PROSPECTUS
1,100,000 SHARES
SIGMA DESIGNS, INC.
COMMON STOCK
This Prospectus may be used only in connection with the resale, from
time to time, of up to 1,100,000 shares (the "Shares") of Common Stock, no par
value per share (the "Common Stock"), of Sigma Designs, Inc. ("Sigma" or the
"Company"), for the account of the selling shareholders identified below (the
"Selling Shareholders"). All of the Shares covered hereby are to be sold by the
Selling Shareholders, who originally received the Shares pursuant to a private
placement. The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Shareholders. The expenses incurred in registering the
Shares, including legal and accounting fees, will be paid by the Company.
The Shares offered hereby may be offered and sold, from time to time,
by the Selling Shareholders in one or more transactions (which may involve block
transactions) on the Nasdaq National Market (or any exchange on which the Common
Stock may then be listed), in the over-the-counter market, in negotiated
transactions or otherwise. Sales will be effected at such prices and for such
consideration as may be obtainable from time to time. Commission expenses and
brokerage fees, if any, will be paid by the Selling Shareholders. See "Plan of
Distribution."
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "SIGM." On October 17, 1997, the last sale price for the Common
Stock as reported on the Nasdaq National Market was $8.00 per share.
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SEE "RISK FACTORS" ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS OCTOBER 17, 1997
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
and information statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: New York Regional Office, Seven World Trade Center, New York,
New York 10048, and Chicago Regional Office, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 upon payment of the prescribed fees. The Common Stock of the Company is
quoted on the Nasdaq National Market. Reports, proxy and information statements
and other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C.
20006. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the site is
http://www.sec.gov.
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
shares covered by this prospectus, reference is made to the Registration
Statement. Statements contained herein concerning the provisions of any document
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the copy of such document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
hereby incorporated by reference in this Prospectus: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1997, (ii) the
Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1997;
(iii) the Company's Quarterly Report on Form 10-Q for the quarter ended July 31,
1997; (iv) the Company's Proxy Statement relating to the Company's Annual
Meeting of Shareholders to be held on June 6, 1997, (v) the Company's Current
Report on Form 8-K filed with the Commission on May 6, 1996, and (vi) the
description of the Company's Common Stock contained in its Registration
Statement on Form 8-A filed with the Commission on November 3, 1986, as amended
on September 22, 1989.
All reports and other documents subsequently filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the termination of this offering shall be deemed
to be incorporated by reference herein and to be a part hereof from the date of
filing of such reports and documents. Any statement incorporated herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of the Registration Statement or this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon written or oral request of such person, a copy of any or all of
the foregoing documents incorporated herein by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into such documents). Requests for such documents should be submitted in writing
to Carol Kaplan at the Company's principal executive offices at 46501 Landing
Parkway, Fremont, California 94538, or by telephone at (510) 770-0100.
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RISK FACTORS
In the interest of providing the Company's shareholders and potential
investors with certain Company information, including management's assessment of
the Company's future potential, certain statements set forth herein or
incorporated by reference herein relate to management's future plans and
objectives or to the Company's future economic performance. Such statements are
"forward-looking statements" within the meaning of Section 27A(I) of the
Securities Act of 1933, as amended, and in Section 21E(I) of the Securities Act
of 1934, as amended. Although any forward-looking statements contained herein or
incorporated by reference herein or otherwise expressed by or on behalf of the
Company are, to the knowledge and in the judgment of the officers and directors
of the Company, expected to prove true and to come to pass, the Company is not
able to predict such events with absolute certainty. Accordingly, shareholders
and potential investors are hereby cautioned that certain events or
circumstances could cause actual results to differ materially from those
projected or predicted. In addition, forward-looking statements are based on the
Company's knowledge and judgment as of the date hereof, and the Company does not
intend to update any forward-looking statements to reflect events occurring or
circumstances existing hereafter. In particular, the Company believes the
following facts could affect forward-looking statements made herein or
incorporated by reference herein or in future written or oral releases and by
hindsight, prove such statements to be overly optimistic and unachievable.
History of Operating Losses. The Company incurred significant losses in
fiscal 1993, 1994, 1995, and 1996 and had substantial negative operating cash
flow in fiscal 1992, 1993, 1994, 1995, and 1996. Since the introduction of the
Company's REALmagic Moving Picture Experts Group ("MPEG") product line in
November 1993, the Company has invested heavily in marketing and technological
innovation for its REALmagic products. As a result, the Company experienced
significant losses through fiscal 1996. Fiscal 1994, 1995, and 1996 also
included significant losses associated with products other than those related to
the REALmagic technology. Since inception, the Company's total accumulated
deficit is $33,114,000. There can be no assurance that the Company will continue
to sell its new REALmagic products in substantial quantities or generate
significant revenues from such sales. Although the Company was profitable in
fiscal 1997, there can be no assurance that the Company will continue to achieve
profitable operations in any future fiscal quarter or fiscal year or that
profitable operations, if achieved, will be sustainable.
Marketing Risks. The Company's ability to increase its sales, achieve
profitability, and maintain REALmagic as a PC industry multimedia standard
depends substantially on the Company's ability to achieve a sustained high level
of sales to new OEM customers. The Company has not executed volume purchase
agreements with any of the Company's customers, and these customers are not
under any obligation to purchase any minimum quantity of the Company's products.
The Company has not achieved bundling agreements with numerous OEM customers to
ensure success of the REALmagic product line. Moreover, even if the Company
achieves new design wins, there can be no assurance that personal computer
("PC") manufacturers will purchase the Company's products in substantial
volumes. Sales to any particular OEM customer are subject to significant
variability from quarter to quarter and to severe price pressures by
competitors. Based on its experience in the personal computer industry, the
Company expects that its actual sales to OEM customers will experience
significant fluctuations, and estimates of future sales with respect to any
particular customer or groups of customers are inherently uncertain.
The Company's ability to achieve sustained profitability also depends
on a substantial increase in sales of REALmagic products through domestic and
international distributors for resale through retail channels. In fiscal 1997,
Ingram Micro, Inc. was the only domestic customer to which sales comprised over
10% of consolidated revenue. Sales to such distributors are typically subject to
contractual rights of inventory rotation or price protection. Regardless of
particular contractual rights, however, the failure of Ingram Micro, Inc. or
other distributors to achieve sustained sell-through of REALmagic products could
result in product returns or collection problems, contributing to fluctuations
in the Company's results of operations. There can be no assurance that the
Company will be successful in maintaining a significant market for its REALmagic
products.
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Dependence on Development of Software Titles by Third Parties. The
Company depends on third-party content developers to create, produce, and market
software titles that will operate in the REALmagic format. No software developer
is contractually obligated to produce a REALmagic-compatible title. There can be
no assurance that third-party software developers will continue to produce a
substantial number of software titles, or that they will produce enough software
titles to develop and sustain a significant market in REALmagic products.
Moreover, there can be no assurance that any individual software titles will be
of high quality or that they will achieve market acceptance. There can also be
no assurance that current popular software titles will be introduced in the
REALmagic format. Because the Company has no control over the content of titles
produced by software developers, the software titles developed may represent
only a limited number of software categories and are likely to be of varying
quality.
Currently, more than 500 interactive MPEG off-the-shelf business
applications are available in the MPEG format. The Company has licensed the
REALmagic API to over 1,200 software developers for development of
REALmagic-compatible programs. However, the number of software titles to be
developed by such software companies cannot be predicted. There can be no
assurance that any software developer who develops a REALmagic-compatible title
will actively promote the product or develop follow-on titles. Moreover, there
can be no assurance that any published title will have the quality or price
characteristics required to be commercially successful or that titles compatible
with the REALmagic format will be allotted retail shelf space. Future sales of
REALmagic products will likely depend on a decision by retailers to carry
compatible software titles on the shelf.
The Company announced in October 1995 its strategic direction of
selling chipsets to add-on card and computer manufacturers. The REALmagic Pro
chipset announced in October 1995 became available in January 1996. This chipset
enables other companies to manufacture 100% OM-1 and REALmagic-compatible MPEG
playback cards capable of playing the growing number of MPEG software titles on
the market. In addition, the Company announced the REALmagic Explorer chipset in
November 1995, which enables OEM customers to build type II ZVport-compatible PC
cards for MPEG-1 video and audio playback, bringing MPEG technology to notebook
computers for the first time. In July 1996, the Company entered the graphics
market with announcement of its 2D VGA chip. In December 1996, the Company
announced a 2D/3D graphics chip. Any production delay or failure to bring any of
the chipsets to market could adversely affect the Company's market position by
limiting chipset acceptance by computer manufacturers.
Technological Change. The market for multimedia PC products is
characterized by rapidly changing technology and user preferences, evolving
formats for compression of video and audio data, and frequent new product
introductions. Even though REALmagic products and related software titles have
gained initial market acceptance, the Company's success will depend, among other
things, on the Company's ability to achieve and maintain technological
leadership and to remain competitive in terms of price and product performance.
To have technological leadership, the Company must continue to make
technological advancements in the area of MPEG video and audio decoding. These
advancements include compatibility with emerging standards and multiple
platforms, improvements to the REALmagic architecture, enhancements to the
REALmagic API, and the achievement of these enhancements. There can be no
assurance that the Company will be able to make any such advancements to its
REALmagic technology or that, if such advances are made, the Company will be
able to achieve and maintain technological leadership. Any material failure of
the Company or OEMs and software developers to develop or incorporate any
required improvement could adversely affect the continued acceptance of the
Company's technology and the introduction and sale of future products based on
the Company's technology. There can be no assurance that products or
technologies developed by others will not render obsolete the Company's
technology and the products based on the Company's technology.
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To be competitive, the Company must anticipate the needs of the market
and successfully develop and introduce innovative new products in a timely
fashion. No assurance can be given that the Company will be able to successfully
complete the design of its new products, have these products manufactured at
acceptable manufacturing yields, or obtain significant purchase orders for these
products. The introduction of new products may adversely affect sales of
existing products, contributing to fluctuations in operating results from
quarter to quarter. The introduction of new products also requires the Company
to carefully manage its inventory to avoid inventory obsolescence. In addition,
new products typically have higher initial component costs than more mature
products, possibly resulting in downward pressures on the Company's gross
margins.
Competition. The market for multimedia PC products is highly
competitive, driven by faster processors provided by Intel Corporation and other
companies. The possibility that other companies with more experience and
financial resources may develop a competitive product may inhibit future growth
of REALmagic technology. Increased competition may be generated from several
major computer product manufacturers that have developed products and
technologies that could compete directly with REALmagic products on the PC
platform. These include SGS-Thomson Microelectronics, C-Cube Microsystems, IBM
Microelectronics, Chromatics Research, Inc., Zoran Corporation and Mediamatics,
Inc. Also, several OEMs and microprocessor companies possess proprietary video
compression technology that may compete with MPEG-based products. These include
IBM, Intel Corporation, Mediamatics Corporation and ESS Technology, Inc.. Most
of these companies have substantial experience and expertise in audio, video,
and multimedia technology and in producing and selling consumer products through
retail distribution, as well as substantially greater engineering, marketing,
and financial resources than the Company. Competitors of the Company may form
cooperative relationships, which could present formidable competition to the
Company. There can be no assurance that REALmagic technology will achieve
commercial success or that it will compete effectively against other interactive
multimedia products, services, and technologies that currently exist, are under
development, or may be announced by competitors.
Reliance on a Single Line of Products. The Company's business strategy
has been to focus on REALmagic products by investing heavily in PC-based MPEG
technology. In the fiscal year ended January 31, 1997, sales of multimedia
products accounted for virtually all of net sales. A decline in market demand
for multimedia products would adversely affect the Company's operating results.
The Company's present reliance on REALmagic products is exacerbated by the fact
that multimedia product sales are concentrated in the personal computer
industry. A decline in demand for PCs could have a material adverse effect on
the Company's operating results and financial condition.
Variability of Operating Results. The Company's operating results have
fluctuated in the past and may continue to fluctuate in the future due to a
number of factors, including but not limited to new product introductions by the
Company and its competitors; market acceptance of the Company's products by
OEMs, software developers, and end users; the success of the Company's
promotional programs; gains or losses of significant customers; reductions in
selling prices; inventory obsolescence; an interrupted or inadequate supply of
semiconductor chips; the Company's ability to protect its intellectual property;
and loss of key personnel. In addition, sales to OEM customers are subject to
significant variability from quarter to quarter, depending on OEMs' timing and
release of products incorporating REALmagic technology, experience with
sell-through of such products, and inventory levels.
The market for consumer electronics products is characterized by
significant seasonal swings in demand, which typically peak in the fourth
calendar quarter of each year. Since the Company expects to derive a substantial
portion of its revenues from the sales of REALmagic products in the future and
the demand for such products will depend in part on the emergence of digital
video technology, the Company's revenues may vary with the availability of and
demand for DVD titles. Such demand may increase or decrease as a result of a
number of factors that cannot be predicted, such as consumer preferences and
product announcements by competitors. Announcements of directly competing
products will likely have a negative effect on operating results. Based on the
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Company's experience, the Company believes that a substantial portion of its
shipments will occur in the third month of a quarter, with significant shipments
completed in the latter part of the third month. This shipment pattern may cause
the Company's operating results to be difficult to predict. The Company
currently places noncancellable orders to purchase semiconductor products from
its foundries on a long lead time basis. Consequently, if, as a result of
inaccurate forecasts or canceled purchase orders, anticipated sales and
shipments in any quarter do not occur when expected, inventory levels could be
disproportionately high, requiring significant working capital, negatively
affecting operating results.
Manufacturing Risks. The Company does not have long-term contracts with
such suppliers and conducts business with its suppliers on a written purchase
order basis. The Company's reliance on independent suppliers involves several
risks, including the absence of adequate capacity, the unavailability of, or
interruptions in access to, certain process technologies, and reduced control
over delivery schedules, manufacturing yields, and costs. The Company obtains
certain of its components from a single source. Although delays or interruptions
have not occurred to date, any delay or interruption in the supply of any of the
components required for the production of the REALmagic multimedia card
currently obtained from a single source could have a material adverse impact on
sales of REALmagic products by the Company and, thus, on the Company's business.
The Company must provide its suppliers with sufficient lead time to
meet forecasted manufacturing objectives. Any failure to properly forecast such
quantities could materially adversely affect the Company's ability to produce
REALmagic products in sufficient quantities. No assurance can be given that the
Company's forecasts regarding new product demand will be accurate, particularly
since the Company sells REALmagic products on a purchase order basis.
Manufacturing the REALmagic chipsets is a complex process, and the Company may
experience short-term difficulties in obtaining timely deliveries, which could
affect the Company's ability to meet customer demand for its products. Any such
delay in delivering products in the future could materially and adversely affect
the Company's operating results. In addition, should any of the Company's major
suppliers be unable or unwilling to continue to manufacture the Company's key
components in required volumes, the Company would have to identify and qualify
acceptable additional suppliers. This qualification process could take up to
three months or longer. No assurances can be given that any additional sources
of supply could be in a position to satisfy the Company's requirements on a
timely basis.
In the past, the Company has experienced production delays and other
difficulties, and the Company could experience similar problems in the future.
In addition, there can be no assurance that a product defect will not escape
identification at the factory, possibly resulting in unanticipated costs,
cancellations or deferrals of purchase orders, or costly recall of products from
customer sites.
Dependence on Key Personnel. The Company's future success depends in
large part on the continued service of its key technical, marketing, sales, and
management personnel. Given the complexity of REALmagic technology, the Company
is dependent on its ability to retain and motivate highly skilled engineers
involved in the ongoing hardware and software development of REALmagic products
who will be required to refine the existing hardware system and API and to
introduce enhancements in future applications. The multimedia PC industry is
characterized by a high level of employee mobility and aggressive recruiting of
skilled personnel. There can be no assurance that the Company's current
employees will continue to work for the Company or that the Company will be able
to obtain the services of additional personnel necessary for the Company's
growth. The Company does not have "key person" life insurance policies on any of
its employees.
Limited Intellectual Property Protection. The Company's ability to
compete may be affected by its ability to protect its proprietary information.
The Company currently holds four patents covering the technology underlying the
REALmagic products, and the Company has filed certain patent applications and is
in the process of preparing others. There can be no assurance that any
additional patents for which the Company has applied will be issued or that any
issued patents will provide meaningful protection of its product innovations.
The Company,
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like other emerging multimedia companies, relies primarily on trade secrets and
technological know-how in the conduct of its business. In addition, the Company
is relying in part on copyright law to protect its proprietary rights with
respect to REALmagic technology.
The electronics industry is characterized by frequent litigation
regarding patent and intellectual property rights. Any such litigation could
result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel, whether or not the outcome of such
litigation is favorable to the Company. Moreover, in the event of an adverse
result in any such litigation, the Company could be required to expend
significant resources to develop noninfringing technology or to obtain licenses
to the technology that is the subject of the litigation. There can be no
assurance that the Company would be successful in such development or that any
such licenses would be available on acceptable terms, if at all. In addition,
patent disputes in the electronics industry have often been settled through
cross-licensing arrangements. Because the Company does not yet have a large
portfolio of issued patents, the Company may not be able to settle an alleged
patent infringement claim through a cross-licensing arrangement.
International Operations. During the fiscal years ended January 31,
1997, 1996 and 1995, sales to international customers accounted for
approximately 72%, 63%, and 36% of the Company's net sales, respectively. The
Company anticipates that sales to international customers, including sales of
REALmagic products, will continue to account for a substantial percentage of net
sales. In addition, some of the foundries that manufacture the Company's
products and components are located in Asia. Overseas sales and purchases to
date have been denominated in U.S. dollars. Due to the concentration of
international sales and manufacturing capacity in Asia, the Company is subject
to the risks of conducting business internationally. These risks include
unexpected changes in regulatory requirements and fluctuations in the U.S.
dollar that could increase the sales price in local currencies of the Company's
products in international markets or make it difficult for the Company to obtain
price reductions from its foundries. The Company does not currently engage in
any hedging activities to mitigate exchange rate risks. To the extent that the
Company increases its transactions in foreign currencies, the Company's results
of operations could be adversely affected by exchange rate fluctuations.
Volatility of Stock Price. The market of the Company's Common Stock has
been subject to significant volatility, which is expected to continue. Factors
such as announcements of the introduction of new products by the Company or its
competitors and market conditions in the technology, entertainment, and emerging
growth company sectors may have a significant impact on the market price of the
Company's Common Stock. Further, the stock market has experienced volatility
that has particularly affected the market prices of equity securities of many
high technology and development stage companies such as those in the electronics
industry. Such volatility has often been unrelated or disproportionate to the
operating performance of such companies. These fluctuations, as well as general
economic and market conditions, may adversely affect the price of the Common
Stock.
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THE COMPANY
Overview
The following business section contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors."
Sigma designs, manufactures (using subcontractors), and markets
multimedia products for use with personal computers. The emergence of multimedia
technology in the PC market has dramatically changed the way in which users
interact with computers. Multimedia integrates different elements, such as sound
and video, to enhance the computing experience and deliver a heightened sense of
realism. Through its REALmagic product line incorporating MPEG technology, Sigma
Designs has become a leader in this emerging market.
Prior to MPEG's introduction, video on personal computers suffered from
serious drawbacks. Motion pictures appeared jerky, and video was confined to
small window sizes. MPEG, a defined International Standards Organization (ISO)
standard for compression, eliminated those problems and revolutionized
multimedia on the PC platform. For the first time, MPEG users could play back
full-screen, full-motion video combined with stereo audio, even from a standard
CD-ROM. A single CD-ROM using the MPEG compression technique can store up to 74
minutes of full-motion video and audio.
With MPEG technology, producers can create (and users can enjoy) an
interactive, television-like experience on a desktop PC. The result is a
significant new visual impact, thereby opening possibilities for a wide range of
entertainment, education, training, and business presentation applications. In
April 1997, the Company announced its entry into the Digital Video Disk ("DVD")
market. A key element of the DVD specification is the use of MPEG-2 for digital
video compression, a technology in which Sigma has established expertise.
Sigma's REALmagic Hollywood PC-based DVD solution is an extension of the
Company's MPEG expertise and provides a highly-integrated solution for the
PC-DVD market.
The REALmagic MPEG Standard
Since its first shipment in November 1993, REALmagic technology has
received support from PC industry leaders, software developers, and OEM and
retail customers.
Partnership with PC Industry Leaders
Sigma has received endorsement for its REALmagic technology from
companies such as Hewlett-Packard Company, Hughes Network Systems, IBM,
Microsoft Corporation, Oracle Corporation, Novell, Inc., Silicon Graphics, Inc.,
Starlight Networks and Sun Microsystems, Inc. On the operating system side,
REALmagic is supported by Microsoft Windows 95 and IBM O/S 2. Additionally, both
Novell and Starlight Networks have products that are compatible with REALmagic
in a network environment.
Support from Software Developers
Support for Sigma's REALmagic MPEG standard has grown rapidly in the
software development community. Three years ago, the Company listed fifty
authorized REALmagic software developers; by the end of fiscal 1996, Sigma's
roster of developers rose to more than 1,200, including Activision, Tsunami
Media, Mindscape, Inc. and Interplay Productions. This developer support has led
to the introduction of more than 500 off-the-shelf business applications in the
REALmagic format.
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The REALmagic DOS MPEG Applications Programming Interface (API) has
become an industry standard for MPEG-1 software development, further evidence of
support from the software development community. With its robust functionality,
the REALmagic API is currently the preferred technology available for creating
fully interactive MPEG software titles.
Support from OEMs
In the United States, Dell Computer Corporation, Smith Barney, Inc.,
Infotel, Royal Computer and Zenon Technology, Inc., have purchased REALmagic
Maxima boards for installation inside their multimedia PCs. Additionally, many
VARs have taken shipments of REALmagic boards for systems targeted at vertical
kiosk, business training, and presentation applications. In the Far East, where
the popularity of karaoke and videoCD has made REALmagic a well received
product, the Company's OEM customers include NEC Corporation, Panasonic
Industrial Co. and Virt in Japan and Hyundai and Haitai in Korea.
Acceptance by the Retail Channel
In addition to international distributors, national U.S. distributors
such as Ingram Micro, Inc. and Tech Data Corporation are carrying REALmagic
products.
REALmagic Business Strategies
Sigma's corporate objective is to continue to be a leading provider of
MPEG multimedia products that enable full-screen, full-motion, TV-like quality
video on the standard desktop and the notebook PC. To accomplish this goal the
Company intends to promote widespread acceptance of REALmagic technology. The
key parts of this strategy include:
Encourage Continued Development of Software Utilizing REALmagic Technology
The Company continues to encourage widespread software title
development by providing free technical support and licensing its comprehensive
API free of charge to all developers who wish to publish REALmagic-compatible
software titles.
Win More OEM Partnerships and Further Penetrate the Retail Channel
To establish REALmagic MPEG-2 as a standard, the Company will continue
to seek design wins with major PC manufacturers worldwide, in which the OEMs
will factory-install REALmagic boards or chipsets inside their multimedia PCs.
On the retail side, the Company's systems integration sales team will continue
to work with its network of national distributors and special VARs to distribute
its high-end REALmagic playback card. In Europe and Asia Pacific, the Company
will continue to expand its relationship with distributors as well as OEMs and
VARs. In addition, the Company will seek to sell to add-on card manufacturers
who will, in turn, market to owners of 486 and Pentium PCs.
Introduce New Generations of REALmagic, Offer REALmagic Products at Competitive
Prices, and Continually Reduce Product Costs
A significant aspect of the Company's product strategy is to include
the sale of REALmagic chipsets in its product line and continue developing newer
versions and generations of REALmagic products, including chipsets for both
desktop and notebook PCs. The general direction is to continue to offer
consumers with better-featured and lower-priced products over time.
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REALmagic Products
The Company offers a complete family of REALmagic products including:
o REALmagic DVD--In April 1997, the Company announced its entry
into the DVD market. The Realmagic Hollywood DVD MPEG-2
playback card turns a PC into a full-featured DVD player that
fully exploits all of the digital video and digital surround
sound capabilities of the DVD format and upcoming MPEG-2
interactive titles. The REALmagic Hollywood DVD/MPEG-2
playback card displays flicker-free video at full-screen
resolution, making video watching on a PC a new experience.
Movies can be simultaneously displayed on the PC monitor and
on a large-screen TV.
o REALmagic Maxima--An MPEG playback card designed to eliminate
compatibility issues with graphics cards by using Analog
Overlay Technology. The Maxima accelerates MPEG video to a
guaranteed 30 frames per second playback rate with
high-quality CD sound at resolutions of up to 1280 x 1024,
which is in compliance with the MPC3 industry standard for
MPEG video playback. The REALmagic drivers guarantee
compatibility with all interactive MPEG titles available today
and all future titles that are OM-1 compatible.
o REALmagic Pro Chipset---In October 1995, the Company announced
the availability for sale of the REALmagic Pro chipset. This
chipset has the following distinctive features:
o Very high quality MPEG playback through 16 million
color MPEG video; horizontal and vertical bilinear
interpolation; digital brightness, contrast, and
saturation adjustment
o The use of Sigma's REAL Overlay chip, enabling mixing
MPEG video and PC graphics at resolutions up to 1600
x 1200 with an 85 Hz non-interlaced refresh rate
o 100% Windows 95 and MPC3 compliance
o 100% OM-1 and REALmagic compatibility
o Direct interface for NTSC/PAL decoder to support TV
tuner input
o REALmagic Explorer---In November 1995, the Company announced
the introduction of the REALmagic Explorer chipset. This
chipset puts MPEG-1 digital video playback in ZV port PC cards
for the new generation of notebook computers. The main
features of this chipset include:
o MPEG-1 video playback with 16 million colors
o MPEG-1 audio layers I and II
o 100% REALmagic and OM-1 standard compatibility
o MPC3 standard compliance
o Windows 95 Plug and Play
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<PAGE>
o REALmagic 64/GX video and graphics accelerator chip--In July
1996, the Company announced the introduction of this chip for
the commercial and home desktop PC market. The REALmagic 64/GX
includes an optimized 64-bit graphics accelerator engine,
unique motion-video acceleration hardware, and a highly tuned
memory interface. This chip has the following distinctive
features:
o The 64-bit architecture supporting REALmagic 64/GX
yields 20% faster GUI acceleration than competitive
products.
o The video engine includes a YUV to RGB color-space
converter to accelerate decompression and a hardware
scaler to provide smooth horizontal and vertical
scaling.
o DRAM support of 1 MB to 4 MB enables the accelerator
to be integrated with machines at a variety of
price/performance levels.
Marketing and Sales
Sigma Designs currently distributes its products through sales to
national and regional distributors, VARs, and OEMs in the U.S. and throughout
the world. The company's U.S. distributors include Ingram Micro, Inc. and Tech
Data, and its OEMs include Panasonic, NEC, Royal Computer, Smart Modular
Technologies, Inc., Kingmax Technology, Inc., Lung Hwa Electronics Co., Ltd. and
Zenon Computer Systems. The Company's international distributors are
strategically located in many countries around the world. Although the Company
was profitable throughout all four quarters of fiscal 1997, there can be no
assurance that the Company will maintain profitability in fiscal 1998 or
thereafter.
The Company generally acquires and maintains products for distribution
through retail channels based on forecasts rather than firm purchase orders.
Additionally, the Company generally acquires products for sale to its OEM
customers only after receiving purchase orders from such customers, whose
purchase orders are typically cancelable without substantial penalty from such
OEM customers. The Company currently places noncancellable orders to purchase
semiconductor products from its suppliers on a twelve- to sixteen-week lead time
basis. Consequently, if, as a result of inaccurate forecasts or cancelled
purchase orders, anticipated sales and shipments in any quarter do not occur
when expected, expenses and inventory levels could be disproportionately high,
requiring significant working capital and resulting in severe pressure on the
Company's financial condition.
Research and Development
As of July 1, 1997, the Company had a staff of 43 research and
development personnel, which conducts all the Company's product development. The
Company is focusing its development efforts primarily on MPEG multimedia
products, including new and improved versions of REALmagic MPEG chipsets and
cost reduction processes.
To achieve and maintain technological leadership, the Company must
continue to make technological advancements in the areas of MPEG video and audio
compression and decompression. These advancements include compatibility with
emerging standards and multiple platforms, improvements to the REALmagic
architecture, and enhancements to the REALmagic API. There can be no assurance
that the Company will be able to make any such advancements in the REALmagic
MPEG technology or, if they are made, that the Company will be able to market
such advancements to maintain profitability and its technological leadership.
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<PAGE>
During fiscal 1997, fiscal 1996, and fiscal 1995, the Company's
research and development expenses were $4,688,000, $4,499,000, and $4,349,000,
respectively. The Company plans to continue to devote substantial resources to
research and development of future generations of MPEG and other multimedia
products.
Competition
The market for MPEG multimedia products is highly competitive. Although
the Company does not believe that any products sold by a third party are in
direct competition with the REALmagic decoding card in terms of price and
performance, the possibility that other companies with more marketing and
financial resources may develop a competitive product may inhibit the wide
acceptance of REALmagic technology. The Company believes that many computer
product manufacturers are developing MPEG products that will compete directly
with REALmagic products in the near future.
The Company believes that the principal competitive factors in the
market for MPEG multimedia hardware products include time to market for new
product introductions, product performance, compatibility to industry standards,
price, and marketing and distribution resources. The Company believes that it
competes most favorably with respect to time to market, product performance, and
price of its REALmagic products. Moreover, the Company believes that the
acceptance of the REALmagic API as an industry standard for software development
could provide a significant competitive advantage for the Company. However,
there can be no assurance that the Company's lead time in product introduction
will be sustained.
Sales to distributors and sometimes even to OEMs are typically subject
to contractual rights of inventory rotation and price protection. Regardless of
particular contractual rights, the failure of one or more distributors or OEMs
to achieve sustained sell-through of REALmagic products could result in product
returns or collection problems, contributing to significant fluctuations in the
Company's operating results.
Licenses, Patents, and Trademarks
The Company is seeking patent protection for the basic architecture of
the REALmagic Producer (the Company's video encoding product), as well as
certain software and hardware features in current and future versions of
REALmagic. The Company currently has eight pending patent applications for its
REALmagic technology. Four patents have been issued to the Company. There can be
no assurance that more patents will be issued or that such patents, even if
issued, will provide adequate protection for the Company's competitive position.
The Company also attempts to protect its trade secrets and other proprietary
information through agreements with customers, suppliers, and employees and
other security measures. Although the Company intends to protect its rights
vigorously, there can be no assurance that these measures will be successful.
Manufacturing
To reduce overhead expenses, along with capital and staffing
requirements, the Company currently uses third-party contract manufacturers to
fulfill its manufacturing needs. All of the chips used by the Company to make
its decoding products are manufactured by outside suppliers and foundries. Each
of these suppliers is a sole source of supply to the Company of the respective
chips produced by such supplier.
The Company's reliance on independent suppliers involves several risks,
including the absence of adequate capacity and reduced control over delivery
schedules, manufacturing yields, and costs. Any delay or interruption in the
supply of any of the components required for the production of REALmagic
products could have a material adverse impact on the sales of the Company's
products and, thus, on the Company's operating results.
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<PAGE>
Backlog
Since the Company's customers typically expect quick deliveries, the
Company seeks to ship products within a few weeks of receipt of a purchase
order. The customer may reschedule delivery of products or cancel the purchase
order entirely without significant penalty. Historically, the Company's backlog
has not been reflective of future sales. The Company also expects that in the
near term, its backlog will continue to be not indicative of future sales.
Employees
As of July 1, 1997, the Company had 81 full-time employees, including
43 in research and development, 15 in marketing, sales, and support, 9 in
operations, and 14 in finance and administration.
The Company's future success will depend, in part, on its ability to
continue to attract, retain, and motivate highly qualified technical, marketing,
engineering, and management personnel, who are in great demand. The Company's
employees are not represented by any collective bargaining unit, and the Company
has never experienced a work stoppage. The Company believes that its employee
relations are satisfactory.
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<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Shares
hereunder by the Selling Shareholders.
SELLING SHAREHOLDERS
<TABLE>
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of August 6, 1997 by each
Selling Shareholder. Except as indicated in the footnotes to this table, the
persons named in the table have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned
Offering(1)(2) Number of After Offering(1)(2)
----------------------------- Shares ----------------------
Name and Address Number Percent Being Offered Number Percent
- ------------------------------------- ----------------------------- -------------- ----------------------
<S> <C> <C> <C> <C> <C>
Banque Edouard Constant(3)........... 968,888 8.7 968,888 0 0
c/o Kernco Trust SA
2, rue Jargonnaut
P.O. Box 6432 CH
1211 Geneva 6
Switzerland
RIC Equity Limited(4)................ 121,112 1.1 121,112 0 0
c/o Rana Investment Company
P.O. Box 60148
Riyadh 11545
Saudi Arabia
Gene Jung............................ 10,000 * 10,000 0 0
Trinity Capital Advisors, Inc.
369 Pine Street, Suite 310
San Francisco, CA 94114
<FN>
- ---------------------------
* Represents less than 1%
(1) The number and percentage of shares beneficially owned is determined under
rules of the Securities and Exchange Commission, and the information is
not necessarily indicative of beneficial ownership for any other purpose.
Under such rules, beneficial ownership includes any shares as to which the
individual has sole or shared voting power or investment power and also
any shares which the individual has the potential right to acquire within
two (2) years of the Offering through the exercise of the Preferred Stock
or Warrants. See "Plan of Distribution."
(2) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in the footnotes to this table.
(3) Includes shares underlying a warrant exercisable after December 25, 1997
for 57,142 shares of Common Stock.
(4) Includes shares underlying a warrant exercisable after December 25, 1997
for 7,143 shares of Common Stock.
</FN>
</TABLE>
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<PAGE>
PLAN OF DISTRIBUTION
On June 25, 1997, the Company entered into a Subscription Agreement
with two of the Selling Shareholders (the "Subscription Agreement"), pursuant to
which those two Selling Shareholders purchased certain shares of Series A
Preferred Stock that are convertible into Common Stock of the Company (the
"Preferred Stock") in an aggregate amount of $4,500,000. The Preferred Stock can
be converted by the Selling Shareholders into shares of the Company's Common
Stock 120 days after its issuance at a rate described in the Subscription
Agreement, and concurrent with the purchase of the Preferred Stock, the Selling
Shareholders received warrants to purchase additional Common Stock at an
exercise price in excess of the conversion price of the Preferred Stock. This
Registration Statement has been filed by the Company pursuant to the exercise of
certain registration rights granted under the Subscription Agreement. In
addition, the Company granted 10,000 shares of Common Stock to Gene Jung on
behalf of Trinity Capital Advisors, Inc. in consideration for his efforts in
assisting with the sale of the Preferred Stock.
The Shares may be sold from time to time by the Selling Shareholders or
by pledgees, donees, transferees or other successors in interest. Such sales may
be made in any one or more transactions (which may involve block transactions)
on the Nasdaq National Market, or any exchange on which the Common Stock may
then be listed, in the over-the-counter market or otherwise in negotiated
transactions or a combination of such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling shares to or through broker-dealers, and such
broker-dealers may sell the Shares as agent or may purchase such Shares as
principal and resell them for their own account pursuant to this Prospectus.
Such broker-dealers may receive compensation in the form of under writing
discounts, concessions or commissions from the Selling Shareholders and/or
purchasers of the shares, for whom they may act as agent (which compensation may
be in excess of customary commissions). In connection with such sales, the
Selling Shareholders and any participating brokers or dealers may be deemed to
be "underwriters" as defined in the Securities Act. The Company has advised the
Selling Shareholders that Regulation M promulgated under the Securities Exchange
Act of 1934 may apply to its sales in the market, has provided the Selling
Shareholders with a copy of this regulation and has informed them of the need
for delivery of copies of this Prospectus. The Subscription Agreements provide
that the Company will indemnify the Selling Shareholders against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters relating to validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements and the related financial
statement schedule incorporated in this prospectus by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1997
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference, and has been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
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<PAGE>
TABLE OF CONTENTS
Page
----
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Risk Factors.............................................................. 3
The Company............................................................... 6
Use of Proceeds........................................................... 8
Selling Shareholders...................................................... 8
Plan of Distribution..................................................... 10
Legal Matters............................................................ 10
Experts.................................................................. 10
No dealer, sales representative, or any other person has been
authorized to give any information or to make any representations in connection
with this offering other than those contained in this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or any of the Underwriters. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the shares of Common Stock to which it relates or an offer
to, or a solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circum stances, create an implication that
there has been no change in the affairs of the Company or that information
contained herein is correct as of any date subsequent to the date hereof.
1,100,000 Shares
SIGMA DESIGNS, INC.
Common Stock
------------
PROSPECTUS
------------
October 17, 1997
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