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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

For the transition period from                              to                             .

Commission File Number 000-26565

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

2560 Orchard Parkway
San Jose, California 95131
(Address of Principal Executive Office including Zip Code)

(408) 750-3000
(Registrant's telephone number, including area code)

3900 Freedom Circle
Santa Clara, California 95054
(Former name, former address and former fiscal year if changed since last report)

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

        41,326,760 shares of the Registrant's common stock were outstanding as of November 11, 2002.

TABLE OF CONTENTS

PART I. Financial Information

Item 1. Financial Statements

TRIPATH TECHNOLOGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

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

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TRIPATH TECHNOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Unaudited

Stock-based compensation included in:

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

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

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

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

1. Basis of Presentation

        The unaudited condensed consolidated financial statements included herein have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America and reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary to state fairly the Company's financial position, results of operations, and cash flows for the periods presented. Results for the three months and nine months ended September 30, 2002 are not necessarily indicative of the results of the entire year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the financial statements.

        The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned Japanese subsidiary, which was incorporated in January 2001. All significant intercompany balances and transactions have been eliminated in consolidation.

2. Net loss per share

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

        Total potential common stock of 10,568,000 and 8,609,000 shares were not included in the diluted net loss per share calculation for three and nine-month periods ended September 30, 2002, respectively, because to do so would be anti-dilutive. For the three and nine-month periods ended September 30, 2001, 6,579,000 and 6,014,000 shares of potential common stock were excluded from the calculation of diluted net loss per share because they were anti-dilutive.

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

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3. Deferred stock-based compensation

        In connection with certain employee stock option grants and issuance of restricted stock to an officer made since January 1998, the Company recognized deferred stock-based compensation, which is being amortized over the vesting periods of the related options and stock, generally four years, using an accelerated basis. The fair value per share used to calculate deferred stock-based compensation was derived by reference to the convertible preferred stock issuance prices. Future compensation charges are subject to reduction for any employee who terminates employment prior to such employee's option vesting date.

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

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

        Unamortized deferred stock-based compensation at September 30, 2002 and December 31, 2001 was $160,000 and $1,272,000 respectively.

4. Cash and cash equivalents and short-term investments

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

        The Company categorizes short-term investments as available-for-sale. Accordingly, these investments are carried at fair value. The fair value of these securities approximates cost, and there were no material unrealized gains or losses as of September 30, 2002 or December 31, 2001. Short-term investments generally have maturities of less than one year from the date of purchase.

5. Inventories

        Inventories are comprised of the following (in thousands):

        During the quarter ended March 31, 2002 the Company recorded a provision for excess inventory of approximately $5 million. The inventory charge related to excess inventory for the Company's TA2022 product based on a decline in forecasted sales for this product.

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6. Line of Credit

        On July 12, 2002, the Company entered into a credit agreement with a financial institution that provides for a one-year revolving credit facility in an amount of up to $10 million. Any advances under the credit agreement will be secured by the Company's personal property and will bear interest at the prime rate plus 0.875% per annum. A negative pledge regarding the Company's intellectual property has been provided to the financial institution solely in order to enable the financial institution to perfect its security interest in the Company's personal property. The credit agreement contains certain financial covenants, two of which were violated during the quarter ended September 30, 2002. Waivers were obtained from the financial institution for the two covenants that were violated.

        The credit agreement was used to issue stand-by letters of credit totaling $1.7 million to collateralize the Company's obligations to a third party for the purchase of inventory and to provide a security deposit for the lease of new office space. At September 30, 2002 there was up to $8.3 million available under the credit facility, subject to certain restrictions in the borrowing base.

7. Stockholders' Equity

        On January 24, 2002, the Company completed a financing in which it raised $21 million in gross proceeds through a private placement of non-voting Series A Preferred Stock and warrants, at $30 per unit to a group of investors, which was convertible into 13,999,000 shares of common stock and warrants to purchase 3,303,760 shares of common stock. Each share of Series A Preferred Stock was convertible into 20 shares of Common Stock (or an effective Common Stock price of $1.50 per share). 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, the Company can require the holders to exercise the warrants.

        At a Special Meeting of Stockholders held on March 7, 2002 the stockholders approved the issuance and sale of 699,950 shares of Series A Preferred Stock and warrants. As a result, the Preferred Stock and warrants automatically converted into 13,999,000 shares of common stock and warrants to purchase 3,303,760 shares of common stock.

        As a result of the favorable conversion price of the shares and related warrants at the date of issuance, the Company recorded accretion of approximately $15 million (thus increasing the "net loss applicable to common stockholders" for the nine month period ended September 30, 2002) relating to the beneficial conversion feature representing the difference between the accounting conversion price and the fair value of the common stock on the date of the transaction, after valuing the warrants issued in connection with the financing transaction. The Company valued the warrants using the Black-Scholes option pricing model, applying an expected life of 3 years, a weighted average risk-free rate of 3.61%, an expected dividend yield of zero percent, a volatility of 130% and a deemed fair value of common stock of $2.35, which was the value of the Company's common stock on the date of grant.

        Recently, the Board of Directors approved the repurchase of up to one million shares of the Company's common stock in the open market at the discretion of management. The shares may be purchased from time to time until August 2003. To date, the Company has not repurchased any shares of common stock under this program.

8. Leases

        On July 18, 2002, the Company entered into a sublease agreement for the lease of new office space. Under the terms of the, sublease agreement the Company initially receives nine months of free rent effective September 1, 2002 and subsequently makes monthly payments ranging from $0.65 per

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square foot to $1.35 per square foot until the sublease expires on March 31, 2007. The Company's lease for the old office space expires on November 30, 2002.

        On September 26, 2002, the Company renegotiated its existing capital lease for research and development related software to extend the term and defer a portion of the payments beyond the term of the original lease. The remaining values of the asset and obligation of the original lease prior to the renegotiation were $328,000 and $349,000 respectively. The value of the asset and obligation recorded under the new lease as of September 30, 2002 is $1,005,000 and $1,026,000 respectively.

9. Nasdaq Stock Market

        On August 13, 2002, the Company received a deficiency notice from the Nasdaq Stock Market, or Nasdaq, for failing to maintain the Nasdaq National Market's minimum bid price requirement for continued listing and has been given until November 11, 2002 in order to cure the deficiency by meeting the $1.00 minimum bid price for 10 consecutive trading days or face de-listing from trading on the Nasdaq National Market. Prior to the Company's de-listing, the Company submitted an application to Nasdaq for transfer to their SmallCap Market. If the transfer application is approved the Company will have until February 10, 2003 to meet the $1.00 minimum bid price requirement to remain listed on the Nasdaq SmallCap Market. The Company may also be eligible for an additional 180 day grace period after February 10, 2003 provided that it meets the initial Nasdaq SmallCap Market listing criteria. Furthermore, the Company may be eligible to transfer back to the Nasdaq National Market if by August 8, 2003 the bid price maintains the $1.00 per share requirement for 30 consecutive trading days and it has maintained compliance with all other continued listing requirements of the Nasdaq National Market. If the Nasdaq does not approve the Company's transfer application to the Nasdaq SmallCap Market, its securities may be delisted. At that time the Company may appeal.

10. Recent Accounting Pronouncements

        In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS 145 Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections. SFAS 145 rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, as well as FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of SFAS 145 will be adopted during fiscal year 2003. We do not anticipate that adoption of this statement will have a material impact on our consolidated balance sheets or consolidated statements of operations.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The scope of SFAS 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002 and early application is encouraged. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS 146. We do not anticipate that adoption of this statement will have a material impact on our consolidated balance sheets or consolidated statements of operations.

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

        This report contains certain forward looking statements (as such term is defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) and information relating to us that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. In addition, when used in this report, the words "likely," "will," "suggests," "target," "may," "would," "could," "anticipate," "believe," "estimate," "expect," "intend," "plan," "predict," and similar expressions and their variants, as they relate to us or our management, may identify forward looking statements. Such statements reflect our judgment as of the date of this quarterly report on Form 10-Q with respect to future events, the outcome of which are subject to certain known and unknown risks and uncertainties, including but not limited to the factors set forth below and in "Risk Factors," which may have a significant impact on our business, operating results or financial condition. Such risks and uncertainties include risks and uncertainties regarding silicon wafer pricing and the availability of foundry and assembly capacity and raw materials; the availability and pricing of competing products and technologies and the resulting effects on sales and pricing of our products; fluctuations in the manufacturing yields of our third party semiconductor foundries and other problems or delays in the fabrication, assembly, testing or delivery of our products; our ability to specify, develop or acquire, complete, introduce, market and transition to volume production new products and technologies in a timely manner; the volume of product sales and pricing concessions on certain product sales; and, the timing requirements of our customers with respect to new product introductions. Investors are cautioned that these forward looking statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. Although we believe that the expectations reflected in these forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward looking statements. We undertake no obligation to update forward looking statements.

        The following discussion and analysis should be read in connection with the condensed consolidated financial statements and the notes thereto included in Item 1 in this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2001.

Overview

        We are a fabless semiconductor company that designs and develops integrated circuit devices for the consumer audio, personal computer and communications markets.

Critical Accounting Policies

        Use of Estimates:    Management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, including those related to product returns, warranty obligations, bad debts, inventories, accruals, stock options, warrants, 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 the other sources. Actual results may differ from these estimates under different assumptions or conditions. Material differences may occur in our results of operations for any period if we made different judgments or utilized different estimates.

        Revenue Recognition:    We recognize revenue from product sales upon shipment to original equipment manufacturers and end users, net of reserves for estimated returns and allowances, provided

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that persuasive evidence of an arrangement exists, the price is fixed, title has transferred, collectibility of resulting receivables is reasonably assured, there are no acceptance requirements and there are no remaining significant obligations. 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 us. As a result of these returns rights and potential pricing adjustments, we defer recognition on sales to distributors until products are resold by the distributor to the end user.

        Inventories:    Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out, or FIFO, method. We write down inventories to net realizable value based on forecasted demand and market conditions. Actual demand and market conditions may be different from those projected by our management. This could have a material effect on our operating results and financial position. During the quarter ended March 31, 2002, we recorded a provision for excess inventory of approximately $5 million. The inventory charge related to excess inventory for our TA2022 product based on a decline in forecasted sales for this product.

Results of Operations

Three months ended September 30, 2002 and 2001

        Revenue.    Revenue for the three months ended September 30, 2002 was $2.7 million, a decrease of $500,000 from revenues of $3.2 million for the three months ended September 30, 2001. The decrease in revenue resulted from decreased shipments of our TA1101B and TA2022 products, offset partially by increased shipments of our TA2024, TA3020, and TK2050 products.

        Sales relating to Apple Computer and Onkyo accounted for approximately 32% and 13% respectively of revenue in the three months ended September 30, 2002 and 32% and 0%, respectively, in the corresponding prior year quarter. Sales to our five largest end customers represented approximately 64% of revenue in the three months ended September 30, 2002 and 84% of revenue in the three months ended September 30, 2001.

        Gross Profit.    Gross profit for the three months ended September 30, 2002 was $265,000 (including stock-based compensation expense of $2,000), compared with a gross profit of $898,000 (including stock-based compensation credit of $259,000 for forfeitures related to terminated employees) for the three months ended September 30, 2001. The decrease in gross profit for the three months ended September 30, 2002 compared to the three months ended September 30, 2001 was primarily due to changes in product mix and the cost of manufacturing yield loss associated with building inventory.

        Research and Development.    Research and development expenses for the three months ended September 30, 2002 were $2.5 million (including stock-based compensation credit of $193,000 for forfeitures related to terminated employees), a decrease of $1.1 million from $3.6 million (including stock-based compensation credit of $1.1 million for forfeitures related to terminated employees) for the three months ended September 30, 2001. Excluding stock-based compensation, the year-over-year decrease for the three-month periods resulted from a decrease in personnel costs due to reduced headcount and a decrease in product development expenses and depreciation.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses for the three months ended September 30, 2002 were $892,000 (including stock-based compensation credit of $698,000 for forfeitures related to terminated employees), a decrease of $1.3 million from $2.2 million (including stock-based compensation expense of $201,000) for the three months ended September 30, 2001. Excluding stock-based compensation, the year-over-year decrease for the three-month periods resulted from a decrease in personnel costs due to reduced headcount, lower commissions accruals, and lower professional services costs.

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        Interest and Other Income, net.    Interest income for the three months ended September 30, 2002 was $22,000, a decrease of $42,000 from interest income of $64,000 in the three months ended September 30, 2001. The year-over-year decrease in interest income for the three-month periods reflected a decrease in our short-term investments balance in addition to lower interest rates on invested funds.

Nine months ended September 30, 2002 and 2001

        Revenue.    Revenue for the nine months ended September 30, 2002 was $13.3 million, an increase of $3 million from revenues of $10.3 million for the nine months ended September 30, 2001. The increase in revenue resulted from increased shipments of our TA2024, TA3020, and TK2050 products, offset partially by decreased shipments of our TA1101B and TA2022 products.

        Sales relating to Apple Computer, a consumer electronics manufacturer in China, and Aiwa (which became a wholly-owned subsidiary of Sony Corporation in February 2002) accounted for approximately 30%, 23% and 9%, respectively, of revenue in the nine months ended September 30, 2002 and 0%, 22% and 10%, respectively, in the corresponding prior year nine month period. Sales to our five largest end customers represented approximately 71% of revenue in the nine months ended September 30, 2002 and 88% of revenue in the nine months ended September 30, 2001.

        Gross Profit (Loss).    Gross loss for the nine months ended September 30, 2002 was $2.9 million (including stock-based compensation expense of $25,000), compared with a gross profit of $918,000 (including stock-based compensation credit of $111,000 for forfeitures related to terminated employees) for the nine months ended September 30, 2001.

        The decrease in gross profit for the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001 was primarily due to a reserve of $5.0 million for excess inventory during the first quarter of 2002. The inventory charge, related to excess inventory for our TA2022 product, was based on a decline in forecasted sales for this product. Excluding the inventory charge, gross profit for the nine months ended September 30, 2002 was $2.1 million. The year over year increase in gross profit is due to increased revenues and ongoing product cost reduction efforts.

        Research and Development.    Research and development expenses for the nine months ended September 30, 2002 were $9.4 million (including stock-based compensation expense of $167,000), a decrease of $7.5 million from $16.9 million (including stock-based compensation expense of $206,000) for the nine months ended September 30, 2001. The year-over-year decrease for the nine-month periods resulted from a decrease in personnel costs due to decreased headcount and a decrease in product development expenses.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses for the nine months ended September 30, 2002 were $4.2 million (including stock-based compensation credit of $493,000 for forfeitures related to terminated employees), a decrease of $3.2 million from $7.4 million (including stock-based compensation expense of $796,000) for the nine months ended September 30, 2001. Excluding stock-based compensation, selling general and administrative expenses decreased year-over-year due to decreased headcount and related costs and lower professional services costs.

        Interest and Other Income, net.    Interest income for the nine months ended September 30, 2002 was $122,000 a decrease of $570,000 from interest income of $692,000 in the nine months ended September 30, 2001. The year-over-year decrease in interest income for the nine-month periods reflected a decrease in our cash equivalents and short-term investments in addition to lower interest rates on invested funds.

        Beneficial Conversion Feature on Issuance of Preferred Stock.    Beneficial conversion feature on issuance of Preferred stock for the nine months ended September 30, 2002 was $14,952,000 compared to $0 for the nine months ended September 30, 2001. The year-over-year increase was due to the financing transaction that was completed in January 2002, in which we raised $21 million in gross

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proceeds through a private placement of non-voting Series A Preferred Stock. The beneficial conversion feature represents the difference between the accounting conversion price and the fair value of the common stock on the date of the transaction, after valuing the warrants issued in connection with the financing transaction. See the Stockholder's Equity Note (7.) in "Notes to Condensed Consolidated Financial Statements" for additional information on this financing transaction.

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, through our initial public offering on August 1, 2000, and through a private placement in January 2002. Net proceeds to us as a result of our initial public offering and our private placement were approximately $45.4 million and $19.9 million, respectively.

        Net cash used by operating activities decreased to $10.2 million for the nine months ended September 30, 2002 from $26.7 million for the nine months ended September 30, 2001. The decrease was mainly due to a decrease in net loss of $6.9 million, a decrease in inventory purchases of $8.7 million and a provision for excess inventory of $5.0 million, partially offset by an increase in accounts receivable and a decrease in accounts payable.

        Cash provided by investing activities decreased to $522,000 for the nine months ended September 30, 2002 from $19.2 million for the nine months ended September 30, 2001. The decrease was due to decrease in sale of short-term investments and decrease in purchase of property and equipment.

        Cash provided by financing activities increased to $19.4 million for the nine months ended September 30, 2002 from $1.8 million for the nine months ended September 30, 2001. The increase was due to the additional financing, details of which are summarized below.

        On January 24, 2002, we completed a financing in which we raised $21 million in gross proceeds through a private placement of non-voting Series A Preferred Stock and warrants, at $30 per unit to a group of investors. At a Special Meeting of Stockholders held on March 7, 2002, our stockholders approved the issuance and sale of Preferred Stock and warrants which then automatically converted into 13,999,000 shares of common stock and warrants to purchase 3,303,760 shares of common stock. 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 recorded accretion of approximately $15 million relating to the beneficial conversion feature at the date of the conversion, thereby increasing the "net loss applicable to common stockholders" for the nine month period ended September 30, 2002.

        On July 12, 2002, we entered into a credit agreement with a financial institution that provides for a one-year revolving credit facility in an amount of up to $10 million. Any advances under the credit agreement will be secured by our personal property and will bear interest at the prime rate plus 0.875% per annum. A negative pledge regarding our intellectual property has been provided to the financial institution solely in order to enable the financial institution to perfect its security interest in our personal property. At September 30, 2002, we had up to $8.3 million available to us under the credit facility, subject to certain restrictions in the borrowing base. The credit agreement contains certain financial covenants, two of which were violated during the quarter ended September 30, 2002. Waivers were obtained from the financial institution for the two covenants that were violated. We intend to fulfill our debt service obligations from cash generated by our operations, if any, and from our existing cash and investments. There can be no assurance that we will be able to meet our debt service obligations of the credit facility.

        At September 30, 2002, the Company had approximately $13.7 million in cash and working capital of approximately $16.2 million with which to fund current operations.

        Recently, our board of directors authorized a stock repurchase program under which up to one million shares of our outstanding common stock may be acquired in the open market at the

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discretion of management. The shares may be purchased from time to time until August 2003 at prevailing market prices, through open market or unsolicited negotiated transactions, depending upon market conditions. Under the program, the purchases will be funded from available working capital, and the repurchased shares will be held in treasury or used for ongoing stock issuances such as issuances under employee stock plans. There is no guarantee as to the exact number of shares which will be repurchased by us. We have not yet made any purchases under the repurchase program and there is no guarantee that we will.

        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 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 financings in January 2002 and July 2002 mentioned above, 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 fund operations for at least the next twelve months. 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 April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS 145 Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections. SFAS 145 rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, as well as FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of SFAS 145 will be adopted during fiscal year 2003. We do not anticipate that adoption of this statement will have a material impact on our consolidated balance sheets or consolidated statements of operations.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The scope of SFAS 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002 and early application is encouraged. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS 146. We do not anticipate that adoption of this statement will have a material impact on our consolidated balance sheets or consolidated statements of operations.

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Risk Factors

Risks Related to our Business

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

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

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

        As of September 30, 2002, we had an accumulated deficit of $169.5 million. We incurred net losses (before charge for beneficial conversion feature of $14.9 million) of approximately $16.5 million in the nine months ended September 30, 2002, $27.0 million in 2001, $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 and the Company might be unable to continue as a going concern.

We may 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. Additionally, in July 2002 we put in place a $10 million revolving line of credit whose availability is dependent on meeting certain loan covenants. We believe that, taking into account our recent financings 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 fund operations for at least the next twelve months. 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. As a result of these circumstances, our independent accountants' opinion on our 2001 consolidated financial statements includes an explanatory paragraph indicating that these matters raise substantial doubt about our ability to continue as a going concern.

We may not be able to pay our debt and other obligations, which would cause us to be in default under the terms of our credit facility, which would result in harm to our business and financial condition.

        On July 12, 2002, we entered into a credit agreement with a financial institution that provides for a one-year revolving credit facility in an amount of up to $10 million. Any advances under the credit agreement will be secured by our personal property and will bear interest at the prime rate plus 0.875% per annum. A negative pledge regarding our intellectual property has been provided to the financial institution solely in order to enable the financial institution to perfect its security interest in

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our personal property. The credit agreement contains certain financial covenants, two of which were violated during the quarter ended September 30, 2002. Waivers were obtained from the financial institution for the two covenants that were violated. We intend to fulfill our debt service obligations from cash generated by our operations, if any, and from our existing cash and investments. There can be no assurance that we will be able to meet our debt service obligations of the credit facility.

        If our cash flow is inadequate to meet our obligations under the credit facility or otherwise, we could face substantial liquidity problems. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the credit facility, we would be in default under the terms thereof, which would permit the financial institution that provided the credit facility to accelerate the maturity of our obligations. Any such default would harm our business, prospects, financial condition and operating results. In addition, we cannot assure you that we would be able to repay amounts due in respect of the credit facility if payment were to be accelerated following the occurrence of any event of default under the terms of the credit facility.

        In addition, in the event of our bankruptcy, liquidation or reorganization or upon acceleration of the payments due under the credit facility due to an event of default, our assets would be available for distribution to our current stockholders only after the indebtedness have been paid in full. As a result, there may not be sufficient assets remaining to make any distributions to our stockholders.

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, in part:

•

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.

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        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 stock price may be subject to significant volatility.

        The stock prices for many technology companies have recently experienced large fluctuations, which may or may not be directly related to the operating performance of the specific companies. Broad market fluctuations as well as general economic conditions may cause our stock price to decline. We believe that fluctuations of our stock price may continue to be caused by a variety of factors, including:

•

announcements of developments related to our business;



•

fluctuations in our financial results;



•

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



•

sales or purchases of our common stock in the marketplace;



•

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



•

developments in patents or other intellectual property rights;



•

developments in our relationships with customers and suppliers;



•

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



•

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

Our 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. During the quarter ended March 31, 2002 we recorded a provision for excess inventory of approximately $5 million. We recognize revenue upon shipment of products to the end customer. Although we have not experienced customer refusals to accept shipped products or material difficulties in collecting accounts receivable, such refusals or collection difficulties are possible and could result in significant charges against income, which could seriously harm our revenues and our cash flow.

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. 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 continue to forecast inaccurately and produce excess inventories of our products. As a result of such inventory imbalances, large future inventory write-downs may occur due to lower of cost or market accounting, excess inventory or inventory obsolescence. In addition, any adjustment in our ordering patterns resulting from increased inventory

15

may adversely affect our suppliers' willingness to meet our demand, if our demand increases in the future.

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

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

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

        A relatively small number of customers have accounted for most of our revenues to date. Any reduction or delay in sales of our products to one or more of these key customers could seriously reduce our sales volume and revenue and adversely affect our operating results. In particular, sales to three large customers, including a consumer electronics manufacturer, Apple Computer, Aiwa (which became a wholly-owned subsidiary of Sony Corporation in February 2002) accounted for approximately 23%, 30% and 9%, respectively, of revenue in the nine months ended September 30, 2002 and 0%, 22%, and 10% respectively, of total revenue in 2001. Moreover, sales to our five largest end customers represented approximately 71% of our total revenue in the nine months ended September 30, 2002 and 88% of our total revenue in 2001. We expect that we will continue to rely on the success of our largest customers and on our success in selling our existing and future products to those customers in significant quantities. However, we cannot be sure that we will retain our largest customers or that we will be able to obtain additional key customers or replace key customers we may lose or who may reduce their purchases.

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

        We currently rely on sales of our TA1101B, TA2020, TA2022, TA2024, TA3020 and TK2050 digital audio amplifiers to generate a significant portion of our revenue. Sales of these products amounted to 95% of our revenue in the nine months ended September 30, 2002, 94% of our revenue in 2001 and 93% of our revenue in 2000. 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 to budget expenses, which may cause fluctuations in our quarterly results.

        Because of our lengthy sales cycles, we may continue to experience a delay between 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 a lengthy sales cycle raise additional risks of customer decisions to cancel or change product plans, which could result in our loss of anticipated sales. Our new products are generally incorporated into our customers' products or systems at the design stage. To 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

16

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

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

        During 2001 and 2002, 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, which could adversely affect our business and operating results, including the possibility of additional inventory write-downs, over a prolonged period of time. In addition, we reduced our workforce during fiscal 2002 by approximately 20%, or about 15 people. If we continue to reduce our workforce, it may adversely impact our ability to respond rapidly to any renewed growth opportunities 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;



•

market acceptance of our products and our customers' products; and



•

market competition.

We seek but cannot guarantee success with regard to these factors.

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

17

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

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 San Jose, California, an area on or near a known earthquake fault within the state. In addition, businesses within the State of California have experienced 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 issued in connection with the financing in January 2002 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 3,328,760 shares of common stock, or approximately 8% of the common stock outstanding as of September 30, 2002. If all of the warrants are exercised in full, we would receive approximately $6.4 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 January 2002 financing.

        The shares of common stock eligible for sale under the registration statement filed in connection with the January 2002 Series A financing represent a large percentage of our outstanding common stock. The market for the common 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 listing requirements and our common stock may be subject to delisting.

        On August 13, 2002, we received a deficiency notice from the Nasdaq Stock Market, or Nasdaq, for failing to maintain the Nasdaq National Market's minimum bid price requirement for continued listing and have been given until November 11, 2002 in order to cure the deficiency by meeting the $1.00 minimum bid price for 10 consecutive trading days or face de-listing from trading on the Nasdaq National Market. Prior to our de-listing, we submitted an application to Nasdaq for transfer to their SmallCap Market. If the application is approved, we will have until February 10, 2003 to meet the

18

$1.00 minimum bid price requirement to remain listed on the NASDAQ SmallCap Market. We may also be eligible for an additional 180 day grace period after February 10, 2003 provided that we meet the initial Nasdaq SmallCap Market listing criteria. Furthermore, we may be eligible to transfer back to the Nasdaq National Market if by August 8, 2003 the bid price maintains the $1.00 per share requirement for 30 consecutive trading days and we have maintained compliance with all other continued listing requirements of the Nasdaq National Market. If the Nasdaq does not approve our transfer application to the Nasdaq SmallCap Market, our securities may be delisted. At that time we may appeal. Stock trading on the Nasdaq SmallCap Market is typically less liquid and usually involves larger variations between the bid and ask price than stock trading on the Nasdaq National Market. Therefore, the transfer of our stock from the Nasdaq National Market to the Nasdaq SmallCap Market could result in a decline in the trading market for our common stock that could depress our stock price and could have an adverse effect on the liquidity of our common stock and your ability to sell our common stock.

        Additionally, if our common stock is delisted from the Nasdaq National Market and the transfer application to the Nasdaq SmallCap Market is not approved, sales of our common stock would likely be conducted only in the over-the-counter market or potentially in regional exchanges. This may have a negative impact on the liquidity and the price of our common stock, and investors may find it more difficult to purchase or dispose of, or to obtain accurate quotations as to the market value of, our common stock. In addition, if our common stock is not listed on the Nasdaq National Market or the Nasdaq SmallCap Market and the trading price of our common stock was to remain below $1.00 per share, trading in our common stock would also be subject to the requirements of certain rules promulgated under the Exchange Act which require additional disclosures by broker-dealers in connection with any trades involving a stock defined as a "penny stock" (generally, a non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). In such event, the additional burdens imposed upon broker-dealers to effect transactions in our common stock could further limit the market liquidity of our common stock and the ability of investors to trade our common stock.

        We also believe that the current per share price level of our common stock has reduced the effective marketability of our shares of common stock because of the reluctance of many leading brokerage firms to recommend low-priced stock to their clients. Certain investors view low-priced stock as speculative and unattractive. In addition, a variety of brokerage house policies and practices tend to discourage individual brokers within those firms from dealing in low-priced stock. Such policies and practices pertain to the payment of broker's commissions and to time-consuming procedures that make the handling of low-priced stocks unattractive to brokers from an economic standpoint.

        In addition, because brokerage commissions on low-priced stock generally represent a higher percentage of the stock price than commissions on higher-priced stock, the current share price of our common stock can result in individual stockholders paying transaction costs (commissions, markups or markdowns) that represent a higher percentage of their total share value than would be the case if the share price were substantially higher. This factor also may limit the willingness of institutions to purchase our common stock at its current low share price.

If we engage in acquisitions, we will incur a variety of costs, and the anticipated benefits of the acquisitions may never be realized.

        In the future we may pursue acquisitions of complementary product lines, technologies and businesses. We may have to issue debt or equity securities to pay for future acquisitions, which could be dilutive to then current stockholders. We may incur certain liabilities or other expenses in connection with acquisitions, which could materially adversely affect our business, financial condition and results of operations.

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        In addition, acquisitions involve numerous other risks, including:

•

difficulties assimilating the operations, personnel, technologies and products of the acquired companies;



•

diversion of our management's attention from other business concerns;



•

increased complexity and costs associated with internal management structures;



•

risks of entering markets in which we have no or limited experience; and



•

the potential loss of key employees of the acquired companies.

For these reasons, we cannot be certain what effect future acquisitions may have on our business, financial condition and results of operations.

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

        The recent terrorist attacks in the United States, the U.S. response for these attacks and the related decline in consumer confidence and continued economic weakness have had a substantial adverse impact on the economy. If consumer confidence does not recover, our revenues may be adversely impacted for the remainder of fiscal 2002 and beyond.

        In addition, any similar future events may disrupt our operations or those of our customers and suppliers. In addition, these events have had and may continue to have an adverse impact on the U.S. and world economy in general and consumer confidence and spending in particular, which could harm our sales. Any of these events could increase volatility in the U.S. and world financial markets which could harm our stock price and may limit the capital resources available to us and our customers or suppliers. This could have a significant impact on our operating results, revenues and costs and may result in increased volatility in the market price of our common stock.

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

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

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Risks Related to Manufacturing

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

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

•

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 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

21

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 62% of our total revenue in the nine months ended September 30, 2002 was derived from sales to end customers based outside the United States. In 2001 and 2000, 72% and 71%, respectively, of our total revenue was derived from sales to end customers based outside of the United States. In addition, we often ship products to our domestic customers' international manufacturing divisions and subcontractors.

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

•

political, social and economic instability;



•

trade restrictions and tariffs;



•

the imposition of governmental controls;



•

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



•

import and export license requirements;



•

unexpected changes in regulatory requirements;



•

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. There can be no assurance that we will be able to compete successfully in the future against our existing or potential competitors, or that our business will not be harmed by increased competition.

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

        Products such as those that we offer may contain errors and defects when first introduced or as new versions are released. We have in the past experienced such errors and defects, in particular in the development stage of a new product. Delivery of products with production defects or reliability, quality or compatibility problems could significantly delay or hinder market acceptance of such products, which could damage our reputation and seriously harm our ability to retain our existing customers and to attract new customers. 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, 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.

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Risks Related to Our Intellectual Property

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

        Our business depends, in part, on our ability to protect our intellectual property. We rely primarily on patent, copyright, trademark and trade secret laws to protect our proprietary technologies. We cannot be sure that such measures will provide meaningful protection for our proprietary technologies and processes. As of September 30, 2002, we have twenty issued United States patents, and twenty-one additional United States patent applications which are pending. In addition, we have eleven international patents issued and an additional sixty-five 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 property of our strategic customers into our designs, and we have certain obligations with respect to the non-use and non-disclosure of such intellectual property.

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

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

        The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk of loss. Some of the securities that we may acquire in the future may be subject to market risk for changes in interest rates. To mitigate this risk, we plan to maintain a portfolio of cash equivalents and short-term investments in a variety of securities, which may include commercial paper, money market funds, government and non-government debt securities. We manage the sensitivity of our results of operations to these risks by maintaining a conservative portfolio, which is comprised solely of highly-rated, short-term investments. We do not hold or issue derivative, derivative commodity instruments or other financial instruments for trading purposes. Currently we are exposed to minimal market risks. Due to the short-term and liquid nature of our portfolio, fluctuations in interest rates within historical norms would not materially affect its value nor our financial condition.

Item 4. Controls and Procedures

        (a)    Evaluation of disclosure controls and procedures.    Based on their evaluation as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act"), are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

        (b)    Changes in internal controls.    There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

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Part II. Other Information

Item 1. Legal proceedings

        None

Item 2. Changes in Securities and Use of Proceeds

        None

Item 3. Defaults Upon Senior Securities

        None

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

        The Company's Annual Meeting of Stockholders was held on September 4, 2002 in Santa Clara, California. Proxies representing 32,626,032 shares of common stock or 78.95% of the total outstanding shares were voted at the meeting. The table below presents the voting results of election of the Company's Board of Directors:

        The stockholders approved an amendment to the 2000 Stock Plan to increase the number of shares of common stock reserved for issuance thereunder by 2,000,000. The proposal received 29,960,640 affirmative votes, 2,635,488 negative votes, and 29,904 abstentions.

        The stockholders approved the appointment of PricewaterhouseCoopers LLP as independent accountants of the Company for the fiscal year 2002. The proposal received 32,321,659 affirmative votes, 286,039 negative votes, and 18,334 abstentions.

Item 5. Other Information

        None

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits

        See Exhibit Index on page 31.

(b)

Reports on Form 8-K

        None.

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SIGNATURES

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

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CERTIFICATIONS

I, Dr. Adya S.Tripathi, certify that:

        1.    I have reviewed this quarterly report on Form 10-Q of Tripath Technology Inc.;

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

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

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

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

        b)    Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

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

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

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

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

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

Dated: November 13, 2002

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CERTIFICATIONS

I, David P. Eichler, certify that:

        1.    I have reviewed this quarterly report on Form 10-Q of Tripath Technology Inc.;

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

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

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

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

        b)    Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

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

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

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

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

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

Dated: November 13, 2002

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EXHIBIT INDEX

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QuickLinks

PART I. Financial Information
Item 1. Financial Statements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures

Part II. Other Information
Item 1. Legal proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K