customers that are larger and better financed than us or that have
long-term agreements with our foundries may cause such foundries to reallocate capacity in a manner adverse to us. While capacity at our foundries has been available during the last several years, the cyclical nature of the semiconductor industry
could result in capacity limitations in a cyclical upturn or otherwise.



If we
use a new foundry, several months would be typically required to complete the qualification process before we can begin shipping products from the new foundry. In the event any of our current foundries suffers any damage or destruction to their
respective facilities, or in the event of any other disruption of foundry capacity, we may not be able to qualify alternative manufacturing sources for existing or new products in a timely manner. Even our current outside foundries would need to
have certain manufacturing processes qualified in the event of disruption at another foundry, which we may not be able to accomplish in a timely enough manner to prevent an interruption in supply of the affected products.



If we encounter shortages or delays in obtaining semiconductor devices for our products in
sufficient quantities when required, delivery of our products could be delayed, resulting in customer dissatisfaction and decreased revenues.



We depend on third-party subcontractors for most of our semiconductor assembly and testing requirements and any unexpected interruption in their services could cause
us to miss scheduled shipments to customers and to lose revenues.



Semiconductor assembly and testing are complex processes, which involve significant technological expertise and specialized equipment. As a result of our reliance on third-party subcontractors for assembly and testing of our products, we
cannot directly control product delivery schedules, which has in the past, and could in the future, result in product shortages or quality assurance problems that could increase the costs of manufacture, assembly or testing of our products. Almost
all of our products are assembled and tested by one of six subcontractors: AMBIT Microsystems Corporation in China, Amkor Technology, Inc. in the Philippines, ASE in Korea, Malaysia and Taiwan, Lingsen in Taiwan, STMicroelectronics Group in
Malaysia, and ST Assembly Test Services Ltd. in Singapore. We do not have long-term agreements with any of these suppliers and retain their services on a per order basis. The availability of assembly and testing services from these subcontractors
could be adversely affected in the event a subcontractor suffers any damage or destruction to their respective facilities, or in the event of any other disruption of assembly and testing capacity. Due to the amount of time normally required to
qualify assemblers and testers, if we are required to find alternative manufacturing assemblers or testers of our components, shipments could be delayed. Any problems associated with the delivery, quality or cost of our products could seriously harm
our business.



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Failure to transition our products to more effective and/or increasingly smaller semiconductor chip sizes and
packaging could cause us to lose our competitive advantage and reduce our gross margins.



We evaluate the benefits, on a product-by-product basis, of migrating to smaller semiconductor process technologies in order to reduce costs and have commenced migration of some products to smaller semiconductor
processes. We believe that the transition of our products to increasingly smaller semiconductor processes will be important for us to reduce manufacturing costs and to remain competitive. Moreover, we are dependent on our relationships with our
foundries to migrate to smaller semiconductor processes successfully. We cannot be sure that our future process migrations will be achieved without difficulties, delays or increased expenses. Our gross margins would be seriously harmed if any such
transition is substantially delayed or inefficiently implemented.



Our
international operations subject us to risks inherent in doing business on an international level that could harm our operating results.



We currently obtain almost all of our manufacturing, assembly and test services from suppliers located outside the United States and may expand our manufacturing
activities abroad. Approximately 97% of our total revenue for the quarter ended March 31, 2004, was derived from sales to end customers based outside the United States. In 2003 and 2002, 78% and 61%, respectively, of our total revenue was derived
from sales to end customers based outside of the United States. In addition, we often ship products to our domestic customers international manufacturing divisions and subcontractors.



Accordingly, we are subject to risks inherent in international operations, which include:



| |  | political, social and economic instability;
| | - | -------------------------------------------



| |  | trade restrictions and tariffs;
| | - | -------------------------------



| |  | the imposition of governmental controls;
| | - | ----------------------------------------



| |  | exposure to different legal standards, particularly with respect to intellectual property;
| | - | ------------------------------------------------------------------------------------------



| |  | import and export license requirements;
| | - | ---------------------------------------



| |  | unexpected changes in regulatory requirements; and
| | - | --------------------------------------------------



| |  | difficulties in collecting receivables.
| | - | ---------------------------------------



All of our international sales to date have been denominated in U.S. dollars. As a result, an increase in the value of the U.S. dollar relative to foreign currencies
could make our products less competitive in international markets. Conversely, a decrease in the value of the U.S. dollar relative to foreign currencies would increase the cost of our overseas manufacturing, which would reduce our gross margins.



If we are not successful in developing and marketing new and enhanced
products for the DSL high speed communications markets that keep pace with technology and our customers needs, our operating results will suffer.



The market for our DSL products is new and emerging, and is characterized by rapid technological advances, intense competition and a relatively small number of potential
customers. This will likely result in price erosion on existing products and pressure for cost-reduced future versions. We recently started to ship our TA4012 DSL line driver in volume and are in the sampling phase of our new dual channel line
driver. Implementation of our products requires manufacturers to accept our technology and redesign their products. If potential customers do not accept our technology or experience problems implementing our devices in their products, our products
could be rendered obsolete and our business would be harmed. If we are unsuccessful in introducing future products with enhanced performance, our ability to achieve revenue growth will be seriously harmed.



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We may experience difficulties in the development and introduction of a new amplifier product for use in the cellular
phone market, which could result in significant expenses or delay in its launch.



We are currently developing an amplifier product for use in the cellular phone market. We currently have no design wins or customers for this product. We may not introduce our amplifier product for the cellular phone market on time, and
this product may never achieve market acceptance. Furthermore, competition in this market is likely to result in price reductions, shorter product life cycles, reduced gross margins and longer sales cycles compared with what we have experienced to
date with our other products.



Intense competition in the semiconductor
industry and in the consumer electronics and communications markets could prevent us from achieving or sustaining profitability.



The semiconductor industry and the consumer audio and communications markets are highly competitive. We compete with a number of major domestic and international
suppliers of semiconductors in the consumer electronics and communications markets. We also may face competition from suppliers of products based on new or emerging technologies. Many of our competitors operate their own fabrication facilities and
have longer operating histories and presence in key markets, greater name recognition, access to larger customer bases and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than us. As a
result, such competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the promotion and sale of their products than us. Current and potential competitors have
established or may establish financial or strategic relationships among themselves or with existing or potential customers, resellers or other third parties. Accordingly, it is possible that new competitors or alliances among competitors could
emerge and rapidly acquire significant market share. In addition, existing or new competitors may in the future develop technologies that more effectively address the transmission of digital information through existing analog infrastructures at a
lower cost or develop new technologies that may render our technology obsolete. There can be no assurance that we will be able to compete successfully in the future against our existing or potential competitors, or that our business will not be
harmed by increased competition.



Our products are complex and may have
errors and defects that are detected only after deployment in customers products, which may harm our business.



Products such as those that we offer may contain errors and defects when first introduced or as new versions are released. We have in the past experienced such errors and
defects, in particular in the development stage of a new product. Delivery of products with production defects or reliability, quality or compatibility problems could significantly delay or hinder market acceptance of such products, which could
damage our reputation and seriously harm our ability to retain our existing customers and to attract new customers and therefore impact our revenues. Moreover, such errors and defects could cause problems, interruptions, delays or a cessation of
sales to our customers. Alleviating such problems may require substantial redesign, manufacturing and testing which would result in significant expenditures of capital and resources. Despite testing conducted by us, our suppliers and our customers,
we cannot be sure that errors and defects will not be found in new products after commencement of commercial production. Such errors and defects could result in additional development costs, loss of, or delays in, market acceptance, diversion of
technical and other resources from our other development efforts, product repair or replacement costs, claims by our customers or others against us or the loss of credibility with our current and prospective customers. Any such event could result in
the delay or loss of market acceptance of our products and would likely harm our business.



If we are unable to retain key personnel, we may not be able to operate our business successfully.



We may not be successful in retaining executive officers and other key management and technical personnel. A high level of technical expertise is required to support the
implementation of our technology in our existing and new customers products. In addition, the loss of the management and technical expertise of Dr. Adya S. Tripathi, our founder, president and chief executive officer, could seriously harm us.
We do not have any employment contracts with our employees.



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Our intellectual property and proprietary rights may be insufficient to protect our competitive position.



Our business depends, in part, on our ability to protect our intellectual
property. We rely primarily on patent, copyright, trademark and trade secret laws to protect our proprietary technologies. We cannot be sure that such measures will provide meaningful protection for our proprietary technologies and processes. As of
March 31, 2004, we have 33 issued United States patents, and 11 additional United States patent applications which are pending. In addition, we have 16 international patents issued and an additional 24 international patents pending. We cannot be
sure that any patent will issue as a result of these applications or future applications or, if issued, that any claims allowed will be sufficient to protect our technology. In addition, we cannot be sure that any existing or future patents will not
be challenged, invalidated or circumvented, or that any right granted thereunder would provide us meaningful protection. The failure of any patents to provide protection to our technology would make it easier for our competitors to offer similar
products. In connection with our participation in the development of various industry standards, we may be required to agree to license certain of our patents to other parties, including our competitors, that develop products based upon the adopted
standards.



We also generally enter into confidentiality agreements with our
employees and strategic partners, and generally control access to and distribution of our documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our
products, services or technology without authorization, develop similar technology independently or design around our patents. In addition, effective copyright, trademark and trade secret protection may be unavailable or limited in certain foreign
countries. Some of our customers have entered into agreements with us pursuant to which such customers have the right to use our proprietary technology in the event we default in our contractual obligations, including product supply obligations, and
fail to cure the default within a specified period of time.



We may be
subject to intellectual property rights disputes that could divert managements attention and could be costly.



The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights. From time to time, we may receive in the future notices of
claims of infringement, misappropriation or misuse of other parties proprietary rights. We cannot be sure that we will prevail in these actions, or that other actions alleging infringement by us of third-party patents, misappropriation or
misuse by us of third-party trade secrets or the invalidity of one or more patents held by us will not be asserted or prosecuted against us, or that any assertions of infringement, misappropriation or misuse or prosecutions seeking to establish the
invalidity of our patents will not seriously harm our business. For example, in a patent or trade secret action, an injunction could be issued against us requiring that we withdraw particular products from the market or necessitating that specific
products offered for sale or under development be redesigned. We have also entered into certain indemnification obligations in favor of our customers and strategic partners that could be triggered upon an allegation or finding of our infringement,
misappropriation or misuse of other parties proprietary rights. Irrespective of the validity or successful assertion of such claims, we would likely incur significant costs and diversion of our management and personnel resources with respect
to the defense of such claims, which could also seriously harm our business. If any claims or actions are asserted against us, we may seek to obtain a license under a third partys intellectual property rights. We cannot be sure that under such
circumstances a license would be available on commercially reasonable terms, if at all. Moreover, we often incorporate the intellectual property of our strategic customers into our designs, and we have certain obligations with respect to the non-use
and non-disclosure of such intellectual property.



We cannot be sure that the
steps taken by us to prevent our, or our customers, misappropriation or infringement of intellectual property will be successful.



The facilities of several of our key manufacturers and the majority of our customers are located in geographic regions with increased risks of natural disasters.



Several key manufacturers and a majority of customers are located in the
Pacific Rim region. The risk of earthquakes in this region, particularly in Taiwan, is significant due to the proximity of major earthquake fault lines. Earthquakes, fire, flooding and other natural disasters in the Pacific Rim region likely would
result in the disruption of our foundry partners assembly and testing capacity and the ability of our customers to purchase our products. Labor strikes or political unrest in these regions would likely also disrupt operations of our foundries
and customers. Any disruption resulting from such events could cause significant delays in shipments of our products until we are able to shift our manufacturing, assembly and testing from the affected contractor to another third party vendor. We
cannot be sure that such alternative capacity could be obtained on favorable terms, if at all. Moreover, any such disruptions could also cause significant decreases in our sales to these customers until our customers resume normal purchasing
volumes.



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Terrorist attacks and threats, and government responses thereto, may negatively impact all aspects of our operations,
revenues, costs and stock price.



The threat of terrorist attacks
involving the United States, the instability in the Middle East, a decline in consumer confidence and continued economic weakness and geo-political instability have had a substantial adverse effect on the economy. If consumer confidence does not
recover, our revenues may be adversely affected for fiscal 2004 and beyond. Moreover, any further terrorist attacks involving the U.S., or any additional U.S. military actions overseas may disrupt our operations or those of our customers and
suppliers. These events have had and may continue to have an adverse impact on the U.S. and world economy in general and consumer confidence and spending in particular, which could harm our sales. Any of these events could increase volatility in the
U.S. and world financial markets which could harm our stock price and may limit the capital resources available to us and our customers or suppliers. This could have a significant impact on our operating results, revenues and costs and may result in
increased volatility in the market price of our common stock.



We are
subject to anti-takeover provisions that could delay or prevent an unfriendly acquisition of our company.



Provisions of our restated certificate of incorporation, equity incentive plans, bylaws and Delaware law may discourage transactions involving an unfriendly change in corporate control. In addition to the foregoing,
the stockholdings of our officers, directors and persons or entities that may be deemed affiliates and the ability of our board of directors to issue preferred stock without further stockholder approval could have the effect of delaying, deferring
or preventing a third party from acquiring us and may adversely affect the voting and other rights of holders of our common stock.



Item 3. Quantitative and Qualitative Disclosures about Market Risk



The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk of loss. Some of the
securities that we may acquire in the future may be



subject to market risk for
changes in interest rates. To mitigate this risk, we plan to maintain a portfolio of cash equivalents and short-term investments in a variety of securities, which may include commercial paper, money market funds, government and non-



government debt securities. We manage the sensitivity of our results of operations to these
risks by maintaining a conservative portfolio, which is comprised solely of highly-rated, short-term investments. We do not hold or issue derivative, derivative commodity instruments or other financial instruments for trading purposes. Currently we
are exposed to minimal market risks. Due to the short-term and liquid nature of our portfolio, if interest rates were to fluctuate by 10% from rates at March 31, 2004 and March 31, 2003, our financial position and results of operations would not be
materially affected.



Item 4. Controls and Procedures



Introduction. Rules promulgated under the Securities Exchange Act of 1934, as amended, (the Act) define disclosure controls and procedures to mean controls and procedures that are designed to ensure
that information required to be disclosed by public companies in the reports filed or submitted under the Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms (Disclosure
Controls). New rules promulgated under the Act define internal control over financial reporting to mean a process designed by, or under the supervision of, a public companys principal executive and principal financial
officers, or persons performing similar functions, and effected by such companys board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles (GAAP), including those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the companys assets that could have a material effect on the financial statements (Internal Controls).



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We have designed our Disclosure Controls and Internal Controls to provide reasonable assurances that their objectives
will be met. A control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that its objectives will be met. All control systems are subject to inherent limitations, such as resource constraints,
the possibility of human error and the possibility of intentional circumvention of these controls. Furthermore, the design of any control system is based in part upon assumptions about the likelihood of future events, which assumptions may
ultimately prove to be incorrect. As a result, we cannot assure you that our control system will detect every error or instance of fraudulent conduct.



Evaluation of disclosure controls and procedures. Based on their evaluation as of March 31, 2004, our chief executive officer and chief financial officer,
with the participation of management, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) were effective, at the level of reasonable assurance, to ensure
that the information required to be disclosed by us in this quarterly report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SECs rules and Form 10-Q.



Changes in internal controls. There were no changes in our internal
controls over financial reporting during the quarter ended March 31, 2004, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.



PART II. Other Information



Item 6. Exhibits and Reports on Form 8-K



|(a) | Exhibits
|--- | --------



See Exhibit Index below.



|(b) | Reports on Form 8-K
|--- | -------------------



On January 29, 2004, we furnished a current report on Form 8-K under Item 12, describing and furnishing the press release announcing our earnings for the
quarter and fiscal year ended December 31, 2003, which press release included our condensed consolidated balance sheets and statements of operations for the period.



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SIGNATURES



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



Tripath Technology Inc.Date: May 21, 2004By:

/s/ David P. EichlerDavid P. EichlerVice President Finance and Chief Financial Officer Principal Financial and Accounting Officer




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EXHIBIT INDEX



|            |  |                                                                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                   
|10.1        |  | Security Agreement dated March 8, 2004 between Tripath Technology Inc. and Union Bank of California, N.A.                                                                     
|            | 
|31.1        |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                            
|            | 
|31.2        |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                            
|            | 
|32.1        |  | Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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