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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

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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 September 30, 2001

OR

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

For the transition period from  to

Commission File Number 000-26565

TRIPATH TECHNOLOGY INC.(Exact name of registrant as specified in its charter)

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

3900 Freedom Circle
Santa Clara, California 95054(Address of Principal Executive Office including (Zip Code)

(408) 567- 3000(Registrant's telephone number, including area code)

|(Former name, former address and former fiscal year if changed since last report)
|---------------------------------------------------------------------------------

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

27,210,658
shares of the Registrant's common stock were outstanding as of October 19, 2001.

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TRIPATH TECHNOLOGY INC.

FORM 10-Q

For The Quarter Ended September 30, 2001

TABLE OF CONTENTS

|PART I. Financial Information |           |                                                     
|----------------------------- | --------- | ----------------------------------------------------
|                              | Item 1.   |                                                     
|                              |           | Condensed Consolidated Balance Sheets               
|                              |           | Condensed Consolidated Statements of Operations     
|                              |           | Condensed Consolidated Statements of Cash Flows     
|                              |           | Notes to Condensed Consolidated Financial Statements
|                              | Item 2.   |                                                     
|                              | Item 3.   |                                                     
|PART II. Other Information    |           |                                                     
|                              | Item 1.   |                                                     
|                              | Item 2.   |                                                     
|                              | Item 3.   |                                                     
|                              | Item 4.   |                                                     
|                              | Item 5.   |                                                     
|                              | Item 6.   |                                                     
|                              | Signature |                                                     

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PART I. Financial Information



TRIPATH TECHNOLOGY INC.  CONDENSED CONSOLIDATED BALANCE SHEETS  (in thousands)  Unaudited

|                                           |                                              | September 30, 2001 |        | December 31, 2000 |  
|------------------------------------------ | -------------------------------------------- | ------------------ | ------ | ----------------- | -
|ASSETS                                     |                                              |                    |        |                   |  
|Current assets:                            |                                              |                    |        |                   |  
|                                           | Cash and cash equivalents                    |                    | $      | 6,889             |  
|                                           | Short-term investments                       |                    |        | 4,065             |  
|                                           | Accounts receivable, net                     |                    |        | 1,210             |  
|                                           | Inventories                                  |                    |        | 11,449            |  
|                                           | Prepaid expenses and other current assets    |                    |        | 663               |  
|                                           |                                              |                    |        |                   |  
|                                           | Total current assets                         |                    |        | 24,276            |  
|Property and equipment, net                |                                              |                    | 2,779  |                   |  
|Other assets                               |                                              |                    | 380    |                   |  
|                                           |                                              |                    |        |                   |  
|                                           | Total assets                                 |                    | $      | 27,435            |  
|                                           |                                              |                    |        |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                                              |                    |        |                   |  
|Current liabilities:                       |                                              |                    |        |                   |  
|                                           | Accounts payable                             |                    | $      | 5,295             |  
|                                           | Current portion of capital lease obligations |                    |        | 349               |  
|                                           | Accrued expenses                             |                    |        | 1,376             |  
|                                           | Deferred distributor revenue                 |                    |        | 555               |  
|                                           |                                              |                    |        |                   |  
|                                           | Total current liabilities                    |                    |        | 7,575             |  
|                                           |                                              |                    |        |                   |  
|Capital lease obligations                  |                                              |                    | 349    |                   |  
|                                           |                                              |                    |        |                   |  
|Stockholders' equity:                      |                                              |                    |        |                   |  
|                                           | Common stock                                 |                    |        | 27                |  
|                                           | Additional paid-in capital                   |                    |        | 156,137           |  
|                                           | Deferred stock-based compensation            |                    |        | (2,176            | )
|                                           | Accumulated deficit                          |                    |        | (134,477          | )
|                                           |                                              |                    |        |                   |  
|Total stockholders' equity                 |                                              |                    | 19,511 |                   |  
|                                           |                                              |                    |        |                   |  
|Total liabilities and stockholders' equity |                                              | $                  | 27,435 |                   | $
|                                           |                                              |                    |        |                   |  

The
accompanying notes are an integral part of these condensed 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 ended
September 30, |        | Nine months ended
September 30, |  
|----------------------------------------------------------------------- | ----------------------------------- | -------------------------------- | ------ | ------------------------------- | -
|
|Revenue                                                                 |                                     | $                                | 3,172  |                                 | $
|Cost of revenue                                                         |                                     |                                  | 2,274  |                                 |  
|                                                                        |                                     |                                  |        |                                 |  
|Gross profit (loss)                                                     |                                     |                                  | 898    |                                 |  
|                                                                        |                                     |                                  |        |                                 |  
|Operating expenses:                                                     |                                     |                                  |        |                                 |  
|                                                                        | Research and development            |                                  |        | 3,579                           |  
|                                                                        | Selling, general and administrative |                                  |        | 2,181                           |  
|                                                                        | Restructuring and other charges     |                                  |        | 684                             |  
|                                                                        |                                     |                                  |        |                                 |  
|Total operating expenses                                                |                                     |                                  | 6,444  |                                 |  
|                                                                        |                                     |                                  |        |                                 |  
|Loss from operations                                                    |                                     |                                  | (5,546 | )                               |  
|Interest and other income, net                                          |                                     |                                  | 64     |                                 |  
|                                                                        |                                     |                                  |        |                                 |  
|Net loss                                                                |                                     | $                                | (5,482 | )                               | $
|                                                                        |                                     |                                  |        |                                 |  
|Basic and diluted net loss per share                                    |                                     | $                                | (0.20  | )                               | $
|                                                                        |                                     |                                  |        |                                 |  
|Number of shares used in computing basic and diluted net loss per share |                                     |                                  | 27,202 |                                 |  
|                                                                        |                                     |                                  |        |                                 |  

Stock-based
compensation included in:

Three months ended
September 30,

Nine months ended
September 30,2001

2000

2001

2000Cost of revenue

$
(259
)
$
19

$
(111
)
$
68Research and development


(1,136
)

1,613


206


6,677Selling, general and administrative


201


864


796


5,370Total stock-based compensation

$
(1,194
)
$
2,496

$
891

$
12,115


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

2

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TRIPATH TECHNOLOGY INC.  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (in thousands)  Unaudited

|                                               |                                                                             | Nine months ended September 30,             |                                  
|---------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------- | ---------------------------------
|
|Cash flows from operating activities:          |                                                                             |                                             |                                  
|                                               | Net loss                                                                    |                                             | $                                
|                                               | Adjustments to reconcile net loss to net cash used in operating activities: |                                             |                                  
|                                               |                                                                             | Depreciation and amortization               |                                  
|                                               |                                                                             | Restructuring and other charges             |                                  
|                                               |                                                                             | Loss on disposal of equipment               |                                  
|                                               |                                                                             | Allowance for doubtful accounts             |                                  
|                                               |                                                                             | Stock-based compensation                    |                                  
|                                               |                                                                             | Forgiveness of stockholder notes receivable |                                  
|                                               |                                                                             | Issuance of common stock warrants           |                                  
|                                               |                                                                             | Changes in assets and liabilities:          |                                  
|                                               |                                                                             |                                             | Accounts receivable              
|                                               |                                                                             |                                             | Inventories                      
|                                               |                                                                             |                                             | Prepaid expenses and other assets
|                                               |                                                                             |                                             | Accounts payable                 
|                                               |                                                                             |                                             | Accrued expenses                 
|                                               |                                                                             |                                             | Deferred distributor revenue     
|                                               |                                                                             |                                             |                                  
|                                               |                                                                             |                                             |                                  
|                                               |                                                                             |                                             |                                  
|Cash flows from investing activities:          |                                                                             |                                             |                                  
|                                               | Purchase of short-term investments                                          |                                             |                                  
|                                               | Sale of short-term investments                                              |                                             |                                  
|                                               | Purchase of property and equipment                                          |                                             |                                  
|                                               |                                                                             |                                             |                                  
|                                               |                                                                             |                                             |                                  
|                                               |                                                                             |                                             |                                  
|Cash flows from financing activities:          |                                                                             |                                             |                                  
|                                               | Proceeds from issuance of common stock                                      |                                             |                                  
|                                               | Principal payments on capital lease obligations                             |                                             |                                  
|                                               |                                                                             |                                             |                                  
|                                               |                                                                             |                                             |                                  
|                                               |                                                                             |                                             |                                  
|Net decrease in cash and cash equivalents      |                                                                             |                                             | (5,762                           
|Cash and cash equivalents, beginning of period |                                                                             |                                             | 12,651                           
|                                               |                                                                             |                                             |                                  
|Cash and cash equivalents, end of period       |                                                                             | $                                           | 6,889                            
|                                               |                                                                             |                                             |                                  

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

3

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Tripath Technology Inc.        Notes to Condensed Consolidated Financial Statements  (Unaudited)

1.Basis of Presentation

The
unaudited condensed consolidated financial statements included herein have been prepared by 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. Results for the three and nine months ended September 30, 2001 are not necessarily indicative of the results of 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 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
Company believes that, taking into account its recent cost cutting measures and its anticipated future burn rate, its existing cash and cash equivalent balances, together with
cash generated by its operations, if any, will be sufficient to meet its operating requirements until the second quarter of 2002. However, the Company is seeking to raise additional capital through
public or private financings, strategic relationships or other arrangements in order to provide more flexibility in terms of funding its operations. The Company is attempting to finance its future
capital needs through some combination of debt or equity financing, strategic alliance, increased product sales and other alternatives, however, there has been a significant contraction in the
availability of debt and equity financing in the semiconductor sector in which the Company operates. Moreover, additional equity financing, if available, would likely be dilutive to the holders of its
common stock, and debt financing, if available, would likely involve restrictive covenants. The Company cannot be certain that any such financing will
be available on acceptable terms, or at all. If the Company cannot raise sufficient additional capital, it would adversely affect its ability to achieve its business objectives and to continue as a
going concern.

2.Restructuring and other charges

On
August 3, 2001 the Company announced a restructuring and cost reduction plan which included a workforce reduction and write down of assets no longer used. As a result of the
restructuring and cost reduction plan, the Company recorded restructuring and other charges of $684,000 during the quarter ended September 30, 2001.

Under
the restructuring and cost reduction plan, the Company reduced its workforce by approximately 40 employees across all functions and mostly located at its headquarters facility
in Santa Clara, California. The workforce reduction resulted in a $164,000 charge relating primarily to severance and fringe benefits. The Company also wrote down assets no longer used for a charge of
$520,000. The Company expects to substantially complete the implementation of its restructuring plan during the next three months.

4

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A summary of the restructuring and other charges is as follows (in thousands):

|                                    |  | Total charges |         | Non-cash charges |   | Cash payments |  | Restructuring liability at
September 30, 2001
|----------------------------------- |  | ------------- | ------- | ---------------- | - | ------------- |  | ---------------------------------------------
|Work force reduction                |  | $             | 164,000 |                  | $ |              |  | $                                            
|Write-down of assets no longer used |  |               | 520,000 |                  |   | 520,000       |  |                                              
|                                    |  |               |         |                  |   |               |  |                                              
|                                    |  | $             | 684,000 |                  | $ | 520,000       |  | $                                            
|                                    |  |               |         |                  |   |               |  |                                              

3.Net loss per share

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

A
total of 6,579,000 and 6,014,000 shares of potential common stock were not included in the diluted net loss per share calculation for three and nine-month periods ended
September 30, 2001, respectively, because to do so would be anti-dilutive. For the three and nine-month periods ended September 30, 2000, 7,678,000 and 7,908,000
shares of potential common stock were excluded from the calculation of diluted net loss per share because they were anti-dilutive.

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

|                    |                               | Three months ended
September 30 |   | Nine months ended
September 30 |  
|------------------- | ----------------------------- | ------------------------------- | - | ------------------------------ | -
|
|Numerator:          |                               |                                 |   |                                |  
|                    | Net loss                      |                                 | $ | (5,482                         | )
|                    |                               |                                 |   |                                |  
|Denominator:        |                               |                                 |   |                                |  
|                    | Weighted average common stock |                                 |   | 27,202                         |  
|                    |                               |                                 |   |                                |  
|Net loss per share: |                               |                                 |   |                                |  
|                    | Basic and diluted             |                                 | $ | (0.20                          | )
|                    |                               |                                 |   |                                |  

4.Deferred stock-based compensation

In
connection with certain employee stock option grants and issuance of restricted stock to an officer made since January 1998, the Company recognized deferred stock-based
compensation, which is being amortized over the vesting periods of the related options and stock, generally four years, using an accelerated basis. 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.

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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 ended
September 30 |        | Nine months ended
September 30
|------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------
|
|Deferred stock-based compensation                 |  | $                               | (693   | )                             
|Amortization of deferred stock-based compensation |  | $                               | 955    |                               
|Credits related to forfeitures                    |  | $                               | (2,149 | )                             

Unamortized
deferred stock-based compensation at September 30, 2001 and December 31, 2000 was $2,176,000 and $7,369,000, respectively.

5.Cash and cash equivalents and short-term investments

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 categorizes short-term investments as available-for-sale. Accordingly, these investments are carried at fair value. The fair value of
these securities approximates cost, and there were no material unrealized gains or losses as of September 30, 2001 or December 31, 2000. Short-term investments generally have
maturities of less than one year from the date of purchase.

6.Inventories

Inventories
are comprised of the following (in thousands):

|                               |  | September 30,
2001 |        | December 31,
2000
|------------------------------ |  | ------------------ | ------ | -----------------
|Raw materials                  |  | $                  | 4,915  |                  
|Work-in-process                |  |                    | 370    |                  
|Finished goods                 |  |                    | 5,724  |                  
|Inventory held by distributors |  |                    | 440    |                  
|                               |  |                    |        |                  
|Total                          |  | $                  | 11,449 |                  
|                               |  |                    |        |                  

7.Recent Accounting Pronouncements

In
July 2001, the FASB issued FASB Statements Nos. 141 and 142 (FAS 141 and FAS 142), "Business Combinations" and "Goodwill and Other Intangible Assets."
FAS 141 replaces APB 16 and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase accounting related to the recognition of
intangible assets and accounting for negative goodwill. FAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under FAS 142,
goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. FAS 141 and FAS 142 are effective for all business combinations
completed. Upon adoption of FAS 142, amortization of goodwill after June 30, 2001 recorded for business combinations consummated prior to July 1, 2001 will cease, and intangible
assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under FAS 141 will be reclassified to goodwill. Companies are required to adopt FAS 142 for
fiscal years beginning after December 15, 2001, but early adoption is permitted. The Company will adopt FAS 142 on January 1, 2002, the beginning of fiscal 2002. In connection
with the adoption of FAS 142, the Company will be required to perform a transitional goodwill impairment assessment. The Company has not yet determined the impact these standards will have on
its financial position and results of operations, although it does not anticipate

6

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that the adoption of these standards will have a material impact on the Company's financial position or results of operations.

In
June 2001, the FASB issued FASB Statement No. 143 (FAS 143), "Accounting for Asset Retirement Obligations". FAS 143 requires that the fair value of a
liability for an asset retirement obligation be realized in the period which it is incurred if a reasonable estimate of fair value can be made. Companies are required to adopt FAS 143 for
fiscal years beginning after June 15, 2002, but early adoption is encouraged. The Company has not yet determined the impact this standard will have on its financial position and results of
operations, although it does not anticipate that the adoption of this standard will have a material impact on the Company's financial position or results of operations.

In
August 2001, the FASB issued FASB Statement No. 144 (FAS 144). "Accounting for the Impairment or Disposal of Long-lived Assets". FAS 144
supercedes FASB Statement No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of,and the accounting and reporting provisions of APB Opinion No. 30,Reporting the Results of OperationsReporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,for the disposal of asegment of a
business(as previously defined in that Opinion). This Statement also amends ARB No. 51,Consolidated Financial
Statements,to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. Companies are required to adopt FAS 144 for fiscal
years beginning after December 15, 2001, and interim periods within those fiscal years, but early adoption is encouraged. The Company has not yet determined the impact this standard will have
on its financial position and results of operations, although it does not anticipate that the adoption of this standard will have a material impact on the Company's financial position or results of
operations.

7

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

This report contains certain 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 the Company that are based on the beliefs of management of the Company as well as assumptions made by and information currently
available to management of the Company. In addition, when used in this report, the words "will," "believe," "expect," "intend," "plan," and similar expressions and their variants, as they relate to
the Company or the management of the Company, may identify forward looking statements. Such statements reflect the judgment of the Company 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 risks, including those factors set forth below and in the "Risk Factors" section, which may have
a significant impact on the Company's business, operating results or financial condition. These risks and uncertainties include risks and uncertainties regarding fluctuations in our quarterly
operating results; reliance on a small number of customers; our lengthy sales cycle; customer cancellations and deferrals (even from backlog); the current downturn in the semiconductor industry; the
volume of product sales and pricing concessions on certain product sales; and the timing requirements of our customers with respect to new product introductions. 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. Investors are cautioned that these
forward-looking statements are uncertain. In addition, the recent terrorist attacks on the United States, possible responses by the U.S. government, the effects on consumer demand, the financial
markets, product supply and distribution and other conditions increase the uncertainty inherent in forward-looking statements. Forward-looking statements reflect the expectations of the Company at the
time they are made, and investors should rely on them only as expressions of opinion about what may happen in the future and only at the time they are made. The Company undertakes no obligation to
update any forward-looking statement. Although the Company believes it has an appropriate business strategy and the resources necessary for its operations, future revenue and margin trends cannot be
reliably predicted and the Company may alter its business strategies to address changing conditions.

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, 2000.

Overview

We design and sell amplifiers based on our proprietary Digital Power Processing technology. We are supplying amplifiers for audio electronics applications, and
we have begun offering amplifiers for DSL applications. We were incorporated in July 1995, and we began shipping products in the first quarter of 1998. Accordingly, we have limited historical
financial information and operating history upon which
you may evaluate us and our prospects. We incurred net losses of approximately $23.4 million in the nine months ended September 30, 2001, $41.3 million in 2000,
$31.7 million in 1999 and $33.7 million in 1998. We expect to continue to incur net losses and these losses may be significant.

We
sell our products to original equipment manufacturers and distributors. We recognize revenue from product sales upon shipment to original equipment manufacturers and end users, net
of sales returns and allowances. Our sales to distributors are made under arrangements allowing for returns or credits under certain circumstances and we defer recognition on sales to distributors
until products are resold by the distributor to the end user. All of our sales are made in U.S. dollars.

We
currently use independent suppliers to manufacture, test and assemble all of our products. Cost of revenue includes third party manufacturing, test and assembly costs as well as
salaries and overhead costs associated with employees engaged in activities related to manufacturing. Research and

8

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development expense consists primarily of salaries and related overhead costs associated with employees engaged in research, design and development activities as well as the cost of wafers, which are
ultra-thin cross-sections of semiconductor material on which integrated circuits are located, and other materials and related services used in the development process. Selling, general and
administrative expense consists primarily of employee compensation and related overhead expenses and advertising and marketing expenses.

Stock-based
compensation expense relates both to stock-based employee and consultant compensation arrangements. Employee-related stock-based compensation expense is based on the
difference between the estimated fair value of our common stock on the date of grant and the exercise price of options to purchase that stock and is being recognized on an accelerated basis over the
vesting periods of the related options, usually four years, or in the case of fully vested options, in the period of grant. Consultant stock-based compensation expense is based on the Black-Scholes
option pricing model. Future compensation charges will be reduced if any employee or consultant terminates employment or consultation prior to the expiration of the option vesting period. Stock-based
compensation expense was a net credit during the quarter ended September 30, 2001 due to forfeitures related to the reduction in workforce.

Results of Operations

Three months ended September 30, 2001 and 2000

Revenue.Revenue for the three months ended September 30, 2001 was $3.2 million, an increase of $600,000
from revenues of $2.6 million for the three months ended September 30, 2000. The increase in revenue resulted primarily from increased shipments of our TA2022 digital audio amplifiers.

Sales
to Solectron Technology (formerly Natsteel Electronics Ltd.), a subcontractor for Apple Computer, and Komatsu Semiconductor Corporation, a distributor for Sony
Corporation and Aiwa, accounted for approximately, 28.9% and 39.5%, respectively, of revenue in the three months ended September 30, 2001 and 35.8% and 55.1%, respectively, in the corresponding
prior year quarter. Sales to our five largest customers represented approximately 90.2% of revenue in the three months ended September 30, 2001 and 97.3% of revenue in the three months ended
September 30, 2000.

Gross Profit (Loss).Gross profit for the three months ended September 30, 2001 was $898,000 (including
stock-based compensation credit of $259,000), compared with a gross loss of $729,000 (including stock-based compensation expense of $19,000) for the three months ended September 30, 2000.

The
gross loss for the three months ended September 30, 2000 reflected inventory reserves and accruals relating to a price concession made to Komatsu (for sales to Sony
Corporation) in order to accelerate the acceptance and introduction of a product in a new market segment. The improvement of the gross profit for the three months ended September 30, 2001 was
due to a combination of changes in the product mix, increased shipments of products related to new design wins, ongoing cost reduction efforts and the reduction of inventory reserves related to
inventory sold during the quarter.

Research and Development.Research and development expenses for the three months ended September 30, 2001 were
$3.6 million (including stock-based compensation credit of $1.1 million), a decrease of $3.3 million from $6.9 million (including stock-based compensation expense of
$1.6 million) for the three months ended September 30, 2000. The year-over-year decrease for the three-month periods resulted from a decrease in personnel costs
due to lower headcount and a decrease in product development expenses.

Selling, General and Administrative Expenses.Selling, general and administrative expenses for the three months ended
September 30, 2001 were $2.2 million (including stock-based compensation of

9

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$201,000), a decrease of $0.8 million from $3.0 million (including stock-based compensation expense of $864,000) for the three months ended September 30, 2000. The
year-over-year decrease resulted from lower headcount and related costs for the three months ended September 30, 2001.

Restructuring and other charges.On August 3, 2001 we announced a restructuring and cost reduction plan which
included a workforce reduction and write down of assets no longer used. As a result of the restructuring and cost reduction plan, we recorded restructuring and other charges of $684,000 during the
quarter ended September 30, 2001. Under the restructuring and cost reduction plan, we reduced our workforce by approximately 40 employees across all functions and mostly located at our
headquarters facility in Santa Clara, California. The workforce reduction resulted in a $164,000 charge relating primarily to severance and fringe benefits. We also wrote down assets no longer used
for a charge of $520,000. We expect to substantially complete the implementation of our restructuring plan during the next three months.

Interest and other income, net.Interest and other income, net for the three months ended September 30, 2001 was
$64,000, a decrease of $463,000 from $527,000 for the three months ended September 30, 2000. The year-over-year decrease for the three-month periods reflected a decrease
in our cash equivalents and short-term investments, due to ongoing operations.

Nine months ended September 30, 2001 and 2000

Revenue.Revenue for the nine months ended September 30, 2001 was $10.3 million, an increase of
$4.9 million from revenues of $5.4 million for the nine months ended September 30, 2000. The increase in revenue resulted from an increase in sales of our TA2020, TA2022 and
TA1101 digital audio amplifiers.

Sales
to Solectron Technology (formerly Natsteel Electronics Ltd.), a subcontractor for Apple Computer, and Komatsu Semiconductor Corporation, a distributor for Sony
Corporation and Aiwa, accounted for approximately 20.7% and 45.0%, respectively, of revenue in the nine months ended September 30, 2001 and 17.5% and 56.2%, respectively, in the corresponding
prior year period. Sales to our five largest customers represented approximately 91.6% of revenue in the nine months ended September 30, 2001 and 89.3% of revenue in the nine months ended
September 30, 2000.

Gross Profit (Loss).Gross profit for the nine months ended September 30, 2001 was $918,000 (including
stock-based compensation credit of $111,000), compared with a gross loss of $2.1 million (including stock-based compensation expense of $68,000) for the nine months ended September 30,
2000.

The
gross loss for the nine months ended September 30, 2000 reflected inventory reserves and accruals relating to a price concession made to Komatsu (for sales to Sony
Corporation) in order to accelerate the acceptance and introduction of a product in a new market segment. The improvement in the gross profit for the nine months ended September 30, 2001 was
due to a combination of changes in the product mix, increased shipments of products related to new design wins, ongoing cost reduction efforts and the reduction of inventory reserves related to
inventory sold during the period.

Research and Development.Research and development expenses for the nine months ended September 30, 2001 were
$16.9 million (including stock-based compensation expense of $206,000), a decrease of $1.9 million from $18.8 million (including stock-based compensation expense of
$6.7 million) for the nine months ended September 30, 2000. The year-over-year decrease for the nine month periods resulted from a decrease in personnel costs due
to lower headcount and a decrease in product development expenses.

Selling, General and Administrative Expenses.Selling, general and administrative expenses for the nine months ended
September 30, 2001 were $7.4 million (including stock-based compensation expense

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of $796,000), a decrease of $4.1 million from $11.5 million (including stock-based compensation expense of $5.4 million) for the nine months ended September 30, 2000.
Excluding stock-based compensation, selling general and administrative expenses increased in 2001 due to increased headcount and related costs, partially offset by a one-time charge
related to forgiveness of stockholder notes receivable in April 2000.

Restructuring and other charges.On August 3, 2001 we announced a restructuring and cost reduction plan which
included a workforce reduction and write down of assets no longer used. As a result of the restructuring and cost reduction plan, we recorded restructuring and other charges of $684,000 during the
quarter ended September 30, 2001. Under the restructuring and cost reduction plan, we reduced our workforce by approximately 40 employees across all functions and mostly located at our
headquarters facility in Santa Clara, California. The workforce reduction resulted in a $164,000 charge relating primarily to severance and fringe benefits. We also wrote down assets no longer used
for a charge of $520,000. We expect to substantially complete the implementation of our restructuring plan during the next three months.

Interest and other income, net.Interest and other income, net for the nine months ended September 30, 2001 was
$692,000, a decrease of $258,000 from $950,000 for the nine months ended September 30, 2000. The year-over-year decrease for the nine month periods reflected a decrease
in our cash equivalents and short-term investments, due to ongoing operations.

Liquidity and Capital Resources

Since our inception, we have financed our operations through the private sale of our equity securities, primarily the sale of preferred stock and through our
initial public offering on August 1, 2000. Net proceeds to the company as a result of our initial public offering were approximately $45.4 million.

Net
cash used by operating activities increased to $26.7 million for the nine months ended September 30, 2001 from $15.4 million for the nine months ended
September 30, 2000. The increase was due to an increase in inventories.

Cash
provided by investing activities increased to $19.2 million for the nine months ended September 30, 2001 from $5.1 million for the nine months ended
September 30, 2000. The increase was due to the sale of short-term investments.

Cash
provided by financing activities decreased to $1.8 million for the nine months ended September 30, 2001 from $46.4 million for the nine months ended
September 30, 2000. The $46.4 million provided by financing activities in the prior year period includes the net proceeds to the company as result of an initial public offering.

We
believe that, taking into account our recent cost cutting measures and our anticipated future burn rate, our existing cash and cash equivalent balances, together with cash
generated by our operations, if any, will be sufficient to meet our operating requirements until the second quarter of 2002. However, we are seeking to raise additional capital through public or
private financings, strategic relationships or other arrangements in order to provide more flexibility in terms of funding our operations. We are attempting to finance our future capital needs through
some combination of debt or equity financing, strategic alliance, increased product sales and other alternatives, however, there has been a significant contraction in the availability of debt and
equity financing in the semiconductor sector in which we operate. 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. We cannot be certain that any such financing will be available on acceptable terms, or at all. 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.

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Recent Accounting Pronouncements

In July 2001, the FASB issued FASB Statements Nos. 141 and 142 (FAS 141 and FAS 142), "Business Combinations" and "Goodwill and Other
Intangible Assets." FAS 141 replaces APB 16 and eliminates pooling-of-interests accounting prospectively. It also provides guidance on purchase accounting related to the
recognition of intangible assets and accounting for negative goodwill. FAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under
FAS 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. FAS 141 and FAS 142 are effective for all business
combinations completed. Upon adoption of FAS 142, amortization of goodwill after September 30, 2001 recorded for business combinations consummated prior to July 1, 2001 will
cease, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under FAS 141 will be reclassified to goodwill. Companies are required to adopt
FAS 142 for fiscal years beginning after December 15, 2001, but early adoption is permitted. The Company will adopt FAS 142 on January 1, 2002, the beginning of fiscal
2002. In connection with the adoption of FAS 142, the Company will be required to perform a transitional goodwill impairment assessment. The Company has not yet determined the impact these
standards will have on its financial position and results of operations, although we do not anticipate that the adoption of these standards will have a material impact on our financial position or
results of operations.

In
June 2001, the FASB issued FASB Statement No. 143 (FAS 143), "Accounting for Asset Retirement Obligations". FAS 143 requires that the fair value of a
liability for an asset retirement obligation be realized in the period which it is incurred if a reasonable estimate of fair value can be made. Companies are required to adopt FAS 143 for
fiscal years beginning after June 15, 2002, but early adoption is encouraged. The Company has not yet determined the impact this standard will have on its financial position and results of
operations, although we do not anticipate that the adoption of this standard will have a material impact on our financial position or results of operations.

In
August 2001, the FASB issued FASB Statement No. 144 (FAS 144). "Accounting for the Impairment or Disposal of Long-lived Assets". FAS 144
supercedes FASB Statement No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,and the accounting and reporting provisions of APB Opinion
No. 30,Reporting the Results of OperationsReporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,for the disposal of asegment of a
business(as previously defined in that Opinion). This Statement also amends ARB No. 51,Consolidated Financial Statements,to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. Companies are required to adopt FAS 144 for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal years, but early adoption is encouraged. The Company has not yet determined the impact this standard will have on its
financial position and results of operations, although we do not anticipate that the adoption of this standard will have a material impact on our financial position or results of operations.

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Risk Factors

Risks Related to our Business

Failure to raise additional capital will have a material adverse effect on our ability to operate as a going concern.

Because we have had losses and only a nominal amount of cash has been generated from operations, we have funded our operating activities to date from the sale
of securities. We believe that, taking into account our recent cost cutting measures and anticipated future burn rate, our existing cash and cash equivalent balances, together with cash generated by
our operations, if any, will be sufficient to meet our operating requirements until the second quarter of 2002. However, we are seeking to raise additional capital to provide more flexibility in terms
of funding our operations. 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 limited operating history and dependence on new technologies make it difficult to evaluate our future products.

We were incorporated in July 1995 but did not begin shipping products until 1998. Many of our products have only recently been introduced. Accordingly,
we have limited historical financial information and operating history upon which you may evaluate us and our products. Our prospects must be considered in the light of the risks, challenges and
difficulties frequently encountered by companies in their early stage of development, particularly companies in intensely competitive and rapidly evolving markets such as the semiconductor industry.
We cannot be sure that we will be successful in addressing these risks and challenges.

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

As of September 30, 2001, we had an accumulated deficit of $134.5 million. We incurred net losses of approximately $23.4 million for nine
moths ended September 30, 2001 and $41.3 million in 2000, $31.7 million in 1999 and $33.7 million in 1998. We expect to continue to incur net losses and these losses may be
substantial. Furthermore, we expect 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.

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:



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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 off set 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. You should not rely on the
results of any one quarter as an indication of future performance.

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, which could seriously harm our profit margins and restrict our ability to fund our operations. 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 could result in significant charges
against income, which could seriously harm our revenues and our cash flow.

Industry-wide overcapacity has caused and may continue to cause our results to fluctuate and such shifts could result in significant inventory write-downs and
adversely affect our relationships with our suppliers.

We must build inventory well in advance of product shipments. Because the semiconductor industry is highly cyclical and in light of the current downturn, which
has resulted in excess capacity and overproduction, there is a risk that we will forecast inaccurately and produce excess inventories of our products. As a result of such inventory imbalances, future
inventory write-downs may occur due to lower of cost or market accounting, excess inventory or inventory obsolescence. In addition, any adjustment in our ordering patterns resulting from increased
inventory may adversely affect our suppliers' willingness to meet our demand, if our demand increases in the future.

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. 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.

We rely on a small number of customers for a significant portion 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 a significant portion 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. In particular, sales to Solectron Technology (formerly Natsteel Electronics Corp.), a subcontractor for Apple
Computer and Komatsu Semiconductor Corporation, the purchasing agent for Sony Corporation and Aiwa, accounted for 20.7% and 45.0%,

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respectively, of total revenue in the nine months ended September 30, 2001 and 17.5% and 56.2%, respectively, of total revenue in 2000. Moreover, sales to our five largest customers represented
approximately 91.6% of our total revenue in the nine months ended September 30, 2001, 89.3% of our revenue in 2000 and 80.8% of our revenue in 1999. 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. We cannot be sure that we will retain our largest
customers or that we will be able to obtain additional key customers.

We currently rely on sales of three 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 TA2020, TA2022 and TA1101 digital audio amplifiers to generate a significant portion of our revenue. Sales of these products
amounted to 94.4% of our revenue in the nine months ended September 30, 2001, 92.8% of our revenue in 2000 and 52.6% of our revenue in 1999. 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 and to forecast our revenue and budget expenses, which may cause fluctuations in our
quarterly results.

Because of our lengthy sales cycles, we may experience a delay between increasing expenses for research and development, sales and marketing, and general and
administrative efforts, as well as increasing investments in inventory, and the generation of revenue, if any, from such expenditures. In addition, the delays inherent in such lengthy sales cycle
raise additional risks of customer decisions to cancel or change product plans, which could result in the loss of anticipated sales by us. Our new products are generally incorporated into our
customers' products or systems at the design stage. To endeavor to 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 in order 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.

The current downturn in the semiconductor industry has lead and may continue to lead to decreased revenue.

During 2001, slowing worldwide demand for semiconductors has resulted in significant inventory buildups for semiconductor companies. Presently, we have no
visibility regarding how long the semiconductor industry downturn will last or how severe the downturn will be. If the downturn continues or worsens, we may experience greater levels of cancellations
and/or pushouts of orders for our products in the future.

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We may experience difficulties in the introduction of new or enhanced 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:



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

We may not be successful in retaining executive officers and other key management and technical personnel. The competition for such employees is intense,
particularly in Silicon Valley and particularly for experienced mixed-signal circuit designers, systems applications engineers and experienced executive 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 Tripathi,
our founder, president and chief executive officer, could seriously harm us. We do not have any employment contracts with our employees.

Our headquarters, as well as the facilities of our principal manufacturers and customers are located in geographic regions with increased risks of power supply failure, natural
disasters, labor strikes and political unrest.

Our headquarters is located in Santa Clara, California, an area on or near a known earthquake fault within the state. In addition, businesses within the State
of California are currently experiencing a shortage of available electrical power which has resulted in electrical blackouts. In the event these
blackouts continue or increase in severity, they could disrupt the operations of our facilities within the state.

Our
principal manufacturers and 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. In
particular, there is a recent history of political unrest between China and Taiwan. 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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Risks Related to Manufacturing

We depend on two 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 two outside
foundries, United Microelectronics Corporation, or UMC, in Taiwan and STMicroelectronics Group in Europe. Although we primarily utilize these two outside foundries, most of our components are not
manufactured at both foundries at any given 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:



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.

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
either 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 five
subcontractors: AMBIT Microsystems Corporation in Taiwan, ST Assembly Test Services Ltd. in Singapore, Amkor Technology, Inc. in the Philippines, ASE in Korea

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and ISE Labs Assembly in the United States. 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.

Failure to transition our products to 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 95.4% of our total revenue in the nine months ended September 30, 2001 was derived from sales to independent customers based outside the United
States. In 2000 and 1999, 93.1% and 94.6%, respectively, of our total revenue was derived from sales to independent 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:





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Risks Related to our Product Lines

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. In order 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.

We currently depend on high-end consumer audio 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 high-end consumer audio markets, including home
theater, computer audio, 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.

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 are currently sampling and field testing our first
product for the DSL market and we have not received any large volume orders. Implementation of our products require manufacturers to accept our technology and redesign their products. If potential
customers do not accept our technology or experience problems implementing our devices in their products, our products could be rendered obsolete and our business would be harmed. If we are
unsuccessful in introducing future products with enhanced performance, our ability to achieve revenue growth will be seriously harmed.

We may experience difficulties in the introduction of amplifier products for use in the cellular phone market that could result in significant expenses or delay in their
launch.

We are currently developing lines of amplifier products for use in the cellular phone market. We currently have no design wins or customers for these products
under development. We may not introduce our amplifier products for the cellular phone market on time, and such products may never achieve market acceptance. Furthermore, competition in these markets
is likely to result in price

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reductions, shorter product life cycles, reduced gross margins and longer sales cycles compared with what we have experienced to date.

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

The consumer audio, personal computer, communications and semiconductor industries are highly competitive. We compete with a number of major domestic and
international suppliers of semiconductors in the audio 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. We cannot assure you 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. 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.

Downturns in the highly cyclical semiconductor industry and rapid technological change could result in substantial period-to-period fluctuations in
wafer supply, pricing and average selling prices which make it difficult to predict our future performance.

We provide semiconductor devices to the audio, personal computer and communications markets. The semiconductor industry is highly cyclical and subject to rapid
technological change and has been subject to significant economic downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices and production
overcapacity. The semiconductor industry also periodically experiences increased demand and production capacity constraints. As a

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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.

Risks Related to Our Intellectual Property

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 September 30, 2001, we have
eleven issued United States patents, and twenty-eight additional United States patent applications which are pending. In addition, we have four international patents issued and an additional
forty-three 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

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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 the intellectual property will be successful.

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 invest 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. Currently, we are exposed to minimal market risks. 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.

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Part II. Other Information

Item 1. Legal proceedingsNone

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

None

None

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Signature

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: November 8, 2001
by: /s/ John J. DiPietro                                                                       
| |  | John J. DiPietro,
Vice President and Chief Financial Officer (duly authorized officer and principal financial officer)

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