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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