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Note 1 - Organization and Summary of Significant Accounting Policies
 12 Months Ended
Feb. 03, 2018
Notes to Financial Statements  
Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]
1.
            Organization and summary of significant accounting policies
 
Organization and nature of operations:  
Sigma Designs, Inc. (referred to 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”). We derive a portion of our revenue from licensing and other activities, including licensing of our software development kits and engineering support services for hardware and software.
 
Basis of presentation:  
The consolidated financial statements include the accounts of Sigma Designs, Inc. and its wholly-owned subsidiaries.  All significant intercompany balances and transactions have been eliminated. In
November 2015,
we completed our acquisition of Bretelon, Inc. (“Bretelon”). The consolidated financial statements include the results of operations of Bretelon commencing as of the acquisition date.
 
On
January 23, 2018,
we stated our intent to liquidate the Company.  As of
February 3, 2018,
however, we had neither a formal liquidation plan in place nor formal approval from the Board of Directors or shareholders to undertake such action.
 
On
January 23, 2018
we stated our intent to sell our Z-Wave business unit (“Z-Wave”).  Additionally, management determined that as of
February 3, 2018,
our Media Connectivity business unit met all the criteria for categorization as “held for sale.”  In accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), we have separated the financial statement presentation of both business units from the presentation of our on-going operations.  U.S. GAAP also requires the presentation of historical periods in a similar manner.  Consequently and unless otherwise noted, the presentation of prior period financial statements differs from our previous statements, but only with regard to the separation and reclassification of items related to the Z-Wave and Media Connectivity business units as assets and liabilities held for sale on the consolidated balance sheets (or as discontinued operations on the consolidated statements of operations). 
 
Accounting period:  
We follow a
52
or
53
-week fiscal reporting calendar ending on the Saturday closest to
January 31
each year. Our most recent fiscal year ended on
February 3, 2018
and was a
53
-week year.  The fiscal years
2017
and
2016
ended on
January 28, 2017
and
January 30, 2016
and were comprised of
52
weeks each. 
  
Use of estimates in the preparation of consolidated financial statements:  
The consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  The primary areas that require significant estimates and judgments by management include, but are
not
limited to, revenue recognition, allowances for doubtful accounts, sales returns, warranty obligations, inventory valuation, stock-based compensation expense, purchased intangible asset valuations, strategic investments, deferred income tax asset valuation allowances, uncertain tax positions, tax contingencies, restructuring costs, litigation, fair value assessments and other loss contingencies. Our estimates and related judgments and assumptions are continually evaluated based on historical experience and various other factors that we believe to be reasonable under the circumstances, however, actual results could differ from those estimates, and such differences
may
be material to our consolidated financial statements. 
 
Restructuring charges
:  On
March 24, 2017,
the Board of Directors approved a restructuring plan (the “Fiscal
2018
Plan”) in order to realign resources with our key priority areas centered on the IoT market. Our restructuring plan targeted reductions in labor costs through reduction in headcount and closing a facility in Germany. These headcount reductions and related severance costs coincident with the Fiscal
2018
Plan occurred primarily within the Connected Smart TV Platforms market. Additionally, as part of the Fiscal
2018
Plan, we incurred charges for impairment of certain Purchased IP assets which are accounted for separately as impairment charges 
 
Expenses recognized for restructuring activities impacting our operating expenses are included in “Restructuring costs” in the consolidated statements of operations. Accruals are recorded when management has approved a plan to restructure operations and a liability has been incurred. The restructuring accruals are based upon management estimates at the time they are recorded. These estimates can change depending upon changes in facts and circumstances subsequent to the date the original liability was recorded. During fiscal
2018,
2017
and
2016,
we recorded restructuring charges of
$9.3
million,
zero
and less than
$0.1
million, respectively.
 
Fair value of financial instruments: 
We measure and disclose certain financial assets and liabilities at fair value defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic
820
also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes
three
levels of inputs that
may
be used to measure fair value:
 
 
Level
1
– Quoted prices in active markets for identical assets or liabilities
Level
2
– Observable inputs other than Level
1
prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are
not
active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level
3
– Unobservable inputs that are supported by little or
no
market activity and that are significant to the fair value of the assets or liabilities.
 
For certain of our assets and liabilities including cash and cash equivalents, accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these items.  Marketable securities consist of available-for-sale securities that are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of shareholders’ equity.  The fair value of cash equivalents and certain marketable securities is determined based on “Level 
1”
inputs, which consist of quoted prices in active markets for identical assets.  
 
In accordance with the fair value accounting requirements, companies
may
choose to measure eligible financial instruments and certain other items at fair value. We have
not
elected the fair value option for any eligible financial instruments.
 
Cash and cash equivalents:  
All highly liquid investments with remaining maturity date at the end of each reporting period of
90
days or less are classified as cash equivalents.
 
Short and long-term marketable securities
: Short-term marketable securities represent highly liquid investments with a remaining maturity date at the end of each reporting period of greater than
90
days but less than
one
year and are stated at fair value. Long-term marketable securities represent securities with contractual maturities greater than
one
year from the date of purchase. We classify our marketable securities as available-for-sale because the sale of such securities
may
be required prior to maturity. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the designations at each balance sheet date.
 
The difference between amortized cost (cost adjusted for amortization of premiums and accretion of discounts, which is recognized as an adjustment to interest income) and fair value, representing unrealized holding gains or losses, are recorded separately as a component of accumulated other comprehensive income (loss) within shareholders’ equity. Any gains and losses on the sale of marketable securities are determined based on the specific identification method. 
 
We monitor all of our marketable securities for impairment and if these securities are reported to have a decline in fair value, we use significant judgment to identify events or circumstances that would likely have a significant adverse effect on the future value of each investment including: (i) the nature of the investment; (ii) the cause and duration of any impairment; (iii) the financial condition and future prospects of the issuer; (iv) for securities with a reported decline in fair value, our ability to hold the security for a period of time sufficient to allow for any anticipated recovery of fair value; (v) the extent to which fair value
may
differ from cost; and  (vi) a comparison of the income generated by the securities compared to alternative investments. We recognize an impairment charge if a decline in the fair value of our marketable securities is judged to be other-than-temporary.
No
such impairment charges were recorded in fiscal
2018,
2017
or
2016.
We held
no
marketable securities as of
February 3, 2018.
 
Accounts receivable and allowances:
  We defer recognition of revenue and the related receivable when we cannot estimate whether collectability is reasonably assured at the time products and services are delivered to our customers.  We also provide allowances for bad debt and sales returns.  In establishing the allowance for bad debt, in cases where we are aware of circumstances that
may
impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, we will record an allowance against amounts due and thereby reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are past due, the industry and geographic concentrations, the current business environment and our historical experience.
 
In establishing the allowance for sales returns, we make estimates of potential future returns of products for which revenue has been recognized in the current period, including analyzing historical returns, current economic trends and changes in customer demand and acceptance of our products. Our allowance for sales returns, discounts and bad debt was
$2.0
 million and
$1.6
million at
February 3, 2018
and
January 28, 2017,
respectively.  If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, or if future product returns increased, additional allowances
may
be required.
 
Inventory: 
Inventory consists of wafers and other purchased materials, work in process and finished goods and is stated at the lower of standard cost, which approximates actual cost on a
first
-in,
first
-out basis, or net realizable value.  We evaluate our ending inventory for excess quantities and obsolescence on a quarterly basis.  This evaluation includes analysis of historical and estimated future unit sales by product as well as product purchase commitments that are
not
cancelable. We develop our demand forecasts based, in part, on discussions with our customers about their forecasted supply needs.  However, our customers generally only provide us with firm purchase commitments for the month and quarter and
not
our entire forecasted period.  Additionally, our sales and marketing personnel provide estimates of future sales to prospective customers based on actual and expected design wins. A provision is recorded for inventory in excess of estimated future demand.  
 
We write-off inventory that is obsolete. Obsolescence is determined from several factors, including competitiveness of product offerings, market conditions and product life cycles.  Provisions for excess and obsolete inventory are charged to cost of revenue.  At the time of the loss recognition, a new and lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do
not
result in the restoration or increase in that newly established cost basis.  If this lower-cost inventory is subsequently sold, we will realize higher gross margins for those products.
 
Inventory write-downs inherently involve assumptions and judgments as to amount of future sales and selling prices. As a result of our inventory valuation reviews, we charged provisions for excess and obsolete inventory of approximately
$4.9
million,
$2.0
million and
$3.2
million to cost of revenue for fiscal
2018,
2017
and
2016,
respectively. We have sold through
$0.5
million,
$0.3
million and
$0.9
million of inventory that we had previously recorded as excess and obsolete in fiscal
2018,
2017
and
2016,
respectively. Although we believe that the assumptions we use in estimating inventory write-downs are reasonable, significant future changes in these assumptions could produce a significantly different result. There can be
no
assurances that future events and changing market conditions will
not
result in significant inventory write-downs.
 
Warranty:
Our products typically carry a
one
-year limited warranty that products will be free from defects in materials and workmanship.  Warranty cost is estimated at the time revenue is recognized and based on both historical activity and for any specific known product warranty issues. Accrued warranty cost includes hardware repair and/or replacement and software support costs and is included in accrued liabilities in the consolidated balance sheets. Although we engage in extensive product quality programs and processes, our warranty obligation has been and in the future
may
be affected by product failure rates, product recalls, repair or replacement costs and additional development costs incurred in correcting any product failure. Should actual costs differ from our initial estimates, we record the difference in the period in which they are identified. Actual claims are charged against the warranty reserve.
 
Software, equipment and leasehold improvements: 
Software, equipment and leasehold improvements are stated at cost.   Depreciation and amortization for software, equipment and leasehold improvements is computed using the straight-line method based on the useful lives of the assets (
one
to
five
years) or the remaining lease term, if shorter.  Any allowance for leasehold improvements received from the landlord for improvements to our facilities is amortized using the straight-line method over the lesser of the remaining lease term or the useful life of the leasehold improvements.  Repairs and maintenance costs are expensed as incurred.
 
Business combinations: 
The purchase accounting method applied to business combinations requires us to allocate the purchase price of acquired companies to the identifiable tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values. Such valuations require us to make significant estimates and assumptions especially with respect to intangible assets. The significant purchased intangible assets recorded by us include developed technology, customer relationships, purchased IP, non-compete agreements and trademarks.  Critical estimates and assumptions used in valuing these assets include but are
not
limited to: future expected cash flows from acquired products, customer relationships and acquired developed technologies and patents; brand awareness and market position, the period of time the brand will continue to be used in our product portfolio and assumptions about discount rates. The estimated fair values are based upon assumptions that we believe to be reasonable but which are inherently uncertain and unpredictable and, as a result, actual results
may
differ from estimates.
 
Intangible and other long-lived assets:
   The amounts and useful lives assigned to intangible and other long-lived assets acquired, other than goodwill, impact the amount and timing of future 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.  We amortize the intellectual property over the estimated useful life of the associated products, generally
two
to
three
years.
 
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.  Other intangible assets primarily represent purchased developed technology, customer relationships, purchased IP, non-compete agreements and trademarks.  We currently amortize our intangible assets with definitive lives over periods ranging from
three
to
ten
years using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used or, if that pattern cannot be reliably determined, using a straight-line amortization method.
 
Impairment assessment of assets and asset groups:
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”. See Footnote
9
 – Discontinued operations.
 
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.
 
We have relied on
three
other methods to determine fair value of our business units. For our Z-Wave, Media Connectivity, 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 Mobile IoT business unit, we applied judgment and methodology consistent with US 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.  See Footnote
11
– Impairments.
 
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. 
 
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. See Footnote
10
 – Goodwill.
 
Long-term investments:
  Investments in private equity securities of less than
20%
owned companies are accounted for using the cost method unless we can exercise significant influence or the investee is economically dependent upon us, in which case the equity method is used.  We evaluate our long-term investments for impairment annually or whenever events or changes in circumstances indicate that the carrying value of these assets
may
not
be recoverable.
 
Revenue recognition:
We derive our revenue primarily from product sales which comprised approximately
97%,
97%
and
99%
of total net revenue during fiscal
2018,
2017,
and
2016,
respectively.  Our products, which we refer to as chipsets, consist of highly integrated chips and embedded software that enables real-time processing of digital video and audio content; and in the case of our IoT Devices, establishes a mesh network protocol that provides an interoperable platform for automation and monitoring solutions, all of which we refer to as embedded software.  We do
not
deliver software as a separate product in connection with product sales.  We recognize revenue for product sales when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is reasonably assured. These criteria are usually met at the time of product shipment. We record reductions of revenue for estimated product returns and pricing adjustments, such as rebates, in the same period that the related revenue is recorded. The amount of these reductions is based on historical sales returns, on analysis of credit memo data, on specific criteria included in the agreements, and on other factors known at the time. We accrue
100%
of potential returns at the time of sale when there is
not
sufficient historical sales data and we recognize revenue when the right of return expires. We also accrue
100%
of potential rebates at the time of sale and do
not
apply a breakage factor. We reverse the accrual for unclaimed rebate amounts as specific rebate programs contractually end and when we believe unclaimed rebates are
no
longer subject to payment and will
not
be paid. See Footnote
5
 – Supplemental financial information for a summary of our rebate activity.
 
On occasion, we derive revenue from the license of our internally developed intellectual property (“IP”). IP licensing agreements that we enter into generally provide licensees the right to incorporate our IP components in their products with terms and conditions that vary by licensee. Our license fee arrangements generally include multiple deliverables and we are required to determine whether there is more than
one
unit of accounting. To the extent that the deliverables are separable into multiple units of accounting, we allocate the total fee on such arrangements to the individual units of accounting using management’s best estimate of selling price ("ESP") if
third
party evidence ("TPE") or vendor specific objective evidence ("VSOE") does
not
exist. We defer revenue recognition for consideration that is contingent upon future performance or other contractual terms.
 
Our process for determining our ESP for deliverables without VSOE or TPE considers multiple factors that
may
vary depending upon the unique facts and circumstances related to each deliverable. The key factors that we consider in developing the ESPs include the nature and complexity of the licensed technologies, our cost to provide the deliverables, the availability of substitute technologies in the marketplace and our historical pricing practices. We then recognize revenue for each unit of accounting depending on the nature of the deliverable(s) comprising the unit of accounting in accordance with the revenue recognition criteria mentioned above. Fees under these agreements generally include (a) license fees relating to our IP, (b) engineering services, and (c) support services. Historically, each of these elements has standalone value and therefore each are treated as separate units of accounting. Any future licensing arrangements will be analyzed based on the specific facts and circumstances which
may
be different than our historical licensing arrangements.
 
For deliverables related to licenses of our technology that involve significant engineering services, we recognize revenue in accordance with the provisions of the proportional performance method or milestone method, as applicable. We determine costs associated with engineering services using actual labor dollars incurred and estimate other direct or incremental costs allocated based on the percentage of time the engineer(s) spent on the project. These costs are deferred until revenue recognition criteria have been met, at which time they are reclassified as cost of revenue. 
 
Licensing revenue deliverables are generally recognized using the milestone method. Under the milestone method, we recognize revenue that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. To be considered substantive, the consideration earned by achieving the milestone should be (a) commensurate with either (i) the vendor’s performance to achieve the milestone or (ii) to the enhancement of the value of the item delivered as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone (b) the consideration should relate solely to past performance, and (c) the consideration should be reasonable relative to all deliverables and payment terms in the arrangement. Other milestones that do
not
fall under the definition of a milestone under the milestone method are recognized under the authoritative guidance concerning revenue recognition.
 
We derive a portion of our 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. Membership fees vary based on level and are generally billed on an annual basis with
no
obligation to renew. Revenue from membership dues is recognized in the month earned. Membership dues received in advance are included in deferred revenues and recognized as revenue ratably over the appropriate period, which is generally
twelve
months or less. The monthly dues are generally structured to cover the administrative costs and membership services. Membership revenue was approximately
$2.4
million,
$1.9
million and
$1.9
million during fiscal
2018,
2017
and
2016,
respectively.
 
We defer revenue when payments are received from customers in advance of revenue recognition.  Deferred revenue at
February 3, 2018
was
$0.4
million and at
January 28, 2017
was
$0.4
million, and is included in accrued liabilities in the accompanying consolidated balance sheets.
  
Cost of revenue:
Cost of revenue is comprised of the cost of our media processors and chipset solutions, which consists of the cost of purchasing finished silicon wafers manufactured by independent foundries, costs associated with our purchase of assembly, test and quality assurance services and packaging materials as well as royalties paid to vendors for use of their technology. Also included in cost of revenue is the amortization of purchased IP, manufacturing overhead including costs of personnel and equipment associated with manufacturing support, product warranty costs, provisions for excess and obsolete inventory and stock-based compensation expense for personnel engaged in manufacturing support.
 
Foreign currency:  
The functional currency of our foreign subsidiaries is either the U.S. dollar or the local currency of each country.  Monetary assets and liabilities denominated in foreign currencies are remeasured at exchange rates in effect at the end of each period and non-monetary assets such as inventory, software, equipment and leasehold improvements and liabilities are recorded at historical rates. Gains and losses from these remeasurements as well as other transactional gains and losses are included in interest and other income, net, in the consolidated statements of operations. Our subsidiaries that utilize foreign currency as their functional currency translate their currency into U.S. dollars using (i) the exchange rate on the balance sheet dates for assets and liabilities, and (ii) the average exchange rates prevailing during the period for revenues and expenses.  Any translation adjustments resulting from this process are shown separately as a component of accumulated other comprehensive income (loss) within shareholders’ equity. Foreign currency transaction gains and losses resulted in net losses of approximately
$2.5
million,
$0.1
million and
$0.2
million in fiscal
2018,
2017
and
2016,
respectively.
 
Concentration of credit risk:  
Financial instruments which potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, short-term and long-term marketable securities, restricted cash, long-term investments and accounts receivable.  Our cash, cash equivalents, short-term and long-term marketable securities and restricted cash are on deposit with major financial institutions as specified in our investment policy guidelines.  Such deposits
may
be in excess of insured limits.  We believe that the financial institutions that hold our cash, cash equivalents, short-term and long-term marketable securities and restricted cash are financially sound and, accordingly, minimal credit risk exists with respect to these balances.  We have
not
experienced any investment losses due to institutional failure or bankruptcy.
 
Sales to our recurring and new customers are generally made on open account, are prepaid or are on a letter of credit basis. We perform ongoing credit evaluations of our customers and generally do
not
require collateral for sales on credit.  We review our accounts receivable balances to determine if any receivable will potentially be uncollectible and include any amounts that are determined to be uncollectible in our allowance for doubtful accounts.
 
Loss contingencies
:
In determining loss contingencies, we consider the likelihood of a loss of an asset or the incurrence of a liability as well as the ability to reasonably estimate the amount of such loss or liability. An estimated loss from a loss contingency is accrued and charged to expense when the information available indicates that it is probable that an asset has been impaired or a liability has been incurred, and when the amount of the loss can be reasonably estimated. 
 
Income taxes:
  
Income taxes are accounted for under an asset and liability approach.  Deferred income taxes reflect the net tax effects of any temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts reported for income tax purposes and any operating losses and tax credit carry-forwards.  Deferred tax liabilities are recognized for future taxable amounts and deferred tax assets are recognized for future deductions, net of any valuation allowance, to reduce deferred tax assets to amounts that are considered more likely than
not
to be realized. 
 
The impact of an uncertain income tax position on the income tax return must be recognized as the largest amount that is more-likely-than-
not
to be sustained upon audit by the relevant taxing authority.  An uncertain income tax position will
not
be recognized if it has less than a
50%
likelihood of being sustained.
 
Stock-based compensation:  
We have stock incentive plans in effect under which incentive stock options, restricted stock units, restricted stock awards and non-qualified stock options have been granted to employees and members of the Board of Directors. We also have an employee stock purchase plan for all eligible employees. We measure and recognize compensation expense for all stock-based payment awards made to employees based on the closing fair market value of the Company’s common stock on the date of grant.  Stock option awards are measured using the Black-Scholes-Merton option pricing model.  The value of the portion of the award that is ultimately expected to vest is recognized as expense on a ratable basis over the requisite service period for time-based awards and on a graded basis for performance-based awards.  We account for forfeitures as they occur. We recognize excess tax benefits or deficiencies from stock-based compensation in the consolidated statements of operations as a component of the provision for income taxes. Further information regarding stock-based compensation can be found in in Footnote
14
 – Equity incentive plans and employee benefits.
 
Research and development costs:
Costs incurred in the research and development of our products are expensed as incurred.
 
Advertising costs:
Advertising costs are expensed as incurred and are included as an element of sales and marketing expense in the accompanying consolidated statements of operations. Advertising expenses incurred were
$0.3
million,
$0.2
million and
$0.2
million in fiscal
2018,
2017
and
2016,
respectively.
 
Comprehensive income (loss):
Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss).  Other comprehensive income (loss) includes certain changes in equity that are excluded from results of operations; specifically, foreign currency translation adjustments and unrealized gains or losses on marketable securities.
 
Recently Issued Accounting Standards
 
Statement of Cash Flows
.
In
November 2016,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No.
2016
-
18,
Statement of Cash Flows (Topic
230
): Restricted Cash (“ASU
2016
-
18”
). The update provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. We will adopt ASU
2016
-
18
commencing in our
first
quarter of fiscal
2019.
 The adoption of this ASU is
not
expected to have a material impact on our consolidated financial statements.
 
Leases.
In
February 2016,
the FASB issued ASU
No.
2016
-
02,
 Leases (Topic
842
) (“ASU
2016
-
02”
), which requires lessees to recognize all leases, including operating leases, on the balance sheet as a lease asset or lease liability, unless the lease is a short-term lease. ASU
2016
-
02
also requires additional disclosures regarding leasing arrangements. ASU
2016
-
02
 is effective beginning in the
first
quarter of fiscal
2021.
The adoption of this ASU is
not
expected to have a material impact on our consolidated financial statements. 
 
Stock Compensation
. In
May 2017,
the FASB issued ASU
2017
-
09,
 
Compensation-Stock Compensation (Topic
718
): Scope of Modification Accounting
 (“ASU
2017
-
09”
) to provide clarity and reduce both the (
1
) diversity in practice and (
2
) cost and complexity when changing the terms or conditions of share-based payment awards. Under ASU
2017
-
09,
modification accounting is required to be applied unless all of the following are the same immediately before and after the change:
 
1.
The award’s fair value (or calculated value or intrinsic value, if those measurement methods are used);
2.
The award’s vesting conditions; and
3.
The award’s classification as an equity or liability instrument.
 
ASU
2017
-
09
is effective for annual and interim periods beginning after
December 15, 2017
on a prospective basis. The adoption of this ASU is
not
expected to have a material impact on our consolidated financial statements. 
 
Financial Instruments
. In
June 2016,
the FASB issued ASU
2016
-
13,
 
Financial Instruments—Credit Losses (Topic
326
), Measurement of Credit Losses on Financial Instruments 
(“ASU
2016
-
13
”). The standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. ASU
2016
-
13
is effective for fiscal years beginning after
December 15, 2019.
The adoption of this ASU is
not
expected to have a material impact on our consolidated financial statements. 
 
Financial Instruments
.
 In
January 2016,
the FASB issued ASU
2016
-
01,
 
Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities 
(“ASU
2016
-
01”
), which requires that most equity investments be measured at fair value, with subsequent changes in fair value recognized in net income. The adoption of this ASU is
not
expected to have a material impact on our consolidated financial statements. 
 
Revenue Recognition
. 
In
May 2014,
the FASB issued ASU
2014
-
09,
 
Revenue from Contracts with Customers (Topic
606
) 
(ASC
606
), which creates a single source of revenue guidance under U.S. GAAP for all companies in all industries and replaces most existing revenue recognition guidance in U.S. GAAP. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the new standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has issued several amendments to the new standard, including clarification on accounting for licenses of intellectual property and identifying performance obligations. The adoption of this ASU is
not
expected to have a material impact on our consolidated financial statements. 
 
Goodwill Impairment
.
 In
January 2017,
the Financial Accounting Standards Board (FASB) issued ASU
2017
-
04,
 
Intangibles—Goodwill and Other (Topic
350
)
: 
Simplifying the Test for Goodwill Impairment 
(“ASU
2017
-
04”
), which eliminates step
two
from the goodwill impairment test. Under the amendments in ASU
2017
-
04,
an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should
not
exceed the total amount of goodwill allocated to that reporting unit. ASU
2017
-
04
is effective for annual and any interim impairment tests performed for periods beginning after
December 15, 2019.
The adoption of this ASU is
not
expected to have a material impact on our consolidated financial statements. 
 
Although there are several other new accounting pronouncements issued or proposed by the FASB which the Company has adopted or will adopt, as applicable, the Company does
not
believe any of these accounting pronouncements has had or will have a material impact on its consolidated financial position, operating results or statements of cash flows.
 
Recently Adopted Accounting Standards
 
Stock Compensation
.
In
March 2016,
the FASB issued ASU
No.
2016
-
09,
Compensation-Stock Compensation (Topic
718
): Improvements to Employee Share-Based Payment Accounting
. The amendment simplifies several aspects of the accounting for share-based payments, including the accounting for income taxes and forfeitures, as well as the classification on the statements of cash flows. We adopted this ASU in the
first
quarter of fiscal
2018
by 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 consolidated statements of operations as a component of the provision for income taxes, whereas they previously were recognized in equity. The presentation requirements for cash flows related to employee taxes paid for withheld shares had
no
impact to all periods presented on our consolidated statements of cash flows since such cash flows have historically been presented as a financing activity.
 
We have elected to account for forfeitures as they occur and therefore, stock-based compensation expense for the year ended
February 3, 2018
has been calculated based on actual forfeitures in our consolidated statements of operations, 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 was recognized as an increase to paid-in capital during fiscal
2018
.
 
Inventory
.
In
July 2015,
the FASB issued ASU
No.
2015
-
11,
 Simplifying the Measurement of Inventory. Under this ASU, the measurement principle for inventory changed from the lower of cost or market value to the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We adopted this ASU in the
first
quarter of fiscal
2018
with
no
material impact on our consolidated financial statements.
 
Income Taxes
.
In
October 2016,
the FASB issued ASU
No.
2016
-
16,
Income Taxes
(Topic
740
): Intra-Entity Transfers of Assets Other Than Inventory (“ASU
2016
-
16”
), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. We adopted the guidance in the
first
quarter of fiscal
2018
with a modified retrospective approach, a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. We have recorded a cumulative effect adjustment to retained earnings for excess tax benefits which have
not
been previously recognized before valuation allowance considerations.