---

---

SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

---

FORM 10-Q

---

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2001

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------------

Commission File Number: 001-16529

---

SAGE, INC.(Exact Name of Registrant as Specified in Its Charter)

|Delaware                                                       |  | 77-0501710                       
|-------------------------------------------------------------- |  | ---------------------------------
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (IRS Employer Identification No.)
|1601 McCarthy Boulevard, Milpitas, CA                          |  | 95035                            
|(Address of Principal Executive Offices)                       |  | (Zip Code)                       

(408) 383-5300(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 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 / /

As
of October 10, 2001, there were 14,212,026 shares of the registrant's common stock, $0.01 par value per share, outstanding.

---

---

---



SAGE, INC.        INDEX

|                              |  |                                                                                                                |  | Page
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | ----
|PART I. FINANCIAL INFORMATION
|Item 1.                       |  | Financial Statements (Unaudited)                                                                               |  |     
|                              |  | Condensed Consolidated Balance Sheets as of September 30, 2001 and March 31, 2001                              |  | 3   
|                              |  | Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2001 and 2000 |  | 4   
|                              |  | Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2001 and 2000           |  | 5   
|                              |  | Notes to Condensed Consolidated Financial Statements                                                           |  | 6   
|Item 2.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                          |  | 9   
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risks                                                    |  | 19  
|PART II. OTHER INFORMATION   
|Item 1.                       |  | Legal Proceedings                                                                                              |  | 31  
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                                                      |  | 31  
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                               |  | 31  

2

---



PART I

Item 1.  Financial Statements

SAGE, INC.        CONDENSED CONSOLIDATED BALANCE SHEETS        (In thousands)        (Unaudited)

|                                          |                                                                                                               | September 30,
2001                       |       | March 31,
2001 |       
|----------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | ----- | -------------- | ------
|ASSETS                                    |                                                                                                              
|Current assets:                           |                                                                                                               |                                          |       |                |       
|                                          | Cash and cash equivalents                                                                                     |                                          | $     | 31,731         |       
|                                          | Short-term marketable securities                                                                              |                                          |       | 6,589          |       
|                                          | Accounts receivable, net                                                                                      |                                          |       | 6,530          |       
|                                          | Inventories, net                                                                                              |                                          |       | 5,644          |       
|                                          | Prepaid expenses and other assets                                                                             |                                          |       | 1,640          |       
|                                          |                                                                                                               |                                          |       |                |       
|                                          |                                                                                                               | Total current assets                     |       |                | 52,134
|Property & equipment, net                 |                                                                                                               |                                          | 4,729 |                |       
|Lease deposits                            |                                                                                                               |                                          | 2,030 |                |       
|Goodwill and other intangible assets, net |                                                                                                               |                                          | 8,995 |                |       
|                                          |                                                                                                               |                                          |       |                |       
|                                          |                                                                                                               | Total assets                             |       | $              | 67,888
|                                          |                                                                                                               |                                          |       |                |       
|LIABILITIES AND STOCKHOLDERS' EQUITY      |                                                                                                              
|Current liabilities:                      |                                                                                                               |                                          |       |                |       
|                                          | Accounts payable                                                                                              |                                          | $     | 1,285          |       
|                                          | Accrued expenses and other liabilities                                                                        |                                          |       | 4,622          |       
|                                          |                                                                                                               |                                          |       |                |       
|                                          |                                                                                                               | Total current liabilities                |       |                | 5,907 
|                                          |                                                                                                               |                                          |       |                |       
|Stockholders' equity:                     |                                                                                                               |                                          |       |                |       
|                                          | Common stock, $0.01 par value; 50,000,000 shares authorized; 14,212,000 and 13,925,000 issued and outstanding |                                          |       | 142            |       
|                                          | Additional paid-in capital                                                                                    |                                          |       | 202,810        |       
|                                          | Notes receivable from stockholders                                                                            |                                          |       | (58            | )     
|                                          | Deferred compensation related to stock options and restricted stock                                           |                                          |       | (54            | )     
|                                          | Accumulated deficit                                                                                           |                                          |       | (140,859       | )     
|                                          |                                                                                                               |                                          |       |                |       
|                                          |                                                                                                               | Total stockholders' equity               |       |                | 61,981
|                                          |                                                                                                               |                                          |       |                |       
|                                          |                                                                                                               | Total liabilities & stockholders' equity |       | $              | 67,888
|                                          |                                                                                                               |                                          |       |                |       

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

3

---

SAGE, INC.        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS        (In thousands, except per share data, Unaudited)

|                                                       |                                           | Three Months Ended
September 30, |        | Six Months Ended
September 30, |      
|------------------------------------------------------ | ----------------------------------------- | -------------------------------- | ------ | ------------------------------ | -----
|
|Revenue                                                |                                           | $                                | 9,877  |                                | $    
|Cost of revenue                                        |                                           |                                  | 5,735  |                                |      
|Amortization of intangibles charged to cost of revenue |                                           |                                  |       |                                |      
|                                                       |                                           |                                  |        |                                |      
|Gross profit                                           |                                           |                                  | 4,142  |                                |      
|                                                       |                                           |                                  |        |                                |      
|Operating expenses:                                    |                                           |                                  |        |                                |      
|                                                       | Research and development                  |                                  |        | 2,879                          |      
|                                                       | Charge for in-process technology          |                                  |        |                               |      
|                                                       | Selling, general and administration       |                                  |        | 3,662                          |      
|                                                       | Business combination expenses (Note 3)    |                                  |        | 1,136                          |      
|                                                       | Amortization and write-off of intangibles |                                  |        | 642                            |      
|                                                       | Stock compensation                        |                                  |        | 26                             |      
|                                                       |                                           |                                  |        |                                |      
|                                                       |                                           | Total operating expenses         |        |                                | 8,345
|                                                       |                                           |                                  |        |                                |      
|Loss from operations                                   |                                           |                                  | (4,203 | )                              |      
|Interest and other income, net                         |                                           |                                  | 376    |                                |      
|                                                       |                                           |                                  |        |                                |      
|Net loss                                               |                                           | $                                | (3,827 | )                              | $    
|                                                       |                                           |                                  |        |                                |      
|Number of weighted average shares outstanding          |                                           |                                  | 14,087 |                                |      
|                                                       |                                           |                                  |        |                                |      
|Basic and diluted net loss earnings per share (Note 5) |                                           | $                                | (0.27  | )                              | $    
|                                                       |                                           |                                  |        |                                |      

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

4

---



SAGE, INC.        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)        (Unaudited)

|                                                 |                                                                                     | Six Months Ended September 30,     |                                       
|------------------------------------------------ | ----------------------------------------------------------------------------------- | ---------------------------------- | --------------------------------------
|
|Cash flows from operating activities:            |                                                                                     |                                    |                                       
|                                                 | Net loss                                                                            |                                    | $                                     
|                                                 | Adjustments to reconcile net loss to net cash used in operating activities:         |                                    |                                       
|                                                 |                                                                                     | Charge for in-process technology   |                                       
|                                                 |                                                                                     | Depreciation                       |                                       
|                                                 |                                                                                     | Amortization                       |                                       
|                                                 |                                                                                     | Stock compensation                 |                                       
|                                                 |                                                                                     | Changes in assets and liabilities: |                                       
|                                                 |                                                                                     |                                    | Accounts receivable                   
|                                                 |                                                                                     |                                    | Inventories                           
|                                                 |                                                                                     |                                    | Prepaid expenses and other assets     
|                                                 |                                                                                     |                                    | Accounts payable                      
|                                                 |                                                                                     |                                    | Accrued expenses and other liabilities
|                                                 |                                                                                     |                                    |                                       
|                                                 |                                                                                     |                                    |                                       
|                                                 |                                                                                     |                                    |                                       
|Cash flows from investing activities:            |                                                                                     |                                    |                                       
|                                                 | Sale of marketable securities, net                                                  |                                    |                                       
|                                                 | Acquisition of property and equipment                                               |                                    |                                       
|                                                 | Acquisition of other non-current assets                                             |                                    |                                       
|                                                 | Net cash acquired with Faroudja                                                     |                                    |                                       
|                                                 |                                                                                     |                                    |                                       
|                                                 |                                                                                     |                                    |                                       
|                                                 |                                                                                     |                                    |                                       
|Cash flow from financing activities:             |                                                                                     |                                    |                                       
|                                                 | Repayment of shareholder's note                                                     |                                    |                                       
|                                                 | Proceeds from issuance of common stock through employee stock purchase plan         |                                    |                                       
|                                                 | Proceeds from issuance of common stock upon exercise of stock options               |                                    |                                       
|                                                 |                                                                                     |                                    |                                       
|                                                 |                                                                                     |                                    |                                       
|                                                 |                                                                                     |                                    |                                       
|Net increase in cash and cash equivalents        |                                                                                     |                                    | 9,387                                 
|Cash and cash equivalents at beginning of period |                                                                                     |                                    | 22,344                                
|                                                 |                                                                                     |                                    |                                       
|Cash and cash equivalents at end of period       |                                                                                     | $                                  | 31,731                                
|                                                 |                                                                                     |                                    |                                       
|Non-cash investing and financing activities:     |                                                                                     |                                    |                                       
|                                                 | Issuance of common stock in connection with acquisition of Faroudja                 |                                    | $                                     
|                                                 |                                                                                     |                                    |                                       
|                                                 | Current assets, excluding cash, acquired in connection with acquisition of Faroudja |                                    | $                                     
|                                                 |                                                                                     |                                    |                                       
|                                                 | Current liabilities acquired in conection with acquisition of Faroudja              |                                    | $                                     
|                                                 |                                                                                     |                                    |                                       

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

5

---



SAGE, INC.        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        (Unaudited)

1.  Organization and business

Sage, Inc., a Delaware corporation (Sage), and its wholly owned subsidiaries, Sage Design Systems (India) Pvt., Ltd., and Faroudja, Inc.,
a Delaware corporation (Faroudja) (and its wholly owned subsidiary Faroudja Laboratories, Inc.), provide digital display and video processors, enabling superior picture quality for a variety of
consumer technology and PC-display products ranging from web appliances to TVs and flat panel monitors. Leveraging Faroudja technology from its acquisition of Faroudja in June 2000, Sage is
developing products that bring the home theater experience to the mass consumer and PC-display market through digitally enhanced television, projection displays, DVD players and internet appliances.
Sage believes that its systems-on-a-chip technology provides highly integrated mixed-signal and system functionality with higher picture quality than lower-quality processors at a similar component
cost.

2.  Basis of presentation

The unaudited condensed consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and note disclosures normally included in the annual financial statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted for interim financial reporting. These condensed consolidated financial statements should be read in conjunction with our financial statements and notes thereto for the
three years ended March 31, 2001 that are included in our Form 10-K Statement filed with the Securities and Exchange Commission. We believe that the accompanying financial statements
reflect all adjustments, consisting solely of normal and recurring adjustments, that are necessary for fair presentation of the results of the interim periods presented. The results of operations
presented for the period ended September 30, 2001 are not
necessarily indicative of the results to be expected for the full fiscal 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 disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

3.  Merger with Genesis Microchip, Incorporated

On September 27, 2001 Sage and Genesis Microchip Incorporated, a Nova Scotia corporation, agreed to a merge in a transaction to be accounted for as a
purchase, subject to the approval of stockholders of both companies, as well as regulatory reviews. Genesis Microchip Incorporated is converting from a Nova Scotia corporation to a Delaware
corporation, which will be called Genesis Microchip, Inc. Upon completion of the merger, stockholders of Sage will be able to exchange each share of Sage common stock held for .571 shares of
Genesis Microchip, Inc. It is expected that this transaction will close around the end of calendar 2001 or the beginning of calendar year 2002. During the quarter ended September 30,
2001 Sage incurred approximately $1.1 million of expenses in connection with a business combination, and expects to incur further such expenses in the quarter ending December 31, 2001.

4.  Merger with Faroudja

On February 18, 2000 Sage and Faroudja agreed to merge in a transaction to be accounted for as a purchase. On June 7, 2000, Stockholders of Sage
and Faroudja approved the Merger Agreement

6

---

between the companies, under which stockholders of Faroudja received 0.285 shares of Sage common stock for every share held.

During
the quarter ended March 31, 2001, management performed an impairment assessment of the identifiable intangible assets, including goodwill, recorded upon the acquisition
of Faroudja. The assessment was performed primarily due to two reasons. First, due to changed business conditions, including negative outlooks for rates of growth, Sage now expects significantly lower
revenues and lower profitability from the acquired operations. Second, there was a significant decline in Sage's stock price since measurement date of the acquisition and the recorded balance of
goodwill and other intangible assets significantly exceeded Sage's market capitalization prior to the impairment charge.

As
a result of this review, management recorded a $91.5 million impairment charge to reduce goodwill for the year ended March 31, 2001. The charge was determined based
upon estimated discounted cash
flows using a discount rate of 15 percent. The assumptions supporting cash flows, including the discount rate, were determined using management's best estimates.

The
table below reflects the unaudited pro-forma combined results of Sage and Faroudja, as if the merger had taken place April 1, 2000. The pro-forma information contains
certain adjustments including non-cash charges for amortization of intangibles amounting to $1.3 million and $7.4 million for the six months ended September 30, 2001 and 2000,
respectively, and excluding the charge of $7.2 million of in-process technology in the six months ended September 30, 2000. The pro-forma information does not necessarily reflect the
actual results that would have occurred had the merger taken place on April 1, 2000, nor is it necessarily indicative of future results of operations of the combined companies.

The
unaudited pro-forma combined results are as follows:

Six months ended September 30,2001

2000(In thousands, except per share data)Net sales

$
17,971

$
16,741Net loss


(6,508
)

(16,260
)Net loss per share:Basic and diluted

$
(0.47
)
$
(1.19
)Weighted average common shares outstandingBasic and diluted


13,959


13,619


5.  Earnings per share

Basic earnings per share are computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during that
period. Diluted earnings per share equal basic earnings per share because all equity instruments other then outstanding shares would be anti-dilutive. Approximately 735,096 and 429,892 outstanding
options were excluded from the calculation of earnings per share for the quarters ended September 30, 2001 and 2000, respectively.

7

---

6.  Inventories

Inventories consisted of the following:

September 30, 2001

March 31, 2001(In thousands)Finished goods

$
4,697

$
6,301Work-in-process


1,975


1,569Raw materials


1,152


1,400Subtotal


7,824


9,270Inventory reserve


(2,180
)

(2,409
)Total

$
5,644

$
6,861


7.  Segment Information

Sage manages its operations in two segments, integrated circuits (IC) and systems (home theater boxes and printed circuit boards). Sage does not report
operating expenses, depreciation and amortization, interest expense, capital expenditures or identifiable net assets by segment. All segment revenues are generated from external customers. Segment
information is as follows:

Three Months Ended September 30,

Six Months Ended September 30,2001

2000

2001

2000(In thousands)Revenues:ICs

$
7,019

$
4,167

$
12,048

$
7,870Systems


2,858


4,431


5,923


7,204Total revenue


9,877


8,598


17,971


15,074Cost of revenues:ICs


4,453


2,053


7,512


3,777Systems


1,282


2,317


2,684


3,951Total cost of revenue


5,735


4,370


10,196


7,728Gross profit:ICs


2,566


2,114


4,536


4,093Systems


1,576


2,114


3,239


3,253Total gross profit

$
4,142

$
4,228

$
7,775

$
7,346


8

---



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

This form 10-Q contains forward looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend that such forward-looking statements are subject to the safe harbors created thereby. The
forward-looking statements are based on current expectations that involve a number of risks and uncertainties. These forward-looking statements are based on assumptions regarding our business, which
involve judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately
and many of which are beyond our control. Any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be
realized. In addition, our business and operations are subject to substantial risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking
statements. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or
any other person that our objectives or plans will be achieved.



Sage designs, develops and markets high performance digital display processors used for digital displays and video processing. Flat panel displays and other
emerging digital display devices have substantial advantages over their traditional analog counterparts, and markets for these products are beginning to grow rapidly. Display signals are characterized
by several important attributes: resolution, frame refresh rate, scanning format and color depth. Combinations of these characteristics are called modes, and there are over 100 different modes used
today to display images on PCs and televisions. These modes must be recognized and processed to produce a high quality image on a display. Display manufacturers seek display processing solutions that
can function effectively with the large number of existing and emerging signal modes, ensure the compatibility of new displays with the large installed base of PCs and provide consumers with plug and
play capability. Increasingly the display industry is showing convergence as displays are developed supporting multiple types of signal, and the need for separate PC monitors and televisions becomes
unnecessary.

We
offer state-of-the-art digital display processors that provide highly integrated signal interfaces, signal reformatting and color processing capabilities. Our solutions are
compatible with a variety of commercially available display signal modes and display types and are designed with a common architecture, configurable software and modular components that can be easily
and rapidly incorporated into digital display devices. We sell our processing solutions to leading display manufacturers, including Compal, Fujitsu, NEC, Philips, Sanyo, Samsung, Sony and Toshiba

Since
our inception, we have focused primarily on the design and sale of high performance display processor ICs and will continue to do so as this is a high-growth volume market
serving major mass-market manufacturers of displays and televisions. However, we also have a legacy systems business supplying system solutions to other market channels, including board level
solutions to industrial customers and video processing boxes to the home theater market. As of the quarter ended September 2001, such system sales represented 29% of our total revenue. We
expect our IC business will grow rapidly, while our system business remains static or even declines over time resulting in ICs accounting for a growing majority of total revenue over the next few
years. Even though system activities are not our primary focus, we intend to continue offering products into the home theater markets for the foreseeable future. Our home theater box products, sold
under the Faroudja brand name, provide a powerful high-quality marketing umbrella which serves to shelter and promote a quality image for all our video processing products, including video processing
ICs that may be developed and offered to the mass market.

9

---

We recognize revenue at the time we ship products to our customers who generally have a short lead-time and maintain relatively limited inventory. In the case of system products sold
through distributors who have limited return rights, we do not recognize revenue until we have received evidence that they have sold the inventory to their end customers.

Since
November 1996, we have introduced a succession of new display processor ICs, starting with the Cheetah family and now featuring the Jaguar family. Our IC product
development road map is driven by (i) introduction of latest generation manufacturing processes, reducing the die size of our earliest ICs from .6 micron in stages to .18 micron in the case of
our latest IC, thereby reducing cost and improving performance; (ii) integration of increased levels of features such as integrated analog to digital conversion and digital receiver so as to
lower total system cost to our customer while increasing our average selling price; (iii) addition of incremental features such as AutoSet which simplifies end user calibration, Active Color
Management which allows a manufacturer to ensure consistent color appearance on panels sourced from different vendors and Picture in Picture (PiP) Auto detect to locate and optimize the color and
brightness of video window and background screen, and (iv) customization of our various technology and IP cores to produce a wider range of ICs with optimized price and performance levels for
different market segments. Whereas at the beginning of fiscal year 1999 we offered only one IC, the Cheetah 2, we now offer a series of fifteen different ICs, targeted at analog, digital, or dual
interface monitors, low or high resolution screens, and monitors (PC) or consumer products (televisions, DVDs and projectors).

Initially,
we purchased packaged, assembled and tested semiconductor products for our discrete digital display processors. However, with the launch of our new range of mixed signal
ICs, we have assumed greater responsibility over this process by separately subcontracting for the production of wafers, the assembly of the completed semiconductor, and their testing. While in the
short term this transition to a new manufacturing model exposes us to greater responsibilities for semiconductor yields and the
coordination of the assembly and testing process, we believe that our gross margins should improve and that the transition should result in our having greater control over the manufacturing process.

In
November 1999, we completed an initial public offering of 3,450,000 shares of common stock at an initial offering price of $12.00 per share, raising $37.2 million,
net of underwriting commission and related expenses.

On
June 7, 2000 Sage and Faroudja completed a merger in a transaction that was accounted for as a purchase. Faroudja is a developer and provider of home theater systems that
incorporate their proprietary decoding, de-interlacing and video enhancement technologies. The total purchase price of $154.7 million included the issuance of Sage Common Stock valued at
$133.9 million, the assumption of Faroudja stock options and warrants valued at $16.8 million, and direct transaction costs of approximately $4.0 million. Stockholders of Faroudja
received 0.285 shares of Sage common stock for every share held.

During
the fourth quarter ended March 31, 2001, management performed an impairment assessment of the identifiable intangible assets, including goodwill, recorded upon the
acquisition of Faroudja. The assessment was performed primarily due to two reasons. First, due to changed business conditions, including negative outlooks for rates of growth, Sage now expects
significantly lower revenues and lower profitability from the acquired operations. Second, there was a significant decline in Sage's stock price since measurement date of the acquisition and the
recorded balance of goodwill and other intangible assets significantly exceeded Sage's market capitalization prior to the impairment charge.

As
a result of this review, management recorded a $91.5 million impairment charge to reduce goodwill for the year ended March 31, 2001. The charge was determined based
upon estimated

10

---

discounted cash flows using a discount rate of 15 percent. The assumptions supporting cash flows, including the discount rate, were determined using management's best estimates.

On
September 27, 2001 Sage and Genesis Microchip, Incorporated, a Nova Scotia corporation, agreed to merge in a transaction to be accounted for as a purchase, subject to the
approval of stockholders of both companies, as well as regulatory reviews. Genesis Microchip Incorporated is converting from a Nova Scotia corporation to a Delaware corporation, which will be called
Genesis Microchip, Inc. Upon completion of the merger, stockholders of Sage will be able to exchange each share of Sage common stock held for .571 shares of Genesis Microchip, Inc. It is
expected that this transaction will close around the end of calendar 2001 or the beginning of calendar year 2002. During the quarter ended September 30, 2001 Sage incurred approximately
$1.1 million of expenses in connection with a business combination, and expects to incur further such expenses in the quarter ending December 31, 2001.

11

---





The following tables set forth, for the periods indicated, certain condensed consolidated statement of operations data reflected as a percentage of revenues.

|                               |                                            | Three Months Ended September 30, |      | Six Months Ended September 30, |     
|------------------------------ | ------------------------------------------ | -------------------------------- | ---- | ------------------------------ | ----
|
|Revenues                       |                                            |                                  |      |                                |     
|                               | ICs                                        |                                  | 71.1 | %                              | 48.5
|                               | Systems                                    |                                  | 28.9 | %                              | 51.5
|                               |                                            |                                  |      |                                |     
|                               |                                            | Total revenue                    |      | 100.0                          | %   
|Cost of revenues               |                                            |                                  |      |                                |     
|                               | ICs                                        |                                  | 45.1 | %                              | 23.9
|                               | Systems                                    |                                  | 13.0 | %                              | 26.9
|                               |                                            |                                  |      |                                |     
|                               |                                            | Total cost of revenue            |      | 58.1                           | %   
|                               |                                            |                                  |      |                                |     
|Gross profit margin            |                                            | 41.9                             | %    | 49.2                           | %   
|Operating expenses:            |                                            |                                  |      |                                |     
|                               | Research and development                   |                                  | 29.1 | %                              | 26.2
|                               | Charge for in-process technology           |                                  | 0.0  | %                              | 0.0 
|                               | Selling, general and administration        |                                  | 37.1 | %                              | 36.0
|                               | Business combinations                      |                                  | 11.5 | %                              | 0.0 
|                               | Amortization and impairment of intangibles |                                  | 6.5  | %                              | 69.1
|                               | Stock compensation expense                 |                                  | 0.3  | %                              | 0.7 
|                               |                                            |                                  |      |                                |     
|                               |                                            | Total operating expenses         |      | 84.5                           | %   
|                               |                                            |                                  |      |                                |     
|Loss from operations           |                                            | (42.6                            | )%   | (82.9                          | )%  
|Interest income (expense), net |                                            | 3.8                              | %    | 10.3                           | %   
|                               |                                            |                                  |      |                                |     
|Net loss                       |                                            | (38.8                            | )%   | (72.6                          | )%  
|                               |                                            |                                  |      |                                |     



Revenue.Revenue increased 15% to $9.9 million in the quarter ended September 30, 2001 from
$8.6 million in the quarter ended September 30, 2000. The increase in net revenue is due partly to increases in design wins as well as the introduction of new products. In the quarter
ended September 30, 2001 sales revenue increased sequentially by 22% from the preceding quarter reflecting a ramp-up of new product offerings into the integrated digital interface market and
the integrated analog interface market; and a more than 156% increase in the number integrated circuit chips shipped into our emerging consumer market. Revenues from two customers, Panasonic and
Compal, accounted for 13% and 12%, respectively, of total revenue.

IC
revenue increased 67% to $7.0 million in the quarter ended September 30, 2001 from $4.2 million in the quarter ended September 30, 2000. The increase in
IC revenue is due to a 73% increase in units sold to new and existing customers offset by lower average selling prices (ASP). The decline in the ASP reflects an increasing proportion of mature
discrete products such as the Cheetah 4 and the Jaguar D IC. Sales of ICs to consumer markets accounted for $3.0 million of IC revenue. Revenues from three customers, Panasonic, Compal and
Samsung, accounted for 18%, 16% and 10%, respectively, of total IC revenues.

12

---

System revenues decreased 34% to $2.9 million in the quarter ended September 30, 2001 from $4.4 million in the quarter ended September 30, 2000. System
revenues include revenues from box and board level products. The decrease in system revenues represent significant decreases in board level sales of about $0.5 million and decreases in revenue
generated from box products of about $1.0 million. The decline in system revenue is due in part to our decision to exit the board business and a slow down in shipments of our Native Rate
Series digital video processing and image enhancing products as a result of customers deferring purchases in anticipation of new and enhanced firmware, which was released in late
August 2001, and the drop in consumer confidence and the uncertainties surrounding the events of September 11, 2001.

Sage's
future profitability and rate of growth, if any, will continue to be directly affected by increased price competition, a maturing IC market and increasingly higher revenue base
from which to grow. Our growth rate and revenue depends significantly on renewals of existing orders as well as expanding our customer base. If our renewal rate or our pace of new customers slows, our
net revenues and operating results would be adversely affected. While DisplaySearch, the firm that analyzes industry data, reports that the flat panel market grew from 4.2 million units to
6.1 million units in calendar year 2000, and is projected to grow further to 14.1 million units in calendar year 2001, any shortfall in this growth would adversely affect our sales
potential.

Cost of Revenue.Cost of net revenue increased 30% to $5.7 million in the quarter ended September 30,
2001 from $4.4 million in the quarter ended September 30, 2000. The increase in cost of net revenues from the September quarter 2000 to the September quarter 2001 was
primarily due to the increase in sales volume.

Cost
of IC revenue consists of the cost of display processor ICs purchased from independent foundry suppliers. Cost of IC revenues increased 114% to $4.5 million in the quarter
ended September 30, 2001 from $2.1 million in the quarter ended September 30, 2000. The increase in IC cost of revenue from the September quarter 2000 to the
September quarter 2001 was primarily due to a 73% increase in volume of IC shipments. As a percentage of IC revenue, cost of IC revenue was 63% in the quarter ended September 30, 2001
and 49% in the quarter ended September 30, 2000. The increase in cost of IC revenue from the September quarter 2000 to September quarter 2001 as a percentage of IC revenue is due
to the increase in costs experienced as a result of higher silicon costs for ASICs purchased or committed during the foundry capacity constraints of late 2000, and product mix.

Cost
of system revenue consists principally of the cost of purchase, assembly and test of system level products from subcontractors. The cost of system revenue decreased 43% to
$1.3 million in the quarter ended September 30, 2001 from $2.3 million in the quarter ended September 30, 2000. The decrease in cost of revenue for system products from the
September quarter 2000 to the September quarter 2001 is due to a reduction in sales in system board and box products.

Gross margin.Our overall gross margin decreased to 41.9% in the quarter ended September 2001 from 49.2% in the
quarter ended September 2000. The decrease represents decreases in gross margin for ICs as a result of higher than expected test costs and lower than expected yields on recently launched wafer
assembly chips which accounted for an increasing proportion of total chips sold in the quarter ended September 30, 2001, changes in product mix, and decreases in prices charged for discrete processors
used in two chip solutions which were reduced to compete directly with a competitor offering an integrated one chip solution. These decreases are offset by higher gross margins for system level
products.

Research and development.Our research and development expenses consist primarily of compensation and personnel related
expenses, engineering and design tools, and the costs for purchased materials, designs and tooling which can fluctuate significantly from period to period as a

13

---

result of our product development cycles. Our research and development expenses were $2.9 million and $2.3 million for the quarters ended September 30, 2001 and 2000,
respectively. Research and development expenses represented 29.1% and 26.2% of revenues for the quarters ended September 30, 2001 and 2000, respectively. The increase in personnel, engineering
and design tools, purchased materials, designs and tooling is attributable to the continued development of the new range of Jaguar and FLI IC products and the Native Rate Series of systems products,
which were introduced in the second half of fiscal year 2001. Sage anticipates that research and development expenses will continue to increase in absolute dollars, but may fluctuate as a percentage
of net revenue and when we commit to product development efforts in connection with our next generation of semiconductors.

We
believe that our ability to maintain our competitiveness and increase market share will depend largely upon our ability to enhance existing products and develop, acquire and
integrate new products. The market for ICs is characterized by rapid technological change, and is highly competitive with respect to timely product introductions. The timing and amount of research and
development expenses may vary significantly based upon the number of new products and significant upgrades under development and products acquired during a given period.

Charge for in-process technology.There were no in-process technology charges in the three-month periods ended
September 30, 2001 and 2000.

Selling, general and administration.Selling, general and administrative expenses include salaries, in-house
commissions, commissions to independent sales distributors and representatives, travel, trade shows, advertising and other promotional expenses. Selling, general and administration expenses increased
19% to $3.7 million in the quarter ended September 2001 from $3.1 million in quarter ended September 2000. The increase in selling, general and administration expenses was
principally related to the costs associated with the introduction of new products, including the Jaguar and the FLI family of ICs, and the cost of promoting and developing new customers. As a
percentage of revenue, selling, general and administration expenses represented 37.1% and 36.0% of revenues for the September quarter 2001 and 2000, respectively. We anticipate that selling,
general and administrative expenses will continue to increase in absolute dollars, but will decline as a percentage of net revenue.

Business combination expenses.Business combination expenses were $1.1 million and $0 in the quarters ended
September 30, 2001 and 2000, respectively. Business combination expenses primarily represent the cost of outside consultants related to the proposed merger with Genesis Microchip Incorporated.

Amortization and write-off of intangible assets.Intangible assets consist of goodwill, technology and other intangible
assets acquired in the purchase of Faroudja. Sage amortized $0.6 million and $5.9 million of intangible assets for the quarters ended September 2001 and 2000, respectively. The
decrease in amortization is a direct result of the impairment charge against goodwill and other intangible assets recorded at the March 31, 2001 year-end.

Stock compensation.Sage expensed stock compensation of approximately $26,000 and $64,000 in the quarters ended
September 2001 and 2000, respectively. Stock compensation expenses relate to options granted below the perceived fair market value prior to Sage's initial public offering and represent the
difference between the deemed fair market value of our common stock on the date of grant and the exercise price of stock options on the date of grant.

Interest and other income (expense), net.Net interest and other income amounted to $376,000 and $884,000 in the
quarters ended September 2001 and 2000, respectively. This decrease is the result of lower investment balances and decreases in interest rates and dividends earned.

Provision for income taxes.Sage incurred operating losses in fiscal years 2001 and 2000, and therefore made no
provision for income tax in these fiscal years. As of March 31, 2001, Sage had

14

---

approximately $15 million in net operating losses, which are available to offset future taxable income and will expire between 2011 and 2021.



Revenue.Revenue increased 19% to $18.0 million in the six-month period ended September 30, 2001 from
$15.1 million in the six-month period ended September 30, 2000. The increase in net revenue is due partly to increases in design wins as well as the introduction of new products. In the
six month period ended September 30, 2001 sales increased sequentially by 10% from the six month period ending March 31, 2001 reflecting the launch and initial shipments of new product
offerings into the integrated digital interface market and the integrated analog interface market; and an increase in the number integrated circuit chips shipped into our emerging consumer market.
Revenues from one customer, Compal, accounted for 11% of total revenues for the six-month period ending September 30, 2001.

IC
revenue increased 52% to $12.0 million in the six-month period ended September 30, 2001 from $7.9 million in the six-month period ended September 30,
2000. The increase in IC revenue is due to a 60% increase in units sold to new and existing customers offset by lower average selling prices (ASP). The decline in the ASP reflects an increasing
proportion of mature discrete products such as the Cheetah 4 and the Jaguar D IC. Sales of ICs to consumer markets accounted for $4.2 million of IC revenue. Revenues from two customers, Compal
and Hynix, accounted for 16% and 10%, respectively, of total IC revenues.

System
revenues decreased 18% to $5.9 million in the six-month period ended September 30, 2001 from $7.2 million in the six-month period ended
September 30, 2000. System revenues include revenues from box and board level products. The decrease in system revenues represent the net decreases in board level sales of about
$1.6 million offset by $0.3 million incremental revenue generated from the box level products acquired with the Faroudja acquisition. The decline in system revenue is due in part to our
decision to exit the board business and a slow down in shipments of our Native Rate Series digital video processing and image enhancing products as a result of customers deferring purchases in
anticipation of new and enhanced firmware, which was released in late August 2001, and the drop in consumer confidence and the uncertainties surrounding the events of September 11, 2001.

Sage's
future profitability and rate of growth, if any, will be directly affected by increased price competition, a maturing IC market and increasingly higher revenue base from which
to grow. Our growth rate and revenue depend significantly on renewals of existing orders as well as expanding our customer base. If our renewal rate or our pace of new customers slows, our net
revenues and operating results would be adversely affected. While DisplaySearch, the firm that analyzes industry data, reports that the flat panel market grew from 4.2 million units to
6.6 million units in calendar year 2000, and is projected to grow further to 14.5 million units in calendar year 2001, any shortfall in this growth would adversely affect our sales
potential.

Cost of Revenue.Cost of net revenue increased 32% to $10.2 million in the six-month period ended
September 30, 2001 from $7.7 million in the six-month period ended September 30, 2000. The increase in the six-month period ended September 30, 2001, including
$1.5 million of incremental cost of revenue from the Faroudja acquisition. The increase in cost of net revenues from the September quarter 2000 to the September quarter 2001 was
primarily due to the increase in sales volume.

Cost
of IC revenue consists of the cost of display processor ICs purchased from independent foundry suppliers. Cost of IC revenues increased 97% to $7.5 million in the six-month
period ended September 30, 2001 from $3.8 million in the six-month period ended September 30, 2000. The increase in IC cost of revenue from the September quarter 2000 to
the September quarter 2001 was primarily due to a 60% increase in volume of IC shipments. As a percentage of IC revenue, cost of IC revenue

15

---

was 62% in the six-month period ended September 30, 2001 and 48% in the six-month period ended September 30, 2000. The increase in cost of IC revenue from the six-month period ended
September 30, 2000 to six-month period ended September 30, 2001 as a percentage of cost of IC revenue is due to the increase in costs experienced as a result of higher silicon costs for
ASICs purchased or committed during the foundry capacity constraints of late 2000, additional test charges and product mix.

Cost
of system revenue consists principally of the cost of purchase, assembly and test of system level products from subcontractors. The cost of system revenue decreased 33% to
$2.7 million in the six-month period ended September 30, 2001 from $4.0 million in the six-month period ended September 30, 2000.

Gross margin.Our overall gross margin decreased to 43.3% in the six-month period ended September 2001 from
48.7% in the six-month period ended September 2000. The decrease represents decreases in gross margin for ICs as a result of higher silicon cost of certain ICs following increases in foundry
prices experienced in the last half of 2000 as a result of capacity constraints, changes in product mix, the erosion of ASPs for mature discrete IC products, decreases in prices charged for discrete
processors used in two chip solutions which were reduced to compete directly with a competitor offering an integrated one chip solution, and delays in introducing new integrated mixed-signal ICs which
gave rise to a maturing of the product mix. These decreases are offset by increases in
gross margin for system level products due to changes in product mix. System level sales in the September 2001 quarter were principally home theater product sales, which have higher margins
then board level products. System level sales in the six-month period ended September 30, 2000 consisted mainly of lower margin board products since the acquisition of the Faroudja home theater
business did not occur until late in the June 2000 quarter.

Research and development.Our research and development expenses consist primarily of compensation and personnel related
expenses, engineering and design tools, and the costs for purchased materials, designs and tooling which can fluctuate significantly from period to period as a result of our product development
cycles. Our research and development expenses were $5.5 million and $3.7 million for the six-month periods ended September 30, 2001 and 2000, respectively. Research and
development expenses represented 30.4% and 24.5% of revenues for the six-month periods ended September 30, 2001 and 2000, respectively. The increase in personnel, engineering and design tools,
purchased materials, designs and tooling is attributable to the continued development of the new range of Jaguar and FLI IC products and the Native Rate Series of systems products, which were
introduced in the second half of fiscal year 2001. Sage anticipates that research and development expenses will continue to increase in absolute dollars, but may fluctuate as a percentage of net
revenue and when we commit to product development efforts in connection with our next generation of semiconductors.

We
believe that our ability to maintain our competitiveness and increase market share will continue to depend largely upon our ability to enhance existing products and develop,
acquire and integrate new products. The market for ICs is characterized by rapid technological change, and is highly competitive with respect to timely product introductions. The timing and amount of
research and development expenses may vary significantly based upon the number of new products and significant upgrades under development and products acquired during a given period.

Charge for in-process technology.Sage's in-process technology charges were $0 and $7.2 million in the six-
month periods ended September 30, 2001 and 2000. The acquired in-process technology from Faroudja was valued at $7.2 million, which was expensed in September 2000.

Selling, general and administration.Selling, general and administrative expenses include salaries, in-house
commissions, commissions to independent sales distributors and representatives, travel, trade shows, advertising and other promotional expenses. Selling, general and administration expenses

16

---

increased 26% to $7.2 million in the six-month period ended September 2001 from $5.7 million in quarter ended September 2000. The increase in selling, general and
administration expenses was principally related to the incremental costs of Faroudja arising from the acquisition, the costs associated with the introduction of new products, including the Jaguar and
the FLI family of ICs, and the cost of promoting and developing new customers. As a percentage of revenue, selling, general and administration expenses represented 39.9% and 38.1% of revenues for the
September quarter 2001 and
2000, respectively. We anticipate that selling, general and administrative expenses will continue to increase in absolute dollars, but will decline as a percentage of net revenue.

Business combinations.Business combination expenses were $1.1 million and $0 in the quarters ended
September 30, 2001 and 2000, respectively. Business combination expenses primarily represent the cost of outside consultants related to the proposed merger with Genesis Microchip Incorporated.

Amortization and write-off of intangible assets.Intangible assets consist of goodwill, technology and other intangible
assets acquired in the purchase of Faroudja. Sage amortized $1.3 million and $7.4 million of intangible assets for the six-month periods ended September 2001 and 2000,
respectively. The decrease in amortization is a result of the impairment charge against goodwill and other intangible assets recorded at the March 31, 2001 year-end.

Stock compensation.Sage expensed stock compensation of approximately $61,000 and $152,000 in the six-month periods
ended September 2001 and 2000, respectively. Stock compensation expenses relate to options granted below the perceived fair market value prior to Sage's initial public offering and represent
the difference between the deemed fair market value of our common stock on the date of grant and the exercise price of stock options on the date of grant.

Interest and other income (expense), net.Net interest and other income amounted to $0.8 million and
$1.5 million in the six-month periods ended September 2001 and 2000, respectively. This decrease is the result of lower investment balances and decreases in interest rates and dividends
earned.

Provision for income taxes.Sage incurred operating losses in fiscal years 2001 and 2000, and therefore made no
provision for income tax in these fiscal years. As of March 31, 2001, Sage had approximately $15 million in net operating losses, which are available to offset future taxable income and
will expire between 2011 and 2021.



Since inception, we have satisfied our liquidity requirements principally through the issuance and sale of private equity securities, totaling approximately
$17.7 million, and an initial public offering in November 1999, which raised approximately $37.2 million, net of fees and expenses. We also acquired $18.7 million in
incremental cash as a result of our acquisition of Faroudja in June 2000. During the six months ended September 30, 2001, cash increased $9.4 million, our investment in short-term
marketable securities decreased $12.4 million, and we received proceeds of approximately $2.0 million from the employee stock purchase program and from exercised options. The net
decrease in cash, cash equivalents and marketable securities is $3.1 million for the six-month period ended September 30, 2001.
The cash was used to acquire property and equipment, fund leasehold improvements at our new design center in India, and fund current operations.

As
of September 30, 2001, we had $31.7 million in cash and cash equivalents and $6.6 million in short-term marketable securities. In addition, we had a
$5.0 million credit facility under which no borrowings had been made. We believe that our existing cash resources and credit facility will be sufficient to meet our capital requirements through
the next twelve months. We may need to raise additional equity or debt financing in the future, although we are not currently negotiating for additional financing nor do we have any plans to obtain
additional financing. Our future capital requirements will depend on many factors, including the rate of revenue growth, profitability, timing

17

---

and extent of spending to support research and development programs, planned facility improvements in India, expansion of selling and marketing and administrative activities, timing or introductions
of new products and product enhancements and market acceptance of our products. Further, we cannot assure you that additional equity or debt financing, if required, will be available on acceptable
terms, or at all. If we are unable to obtain additional capital, we may be required to reduce the scope of our planned product development, selling and marketing activities, which could harm our
business, financial condition and results of operations. In the event that we do raise additional equity financing, existing investors could be further diluted.

From
time to time, we may evaluate acquisitions of businesses, products or technologies that complement our business. Any transaction, if consummated, may consume a portion of our
working capital or require the issuance of equity securities that may result in further dilution to existing stockholders.



In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 (SFAS 133)
"Accounting for Derivative Instruments and Hedging Activities," which establishes new accounting and reporting standards for derivative instruments and hedging activities. SFAS 133, as amended
by SFAS 137 and 138, requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the
statement of operations or as a component of comprehensive income, depending on the type of relationship that exists. As amended, SFAS 133 is effective for Sage's fiscal year 2002. We have
determined that due to our limited use of derivative instruments, the adoption of SFAS 133 did not have a material impact on Sage's results of operations or its financial position.

In
December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101
provides guidance for revenue recognition under certain circumstances. The adoption of SAB 101 did not have a material impact on Sage's results of operations or its financial position.

In
March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation," an interpretation of APB Opinion
No. 25. The Interpretation is intended to clarify certain problems that have arisen in practice since the issuance of APB 25. The adoption of FASB Interpretation No. 44 did not have a
material impact on Sage's results of operations or its financial position.

In
July 2001, the FASB issued Statement of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations." SFAS 141 requires the purchase
method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. Sage did not have any business combination transactions in the
quarter ended September 30, 2001.

In
July 2001, the FASB issued Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets," which in Sage's case is
effective for fiscal years beginning after December 15, 2001. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes
provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of
certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. We are currently assessing the impact of SFAS 142 on Sage's
financial position and results of operations.

18

---

Item 3.  Quantitative and Qualitative Disclosures About Market Risks



Sage's cash equivalents and short-term investments are exposed to financial market risk due to fluctuation in interest rates, which may affect our interest
income and the fair market value of our investments. We manage the exposure to financial market risk by performing ongoing evaluations of our investment portfolio and presently invest in certificates
of deposit issued by banks and investment-
grade government and corporate debt and equity securities. These securities are highly liquid and generally mature within 12 months from our purchase date. Due to the short maturities of our
investments, the carrying value should approximate the fair value. In addition, we do not use our investments for trading or other speculative purposes. We have performed an analysis to assess the
potential effect of reasonably possible near-term changes in interest rates. The effect of any change in foreign currency exchange rates is not expected to be material to our results of operations,
cash flows or financial condition. Due to the short duration of our investment portfolio, an immediate 10% change in interest rates would not have a material effect on the fair market value of our
portfolio. Therefore, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of such a change.



Sage is an international company, selling products globally and, in particular, in Japan, Taiwan and Korea. Although we transact our business in U.S. dollars,
we cannot assure you that future fluctuations in the value of the U.S. dollar would not affect the competitiveness of our products, gross profits realized, and results of operations. Further, we incur
expenses in India, Japan, Taiwan and other countries that are denominated in currencies other than U.S. dollars. We cannot estimate the effect that an immediate 10% change in foreign currency exchange
rates would have on our future operating results or cash flows as a direct result of changes in exchange rates. However, we do not believe that we currently have any significant direct foreign
currency exchange rate risk and have not hedged exposures denominated in foreign currencies or any other derivative financial instruments.

19

---



BUSINESS RISKS

This Quarterly Report on Form 10-Q contains numerous statements of a forward-looking nature relating to potential future events
or to our future financial performance. Our actual results may differ significantly from those forward-looking statements.

You should carefully consider the risk factors described below, and all other information contained in this report, before making an investment decision
regarding our common stock. The risks and uncertainties described below are not the only ones we face. If any of the events or circumstances described below arises, our business, financial condition
or results of operations could be seriously harmed, the value of our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently
known to us, or that may be currently considered by us to be immaterial, may also impair our business operations.

A significant amount of Sage's revenues arise from a few customers and any decrease in revenues from these few customers could significantly impact our total revenues.

Sage is dependent on a limited number of large customers. We will, for the foreseeable future, also be dependent on a limited number of large customers for a
substantial portion of our revenues. As a result of customer concentration any one of the following factors could significantly impact our total revenues:



The
manufacturing market for digital televisions, high definition televisions, liquid crystal display monitors and plasma displays is highly concentrated among relatively few large
manufacturers. We expect that our operating results will continue to depend on revenues from a relatively small number of manufacturers and their suppliers.

The reliance by Sage on a limited number of large customers reduces our ability to negotiate favorable pricing terms with our customers.

The markets for digital display and video image enhancement products are highly concentrated among relatively few large manufacturers of certain types of
personal computers, televisions, home theaters and consumer electronics. These manufacturers have significantly greater financial and other resources than us; therefore we may be unable to negotiate
favorable pricing terms with them. Any inability to negotiate favorable pricing terms with customers could impact our ability to generate positive earnings.

Any delay in introducing new products or enhancements to existing products could reduce customer acceptance of Sage's products and could decrease our market share or revenues.

Our display-manufacturing customers have regular design cycles for their next display models. Our future success will depend to a substantial degree upon our
ability to develop and introduce new products and enhancements to our existing products, and to do so on a schedule that makes our products and enhancements available at the time our customers are
making purchasing decisions.

Likewise,
we are developing consumer video products that are designed to conform to certain current video processing industry standards. However, there can be no assurance that
manufacturers will continue to follow these standards or that more desirable standards will not emerge. The acceptance of our products also depends in part upon content providers developing and
marketing

20

---

content for end-user systems, such as video and audio playback systems, in a format compatible with our products. There can be no assurance that these or other factors beyond our control will not
adversely affect the development of markets for our products.

Our
products and product enhancements must incorporate technological changes and innovations to meet evolving customer and industry standards. Our future success will depend, to a
substantial degree, upon our ability to develop and introduce new products and enhancements to our existing products that meet evolving customer and industry standards, and to do so on a schedule that
makes the products and enhancements available at the time our customers are making purchasing decisions. For example, in the face of pressure from OEM customers to reduce cost and increase performance
by integrating an analog interface with a discrete display processor as a single chip solution, we took longer than planned, and longer than one of our competitors to introduce such a product, thereby
losing market share

Because display and video processors are complex, they may have errors or defects that are found only after the processors have been incorporated into Sage's customers'
products, which could result in warranty claims and a reduction in revenues.

Our display processors are complex products and are designed to be incorporated into digital and high definition display devices which are themselves complex.
Although the products are, and will continue to be, thoroughly tested, design and manufacturing defects may not be discovered during the manufacturing and testing process and may only be discovered
when the finished products are connected to a signal source. Consequently, customers may discover errors or defects in hardware or software after large quantities of products have been fully
incorporated into customers' digital and video display devices. To date, however, our customers have not, to our knowledge, discovered any significant errors or defects in their products. If our
customers were to discover errors or defects that may be identified after a device is connected to a signal source, the customer might hold us responsible for:



In
addition, in the event of a significant number of product returns due to a defect or recall of our products, revenues, gross margin and our name brands could be significantly
harmed.

There are risks associated with the failure to identify new markets and applications.

The markets in which we compete or seek to compete are subject to rapid technological change, frequent new product introductions, changing customer
requirements for new products and features, and evolving industry standards. The introduction of new technologies and the emergence of new industry standards could render our products less desirable
or obsolete. If we fail to produce technologically competitive products in a cost-effective manner and on a timely basis or are unable to comply with industry standards in the future, our business and
results of operations could be harmed.

Substantial
portions of our revenues have been derived from sales of products that address the home theater and commercial presentation markets. Certain of our current Faroudja
branded products

21

---

and future product plans address markets that are not now and may never become substantial commercial markets. Our future growth will depend, in large part, on our ability to identify new markets for
our products and to apply our products and technology to evolving markets and applications. There can be no assurance that these markets will become substantial commercial markets or that our products
will achieve market acceptance in those markets. There can be no assurance that new display technologies will be successful or that the television and personal computer markets will converge, that
these new markets will present substantial commercial opportunities, or that our products will adequately address these markets in a timely manner.

Although
we expect to continue to make significant investments in research and development to enhance our current products and to develop products incorporating new and existing
technologies, we cannot offer any assurance that new products or product enhancements will be successfully developed. If developed, we cannot offer any assurance that any new products or product
enhancements will be developed in time to capture market opportunities or achieve a significant or sustainable level of acceptance in new and existing markets.

Sage will be exposed to distribution risks and issues surrounding the diversification of sales channels.

We sell our products domestically and internationally through distributors, third party sales representatives and dealers and our success depends on the
continued efforts of this network. The loss of, or reduction in sales to, any of our key customers, could have a material adverse affect on our operating results. The short life cycles of our
products, and the difficulty in predicting future sales, increase the risk that new product introductions, price reductions by us or our competitors or other factors affecting the flat panel display
and video imaging industry could result in significant product returns. In addition, there can be no assurance that new product introductions by competitors or other market factors will not require us
to reduce prices in a manner or at a time which has a material adverse impact upon our business, financial condition and operating results.

An
integral element of our strategy is to enhance and diversify our distribution channels, including the development of in-house sales forces, and reducing the cost of our third party
sales representatives. Our ability to achieve revenue growth in the future will depend in large part on our success in recruiting and training sufficient sales personnel, third party sales
representatives, distributors and dealers, of which, a certain number currently distribute, or may in the future distribute, the product lines of our competitors. There can be no assurance that we
will be able to attract, train and retain a sufficient number of distributors, third party sales representatives or direct sales personnel, or that they will continue to recommend, or devote
sufficient resources to market and provide customer support for our products. All of these factors could have a material adverse effect on our business, financial condition and operating results.

Intense competition may reduce the demand or prices for Sage's products, decreasing our gross margin.

The markets in which we compete are intensely competitive. Rapid technological change, evolving industry standards, and declining average selling prices in
these markets could have a material adverse effect on our business, financial condition and results of operations. As the overall price of personal computers, televisions and other products that use
our technology continues to fall, we may be required to offer solutions to manufacturers at discounted prices due to increased price competition. At the same time, new, alternative display and video
processing technologies and industry standards may emerge that directly compete with technologies that we offer. We may be required to increase our investment in research and development at the same
time that product prices are falling. In addition, even after making this investment, we cannot be sure that our technologies will be superior to those of our competitors or that our products will
achieve market acceptance, whether for performance or price reasons. Failure to effectively respond to these trends could reduce the demand for our products.

22

---

We compete with a range of diversified companies that offer display and video processors, some of which have substantially greater resources than we do. In particular, we principally
compete against Genesis Microchip, Inc., Pixelworks, Inc., Silicon Image, Inc., and ST Micro. We also compete against Communications Specialties Inc., Leitch Incorporated,
Panasonic Broadcast and Television Systems Company, DVDO, Inc., nDSP, TeraNex, Miranda Technology, Inc., RGB Spectrum, Cinema Pro Corporation dba Runco International, DWIN
Electronics, Inc., Extron Electronics, NEC Technologies, Inc., USA, Snell & Wilcox, Inc., Sony Corporation and Yamashita Engineering Manufacturing, Inc. We also
compete in some instances against in-house processing solutions designed by large original equipment manufacturers. In the future, our current or potential customers may also develop their own
proprietary display and video processors and become our competitors. In addition, start-up companies that are seeking to capitalize on business opportunities as a result of the shift from analog to
digital technology may seek to compete in our markets. Our competitors may develop advanced technologies enabling them to offer more cost-effective and higher quality solutions to our customers than
those offered by us. Increased competition could harm our business, financial condition
and results of operations by, for example, increasing pressure on our profit margin or causing us to lose sales opportunities.

Concerns about an economic slowdown may influence Sage's customers to reduce production and inventory of display products in anticipation of a slowdown or further slowdown of
their business.

Unforeseen reduction or expectations of a reduction in demand by our customers could reduce orders and shipments, which could result in us carrying increased
inventory. Since order cycles are brief and the backlog small, we are required to carry a certain level of inventory to service our customers. If our inventory builds up as a result of order
postponement, or cutbacks of sales forecasts by our customers, we could end up with excess inventory that is either unusable, or that has to be sold at clearance prices which will harm our gross
margins.

Fluctuations in the operating results make it difficult to predict Sage's future performance and may result in volatility in the market price of our common stock.

Our quarterly operating results have fluctuated significantly in the past and we expect our results to fluctuate significantly in the future based on a number
of factors. Some of these factors arise from decisions we have made with respect to the timing and magnitude of expenditures and our ability to control our revenues. Our operating expenses, which
include research and development expenses and selling, general and administration expenses, are relatively fixed over the short-term. If our revenues are lower than we expect because we sell fewer
display processors or video image enhancement products, because we delay the release or the announcement of new products or because of other reasons, we may not be able to quickly reduce our spending
in response. In addition, our revenues could fall short of our expectations if we experience delays or cancellations of even a small number of orders.

Certain
other factors have, in the past, caused, and may in the future cause, fluctuations in our quarterly operating results. These factors are industry risks over which we have no
control, including:



23

---



There
are additional factors that could, but which have not, affected our operating results including:



Any
one or more of these factors are difficult to forecast and could result in fluctuations in our future operating results. Any shortfall in our revenues would have a direct impact
on the combined business. In addition, fluctuations in our quarterly results could adversely affect the market price of our common stock in a manner unrelated to our long-term operating performance.
Because our operating results are volatile and difficult to predict, you should not rely on the results of one quarter as an indication of our future performance. It is likely that in some future
quarter our operating results will fall below the expectations of securities analysts and investors. In this event, the trading price of our common stock may decline significantly. Furthermore, the
average daily volumes of our common stock traded are frequently light and even events like the release of press information by Sage or a competitor can give rise to a significant change in relative
demand and the consequent price of our common stock.

Sage relies on independent foundries and manufacturing.

We currently rely on independent foundries to manufacture, assemble, package and test most of our semiconductor products. These independent foundries fabricate
products for other companies and may also manufacture products of their own design. We purchase products from all of our foundries pursuant to individually negotiated purchase orders. We do not have
long-term supply contracts with any of these foundries, and, therefore, none of them will be obligated to supply products for any specific period, in any specific quantity or at any specified price,
except as may be provided in a particular purchase order. Our reliance on independent foundries involves a number of risks, including the inability to obtain adequate capacity, unavailability of or
interruption of access to certain process technologies, reduced control over delivery schedules, quality assurance, manufacturing yields and cost, and potential misappropriation of our intellectual
property. Our ability to obtain the foundry capacity necessary to meet the demand for our products is based in part on our ability to accurately forecast demand. If we fail to accurately forecast our
future demand, we may be unable to obtain adequate supplies of integrated circuits on a timely basis. There can be no assurance that we will be able to accurately forecast the demand for our products
or obtain sufficient foundry capacity in the future.

While
we have not experienced any material disruptions in supply to date, there can be no assurance that manufacturing problems will not occur in the future. In the event that any of
our foundries are unable or unwilling to produce sufficient supplies of our products in required volumes at acceptable costs, we will be required to reallocate production among our other existing
foundries or identify and qualify acceptable alternatives. This qualification process could take six months or longer,

24

---

and no assurance can be given that any additional source would become available or that we would be in a position to satisfy our production requirements on a timely basis. The loss of any of our
foundries, our inability to obtain additional production in a period of increased demand, or our inability to obtain timely and adequate deliveries from our suppliers could reduce or delay shipments
of our products. Any of these developments could damage relationships with our current and prospective customers and could have a material adverse effect on our business, financial condition and
operating results.

Our
reliance on third-party manufacturers limits our control over delivery schedules, quality assurance and product cost. Disruptions in the provision of services by our assemblers or
other circumstances that would require us to seek alternative sources of assembly could lead to supply constraints or delays in the delivery of our products. Further, the need for high quality
assurance may increase costs paid by us to third parties for manufacturing and assembly of our products. These constraints or delays could damage relationships with current and prospective customers
and could have a material adverse effect on our business, financial condition and operating results. In addition, third party contractors assemble our system level products.

Sage currently depends on a limited number of contract manufacturers for its semiconductor and system level products, and it must order products from them based on forecasts
from customers from which Sage does not have firm purchase orders.

We do not own or operate a semiconductor fabrication facility and we do not have the resources to manufacture our products internally. Our display processor
ICs have historically been manufactured, assembled and tested by Kawasaki LSI, Fujitsu Microelectronics and ST Micro. The wafer of our new Jaguar series of integrated mixed signal ICs are being be
manufactured by Taiwan Semiconductor Manufacturing Company and we will be responsible for the assembly, packaging and testing. Our system level products are manufactured and tested by Topline
Electronics or Eagle Manufacturing while our box products are manufactured by Bestronics. We do not have a long-term supply contract with any of our contract manufacturers, and they are not obligated
to supply us with products for any specific period, in any specific quantity or at any specific price, except as may be provided in a particular purchase order. We try not to maintain substantial
inventories of products, but we must often place orders for products two to six months before they are needed and before we have firm purchase orders for those products. None of our products are
currently manufactured by more than one supplier.

There
are many risks associated with our dependence on third-party manufacturing, assembling and product testing relationships, including:



If
we are unable to obtain our products from manufacturers on schedule, revenues from the sale of those products may be delayed. If orders for our products are cancelled, revenues
will be lost.

25

---

Failure to manage Sage's expansion effectively could adversely affect our ability to increase our revenues and improve our earnings.

Our ability to successfully offer our products in a rapidly evolving market requires effective planning and management processes. We continue to increase the
scope of our operations domestically and internationally and have increased our headcount substantially. Our past growth, and expected future growth, places a significant strain on our management
systems and resources including our financial and managerial controls, reporting systems and procedures. In addition, we will need to continue to expand, train and manage our workforce worldwide.

We depend on key personnel to manage our businesses effectively, and if Sage is unable to retain or hire additional personnel, our revenues and product development efforts
could be harmed.

Our future success depends upon the continued services of our executive officers and other key engineering, sales, marketing and support personnel, many of
whom would be difficult to replace. Current and prospective employees may experience uncertainty about their future roles. This uncertainty may adversely affect our ability to retain key management,
sales, marketing and technical personnel, or to attract qualified personnel in the future.

We
expect to hire a significant number of engineering, sales and marketing and support personnel in the future, and we believe success depends, in large part, upon our ability to
attract and retain our key employees. Competition for these persons is intense, especially in the San Francisco Bay Area, and we may not be able to retain our key personnel or identify, attract and
retain other highly qualified personnel in the future. We have experienced, and may continue to experience, difficulty in hiring and retaining candidates with appropriate qualifications. If we do not
succeed in hiring and retaining candidates with appropriate qualifications, our revenues and product development efforts could be harmed.

Sage's limited ability to protect our intellectual property and proprietary rights could harm our competitive position by allowing our competitors to access our proprietary
technology and to introduce similar products.

Our ability to compete effectively with other companies will depend, in part, on our ability to maintain the proprietary nature of our technology. However, we
cannot assure you that the degree of protection offered by our patents will be sufficient or that any of our pending patents will be issued. In addition, competitors in both the U.S. and foreign
countries, many of which have substantially greater resources, may apply for and obtain patents that will prevent, limit or interfere with our ability to make and sell our products.

Our
competitors may also be able to design around the licensed patents. The laws of certain foreign countries in which our products are or may be developed, manufactured or sold,
including various countries in Asia, may not protect our products or intellectual property rights to the same extent as the laws of the United States. There can be no assurance that the steps taken by
us to protect our intellectual property rights will be adequate to prevent misappropriation of our technology or that our competitors will not independently develop technologies that are substantially
equivalent or superior to our technology.

A
significant portion of the intellectual property acquired with the Faroudja acquisition is licensed to one of our wholly owned subsidiaries by Yves Faroudja. There are risks
associated with this intellectual property because our subsidiary is a licensee and not the owner of such intellectual property rights. Under the subsidiary's agreement with Mr. Faroudja, he
retains the non-exclusive right to license his patents and technologies to third parties for use outside our subsidiary's field of use. Notwithstanding the particular terms of the license agreement
with Mr. Faroudja, we face the risk that he may attempt to terminate the granted licenses and that such an attempt may be successful or that

26

---

the response to such attempt may consume substantial financial and personnel resources. In the event our resources are so consumed, such consumption could have a material adverse affect on our
business, financial condition and operating results.

We
may from time to time receive notifications or claims alleging that we may be infringing patents or intellectual property rights owned by third parties. While there is currently no
intellectual property rights litigation pending against us, litigation could result in significant expenses to us and could reduce sales of our products. Any litigation could also divert the efforts
of our technical and management personnel, whether or not the litigation is determined in our favor. In addition, we may not be able to develop, license or acquire non-infringing technology under
reasonable terms. These developments could result in an inability to compete for customers or could adversely affect our ability to increase our earnings.

Sage has incurred net losses since inception, and Sage may not achieve or sustain annual profitability.

We incurred net losses of $4.8 million; $4.6 million and $121.1 million for each of the respective years ended March 31, 1999, 2000
and 2001, and had an accumulated deficit of $134.4 million as of March 31, 2001. In addition we have capitalized approximately $10 million of goodwill and intangibles in
connection with the acquisition of Faroudja and intend to amortize this over four years, resulting in annual non-cash charges to operating expenses of over $2.4 million per year. Accordingly,
we expect to continue to report additional operating losses, and even before non-cash charges, we may continue to report operating losses for at least the next 12 months. Although we have experienced
revenue growth over the last fiscal year as a whole, we experienced a 31% reduction in our total sales in the March 2001 quarter compared to the December 2000 quarter. This growth is not
necessarily indicative of future operating results, and we cannot assure you that we will be able to sustain the growth, or recovery of growth, in our revenues. If we do achieve profitability, we
cannot be certain that we can sustain or increase profitability on a quarterly or annual basis in the future or at all. This may in turn cause our stock price to decline. In addition, if we do not
achieve or sustain profitability in the reasonable future, we have limited cash resources and may therefore be unable to continue our operations.

Sage has a limited operating history, making it difficult for you to evaluate our business.

We commenced operations in January 1995, but did not generate material revenues from the sale of our semiconductor products until July 1998.
Thus, we have a limited operating history upon which to evaluate our current business and prospects. Due to the limited history, it is difficult or impossible for us to predict our future results of
operations with any degree of accuracy. For example, we cannot accurately forecast expenses based on our projections of future revenues. Most of our expenses are relatively fixed in the short term,
and we may not be able to quickly reduce spending if our revenues are lower than projections. In addition, because substantially all of our present customers order on a purchase orders basis rather
than long-term purchase commitments, we have only a limited ability to project future revenues. Therefore, net losses in a given quarter may be greater than expected. Moreover, due to our limited
operating history, any evaluation of our business and prospects must be made in light of the risks and uncertainties often encountered by early stage companies in technology markets. Many of these
risks are discussed elsewhere in this section. Please see "Sage Management's Discussion and Analysis of Financial Condition and Results of Operations" for more detailed information on our historical
results of operations.

27

---

Sage's foreign customers account for a significant portion of its revenues, and if we do not successfully address certain risks associated with our international operations,
our revenues could decrease and our business prospects could deteriorate because the majority of our customers could be lost at a substantial cost to our business prospects, and our revenues could
decline.

Sales outside of the U.S. accounted for the majority of total sales for the year ended March 31, 2001. Substantial numbers of our customers are located
in Japan, Taiwan, Korea and PRC. We anticipate that sales outside of the U.S. could increase in future periods and may account for an increasing portion of our revenues. In addition, manufacturers who
incorporate our processors into their displays sell them outside of the U.S., thereby exposing us indirectly to foreign risks. Specifically, we will be subject to the following risks:



To
date, sales of our products have been denominated exclusively in U.S. dollars. An increase in the value of the U.S. dollar will increase the price of our products so that they
become relatively more expensive to customers in the local currency of a particular country, potentially leading to a reduction in our revenues and profitability.

Portions of Sage's research and development efforts are performed in India, and risks related to those operations could harm its research and development capabilities and
negatively impact its product sales.

Any risks related to the political or economic conditions in India and the surrounding region, including risks relating to India's national security situation
or labor market conditions, may adversely impact our ability to take advantage of operations in India. In addition, circumstances beyond our control at our facilities, related to operating in a
developing country, such as unreliable power supplies, may have a material adverse effect on our research and development capabilities. We cannot assure you that restrictive laws or policies on either
the part of India or the United States will not constrain our ability
to effectively operate in both countries. If we are required to relocate our Indian facilities, we cannot assure you that a relocation will not disrupt our business.

If monitors incorporating Sage's solutions are not compatible with personal computers, televisions, and other devices for which they are marketed, the market for Sage's
products will be reduced and our business prospects could be significantly limited.

Our products are incorporated into our customers' display monitors which have different parts and specifications and utilize multiple protocols that allow them
to be compatible with specific PCs, televisions, home theaters and other devices. If our customers' products are not compatible with the PCs and other devices for which they have been marketed and
sold, consumers will return those monitors, or consumers will not purchase those monitors, and the market for our customers' products could be significantly reduced. As a result, a portion of our
market would be eliminated, and our business would be harmed.

28

---

Risks Related to the Display Processing Industry

Failure of consumer demand for flat panel displays to increase as we expect could impede Sage's growth prospects.

Our product development strategies anticipate that consumer demand for flat panel displays and other emerging display products will increase in the future. The
success of our products is dependent on increased demand for these products, which are at early stages of development. The potential size of these markets and the timing of their development are
uncertain and will depend upon a number of factors, including available supply capacity and retail price of flat panel monitors, all of which are beyond our control.

Because of Sage's long product development process and sales cycle, Sage may incur substantial expenses before it earns associated revenues and may not ultimately sell as many
units of its products as forecasted.

We develop products based on forecasts of demand and incur substantial product development expenditures prior to generating associated revenues. Our customers
typically perform numerous tests and extensively evaluate our products before incorporating them into their systems. The time required for testing, evaluation and design of our products into a
customer's equipment can take up to six months or more. Because of this lengthy development cycle, we may experience a delay between the time we accrue expenses for research and development and sales
and marketing efforts and the time when we generates revenues, if any, from such expenditures.

Furthermore,
achieving a design win with a customer does not necessarily mean that this customer will order large volumes of our products. A design win is not a binding commitment by
a customer to purchase our products. Rather, it is a decision by a customer to use our products in the design process of that customer's products. In addition, our customers can choose at any time to
discontinue using our products in that customer's designs or product development efforts. If our products are chosen to be incorporated into a customer's products, we may still not realize significant
revenues from that customer if that customer's products are not commercially successful.

If Sage does not achieve design wins with leading display manufacturers, Sage may be unable to secure additional design wins in the future and its ability to grow would be
seriously limited.

The development of new, technologically advanced products and product enhancements is a complex and uncertain process requiring accurate anticipation of
technological and market trends, as well as skill in obtaining design wins. Any failure on our part to obtain additional design wins with leading original equipment manufacturers and to successfully
design, develop and introduce new products and product enhancements could harm our business, financial condition and results of operations. In addition, development and manufacturing schedules for our
products are difficult to predict, and we cannot assure you that we will achieve timely customer shipments of new products. The timely introduction of these products and their acceptance by customers
are important to our future success. Any delays in product development, whether due to manufacturing, product design and development, lack of market acceptance or otherwise, could reduce future
customer acceptance of our products and harm our business, financial condition and results of operations.

If we have to qualify a new contract manufacturer for any of Sage's products, we may lose revenues and damage our customer relationships.

Our display processors require manufacturing with state-of-the-art fabrication equipment and techniques. Because the lead time needed to establish a strategic
relationship with a new contract manufacturer is at least six months, and the estimated time for us to adapt a product's design to a particular contract manufacturer's processes is an additional three
to four months, there is no readily

29

---

available alternative source of supply for any specific product. A manufacturing disruption at any of our contract manufacturers would impact the production of our display processors for a substantial
period of time, thereby reducing our revenues, and would harm our customer relationships.

Shortages of materials included in our semiconductor and circuit board products may increase Sage's costs or limit our revenues and delay our ability to ship our products on
time.

From time to time, shortages of certain materials that are used in our semiconductor and circuit board products may occur. In particular, we may experience
shortages of semiconductor wafers. If materials shortages occur, we may incur additional costs to procure the scarce components or be unable to ship our products to our customers in a timely fashion,
all of which could negatively impact our earnings.

By subcontracting separately for the production of wafers for our mixed signal processors, Sage is assuming risks that it does not currently face.

Historically, we purchased packaged, assembled and tested semiconductor products from contract manufacturers. We have assumed greater responsibility for this
process with our new generation of mixed signal products by subcontracting separately for the production of wafers and for their assembly and testing and consequently we will become more responsible
for losses arising from wafer manufacturing yields and for coordination of the manufacturing, assembly and testing process. Poor yields, or our failure to implement this approach to manufacturing
properly, would reduce our revenues and harm our gross margin and results of operations.

Interruptions of power supply in California may disrupt Sage's business.

Recently the State of California has experienced a shortage of power supplies resulting in temporary disconnection and blackouts. Such interruptions of supply
are random and unforeseeable and can lead to loss of data, test results, operational capability and other inefficiencies. The resulting outcome may range from delays and added cost to lost business,
and is substantially outside our control.

Merger of Sage and Genesis Microchip Incorporated.

On September 28, 2001, Sage announced that it had agreed to merge with Genesis Microchip Incorporated, subject to approval of the stockholders of both
companies and statutory reviews. There is no assurance that this transaction will close, moreover, even if the transaction is approved, it could take between three to six months, or more, for such
approval. During the period between the announcement and the closing of this transaction, we will continue to operate as an independent business. However the announcement and pending uncertainty
caused by anticipated changes that might arise following a successful closing could adversely affect our current relationships with our customers, sales representatives, employees, foundries, vendors,
securities analysts, competitors and potential strategic business partners in ways that could damage our competitiveness, revenue, margins, expenses, and share price. In particular, in the event that
the merger agreement does not close, our competitive position vs. Genesis Microchip Incorporated could be severely damaged, and it could take a long time to recover our relative market position, if at
all.

30

---



PART II

Item 1.Legal Proceedings

As of October 22, 2001, we were not party to any legal proceeding.

Item 2.Changes in Securities and Use of Proceeds

None.

Item 6.Exhibits and Reports on Form 8-K



31

---





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 the undersigned
thereunto duly authorized.

|                       |  | SAGE, INC. Registrant
|---------------------- |  | ---------------------
|Date: October 22, 2001 |  | By:                  

32

---

QuickLinks