---

---

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 December 31, 2001

OR

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

Commission File Number:

---

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

Delaware(State or Other Jurisdiction of
Incorporation or Organization)

77-0501710(IRS Employer Identification No.)1601 McCarthy Boulevard, Milpitas, CA(Address of Principal Executive Offices)

95035(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 February 6, 2002, there were 15,025,602 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 December 31, 2001 and March 31, 2001                               |  | 3   
|                              |  | Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2001 and 2000 |  | 4   
|                              |  | Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 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                          |  | 8   
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risks                                                    |  | 18  
|PART II. OTHER INFORMATION   
|Item 1.                       |  | Legal Proceedings                                                                                              |  | 30  
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                                                      |  | 30  
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                               |  | 30  

2

---



PART I

Item 1. Financial Statements

SAGE, INC.  CONDENSED CONSOLIDATED BALANCE SHEETS  (In thousands, except per share data, unaudited)

|                                        |                                                                                                               | December 31, 2001                        |              | March 31,
2001 |       
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | ------------ | -------------- | ------
|ASSETS                                  |                                                                                                              
|Current assets:                         |                                                                                                               |                                          |              |                |       
|                                        | Cash and cash equivalents                                                                                     |                                          | $            | 35,038         |       
|                                        | Short-term marketable securities                                                                              |                                          |              | 5,580          |       
|                                        | Accounts receivable, net                                                                                      |                                          |              | 8,895          |       
|                                        | Inventory                                                                                                     |                                          |              | 4,012          |       
|                                        | Prepaids & other assets                                                                                       |                                          |              | 1,342          |       
|                                        |                                                                                                               |                                          |              |                |       
|                                        |                                                                                                               | Total current assets                     |              |                | 54,867
|Property & equipment, net               |                                                                                                               |                                          | 4,528        |                |       
|Other non-current assets                |                                                                                                               |                                          | 1,947        |                |       
|Goodwill & other intangible assets, net |                                                                                                               |                                          | 8,353        |                |       
|                                        |                                                                                                               |                                          |              |                |       
|                                        |                                                                                                               |                                          | Total assets |                | $     
|                                        |                                                                                                               |                                          |              |                |       
|LIABILITIES AND STOCKHOLDERS' EQUITY    |                                                                                                              
|Current liabilities:                    |                                                                                                               |                                          |              |                |       
|                                        | Accounts payable                                                                                              |                                          | $            | 1,748          |       
|                                        | Accrued expenses and other liabilities                                                                        |                                          |              | 2,930          |       
|                                        |                                                                                                               |                                          |              |                |       
|                                        |                                                                                                               | Total current liabilities                |              |                | 4,678 
|                                        |                                                                                                               |                                          |              |                |       
|Stockholders' equity:                   |                                                                                                               |                                          |              |                |       
|                                        | Common stock, $0.01 par value; 50,000,000 shares authorized; 14,907,000 and 13,925,000 issued and outstanding |                                          |              | 149            |       
|                                        | Additional paid-in capital                                                                                    |                                          |              | 208,900        |       
|                                        | Notes receivable from stockholders                                                                            |                                          |              | (58            | )     
|                                        | Deferred compensation related to stock options and restricted stock                                           |                                          |              | (33            | )     
|                                        | Accumulated deficit                                                                                           |                                          |              | (143,941       | )     
|                                        |                                                                                                               |                                          |              |                |       
|                                        |                                                                                                               | Total stockholders' equity               |              |                | 65,017
|                                        |                                                                                                               |                                          |              |                |       
|                                        |                                                                                                               | Total liabilities & stockholders' equity |              | $              | 69,695
|                                        |                                                                                                               |                                          |              |                |       

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

3

---



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

|                                              |                                                        | Three Months Ended December 31, |        | Nine Months Ended December 31, |      
|--------------------------------------------- | ------------------------------------------------------ | ------------------------------- | ------ | ------------------------------ | -----
|
|Revenue                                       |                                                        | $                               | 11,898 |                                | $    
|Cost of revenue                               |                                                        |                                 |        |                                |      
|                                              | Cost of products sold                                  |                                 |        | 7,144                          |      
|                                              | Amortization of intangibles charged to cost of revenue |                                 |        |                               |      
|                                              | Write off of inventory at close of board business      |                                 |        | 996                            |      
|                                              |                                                        |                                 |        |                                |      
|Gross profit                                  |                                                        |                                 | 3,758  |                                |      
|                                              |                                                        |                                 |        |                                |      
|Operating expenses:                           |                                                        |                                 |        |                                |      
|                                              | Research and development                               |                                 |        | 2,463                          |      
|                                              | Charge for in-process technology                       |                                 |        |                               |      
|                                              | Selling, general and administration                    |                                 |        | 3,353                          |      
|                                              | Business combination expenses                          |                                 |        | 419                            |      
|                                              | Amortization of intangibles                            |                                 |        | 643                            |      
|                                              | Severance expenses                                     |                                 |        | 164                            |      
|                                              | Stock compensation                                     |                                 |        | 21                             |      
|                                              |                                                        |                                 |        |                                |      
|                                              |                                                        | Total operating expenses        |        |                                | 7,063
|                                              |                                                        |                                 |        |                                |      
|Loss from operations                          |                                                        |                                 | (3,305 | )                              |      
|Interest and other income, net                |                                                        |                                 | 223    |                                |      
|                                              |                                                        |                                 |        |                                |      
|Net loss                                      |                                                        | $                               | (3,082 | )                              | $    
|                                              |                                                        |                                 |        |                                |      
|Number of weighted average outstanding shares |                                                        |                                 | 14,750 |                                |      
|                                              |                                                        |                                 |        |                                |      
|Basic and diluted loss per share              |                                                        | $                               | (0.21  | )                              | $    
|                                              |                                                        |                                 |        |                                |      

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)

|                                                 |                                                                                     | Nine Months Ended December 31,                                              |                                       
|------------------------------------------------ | ----------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------------
|
|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 stockholder'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        |                                                                                     |                                                                             | 12,694                                
|Cash and cash equivalents at beginning of period |                                                                                     |                                                                             | 22,344                                
|                                                 |                                                                                     |                                                                             |                                       
|Cash and cash equivalents at end of period       |                                                                                     | $                                                                           | 35,038                                
|                                                 |                                                                                     |                                                                             |                                       
|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 connection 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 unaudited
condensed consolidated 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 December 31, 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 (Genesis), agreed to merge in a transaction to be accounted for as
a purchase, subject to regulatory reviews, which have now been successfully completed, and to the approval of the stockholders of both companies. In conjunction with the merger, Genesis is converting
from a Nova Scotia corporation to a Delaware corporation, which will be called Genesis Microchip, Inc. (Genesis Delaware). Upon completion of the merger, stockholders of Sage will be able to
exchange each share of Sage common stock held for 0.571 shares of Genesis Delaware. It is expected that this transaction will close during February 2002. During the quarter ended
December 31, 2001 Sage incurred approximately $0.4 million of expenses in connection with this business combination, and expects to incur further such expenses in the quarter ending
March 31, 2002.

4.    Merger with Faroudja

On February 18, 2000 Sage and Faroudja agreed to merge in a transaction 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's expectations on revenues and
profitability from the acquired operations were lower. 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.

5.    Loss per share

Basic loss per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during that period. Diluted
loss per share equals basic loss per share because all equity instruments other then outstanding shares would be anti-dilutive. Approximately 1.6 million and 1.0 million
outstanding options were excluded from the calculation of loss per share for the quarters ended December 31, 2001 and 2000, respectively.

6.    Inventories

Inventories consisted of the following:

(In thousands)

December 31, 2001

March 31, 2001Finished goods

$
2,684

$
6,301Work-in-process


2,781


1,569Raw materials


727


1,400Subtotal


6,192


9,270Inventory reserve


(2,180
)

(2,409
)Total

$
4,012

$
6,861


7.    Segment Information

Sage manages its operations in two segments, integrated circuits (ICs) and systems including home theater boxes and printed circuit boards (See Item 2,
Management's Discussion and Analysis of
Financial Condition and Results of Operations regarding Sage exiting the printed circuit board business). Sage does not report operating expenses, depreciation and amortization, interest expense,

7

---

capital expenditures or identifiable net assets by segment. All segment revenues are generated from external customers. Segment information is as follows:

Three Months Ended December 31,

Nine Months Ended December 31,(In thousands)2001

2000

2001

2000Revenues:ICs

$
8,870

$
4,790

$
20,919

$
12,660Systems


3,028


4,862


8,950


12,066Total revenue


11,898


9,652


29,869


24,726Cost of revenues:ICs


5,739


2,600


13,170


6,377Systems


2,401


2,825


5,166


6,776Total cost of revenue


8,140


5,425


18,336


13,153Gross profit:ICs


3,131


2,190


7,749


6,283Systems


627


2,037


3,784


5,290Total gross profit

$
3,758

$
4,227

$
11,533

$
11,573


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 as prices fall. 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.

8

---

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 December 2001, such system sales represented 25% 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. We do not expect to sell board products after December 31, 2001, and accordingly have written off all
remaining inventory of board products and parts.

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 nineteen 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 in the
longer term our gross margins should improve and that the transition should result in our having greater control over the manufacturing process.

9

---

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 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's expectation on revenues and
profitability from the acquired operations were lower. 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.

On
September 27, 2001 Sage and Genesis, a Nova Scotia corporation, agreed to merge in a transaction to be accounted for as a purchase, subject to regulatory reviews, which have
now been successfully completed, and the approval of stockholders of both companies. In conjunction with the merger, Genesis is converting from a Nova Scotia corporation to a Delaware corporation,
which will be called Genesis Microchip, Inc. (Genesis Delaware). Upon completion of the merger, stockholders of Sage will be able to exchange each share of Sage common stock held for 0.571
shares of Genesis Delaware. It is expected that this transaction will close during February 2002. During the quarter ended December 31, 2001 Sage incurred approximately
$0.4 million of expenses in connection with this business combination, and expects to incur further such expenses in the quarter ending March 31, 2002.

10

---



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
December 31,

Nine Months Ended
December 31,2001

2000

2001

2000RevenuesICs

74.6
%
49.6
%
70.0
%
51.2
%Systems

25.4
%
50.4
%
30.0
%
48.8
%Total revenue

100.0
%
100.0
%
100.0
%
100.0
%Cost of revenuesICs

48.2
%
26.9
%
44.1
%
25.8
%Systems

20.2
%
29.3
%
17.3
%
27.4
%Total cost of revenue

68.4
%
56.2
%
61.4
%
53.2
%Gross profit margin

31.6
%
43.8
%
38.6
%
46.8
%Operating expenses:Research and development

20.7
%
20.9
%
26.5
%
23.1
%Charge for in-process technology

0.0
%
0.0
%
0.0
%
29.1
%Selling, general and administration

28.2
%
32.5
%
35.2
%
35.9
%Business combination expenses

3.5
%
0.0
%
5.2
%
0.0
%Amortization of intangibles

5.4
%
61.5
%
6.5
%
54.1
%Severance expenses

1.4
%
0.0
%
0.6
%
0.0
%Stock compensation

0.2
%
0.6
%
0.3
%
0.8
%Total operating expenses

59.4
%
115.5
%
74.3
%
143.0
%Loss from operations

(27.8
)%
(71.7
)%
(35.7
)%
(96.2
)%Interest and other income, net

1.9
%
6.1
%
3.6
%
8.6
%Net loss

(25.9
)%
(65.6
)%
(32.1
)%
(87.6
)%




Revenue.Revenue increased 23% to $11.9 million in the quarter ended December 31, 2001 from $9.7 million
in the quarter ended December 31, 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
December 31, 2001 sales revenue increased sequentially by 21% from the preceding quarter reflecting a significant increase in the number of mixed signal ICs shipped into the flat panel monitor
market this quarter, offset by decreases in the number of our mature discrete ICs shipped into the display market and seasonal decreases in the number of ICs shipped into the consumer market. Revenues
from two customers, Compal and Samsung, accounted for 22% and 15%, respectively, of total revenue in the three months ended December 31, 2001.

IC
revenue increased 85% to $8.9 million in the quarter ended December 31, 2001 from $4.8 million in the quarter ended December 31, 2000. The increase in IC
revenue is due to an 81% increase in units sold to new and existing customers. Revenues from sales of our mature discrete ICs were $1.7 million while revenues from sales of our newer mixed
signal ICs were $5.1 million. As a result of pressures from customers to reduce costs, Sage experienced a significant increase in the demand of its mixed
signal ICs, which grew to represent 66% of total ICs Sage shipped in the flat panel monitor market, and 55% of total ICs shipped this quarter. Sales of ICs for the consumer market

11

---

accounted for $2.0 million or 22% of IC revenue. Revenues from two customers, Compal and Samsung, accounted for 29% and 20%, respectively, of total IC revenues in the three months ended
December 31, 2001.

System
revenues decreased 38% to $3.0 million in the quarter ended December 31, 2001 from $4.9 million in the quarter ended December 31, 2000. System revenues
include revenues from box and board level products. With the maturity of the mainstream flat panel monitor market we have seen a progressive reduction in the demand for video processing boards for
custom and low volume applications. Our board sales fell from $2.3 million in the quarter ended December 31, 2000 to $0.8 million in the current quarter, and as a consequence, we
have now decided to exit the board business.

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 customer gains
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 6.1 million
units to 15.4 million units in calendar year 2001, and is projected to grow further to 27.2 million units in calendar year 2002, any shortfall in this growth would adversely affect our
sales potential.

Cost of Revenue.Cost of net revenue increased 50% to $8.1 million in the quarter ended December 31, 2001 from
$5.4 million in the quarter ended December 31, 2000. The increase in cost of net revenues from the December quarter 2000 to the December 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 121% to $5.7 million in the quarter
ended December 31, 2001 from $2.6 million in the quarter ended December 31, 2000. The increase in IC cost of revenue from the December quarter 2000 to the December quarter 2001
was primarily due to an 81% increase in volume of IC shipments. As a percentage of IC revenue, cost of IC revenue was 65% in the quarter ended December 31, 2001 and 54% in the quarter ended
December 31, 2000. The increase in cost of IC revenue from the December quarter 2000 to December quarter 2001 as a percentage of IC revenue is due to a change in product mix in favor of new
mixed signal ICs, which experienced lower than expected yields and higher than expected test costs.

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 15% to
$2.4 million in the quarter ended December 31, 2001 from $2.8 million in the quarter ended December 31, 2000. The decrease in
cost of revenue for system products from the December quarter 2000 to the December quarter 2001 is due to a reduction in sales of board products, offset by the write off of the remaining board
inventory.

Gross margin.Our overall gross margin decreased to 31.6% in the quarter ended December 31, 2001 from 43.8% in the
quarter ended December 31, 2000. At December 31, 2001 following our decision to exit the board business, we wrote off the residual inventory of board parts and products amounting to
$996,000. Without this one-time charge, our gross margin would have been 40.0% in the December 31, 2001 quarter compared to 43.8% in the December 31, 2000 quarter. Other
factors influencing the decrease in the gross margin were the reductions in gross margin for ICs as a result of changes in product mix, lower than expected yields and higher than expected test costs
on newer products, seasonal changes in product mix away from higher margin ICs sold to the consumer markets, and the erosion of ASPs for mature discrete IC products. Further, the decrease includes
decreases in gross margins for box products as a result of changes in product mix following the introduction of lower priced NRS home theater products.

12

---

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 $2.5 million and $2.0 million for the quarters ended December 31, 2001 and 2000, respectively. Research and development expenses
represented 21% of revenues for each of the quarters ended December 31, 2001 and 2000. The increase in R&D expenditure represents the cost of additional personnel, engineering tools, and
non-recurring engineering projects necessary for development of our new range of mixed signal flat panel display and consumer display IC products and the new Native Rate Series of system
products. We anticipate that future research and development expenses will continue to increase in absolute dollars, but may decline as a percentage of net revenue.

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 is no in-process charge in the three-month periods ended
December 31, 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
7%
to $3.4 million in the quarter ended December 31, 2001 from $3.1 million in quarter ended December 31, 2000. The increase in selling, general and administration expenses
was principally related to the costs associated with the introduction of new products, including the mixed signal 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 28% and 33% of revenues for the December quarter 2001 and 2000, respectively. We anticipate that selling, general and
administrative expenses will continue to increase in absolute dollars and continue to decline as a percentage of net revenue.

Business combination expenses.Business combination expenses were $0.4 million and $0 in the quarters ended
December 31, 2001 and 2000, respectively. Business combination expenses primarily represent the cost of outside consultants related to the proposed merger with Genesis.

Amortization 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 December 2001 and 2000, respectively. The decrease in
amortization is a result of the reduction of goodwill following the write-down associated with the impairment charge against goodwill and other intangible assets recorded at the
March 31, 2001 year-end.

Severance expense.Severance expense represents salary and wages and equity compensation paid to employees terminated as a
part of a reduction-in-force (RIF) plan executed in October 2001. There were no RIFs in the quarter ended December 31, 2000.

Stock compensation.Sage expensed stock compensation of approximately $21,000 and $58,000 in the quarters ended
December 31, 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

13

---

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.Net interest and other income amounted to $223,000 and $591,000 in the quarters ended
December 31, 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.



Revenue.Revenue increased 21% to $29.9 million in the nine-month period ended December 31, 2001
from $24.7 million in the nine-month period ended December 31, 2000. The increase in net revenue is due partly to increases in design wins as well as the introduction of new
products. In the nine month period ended December 31, 2001 sales increased sequentially by 20% from the nine 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. Revenue from one customer, Compal, represented 15% of total revenues for the
nine-month period ending December 31, 2001.

IC
revenue increased 65% to $20.9 million in the nine-month period ended December 31, 2001 from $12.7 million in the nine-month period ended
December 31, 2000. The increase in IC revenue is due to a 68% 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 shipments of our mature discrete ICs such as the Cheetah 4 and Jag D in the June and September 2001 quarters with lower ASPs. In the December 2001 quarter we
experienced a significant increase in the shipment of our newer mixed signal ICs such as the Jag T, Jag ASM and the s9050, which achieved lower than planned margins as a result of early yield and test
costs problems at launch. Sales of ICs to the consumer market accounted for 32% of total IC revenue. Revenues from three customers, Compal, Samsung and Panasonic accounted for 21%, 12% and 11%,
respectively, of total IC revenues for the nine-month period ended December 31, 2001.

System
revenues decreased 26% to $9.0 million in the nine-month period ended December 31, 2001 from $12.1 million in the nine-month period
ended December 31, 2000. System revenues include revenues from box and board level products. As discussed in the results of operations for the three months ended December 31, 2001 and
2000, we have seen a progressive reduction in the demand for video processing boards for custom and low volume applications for the mainstream flat panel monitor market. Our board sales fell from
$6.1 million in the nine-month period ended December 31, 2000 to $2.9 million in the nine-month period ended December 31, 2001, and as a
consequence, we decided to exit the board business. The decline in system revenue also represents a slight decline in box sales as a result of changes in product mix to lower ASP products, which were
introduced in March 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 customer gains
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 6.1 million
units to 15.4 million units in calendar year 2001, and is projected to grow further to 27.2 million units in calendar year 2002, any shortfall in this growth would adversely affect our
sales potential.

14

---

Cost of Revenue.Cost of net revenue increased 39% to $18.3 million in the nine-month period ended
December 31, 2001 from $13.2 million in the nine-month period ended December 31, 2000. The increase in the nine-month period ended December 31,
2001, including $2.5 million of incremental cost of revenue from the Faroudja acquisition. The increase in cost of net revenues from the nine-month period ending December 31,
2000 to the nine-month periods ending December 31, 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 107% to $13.2 million in the
nine-month period ended December 31, 2001 from $6.4 million in the nine-month period ended December 31, 2000. The increase in IC cost of revenue from the
December quarter 2000 to the December quarter 2001 was primarily due to a 68% increase in volume of IC shipments. As a percentage of IC revenue, cost of IC revenue was 63% in the
nine-month period ended December 31, 2001 and 50% in the nine-month period ended December 31, 2000. The increase in cost of IC revenue from the
nine-month period ended December 31, 2000 to nine-month period ended December 31, 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, lower than expected yields and higher than expected test costs on
recently launched mixed signal products, 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 24% to
$5.2 million in the nine-month period ended December 31, 2001 from $6.8 million in the nine-month period ended December 31, 2000 due to lower
volume.

Gross margin.Our overall gross margin decreased to 38.6% in the nine-month period ended December 31, 2001
from 46.8% in the nine-month period ended December 31, 2000. As discussed in the results of operations for the three months ended December 31, 2001 and 2000, following our
decision to exit the board business, we wrote off the residual inventory of board parts and products amounting to $996,000. Without this one-time charge, our gross margin would have been
41.9% in the nine-month period ending December 31, 2001 compared to 46.8% in the nine-month period ended December 31, 2000. Other factors influencing the
decreases in the overall gross margin include reductions in the 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, lower than expected yields and higher than expected test costs on newer mixed signal ICs, the erosion of ASPs for mature discrete IC products and
decreases in prices charged to compete directly with competitors offering similar products. Further, the decrease in the overall gross margin includes decreases in gross margin for our box level
products as a result of the introduction of lower margin home theater 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 result of our product development
cycles. Our research and development expenses were $7.9 million and $5.7 million for the nine-month periods ended December 31, 2001 and 2000, respectively. Research
and development expenses represented 27% and 23% of revenues for the nine-month periods ended December 31, 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 range of Jaguar, mixed signal and video IC products and the new 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 decline as a
percentage of net revenue

15

---

and when we commit to product development efforts in connection with our next generation of semiconductors.

Charge for in-process technology.Sage's in-process technology charges were $0 and
$7.2 million in the nine-month periods ended December 31, 2001 and 2000. The acquired in-process technology from Faroudja was valued at $7.2 million, which
was expensed in June 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 $10.5 million in the nine-month period ended December 31, 2001 from $8.9 million in the nine-month period ended December 31, 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 newer Jaguar, mixed signal and video IC products, and the cost of promoting and developing new customers. As a percentage of revenue, selling, general and administration
expenses represented 35% and 36% of revenues for the nine-month period ending December 31, 2001 and 2000, respectively. We anticipate that selling, general and administrative
expenses will continue to increase in absolute dollars, but will continue to decline as a percentage of net revenue.

Business combination expenses.Business combination expenses were $1.6 million and $0 in the nine-month
periods ended December 31, 2001 and 2000, respectively. Business combination expenses primarily represent the cost of outside consultants related to the proposed merger with Genesis.

Amortization of intangible assets.Intangible assets consist of goodwill, technology and other intangible assets acquired in
the purchase of Faroudja. Sage amortized $1.9 million and $13.4 million of intangible assets for the nine-month periods ended December 31, 2001 and 2000, respectively.
The decrease in amortization is a result of the reduction of goodwill following the write-down associated with the impairment charge against goodwill and other intangible assets recorded
at the March 31, 2001 year-end.

Severance expense.Severance expense represents salary and wages and equity compensation paid to employees terminated as a
part of a reduction-in-force (RIF) plan executed in October 2001. There were no RIFs in the nine-months period ended December 31, 2000.

Stock compensation.Sage expensed stock compensation of approximately $82,000 and $210,000 in the nine-month
periods ended December 31, 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.Net interest and other income amounted to $1.1 million and $2.1 million in the
nine-month periods ended December 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 private issuance and sale of equity securities, totaling approximately
$17.7 million, and an initial public offering

16

---

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 nine months ended December 31, 2001, cash increased $12.7 million, our investment in short-term marketable securities decreased
$13.5 million, and we received proceeds of approximately $8.1 million from the purchase of stock through the employee stock purchase program and from exercised options. The net decrease
in cash, cash equivalents and marketable securities is $0.8 million for the nine-month period ended December 31, 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 December 31, 2001, we had $35.0 million in cash and cash equivalents and $5.6 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 and extent of spending to support research and
development programs, 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
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. We do not expect the adoption of SFAS 141 to
have a material effect on Sage's financial position or results of operations.

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

17

---

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.

In
October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (SFAS 144), "Accounting for the Impairment or Disposal of Long-Lived
Assets to be Disposed Of." SFAS 144 addresses financial accounting and reporting of impairment of ling-lived assets to be disposed of.
However, SFAS 144 retains the fundamental provisions of SFAS 121 for: 1) recognition and measurement of the impairment of long-lived assets to be held and used; and
2) measurement of ling-lived assets to be disposed of by sale. SFAS 144 is effective for fiscal year beginning after December 15, 2001. We are currently assessing the
impact of SFAS 144 on Sage's financial position and results of operations.

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, Korea 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.

18

---



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 content for end-user systems, such as video and audio playback systems, in a format compatible with

19

---

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 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

20

---

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.

21

---

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., Maacronix, Trumpion, Topro, SmartAsic, Philips 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 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:



22

---



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.



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 nine months or longer,

23

---

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 wafers of our new 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 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 nine 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.

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

24

---

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 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

25

---

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 $2.6 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, this growth is not necessarily indicative of future operating results,
and we cannot assure you that we will be able to sustain the 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.

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

26

---

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 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.

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.

27

---

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 nine 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 nine 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 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.

28

---

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. In the nine months ended December 31, 2001, we have shipped an increasing proportion of these mixed signal semiconductor products,
and have experienced a lower-than-expected yield, and higher-than-expected test costs resulting in a lower weighted average gross margin. While we
expect our test process and yields to improve with experience, we could continue to face adverse impact on our margins for the foreseeable future.



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.



On September 27, 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. While all statutory approvals are now obtained, there is no assurance that this transaction will receive the necessary approval of stockholders at the Special Meeting
to be held on February 11, 2002. 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.

29

---



PART II

Item 1.Legal Proceedings

As of February 7, 2002, 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



30

---



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:    February 7, 2002 |  | By: |  | /s/SIMON P. WESTBROOKSimon P. Westbrook Chief Financial Officer

31

---

QuickLinks