---

---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-K/A
(Amendment No. 1)

(Mark One)

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

For the Fiscal Year Ended March 31, 2001

OR

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

Commission File Number: 000-25139

---

SAGE, INC.(Exact Name of Registrant as specified in its Charter)

Delaware(State or other jurisdiction of
incorporation or organization)

77-0501710(I.R.S. Employer
Identification No.)


1601 McCarthy Boulevard, Milpitas, California, 95035(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: 408-383-5300

---

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class: None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $0.01 Par Value(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
the 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. / /

As
of November 26, 2001, 14,619,747 shares of common stock par value of $0.01 per share were outstanding. The aggregate market value of the voting shares (based on the closing
price reported by the NASDAQ National Market System on November 26, 2001) of Sage, Inc., held by non-affiliates was $333,947,293. For purpose of this disclosure, shares of
common stock held by persons who own 5% or more of the outstanding common stock and shares of common stock held by each officer and director have been excluded in that such persons may be deemed to be
"affiliates' as that term is defined under the Rules and Regulations of the Act. This determination of affiliate status is not necessarily conclusive.

---

Documents Incorporated by Reference

Portions of the definitive proxy statement for the Annual Meeting of Stockholders held on August 31, 2001, are incorporated by reference into
Part III of this Form 10-K.

---

---

---



CAUTIONS ABOUT FORWARD LOOKING STATEMENTS

Certain information in this Annual Report on Form 10-K, including but not limited to the Management's Discussion and Analysis of Financial
Condition and Results of Operations, may constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E
of the Securities Exchange Act of 1934. Certain forward-looking statements can be identified by the use of forward-looking terminology such as, "believes," "expects," "may," "will," "should," "seeks,"
"approximately," "intends," "plans," "estimates," "anticipates," or "hopeful," or the negative thereof or other comparable terminology, or by discussions of strategy, plans or intentions.
Forward-looking statements involve risks and uncertainties, including those described in the Risk Factors section of this Annual Report on Form 10-K, which could cause actual
results to be materially different than those in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date
hereof. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10K/A to the Annual Report on Form 10-K for the year ended March 31, 2001 is being filed
to amend Item 1 to read as follows. No other changes are being made to the Form 10-K.

PART I

Item 1.  Business



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

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

Since
its inception, we has focused primarily on the design and sale of high performance display processor ICs and will continue to do so as this is a high-growth volume
market serving major mass-market manufacturers of displays and televisions. However, we also have a legacy systems business supplying system solutions to other market channels, including
board level solutions to industrial customers and video processing boxes to the home theater market. As of the March 2001 quarter, such system sales actually represented 49.3% of our total
revenue. We expect our IC business will grow rapidly, while our

2

---

system business remains static or even declines over time resulting in ICs accounting for a growing majority of total revenue over the next few years. Because board level products typically have lower
margins than ICs we expect this to have a beneficial impact on our future gross margin. Even though system activities are not our primary focus, we intend to continue to offer products into the home
theater markets for the foreseeable future. Our home theater box products, sold under the Faroudja brand name, provide a powerful high-quality marketing umbrella which serves to shelter
and promote a quality image for all our video processing products, including video processing ICs that may be developed and offered to the mass market.

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

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

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

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

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

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

3

---

stock price since measurement date of the acquisition and the recorded balance of goodwill and other intangible assets significantly exceeded Sage's market capitalization prior to the impairment
charge.

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



Electronic displays have become part of our daily lives as our computing, communications and entertainment needs are increasingly being met by familiar
technologies, such as personal computers and televisions, and emerging technologies, such as personal digital assistants, Internet appliances and touch-screen displays used in retail and industrial
settings. Historically, most desktop PC monitors and all television screens displayed images on a cathode ray vacuum tube, or CRT. A CRT displays images that are transmitted to it by an analog signal.
The display signal controls a beam of electrons that creates the image by illuminating phosphorescent dots, or pixels, on the back of the CRT screen. The quality of the image is a function of the mode
of the input signal, which consists of the following four principal parameters:





Digital flat panel display devices in the form of liquid crystal displays ("LCDs") have been developed as an alternative to traditional analog CRTs. Flat panel
displays render images by digitally switching pixels on or off on the surface of the display screen. Flat panel displays offer significant advantages over traditional CRTs because they have a more
compact form factor, generate less heat, consume less power and produce less radiation. Flat panel displays also produce images that do not flicker and that are more sharply defined than the images
displayed on CRT monitors. Flat panel displays were first incorporated into laptop computers and, as panel sizes increased, they were incorporated into desktop displays. Flat panel displays for PCs,
originally deployed primarily in situations where space was limited, are gaining widespread market acceptance as prices decline, as manufacturing capacities increase and as manufacturing yields
improve.

The
emergence of a significant digital flat panel display market has led PC manufacturers to introduce PCs that produce both conventional analog as well as digital or dual display
signals. Some PC manufacturers have begun to sell flat panel displays incorporating the PC into its base, known as all-in-one PCs. The introduction of digital display signal
outputs has also provided manufacturers of analog CRT monitors with an opportunity to develop new products that incorporate digital signal processing capabilities into CRTs. Content today is all
digital whether it comes from a digital satellite, HDTV, DVDs or CD and hence to properly view this format a digital display is required instead of converting it back to the analog format. These
displays, commonly referred to as digital CRTs, display images using the same technology employed by traditional analog CRTs but by incorporating internal digital processing they can have new display
features, such as picture-in-picture display and enhanced compatibility with multiple display signals. By adding digital signal input features, manufacturers can differentiate
digital CRTs from the highly commoditized, price-sensitive analog CRT displays.

4

---



Television signals have traditionally been broadcast in analog form and displayed in an interlaced scanning format on analog television CRTs. Recent
developments in the television industry have mirrored the changes that have taken place in the PC display market. Traditional analog CRT televisions are being manufactured in larger sizes, and
displays with a progressive scanning format are being introduced to improve the quality of images on larger screens. Flat panel and plasma displays, which are digital, have been introduced to offer
the same form factor and image quality advantages as flat panel PC monitors. Sage believes the worldwide trend toward broadcasting digital signals will lead to increasing demand for HDTV or digitally
enhanced TV sets that can produce higher quality images in varying aspect ratios, such as the wider format, cinema-style aspect ratio of 16 × 9 in addition to the traditional
television-style 4 × 3 aspect ratio. International Data Corporation forecasts that annual shipments of digital televisions will grow to 7.2 million units in 2002.
Display processing functionality,
which is not currently included in traditional analog televisions, will increasingly be needed to process digitally enhanced TV signals as well as analog signals for display on digital and progressive
scanning televisions.



Display signals, which can be analog or digital, are generated in numerous non-compatible modes for both personal computing and television
applications. The challenges of processing a signal to render a high quality image on a digital display in this environment include:





Display manufacturers face significant challenges and opportunities in responding to developments in the PC and television display markets. The emergence of
new digital display devices and the proliferation of signal modes increasingly require manufacturers to incorporate more powerful and flexible display processors into their displays. Displays must be
designed to function with digital signals and remain compatible with the large installed base of existing PCs and other appliances that transmit analog display
signals. The large number of different signal modes and types, the growing trend towards plug and play devices in the PC market and the established easy-to-use characteristics
of the television market make it essential that displays operate properly with minimal consumer configuration or adjustment in order to

5

---

achieve widespread market acceptance. At the same time, manufacturers are seeking ways to take advantage of the capabilities of digital displays by developing differentiating product features and
associated brand recognition, all while maintaining short design and manufacturing cycles and recognizing cost constraints.



Sage is a leading global provider of high performance digital display processors. Our advanced technology offers
state-of-the-art display and video processing, highly integrated signal interfaces, signal reformatting and color processing capabilities. Our solutions are
compatible with all commercially available display signal modes and display types. We provide manufacturers with a highly integrated and efficient display processing solution equipped with custom
design features. Furthermore, we have introduced the world's first fully integrated SmartMonitor product that integrated a dual interface, microprocessor, and timing controller using the
system-on-a-chip approach. The principal benefits of our solution include:

Support for all commercially available signal modes and display types.We provide display processors that enable any
input display signal mode to be displayed on all commercially available digital displays, including flat panel monitors, flat panel televisions, projection devices, digital CRTs, Internet appliances
and touch-screen displays used in retail and industrial settings. Our display processors, which incorporate integrated Analog to Digital Conversion, integrated Digital Visual Interface (DVI) receiver
with High-Bandwidth Digital Content Protection, superior scaling with variable sharpness, SureSync and SmartSet algorithm features, produce high quality images by recognizing the
characteristics of the input signal and automatically reformatting an image as needed, in real time, to match the type of signal accepted by the device. These features provide optimal plug and play
capabilities between the computing platform and the display device.

Highly integrated and manufacturable display processing solution.Our display processors are designed to provide an
interface to convert incoming analog, or encoded digital signals, mode detection, reformatting and color depth processing in a highly integrated semiconductor with associated software. Our processors
employ a common architecture across our family of products. In addition, we provide software-based design and test tools and offers manufacturers our extensive standalone system-level design and
hardware experience and support. These features of our products enable manufacturers to reduce the time required to design and manufacture a wide range of display devices.

Highly customizable products.We support display manufacturers with a suite of products and screen display
configuration software design tools that allow manufacturers to easily enhance their ability to brand their products by facilitating the creation of customized on-screen interfaces for
consumers. Our software tools accelerate display manufacturers' product development cycles and their time to market. Our display processors are modular, allowing display manufacturers to add or delete
memory as needed to reduce costs, while minimizing reengineering and redesign.



Our goal is to be the leading provider of display signal and video processing solutions for display manufacturers. Our strategy consists of the following key
elements:



6

---





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

Semiconductor products.We design and sell a family of display and video processors to display manufacturers, TV and PC
manufacturers and third party subsystem manufacturers who design and manufacture monitors and TVs on behalf of brand name companies. Some of the world's leading display and PC manufacturers have
chosen our Cheetah4, Jaguar D, Jaguar 200 and FLI 2200 processors for use in their products and are currently evaluating recently announced new products.

Following
the introduction of Cheetah2 in 1997, we have launched a series of processor ICs to the mass market. Our flagship product, the Cheetah 4 has sold over 1 million units
through March 31, 2001 and is still in production. The Jaguar D, the first of a new generation of display processors has sold over

7

---

400,000 units in the nine months ended March 31, 2001. These early ICs were primarily discrete display processors and required the use of independent front-end receivers to convert
the incoming analog or digital signal into a format where it could be processed digitally. Our latest products such as the s9350, Jaguar TX and Jaguar ASM ICs are mixed signals chips integrating all
the necessary functions onto a single chip for lower cost, higher performance solutions. With the acquisition of Faroudja we are now offering video decoder, deinterlacer and enhancer chips into the
digitally enhanced TV and progressive scan DVD markets. All of our products can process television signals using an external video decoder chip and are compliant with widely used standards, such as
VESA, and emerging display standards, such as DVI. All of our products include our proprietary SureSync and SmartSet mode recognition and adjustment technologies, our high performance-scaling engine
and our software-configurable on-screen display features. The following table illustrates the key features of our display processor ICs.

|Product Name
(Date of Introduction)         |  | Supported
Signal Inputs                                                                                  |  | Features and Technology                                                                                                                                                                                               |  | Applications                                                                                                                                  
|------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|Cheetah3
(February 1999)                    |  |  Analog PC
 Digital PC
 Television
 Dual analog and digital input
 Dual analog and television input |  |  Internal ADC
 Image enhancement
 Color depth processing
 Maximum display output: 135M pixels per second
 Computing speed: 1600M operations per second
 Technology: 0.35 micron, 4 layer metal                  |  |  Analog input monitor
 Dual analog and digital input monitor
 Dual analog and television monitor                                           
|Cheetah4
(March 1999)                       |  |  Digital PC
 Television                                                                                |  |  Image enhancement
 Color depth processing
 Maximum display output: 110M pixels per second
 Computing speed: 1300M operations per second
 Technology: 0.35 micron, 3 layer metal                                 |  |  Digital input monitor
 Television display
 All-in-one PC                                                                                  
|Jaguar 200Mx and Jaguar
200Mx/HD
(Feb 2000) |  |  Analog PC
 Digital PC
 Television and HDTV
 Multi input capability-up to 5 inputs are supported     |  |  Picture in Picture/PBP
 External ADC and PLL
 High speed single chip mixed signal display processor
 Technology: .25 micron 5 layer metal                                                                        |  |  Multi input monitors
 Supports resolution up toWUXGA/HDTV                                                                                  
|Jaguar 200
(Feb 2000)                       |  |  Analog PC
 Digital PC
 Television
 Multi input capability- up to 5 inputs are supported             |  |  Picture in Picture/PBP
 External ADC and PLL
 High speed single chip mixed signal display processor
 Technology: .25 micron 5 layer metal                                                                        |  |  Multi input monitors
 Support resolution up toUXGA                                                                                         
|Jaguar D
(May 2000)                         |  |  Analog PC
 Digital PC
 Television                                                                    |  |  Image enhancement
 Active color management with Video Window Detection
 Supports 1280x1024 pixels, or SXGA, and NTSC/PAL.
 Computing speed: 1300M operations per second
 Technology: 0.25 micron, 3 layer metal |  |  Analog input monitor
 Digital input monitor
 Television display
 All-in-one PC
 Can be used with separate analog or digital interface IC

8

---

|Jaguar TX/TS
(July 2000)   |  |  Digital PC
 Television                                                                    |  |  Image enhancement
 Active color management with Video Window Detection
 Supports 1280x1024 pixels, or SXGA, and NTSC/PAL.
 Technology: 0.25 micron, 5 layer metal                                                     |  |  Digital input monitor
 Television display
 Integrates DVI receiver with HDCP                                                                                     
|-------------------------- |  | -------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Jaguar ASM/AUM
(June 2001) |  |  Analog PC
 Digital PC
 Television
 Multi input capability- up to 5 inputs are supported |  |  Picture in Picture
 Integrated ADC and PLL
 High speed single chip mixed signal display processor
 Technology: .25 micron 5 layer metal                                                                               |  |  Analog input monitor
 Dual input monitor
 Supports resolution up to SXGA/UXGA                                                                                    
|S 9350
(April 2001)        |  |  Analog PC
 Digital PC
 Dual PC
 Smart panels                                            |  |  Image enhancement
 Active color management
 Supports 1280x1024 pixels, or SXGA,
 Technology: 0.25 micron, 5 layer metal
 Integrates analog and DVI interface
 Integrates microprocessor and panel timing controller |  |  Dual input monitor
 Integrates ADC, DVI receiver with HDCP, TCON, Microprocessor
 All-in-one PC
 Eliminates separate board by attaching directly to glass module
|S 9330
(April 2001)        |  |  Analog PC
 Digital PC
 Dual PC                                                           |  |  Image enhancement
 Active color management
 Supports 1280x1024pixels, or SXGA,
 Technology: 0.25 micron, 5 layer metal
 Integrates analog and DVI interface for dual input monitors                                  |  |  Dual input monitor
 All-in-one PC                                                                                                                                 
|FLI 2000
(June 2000)       |  |  NTSC/PAL Decoder
 Enhancer                                                                |  |  Video enhancer
 Decoder
 Time base correction                                                                                                                                                                          |  |  Progressive scan TV
 Progressive scan DVD
 Multimedia projector                                                                                                  
|FLI 2200
(November 2000)   |  |  NTSC, PAL, SECAM                                                                           |  |  Deinterlacer
 DCDi processing
 FilmMode processing
 Cross color suppression
 10-bit processor                                                                                                                        |  |  Progressive scan TV
 Progressive scan DVD
 Multimedia projector                                                                                                  
|FLI 2220
(June 2001)       |  |  NTSC, PAL, SECAM                                                                           |  |  Video enhancer
 Chroma luma enhancer                                                                                                                                                                                    |  |  Progressive scan TV
 Progressive scan DVD
 Multimedia projector                                                                                                  

We intend to continue extending our line of integrated digital display and video processor ICs with the intention of creating a range of
processors optimized for different applications and market segments. We cannot offer any assurance that we will successfully develop new products or product enhancements based on our research and
development activities. In addition, we cannot offer assurances that, if new products or product enhancements are developed, any such new product or product enhancements will be developed in time to
capture market opportunities or achieve a significant or substantial level of acceptance in new and existing markets.

Home Theater box products.Sage, under our Faroudja brand, designs, develops and markets a range of video processing
and video image enhancement products for the home theater, commercial presentation and broadcast markets. These products include standalone system-level products for consumer and commercial
end-users. We have pioneered video image enhancement technologies and designs, and develop and market a variety of video image enhancement products incorporating these technologies. These
technologies and products dramatically improve image quality, producing cinema quality images on

9

---

a wide variety of displays. These products substantially reduce the imperfections inherent in standard TV signals, which become increasingly apparent on large screen and high-resolution
displays. Our technology improves picture quality by removing artifacts and noise, detecting and compensating for motion, enhancing resolution, and multiplying the number of lines displayed. Our
products for the home theater and commercial presentation market are standalone system-level products that are ready for use without further assembly. These boxes sell for retail prices between $4,000
to $28,000 through a network of installers and dealers. Our products continue to enjoy critical reviews in the leading video enthusiast magazines. Today the advanced algorithms are built into FPGA
packages in these boxes but we intend to include our own video processing ICs into future models of these products.

|Product Name
(Date of Introduction) |  | Supported
Signal Inputs                            |  | Features and Technology                                                                                                                                                                                                                                                                                                                                                                                |  | Applications                  
|----------------------------------- |  | -------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------
|DVP 2200
(1999)                     |  |  Video processor
 CRT, DLP, LCD & plasma         |  |  Adaptive comb filter
 Bandwidth expansion
 Inverse film detection with edit correction
 Cross-color suppression
 Aspect ratio control
 Scan rate scaling 480i to VGA, SVGA and DTV rate of 480p                                                                                                                                                                                                 |  |  Video projection and display
|DVP 2220
(1999)                     |  |  Video processor
 CRT, DLP, LCD & plasma         |  |  Adaptive comb filter
 Bandwidth expansion
 Inverse film detection with edit correction
 Cross-color suppression
 Aspect ratio control
 Scan rate scaling 480i to VGA, SVGA and DTV rate of 480p
 Frame doubling to convert PAL sources from 50Hz to 100Hz to eliminate flicker                                                                                                                 |  |  Video projection and display
|DVP 3000
(1999)                     |  |  Video processor/ scaler
 CRT, DLP, LCD & plasma |  |  Adaptive comb filter
 Bandwidth expansion
 Inverse film detection with edit correction
 Cross-color suppression
 Aspect ratio control
 Scan rate scaling 480i to VGA, SVGA and DTV rate of 480p
 Frame doubling to convert PAL sources from 50Hz to 100Hz to eliminate flicker
 Scan rate scaling 480i to computer SXGA & DTV rate of 480p, 1080i, 720p, 960p &1080p
 Progressive DVD inputs |  |  Video projection and display

10

---

|DVP 5000
(2000)         |  |  Video processor/ scaler
 CRT, DLP, LCD & plasma |  |  Adaptive comb filter
 Bandwidth expansion
 Inverse film detection with edit correction
 Cross-color suppression
 Aspect ratio control
 Scan rate scaling 480i to VGA, SVGA and DTV rate of 480p
 Frame doubling to convert PAL sources from 50Hz to 100Hz to eliminate flicker
 Scan rate scaling 480i to computer SXGA & DTV rate of 480p, 1080i, 960p &1080p
 DCDi deinterlacing
 Progressive DVD inputs |  |  Video projection and display                 
|----------------------- |  | -------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------
|VS50
(2000)             |  |  Low noise video decoder
 NTSC, PAL              |  |  Adaptive comb filter
 Bandwidth expansion
 Cross-color suppression                                                                                                                                                                                                                                                                                                                                                |  |  Video post production
 Large screen displays
|NRS Series
(March 2001) |  |  NTSC, PAL,                                       |  |  Similar technology to DVP 3000 but with separate input board of line doubling of HDTV 1080i to 1080p                                                                                                                                                                                                                                                                                                                |  |  9" CRT and JVC QXGA projectors               

Circuit board products.We also design and market both custom and standard display processing circuit
boards, built around our semiconductors, as custom designed embedded display solutions for specific display applications. Our custom circuit boards address the unique needs of display manufacturers
that want to support several control and output capabilities on a single circuit board. Our standard controller circuit boards provide an effective off-the-shelf solution to
our low volume display OEM customers.



Processing display signals requires large data streams to be recognized, sampled, formatted and converted in real time. For example, operating a flat panel
SXGA digital display requires the digital processor to perform more than 1.5 billion operations per second. Our processors convert signals from a broad range of sources into a format that can
be displayed on different display devices with minimal need for consumers to adjust operating device parameters. To accomplish this, our processors must identify the input signal type and mode,
convert it into a digital form and then process it to match the display device. Our processors respond and automatically adjust in real time to changes in the type and
mode of the incoming display signal. We have developed significant proprietary architecture and design features to support the processes implemented by our chips. These processes include:

Analog-to-digital conversion.Most PCs and televisions generate analog display signals. In
order to display this signal on a digital screen, the analog data stream must be correctly identified, rapidly and accurately sampled and converted to a digital signal with no measurable error in the
timing of the sampling. With our Cheetah3 and Jaguar 200/200MX and Jaguar ASM analog interface processors, we have successfully addressed the significant technical challenges of integrating
analog-to-digital conversion onto a single semiconductor. This enables us to lower costs and improve display performance.

Digital Interface receiver.The Digital Display Working group, lead by Intel and other leading computer companies
recently established standards for the transmission of high-speed, broadband video display signals. These standards, described as DVI ("Digital Video Interface") and DVI HDCP ("DVI High -
Bandwidth Digital Content Protection") are embodied in the form of a transmitter in the host PC and a receiver in the client display. We have developed an integrated DVI receiver which is now included
in our Jaguar TX product for the digital interface market.

11

---

Mode detection.Our processors are designed to identify the resolution, scanning format and frame refresh rate of the
incoming display signal. Analog display signals do not contain explicit information about these parameters. Our SureSync technology measures the frequency of horizontal and vertical synchronization
signals contained within the incoming signal to deduce its mode. The timing of these signals is not uniform and varies depending upon the architecture and implementation of the PC graphics subsystem.
We regularly examine and incorporate information about these characteristics into the software that supports our products, enabling them to detect and synchronize with the PC graphics subsystems of
virtually all manufacturers worldwide.

Spatial processing.Spatial processing, or scaling, is the process of reformatting the resolution of an image to
properly match the resolution of a display. We have developed several generations of scaling technology that increase and reduce the size of images, as needed using efficient processing algorithms.

Frame Rate Conversion.Each type of digital display supports a single, fixed frame refresh rate, requiring adjustment
of the flow of data to be matched to the display device. Typically, the adjustment is performed through the use of external memory. Our Cheetah3 display processor was among the first products on the
market to provide integrated support for external frame memory on a single chip and to provide an option to exclude memory, if desired, to reduce cost. The Jaguar ASM/AUM, Jaguar 200 series, and the
s9700 with the s8500 support memory options.

Color depth processing.Display devices often render the colors of the same image differently because of variations in
technologies and manufacturing techniques used by different display manufacturers. Our processors incorporate hardware and software that allows manufacturers to compensate for these differences and to
adjust the image being displayed. In addition, many digital displays generate far fewer than the 16 million colors, which traditional CRTs are capable of displaying. In the case of certain
older flat panel displays, colors are limited to as few as eight. Our color processing technology simulates additional colors so that the human eye perceives a far larger number of colors than are
supported by the display device. Our processors also include circuitry that can enhance the details in the image, compensating for certain losses and degradation of signal data resulting from the
physical transmission of the analog signals.

Active Color Management/Picture in Picture.Typically video displays, for example those shown by a DVD player
incorporated into certain PCs, appear to be relatively dark compared to the standards of brightness expected and needed for reading normal text or spreadsheet displays. When a video window is exposed
onto a standard desktop display, the contrasting brightness and color differentials can reduce the quality of the viewing experience. Our active color management process enables the existence and
location of a video picture-in-picture to be determined in relation to the background desktop application, and differential rates of brightness and color management to be
applied optimally to the respective areas.

Display formatting.Digital displays have differences in their internal architecture to which a signal must be adapted
in order for the image to appear on the screen. These differences can affect the characteristics of display processing output signals that operate them. These variations include differences in the
number of bits or information that must be transmitted to the display at one time and in the format and timing of signals that control certain display functions. The format of these display signals
from our processors is programmable in software. Our processors can support all available types of digital displays, including all types of plasma displays, projector devices and liquid crystal
displays, including active and passive matrix. This offers our customers flexibility because they can change the manufacturing source of a particular size of panel, or even change the size of the
panel, without redesigning a new display processing circuit board.

Software technology.The operation and internal configuration of our processors is controlled by embedded software
running on the display manufacturer's circuit board. Our embedded software and easy-to-use software utilities allows us to offer significant custom design features to display
manufacturers, including the design of the on-screen display user interface. In addition, our SureSync and Smart-Set

12

---

technologies enable consumers to optimize image quality by clicking a single button or setting and are implemented using a combination of hardware and software.

Sage has also acquired a range of video processing technology from our acquisition of Faroudja in June 2000 including the following:

Encoding Technology.A NTSC or PAL signal consists of a luminance signal and two color-difference signals. In a
conventional NTSC or PAL encoder, the color-difference signals are modulated on a subcarrier and added to the luminance signal. In this case, the spectrum of both the luminance signal and the
modulated chrominance signal are mixed together, which generates "rainbow patterns," "dot crawl" and other artifacts in TV receivers. Our patented pre-filtering technology is applied to
luminance and chrominance signals separately so that they will not interfere with each other. The two signals are added together without an overlaid spectrum, which significantly reduces rainbow
patterns and other artifacts

Decoding Technology.The color section of the NTSC standard was originally designed with severe bandwidth restrictions.
This causes colors in various video images to "blur" and "smear." These effects are aggravated by storage media, such as VHS tapes, that further degrade the chroma or color signal. Our decoder
technology utilizes proprietary circuitry to recreate and correct color details. This is accomplished by making use of the sharper black and white transitions to develop a correction signal that is
then used to sharpen the color transitions. As a result, colors are restored with sharp details and video images retain their original crispness. Digital adaptive comb filter circuitry eliminates
decoding
errors from imperfect separation of the luminance and chrominance signals and enables the reproduction of sharper, cleaner color images. Our decoder technology has two separate correction circuits
that create color transitions that are clear, sharp and natural by eliminating the artifact known as "dot crawl", a rapid upward movement of colored dots on sharp vertical transitions, and hanging
dots which lie underneath all the colored horizontal transitions. Dot crawl and hanging dots are readily apparent with large, highly saturated, stationary graphics such as titles and credits.

Motion Compensation Technology.The inherent scan and frame rate changes that are required to display the enhanced
video image make motion compensation necessary in the reconstruction of the enhanced picture. TV images are transmitted in an interlaced fashion in which the picture is transmitted in two parts, the
first being the odd lines of the picture, the second the even lines. This creates a time delay of 16 milliseconds between the odd and even lines of the image. If motion is present, artifacts can be
generated in the conversion to a line multiplied image. Also, while TV images are displayed at approximately 60 frames per second, cinema film sources are displayed at 24 frames per second. To ensure
an image noticeably free from artifacts, the motion of the video has to be taken into account and identification of the source material as video or film is necessary. Our patented motion and film
detection technology is used in most of its video enhancement products.

Line Multiplier Technology.The line multiplier technology reduces scan line visibility resulting from utilizing a 525
line interlaced broadcast standard on today's large screen TVs by changing the interlaced video signal to a progressively scanned signal. Our line multiplier technology detects motion and interpolates
correctly to "fill in the blanks." This technology can detect the difference between a film image that has been transferred to video or a video image that emanates from a video camera. After detecting
the image type, the line multiplier technology selects its algorithm to compensate accordingly. This is critical because today's home theaters are primarily used to show films that were transferred to
video, whether on tape, laser disc, DVD or off the air.

Detail Enhancement Technology.The best video sources such as DVD (if properly recorded) provide good resolution while
others such as digital satellite reception and laser discs often provide acceptable resolution. Common sources such as broadcast or VHS tapes are noticeably deficient. The problem is compounded when
scan lines are multiplied and when other signal processing is applied. The resulting picture is free of artifacts (including visible scan lines) but dull, with loss of definition and a general

13

---

blurriness. Through the use of non-linear processing our proprietary technology increases the visibility of small image details, whether horizontal or vertical, without introducing ringing
or noise artifacts and without modifying large edge response. This technique also expands the apparent bandwidth of large edge signals without introducing artifacts, such as ringing, in both the
horizontal and vertical domains. The combination of these two techniques results in an image that gives a greater feeling of depth.

Noise Reduction.All analog video sources contain some degree of picture noise. This is manifested as low level moving
or shimmering artifacts, or an excessive graininess in the picture. High quality digital
sources such as DVDs have much reduced noise content. Noise reduction processing is required to bring analog sources, either existing archive material or new material from traditional cameras, up to
digital standards. Small static details in the picture have to be distinguished from the moving noise artifacts so that correct discrimination can be accomplished. We make use of motion detection and
adaptive video filtering technologies to optimize noise reduction in the video images.

Time Base Correction, Videosources that are transmitted from a broadcast studio or by a satellite or cable TV headend
derive line and frame scan rates from stable, crystal-controlled sources, which are timing accurate. Video produced by consumer videocassette recorders, camcorders and, to a lesser extent, videodiscs
are subject to timing errors, because the playback relies on the mechanical rotation of the storage medium for timing accuracy. In the case of VCRs, line lengths may vary causing color decoding and
video picture alignment problems. If a VCR source is to be transmitted in the industry standard digital D1 format, this line timing variability is not permissible. Our time base correction technology
permits our decoders not only to separate the luminance and chrominance components of the video source, but also to re-lock the video to a crystal reference. This stabilizes the picture,
particularly when video is overlaid on other video sources, and makes it compliant with digital studio transmission standards.



Our customers are those manufacturers and direct and indirect suppliers who dominate the digital display manufacturing market. This market is relatively
concentrated with a limited number of manufacturers and suppliers. We have achieved initial success in this concentrated market. Our display processor customers include Compal, Fujitsu, NEC, Philips,
Sanyo, Samsung, Sony and Toshiba. NEC, with 13.8% was the only customer to exceed 10% of our annual sales revenue. Toshiba and Fujitsu were 7.3% and 6.9% of sales for the fiscal year ended
March 31, 2001.

We
do not have purchase contracts with any of our customers that obligate them to continue to purchase our display processors, and these customers could stop purchasing our display
processors at any time.

As
of March 31, 2001, we employed 44 individuals in sales and marketing and as field applications engineers and maintained relationships with six independent regional sales
representatives for our IC division, and approximately 450 independent dealers for our Home Theater Division. Our sales and marketing strategy focuses on achieving design wins from leading OEM display
manufacturers. We market and sell our semiconductor products in the U.S. through distributors and independent regional sales representatives and in Asia through independent regional sales
representatives in Japan, Korea, Taiwan and elsewhere, with product development support from our U.S. and Indian offices. We market and sell our circuit board products in the U.S. through distributors
and our direct sales personnel, and in Asia through sales representatives, with product development support from our U.S. and Indian offices. We believe that providing customers with product
development support is critical to remaining competitive in the markets we serve. We provide product development support through our sales representatives and
from our offices in Milpitas and Sunnyvale, California. We currently provide full-time, on-site field applications engineers to support major customers in Japan, Korea, Taiwan,
PRC and Singapore.

14

---



Our future success will depend to a large extent on our ability to rapidly develop and introduce new products and enhancements to our existing products that
meet emerging industry standards and satisfy changing customer requirements. We have made and expect to continue to make substantial investments in research and development and to participate in the
development of new and existing industry standards.

Our
research and development has been focused in high-speed analog-to-digital signal display processors and advanced display-processing algorithms.
We also conduct research and development in custom semiconductor design. The majority of our engineers are involved in high speed, mixed-signal integrated circuit design and verification, with the
remaining engineers involved in algorithm development and software and system design. Before development of a new product commences, our marketing managers work closely with research and development
engineers and customers to develop comprehensive requirement specifications. In addition, our marketing managers and engineers review the applicable industry standards and incorporate desired changes
into new product specifications. After a product is designed and becomes commercially available, our engineers continue to work with various customers on specific design issues to understand emerging
requirements that may be incorporated into future product generations or product upgrades.

Our
research and development expenditures totaled $8.1 million for the twelve months ended March 31, 2001, $4.1 million for the twelve months ended
March 31, 2000, and $2.3 million in the fiscal year ended March 31, 1999. Research and development expenses consist primarily of salaries and related costs of employees engaged in
research, design, and development activities. In addition, expenses for outside engineering consultants and NRE are included in research and development expenses. As of March 31, 2001, there
were 91 employees engaged in research and development. We perform our research and development activities at our headquarters in Milpitas, California and at our engineering facility in Bangalore,
India. As of March 31, 2001, 55 of our employees were based at our facility in India.



Sage has adopted a fabless semiconductor-manufacturing model and we out-source our entire semiconductor manufacturing, assembly and testing. This
approach allows us to focus our resources on the design, development and marketing of our products and significantly reduces our capital requirements. As of March 31, 2001, we had a staff of 26
operations personnel responsible for inventory shipping, purchasing, final testing, packing and quality control. To date, we have subcontracted the manufacturing of our .35-micron Cheetah
family of display processor ICs on a turnkey basis to Fujitsu Microelectronics and Kawasaki LSI U.S.A, and our FLI de-interlacer ICs to ST Micro. We have subcontracted the production of
certain of our new .25 micron Jaguar mixed signal family of display processor ICs to Taiwan Semiconductor Manufacturing Corporation ("TSMC") and are assuming the risks of yield, test and packaging
which, if successful, could reduce our future unit costs. All of our IC products have been and are expected to continue to be single-source manufactured for the foreseeable future. Currently, we must
place orders three to four months in advance of expected delivery. We maintain our inventory levels based on current lead times from foundries plus safety stock to account for fluctuations in demand
that we anticipate on the basis of our customers' forecasts. As of March 31, 2001, most semiconductor subcontractors have announced that they are running below full capacity, following the
supply constraints that were experienced at times during the first half of the fiscal year ended March 31, 2001.

If
we lose or decide to change a key supplier or foundry, it could take several months to qualify a new supplier or foundry. Changing or qualifying a new supplier or foundry, would
likely involve delay and expenses, resulting in foregone revenues, reduced operating margins and possible detriment to customer relationships. Since we place our orders on a purchase order basis and
do not have a long-term volume purchase agreement with any of our existing suppliers, any of these suppliers may allocate capacity to the production of other products while reducing
deliveries to us on short notice. While we believe that we

15

---

currently have good relationships with our foundries and adequate capacity to support our current sales levels, there can be no assurance that adequate foundry capacity will be available in the future
on acceptable terms, if at all.

Our
semiconductor products are currently fabricated using a range of process technologies. We must continuously develop our products using new sub-micron technologies to
remain competitive on a cost and performance basis. Migrating to new technologies is a challenging task requiring new design skills, methods and tools. We believe that the transition of our products
to smaller geometries will be important for us to remain competitive. Our business could be harmed if any transition is delayed or inefficiently implemented.



Sage relies on a combination of non-disclosure agreements and copyright, trademark and trade secret laws to protect our algorithms, design and
architecture of our semiconductor technology. We currently have three patents filed with the U.S. Patent and Trademark Office for protection of certain of our significant technologies, including our
on-screen user interface, dual spatial and temporal scaling system, video signal processing and channel equalization technology, and our video adapter circuit for detection of analog video
scanning formats. In addition, our Faroudja subsidiary has over sixty US and international patents covering an extensive range of video enhancement processes. In the future, we expect to seek patent
protection for our technologies as necessary. Any future patents may not be granted and, even if granted, may be invalidated, circumvented, challenged or licensed to others.

To
supplement the technologies that we develops internally, we have licensed rights to use certain patents held by third parties, and we may license additional technology rights in
the future.

The
semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights. We have certain indemnification obligations with respect to
the infringement of third-party intellectual property rights. There is no intellectual property litigation currently pending against Sage. However, we may from time to time receive notifications of
claims that we may be infringing patents or other intellectual property rights owned by third parties. If it is necessary or desirable, we may seek licenses under those patents or intellectual
property rights. However, we cannot be sure that licenses will be offered or that the terms of any offered licenses would be acceptable to us.



The display signal processing industry is very competitive. The markets in which we operate are characterized by rapid technological change, evolving industry
standards and declining average selling prices, and we expect them to become increasingly competitive. We believe that the key competitive factors in our markets are product design, performance,
price, features, size, reliability, time-to-market and customer support. Our ability to successfully compete in our target markets also depends on our continued success in the
development of high-performance display processors at optimal price points. In addition, our competitiveness may be affected by the development of competing technologies, the emergence of
new industry standards, and consumer demand for specific display features on the display device. Failure to monitor and effectively respond to these trends could reduce demand for our products.

Our
competitors include a range of diversified electronic and semiconductor companies that offer display processing products. In particular, we compete in varying degrees against
Genesis, Pixelworks, Macronix, Smart Asic, and Silicon Image. In some instances, we also compete with internally designed processing
solutions, developed by OEM display manufacturers for their own use. In the future, our current or potential customers may also develop their own proprietary display processors and become our
competitors. In addition, start-up companies that are seeking to capitalize on business opportunities as a result of the shift from analog to digital technology may seek to compete in our
markets. Our competitors may develop advanced technologies enabling them to offer more cost-effective and higher quality solutions

16

---

to OEM customers than those offered by us. Increased competition could harm our business, financial condition and results of operations by, for example, increasing pressure on our profit margins or
causing us to lose sales opportunities.



As of March 31, 2001, we employed 183 full-time employees of which 121 are in the United States and 62 are located throughout the world. Of
the total, 91 are in research and development, 44 are in sales and marketing, 26 are in operations and 22 are in finance and administration. Our success is dependent on a large part on our ability to
attract and retain qualified employees. To date, we believe we have been successful. However, there are uncertainties that we will continue to be successful in the future, given the competitive nature
of employment in the semiconductor industry and the high cost of living in the Silicon Valley. Our employees are not represented by collective bargaining agreements, and we believe that our relations
with our employees are good.



Effective June 8, 2000, Faroudja, Inc. merged with Sage. If the costs associated with the merger exceed the benefits realized,
Sage may experience increased losses.

If
the benefits of the merger do not exceed the costs associated with the merger, including any dilution to our stockholders resulting from the issuance of shares in connection with
the merger, our financial results, on a consolidated basis, could be adversely affected, including increased losses.

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

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



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

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

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

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

Our
display manufacturing customers have regular design cycles for their next display models. Our future success will depend to a substantial degree upon our ability to develop and
introduce new products

17

---

and enhancements to our existing products, and to do so on a schedule that makes our products and enhancements available at the time our customers are making purchasing decisions.

Likewise,
we are developing consumer video products that are designed to conform to certain current video processing industry standards. However, there can be no assurance that
manufacturers will continue to follow these standards or that more desirable standards will not emerge. The acceptance of our products also depends in part upon content providers developing and
marketing content for end-user systems, such as video and audio playback systems, in a format compatible with our products. There can be no assurance that these or other factors beyond our
control will not adversely affect the development of markets for our products.

Our
products and product enhancements must incorporate technological changes and innovations to meet evolving customer and industry standards. Our future success will depend, to a
substantial degree, upon our ability to develop and introduce new products and enhancements to our existing products that meet evolving customer and industry standards, and to do so on a schedule that
makes the products and enhancements available at the time our customers are making purchasing decisions.

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

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



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

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

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

18

---

Substantial portions of our revenues have been derived from sales of products that address the home theater and commercial presentation markets. Certain of our current Faroudja
branded products and future product plans address markets that are not now and may never become substantial commercial markets. Our future growth will depend, in large part, on our ability to identify
new markets for our products and to apply our products and technology to evolving markets and applications. There can be no assurance that these markets will become substantial commercial markets or
that our products will achieve market acceptance in those markets. There can be no assurance that new display technologies will be successful or that the television and personal computer markets will
converge, that these new markets will present substantial commercial opportunities, or that our products will adequately address these markets in a timely manner.

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

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

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

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

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

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

19

---

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

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

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

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

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

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



20

---



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



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



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

While
we have not experienced any material disruptions in supply to date, there can be no assurance that manufacturing problems will not occur in the future. In the event that any of
our foundries are unable or unwilling to produce sufficient supplies of our products in required volumes at acceptable costs, we will be required to reallocate production among our other existing
foundries or identify and qualify acceptable alternatives. This qualification process could take six months or longer, and no assurance can be given that any additional source would become available
or that we would be in a position to satisfy our production requirements on a timely basis. The loss of any of our foundries, our inability to obtain additional production in a period of increased
demand, or our inability to obtain timely and adequate deliveries from our suppliers could reduce or delay shipments of our products. Any of these developments could damage

21

---

relationships with our current and prospective customers and could have a material adverse effect on our business, financial condition and operating results.

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

Sage currently depends on a limited number of contract manufacturers for its semiconductor and standalone system-level products, and we must order products
from them based on forecasts from customers from whom we do not have firm purchase orders.

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

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



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

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

Our
ability to successfully offer our products in a rapidly evolving market requires effective planning and management processes. We continue to increase the scope of our operations
domestically and internationally and have increased our headcount substantially. Our past growth, and expected future growth, places a significant strain on our management systems and resources
including our financial and

22

---

managerial controls, reporting systems and procedures. In addition, we will need to continue to expand, train and manage our workforce worldwide.

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

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

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

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

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

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

Substantially
all of the intellectual property acquired with the Faroudja acquisition is licensed to us by Yves Faroudja. There are risks associated with this intellectual property
because we are a licensee and not the owner of such intellectual property rights. Under this agreement with Mr. Faroudja, he retains
the non-exclusive right to license his patents and technologies to third parties for use outside our field of use. Notwithstanding the particular terms of the license agreement with
Mr. Faroudja, we face the risk that he may attempt to terminate the granted licenses and that such an attempt may be successful or that the response to such attempt may consume substantial
financial and personnel resources. In the event our resources are so consumed, such consumption could have a material adverse affect on our business, financial condition and operating results.

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

23

---

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

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

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

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

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

Sales
outside of the U.S. accounted for 57% of total sales for the year ended March 31, 2001. Substantial numbers of our customers are located in Japan, Taiwan, Korea and PRC.
We anticipate that sales outside of the U.S. could increase in future periods and may account for an increasing portion of our revenues. In addition, manufacturers who incorporate our processors into
their displays sell them outside of the U.S., thereby exposing us indirectly to foreign risks. Specifically, we will be subject to the following risks:



24

---



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

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

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

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

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

Risks Related to the Display Processing Industry

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

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

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

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

Furthermore,
achieving a design win with a customer does not necessarily mean that this customer will order large volumes of our products. A design win is not a binding commitment by
a customer to purchase our products. Rather, it is a decision by a customer to use our products in the design process of that

25

---

customer's products. In addition, ours customers can choose at any time to discontinue using our products in that customer's designs or product development efforts. If our products are chosen to be
incorporated into a customer's products, we may still not realize significant revenues from that customer if that customer's products are not commercially successful.

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

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

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

Our
display processors require manufacturing with state-of-the-art fabrication equipment and techniques. Because the lead time needed to establish
a strategic relationship with a new contract manufacturer is at least six months, and the estimated time for us to adapt a product's design to a particular contract manufacturer's processes is an
additional three to four months, there is no readily available alternative source of supply for any specific product. A manufacturing disruption at any of our contract manufacturers would impact the
production of our display processors for a substantial period of time, thereby reducing our revenues, and would harm our customer relationships.

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

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

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

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



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

26

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on November 29, 2001.

| |  | SAGE, INC.
| |  | ----------
| |  | By:       

27

---

QuickLinks