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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

OR

COMMISSION FILE NUMBER:

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

        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 / /    No / /

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

        The aggregate market value of voting stock held by non-affiliates of the Registrant was approximately $47,511,158 as of February 15, 2002, based upon the closing price on the Nasdaq National Market reported for such date. This calculation does not reflect a determination that certain persons are affiliates of the Registrant for any other purpose. The number of shares outstanding of the Registrant's common stock on February 15, 2002 was 27,305,263 shares.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's Proxy Statement for its 2002 Annual Meeting of Stockholders (the "Proxy Statement"), to be filed with the Securities and Exchange Commission, are incorporated by reference to Part III of this Form 10-K Report.

        Certain Exhibits filed with the Registrant's Registration Statement on Form S-1 (Registration No. 333-35028),as amended are incorporated herein by reference into Part IV of this Form 10-K Report.

TRIPATH TECHNOLOGY INC.

INDEX TO ANNUAL REPORT ON FORM 10-K

FOR YEAR ENDED DECEMBER 31, 2001

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PART I

        This document contains a number of forward-looking statements. Our business is subject to numerous risks and uncertainties. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors."

ITEM 1. BUSINESS

        We design and sell amplifiers based on our proprietary technology, which we call Digital Power Processing, that enables us to provide significant performance, power efficiency, size, weight and cost advantages over traditional amplifier technology. We target applications where high signal quality and power efficiency are important. We currently provide amplifiers for several audio electronics markets. These markets include consumer audio applications such as DVD players, home theater systems, Internet appliances, gaming consoles, computer audio applications, where our products could enable manufacturers to eliminate externally-powered speakers or improve the overall sound quality and efficiency of systems, and automotive audio applications, including dashboard and trunk units. We have begun offering amplifiers for use in digital subscriber line, or DSL, equipment. We are also developing amplifiers for digital wireless handsets and base stations to increase talk time and battery life.

        We were incorporated in California in July 1995, and reincorporated in Delaware in July 2000.

Products

        We have been supplying amplifiers for the audio electronics markets since 1998. We have recently begun sampling and field testing the first in a family of amplifier products for the DSL market. We are currently developing a family of amplifier products for use in wireless handsets, also known as RF Power Amplifiers.

Amplifiers for Audio Electronics

        We provide a range of digital audio amplifiers based on our Digital Power Processing technology. Manufacturers are incorporating our digital audio amplifiers in a diverse set of products, including mini-stereo systems, Internet appliances, satellite and cable television set-top boxes, home theater systems, automotive audio systems, and audiophile quality amplifiers.

        The key factors that differentiate our products are the level of power delivered, the input format to the amplifier and the level of integration included in our product. We augment our products with applications support that includes reference designs, evaluation kits and consulting services. All of our products share similar characteristics in terms of high efficiencies and excellent sound quality as measured by total harmonic distortion, or THD.

        We offer two broad categories of audio amplifier products, specifically fully integrated audio amplifiers and amplifier drivers. In our integrated products the actual power output transistors are included in the single integrated circuit package. These products currently support power levels of up to two channels of 100 watts per channel. This 100 watt power level is approximately three times greater than that which has been achieved to date in the industry in a single integrated circuit package. At levels greater than 100 watts per channel, we offer driver products that include our proprietary signal processing integrated circuit and a high voltage integrated circuit that drives a range of external power transistors. The use of external power transistors is required at these power levels due to the heat dissipation limitations of a single integrated circuit package. We offer driver products with power capability that ranges from 100 watts to 2000 watts. We use a four ohm load for reference when we specify power.

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        The table below summarizes our audio products that are currently on the market.

(1)

Total Harmonic Distortion, or THD, measures the change in a signal as it is amplified, expressed as a percentage of a pure input signal. The more accurate an amplifier is, the lower its THD will be.

Digital Input Products

        The products in the table above support analog inputs to be compatible with existing analog amplifier systems. The digital nature of our amplifier architecture will enable us to support future systems that are all digital and eliminate the need for the conversion of the digital audio content on source material such as CDs, DVDs and MP3 files to an analog signal. Eliminating this conversion will lower costs by eliminating components and improve sound quality introduced in the conversion process. In these all-digital systems the digital content and quality will be preserved all the way from the source material to the output of the amplifier.

        The digital input format that we plan to support across the product line in the table above is referred to as I(2)S. In this interface, the digital content is encoded in a format that is specified by the I(2)S standard.

Automotive Audio Amplifiers

        Because of their ability to decrease the size and weight of audio systems, our products can be used in applications in automotive audio systems where these issues are critical. We are developing products specifically targeted for automotive applications. The first of these products will be a four-channel device that delivers 70 watts per channel.

Amplifiers for DSL Applications

        Our Digital Power Processing technology allows us to produce highly linear amplifiers for line cards that use power more efficiently than traditional amplifiers with conventional architectures. DSL amplifiers are often called line drivers. Because our line drivers are more power efficient, they eliminate the heat sink and other electronic components used with traditional line drivers. As a result, our line drivers can be

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smaller than traditional analog-based line drivers. In addition, their efficiency makes them a more attractive solution for DSL service providers because the power budgeted for the equipment in the telephone companies' central office is fixed.

        Our initial product is a line driver for use in the ADSL market. ADSL, or Asymmetric DSL, a popular form of DSL technology, is designed to allow greater data rates from the central office to the subscriber than from the subscriber to the central office. This means that typical users will be able to download data faster than they can send data, which is suitable for most residential users. In February 2001, we announced our entry into the ADSL chipset market with a new family of central office ADSL line drivers. These new products offer full reach and data rate capability and can reduce heat dissipation by more than 50 percent versus conventional line drivers. Our line driver configurations feature:

•

power consumption that ranges from 620mW to 880mW per channel



•

support for full rate and G. LITE data rates



•

low distortion specifications



•

low power mode



•

digitally programmable gain



•

small footprint package

        In addition, in February 2001 we announced a collaborative agreement with Alcatel U.S.A., Inc. based upon our new family of line drivers.

        Our DSL line drivers offer DSL service providers the following benefits:

Higher Port Density.

        Our line drivers enable our customers to increase the number of subscriber lines given fixed power and space constraints. This allows DSL service providers to achieve higher port density.

Increased Signal Reach and Connection Speed.

        The distance a signal can travel with an effective usefulness is known as signal reach, and the speed at which data can be transferred is known as connection speed. Intermodulation Distortion, or IMD, is a measure of linearity and indicates how well an amplifier can reduce the impact of undesirable frequencies which are produced in the transmission process. Our line drivers, due to their linearity, can more accurately reproduce the signal inputs, allowing for improvements in output signal reach and connection speed to the consumer.

        The following table provides additional information concerning the specifications of our current and future generation of DSL line drivers.

        Customers are currently testing our TA401X product. Following this test phase, we expect to make further refinements before beginning volume shipments. We expect volume shipments to begin in the second half of 2002.

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Amplifiers for Wireless Products

        Our expertise in the development of highly linear and energy efficient circuits has allowed us to develop an amplifier architecture which we believe is well-suited for use in digital handsets, base stations, and other wireless products. The initial targeted market is for cellular phones that utilize a digital transmission method known as CDMA. Linearity is important to this technology because CDMA uses a complex signal transmission method that requires more accurate reception and reproduction. Additionally, we believe our Digital Power Processing technology could provide significant improvements to the design of cellular phones in terms of talk-time, data connection time, and battery size, which are all dependent on the efficiency of the RF Power Amplifier.

Core Technology

        We believe that one of our key competitive advantages is our broad base of patented core technologies, which are comprised of innovative adaptive and predictive signal processing techniques. These processing techniques are derived from algorithms used in communications theories. These unique techniques are derived from a confluence of four primary disciplines in mixed signal circuit design, DSP algorithm development, power semiconductor circuit design, and packaging design. We intend to continue to build and improve on these four primary technology foundations as our company expands its product reach into other markets and industries.

        We have implemented unique processing algorithms in a silicon-based processor which we call a Mixed Signal Processor. The execution speed of these complex algorithms by our Mixed Signal Processor allows us to achieve the required linearity and efficiency in our products. The Mixed Signal Processor functionality is a vital component in the architecture of the products we design.

        Our four key areas of competency are highlighted below:

Mixed Signal Circuit Design Expertise

        We are an innovator in advanced mixed signal circuit design with a particular focus on audio amplifiers, DSL line driver amplifiers, and RF Power Amplifiers. We have developed significant intellectual property in our mixed signal circuit designs which are applicable across multiple markets. As such, we have demonstrated significant improvements in power efficiency and linearity for audio amplifiers and central office line driver integrated circuits. We are also applying this same core technology to the development of highly linear and highly efficient RF Power Amplifier integrated circuits for incorporation in cellular telephones.

DSP Algorithm Expertise

        We have expertise in developing system applications using our Digital Power Processing technology. This includes industry standard designs as well as customer specific systems in the DSL and consumer audio markets. The high efficiency, high quality power processing products that we design require a comprehensive understanding of new and innovative DSP techniques at the system as well as the device level. We will continue to research and improve our Digital Power Processing technology.

Power Semiconductor Circuit Design Expertise

        We have developed significant expertise in designing power circuits in semiconductors. This requires a specialized understanding of complex issues, such as thermal effects and reliability related to the control of power.

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Packaging Design Expertise

        We have developed significant competency and knowledge regarding packaging requirements for various applications in different markets. Our customers have specific requirements in terms of form factor and package type for their end-use products. We use various semiconductor manufacturing processes that allow us to manufacture semiconductors at multiple locations and combine them into single integrated circuits.

Research and Development

        Our research and development efforts are focused on developing products based on our Digital Power Processing technology for high growth markets, such as the DSL, and wireless communications markets. In addition, we continue to develop new products for the audio electronics market. As of December 31, 2001, our research and development staff consisted of 53 employees, many of whom have experience across multiple engineering disciplines. In 2001, 2000 and 1999, our research and development expenses were approximately $19.9 million, $26.1 million, $18.3 million, respectively.

Manufacturing

Wafer Fabrication

        We are able to use independent silicon foundries to manufacture our integrated circuits because our products are manufactured with standard processes. By outsourcing our manufacturing requirements, we are able to focus our resources on design engineering.

        Our operations group closely manages the interface between manufacturing and design engineering. The group manages performance testing of our devices, including quality assurance. We maintain our organizational structure and testing standards to match market leading semiconductor manufacturers. We use online work-in-progress control where possible, and maintain close reporting mechanisms with all our suppliers to ensure that the manufacturing subcontracting process is transparent to our customers.

        Our key silicon foundries are United Microelectronics Corporation in Taiwan and STMicroelectronics Group in Europe. We believe we have adequate capacity to support our current sales levels. We continue to work with our existing foundries to obtain more production capacity and we are actively qualifying new foundries to provide additional production capacity.

        Our Mixed Signal Processor devices are currently manufactured with a CMOS process using a 0.5 micron technology. CMOS is an industry standard semiconductor manufacturing process. We continuously evaluate the benefits, on a product by product basis, of migrating to smaller design technologies in order to reduce costs. Our next generation products will utilize 0.25 and 0.18 micron technology. Our power output circuitry is manufactured using a high voltage process technology.

Assembly and Test

        We currently outsource all of our assembly and testing operations to Amkor Technology, Inc. in the Philippines, ST Assembly Test Services Ltd. in Singapore, STS (formerly ISE Labs Assembly) in the United States, AMBIT Microsystems Corporation in Taiwan, and ASE in Korea, Malaysia, and the Philippines.

Quality Assurance

        We currently rely on our foundries and assembly subcontractors to assist in the qualification process. We also participate in quality and reliability monitoring through each stage of the production cycle. We closely monitor wafer foundry production to ensure consistent overall quality, reliability and yield levels.

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Marketing, Sales and Customers

        Our marketing strategy is to target existing and potential customers who are industry leaders in the audio electronics, DSL communications and wireless communications markets. Currently, our marketing team has a product and market segment-based focus, divided among integrated audio products and module-based driver products, and separately divided among the personal computer, Internet appliance and automotive audio markets.

        We have embarked on an aggressive program to develop brand awareness of our technology. As a part of this strategy we seek to have our customers label their consumer products with our brand names to promote the brand awareness of our technology. We believe this strategy will serve as an endorsement of our products. Our current brand names include Class-T, Digital Power Processing and Combinant Digital.

        We rely on our direct sales force, independent sales representatives and distributors to penetrate each of our key target markets. Our sales headquarters is located in Santa Clara, California. In addition, we market and sell our products at our regional offices located in Japan and Taiwan, as well as through representatives and independent distributors in Europe, the Middle East and Asia. We incorporated our regional office in Japan as a wholly-owned subsidiary in January 2001. Our sales force, together with our engineering and technical staff, works closely with customers to integrate our amplifiers into their products. We believe that close working relationships with customers will help us to achieve design wins and ultimately achieve high volume production.

        End customers for our products are primarily manufacturers of audio electronic components, communications infrastructure equipment and wireless communications equipment. Four, two and three end customers accounted for more than 10% of our sales in 2001, 2000 and 1999 respectively.

        For a detailed description of our sales by geographic region, see Note 2 (segment and geographic information) to our consolidated financial statements.

Competition

        We currently compete directly with audio amplifier and DSL line driver suppliers. Our principal competitors in the audio amplifier market include Apogee Technology, Inc., National Semiconductor Corporation, Philips Electronics, Sanyo Semiconductor Corporation, STMicroelectronics Group, Texas Instruments Incorporated and Toshiba Corporation. In addition, a number of companies, such as Cirrus Logic Inc. have announced their intention to enter this market. We have been active in the audio amplifier market since our inception and we believe that we maintain a strong competitive position.

        In the DSL line driver market, we currently estimate that we compete with the following four companies: Analog Devices, Inc., Elantec Semiconductor, Inc., Linear Technology Corporation, and Texas Instruments Incorporated. This is a new market for us in which many of our competitors have longer operating histories.

        We believe that the principal factors of competition in these markets are product capabilities; level of integration; reliability; price; power consumption; time-to-market; system cost; intellectual property; customer support; and reputation.

        In each of these markets, we believe that our main competitive advantages are our product capabilities, low power consumption, and level of integration. However, many of our competitors are large public companies that have longer operating histories and significantly greater resources than us. As a result, these competitors may compete favorably on factors such as price, customer support and reputation.

Intellectual Property

        We rely primarily on a combination of patent, copyright, trademark, trade secret and other intellectual property laws, nondisclosure agreements and other protective measures to protect our proprietary

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technologies and processes. We have fourteen issued United States patents, twenty-two additional United States patent applications which are pending. In addition, we have five international patents issued and an additional seventy-three international patents pending. We expect to continue to file patent applications where appropriate to protect our proprietary technologies.

Employees

        As of December 31, 2001, we had 80 full-time employees, including 53 employees engaged in research and development, 10 engaged in sales and marketing and 17 engaged in general administration activities. Our employees are not represented by any collective bargaining agreement, and we have never experienced a work stoppage. We believe our employee relations are good.

Executive Officers of the Registrant

        The following table sets forth certain information regarding our executive officers as of December 31, 2001:

        Dr. Adya S. Tripathi founded Tripath and has served as our President, Chief Executive Officer and Chairman since our inception in 1995. Before founding Tripath, Dr. Tripathi held a variety of senior management and engineering positions with AMD, Hewlett-Packard, IBM, IMP, National Semiconductor and Vitel Communications. Dr. Tripathi holds B.S. and M.S. degrees in Electronics Engineering from Benaras Hindu University in India. He pursued graduate work at the University of Nevada-Reno and the University of California-Berkeley, receiving his Ph.D. in Electrical Engineering from the former in 1984. He has also taught at the University of California-Berkeley Extension.

        John J. DiPietro has served as our Chief Financial Officer and Vice President of Finance and Administration since September 1999. Prior to joining us, from October 1995 to September 1999, he was Chief Operating Officer, Vice President of Finance, Chief Financial Officer and Secretary of Calypte Biomedical Corporation, a diagnostics product company. He is a member of the board of directors of Calypte Biomedical Corporation. He also held various positions at PricewaterhouseCoopers (PwC) most recently, Senior Manager, in his 9 years with PwC. He is a Certified Public Accountant (CPA). He received his M.B.A. from the University of Chicago, Graduate School of Business, and received his B.S. in Accounting from Lehigh University.

        Naresh Sharma has served as our Vice President of Operations since August 2001. He joined Tripath in 1998 serving as Director of Process Engineering and Development. Prior to joining us, from 1997 to 1998, he was the Director, Foundry Fab Operations at Alliance Semiconductor and from 1992 to 1997 he was Senior Manager, Strategic Fabs at Cirrus Logic. He has also held various management and engineering positions at Cypress Semiconductor, National (Fairchild) Semiconductor and American Microsystems. He received his Ph.D. in Physics from Indian Institute of Technology and received his M.S. in Solid State Physics from Roorkee Engineering University in India.

        Alan J. Soucy has served as our Vice President of Advanced Products and Applications since July 1999. Prior to joining us, from 1996 to 1999, he worked for Philips Electronics as the general manager of the

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mobile computing division, with responsibility for all strategic and operational aspects of the handheld computing business. While at Philips, he also established Mobilesoft, an Internet-based electronic software distribution business. From 1993 to 1996, he was Vice President at Zenith Data Systems, with responsibility for the portable and mobile businesses, and, prior to that, Vice President for Product Strategy and Planning. He holds a B.S. in Management Science from the University of Rhode Island.

        Korhan Titizer has served as our Vice President of Engineering since August 2001. Prior to joining us, from 1998 to 2001, he was Vice President of Advanced Circuit Development at C-Cube Microsystems and from 1995 to 1998 he worked at Oak Technology as Director of Design. He holds a B.S. in Electrical Engineering from University of Surrey, England and a M.S. degree in Electrical Engineering from the University of California, Santa Barbara.

ITEM 2. PROPERTIES

        We lease one facility in Santa Clara, California, which has approximately 45,000 square feet pursuant to the lease, which expires on November 30, 2002. This facility comprises our headquarters and includes our administration, sales and marketing, and research and development departments.

ITEM 3. LEGAL PROCEEDINGS

        From time to time, we may be involved in litigation that arises through the normal course of business. As of the date of filing of this Form 10-K, we are not a party to any litigation that we believe could reasonably be expected to materially harm our business or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        There were no matters submitted to a vote of the security holders during the fourth quarter of 2001.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        Our common stock has been quoted on the Nasdaq National Market under the symbol "TRPH" since our initial public offering in August 2000. Prior to this time, there was no public market for our stock. The following table sets forth the high and low closing sales prices per share of our common stock as reported on the Nasdaq National Market for the periods indicated. We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. As of December 31, 2001 there were 145 holders of record of our common stock.

        On August 1, 2000, we completed our initial public offering (the "IPO") pursuant to a Registration Statement on Form S-1 (File No. 333-35028). In the IPO, we sold an aggregate of 5,100,000 shares of common stock (including an over-allotment option of 100,000 shares) at $10 per share. The IPO generated aggregate gross proceeds of $51 million for us. The aggregate net proceeds to us were approximately $45.4 million, after deducting underwriting discounts and commissions of approximately $3.6 million and expenses of the offering of approximately $2.0 million. We used the proceeds for general corporate purposes, including working capital and capital expenditures.

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ITEM 6. SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

        We design and sell amplifiers based on our proprietary Digital Power Processing technology. We currently supply 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 for use in evaluating our Company and our future prospects. We incurred net losses of approximately $27.0 million in 2001, $41.3 million in 2000, and $31.7 million in 1999. We expect to continue to incur net losses in 2002, and possibly beyond.

        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.

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        As a "fabless" semiconductor company, we contract with third party semiconductor fabricators to manufacture the silicon wafers based on our IC designs. Each wafer contains numerous die, which are cut from the wafer to create a chip for an IC. We also contract with third party assembly and test houses to assemble and package our die and conduct final product testing.

        Cost of revenue includes the cost of purchasing finished silicon wafers and die manufactured by independent foundries, costs associated with assembly and final product testing, as well as salaries and overhead costs associated with employees engaged in activities related to manufacturing. Research and 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 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.

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

Results of Operations

Years Ended December 31, 2001, 2000 and 1999

        Revenue.    Revenue for 2001 was $13.5 million, an increase of $4.2 million or 45% from revenue of $9.3 million for 2000. This increase in revenue resulted primarily from increased shipments of our new 100-watt/channel TA2022 product. Revenue for 2000 increased $8.7 million or 1,335% from revenue of $648,000 in 1999. The increase in revenue from 1999 to 2000 resulted from increased shipments of our TA1101B (10-watt/channel) and TA2020 (20-watt/channel) products.

        Our top five customers accounted for 85% of revenue in 2001 versus 88% in 2000. Our primary customers in 2001 were Sony and Apple, representing 29% and 21% of revenue, respectively. Sony and Apple were also our top two customers in 2000, representing 60% and 19% of revenue, respectively. In 2001 we were able to offset the decline in revenue from Sony with increased shipments related to design wins with existing and new customers. The percentage of revenue to customers located outside of the United States was 94% in 2001 and 93% in 2000.

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        Gross Profit (Loss).    Gross profit for 2001 was $1.6 million (including stock-based compensation benefit of $95,000) compared to a gross loss of $2.0 million (including stock-based compensation expense of $86,000) for 2000 and a gross loss of $1.8 million (including stock-based compensation expense of $43,000) for 1999. The increase in gross profit in 2001 was due to better product mix, including increased shipments of higher power/higher margin products related to new design wins, as well as ongoing cost reduction efforts. The gross loss in 2000 was due to the impact of price concessions made to Komatsu (for sales to Sony Corporation) in order to accelerate the acceptance and introduction of one product in a new market segment.

        Research and Development.    Research and development (R&D) expenses for 2001 were $19.9 million (including stock-based compensation benefit of $133,000), a decrease of $6.2 million or 24% from R&D expenses of $26.1 million (including stock-based compensation expense of $8.1 million) in 2000. R&D expenses for 2000 increased $7.8 million or 43% from R&D expenses of $18.3 million (including stock-based compensation expense of $6.9 million) in 1999. Excluding stock-based compensation expense, R&D expenses increased $2.0 million from 2000 to 2001, driven by higher headcount related costs, as well as higher depreciation, rent, and insurance expenses. The increase in R&D expenses from 1999 to 2000 was primarily a result of increased staffing, increased product development expenses, and increased facility costs and expenses.

        Selling, General and Administrative Expenses.    Selling, general and administrative (SG&A) expenses for 2001 were $8.7 million (including stock-based compensation expense of $488,000), a decrease of $6.1 million or 41% from SG&A expenses of $14.8 million (including stock-based compensation expense of $6.6 million) in 2000. SG&A expenses for 2000 increased $1.9 million or 15% from SG&A expenses of $12.9 million in 1999 (including stock-based compensation expense of $6.9 million). Excluding stock-based compensation expense, SG&A expenses were flat from 2000 to 2001. 2000 included a one-time charge for forgiveness of stockholder notes receivable, which was offset in 2001 by higher headcount related costs and professional services expenses. The increase in SG&A expenses from 1999 to 2000 was due to increased headcount and salaries and due to the forgiveness of stockholder notes receivable.

        Restructuring and other charges.    On August 3, 2001, we announced a restructuring and cost reduction plan which included a workforce reduction and write-off of abandoned assets. 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 abandoned assets for a charge of $520,000.

        A summary of the restructuring and other charges is as follows:

        Interest and other income, net.    Interest income for 2001 was $687,000, a decrease of $913,000 or 57% from interest income of $1.6 million in 2000. Interest income for 2000 increased $200,000 or 14% from interest income of $1.4 million in 1999. In 2001, the decrease resulted from decreases in our average cash equivalents and short-term investment balances to fund operations, together with lower interest rates. In 2000, the increase in interest income resulted from increases in our average cash equivalents and short-term investment balances resulting from our initial public offering.

        Income Taxes.    We have incurred no income tax expense to date. As of December 31, 2001, we had available federal net operating loss carryforwards of approximately $82 million and state net operating loss

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carryforwards of approximately $38 million. We also had research and development tax credit carryforwards of approximately $1.9 million for federal and $1.8 million for state purposes. The net operating loss and credit carryforwards will expire at various times through 2019. As of December 31, 2001, we had deferred tax assets of approximately $34.4 million which consisted primarily of net operating loss carryforwards, research and development tax credit carryforwards and nondeductible reserves and accruals. We have recorded no tax benefit in our financial statements for these deferred tax assets. Deferred tax assets will be recognized in future periods as any taxable income is realized and consistent profits are reported.

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, including our most recent financing in January 2002, and through our initial public offering on August 1, 2000.

        Net cash used for operating activities during the years ended December 31, 2001, 2000, and 1999, was $32.5 million $24.6 million, and $17.4 million, respectively. During these periods, cash used for operating activities consisted primarily of cash utilized to fund operating losses and for working capital.

        Our investing activities provided cash in the amount of $22.1 million in 2001 from the net sale of short-term investments, offset by the purchase of capital equipment. In 2000 our investing activities used cash in the amount of $18.8 million, for the purchase of short-term investments and capital equipment. In 1999 our investing activities produced cash in the amount of $3.1 million, from the net sale of short-term investments, offset by the purchase of capital equipment.

        In 2001 our financing activities provided cash in the amount of $1.8 million, derived from stock option exercises. In 2000 our financing activities provided cash in the amount of $46.4 million, the majority of which was derived from our initial public offering. In 1999 our financing activities provided cash in the amount of $1.9 million from the issuance of convertible preferred stock, exercise of stock options and from payment of a note receivable from a stockholder.

        On January 24, 2002, we completed a financing in which we raised $21 million in gross proceeds through a private placement of non-voting Series A Preferred Stock and warrants, at $30 per unit to a group of institutional investors. Upon stockholder approval, each share of Series A Preferred Stock will convert into 20 shares of Common Stock (or an effective Common Stock price of $1.50 per share), subject to adjustment for stock splits, dividends and the like. Investors also received warrants to purchase up to an additional 20 percent of shares of Series A Preferred Stock. The warrants have a term of three years and an exercise price equal to $39.00 per share (or an effective Common Stock exercise price of $1.95 per share). If the common stock trades at $5.85 per share or greater for a period of 20 out of 30 trading days we can require the holders to exercise the warrants. As a result of the favorable conversion price of the shares and related warrants at the date of issuance, we will have to record accretion relating to the "Beneficial Conversion Feature" at the date of conversion which will result in a reduction of earnings available to common stockholders. If we do not obtain stockholder approval for the conversion into common stock of the securities issued in the financing within 45 days of the closing, the investors will have the right to require us to redeem the Series A Preferred Stock at the original purchase price plus 3% annual interest. If investors elected to redeem their shares and we are unable to find additional financing to fund the redemption, we will have insufficient capital to continue to fund our operations. Without sufficient capital to fund our operations, we will no longer be able to continue as a going concern. As a result of these circumstances, our independent accountants' opinion on our consolidated financial statements includes an explanatory paragraph indicating that these matters raise substantial doubt about our ability to continue as a going concern.

        We expect our future liquidity and capital requirements will fluctuate depending on numerous factors, including the cost and timing of future product development efforts, the timing of introductions of new

14

products and enhancements to existing products, market acceptance of our existing and new products and the cost and timing of sales and marketing activities. We believe that taking into account our recent financing in January 2002, 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 take us to profitability. However, we may need to raise additional capital in future periods through public or private financings, strategic relationships or other arrangements in order to grow our business. Additional equity financing may be dilutive to the holders of our common stock, and debt financing, if available, may involve restrictive covenants. However, we cannot be certain that any such financing will be available on acceptable terms, or at all. If we cannot raise additional capital when needed and on acceptable terms, we may not be able to achieve our business objectives and continue as a going concern.

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. 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 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 a segment 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

If we do not obtain stockholder approval for the conversion into common stock of the securities issued in the financing we closed in January 2002, the investors will be able to redeem their investment and we may not be able to continue as a going concern.

        Our stockholders are required to approve the conversion into common stock of the securities issued in the financing we closed on January 24, 2002. If they do not approve the conversion within 45 days of the closing, the investors will have the right to redeem the shares they purchased for their purchase price plus three percent interest per annum. If investors elected to redeem their shares and we are unable to find additional financing to fund the redemption, we will have insufficient capital to continue to fund our operations. Without sufficient capital to fund our operations we will no longer be able to continue as a going concern. As a result of these circumstances, our independent accountants' opinion on our consolidated financial statements includes an explanatory paragraph indicating that these matters raise substantial doubt about our ability 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 December 31, 2001, we had an accumulated deficit of $138.1 million. We incurred net losses of approximately $27.0 million for year ended December 31, 2001 and $41.3 million in 2000 and $31.7 million in 1999. 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.

We will likely need to raise additional capital to continue to grow our business.

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

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We must continue to reduce our costs and improve our margins in order to reach profitability.

        The market for our products is extremely competitive and is characterized by aggressive pricing. As a result, margins in our market are often low. Traditionally, we have experienced low or even negative margins. In order to reach profitability we must continue to increase our margins by reducing the cost of our products.

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:

•

level of sales;



•

mix of high and low margin products;



•

availability and pricing of wafers;



•

timing of introducing new products, including lower cost versions of existing products; fluctuations in manufacturing yields and other problems or delays in the fabrication, assembly, testing or delivery of products; and



•

rate of development of target markets.

        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

17

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 product 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 21% and 42%, respectively, of total revenue for the year ended December 31, 2001 and 19% and 60%, respectively, of total revenue in 2000. Moreover, sales to our five largest customers represented approximately 85% of our total revenue for the year ended December 31, 2001, 88% of our revenue in 2000 and 81% 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 89% of our revenue for the year ended December 31, 2001, 93% of our revenue in 2000 and 53% 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

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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.

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:

•

accurate prediction of market requirements and evolving standards;



•

accurate new product definition;



•

timely completion and introduction of new product designs;



•

availability of foundry capacity;



•

achieving acceptable manufacturing yields; and



•

market acceptance of our products and our customers' products.

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.

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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.

Stockholders will incur additional dilution upon the exercise of warrants, and management will have sole discretion to use the proceeds received from exercise of these warrants.

        To the extent that the warrants are exercised, there will be additional dilution to your shares. If all of the warrants are exercised, we will be required to issue an additional 3,303,760 shares of common stock, or approximately 12.1% of the common stock outstanding as of February 8, 2002. If all of the warrants are exercised in full, we would receive approximately $6.3 million in proceeds. Our management will have sole discretion over use of these proceeds and may spend the proceeds in ways with which our stockholders may not agree.

The market may be adversely affected due to the large number of shares eligible for sale under the registration statement filed in connection with the financing.

        The shares of common stock eligible for sale under the registration statement filed in connection with the financing represent a large percentage of our outstanding common stock. The market for the shares may be adversely affected as a result of sales of a large number of shares in the market or the perception that large sales may occur.

We may not maintain NASDAQ National Market listing requirements

        To maintain the listing of our common stock on The Nasdaq National Market we are required to meet certain listing requirements, including a minimum bid price of $1.00 per share. If our stock is traded below the $1.00 minimum bid price for 30 consecutive business days, we will receive a deficiency notice and will have a grace period of 90 calendar days to cure the deficiency by meeting the $1.00 per share trading price for 10 consecutive days. There can be no assurance that we will maintain compliance with the minimum bid price. If we fail to meet the minimum bid price for 10 consecutive days during the grace period our common stock may be delisted from The NASDAQ National Market. Even if we are able to comply with the minimum bid requirement, there is no assurance that in the future we will continue to satisfy NASDAQ listing requirements, with the result that our common stock may be delisted from The NASDAQ National Market. Should our common stock be delisted from The NASDAQ National Market, it would likely be traded on The NASDAQ Small Cap Market, and if delisted from The NASDAQ Small Cap Market, would likely be traded on the so-called "pink sheets" or the "Electronic Bulletin Board" of the National

20

Association of Securities Dealers, Inc. Consequently, it would likely be more difficult to trade in or obtain accurate quotations as to the market price of our common stock. Delisting of our common stock could materially adversely affect the market price, the market liquidity of our common stock and our ability to raise necessary capital.

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:

•

the lack of guaranteed wafer supply;



•

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



•

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

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

        We provide our foundries with continuous forecasts of our production requirements; however, the ability of each foundry to provide us with semiconductor devices is limited by the foundry's available capacity. In many cases, we place our orders on a purchase order basis, and foundries may allocate capacity to the production of other companies' products while reducing the deliveries to us on short notice. In particular, foundry customers that are larger and better financed than us or that have long-term agreements with our foundries may cause such foundries to reallocate capacity in a manner adverse to us.

        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

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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, Malaysia and the Philippines 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 more effective and/or increasingly smaller semiconductor chip sizes and packaging could cause us to lose our competitive advantage and reduce our gross margins.

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

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

        We currently obtain almost all of our manufacturing, assembly and test services from suppliers located outside the United States and may expand our manufacturing activities abroad. Approximately 94% of our total revenue for the year ended December 31, 2001 was derived from sales to independent customers based outside the United States. In 2000 and 1999, 93% and 95%, 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:

•

political, social and economic instability;



•

trade restrictions and tariffs;



•

the imposition of governmental controls;



•

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



•

import and export license requirements;



•

unexpected changes in regulatory requirements;



•

difficulties in collecting receivables; and



•

potentially adverse tax consequences.

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

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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 an amplifier product for use in the cellular phone market that could result in significant expenses or delay in its launch.

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

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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 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,

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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 December 31, 2001, we have fourteen issued United States patents, and twenty-two additional United States patent applications which are pending. In addition, we have five international patents issued and an additional seventy-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 there under would provide us meaningful protection. The failure of any patents to provide protection to our technology would make it easier for our competitors to offer similar products. In connection with our participation in the development of various industry standards, we may be required to agree to license certain of our patents to other parties, including our competitors, that develop products based upon the adopted standards.

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

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

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

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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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

        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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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Tripath Technology Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Tripath Technology Inc. and its subsidiary at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

PricewaterhouseCoopers LLP
San Jose, California
January 25, 2002

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TRIPATH TECHNOLOGY INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

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

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TRIPATH TECHNOLOGY INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

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

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TRIPATH TECHNOLOGY INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(In thousands)

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

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TRIPATH TECHNOLOGY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

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

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TRIPATH TECHNOLOGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—THE COMPANY AND BASIS OF PRESENTATION:

The Company

        Tripath Technology Inc. (the "Company" or "Tripath") was incorporated in California in July 1995. The Company was reincorporated in Delaware in July 2000. The Company is a designer and developer of integrated circuit devices for the consumer audio, personal computer and communications markets.

Basis of Presentation

        The consolidated financial statements include the accounts of Tripath and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated. Accounts denominated in foreign currency have been remeasured using the U.S. dollar as the functional currency.

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

Liquidity

        The Company has incurred substantial losses and has experienced negative cash flow since inception. At December 31, 2001, the Company had an accumulated deficit of $138.1 million. In order to conserve cash, the Company has implemented cost cutting measures and in August 2001 implemented a restructuring program. In addition, on January 24, 2002, the Company secured additional financing (See Note 11). However, if the Company's stockholders do not approve the conversion into common stock of the securities issued in the financing, the investors will have the right to redeem the shares for the original purchase price plus three percent interest per annum. If investors elected to redeem their shares, and the Company is unable to secure additional financing to fund the redemption, the Company will have insufficient capital to fund its operations. Without sufficient capital to fund the Company's operations, the Company will no longer be able to continue as a going concern.

Initial Public Offering

        On August 1, 2000, the Company completed its initial public offering of 5 million shares of common stock at $10.00 per share. Net proceeds to the Company as a result of the initial public offering, plus the proceeds relating to the exercise of the underwriters' overallotment option to purchase 100,000 shares of common stock, were approximately $45.4 million.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Revenue recognition

        The Company recognizes revenue from product sales upon shipment to original equipment manufacturers and end users, net of sales returns and allowances. The Company's sales to distributors are made under arrangements allowing limited rights of return, generally under product warranty provisions, stock rotation rights, and price protection on products unsold by the distributor. In addition, the distributor may request special pricing and allowances which may be granted subject to approval by the Company. As

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a result of these returns rights and potential pricing adjustments, the Company defers recognition on sales to distributors until products are resold by the distributor to the end user.

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

        The Company's accounts receivable were concentrated with 5 customers at December 31, 2001 representing 15%, 15%, 13%, 12% and 12% of aggregate gross receivables, and 2 customers at December 31, 2000 representing 58% and 33% of aggregate gross receivables.

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 such securities approximates cost, and there were no material unrealized gains or losses as of December 31, 2001 and 2000. Short-term investments generally have maturities of less than one year from the date of purchase. The following table summarizes the Company's cash and cash equivalents and short-term investments (in thousands):

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The contractual maturities of available-for-sale short-term investments are as follows (in thousands):

Concentration of credit risk and significant customers

        Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and short-term investments. Substantially all of the Company's cash and cash equivalents are invested in highly-liquid money market funds and commercial securities with major financial institutions. Short-term investments consist of U.S. government and commercial bonds and notes. The Company sells its products principally to original equipment manufacturers. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses, as considered necessary by management. Credit losses to date have been consistent with management's estimates. The Company had no significant write-offs or recoveries during the years ended December 31, 2001, 2000 and 1999.

Fair value of financial instruments

        Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, short-term investments, accounts receivable and accounts payable, approximate their fair value due to their relative short maturities and based upon comparable market information available at the respective balance sheet dates. The Company does not hold or issue financial instruments for trading purposes.

Inventories

        Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out ("FIFO") method.

Inventory purchase commitments

        The Company accrues for estimated losses on non-cancelable purchase orders. The estimated losses result from anticipated future sale of products for sales prices less than the estimated cost to manufacture. Inventory purchase commitment losses accrued at December 31, 2001 and 2000 were $190,000 and $821,000, respectively.

Research and development expenses

        Research and development costs are charged to expense as incurred.

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Property and equipment

        Property and equipment, including leasehold improvements, are stated at historical cost, less accumulated depreciation and amortization. Property and equipment under capital leases are stated at the present value of the minimum lease payments. Amortization of leasehold improvements and assets under capital leases is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the term of the lease. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Upon disposal, the assets and related accumulated depreciation and amortization are removed from the Company's accounts, and the resulting gains or losses are reflected in the statement of operations.

        Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. An impairment loss is recognized if the sum of the expected future cash flows (undiscounted and before interest) from the use of the assets is less than the net book value of the asset. The amount of the impairment loss, if any, will generally be measured as the difference between net book value of the assets and their estimated fair values.

Comprehensive income

        Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purposes financial statements. There was no difference between the Company's net loss and its total comprehensive loss for the years ended December 31, 2001, 2000 and 1999.

Accounting for stock-based compensation

        The Company accounts for stock-based employee compensation arrangements using the intrinsic value method as prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and Financial Accounting Standards Board Interpretation No. 44 "Accounting for Certain Transactions Involving Stock Compensation" (FIN 44). Accordingly, compensation cost for stock options is measured as the excess, if any, of the fair value of the Company's stock at the date of grant over the stock option exercise price. Expense associated with stock-based compensation is amortized on an accelerated basis over the vesting period of the individual award consistent with the method described in Financial Accounting Standards Board Interpretation No. 28 ("FIN 28"). The Company accounts for stock issued to non-employees in accordance with the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") and Emerging Issues Task Force Consensus No. 96-18, "Accounting for Equity Instruments that are offered to other than employees for acquiring or in conjunction with selling goods or services" ("EITF 96-18"). Under SFAS No. 123 and EITF 96-18, stock option awards issued to nonemployees are accounted for at their fair value, determined using the Black-Scholes option pricing method. The fair value of each nonemployee stock option or award is remeasured at each period end until a commitment date is reached, which is generally the vesting date.

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TRIPATH TECHNOLOGY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)

        On November 30, 2000, the Company accelerated the vesting for all remaining options held by non-employees and relieved these non-employees of any further obligations to the Company. As a result, additional compensation was recorded in 2000 related to these options.

Segment and geographic information

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

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

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. 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 Company has not yet determined the impact these standards will have on its financial position and results of operations, although it does not anticipate that the adoption of these standards will have a material impact on its 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 its 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

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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 a segment 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 its financial position or results of operations.

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, shares issuable upon conversion of convertible preferred stock and common stock issuable upon the exercise of common stock warrants.

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