**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 ended February 2, 2002**

**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)

**355 Fairview WayMilpitas, 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. Yes
[X]       No  [  ]

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.  [X]

The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $82,138,620 as of April 22, 2002 based on the
closing price of the Common Stock as reported on The Nasdaq Stock Market for
that date. There were16,427,724 shares of the Registrant's Common Stock issued
and outstanding on April 22, 2002.

**DOCUMENTS INCORPORATED BY REFERENCE**

Certain sections of Sigma Designs, Inc.'s definitive Proxy Statement for the
2002 Annual Meeting of Shareholders to be held on June 21, 2002 are
incorporated by reference in Part III of this Form 10-K to the extent
stated herein.







**Sigma Designs, Inc.
                        2002 ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS**



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

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PART I

ITEM 1.	BUSINESS

This Annual Report on Form 10-K contains forward-looking
statements that involve risks and uncertainties.  Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under "Certain
Factors Affecting Business, Operating Results, and Financial Condition" and
elsewhere in this Annual Report on Form 10-K. In this Annual Report on Form
10-K, the "Company," "Sigma," "we,"
"us," and "our" refer to Sigma Designs, Inc.

Overview

Founded in 1982, Sigma Designs, Inc. specializes in
silicon-based moving picture experts group, or MPEG, decoding solutions for
broadband set-top appliances and commercial streaming systems that feature
video-on-demand, or VOD. Headquartered in Milpitas, Calif., Sigma also has a
research and development center in France, as well as sales offices in China,
Europe, Hong Kong, Japan, Korea and Taiwan.  Our award-winning REALmagic
video-streaming technology is used in both commercial and consumer applications,
providing highly integrated solutions for high-quality decoding of MPEG-1,
MPEG-2 and MPEG-4 content.  Based on this core technology, Sigma has developed system
solutions for convergence products including streaming video, DVD playback,
Internet connectivity and personal video recording.  Sigma's products are sold
worldwide through a direct sales force, distributors and original equipment
manufactures.

A pioneer in the MPEG hardware decoder market, we introduced
our REALmagic card in 1993, an MPEG playback card for PCs.  In April 1997, we
announced our entry into the DVD market.  A key element of DVD specification is
the use of MPEG-2 standards for digital video compression, a technology with
which Sigma has established expertise.  Our MPEG-2 chips and add-in boards have
been used worldwide in leading multimedia PC platforms to enable applications
such as DVD title creation, DVD decoding, streaming video and IP multicasting.

During the past few years, Sigma has expanded well beyond its
PC card beginnings and is working with telecommunication companies, or telcos
and cable operators on trial deployments involving advanced DSL, broadband over
cable, fiber to the home, and other networks for delivering VOD to consumer
homes, multiple dwelling units and commercial hotel chains.   This involvement
has led to technology investments in streaming video silicon and software.  At
the end of 2001, Sigma 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.

Industry Partnerships

To meet customer needs for a complete solution for
set-top appliances, Sigma has developed strong partnerships with leading suppliers
of chipsets, system software and video servers/encoders.

Complete solutions for streaming include key vendors of video
servers, MPEG encoders and IP video routers, which include Apple, Cisco,
Concurrent, Envivio, Infovalue, iVAST, Minerva, nCUBE, OKI, SGI, Streaming21,
Sun Microsystems and Thirdspace.

Sigma's set-top appliance reference designs depend on vendors
of processors, graphics controllers, video encoders and digital TV front-end
chipsets, including B2C2, Focus Enhancements, Intel, National Semiconductor,
Silicon Image, Cirrus Logic and TVIA.

In addition, Sigma is working with the following vendors of
operating systems, middleware (DVD, DTV, VOD, PVR and Internet) and drivers to
provide complete solutions for advanced set-top appliances, which include DTVRo,
Enreach, Inprimis, Liberate, Metro Link, Microsoft and Tuxia.

Sigma Business Strategy

Our objective is to provide leading digital video
decoding solutions that enable full-screen, full-motion, best quality video in
streaming applications and on internet set-top boxes, and consumer DVD players.
To accomplish this goal, we need to promote widespread acceptance of REALmagic
technology and solutions.  The key parts of this strategy include:

Win More Set-Top Box Partnerships

We are actively working with several partners to promote
use of our silicon solutions for video on demand and DVD playback in set-top box
applications.  We will continue to nurture these relationships in order to
associate with the volume manufacturers of these set-top boxes and enable more
opportunities for uses of our silicon solutions. So far, these relationships
have focused on set-top box designs that provide Internet connections via
conventional dial up or Digital Subscriber Line, or DSL, technology and to a
limited extend, cable networks.  We are actively seeking additional
relationships with an expanded set of network providers and manufacturers in
these and other segments.

Introduce New Generations of Decoder Chipsets

A significant aspect of our product strategy is to
increase the sale of chipsets featuring our REALmagic Video Streaming Technology
while continuing to develop newer versions and generations of products,
including chipsets for set-top boxes, consumer DVD progressive players, and HDTV
applications.  We seek to continue to offer consumers better-featured and
lower-priced products over time.

Sigma Products

Sigma currently markets products primarily in two forms,
chipsets and board-level products.

Chipset Products

Sigma's line of MPEG decoder chips featuring REALmagic
video streaming technology is designed to provide the highest quality video
possible.  We complement our silicon technology with an embedded software base,
portable to a wide range of operating environments.  Featuring VOD and DVD
client players, Sigma's software is available under Windows, Linux and WinCE
operating systems.

EM8220/8300 series - provides MPEG-1 and 2 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
Panasonic.

EM8400 series - provides MPEG-1 and 2 video and audio
decoding for broadband interactive set-top boxes, and has achieved over 40
design wins in its target segment, including such notables as Fujitsu-Siemens,
Acer and Samsung.

EM8470 series - represents the first MPEG-4 silicon
solution for the set-top box market, in a form that is pin-compatible with our
widespread EM8400 to enable convenient upgrades to the latest decoding format.

Board-Level Products

Sigma board level products, which are based on our
silicon and software technology, are marked into both commercial streaming video
and consumer PC add-in markets.

NetStream 2000 Series - PC add-in cards featuring high
performance MPEG-1 and 2 decoding, bring streaming video to virtually any
PC-based system.

REALmagic DVR - a desktop PC add-in solution that
plugs into a standard PCI slot, and works with standard DVD writeable media to
enable encoding and authoring of DVD titles in a corporate or educational
environment.

REALmagic Xcard - a consumer PC add-in solution that
creates a home theatre solution by plugging into a standard PCI slot and
providing TV output from content collected in DVD, VCD, DivX and ISMA MPEG-4
formats.

REALmagic Hollywood Plus - a consumer PC add-in
solution that plugs into a standard PCI slot, and provides PC-based hardware
playback of DVD or VideoCD content.

Other Products and Services

In addition to Sigma's main lines of product, we also
offer stand-alone systems, primarily our NetStream console, as well as
professional development services.

Reference Designs

As a marketing tool, Sigma provides reference designs,
which are end-user prototype designs showing how our silicon solutions integrate
into complex consumer appliances. These reference designs serve several
purposes, including proof of concept to prospective customers, as well as an
invaluable research and development experience for our engineers who develop the
integrated end solution. This process always gives us ideas for what to
incorporate into our next generation solutions.

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
VARs operating in different regions of the world. Our U.S. distributor is Ingram
Micro, Inc. Our OEMs include EPOX, Fujitsu-Siemens GCT-Allwell, Kreatel and Lung
Hwa Electronics Co., Ltd. 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 a twelve to sixteen 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 significant working
capital and resulting in severe pressure on our financial condition.  Three
customers accounted for 15%, 14% and 11% of our total net revenues in fiscal
2002.

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, 2002, we had a staff of 60 research and
development personnel. The 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 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, making
improvements to the REALmagic architecture, and developing enhancements to the
REALmagic Application Programming Interface (API).

We cannot guarantee that any substantial advances will be
made in the REALmagic MPEG technology or, if they are made, that we will be able
to market such advancements to achieve profitability.

During fiscal 2002, 2001, and 2000, our research and
development expenses were $8.1 million, $7.4 million, and $6.4 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. Companies such as Broadcom, ST Microelectronics, and LSI Logic have
high profiles in the industry. The possibility exists that other companies with
more marketing and financial resources may develop a competitive product that
may inhibit the wide acceptance of REALmagic technology. We believe that there
are manufacturers who are developing MPEG products that will compete directly
with REALmagic 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 price of
our REALmagic products.

Licenses, Patents and Trademarks

We continually seek patent protection for certain
software and hardware features in current and future versions of REALmagic. We
currently have thirteen pending patent applications for our REALmagic
technology.  Seventeen 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 a
sole source of supply to us of the respective chips produced by such
supplier.

Our reliance on independent suppliers involves several risks,
including the 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.  We also expect that in the near term, our
backlog will continue to be not indicative of future sales.

Employees

As of January 31, 2002, we had 108 full-time employees,
including 60 in research and development, 24 in marketing, sales and support, 7
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.

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 our company.  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 may lose all or part of your investment.

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 and 2002 and had negative cash flow in fiscal 1995, 1998 and
2002.  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 2002 and 2001 included significant
loss associated with the decline in demand of our REALmagic products. Since our
inception through January 31, 2002, our total accumulated deficit is
$56,449,000.  We cannot assure you that we will be able to sell our REALmagic
products in substantial quantities or generate significant revenues from those
sales.  We cannot assure you that we will not incur operating losses in any
future fiscal quarter or fiscal year.

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

We have an amended and restated business loan agreement
with Silicon Valley Bank, dated September 7, 2001.  Under the agreement we
gave two secured promissory notes in total principal amounts of $12.0 million
and $6.0 million to Silicon Valley Bank, under which we may borrow as needed.
Under the agreement and the notes, we are subject to certain covenants that,
among other things, required us to maintain tangible net worth plus subordinated
debt of at least $11.5 million as of January 31, 2002 and subsequently amended to
$10.5 million. Since July 1997, we have, on occasion, been in violation some of
the covenants and in all cases have obtained waivers releasing us from our
obligation to meet these covenants as of previous dates.  However, it is
possible that we may need a waiver for future periods and there are no
guarantees that Silicon Valley Bank will grant these waivers.  In the instance
that we do not meet these covenants, and cannot obtain waivers, the lender could
accelerate payments on the notes. Payment of these notes, prior to securing
additional financing, could substantially weaken our financial condition and our
ability to sustain growth.

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

Our ability to increase sales, achieve profitability and
maintain REALmagic as an industry digital video decoding standard depends
substantially on our ability to achieve a sustained high level of sales to new
OEM customers. We have not executed volume purchase agreements with any of our
customers. Our customers are not under any obligation to purchase any minimum
quantity of our products.  We have not achieved bundling agreements with many
OEM customers to ensure the success of our REALmagic product line.  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 are subject to significant variability from quarter to quarter and to
severe price pressures by competitors.  In addition, three of our customers
accounted for 15%, 14% and 11% of our total net revenues, respectively, in
fiscal 2002.  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 experience significant fluctuations.  Also, estimates of future
sales to any particular customer or groups of customers are inherently
uncertain.

Our ability to achieve profitability also depends on a
substantial increase in the sales of REALmagic 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 REALmagic products could result in product returns or delayed or
uncollectable receivables. For example, in fiscal 2001, we recorded sales returns from one of
our distributors in the amount of approximately $1.4 million. We also provided for a
bad debt allowance in the amount of approximately $2.2 million. 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 a
significant market for our REALmagic products.

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.

To have technological leadership, we must continue to make
technological advancements and 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 the REALmagic architecture; and
- enhancements to the REALmagic application programming interface.

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 obsolete our technology and the
products based on our technology.

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.  During fiscal 2002 and
2001, we wrote down our inventory in the amount of approximately $1.4 million and
$1.9 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.  This higher
cost could result in downward pressures on our gross margins.

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 business will not be financially viable.

The market for multimedia products is highly competitive
and is also influenced by 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 of 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:



- STMicroelectronics;
- Equator Technologies;
- Zoran Corporation;
- LSI Logic/C-Cube;
- ESS Technology;
- Broadcom;
- Cirrus Logic;
- TriMedia Technologies.
In addition, Intel computer CPU chips processors have become
more powerful, such that video decoding could be done in software.  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
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.
Our future revenue growth depends in large part on the
adoption of MPEG technology
MPEG LA, LLC provides licensing terms and administers
royalty payments for use of patented technology associated with the use of MPEG
standards. Terms of use of MPEG-2 patents have been in place for a number of
years. Terms for use of MPEG-4 patents are still awaiting finalization, though
proposed MPEG-4 royalties associated with shipments of decoders are consistent
with that of MPEG-2. Run-time fees for MPEG-4 use in streaming and broadcast are
still under consideration, which represent some risk to Sigma. Our business
strategy is, and has been, to focus on REALmagic products by investing heavily
in MPEG technology. If these fees are minor, as expected, the deployment of
MPEG-4 will continue unabated. If these fees become substantive in nature, it
may result in decreased adoption, which will negatively affect our revenue
expectations from products incorporating this feature. In addition, there are
MPEG-4 alternatives being pushed by companies such as Microsoft and RealNetworks
that could compete with MPEG-4 for market share negatively affecting our revenue
expectations.
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.  This fluctuation is due to a number of
factors, including the following and others:
our new product introductions and product introductions
by our competitors;market acceptance of our products by OEMs, software
developers and end users;the success of our promotional programs;gains or losses of our significant customers;shifts in demand for technology embodied in our
products;reductions in selling prices;inventory obsolescence;write-downs of accounts receivable;an interrupted or inadequate supply of semiconductor
chips;our ability to protect our intellectual property;loss of our key personnel;technical problems causing shipping delays;availability of third-party manufacturing capacity;
andthe effect of the terrorist attacks in the United States
and any related conflicts or similar events worldwide.
In addition, sales to OEM customers are subject to
significant variability from quarter to quarter.  This variability depends on
OEMs' timing and release of products that incorporate our REALmagic technology,
experience with sales of these products and inventory levels.
The market for consumer electronics products is characterized
by significant seasonal swings in demand. Demand typically peaks in the fourth
calendar quarter of each year.  We expect to derive a substantial portion of our
revenues from the sales of REALmagic products in the future.  The demand for our
products will depend in part on the success of digital video technology.  In
light of this, our revenues may vary with the availability of and demand for DVD
titles.  This demand may increase or decrease as a result of a number of factors
that cannot be predicted, such as consumer preferences and product announcements
by competitors.
Announcements of directly competing products will likely have
a negative effect on our operating results.  Based on our experience, we believe
that a substantial portion of our shipments will occur in the third month of a
quarter, with significant shipments completed in the latter part of the third
month.  This shipment pattern causes our operating results to be difficult to
predict.  Currently, we place orders to purchase semiconductor products from our
foundries with a long lead-time.  If, as a result of inaccurate forecasts or
cancelled purchase orders, our anticipated sales and shipments in any quarter do
not occur when expected, our inventory levels could be disproportionately high.
This would require significant working capital and harm our operating
results.
We face many risks because of our heavy reliance on
certain manufacturers and suppliers that could harm our business and financial
condition.
Our REALmagic products and components are presently
manufactured 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; andreduced control over delivery schedules, manufacturing
yields and costs.We obtain some of our components from a single source. In
fiscal 2000 we experienced a delay and interruption from our source due to the
earthquake in Taiwan in October 1999.  We estimate that this event resulted in
lost sales of about $2.5 million. 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 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. The multimedia PC industry is
characterized by high employee mobility and aggressive recruiting of skilled
personnel. 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 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 seventeen 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 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 international operations are subject to certain
risks.
During fiscal 2002, 2001, and 2000, sales to
international customers accounted for approximately 42%, 65%, and 67% of our
total net revenues, respectively. We anticipate that sales to international
customers, including sales of REALmagic products, will continue to account for a
substantial percentage of our net revenues.  Also, some of the foundries that
manufacture our products and components are located in Asia.  Overseas sales and
purchases to date have been denominated in U.S. dollars.
Due to the concentration of international sales and the
manufacturing capacity in 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.  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 has recently been subject to increased
levels of economic instability, and this instability could seriously harm our
results of operations.
Our stock price may be volatile.
The market of our common stock has been subject to
significant volatility.  This volatility 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; andmarket 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 and development stage 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.
EXECUTIVE OFFICERS OF THE COMPANY
Our executive officers and directors and their ages as of
April 1, 2002 are as follows:**Name            Age                    Position
-------------------------- ---- ---------------------------------------------**
Thinh Q. Tran               48  Chairman of the Board, President, and Chief
                                Executive Officer
Silvio Perich               53  Senior Vice President, Worldwide Sales
Jacques Martinella          46  Vice President, Engineering
Kenneth Lowe                46  Vice President, Business Development
Kit Tsui                    52  Chief Financial Officer, and Secretary
William J. Almon(1)(2)      69  Director
William Wang(1)(2)          38  Director
Julien Nguyen(1)            45  Director
______________

(1)	Member of the Audit Committee
(2)	Member of the Compensation CommitteeMr. 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, Business
Development. 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 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.
Mr. Almon has served as a Director of Sigma since April
1994.  Mr. Almon also serves as a Director of Read-Rite Corporation, and Exabyte
Corporation. Mr. Almon is currently Managing Director of Finaline Technology, a
business software company. Prior to that Mr. Almon was Managing Director of
Netfish Technology from 1999 to May 2001 when it was acquired by Iona
Technologies PLC. He was Chairman of the Board of InterNet Image, an internet
software company that was merged with Intraware Inc. in October 1999.  In May
1994, Mr. Almon founded and served as Chairman of the Board and Chief Executive
Officer of StorMedia, Inc., a manufacturer of thin film disks.  From December
1989 until February 1993, Mr. Almon served as President and Chief Executive
Officer of Conner Peripherals, Inc., a manufacturer of computer disk drives and
storage management devices.  Prior to 1987, Mr. Almon spent 30 years with
IBM Corporation, holding executive positions in both software and hardware
management, most recently as Vice President, Low End Storage Products.
Mr. Wang became a Director of Sigma in October 1995.
From January 1995 to the present, Mr. Wang has served as Chairman of the
Board, Chief Executive Officer and President of Princeton Graphic Systems, a
supplier of computer monitors, and has served since January 1996 as a Director
of Diva Labs.  From 1990 to April 1997, Mr. Wang served as Chairman of the
Board and Chief Executive Officer of MAG Innovision Co., Inc., a supplier of
computer monitors.  From 1986 until 1990, Mr. Wang worked at Tatung Company
of America in the Video Display Division
Mr. Nguyen became a Director of Sigma in May 2000.  Mr.
Nguyen is Managing Partner of Applied Materials Ventures, a corporate venture
fund.  Mr. Nguyen co-founded and was the Chairman of ezlogin, a developer of
personalization infrastructure tools for internet sites and wireless carriers.
Prior to ezlogin, Mr. Nguyen founded Novita Communications, and served as its
Chief Executive Officer. Novita developed Java-based communications software and
services.  In 1998, Novita was acquired by PlanetWeb. From February 1995 to
October 1996, Mr. Nguyen served as Co-Chairman and Chief Technical Officer of
the Company. From August 1993 until January 1995, he served as Vice President,
Engineering and Chief Technical Officer of the Company.  From May 1992 until
October 1993, Mr. Nguyen was President and Chief Executive of E-Motions, which
was acquired by the Company in 1993. Prior to founding E-Motions, Mr. Nguyen
worked at Radius Inc. as Director of Product Development and was in charge of
all product development for five years.   Mr. Nguyen also serves as an observer
on the boards of Zepton Networks, Siros Technologies, GlimmerGlass Networks.


ITEM 2.	FACILITIES
We currently lease a 25,000 square foot facility in
Milpitas, California that is used as our headquarters.  The lease will expire in
September 2002.  We also lease facilities for sales offices in Hong Kong and
Shenzhen China, and for research and development near Paris, France.  Currently,
we are in the process of negotiating a five-year lease of approximately 40,000
square foot facility in Milpitas, California. We believe that the new facility
would be adequate to accommodate our operations in the near term.


ITEM 3.	LEGAL PROCEEDINGS
None.

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.PART II
ITEM 5.	MARKET FOR SIGMA DESIGNS' COMMON STOCK
Our common stock trades on the Nasdaq Stock Market's
Nasdaq National Market under the trading symbol  "SIGM". The table
below sets forth the high and low sales prices per share of our common stock for
the periods indicated.

**Fiscal 2002     Fiscal 2001
                                   -------------   --------------
                                    High   Low      High    Low
                                   ------ ------   ------ -------**
First quarter ended April 30.....   2.56   1.13    11.38    3.94
Second quarter ended July 31.....   3.18   1.37     7.13    3.50
Third quarter ended October 31...   1.97   0.83     6.44    2.13
Fourth quarter ended January 31..   2.72   1.10     3.97    1.03


As of April 22, 2002, we had 228shareholders of record.  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. 

ITEM 6.	SELECTED CONSOLIDATED 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 and notes thereto, and with Management's
Discussion and Analysis of Financial Condition and Results of
Operations.


**Year ended January 31,       2002      2001      2000      1999      1998
-------------------------  --------  --------  --------  --------  --------
                               (In thousands, except per share data)**
Net revenues..........     $13,437   $29,476   $50,324   $43,540   $36,982

Net income (loss)
 available to
 common shareholders..     (10,392)   (6,868)    2,263    (2,690)   (5,648)

Diluted net income
 (loss) per share
 available to
 common shareholders..       (0.64)    (0.42)     0.13     (0.21)    (0.51)

Working capital.......      10,475    19,706    27,092    23,578    18,960

Total assets..........      26,274    38,334    44,751    44,220    38,329

Shareholders' equity..      11,466    21,781    28,403    24,771    20,312


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 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 "FACTORS AFFECTING FUTURE OPERATING
RESULTS".
Results of Operations
For the fiscal year ended January 31, 2002, our net
revenues decreased 54% to $13.4 million from $29.5 million reported for fiscal
2001.   This decrease in revenues was primarily attributable to the continuing
slowdown of the general economic conditions, and the continuing decline in
demand for our MPEG chipset and board products in PC add-in market due to the
prevalence of DVD-enabling software provided as original equipment in many PCs.
Even though overall total net revenues from sales of MPEG chipset and board
products were significantly decreased year-over-year, revenues from sales of our
new streaming video console and board products to commercial streaming video
market and sales of our chipset products to consumer appliance market increased
in fiscal 2002 as compared to fiscal 2001. Our revenues from sales of streaming
video console and board products for the commercial steaming video market and
sales of chipset products in the set top boxes for the consumer appliance market
represented a relatively significant portion of our total net revenues while our
revenues from sales of chipset and board products to PC add-in market
represented a relatively insignificant portion of our total net revenues for
fiscal 2002. The continuing decline in demand for chipsets and boards in PC
add-in market, the slower than anticipated emergence of the set top box market, and
delays in the deployment of streaming video applications which utilize our
products may continue. Should they continue, this decline and these delays would
continue to reduce our revenues and harm our business.
Net loss for the fiscal year ended January 31, 2002 was $10.4
million as compared to net loss of $6.9 million for the prior fiscal year.  The
net loss for fiscal 2002 was primarily caused by the decline in revenues. The
net loss for fiscal 2002 included a charge of approximately $927,000 of
impairment losses related to an investment of a start-up company, and a specific
provision for bad debt allowance in the amount of approximately $121,000 (net of
recovery $329,000) due to collectibility issues relating to one of our
customers. The net loss for fiscal 2001 included a charge of $1.9 million to
write down certain PC-DVD and video networking related inventories due to the
decline in demand for those products, and a provision for bad debt allowance in
the amount of $2.2 million due to collectibility issues relating to one of our
customers and non-payment by another customer for customization services
that we provided.
The following table shows certain items as a percentage of
net revenues, which are included in our Consolidated Statement of
Operations:

**Fiscal     Fiscal     Fiscal
                                            2002       2001       2000
                                          ---------  ---------  ---------**
Net revenues............................       100%       100%       100%
Cost of revenues........................        59%        70%        69%
                                          ---------  ---------  ---------
Gross margin............................        41%        30%        31%
Operating expenses:
  Research and development..............        60%        25%        13%
  Sales and marketing...................        32%        14%         9%
  General and administrative............        21%        15%         6%
Other (income) expense..................         5%        -1%        -1%
                                          ---------  ---------  ---------
Net income (loss).......................       -77%       -23%         5%
Dividends on preferred stock............        --         --         -1%
                                          ---------  ---------  ---------
Net income (loss) available to
     common shareholders................       -77%       -23%         4%
                                          =========  =========  =========

Net Revenues
The following table sets forth our net revenues in each
product group for the last three years:

**(Dollars in thousands)             Fiscal 2002    Fiscal 2001    Fiscal 2000
                                 -------------- -------------- --------------**

Boards....................         $6,961   52%  $13,575   46%  $22,940   46%
Chipsets..................          3,858   29%   12,936   44%   25,831   51%
Other.....................          2,618   19%    2,965   10%    1,553    3%
                                 ---------      ---------      ---------
  TOTAL NET REVENUES......        $13,437        $29,476        $50,324
                                 =========      =========      =========


Our board level product lines are targeted at OEM customers
to address the DVD upgrade market and system integrators to address the
computer-based training, kiosks, and corporate video-on-demand markets. Our
chipsets are targeted toward manufacturers and large volume OEM customers
building interactive multimedia products for business and consumer markets.  The
"other" category includes our new product, Netstream consoles for the
commercial streaming video market, set-top box products and accessories targeted
at the consumer internet information appliance market - a market which we
entered in fiscal 2000, and development revenues under agreements for the
customization of certain MPEG decoding chips. The costs related to development
revenues were included in research and development expenses.
The table below sets forth our revenues by market segment for
each of the last three fiscal years:

**(Dollars in thousands)             Fiscal 2002    Fiscal 2001    Fiscal 2000
                                 -------------- -------------- --------------**

Commercial streaming video market  $6,944   52%   $6,673   23%  $12,012   24%
Consumer appliance market.....      3,921   29%    2,775    9%    1,180    2%
PC add-in market..............      2,166   16%   17,799   60%   36,675   73%
Other market..................        406    3%    2,229    8%      457    1%
                                 ---------      ---------      ---------
  TOTAL NET REVENUES..........    $13,437        $29,476        $50,324
                                 =========      =========      =========

Revenues from sales to Commercial streaming video market
accounted for 52% of our net revenues in fiscal 2002, 23% in fiscal 2001, and
24% in fiscal 2000. Revenues from sales to Consumer appliance market accounted
for 29% of our net revenues in fiscal 2002, 9% in fiscal 2001, and 2% in fiscal
2000. PC add-in market accounted for 16% of our net revenues in fiscal 2002, 60%
in fiscal 2001, and 73% in fiscal 2000. Revenues from sales to Other market
accounted for 3% of our net revenues in fiscal 2002, 8% in fiscal 2001, and 1%
in fiscal 2000.  Revenues from sales to commercial streaming video market
increased 4% to $6.9 million in fiscal 2002 from $6.7 million in fiscal 2001.
Revenue from sales to consumer appliance market increased 41% to $3.9 million in
fiscal 2002 from $2.8 million in fiscal 2001. Revenues from PC add-in market
decreased 88% to $2.2 million in fiscal 2002 from $17.8 million in fiscal 2001.
Revenues from other market decreased 82% to $0.4 million in fiscal 2002 from
$2.2 million in fiscal 2001. The increase in revenues from sales of our products
to commercial streaming video market in fiscal 2002 as compared to fiscal 2001
is mainly attributable to increased sales of our MPEG board products and the
introduction of our new console products in corporate streaming video market. We
expect our revenues from 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 increase in
revenues from sales of our products to consumer appliance market in fiscal 2002
is attributable to increased sales of our MPEG chipset products to set-top box
manufacturers. The consumer appliance market remains in an emerging phase and we
expect fluctuating revenues to continue. The decrease in revenues from sales of
our products to PC add-in market in fiscal 2002 is due to the continuing decline
in demand for products in the PC add-in market.  We expect our revenues from PC
add-in market to be relatively insignificant in future periods as a result of
our decision to focus on the video-on-demand and consumer appliance market. The
category "Other market" in the above table consists of 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 decrease in net revenues from other market in
fiscal 2002 as compared to fiscal 2001 is attributable to a decrease in
development fees due to fewer development projects and the increasingly complex
nature which requires longer development time. We expect that net revenues from
other market will continue to fluctuate.The table below sets forth our revenues
by geographic region for each of the last three fiscal years:

**(Dollars in thousands)             Fiscal 2002    Fiscal 2001    Fiscal 2000
                                 -------------- -------------- --------------**
United States..................    $7,750   58%  $10,241   35%  $16,535   33%
Asia...........................     3,239   24%   17,326   59%   29,142   58%
Europe.........................     2,401   18%    1,574    5%    4,114    8%
Canada.........................        12    0%       16    0%      296    1%
Other regions..................        35    0%      319    1%      237    0%
                                 ---------      ---------      ---------
  TOTAL NET REVENUES...........   $13,437        $29,476        $50,324
                                 =========      =========      =========

Our U.S. revenues as a percentage of total net revenues were
58% in fiscal 2002, 35% in 2001, and 33% in fiscal 2000.  Total U.S. revenues in
fiscal 2002 decreased 24% to $7.8 million, from $10.2 million in fiscal 2001.
Total Asia revenues as a percentage of total revenues were 24% in fiscal 2002,
59% in fiscal 2001 and 58% in fiscal 2000.  Total Asia revenues in fiscal 2002
decreased 81% to $3.2 million in fiscal 2002, from $17.3 million in fiscal 2001.
Total Europe revenues as a percentage of total revenues were 18% in fiscal 2002,
5% in fiscal 2001 and 8% in fiscal 2000.  Total Europe revenues in fiscal 2002
increased 53% to $2.4 million in fiscal 2002, from $1.6 million in fiscal 2001.
Our Asia revenues were derived predominantly from customers in Taiwan. Revenues
generated from Taiwan in fiscal 2002 accounted for 10% of our total net
revenues, as compared to 19% for fiscal 2001 and 30% for fiscal 2000. Three
customers based in U.S and one customer based in Europe accounted for 49% of our
total net revenues in fiscal 2002, as compared to two customers based in U.S and
three customers based in Asia accounting for 55% of our total net revenues in
fiscal 2001 and three customers based in Asia accounting for 41% of our total
net revenues in fiscal 2000. The overall year-to-year decrease in revenues from
fiscal 2001 to fiscal 2002 was primarily attributable to the global economic
downturn and the continuing decline in demand of our PC-DVD upgrade products in
the PC market.
Gross Margin
Our gross margin as a percentage of net revenues was
approximately 41% in fiscal 2002, 30% in fiscal 2001, and 31% in fiscal 2000.
Excluding development revenues of $0.4 million, the gross margin was
approximately 39% in fiscal 2002. This increase was a result of increased sales
of our products to streaming video market and chipset products to the set top
box consumer appliance market which have relatively high gross margins and the
decreased sales of our products to PC add-in market which have relatively low
gross margins. We expect our gross margins will vary from period to period due
to changes in the mix of product sales and provisions for inventory
obsolescent.
Operating Expenses
Sales and marketing expenses increased $166,000 or 4% in
fiscal 2002 over fiscal 2001.  This increase was largely due to increased
headcount and expenses associated the expansion of our product marketing and
sales development group. The same expenses decreased $338,000, or 8%, in fiscal
2001 over fiscal 2000.  The decrease was the result of a reduction of our
business development group personnel, an elimination of outside public relations
services, and reduced sales commissions in connection with reduced revenues. We
believe that our sales and marketing expenses will increase 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 $739,000 or 10%
in fiscal 2002 over fiscal 2001 and $987,000, or 15% in fiscal 2001 over fiscal
2000.  The increase in fiscal 2002 over fiscal 2001 was primarily attributable
to additional engineering staff at our headquarters as well as at our
development center in France, consulting services, and capital equipment related
to product development. The increase in fiscal 2001 was largely due to increases
in technical development support, and the research and development center
established in France during the fourth quarter of fiscal 2000. We expect to
continue our efforts in the development of our proprietary MPEG based products,
and research and development expenses will likely increase accordingly
year-over-year.
Our general and administrative expenses decreased $1.8
million or 39% in fiscal 2002 from fiscal 2001. The decrease was mainly
attributable to the significant reduction of approximately $2.2 million of bad
debt expense from last fiscal year. Excluding the specific provision for bad
debt of approximately $121,000 (net of recovery $329,000) and $1.9 million
respectively, in fiscal 2002 and 2001, general and administrative expenses in
fiscal 2002 was comparable to fiscal 2001.  The same expense increased $1.6
million or 57% in fiscal 2001 from fiscal 2000.  Excluding provision for bad
debt of approximately $1.9 million in fiscal 2001, general and administrative
expenses decreased $293,000 or 10% as compared to fiscal 2000.  The decrease was
largely due to the refund by our insurance company of costs previously expensed
related to a shareholder lawsuit resolved in fiscal 2001 and reduction of legal
expenses in general. We expect our general and administrative expenses will
increase relatively 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, 2002, our principal sources of
liquidity included cash, cash equivalents, restricted cash, and short-term
investments of $18.0 million, a decrease of $4.3 million compared with $22.3
million at January 31, 2001. This decrease resulted from operating activities
that utilized cash of approximately $3.8 million, acquisition of fixed assets of
$172,000, repayment of capital lease obligations of $321,000 and cash used for
other investing activities of $118,000 which was partially offset by proceeds of
$100,000 from the issuance of our common stock under our stock option plan and
employee stock purchase plan.
As of January 31, 2002, we had $12.0 million outstanding
under a $12.0 million bank revolving line of credit that expires in October
2002, bears interest at the U.S treasury bill rate (1.48% at January 31, 2002)
plus 0.85%, and is collateralized by funds on deposit in accounts that have been
assigned to the lender and is included in our consolidated balance sheet at
January 31, 2002 as restricted cash. We also have a $6.0 million bank line of
credit available that expires in October 2002 and is collateralized by our
accounts receivable, inventories, equipment, and intangibles. As of January 31,
2002, we had utilized $178,000 of the standby letter of credit under this second
line of credit. The lines of credit contain certain covenants that, among other
things, required us to maintain certain levels of tangible net worth plus
subordinated debt based on our projected operating results. At January 31, 2002,
we were required to maintain total net equity worth of at least $11.5 million. As
of that date, we were not in compliance with this covenant and subsequently
obtained a modification to amend this covenant to $10.5 million.
Our primary sources of funds to date have been cash generated
from operations, proceeds from preferred and common stock issuances, capital
lease arrangements, and bank borrowings under lines of credit. It is likely that
our operation will continue to consume cash in the foreseeable future. Based on
our cash projection, we believe that our current reserve of cash and cash equivalents and short-
term investments will be sufficient to meet anticipated working capital
requirements 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 to maintain the availability of funds under our existing asset-based
banking agreements. To insure that we have adequate working capital, we intend
to raise additional funding through either public or private offerings of our
common or preferred stock or from additional bank financing during the next
twelve months.  There is no assurance that such capital will be available to us.
The estimate of time our cash and other resources will last is a forward-looking
statement that is subject to the risks and uncertainties set forth below, as
well as other factors, and actual results may differ as a result of such
factors.
Factors Affecting Future Operating Results
Our annual and quarterly results have in the past and may
in the future vary significantly due to a number of factors, including but not
limited to new product introductions by us and our competitors; the ability of
our REALmagic MPEG silicon to compete with other technologies in these merging
markets; market acceptance of the technology embodied in our products generally
and our products in particular; customer acceptance of our products; shifts in
demand for the technology embodied in our products generally and our products in
particular and/or those of our competitors; gains or losses of significant
customers; reduction in average selling prices and gross margins, which may
occur either gradually or precipitously; inventory obsolescence; write-downs of
accounts receivable; an interrupted or inadequate supply of semiconductor chips
or other materials-for example, our source of supply for silicon wafers was
interrupted in fiscal 2000, and may continue to be interrupted in the future because of
earthquakes in Taiwan; our inability to protect our intellectual property; loss
of key personnel; technical problems in the development, ramp up, and
manufacture of products causing shipping delays; and availability of third-party
manufacturing capacity for production of certain of our products. We derive a
substantial portion of our revenues from sales to the Asia Pacific region, a
region of the world that is subject to increased economic instability. There can
be no assurance that such instability will not have a material adverse effect on
our future international revenues. Any adverse change in the foregoing or other
factors could have a material adverse effect on our business, financial
condition, and results of operations.
Due to the factors noted above, our future earnings and stock
price may be subject to significant volatility, particularly on a quarterly
basis. Past financial performance should not be considered a reliable indicator
of future performance, and investors should not use historical trends to
anticipate results or trends of future periods. Any shortfall in revenue or
earnings could have an immediate and significant adverse effect on the trading
price of our common stock. Additionally, we may not learn of such shortfall
until late in a fiscal quarter, which could result in even more immediate and
adverse effect on the trading price of our common stock. Further, we operate in
a highly dynamic industry, which often results in volatility of our common stock
price.
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 - Revenues consist of product and
development revenue. Revenues from product sales to OEMs, distributors and end
users are generally recognized upon shipment, except that revenues are deferred when the Company cannot reasonably
estimate the amount of returns or where collectibility is not assured; deferred revenue is
recognized when collection subsequently becomes probable and returns are estimable
(generally upon resale by customers). Allowances for sales returns, price protection and
warranty costs are recorded at the time that revenues are recognized.
Revenues from product development agreements are recognized
using 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.  We
classify all development costs related to such agreements as research and
development expenses.  Development revenues were $406,000, $1.9 million, and
$60,000 for fiscal 2002, 2001 and 2000, respectively.
Account Receivable -During
industry downturns, certain of our customers have difficulty with their cash
flows. For certain customers, typically those with whom we have long-term
relationships, may delay their payments by 40-60 days beyong the original terms. We review the
ability of our customers to pay the indebtedness they incur with us. We defer recognition of
revenue and related receivable when we cannot reasonably estimate collectibility
is assured at the time products and services are delivered to our customer. We
provide an allowance for doubtful accounts for all specific receivables that we
judge to be unlikely for collection. In addition, we record a reserve based on
the size and age of all receivable balances against which we have not
established a specific reserves. These estimated allowances are periodically
reviewed, analyzing the customer's payment history and information regarding
customer's credit worthiness known to us. In fiscal 2002 and 2001, we recorded a
provision for general and specific bad debt allowance in the total amount of
$121,000 (net of recovery of $329,000) and $2.2 million respectively.
Inventories - With the dramatic decrease in
revenue during fiscal 2002 and 2001, 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 downturn extends further into the future
than we have currently estimated 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
considerations for factors such as the cyclical nature of our industry. These
forecasts require us to estimate our ability to see demand for current and
further 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 to further write down inventory.
Recent Accounting Pronouncements
On July 20, 2001, the Financial Accounting Stanford Board
("FASB") issued Statement of Financial Accounting Standards No. 141,
"Business Combinations", or SFAS No. 141, and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method and
addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. SFAS No. 142 addresses the
initial recognition and measurement of intangible assets acquired outside of a
business combination and the accounting for goodwill and other intangible assets
subsequent to the acquisition. SFAS No. 142 provides that intangible assets with
finite useful lives be amortized. However, goodwill and intangible assets with
indefinite lives will no longer be amortized, but will be tested at least
annually for impairment. The Company is required to adopt SFAS No. 142 effective
February 1, 2002 and does not expect the effect of adoption to have a material
impact on the Company's financial position, results of operations or cash
flows.
In October 2001, the Financial Accounting Standards Board
issued SFAS No. 144, "Accounting for Impairment of Long-Lived Assets."  SFAS No.
144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of", and addresses financial accounting
and reporting for the impairment or disposal of long-lived assets.  This
statement is effective for fiscal years beginning after December 15, 2001.  The
Company is required to adopt SFAS No. 144 on February 1, 2002.  The adoption of
this statement is not expected to have a material impact on the Company's
consolidated financial position, results of operations or cash flows.


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, 2002, we
held $943,000 in short-term investments consisting of U.S. government and
corporate debt securities with an average original maturity of less than one
year.  These available-for-sale securities are subject to interest rate risk and
will fall in value if market interest rates increase.  If market rates were to
increase immediately and uniformly by 10 percent from levels at January 31,
2001, the fair market value of the short-term investments would decline by an
immaterial amount.   We generally expect to have the ability to hold our
investments until maturity and therefore would not expect operating results or
cash flows to be affected to any significant degree by the effect of a sudden
change in market interest rates for short-term investments.
At January 31, 2002, we had $12.0 million outstanding under a
$12.0 million variable interest rate bank line of credit, no borrowing outstanding
under a $6.0 million variable interest rate bank line of credit and utilized
$178,000 of standby letter of credit under this second line of credit. 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 and cash flows.

Foreign Currency Exchange Rate Sensitivity.  The Hong Kong dollar and
Euro are the financial currencies in 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, 2002, the fair value of these foreign currency
amounts would decline by an immaterial amount.

ITEM 8.	CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Sigma's consolidated financial statements, the notes
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.


PART III

ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY
The information required by this item concerning our
directors and executive officers is incorporated by reference from the
information set forth in the sections entitled "Election of Directors"
and "Other Information" contained in our Proxy Statement relating to
the 2002 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").
Certain information required by this item concerning our executive officers is
incorporated by reference to the information set forth in Part I of the Annual
Report on 10-K.

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
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
Please see the information set forth in the section
entitled "Transactions with Management" in our Proxy Statement, which
we are incorporating into this Form 10-K by reference.
PART IV

ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-
K

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


PageIndependent Auditors' Report
F-
1Consolidated Balance Sheets as of January 31,
2002 and 2001
F-
2Consolidated Statements of Operations for the
years ended January 31, 2002, 2001, and 2000
F-
3Consolidated Statements of Shareholders' Equity
and Comprehensive Income (Loss) for the years ended January 31, 2002, 2001, and
2000
F-
4Consolidated Statements of Cash Flows for the
years ended January 31, 2002, 2001 and 2000
F-
5Notes to Consolidated Financial
Statements
F-
72.	Consolidated Financial Statements
Schedules
The following financial statement schedule is filed as part
of this Annual Report on Form 10-K:
Schedule II-Valuation and Qualifying Accounts
and Reserves
S-
1All 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

No reports on Form 8-K were filed during the fourth quarter
ended January 31, 2002.

(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 1st day of May 2002.

SIGMA DESIGNS, INC.By: /s/ Thinh Q.
TranChairman 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)
May 1, 2002/s/ Kit TsuiKit Tsui
Chief Financial Officer and Secretary (Principal Accounting
Officer)
May 1, 2002/s/ William J. AlmonWilliam J. Almon
Director
May 1, 2002/s/ William WangWilliam Wang
Director
May 1, 2002/s/ Julien NguyenJulien Nguyen
Director
May 1, 2002INDEPENDENT AUDITORS' REPORTTo 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, 2002 and 2001, 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, 2002. Our audits also include the financial statement
schedule listed in Item 14(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, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 2002 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 LLPSan Jose, California
March 26, 2002 (April 17, 2002 as to the last sentence of Note 6)


**SIGMA DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2002 and 2001 (In thousands, except share data)
2002       2001
                                                            ---------  ---------
ASSETS**
CURRENT  ASSETS:
  Cash and cash equivalents............................... $   5,056  $   5,422
  Short-term investments..................................       943      4,907
  Accounts receivable (net of allowances of
    $1,664 in 2002 and $2,124 in 2001)....................     2,168      5,122
  Inventories.............................................     4,482      8,159
  Restricted cash.........................................    12,000     12,000
  Prepaid expenses and other..............................       521        296
                                                            ---------  ---------
           Total current assets...........................    25,170     35,906
EQUIPMENT  - net..........................................       831      1,346
OTHER  ASSETS.............................................       273      1,082
                                                            ---------  ---------
TOTAL..................................................... $  26,274  $  38,334
                                                            =========  =========
**LIABILITIES AND SHAREHOLDERS' EQUITY**
CURRENT LIABILITIES:
  Bank line of credit..................................... $  12,000  $  12,000
  Accounts payable........................................     1,115      2,423
  Accrued liabilities.....................................     1,336      1,448
  Current portion of capital lease obligations............       244        329
                                                            ---------  ---------
           Total current liabilities......................    14,695     16,200
                                                            ---------  ---------
CAPITAL LEASE OBLIGATIONS.................................       113        349
OTHER LONG TERM LIABILITIES...............................        --          4

COMMITMENTS AND CONTINGENCIES (Note 9)

SHAREHOLDERS' EQUITY:
  Common stock - no par value:  35,000,000
   shares authorized; shares outstanding:
   2002, 16,378,042; 2001, 16,313,464.....................    67,884     67,785
  Shareholder notes receivable............................        --         (1)
  Accumulated other comprehensive income..................        31         54
  Accumulated deficit.....................................   (56,449)   (46,057)
                                                            ---------  ---------
           Shareholders' equity                               11,466     21,781
                                                            ---------  ---------
TOTAL..................................................... $  26,274  $  38,334
                                                            =========  =========See notes to consolidated financial statements.
**SIGMA DESIGNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 31, 2002, 2001 AND 2000
(In thousands, except share data)
2002       2001       2000
                                          ---------  ---------  ---------**
NET REVENUES............................ $  13,437  $  29,476  $  50,324

COSTS AND EXPENSES:
  Cost of revenues......................     7,909     20,661     34,481
  Research and development..............     8,123      7,384      6,397
  Sales and marketing...................     4,318      4,152      4,490
  General and administrative............     2,758      4,511      2,869
                                          ---------  ---------  ---------
           Total costs and expenses.....    23,108     36,708     48,237
                                          ---------  ---------  ---------
INCOME (LOSS) FROM OPERATIONS               (9,671)    (7,232)     2,087

  Interest income.......................       773      1,355        929
  Interest expense......................      (584)      (936)      (770)
  Other income (expense), net...........      (906)       (53)       162
                                          ---------  ---------  ---------
INCOME (LOSS) BEFORE INCOME TAXES.......   (10,388)    (6,866)     2,408
PROVISION FOR INCOME TAXES..............        (4)        (2)       (60)
                                          ---------  ---------  ---------
NET INCOME (LOSS).......................   (10,392)    (6,868)     2,348
DIVIDENDS ON PREFERRED STOCK............        --         --         85
                                          ---------  ---------  ---------
NET INCOME (LOSS) AVAILABLE TO COMMON
  SHAREHOLDERS.......................... $ (10,392) $  (6,868) $   2,263
                                          =========  =========  =========
NET INCOME (LOSS) PER SHARE AVAILABLE
  TO COMMON SHAREHOLDERS:
  Basic................................. $   (0.64) $   (0.42) $    0.14
                                          =========  =========  =========
  Diluted............................... $   (0.64) $   (0.42) $    0.13
                                          =========  =========  =========
SHARES USED IN COMPUTATION:
  Basic.................................    16,317     16,262     15,728
                                          =========  =========  =========
  Diluted...............................    16,317     16,262     17,704
                                          =========  =========  =========See notes to consolidated financial statements.
**SIGMA DESIGNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED JANUARY 31, 2002, 2001 AND 2000
(In thousands)**
**Accumu-
                                                                                       lated
                                                                             Share-    Other                           Total
                                                                             holder   Compre-                         Compre-
                                   Preferred Stock     Common Stock          Notes    hensive    Accumu-              hensive
                                ------------------ -----------------------  Receiv-    Income     lated                Income
                                 Shares    Amount    Shares       Amount      able     (Loss)    Deficit     Total     (Loss)
                                --------  -------- -----------  ----------  --------  --------  ----------  --------  --------**
Balances, February 1, 1999.....   1,900  $  1,536  15,435,094  $   64,699  $    (12) $      -  $  (41,452) $ 24,771

Net income.....................       -         -           -           -         -         -       2,348     2,348  $  2,348
Unrealized gain on
  investments..................       -         -           -           -         -       142           -       142       142
                                                                                                                      --------
Comprehensive income...........                                                                                      $  2,490
                                                                                                                      ========
Common stock issued under
  stock plans..................       -         -     418,570         987         -         -           -       987
Exercise of common stock
  warrants.....................       -         -      40,000         207         -         -           -       207
Conversion of Series C
  preferred stock..............  (1,900)   (1,536)    330,416       1,536         -         -           -         -
Dividends on Series C
  preferred stock..............       -         -           -           -         -         -         (85)      (85)
Cancellation of Active
  Designs shares...............       -         -      (3,300)         (1)        1         -           -         -
Tax benefit of employee
  stock transactions...........       -         -           -          33         -         -           -        33
                                --------  -------- -----------  ----------  --------  --------  ----------  --------
Balances, January 31, 2000.....       -         -  16,220,780      67,461       (11)      142     (39,189)   28,403

Net loss.......................       -         -           -           -                          (6,868)   (6,868) $ (6,868)
Unrealized loss on investments.       -         -           -           -                (114)                 (114)     (114)
Accumulated translation
  adjustment...................       -         -           -           -                  26                    26        26
                                                                                                                      --------
Comprehensive loss.............                                                                                      $ (6,956)
                                                                                                                      ========
Common stock issued under
  stock plans..................       -         -     131,684         308         -         -           -       308
Exercise of common stock
  warrants.....................       -         -       5,000          26         -         -           -        26
Cancellation of Active
  Designs shares...............       -         -     (44,000)        (10)       10         -           -         -
                                --------  -------- -----------  ----------  --------  --------  ----------  --------
Balances, January 31, 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
                                ========  ======== ===========  ==========  ========  ========  ==========  ========
See notes to consolidated financial statements.
**SIGMA DESIGNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 2002, 2001 AND 2000
(In thousands)

2002      2001      2000
                                                    --------  --------  --------**
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)............................... $(10,392) $ (6,868) $  2,348
  Adjustments to reconcile net income (loss)
    to net cash provided by (used for)
    operating activities:
    Depreciation and amortization.................      665       789       720
    Loss on disposal of assets....................       22        13        22
    Other noncash expenses........................      927        51        --
    Changes in operating assets and liabilities:
      Accounts receivable.........................    2,954     7,931       595
      Inventories.................................    3,677      (137)    2,396
      Prepaid expenses and other..................     (225)      201       165
      Accounts payable............................   (1,308)      146    (1,832)
      Accrued liabilities and other...............     (116)      (59)      374
                                                    --------  --------  --------
       Net cash provided by (used for)
         operating activities.....................   (3,796)    2,067     4,788
                                                    --------  --------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Equipment additions.............................     (172)     (364)     (466)
  Proceeds from sales of equipment................       --        --        36
  Purchases of short-term investments.............   (6,773)  (37,636)  (29,118)
  Maturity of short-term investments..............   10,722    38,978    38,009
  Other assets....................................     (118)   (1,019)       42
                                                    --------  --------  --------
      Net cash provided by (used for)
        investing activities......................    3,659       (41)    8,503
                                                    --------  --------  --------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
  Bank line of credit borrowings, net.............       --       (41)   (1,675)
  Increase in restricted cash.....................       --        --   (12,000)
  Proceeds from sale of common stock..............      100       334     1,194
  Dividends paid..................................       --        --       (80)
  Repayment of capital lease obligations..........     (321)     (382)     (217)
                                                    --------  --------  --------
      Net cash used for
        financing activities......................     (221)      (89)  (12,778)
                                                    --------  --------  --------

Effect of exchange rates changes on cash..........       (8)       26        --
                                                    --------  --------  --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..     (366)    1,963       513

CASH AND CASH EQUIVALENTS:
  Beginning of year...............................    5,422     3,459     2,946
                                                    --------  --------  --------
  End of year..................................... $  5,056  $  5,422  $  3,459
                                                    ========  ========  ========

CASH PAID FOR INTEREST............................ $    584  $    916  $    707
                                                    ========  ========  ========

CASH PAID FOR INCOME TAXES........................ $      4  $      2  $     75
                                                    ========  ========  ========

NONCASH INVESTING AND FINANCING ACTIVITIES:
  Equipment acquired under capital leases......... $     --  $    541  $    244
                                                    ========  ========  ========

  Conversion of Series C preferred stock into
    common stock.................................. $     --  $     --  $  1,536
                                                    ========  ========  ========

  Cancellation of notes receivable and related
    common stock.................................. $      1  $     10  $      1
                                                    ========  ========  ========

  Tax benefit of employee stock transactions...... $     --  $     --  $     33
                                                    ========  ========  ========

  Conversion of investment in private equity
    securities into marketable equity securities.. $     --  $     --  $    100
                                                    ========  ========  ========See notes to consolidated financial statements.
**SIGMA DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2002, 2001 AND 2000**1.	NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Sigma Designs, Inc. (the Company) develops,
manufactures and markets multimedia computer devices and products.  The Company
sells its products to computer 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 financial statements
are shown as ending January 31, although the fiscal years ended on February
2, 2002, February 3, 2001, and January 29, 2000, respectively.  Fiscal 2001
included 53 weeks, and fiscal 2002 and 2000 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.
Concentration of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents, short-term investments and accounts
receivable.  The majority of the Company's cash and cash equivalents are on
deposit with one financial institution.  The Company's short-term investments
are managed by a major domestic financial institution, in a portfolio with
defined investment objectives of competitive money market returns, high
liquidity and safety of capital.  Its portfolio of short-term investments
typically includes United States government obligations and corporate
obligations.  From time to time, the Company also makes investments in
certificates of deposit with financial institutions, outside of its third-party
managed portfolio.  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.
Short-Term Investments - The Company's short-term investments
represent debt securities which are stated at fair value. All short-term
investments are classified as available-for-sale.  Any temporary difference
between an investment's cost and its market value is recorded as a separate
component of shareholders' equity until such gains and losses are realized.
Available-for-sale securities are classified in the balance sheet based on
management's current intended use for the securities.  Gains and losses on the
sale of securities are computed using the specific identification method.
Inventories are stated at the lower of cost (first-in, first-
out) or market.
Restricted Cash represents funds on deposit in accounts which
have been assigned to the Company's lender under a bank line of credit (see note
6).
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. Included in other income
(expense) for fiscal 2002 is a $927,000 charge related to impairment of an investment
accounted for under the cost method.
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.
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.
Revenue Recognition - Revenues consist of product and
development revenue. Revenues from product sales to OEMs, distributors and end
users are generally recognized upon shipment, except that revenues are deferred when the Company cannot reasonably
estimate the amount of returns or where collectibility is not assured; deferred revenue is
recognized when collection subsequently becomes probable and returns are estimable
(generally upon resale by customers). Allowances for sales returns, price protection and
warranty costs are recorded at the time that revenues are recognized.
Revenues from product development agreements are recognized using 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 $406,000, $1,852,000, and
$60,000 for fiscal 2002, 2001 and 2000, 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.  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 all of its interpretations and presents pro forma disclosures
required by Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation."
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 which requires that the fair value of such instruments be recognized
as an expense over the period in which the related services are received.
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 income (expenses) 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 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 7).
Fair Value of Financial Instruments - The Company believes that carrying amounts reported in the balance
sheet for cash, cash equivalents, restricted cash, investments and line of credit borrowings as of January 31, 2002
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 12).
Derivatives - In June 1998, the Financial Accounting Standards
Board, or the FASB, issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires companies to
record derivatives on the balance sheet as assets and liabilities, measured at
fair value. Gains and losses resulting from changes in the fair market values of
those derivative instruments would be accounted for depending on the use of the
instrument and whether it qualifies for hedge accounting. The Company adopted
SFAS No. 133, as amended, on February 1, 2001. The adoption of this statement
did not have an effect on the Company's financial position, results of
operations or cash flows as the Company had no derivative financial instruments
as of January 31, 2002 and historically has not entered into any derivative
transactions.
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, 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 - On July 20, 2001, the FASB
issued SFAS No. 141, "Business Combinations", and SFAS No. 142,
"Goodwill and Other Intangible Assets". SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under the
purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to the acquisition. SFAS No. 142 provides
that intangible assets with finite useful lives be amortized. However, goodwill
and intangible assets with indefinite lives will no longer be amortized, but
will be tested at least annually for impairment. The Company is required to
adopt SFAS No. 142 effective February 1, 2002 and does not expect the effect of
adoption to have a material impact on the Company's financial position, results
of operations or cash flows.
In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for Impairment of Long-Lived Assets."  SFAS No. 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of", and addresses financial accounting and
reporting for the impairment or disposal of long-lived assets.  This statement
is effective for fiscal years beginning after December 15, 2001.  The Company is
required to adopt SFAS No. 144 on February 1, 2002.  The adoption of this
statement is not expected to have a material impact on the Company's
consolidated financial position, results of operations or cash flows.

2.	SHORT-TERM INVESTMENTS
Short-term investments included the following securities and gross
unrealized losses and gains as of January 31, 2002 and 2001 (in thousands).
Fair values are based on quoted market prices obtained from the Company's
broker.  All of the Company's short-term investments are classified as available
for sale, since the Company intends to sell them as needed for operations. All
of the Company's short-term investments mature in fiscal 2003.

**Unrealized  Unrealized
                                           Loss on     Gain on
                                           Invest-     Invest-     Market
                                 Cost        ment        ment       Value
                               ---------  ----------  ----------  ---------**
January 31, 2002:
  Corporate debt securities..      $930          $0         $13       $943
                               =========  ==========  ==========  =========

January 31, 2001:
  Corporate debt securities..    $4,879          $0         $28     $4,907
                               =========  ==========  ==========  =========

**3.    INVENTORIES**Inventories at January 31 consist of (in thousands):**2002       2001
                                                     ---------- ----------**
      Raw materials.................................    $1,568     $3,635
      Work in process...............................     1,338      2,325
      Finished goods................................     1,576      2,199
                                                     ---------- ----------
      Inventories - net.............................    $4,482     $8,159
                                                     ========== ==========


**4.    EQUIPMENT**Equipment at January 31 consists of (in thousands):**2002       2001
                                                     ---------- ----------**
      Computers and test equipment..................    $4,387     $4,299
      Furniture and fixtures........................       654        622
      Other.........................................       119        101
                                                     ---------- ----------
      Total.........................................     5,160      5,022
      Accumulated depreciation and amortization.....    (4,329)    (3,676)
                                                     ---------- ----------
      Equipment - net...............................      $831     $1,346
                                                     ========== ==========

At January 31, 2002 and 2001, equipment with
a net book value of $361,000 and $671,000 (net of accumulated
amortization of $1,118,000 and $808,000, respectively), has been leased
under capital leases.


**5.    ACCRUED  LIABILITIES**Accrued liabilities at January 31 consist of (in thousands):**2002       2001**
                                                     ---------- ----------
      Accrued salary and benefits...................      $509       $539
      Other accrued liabilities.....................       827        909
                                                     ---------- ----------
      Total.........................................    $1,336     $1,448
                                                     ========== ==========




6.	BANK  LINES  OF  CREDIT
The Company has $12,000,000 outstanding at January 31,
2002 under a $12,000,000 bank line of credit that expires in October 2002, bears
interest at the U.S. Treasury Bill rate (1.48% at January 31, 2002) plus 0.85%,
and is collateralized by funds on deposit in accounts which have been assigned
to the lender and included in the Company's consolidated balance sheet as of
January 31, 2002 as restricted cash.
The Company also has a $6,000,000 bank line of credit that
expires in October 2002, and is collateralized by the Company's accounts
receivable, inventories, equipment and intangibles.  The Company has $178,000 of
standby letters of credit outstanding as of January 31, 2002 under the same bank
line of credit. Borrowings under this line of credit are generally limited to
maximum 70% of eligible accounts receivable (as defined). Availability to
utilize this $6,000,000 bank line of credit is dependent on the Company's ability
to maintain compliance with covenants under the amended bank line of credit
agreement.
The line of credit agreement contains certain covenants that,
among other things, require the Company to maintain certain levels of tangible
net worth plus subordinated debt (Tangible Net Worth). At January 31, 2002, the Company was required
to maintain Tangible Net Worth of at least $11,500,000 and was not in compliance with this covenant.
In April 2002, the Company obtained a modification to the line of credit
agreement to amend this covenant to $10,500,000.
7.	SHAREHOLDERS' EQUITY
Preferred Stock
At January 31, 2000, warrants to purchase 64,285
shares of the Company's common stock issued in connection with the issuance of
Series A nonvoting cumulative preferred stock were outstanding.  The
warrants were exercisable at $5.16 per share beginning in January 1998 and
expired in fiscal 2001.
During fiscal 1999, the Company issued 5,000 shares of
Series B nonvoting convertible preferred stock for $1,000 per share and
warrants to purchase 50,000 shares of the Company's common stock.  The warrants
are exercisable at $5.16 per share and expired on April 30, 2001.
During fiscal 1999, the Company issued 1,900 shares of
Series C nonvoting convertible preferred stock for $1,000 per share and
warrants to purchase 95,000 shares of the Company's common stock at $5.16 per
shares. In fiscal 2001 and 2000, warrants to purchase 5,000 and 40,000 shares of
the Company's common stock were exercised for proceeds of approximately $26,000
and $207,000 respectively.   The unexercised warrants expired in fiscal 2001.
Common Stock
The Company's common shareholders' rights agreement
expired in fiscal 2000.
During fiscal year 2002, the Company increased the number of
authorized shares of common stock by 15,000,000 shares from 20,000,000 to a
total of 35,000,000 shares.
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,
                                          --------------------- ---------
                                            2002       2001       2000
                                          ---------  ---------  ---------**
Numerator:
  Net income (loss) available to
    common shareholders, basic
    and diluted......................... $($10,392) $ ($6,868) $  $2,263
                                          ---------  ---------  ---------
Denominator:
  Weighted average common shares
     outstanding........................    16,318     16,305     15,784
  Weighted average common shares
     outstanding subject to repurchase..        (1)       (43)       (56)
                                          ---------  ---------  ---------
Shares used in computation, basic.......    16,317     16,262     15,728

Effect of dilutive securities:
  Common shares subject to repurchase...        --         --         56
  Stock options.........................        --         --      1,876
  Warrants..............................        --         --         44
                                          ---------  ---------  ---------
Shares used in computation, diluted.....    16,317     16,262     17,704
                                          ---------  ---------  ---------

Net income (loss) per share:
  Basic................................. $   (0.64) $   (0.42) $    0.14
                                          =========  =========  =========
  Diluted............................... $   (0.64) $   (0.42) $    0.13
                                          =========  =========  =========

The Company excluded certain potentially dilutive securities
in fiscal 2002 and 2001 from its dilutive EPS computation because either the
exercise price of the securities exceeded the average fair values of the
Company's common stock or the Company had net losses, and, therefore, these
securities were antidilutive.
A summary of the excluded potential dilutive securities as of
the end of each fiscal year follows (in thousands):

**Years Ended January 31,
                                          --------------------- ---------
                                            2002       2001       2000
                                          ---------  ---------  ---------**
Common shares subject to repurchase.....        --          5         --
Stock options...........................     4,108      3,421         --
Stock warrants..........................        --         50         --


Stock Option 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 an automatic annual increase 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. The annual increases begin in
the fiscal year beginning 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, 2002 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, 1999 (1,090,538
        exercisable at a weighted-average price
        of $2.36).....................................   3,029,895      $2.25

      Granted (weighted-average fair value of $4.09)..     335,500       5.70
      Canceled........................................    (154,003)      2.40
      Exercised.......................................    (375,316)      2.23
                                                        ----------- ----------
      Balances, January 31, 2000 (1,360,270
        exercisable at a weighted-average price
        of $2.37).....................................   2,836,076       2.65

      Granted (weighted-average fair value of $2.59)..     960,500       3.57
      Canceled........................................    (278,855)      3.79
      Exercised.......................................     (96,540)      2.34
                                                        ----------- ----------
      Balances, January 31, 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......................   4,107,969      $2.51
                                                        =========== ==========
At January 31, 2002, options to purchase 34,064 shares were
available for future grant. Effective at the beginning of fiscal 2003, an
additional 655,122 shares resulting from the automatic annual increase of 4% of
the Company's outstanding common stock was 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           2002        Life       Price       2002       Price
-------------------- ----------- ----------- ---------- ----------- ----------**
       $0.09              6,572        0.86      $0.09       6,572      $0.09
   $1.00 - $1.25      1,151,716        8.69      $1.16     239,437      $1.01
   $1.63 - $2.44      1,469,360        5.52      $2.28   1,312,565      $2.31
   $2.56 - $3.81        986,988        7.07      $3.15     569,884      $3.01
   $4.25 - $6.38        493,333        7.75      $5.06     213,580      $5.14
-------------------- -----------                        -----------
   $0.09 - $6.38      4,107,969        7.04      $2.51   2,342,038      $2.60
==================== ===========                        ===========



The Company uses the intrinsic value method specified by APB
No. 25 to calculate compensation expense associated with issuing stock
options and, accordingly, has recorded no such expense through January 31, 2002
as such issuances have been at the fair value of the Company's common stock at
the date of grant.
SFAS No. 123, "Accounting for Stock-Based
Compensation," requires the disclosure of pro forma net income and
earnings per share had the Company adopted the fair value method as of the
beginning of fiscal 1996.  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 calculations were made using the Black-Scholes option pricing model
with the following weighted average assumptions for fiscal 2002, 2001 and 2000,
respectively: expected life, 18, 18 and 19 months following vesting; stock
volatility, 104%, 100% and 97%; risk free interest rates, 4.67%, 4.84% and 5.5%;
and no dividends during the expected term.  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) available to
common shareholders would have been (in thousands, except per share
amounts):

**Years Ended January 31,
                                          --------------------- ---------
                                            2002       2001       2000
                                          ---------  ---------  ---------**
  Net income (loss) available to
    common shareholders:
    As reported......................... $ (10,392) $  (6,868) $   2,263
                                          =========  =========  =========

    Pro forma........................... $ (11,635) $  (8,317) $   1,279
                                          =========  =========  =========

  Net income (loss) per share
    available to common shareholders:

    As reported:
      Basic............................. $   (0.64) $   (0.42) $    0.14
                                          =========  =========  =========
      Diluted........................... $   (0.64) $   (0.42) $    0.13
                                          =========  =========  =========

    Pro forma:
      Basic............................. $   (0.71) $   (0.51) $    0.08
                                          =========  =========  =========
      Diluted........................... $   (0.71) $   (0.51) $    0.07
                                          =========  =========  =========

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. The Company's 1986 Employee
Stock Purchase Plan (1986 ESPP) provided for the sale of up to 300,000 shares of
common stock. At January 31, 2001, all shares authorized for issuance under 1986
ESPP had been issued. Under both plans, 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 2002, 2001 and 2000, 68,034, 35,144, and 43,254
shares were purchased at an average price of $1.45, $2.34, and $3.45 per share,
respectively. At January 31, 2002, 31,966 shares under 2001 Purchase Plan remain
available for future purchase. Effective at the beginning of fiscal 2003, an
additional 327,561 shares was added to the shares available for issuance under
the 2001 purchase plan resulting from the automatic annual increase of 2% of the
Company's outstanding common stock.
8.	INCOME TAXES
As a result of net losses and net operating loss
carryforwards in fiscal 2002, 2001 and 2000, the Company has recorded no
material income tax provision for all years presented.
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,
                                                            -------------------
                                                              2002      2001
                                                            --------- ---------**
      Deferred tax assets:
        Net operating losses and tax credit carryforwards..  $25,333   $21,725
        Reserves not currently deductible..................    2,739     2,311
        Capitalized research and development expenditures..    1,027       713
        Other..............................................      153        61
                                                            --------- ---------
                                                              29,252    24,810
      Valuation allowance..................................  (29,252)  (24,810)
                                                            --------- ---------
      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
appropriate and, accordingly, has provided a valuation allowance.
Net operating losses and tax credit carryforwards as of
January 31, 2002 are as follows (in thousands):

**Expiration
                                            Amount           Years
                                           ---------  --------- ----------**
      Net operating losses, federal....   $  57,859       2009  -2021
      Net operating losses, state......       2,635       2002  -2006
      Tax credits, federal.............       2,256       2006  -2021
      Tax credits, state...............       1,739             -
      Net operating losses, foreign....       5,016             -


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 for income taxes differs
from the federal statutory rate as follows (in thousands):

**2002       2001       2000
                                           ---------  ---------  ---------
                                                     (in thousands)**
      Computed at 35%...................  $  (3,636) $  (2,402) $     842
      State taxes, expiration of net
        operating loss carryforwards....  $       2  $       1  $     226
      Valuation allowance...............      3,781      2,550     (1,386)
      Other.............................       (143)      (147)       378
                                           ---------  ---------  ---------
      Total.............................  $       4  $       2  $      60
                                           =========  =========  =========

9. COMMITMENTS AND LEASES
Leases - The Company's primary facilities are
leased under a noncancelable lease which expires in September 2002.  Currently,
we are in the process of negotiating a five-year lease of an approximately
40,000 square foot facility in Milpitas, California. 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
      -------------------------------                ---------- ----------**
           2003.....................................      $264       $239
           2004.....................................       119         --
           2005.....................................        --         --
                                                     ---------- ----------
      Total minimum lease payments..................       383       $239
      Amount representing interest at a rates                   ==========
        of 7.84% to 10.32%..........................       (26)
                                                     ----------
      Present value of minimum lease payments.......       357
      Current portion...............................      (244)
                                                     ----------
      Long-term portion.............................      $113
                                                     ==========



Rent expense was $504,000, $482,000, and $448,000 for fiscal
2002, 2001 and 2000, respectively.
Royalties - The Company pays royalties for the
right to sell certain products under various license agreements.  During fiscal
2002, 2001 and 2000, the Company recorded royalty expense of $85,000, $491,000,
and $732,000, 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 has been made by the Company.

10. MAJOR CUSTOMERS
Three domestic customers accounted for 15%, 14% and 11%
of net revenues in fiscal 2002, respectively. No domestic customer accounted for
more than 10% of net revenues in fiscal 2001 and 2000. During fiscal 2002, no
international customers accounted for more than 10% of net revenues. During
fiscal 2001, three international customers accounted for 15%, 14% and 11% of net
revenues, respectively.  During fiscal 2000, two international customers
accounted for 26% and 13% of net revenues, respectively.
11. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss), which is displayed in the
Consolidated Statements of Shareholders' Equity, represents net income (loss)
available to common shareholders plus the results of certain shareholders'
equity changes not reflected in the Consolidated Statements of Operations.
The components of accumulated other comprehensive income
(loss) are as follows (in thousands):

**Total
                                                               Accumulated
                                                   Unrealized     Other
                                      Accumulated   Holding    Comprehensive
                                      Translation    Gains/      Income/
                                      Adjustment    (Losses)      (Loss)
                                      -----------  ----------  ------------**
Beginning Balance, February 1, 1999. $        --  $       --  $         --
Current Year Change.................          --         142           142
                                      -----------  ----------  ------------
Ending Balance, January 31, 2000....          --         142           142
Current Year Change.................          26        (114)          (88)
                                      -----------  ----------  ------------
Ending Balance, January 31, 2001....          26          28            54
Current Year Change.................          (8)        (15)          (23)
                                      -----------  ----------  ------------
Ending Balance, January 31, 2002.... $        18  $       13  $         31
                                      ===========  ==========  ============


12. 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.
For the years ended January 31, 2002, 2001 and 2000, the
Company recorded sales to customers throughout the United States and Canada,
Taiwan, Hong Kong, Singapore, Japan; Germany, Belgium, Denmark, Finland, The
Netherlands, Norway, Sweden, The United Kingdom, France, Italy, Spain
(collectively referred to as "Europe"); Korea, China, Thailand, New
Zealand, Turkey, Israel and South Africa (collectively "Rest of Asia/New
Zealand/Other Region")

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):

**2002       2001       2000
                                             ---------  ---------  ---------**
Net revenues:
  United States..........................   $   7,750  $  10,241  $  16,535
  Europe.................................       2,401      1,574      4,114
  Taiwan.................................       1,298      5,469     15,021
  Rest of Asia/New Zealand/Other Region..         887        997      2,021
  Hong Kong..............................         811      2,916      2,754
  Japan..................................         191      3,330      1,375
  Singapore..............................          87      4,933      8,208
  Canada.................................          12         16        296
                                             ---------  ---------  ---------
Total net revenues*......................   $  13,437  $  29,476  $  50,324
                                             =========  =========  =========

Long-lived assets:
  United States..........................   $     807  $   1,331  $   1,218
  Hong Kong..............................          16         --          4
  France.................................           8         15         21
                                             ---------  ---------  ---------
Total long-lived assets..................   $     831  $   1,346  $   1,243
                                             =========  =========  =========

* Net revenues are attributed to countries based on invoicing location of customer.13. SELECTED QUARTERLY OPERATING RESULTS (UNAUDITED)

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, 2002:

Net revenues...........................  $  3,222  $  2,982  $  3,416  $  3,817
Income (loss) from operations..........    (2,674)   (2,713)   (1,703)   (2,581)
Net income (loss) available to common
  shareholders.........................    (2,614)   (2,610)   (1,666)   (3,502)
Net income (loss) per share available
  to common shareholders:
  Basic................................  $  (0.16) $  (0.16) $  (0.10) $  (0.21)
  Diluted..............................  $  (0.16) $  (0.16) $  (0.10) $  (0.21)

Year ended January 31, 2001:

Net revenues...........................  $ 10,401  $ 10,663  $  5,479  $  2,933
Income (loss) from operations..........       101       419      (795)   (6,958)
Net income (loss) available to common
  shareholders.........................       189       482      (665)   (6,874)
Net income (loss) per share available to
  common shareholders:
  Basic................................  $   0.01  $   0.03  $  (0.04) $  (0.42)
  Diluted..............................  $   0.01  $   0.03  $  (0.04) $  (0.42)


**SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Balance                Deductions:    Balance
                                   at                     Write         at
                               Beginning                 Offs of      End of
       Classification           of Year     Additions  Accounts(1)     Year
----------------------------- ------------ ----------- ------------ -----------
                                              (in thousands)**
Allowance for returns and
 doubtful accounts, price
 protection, and sales
 returns:
  Year ended January 31,
  2002......................        $2,124     	   $60        $520       $1,664
  2001......................           414       2,152         442        2,124
  2000......................         3,306         274       3,166          414

Inventory reserves:
  Year ended January 31,
  2002......................        $4,091      $1,398         $21       $5,468
  2001......................         3,215       1,941       1,065        4,091
  2000......................         1,943       1,350          78        3,215

____________________(1) Amount written off, net of recoveries for accounts receivable.


**INDEX TO EXHIBITS**

 Exhibit
 Number                      Exhibit Description
-------- -----------------------------------------------------------
2.1(7)   Agreement and Plan of Reorganization by and among the Registrant,
         Sigma Acquisition Corporation and Active Design Corp. dated as of
         April 23, 1996.

3.1(1)   Second Restated Articles of Incorporation, as amended.

3.2(12)  Certificate of Amendment to  the Second Restated Articles of
         Incorporation dated June 22, 2001.

3.3(8)   Certificate of Determination of Preferences of Series A Preferred
         Stock.

3.4(9)   Certificate of Determination of Preferences of Series B Preferred
         Stock.

3.5(10)  Certificate of Determination of Preferences of Series C Preferred
         Stock.

3.6(2)   Bylaws of Registrant, as amended.

4.1(10)  Form of Subscription Agreement by and between the Company and the
         purchasers of the Series C Preferred Stock and warrants.

4.2(10)  Form of Registration Rights Agreement by and between the Company
         and the purchasers of the Series C Preferred Stock and warrants.

4.3(10)  Form of Stock Purchase Warrant.

10.1(3)  Distribution Agreement dated September 10, 1985.

10.2(4)  Registrant's 1986 Employee Stock Purchase Plan, as amended, and
         form of Subscription Agreement.

10.6     Sublease between the Registrant and Sun Microsystems, Inc.

10.7(5)  Registrant's 1994 Stock Plan and form of Stock Option Agreement.

10.8(6)  Registrant's 1994 Director Stock Option Plan and form of Director
         Option Agreement.

10.9(11) Registrant's 1995 Business Loan Agreement with Silicon Valley
         Bank, as amended.

10.10(12)Registrant's 2001 Employee Stock Option Plan.

10.11(12)Registrant's 2001 Employee Stock Purchase Plan and Form of
         Subscription Agreement.

10.12    Registrant's 2001 Loan and Security Agreement with Silicon Valley
         Bank, as amended

23.1     Independent Auditors' Consent.

24.1     Power of Attorney (See page 25).

27       Financial Data Schedule.


     (1) Incorporated by reference to exhibit filed with the Registrant's
         Annual Report on Form 10-K for the fiscal year ended January 31,
         1988.

     (2) Incorporated by reference to exhibit filed with the Registrant's
         Annual Report on Form 10-K for the fiscal year ended January 31,
         1989.

     (3) Incorporated by reference to exhibit filed with the Registrant's
         Registration Statement on Form S-1 (No. 33-4131) filed 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.

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

     (5) Incorporated by reference to exhibit filed with the Registrant's
         Registration Statement on Form S-8 (No. 33-81914) filed July 25,
         1994.

     (6) 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.

     (7) Incorporated by reference to exhibit filed with the Registrant's
         Annual Report on Form 10-K for the fiscal year ended January 31,
         1996.

     (8) Incorporated by reference to exhibit filed with the Registrant's
         Registration Statement on Form S-3 (No. 333-33147) filed on August
         7, 1997.

     (9) Incorporated by reference to exhibit filed with the Registrant's
         Registration Statement on Form S-3 (No. 333-47835) filed on March
         12, 1998.

    (10) Incorporated by reference to exhibit filed with the Registrant's
         Registration Statement on Form S-3 (No. 333-77595) filed on
         May 3, 1999.

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

    (12) Incorporated by reference to exhibit filed with the Registrant's
         Registration Statement on Form S-8 (No. 333-64234) filed on June
         29, 2001.
- our new product introductions and product introductions
by our competitors;
- market acceptance of our products by OEMs, software
developers and end users;
- the success of our promotional programs;
- gains or losses of our significant customers;
- shifts in demand for technology embodied in our
products;
- reductions in selling prices;
- inventory obsolescence;
- write-downs of accounts receivable;
- an interrupted or inadequate supply of semiconductor
chips;
- our ability to protect our intellectual property;
- loss of our key personnel;
- technical problems causing shipping delays;
- availability of third-party manufacturing capacity;
and
- the effect of the terrorist attacks in the United States
and any related conflicts or similar events worldwide.
In addition, sales to OEM customers are subject to
significant variability from quarter to quarter.  This variability depends on
OEMs' timing and release of products that incorporate our REALmagic technology,
experience with sales of these products and inventory levels.
The market for consumer electronics products is characterized
by significant seasonal swings in demand. Demand typically peaks in the fourth
calendar quarter of each year.  We expect to derive a substantial portion of our
revenues from the sales of REALmagic products in the future.  The demand for our
products will depend in part on the success of digital video technology.  In
light of this, our revenues may vary with the availability of and demand for DVD
titles.  This demand may increase or decrease as a result of a number of factors
that cannot be predicted, such as consumer preferences and product announcements
by competitors.
Announcements of directly competing products will likely have
a negative effect on our operating results.  Based on our experience, we believe
that a substantial portion of our shipments will occur in the third month of a
quarter, with significant shipments completed in the latter part of the third
month.  This shipment pattern causes our operating results to be difficult to
predict.  Currently, we place orders to purchase semiconductor products from our
foundries with a long lead-time.  If, as a result of inaccurate forecasts or
cancelled purchase orders, our anticipated sales and shipments in any quarter do
not occur when expected, our inventory levels could be disproportionately high.
This would require significant working capital and harm our operating
results.
We face many risks because of our heavy reliance on
certain manufacturers and suppliers that could harm our business and financial
condition.
Our REALmagic products and components are presently
manufactured 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; andreduced control over delivery schedules, manufacturing
yields and costs.We obtain some of our components from a single source. In
fiscal 2000 we experienced a delay and interruption from our source due to the
earthquake in Taiwan in October 1999.  We estimate that this event resulted in
lost sales of about $2.5 million. 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 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. The multimedia PC industry is
characterized by high employee mobility and aggressive recruiting of skilled
personnel. 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 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 seventeen 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 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 international operations are subject to certain
risks.
During fiscal 2002, 2001, and 2000, sales to
international customers accounted for approximately 42%, 65%, and 67% of our
total net revenues, respectively. We anticipate that sales to international
customers, including sales of REALmagic products, will continue to account for a
substantial percentage of our net revenues.  Also, some of the foundries that
manufacture our products and components are located in Asia.  Overseas sales and
purchases to date have been denominated in U.S. dollars.
Due to the concentration of international sales and the
manufacturing capacity in 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.  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 has recently been subject to increased
levels of economic instability, and this instability could seriously harm our
results of operations.
Our stock price may be volatile.
The market of our common stock has been subject to
significant volatility.  This volatility 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; andmarket 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 and development stage 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.
EXECUTIVE OFFICERS OF THE COMPANY
Our executive officers and directors and their ages as of
April 1, 2002 are as follows:**Name            Age                    Position
-------------------------- ---- ---------------------------------------------**
Thinh Q. Tran               48  Chairman of the Board, President, and Chief
                                Executive Officer
Silvio Perich               53  Senior Vice President, Worldwide Sales
Jacques Martinella          46  Vice President, Engineering
Kenneth Lowe                46  Vice President, Business Development
Kit Tsui                    52  Chief Financial Officer, and Secretary
William J. Almon(1)(2)      69  Director
William Wang(1)(2)          38  Director
Julien Nguyen(1)            45  Director
______________

(1)	Member of the Audit Committee
(2)	Member of the Compensation CommitteeMr. 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, Business
Development. 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 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.
Mr. Almon has served as a Director of Sigma since April
1994.  Mr. Almon also serves as a Director of Read-Rite Corporation, and Exabyte
Corporation. Mr. Almon is currently Managing Director of Finaline Technology, a
business software company. Prior to that Mr. Almon was Managing Director of
Netfish Technology from 1999 to May 2001 when it was acquired by Iona
Technologies PLC. He was Chairman of the Board of InterNet Image, an internet
software company that was merged with Intraware Inc. in October 1999.  In May
1994, Mr. Almon founded and served as Chairman of the Board and Chief Executive
Officer of StorMedia, Inc., a manufacturer of thin film disks.  From December
1989 until February 1993, Mr. Almon served as President and Chief Executive
Officer of Conner Peripherals, Inc., a manufacturer of computer disk drives and
storage management devices.  Prior to 1987, Mr. Almon spent 30 years with
IBM Corporation, holding executive positions in both software and hardware
management, most recently as Vice President, Low End Storage Products.
Mr. Wang became a Director of Sigma in October 1995.
From January 1995 to the present, Mr. Wang has served as Chairman of the
Board, Chief Executive Officer and President of Princeton Graphic Systems, a
supplier of computer monitors, and has served since January 1996 as a Director
of Diva Labs.  From 1990 to April 1997, Mr. Wang served as Chairman of the
Board and Chief Executive Officer of MAG Innovision Co., Inc., a supplier of
computer monitors.  From 1986 until 1990, Mr. Wang worked at Tatung Company
of America in the Video Display Division
Mr. Nguyen became a Director of Sigma in May 2000.  Mr.
Nguyen is Managing Partner of Applied Materials Ventures, a corporate venture
fund.  Mr. Nguyen co-founded and was the Chairman of ezlogin, a developer of
personalization infrastructure tools for internet sites and wireless carriers.
Prior to ezlogin, Mr. Nguyen founded Novita Communications, and served as its
Chief Executive Officer. Novita developed Java-based communications software and
services.  In 1998, Novita was acquired by PlanetWeb. From February 1995 to
October 1996, Mr. Nguyen served as Co-Chairman and Chief Technical Officer of
the Company. From August 1993 until January 1995, he served as Vice President,
Engineering and Chief Technical Officer of the Company.  From May 1992 until
October 1993, Mr. Nguyen was President and Chief Executive of E-Motions, which
was acquired by the Company in 1993. Prior to founding E-Motions, Mr. Nguyen
worked at Radius Inc. as Director of Product Development and was in charge of
all product development for five years.   Mr. Nguyen also serves as an observer
on the boards of Zepton Networks, Siros Technologies, GlimmerGlass Networks.


ITEM 2.	FACILITIES
We currently lease a 25,000 square foot facility in
Milpitas, California that is used as our headquarters.  The lease will expire in
September 2002.  We also lease facilities for sales offices in Hong Kong and
Shenzhen China, and for research and development near Paris, France.  Currently,
we are in the process of negotiating a five-year lease of approximately 40,000
square foot facility in Milpitas, California. We believe that the new facility
would be adequate to accommodate our operations in the near term.


ITEM 3.	LEGAL PROCEEDINGS
None.

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.PART II
ITEM 5.	MARKET FOR SIGMA DESIGNS' COMMON STOCK
Our common stock trades on the Nasdaq Stock Market's
Nasdaq National Market under the trading symbol  "SIGM". The table
below sets forth the high and low sales prices per share of our common stock for
the periods indicated.

**Fiscal 2002     Fiscal 2001
                                   -------------   --------------
                                    High   Low      High    Low
                                   ------ ------   ------ -------**
First quarter ended April 30.....   2.56   1.13    11.38    3.94
Second quarter ended July 31.....   3.18   1.37     7.13    3.50
Third quarter ended October 31...   1.97   0.83     6.44    2.13
Fourth quarter ended January 31..   2.72   1.10     3.97    1.03


As of April 22, 2002, we had 228shareholders of record.  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. 

ITEM 6.	SELECTED CONSOLIDATED 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 and notes thereto, and with Management's
Discussion and Analysis of Financial Condition and Results of
Operations.


**Year ended January 31,       2002      2001      2000      1999      1998
-------------------------  --------  --------  --------  --------  --------
                               (In thousands, except per share data)**
Net revenues..........     $13,437   $29,476   $50,324   $43,540   $36,982

Net income (loss)
 available to
 common shareholders..     (10,392)   (6,868)    2,263    (2,690)   (5,648)

Diluted net income
 (loss) per share
 available to
 common shareholders..       (0.64)    (0.42)     0.13     (0.21)    (0.51)

Working capital.......      10,475    19,706    27,092    23,578    18,960

Total assets..........      26,274    38,334    44,751    44,220    38,329

Shareholders' equity..      11,466    21,781    28,403    24,771    20,312


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 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 "FACTORS AFFECTING FUTURE OPERATING
RESULTS".
Results of Operations
For the fiscal year ended January 31, 2002, our net
revenues decreased 54% to $13.4 million from $29.5 million reported for fiscal
2001.   This decrease in revenues was primarily attributable to the continuing
slowdown of the general economic conditions, and the continuing decline in
demand for our MPEG chipset and board products in PC add-in market due to the
prevalence of DVD-enabling software provided as original equipment in many PCs.
Even though overall total net revenues from sales of MPEG chipset and board
products were significantly decreased year-over-year, revenues from sales of our
new streaming video console and board products to commercial streaming video
market and sales of our chipset products to consumer appliance market increased
in fiscal 2002 as compared to fiscal 2001. Our revenues from sales of streaming
video console and board products for the commercial steaming video market and
sales of chipset products in the set top boxes for the consumer appliance market
represented a relatively significant portion of our total net revenues while our
revenues from sales of chipset and board products to PC add-in market
represented a relatively insignificant portion of our total net revenues for
fiscal 2002. The continuing decline in demand for chipsets and boards in PC
add-in market, the slower than anticipated emergence of the set top box market, and
delays in the deployment of streaming video applications which utilize our
products may continue. Should they continue, this decline and these delays would
continue to reduce our revenues and harm our business.
Net loss for the fiscal year ended January 31, 2002 was $10.4
million as compared to net loss of $6.9 million for the prior fiscal year.  The
net loss for fiscal 2002 was primarily caused by the decline in revenues. The
net loss for fiscal 2002 included a charge of approximately $927,000 of
impairment losses related to an investment of a start-up company, and a specific
provision for bad debt allowance in the amount of approximately $121,000 (net of
recovery $329,000) due to collectibility issues relating to one of our
customers. The net loss for fiscal 2001 included a charge of $1.9 million to
write down certain PC-DVD and video networking related inventories due to the
decline in demand for those products, and a provision for bad debt allowance in
the amount of $2.2 million due to collectibility issues relating to one of our
customers and non-payment by another customer for customization services
that we provided.
The following table shows certain items as a percentage of
net revenues, which are included in our Consolidated Statement of
Operations:

**Fiscal     Fiscal     Fiscal
                                            2002       2001       2000
                                          ---------  ---------  ---------**
Net revenues............................       100%       100%       100%
Cost of revenues........................        59%        70%        69%
                                          ---------  ---------  ---------
Gross margin............................        41%        30%        31%
Operating expenses:
  Research and development..............        60%        25%        13%
  Sales and marketing...................        32%        14%         9%
  General and administrative............        21%        15%         6%
Other (income) expense..................         5%        -1%        -1%
                                          ---------  ---------  ---------
Net income (loss).......................       -77%       -23%         5%
Dividends on preferred stock............        --         --         -1%
                                          ---------  ---------  ---------
Net income (loss) available to
     common shareholders................       -77%       -23%         4%
                                          =========  =========  =========

Net Revenues
The following table sets forth our net revenues in each
product group for the last three years:

**(Dollars in thousands)             Fiscal 2002    Fiscal 2001    Fiscal 2000
                                 -------------- -------------- --------------**

Boards....................         $6,961   52%  $13,575   46%  $22,940   46%
Chipsets..................          3,858   29%   12,936   44%   25,831   51%
Other.....................          2,618   19%    2,965   10%    1,553    3%
                                 ---------      ---------      ---------
  TOTAL NET REVENUES......        $13,437        $29,476        $50,324
                                 =========      =========      =========


Our board level product lines are targeted at OEM customers
to address the DVD upgrade market and system integrators to address the
computer-based training, kiosks, and corporate video-on-demand markets. Our
chipsets are targeted toward manufacturers and large volume OEM customers
building interactive multimedia products for business and consumer markets.  The
"other" category includes our new product, Netstream consoles for the
commercial streaming video market, set-top box products and accessories targeted
at the consumer internet information appliance market - a market which we
entered in fiscal 2000, and development revenues under agreements for the
customization of certain MPEG decoding chips. The costs related to development
revenues were included in research and development expenses.
The table below sets forth our revenues by market segment for
each of the last three fiscal years:

**(Dollars in thousands)             Fiscal 2002    Fiscal 2001    Fiscal 2000
                                 -------------- -------------- --------------**

Commercial streaming video market  $6,944   52%   $6,673   23%  $12,012   24%
Consumer appliance market.....      3,921   29%    2,775    9%    1,180    2%
PC add-in market..............      2,166   16%   17,799   60%   36,675   73%
Other market..................        406    3%    2,229    8%      457    1%
                                 ---------      ---------      ---------
  TOTAL NET REVENUES..........    $13,437        $29,476        $50,324
                                 =========      =========      =========

Revenues from sales to Commercial streaming video market
accounted for 52% of our net revenues in fiscal 2002, 23% in fiscal 2001, and
24% in fiscal 2000. Revenues from sales to Consumer appliance market accounted
for 29% of our net revenues in fiscal 2002, 9% in fiscal 2001, and 2% in fiscal
2000. PC add-in market accounted for 16% of our net revenues in fiscal 2002, 60%
in fiscal 2001, and 73% in fiscal 2000. Revenues from sales to Other market
accounted for 3% of our net revenues in fiscal 2002, 8% in fiscal 2001, and 1%
in fiscal 2000.  Revenues from sales to commercial streaming video market
increased 4% to $6.9 million in fiscal 2002 from $6.7 million in fiscal 2001.
Revenue from sales to consumer appliance market increased 41% to $3.9 million in
fiscal 2002 from $2.8 million in fiscal 2001. Revenues from PC add-in market
decreased 88% to $2.2 million in fiscal 2002 from $17.8 million in fiscal 2001.
Revenues from other market decreased 82% to $0.4 million in fiscal 2002 from
$2.2 million in fiscal 2001. The increase in revenues from sales of our products
to commercial streaming video market in fiscal 2002 as compared to fiscal 2001
is mainly attributable to increased sales of our MPEG board products and the
introduction of our new console products in corporate streaming video market. We
expect our revenues from 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 increase in
revenues from sales of our products to consumer appliance market in fiscal 2002
is attributable to increased sales of our MPEG chipset products to set-top box
manufacturers. The consumer appliance market remains in an emerging phase and we
expect fluctuating revenues to continue. The decrease in revenues from sales of
our products to PC add-in market in fiscal 2002 is due to the continuing decline
in demand for products in the PC add-in market.  We expect our revenues from PC
add-in market to be relatively insignificant in future periods as a result of
our decision to focus on the video-on-demand and consumer appliance market. The
category "Other market" in the above table consists of 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 decrease in net revenues from other market in
fiscal 2002 as compared to fiscal 2001 is attributable to a decrease in
development fees due to fewer development projects and the increasingly complex
nature which requires longer development time. We expect that net revenues from
other market will continue to fluctuate.The table below sets forth our revenues
by geographic region for each of the last three fiscal years:

**(Dollars in thousands)             Fiscal 2002    Fiscal 2001    Fiscal 2000
                                 -------------- -------------- --------------**
United States..................    $7,750   58%  $10,241   35%  $16,535   33%
Asia...........................     3,239   24%   17,326   59%   29,142   58%
Europe.........................     2,401   18%    1,574    5%    4,114    8%
Canada.........................        12    0%       16    0%      296    1%
Other regions..................        35    0%      319    1%      237    0%
                                 ---------      ---------      ---------
  TOTAL NET REVENUES...........   $13,437        $29,476        $50,324
                                 =========      =========      =========

Our U.S. revenues as a percentage of total net revenues were
58% in fiscal 2002, 35% in 2001, and 33% in fiscal 2000.  Total U.S. revenues in
fiscal 2002 decreased 24% to $7.8 million, from $10.2 million in fiscal 2001.
Total Asia revenues as a percentage of total revenues were 24% in fiscal 2002,
59% in fiscal 2001 and 58% in fiscal 2000.  Total Asia revenues in fiscal 2002
decreased 81% to $3.2 million in fiscal 2002, from $17.3 million in fiscal 2001.
Total Europe revenues as a percentage of total revenues were 18% in fiscal 2002,
5% in fiscal 2001 and 8% in fiscal 2000.  Total Europe revenues in fiscal 2002
increased 53% to $2.4 million in fiscal 2002, from $1.6 million in fiscal 2001.
Our Asia revenues were derived predominantly from customers in Taiwan. Revenues
generated from Taiwan in fiscal 2002 accounted for 10% of our total net
revenues, as compared to 19% for fiscal 2001 and 30% for fiscal 2000. Three
customers based in U.S and one customer based in Europe accounted for 49% of our
total net revenues in fiscal 2002, as compared to two customers based in U.S and
three customers based in Asia accounting for 55% of our total net revenues in
fiscal 2001 and three customers based in Asia accounting for 41% of our total
net revenues in fiscal 2000. The overall year-to-year decrease in revenues from
fiscal 2001 to fiscal 2002 was primarily attributable to the global economic
downturn and the continuing decline in demand of our PC-DVD upgrade products in
the PC market.
Gross Margin
Our gross margin as a percentage of net revenues was
approximately 41% in fiscal 2002, 30% in fiscal 2001, and 31% in fiscal 2000.
Excluding development revenues of $0.4 million, the gross margin was
approximately 39% in fiscal 2002. This increase was a result of increased sales
of our products to streaming video market and chipset products to the set top
box consumer appliance market which have relatively high gross margins and the
decreased sales of our products to PC add-in market which have relatively low
gross margins. We expect our gross margins will vary from period to period due
to changes in the mix of product sales and provisions for inventory
obsolescent.
Operating Expenses
Sales and marketing expenses increased $166,000 or 4% in
fiscal 2002 over fiscal 2001.  This increase was largely due to increased
headcount and expenses associated the expansion of our product marketing and
sales development group. The same expenses decreased $338,000, or 8%, in fiscal
2001 over fiscal 2000.  The decrease was the result of a reduction of our
business development group personnel, an elimination of outside public relations
services, and reduced sales commissions in connection with reduced revenues. We
believe that our sales and marketing expenses will increase 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 $739,000 or 10%
in fiscal 2002 over fiscal 2001 and $987,000, or 15% in fiscal 2001 over fiscal
2000.  The increase in fiscal 2002 over fiscal 2001 was primarily attributable
to additional engineering staff at our headquarters as well as at our
development center in France, consulting services, and capital equipment related
to product development. The increase in fiscal 2001 was largely due to increases
in technical development support, and the research and development center
established in France during the fourth quarter of fiscal 2000. We expect to
continue our efforts in the development of our proprietary MPEG based products,
and research and development expenses will likely increase accordingly
year-over-year.
Our general and administrative expenses decreased $1.8
million or 39% in fiscal 2002 from fiscal 2001. The decrease was mainly
attributable to the significant reduction of approximately $2.2 million of bad
debt expense from last fiscal year. Excluding the specific provision for bad
debt of approximately $121,000 (net of recovery $329,000) and $1.9 million
respectively, in fiscal 2002 and 2001, general and administrative expenses in
fiscal 2002 was comparable to fiscal 2001.  The same expense increased $1.6
million or 57% in fiscal 2001 from fiscal 2000.  Excluding provision for bad
debt of approximately $1.9 million in fiscal 2001, general and administrative
expenses decreased $293,000 or 10% as compared to fiscal 2000.  The decrease was
largely due to the refund by our insurance company of costs previously expensed
related to a shareholder lawsuit resolved in fiscal 2001 and reduction of legal
expenses in general. We expect our general and administrative expenses will
increase relatively 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, 2002, our principal sources of
liquidity included cash, cash equivalents, restricted cash, and short-term
investments of $18.0 million, a decrease of $4.3 million compared with $22.3
million at January 31, 2001. This decrease resulted from operating activities
that utilized cash of approximately $3.8 million, acquisition of fixed assets of
$172,000, repayment of capital lease obligations of $321,000 and cash used for
other investing activities of $118,000 which was partially offset by proceeds of
$100,000 from the issuance of our common stock under our stock option plan and
employee stock purchase plan.
As of January 31, 2002, we had $12.0 million outstanding
under a $12.0 million bank revolving line of credit that expires in October
2002, bears interest at the U.S treasury bill rate (1.48% at January 31, 2002)
plus 0.85%, and is collateralized by funds on deposit in accounts that have been
assigned to the lender and is included in our consolidated balance sheet at
January 31, 2002 as restricted cash. We also have a $6.0 million bank line of
credit available that expires in October 2002 and is collateralized by our
accounts receivable, inventories, equipment, and intangibles. As of January 31,
2002, we had utilized $178,000 of the standby letter of credit under this second
line of credit. The lines of credit contain certain covenants that, among other
things, required us to maintain certain levels of tangible net worth plus
subordinated debt based on our projected operating results. At January 31, 2002,
we were required to maintain total net equity worth of at least $11.5 million. As
of that date, we were not in compliance with this covenant and subsequently
obtained a modification to amend this covenant to $10.5 million.
Our primary sources of funds to date have been cash generated
from operations, proceeds from preferred and common stock issuances, capital
lease arrangements, and bank borrowings under lines of credit. It is likely that
our operation will continue to consume cash in the foreseeable future. Based on
our cash projection, we believe that our current reserve of cash and cash equivalents and short-
term investments will be sufficient to meet anticipated working capital
requirements 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 to maintain the availability of funds under our existing asset-based
banking agreements. To insure that we have adequate working capital, we intend
to raise additional funding through either public or private offerings of our
common or preferred stock or from additional bank financing during the next
twelve months.  There is no assurance that such capital will be available to us.
The estimate of time our cash and other resources will last is a forward-looking
statement that is subject to the risks and uncertainties set forth below, as
well as other factors, and actual results may differ as a result of such
factors.
Factors Affecting Future Operating Results
Our annual and quarterly results have in the past and may
in the future vary significantly due to a number of factors, including but not
limited to new product introductions by us and our competitors; the ability of
our REALmagic MPEG silicon to compete with other technologies in these merging
markets; market acceptance of the technology embodied in our products generally
and our products in particular; customer acceptance of our products; shifts in
demand for the technology embodied in our products generally and our products in
particular and/or those of our competitors; gains or losses of significant
customers; reduction in average selling prices and gross margins, which may
occur either gradually or precipitously; inventory obsolescence; write-downs of
accounts receivable; an interrupted or inadequate supply of semiconductor chips
or other materials-for example, our source of supply for silicon wafers was
interrupted in fiscal 2000, and may continue to be interrupted in the future because of
earthquakes in Taiwan; our inability to protect our intellectual property; loss
of key personnel; technical problems in the development, ramp up, and
manufacture of products causing shipping delays; and availability of third-party
manufacturing capacity for production of certain of our products. We derive a
substantial portion of our revenues from sales to the Asia Pacific region, a
region of the world that is subject to increased economic instability. There can
be no assurance that such instability will not have a material adverse effect on
our future international revenues. Any adverse change in the foregoing or other
factors could have a material adverse effect on our business, financial
condition, and results of operations.
Due to the factors noted above, our future earnings and stock
price may be subject to significant volatility, particularly on a quarterly
basis. Past financial performance should not be considered a reliable indicator
of future performance, and investors should not use historical trends to
anticipate results or trends of future periods. Any shortfall in revenue or
earnings could have an immediate and significant adverse effect on the trading
price of our common stock. Additionally, we may not learn of such shortfall
until late in a fiscal quarter, which could result in even more immediate and
adverse effect on the trading price of our common stock. Further, we operate in
a highly dynamic industry, which often results in volatility of our common stock
price.
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 - Revenues consist of product and
development revenue. Revenues from product sales to OEMs, distributors and end
users are generally recognized upon shipment, except that revenues are deferred when the Company cannot reasonably
estimate the amount of returns or where collectibility is not assured; deferred revenue is
recognized when collection subsequently becomes probable and returns are estimable
(generally upon resale by customers). Allowances for sales returns, price protection and
warranty costs are recorded at the time that revenues are recognized.
Revenues from product development agreements are recognized
using 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.  We
classify all development costs related to such agreements as research and
development expenses.  Development revenues were $406,000, $1.9 million, and
$60,000 for fiscal 2002, 2001 and 2000, respectively.
Account Receivable -During
industry downturns, certain of our customers have difficulty with their cash
flows. For certain customers, typically those with whom we have long-term
relationships, may delay their payments by 40-60 days beyong the original terms. We review the
ability of our customers to pay the indebtedness they incur with us. We defer recognition of
revenue and related receivable when we cannot reasonably estimate collectibility
is assured at the time products and services are delivered to our customer. We
provide an allowance for doubtful accounts for all specific receivables that we
judge to be unlikely for collection. In addition, we record a reserve based on
the size and age of all receivable balances against which we have not
established a specific reserves. These estimated allowances are periodically
reviewed, analyzing the customer's payment history and information regarding
customer's credit worthiness known to us. In fiscal 2002 and 2001, we recorded a
provision for general and specific bad debt allowance in the total amount of
$121,000 (net of recovery of $329,000) and $2.2 million respectively.
Inventories - With the dramatic decrease in
revenue during fiscal 2002 and 2001, 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 downturn extends further into the future
than we have currently estimated 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
considerations for factors such as the cyclical nature of our industry. These
forecasts require us to estimate our ability to see demand for current and
further 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 to further write down inventory.
Recent Accounting Pronouncements
On July 20, 2001, the Financial Accounting Stanford Board
("FASB") issued Statement of Financial Accounting Standards No. 141,
"Business Combinations", or SFAS No. 141, and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method and
addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. SFAS No. 142 addresses the
initial recognition and measurement of intangible assets acquired outside of a
business combination and the accounting for goodwill and other intangible assets
subsequent to the acquisition. SFAS No. 142 provides that intangible assets with
finite useful lives be amortized. However, goodwill and intangible assets with
indefinite lives will no longer be amortized, but will be tested at least
annually for impairment. The Company is required to adopt SFAS No. 142 effective
February 1, 2002 and does not expect the effect of adoption to have a material
impact on the Company's financial position, results of operations or cash
flows.
In October 2001, the Financial Accounting Standards Board
issued SFAS No. 144, "Accounting for Impairment of Long-Lived Assets."  SFAS No.
144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of", and addresses financial accounting
and reporting for the impairment or disposal of long-lived assets.  This
statement is effective for fiscal years beginning after December 15, 2001.  The
Company is required to adopt SFAS No. 144 on February 1, 2002.  The adoption of
this statement is not expected to have a material impact on the Company's
consolidated financial position, results of operations or cash flows.


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, 2002, we
held $943,000 in short-term investments consisting of U.S. government and
corporate debt securities with an average original maturity of less than one
year.  These available-for-sale securities are subject to interest rate risk and
will fall in value if market interest rates increase.  If market rates were to
increase immediately and uniformly by 10 percent from levels at January 31,
2001, the fair market value of the short-term investments would decline by an
immaterial amount.   We generally expect to have the ability to hold our
investments until maturity and therefore would not expect operating results or
cash flows to be affected to any significant degree by the effect of a sudden
change in market interest rates for short-term investments.
At January 31, 2002, we had $12.0 million outstanding under a
$12.0 million variable interest rate bank line of credit, no borrowing outstanding
under a $6.0 million variable interest rate bank line of credit and utilized
$178,000 of standby letter of credit under this second line of credit. 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 and cash flows.

Foreign Currency Exchange Rate Sensitivity.  The Hong Kong dollar and
Euro are the financial currencies in 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, 2002, the fair value of these foreign currency
amounts would decline by an immaterial amount.

ITEM 8.	CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Sigma's consolidated financial statements, the notes
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.


PART III

ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY
The information required by this item concerning our
directors and executive officers is incorporated by reference from the
information set forth in the sections entitled "Election of Directors"
and "Other Information" contained in our Proxy Statement relating to
the 2002 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").
Certain information required by this item concerning our executive officers is
incorporated by reference to the information set forth in Part I of the Annual
Report on 10-K.

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
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
Please see the information set forth in the section
entitled "Transactions with Management" in our Proxy Statement, which
we are incorporating into this Form 10-K by reference.
PART IV

ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-
K

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


PageIndependent Auditors' Report
F-
1Consolidated Balance Sheets as of January 31,
2002 and 2001
F-
2Consolidated Statements of Operations for the
years ended January 31, 2002, 2001, and 2000
F-
3Consolidated Statements of Shareholders' Equity
and Comprehensive Income (Loss) for the years ended January 31, 2002, 2001, and
2000
F-
4Consolidated Statements of Cash Flows for the
years ended January 31, 2002, 2001 and 2000
F-
5Notes to Consolidated Financial
Statements
F-
72.	Consolidated Financial Statements
Schedules
The following financial statement schedule is filed as part
of this Annual Report on Form 10-K:
Schedule II-Valuation and Qualifying Accounts
and Reserves
S-
1All 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

No reports on Form 8-K were filed during the fourth quarter
ended January 31, 2002.

(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 1st day of May 2002.

SIGMA DESIGNS, INC.By: /s/ Thinh Q.
TranChairman 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)
May 1, 2002/s/ Kit TsuiKit Tsui
Chief Financial Officer and Secretary (Principal Accounting
Officer)
May 1, 2002/s/ William J. AlmonWilliam J. Almon
Director
May 1, 2002/s/ William WangWilliam Wang
Director
May 1, 2002/s/ Julien NguyenJulien Nguyen
Director
May 1, 2002INDEPENDENT AUDITORS' REPORTTo 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, 2002 and 2001, 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, 2002. Our audits also include the financial statement
schedule listed in Item 14(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, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 2002 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 LLPSan Jose, California
March 26, 2002 (April 17, 2002 as to the last sentence of Note 6)


**SIGMA DESIGNS, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2002 and 2001 (In thousands, except share data)
2002       2001
                                                            ---------  ---------
ASSETS**
CURRENT  ASSETS:
  Cash and cash equivalents............................... $   5,056  $   5,422
  Short-term investments..................................       943      4,907
  Accounts receivable (net of allowances of
    $1,664 in 2002 and $2,124 in 2001)....................     2,168      5,122
  Inventories.............................................     4,482      8,159
  Restricted cash.........................................    12,000     12,000
  Prepaid expenses and other..............................       521        296
                                                            ---------  ---------
           Total current assets...........................    25,170     35,906
EQUIPMENT  - net..........................................       831      1,346
OTHER  ASSETS.............................................       273      1,082
                                                            ---------  ---------
TOTAL..................................................... $  26,274  $  38,334
                                                            =========  =========
**LIABILITIES AND SHAREHOLDERS' EQUITY**
CURRENT LIABILITIES:
  Bank line of credit..................................... $  12,000  $  12,000
  Accounts payable........................................     1,115      2,423
  Accrued liabilities.....................................     1,336      1,448
  Current portion of capital lease obligations............       244        329
                                                            ---------  ---------
           Total current liabilities......................    14,695     16,200
                                                            ---------  ---------
CAPITAL LEASE OBLIGATIONS.................................       113        349
OTHER LONG TERM LIABILITIES...............................        --          4

COMMITMENTS AND CONTINGENCIES (Note 9)

SHAREHOLDERS' EQUITY:
  Common stock - no par value:  35,000,000
   shares authorized; shares outstanding:
   2002, 16,378,042; 2001, 16,313,464.....................    67,884     67,785
  Shareholder notes receivable............................        --         (1)
  Accumulated other comprehensive income..................        31         54
  Accumulated deficit.....................................   (56,449)   (46,057)
                                                            ---------  ---------
           Shareholders' equity                               11,466     21,781
                                                            ---------  ---------
TOTAL..................................................... $  26,274  $  38,334
                                                            =========  =========See notes to consolidated financial statements.
**SIGMA DESIGNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 31, 2002, 2001 AND 2000
(In thousands, except share data)
2002       2001       2000
                                          ---------  ---------  ---------**
NET REVENUES............................ $  13,437  $  29,476  $  50,324

COSTS AND EXPENSES:
  Cost of revenues......................     7,909     20,661     34,481
  Research and development..............     8,123      7,384      6,397
  Sales and marketing...................     4,318      4,152      4,490
  General and administrative............     2,758      4,511      2,869
                                          ---------  ---------  ---------
           Total costs and expenses.....    23,108     36,708     48,237
                                          ---------  ---------  ---------
INCOME (LOSS) FROM OPERATIONS               (9,671)    (7,232)     2,087

  Interest income.......................       773      1,355        929
  Interest expense......................      (584)      (936)      (770)
  Other income (expense), net...........      (906)       (53)       162
                                          ---------  ---------  ---------
INCOME (LOSS) BEFORE INCOME TAXES.......   (10,388)    (6,866)     2,408
PROVISION FOR INCOME TAXES..............        (4)        (2)       (60)
                                          ---------  ---------  ---------
NET INCOME (LOSS).......................   (10,392)    (6,868)     2,348
DIVIDENDS ON PREFERRED STOCK............        --         --         85
                                          ---------  ---------  ---------
NET INCOME (LOSS) AVAILABLE TO COMMON
  SHAREHOLDERS.......................... $ (10,392) $  (6,868) $   2,263
                                          =========  =========  =========
NET INCOME (LOSS) PER SHARE AVAILABLE
  TO COMMON SHAREHOLDERS:
  Basic................................. $   (0.64) $   (0.42) $    0.14
                                          =========  =========  =========
  Diluted............................... $   (0.64) $   (0.42) $    0.13
                                          =========  =========  =========
SHARES USED IN COMPUTATION:
  Basic.................................    16,317     16,262     15,728
                                          =========  =========  =========
  Diluted...............................    16,317     16,262     17,704
                                          =========  =========  =========See notes to consolidated financial statements.
**SIGMA DESIGNS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED JANUARY 31, 2002, 2001 AND 2000
(In thousands)**
**Accumu-
                                                                                       lated
                                                                             Share-    Other                           Total
                                                                             holder   Compre-                         Compre-
                                   Preferred Stock     Common Stock          Notes    hensive    Accumu-              hensive
                                ------------------ -----------------------  Receiv-    Income     lated                Income
                                 Shares    Amount    Shares       Amount      able     (Loss)    Deficit     Total     (Loss)
                                --------  -------- -----------  ----------  --------  --------  ----------  --------  --------**
Balances, February 1, 1999.....   1,900  $  1,536  15,435,094  $   64,699  $    (12) $      -  $  (41,452) $ 24,771

Net income.....................       -         -           -           -         -         -       2,348     2,348  $  2,348
Unrealized gain on
  investments..................       -         -           -           -         -       142           -       142       142
                                                                                                                      --------
Comprehensive income...........                                                                                      $  2,490
                                                                                                                      ========
Common stock issued under
  stock plans..................       -         -     418,570         987         -         -           -       987
Exercise of common stock
  warrants.....................       -         -      40,000         207         -         -           -       207
Conversion of Series C
  preferred stock..............  (1,900)   (1,536)    330,416       1,536         -         -           -         -
Dividends on Series C
  preferred stock..............       -         -           -           -         -         -         (85)      (85)
Cancellation of Active
  Designs shares...............       -         -      (3,300)         (1)        1         -           -         -
Tax benefit of employee
  stock transactions...........       -         -           -          33         -         -           -        33
                                --------  -------- -----------  ----------  --------  --------  ----------  --------
Balances, January 31, 2000.....       -         -  16,220,780      67,461       (11)      142     (39,189)   28,403

Net loss.......................       -         -           -           -                          (6,868)   (6,868) $ (6,868)
Unrealized loss on investments.       -         -           -           -                (114)                 (114)     (114)
Accumulated translation
  adjustment...................       -         -           -           -                  26                    26        26
                                                                                                                      --------
Comprehensive loss.............                                                                                      $ (6,956)
                                                                                                                      ========
Common stock issued under
  stock plans..................       -         -     131,684         308         -         -           -       308
Exercise of common stock
  warrants.....................       -         -       5,000          26         -         -           -        26
Cancellation of Active
  Designs shares...............       -         -     (44,000)        (10)       10         -           -         -
                                --------  -------- -----------  ----------  --------  --------  ----------  --------
Balances, January 31, 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
                                ========  ======== ===========  ==========  ========  ========  ==========  ========
See notes to consolidated financial statements.
**SIGMA DESIGNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 2002, 2001 AND 2000
(In thousands)

2002      2001      2000
                                                    --------  --------  --------**
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)............................... $(10,392) $ (6,868) $  2,348
  Adjustments to reconcile net income (loss)
    to net cash provided by (used for)
    operating activities:
    Depreciation and amortization.................      665       789       720
    Loss on disposal of assets....................       22        13        22
    Other noncash expenses........................      927        51        --
    Changes in operating assets and liabilities:
      Accounts receivable.........................    2,954     7,931       595
      Inventories.................................    3,677      (137)    2,396
      Prepaid expenses and other..................     (225)      201       165
      Accounts payable............................   (1,308)      146    (1,832)
      Accrued liabilities and other...............     (116)      (59)      374
                                                    --------  --------  --------
       Net cash provided by (used for)
         operating activities.....................   (3,796)    2,067     4,788
                                                    --------  --------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Equipment additions.............................     (172)     (364)     (466)
  Proceeds from sales of equipment................       --        --        36
  Purchases of short-term investments.............   (6,773)  (37,636)  (29,118)
  Maturity of short-term investments..............   10,722    38,978    38,009
  Other assets....................................     (118)   (1,019)       42
                                                    --------  --------  --------
      Net cash provided by (used for)
        investing activities......................    3,659       (41)    8,503
                                                    --------  --------  --------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
  Bank line of credit borrowings, net.............       --       (41)   (1,675)
  Increase in restricted cash.....................       --        --   (12,000)
  Proceeds from sale of common stock..............      100       334     1,194
  Dividends paid..................................       --        --       (80)
  Repayment of capital lease obligations..........     (321)     (382)     (217)
                                                    --------  --------  --------
      Net cash used for
        financing activities......................     (221)      (89)  (12,778)
                                                    --------  --------  --------

Effect of exchange rates changes on cash..........       (8)       26        --
                                                    --------  --------  --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..     (366)    1,963       513

CASH AND CASH EQUIVALENTS:
  Beginning of year...............................    5,422     3,459     2,946
                                                    --------  --------  --------
  End of year..................................... $  5,056  $  5,422  $  3,459
                                                    ========  ========  ========

CASH PAID FOR INTEREST............................ $    584  $    916  $    707
                                                    ========  ========  ========

CASH PAID FOR INCOME TAXES........................ $      4  $      2  $     75
                                                    ========  ========  ========

NONCASH INVESTING AND FINANCING ACTIVITIES:
  Equipment acquired under capital leases......... $     --  $    541  $    244
                                                    ========  ========  ========

  Conversion of Series C preferred stock into
    common stock.................................. $     --  $     --  $  1,536
                                                    ========  ========  ========

  Cancellation of notes receivable and related
    common stock.................................. $      1  $     10  $      1
                                                    ========  ========  ========

  Tax benefit of employee stock transactions...... $     --  $     --  $     33
                                                    ========  ========  ========

  Conversion of investment in private equity
    securities into marketable equity securities.. $     --  $     --  $    100
                                                    ========  ========  ========See notes to consolidated financial statements.
**SIGMA DESIGNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2002, 2001 AND 2000**1.	NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Sigma Designs, Inc. (the Company) develops,
manufactures and markets multimedia computer devices and products.  The Company
sells its products to computer 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 financial statements
are shown as ending January 31, although the fiscal years ended on February
2, 2002, February 3, 2001, and January 29, 2000, respectively.  Fiscal 2001
included 53 weeks, and fiscal 2002 and 2000 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.
Concentration of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents, short-term investments and accounts
receivable.  The majority of the Company's cash and cash equivalents are on
deposit with one financial institution.  The Company's short-term investments
are managed by a major domestic financial institution, in a portfolio with
defined investment objectives of competitive money market returns, high
liquidity and safety of capital.  Its portfolio of short-term investments
typically includes United States government obligations and corporate
obligations.  From time to time, the Company also makes investments in
certificates of deposit with financial institutions, outside of its third-party
managed portfolio.  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.
Short-Term Investments - The Company's short-term investments
represent debt securities which are stated at fair value. All short-term
investments are classified as available-for-sale.  Any temporary difference
between an investment's cost and its market value is recorded as a separate
component of shareholders' equity until such gains and losses are realized.
Available-for-sale securities are classified in the balance sheet based on
management's current intended use for the securities.  Gains and losses on the
sale of securities are computed using the specific identification method.
Inventories are stated at the lower of cost (first-in, first-
out) or market.
Restricted Cash represents funds on deposit in accounts which
have been assigned to the Company's lender under a bank line of credit (see note
6).
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. Included in other income
(expense) for fiscal 2002 is a $927,000 charge related to impairment of an investment
accounted for under the cost method.
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.
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.
Revenue Recognition - Revenues consist of product and
development revenue. Revenues from product sales to OEMs, distributors and end
users are generally recognized upon shipment, except that revenues are deferred when the Company cannot reasonably
estimate the amount of returns or where collectibility is not assured; deferred revenue is
recognized when collection subsequently becomes probable and returns are estimable
(generally upon resale by customers). Allowances for sales returns, price protection and
warranty costs are recorded at the time that revenues are recognized.
Revenues from product development agreements are recognized using 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 $406,000, $1,852,000, and
$60,000 for fiscal 2002, 2001 and 2000, 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.  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 all of its interpretations and presents pro forma disclosures
required by Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation."
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 which requires that the fair value of such instruments be recognized
as an expense over the period in which the related services are received.
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 income (expenses) 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 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 7).
Fair Value of Financial Instruments - The Company believes that carrying amounts reported in the balance
sheet for cash, cash equivalents, restricted cash, investments and line of credit borrowings as of January 31, 2002
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 12).
Derivatives - In June 1998, the Financial Accounting Standards
Board, or the FASB, issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires companies to
record derivatives on the balance sheet as assets and liabilities, measured at
fair value. Gains and losses resulting from changes in the fair market values of
those derivative instruments would be accounted for depending on the use of the
instrument and whether it qualifies for hedge accounting. The Company adopted
SFAS No. 133, as amended, on February 1, 2001. The adoption of this statement
did not have an effect on the Company's financial position, results of
operations or cash flows as the Company had no derivative financial instruments
as of January 31, 2002 and historically has not entered into any derivative
transactions.
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, 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 - On July 20, 2001, the FASB
issued SFAS No. 141, "Business Combinations", and SFAS No. 142,
"Goodwill and Other Intangible Assets". SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under the
purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to the acquisition. SFAS No. 142 provides
that intangible assets with finite useful lives be amortized. However, goodwill
and intangible assets with indefinite lives will no longer be amortized, but
will be tested at least annually for impairment. The Company is required to
adopt SFAS No. 142 effective February 1, 2002 and does not expect the effect of
adoption to have a material impact on the Company's financial position, results
of operations or cash flows.
In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for Impairment of Long-Lived Assets."  SFAS No. 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of", and addresses financial accounting and
reporting for the impairment or disposal of long-lived assets.  This statement
is effective for fiscal years beginning after December 15, 2001.  The Company is
required to adopt SFAS No. 144 on February 1, 2002.  The adoption of this
statement is not expected to have a material impact on the Company's
consolidated financial position, results of operations or cash flows.

2.	SHORT-TERM INVESTMENTS
Short-term investments included the following securities and gross
unrealized losses and gains as of January 31, 2002 and 2001 (in thousands).
Fair values are based on quoted market prices obtained from the Company's
broker.  All of the Company's short-term investments are classified as available
for sale, since the Company intends to sell them as needed for operations. All
of the Company's short-term investments mature in fiscal 2003.

**Unrealized  Unrealized
                                           Loss on     Gain on
                                           Invest-     Invest-     Market
                                 Cost        ment        ment       Value
                               ---------  ----------  ----------  ---------**
January 31, 2002:
  Corporate debt securities..      $930          $0         $13       $943
                               =========  ==========  ==========  =========

January 31, 2001:
  Corporate debt securities..    $4,879          $0         $28     $4,907
                               =========  ==========  ==========  =========

**3.    INVENTORIES**Inventories at January 31 consist of (in thousands):**2002       2001
                                                     ---------- ----------**
      Raw materials.................................    $1,568     $3,635
      Work in process...............................     1,338      2,325
      Finished goods................................     1,576      2,199
                                                     ---------- ----------
      Inventories - net.............................    $4,482     $8,159
                                                     ========== ==========


**4.    EQUIPMENT**Equipment at January 31 consists of (in thousands):**2002       2001
                                                     ---------- ----------**
      Computers and test equipment..................    $4,387     $4,299
      Furniture and fixtures........................       654        622
      Other.........................................       119        101
                                                     ---------- ----------
      Total.........................................     5,160      5,022
      Accumulated depreciation and amortization.....    (4,329)    (3,676)
                                                     ---------- ----------
      Equipment - net...............................      $831     $1,346
                                                     ========== ==========

At January 31, 2002 and 2001, equipment with
a net book value of $361,000 and $671,000 (net of accumulated
amortization of $1,118,000 and $808,000, respectively), has been leased
under capital leases.


**5.    ACCRUED  LIABILITIES**Accrued liabilities at January 31 consist of (in thousands):**2002       2001**
                                                     ---------- ----------
      Accrued salary and benefits...................      $509       $539
      Other accrued liabilities.....................       827        909
                                                     ---------- ----------
      Total.........................................    $1,336     $1,448
                                                     ========== ==========




6.	BANK  LINES  OF  CREDIT
The Company has $12,000,000 outstanding at January 31,
2002 under a $12,000,000 bank line of credit that expires in October 2002, bears
interest at the U.S. Treasury Bill rate (1.48% at January 31, 2002) plus 0.85%,
and is collateralized by funds on deposit in accounts which have been assigned
to the lender and included in the Company's consolidated balance sheet as of
January 31, 2002 as restricted cash.
The Company also has a $6,000,000 bank line of credit that
expires in October 2002, and is collateralized by the Company's accounts
receivable, inventories, equipment and intangibles.  The Company has $178,000 of
standby letters of credit outstanding as of January 31, 2002 under the same bank
line of credit. Borrowings under this line of credit are generally limited to
maximum 70% of eligible accounts receivable (as defined). Availability to
utilize this $6,000,000 bank line of credit is dependent on the Company's ability
to maintain compliance with covenants under the amended bank line of credit
agreement.
The line of credit agreement contains certain covenants that,
among other things, require the Company to maintain certain levels of tangible
net worth plus subordinated debt (Tangible Net Worth). At January 31, 2002, the Company was required
to maintain Tangible Net Worth of at least $11,500,000 and was not in compliance with this covenant.
In April 2002, the Company obtained a modification to the line of credit
agreement to amend this covenant to $10,500,000.
7.	SHAREHOLDERS' EQUITY
Preferred Stock
At January 31, 2000, warrants to purchase 64,285
shares of the Company's common stock issued in connection with the issuance of
Series A nonvoting cumulative preferred stock were outstanding.  The
warrants were exercisable at $5.16 per share beginning in January 1998 and
expired in fiscal 2001.
During fiscal 1999, the Company issued 5,000 shares of
Series B nonvoting convertible preferred stock for $1,000 per share and
warrants to purchase 50,000 shares of the Company's common stock.  The warrants
are exercisable at $5.16 per share and expired on April 30, 2001.
During fiscal 1999, the Company issued 1,900 shares of
Series C nonvoting convertible preferred stock for $1,000 per share and
warrants to purchase 95,000 shares of the Company's common stock at $5.16 per
shares. In fiscal 2001 and 2000, warrants to purchase 5,000 and 40,000 shares of
the Company's common stock were exercised for proceeds of approximately $26,000
and $207,000 respectively.   The unexercised warrants expired in fiscal 2001.
Common Stock
The Company's common shareholders' rights agreement
expired in fiscal 2000.
During fiscal year 2002, the Company increased the number of
authorized shares of common stock by 15,000,000 shares from 20,000,000 to a
total of 35,000,000 shares.
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,
                                          --------------------- ---------
                                            2002       2001       2000
                                          ---------  ---------  ---------**
Numerator:
  Net income (loss) available to
    common shareholders, basic
    and diluted......................... $($10,392) $ ($6,868) $  $2,263
                                          ---------  ---------  ---------
Denominator:
  Weighted average common shares
     outstanding........................    16,318     16,305     15,784
  Weighted average common shares
     outstanding subject to repurchase..        (1)       (43)       (56)
                                          ---------  ---------  ---------
Shares used in computation, basic.......    16,317     16,262     15,728

Effect of dilutive securities:
  Common shares subject to repurchase...        --         --         56
  Stock options.........................        --         --      1,876
  Warrants..............................        --         --         44
                                          ---------  ---------  ---------
Shares used in computation, diluted.....    16,317     16,262     17,704
                                          ---------  ---------  ---------

Net income (loss) per share:
  Basic................................. $   (0.64) $   (0.42) $    0.14
                                          =========  =========  =========
  Diluted............................... $   (0.64) $   (0.42) $    0.13
                                          =========  =========  =========

The Company excluded certain potentially dilutive securities
in fiscal 2002 and 2001 from its dilutive EPS computation because either the
exercise price of the securities exceeded the average fair values of the
Company's common stock or the Company had net losses, and, therefore, these
securities were antidilutive.
A summary of the excluded potential dilutive securities as of
the end of each fiscal year follows (in thousands):

**Years Ended January 31,
                                          --------------------- ---------
                                            2002       2001       2000
                                          ---------  ---------  ---------**
Common shares subject to repurchase.....        --          5         --
Stock options...........................     4,108      3,421         --
Stock warrants..........................        --         50         --


Stock Option 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 an automatic annual increase 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. The annual increases begin in
the fiscal year beginning 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, 2002 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, 1999 (1,090,538
        exercisable at a weighted-average price
        of $2.36).....................................   3,029,895      $2.25

      Granted (weighted-average fair value of $4.09)..     335,500       5.70
      Canceled........................................    (154,003)      2.40
      Exercised.......................................    (375,316)      2.23
                                                        ----------- ----------
      Balances, January 31, 2000 (1,360,270
        exercisable at a weighted-average price
        of $2.37).....................................   2,836,076       2.65

      Granted (weighted-average fair value of $2.59)..     960,500       3.57
      Canceled........................................    (278,855)      3.79
      Exercised.......................................     (96,540)      2.34
                                                        ----------- ----------
      Balances, January 31, 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......................   4,107,969      $2.51
                                                        =========== ==========
At January 31, 2002, options to purchase 34,064 shares were
available for future grant. Effective at the beginning of fiscal 2003, an
additional 655,122 shares resulting from the automatic annual increase of 4% of
the Company's outstanding common stock was 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           2002        Life       Price       2002       Price
-------------------- ----------- ----------- ---------- ----------- ----------**
       $0.09              6,572        0.86      $0.09       6,572      $0.09
   $1.00 - $1.25      1,151,716        8.69      $1.16     239,437      $1.01
   $1.63 - $2.44      1,469,360        5.52      $2.28   1,312,565      $2.31
   $2.56 - $3.81        986,988        7.07      $3.15     569,884      $3.01
   $4.25 - $6.38        493,333        7.75      $5.06     213,580      $5.14
-------------------- -----------                        -----------
   $0.09 - $6.38      4,107,969        7.04      $2.51   2,342,038      $2.60
==================== ===========                        ===========



The Company uses the intrinsic value method specified by APB
No. 25 to calculate compensation expense associated with issuing stock
options and, accordingly, has recorded no such expense through January 31, 2002
as such issuances have been at the fair value of the Company's common stock at
the date of grant.
SFAS No. 123, "Accounting for Stock-Based
Compensation," requires the disclosure of pro forma net income and
earnings per share had the Company adopted the fair value method as of the
beginning of fiscal 1996.  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 calculations were made using the Black-Scholes option pricing model
with the following weighted average assumptions for fiscal 2002, 2001 and 2000,
respectively: expected life, 18, 18 and 19 months following vesting; stock
volatility, 104%, 100% and 97%; risk free interest rates, 4.67%, 4.84% and 5.5%;
and no dividends during the expected term.  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) available to
common shareholders would have been (in thousands, except per share
amounts):

**Years Ended January 31,
                                          --------------------- ---------
                                            2002       2001       2000
                                          ---------  ---------  ---------**
  Net income (loss) available to
    common shareholders:
    As reported......................... $ (10,392) $  (6,868) $   2,263
                                          =========  =========  =========

    Pro forma........................... $ (11,635) $  (8,317) $   1,279
                                          =========  =========  =========

  Net income (loss) per share
    available to common shareholders:

    As reported:
      Basic............................. $   (0.64) $   (0.42) $    0.14
                                          =========  =========  =========
      Diluted........................... $   (0.64) $   (0.42) $    0.13
                                          =========  =========  =========

    Pro forma:
      Basic............................. $   (0.71) $   (0.51) $    0.08
                                          =========  =========  =========
      Diluted........................... $   (0.71) $   (0.51) $    0.07
                                          =========  =========  =========

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. The Company's 1986 Employee
Stock Purchase Plan (1986 ESPP) provided for the sale of up to 300,000 shares of
common stock. At January 31, 2001, all shares authorized for issuance under 1986
ESPP had been issued. Under both plans, 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 2002, 2001 and 2000, 68,034, 35,144, and 43,254
shares were purchased at an average price of $1.45, $2.34, and $3.45 per share,
respectively. At January 31, 2002, 31,966 shares under 2001 Purchase Plan remain
available for future purchase. Effective at the beginning of fiscal 2003, an
additional 327,561 shares was added to the shares available for issuance under
the 2001 purchase plan resulting from the automatic annual increase of 2% of the
Company's outstanding common stock.
8.	INCOME TAXES
As a result of net losses and net operating loss
carryforwards in fiscal 2002, 2001 and 2000, the Company has recorded no
material income tax provision for all years presented.
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,
                                                            -------------------
                                                              2002      2001
                                                            --------- ---------**
      Deferred tax assets:
        Net operating losses and tax credit carryforwards..  $25,333   $21,725
        Reserves not currently deductible..................    2,739     2,311
        Capitalized research and development expenditures..    1,027       713
        Other..............................................      153        61
                                                            --------- ---------
                                                              29,252    24,810
      Valuation allowance..................................  (29,252)  (24,810)
                                                            --------- ---------
      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
appropriate and, accordingly, has provided a valuation allowance.
Net operating losses and tax credit carryforwards as of
January 31, 2002 are as follows (in thousands):

**Expiration
                                            Amount           Years
                                           ---------  --------- ----------**
      Net operating losses, federal....   $  57,859       2009  -2021
      Net operating losses, state......       2,635       2002  -2006
      Tax credits, federal.............       2,256       2006  -2021
      Tax credits, state...............       1,739             -
      Net operating losses, foreign....       5,016             -


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 for income taxes differs
from the federal statutory rate as follows (in thousands):

**2002       2001       2000
                                           ---------  ---------  ---------
                                                     (in thousands)**
      Computed at 35%...................  $  (3,636) $  (2,402) $     842
      State taxes, expiration of net
        operating loss carryforwards....  $       2  $       1  $     226
      Valuation allowance...............      3,781      2,550     (1,386)
      Other.............................       (143)      (147)       378
                                           ---------  ---------  ---------
      Total.............................  $       4  $       2  $      60
                                           =========  =========  =========

9. COMMITMENTS AND LEASES
Leases - The Company's primary facilities are
leased under a noncancelable lease which expires in September 2002.  Currently,
we are in the process of negotiating a five-year lease of an approximately
40,000 square foot facility in Milpitas, California. 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
      -------------------------------                ---------- ----------**
           2003.....................................      $264       $239
           2004.....................................       119         --
           2005.....................................        --         --
                                                     ---------- ----------
      Total minimum lease payments..................       383       $239
      Amount representing interest at a rates                   ==========
        of 7.84% to 10.32%..........................       (26)
                                                     ----------
      Present value of minimum lease payments.......       357
      Current portion...............................      (244)
                                                     ----------
      Long-term portion.............................      $113
                                                     ==========



Rent expense was $504,000, $482,000, and $448,000 for fiscal
2002, 2001 and 2000, respectively.
Royalties - The Company pays royalties for the
right to sell certain products under various license agreements.  During fiscal
2002, 2001 and 2000, the Company recorded royalty expense of $85,000, $491,000,
and $732,000, 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 has been made by the Company.

10. MAJOR CUSTOMERS
Three domestic customers accounted for 15%, 14% and 11%
of net revenues in fiscal 2002, respectively. No domestic customer accounted for
more than 10% of net revenues in fiscal 2001 and 2000. During fiscal 2002, no
international customers accounted for more than 10% of net revenues. During
fiscal 2001, three international customers accounted for 15%, 14% and 11% of net
revenues, respectively.  During fiscal 2000, two international customers
accounted for 26% and 13% of net revenues, respectively.
11. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss), which is displayed in the
Consolidated Statements of Shareholders' Equity, represents net income (loss)
available to common shareholders plus the results of certain shareholders'
equity changes not reflected in the Consolidated Statements of Operations.
The components of accumulated other comprehensive income
(loss) are as follows (in thousands):

**Total
                                                               Accumulated
                                                   Unrealized     Other
                                      Accumulated   Holding    Comprehensive
                                      Translation    Gains/      Income/
                                      Adjustment    (Losses)      (Loss)
                                      -----------  ----------  ------------**
Beginning Balance, February 1, 1999. $        --  $       --  $         --
Current Year Change.................          --         142           142
                                      -----------  ----------  ------------
Ending Balance, January 31, 2000....          --         142           142
Current Year Change.................          26        (114)          (88)
                                      -----------  ----------  ------------
Ending Balance, January 31, 2001....          26          28            54
Current Year Change.................          (8)        (15)          (23)
                                      -----------  ----------  ------------
Ending Balance, January 31, 2002.... $        18  $       13  $         31
                                      ===========  ==========  ============


12. 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.
For the years ended January 31, 2002, 2001 and 2000, the
Company recorded sales to customers throughout the United States and Canada,
Taiwan, Hong Kong, Singapore, Japan; Germany, Belgium, Denmark, Finland, The
Netherlands, Norway, Sweden, The United Kingdom, France, Italy, Spain
(collectively referred to as "Europe"); Korea, China, Thailand, New
Zealand, Turkey, Israel and South Africa (collectively "Rest of Asia/New
Zealand/Other Region")

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):

**2002       2001       2000
                                             ---------  ---------  ---------**
Net revenues:
  United States..........................   $   7,750  $  10,241  $  16,535
  Europe.................................       2,401      1,574      4,114
  Taiwan.................................       1,298      5,469     15,021
  Rest of Asia/New Zealand/Other Region..         887        997      2,021
  Hong Kong..............................         811      2,916      2,754
  Japan..................................         191      3,330      1,375
  Singapore..............................          87      4,933      8,208
  Canada.................................          12         16        296
                                             ---------  ---------  ---------
Total net revenues*......................   $  13,437  $  29,476  $  50,324
                                             =========  =========  =========

Long-lived assets:
  United States..........................   $     807  $   1,331  $   1,218
  Hong Kong..............................          16         --          4
  France.................................           8         15         21
                                             ---------  ---------  ---------
Total long-lived assets..................   $     831  $   1,346  $   1,243
                                             =========  =========  =========

* Net revenues are attributed to countries based on invoicing location of customer.13. SELECTED QUARTERLY OPERATING RESULTS (UNAUDITED)

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, 2002:

Net revenues...........................  $  3,222  $  2,982  $  3,416  $  3,817
Income (loss) from operations..........    (2,674)   (2,713)   (1,703)   (2,581)
Net income (loss) available to common
  shareholders.........................    (2,614)   (2,610)   (1,666)   (3,502)
Net income (loss) per share available
  to common shareholders:
  Basic................................  $  (0.16) $  (0.16) $  (0.10) $  (0.21)
  Diluted..............................  $  (0.16) $  (0.16) $  (0.10) $  (0.21)

Year ended January 31, 2001:

Net revenues...........................  $ 10,401  $ 10,663  $  5,479  $  2,933
Income (loss) from operations..........       101       419      (795)   (6,958)
Net income (loss) available to common
  shareholders.........................       189       482      (665)   (6,874)
Net income (loss) per share available to
  common shareholders:
  Basic................................  $   0.01  $   0.03  $  (0.04) $  (0.42)
  Diluted..............................  $   0.01  $   0.03  $  (0.04) $  (0.42)


**SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Balance                Deductions:    Balance
                                   at                     Write         at
                               Beginning                 Offs of      End of
       Classification           of Year     Additions  Accounts(1)     Year
----------------------------- ------------ ----------- ------------ -----------
                                              (in thousands)**
Allowance for returns and
 doubtful accounts, price
 protection, and sales
 returns:
  Year ended January 31,
  2002......................        $2,124     	   $60        $520       $1,664
  2001......................           414       2,152         442        2,124
  2000......................         3,306         274       3,166          414

Inventory reserves:
  Year ended January 31,
  2002......................        $4,091      $1,398         $21       $5,468
  2001......................         3,215       1,941       1,065        4,091
  2000......................         1,943       1,350          78        3,215

____________________(1) Amount written off, net of recoveries for accounts receivable.


**INDEX TO EXHIBITS**

 Exhibit
 Number                      Exhibit Description
-------- -----------------------------------------------------------
2.1(7)   Agreement and Plan of Reorganization by and among the Registrant,
         Sigma Acquisition Corporation and Active Design Corp. dated as of
         April 23, 1996.

3.1(1)   Second Restated Articles of Incorporation, as amended.

3.2(12)  Certificate of Amendment to  the Second Restated Articles of
         Incorporation dated June 22, 2001.

3.3(8)   Certificate of Determination of Preferences of Series A Preferred
         Stock.

3.4(9)   Certificate of Determination of Preferences of Series B Preferred
         Stock.

3.5(10)  Certificate of Determination of Preferences of Series C Preferred
         Stock.

3.6(2)   Bylaws of Registrant, as amended.

4.1(10)  Form of Subscription Agreement by and between the Company and the
         purchasers of the Series C Preferred Stock and warrants.

4.2(10)  Form of Registration Rights Agreement by and between the Company
         and the purchasers of the Series C Preferred Stock and warrants.

4.3(10)  Form of Stock Purchase Warrant.

10.1(3)  Distribution Agreement dated September 10, 1985.

10.2(4)  Registrant's 1986 Employee Stock Purchase Plan, as amended, and
         form of Subscription Agreement.

10.6     Sublease between the Registrant and Sun Microsystems, Inc.

10.7(5)  Registrant's 1994 Stock Plan and form of Stock Option Agreement.

10.8(6)  Registrant's 1994 Director Stock Option Plan and form of Director
         Option Agreement.

10.9(11) Registrant's 1995 Business Loan Agreement with Silicon Valley
         Bank, as amended.

10.10(12)Registrant's 2001 Employee Stock Option Plan.

10.11(12)Registrant's 2001 Employee Stock Purchase Plan and Form of
         Subscription Agreement.

10.12    Registrant's 2001 Loan and Security Agreement with Silicon Valley
         Bank, as amended

23.1     Independent Auditors' Consent.

24.1     Power of Attorney (See page 25).

27       Financial Data Schedule.


     (1) Incorporated by reference to exhibit filed with the Registrant's
         Annual Report on Form 10-K for the fiscal year ended January 31,
         1988.

     (2) Incorporated by reference to exhibit filed with the Registrant's
         Annual Report on Form 10-K for the fiscal year ended January 31,
         1989.

     (3) Incorporated by reference to exhibit filed with the Registrant's
         Registration Statement on Form S-1 (No. 33-4131) filed 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.

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

     (5) Incorporated by reference to exhibit filed with the Registrant's
         Registration Statement on Form S-8 (No. 33-81914) filed July 25,
         1994.

     (6) 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.

     (7) Incorporated by reference to exhibit filed with the Registrant's
         Annual Report on Form 10-K for the fiscal year ended January 31,
         1996.

     (8) Incorporated by reference to exhibit filed with the Registrant's
         Registration Statement on Form S-3 (No. 333-33147) filed on August
         7, 1997.

     (9) Incorporated by reference to exhibit filed with the Registrant's
         Registration Statement on Form S-3 (No. 333-47835) filed on March
         12, 1998.

    (10) Incorporated by reference to exhibit filed with the Registrant's
         Registration Statement on Form S-3 (No. 333-77595) filed on
         May 3, 1999.

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

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