**UNITED STATES
SECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

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**FORM 10-K**

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(MARK ONE)

[X] ANNUAL
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  FOR THE FISCAL YEAR ENDEDJANUARY 31, 2004

**OR**

[   ]
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
  ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO _____________

Commission
  File Number 000-15116

**Sigma Designs, Inc.** (Exact name of Registrant as Specified in its Charter)



|**California**                                                 | **94-2848099**                         
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

**1221 California CircleMilpitas, California    95035**(Address of Principal Executive Offices including Zip Code)

**(408) 262-9003**(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g)
  of the Act:

**Common Stock**(Title of Class)

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.

Indicate by check mark if disclosure of delinquent filers pursuant
to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant
  is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X]    
  No [   ]

As of August 1, 2003, the last business day
  of the Registrant's most recently completed second fiscal quarter, there were
  20,226,685 shares of the Registrant's common stock outstanding, and the aggregate
  market value of such shares held by non-affiliates of the Registrant (based
  on the closing sale price of such shares on the Nasdaq National Market on August
  1, 2003) was approximately $212,381,290. Shares of the Registrant's outstanding
  common stock held by each executive officer and director and by each executive
  officer and director and by each entity that owns 5% or more of the Registrant's
  outstanding common stock have been excluded in that such persons may be deemed
  to be affiliates. This determination of affiliate status is not necessarily
  a conclusive determination for other purposes.

There were 20,711,261 shares of the Registrant's Common Stock issued and outstanding on April 2, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of Sigma Designs, Inc.'s definitive Proxy Statement for the
  2004 Annual Meeting of Shareholders to be held on June 18, 2004 are incorporated
  by reference in Part III of this Form 10-K to the extent stated herein.The
  Proxy Statement will be filed within 120 days of the Registrant's fiscal year
  ended January 31, 2004.









**Sigma Designs, Inc.
  2004 ANNUAL REPORT ON FORM 10-K****TABLE OF CONTENTS**



|**PART I**                                                                                                    | **Page No.**
|------------------------------------------------------------------------------------------------------------- | ------------
|                                                                                                              |             
|Item 1. Business                                                                                              | **          
|                                                                                                              |             
|Item 2. Properties                                                                                            | **          
|                                                                                                              |             
|Item 3. Legal Proceedings                                                                                     | **          
|                                                                                                              |             
|Item 4. Submission of Matters to a Vote of Security Holders                                                   | **          
|                                                                                                              |             
|**PART II**                                                                                                   | ****        
|                                                                                                              |             
|Item 5. Market for the Registrant's Common Equity and
      Related Stockholder Matters                       | **          
|                                                                                                              |             
|Item 6. Selected Financial Data                                                                               | **          
|                                                                                                              |             
|Item 7. Management's Discussion and Analysis of Financial
      Condition and Results of Operations           | **          
|                                                                                                              |             
|Item 7A. Quantitative and Qualitative Disclosures About
      Market Risk                                     | **          
|                                                                                                              |             
|Item 8. Consolidated Financial Statements and Supplementary
      Data                                        | **          
|                                                                                                              |             
|Item 9. Changes in and Disagreements with Accountants
      on Accounting and Financial Disclosure            | **          
|                                                                                                              |             
|Item 9A. Controls and Procedures                                                                              | **          
|                                                                                                              |             
|**PART III**                                                                                                  | ****        
|                                                                                                              |             
|Item 10. Directors and Executive Officers of the Registrant                                                   | **          
|                                                                                                              |             
|Item 11. Executive Compensation                                                                               | **          
|                                                                                                              |             
|Item 12. Security Ownership of Certain Beneficial Owners
      and Management and Related Stockholder Matters | **          
|                                                                                                              |             
|Item 13. Certain Relationships and Related Transactions                                                       | **          
|                                                                                                              |             
|Item 14. Principal Accounting Fees and Services                                                               | **          
|                                                                                                              |             
|**PART IV**                                                                                                   | ****        
|                                                                                                              |             
|Item 15. Exhibits, Financial Statement Schedules and
      Reports on Form 8-K                                | **          
|                                                                                                              |             
|Signatures                                                                                                    | **          

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FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains forward-
looking statements that are subject to assumptions, risks and uncertainties,
many of which are discussed in this Annual Report on Form 10-K, including but
not limited to the factors discussed under "Certain Factors Affecting
Business, Operating Results, and Financial Condition" and elsewhere in this
Annual Report on Form 10-K.  Actual results may vary from those projected in the
forward-looking statements.  Although we believe the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements.  If our assumptions
about the future do not materialize or prove to be incorrect, the results could
differ materially from those expressed or implied by such forward-looking
statements.  Accordingly, you should not place undue reliance on these forward-
looking statements.  A forward-looking statement is any statement that looks to
future events, including any statements of plans, strategies and objectives of
management for the future and any statement of assumptions underlying the
foregoing.  We assume no obligation to update these forward-looking statements
to reflect events that occur or circumstances that exist after the date on which
they were made.



PART I

ITEM 1. BUSINESS

In this Annual Report on Form 10-K "Sigma," "the Company,"
  "we," "us," and "our" refer to Sigma Designs,
  Inc.

We specialize in silicon- based digital media processing solutions
  for consumer products. Our highly- integrated solutions, based on our award-winning
  REALmagic® Video Technology, provide high-quality decoding of MPEG-4, MPEG-2,
  MPEG-1 and Windows® Media Video 9 (WMV9) content (note, MPEG (Moving Picture
  Experts Group) is an international standards body).

Complementing this core technology, we have developed complete
  system solutions for tomorrow's convergence products, including DVD playback,
  digital TV (DTV) reception, video over IP, personal video recording (PVR) and
  video-on-demand (VOD). Our business operates in one segment, consumer electronic
  devices and products. See Note 13 of Notes to Consolidated Financial Statements
  for further information on our product groups and markets. Our products are
  sold worldwide through a direct sales force and distributors. Our Common Stock,
  publicly traded since 1986, is listed on the NASDAQ National Market under the
  symbol SIGM. Headquartered in Milpitas, California, we also have a research
  and development center in France as well as sales offices in China, Europe,
  Hong Kong, Japan and Taiwan.

We were founded in 1982, and became a pioneer in the MPEG hardware
  decoder market in 1993 with the introduction of our REALmagic card, a MPEG playback
  card for PCs. In April 1997, we announced our entry into the DVD market. During
  the past few years, we have expanded well beyond our PC card beginnings and
  are working with consumer electronics manufacturers and network service providers
  on new products to deploy Internet Protocol Television (IPTV) solutions, digital
  media adapters, networked DVD players, and high definition television. These
  opportunities have led to technology investments in media processor chips, streaming
  video software, digital rights management, and a number of other important technologies.

At the end of 2001, we introduced the industry's first DVD
  resolution MPEG-4 decoder chip for set-top appliances, establishing a unique
  position to contribute to the deployment of next generation capabilities. Since
  then, we have secured numerous design wins and are shipping
  this product for applications including IP-based set-top boxes for video over
  DSL, fiber to the home, and advanced DVD players.

In January 2003 we launched the first high definition television
  (HDTV) decoder chips with MPEG-4. The announcement formally marked our official
  entry into the digital TV and media gateway markets. In January 2004 we announced
  the EM8620L, the first media processor to support WMV9, an advanced video compression
  technology from Microsoft Corp.

We were incorporated in California in January
  1982. The principal executive office is located at 1221 California Circle, Milpitas,
  California 95035. The telephone number is (408) 262-9003, and the Internet home
  page is located at www.sigmadesigns.com; however, the information in, or that
  can be accessed through, the home page is not part of this report. Our annual
  reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
  8- K, and amendments to such reports are available, free of charge, on our Internet
  website under "Investors," as soon as reasonably practicable after
  we filed electronically such material with, or furnish it to, the United States
  Securities and Exchange Commission, or SEC. The public may also read and copy
  any materials we filed with the SEC at the SEC's Public Reference Room at 450
  Fifth Street, N.W., Washington D.C. 20549. The public may obtain information
  on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
  The SEC also maintains an Internet site (www.sec.gov) that contains reports,
  proxy and information statements and other information regarding us that we
  filed electronically with theSEC.

Principal Markets

Our primary focus is to develop and market
  media processor chipsets for consumer appliances, which can be segmented into
  three broad categories. Many of our chipset products are designed to be flexibly
  used in the widest range of applications.

IP Video Solutions

Video delivered and distributed over Internet Protocol (IP)
  is emerging as an important product category for a growing number of consumer
  equipment makers. These solutions can be further segmented into two primary
  sub-segments, IPTV over DSL and digital media adapters (DMAs).

Broadband Internet connectivity, highly compressed digital
  media, and a fundamental demand for entertainment alternatives
  are paving the way for IPTV delivered over DSL. New set-top boxes, many based
  on advanced codecs such as MPEG-4 or WMV9 and advanced digital rights management
  (DRM), are being readied by telcos in Asia and Europe to tap into potential
  revenue streams. Many of these regional areas currently lack
  the cable infrastructure that exists in the U.S., thus creating pent up demand
  for reliable high quality video delivery. We have become a key supplier into
  these IPTV solutions by offering an optimized feature set with scalable performance
  silicon and unique streaming video software.

DMAs are a new product category which
  supports local distribution of video/audio content to television sets throughout
  the home using wired or wireless connectivity. DMAs are steadily decreasing
  in price and typically work in conjunction with a centralized media center or
  gateway to offer ubiquitous digital media within the home. We are a key vendor
  of chipset solutions for DMAs, taking advantage of the same feature set, and
  streaming video software developed for the IPTV market.

Companies such as Pinnacle, Lenovo Consume PC (formerly Legend),
  Vertex Link, Beijing Golden Yuxing Electronics and Technology Co., Ltd., and
  Shenzhen Tsinghua Tongfang are preparing and providing IP video appliances
  for the consumer market using our silicon solutions. In addition, the new
  "T-Online Vision on TV" service, based around the Fujitsu Siemens Center ACTIVY
  Media Center, is powered by our EM8400 MPEG decoder chips.

Connected Media Players

Connected media players represent a range of devices that include
  networked DVD players, portable media devices, and multi-function media centers.

Premium DVD players with advanced video codecs have been a
  product of choice for entertainment enth usiasts for over a year. Manufacturers
  have recently introduced a new range of network connected DVD players, supporting
  either in-home connectivity or external Internet connections for direct downloading.
  We pioneered this market with the first DVD decoder chips supporting playback
  of MPEG-4 and DivX video, and have followed up with the recent announcement
  of support for WMV9, an important new feature for downloading content. We are
  an important supplier in this segment and provides comprehensive solutions with
  the latest codecs (WMV9 and MPEG-4), support for networking and local hard drives,
  and high definition video output.

Another sub- segment of demand for our
  chipsets is portable media devices. With ongoing technology improvements in
  media compression, wireless communications, and small form-factor storage, portable
  media players have quickly become the media-on- the-go equivalent of the cell
  phone. The trend toward hand-held players has already moved to the mainstream
  for audio, while new advanced video compression schemes are enabling the addition
  of movies, personal video and photos, for use on the road and within the home.
  We have begun to penetrate this market by offering media processors that offer
  the latest codecs in a highly integrated package along with low power dissipation.

KiSS Technology, a leading European vendor of advanced DVD
  products, is developing the first DivX certified DVD players
  using our chipsets. In addition, several companies are preparing new WMV9 capable DVD players to enter the market
  using our new chips. Of these companies, Apex Digital,
  Inc., a leader in consumer electronics, demonstrated its
  new DVD player at the Las Vegas Consumer Electronics Show
  in early 2004.

High Definition Television

HDTV sets already represent a substantial and growing product
  category, currently selling in the millions of units, led by the US market and
  moving overseas. New widescreen HDTV sets are being offered in an increasing
  array of forms using three primary technologies - liquid crystal display (LCD),
  plasma and projection - each providing unique advantages. We offer a growing
  line of high definition media processors, designed for the new flat panel displays,
  and offering advanced display processing features to recreate the essence of
  cinema picture quality.

Our EM8610 digital media processor has been
  selected for use in high-definition plasma television sets from KiSS Technology
  and from Jamo.

In addition to our primary market segments,
  we still sell legacy products into commercial VOD streaming and PC add-in markets.

Industry Alliances

To meet customer needs for a complete
  system solution, we have developed strong relationships with leading suppliers
  of chipsets, system software and video servers/encoders. Companies that provide
  live encoders and server systems enable OEM to deliver complete solutions for
  IP video streaming applications. Our set-top appliance reference designs, in
  some cases, depend on vendors of processors, graphics controllers, video encoders,
  wireless controllers, and DTV tuners, from providers such as Atheros or Toshiba.
  Furthermore, stand-alone consumer appliances require a substantial amount of
  software and middleware, from vendors such as Mediabolic, Syabas, or Microsoft,
  with which we also have strong working relationships.

Sigma Business Strategy

Our objective is to provide digital media
  processing chipsets that offer advanced features, superior video quality, and
  rapid time to market for our target
  applications. To accomplish this goal, we focus on a continual investment in
  technology, as well as the promotion of our fundamental advantages.

We believe that our field-proven, patented REALmagic®
  Video Technology, now in our fourth generation of silicon and equivalent evolution
  of software, represents one of our key competitive advantages. We continue to
  invest and build on six primary technology foundations to provide the highest
  quality digital video/audio solutions possible:

- Digital video decoding including MPEG-1, -2 and -4
    and proprietary formats, including WMV9;

- Digital audio decoding including MPEG-1, -2 and -4
    and proprietary formats, including Dolby® Digital and Windows® Media
    Audio (WMA);

- Advanced scene composition including advanced video
    scaling, adaptive deinterlacing, adaptive flicker filtering and prioritized
    alpha mixing;

- Front-end architectures for effectively processing
    DRM algorithms, transport handling and conditional access;

- Software clients for VOD and IP multicast and navigation
    software for DVD-video, DVD-audio, SVCD, VCD, CD and HDD playback;

- Standard-definition (SD) and high-definition (HD)
    solutions that share a common hardware and software architecture.

Sigma Products

We offer chip-level products that enable digital media processing
  solutions for consumer appliances. Our line of digital media processing chips
  features REALmagic® Video Technology for the highest quality video possible.
  We complement our silicon technology with embedded software, portable to a wide
  range of operating environments. Featuring VOD and media navigation clients,
  our software is available under Windows, Linux, and WinCE operating systems.
  In addition, we develop and sell reference platforms designed around our silicon
  and software as application examples for customer development.

The following chipset products are sold primarily into the
  consumer appliance market:

- The original EM8300 provided MPEG-2 and -1 video decoding solutions for
    PC-based DVD playback and streaming video, which won wide acclaim as the top
    MPEG hardware for the PC, and included retail offerings by Creative Labs,
    Sony, and Panasonic.

- The EM8400 series provides MPEG- 4, -2 and -1 video and audio decoding for
    broadband interactive set-top boxes, and has achieved more than 40 design
    wins in its target segment, including companies such as Fujitsu-Siemens, Acer
    and Samsung. The EM8400 Series represents one of the first MPEG-4 silicon
    solutions for the set-top box market.

- The EM8500 series is the first solution for DVD players, portable media
    players and video endpoints to support MPEG-4 and DivXTM. It is also
    the first to feature high-quality scaling to HDTV resolutions and support
    for DVI/HDCP. The unique features of the EM8500 series enabled the availability
    of networked DVD players and low-cost video endpoints (digital media adaptors
    and broadband network devices).

- The EM8610 series represents the first HDTV decoder silicon solutions to
    also support MPEG-4 and IP video streaming. Designed for HDTVs and advanced
    set-top boxes, it also offers advanced audio/video processing and progressive
    DVD playback. The software-compatible EM8610L series addresses the more cost-
    sensitive SDTV and video endpoint markets.

- The EM8620L series represents the first HD WMV9 decoder silicon solution
    and also supports DVD and HD MPEG-4/-2 decoding. Designed for video endpoints
    (such as digital media adaptors and broadband IP video set-top boxes), DVD
    receivers and advanced DVD players, the EM8620L series offers advanced audio/video
    processing and HighMATTM support. Sigma also continues to
    offer PC add-in products based on our silicon and software technology for
    commercial streaming and consumer DVD/DivXTM playback.

We also offer a series of PC based solutions, under the NetStream and REALmagic
  Xcard brand names, that are sold into the commercial streaming market and PC
  add-in market respectively:

- The NetStream 4000 and 2000TV are PC add-in cards featuring high performance
    MPEG-4 and -2 decoding, bringing streaming video to virtually any PC-based
    system.

- The REALmagic XcardTM is a desktop PC add-in solution that plugs into
    a standard PCI slot, providing high quality DVD, MPEG-4 and DivXTM Video
    playback onto a standard TV or HDTV.

Marketing and Sales

We currently sell most of our products through our direct sales
  force. We augment these sales through a select set of distributors and manufacturer
  representatives operating in different regions of the world. Our U.S. distributor
  is Ingram Micro, Inc. Our OEMs include Fujitsu-Siemens, KiSS Technology, Kreatel,
  LG Electronics, Lite-On and Samsung. Our international distributors are strategically
  located in many countries around the world.

We generally maintain products for distribution through corporate
  markets based on forecasts rather than firm purchase orders. Additionally, we
  generally acquire products for sale to our OEM customers only after receiving
  purchase orders from such customers, which purchase orders are typically cancelable
  without substantial penalty from such OEM customers. We currently place non-cancelable
  orders to purchase semiconductor products from our suppliers on an eight to
  twelve week lead-time basis. Consequently, if, as a result of inaccurate forecasts
  or canceled purchase orders, anticipated sales and shipments in any quarter
  do not occur when expected, expenses and inventory levels could be disproportionately
  high, requiring more working capital and resulting in more pressure on our operating results. International customers accounted for 86%
  of our total net revenues in fiscal 2004.

Sales to distributors are typically subject to contractual
  rights of inventory rotation and price protection. Regardless of particular
  contractual rights, the failure of one or more distributors or OEMs to achieve
  sustained sell-through of REALmagic products could result in product returns
  or delayed or uncollectable receivables, contributing to significant fluctuations
  in our operating results.

Research and Development

As of January 31, 2004, we had a staff of 79 research
  and development personnel. These research and development personnel conduct
  all of our product development with the assistance of a number of independent
  contractors and consultants. We are focusing our development efforts primarily
  on MPEG decoder and WMV9 products, including new and improved versions of REALmagic
  MPEG chipsets and cost reduction processes.

To achieve and maintain technological leadership, we must continue
  to make technological advancements in the areas of MPEG video and audio compression
  and decompression. These advancements include maintaining compatibility with
  emerging standards and multiple platforms, and making improvements to the REALmagic
  architecture.

During fiscal 2004, 2003, and 2002, our research and development
  expenses were $10.0 million, $8.4 million, and $8.1 million, respectively. We
  plan to continue to devote substantial resources to research and development
  of future generations of MPEG and other multimedia products.

Competition

The market for MPEG decoder products is highly competitive.
  Rival companies include ESS Technology, Cirrus Logic, Mediatek, Zoran, ATI Technologies,
  Equator Technologies, Texas Instruments, Phillips, Analog Devices, Broadcom,
  STMicroelectronics, and LSI Logic. Many of these companies have a higher profile,
  larger financial resources base, and greater marketing resources
  than Sigma and may develop a competitive product that may inhibit the wide acceptance
  of REALmagic technology. We believe that other manufacturers which are developing
  MPEG products that will compete directly with our products in the near future.

We believe that the principal competitive factors in the market
  for MPEG decoder products include time to market for new product introductions,
  product performance, industry standards compatibility, price, and marketing
  and distribution resources. We believe that we compete most favorably with respect
  to time to market, product performance and industry standards compatibility,
  and we may not be able to compete favorably with respect to price, and marketing
  and distribution resources.

Licenses, Patents and Trademarks

We continually seek patent protection for certain software
  and hardware features in current versions of REALmagic and intend to do so for future versions
  of REALmagic. We currently have six pending patent applications for our REALmagic
  technology. Twenty-eight patents have been issued to us. We cannot assure you
  that more patents will be issued or that such patents, even if issued, will
  provide adequate protection for our competitive position. We also attempt to
  protect our trade secrets and other proprietary information through agreements
  with customers, suppliers and employees and other security measures. Although
  we intend to protect our rights vigorously, we cannot assure you that these
  measures will be successful.

Manufacturing

To reduce overhead expenses, along with capital and staffing
  requirements, we currently use third-party contract manufacturers to fulfill
  all of our manufacturing needs, including chipset manufacture and board-level
  assembly. All of the chips used by us to develop our decoding products are manufactured
  by outside suppliers and foundries. Each of these suppliers is our sole source
  of supply for the respective chips produced by such supplier and we do not have guaranteed
  price or quantity commitments.

Our reliance on independent suppliers involves several risks,
  including the potential absence of adequate capacity and reduced control over
  delivery schedules, manufacturing yields and costs. Any delay or interruption
  in the supply of any of the components required for the production of REALmagic
  products could seriously harm our sales of products and, thus, our operating
  results.

Backlog

Since our customers typically expect quick deliveries, we seek
  to ship products within a few weeks of receipt of a purchase order. However,
  the customer may reschedule delivery of products or cancel the purchase order
  entirely without significant penalty. Historically, our backlog has not been
  reflective of future sales.

Employees

As of January 31, 2004, we had 133 full-time employees, including
  79 in research and development, 29 in marketing, sales and support, 8 in operations,
  and 17 in finance and administration.

Our future success will depend, in part, on our ability to
  continue to attract, retain and motivate highly qualified technical, marketing,
  engineering and management personnel, who are in great demand. Our employees
  are not represented by any collective bargaining unit, and we have never experienced
  a work stoppage. We believe that our employee relations are satisfactory.

ITEM 2.	PROPERTIES

We currently lease a 40,000 square foot facility in Milpitas,
  California that is used as our headquarters. The lease will expire in September
  2007. We also lease facilities for sales offices in Hong Kong and Shenzhen China,
  and for research and development near Paris, France.

ITEM 3.	LEGAL PROCEEDINGS

Not applicable.

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE
  OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter
  of fiscal 2004.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information concerning
  our executive officers as of April 1, 2004:

|Name               | Age | Position                                                               
|------------------ | --- | -----------------------------------------------------------------------
|Thinh Q. Tran      | 50  | Chairman of the Board, President, and Chief
          Executive Officer
|Silvio Perich      | 55  | Senior Vice President, Worldwide Sales                                 
|Jacques Martinella | 48  | Vice President, Engineering                                            
|Kenneth Lowe       | 48  | Vice President, Strategic Marketing                                    
|Kit Tsui           | 54  | Chief Financial Officer, and Secretary                                 















Mr. Tran, a founder of Sigma, has served as President,
  Chief Executive Officer, and Chairman of the Board of Directors since February
  1982. Prior to joining Sigma, Mr. Tran was employed by Amdahl Corporation
  and Trilogy Systems Corporation, both of which were involved in the IBM-compatible
  mainframe computer market.

Mr. Perich joined Sigma in September 1985 as
Director, Sales.  In September 1992, Mr. Perich became Senior Vice
President, Worldwide Sales.  Mr. Perich was a co-founder of Costar
Incorporated, a manufacturers' representative organization for high technology
products, where he served as partner from October 1979 to September 1985.  From
September 1972 until September 1979, Mr. Perich served in several sales
management roles at Siliconix Inc, a specialty semiconductor manufacturer.

Mr. Martinella joined Sigma in May 1994 as
Director, VLSI Engineering.  In December 1995, Mr. Martinella became Vice
President, Engineering.  From June 1990 to April 1994, Mr. Martinella served in
engineering and management positions at Weitek, a microchip manufacturer.  In
addition, Mr. Martinella was an engineer at National Semiconductor, a
semiconductor manufacturer, from June 1982 to June 1990.

Mr. Lowe joined Sigma in May 2000 as Vice President,
Marketing.  In December 2000, Mr. Lowe became Vice President, Strategic
Marketing. Prior to joining Sigma, Mr. Lowe served as the Director of Multimedia
Marketing for Cadence Design Systems.  From 1996 to 1998, Mr. Lowe served as the
Vice President of Marketing for Chrontel.  Prior to 1996, Mr. Lowe held various
marketing management positions at Sierra Semiconductor, Datquest, Personal CAD
Systems, Performix and Gould-Biomation.  In the late 1980's, Mr. Lowe served as
Product Marketing Director of Sigma.

Ms. Tsui joined Sigma in November 1982 as its
Accounting Manager.  Ms. Tsui was promoted to Director of Finance in
February 1990, acting Chief Financial Officer and Secretary in December 1996,
Chief Accounting Officer in January 2000 and Chief Financial Officer in January
2001.

There is no family relationship among any of our directors
and executive officers.



PART II

ITEM 5.	MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
  RELATED STOCKHOLDER MATTERS

Our common stock trades on The Nasdaq National Market
under the trading symbol  "SIGM". The following table sets forth the
high and low sales prices per share of our common stock for each quarter in the
last two fiscal years.

`Fiscal 2004     Fiscal 2003
                                   -------------   --------------
                                    High   Low      High    Low
                                   ------ ------   ------ -------
First quarter ended April 30..... $ 7.38 $ 3.34   $ 7.20  $ 2.27
Second quarter ended July 31.....  12.83   6.27     3.91    2.00
Third quarter ended October 31...  11.90   7.45     3.27    1.64
Fourth quarter ended January 31..   9.50   5.65     4.50    2.03`

Shareholders

As of April 2, 2004, we had approximately 220
shareholders of record.  Because many of our shares are held by brokers or other
institutions on behalf of shareholders, we are unable to determine the total
number of shareholders represented by the record holders.

Dividends

We have never paid cash dividends on our common stock and
we do not plan to pay cash dividends to our common shareholders in the
foreseeable future.

Equity Compensation Plans

The information required by this item regarding equity
compensation plans is incorporated by reference to the information set forth in
Item 12 of this Annual Report on Form 10-K.

ITEM 6.	SELECTED FINANCIAL DATA

The following selected financial data is derived from our
consolidated financial statements.  This data should be read in conjunction with
our consolidated financial statements, the notes related thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere in this Annual Report on Form 10-K.

`Year ended January 31,       2004      2003      2002      2001      2000
-------------------------  --------  --------  --------  --------  --------  
                                   (In thousands, except per share data)
Net revenues..........     $30,520   $18,139   $13,437   $29,476   $50,324

Net income (loss)
 available to
 common shareholders..       1,543    (6,057)  (10,392)   (6,868)    2,263

Diluted net income
 (loss) per share
 available to
 common shareholders..        0.07     (0.37)    (0.64)    (0.42)     0.13

Working capital.......      23,868     4,459    10,475    19,706    27,092

Total assets..........      29,792    21,417    26,274    38,334    44,751

Shareholders' equity..      26,022     5,802    11,466    21,781    28,403`

ITEM 7.	MANAGEMENT'S DISCUSSION AND
  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH
  OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES. THE FOLLOWING DISCUSSION
  INCLUDES FORWARD-LOOKING STATEMENTS, WITHIN THE MEANING OF SECTION 27A OF THE
  SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
  ABOUT THE MARKETS IN WHICH WE OPERATE AND OUR BUSINESS AND PROSPECTS, INCLUDING
  STATEMENTS ABOUT OUR REVENUES, GROSS MARGIN, OPERATING EXPENSES,
  THE SUFFICIENCY OF OUR CURRENT RESERVE OF CASH AND CASH EQUIVALENTS, OUR SHORT-TERM
  INVESTMENTS AND OUR BANK LINES OF CREDIT TO MEET OUR WORKING CAPITAL REQUIREMENTS,
  AND THE EFFECT OF INTEREST RATE CHANGES ON THE VALUE OF OUR SHORT-TERM INVESTMENTS,
  OUR BANK LINES OF CREDIT AND OUR FOREIGN CURRENCY CASH BALANCES. THESE STATEMENTS
  ARE SUBJECT TO MANY RISKS AND UNCERTAINTIES WHICH MAY RESULT IN DIFFERENT OR
  DISAPPOINTING FUTURE BUSINESS AND FINANCIAL RESULTS. MANY OF THESE RISKS AND
  UNCERTAINTIES ARE DISCUSSED IN THIS REPORT, INCLUDING UNDER "CERTAIN FACTORS
  AFFECTING BUSINESS, OPERATING RESULTS, AND FINANCIAL CONDITIONS".

Results of Operations

For the fiscal year ended January 31, 2004, our net
revenues increased 68% to $30.5 million from $18.1 million reported for fiscal
2003.   This increase in revenues was primarily attributable to the increased
sales of our MPEG chipset products for advanced DVD players and IP video set-top
boxes, partially offset by a decline in sales of MPEG board products. Our
revenues from sales of chipset products and development kits in advanced DVD
players and IP video set-top boxes and for the consumer appliance market
increased from 61% to 87% of our total net revenues compared to last year, while
our revenues from sales of board, chipset, and console products for the
commercial streaming video market and PC add-in market decreased from 39% to 13%
of our total net revenues compared to last year.

Net income for the fiscal year ended January 31, 2004 was
$1.5 million as compared to net loss of $6.1 million for the prior fiscal year.
The net loss for fiscal 2003 included a charge of approximately $172,000 for
impairment losses, of which $142,000 was a complete write-off of the carrying
amount of an investment in less than 6% of the outstanding capital stock of a
closely-held technology company, and $30,000 was related to a joint venture
partnership.

The following table shows certain items as a percentage of
net revenues, which are included in our Consolidated Statement of
Operations:

`Fiscal     Fiscal     Fiscal
                                                  2004       2003       2002
                                                ---------  ---------  --------- 
Net revenues............................             100%       100%       100%
Cost of revenues........................              38%        45%        59%
                                                ---------  ---------  ---------
Gross margin............................              62%        55%        41%
Operating expenses:
  Research and development..............              33%        46%        60%
  Sales and marketing...................              16%        25%        32%
  General and administrative............               8%        16%        21%
Other (income) expense..................               0%         1%         5%
                                                ---------  ---------  ---------
Net income (loss) available to                         5%       -33%       -77%
     common shareholders................        =========  =========  =========`

Net Revenues

The following table sets forth our net revenues in each
product group, and the percentage of total net revenues represented by each
product group, for the last three years:

`(Dollars in thousands)             Fiscal 2004    Fiscal 2003    Fiscal 2002
                                 -------------- -------------- ---------------

Boards...........................  $3,231   10%   $6,215   34%   $6,961    52%
Chipsets.........................  25,880   85%   10,742   59%    3,858    29%
Other............................   1,409    5%    1,182    7%    2,618    19%
                                 ---------      ---------      ---------
  TOTAL NET REVENUES............. $30,520        $18,139        $13,437
                                 =========      =========      =========`

Our board level product lines target
  OEM customers to address the DVD upgrade market, system integrators to address
  the computer-based training, kiosks, and corporate video- on-demand markets
  and consumer markets for upgraded multimedia products. Our chipsets are targeted
  toward manufacturers and large volume OEM customers building interactive multimedia
  products for business and consumer markets. The "Other" category includes
  Netstream consoles for the commercial streaming video market, DVD development
  kits, set-top box products and accessories targeted at the consumer appliance
  market, service revenues under agreements for providing hardware and software
  support, development revenues under agreements for the
  customization of certain MPEG decoding chips and freight fees charged to customers.
  The costs related to support service revenues and development revenues were
  included in sales and marketing expenses, and research and development expenses,
  respectively.

We anticipated the continuous decrease in revenues for our MPEG board products from
fiscal 2002 through 2004, which
were mainly attributable to our decision to focus on the chipset products in the
video-on-demand and consumer appliance market instead of board products in the
commercial streaming video market and PC add-in market. The continuous and
significant increases in revenues for our chipset products from fiscal 2002
through fiscal 2004 were attributable to the continuing growth of demand for our
chipset products from the consumer appliance market, leading to increased unit
sales and higher introduction selling prices of our new advanced DVD player and
IP video set-top box chipsets. The overall increase in net revenues from other
products in fiscal 2004 as compared to fiscal 2003 was primarily attributable to
the increased sales of DVD development kits, and development and service revenues. The overall decrease
in net revenues from other products in fiscal 2003 as compared to fiscal 2002
was mainly attributable to the decreased sales of our consoles to the commercial
streaming video market.

The table below sets forth our net
revenues by market, and the percentage of total net
revenues represented by each market segment, for each of the last three fiscal
years:

`(Dollars in thousands)                      Fiscal 2004      Fiscal 2003      Fiscal 2002
                                           ---------------  ---------------  ---------------
Commercial streaming video market........    $1,806    6%     $3,751   21%     $6,944   52%
Consumer appliance market................    26,448   87%     11,015   61%      3,921   29%
PC add-in market.........................     1,179    4%      2,630   14%      2,166   16%
Other market.............................     1,087    3%        743    4%        406    3%
                                           ---------        ----------        ---------
   TOTAL NET REVENUES....................   $30,520          $18,139          $13,437
                                           =========        ==========        =========`



The continuous decreases in revenues for sales
  of our products to the commercial streaming video market from fiscal 2002 through
  fiscal 2004 were mainly attributable to the conversion of board level customers
  in commercial applications to chip level customers, since chipsets have a substantially
  lower selling price per unit than boards. We expect our revenues from the commercial
  streaming video market to continue to fluctuate year over year primarily due
  to the project-oriented nature of sales of our products to our corporate streaming
  video market. The continuous and significant increases in revenues for sales
  of our products to the consumer appliance market from fiscal 2002 through fiscal
  2004 were attributable to increased sales of our MPEG chipset products to advanced
  DVD player and IP video set-top box manufacturers. The consumer appliance market
  for our products is young and rapidly evolving and we expect revenues to fluctuate
  in the future. The decrease in revenues from sales of our products to the PC
  add-in market in fiscal 2004 as compared to fiscal 2003 was primarily due to
  lower unit sales of our MPEG-4 Xcard that was introduced in fiscal 2003. The
  increase in revenues from sales of our products to the PC add-in market in fiscal
  2003 as compared to fiscal 2002 was primarily attributable to the introduction
  of our new MPEG-4 Xcard. We expect our revenues from the PC add-in market to
  be relatively insignificant in future periods as a result of our decision to
  focus on the consumer appliance and video-on-demand markets. The category "other
  market" in the above table consists of freight charged to customers, service
  revenues under agreements for providing hardware and software supports, development
  fees under agreements relating to the development for customization of certain
  MPEG decoding chip technology and accessories for projects and products for
  various market segments. The overall increase in net revenues from other market
  in fiscal 2004 as compared to fiscal 2003 was primarily attributable to the
  increased development and service revenues. The overall increase in net revenues
  from other market in fiscal 2003 as compared to fiscal 2002 was mainly attributable
  to the introduction of our support services and freight fees charged to customers,
  which has been included as revenue since the beginning of fiscal 2003. Due to
  the uncertainty of volume of support services and development projects we are
  able to obtain, and the increasingly complex nature of projects which require
  longer development time, we expect that net revenues from "other"
  will fluctuate in the future.

The table below sets forth our net revenues by geographic
  region, and the percentage of total net revenues represented by each geographic
  region, for each of the last three fiscal years:

`(Dollars in thousands)             Fiscal 2004    Fiscal 2003    Fiscal 2002
                                 -------------- -------------- ---------------
Asia............................. $19,816   65%   $6,246   34%   $3,239    24%
Europe...........................   6,502   21%    5,937   33%    2,401    18%
United States....................   4,168   14%    5,913   33%    7,750    58%
Canada...........................      22    0%       28    0%       12     0%
Other regions....................      12    0%       15    0%       35     0%
                                 ---------      ---------      ---------
  TOTAL NET REVENUES............. $30,520        $18,139        $13,437
                                 =========      =========      =========`

Our Asia revenues for fiscal 2004 were derived predominantly
  from customers in Taiwan, Hong Kong, China and Korea. Revenues generated from
  Taiwan, Hong Kong, China and Korea, respectively, in fiscal 2004 accounted for
  22%, 14%, 12% and 11% of our total net revenues, as compared to 4%, 5%, 8% and
  4% for fiscal 2003 and 10%, 6%, 3% and 1% for fiscal 2002. Our Europe revenues
  in fiscal 2004 were derived predominantly from customers in Denmark. Revenues
  generated from Denmark in fiscal 2004 accounted for 12% of our total net revenues,
  as compared to 21% for fiscal 2003 and 0% for fiscal 2002. In fiscal 2004, no
  customer accounted more than 10% of our total net revenues; however, two customers
  based in Europe and four customers based in Asia accounted for 40% of our total
  net revenues. In fiscal 2003, one customer based in Europe, two customers based
  in the U.S. and two customers based in Asia accounted for 47% of our total revenues,
  among these customers, one customer based in Europe accounted for 19% of our
  total net revenues. In fiscal 2002, three customers based in the U.S. and one
  customer based in Europe accounted for 49% of our total net revenues, among
  these customers, three U.S. customers represented 15%, 14% and 11%, respectively.
  The continuous decreases in the U.S. revenues from fiscal 2002 through fiscal
  2004 were largely attributable to the decreased sales of our board products
  in the corporate streaming video market and PC add-in market while the continuous
  increases in Asia and Europe revenues from fiscal 2002 through fiscal 2004 were
  primarily attributable to the increased sales of our chipset products in the
  advanced DVD players and IP set-top boxes and for the consumer appliance market.
  Our international sales have recently increased significantly, and accounted
  for approximately 86% of our total net revenues in fiscal 2004. We expect that
  international sales will continue to account for a significant portion of revenues,
  due in part to the significant overseas manufacturing of consumer appliances
  by our chipset customers.

Gross Margin

Our gross margin as a percentage of net revenues was approximately
  62% in fiscal 2004, 55% in fiscal 2003, and 41% in fiscal 2002. This improvement
  was due to our continuing efforts to reduce the cost of our original MPEG boards
  and chipsets, and the introduction and sales of our new higher-margin MPEG-4
  chipset and board products and increased service and development revenues. In
  addition, the costs related to service revenues and development revenues were
  included in sales and marketing expenses, and research and development expenses
  respectively, while the provisions for inventory obsolescence included in cost
  of revenues decreased to $0.6 million in fiscal 2004 from $0.8 million in fiscal
  2003 and $1.4 million in fiscal 2002. We expect our gross margins will vary
  from period to period due to changes in the mix of product sales, selling prices,
  including as affected by volume discounts, our costs, the extent of development
  fees, and provisions for inventory obsolescence. Because average selling prices
  of our products typically decline over the life of a product, if we are unable
  to reduce costs faster than the rate of such decline or introduce new products
  with higher average selling prices, our gross margins will decline.

Operating Expenses

Sales and marketing expenses increased $274,000 or 6% in fiscal
  2004 compared to fiscal 2003 and $210,000 or 5% in fiscal 2003 compared to fiscal
  2002. Those increases were largely due to increased headcount and expenses associated
  the expansion of our product marketing and sales development group. We believe
  that our sales and marketing expenses will increase in absolute dollar terms
  in future periods as we intend to increase headcount in our sales and marketing
  organization and to expand our product marketing and sales development.

Research and development expenses increased $1,634,000 or 20%
  in fiscal 2004 compared to fiscal 2003 and $243,000 or 3% in fiscal 2003 compared
  to fiscal 2002. The increase in fiscal 2004 compared to fiscal 2003 and in fiscal
  2003 compared to fiscal 2002 was primarily attributable to the additions of
  engineering staff at our headquarters, our Hong Kong office and development
  center in France, the prototype costs of new products and licensing fees. We
  plan to continue our efforts in the development of our proprietary MPEG and
  WMV9 based products, and expect research and development expenses will likely
  increase by 10% to 20% in absolute dollar terms on a year- over-year basis at
  least for the near term.

Our general and administrative expenses decreased $467,000
  or 16% in fiscal 2004 compared to fiscal 2003. The decrease was mainly attributable
  to a $200,000 recovery of bad debt expenses and the reduction of professional
  service fees. Our general and administrative expenses increased $208,000 or
  8% in fiscal 2003 compared to fiscal 2002. The increase was largely due to increasing
  costs of insurance and various professional services. These fluctuations in
  general and administrative expenses in fiscal 2004 over fiscal 2003 and 2002
  were largely due to the timing of expenses of various professional services.
  We expect our general and administrative expenses will increase in absolute
  dollar terms in future periods due to the continually increasing cost of insurance,
  professional services and other expenditures associated with our business.

Liquidity and Capital Resources

As of January 31, 2004, our principal sources of liquidity
  consisted of cash and cash equivalents of $19.0 million, a significant increase
  of $18.2 million compared with $0.8 million at January 31, 2003. This increase
  resulted from net proceeds of $4.5 million from the issuance of 1,606,644 shares
  of our common stock in a private placement to certain institutional investors,
  corporate partners, and others in March 2003, $11.8 million from the issuance
  of 1,450,000 shares of our common stock in a private placement to an institutional
  investor in the second quarter of fiscal 2004, $2.4 million from the exercise
  of stock options by employees, and $1.0 million generated from operating activities,
  which was partially offset by the repayment of capital leases of $0.2 million
  and $1.3 million of equity investments including $1.0 million in an original
  equipment manufacturer headquartered in Europe and $0.3 million in a local MPEG-4
  solution provider.

We do not have guaranteed price or quantity commitments for
  any of suppliers and the following table sets forth the amounts (in thousands)
  of payments due under specified contractual obligations, aggregated by category
  of contractual obligation as of January 31, 2004.

`Contractual Obligations                      Total     Capital   Operating
Payments Due by Period                                 Leases     Leases
-------------------------------            ---------  ---------  ---------
1 year or less........................... $     692  $       5  $     687
1-3 years................................     1,336         --      1,336
3-5 years................................       433         --        433
more than 5  years.......................        --         --         --
                                           ---------  ---------  ---------
Total.................................... $   2,461  $       5  $   2,456
                                           =========  =========  =========`

On October 31, 2003, we entered into an amended and restated
  revolving line of credit, expiring in October 2004, under which we can draw
  down a maximum of $12.0 million that would be primarily collateralized by funds
  on deposit in accounts that would be assigned to the lender and would be included
  in our consolidated balance sheet as restricted cash. Such cash would not be
  available to fund operations. We also have a $3.0 million bank line of credit
  under which we had availability to draw down approximately $1.1 million as of
  January 31, 2004. That line of credit will also expire in October 2004 and is
  primarily collateralized by our accounts receivable. In addition, we have a
  second bank line of credit of $3.0 million that expires in October 2004, which
  line is secured by substantially all of our assets. The entire $3.0 million
  is available for borrowing. As of January 31, 2004, we had no borrowings outstanding
  under any line of credit. Under the agreement and the notes for these lines
  of credit, we are subject to certain financial covenants. As of January 31,
  2004, we were in compliance with these covenants.

Our primary sources of funds to date have been proceeds from
  preferred and common stock issuances, and borrowings under bank lines of credit.
  In certain periods, cash generated from operations has also been a source of
  funds. While we generated cash from operations in the twelve months ended January
  31, 2004, it is possible that our operations will consume cash in future periods.
  Other than the obligations under certain contractual agreements shown on the
  above table, we currently have no long-term debt. Based on our currently anticipated
  cash needs, we believe that our current reserve of cash and cash equivalents,
  including the proceeds from our private placements of common stock during the
  first half of fiscal 2004, will be sufficient to meet our primary uses of cash,
  which include our anticipated working capital requirements, obligations, capital
  expenditures, strategic investments, and other cash needs for the next twelve
  months. In addition, we believe that we will be able to comply with or make
  modifications to the current covenants under our existing asset-based banking
  agreements, and to renew those lines of credit upon their expiration, in order
  to maintain the availability of funds under these agreements.

CERTAIN FACTORS AFFECTING BUSINESS, OPERATING RESULTS, AND
  FINANCIAL CONDITION

You should carefully consider the risks described below before
  making an investment decision. The risks and uncertainties described below are
  not the only ones facing Sigma. Additional risks and uncertainties not presently
  known to us or that we currently deem immaterial may also impair our business
  operations.

If any of the following risks actually occur, our business,
  financial condition and results of operations could be materially adversely
  affected. In such case, the trading price of our common stock could decline,
  and you could lose all or part of your investment.

Our business is highly dependent on the expansion of young
  and rapidly evolving segments of the consumer electronics market

The majority of our current revenues come from the sale of
  chipsets into emerging consumer applications, including IP video set-top boxes,
  advanced DVD players, and high definition televisions. We expect that the consumer
  digital home entertainment market will continue to account for a significant
  portion of our net revenues for the foreseeable future. Our ability to sustain
  and increase revenues is in large part dependent on the continued growth of
  these young and rapidly evolving segments, whose future is largely uncertain.
  Many factors could impede or interfere with the expansion of these consumer
  market segments, including general economic conditions, other competing consumer
  electronic products, delays in the deployment of telco video services and insufficient
  interest in new technology innovations.

We have a history of operating losses and we could sustain
  future losses. We cannot assure you that we will be profitable and if we continue
  to lose money, our business may not be financially viable.

We incurred significant operating losses in fiscal 1995, 1996,
  1998, 2001, 2002 and 2003 and had negative cash flow in fiscal 1995, 1998, 2002
  and 2003. Since our introduction of the REALmagic MPEG product line in November
  1993, we have made significant investments in marketing and technological innovation
  for our REALmagic products. As a result of our investments, we experienced significant
  losses through fiscal 1996. Fiscal 1995, 1996 and 1998 also included significant
  losses associated with products other than those related to our REALmagic technology.
  Fiscal 2001, 2002 and 2003 included significant loss associated with a decline
  in demand for our REALmagic products. Since our inception through January 31,
  2004, our total accumulated deficit is $60,963,000. We cannot assure you that
  we will not incur operating losses in any future fiscal quarter or fiscal year.

Our operating results are subject to significant fluctuations
  due to many factors and any of these factors could adversely affect our stock
  price.

Our operating results have fluctuated in the past and may continue
  to fluctuate in the future due to a number of factors, including but not limited
  to:

- new product introductions by us and our competitors;
- changes in our pricing models and product sales mix;
- market acceptance of the technology embodied in our products
    generally and our products in particular;
- shifts in demand for the technology embodied in our products
    generally and our products in particular and those of our competitors;
- customer acceptance of our products;
- gains or losses of significant customers;
- the timing of, and potential unexpected delays in, our customer
    orders and product shipments;
- reduction in average selling prices and gross margins, which
    could occur either gradually or precipitously;
- inventory obsolescence;
- write-downs of accounts receivable;
- an interrupted or inadequate supply of semiconductor chips
    or other materials included in our products, for example,
    our source of supply for silicon wafers was, and may in the future be affected
    by earthquakes in Taiwan;
- our inability to protect our intellectual property;
- loss of key personnel;
- technical problems in the development, ramp up, and manufacturing
    of products which could cause shipping delays;
- the effect of terrorist attacks and any related conflicts
    or similar events worldwide;
- availability of third-party manufacturing capacity for production
    of certain products;
- the impact of a recurrence of severe acute respiratory syndrome,
    or SARS, upon our revenues and our supply sources for our products; and



- the impact of potential economic instability in the Asia-
    Pacific region.



Sales risks and volatility of OEM customer sales and resale
  distribution may harm our business.

Our ability to
increase sales and achieve continued profitability depends substantially on our
ability to achieve a sustained high level of sales to our OEM customers. We have
not executed volume purchase agreements with any of our current customers. Our
customers are not under any obligation to purchase any minimum quantity of our
products. Also, even if we achieve new design wins, we cannot assure you that
these manufacturers will purchase our products in substantial volumes.  Sales to
any particular OEM customer fluctuate significantly from quarter to quarter and
are subject to severe price pressures by competitors. Any reductions in those
sales could seriously harm our business.  Based on our experience in the
industry, we expect that our actual sales to OEM customers will continue to
experience significant fluctuations.  Also, estimates of future sales to any
particular customer or groups of customers are inherently uncertain.

Our ability to achieve continued
profitability also depends on maintaining our current sales levels of streaming
video products through domestic and international distributors for resale
through corporate markets.  Sales to such distributors are typically subject to
contractual rights of inventory rotation or price protection.  The failure of
distributors to achieve sustained sell-through of our products could result in
product returns or delayed or uncollectable receivables. For example, in the
third and fourth quarters of fiscal 2001, we recorded sales returns from one of
our distributors in the amount of approximately $2.7 million which we recorded
as a reduction of revenues and $1.4 million which we recorded as an increase to
our sales return reserve. We also provided for a bad debt allowance in the
amount of approximately $2.1 million as of January 31, 2001.  Any such returns
and uncollectable receivables could continue to contribute to fluctuations in
our results of operations.  We cannot assure you that we will be successful in
obtaining or maintaining significant customers for these products.

Because we depend on a limited number of major
customers, the reduction, delay or cancellation of orders from these customers
or the loss of these customers may adversely affect our business.

In fiscal 2004, no customer accounted more than 10% of our total net revenues;
  however, two customers based in Europe and four customers based in Asia accounted
  for 40% of our total net revenues. In fiscal 2003, one customer based in Europe,
  two customers based in the U.S. and two customers based in Asia accounted for
  47% of our total revenues, among these customers, one customer based in Europe
  accounted for 19% of our total net revenues. In fiscal 2002, three customers
  based in the U.S. and one customer based in Europe accounted for 49% of our
  total net revenues, among these customers, three U.S. customers represented
  15%, 14% and 11%, respectively. Our dependence on a few major customers
  will likely continue despiteother changes in the composition
  of our customer base. The reduction, delay or cancellations of orders from major
  customers or the loss of major customers could materially and adversely affect
  our business, financial condition and results of operations. In addition, any
  difficulty in collection from key customers could harm our financial condition.



Our international operations are subject to certain risks.

During fiscal 2004, 2003, and 2002, sales to international
  customers accounted for approximately 86%, 67%, and 42% of our total net revenues,
  respectively. We anticipate that sales to international customers, including
  sales of REALmagic products, will continue to constitute a substantial percentage
  of our net revenues. Also, some of the foundries that manufacture our products
  and components are located in Asia.

Due to the concentration of international sales and the manufacturing
  capacity in Europe and Asia, we are subject to the risks of conducting business
  internationally. These risks include unexpected changes in regulatory requirements
  and fluctuations in the U.S. dollar that could increase the sales price in local
  currencies of our products in international markets, or make it difficult for
  us to obtain price reductions from our foundries. Overseas sales and purchases
  to date have been denominated in U.S. dollars. We do not currently engage in
  any hedging activities to reduce our exposure to exchange rate risks. If and
  when we engage in transactions in foreign currencies, our results of operations
  could be adversely affected by exchange rate fluctuations.

We derive a substantial portion of our revenues from sales
  to the Asia Pacific region. This region of the world is subject to increased
  levels of economic instability, and this instability could seriously harm our
  results of operations. Further, the economic impact of a recurrence of SARS
  or a similar event in this region could adversely affect our revenues and our
  business as a whole.

The timing of our customer orders and product shipments can
  adversely affect our operating results and stock price

Our quarterly revenues and operating results depend upon the
  volume and timing of customer orders received during a given quarter and the
  percentage of each order that we are able to ship and recognize as revenue during
  each quarter, each of which is extremely difficult to forecast. The majority
  of our orders in a given quarter historically have been shipped in the last
  months of that quarter. This trend is likely to continue, and any failure or
  delay in the closing of orders during the last part of a quarter would adversely
  affect our operating results, as occurred in the third quarter of fiscal 2004.
  Further, to the extent we receive orders late in any given quarter, we may be
  unable to ship products to fill those orders during the same quarter in which
  we received the corresponding order, which would have an adverse impact on our
  operating results for that quarter.

Our products are subject to increasing price pressures

Some of our markets, especially the DVD segments, are characterized by intense
  price competition. The willingness of customers to design our chips in to their
  products depends to a significant extent, upon our ability to sell our products
  at competitive prices. We expect the average selling price of our existing products
  to decline significantly over the life of each product as the markets of our
  products mature, new technologies emerge, and competition increases. If we are
  unable to reduce our costs sufficiently to offset declines in product prices
  or are unable to introduce more advanced products with higher margins in a timely manner, we could see declines
  in our market share or gross margins.

If we fail to comply with or obtain waivers for covenants under
  our loan obligations, our financial condition could be harmed.

We have three lines of credit with a bank which allow for borrowings of $12.0
  million, $3.0 million and $3.0 million, respectively. Under the agreements for
  these lines of credit, which expire in October 2004, we are subject to certain
  financial covenants. Since July 1997, we have, on occasion, been in violation
  of some of the covenants and in all cases have obtained waivers releasing us
  from our obligation to meet these covenants as of previous dates. It is possible
  that we may need such a waiver for future non-compliance and we cannot assure
  you that our bank will grant these waivers. If we do not meet these covenants
  and cannot obtain waivers, the lender could accelerate payments of
  any amounts due under the lines. To the extent we had borrowed amounts under
  these lines and were required to repay them on an accelerated basis, it
  could substantially weaken our financial condition. If we do not have sufficient
  funds available to make full payment of the lines when
  required, the bank could foreclose on our accounts receivable, inventories,
  general intangibles, equipment and tangible assets that collateralize the notes,
  which would harm our business. As of January 31, 2004, we had no borrowings
  outstanding under any line of credit.

Our industry is highly competitive and we cannot assure you
  that we will be able to effectively compete. If we fail to compete effectively,
  our growth could be substantially affected.

The market for multimedia products is highly competitive and
  includes embedded processors provided by multiple companies. Processors have,
  in recent years, included increased graphics functionality. Other companies
  with more experience and financial resources may develop a competitive product
  that could inhibit future growth in sales of products utilizing our REALmagic
  technology. Increased competition may be generated from several major computer
  product manufacturers that have developed products and technologies that could
  compete directly with REALmagic products. These competitors include:

- Analog Devices;
- ATI Technologies;
- Broadcom;
- Cirrus Logic;
- Equator Technologies;
- ESS Technology;
- LSI Logic/C-Cube;
- Mediatek;
- Phillips;
- STMicroelectronics;
- Texas Instruments;
- Zoran Corporation.

In addition, for some applications, video decoding is done
  in software operating on today's more powerful CPUs. Most of our competitors
  have substantial experience and expertise in audio, video and multimedia technology
  and in producing and selling consumer products through retail distribution and
  OEM channels. These companies also have substantially greater engineering, marketing
  and financial resources than we have. Our competitors could form cooperative
  relationships that could present formidable competition to us. We cannot assure
  you that our REALmagic technology will continue to achieve commercial success
  or that it will compete effectively against other interactive multimedia products,
  services and technologies that currently exist, are under development, or may
  be announced by competitors. Also, we anticipate that our competitors will,
  over time, introduce features that have been unique to Sigma Designs, such as
  MPEG-4 decoding, which was announced by ESS Technology during our third quarter
  of fiscal 2004. We cannot assure you that we will not lose market share or suffer
  price erosion in each of our market segments, as a result of the introduction
  of competitive products with similar features.

Our future revenue growth depends in large part on the adoption
  of MPEG technology and new CODECs.

Our business strategy is, and has been, to focus on our REALmagic
  products by investing heavily in video decoding technology and WMV9. We have made substantial investments in product
  development based on the latest MPEG technology, MPEG-4. Though MPEG-4 has gained
  some market acceptance, there is increasing competition from the ISO H.264 standard,
  a next generation video CODEC that forms an extension of MPEG-4. Though we intend
  to support new CODEC technologies as they become commercially viable, there
  is no guarantee that we can successfully develop these technologies in a timely
  manner or that competitors will not gain market share at our expense with these new technologies.

Our failure to keep pace with technological change will seriously
  harm our business.

Our success depends, among other things, on our ability to
  achieve and maintain technological leadership and to remain competitive in terms
  of price and product performance.

Our technological leadership depends on our continued technological
  advancements, as well as research and development investments in the area of
  MPEG video and audio decoding. These advancements include the following:

- Compatibility with emerging standards and multiple platforms;
- Improvements to our silicon architecture.

We cannot assure you that we will be able to make these advancements to our
  REALmagic technology. If we do make these advances, we cannot assure you that
  we will be able to achieve and maintain technological leadership. Any material
  failure by us or OEMs and software developers to develop or incorporate any
  required improvement could adversely affect the continued acceptance of our
  technology and the introduction and sale of future products based on our technology.
  We cannot assure you that products or technologies developed by others will
  not render our technology and the products based on our technology obsolete.

To be competitive, we must anticipate the needs of the market and successfully
  develop and introduce innovative new products in a timely fashion. We cannot
  assure you that we will be able to successfully complete the design of our new
  products, have these products manufactured at acceptable manufacturing yields,
  or obtain significant purchase orders for these products. The introduction of
  new products may adversely affect sales of existing products and contribute
  to fluctuations in operating results from quarter to quarter. Our introduction
  of new products also requires that we carefully manage our inventory to avoid
  inventory surplus and obsolescence. Our failure to do so could adversely impact
  our results of operations. For example, during fiscal 2004 and 2003, we wrote
  down our inventory in the amount of approximately $0.6 million and $0.8 million
  respectively, because of a continuing decline in demand for certain of our PC-
  related products. In addition, new products, as opposed to more mature products,
  typically have higher initial component costs. These higher costs could result
  in downward pressures on our gross margins.

We face many risks because of our heavy reliance on certain
  manufacturers and suppliers that could harm our business and financial condition.

Our products and components are presently manufactured
  entirely by outside suppliers or foundries. We do not have long-term contracts
  with these suppliers. We conduct business with our suppliers on a written purchase
  order basis. Our reliance on independent suppliers subjects us to several risks.
  These risks include:

- the absence of adequate capacity;
- the unavailability of, or interruptions in access to, certain
    process technologies; and
- reduced control over delivery schedules, manufacturing yields
    and costs.

We obtain some of our components from a single source. Other
  delays or interruptions have not occurred to date, but any delay or interruption
  in the supply of any of the components required for the production of our REALmagic
  silicon or our REALmagic multimedia cards currently obtained from a single source,
  including delays resulting from a recurrence of SARS, earthquakes
  or other business interruptions could have a material adverse impact on
  our sales of REALmagic products, and on our business.

We must provide our suppliers with sufficient lead-time to
  meet our forecasted manufacturing objectives. Any failure to properly forecast
  such quantities could materially and adversely affect our ability to produce
  REALmagic products in sufficient quantities. We cannot assure you that our forecasts
  regarding new product demand will be accurate, particularly because we sell
  our REALmagic products on a purchase order basis. Manufacturing REALmagic chipsets
  is a complex process, and we may experience short-term difficulties in obtaining
  timely deliveries. This could affect our ability to meet customer demand for
  our products. Any such delay in delivering products in the future could materially
  and adversely affect our operating results. Also, should any of our major suppliers
  become unable or unwilling to continue to manufacture our key components in
  required volumes, we will have to identify and qualify acceptable additional
  suppliers. This qualification process could take up to three months or longer
  and additional sources of supply may not be in a position to satisfy our requirements
  on a timely basis.

In the past, we have experienced production delays and other difficulties,
  and we could experience similar problems in the future. In addition, product
  defects may occur and they may escape identification at the factory. This could
  result in unanticipated costs, cancellations, deferrals of purchase orders,
  or costly recall of products from customer sites.

Loss of key personnel could cause our business to suffer.

Our future success depends in large part on the continued service of our key
  technical, marketing, sales and management personnel. Given the complexity of
  REALmagic technology, we are dependent on our ability to retain and motivate
  highly skilled engineers involved in the ongoing hardware and software development
  of REALmagic products. These engineers are required to refine the existing hardware
  system and application programming interface and to introduce enhancements in
  future applications. Despite incentives we provide, our current employees may
  not continue to work for us, and if additional personnel were required for our
  operations, we may not be able to obtain the services of additional personnel
  necessary for our growth.

We face risks related to intellectual property rights.

Our ability to compete may be affected by our ability to protect
  our proprietary information. We currently hold twenty-eight patents covering
  the technology underlying the REALmagic products. We have filed certain patent
  applications and are in the process of preparing others. We cannot assure you
  that any additional patents for which we have applied will be issued or that
  any issued patents will provide meaningful protection of our product innovations.
  Like other emerging multimedia companies, we rely primarily on trade secrets
  and technological know-how in the conduct of our business. We also rely, in
  part, on copyright law to protect our proprietary rights with respect to our
  REALmagic technology. We use measures such as confidentiality agreements to
  protect our intellectual property. These methods of protecting our intellectual
  property may not be sufficient.

The electronics industry is characterized by frequent litigation
  regarding patent and intellectual property rights. Any such litigation could
  result in significant expense to us and divert the efforts of our technical
  and management personnel. In the event of an adverse result in any such litigation,
  we could be required to expend significant resources to develop non-infringing
  technology or to obtain licenses to the technology that is the subject of the
  litigation, and we may not be successful in such development or in obtaining
  such licenses on acceptable terms, if at all. In addition, patent disputes in
  the electronics industry have often been settled through cross- licensing arrangements.
  Because we do not yet have a large portfolio of issued patents, we may not be
  able to settle an alleged patent infringement claim through a cross-licensing
  arrangement.

Our stock price is volatile.

The market of our common stock has been subject to significant volatility,
  which is expected to continue. The following factors, among others, may have
  a significant impact on the market price of our common stock:

- our announcement of the introduction of new products;
- our competitors' announcements of the introduction of new products;
    and
- market conditions in the technology, entertainment and emerging
    growth company sectors.

The stock market has experienced, and is currently experiencing,
  volatility that particularly affects the market prices of equity securities
  of many high technology companies, such as those in the electronics industry.
  This volatility is often unrelated or disproportionate to the operating performance
  of such companies. These fluctuations, as well as general economic and market
  conditions, could decrease the price of our common stock.

Critical Accounting Policies

Management's Discussion and Analysis of Financial Condition
  and Results of Operations are based upon our consolidated financial statements,
  which have been prepared in accordance with accounting principles generally
  accepted in the United States. The preparation of these financial statements
  requires management to make estimates and assumptions that affect the reported
  amounts of assets and liabilities and the disclosure of contingent assets and
  liabilities at the date of the financial statements and the reported amounts
  of revenues and expense during the reporting period. On an on-going basis, management
  evaluates its estimates and judgments, including those related to revenue recognition,
  accounts receivable, and inventories. Management bases its estimates and judgments
  on historical experience and on various other factors that are believed to be
  reasonable under the circumstances, the results of which form the basis for
  making judgments about the carrying values of assets and liabilities that are
  not readily apparent from other sources. Actual results may differ from these
  estimates under different assumptions or conditions.

Revenue Recognition - We recognize revenues in accordance
  with Staff Accounting Bulletin ("SAB") No. 104, "Revenue
  Recognition". Revenue is recognized when persuasive evidence of an arrangement
  exists, delivery has occurred or service has been rendered, the fee is fixed
  and determinable, and collectibility is probable. We derive revenues from three
  principal sources: product sales, product development contracts and service
  contracts.

Revenues from product sales to OEMs, distributors and end users
  are generally recognized upon shipment, as our shipping terms are FOB shipping
  point, except that revenues are deferred when management cannot reasonably estimate
  the amount of returns or where collectibility is not assured. In those situations,
  revenue is recognized when collection subsequently becomes probable and returns
  are estimable (generally upon resale by customers or "Sell-through Basis").
  Allowances for sales returns, price protection and warranty costs are recorded
  at the time that revenues are recognized.

In fiscal 2001, we began recognizing revenue from our primary
  U.S. distributor on a Sell-through Basis. This practice resulted from significant
  sales returns, which we accepted from the distributor outside of the terms of
  the distribution agreement. Under terms of a distribution agreement entered
  into with the distributor in fiscal 2002, we granted the distributor the right
  of return and price protection, which allows the distributor to return any product,
  which is in the original packaging, for full credit up to 180 days after the
  earlier of the agreement expiration or early termination. The price protection
  provision allows the distributor to receive a credit for the difference between
  the original price and the reduced price of our products within their inventory.
  Although the returns are not frequent in nature, returns from this distributor
  cannot be reasonably estimated. Consequently, pursuant to the above policy,
  revenue from this distributor is recognized upon resale to the distributor's
  end-customers.

Revenues from product development agreements were recognized
  in fiscal 2004 and 2003 when billed, earned, and collection was assured. In
  fiscal 2002, such revenue was recognized on the percentage of completion method.
  Under the percentage-of-completion method, estimates are reviewed and revised
  periodically throughout the lives of the contracts. Any revisions are recorded
  in the accounting period in which the need for revisions becomes evident. The
  Company classifies all development costs related to such agreements as research
  and development expenses. Development revenues were $792,000, $458,000, and
  $406,000, for fiscal 2004, 2003 and 2002, respectively.

Revenues from service contracts consist of fees for providing
  engineering support services, which are recognized ratably over the contract
  term. Expenses related to support service revenue were included in sales and
  marketing expenses. Support service revenues were $269,000, $127,000 and $0,
  for fiscal 2004, 2003 and 2002, respectively.

Accounts Receivable-During industry downturns,
  certain of our customers have difficulty with their cash flows. Certain customers,
  typically those with whom we have long-term relationships, may delay their payments
  by 40-60 days beyond the original terms. We review the ability of our customers
  to pay the indebtedness they incur with us. We defer recognition of revenue
  and the related receivable when we cannot reasonably estimate whether collectibility
  is assured at the time products and services are delivered to our customer.
  We provide an allowance for doubtful accounts for estimated losses resulting
  from the inability of our customers to make required payments. These estimated
  allowances are periodically reviewed, analyzing the customer's payment history
  and information regarding credit worthiness. In fiscal 2004, 2003 and 2002,
  we recorded a provision (reversal) for bad debt allowance in the total amount
  of $(186,000), $60,000, and $60,000 respectively. If the financial condition
  of our customers were to deteriorate, resulting in an impairment of their ability
  to make payments, additional allowances may be required.

Inventories- We continue to monitor our inventory levels
  in light of product development changes and expectations of an eventual market
  upturn. We may be required to take additional charges for excess and obsolete
  inventories if the current industry recovery falls below our expectation or
  we make changes in our current product development plans. We estimate inventory
  reserves for excess and obsolete inventories based on our assessments of future
  product sales giving consideration for factors such as the cyclical nature of
  our industry. These forecasts require us to estimate our ability to see demand
  for current and future products and compare those estimates with our current
  inventory levels. If these forecasts or estimates change adversely, or our product
  roadmaps change, then we would need further write down inventory.

Deferred Tax Assets- We record a valuation allowance
  to reduce our deferred tax assets to the amount that is more likely than not
  to be realized. In the event we were to determine that we would be able to realize
  deferred tax assets in the future in excess of the net recorded amount, an adjustment
  to the deferred tax asset would increase income in the period such determination
  was made.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB")
  issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
  Entities", which expands upon and strengthens existing accounting guidance concerning
  when a Company should include in its financial statements the assets, liabilities
  and activities of another entity. Prior to the issuance of FIN 46, a Company
  generally included another entity in its consolidated financial statements only
  if it controlled the entity through voting interests. FIN 46 now requires a
  variable interest entity, as defined in FIN 46, to be consolidated by a Company
  if that Company is subject to a majority of the risk of loss from the variable
  interest entity's activities or entitled to receive a majority of the entity's
  residual returns or both. FIN 46 also requires disclosures about variable interest
  entities that the Company is not required to consolidate but in which it has
  a significant variable interest. In October 2003 the FASB elected to defer the
  effective date for applying the provisions of FIN 46 for interests held by public
  entities in variable interest entities or potential variable interest entities
  until the end of the first interim or annual period ending after December 15,
  2003. The adoption of FIN 46 is not expected to have an impact on the Company's
  financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting
  for Certain Financial Instruments with Characteristics of both Liabilities and
  Equity". This Statement establishes standards for the classification and
  measurement of certain financial instruments with characteristics of both liabilities
  and equity. This Statement is effective for financial instruments entered into
  or modified after May 31, 2003, and otherwise effective at the beginning
  of the first interim period beginning after June 15, 2003. The Company
  currently has no financial instruments which meet these requirements.

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES
  ABOUT MARKET RISK

The following discussion about our market risk disclosures
  involves forward-looking statements. Actual results could differ materially
  from those projected in the forward-looking statements. We face exposure to
  market risk from adverse movements in interest rates and foreign currency exchange
  rates, which could affect our operations and financial condition. We do not
  use derivative financial instruments for speculative purposes.

Interest Rate Sensitivity.  At
January 31, 2004, we did not hold any short-term investments.

At January 31, 2004, we had no borrowings outstanding under
  our $12.0 million, $3.0 million and $3.0 million variable interest rate bank
  lines of credit, respectively. If short-term interest rates were to increase
  10 percent, the increased interest expense associated with these arrangements
  would not have a material impact on our net income (loss) and cash flows.

Foreign Currency Exchange Rate Sensitivity. The Hong
  Kong dollar and Euro are the financial currencies of our subsidiaries in Hong
  Kong and France. We do not currently enter into foreign exchange forward contracts
  to hedge certain balance sheet exposures and intercompany balances against future
  movements in foreign exchange rates. However, we do maintain cash balances denominated
  in the Hong Kong dollar and Euro. If foreign exchange rates were to weaken against
  the U.S. dollar immediately and uniformly by 10 percent from the exchange rate
  at January 31, 2004, the fair value of these foreign currency amounts would
  decline by an immaterial amount.

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY
  DATA

The financial statements required by this item, the notes related
  thereto, and the independent auditors' report appear on pages F-1 through F-23
  and S-1 of this Annual Report on Form 10-K.

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
  ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

Our management evaluated, with the participation of our Chief Executive Officer and
  our Chief Financial Officer, the effectiveness of our disclosure controls and
  procedures as of the end of the period covered by this Annual
  Report on Form 10-K. Based on this evaluation, our Chief Executive Officer
  and our Chief Financial Officer have concluded that our disclosure
  controls and procedures are effective to ensure that information we are required
  to disclose in reports that we file or submit under the Securities Exchange
  Act of 1934 is recorded, processed, summarized and reported
  within the time periods specified in Securities and Exchange Commission
  rules and forms.

Changes in internal control over financial
  reporting.

There was no change in our internal control
  over financial reporting that occurred during our fourth fiscal quarter that
  has materially affected, or is reasonably likely to materially affect, our internal
  control over financial reporting.



PART III

ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS
  OF THE REGISTRANT

The information required by this item concerning our directors
  is incorporated by reference from the information set forth in the section entitled
  "Proposal One-Election of Directors" contained in our Proxy Statement
  relating to the 2004 Annual Meeting of Shareholders to be filed with the Securities
  and Exchange Commission within 120 days after the end of our fiscal year pursuant
  to General Instruction G(3) of Form 10-K (the "Proxy Statement").
  The information required by this item concerning our executive officers is incorporated
  by reference to the information set forth at the end of Part I of this Annual
  Report on Form 10-K.

The information regarding compliance with
  Section 16(a) of the Exchange Act is set forth in the section entitled
  "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
  Statement and is incorporated herein by reference.

The information regarding our code of
  ethics that applies to our principal executive officer, principal financial officer
  and principal accounting officer is incorporated by reference
  from the information set forth in the section entitled "Management-Code
  of Ethics" contained in the Proxy Statement.

ITEM 11.	EXECUTIVE COMPENSATION

The information required by this item regarding executive compensation
  is incorporated by reference from the information set forth in the sections
  entitled "Election of Directors-Compensation of Directors" and "Other
  Information-Executive Compensation" contained in the Proxy Statement.

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
  AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item regarding security ownership
  of certain beneficial owners and management is incorporated by reference from
  the information set forth in the section entitled "Other Information-Security
  Ownership of Certain Beneficial Owners and Management" contained in the
  Proxy Statement.

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item regarding certain relationships
  and related transactions is set forth in the section entitled "Transactions
  with Management" contained in the Proxy Statement and is incorporated herein
  by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND
  SERVICES

The information required by this item regarding principal
  accounting fees and services is incorporated by reference from the information
  set forth in the section entitled "Ratification of Independent Auditors
  - Principal Accounting Fees and Services" contained in the Proxy Statement.

PART IV

ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
  REPORTS ON FORM 8- K

(a) The following documents are filed as part of this Annual
  Report on Form 10-K:

1.	Consolidated Financial Statements

|                                                                                                                                                 | Page
|------------------------------------------------------------------------------------------------------------------------------------------------ | ----
|Independent Auditors' Report                                                                                                                     | F-1 
|Consolidated Balance Sheets as of January 31,
      2004 and 2003                                                                                | F-2 
|Consolidated Statements of Operations for the
      years ended January 31, 2004, 2003, and 2002                                                 | F-3 
|Consolidated Statements of Shareholders' Equity
      and Comprehensive Income (Loss) for the years ended January 31, 2004, 2003,
      and 2002 | F-4 
|Consolidated Statements of Cash Flows for the
      years ended January 31, 2004, 2003 and 2002                                                  | F-5 
|Notes to Consolidated Financial Statements                                                                                                       | F-7 

2.	Consolidated Financial Statements Schedules

|Schedule II-Valuation and Qualifying Accounts and Reserves | S-1
|---------------------------------------------------------- | ---

All other schedules have been omitted as they are not required, not applicable,
  or the required information is otherwise included.

(b)	Reports on Form 8-K

On November 25, 2003, we filed a Current Report on Form 8-K
  dated November 25, 2003 with the Securities and Exchange Commission to furnish
  our press release reporting our results for the three months ended October 31,
  2003.

(c)	Exhibits

The exhibits listed on the accompanying index to exhibits immediately
  following the financial statement schedules are incorporated by reference into
  this Annual Report on Form 10-K.



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of
  the Securities Act of 1934, the Registrant has duly caused this report to be
  signed on its behalf by the undersigned, thereunto duly authorized, in the city
  of Milpitas, State of California, on the 15th day of April 2004.

| | SIGMA DESIGNS, INC.
      By: /s/ Thinh Q. Tran	
      Chairman of the Board,
      President, and Chief Executive Officer
| | --------------------------------------------------------------------------------------------------------------------------



> 

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
  signature appears below constitutes and appoints Thinh Q. Tran and Kit
  Tsui, and each of them, jointly and severally, his true and lawful attorneys-in-fact,
  each with full power of substitution and resubstitution, for him in any and
  all capacities, to sign any or all amendments to this Annual Report on Form
  10-K, with all exhibits thereto and other documents in connection therewith,
  with the Securities and Exchange Commission, granting unto said attorneys-in-fact
  and agents, and each of them, full power and authority to do and perform each
  and every act and thing requisite and necessary to be done in connection therewith,
  as fully to all intents and purposes as he or she might or could do if personally
  present, hereby ratifying and confirming all that each said attorney-in-fact
  and agent, or his or her substitute or substitutes or any of them, may lawfully
  do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934,
  THIS ANNUAL REPORT ON FORM 10-K HAS BEEN SIGNED BY THE FOLLOWING PERSONS
  ON BEHALF OF THE OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:



|Signature                            | Title                                                                                       | Date          
|------------------------------------ | ------------------------------------------------------------------------------------------- | --------------
|                                     |                                                                                             |               
|/s/ Thinh Q. TranThinh Q. Tran       | Chairman of the Board, President, and Chief Executive Officer
(Principal Executive Officer) | April 15, 2004
|/s/ Kit TsuiKit Tsui                 | Chief Financial Officer and Secretary (Principal
Financial and Accounting Officer)          | April 15, 2004
|/s/ William J. AlmonWilliam J. Almon | Director                                                                                    | April 15, 2004
|/s/ Julien NguyenJulien Nguyen       | Director                                                                                    | April 15, 2004
|/s/ Lung C. TsaiLung C. Tsai         | Director                                                                                    | April 15, 2004



INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Shareholders of
  	        Sigma Designs, Inc.:

We have audited the accompanying consolidated balance sheets
  of Sigma Designs, Inc. and subsidiaries as of January 31, 2004 and 2003, and
  the related consolidated statements of operations, shareholders' equity and
  comprehensive income (loss) and cash flows for each of the three years in the
  period ended January 31, 2004. Our audits also included the financial statement
  schedule listed in Item 15(a)2. These financial statements and financial
  statement schedule are the responsibility of the Company's management. Our responsibility
  is to express an opinion on these financial statements and financial statement
  schedule based on our audits.

We conducted our audits in accordance with auditing standards
  generally accepted in the United States of America. Those standards require
  that we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. An audit includes
  examining, on a test basis, evidence supporting the amounts and disclosures
  in the financial statements. An audit also includes assessing the accounting
  principles used and significant estimates made by management, as well as evaluating
  the overall financial statement presentation. We believe that our audits provide
  a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present
  fairly, in all material respects, the financial position of Sigma Designs, Inc.
  and subsidiaries at January 31, 2004 and 2003, and the results of their operations
  and their cash flows for each of the three years in the period ended January
  31, 2004 in conformity with accounting principles generally accepted in the
  United States of America. Also, in our opinion, such financial statement schedule,
  when considered in relation to the basic consolidated financial statements taken
  as a whole, presents fairly in all material respects the information set forth
  therein.



/s/ Deloitte & Touche LLP

San Jose, California
April 9, 2004



SIGMA DESIGNS, INC. 	
  CONSOLIDATED BALANCE SHEETS
  JANUARY 31, 2004 AND 2003 (In thousands, except share data)

---

`2004       2003
                                                            ---------  ---------
ASSETS                                                                 
CURRENT  ASSETS:
  Cash and cash equivalents............................... $  18,962  $     755
  Accounts receivable (net of allowances of
    $935 in 2004 and $922 in 2003)........................     5,283      4,366
  Inventories.............................................     2,614      2,472
  Restricted cash.........................................        --     12,000
  Prepaid expenses and other..............................       518        176
                                                            ---------  ---------
           Total current assets...........................    27,377     19,769

EQUIPMENT & LEASEHOLD IMPROVEMENTS - net..................     1,028      1,331
LONG - TERM INVESTMENTS...................................     1,313         --
OTHER  ASSETS.............................................        74        317
                                                            ---------  ---------
TOTAL..................................................... $  29,792  $  21,417
                                                            =========  =========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Bank line of credit..................................... $      --  $  12,000
  Accounts payable........................................     1,666      1,502
  Accrued liabilities.....................................     1,838      1,681
  Current portion of capital lease obligations............         5        127
                                                            ---------  ---------
           Total current liabilities......................     3,509     15,310
                                                            ---------  ---------

OTHER LONG - TERM LIABILITIES.............................       261        305

COMMITMENTS AND CONTINGENCIES (Note 7)

SHAREHOLDERS' EQUITY:
  Common stock - no par value:  35,000,000
   shares authorized; shares outstanding:
   2004, 20,637,995; 2003, 16,642,571.....................    86,948     68,295
  Accumulated other comprehensive income..................        37         13
  Accumulated deficit.....................................   (60,963)   (62,506)
                                                            ---------  ---------
           Total shareholders' equity                         26,022      5,802
                                                            ---------  ---------
TOTAL..................................................... $  29,792  $  21,417
                                                            =========  =========`

See notes to consolidated financial statements.


**SIGMA DESIGNS, INC. 	
  CONSOLIDATED STATEMENTS OF OPERATIONS
  YEARS ENDED JANUARY 31, 2004, 2003 AND 2002 (In thousands, except per share
  data)**

---

`2004       2003       2002
                                                ---------  ---------  --------- 
NET REVENUES...............................    $  30,520  $  18,139  $  13,437

COSTS AND EXPENSES:
  Cost of revenues.........................       11,705      8,126      7,909
  Research and development.................       10,000      8,366      8,123
  Sales and marketing......................        4,802      4,528      4,318
  General and administrative...............        2,499      2,966      2,758
                                                ---------  ---------  ---------
           Total costs and expenses........       29,006     23,986     23,108
                                                ---------  ---------  ---------
INCOME (LOSS) FROM OPERATIONS                      1,514     (5,847)    (9,671)

  Interest income..........................          144        185        773
  Interest expense.........................         (131)      (270)      (584)
  Other income (expense), net..............           25       (159)      (906)
                                                ---------  ---------  ---------
INCOME (LOSS) BEFORE INCOME TAXES..........        1,552     (6,091)   (10,388)
INCOME TAX PROVISION (BENEFIT).............            9        (34)         4
                                                ---------  ---------  ---------

NET INCOME (LOSS)..........................    $   1,543  $  (6,057) $ (10,392)
                                                =========  =========  =========

NET INCOME (LOSS) PER SHARE:
  Basic....................................    $    0.08  $   (0.37) $   (0.64)
                                                =========  =========  =========
  Diluted..................................    $    0.07  $   (0.37) $   (0.64)
                                                =========  =========  =========
SHARES USED IN COMPUTATION:
  Basic....................................       19,437     16,482     16,317
                                                =========  =========  =========
  Diluted .................................       22,390     16,482     16,317
                                                =========  =========  =========`

See notes to consolidated financial statements.

**SIGMA DESIGNS, INC. 	
  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
  
  YEARS ENDED JANUARY 31, 2004, 2003 AND 2002 (In thousands, except share data)**

---

`Accumu-
                                                                     lated
                                                           Share-    Other                           Total
                                                           holder   Compre-                         Compre-
                                     Common Stock          Notes    hensive    Accumu-              hensive
                                 -----------------------  Receiv-    Income     lated                Income
                                   Shares       Amount      able     (Loss)    Deficit     Total     (Loss)
                                 -----------  ----------  --------  --------  ----------  --------  --------
Balances, Febuary 1, 2001......  16,313,464  $   67,785  $     (1) $     54  $  (46,057) $ 21,781

Net loss.......................           -           -                         (10,392)  (10,392) $(10,392)
Unrealized loss on investments.           -           -                 (15)                  (15)      (15)
Accumulated translation
  adjustment...................           -           -                  (8)                   (8)       (8)
                                                                                                    --------
Comprehensive loss.............                                                                    $(10,415)
                                                                                                    ========
Common stock issued under
  stock plans..................      69,859         100         -         -           -       100
Cancellation of Active
  Designs shares...............      (5,281)         (1)        1         -           -         -
                                 -----------  ----------  --------  --------  ----------  --------
Balances, January 31, 2002.....  16,378,042      67,884         -        31     (56,449)   11,466

Net loss.......................           -           -                          (6,057)   (6,057) $ (6,057)
Unrealized loss on investments.           -           -                 (13)                  (13)      (13)
Accumulated translation
  adjustment...................           -           -                  (5)                   (5)       (5)
                                                                                                    --------
Comprehensive loss.............                                                                    $ (6,075)
                                                                                                    ========
Common stock issued under
  stock plans..................     264,529         411         -         -           -       411
                                 -----------  ----------  --------  --------  ----------  --------
Balances, January 31, 2003.....  16,642,571      68,295         -        13     (62,506)    5,802

Net income.....................           -           -                           1,543     1,543  $  1,543
Accumulated translation
  adjustment...................           -           -                  24                    24        24
                                                                                                    --------
Comprehensive loss.............                                                                    $  1,567
                                                                                                    ========
Issuance of common stock,
  net of issuance cost of $666.   3,056,644      16,301         -         -           -    16,301
Common stock issued under
  stock plans..................     938,780       2,352         -         -           -     2,352
                                 -----------  ----------  --------  --------  ----------  --------
Balances, January 31, 2004.....  20,637,995  $   86,948  $      -  $     37  $  (60,963) $ 26,022
                                 ===========  ==========  ========  ========  ==========  ========`

See notes to consolidated financial statements.



**********SIGMA DESIGNS, INC. 
  CONSOLIDATED STATEMENTS OF CASH FLOWS 
  YEARS ENDED JANUARY 31, 2004, 2003 AND 2002 (In thousands)**

---

`2004      2003      2002
                                                          --------  --------  -------- 
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)......................................$  1,543  $ (6,057) $(10,392)
  Adjustments to reconcile net income (loss) to net
     cash provided by (used for) operating activities:
    Depreciation and amortization.........................    572       596       665
    Provision for inventory valuation.....................    647       745     1,398
    Provision (reversal) for bad debts and sales returns..   (186)       60        60
    Loss on disposal of assets............................      8        --        22
    Investment impairment charge..........................     --       172       927
    Accretion of contributed leasehold improvements.......    (83)      (27)       --
    Changes in operating assets and liabilities:
      Accounts receivable.................................   (731)   (2,258)    2,894
      Inventories.........................................   (789)    1,265     2,279
      Prepaid expenses and other..........................   (342)      345      (225)
      Accounts payable....................................    164       387    (1,308)
      Accrued liabilities and other.......................    184       278      (116)
                                                          --------  --------  --------
       Net cash provided by (used for)
         operating activities.............................    987    (4,494)   (3,796)
                                                          --------  --------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Equipment additions.....................................   (265)     (697)     (172)
  Purchases of short-term investments.....................     --    (4,368)   (6,773)
  Maturity of short-term investments......................     --     5,298    10,722
  Long - term investments................................. (1,313)       --        --
  Other assets additions (reduction)......................    243      (216)     (118)
                                                          --------  --------  --------
      Net cash provided by (used for)
        investing activities.............................. (1,335)       17     3,659
                                                          --------  --------  --------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
  Net proceeds from issuance of common stock.............. 18,653       411       100
  Repayment of capital lease obligations..................   (122)     (230)     (321)
                                                          --------  --------  --------
      Net cash provided by (used for)
        financing activities.............................. 18,531       181      (221)
                                                          --------  --------  --------

Effect of exchange rates changes on cash..................     24        (5)       (8)
                                                          --------  --------  --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... 18,207    (4,301)     (366)

CASH AND CASH EQUIVALENTS:
  Beginning of year.......................................    755     5,056     5,422
                                                          --------  --------  --------
  End of year............................................$ 18,962  $    755  $  5,056
(CONTINUED)                                               ========  ========  ========

CASH PAID FOR INTEREST...................................$    131  $    270  $    584
                                                          ========  ========  ========

CASH PAID (REFUND) FOR INCOME TAXES......................$      3  $    (34) $      4
                                                          ========  ========  ========

NONCASH INVESTING AND FINANCING ACTIVITIES:
  Contributed leasehold improvements.....................$     12  $    400  $     --
                                                          ========  ========  ========
  Restricted cash balance offset against
    line of credit borrowings............................$ 12,000  $     --  $     --
                                                          ========  ========  ========`

See notes to consolidated financial statements.

---

**SIGMA DESIGNS, INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  YEARS ENDED JANUARY 31, 2004, 2003 AND 2002**

---

1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Natural of Operations- Sigma Designs, Inc. (the Company) develops,
  manufactures and markets Moving Picture Experts Group (MPEG) decoders primarily
  for consumer appliances and commercial systems. The Company sells its products
  to consumer equipment manufacturers, distributors, value-added resellers and
  corporate customers.

Principle of Consolidation- The
  consolidated financial statements include Sigma Designs, Inc. and subsidiaries.
  Intercompany balances and transactions are eliminated.

Accounting Period- The Company's fiscal year
ends on the Saturday closest to January 31. For convenience, the fiscal
years are shown as ending on January 31, although the fiscal years actually
ended on January 31, 2004, February 1, 2003, and February 2, 2002, respectively.
Fiscal 2004, 2003 and 2002 each included 52 weeks.

Pervasiveness of Estimates - The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America 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 could differ from those estimates. Significant
estimates used in preparing these financial statements are related primarily to
accounts receivable allowances, inventory valuation allowances, impairment of
investments and long-lived assets, and deferred tax asset valuation allowances.
It is at least reasonably possible that the estimates will change within the
next year.

Concentration of Credit Risk - Financial
instruments which potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, and accounts receivable.
The majority of the Company's cash and cash equivalents are on deposit with one
financial institution.  The Company performs ongoing credit evaluations of its
customers and generally does not require collateral for sales on credit.  The
Company maintains reserves for potential credit losses.

Cash and Cash Equivalents - The Company
considers all highly liquid debt instruments purchased with a remaining maturity
of three months or less to be cash equivalents.

Inventories are stated at the lower of standard
cost (which approximates first-in, first-out basis) or market. The Company
periodically reviews its inventories for excess and obsolete inventory items and
adjusts carrying costs to estimated net realizable values when they are
determined to be less than cost.  As a result of this inventory review, the
Company charged approximately $647,000, $745,000, and $1,398,000 to cost of
revenues for the years ended January 31, 2004, 2003 and 2002, respectively.

Restricted Cashrepresents funds on deposit in
accounts which have been assigned to the Company's lender under a bank line of
credit (see Note 8) and as such, is unavailable to fund operations.

Investments in private equity securities of
less than 20% owned companies are accounted for using the cost method unless the
Company can exercise significant influence or the investee is economically
dependent upon the Company, in which case the equity method is used.

Equipment is stated at cost.  Depreciation and
amortization are computed using the straight-line method based on the useful
lives of the assets (three to five years) or the lease term if shorter. The
contributed leasehold improvement provided by the landlord for the Company's
current facility is amortized using the straight-line method over the leasehold
period.

Long Lived Assets - The Company evaluates long-
lived assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.  An impairment loss
would be recognized when the sum of the undiscounted future net cash flows
expected to result from the use of the asset and its eventual disposal is less
than its carrying amount.

Revenue Recognition - The Company recognizes
  revenues in accordance with Staff Accounting Bulletin ("SAB") No. 104,
  "Revenue Recognition". Revenue is recognized when persuasive evidence
  of an arrangement exists, delivery has occurred or service has been rendered,
  the fee is fixed and determinable, and collectibility is probable. The Company
  derives its revenues from three principal sources: product sales, product development
  contracts and service contracts.

Revenues from product sales to OEMs, distributors and end
users are generally recognized upon shipment, as the Company's shipping terms
are FOB shipping point, except that revenues are deferred when management cannot
reasonably estimate the amount of returns or where collectibility is not
assured. In those situations, revenue is recognized when collection subsequently
becomes probable and returns are estimable (generally upon resale by customers
or "Sell-through Basis"). Allowances for sales returns, price
protection and warranty costs are recorded at the time that revenues are
recognized.

In fiscal 2001, the Company began recognizing revenue from
its primary U.S. distributor on a Sell-through Basis.  This practice resulted
from significant sales returns, which the Company accepted from the distributor
outside of the terms of the distribution agreement. Under terms of a
distribution agreement entered into with the distributor in fiscal 2002, the
Company granted the distributor the right of return and price protection, which
allows the distributor to return any product, which is in the original
packaging, for full credit up to 180 days after the earlier of the agreement
expiration or early termination. The price protection provision allows the
distributor to receive a credit for the difference between the original price
and the reduced price of our products within their inventory. Although the
returns are not frequent in nature, returns from this distributor could not be
reasonably estimated. Consequently, pursuant to the above policy, revenue from
this distributor is recognized upon resale to the distributor's end-customers.

Revenues from product development agreements were recognized
in fiscal 2004 and 2003 when billed, earned, and collection was assured. In
fiscal 2002, such revenue was recognized on the percentage of completion method.
Under the percentage-of-completion method, estimates are reviewed and revised
periodically throughout the lives of the contracts.  Any revisions are recorded
in the accounting period in which the need for revisions becomes evident.  The
Company classifies all development costs related to such agreements as research
and development expenses.  Development revenues were $792,000, $458,000, and
$406,000, for fiscal 2004, 2003 and 2002, respectively.

Revenues from service contracts consist of fees for providing
engineering support services, which are recognized ratably over the contract
term. Expenses related to support service revenue were included in sales and
marketing expenses. Support service revenues were $269,000, $127,000 and $0, for
fiscal 2004, 2003 and 2002, respectively.

Research and Development expenses include costs
and expenses associated with the design and development of new products.  To the
extent that such costs include the development of computer software, they are
generally incurred prior to the establishment of the technological feasibility
of the related product that is under development.  Accordingly, software costs
incurred after the establishment of technological feasibility have not been
material and therefore have been expensed.  All other research and development
is expensed as incurred.

Income Taxes - Deferred income taxes are
provided for temporary differences between financial statement and income tax
reporting.  Income taxes are accounted for under an asset and liability approach
in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109.  Deferred tax liabilities are recognized for future
taxable amounts and deferred tax assets are recognized for future deductions net
of a valuation allowance to reduce deferred tax assets to amounts that are more
likely than not to be realized.

Stock-Based Compensation - The Company accounts
for stock-based awards to employees using the intrinsic value method in
accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. Accordingly, no
compensation expense has been recognized in the financial statement for employee
stock arrangements granted at fair market value.

The Company accounts for equity instruments issued to non-
employees in accordance with the provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation," which requires that the fair value of such
instruments be recognized as an expense over the period in which the related
services are received. SFAS No. 123 also requires the disclosure of
pro forma net income (loss) and earnings (loss) per share had the Company
adopted the fair value method.  Under SFAS No. 123, the fair value of
stock-based awards to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards.  These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values.  The
Company's pro forma calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions:

`Years Ended January 31,
                                                --------------------- ---------
                                                  2004       2003       2002
                                                ---------  ---------  --------- 
  Stock Option Plans:
  ------------------
  Risk free interest rate.......................    3.00%      3.03%      4.67%
  Expected volatility...........................     103%       104%       104%
  Expected life (in years)......................     1.7        1.5        1.5
  Expected dividends............................      --         --         --

  Employee Stock Purchase Plans:
  -----------------------------
  Risk free interest rate.......................    0.95%      1.19%      1.87%
  Expected volatility...........................     103%       104%       104%
  Expected life (in years)......................     0.5        0.5        0.5
  Expected dividends............................      --         --         --`



The Company's calculations are based on a multiple option
valuation approach and forfeitures are recognized as they occur.  If the
computed fair values of awards had been amortized to expense over the vesting
period of the awards, pro forma net income (loss) attributable to common
shareholders would have been as follows (in thousands, except per share
amounts):

`Years Ended January 31,
                                                              -------------------------------
                                                                2004       2003       2002
                                                              ---------  ---------  --------- 
  Net income (loss) as reported                              $   1,543  $  (6,057) $ (10,392)
  Add: stock-based employee compensation expense
    included in reported net income (loss)..................      --         --          --
  Deduct: stock-based employee compensation expense
    determined under fair value based method................    (1,469)    (1,158)    (1,243)
                                                              ---------  ---------  ---------
  Pro forma net income (loss)............................... $      74  $  (7,215) $ (11,635)
                                                              =========  =========  =========

  Basic net income (loss) per share:
    As reported............................................. $    0.08  $   (0.37) $   (0.64)
                                                              =========  =========  =========
    Pro forma............................................... $    0.00  $   (0.44) $   (0.71)
                                                              =========  =========  =========
  Diluted net income (loss) per share:
    As reported............................................  $    0.07  $   (0.37) $   (0.64)
                                                              =========  =========  =========
    Pro forma..............................................  $    0.00  $   (0.44) $   (0.71)
                                                              =========  =========  =========`



Foreign Currency-The functional
currency of the Company's foreign subsidiaries is the local currency of each
country.  Accordingly, gains and losses from the translation of the financial
statements of the foreign subsidiaries are included in shareholders' equity.
Transaction gains and losses, which are included in the other expenses, net, in
the accompanying consolidated statements of operations, have not been
significant for all years presented.

Net Income (Loss) per Share - Basic earnings
per share (EPS) excludes dilution and is computed by dividing net income (loss)
by the weighted average of common shares outstanding for the period.  Diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock
(see Note 9).

Fair Value of Financial Instruments - The
Company believes that carrying amounts reported in the consolidated balance
sheets as of January 31, 2004 and 2003 for cash, cash equivalents, restricted
cash, and line of credit borrowings approximate fair market value.

Geographic Operating Information - SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related
Information," provides annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products,
services, geographical areas and major customers.  The Company operates in one
reportable segment (Note 13).

Derivatives- As a matter of policy, the
Company does not currently enter into transactions involving derivative
financial instruments. In the event the Company enters into such transactions in
the future, the Company will account for those transactions in accordance with
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", in which case the Company will formally document all
relationships between the hedging instruments and hedged items, as well as its
risk management objective and strategy for undertaking such hedge
transactions.

Recent Accounting Pronouncements - In January
2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities",
which expands upon and strengthens existing accounting guidance concerning when
a company should include in its financial statements the assets, liabilities and
activities of another entity. Prior to the issuance of FIN 46, a company
generally included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. FIN 46 now requires a
variable interest entity, as defined in FIN 46, to be consolidated by a company
if that company is subject to a majority of the risk of loss from the variable
interest entity's activities or entitled to receive a majority of the entity's
residual returns or both.  FIN 46 also requires disclosures about variable
interest entities that the company is not required to consolidate but in which
it has a significant variable interest. In October 2003 the FASB elected to
defer the effective date for applying the provisions of FIN 46 for interests
held by public entities in variable interest entities or potential variable
interest entities until the end of the first interim or annual period ending
after December 15, 2003. The adoption of FIN 46 is not expected to have an
impact on the Company's financial statements.

In May 2003, the FASB issued SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity". This Statement establishes standards for the
classification and measurement of certain financial instruments with
characteristics of both liabilities and equity. This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise effective at the beginning of the first interim period beginning after
June 15, 2003. The Company currently has no financial instruments which
meet these requirements.

2.	INVESTMENTS

In fiscal 2003, the Company recorded approximately
$172,000 of impairment losses in Other Expenses, net, which consists of $142,000
related to the write-off of the carrying amount of an investment of a closely-
held technology company of which the Company owns less than 6% of the
outstanding capital stock, due to the continued weakness in the software
development industry, and $30,000 related to a joint venture partnership. In
fiscal 2002, the Company recorded approximately $927,000 of impairment losses in
Other Expenses, net, related to its investment in the same closely-held
technology company.

Investments at January 31 consist of (in thousands):

`2004       2003   
                                                     ---------- ----------
      OEM headquartered in Europe....................   $1,000         --
      Local MPEG-4 service provider..................      263         --
      Start-up company, headquartered in China.......       50         --
                                                     ---------- ----------
      Total..........................................   $1,313         --
                                                     ========== ==========`

3.	INVENTORIES

Inventories at January 31 consist of (in
thousands):

`2004       2003
                                                     ---------- ----------
      Raw materials.................................      $389       $648
      Work in process...............................       380        515
      Finished goods................................     1,845      1,309
                                                     ---------- ----------
      Inventories...................................    $2,614     $2,472
                                                     ========== ==========`

4.	EQUIPMENT

Equipment at January 31 consists of (in thousands):

`2004       2003
                                                     ---------- ----------
      Computers and test equipment..................    $3,641     $4,655
      Furniture and fixtures........................     1,166      1,277
      Other.........................................        94         94
                                                     ---------- ----------
      Total.........................................     4,901      6,026
      Accumulated depreciation and amortization.....    (3,873)    (4,695)
                                                     ---------- ----------
      Equipment - net...............................    $1,028     $1,331
                                                     ========== ==========`

At January 31, 2004 and 2003, equipment with a net book value
of $5,000 and $149,000 (net of accumulated amortization of $19,000 and $659,000,
respectively), has been leased under capital leases.

5. 	ACCRUED LIABILITIES

Accrued liabilities at January 31 consist of (in
thousands):

`2004       2003   
                                                     ---------- ----------
      Accrued salary and benefits...................      $650       $530
      Accrued royaties..............................       344        186
      Accrued professional services.................       261        222
      Customer deposit..............................        11        252
      Other accrued liabilities.....................       572        491
                                                     ---------- ----------
      Total.........................................    $1,838     $1,681
                                                     ========== ==========`

6. 	PRODUCT WARRANTY

In general, the Company sells products with a one-year
limited warranty that the Company's products will be free from defects in
materials and workmanship. Warranty cost is estimated at the time revenue is
recognized, based on historical activity. Accrued warranty cost includes both
hardware and software support costs.

Details of the change in accrued warranty
for the year ended January 31, 2004 and January 31, 2003 are as follows (in
thousands):

`Balance                 Change in                   Balance
                            Beginning of             preexisiting                  End of
                              Period      Additions    warranty     Deductions     Period
Accrued Warranty:           ------------ ----------- -------------  -----------  ----------
  Year ended January 31,
  2004...................  $      66     $     117   $     (26)     $     (23)   $     134
  2003...................         39            51           7            (31)          66`

7. 	COMMITMENTS AND CONTINGENCIES

The Company's standard terms and
conditions of sale include a patent infringement indemnification provision for
claims from third parties related to the Company's intellectual property.  The
terms and conditions of sale generally limit the scope of the available remedies
to a variety of industry-standard methods including, but not limited to, a right
to control the defense or settlement of any claim, procure the right for
continued usage, and a right to replace or modify the infringing products to
make them non-infringing.  Such indemnification provisions are accounted for in
accordance with SFAS No. 5.  To date, the Company has not incurred or
accrued any costs related to any claims under such indemnification
provisions.

Leases - The Company's primary facilities are leased
under a noncancelable lease which expires in September 2007. In addition, the
Company leases certain equipment under capital lease arrangements. Future
minimum annual payments under capital and operating leases are as follows (in
thousands):

`Fiscal Year Ending                              Capital   Operating
        January 31,                                    Leases     Leases
      -------------------------------                ---------- ----------
           2005.....................................$        5 $      687
           2006.....................................        --        694
           2007.....................................        --        642
           2008.....................................        --        433
                                                     ---------- ----------
      Total minimum lease payments..................         5 $    2,456
      Amount representing interest..................        --  ==========
                                                     ----------
      Present value of minimum lease payments.......         5
      Current portion...............................        (5)
                                                     ----------
      Long-term portion.............................$       --
                                                     ==========`

Rent expense was $720,000, $560,000, and $504,000 for fiscal
2004, 2003 and 2002, respectively, net of sublease income of approximately
$37,000, $12,000 and $0 for fiscal 2004, 2003 and 2002, respectively.

Royalties - The Company pays royalties for the right
to sell certain products under various license agreements.  During fiscal 2004,
2003 and 2002, the Company recorded royalty expense of $578,000, $406,000, and
$85,000 respectively.

Benefit Plan- The Company sponsors a 401(k) savings
plan in which most employees are eligible to participate.  The Plan commenced in
fiscal 1994. The Company is not obligated to make contributions to the plan and
no contributions have been made by the Company.

8.	BANK LINES OF CREDIT

On October 31, 2003, the Company entered into an amended revolving
  line of credit, expiring in October 2004, bearing interest at a rate equal to
  the interest rate on the applicable Credit Support Securities plus 0.65% under
  which the Company can draw down a maximum of $12.0 million that would be primarily
  collateralized by funds drawn-down on deposit in accounts that would be assigned
  to the lender and would be included in the Company's consolidated balance sheet
  as restricted cash. Such cash would not be available to fund operations.

The Company also has a $3.0 million bank line of credit under
  which the Company had availability to draw down approximately $1.1 million as
  of January 31, 2004. The line of credit will expire in October 2004 and is primarily
  collateralized by the Company's accounts receivable. In addition, the Company
  has a second bank line of credit of $3.0 million that expires in October 2004,
  which is secured by substantially all the Company's assets. As of January 31,
  2004, the entire $3.0 million is available for borrowing. Both $3.0 million
  bank lines of credit bear interest at a rate equal to the "Prime rate"
  plus 1.5%.

As of January 31, 2004, the Company had no borrowings outstanding
  under all lines of credit. Under the agreement and the notes for these lines
  of credit, the Company is subject to certain financial covenants.

9.	SHAREHOLDERS' EQUITY

Common Stock

Net income (loss) per share - basic and diluted for the periods
  presented is computed by dividing net income (loss) by the weighted average
  of common shares outstanding (excluding shares subject to repurchase). Net income
  (loss) per share - diluted reflects the potential dilution that could occur
  if securities or other contracts to issue common stock were exercised or converted
  into common stock. Common stock equivalents are excluded from the computation
  in loss periods, as their effect would be antidilutive.

The following is a reconciliation of the numerators and denominators
  of the basic and diluted EPS computations for the periods presented (in thousands,
  except per-share data):

`Years Ended January 31,
                                                --------------------- ---------
                                                  2004       2003       2002
                                                ---------  ---------  --------- 
Numerator:
  Net income (loss) available to
    common shareholders, basic
    and diluted.............................    $   1,543  $  (6,057) $ (10,392)
                                                ---------  ---------  ---------
Denominator:
  Weighted average common shares
     outstanding............................       19,437     16,482     16,318
  Weighted average common shares
     outstanding subject to repurchase......           --         --         (1)
                                                ---------  ---------  ---------
Shares used in computation, basic...........       19,437     16,482     16,317
                                                ---------  ---------  ---------
Effect of dilutive securities:
  Stock options.............................        2,953         --         --
                                                ---------  ---------  ---------
Shares used in computation, diluted.........       22,390     16,482     16,317

Net income (loss) per share:
  Basic.....................................   $    0.08  $   (0.37) $   (0.64)
                                                =========  =========  =========
  Diluted...................................   $    0.07  $   (0.37) $   (0.64)
                                                =========  =========  =========`

A summary of the excluded potential dilutive securities as
  of the end of each fiscal year follows (in thousands):

`Years Ended January 31,
                                                --------------------- ---------
                                                  2004       2003       2002
                                                ---------  ---------  --------- 
Stock options...........................              65      4,606      4,108`

Stock Option Plan

During fiscal 2004, the Company adopted the 2003 Director Stock
  Option Plan (the "2003 Director Plan") to replace the predecessor
  1994 Director Stock Option Plan (the "1994 Director Plan"). A total
  of 200,000 shares of common stock are currently reserved for issuance under
  the 2003 Director Plan, in addition to the shares previously authorized under
  the 1994 Director Plan which remain available for grant and any additional shares
  that are available upon termination of options presently outstanding under the
  1994 Director Plan.

During fiscal 2002, the Company adopted the 2001 employee stock
  option plan and reserved 500,000 shares of the Company's common stock for issuance
  under the plan, with automatic annual increases on the first day of the Company's
  fiscal year equal to the lesser of (i) 1,000,000 shares, (ii) 4% of the Company's
  outstanding common stock on such date or (iii) a lesser number of shares as
  determined by the Board of Directors, commencing February 1, 2002. The Company's
  1994 stock option plan provides for the granting of options to purchase up to
  4,400,000 shares of common stock. Generally, the 1994 and 2001 plans provide
  for the granting of options to purchase shares of common stock at the fair market
  value on the date of grant. Options granted under the 1994 and 2001 plans become
  exercisable over a five-year period and expire no more than ten years from the
  date of grant (all options outstanding at January 31, 2004 expire ten years
  from date of grant).

Stock option activity and balances are summarized as follow:

`Weighted
                                                                     Average
                                                                     Exercise
                                                          Number      Price
                                                            of         Per
                                                          Shares      Share
                                                        ----------- ----------
      Balances, February 1, 2001 (1,733,336
        exercisable at a weighted-average price
        of $2.48).....................................   3,421,181      $2.83

      Granted (weighted-average fair value of $0.93)..     837,500       1.28
      Canceled........................................    (148,887)      2.97
      Exercised.......................................      (1,825)      1.00
                                                        -----------
      Balances, January 31, 2002 (2,342,038
        exercisable at a weighted-average price
        of $2.60).....................................   4,107,969       2.51

      Granted (weighted-average fair value of $1.35)..     748,000       1.84
      Canceled........................................    (115,023)      2.43
      Exercised.......................................    (135,265)      1.33
                                                        -----------
      Balances, January 31, 2003 (2,824,354
        exercisable at a weighted-average price
        of $2.62).....................................   4,605,681       2.43

      Granted (weighted-average fair value of $3.51)..     588,500       4.77
      Canceled........................................     (62,792)      2.72
      Exercised.......................................    (869,453)      2.35
                                                        -----------
      Balances, January 31, 2004......................   4,261,936      $2.77
                                                        ===========`



At January 31, 2004, options to purchase 389,632 shares were
  available for future grant. Effective February 1, 2004, an additional 825,519
  shares resulting from the automatic annual increase of 4% of the Company's outstanding
  common stock were added to the shares available for issuance under the 2001
  plan.

`Options Outstanding          Options Exercisable
                     ---------------------------------- ----------------------

                       Number                             Number
                     Outstanding  Weighted    Weighted  Exercisable  Weighted
                         at        Average    Average       at       Average
 Range of Exercise   January 31,  Remaining   Exercise  January 31,  Exercise
       Prices           2004        Life       Price       2004       Price
-------------------- ----------- ----------- ---------- ----------- ----------
   $1.00 - $1.25        745,199        6.70      $1.19     359,539      $1.13
   $1.63 - $2.44      1,804,057        5.20      $2.12   1,256,914      $2.26
   $2.53 - $3.50      1,068,238        6.35      $3.25     635,240      $3.13
   $4.25 - $5.19        190,875        5.94      $4.31     141,632      $4.32
   $5.75 - $8.46        433,567        7.77      $6.03     158,340      $5.77
       $9.57             20,000        9.38      $9.57          --         --
-------------------- -----------                        -----------
   $1.00 - $9.57      4,261,936        6.06      $2.77   2,551,665      $2.65
==================== ===========                        ===========`

Employee Stock Purchase Plan

During fiscal 2002, the Company adopted the 2001 Employee Stock
  Purchase Plan and reserved 100,000 shares of the Company's common stock for
  issuance under the plan, with an automatic annual increase on the first day
  of the Company's fiscal year equal to the lesser of (i) 500,000 shares, (ii)
  2% of the Company's outstanding common stock on such date or (iii) a lesser
  number of shares as determined by the Board of Directors. Under this plan, eligible
  employees may authorize payroll deductions of up to 10% of their regular base
  salaries to purchase common stock at 85% of the fair market value at the beginning
  or end of each six-month offering period. During fiscal 2004, 2003 and 2002,
  69,327, 129,264 and 68,034 shares were purchased at an average price of $4.51,
  $1.78 and $1.45 per share, respectively. At January 31, 2004, 310,936 shares
  under 2001 Purchase Plan remain available for future purchase. Effective February
  1, 2004, Board of Directors resolved that an additional 50,000 shares be added
  to the shares available for issuance under the 2001 purchase plan.

10.	INCOME TAXES

Deferred income taxes reflect the net tax effects of (a) temporary
  differences between the carrying amounts of assets and liabilities for financial
  reporting purposes and the amounts used for income tax purposes, and (b) operating
  losses and tax credit carryforwards.

The tax effects of significant items comprising the Company's
  deferred taxes are as follows (in thousands):

`January 31,
                                                            -------------------
                                                              2004      2003
                                                            --------- --------- 
      Deferred tax assets:
        Net operating losses and tax credit carryforwards..  $28,989   $26,642
        Reserves not currently deductible..................    3,692     3,273
        Capitalized research and development expenditures..    1,282     1,232
        Other..............................................      127       300
                                                            --------- ---------
                                                              34,090    31,447
      Valuation allowance..................................  (34,090)  (31,447)
                                                            --------- ---------
      Net deferred taxes...................................   $  --     $  --
                                                            ========= =========`

SFAS No. 109 requires that the tax benefit of net operating
  losses, temporary differences and credit carryforwards be recorded as an asset
  to the extent that management assesses that realization is "more likely
  than not." Realization of the future tax benefits is dependent on the Company's
  ability to generate sufficient taxable income within the carryforward period.
  Because of the Company's recent history of operating losses, risks associated
  with its new product introduction including the dependence on rapid acceptance
  of new technology, the dependence on development of complimentary software by
  third parties and other risks, such as technological change in the industry,
  short product life cycles and reliance on a limited number of suppliers and
  manufacturing contractors, management believes that recognition of the deferred
  tax assets arising from the above-mentioned future tax benefits is currently
  not likely to be realized and, accordingly, has provided a full valuation allowance.

Net operating losses and tax credit carryforwards as of January
  31, 2004 are as follows (in thousands):

`Expiration
                                            Amount           Years
                                           ---------  --------- ----------
      Net operating losses, federal....   $  62,641       2009  -2024
      Net operating losses, state......       2,718       2005  -2015
      Tax credits, federal.............       4,082       2006  -2024
      Tax credits, state...............       3,137       2005  -Indefinite
      Net operating losses, foreign....       4,468             -`

Current federal and California tax laws include substantial
  restrictions on the utilization of net operating losses and tax credits in the
  event of an "ownership change" of a corporation. Accordingly, the
  Company's ability to utilize net operating loss and tax credit carryforwards
  may be limited as a result of such ownership change. Such a limitation could
  result in the expiration of carryforwards before they are utilized.

The effective tax rate of the Company's provision (benefit)
  for income taxes differs from the federal statutory rate as follows (in thousands):

`2004       2003       2002
                                           ---------  ---------  ---------

      Computed at 35%...................  $     543  $  (2,060) $  (3,636)
      State taxes, expiration of net
        operating loss carryforwards....          2          2          2
      Valuation allowance...............      2,021      2,212      3,781
      Other.............................     (2,557)      (188)      (143)
                                           ---------  ---------  ---------
      Total.............................  $       9  $     (34) $       4
                                           =========  =========  =========`

11.	MAJOR CUSTOMERS

No domestic customer accounted for more than 10% of net revenues
  in fiscal 2004 and 2003. Three domestic customers accounted for 15%, 14% and
  11% of net revenues in fiscal 2002, respectively. No international customer
  accounted for more than 10% of net revenues in fiscal 2004 and 2002. One international
  customer accounted for 19% of net revenues in fiscal 2003.

No domestic customers accounted for more than 10% of accounts
  receivable in fiscal 2004 and 2003. One international customer accounted for
  15% of accounts receivable in fiscal 2004, while another international customer
  accounted for 58% of accounts receivable in fiscal 2003.

12.	RELATED PARTY TRANSACTIONS

During the third quarter of fiscal 2004, the Company invested
  approximately $1.0 million in an original equipment manufacturer (the "OEM")
  headquartered in Europe. The Company's ownership interest in the OEM is less
  than 7% and is accounted for using the cost method. The Company had revenue
  from product sales to this OEM of $1.4 million, $0.3 million, and $0 in fiscal
  2004, 2003, and 2002, respectively. The Company had an accounts receivable of
  $0.8 million and $0 from this OEM at January 31, 2004 and 2003, respectively.
  One of the Company's customers is a contract manufacturer that manufactures
  video equipment for this OEM. Revenues from product sales to this manufacturer
  totaled $2.3 million, $3.4 million, and $0.006 million for fiscal 2004, 2003,
  and 2002, respectively. The Company had an accounts receivable of $0.4 million
  and $2.9 million from this manufacture at January 31, 2004 and 2003, respectively.
  A portion of the Company's products sold to the contract manufacturer were installed
  as components in the video equipment manufactured by the contract manufacturer
  on behalf of the OEM.

During the third quarter of fiscal 2003, the Company executed
  an agreement to sublease approximately 2,600 square feet of its headquarters'
  facility to a start-up company founded by a member of the Company's board of
  directors. The term of the sublease is one year at the same market rate as the
  Company's operating lease arrangement for the facility. The agreement was amended
  during the fourth quarter of fiscal 2004 for an additional one year on the same
  terms.

13.	SEGMENT AND GEOGRAPHICAL INFORMATION

As discussed in Note 1, the Company follows the requirements
  of SFAS No. 131, "Disclosures About Segments of an Enterprise and
  Related Information." The Company's operating segments consist of its geographically
  based entities in the United States, Hong Kong and France. All such operating
  entities segments have similar economic characteristics, as defined in SFAS
  No. 131, and accordingly, the Company operates in one reportable segment:
  the development, manufacturing and marketing of multimedia computer devices
  and products. The Company's chief operating decision-maker is its Chief Executive
  Officer.

For fiscal 2004, 2003 and 2002, the Company recorded sales
  to customers throughout the United States and Canada, Denmark, Japan, China,
  Taiwan, Hong Kong, and Korea; Germany, Belgium, Finland, The Netherlands, Norway,
  Sweden, the United Kingdom, France, Italy, Spain, Hungary, Portugal, Scotland,
  and Norway (collectively referred to as "Rest of Europe"); Singapore,
  Thailand, New Zealand, Turkey, Israel, Australia, South American and South Africa
  (collectively "Rest of Asia/New Zealand/Other Region").

The following table summaries total net revenues attributed
  to each product group as of and for the fiscal years ended January 31 (in thousands):

`2004       2003       2002
                                           ---------  ---------  ---------
  Boards..................................$   3,231  $   6,215  $   6,961
  Chipsets.................................  25,880     10,742      3,858
  Other....................................   1,409      1,182      2,618
                                           ---------  ---------  ---------
Total net revenues........................$  30,520  $  18,139  $  13,437
                                           =========  =========  =========`

The following table summaries total net revenues attributed
  to each market segment as of and for the fiscal years ended January 31 (in thousands):

`2004       2003       2002
                                           ---------  ---------  ---------
  Commercial streaming video market.......$   1,806  $   3,751  $   6,944
  Consumer appliance market................  26,448     11,015      3,921
  PC add-in market.........................   1,179      2,630      2,166
  Other market.............................   1,087        743        406
                                           ---------  ---------  ---------
Total net revenues........................$  30,520  $  18,139  $  13,437
                                           =========  =========  =========`

The following table summaries total net revenues and long-
  lived assets attributed to significant countries as of and for the fiscal years
  ended January 31 (in thousands):

`2004       2003       2002
                                           ---------  ---------  ---------
Net revenues:
  Taiwan................................   $   6,741  $     759  $   1,298
  Hong Kong.............................       4,404        975        811
  United States.........................       4,168      5,913      7,750
  Denmark...............................       3,785      3,780         47
  China.................................       3,566      1,388        442
  Korea.................................       3,375        791        172
  Rest of Europe........................       2,717      2,157      2,354
  Japan.................................         889      1,988        191
  Rest of Asia/New Zealand/Other Region.         853        360        360
  Canada................................          22         28         12
                                           ---------  ---------  ---------
Total net revenues*.....................   $  30,520  $  18,139  $  13,437
                                           =========  =========  =========

Long-lived assets:
  United States.........................   $     907  $   1,307
  Hong Kong.............................           8         12
  France................................         113         12
                                           ---------  ---------
Total long-lived assets.................   $   1,028  $   1,331
                                           =========  =========`

*Net revenues are attributed to countries based on invoicing
  location of customer.

The follow table presents unaudited quarterly financial information
  for each of the Company's last eight quarters (in thousands, except per share
  data).

`First     Second    Third     Fourth
                                         Quarter   Quarter   Quarter   Quarter
                                         --------  --------  --------  --------
Year ended January 31, 2004:

Net revenues........................... $  7,835  $  7,874  $  7,470  $  7,341
Income from operations.................      473       668       134       239
Net income available to common
  shareholders.........................      426       671       149       297
Net income per share available
  to common shareholders:
  Basic................................ $   0.02  $   0.04  $   0.01  $   0.01
  Diluted.............................. $   0.02  $   0.03  $   0.01  $   0.01

Year ended January 31, 2003:

Net revenues........................... $  3,454  $  3,256  $  4,720  $  6,709
Loss from operations...................   (2,261)   (2,407)     (884)     (295)
Net loss attributable to common
  shareholders.........................   (2,307)   (2,552)     (871)     (327)
Net loss per share attributable
  to common shareholders:
  Basic................................ $  (0.14) $  (0.16) $  (0.05) $  (0.02)
  Diluted.............................. $  (0.14) $  (0.16) $  (0.05) $  (0.02)`

SCHEDULE II - VALUATION
  AND QUALIFYING ACCOUNTS AND RESERVES

`Balance      Additions:   Deductions:   Balance
                                   at      Provision for  Write Offs      at
                               Beginning   (Reversal of) (Recoveries)   End of
       Classification           of Year      Bad Debts   of Accounts     Year
----------------------------- ----------- -------------- ------------ -----------
                                           (in thousands)
Allowance for returns and
 doubtful accounts, price
 protection, and sales
 returns:
  Year ended January 31,
  2004......................    $     922    $   (186)    $   (199)   $    935
  2003......................        1,664          60          802         922
  2002......................        2,124          60          520       1,664`

INDEX TO EXHIBITS

|EXHIBIT
        NUMBER | DESCRIPTION                                                                                                                                                                                 
|---------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(1)                 | Second Restated Articles of Incorporation.                                                                                                                                                  
|3.2(7)                 | Certificate of Amendment to the Second Restated Articles of Incorporation
        dated June 22, 2001.                                                                                      
|3.6(9)                 | Bylaws of Registrant, as amended.                                                                                                                                                           
|10.1(2)                | Distribution Agreement dated September 10, 1985.                                                                                                                                            
|10.2(3)*               | Registrant's 1986 Employee Stock Purchase Plan, as amended, and form
        of Subscription Agreement.                                                                                     
|10.4(4)*               | Registrant's Amended and Restated 1994 Stock Plan and form of Stock Option
        Agreement.                                                                                               
|10.5(5)*               | Registrant's 1994 Director Stock Option Plan and form of Director Option
        Agreement.                                                                                                 
|10.6(7)*               | Registrant's 2001 Employee Stock Option Plan.                                                                                                                                               
|10.7(7)*               | Registrant's 2001 Employee Stock Purchase Plan and Form of Subscription
        Agreement.                                                                                                  
|10.8(8)                | Registrant's 2001 Loan and Security Agreement with Silicon Valley Bank,
        as amended.                                                                                                 
|10.9(9)                | Lease between the Registrant and EOP-Industrial Portfolio, L.L.C.                                                                                                                           
|10.10                  | Amendment to Registrant's 2001 Loan and Security Agreement with Silicon
        Valley Bank.                                                                                                
|10.11                  | Amended and Restated Schedule to Loan and Security Agreement with Silicon
        Valley Bank                                                                                               
|21.1                   | Subsidiaries of the Registrant.                                                                                                                                                             
|23.1                   | Independent Auditors' Consent.                                                                                                                                                              
|24.1                   | Power of Attorney (contained in the signature page to this Annual Report
        on Form 10-K).                                                                                             
|31.1                   | Certification of the President and Chief Executive Officer pursuant to
        Securities Exchange Act Rules 13a-14(c) and 15d-14(a).                                                       
|31.2                   | Certification of the Chief Financial Officer and Secretary pursuant to
        Securities Exchange Act Rules 13a-14(c) and 15d-14(a).                                                       
|32.1                   | Certificate of Chief Executive Officer and Chief Financial Officer pursuant
        to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002.

*	Indicates management contract or compensatory plan or arrangement.

(1)	Incorporated by reference to exhibit filed with the Registrant's Registration
  Statement on Form S-1 (No. 33-17789) filed October 8, 1987, Amendment No. 1
  thereto filed June 9, 1988 and Amendment No. 2 thereto filed June 14, 1988,
  which Registration Statement became effective June 14, 1988.

(2)	Incorporated by reference to exhibit filed with the Registrant's Registration
  Statement on Form S-1 (No. 33-4131) filed on March 19, 1986, Amendment No. 1
  thereto filed April 28, 1986 and Amendment No. 2 thereto filed May 15, 1986,
  Which Registration Statement became effective May 15, 1986.

(3)	Incorporated by reference to exhibit filed with the Registrant's Registration
  Statement on Form S-8 (No. 333-61549) file August 14, 1998.

(4)	Incorporated by reference to exhibit filed with the Registrant's Registration
  Statement on Form S-8 (No. 333-86875) filed September 10, 1999.

(5)	Incorporated by reference to exhibit filed with the
  Registrant's Registration Statement on Form S-3 (No. 33- 74308) filed on January
  28, 1994, Amendment No. 1 thereto filed February 24, 1994, Amendment No. 2 thereto
  filed March 3, 1994, Amendment No. 3 thereto filed March 4, 1994 and Amendment
  No. 4 thereto filed March 8, 1994.

(6)	Incorporated by reference to exhibit filed with the Registrant's Annual
  Report on Form 10-K for the fiscal year ended January 31, 1998.

(7)	Incorporated by reference to exhibit filed with the Registrant's Registrant's
  Registration Statement on Form S-8 (No. 333-64234) filed on June 29, 2001.

(8)	Incorporated by reference to exhibit filed with the Registrant's Annual
  Report on Form 10-K for the fiscal year ended February 2, 2002.

(9)	Incorporated by reference to exhibit filed with the Registrant's Annual
  Report on Form 10-K for the fiscal year ended February 1, 2003.