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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended June 30, 2004

OR

For the transition period from             to             .

Commission File Number 000-31081

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)

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 (“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  ¨    No   x

47,500,541 shares of the Registrant’s common stock were outstanding as of August 2, 2004.

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PART I. Financial Information

Item 1. Financial Statements

TRIPATH TECHNOLOGY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

Unaudited

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

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TRIPATH TECHNOLOGY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Unaudited

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

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Tripath Technology Inc.

Notes to Condensed Interim Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The unaudited condensed interim consolidated financial statements included herein have been prepared by Tripath Technology Inc. (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. These interim financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2003. The results of operations for the three and six months ended June 30, 2004 are not necessarily indicative of the results to be expected for any subsequent quarter or for 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 interim consolidated financial statements include the accounts of the Company and its wholly-owned Japanese subsidiary, which was incorporated in January 2001. All significant intercompany balances and transactions have been eliminated in consolidation. The U.S. dollar is the functional currency for the Company’s Japanese wholly-owned subsidiary. Assets and liabilities that are not denominated in the functional currency are remeasured into U.S. dollars and the resulting gains or losses are included in “Interest and other income, net.” Such gains or losses have not been material for any period presented.

The Company’s unaudited condensed interim consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred substantial losses and has experienced negative cash flow since inception and has an accumulated deficit of $183.2 million at June 30, 2004.

Beginning in August 2001, the Company instituted programs to reduce expenses including reducing headcount from 144 employees at the end of July 2001 to 64 employees at the end of June 2004 and reducing employees’ salaries by 10%. In September 2002 the Company relocated its headquarters which reduced rent expense and canceled its D&O policy which reduced insurance expense. These actions resulted in significant cost savings in 2003. The Company reduced its cash used in operating activities from approximately $13 million in 2002 to approximately $4 million in 2003. However during the first six months of 2004, we used approximately $6.1 million in operations. This increase from the corresponding prior year was mostly from the increase in inventory.

During 2003, warrants were exercised which resulted in the Company receiving proceeds totaling approximately $3.1 million. Subsequent to December 31, 2003 the Company received additional proceeds of approximately $2.3 million from the exercise of outstanding warrants. At June 30, 2004, the Company had working capital of $9.9 million, including cash of $5.5 million.

On August 2, 2004 the Company entered into stock purchase agreements with certain institutional investors under which it agreed to sell an aggregate of 2,500,000 shares of its common stock at a price of $2.00 per share. Upon the closing of this transaction, it is expected that the financing will result in approximately $4.9 million in net proceeds to the Company.

The Company requires more cash during 2004 to fund its operations. Management believes that such additional cash requirements could be met by first obtaining additional financing or by taking measures to reduce operating expenses such as reducing headcount or canceling research and development projects. However, the Company may not be able to obtain additional funds on terms that would be favorable to its stockholders and the Company, or at all. The Company’s short and long term prospects are dependent upon obtaining sufficient financing as needed to fund current working capital needs and future growth, and ultimately on achieving profitability.

The Company believes that its existing working capital at June 30, 2004, together with proceeds from its August 2004 financing and additional financings or debt transactions, as well as its ability to implement the aforementioned expense reduction measures, if needed, will be sufficient to meet its operating, working capital, investing and financing needs for at least the next twelve months. The Company has not made any adjustment to its consolidated financial statements as a result of the outcome of the uncertainty described above.

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2. Revenue recognition

The Company recognizes revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition”. The Company recognizes revenue when all of the following criteria are met: 1) there is persuasive evidence that an arrangement exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4) collectibility is reasonably assured. The following policies apply to the Company’s major categories of revenue transactions.

Sales to OEM Customers: Under the Company’s standard terms and conditions of sale, title and risk of loss transfer to the customer at the time product is shipped to the customer, FOB shipping point, and revenue is recognized accordingly. The Company accrues the estimated cost of post-sale obligations, including basic product warranties or returns, based on historical experience. The Company has experienced minimal warranty or other returns to date.

Sales to Distributors: The Company provides its distributors certain incentives such as stock rotation, price protection, and other offerings. As a result of these incentives, the Company defers recognition of revenue until such time that the distributor sells product to its customer.

Costs related to shipping and handling are included in cost of revenue for all periods presented.

3. Net loss per share

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

Total potential common stock of 8,676,000 and 8,468,000 shares were not included in the diluted net loss per share calculation for the three and six-month periods ended June 30, 2004, respectively, because to do so would be anti-dilutive. For the three and six month periods ended June 30, 2003, 10,145,000 and 10,027,000 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 periods presented (in thousands, except per share amounts):

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4. Deferred stock-based compensation

The Company recognized deferred stock-based compensation in connection with certain employee stock option grants and the issuance of restricted stock. The deferred stock-based compensation related to the employee stock option grants is being amortized over the vesting periods of the related options, generally four years, using an accelerated basis while the deferred stock-based compensation related to the issuance of restricted stock is being amortized over two years on a straight line basis. The fair value per share used to calculate deferred stock-based compensation was derived by reference to the share quoted price. 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):