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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 0-32809

VIALTA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

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

     Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

	Yes [   ]      No [X]

     The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, on August 5, 2002 was 83,179,930 shares.

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VIALTA, INC.

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PART I. FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

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

See accompanying notes to the condensed consolidated financial statements.

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VIALTA, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)

See accompanying notes to the condensed consolidated financial statements.

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VIALTA, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(amounts in thousands)

See accompanying notes to the condensed consolidated financial statements.

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VIALTA, INC.
(A Development Stage Company)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. THE COMPANY

     Vialta, Inc. (“Vialta” or the “Company”) was incorporated in California in April 20, 1999 as a subsidiary of ESS Technology, Inc. (“ESS”) and reincorporated in the State of Delaware on April 20, 2001. In August 2001, Vialta was spun off by ESS as a distribution to its stockholders. Vialta has developed a multi-media DVD player (“ViDVD”) that offers Internet access and other features, such as CD, MP3, karaoke, and support for other audio and video formats. Vialta has also developed a phone video station, known as Beamer®, which will allow consumers to add video to their phone calls, delivering a live motion color video picture using a standard phone.

     Since its inception, Vialta has been in the development stage, and has incurred substantial losses and negative cash flows from operations in every fiscal period since inception. For the cumulative period ended June 30, 2002, Vialta incurred losses of approximately $74.5 million and negative cash flows from operations of $57.3 million. Management expects operating losses and negative cash flows to continue for the foreseeable future and anticipates that losses may increase from current levels because of additional costs and expenses related to marketing activities, continued expansion of operations, continued development of Vialta’s web site and information technology infrastructure, expansion of product offerings and development of relationships with other businesses. Management believes that Vialta has sufficient cash, cash equivalents, and short-term investments to fund its development and growth through June 30, 2003. However, in the longer term, failure to generate sufficient revenues, raise additional capital or reduce certain discretionary spending could have a material adverse effect on Vialta’s ability to achieve its intended business objectives.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the unaudited interim financial statements reflect only those normal recurring adjustments necessary for a fair statement of the financial position, operating results and cash flows of the Company for the periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2001 and the period from April 20, 1999 (date of inception) through December 31, 2001, included in the Company’s Annual Report on Form 10-K filed on March 27, 2002. The results of operation for the six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for any other period or for the fiscal year ending December 31, 2002.

Interim unaudited information

     Preparing the Company’s financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the close of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Certain reclassifications have been made to present the financial statements on a consistent basis.

Reclassifications

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

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Cash and cash equivalents and restricted cash

     Vialta considers all highly liquid investments with an initial maturity of 90 days or less to be cash equivalents.

     During June 2002, the Company established a Letter of Credit for approximately $1,738,000 in favor of a third-party contract manufacturer. The Letter of Credit is secured by a Certificate of Deposit in the amount of approximately $1,738,000 and is disclosed as restricted cash. During July 2002, the Company established an additional Letter of Credit for approximately $2,420,000 in favor of the same third-party contract manufacturer. The Letter of Credit is secured by a Certificate of Deposit in the amount of approximately $2,420,000.

Revenue Recognition

     Vialta generally recognizes revenues upon shipment of products provided that persuasive evidence of an arrangement exists, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, there are no remaining significant obligations and allowance for returns can be reliably estimated. For transactions that do not meet the above criteria, revenue will be deferred until such criteria are met. The Company defers revenue on sales to distributors who have rights of returns and credits until products are resold by the distributors.

     The Company has not recognized revenues on shipments of products to date. Accounts receivable and deferred revenues have been recorded to reflect these shipment transactions.

Comprehensive Income (Loss)

     Comprehensive income is defined to include all changes in equity during a period from non-owner sources. The difference between net loss and comprehensive loss for the three months and six months ended June 30, 2002 was approximately $14,000 and $104,000, respectively, which related to unrealized losses on available-for-sale investments. Comprehensive loss for the three months and six months ended June 30, 2002 was approximately $7,878,000 and $14,507,000 respectively. For the three months and six months ended June 30, 2001, comprehensive loss approximated net loss.

NOTE 3. RELATED PARTY TRANSACTIONS

     The following is a summary of major transactions that resulted in charges by Vialta to ESS, which used to be the parent of Vialta, and by ESS to Vialta for the periods presented:

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NOTE 4. BALANCE SHEET COMPONENTS