UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October~~May 285, ~~2017~~2018

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

For the transition period from to

Commission file number 001-32207

Sigma Designs, Inc.

(Exact name of registrant as specified in its charter)

California

94-2848099

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

47467 Fremont Boulevard,

Fremont, California 94538

(Address of principal executive offices including Zip Code)

(510) 897-0200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☑
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of ~~November~~June 301, ~~2017~~2018, the Company had 3839,~~741~~989,~~034~~852 shares of Common Stock outstanding.

SIGMA DESIGNS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED ~~OCTOBER~~May 285, ~~2017~~2018

TABLE OF CONTENTS

		Page No.
PART I.	FINANCIAL INFORMATION	3
Item 1.	~~Unaudited~~ Condensed Consolidated Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets as of October 28, 2017 and January 28, 2017	3
	Unaudited Condensed Consolidated Statement of Net Assets as of May 5, 2018 (Liquidation Basis)	3
	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended October 28, 2017 and October 29, 2016	4
	Condensed Consolidated Balance Sheet as of February 3, 2018 (Going Concern Basis)	4
	Unaudited Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended October 28, 2017 and October 29, 2016	4
	Unaudited Condensed Consolidated Statement of Changes in Net Assets for the Three Months Ended May 5, 2018 (Liquidation Basis)	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended October 28, 2017 and October 29, 2016	5
	Unaudited Condensed Consolidated Statement of Operations for the Three Months Ended April 29, 2017 (Going Concern Basis)	6
	Notes to Unaudited Condensed Consolidated Financial Statements	6
	Unaudited Condensed Consolidated Statement of Comprehensive loss for the Three Months Ended April 29, 2017 (Going Concern Basis)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Unaudited Condensed Consolidated Statement of Cash Flows for the Three Months Ended April 29, 2017 (Going Concern Basis)	7
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 4.	Controls and Procedures	26
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
PART II.	OTHER INFORMATION
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 1.	Legal Proceedings	27
Item 4.	Controls and Procedures	29
Item 1A.	Risk Factors	27
PART II.	OTHER INFORMATION	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 1.	Legal Proceedings	30
Item 3.	Defaults Upon Senior Securities	28
Item 1A.	Risk Factors	30
Item 4.	Mine Safety Disclosures	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 5.	Other Information	28
Item 3.	Defaults Upon Senior Securities	30
Item 6.	Exhibits	28
Item 4.	Mine Safety Disclosures	30
Signatures		29
Item 5.	Other Information	30
Exhibit index		30
Item 6.	Exhibits	30
Signatures		31
Exhibit index		31

PART I.

FINANCIAL INFORMATION

ITEM 1. ~~UNAUDITED~~ CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIGMA DESIGNS, INC.

UNAUDITED CONDENSED CONSOLIDATED ~~BALANCE~~STATEMENT ~~SHEETS~~OF NET ASSETS

(InLiquidation ~~thousands, except share and per share data~~Basis)

	October 28, 2017			January 28, 2017
ASSETS
Current assets
Cash and cash equivalents	$	69,219		$	66,425
Short-term marketable securities		-			4,781
Restricted cash		325			303
Accounts receivable, net of allowances of $1,848 as of October 28, 2017 and $1,630 as of January 28, 2017		19,628			35,860
Inventory		13,679			18,147
Prepaid expenses and other current assets		7,869			8,017
Total current assets		110,720			133,533
Software, equipment and leasehold improvements, net		18,135			18,523
Intangible assets, net		21,957			30,744
Goodwill		10,594			10,594
Deferred tax assets		741			625
Long-term investment		910			2,000
Other non-current assets		4,138			5,755
Total assets	$	167,195		$	201,774
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	14,478		$	14,230
Accrued compensation and related benefits		10,020			8,127
Accrued liabilities		16,147			13,607
Total current liabilities		40,645			35,964
Income taxes payable		12,929			15,752
Long-term deferred tax liabilities		287			287
Other long-term liabilities		5,439			6,225
Total liabilities		59,300			58,228
Commitments and contingencies (Note 6)
Shareholders’ equity
Preferred stock; no par value, authorized 2,000,000 shares, none issued and outstanding		-			-
Common stock and additional paid-in capital; no par value; 100,000,000 shares authorized; 43,401,872 issued and 38,726,123 outstanding as of October 28, 2017 and 42,806,279 issued and 38,130,530 outstanding as of January 28, 2017		518,248			513,168
Treasury stock, at cost, 4,675,749 shares as of October 28, 2017 and January 28, 2017		(88,336	)		(88,336	)
Accumulated other comprehensive loss		(891	)		(2,178	)
Accumulated deficit		(321,126	)		(279,108	)
Total shareholders’ equity		107,895			143,546
Total liabilities and shareholders’ equity	$	167,195		$	201,774

(In thousands)

See the accompanying Notes to Unaudited Condensed Consolidated Financial Statements

	May 5, 2018

Cash and cash equivalents	$	279,407
Prepaid expenses and other current assets		5,698
Software, equipment and leasehold improvements, net		232
Other non-current assets		1,088
Liability for estimated costs during liquidation		(17,934	)
Accounts payable		(11,046	)
Income taxes payable		(10,882	)
Accrued compensation and related benefits		(4,444	)
Accrued liabilities		(1,497	)
Other long-term liabilities		(1,180	)
Commitments and contingencies (Note 8)
Net assets in liquidation (1)	$	239,442

See the accompanying Notes to Condensed Consolidated Financial Statements

(1) The net assets in liquidation amount may not equal the aggregate amount of cash available to shareholders for distribution in liquidation. Certain amounts reflected above, including income taxes payable, include amounts that are currently reserved but may not ultimately be required to be paid in cash.

SIGMA DESIGNS, INC.

~~UNAUDITED~~ CONDENSED CONSOLIDATED ~~STATEMENTS~~BALANCE ~~OF OPERATIONS~~SHEET

(Going Concern Basis)

(In thousands, except share and per share data)

	February 3, 2018
ASSETS
Current assets
Cash and cash equivalents	$	38,628
Accounts receivable, net of allowances of $2,022 as of February 3, 2018		9,715
Inventory		3,038
Prepaid expenses and other current assets		6,771
Current assets held for sale		21,893
Total current assets		80,045

Software, equipment and leasehold improvements, net		4,339
Intangible assets, net		2,551
Non-current assets held for sale		4,703
Other non-current assets		4,459
Total assets	$	96,097

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	9,333
Accrued compensation and related benefits		4,048
Accrued liabilities		9,867
Current liabilities held for sale		13,807
Total current liabilities		37,055

Income taxes payable		11,580
Deferred tax liabilities		45
Long-term liabilities held for sale		4,144
Other long-term liabilities		3,153
Total liabilities		55,977

Commitments and contingencies (Note 8)

Shareholders’ equity
Preferred stock; no par value, authorized 2,000,000 shares, none issued and outstanding		-
Common stock and additional paid-in capital; no par value; 100,000,000 shares authorized; 44,183,017 issued and 39,462,268 outstanding as of February 3, 2018		466,298
Treasury stock		(88,336	)
Accumulated other comprehensive loss		18
Accumulated deficit		(337,860	)
Total shareholders’ equity		40,120
Total liabilities and shareholders’ equity	$	96,097

See the accompanying Notes to Condensed Consolidated Financial Statements

SIGMA DESIGNS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS

(Liquidation Basis)

(In thousands)

	Three Months Ended
	May 5, 2018

Shareholders’ equity as of April 17, 2018, pre-adoption of liquidation basis	$	264,809
Effects of adopting the liquidation basis of accounting:
Change in net realizable value of prepaid expenses and other current assets		(972	)
Change in net realizable value of software, equipment and leasehold improvements, net		(1,516	)
Change in net realizable value of other non-current assets		(192	)
Change in settlement of income taxes payable and deferred tax liability		(161	)
Estimated liquidation and operating costs during liquidation		(17,934	)
Total effects of adopting the liquidation basis of accounting		(20,775	)
Net assets in liquidation, post adoption of liquidation basis		244,034
Changes in net assets in liquidation:
Change in settlement amounts of accounts payable		(3,271	)
Change in settlement amounts of accrued liabilities		(1,321	)
Total changes in net assets in liquidation		(4,592	)
Net assets in liquidation	$	239,442

See the accompanying Notes to Condensed Consolidated Financial Statements

SIGMA DESIGNS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Going Concern Basis)

(In thousands, except per share data)

	Three Months Ended					~~Nine Months Ended~~
	October 28, 2017			October 29, 2016		October 28, 2017			October 29, 2016
	April 29, 2017
Net revenue	$	3339,~~862~~564		$	~~62,729~~	$	~~112,934~~		$	~~177,820~~
Cost of revenue		1620,~~746~~940			~~31,734~~		~~58,374~~			~~93,242~~
Gross profit		1718,~~116~~624			~~30,995~~		~~54,560~~			~~84,578~~
Operating expenses
Research and development		1718,~~218~~169			~~18,264~~		~~53,380~~			~~56,255~~
Sales and marketing		75,~~012~~372			~~5,984~~		~~17,498~~			~~17,646~~
General and administrative		5,~~744~~454			~~4,578~~		~~15,899~~			~~14,536~~
Restructuring charges		563			-		2,529			-
Impairment of IP		3,006
Impairment of IP and mask sets		5,463			-		8,469			300
Total operating expenses		32,001
Total operating expenses		36,000			28,826		97,775			88,737
Loss from operations		(13,377	)
(Loss) income from operations		(18,884	)		2,169		(43,215	)		(4,159	)
Interest and other expense, net		(465	)
Interest and other income (expense), net		147			179		(1,076	)		(157	)
Loss before income taxes		(13,842	)
(Loss) income before income taxes		(18,737	)		2,348		(44,291	)		(4,316	)
Provision for income taxes		1,017
Provision for income taxes		347			2,127		2,329			5,283
Net loss	$	(14,859	)
Net (loss) income	$	(19,084	)	$	221	$	(46,620	)	$	(9,599	)
Net loss per common share:
Net (loss) income per common share:
Basic	$	(0.39	)
Basic	$	(0.49	)	$	0.01	$	(1.22	)	$	(0.26	)
Diluted	$	(0.39	)
Diluted	$	(0.49	)	$	0.01	$	(1.22	)	$	(0.26	)
Shares used in computing net loss per share:
Shares used in computing net income (loss) per share:
Basic		38,156
Basic		38,632			37,666		38,359			37,241
Diluted		38,156
Diluted		38,632			38,001		38,359			37,241

SIGMA DESIGNS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Going Concern Basis)

(In thousands)

	Three Months Ended						~~Nine Months Ended~~
	October 28, 2017			October 29, 2016			October 28, 2017			October 29, 2016
	April 29, 2017
Net (loss) income	$	(19,084	)	$	221		$	(46,620	)	$	(9,599	)
Net loss	$	(14,859	)
Other comprehensive income (loss):
Other comprehensive income:
Change in currency translation adjustments, net of tax		~~102~~245			~~(232~~	)		~~1,282~~			~~(17~~	)
Change in unrealized (losses) gains on marketable securities, net of tax		(3	)		(9	)		5			43
Change in unrealized gains on marketable securities, net of tax		3
Other comprehensive income (loss)		99			(241	)		1,287			26
Other comprehensive income		248
Comprehensive loss	$	(1814,~~985~~611	)	$	~~(20~~	)	$	~~(45,333~~	)	$	~~(9,573~~	)

See the accompanying Notes to ~~Unaudited~~ Condensed Consolidated Financial Statements

SIGMA DESIGNS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Going Concern Basis)

(In thousands)

	Nine Months Ended
	Three Months Ended
	October 28, 2017			October 29, 2016
	April 29, 2017
Cash flows from operating activities:
Net loss	$	(4614,~~620~~859	)	$	~~(9,599~~	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		104,~~854~~277			~~16,800~~
Stock-based compensation		41,~~007~~529			~~5,136~~
Provision for excess and obsolete inventory		~~1,442~~449			~~1,221~~
Provision for (recovery of) sales returns, discounts and doubtful accounts		218			(123	)
Provision for sales returns, discounts and doubtful accounts		11
Deferred income taxes		(~~122~~81	)		~~(363~~	)
(Gain on sale) impairment of long-term investment		(110	)		886
Impairment of IP		3,006
Impairment of IP and mask sets		9,669			300
Other non-cash activities		313
Other non-cash activities		(390	)		(799	)
Changes in operating assets and liabilities:
Changes in operating assets and liabilities:
Accounts receivable		8,880
Accounts receivable		16,014			(19,134	)
Inventory		(1,167	)
Inventory		3,026			5,304
Prepaid expenses, other current and non-current assets		(337	)
Prepaid expenses, other current and non-current assets		2,197			4,263
Accounts payable		3,411
Accounts payable		733			(6,988	)
Other long-term liabilities, accrued liabilities, compensation and related benefits		2,352
Other long-term liabilities, accrued liabilities, compensation and related benefits		4,552			4,971
Income taxes payable		732
Income taxes payable		2,092			4,177
Net cash provided by operating activities		8,516
Net cash provided by operating activities		7,562			6,052
Cash flows from investing activities:
Cash flows from investing activities:
Restricted cash		(15	)
Restricted cash		(22	)		584
Sales and maturities of marketable securities		2,003
Purchases of marketable securities		(645	)		-
Purchases of software, equipment and leasehold improvements		(4,118	)
Sales and maturities of marketable securities		5,431			3,582
Purchases of IP		(1,044	)
Sale of long-term investment		1,200			-
Net cash used in investing activities		(3,174	)
Purchases of software, equipment and leasehold improvements		(9,558	)		(7,847	)
Cash flows from financing activities:
Purchases of IP		(4,838	)		(5,670	)
Net share settlement of equity awards issued to employees		(84	)
Reimbursement of mask set related to collaborative arrangement		2,500			-
Net proceeds from exercise of employee stock options and stock purchase rights		6
Reimbursement of costs related to purchased IP		-			2,645
Net cash used in financing activities		(78	)
Net cash received in connection with acquisition		-			289
Effect of foreign exchange rate changes on cash and cash equivalents		8
Net cash used in investing activities		(5,932	)		(6,417	)
Net increase in cash and cash equivalents		5,272
Cash flows from financing activities:
Cash and cash equivalents, beginning of period		66,425
Net share settlement of equity awards issued to employees		(326	)		(528	)
Cash and cash equivalents, end of period	$	71,697
Net proceeds from exercise of employee stock options and stock purchase rights		1,399			2,133
Supplemental disclosure of cash flow information:
Net cash provided by financing activities		1,073			1,605
Cash paid for income taxes	$	349
Effect of foreign exchange rate changes on cash and cash equivalents		91			(197	)
Net increase in cash and cash equivalents		2,794			1,043
Cash and cash equivalents, beginning of period		66,425			63,790
Cash and cash equivalents, end of period	$	69,219		$	64,833
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	2,917		$	1,329

See the accompanying Notes to ~~Unaudited~~ Condensed Consolidated Financial Statements

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and summary of significant accounting policies

Organization and ~~nature~~Nature of operations: Sigma Designs, Inc. (referred to collectively in these unaudited condensed consolidated financial statements as “Sigma,” “we,” “our,” “the Company” and “us”) is a provider of intelligent platforms for use in a variety of home entertainment and home control appliances. We sell our products into two primary target markets which are the Connected Smart TV Platforms and Internet of Things (“IoT”) Devices markets. Our integrated system-on-chip (“SoC”) solutions serve as the foundation for some of the world’s leading consumer products, including televisions, media connectivity, smart home, and mobile IoT products. A majority of our primary products are semiconductors that are targeted toward end-product manufacturers, Original Equipment Manufacturers (“OEMs”), and Original Design Manufacturers (“ODMs”), however, a certain amount of non-recurring engineering services, development kit sales, and licensing revenue are also derived from our target markets. Additionally, we derive a minor portion of our revenue from non-core licensing and other activities, which is reported under the License and other markets. Operations

~~Basis~~Prior to the sales of ~~presentation: The~~our Media Connectivity, Smart TV and Set-top Box and Z-Wave business units (see sale of business units below for further information), Sigma Designs, Inc. (referred to collectively in these unaudited condensed consolidated financial statements ~~include~~as “Sigma,” “we,” “our,” “the ~~accounts~~Company” and “us”) was a provider of ~~Sigma~~intelligent ~~Designs,~~platforms ~~Inc.~~for use in a variety of home entertainment and ~~its~~home ~~wholly-owned~~control ~~subsidiaries~~appliances. ~~All~~ ~~significant~~We ~~intercompany~~sold ~~balances~~our products into two primary target markets which are the Connected Smart TV Platforms and ~~transactions~~Internet ~~have~~of ~~been~~Things ~~eliminated~~(“IoT”) ~~upon~~Devices ~~consolidation~~markets. WeOur ~~operate~~integrated system-on-chip (“SoC”) solutions served as the foundation for some of the world’s leading consumer products, including televisions, media connectivity, smart home, and ~~report~~mobile ~~quarterly~~IoT ~~financial~~products. ~~results~~A majority of our primary products were semiconductors that ~~consist~~were targeted toward end-product manufacturers, Original Equipment Manufacturers (“OEMs”), and Original Design Manufacturers (“ODMs”), however, a certain amount of 13non-recurring ~~weeks~~engineering services, development kit sales, and ~~end~~licensing onrevenue was also derived from our target markets. Additionally, we derived a minor portion of our revenue from non-core licensing and other activities, which is reported under the ~~last~~License ~~Saturday~~and other markets. On April 17, 2018, our shareholders approved a Plan of Liquidation and Dissolution following the ~~period~~consummation of the sale of our Z-Wave business. ~~The~~In ~~third~~accordance ~~quarter~~with the Company’s Plan of ~~fiscal~~Liquidation ~~2018~~and Dissolution, we filed the Certificate of Election to Wind Up and ~~fiscal~~Dissolve ~~2017~~with ~~ended~~the Secretary of State in California on ~~October~~May 284, ~~2017~~2018. ~~(91~~In ~~days)~~accordance ~~and~~with ~~October~~the ~~29,~~General ~~2016~~Corporation ~~(91~~Law ~~days)~~of the State of California, ~~respectively~~the Company’s sole purpose is winding down its remaining business. See Plan of Liquidation and Dissolution below for further information.

~~The~~Sales ~~unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States~~ of ~~America~~Business (“US GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). They do not include all disclosures required by US GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended January 28, 2017, included in our fiscal 2017 Annual Report on Form 10-K, as filed with the SEC on March 30, 2017, referred to as our fiscal 2017 Annual Report.Units

~~The~~On February ~~condensed~~15, ~~consolidated~~2018, ~~financial~~pursuant ~~statements~~to ~~included~~the ~~herein~~terms ~~are~~of ~~unaudited;~~a ~~however,~~Share ~~they~~Purchase ~~contain~~Agreement ~~all~~dated ~~normal~~February ~~recurring~~6, ~~accruals~~2018, ~~and~~the ~~adjustments that~~Company, inalong ~~our~~with ~~opinion,~~its ~~are~~wholly-owned ~~necessary~~subsidiary toSigma ~~present~~Designs ~~fairly~~Technology ~~our~~Singapore ~~consolidated~~Pte. ~~financial~~Ltd., ~~position~~completed atthe ~~October~~sale ~~28,~~to ~~2017~~Integrated ~~and~~Silicon ~~January~~Solution 28(Cayman), ~~2017,~~Inc. ~~the~~(“ISSI”) ~~consolidated~~of ~~results~~all of ~~our operations for~~ the ~~three~~issued and ~~nine~~outstanding ~~months~~shares ~~ended~~of ~~October~~Sigma ~~28,~~Designs ~~2017~~Israel ~~and~~S.D.I ~~October 29~~Ltd., ~~2016,~~a ~~and~~wholly-owned ~~the~~subsidiary ~~consolidated~~organized ~~cash~~under ~~flows for~~ the ~~nine~~laws ~~months~~of ~~ended~~Israel. ~~October~~The ~~28,~~assets ~~2017~~disposed ~~and~~consisted ~~October 29, 2016. The results~~ of ~~operations for~~ the ~~three~~Company’s ~~and~~Media ~~nine~~Connectivity ~~months~~business ~~ended~~including ~~October 28, 2017 are not necessarily indicative of~~ the ~~results~~Company’s toHomePNA beand ~~expected~~G.hn ~~for~~product ~~future quarters or the full year~~lines.

~~There~~Pursuant ~~have~~to ~~been~~the noShare ~~significant~~Purchase ~~changes~~Agreement, inthe ~~our~~Company ~~critical~~sold ~~accounting~~all ~~policies~~of ~~during~~ the ~~nine~~issued ~~months~~and ~~ended~~outstanding ~~October~~shares for $28,.0 ~~2017~~million, aspayable ~~compared to the critical accounting policies described~~ in ~~our~~cash. ~~Annual~~The ~~Report~~consideration onpaid ~~Form~~at ~~10-K~~closing ~~for~~was ~~the~~approximately ~~year~~$23.5 ~~ended~~million, ~~January~~an ~~28,~~amount ~~2017.~~which ~~For~~included a ~~complete~~deduction ~~summary~~ of ~~our~~$0.3 ~~significant~~million ~~accounting~~for ~~policies,~~fluctuations ~~refer~~in toworking ~~Note~~capital 1,and ~~“Organization~~which ~~and~~also ~~Summary~~allowed offor ~~Significant~~$4.2 ~~Accounting~~million ~~Policies,”~~to inbe ~~Part~~held ~~II,~~back ~~Item~~by 8ISSI ofsubject ~~our~~to ~~fiscal~~customary ~~2017~~adjustments ~~Annual~~after ~~Report~~closing.

~~Recently~~On ~~adopted~~March ~~accounting~~21, ~~pronouncements~~2018, the Company, along with its wholly-owned subsidiaries, Sigma Designs Technology Singapore Pte. Limited, a Singapore limited company (“Asia Seller”), Sigma Designs Technology Netherlands B.V., a Netherlands company (“Netherlands Seller”), Sigma International Limited, a Cayman company (“Cayman Seller” and together with the Company, Asia Seller and Netherlands Seller, collectively and each a “Seller”) entered into an Asset Purchase Agreement (the “Purchase Agreement”) with V-Silicon International, Inc., a Cayman Islands corporation (“V-Silicon Cayman”) and V-Silicon, Inc., a Delaware corporation (“V-Silicon US,” and together with V-Silicon Cayman, collectively and each a “Buyer”). Subject to the terms and conditions of the Purchase Agreement, Buyer agreed to purchase substantially all of the assets and assume substantially all of the liabilities of the Company’s Smart TV and set-top box business (the “Smart TV and Set-top Box Business”), except for certain specified assets and liabilities, from Seller for $5,000,000 (the “Purchase Price”) in cash. The Purchase Price was subject to an adjustment based on the actual net working capital of the Smart TV and Set-top Box Business at the closing relative to a target working capital of $2.5 million. On March 30, 2018, the sale of the Smart TV and Set-top Box Business to Buyer was consummated. After adjustment based on the actual net working capital of the Smart TV and Set-top Box Business delivered at the closing, the Purchase Price paid to the Company was $5.3 million.

InOn ~~March~~April ~~2016~~17, 2018, the ~~Financial~~Company ~~Accounting~~completed ~~Standards~~its ~~Board~~sale ~~(“FASB”)~~of ~~issued~~its ~~Accounting~~Z-Wave ~~Standards~~business ~~Update~~unit ~~(“ASU”)~~to ~~No.~~Silicon ~~2016-09~~Laboratories, ~~Compensation-Stock~~Inc. ~~Compensation~~ (~~Topic~~“Silicon ~~718~~Labs”): ~~Improvements~~in toaccordance ~~Employee~~with ~~Share-Based~~an ~~Payment~~Agreement ~~Accounting. The~~and ~~amendment~~Plan ~~simplifies several aspects~~ of ~~the~~Merger ~~accounting~~(“Agreement”) ~~for~~dated ~~share-based~~December ~~payments~~7, ~~including the accounting for income taxes and forfeitures, as well as the classification on the statements of cash flows~~2017. WePursuant ~~adopted~~to ~~this ASU in~~ the ~~first~~Agreement, ~~quarter~~Silicon ofLabs ~~fiscal~~purchased ~~2018~~substantially byall ~~recording the cumulative impact through an increase in retained earnings~~ of ~~$4.6 million. Stock-based compensation excess tax benefits or deficiencies are now reflected in~~ the ~~condensed~~assets ~~consolidated~~and ~~statements~~assumed ofsubstantially ~~operations~~all ~~as a component~~ of the ~~provision~~liabilities ~~for income taxes, whereas they previously were recognized in equity. The presentation requirements for cash flows~~ related to ~~employee~~the ~~taxes~~Z-Wave ~~paid~~business for ~~withheld~~a ~~shares~~purchase ~~had~~price ~~no impact to all periods presented on our condensed consolidated statements~~ of ~~cash~~$240 ~~flows since such cash flows have historically been presented as a financing activity~~million.

WePlan have elected to account for forfeitures as they occur and therefore, stock-based compensation expense for the three and nine months ended October 28, 2017 has been calculated based on actual forfeitures in our condensed consolidated statements of ~~operations,~~Liquidation ~~rather than our previous approach which was net of estimated forfeitures. The net cumulative effect of this change was less than $0.1 million~~ and ~~recognized as an increase to paid-in capital as of January 29, 2017.~~ Dissolution

InOn ~~July~~April ~~2015~~17, ~~the FASB issued ASU No. 2015-11~~2018, ~~Simplifying~~ the ~~Measurement~~Company ofheld ~~Inventory.~~a ~~Under~~special ~~this~~meeting ~~ASU,~~of ~~the~~shareholders ~~measurement~~whereby ~~principle~~a ~~for~~majority ~~inventory~~of ~~changed from~~ the ~~lower~~shareholders ofapproved ~~cost or market value to~~ the ~~lower~~voluntary ofliquidation ~~cost~~ and ~~net~~dissolution ~~realizable~~of ~~value.~~the ~~Net~~Company ~~realizable~~following ~~value is~~ the ~~estimated~~consummation ~~selling~~of ~~price~~our insale of the ~~ordinary~~Z-Wave ~~course~~business ofto ~~business,~~Silicon ~~less~~Labs ~~reasonably~~pursuant ~~predictable~~to ~~costs~~a Plan of ~~completion,~~Liquidation ~~disposal,~~ and ~~transportation.~~Dissolution We(the ~~adopted~~“Plan”). ~~this~~In ~~ASU~~accordance inwith the ~~first~~Plan, ~~quarter~~we ofgenerally ~~fiscal~~authorized ~~2018~~our ~~with~~officers noto ~~material~~take ~~impact~~all onnecessary ~~our~~actions ~~condensed~~to ~~consolidated~~effect ~~financial~~our ~~statements~~dissolution.

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Recently~~During ~~issued~~the ~~accounting~~liquidation ~~pronouncements~~of ~~not~~our ~~yet~~assets, ~~effective:~~the ~~Recent~~Company ~~accounting~~may, ~~pronouncements~~in ~~expected~~the sole and absolute discretion of the Board of Directors (“Board”), pay any brokerage agency and other fees and expenses of persons rendering services, including accountants and tax advisors, to ~~impact~~the ~~our~~Company ~~operations~~in ~~that~~connection ~~are~~with ~~not~~the ~~yet~~collection, ~~effective~~sale, ~~are~~exchange ~~summarized~~or asother ~~follows:~~disposition of the Company’s property and assets and the implementation of the Plan.

InUnder ~~November~~the ~~2016,~~Liquidation ~~the~~Basis ~~FASB~~of ~~issued~~Accounting, ~~ASU~~assets ~~No.~~are ~~2016-18,~~stated ~~Statement~~at oftheir ~~Cash~~estimated ~~Flows~~net ~~(Topic~~realizable ~~230):~~values, ~~Restricted~~liabilities ~~Cash~~are ~~(“ASU~~stated ~~2016-18”).~~at ~~The~~contractual ~~update~~amounts ~~provides~~and ~~guidance~~estimated onliabilities ~~the~~are ~~presentation~~stated ofat ~~restricted~~their ~~cash~~estimated orsettlement ~~restricted~~amounts, ~~cash~~including ~~equivalents~~those inestimated ~~the~~costs ~~statement~~associated ofwith ~~cash~~implementing ~~flows~~the Plan. We Estimates will ~~not~~ be ~~required~~periodically reviewed and adjusted. Uncertainties as to ~~adopt~~the ~~ASU~~precise ~~2016~~net value of our non-18cash ~~until~~assets and the ~~commencement~~ultimate amount of our ~~first~~liabilities ~~quarter~~make ofit ~~fiscal~~impracticable ~~2019,~~to ~~but~~predict ~~early~~the ~~adoption~~aggregate isnet ~~permitted~~value that may ultimately be distributed to shareholders. ~~The~~Claims, ~~adoption~~liabilities ofand ~~this~~future ~~ASU~~expenses isfor ~~not~~operations ~~expected~~will continue to ~~have~~be aincurred ~~material~~with ~~impact~~the onexecution ~~our~~of ~~consolidated~~the ~~financial~~Plan. ~~statements~~These costs will reduce the amount of net assets available for ultimate distribution to shareholders.

InAlthough ~~October~~we ~~2016,~~do ~~the~~not ~~FASB~~believe ~~issued~~that ~~ASU~~a ~~No.~~precise ~~2016-16,~~estimate ~~Income Taxes (Topic 740): Intra-Entity Transfers~~ of ~~Assets~~those ~~Other~~expenses ~~Than~~can ~~Inventory~~currently ~~(“ASU~~be ~~2016-16”)~~made, ~~which~~we ~~requires~~believe ~~the~~that ~~recognition~~available ofcash ~~the~~is ~~income~~adequate ~~tax~~to ~~consequences~~provide offor anour ~~intra-entity transfer of an asset~~obligations, ~~other than inventory~~liabilities, ~~when~~operating ~~the~~costs ~~transfer~~and ~~occurs.~~claims, ~~ASU~~and ~~2016-16~~to ismake ~~effective~~cash ~~for~~distributions usto ~~beginning~~our inshareholders. ~~the~~If ~~first~~available ~~quarter~~cash ofis ~~fiscal~~not ~~2019~~adequate ~~and~~to ~~early~~provide ~~adoption~~for isour ~~permitted.~~obligations, Weliabilities, ~~are~~operating ~~currently~~costs ~~evaluating~~and ~~the~~claims, ~~impact~~estimated ~~that~~liquidating ~~this~~distributions ~~ASU~~to ~~will have on~~ our ~~consolidated~~shareholders ~~financial~~will ~~statements~~be reduced.

InWe ~~February~~plan ~~2016~~to distribute, ~~the~~in ~~FASB issued~~an ~~ASU~~initial ~~No.~~distribution ~~2016-02, Leases~~ (~~Topic~~with ~~842) (“ASU~~potential ~~2016-02”~~subsequent distributions thereafter), ~~which~~a ~~requires~~portion ~~lessees~~of tothe ~~recognize~~net ~~all~~proceeds ~~leases,~~from ~~including~~the ~~operating~~sale ~~leases~~of our Z-Wave Business to Silicon Labs, onsubject to a contingency reserve for costs and liabilities. The amount and timing of the ~~balance~~distributions ~~sheet~~to asshareholders awill ~~lease~~be ~~asset~~determined orby ~~lease~~the ~~liability~~Board in its discretion, ~~unless~~subject to the ~~lease~~provisions isof athe ~~short-term~~Plan ~~lease~~of Liquidation and Dissolution. ~~ASU~~The ~~2016-02~~Board ~~also~~currently ~~requires~~anticipates ~~additional~~that ~~disclosures~~the ~~regarding~~amount ~~leasing~~of ~~arrangements~~aggregate distributions to shareholders will be between $235 million and $255 million. ~~ASU~~The ~~2016-02~~amount isultimately ~~effective~~distributed ~~for~~to usshareholders ~~beginning~~may inbe ~~the~~less ~~first~~than ~~quarter~~anticipated as a result of ~~fiscal~~unforeseen ~~2020~~circumstances. There can be no guarantee as to the timing and ~~early~~amount ~~adoption~~of isdistributions ~~permitted.~~to Weshareholders, even if all of our remaining assets are ~~currently~~sold, ~~evaluating~~because ~~the~~there ~~impact~~are many factors, ~~and~~some ~~expect~~of which are outside of our control, which could affect the ~~ASU~~timing ~~will~~of ~~have~~such adistributions. ~~material~~Only ~~impact~~shareholders onof ~~our~~record ~~consolidated~~as ~~financial~~of ~~statements,~~the ~~primarily~~record todate for a distribution as determined by the ~~consolidated~~Board ~~balance~~will ~~sheets~~be ~~and~~entitled ~~related~~to ~~disclosures~~receive that distribution.

InLiquidation ~~May~~Basis 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products or services are transferred to customers. ASU 2014-09 is effective for us beginning in the first quarter of fiscal 2019 and early adoption is permitted. Accounting

~~Subsequently,~~As ~~the~~a ~~FASB~~result ~~has~~of ~~issued~~ the ~~following~~approval ~~standards~~of ~~related~~the toPlan ~~ASU~~of ~~2014-09:~~Liquidation ~~ASU~~and ~~No. 2016-08~~Dissolution, ~~Revenue~~the ~~from~~Company ~~Contracts~~adopted ~~with~~the ~~Customers~~Liquidation ~~(Topic~~Basis ~~606):~~of ~~Principal~~Accounting, ~~versus~~effective ~~Agent~~April ~~Considerations~~18, ~~(“ASU 2016-08”); ASU No~~2018. ~~2016-10,~~This ~~Revenue~~basis ~~from~~of ~~Contracts~~accounting ~~with~~is ~~Customers~~considered ~~(Topic~~appropriate ~~606):~~when, ~~Identifying~~among ~~Performance~~other ~~Obligations~~things, ~~and~~liquidation ~~Licensing~~of ~~(“ASU~~the ~~2016-10”);~~Company ~~ASU~~is ~~No. 2016-12~~imminent, ~~Revenue~~as ~~from~~defined ~~Contracts~~in ~~with~~ASC ~~Customers (Topic 606): Narrow~~205-~~Scope~~30 ~~Improvements and Practical Expedients (~~“~~ASU~~Presentation ~~2016-12”)~~of ~~and~~Financial ~~ASU~~Statements ~~No.~~– ~~2016-20,~~Liquidation ~~Technical~~Basis ~~Corrections~~of ~~and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”)~~Accounting.” WeUnder ~~must~~the ~~adopt~~Liquidation ~~ASU~~Basis ~~2016-08,~~of ~~ASU 2016-10~~Accounting, ~~ASU~~the ~~2016-12~~following ~~and~~financial ~~ASU~~statements ~~2016-20~~are ~~with~~no ~~ASU~~longer ~~2014-09~~presented (~~collectively,~~except ~~the~~for ~~“new~~periods ~~revenue~~prior ~~standards”). We currently expect~~ to ~~adopt~~the ~~Topic~~adoption ~~606 as~~ of ~~February 4, 2018, using~~ the ~~modified~~Liquidation ~~retrospective~~Basis ~~transition~~of ~~method~~Accounting): ~~applied~~a tocondensed ~~those~~consolidated ~~contracts~~balance ~~that~~sheet, ~~were~~a ~~not~~condensed ~~completed~~consolidated asstatement of ~~that~~operations ~~date.~~and ~~Upon~~comprehensive ~~adoption,~~loss weand ~~will~~a ~~recognize~~condensed ~~the~~consolidated ~~cumulative~~statement ~~effect~~ of ~~adopting~~cash ~~this~~flows. ~~guidance~~The ascondensed anconsolidated ~~adjustment~~statement toof ~~our~~net ~~opening~~assets ~~balance~~and ofthe ~~retained~~condensed ~~earnings.~~consolidated ~~Prior~~statement ~~periods~~of ~~will~~changes ~~not~~in benet ~~retrospectively~~assets ~~adjusted.~~are ~~We expect~~ the ~~adoption~~principal offinancial ~~Topic~~statements ~~606~~presented ~~will~~under ~~not~~the ~~have~~Liquidation aBasis ~~material~~of ~~impact to our consolidated financial statements~~Accounting.

2Under the Liquidation Basis of Accounting, all of the Company’s assets have been stated at their estimated net realizable value and are based on current contracts, estimates and other indications of sales value net of estimated selling costs. ~~Cash~~All liabilities of the Company have been stated at contractual amounts and estimated liabilities are at their estimated settlement amounts, ~~cash~~including ~~equivalents~~those estimated costs associated with implementing the Plan of Dissolution. These amounts are presented in the accompanying condensed consolidated statement of net assets. These estimates will be periodically reviewed and ~~marketable~~adjusted ~~securities~~as appropriate. There can be no assurance that these estimated values will be realized. Such amounts should not be taken as an indication of the timing or amount of future distributions or our actual dissolution. The valuation of assets at their net realizable value and liabilities at their anticipated settlement amount represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the Plan of Liquidation and Dissolution. The actual values and costs associated with carrying out the Plan of Dissolution are expected to differ from amounts reflected in the accompanying financial statements because of the plan’s inherent uncertainty. These differences may be material. In particular, the estimates of our costs will vary with the length of time necessary to complete the Plan of Dissolution. Accordingly, it is not possible to predict with certainty the timing or aggregate amount which may ultimately be distributed to stockholders and no assurance can be given that the possible future distributions will reflect the estimate presented in the accompanying consolidated condensed statement of net assets.

As of October 28, 2017 and January 28, 2017, we had $0.3 million of restricted cash related to an office-space operating lease and other transactions which are not included in the amounts below. Cash, cash equivalents and marketable securities consist of the following (in thousands): 9

	October 28, 2017						January 28, 2017
	Book Value		Net Unrealized Losses		Fair Value		Book Value		Net Unrealized Losses			Fair Value
Money market funds	$	-	$	-	$	-	$	3,715	$	-		$	3,715
Corporate bonds		-		-		-		3,506		(1	)		3,505
Fixed income mutual funds		-		-		-		1,280		(4	)		1,276
Total cash equivalents and marketable securities	$	-	$	-	$	-	$	8,501	$	(5	)	$	8,496
Cash on hand held in the United States						7,171							9,378
Cash on hand held overseas						62,048							53,332
Total cash on hand						69,219							62,710
Total cash, cash equivalents and marketable securities					$	69,219						$	71,206
Reported as:
Cash and cash equivalents					$	69,219						$	66,425
Short-term marketable securities						-							4,781
					$	69,219						$	71,206

The amortized cost and estimated fair value of cash equivalents and marketable securities have a contractual maturity of one year or less.

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.Intangible ~~Fair~~and ~~values~~Other ofLong-lived ~~assets and liabilities~~Assets

~~Determination~~The amounts and useful lives assigned to intangible and other long-lived assets acquired, other than goodwill, impact the amount and timing of ~~fair~~future ~~value~~amortization. Intangible assets include those acquired through business combinations and intellectual property that we purchase for incorporation into our product designs. We begin amortizing such intellectual property at the time that we begin shipment of the associated products into which it is incorporated. Prior to the adoption of the liquidation basis of accounting, we amortized the intellectual property over the estimated useful life of the associated products, generally two to three years.

~~Our~~Goodwill ~~cash~~is ~~equivalents~~recorded ~~and~~as ~~marketable~~the ~~securities~~difference, ~~are~~if ~~classified~~any, ~~within~~between ~~Level~~the 1aggregate ofconsideration paid for an acquisition and the fair value ~~hierarchy~~of ~~because~~the ~~they~~net ~~are~~tangible ~~valued~~and ~~using~~intangible ~~quoted~~assets ~~market~~acquired. Other ~~prices,~~intangible ~~broker~~assets orprimarily ~~dealer~~represent ~~quotations~~purchased ordeveloped ~~alternative~~technology, ~~pricing~~customer ~~sources~~relationships, ~~with~~purchased ~~reasonable~~IP, ~~levels~~non-compete ofagreements ~~price~~and ~~transparency~~trademarks. Prior ~~The~~to ~~types~~the adoption of ~~marketable~~the ~~securities~~liquidation ~~valued~~basis ~~based~~of onaccounting, we ~~quoted~~amortized ~~market~~our ~~prices~~intangible inassets ~~active~~with ~~markets~~definitive ~~include~~lives ~~most~~over ~~U.S.~~periods ~~government~~ranging ~~and~~from ~~agency~~three ~~securities,~~to ~~sovereign~~ten ~~government~~years ~~obligations,~~using ~~money~~a ~~market~~method ~~securities~~that ~~and~~reflected ~~certain~~the ~~corporate~~pattern ~~obligations~~in ~~with~~which ~~high~~the ~~credit~~economic ~~ratings~~benefits ~~and~~of anthe ~~ongoing~~intangible ~~trading~~assets ~~market~~were consumed or otherwise used or, if that pattern could be reliably determined, using a straight-line amortization method.

AsImpairment ofAssessment ~~October 28, 2017, we held $0.3 million~~ of ~~restricted~~Assets ~~cash,~~ and ~~zero~~Asset ~~cash equivalents and marketable securities. The table below present the balances of our assets and liabilities measured at fair value on a recurring basis as of January 28, 2017 (in thousands):~~Groups

	January 28, 2017
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds	$	3,715	$	3,715	$	-	$	-
Corporate bonds		3,505		3,505		-		-
Fixed income mutual funds		1,276		1,276		-		-
Total cash equivalents and marketable securities		8,496		8,496		-		-
Restricted cash		303		303		-		-
Total assets measured at fair value	$	8,799	$	8,799	$	-	$	-

We test long-lived assets, including purchased intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. One such indicator defined in accounting guidance, “a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life” is met with the announced intent for the Company to liquidate. Along with such stated intent, it is management’s assessment that it is more likely than not that the liquidation will occur. Therefore, indicators of impairment exist for the entire Company.

Separately, we must segregate and similarly test whether the carrying value of “assets held for sale” are recoverable. As of February 3, 2018, we concluded that the Z-Wave and the Media Connectivity business units met the test for “assets held for sale.”

We first determined whether the carrying value of an asset or asset group is recoverable based on comparisons to undiscounted expected future cash flows that the assets are expected to generate. If an asset is not recoverable, we record an impairment loss equal to the amount by which the carrying value of the asset exceeds its fair value. We primarily use the income valuation approach to determine the fair value of our long-lived assets and purchased intangible assets.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include forecasts of revenue and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, economic market conditions and a determination of appropriate market comparables and expected realizable value. We base our fair value estimates on assumptions we believe to be reasonable at that time, however, actual future results may differ from those estimates. Future competitive, market and economic conditions could negatively impact key assumptions including our market capitalization, actual control premiums or the carrying value of our net assets, which could require us to realize an additional impairment.

As of February 3, 2018, we relied on three other methods to determine fair value of our business units. For our Media Connectivity and our Smart TV and Set-top Box business units, we have actual subsequent year-end disposition transactions which evidence fair value as of year-end. For our Z-Wave business unit, we use a value provided by a negotiated agreement for the disposal of the asset group. For our Mobile IoT business unit, we applied judgment and methodology consistent with U.S. GAAP supported by consultation with a third-party valuation firm to prepare a discounted cash flow analysis.

For the fiscal year ended February 3, 2018, we determined that the carrying value of certain of our software, equipment and leasehold improvements and certain of our Purchased IP was not recoverable. Additionally, we determined that the full carrying value of our Mobile IoT business unit was not recoverable.

Impairment of Goodwill

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. We evaluate goodwill on an annual basis as of the last day of our fiscal year and whenever events or changes in circumstances indicate the carrying value may not be recoverable. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we conduct a two-step quantitative goodwill impairment test.

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The first step of the two-step process requires identifying the reporting units and comparing the fair value of each reporting unit to its net book value, including goodwill. If the carrying amount of goodwill within a disposal group is greater than its fair value, we perform the second step of the goodwill impairment test. The second step involves comparing the implied fair value of the affected group’s goodwill with the carrying value of that goodwill. The amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss.

For the fiscal year ended February 3, 2018, we determined that the full carrying value of goodwill in our Mobile IoT business unit was not recoverable.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries. All intercompany profits, transactions and balances have been eliminated.

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) in conjunction with the rules and regulations of the SEC. The results for such interim periods are not necessarily indicative of the results to be expected for the year. In the opinion of management, all adjustments considered necessary for a fair presentation of the results for the respective periods have been reflected. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s Form 10-K for the year ended February 3, 2018.

Reclassifications

Certain reclassifications related to discontinued operations and other balance sheet items have been made to prior period amounts. These reclassifications did not affect our condensed consolidated financial results.

Use of Estimates

In preparing the condensed consolidated financial statements in conformity with U.S. GAAP including the Liquidation Basis of Accounting, management is required to make estimates and assumptions that affect the reported amounts of assets, including net assets in liquidation, and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of income and expense for the reporting period. Actual results could differ from those estimates.

Discontinued Operations

Prior to the adoption of the Liquidation Basis of Accounting, the Company followed the guidance of the Presentation of Property, Plant, and Equipment Topics of the ASC 360, with respect to long-lived assets classified as held for sale. The ASC required that the results of operations, including impairment, gains and losses related to the properties that were sold or properties that were intended to be sold, be presented as discontinued operations in the statements of operations for all periods presented and the assets and liabilities of properties intended to be sold were to be separately classified on the balance sheet. Property designated as held for sale was carried at the lower of cost or fair value less costs to sell and were not depreciated.

New accounting pronouncements

As a result of adopting the Liquidation Basis of Accounting, we believe no new accounting pronouncements will have a material impact on our net assets in liquidation or changes in net assets in liquidation.

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Statement of Net Assets in Liquidation

As a result of the Board’s approval of the Plan of Liquidation and Dissolution, the Company adopted the Liquidation Basis of Accounting, effective April 18, 2018.

Under the Liquidation Basis of Accounting, all of the Company’s assets have been stated at their estimated net realizable value and are based on current contracts, estimates and other indications of sales value net of estimated selling costs. All liabilities of the Company have been stated at contractual amounts and those estimated costs associated with implementing the Plan of Liquidation and Dissolution have been stated at their estimated settlement amounts.

The valuation of assets at their net realizable value and liabilities at their anticipated settlement amount represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the Plan of Liquidation and Dissolution. The actual values and costs associated with carrying out the Plan of Dissolution are expected to differ from amounts reflected in the accompanying financial statements because of the Plan’s inherent uncertainty.

3. Liability for estimated costs during liquidation

The Liquidation Basis of Accounting requires the Company to estimate net cash flows from operations and to accrue all costs associated with implementing and completing the Plan of Liquidation and Dissolution. These amounts can vary significantly due to, among other things, the costs of retaining personnel and others to oversee the liquidation, the cost of insurance, the timing and amounts associated with discharging known and contingent liabilities and the costs associated with cessation of the Company’s operations, including an estimate of costs subsequent to that date. As a result, the Company has accrued the projected costs, including corporate overhead and specific liquidation costs of severance, professional fees, and other miscellaneous wind-down costs expected to be incurred during the projected period and required to complete the liquidation of the Company’s remaining assets.

These accruals will be adjusted from time to time as projections and assumptions change. These costs are anticipated to be paid throughout the liquidation period. Based on the transition to the Liquidation Basis of Accounting on April 18, 2018, the Company accrued the following expenses expected to be incurred during dissolution and liquidation (in thousands):

	May 5, 2018

Severance and employment contract payments	$	14,149
General overhead costs		3,643
Other dissolution costs		142

Liability for estimated costs during dissolution and liquidation	$	17,934

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Fair values of assets and liabilities

Assets measured and recorded at fair value on a non-recurring basis

Our non-marketable preferred stock investments in privately-held companies are recorded at cost and are adjusted to fair value only in the event that they become other-than-temporarily impaired. AsDuring offiscal ~~October 28~~2018, ~~2017,~~ we ~~held~~sold anour ~~equity~~ investment in one privately-held company ~~with a carrying value of $0.9 million. During the three and nine months ended October 28, 2017, we partially sold this investment~~ for $12.~~0 million and $1.~~2 million, ~~respectively,~~ in cash and recognized a gain of $0.12 million ~~for both the three and nine months ended October 28, 2017~~. ~~Our~~As ~~President and Chief Executive Officer is a member~~ of ~~the~~May ~~Board~~5, of2018, ~~Directors~~we ~~of this company. We~~ did not ~~identify~~hold any ~~events~~investments ~~or changes~~ in circumstances that may have had a significant adverse effect on the fair value of this investment during the three and nine months ended October 28, 2017 and October 29, 2016. Our equity investment in this privately-held ~~company constituted less than a 20% ownership position~~companies. Furthermore, we do not believe that we have the ability to exert significant influence over this company. On November 24, 2017, we sold the remaining investment for $1.0 million in cash and recognized a gain of $0.1 million.

85. Supplemental financial information

Prepaid expenses and other current assets consisted of the following (in thousands):

	May 5, 2018		February 3, 2018
Expected reimbursements and release of escrow in connection with the sale of business units	$	4,966	$	-
Prepayments for taxes		123		3,451
Non-operating receivable		-		100
Prepayments for royalties		48		333
Deposits		-		154
Other current assets		561		3,860
Less: Assets held for sale		-		(1,127	)
Total prepaid expenses and other current assets	$	5,698	$	6,771

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4.Software, ~~Supplemental~~equipment ~~financial~~and ~~information~~leasehold improvements consisted of the following (in thousands, except for years):

Inventory consists of the following (in thousands):

	Estimated Useful Lives (years)			May 5, 2018			February 3, 2018
Software	3	-	5	$	29,926		$	44,005
Mask sets		3			-			14,207
Equipment		3			818			8,113
Office equipment and furniture	3	-	5		3,577			8,196
Leasehold improvements	1	-	5		1,150			2,181
Total					35,471			76,702
Less: Accumulated depreciation and amortization					(35,239	)		(70,524	)
Total software, equipment and leasehold improvements, net					232			6,178
Less: Assets held for sale					-			(1,839	)
Software, equipment and leasehold improvements, net				$	232		$	4,339

	October 28, 2017		January 28, 2017
Wafers and other purchased materials	$	6,896	$	8,595
Work-in-process		3,440		2,780
Finished goods		3,343		6,772
Total inventory	$	13,679	$	18,147

Software, equipment and leasehold improvement depreciation and amortization expense was $2.7 million for the three months ended April 29, 2017.

Prepaid expenses and other current assets consist of the following (in thousands):

	October 28, 2017		January 28, 2017
Prepayments for taxes	$	3,417	$	3,421
Prepayments for royalties		739		776
Non-operating receivable		490		955
Other current assets		3,223		2,865
Total prepaid expenses and other current assets	$	7,869	$	8,017

Software, equipment and leasehold improvements consist of the following (in thousands except for years):

	Estimated Useful Lives (years)			October 28, 2017			January 28, 2017
Software	3	-	5	$	54,154		$	49,915
Mask sets		3			18,841			18,209
Equipment		3			8,676			7,719
Office equipment and furniture	3	-	5		8,158			7,857
Leasehold improvements	1	-	5		2,163			2,108
Total					91,992			85,808
Less: Accumulated depreciation and amortization					(73,857	)		(67,285	)
Total software, equipment and leasehold improvements, net				$	18,135		$	18,523

Software, equipment and leasehold improvement depreciation and amortization expense was $1.2 million and $2.5 million for the three months ended October 28, 2017 and October 29, 2016, respectively, and was $6.4 million and $8.6 million for the nine months ended October 28, 2017 and October 29, 2016, respectively.

As part of our restructuring plan as discussed in Note 7, we recorded an impairment charge for mask sets of $1.7 million, which includes $0.1 million of prepaid mask set, for both the three and nine months ended October 28, 2017.

Accrued liabilities consist of the following (in thousands):

	October 28, 2017		January 28, 2017
License fees	$	5,588	$	5,578
Income taxes payable, current portion		2,407		2,094
Restructuring charges		1,587		-
Rebates		1,666		1,585
Compliance audit settlement		1,500		-
Royalties		1,274		1,378
Warranty		668		783
Deferred revenue		382		350
Other accrued liabilities		1,075		1,839
Total accrued liabilities	$	16,147	$	13,607

The following table summarizes activity related to accrued rebates (in thousands):

	Nine Months Ended October 28, 2017
	Three Months Ended April 29, 2017
Beginning balance	$	1,585
Charged as a reduction of revenue		~~1,891~~725
Payments		(~~1,810~~458	)
Ending balance	$	1,~~666~~852

914

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

56. Intangible assets

The ~~tables~~table below ~~present~~presents the balances of our intangible assets as of February 3, 2018 (in thousands, except for years):

	October 28, 2017
	Gross Value		Impairment			Accumulated Amortization and Effect of Currency Translation			Net Value			Weighted Average Remaining Amortization Period (Years)
Acquired intangible assets:
Developed technology	$	85,427	$	(2431,~~614~~029	)	$	(54,~~087~~398	)	$	~~6,726~~-			~~7.1~~
Customer relationships		54,505		(3033,~~486~~065	)		(21,~~305~~440	)		~~2,714~~-			~~5.0~~
Trademarks and other		4,078		-			(3,~~948~~978	)		~~130~~100			10.183
Purchased IP - amortizing		3538,~~233~~250		(69,~~716~~722	)		(25,~~036~~608	)		32,~~481~~920			10.874
Total amortizing		~~179~~182,~~243~~260		(6173,816	)		(~~104~~105,~~376~~424	)		133,~~051~~020			~~5.2~~
Purchased IP - not yet deployed		2018,~~137~~553		(1116,~~231~~943	)		-			81,~~906~~610
Total intangibles	$	~~199~~200,~~380~~813	$	(7390,~~047~~759	)	$	(~~104~~105,~~376~~424	)	$	214,~~957~~630
Less: Assets held for sale										(2,079	)
Intangibles									$	2,551

	January 28, 2017
	Gross Value		Impairment			Accumulated Amortization and Effect of Currency Translation			Net Value		Weighted Average Remaining Amortization Period (Years)
Acquired intangible assets:
Developed technology	$	85,427	$	(24,614	)	$	(52,854	)	$	7,959		7.4
Customer relationships		54,505		(30,486	)		(20,897	)		3,122		5.8
Trademarks and other		4,078		-			(3,858	)		220		1.9
Purchased IP - amortizing		36,007		(5,516	)		(23,057	)		7,434		2.3
Total amortizing		180,017		(60,616	)		(100,666	)		18,735		5.0
Purchased IP - not yet deployed		16,449		(4,440	)		-			12,009
Total intangibles	$	196,466	$	(65,056	)	$	(100,666	)	$	30,744

Acquired intangible assets represent intangible assets acquired through business combinations. Purchased intellectual property (“IP”) represents intangible assets acquired through direct purchases of licensed technology from vendors which is incorporated into our products. Purchased IP not yet deployed relates to purchased IP from third parties for our products that are currently in development. We begin amortizing such IP upon the earlier of the beginning of the term of the license agreement, as appropriate, or at the time we begin shipment of the associated products into which such IP is incorporated.

As part of our restructuring plan as discussed in Note 79, we recorded an impairment charge for purchased IP of $53.0 million ~~and $8.0 million~~ for the three ~~and nine~~ months ended ~~October~~April 2829, 2017~~, respectively~~.

The following table presents the amortization of intangible assets recognized during the three months ended April 29, 2017 in the accompanying condensed consolidated ~~statements~~statement of operations (in thousands):

	Three Months Ended				Nine Months Ended
Cost of revenue	$	1,173
	October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016
Operating expenses		447
Cost of revenue	$	845	$	2,025	$	3,138	$	6,053
Total intangibles amortization expense	$	1,620
Operating expenses		444		709		1,339		2,139
Total intangibles amortization expense	$	1,289	$	2,734	$	4,477	$	8,192

~~As of October 28, 2017, we expect amortization expense in future periods to be as follows (in thousands):~~15

Fiscal year	Total
2018 (remaining three months)	$	1,038
2019		3,718
2020		2,432
2021		1,588
2022		1,243
Thereafter		3,032
Total	$	13,051

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

67. Discontinued ~~Commitments and contingencies~~operations

Prior to adoption of the liquidation basis of accounting, our Z-Wave business unit consisted of those parts of the Company engaged in the IoT Devices marketplace except Mobile IoT. This business unit developed related IP software and chipsets into modules and arranged for their manufacture and sale to IoT product companies. Our Media Connectivity business unit consisted of those parts of the Company engaged in product lines related to wired home networking controller chipsets that provided connectivity solutions between various home entertainment products and incoming video streams.

On January 23, 2018, we announced the intent to sell our Z-Wave business unit to Silicon Laboratories, Inc. Additionally, management determined that our Media Connectivity business unit met all the criteria for categorization as “held for sale” as of February 3, 2018, and this business unit was sold February 15, 2018. In accordance with U.S. GAAP, we have separated the financial statement presentation of both business units from the presentation of our on-going operations. Also required is the presentation of historical periods in a similar manner. Therefore, beginning in the fourth quarter of fiscal 2018, the results of Z-Wave and Media Connectivity business units were presented as discontinued operations in our consolidated statement of operations and thus have been excluded from continuing operations for the year ended February 3, 2018. Furthermore, the related assets and liabilities have been classified as held for sale on our consolidated balance sheet as of February 3, 2018.

The following is a reconciliation of the consolidated balance sheet to the consolidated balance sheet presented herein presenting separately the assets and liabilities held for sale as of February 3, 2018 (in thousands):

				Adjustments
	Consolidated Balance Sheets			Assets and Liabilities Held for Sale			Other Adjustments			As Presented

ASSETS
Current assets
Cash and cash equivalents	$	40,628		$	(2,000	)				$	38,628
Restricted cash		335			(335	)					-
Accounts receivable, net		17,120			(7,405	)					9,715
Inventory		14,064			(11,026	)					3,038
Prepaid expenses and other current assets		7,898			(1,127	)					6,771
Current assets held for sale		-			-			21,893			21,893
Total current assets		80,045			(21,893	)		21,893			80,045

Software, equipment and leasehold improvements, net		6,178			(1,839	)					4,339
Intangible assets, net		4,630			(2,079	)					2,551
Goodwill		-			-						-
Deferred tax assets		770			(777	)		7	*		-
Non-current assets held for sale		-			-			4,703			4,703
Other non-current assets		4,467			(8	)					4,459
Total assets	$	96,090		$	(26,596	)	$	26,603		$	96,097

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	15,864		$	(6,531	)				$	9,333
Accrued compensation and related benefits		6,512			(2,464	)					4,048
Accrued liabilities		14,679			(4,812	)					9,867
Current liabilities held for sale		-			-			13,807			13,807
Total current liabilities		37,055			(13,807	)		13,807			37,055

Income taxes payable		15,708			(4,128	)					11,580
Deferred tax liabilities		38			-			7	*		45
Long-term liabilities held for sale		-			-			4,144			4,144
Other long-term liabilities		3,169			(16	)					3,153
Total liabilities		55,970			(17,951	)		17,958			55,977

Commitments and contingencies

Shareholders' equity
Common stock and additional paid-in capital		522,985			(56,687	)					466,298
Treasury stock		(88,336	)		-						(88,336	)
Accumulated other comprehensive loss		18			-						18
Accumulated deficit		(394,547	)		48,042			8,645			(337,860	)
Total shareholders' equity		40,120			(8,645	)		8,645			40,120

Total liabilities and shareholders' equity	$	96,090		$	(26,596	)	$	26,603		$	96,097

* Reclassification of a negative Deferred tax asset to Deferred tax liability

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Commitments and contingencies

Commitments

Purchase commitments

WeWhen ~~place~~we operated as a going concern, we generally placed non-cancelable orders to purchase semiconductor products from our suppliers on an eight to twelve week lead-time basis. As of ~~October~~February 283, ~~2017~~2018, the total amount of outstanding non-cancelable purchase orders was approximately $1518.9 million, of which $7.6 million applied to operations held for sale.

Third-party licensed technology

In October 2015, we entered into an agreement with a vendor to purchase $6.1 million of licensed technology for integration into future iterations of our products. Payments under this agreement are being made on an annual basis from December 2015 through December 2018. As of ~~October~~May 285, ~~2017~~2018, there were no remaining payments under this agreement ~~totaled $3~~.0 ~~million.~~ In addition to this agreement, we have entered into other purchase arrangements for certain licensed technology; there were no remaining payments under these agreements ~~totaled $2.6 million~~ as of ~~October~~May 285, ~~2017~~2018. ~~Payments under these arrangements are being made through fiscal 2019. We have fully accrued these amounts as of October 28, 2017.~~

Design Tools

In June 2016, we entered into an agreement with a vendor to purchase $7.8 million of design tools. Payments under this agreement are being made on a quarterly basis from August 2016 through May 2019. As of ~~October~~May 285, ~~2017~~2018, there were no remaining payments under this agreement ~~totaled $4~~.6 ~~million.~~ In addition to this agreement, we have entered into other purchase arrangements for certain design tools; remaining payments under these agreements totaled $30.57 million as of ~~October~~May 285, ~~2017~~2018. Payments under these arrangements are being made through fiscal ~~2021~~2019. We have fully accrued these amounts as of ~~October~~May 285, ~~2017~~2018.

Royalties

We ~~pay~~paid royalties for the right to sell certain products under various license agreements. During the three ~~and nine~~ months ended ~~October~~April 2829, 2017, we recorded gross royalty expense of $0.56 million ~~and $1.9 million, respectively, and $1.3 million and $4.2 million for the three and nine months ended October 29, 2016, respectively,~~ in cost of revenue in the accompanying condensed consolidated ~~statements~~statement of operations.

Our wholly-owned subsidiary, Sigma Designs Israel SDI Ltd. (formerly CopperGate Communications, Ltd.), participated in programs sponsored by the Office of the Chief Scientist of Israel's Ministry of Industry, Trade and Labor, or the OCS, for the support of research and development activities that we conducted in Israel. Through ~~October~~April 2829, 2017, we had obtained grants from the OCS aggregating to $5.2 million of our research and development projects in Israel. We completed the most recent of these projects in 2013. We ~~are~~were obligated to pay royalties to the OCS, amounting up to 4.5% of the sales of certain products up to an amount equal to the grants received, plus LIBOR-based interest. AsWe disposed of ~~October~~this ~~28,~~entity ~~2017~~on February 15, ~~our~~2018 ~~remaining~~and ~~potential~~have ~~obligation~~no ~~under~~further ~~these~~future ~~programs~~obligations ~~was~~under ~~approximately~~these $1programs.~~2 million.~~

Contingencies

Product warranty

In general, we ~~sell~~sold products with a one-year limited warranty that our products will be free from defects in material and workmanship. Warranty cost iswas estimated at the time revenue is recognized based on historical activity, and additionally, for any specific known product warranty issues. Accrued warranty cost includes hardware repair and/or replacement and is included in accrued liabilities in the accompanying condensed consolidated balance ~~sheets~~sheet.

Details of the change in accrued warranty as of ~~October~~April 2829, 2017 ~~and October 29, 2016~~ are as follows (in thousands):

Three Months Ended	Balance Beginning of Period		Additions and Adjustments			Deductions			Balance End of Period
October 28, 2017	$	696	$	116		$	(144	)	$	668
April 29, 2017	$	783	$	84		$	(140	)	$	727
October 29, 2016	$	952	$	(18	)	$	(142	)	$	792

Nine Months Ended	Balance Beginning of Period		Additions and Adjustments		Deductions			Balance End of Period
October 28, 2017	$	783	$	312	$	(427	)	$	668
October 29, 2016	$	959	$	264	$	(431	)	$	792

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Litigation. From time to time, we are involved in claims and legal proceedings that arise in the ordinary course of business. Any claims or proceedings against us, whether meritorious or not, could be time consuming, could result in costly litigation, could require significant amounts of management time, could result in the diversion of significant operational resources or could cause us to enter into royalty or licensing agreements which, if required, may not be available on terms favorable to us. If an unfavorable outcome were to occur against us, there exists the possibility of a material adverse impact on the timing of and amount of funds available for distributions to our shareholders. Matters currently known to the Company are:

~~From~~Advanced ~~time~~Micro toDevice, ~~time~~Inc. Patent Infringement Litigation. On January 23, we2017, ~~are~~AMD ~~involved~~and inATI ~~claims~~Technologies ULC (collectively “AMD”), filed suit against us and ~~legal~~many ~~proceedings~~other ~~that~~named ~~arise~~defendants, including VIZIO, Mediatek and LG in the ~~ordinary~~United ~~course~~States District Court for the District of ~~business~~Delaware asserting infringement of U.S. WePatent ~~expect~~Nos. ~~that~~7,633,506 and 7,796,133. On January 24, 2017, AMD instituted proceedings in the ~~number~~United ~~and~~States ~~significance~~International ofTrade ~~these~~Commission ~~matters~~(“ITC”) ~~will~~asserting ~~increase~~infringement asof ~~our~~U.S. ~~business~~Patent ~~expands~~Nos. In7,633,506 ~~particular~~and 7,796,133. weThe ~~could~~Delaware ~~face~~and anITC ~~increasing~~complaint ~~number~~seek ofunspecified ~~patent~~monetary damages and ~~other~~injunctive ~~intellectual~~relief. ~~property~~On ~~claims~~April as13, 2018, the ~~number~~ITC ofissued ~~products~~a ~~and~~Final ~~competitors~~Initial Determination finding in ~~our~~favor ~~industry~~of ~~grows.~~AMD ~~Any~~and ~~claims~~recommending orthat ~~proceedings~~cease and desist orders be issued against us, ~~whether~~which ~~meritorious~~would orprevent ~~not,~~the ~~could~~importation beof ~~time~~certain ~~consuming,~~of ~~result~~our inSmartTV ~~costly~~chipsets ~~litigation,~~into ~~require~~the ~~significant~~United ~~amounts~~States ofand ~~management~~any ~~time,~~third-party ~~result~~products inthat ~~the~~incorporate ~~diversion~~these ofchipsets. The ~~significant~~Company ~~operational~~has ~~resources~~executed oragreements ~~cause~~with usa tocustomer ~~enter~~and ~~into~~a ~~royalty~~vendor orunder ~~licensing~~which ~~agreements~~reimbursement ~~which,~~for ifdefense ~~required,~~costs ~~may~~and ~~not~~indemnity behave ~~available~~been onaffected ~~terms~~in ~~favorable~~amounts that appear sufficient to ~~us.~~cover Ifany anfuture ~~unfavorable~~material ~~outcome~~costs ~~were~~related to ~~occur~~these ~~against~~matters. usAdditionally, ~~there~~any ~~exists~~liability ~~the~~for ~~possibility~~these ofmatters anot ~~material~~otherwise ~~adverse~~covered ~~impact~~by onsuch ~~our~~indemnification ~~financial~~was ~~position~~assumed ~~and~~by ~~results~~the buyer of ~~operations~~the ~~for~~related business unit. Therefore, the ~~period~~Company inhas ~~which~~a ~~the~~reasonable ~~unfavorable~~expectation ~~outcome~~of ~~occurs~~no ~~and,~~material ~~potentially,~~liability infrom ~~future~~the ~~periods~~litigation.

~~Advanced~~Broadcom ~~Micro~~Corporation ~~Device,~~Patent ~~Inc.~~Infringement Litigation:. On ~~January~~March 237, 2017, ~~Advanced~~Broadcom ~~Micro Devices, Inc. and ATI Technologies ULC (collectively “AMD”),~~ filed suit against us ~~and many other named defendants, including VIZIO, Mediatek and LG~~ in the United States District Court for the Central District of ~~Delaware~~California asserting infringement of U.S. Patent ~~Nos~~No. 7,~~633~~310,~~506 and 7,796,133~~104. On ~~January~~March 248, 2017, ~~AMD~~Broadcom instituted proceedings in the United States ~~International Trade Commission (“~~ITC”) asserting infringement of U.S. Patent Nos. 8,284,844, 7,~~633~~590,~~506~~059, 8,068,171 and 7,~~796~~342,~~133~~967. The ~~Delaware~~California and ITC complaint seek unspecified monetary damages and injunctive relief. AtThe ~~this~~Company ~~time,~~has weexecuted ~~are~~an ~~unable~~agreement towith ~~determine~~a customer under which the ~~outcome~~customer ofhas ~~this~~assumed ~~matter~~all liability and defense of these matters. On May 11, ~~accordingly~~2018, ~~cannot~~the ~~estimate~~ITC issued a Final Initial Determination stating that no violation of the ~~potential~~pertinent ~~financial~~Section ~~impact~~337 (19 U.S.C. §1337) has occurred in regards to the Company. Additionally, any liability for this ~~action~~matter ~~could~~not ~~have~~otherwise oncovered ~~our~~by such indemnification was assumed by the buyer of the related business, ~~operating~~unit. ~~results~~Therefore, ~~cash~~the ~~flows~~Company orhas ~~financial~~reasonable ~~position~~expectation of no material liability from the litigation.

~~Broadcom~~Arris ~~Corporation~~International ~~Litigation:~~plc OnContract ~~March~~Pricing 7,Dispute. In 2017, ~~Broadcom~~Arris ~~Corporation~~gave ~~(“Broadcom”),~~notice ~~filed~~of ~~suit~~its ~~against~~intent usto inpursue ~~the~~litigation ~~United~~regarding ~~States District Court for~~ the ~~Central~~“Most ~~District~~Favored ofNation” ~~California~~clause ~~asserting infringement~~ of ~~U.S.~~its ~~Patent~~customer ~~No. 7~~contract,~~310,104.~~ Onwherein ~~March~~Arris 8,asserted ~~2017,~~that ~~Broadcom~~it ~~instituted~~had ~~proceedings~~not inreceived ~~the~~product ~~United~~pricing ~~States~~for ~~ITC~~which ~~asserting~~it ~~infringement~~was ~~of U~~entitled.S. ~~Patent~~Arris ~~No.~~made ~~7,310,104~~its ~~and~~assertion ~~has~~based ~~subsequently~~upon ~~amended~~ its ~~complaint~~interpretation toof ~~assert~~the ~~infringement~~Company’s ofpricing ~~U.S.~~structure ~~Patent~~for ~~Nos.~~another 8customer,~~284,844~~ ~~and~~an ~~7,590,059.~~interpretation ~~The~~the ~~California~~Company ~~and~~disputed. ~~ITC~~On ~~complaint~~May ~~seek~~18, ~~unspecified~~2017, ~~monetary~~the ~~damages~~Company and ~~injunctive~~Arris ~~relief. At~~attended ~~this~~mediation ~~time,~~in wethe ~~are~~state ~~unable~~of toNew ~~determine~~York ~~the~~with ~~outcome~~no ofresolution. ~~this~~On ~~matter~~April ~~and~~4, ~~accordingly~~2018, ~~cannot estimate~~ the ~~potential~~parties ~~financial~~agreed ~~impact~~to ~~this~~a ~~action~~settlement ~~could~~with ~~have~~no onmaterial ~~our~~effect ~~business,~~to ~~operating~~the ~~results,~~Company’s ~~cash flows or~~ financial position.

Advanced Silicon Technologies S.a.r.l. Patent Infringement Litigation:. On June 21, 2017, ~~Advanced Silicon Technologies S.a.r.l. (“~~AST~~”),~~ filed suit against Sigma Designs Technology Denmark ApS and Sigma Designs Technology Germany GmbH in the District Court of Düsseldorf, Germany ~~asserting~~alleging ~~alleged~~ infringement of Patent No. EP 1424653. ~~The~~In ~~complaint~~late ~~seeks~~February ~~certain monetary damages~~2018, ~~while~~ the ~~Düsseldorf~~German ~~court~~Federal isPatent ~~empowered~~Court toaccepted ~~grant~~and ~~injunctive~~posted ~~relief. At~~notice ~~this~~of ~~time,~~the weCompany’s ~~are~~statement ~~unable~~of defense to ~~determine~~nullify the ~~outcome~~action. ofThe ~~this~~litigation ~~matter~~is ~~and~~ongoing. On March 30, ~~accordingly~~2018, ~~cannot~~this ~~estimate~~liability ~~the~~was ~~potential~~assumed ~~financial~~by ~~impact~~a ~~this~~third ~~action~~party ~~could~~as ~~have~~part onof ~~our~~a business, ~~operating~~unit ~~results~~purchase. Therefore, ~~cash~~the ~~flows~~Company orhas ~~financial~~a ~~position~~reasonable expectation of no material liability from this litigation.

~~Indemnifications~~Shareholder Litigation. On March 15, 2018, a complaint captioned Ann Noyes v. Sigma Designs, Inc., et al., Case No. 18-cv-01645-WHO was filed in the United States District Court for the Northern District of California naming as defendants Sigma, certain members of the Board and Silicon Labs. This action purported to be a class action brought by a shareholder alleging, among other things, that the defendants violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 14a-9 by filing a materially incomplete and misleading preliminary proxy statement on February 23, 2018. The complaint sought, among other things, either to enjoin the proposed transactions or to rescind the transactions or award rescissory damages in the event the transactions are consummated. An award of rescissory damages could reduce the amount of cash available for distribution to shareholders in any liquidation that Sigma might undertake following the Asset Sale. A second complaint, making similar allegations, captioned David Speiser v. Sigma Designs, Inc., et al., Case No. 18-cv-01670-WHO, was filed in the same court on March 16, 2018. On March 27, 2018, a third complaint, captioned Robert Stein v. Sigma Designs, Inc., et al., Case No. 3:18-cv-1879-JSW, was filed in the same court, making similar allegations regarding the definite proxy statement filed on March 19, 2018. All three complaints were subsequently dismissed. The dismissals were with prejudice to the individual named plaintiffs only and do not release or bar claims by other purported class members.

In certain limited circumstances, we have agreed and may agree in the future to indemnify certain customers against intellectual property infringement claims from third parties related to the use of our technology. In these limited circumstances, the terms and conditions of sale or our standing agreement with such customers generally limit the scope of the available remedies to a variety of industry-standard methods including, but not limited to, a right to control the defense or settlement of any claim, procure the right for continued usage, and a right to replace or modify the infringing products to render them non-infringing. To date, we have not incurred or accrued any costs related to any claims under such indemnification provisions.18

~~Our~~Indemnifications. ~~articles~~In ofcertain ~~incorporation~~limited ~~and~~circumstances, ~~bylaws~~we ~~require~~have ~~that~~agreed weto indemnify ~~our~~certain ~~officers~~customers ~~and directors~~ against ~~expenses,~~intellectual ~~judgments,~~property ~~fines,~~infringement ~~settlements~~claims ~~and~~from ~~other~~third ~~amounts~~parties ~~actually~~related ~~and~~to ~~reasonably~~the ~~incurred~~use ~~in connection with any proceedings arising out~~ of ~~their~~our ~~services to us~~technology. In ~~addition,~~these welimited ~~have~~circumstances, ~~entered~~the ~~into~~terms ~~separate~~and ~~indemnification~~conditions ~~agreements~~of ~~with~~sale ~~each~~or of our ~~directors~~standing ~~and~~agreement ~~executive~~with ~~officers,~~such ~~which~~customers ~~provide~~generally ~~for~~limit ~~indemnification~~the scope of ~~these~~the ~~individuals~~available ~~under~~remedies ~~similar~~to ~~circumstances~~a ~~and~~variety ~~under~~of ~~additional~~industry-standard ~~circumstances.~~methods ~~The~~including, ~~indemnification~~but ~~obligations~~not ~~are~~limited ~~more~~to, ~~fully~~a ~~described~~right into ~~our~~control ~~charter~~the ~~documents~~defense ~~and~~or ~~the~~settlement ~~form~~ of ~~indemnification~~any ~~agreement~~claim, ~~filed~~a ~~with~~right ~~our~~to ~~SEC~~obtain ~~reports.~~non-infringing Wecontinued ~~purchase~~usage ~~insurance~~and toa ~~cover~~right ~~claims~~to replace or amodify ~~portion of~~ the ~~claims~~infringing ~~made~~products ~~against~~to ~~our~~render ~~directors~~them ~~and officers~~non-infringing. ~~Since~~To adate, ~~maximum~~we ~~obligation~~have is not ~~explicitly~~incurred ~~stated~~or inaccrued ~~our~~any ~~charter~~costs ~~documents~~related orto inany ~~our~~claims under such indemnification ~~agreements~~provisions. ~~and~~The ~~will~~Company ~~depend~~has ontransferred ~~the~~many ~~facts~~of ~~and~~the ~~circumstances~~indemnity ~~that~~agreements ~~arise~~to ~~out~~buyers of ~~any~~the ~~future~~related ~~claims,~~business ifunits. ~~any,~~We ~~the~~are ~~overall~~not ~~maximum~~aware ~~amount~~ of ~~the~~any ~~obligations~~current ~~cannot~~or bepending ~~reasonably~~claims ~~estimated~~related to our indemnity agreements.

~~Third-party~~Our ~~licensed~~articles ~~technology~~of incorporation and bylaws require that we indemnify our officers and directors against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceedings arising out of their services to us. In addition, we have entered into separate indemnification agreements with each of our directors and executive officers that provide for indemnification of these individuals under these and under additional circumstances. The indemnification obligations are more fully described in our charter documents and in the form of indemnification agreement filed with our SEC reports. We purchase insurance to cover claims or a portion of the claims made against our directors and officers. Since a maximum obligation is not explicitly stated in our charter documents or in our indemnification agreements and will depend on the facts and circumstances that arise out of any future claims, if any, the overall maximum amount of the obligations cannot be reasonably estimated.

Third-party licensed technology. We regularly ~~license~~licensed technology from various third party licensors and ~~incorporate~~incorporated that technology into our product offerings. Some ~~of these~~ technology licenses ~~require~~required us to pay royalties directly to the licensor, while others ~~require~~required us to report sales activities to our licensors so that royalties may be collected from our customers. From time to time, we ~~are~~were audited by our licensors for compliance with the terms of our license agreements. On February 10, 2017, we received anotice ~~letter~~ from ~~one~~a oflicensor ~~our licensors notifying us~~ of their intent to audit our compliance with the terms of ~~the~~their license agreements. OnIn ~~May~~fiscal 152018, ~~2017, we started~~ the audit ~~proceedings~~was completed and ~~intend to cooperate with~~ the ~~licensor~~Company topaid ~~bring the audit process to a resolution. As of October 28, 2017, we have accrued an estimated liability of~~ $12.51 million in connection with this compliance audit, which was included in sales and marketing expense in the accompanying condensed consolidated statements of operations. However, we have not reached an agreement with this licensor and the terms of any settlement, if reached, may require us to ~~pay~~settle anall ~~amount~~associated ~~that is different from what we have accrued~~claims.

~~We may be required to make additional payments as a result of pending or future compliance audits.~~ For license agreements where we ~~have~~had royalty obligations, we ~~charge~~charged any settlement-related payments that we ~~make~~made in connection with compliance audits to cost of revenue. For license agreements where we ~~have~~had reporting obligations, we ~~treat~~treated any settlement-related payments as penalties, and ~~charge~~charged the amounts to operating expenses in sales and marketing. As of the date of this filing, we believe we are substantially in compliance with the terms of our license agreements.

129. Restructuring charges

On March 24, 2017, we initiated restructuring activities (the “Fiscal 2018 Plan”) in order to realign resources with our core target markets, such as the IoT market. Our restructuring activities include targeted reductions in labor costs through headcount reductions, facilities closure, and impairment of mask sets and certain purchased IP. The changes to our workforce may vary by country based on local legal requirements, as appropriate.

In the first quarter of 2018, we communicated a plan of termination to several employees, which consisted of headcount reductions mainly in our North America operations, a majority of which are from our research and development group for the Connected Smart TV Platforms market. As a result, for the three months ended April 29, 2017, we recorded a restructuring charge of $0.4 million, reflected in general and administrative expense, which includes $0.2 million of charges related to workforce reductions, and paid less than $0.1 million in cash payments. In addition, we recorded an impairment charge for purchased IP not yet deployed of $3.0 million as we no longer intend to use this IP. Accrued severance liability of $1.5 million as of May 5, 2018 is reported within accrued liabilities in the accompanying condensed consolidated statement of net assets.

10. Earnings per share

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the fiscal period. The weighted-average number of shares outstanding used in the computation of basic and diluted net loss income per share for the three months ended April 29, 2017 does not include the effect of the following potential outstanding shares of common stock because the effect would have been anti-dilutive:

Stock options			2,421
Restricted stock units and awards			1,427

11. Employee benefits

401(k) tax deferred savings plan

We maintain a 401(k) tax deferred savings plan for the benefit of qualified employees who are based in the United States. Under the 401(k) tax deferred savings plan, U.S. based employees may elect to reduce their current annual taxable compensation up to the statutorily prescribed limit, which is $18,000 in calendar year 2017. Employees age 50 or over may elect to contribute an additional $6,000. We made matching contributions to the 401(k) tax deferred savings plan during the three months ended April 29, 2017 of $0.2 million.

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Restructuring charges

On March 24, 2017, we initiated restructuring activities (the “Fiscal 2018 Plan”) in order to realign resources with our core target markets, such as the IoT market. We expect the Fiscal 2018 Plan to be completed by the end of fiscal 2018. Our restructuring activities include targeted reductions in labor costs through headcount reductions, facilities closure, and impairment of mask sets and certain purchased IP. We expect to reduce our workforce by between 200 and 250 employees by the end of fiscal 2018, a majority of which are from our research and development group for the Connected Smart TV Platforms market. The changes to our workforce may vary by country based on local legal requirements, as appropriate. Restructuring liabilities are reported within accrued liabilities in the accompanying condensed consolidated balance sheets.

During the three and nine months ended October 28, 2017, we communicated a plan of termination to several employees, which consisted of headcount reductions in our worldwide operations. A summary of the recent activities of our restructuring plan is as follows (in thousands):

	Severance
Charges for the three months ended April 29, 2017	$	243
Cash payments		(5	)
Accrued balance as of April 29, 2017		238
Charges for the three months ended July 29, 2017		1,723
Cash payments		(364	)
Accrued balance as of July 29, 2017		1,597
Charges for the three months ended October 28, 2017		563
Cash payments		(573	)
Accrued balance as of October 28, 2017	$	1,587
Total cost incurred to date as of October 28, 2017	$	2,529

In addition, we recorded impairment charges for purchased IP and mask sets of $6.7 million and $9.7 million for the three and nine months ended October 28, 2017, respectively, as we no longer intend to use these IP and mask sets. The following table presents the impairment charges in the accompanying condensed consolidated statements of operations (in thousands):

	Three Months Ended October 28, 2017		Nine Months Ended October 28, 2017
Cost of revenue	$	1,200	$	1,200
Operating expenses		5,463		8,469
Total	$	6,663	$	9,669

Our restructuring measures could negatively impact our revenue and results of operations in the future as a result of less employees developing future products and working to sell our products.

8. Earnings per share

Basic net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding for the fiscal period. Diluted net loss per share is the same as basic net loss per share as the inclusion of potentially issuable shares is anti-dilutive. Diluted net income per share is computed by adjusting outstanding shares, assuming any dilutive effects of stock incentive awards calculated using the treasury stock method. Under the treasury stock method, an increase in the fair market value of our common stock results in a greater dilutive effect from outstanding stock options, restricted stock units and stock purchase rights. Additionally, the exercise of employee stock options and stock purchase rights and the vesting of restricted stock units results in a further dilutive effect on net income per share.

The following table sets forth the basic and diluted net (loss) income per share computed for the three and nine months ended October 28, 2017 and October 29, 2016 (in thousands, except per share amounts):

	Three Months Ended					Nine Months Ended
	October 28, 2017			October 29, 2016		October 28, 2017			October 29, 2016
Numerator:
Net (loss) income, as reported	$	(19,084	)	$	221	$	(46,620	)	$	(9,599	)
Denominator:
Weighted-average common shares outstanding - basic		38,632			37,666		38,359			37,241
Dilutive effect of employee stock plans		-			335		-			-
Weighted-average common shares outstanding - diluted		38,632			38,001		38,359			37,241
Net (loss) income per share - basic	$	(0.49	)	$	0.01	$	(1.22	)	$	(0.26	)
Net (loss) income per share - diluted	$	(0.49	)	$	0.01	$	(1.22	)	$	(0.26	)

The weighted-average number of shares outstanding used in the computation of basic and diluted net (loss) income per share does not include the effect of the following potential outstanding shares of common stock. The effects of these potentially outstanding shares were not included in the calculation of basic and diluted net (loss) income per share because the effect would have been anti-dilutive (in thousands):

	Three Months Ended				Nine Months Ended
	October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016
Stock options		2,286		2,205		2,360		2,421
Restricted stock units and awards		423		114		403		442

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Employee benefits

401(k) tax deferred savings plan

Endowment insurance pension plan

~~Related~~In relation to our acquisition of our DTV business in May 2012, we added operations in Shanghai, China. ItThe ~~is required by the~~ “Procedures of Shanghai Municipality on Endowment Insurance for Town Employees” require us to provide pension insurance for Shanghai employees. The mandatory plan is managed by the local authority. Under the current plan, an employee will contribute 8.0% of the annual base to the plan and the employer will match 20% of the annual base. From April 2016 to March 2017, the annual base is capped at RMB 17,817 per employee and from April 2017 to March 2018, the annual base is capped at RMB 19,512 per employee. For the three ~~and nine~~ months ended ~~October~~April 2829, 2017, we made matching contributions of $0.6 million ~~and $1.7 million, respectively, and $0.6 million and $1.8 million for the three and nine months ended October 29, 2016, respectively.~~

Retirement pension plans

We ~~maintain~~maintained retirement pension plans for the benefit of qualified employees in Denmark, Taiwan, The Netherlands, and Germany. We made matching contributions under these plans of $0.2 million for ~~each of~~ the three months ended ~~October~~April ~~28, 2017 and October~~ 29, ~~2016, and $0.6 million for each of the nine months ended October 28,~~ 2017 ~~and October 29, 2016~~.

Severance plan

We ~~maintain~~maintained a severance plan for several Israeli employees pursuant to Israel's Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment. Upon termination of employment, employees ~~are~~were entitled to one month salary for each year of employment or a portion thereof. As of ~~October~~May 285, ~~2017~~2018, we have anno ~~accrued~~remaining severance liability ~~of $0~~.9 million partially offset by $0.8 million of severance employee funds. We made contributions of less than $0.1 million for each of the three and nine months ended October 28, 2017 and October 29, 2016.

Employee termination benefits

Termination benefits are payable when an employee is involuntarily terminated, or whenever an employee accepts voluntary termination in exchange for termination benefits. For the accounting treatment and timing recognition of involuntarily termination benefits, the Company distinguishes between one-time termination benefit arrangements and ongoing termination benefit arrangements. A one-time termination benefit arrangement is established by a termination plan and applies to a specified termination event. One-time involuntary termination benefits are recognized as a liability when the termination plan meets certain criteria and has been communicated to employees. If employees are required to render future service in order to receive these one-time termination benefits, the liability is recognized ratably over the future service period. Termination benefits other than one-time termination benefits are termination benefits for which the communication criterion is not met but that are committed to by management, or termination obligations that are not specifically determined in a new and single plan. These termination benefits include all legal, contractual and past practice termination obligations to be paid to employees in case of involuntary termination. These termination benefits are accrued for when commitment creates a present obligation to our employees for the benefits expected to be paid, when it is probable that employees will be entitled to the benefits and the amount can be reasonably estimated. As discussed in Note 79, we recorded ~~termination~~restructuring ~~benefits~~charges of $0.64 million, ~~and~~which includes termination benefits of $20.52 million for the three ~~and nine~~ months ended ~~October~~April 2829, 2017~~, respectively~~.

1412. Income taxes

We recorded a provision for income taxes of $1.0 million for the three months ended April 29, 2017. The decrease in tax expense for the three months ended April 29, 2017 is primarily attributable to lower profitability and changes in tax reserves. During the three months ended April 29, 2017, we were unable to reasonably project our annual effective tax rate, and therefore computed our provision for income taxes based on year-to-date actual financial results. Included in our provision for income taxes are foreign exchange gains or losses on unsettled income tax liabilities.

13. Collaborative arrangement

In September 2016, we entered into a joint collaboration agreement (“JCA”) with Telechips Inc. (“Telechips”) to develop and commercialize a set-top box microprocessor SoC solution. Martin Manniche, a member of our Board, also serves on the board of directors of Telechips. Telechips is responsible for the manufacture of the products and is also the principal in the end customer product sales. Telechips’ wholly-owned subsidiary has the primary responsibility for order fulfillment, collection of receivables and handling of sales returns in all territories. We receive a marketing service fee in an amount equal to 50% of the net profit from the collaboration agreement, which is included in net revenue. The marketing service fee is recognized when products are shipped and all risks and rewards of ownership have been transferred to third-party customers, minus the cost of production and related operating expenses incurred by Telechips. Research and development costs are shared equally. Cost reimbursement to Telechips is recognized as incurred and included in research and development expenses.

Net loss from this collaborative agreement, included in net revenue, was less than $0.1 million for the three months ended April 29, 2017. Research and development expense recorded in connection with this collaboration agreement was $0.5 million for the three months ended April 29, 2017.

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Employee~~On ~~stock~~August ~~purchase~~14, ~~plan~~2017, we entered into an agreement to license certain set-top box semiconductor technology to Telechips for an aggregate payment of $4.7 million. The payment includes reimbursement of $2.5 million paid by us for a mask set which was capitalized with a corresponding accumulated amortization of $0.6 million. We recorded $1.1 million license revenue in the third quarter of fiscal 2018 with the remaining payment of $1.1 million recorded upon satisfaction of certain milestones which were completed in the fourth quarter of fiscal 2018. Both parties mutually agreed to terminate the JCA and released each party’s obligation to pay any invoices that may be due and payable under this JCA in the third quarter of fiscal 2018. As a result, we reversed the cumulative amortization expense recorded to cost of revenue of $0.6 million, our cumulative share of research and development expense of $0.7 million and our cumulative net losses recorded in net revenue of $0.3 million.

~~During~~There ~~the~~is ~~first~~no ~~quarter~~further ofcollaborative ~~fiscal~~agreement ~~2016,~~since ~~we discovered that we inadvertently sold shares of our common stock to our employees during fiscal 2015 in excess of~~ the ~~shares~~termination of ~~common stock authorized to be issued under our 2010 Employee Stock Purchase Plan (“2010 ESPP”). As a result, we may have failed to comply with~~ the ~~registration or qualification requirements of the federal securities law~~JCA. Certain purchasers of the shares that were issued in excess of the shares authorized under our 2010 ESPP may have the right to rescind their purchases from us for an amount equal to the purchase price paid for shares, plus interest from the date of purchase. These shares were treated as issued and outstanding for financial reporting purposes as of the original date of issuance.

As of October 28, 2017, there were approximately 36,458 shares issued to participants in the 2010 ESPP during the impacted offering periods that continued to be held by the original purchasers of such shares which may be subject to the rescission rights referenced above14. Segment ~~All of these shares were originally purchased for $3.89 per share. We have not classified the shares themselves outside of permanent equity as these shares are legally outstanding with all rights~~ and ~~privileges~~geographical therein. We also may be subject to civil and other penalties by regulatory authorities as a result of the failure to register these shares with the Securities and Exchange Commission. We do not believe that the failure to register the shares will have a material impact on our condensed consolidated financial statements.information

On August 22, 2016, we reached a closing agreement with the Internal Revenue Service on behalf of our employees for issuing shares in excess of the number of shares reserved under our 2010 ESPP and in March 2017, we settled with the relevant state tax authorities.

10. Income taxes

We recorded a provision for income taxes of $0.3 million and $2.2 million for the three months ended October 28, 2017 and October 29, 2016, respectively. The provision for income taxes was $2.3 million and $5.3 million for the nine months ended October 28, 2017 and October 29, 2016, respectively. The decrease in tax expense for the three and nine months ended October 28, 2017 is primarily attributable to lower profitability in taxable jurisdictions as compared to the same period in fiscal year 2017 and changes in tax reserves. During the three and nine months ended October 28, 2017 and October 29, 2016, we were unable to reasonably project our annual effective tax rate, and therefore computed our provision for income taxes based on year-to-date actual financial results. Included in our provision for income taxes are foreign exchange gains or losses on unsettled income tax liabilities.

11. Collaborative arrangement

In September 2016, we entered into a joint collaboration agreement (“JCA”) with Telechips Inc. (“Telechips”) to develop and commercialize a set-top box microprocessor SoC solution. Martin Manniche, a member of our board of directors, also serves on the board of directors of Telechips. Telechips is responsible for the manufacture of the products and is also the principal in the end customer product sales. Telechips’ wholly-owned subsidiary has the primary responsibility for order fulfillment, collection of receivables and handling of sales returns in all territories. We receive a marketing service fee in an amount equal to 50% of the net profit from the JCA, which is included in net revenue. The marketing service fee is recognized when products are shipped and all risks and rewards of ownership have been transferred to third-party customers, minus the cost of production and related operating expenses incurred by Telechips. Research and development costs are shared equally and cost reimbursement to Telechips is recognized as incurred and included in research and development expenses.

On August 14, 2017, we entered into an agreement to license certain set-top box semiconductor technology to Telechips for an aggregate payment of $4.7 million. The payment includes reimbursement of $2.5 million paid by us for a mask set which was capitalized with a corresponding accumulated amortization of $0.6 million. For the three months ended October 28, 2017, we recorded $1.1 million license revenue with the remaining payment of $1.1 million to be recorded upon satisfaction of certain milestones. Both parties mutually agreed to terminate the JCA and released each party’s obligation to pay any invoices that may be due and payable under this JCA. As a result, we reversed the cumulative amortization expense recorded to cost of revenue of $0.6 million, our cumulative share of research and development expense of $0.7 million and our cumulative net losses recorded in net revenue of $0.2 million for both the three and nine months ended October 28, 2017.

SIGMA DESIGNS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Segment and geographical information

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. We are organized as, and operate in, one reportable segment. Our operating segment consists of our geographically based entities in the United States, Israel and Singapore. Our chief operating decision-maker reviews consolidated financial information, accompanied by information about revenue by product group, target market and geographic region. We do not assess the performance of our geographic regions on other measures of income, expense or net income.

Our net revenue iswas derived principally from the sales of integrated SoC solutions, which we ~~sell~~ sold across both of our target markets. Connected Smart TV Platforms consist of all products that ~~are~~were sold into digital televisions as well as other adjacent markets using chipset products that ~~are~~were designed for video post-processing, products delivering IP streaming video, including hybrid versions of these products, and communication devices that use a standard protocol to connect equipment inside the home and stream IP-based video and audio, VoIP, or data through wired or wireless connectivity. IoT Devices ~~consist~~consisted of both smart home applications (including gateways and automated consumer devices) and mobile IoT applications (primarily tracking tags). Our smart home product line iswas marketed under our Z-Wave brand of wireless chips, modules and Z-Wave mesh networking protocol.

Our License and other markets include revenue derived from the licensing of our technology to third parties and other sources. Revenue derived from other sources includes software development kits, and engineering support services for hardware and software; that revenue iswas not significant as it represented zero of our total net revenue for the three ~~and nine~~ months ended ~~October~~April 2829, 2017~~, respectively; and zero and 0~~.~~2% of our total net revenue for the three and nine months ended October 29, 2016, respectively.~~

The following table sets forth net revenue attributable to each target market during the three months ended April 29, 2017 (in thousands):

	Three Months Ended				Nine Months Ended
Connected Smart TV Platforms	$	27,890
	October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016
IoT Devices		11,674
Connected Smart TV Platforms	$	19,435	$	50,014	$	73,436	$	145,400
Net revenue	$	39,564
IoT Devices		14,427		12,715		39,498		32,120
License and other		-		-		-		300
Net revenue	$	33,862	$	62,729	$	112,934	$	177,820

The following table sets forth net revenue for each geographic region based on the ship-to location of customers during the three months ended April 29, 2017 (in thousands):

	Three Months Ended				Nine Months Ended
Asia	$	31,922
	October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016
North America		5,819
Asia	$	29,245	$	50,569	$	95,740	$	144,483
Europe		1,823
North America		2,406		9,861		10,752		27,867
Net revenue	$	39,564
Europe		2,211		2,297		6,442		5,454
Other regions		-		2		-		16
Net revenue	$	33,862	$	62,729	$	112,934	$	177,820

~~The following table sets forth net revenue for each significant country based on the ship-to location of customers (in thousands):~~21

	Three Months Ended				Nine Months Ended
	October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016
China, including Hong Kong	$	15,363	$	26,218	$	55,818	$	86,785
Taiwan		10,442		19,662		29,199		43,617
United States		2,096		9,775		9,748		27,633
Republic of Korea		2,057		1,923		5,844		5,040
Poland		1,436		1,087		4,383		2,718
Thailand		-		1,884		1,852		7,621
Rest of the world		2,468		2,180		6,090		4,406
Net revenue	$	33,862	$	62,729	$	112,934	$	177,820

The following table sets forth net revenue for each significant country based on the ship-to location of customers during the three months ended April 29, 2017 (in thousands):

During the three months ended October 28, 2017, Sunjet Components Corporation accounted for 24% of our net revenue. During the nine months ended October 28, 2017, Sunjet Components Corporation, Silicon Application and Arris Global accounted for 22%, 13% and 11% of our net revenue, respectively. During the three months ended October 29, 2016, Sunjet Components Corporation and Arris Global accounted for 29% and 18% of our net revenue, respectively. During the nine months ended October 29, 2016, Sunjet Components Corporation, Arris Global, Silicon Application and Arrow Electronics accounted for 21%, 13%, 12% and 10% of our net revenue, respectively.

China, including Hong Kong	$	21,790
Taiwan		6,951
United States		5,520
Republic of Korea		1,675
Rest of the World		3,628
Net revenue	$	39,564

During the three months ended April 29, 2017, Arris Global, Sunjet Components Corporation and Silicon Application accounted for 19%, 16% and 16% of our net revenue, respectively.

15. Related party disclosure

Thinh Q. Tran, the Company’s former President and Chief Executive Officer and a former member of the Board is the founder of V-Silicon International, Inc. which, during the three months ended May 5, 2018, acquired the Company’s Smart TV and Set-top Box businesses. The purchase agreement for the sale of these businesses was negotiated at arm’s length and only after the departure of Mr. Tran from the Company.

Martin Manniche, a member of our Board, also serves on the board of directors of Telechips Inc. with which we had a joint collaboration agreement to develop and commercialize a set-top box microprocessor SoC solution. The agreement began in fiscal year 2016 and ended by mutual agreement in the fourth quarter of fiscal 2018.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes in this Form 10-Q. Except for historical information, the following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In some cases, you can identify forward-looking statements by terms such as "may," "might," "will," "objective," "intend," "should," "could," "can," "would," "expect," "believe," "estimate," "predict," "potential," "plan," “anticipate” or the negative of these terms, and similar expressions intended to identify forward-looking statements. These forward-looking statements, include, but are not limited to: statements ~~about~~regarding the disruption of our ~~capital~~operations ~~resources~~and management due to the dissolution and ~~needs,~~liquidation ~~including~~of the ~~adequacy~~Company and regarding disruptions caused to the dissolution and liquidation of ~~our~~the ~~current~~Company, ~~cash~~implementation ~~reserves;~~of the ~~expectation~~Plan ~~that~~of Liquidation and Dissolution, statements about our ~~revenue~~financial ~~from~~information and its presentation due to the ~~IoT~~adoption ~~Devices~~of ~~market~~the ~~will~~Liquidation ~~likely~~Basis ~~increase~~of inAccounting, the ~~foreseeable~~effect ~~future;~~of ~~anticipated~~the ~~deployments~~dissolution and ~~design~~liquidation ~~wins~~on our ability to retain and hire key personnel, changes in the ~~Connected~~legal ~~Smart~~and TVregulatory ~~Platforms~~environment, ~~target~~statements ~~market~~regarding results varying from the estimates presented, ifthe ~~any;~~dependence ~~our~~on ~~ability~~the toabilities ~~successfully~~and ~~execute~~continued participation of our ~~restructuring~~key ~~activities~~employees, inthird-party ~~fiscal~~claims ~~2018;~~and litigation and ~~our~~the ~~expectations~~difficulty ~~that~~of ~~our~~controlling ~~gross~~related ~~margin~~outcomes ~~will~~or ~~vary~~assessing ~~from~~ultimate ~~period~~liabilities, tolack ~~period~~of liquidity and other risks, including those discussed in our public filings. These forward-looking statements involve risks and uncertainties. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those discussed in the forward-looking statements include, but are not limited to, those discussed under Part II, Item 1A “Risk Factors” in this Form 10-Q as well as other information found in the documents we file from time to time with the Securities and Exchange Commission. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Form 10-Q. Unless required by U.S. federal securities laws, we do not intend to update any of these forward-looking statements to reflect circumstances or events that occur after the statement is made.

~~Overview~~Executive summary

WeRecent are a global integrated system-on-chip, or SoC, solutions provider offering intelligent platforms for use in a variety of home entertainment and home control appliances. Our goal is to ensure that our integrated SoC solutions serve as the foundation for some of the world’s leading consumer products, including televisions, media connectivity, smart home, and mobile Internet of Things, or IoT, products. A majority of our primary products are semiconductors that are targeted toward end-product manufacturers, Original Equipment Manufacturers, or OEMs, and Original Design Manufacturers or ODMs, however, a certain amount of non-recurring engineering services, development kit sales, and licensing revenue are also derived from our target markets. Additionally, we derive a minor portion of our revenue from non-core licensing and other activities, which is reported under the License and other markets. Developments

As a result of the approval of the Plan of Liquidation and Dissolution by our shareholders, the Company adopted the Liquidation Basis of Accounting, effective April 18, 2018. This basis of accounting is considered appropriate when, among other things, liquidation of the Company is imminent, as defined in ASC 205-30 “Presentation of Financial Statements – Liquidation Basis of Accounting.” Under the Liquidation Basis of Accounting, the following financial statements are no longer presented (except for periods prior to the adoption of the Liquidation Basis of Accounting): a consolidated condensed balance sheet, a consolidated condensed statement of operations and comprehensive loss and a consolidated condensed statement of cash flows. The consolidated condensed statement of net assets and the consolidated condensed statement of changes in net assets are the principal financial statements presented under the Liquidation Basis of Accounting.

Prior to the sales of our Media Connectivity, Smart TV and Set-top Box and Z-Wave business units, we were a provider of intelligent platforms for use in a variety of home entertainment and home control appliances. We sold our products into two primary target markets which were the Connected Smart TV Platforms and Internet of Things (“IoT”) Devices markets. Our integrated system-on-chip (“SoC”) solutions served as the foundation for some of the world’s leading consumer products, including televisions, media connectivity, smart home, and mobile IoT products. A majority of our primary products were semiconductors that were targeted toward end-product manufacturers, Original Equipment Manufacturers (“OEMs”), and Original Design Manufacturers (“ODMs”), however, a certain amount of non-recurring engineering services, development kit sales, and licensing revenue was also derived from our target markets. Additionally, we derived a minor portion of our revenue from non-core licensing and other activities, which is reported under the License and other markets.

Our chipset products and target markets

We ~~consider~~considered our semiconductor products primarily to be chipsets because each of our products is comprised of multiple semiconductors. We ~~believe~~believed our chipsets enable our customers to efficiently bring consumer multimedia devices to market. We ~~design~~designed our highly integrated products to significantly improve performance, lower power consumption and reduce cost. We ~~sell~~sold our products into two target markets: Connected Smart TV Platforms and IoT Devices.

Connected Smart TV Platforms Market

The Connected Smart TV Platforms market ~~consists~~consisted of all products that ~~are~~were sold into digital televisions as well as other adjacent markets using chipset products that ~~are~~were designed for video post-processing, products delivering IP streaming video, including hybrid versions of these products and communication devices that ~~use~~used a standard protocol to connect equipment inside the home and stream IP-based video and audio, VoIP, or data through wired or wireless connectivity. We ~~serve~~served this market with our media processor chips, dedicated post-processing products and home networking controllers.

IoT Devices Market

The IoT Devices market ~~consists~~consisted of both smart home applications (including gateways and automated consumer devices) and mobile IoT applications (primarily tracking tags). Our smart home product line iswas marketed under our Z-Wave brand of wireless chips, modules and Z-Wave mesh networking protocol.

License and Other Markets

License and other markets ~~includes~~included other products and services, including technology licenses, software development kits, and engineering support services for hardware and software.

Critical accounting policies and estimates

There have been no significant changes in our critical accounting policies during the ~~nine~~three months ended ~~October~~May 285, ~~2017~~2018, as compared to the critical accounting policies described in our Annual Report on Form 10-K for the year ended ~~January~~February 283, ~~2017~~2018. For a complete summary of our significant accounting policies, refer to Note 1, “Organization and Summary of Significant Accounting Policies”, in Part II, Item 8 of our fiscal ~~2017~~2018 Annual Report.

Results of operations

~~The~~In ~~following~~light ~~table~~of isthe ~~derived~~adoption ~~from~~of ~~our~~the ~~unaudited~~Liquidation ~~condensed~~Basis ~~consolidated~~of ~~financial~~Accounting ~~statements~~as ~~and~~of ~~sets~~April ~~forth~~18, ~~our~~2018, ~~historical~~the ~~operating~~ results asof aoperations ~~percentage~~for ofthe ~~net~~current ~~revenue~~period ~~for~~are ~~each~~not ofcomparable to the prior year periods. ~~indicated~~Due ~~(in~~to ~~thousands~~the adoption of the Plan of Liquidation and Dissolution, ~~except~~we ~~percentages):~~no longer consider our results of operations to be a key performance measure.

	Three Months Ended											Nine Months Ended
	October 28, 2017			% of Net Revenue			October 29, 2016		% of Net Revenue			October 28, 2017			% of Net Revenue			October 29, 2016			% of Net Revenue
Net revenue	$	33,862			100	%	$	62,729		100	%	$	112,934			100	%	$	177,820			100	%
Cost of revenue		16,746			49	%		31,734		51	%		58,374			52	%		93,242			52	%
Gross profit		17,116			51	%		30,995		49	%		54,560			48	%		84,578			48	%
Operating expenses
Research and development		17,218			51	%		18,264		29	%		53,380			47	%		56,255			32	%
Sales and marketing		7,012			21	%		5,984		10	%		17,498			15	%		17,646			10	%
General and administrative		5,744			17	%		4,578		7	%		15,899			14	%		14,536			8	%
Restructuring charges		563			1	%		-		-	%		2,529			2	%		-			-	%
Impairment of IP and mask sets		5,463			16	%		-		-	%		8,469			8	%		300			-	%
Total operating expenses		36,000			106	%		28,826		46	%		97,775			86	%		88,737			50	%
(Loss) income from operations		(18,884	)		(55	%)		2,169		3	%		(43,215	)		(38	%)		(4,159	)		(2	%)
Interest and other income (expense), net		147			-	%		179		-	%		(1,076	)		(1	%)		(157	)		-	%
(Loss) income before income taxes		(18,737	)		(55	%)		2,348		3	%		(44,291	)		(39	%)		(4,316	)		(2	%)
Provision for income taxes		347			1	%		2,127		3	%		2,329			2	%		5,283			3	%
Net (loss) income	$	(19,084	)		(56	%)	$	221		-	%	$	(46,620	)		(41	%)	$	(9,599	)		(5	%)

Changes in net assets in liquidation for the three months ended May 5, 2018

~~Net~~Upon ~~revenue~~adoption of the Liquidation Basis of Accounting as of April 18, 2018, the Company’s shareholders equity was decreased by approximately $20.8 million to arrive at net assets in liquidation of $244.0 million. The primary reason for the decrease in net assets as of April 18, 2018 was due to the accrual of estimated liquidation and operating costs during liquidation of $17.9 million and adjustment of assets to their net realizable value of $2.8 million.

~~Our~~During ~~net revenue for~~ the three months ended ~~October~~May 285, ~~2017~~2018, net assets in liquidation decreased by $284.96 million,. orThe ~~46%,~~primary asreason ~~compared~~for to the ~~corresponding~~decrease ~~period~~was $3.3 million in ~~the~~settlement ~~prior~~of ~~fiscal~~accounts ~~year~~payable ~~due~~and to$1.3 ~~decreases~~million ~~within~~in ~~the~~settlement ~~Connected~~of ~~Smart~~accrued TVliabilities ~~Platforms~~paid ~~market,~~in ~~partially~~cash ~~offset~~for byliabilities anexisting ~~increase~~prior ~~within~~to the ~~IoT~~adoption ~~Devices~~of ~~market~~the liquidation basis of accounting.

~~For~~Estimated ~~the~~liquidation ~~nine~~and ~~months~~operating ~~ended~~costs ~~October~~during 28, 2017, our net revenue decreased by $64.9 million, or 36%, as compared to the corresponding period in the prior fiscal year due to decreases within the Connected Smart TV Platforms market, partially offset by an increase within the IoT Devices market.liquidation

	May 5, 2018

Severance and employment contract payments	$	14,149
General overhead costs		3,643
Other dissolution costs		142

Liability for estimated costs during dissolution and liquidation	$	17,934

Results of operations for the three months ended April 29, 2017 (going concern basis)

The following table is derived from our unaudited condensed consolidated financial statements and sets forth our operating results as a percentage of net revenue for the period indicated (in thousands, except percentages):

	Three Months Ended
	April 29, 2017			% of Net Revenue
Net revenue	$	39,564			100	%
Cost of revenue		20,940			53	%
Gross profit		18,624			47	%
Operating expenses
Research and development		18,169			46	%
Sales and marketing		5,372			14	%
General and administrative		5,454			14	%
Impairment of IP		3,006			7	%
Total operating expenses		32,001			81	%
Loss from operations		(13,377	)		(34	%)
Interest and other expense, net		(465	)		(1	%)
Loss before income taxes		(13,842	)		(35	%)
Provision for income taxes		1,017			3	%
Net loss	$	(14,859	)		(38	%)

Net revenue by target market

The following table sets forth our net revenue by target market and the percentage of net revenue represented by our product sales to each of those markets (in thousands, except percentages):

	Three Months Ended										~~Nine Months Ended~~
	October 28, 2017		% of Net Revenue			October 29, 2016		% of Net Revenue			October 28, 2017		% of Net Revenue			October 29, 2016		% of Net Revenue
	April 29, 2017		% of Net Revenue
Connected Smart TV Platforms	$	1927,~~435~~890		5770	%	$	~~50,014~~		80	%	$	~~73,436~~		65	%	$	~~145,400~~		82	%
IoT Devices		1411,~~427~~674		4330	%		~~12,715~~		20	%		~~39,498~~		35	%		~~32,120~~		18	%
License and other		-		-	%		-		-	%		-		-	%		300		-	%
Net revenue	$	39,564		100	%
Net revenue	$	33,862		100	%	$	62,729		100	%	$	112,934		100	%	$	177,820		100	%

Connected Smart TV Platforms: For the three months ended October 28, 2017, net revenue from sales of our products into the Connected Smart TV Platforms market decreased by $30.6 million, or 61%, as compared to the corresponding period in the prior fiscal year. For the nine months ended October 28, 2017, net revenue decreased by $72.0 million, or 49%, as compared to the corresponding period in the prior fiscal year. We experienced a decrease of 56% and 36% in units shipped during the three and nine months ended October 28, 2017, respectively, as compared to the corresponding periods in the prior fiscal year. The volume decline in our Connected Smart TV Platforms market resulted primarily from the lower demand for our chipsets used in ultra-high definition televisions, also known as Ultra-HD televisions, and the continued decline of demand for our older legacy products, many of which are now approaching end-of-life. In addition, our wired home networking controller chipsets contributed to this volume decline primarily due to reduced demand due to the continued expansion of wireless technologies in the market impacting our existing product offerings.

In September 2016, we entered into a joint collaboration agreement (“JCA”) with Telechips Inc. (“Telechips”) to develop and commercialize a set-top box microprocessor SoC solution. Martin Manniche, a member of our board of directors, also serves on the board of directors of Telechips. We receive a marketing service fee in an amount equal to 50% of the net profit from the JCA, which is included in net revenue. On August 14, 2017, we entered into an agreement to license certain set-top box semiconductor technology to Telechips for an aggregate payment of $4.7 million. The payment includes reimbursement of $2.5 million paid by us for a mask set which was capitalized with a corresponding accumulated amortization of $0.6 million. For the three months ended October 28, 2017, we recorded $1.1 million license revenue with the remaining payment of $1.1 million to be recorded upon satisfaction of certain milestones. Both parties mutually agreed to terminate the JCA and released each party’s obligation to pay any invoices that may be due and payable under this JCA. As a result, we reversed our cumulative net losses recorded in net revenue of $0.2 million for both the three and nine months ended October 28, 2017.

Our Connected Smart TV Platforms revenue was derived mainly from the Asia region. We expect our net revenue from the Connected Smart TV Platforms market to continue to be a significant percentage of net revenue but will fluctuate in future periods based primarily on demand for our products.

IoT Devices: For the three months ended October 28, 2017, net revenue from sales of our products into the IoT Devices market increased by $1.7 million, or 13%, compared to the corresponding period in the prior fiscal year. For the nine months ended October 28, 2017, net revenue increased by $7.4 million, or 23%, as compared to the corresponding period in the prior fiscal year. In both cases, the increase was primarily the result of higher demand, mainly in the Asia region. This was evidenced by an increase of 52% and 55% in units shipped during the three and nine months ended October 28, 2017, respectively, as compared to the corresponding periods in the prior fiscal year. In addition, we derive a portion of our IoT Devices revenues in the form of fees from members of a wholly-owned entity dedicated to the marketing, development and proliferation of the Z-Wave brand. During the three and nine months ended October 28, 2017, membership revenue was $0.5 million and $1.3 million, respectively, as compared to the corresponding periods in the prior fiscal year of $0.4 million and $1.3 million, respectively.

We have compelling products for our IoT Devices market and we continue to target large operators who are introducing home control and automation products primarily in the North America region. We expect our revenue from the IoT Devices market to increase in the foreseeable future.

License and other markets: Our license and other markets consist primarily of technology license revenue and revenue from other ancillary markets. For the three and nine months ended October 28, 2017 and October 29, 2016, net revenue was nominal as we had no significant source of license or other revenue in either period. We do not expect our license and other revenue to be a significant source of revenue, but this may fluctuate in future periods if we enter into a license agreement in the future. We do not have a sales program based around licensing our technology. However, we continue to evaluate opportunities as they arise in the future.

Net revenue by geographic region

The following table sets forth net revenue for each geographic region based on the ship-to location of customers (in thousands, except percentages):

	Three Months Ended										Nine Months Ended
	October 28, 2017		% of Net Revenue			October 29, 2016		% of Net Revenue			October 28, 2017		% of Net Revenue			October 29, 2016		% of Net Revenue
Asia	$	29,245		86	%	$	50,569		81	%	$	95,740		85	%	$	144,483		81	%
North America		2,406		7	%		9,861		16	%		10,752		9	%		27,867		16	%
Europe		2,211		7	%		2,297		3	%		6,442		6	%		5,454		3	%
Other regions		-		-	%		2		-	%		-		-	%		16		-	%
Net revenue	$	33,862		100	%	$	62,729		100	%	$	112,934		100	%	$	177,820		100	%

Asia: Our net revenue from Asia decreased by $21.3 million, or 42%, for the three months ended October 28, 2017, compared to the corresponding period in the prior fiscal year. Our net revenue for the nine months ended October 28, 2017 decreased by $48.7 million, or 34%, as compared to the corresponding period in the prior fiscal year. In both cases, the decreases were largely attributable to the decreasing deployments of new generation products by our customers within the Connected Smart TV Platforms market. This decrease was compounded by reduced demand of our wired home networking controller chipsets due to the continued expansion of wireless technologies in the market impacting our existing product offerings. These decreases were partially offset by an increase in demand within the IoT Devices market. Net revenue from customers in Asia as a percentage of our total net revenue for the three and nine months ended October 28, 2017 increased by 5 and 4 percentage points, respectively, as compared to the corresponding periods in the prior fiscal year. The increase for both periods was primarily due to the significant decrease in revenue in North America.

North America: Our net revenue from North America decreased by $7.5 million, or 76%, for the three months ended October 28, 2017, as compared to the corresponding period in the prior fiscal year. Our net revenue for the nine months ended October 28, 2017 decreased by $17.1 million, or 61%, as compared to the corresponding period in the prior fiscal year. In both cases, the decreases were mainly attributable to the decreasing deployments of new generation products by our customers within the Connected Smart TV Platforms market. The decrease was compounded by lower IoT revenue derived from non-recurring engineering contracts. Net revenue from North American customers as a percentage of our total net revenue for the three and nine months ended October 28, 2017 decreased by 9 and 7 percentage points, respectively, as compared to the corresponding periods in the prior fiscal year primarily due to the decrease experienced within our Connected Smart TV Platforms.

Europe: Our net revenue from Europe decreased by less than $0.1 million, or 4%, for the three months ended October 28, 2017, as compared to the corresponding period in the prior fiscal year, primarily due to a decrease in shipments within our IoT Devices market and primarily in the United Kingdom. Our net revenue for the nine months ended October 28, 2017 increased by $0.1 million, or 18%, as compared to the corresponding period in the prior fiscal year, primarily due to an increase in shipments within our IoT Devices market and primarily in Poland. Net revenue from European customers as a percentage of our total net revenue for the three and nine months ended October 28, 2017 increased by 4 and 3 percentage points, respectively, compared to the corresponding periods in the prior fiscal year. The increase for both periods was mainly due to the significant decrease in revenue in North America.

Other regions: Our net revenue from other regions was nominal for both the three and nine months ended October 28, 2017 and October 29, 2016.

Major customers

During the three months ended ~~October~~April 2829, 2017, ~~Sunjet Components Corporation accounted for 24% of our net revenue. During the nine months ended October 28, 2017, Sunjet Components Corporation, Silicon Application and~~ Arris Global ~~accounted for 22%~~, ~~13% and 11% of our net revenue, respectively. During the three months ended October 29, 2016,~~ Sunjet Components Corporation, and ~~Arris Global accounted for 29% and 18% of our net revenue, respectively. During the nine months ended October 29, 2016, Sunjet Components Corporation, Arris Global,~~ Silicon Application ~~and Arrow Electronics~~ accounted for 2119%, 1316%, ~~12%~~ and 1016% of our net revenue, respectively.

2025

Gross profit and gross margin

The following table sets forth our gross profit and gross margin (in thousands, except percentages):

	Three Months Ended									Nine Months Ended
	October 28, 2017			% Change			October 29, 2016			October 28, 2017			% Change			October 29, 2016
Gross profit	$	17,116			(45	%)	$	30,995		$	54,560			(35	%)	$	84,578
Gross margin %		50.5	%		1.1	%		49.4	%		48.3	%		0.7	%		47.6	%

Gross profit decreased by $13.9 million, or 45%, for the three months ended October 28, 2017, as compared to the corresponding period in the prior fiscal year. Gross profit decreased by $30.0 million, or 35%, for the nine months ended October 28, 2017, as compared to the corresponding period in the prior fiscal year. The decrease for both periods was primarily due to lower sales volumes within the Connected Smart TV Platforms market. Our gross margin increased 1.1 and 0.7 percentage points, respectively, for the three and nine months ended October 28, 2017, as compared to the corresponding periods in the prior fiscal year, primarily due to favorable shifts in the product mix within our Connected Smart TV Platforms market.

Our future gross margin could be impacted by our product mix and could be adversely affected by further growth in sales of products that have lower gross margins. Our gross margin may also be impacted by the geographic mix of our revenue and may be adversely affected by increased sales discounts, rebates, royalties, and product pricing attributable to competitive factors. Additionally, our manufacturing-related costs may be negatively impacted by constraints in our supply chain, which in turn could negatively affect gross margin. If any of the preceding factors that in the past have negatively impacted our gross margin arises in the future, our gross margin could decline.

Research and development expense

Research and development expense ~~consists~~consisted of compensation and benefits costs including variable compensation expense, development and design costs such as mask, prototyping, testing and subcontracting costs, depreciation of our equipment costs, amortization of our engineering design tools and third-party licensed technology, stock-based compensation expense, and other expenses such as costs for facilities and travel. During certain periods, research and development expense may fluctuate relative to product development phases and project timing. The following table sets forth our research and development expense and the related change (in thousands, except percentages):

	Three Months Ended
	October 28, 2017			October 29, 2016			$ Change			% Change
Research and development expense	$	17,218		$	18,264		$	(1,046	)		(6	%)
Percent of net revenue		50.8	%		29.1	%

	Nine Months Ended
	October 28, 2017			October 29, 2016			$ Change			% Change
Research and development expense	$	53,380		$	56,255		$	(2,875	)		(5	%)
Percent of net revenue		47.3	%		31.6	%

Research and development expense decreased during the three and nine months ended October 28, 2017, as compared to the corresponding periods in the prior fiscal year. The decrease for both periods was primarily due to lower amortization of design tools, compensation and benefits. In addition, we recorded a reversal of our cumulative share of research and development expense of $0.7 million resulting from the termination of our collaboration arrangement with Telechips. For further discussion, refer to Note 11, “Collaborative arrangement” of the Notes to the unaudited condensed consolidated financial statements of this Form 10-Q included in Item 1 of this report. We had 462 employees in research and development as of October 28, 2017, compared to 517 employees as of October 29, 2016.

Sales and marketing expense

Sales and marketing expense ~~consists~~consisted primarily of compensation and benefits costs, including commissions to our direct sales force, stock-based compensation expense, trade shows, travel and entertainment expenses and external commissions. ~~Our sales and marketing expense is summarized as follows (in thousands, except percentages):~~

	Three Months Ended
	October 28, 2017			October 29, 2016			$ Change		% Change
Sales and marketing expense	$	7,012		$	5,984		$	1,028		17	%
Percent of net revenue		20.7	%		9.5	%

	Nine Months Ended
	October 28, 2017			October 29, 2016			$ Change			% Change
Sales and marketing expense	$	17,498		$	17,646		$	(148	)		(1	%)
Percent of net revenue		15.4	%		9.9	%

Sales and marketing expense increased during the three months ended October 28, 2017, as compared to the corresponding period in the prior fiscal year, primarily due to an accrual of $1.5 million related to a license compliance dispute, partially offset by lower amortization of acquired intangibles related to customer relationships, compensation and benefits.

Sales and marketing expense decreased during the nine months ended October 28, 2017, as compared to the corresponding period in the prior fiscal year, primarily due to lower amortization of acquired intangibles related to customer relationships, marketing programs, compensation and benefits. These decreases were partially offset by the aforementioned accrual of $1.5 million related to a license compliance dispute. We had 87 employees in sales and marketing as of October 28, 2017, compared to 101 employees as of October 29, 2016.

General and administrative expense

General and administrative expense consists primarily of compensation and benefits costs, stock-based compensation expense, legal, accounting and other professional fees and facilities expenses. ~~Our general and administrative expense is summarized as follows (in thousands, except percentages):~~

	Three Months Ended
	October 28, 2017			October 29, 2016			$ Change		% Change
General and administrative expense	$	5,744		$	4,578		$	1,166		25	%
Percent of net revenue		17.0	%		7.3	%

	Nine Months Ended
	October 28, 2017			October 29, 2016			$ Change		% Change
General and administrative expense	$	15,899		$	14,536		$	1,363		9	%
Percent of net revenue		14.1	%		8.2	%

General and administrative expense increased during the three and nine months ended October 28, 2017, as compared to the corresponding periods in the prior fiscal year. The increase for both periods was primarily due to increased legal services associated with the restructuring plan and litigation matters, partially offset by lower personnel related compensation costs. We had 69 employees in general and administrative as of October 28, 2017, compared to 77 employees as of October 29, 2016.

Restructuring charges

On March 24, 2017, we initiated restructuring activities (the “Fiscal 2018 Plan”) in order to realign resources with our core target markets, such as the IoT market. ~~We expect our Fiscal 2018 Plan to be completed by the end of fiscal 2018.~~ Our restructuring activities include targeted reductions in labor costs through headcount reductions, facilities closure, and impairment of mask sets and certain purchased ~~intellectual property, or~~ IP. We ~~expect to reduce our workforce by between 200 and 250 employees by the end of fiscal 2018, a majority of which are from our research and development group for the Connected Smart TV Platforms market.~~ The changes to ~~the~~our workforce may vary by country based on local legal requirements, as appropriate. We expect to incur charges between $8.0 million to $10.0 million relating to severance and lease termination and between $5.0 million to $7.0 million for the remaining restructuring-related charges, which includes estimated asset impairment charges and other costs. The restructuring plan is currently expected to result in approximately $8.0 million of cost savings per quarter, starting in fiscal 2019. Restructuring liabilities are reported within accrued liabilities in the accompanying condensed consolidated balance sheets.

~~During~~In the ~~three~~first ~~and~~quarter ~~nine~~of ~~months ended October 28~~2018, ~~2017,~~ we communicated a plan of termination to several employees, which consisted of headcount reductions mainly in our ~~worldwide~~North America operations~~. A~~, ~~summary~~a majority of which are from our research and development group for the ~~recent~~Connected ~~activities~~Smart TV Platforms market. As a result, for the three months ended April 29, 2017, we recorded a restructuring charge of ~~our~~$0.4 million, reflected in general and administrative expense, which includes $0.2 million of charges related to workforce reductions, and paid less than $0.1 million in cash payments. In addition, we recorded an impairment charge for purchased IP not yet deployed of $3.0 million as we no longer intend to use this IP. The accrued severance liability relating to these restructuring ~~plan~~activities of is$1.5 million as ~~follows~~of (May 5, 2018 is reported within accrued liabilities in ~~thousands):~~the accompanying condensed consolidated statement of net assets.

	Severance
Charges for the three months ended April 29, 2017	$	243
Cash payments		(5	)
Accrued balance as of April 29, 2017		238
Charges for the three months ended July 29, 2017		1,723
Cash payments		(364	)
Accrued balance as of July 29, 2017		1,597
Charges for the three months ended October 28, 2017		563
Cash payments		(573	)
Accrued balance as of October 28, 2017	$	1,587
Total cost incurred to date as of October 28, 2017	$	2,529

InImpairment ~~addition, we recorded impairment charges for purchased IP and mask sets~~ of ~~$6.7~~long-lived million and $9.7 million for the three and nine months ended October 28, 2017, respectively, as we no longer intend to use these IP and mask sets. The following table presents the impairment charges in the accompanying condensed consolidated statements of operations (in thousands):assets

	Three Months Ended October 28, 2017		Nine Months Ended October 28, 2017
Cost of revenue	$	1,200	$	1,200
Operating expenses		5,463		8,469
Total	$	6,663	$	9,669

Our restructuring measures could negatively impact our revenue and results of operations in the future as a result of less employees developing future products and working to sell our products.

Impairment of IP, mask sets and design tools

We test long-lived assets, including our purchased intangible assets, for impairment whenever events or changes in circumstances, such as a change in technology, indicate that the carrying value of these assets may not be recoverable. If indicators of impairment exist, we determine whether the carrying value of an asset or asset group is recoverable, based on comparisons to undiscounted expected future cash flows that the assets are expected to generate. If an asset is not recoverable, we record an impairment loss equal to the amount by which the carrying value of the asset exceeds its fair value. We primarily use the income valuation approach to determine the fair value of our long-lived assets and purchased intangible assets. We also periodically review our current assets for other-than-temporary declines in fair-value based on the specific identification method and write-down the carrying value when an other-than temporary decline has occurred.

Our business requires investment in purchased IP, mask sets and design tools that are technologically advanced but can quickly become significantly underutilized or rendered obsolete by rapid changes in demand in the semiconductor industry. We periodically review our purchased IP, mask sets and design tools for possible impairment or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. WeDuring ~~recorded $6.7 million and $9.7 million of impairment charges related to purchased IP and mask sets during~~ the three ~~and nine~~ months ended ~~October~~April 2829, 2017, ~~respectively.~~we We recorded ~~zero~~impairment ~~and~~charges ~~$0.3~~related ~~million~~to ofcertain ~~impairment~~purchased ~~charges~~IP ~~during~~of ~~the~~$3.0 ~~three~~million ~~and~~as ~~nine~~part ~~months~~of ~~ended~~our ~~October~~restructuring ~~29, 2016~~plan.

23Interest and other expense, net

~~Interest~~During the three months ended April 29, 2017, we incurred interest and other ~~income (~~expense), net of $0.5 million.

~~The~~Interest ~~following~~and ~~table~~other ~~sets~~expense ~~forth~~primarily ~~net~~consisted of interest ~~and~~income ~~other~~from marketable securities, income ~~(expense)~~from refundable research and ~~the~~development ~~related~~credits, ~~change~~gains ~~(in~~or ~~thousands~~losses on foreign exchange transactions, ~~except~~gains ~~percentages):~~or losses on sales of marketable securities, gains or losses on currency hedging activities and gains or losses on disposals of software, equipment and leasehold improvements.

	Three Months Ended							Nine Months Ended
	October 28, 2017		% change			October 29, 2016		October 28, 2017			% change			October 29, 2016
Interest and other income (expense), net	$	147		(18%	)	$	179	$	(1,076	)		585	%	$	(157	)

Interest and other income (expense) primarily consist of interest income from marketable securities, income from refundable research and development credits, gains or losses on foreign exchange transactions, gains or losses on sales of marketable securities, and gains or losses on disposals of software, equipment and leasehold improvements. Interest and other, net income decreased by less than $0.1 million for the three months ended October 28, 2017, as compared to the corresponding period in the prior fiscal year. Interest and other, net expense increased by $0.9 million during the nine months ended October 28, 2017, as compared to the corresponding period in the prior fiscal year. The changes for both periods was primarily due to unfavorable fluctuations in foreign currency.

Provision for income taxes

We recorded a provision for income taxes of $01.30 million ~~and $2.2 million~~ for the three months ended ~~October~~April ~~28, 2017 and October~~ 29, ~~2016, respectively. The provision for income taxes was $2.3 million and $5.3 million for the nine months ended October 28,~~ 2017 ~~and October 29, 2016, respectively~~. The decrease in tax expense for the three and nine months ended October 28, 2017 is primarily attributable to lower profitability in taxable jurisdictions as compared to the same period in fiscal year 2017 and changes in tax reserves. During the three and nine months ended October 28, 2017 and October 29, 2016, we were unable to reasonably project our annual effective tax rate, and therefore computed our provision for income taxes based on year-to-date actual financial results. Included in our provision for income taxes are foreign exchange gains or losses on unsettled income tax liabilities.

Liquidity and Capital ~~Resources~~

AsAfter ofthe ~~October~~sales ~~28,~~of ~~2017,~~ our ~~principal~~Media ~~sources of liquidity consisted of cash of $69.2 million~~Connectivity, ~~which~~Smart ~~represents~~TV ~~approximately~~and ~~$1.79~~Set-top ~~per~~Box ~~share~~and ofZ-Wave ~~outstanding~~business ~~common stock as compared to $1.87 as of January 28~~units, ~~2017. Working~~our ~~capital~~primary asasset ~~of October 28, 2017~~ was ~~$70.1 million. Total~~ cash ~~increased~~of by $2279.84 million ~~compared~~as ~~to January 28, 2017, primarily due to favorable changes in operating assets and liabilities~~ of ~~$28.6~~May ~~million~~5, ~~sales and maturities of marketable securities and long-term investment of $6~~2018.6 ~~million~~We ~~and~~will ~~reimbursement~~use ofproceeds ~~mask~~from ~~set~~the ~~related~~sales to ~~collaborative~~pay ~~arrangement~~expenses ofand ~~$2.5 million~~taxes, ~~partially~~if ~~offset~~any, byassociated ~~$21.1~~with ~~million~~the ofsale ~~net loss after non-cash adjustments of $25.6 million~~ and ~~purchases~~for ofother ~~tangible~~operating ~~and intangible assets of $14~~expenses.~~4 million.~~

We ~~believe~~plan to distribute, in an initial distribution (with potential subsequent distributions thereafter), a portion of the net proceeds from the sale of our ~~existing~~Z-Wave ~~balance~~Business to Silicon Labs, subject to a contingency reserve for costs and liabilities. The amount and timing of ~~cash~~the distributions to shareholders will be ~~sufficient~~determined by the Board in its discretion, subject to ~~satisfy~~the provisions of the Plan of Liquidation and Dissolution. The Board currently anticipates that the amount of aggregate distributions to shareholders will be between $235 million and $255 million. The amount ultimately distributed to shareholders may be less than anticipated as a result of unforeseen circumstances. There can be no guarantee as to the timing and amount of distributions to shareholders, even if all of our ~~working~~remaining ~~capital~~assets ~~needs~~are sold, ~~capital~~because ~~asset~~there ~~purchases~~are many factors, ~~outstanding~~some ~~commitments~~of ~~and~~which ~~other~~are ~~liquidity~~outside ~~requirements~~of ~~associated~~our ~~with~~control, ~~existing~~which ~~operations~~could ~~over~~affect the ~~next~~timing 12of ~~months~~such distributions. Only shareholders of record as of the record date for a distribution as determined by the Board will be entitled to receive that distribution.

As of April 29, 2017, our principal sources of liquidity consisted of cash and cash equivalents and short-term marketable securities of $74.5 million, which represented approximately $1.95 per share of outstanding common stock. Working capital as of April 29, 2017 was $86.1 million.

The following table sets forth the primary net cash inflows and outflows (in thousands):

	Nine Months Ended
	Three Months Ended
	October 28, 2017			October 29, 2016
	April 29, 2017
Net cash provided by (used in):
Operating activities	$	78,~~562~~516		$	~~6,052~~
Investing activities		(53,~~932~~174	)		~~(6,417~~	)
Financing activities		~~1,073~~(78	)		~~1,605~~
Effect of foreign exchange rate changes on cash and cash equivalents		918			~~(197~~	)
Net increase in cash and cash equivalents	$	25,~~794~~272		$	~~1,043~~

Cash flows from operating activities

Net cash provided by operating activities of $78.6 5 million for the ~~nine~~three months ended ~~October~~April 2829, 2017 was primarily due to a favorable net change of $2813.69 million in operating assets and liabilities, partially offset by $215.14 million of net loss after non-cash adjustments of $259.65 million, such as stock-based compensation expense, ~~impairment of IP,~~ depreciation and amortization. The increase in cash ~~flow~~flows from operating activities during the ~~nine~~three months ended ~~October~~April 2829, 2017 as compared to the comparable corresponding period in fiscal 2017, was primarily due to an increase in the net change in operating assets and liabilities of $3618.06 million ~~and non-cash adjustments of $2~~.5 ~~million.~~ This was partially offset by an increase in net loss of $376.08 million. The favorable changes in operating assets and liabilities were primarily driven by the timing of collections and payments.

Cash flows from our operating activities will continue to fluctuate based upon our ability to grow net revenues while reducing our costs and managing the timing of payments to us from customers and to vendors from us, the timing of inventory purchases and subsequent manufacture and sale of our products.

Cash flows from investing activities

Net cash used in investing activities was $53.92 million for the ~~nine~~three months ended ~~October~~April 2829, 2017, which was primarily due to purchases of IP and software, equipment and leasehold improvements of $41.81 million and $94.61 million, respectively, partially offset by ~~net sales and~~ maturities of marketable securities ~~and long-term investment~~ of $62.0 million ~~and reimbursement of mask set related to collaborative arrangement of $2~~.5 ~~million.~~ Purchases of intangible and tangible property were primarily to support the development and advancement of emerging technologies within our target markets.

Net cash used in investing activities of $5.9 million for the nine months ended October 28, 2017 represents a $0.5 million decrease from the amount of cash used by investing activities during the corresponding period in fiscal 2017. The decrease was primarily due to higher proceeds from the net sales and maturities of marketable securities and long-term investment, partially offset by higher purchases of tangible property and equipment.

Cash flows from financing activities

Net cash ~~provided~~used byin financing activities was $10.1 million for the ~~nine~~three months ended ~~October~~April 2829, 2017, which was due to the ~~proceeds from the exercise of~~ employee ~~stock options and stock purchase rights, partially offset by employee~~ payroll taxes paid related to net share settlement of restricted stock units., ~~The~~partially ~~decrease~~offset ofby ~~$0.5~~proceeds ~~million~~ from the ~~corresponding~~exercise ~~period in fiscal 2017 was primarily the result~~ of ~~lower~~employee ~~exercise~~stock ~~activity~~options ~~related~~and to stock ~~options~~purchase rights.

Off-Balance Sheet Arrangements

As of ~~October~~May 285, ~~2017~~2018, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

~~Contractual obligations and commitments~~28

We generally do not have guaranteed price or quantity commitments from any of our suppliers. Additionally, we generally acquire products for sale to our customers based on purchase orders received as well as forecasts from such customers. Purchase orders with delivery dates greater than twelve weeks are typically cancelable without penalty to our customers. We currently place non-cancelable orders to purchase semiconductor wafers, other materials and finished goods from our suppliers on an eight to twelve week lead-time basis. For further discussion, refer to Note 6, “Commitments and contingencies” of the Notes to the unaudited condensed consolidated financial statements of this Form 10-Q included in Item 1 of this report.

The following table sets forth the amounts of payments due under specified contractual obligations as of October 28, 2017 (in thousands):

	Payments due by Period
	Fiscal 2018 (Remaining three months)		Fiscal 2019 - 2020		Fiscal 2021 - 2022		Thereafter		Total
Operating leases	$	1,009	$	5,593	$	2,281	$	-	$	8,883
Third-party licensed IP		3,118		2,442		-		-		5,560
Design tools		1,220		6,692		198		-		8,110
Non-cancelable purchase obligations		15,623		-		-		-		15,623
Total contractual obligations	$	20,970	$	14,727	$	2,479	$	-	$	38,176

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~There~~Prior ~~has~~to ~~been~~the noApril ~~significant~~17, ~~change~~2018 inclosing of the sale of our ~~exposure~~Z-Wave business to Silicon Labs, we were exposed to market risk ~~since~~related ~~January~~to 28interest rate and foreign currency exchange rate sensitivities. Since after adoption of the Liquidation and Dissolution Plan our assets consist primarily of cash and assets held for sale, ~~2017~~we no longer have market risk that may be expected to have a material effect on us.

The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We face exposure to market risk from adverse movements in interest rates and foreign currency exchange rates, which could impact our operations and financial condition. In the past, to mitigate some of the foreign currency exchange rate risk, we utilized derivative financial instruments to hedge certain foreign currency exposures. However, we discontinued this practice in fiscal 2015 as we determined the balance sheet exposure to be relatively low based on the factors described below.

Interest rate sensitivity: As of October 28, 2017, we held approximately $69.2 million of cash. As of January 28, 2017, we held approximately $71.2 million of cash, cash equivalents and short-term marketable securities. If short-term interest rates were to decrease 10%, the decreased interest income associated with these cash, cash equivalents and marketable securities would not have a significant impact on our net loss and cash flows.

Foreign currency exchange rate sensitivity: We transact our revenue in U.S. dollars. The U.S. dollar is our reporting currency and is our functional currency except for our subsidiaries in China, Denmark, Japan, Taiwan, South Korea, Vietnam, France, Germany, and The Netherlands where the Chinese Yuan, Danish krone, Japanese yen, Taiwanese dollar, Korean won, Vietnamese dong and the Euro are the functional currencies, respectively. Additionally, significant portions of our Israel subsidiary’s expenses are payroll-related and are denominated in Israeli shekels. This foreign currency exposure gives rise to market risk associated with exchange rate movements of the U.S. dollar against the Israeli shekel. To the extent the U.S. dollar weakens against the Israeli shekel, our Israeli subsidiary will experience a negative impact on its results of operations.

As of October 28, 2017 and January 28, 2017, we did not have any foreign exchange forward contracts to hedge certain balance sheet exposures and inter-company balances against future movements in foreign exchange rates.

We maintain certain cash balances denominated in the Chinese Yuan, Danish krone, Euro, Japanese yen, Hong Kong dollar, Israeli shekel, Singapore dollar, Taiwanese dollar, Korean won and Vietnamese dong. If foreign exchange rates were to weaken against the U.S. dollar immediately and uniformly by 10% from the exchange rates at October 28, 2017 and January 28, 2017, the fair value of these foreign currency amounts would decline and we would record a charge of approximately $1.2 million and $0.8 million, respectively.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We are committed to maintaining disclosure controls and procedures designed to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures and implementing controls and procedures.

As of ~~October~~May 285, ~~2017~~2018, the end of the period covered by this Quarterly Report on Form 10-Q, we have, with the participation of our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and effectiveness of our disclosure controls and procedures, as such terms are defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities and Exchange Act of 1934 as amended (the “Exchange Act”). Based on this evaluation, we have concluded that our disclosure controls and procedures were effective as of ~~October~~May 285, ~~2017~~2018.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form ~~10Q~~10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of legal proceedings, see Note 68, “Commitments and contingencies,” in the Notes to our condensed consolidated financial statements, included in Part I, Item 1, of this Form 10-Q.

ITEM 1A. RISK FACTORS

InPlease ~~July~~see ~~2017, we announced~~ the ~~engagement~~risk offactors adiscussed ~~financial advisor to assist~~ in ~~our~~Item ~~exploration~~1A of ~~strategic~~Part ~~alternatives~~I ~~that~~of ~~may~~our ~~enhance~~Annual ~~shareholder~~Report ~~value.~~on ~~There~~Form ~~can~~10-K befiled nowith ~~assurance~~the ~~that~~Securities ~~this~~and ~~exploration~~Exchange ~~will~~Commission ~~result~~on inApril ~~a transaction~~24, ~~or that if a transaction does occur, that it will successfully enhance shareholder value~~2018. ~~In addition, our business could be negatively affected by the announcement that we are exploring strategic alternatives.~~

On July 26, 2017, we announced that our board of directors had engaged a financial advisor to assist in our exploration of strategic alternatives that may enhance shareholder value. These alternatives may include continuing to operate as a standalone company. There can be no assurance that this process will result in a strategic transaction, or that if a transaction does occur, that it will successfully enhance shareholder value. In addition, the announcement that we have commenced a review of strategic alternatives may create uncertainty about our prospects as an independent business entity, cause concern to our current or potential customers and partners, and make it more difficult to attract and retain qualified executive and other key personnel. If customers choose to reduce spending with us or do business with our competitors instead of us because of any such issues or perceptions, then our business, operating results and financial condition would be adversely affected. The review process may also be costly, time-consuming, disrupt our operations, divert the attention of management and our employees or result in changes in our management team or our board of directors, all of which could materially and adversely affect our operations and operating results. In addition, our stock price may experience periods of increased volatility as a result of these activities or related rumors and speculation.

Our restructuring and other cost reduction plans may not produce anticipated benefits, may lead to charges that will adversely affect our operating results and disrupt our operations.

Commencing in the third quarter of fiscal 2018, we implemented restructuring and other cost-reduction plans designed to realign resources with our core target markets, such as the IoT market. Such actions have resulted in disruptions and could continue to result in disruptions to our operations and workforce, and could adversely affect our business. This plan includes, among other actions, a reduction of our workforce, facilities closure, and impairment of mask sets and certain purchased intellectual property. Actual costs related to such restructuring plans may exceed the amounts that we previously estimated, leading to additional charges as actual costs are incurred. We expect to continue to actively monitor our operating expenses; however, if we do not fully realize the anticipated benefits of any expense reduction initiatives, our business could be adversely affected. We cannot be sure that our efforts to manage expenses and improve our operating leverage will be successful. If our operating expenses are higher than we expect or if we do not maintain adequate control of our costs and expenses, our operating results will suffer.

Except as disclosed above, there has been no material changes in the risk factors previously disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The required exhibits are included at the end of the Form 10-Q or are incorporated herein by reference and are described in the Index to Exhibits immediately following the signatures page.

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SIGNATURES

Pursuant to the requirement 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.

	SIGMA DESIGNS, INC.
Date: December 7, 2017
Date: June 14, 2018
	By:	/s/ Thinh Q. Tran
		Thinh Q. Tran
		President and Chief Executive Officer (Principal Executive Officer)
	By:	/s/ Elias N. Nader
		Elias N. Nader
		Interim President and Chief Executive Officer (Principal Executive Officer)
	By:	/s/ Elias N. Nader
		Elias N. Nader
		Senior Vice-President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)

EXHIBIT INDEX

31.1 Certification of the President and Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

	2.1	Plan of Liquidation and Dissolution of Sigma Designs, Inc. (previously filed in and incorporated by reference to Definitive Proxy Statement on Schedule 14A, filed on March 22, 2018)

	10.1	Separation Agreement by and between Sigma Designs, Inc. and Sal Cobar, dated April 20, 2018 (previously filed in and incorporated by reference to the amendment to the Annual Report on Form 10-K, filed on June 5, 2018)

	31.1	Certification of the President and Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

31.2

Certification of the Chief Financial Officer and Secretary pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

32.1

Certificate of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)

32.2

Certificate of Chief Financial Officer and Secretary pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)

101.INS XBRL Instance Document.

101.SCH XBRL Taxonomy Extension Schema Document.

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB XBRL Taxonomy Extension Label Linkbase Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

(1) The certificates contained in Exhibits 32.1 and 32.2 are not deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof irrespective of any general incorporation by reference language contained in any such filing, except to the extent that the registration specifically incorporates it by reference.

3031

Filing Compare · SIGMA DESIGNS INC