Filed Pursuant to Rule 424(b)(1)
Registration Statement No. 333-77595
PROSPECTUS
632,225 SHARES
SIGMA DESIGNS, INC.
COMMON STOCK
This prospectus may be used only in connection with the resale, from
time to time, of up to 632,225 shares of common stock of Sigma Designs,
Inc., by the following selling shareholders: Preferred Hardware
Distributors, Inc., JFIC, Inc., Multiventure Technologies, Inc., and Jason
Chan. All of the shares covered by this prospectus are to be sold by the
selling shareholders. Each selling shareholder will receive the shares
upon conversion of our series c preferred stock, exercise of warrants
issued in connection with the sale of the series c preferred stock, and
payment of dividends. With respect to the payment of dividends, we have
the option to pay dividends on the series c preferred stock in cash. The
selling shareholders purchased the shares of series c preferred stock and
warrants directly from us in a transaction not subject to registration
with the Securities and Exchange Commission, and they will receive stock
dividends, if any, in a transaction not subject to registration with the
SEC. We will not receive any of the proceeds from the sale of the shares.
We will, however, pay the expenses incurred in registering the shares,
including legal and accounting fees.
The shares offered by this prospectus may be offered and sold, from
time to time, by the selling shareholders, or others who receive the
shares pursuant to a valid transfer. These offers and sales can take
place in transactions, including block transactions, on The Nasdaq Stock
Market, or any other exchange on which our common stock may then be
listed. The offers and sales can also take place by privately-negotiated
transactions, broker-dealer transactions, exchange transactions, short
sales, or other methods. Sales may be made at market prices or negotiated
prices. The selling shareholders will pay for any commission expenses and
brokerage fees.
Our common stock is traded on The Nasdaq Stock Market under the
symbol "SIGM." On June 15, 1999, the last sale price for our common stock
as reported on The Nasdaq Stock Market was $6.125 per share.
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See "Risk Factors" on page 3 for a discussion of factors that should
be considered by prospective purchasers of the shares offered by this
prospectus.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this prospectus is June 28, 1999
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION ABOUT SIGMA DESIGNS
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any documents we
file at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Our SEC filings are also
available to the public from the SEC's Website at "http://www.sec.gov."
The SEC allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to
you by referring you to those documents. The information incorporated by
reference is considered to be part of this prospectus, and information
that we file later with the SEC will automatically update and supersede
this information. We incorporate by reference the documents listed below
and any future filings we will make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Securities and Exchange Act of 1934:
o Annual Report on Form 10-K for the fiscal year ended January 31, 1999;
o Quarterly Report on Form 10-Q for the quarter ended April 30, 1999;
o Definitive Proxy Statement relating to our Annual Meeting of
Shareholders held on June 11, 1999;
o The description of our common stock contained in the Registration
Statement on Form 8-A filed with the Commission on November 3, 1986,
and amended on September 22, 1989.
You may request a copy of these filings, at no cost, by writing or
telephoning Carol Kaplan, our Director of Investor Relations, at the
following address:
Sigma Designs, Inc.
355 Fairview Way
Milpitas, California 95035
(408) 262-9003
This prospectus is part of a registration statement we filed with
the SEC. You should rely only on the information or representations
provided in this prospectus. We have authorized no one to provide you
with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus is accurate as of any date
other than the date on the front of the document.
RISK FACTORS
You should carefully consider the risks described below before
making an investment decision. If any of the following risks actually
occur, our business, financial condition or results of operations could be
materially adversely affected, the trading price of our common stock could
decline, and you may lose all or part of your investment.
This registration statement on Form S-3 also contains
forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the
risks faced by us described below and elsewhere in this prospectus.
We Have a History of Operating Losses and We Could Experience Future Losses
We incurred significant operating losses in fiscal 1995, 1996 and
1998 and had negative cash flow in fiscal 1995 and 1998. Since our
introduction in November 1993 of the REALmagic moving picture experts
group, commonly referred to as MPEG, product line, we have made
significant investments in marketing and technological innovation for our
REALmagic products. As a result of our investments, we experienced
significant losses through fiscal 1996. Fiscal 1995, 1996 and 1998 also
included significant losses associated with products other than those
related to our REALmagic technology. Although we realized a small net
profit in the first quarter of fiscal 2000, we cannot assure you that we
will continue to have profits in future quarters. From our inception
through April 30, 1999, our total accumulated deficit is $40,940,000. We
cannot assure you that we will continue to sell our REALmagic products in
substantial quantities or generate significant revenues from those sales.
We cannot assure you that we will sustain profitable operations in any
future fiscal quarter or fiscal year.
In the Past We Have Been Required to Obtain Waivers of a Profitability
Covenant Contained in One of Our Loan Agreements, and We May Need To
Obtain Similar Waivers in the Future to Avoid Default
We have an amended and restated business loan agreement with Silicon
Valley Bank, dated October 26, 1998. Under the agreement we gave two
secured promissory notes in total principal amounts of $12 million and $6
million to Silicon Valley Bank, under which we may borrow as needed.
Under the agreement and the notes, we are required to meet a profitability
covenant. Since July 1997, we have, on occasion, been in violation of the
profitability covenant and have obtained waivers releasing us from our
obligation to meet this covenant. While we were in compliance with the
covenant for the quarter ended April 30, 1999, we may need another waiver
for future periods. We cannot assure you that Silicon Valley Bank will
grant these waivers. If we do not meet this covenant, and if we do not
obtain waivers, the loans may be in default. If we are in default, then
the lender could accelerate payments on the notes and we could suffer
serious harm to our business, financial condition and prospects.
Our Sales and Profitability are Subject to Marketing Risks and Volatility
of Original Equipment Manufacturer Customer Sales and Resale Distribution
Our ability to increase sales, achieve profitability and maintain
REALmagic as a personal computer industry multimedia standard depends
substantially on our ability to achieve a sustained high level of sales to
new original equipment manufacturer customers. We have not executed
volume purchase agreements with any of our customers. Our customers are
not under any obligation to purchase any minimum quantity of our products.
We have not achieved bundling agreements with many original equipment
manufacturer customers to ensure the success of our REALmagic product
line. Also, even if we achieve new design wins, we cannot assure you that
personal computer manufacturers will purchase our products in substantial
volumes. Sales to any particular original equipment manufacturer customer
are subject to significant variability from quarter to quarter and to
severe price pressures by competitors. In addition, 28% of our net sales
were derived from one customer in our fiscal year ended January 31, 1999;
any reduction in those sales could seriously harm us. Based on our
experience in the personal computer industry, we expect that our actual
sales to original equipment manufacturer customers will experience
significant fluctuations. Also, estimates of future sales to any
particular customer or groups of customers are inherently uncertain.
Our ability to achieve sustained profitability also depends on a
substantial increase in the sales of REALmagic products through domestic
and international distributors for resale through corporate markets.
Sales to these distributors are typically subject to contractual rights of
inventory rotation or price protection. The failure of distributors to
achieve sustained sell-through of REALmagic products could result in
product returns or collection problems. This could contribute to
fluctuations in our results of operations. We cannot assure you that we
will be successful in maintaining a significant market for our REALmagic
products.
Our Market May Undergo Rapid Technological Change and Our Future Success
Will Depend on Our Ability to Meet the Changing Needs of Our Industry
The market for multimedia personal computer products is
characterized by the following:
o rapidly changing technology and user preferences;
o evolving formats for compression of video and audio data; and
o frequent new product introductions.
Even though REALmagic products and related software titles have
gained initial market acceptance, our success depends, among other things,
on our ability to achieve and maintain technological leadership and to
remain competitive in terms of price and product performance.
To have technological leadership, we must continue to make
technological advances and research and development investments in the
area of moving picture experts group standard video and audio decoding.
These advances include the following:
o compatibility with emerging standards and multiple platforms; and
o improvements to the REALmagic architecture.
We cannot assure you that we will be able to make these advancements
to our REALmagic technology. If we do make these advances, we cannot
assure you that we will be able to achieve and maintain technological
leadership. Any material failure by us or original equipment
manufacturers and software developers to develop or incorporate any
required improvement could adversely affect the continued acceptance of
our technology and the introduction and sale of future products based on
our technology. We cannot assure you that products or technologies
developed by others will not render obsolete our technology and the
products based on our technology.
To be competitive, we must anticipate the needs of the market and
successfully develop and introduce innovative new products in a timely
fashion. We cannot assure you that we will be able to successfully
complete the design of our new products, have these products manufactured
at acceptable manufacturing yields, or obtain significant purchase orders
for these products. The introduction of new products may adversely affect
sales of existing products and contribute to fluctuations in operating
results from quarter to quarter. Our introduction of new products also
requires that we carefully manage our inventory to avoid inventory
obsolescence. In addition, new products, as opposed to more mature
products, typically have higher initial component costs. This higher cost
could result in downward pressures on our gross margins.
Our Industry is Highly Competitive and We Cannot Assure You That We Will
Be Able to Effectively Compete
The market for multimedia personal computer products is highly
competitive and is driven by faster processors provided by Intel
Corporation and other companies. Intel processors have, in recent years,
included increased graphics functionality. Other companies with more
experience and financial resources may develop a competitive product that
could inhibit future growth of our REALmagic technology. Increased
competition may be generated from several major computer product
manufacturers that have developed products and technologies that could
compete directly with REALmagic products on the personal computer
platform. These competitors include:
o SGS Thompson Microelectronics;
o C-Cube Microsystems;
o IBM Corporation;
o Zoran Corporation; and
o LSI Logic.
In addition, computer central processing units are becoming more
powerful, so that video decoding could eventually be done in software.
Most of our competitors have substantial experience and expertise in
audio, video and multimedia technology and in producing and selling
consumer products through retail distribution. These companies also have
substantially greater engineering, marketing and financial resources than
we have. Our competitors could form cooperative relationships that could
present formidable competition to us. We cannot assure you that our
REALmagic technology will achieve commercial success or that it will
compete effectively against other interactive multimedia products,
services and technologies that currently exist, are under development, or
may be announced by competitors.
Sales of Our Multimedia Products Accounted for Virtually All of Our
Fiscal 1999 Net Sales and Our Future Net Sales Depend on Continued Market
Demand for Multimedia Products
Our business strategy is, and has been, to focus on REALmagic
products by investing heavily in personal computer-based moving picture
experts group standard technology. In the fiscal year ended January 31,
1999, sales of multimedia products accounted for virtually all of our net
sales. A decline in market demand for multimedia products will seriously
harm our operating results. Our present reliance on REALmagic products is
further affected by the fact that multimedia product sales are
concentrated in the personal computer industry. A decline in demand for
personal computers could seriously harm our operating results and
financial condition. In addition, one international customer accounted
for 28%, 39% and 23% of revenues in the fiscal years ended January 31,
1999, 1998 and 1997.
Our Operating Results Are Subject to Significant Fluctuations Due to Many
Factors and Any of These Factors Could Adversely Affect Our Stock Price
Our operating results have fluctuated in the past and may continue
to fluctuate in the future. This fluctuation is due to a number of
factors, including the following and others:
o our new product introductions and product introductions by our competitors;
o market acceptance of our products by original equipment manufacturers,
software developers and end users;
o the success of our promotional programs;
o gains or losses of our significant customers;
o reductions in selling prices;
o inventory obsolescence;
o an interrupted or inadequate supply of semiconductor chips;
o our ability to protect our intellectual property; and
o loss of our key personnel.
In addition, sales to original equipment manufacturer customers are
subject to significant variability from quarter to quarter. This
variability depends on original equipment manufacturers' timing and
release of products that incorporate our REALmagic technology, experience
with sales of these products and inventory levels.
The market for consumer electronics products is characterized by
significant seasonal swings in demand. Demand typically peaks in the
fourth calendar quarter of each year. We expect to derive a substantial
portion of our revenues from the sales of REALmagic products in the
future. The demand for our products will depend in part on the success of
digital video technology. In light of this, our revenues may vary with
the availability of and demand for DVD titles. This demand may increase
or decrease as a result of a number of factors that cannot be predicted,
such as consumer preferences and product announcements by competitors.
Announcements of directly competing products will likely have a
negative effect on our operating results. Based on our experience, we
believe that a substantial portion of our shipments will occur in the
third month of a quarter, with significant shipments completed in the
latter part of the third month. This shipment pattern may cause our
operating results to be difficult to predict. Currently, we place
noncancellable orders to purchase semiconductor products from our
foundries with a long lead time. Consequently, if, as a result of
inaccurate forecasts or cancelled purchase orders, our anticipated sales
and shipments in any quarter do not occur when expected, our inventory
levels could be disproportionately high. This could require significant
working capital and harm our operating results.
We Rely Heavily on Third Party Manufacturers and Suppliers to Produce Our
REALmagic Products, and This Reliance Subjects Us to Various Production
Risks
Our REALmagic products and components are presently manufactured by
outside suppliers or foundries. We do not have long-term contracts with
these suppliers. We conduct business with our suppliers on a written
purchase order basis. Our reliance on independent suppliers subjects us
to several risks. These risks include:
o the absence of adequate capacity;
o the unavailability of, or interruptions in access to, certain
process technologies; and
o reduced control over delivery schedules, manufacturing yields and costs.
We obtain some of our components from a single source. Delays or
interruptions have not occurred to date, but any delay or interruption in
the supply of any of the components required for the production of our
REALmagic multimedia card currently obtained from a single source could
have a material adverse impact on our sales of REALmagic products, and on
our business.
We must provide our suppliers with sufficient lead time to meet our
forecasted manufacturing objectives. Any failure to properly forecast
these quantities could materially adversely affect our ability to produce
REALmagic products in sufficient quantities. We cannot assure you that
our forecasts regarding new product demand will be accurate, particularly
because we sell our REALmagic products on a purchase order basis.
Manufacturing REALmagic chipsets is a complex process, and we may
experience short-term difficulties in obtaining timely deliveries. This
could affect our ability to meet customer demand for our products. Any
delay in delivering products in the future could materially and adversely
affect our operating results. Also, should any of our major suppliers
become unable or unwilling to continue to manufacture our key components
in required volumes, we will have to identify and qualify acceptable
additional suppliers. This qualification process could take up to three
months or longer and additional sources of supply may not be in a position
to satisfy our requirements on a timely basis.
In the past, we have experienced production delays and other
difficulties, and we could experience similar problems in the future. In
addition, product defects may occur and they may escape identification at
the factory. This could result in unanticipated costs, cancellations,
deferrals of purchase orders, or costly recall of products from customer
sites.
Due to the Complexity of Our REALmagic Technology, We Depend on Our Key
Personnel, and We May Not be Able to Retain Them
Our future success depends in large part on the continued service of
our key technical, marketing, sales and management personnel. Given the
complexity of REALmagic technology, we are dependent on our ability to
retain and motivate highly skilled engineers involved in the ongoing
hardware and software development of REALmagic products. These engineers
are required to refine the existing hardware system and application
programming interface and to introduce enhancements in future
applications. The multimedia personal computer industry is characterized
by high employee mobility and aggressive recruiting of skilled personnel.
Despite incentives we provide, our current employees may not continue to
work for us, and if additional personnel were required for our operations,
we may not able to obtain the services of additional personnel necessary
for our growth. We do not have "keyperson" life insurance policies on any
of our employees.
We May Not Be Able to Adequately Protect and Defend Our Intellectual
Property Rights which could Result in Losses or Loss of Competitve
Position
Our ability to compete may be affected by our ability to protect our
proprietary information. We currently hold ten patents covering the
technology underlying the REALmagic products. We have filed patent
applications and are in the process of preparing others. We cannot assure
that any additional patents for which we have applied will be issued or
that any issued patents will provide meaningful protection of our product
innovations. Like other emerging multimedia companies, we rely primarily
on trade secrets and technological know-how in the conduct of our
business. We also rely, in part, on copyright law to protect our
proprietary rights with respect to our REALmagic technology. We use
measures such as confidentiality agreements to protect our intellectual
property. These methods of protecting our intellectual property may not
be sufficient.
The electronics industry is characterized by frequent litigation
regarding patent and intellectual property rights. Any litigation
relating to our intellectual property rights could result in significant
expense to us and divert the efforts of our technical and management
personnel. In the event of an adverse result in any intellectual property
rights litigation, we 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. We may not be successful in
developing noninfringing technology or in obtaining licenses on acceptable
terms, if at all. In addition, patent disputes in the electronics
industry have often been settled through cross-licensing arrangements.
Because we do not yet have a large portfolio of issued patents, we may not
be able to settle an alleged patent infringement claim through a
cross-licensing arrangement.
A Substantial Portion of Our Sales is Derived from Our International
Operations and This Aspect of Our Business is Subject to Additional Risks
Including Uncertainties in International Law and Currency Fluctuations
During the fiscal years ended January 31, 1999, 1998 and 1997, sales
to international customers accounted for approximately 72%, 64% and 72% of
our net sales, respectively. We anticipate that sales to international
customers, including sales of REALmagic products, will continue to account
for a substantial percentage of our net sales. Also, some of the
foundries that manufacture our products and components are located in
Asia. Overseas sales and purchases to date have been denominated in U.S.
dollars.
Due to the concentration of international sales and the
manufacturing capacity in Asia, we are subject to the risks of conducting
business internationally. These risks include unexpected changes in
regulatory requirements and fluctuations in the U.S. dollar that could
increase the sales price in local currencies of our products in
international markets, or make it difficult for the Company to obtain
price reductions from its foundries. We do not currently engage in any
hedging activities to reduce our exposure to exchange rate risks. If and
when we engage in transactions in foreign currencies, our results of
operations could be adversely affected by exchange rate fluctuations.
We derive a substantial portion of our revenues from sales to the
Asia Pacific region. This region of the world is subject to increased
levels of economic instability, and this instability could seriously harm
our results of operations.
The Price of Our Common Stock Price Can Be Volatile and May Reflect the
Volatility of the Stock Market and/or the Electronics Industry
The market of our common stock has been subject to significant
volatility. This volatility is expected to continue. The following
factors, among others, may have a significant impact on the market price
of our common stock:
o our announcement of the introduction of new products;
o our competitors' announcements of the introduction of new
products; and
o market conditions in the technology, entertainment and emerging
growth company sectors.
The stock market has experienced, and is currently experiencing,
volatility that particularly affects the market prices of equity
securities of many high technology and development stage companies, such
as those in the electronics industry. This volatility is often unrelated
or disproportionate to the operating performance of these companies.
These fluctuations, as well as general economic and market conditions,
could decrease the price of our common stock.
A Purchaser of Our Shares of Common Stock May Be Subject to Dilution from
the Conversion of Our Series C Preferred Stock
Series C Preferred Stock. As of June 1, 1999, 1,400 shares of our
series c convertible preferred stock were issued and outstanding. The
shares of series c preferred stock are convertible at the option of the
holders into that number of shares of our common stock as is determined by
the following formula:
Multiply the stated value of One Thousand Dollars ($1,000) of the series c
preferred stock by the number of outstanding shares of series c
preferred stock, and divide the product by the then current
conversion price (described below).
The conversion price is based on the average of the closing sale trading
market price of our common stock over the five trading-day period
ending one day prior to the date of conversion of the series c
preferred stock; however, no share of series c preferred stock may
be converted into shares of our common stock if the conversion price
is less than $4.00. In addition, the maximum conversion price for
our series c preferred stock is fixed at $7.00. By way of example,
if the series c preferred stock was converted on June 1, 1999, the
conversion price would have been $6.72.
Based on this formula, if the remaining outstanding series c
preferred stock had been converted on June 1, 1999, it would have been
convertible into approximately 208,333 shares of our common stock.
Purchasers of our common stock will experience dilution of their
investment upon conversion of the series c preferred stock. Because the
conversion price of the series c preferred stock is capped at $7.00, the
minimum number of shares of common stock that the remaining outstanding
shares of series c preferred stock may be converted into is 200,000
shares. And, because the series c preferred stock cannot be converted at
a conversion price that is less than $4.00, the maximum number of common
stock that the remaining outstanding shares of series c preferred stock
may be converted into is 350,000 shares.
In addition, the series c preferred stock receives payment of
dividends upon its conversion into shares of our common stock. Dividends
at the rate of eight percent (8%) of the stated value of One Thousand
Dollars ($1,000) of the series c preferred stock accrue daily on the basis
of a 360-day year beginning January 22, 1999. At our option, we can pay
the dividend by issuing shares of our common stock or, if funds are
legally available, by cash. In the event we pay the dividends in cash,
purchasers of our common stock will suffer less dilution. Our election to
pay cash, however, will divert our available cash from other potential
uses. The shares of series c preferred stock are not registered and may
be sold only if registered under the Securities Act or sold in accordance
with an applicable exemption from registration, such as Rule 144.
As of June 1, 1999, warrants to purchase 95,000 shares of common
stock issued to the purchasers of the series c preferred stock and
exercisable for a period of two years following January 22, 1999 at a
price of $5.16, as may be adjusted from time to time under antidilution
provisions, were outstanding.
If Third Party Computer Programs or Our Products are not Year 2000
Compliant, Our Ability to Conduct Our Business Could Be Impaired
We are aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000
problem" is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two-digit year value
to 00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize this information could generate erroneous data or cause
a system to fail.
We have tested our products and believe our products are year 2000
compliant. Our management has also conducted a review of our exposure to
the year 2000 problem, including working with computer systems and
software vendors. We currently believe that our internal systems are year
2000 compliant. We do not expect to further incur any significant
operating expenses or invest in additional computer systems to resolve
issues relating to the year 2000 problem, with respect to both our
information technology and product and service functions.
However, significant uncertainty remains concerning the effects of
the year 2000 problem, including uncertainty regarding assurances made by
vendors. In addition, we have not investigated year 2000 compliance of
other entities that are not our vendors or that are vendors or purchasers
of our product. For example, we do not have control over the compliance
of our distributors, partners, banks, stock markets or systems in which
our products are used.
We cannot assume that third parties will be year 2000 compliant, and
if they are not, we cannot assume that we will not be subject to actions,
liabilities or damages associated with these failures.
SIGMA DESIGNS
Overview
This registration statement on Form S-3 contains forward-looking
statements that involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking
statements as a result of certain factors, as discussed in this
registration statement under Risk Factors and elsewhere.
We design, manufacture, using subcontractors, and market multimedia
products for use with personal computers. The emergence of multimedia
technology in the personal computer 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 our
REALmagic product line incorporating moving picture experts group standard
technology standard, Sigma Designs has become a leader in this emerging
market.
Prior to the introduction of moving picture experts group technology
standard, video on personal computers suffered from serious drawbacks.
Motion pictures appeared jerky, and video was confined to small window
sizes. Moving picture experts group standard, commonly referred to as
MPEG technology, a defined international standards organization for video
compression, eliminated many of those problems and revolutionized
multimedia on the personal computer platform. For the first time, moving
picture experts group standard 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 moving picture experts group compression
technique can store up to 74 minutes of full-motion video and audio.
With moving picture experts group standard technology, producers can
create, and users can enjoy, an interactive, television-like experience on
a desktop personal computer. The result is a significant new visual
impact that opens possibilities for a wide range of entertainment,
education, training and business presentation applications. In April
1997, we announced our entry into the DVD market. A key element of the
DVD specification is the use of moving picture experts group-2 for digital
video compression, a technology in which Sigma has established expertise.
Sigma's REALmagic EM8300, EM8220 and EM8800 personal computer-based DVD
and super video compact disk solutions are extensions of our moving
picture experts group standard expertise and provide a highly-integrated
solution for the personal computer-DVD and personal computer-super video
compact disk markets.
The REALmagic Motion Picture Experts Group Standard
Since its first shipment in November 1993, REALmagic technology has
received support from personal computer industry leaders, software
developers, and original equipment manufacturers and retail customers.
Partnership with Personal Computer Industry Leaders
Sigma has developed strategic partnerships to develop and market
network streaming video products with companies such as:
o Hughes Network Systems,
o IBM,
o Microsoft Corporation,
o OptiVision, Inc.,
o Oracle Corporation,
o Silicon Graphics, Inc.,
o Starlight Networks, Inc. acquired by PictureTel Corporation,
o Sun Microsystems, and
o FVC.com.
Support from Software Developers
Support for Sigma's REALmagic moving picture experts group standard
has grown to over 1,200 software developers. To further expand the list
of developers, Sigma has worked directly with Microsoft on Microsoft's new
streaming standard for moving picture experts group-2 called DirectShow.
Sigma Designs is the first and currently the only company shipping drivers
with DirectShow support for streaming moving picture experts group-2
video, making it the first recommended decoder for use with Microsoft's
NetShow Theater video server.
Using the DirectShow standard, software developers can create
streaming video applications with virtually any video server-without any
C programming at all. This enables universities and corporations to get
live video and video on demand applications online very rapidly, which
shortens the sales process.
Support from Original Equipment Manufacturer Customers
In the United States, Dell Computer Corporation, Compaq Computer
Corporation, IBM, Hughes Network Systems and OptiVision have purchased
REALmagic cards for installation inside their systems for streaming video.
Additionally, several companies, including the following, market DVD kits
that include REALmagic Hollywood Plus playback cards, and several vendors
base their DVD systems on REALmagic DVD playback cards:
o Philips,
o Sony,
o Panasonic Canada,
o Creative Labs,
o Matsushita,
o Toshiba, and
o VideoLogic.
Acceptance by the Corporate Market
REALmagic is the most well-known and most recognized brand name for
moving picture experts group standard, commonly referred to as MPEG, video
on personal computers. Sigma Designs has developed this brand name
through marketing campaigns and by building a reputation for delivering
and supporting inexpensive moving picutres experts group standard decoders
with robust, powerful and flexible software drivers. This has made Sigma
Designs' REALmagic the de facto standard for corporate market projects
such as corporate-wide rollouts at Merrill Lynch, Smith Barney and
Wal-Mart.
REALmagic Business Strategy
Sigma's corporate objective is to continue to be a leading provider
of moving picture experts group standard multimedia products that enable
full-screen, full-motion, TV-like quality video on the standard desktop
and the notebook personal computer. To accomplish this goal, we intend to
promote widespread acceptance of REALmagic technology. The key parts of
this strategy include:
Win More Original Equipment Manufacturer Partnerships and Further
Penetrate the Corporate Market
To establish REALmagic for moving picture experts group-2 as a
standard, we will continue to seek design wins with major personal
computer manufacturers worldwide, in which the original equipment
manufacturer will factory-install REALmagic boards or chipsets inside
their multimedia personal computers. On the retail side, our systems
integration sales team will continue to work with our network of national
distributors and special value added resellers to distribute our high-end
REALmagic playback card. In Europe and Asia Pacific, we intend to
continue to expand our relationship with distributors as well as original
equipment manufacturers and value added resellers. In addition, we will
seek to sell chipsets to add-on card manufacturers that will, in turn,
market to owners of Pentium personal computers.
Introduce New Generations of REALmagic, Offer REALmagic Products at
Competitive Prices and Continually Reduce Product Costs
A significant aspect of our product strategy is to increase the sale
of REALmagic chipsets while continuing to develop newer versions and
generations of REALmagic products, including chipsets for both desktop and
notebook personal computers. We seek to continue to offer consumers
better-featured and lower-priced products over time.
REALmagic Products
We currently offer a complete family of REALmagic products including:
o REALmagic Hollywood Plus-In April 1997, we announced our entry
into the DVD market. The REALmagic Hollywood Plus moving picture
experts group-2 playback card turns a personal computer into a
full-featured DVD player that exploits many of the digital video
and digital surround sound capabilities of the DVD format and
upcoming moving picture experts group-2 interactive titles. The
REALmagic Hollywood Plus DVD/moving picture experts group-2
playback card displays flicker-free video at full-screen
resolution, making video watching on a personal computer a new
experience. Movies can be simultaneously displayed on the
personal computer monitor and on a large-screen television.
o REALmagic NetStream 2-In October 1997, we announced our entry
into the moving picture experts group-2 networked video market.
Products in the NetStream family include specialized hardware and
software developed specifically for delivering video to corporate
desktops and can be used for both video on demand and broadcast
video playback. NetStream 2 is an moving picture experts group-2
playback card offering full plug and play installation and
compatibility with a broad range of third-party applications,
including video servers for video on demand, moving picutre
experts group standard encoders for stored or real-time playback,
satellite delivery systems, streaming video playback systems and
scores of customizable interactive training titles.
o REALmagic EM8300-In March 1998, we announced the introduction of
the EM8300 REALmagic DVD/moving picture experts group-2/moving
picture experts group-1 decoder integrated circuit. Integrating
virtually all functions of a DVD decoder on one chip, the EM8300
is designed to provide a highly integrated, cost effective
vehicle for high-quality DVD. The EM8300 feature set draws on
Sigma's industry-leading experience in the DVD/moving picture
experts group-2 market with earlier designs such as the REALmagic
Ventura and REALmagic Hollywood decoder cards. The result is a
blend of performance and affordability that can be key to gaining
market share in the rapidly growing DVD market. REALmagic 8300
is available on Windows and on Macintosh platforms.
o REALmagic EM8220 DVD/MPEG-2 VGA Add-On Card-In April 1999, we
announced the introduction of a daughter card to add to Intel
i752-based 2D/3D video graphics array graphics cards to quickly
and effectively deliver high-performance, video-ready multimedia
systems.
o REALmagic DVD/MPEG-2 Notebook Module-Designed to connect
directly to the video graphics array controller through the
ZV-bus and to the system bus through the module's peripheral
component interconnect interface, the notebook module gives
notebook users all of the power and impact of DVD performance
with their go-anywhere systems.
o REALmagic EM8800-In October 1998, we announced the REALmagic
EM8800 decoder integrated circuit, the first single-chip personal
computer solution for China's new super video compact disk
standard. Integrating virtually all super video compact disk
decoding functions on one chip, the EM8800 can turn a personal
computer into a full-featured home theater video player that
fully exploits the improved video quality supported by the super
video compact disk standard.
o REALmagic STB 2000-In April 1999, we announced our next-
generation set-top box reference design. This convergence
appliance, which contains our EM8220 motion pictures expert
group-2 decoder chip on the motherboard, provides DVD decoding
and streaming video support for cable companies, telephone
companies, Internet service providers, satellite providers, and
systems integrators that deploy high bandwidth, digital video-
ready Internet services.
Marketing and Sales
Sigma Designs currently distributes its products through sales to
national and regional distributors, value-added resellers and original
equipment manufacturers in the U.S. and throughout the world. Our U.S.
distributors include Ingram Micro, Inc. and Tech Data, and our original
equipment manufacturers include:
o Sony,
o Philips,
o Panasonic Canada,
o IBM,
o Matsushita,
o Toshiba,
o Kapok Computers,
o Royal Computer,
o ASE Technologies,
o LungHwa Electronics Co., Ltd.,
o Formosa Industrial Computing,
o Labway Corporation and others.
Our international distributors are strategically located in many
countries around the world.
We generally acquire and maintain products for distribution through
corporate markets based on forecasts rather than firm purchase orders.
Additionally, we generally acquire products for sale to our original
equipment manufacturer customers only after receiving purchase orders from
these customers, which purchase orders are typically cancelable without
substantial penalty from the original equipment manufacturer customers.
We currently place noncancellable orders to purchase semiconductor
products from our suppliers on a twelve- to sixteen-week lead time basis.
Consequently, if, as a result of inaccurate forecasts or 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 our financial condition. One customer
accounted for 28% of our net sales in our fiscal year ended January 31,
1999.
Sales to distributors are typically subject to contractual rights of
inventory rotation and price protection. Regardless of particular
contractual rights, the failure of one or more distributors or original
equipment manufacturers to achieve sustained sell-through of REALmagic
products could result in product returns or collection problems,
contributing to significant fluctuations in our operating results.
Research and Development
As of June 1, 1999, we had a staff of 37 research and development
personnel. The research and development personnel conduct all of our
product development. We are focusing our development efforts primarily on
moving picture experts group standard multimedia products, including new
and improved versions of REALmagic moving picture experts group standard
chipsets and cost reduction processes.
To achieve and maintain technological leadership, we must continue
to make technological advancements in the areas of moving picture experts
group standard video and audio compression and decompression. These
advancements include maintaining compatibility with emerging standards and
multiple platforms, making improvements to the REALmagic architecture, and
developing enhancements to the REALmagic application programming
interface.
We cannot assure you that the we will be able to make any of these
advancements in the REALmagic moving picture experts group standard
technology or, if they are made, that we will be able to market the
advancements to maintain profitability and technological leadership.
During our fiscal years ended January 31, 1999, 1998 and 1997, our
research and development expenses were $5,678,000, $4,948,000 and
$4,688,000, respectively. We plan to continue to devote substantial
resources to research and development of future generations of moving
picture experts group standard and other multimedia products.
Competition
The market for moving picture experts group standard multimedia
products is highly competitive. Companies such as C-Cube Microsystems
have a high profile in the industry. Although we do 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. We believe that many computer product manufacturers are
developing moving picture experts group standard products that will
compete directly with REALmagic products in the near future.
We believe that the principal competitive factors in the market for
moving picture experts group standard multimedia hardware products include
time to market for new product introductions, product performance,
compatibility with industry standards, price and marketing and
distribution resources. We believe that we compete most favorably with
respect to time to market, product performance and price of our REALmagic
products. Moreover, we believe that the acceptance of the REALmagic
application programming interface as an industry standard for software
development could provide a significant competitive advantage for Sigma.
However, we cannot assure you that the REALmagic application programming
interface will be established as an industry standard or that Sigma's lead
time in product introduction will be sustained.
Licenses, Patents and Trademarks
We are seeking patent protection for some of our software and
hardware features in current and future versions of REALmagic. We
currently have fifteen pending patent applications for our REALmagic
technology. Ten patents have been issued to us. We cannot assure you
that more patents will be issued or that additional patents, even if
issued, will provide adequate protection for our competitive position. We
also attempt to protect our trade secrets and other proprietary
information through agreements with customers, suppliers and employees and
other security measures. Although we intend to protect our rights
vigorously, we cannot assure you that these measures will be successful.
Manufacturing
To reduce overhead expenses, along with capital and staffing
requirements, we currently use third-party contract manufacturers to
fulfill all of our manufacturing needs, including chipset manufacture and
board-level assembly. All of the chips used by us to develop our decoding
products are manufactured by outside suppliers and foundries. Each of
these suppliers is a sole source of supply to us of the respective chips
produced.
Our reliance on independent suppliers involves several risks,
including the absence of adequate capacity and reduced control over
delivery schedules, manufacturing yields and costs. Any delay or
interruption in the supply of any of the components required for the
production of REALmagic products could seriously harm the sale of our
products and ultimately have a negative impact on our operating results.
Backlog
Since our customers typically expect quick deliveries, we seek to
ship products within a few weeks of receipt of a purchase order. However,
the customer may reschedule delivery of products or cancel the purchase
order entirely without significant penalty. Historically, our backlog has
not been reflective of future sales. We also expect that in the near
term, our backlog will continue to be not indicative of future sales.
Employees
As of June 1, 1999, we had 82 full-time employees, including 37 in
research and development, 20 in marketing, sales and support, 10 in
operations, and 15 in finance and administration.
Our future success will depend, in part, on our ability to continue
to attract, retain and motivate highly qualified technical, marketing,
engineering and management personnel, who are in great demand. Our
employees are not represented by any collective bargaining unit, and we
have never experienced a work stoppage. We believe that our employee
relations are satisfactory.
USE OF PROCEEDS
Sigma Designs will not receive any proceeds from the sale of shares
pursuant to this prospectus by the selling shareholders.
SELLING SHAREHOLDERS
The following table sets forth information with respect to
beneficial ownership of our common stock as of June 1, 1999 by the selling
shareholders as follows:
o The name and address of each selling shareholder;
o The number of our outstanding shares of common stock beneficially
owned by each selling shareholder, including shares obtainable
under options exercisable within sixty (60) days of June 1, 1999,
prior to the offering pursuant to this prospectus;
o The number of shares of common stock being offered pursuant to
this prospectus; and
o The number and percentage of our outstanding shares of common
stock to be beneficially owned by each selling shareholder after
completion of the sale of common stock.
Except as indicated in the footnotes to this table:
the persons and entities 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
no selling shareholder has held any position or office or had a
material relationship with Sigma Designs or any of our affiliates
within the past three years.
<TABLE>
<CAPTION>
Number of Shares of Common Stock
-----------------------------------------
Beneficially
Beneficially Owned
Owned Being After Offering
Prior to Offered ----------------
Name and Address Offering(1) Hereby Number Percent
- ------------------------------------- ------------ --------- -------- -------
<S> <C> <C> <C> <C>
Preferred Hardware Distributors, Inc. -- 128,225 (1) -- --
4775 River Green Parkway
Duluth, GA 30096
Attention: Walter Huang, President
JFIC Inc. ............................ -- 180,000 (2) -- --
111 N. Hudson Avenue
Industry, CA 91744
Attention: Howard Chan, President
Multiventure Technologies, Inc. ...... -- 288,000 (3) -- --
20370 Town Center Lane, Suite 150
Cupertino, CA 95014
Attention: James Mah, CEO
Jason Chan(5) ........................ 34,134 36,000 (4) 34,134 *
15961 Viewfield Road
Monte Sereno, CA 95030
</TABLE>
-------------
* Less than one percent (1%).
(1) Includes 103,225 shares of common stock issued on February 9, 1999
upon conversion of 500 shares of series c preferred stock, and 25,000
shares of common stock issuable upon exercise of a warrant.
(2) Includes the number of shares of common stock (i) issued upon
conversion of shares of series c preferred stock, the conversion of
which may not occur if, over the five-day trading period ending on the
day prior to conversion, the average closing sale trading market price
of our common stock is less than $4.00 per share; (ii) issuable upon
exercise of a warrant to purchase 25,000 shares of common stock; and
(iii) up to 30,000 shares of common stock issuable on the date of
conversion of series c preferred stock in the form of a dividend
payable in common stock at the rate of 8% of the original issue price
of the series c preferred stock, which interest rate accrues daily on
the basis of a 360-day year commencing with the original date of
issuance; however, if funds are legally available, we have the option
to pay the accrued dividends in cash rather than shares of common
stock.
(3) Includes the number of shares of common stock (i) issued upon
conversion of shares of series c preferred stock, the conversion of
which may not occur if, over the five-day trading period ending on the
day prior to conversion, the average closing sale trading market price
of our common stock is less than $4.00 per share; (ii) issuable upon
exercise of a warrant to purchase 40,000 shares of common stock; and
(iii) up to 48,000 shares of common stock issuable on the date of
conversion of series c preferred stock in the form of a dividend
payable in common stock at the rate of 8% of the original issue price
of the series c preferred stock, which interest rate accrues daily on
the basis of a 360-day year commencing with the original date of
issuance; however, if funds are legally available, we have the option
to pay the accrued dividends in cash rather than shares of common
stock.
(4) Includes the number of shares of common stock (i) issued upon
conversion of shares of series c preferred stock, the conversion of
which may not occur if, over the five-day trading period ending on the
day prior to conversion, the average closing sale trading market price
of our common stock is less than $4.00 per share; (ii) issuable upon
exercise of a warrant to purchase 5,000 shares of common stock; and
(iii) up to 6,000 shares of common stock issuable on the date of
conversion of series c preferred stock in the form of a dividend
payable in common stock at the rate of 8% of the original issue price
of the series c preferred stock, which interest rate accrues daily on
the basis of a 360-day year commencing with the original date of
issuance; however, if funds are legally available we have the option
to pay the accrued dividends in cash rather than shares of common
stock.
(5) Jason Chan is an employee of Sigma Designs and currently holds the
position of Director, Operations.
PLAN OF DISTRIBUTION
The selling shareholders may, from time to time, sell all or a
portion of the shares as follows:
o on The Nasdaq Stock Market, in privately negotiated transactions
or otherwise;
o at fixed prices that may be changed;
o at market prices prevailing at the time of sale;
o at prices related to the market prices; or
o at negotiated prices.
The shares may be sold by the selling shareholders by one or more of
the following methods, or others:
o block trades in which the broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by the
broker or dealer for its account pursuant to this prospectus;
o on a stock exchange in accordance with the rules of the
particular exchange;
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
o privately negotiated transactions; and
o a combination of any of these methods of sale.
In effecting sales, brokers and dealers engaged by any selling
shareholder may arrange for other brokers or dealers to participate.
Brokers or dealers may receive commissions or discounts from the selling
shareholder, or, if any broker-dealer acts as agent for the purchaser of
the shares, from the purchaser, in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.
Broker-dealers may agree with a selling shareholder to sell a specified
number of the shares at a stipulated price per share, and, to the extent
the broker-dealer is unable to do so acting as agent for the selling
shareholder, to purchase as principal any unsold shares at the price
required to fulfill the broker-dealer commitment to the selling
shareholder. Broker-dealers who acquire shares as principal may
subsequently resell the shares from time to time in the following
transactions:
o transactions, which may involve block transactions and sales to
and through other broker-dealers, in the over-the-counter market
or otherwise at prices and on terms then prevailing at the time
of sale;
o in negotiated transactions; or
o at prices related to the then-current market price.
In connection with these resales, the broker-dealer may pay to or
receive from the purchasers of the shares commissions as described above.
Each selling shareholder may also sell the shares in accordance with
Rule 144 under the Securities Act, rather than pursuant to this
prospectus.
Each selling shareholder and any broker-dealers or agents that
participate with any of the selling shareholders in sales of the shares
may be deemed to be "underwriters" within the meaning of the Securities
Act in connection with any sales. In the event of a sale, any commissions
received by the broker-dealers or agents and any profit on the resale of
the shares purchased by them may be deemed to be underwriting commissions
or discounts under the Securities Act.
From time to time a selling shareholder may pledge its shares
pursuant to the margin provisions of its customer agreements with its
brokers. Upon a default by a selling shareholder, the broker may offer
and sell the pledged shares from time to time.
We are required to pay all fees and expenses incident to the
registration of the shares. We have agreed to indemnify the selling
shareholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters relating to validity of the shares of common
stock offered pursuant to this prospectus will be passed upon for Sigma
Designs 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 Sigma
Designs' Annual Report on Form 10-K for the fiscal year ended January 31,
1999 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and
have been so incorporated in reliance upon the report of the firm given
upon their authority as experts in accounting and auditing.
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TABLE OF CONTENTS 632,225 Shares
Page SIGMA DESIGNS, INC.
Where you can Find More Information
About Sigma Designs 2 Common Stock
Risk Factors 3
Sigma Designs 11 PROSPECTUS
Use of Proceeds 18
Selling Shareholders 19 June 28, 1999
Plan of Distribution 21
Legal Matters 23
Experts 23
You should rely on the
information contained in this
prospectus. We have not authorized
anyone to provide you with
information different from that
contained in this prospectus. We
are offering to sell and seeking
offers to buy, shares of common
stock only in jurisdictions where
offers and sales are permitted.
The information contained in this
prospectus is accurate only as of
the date of this prospectus,
regardless of the time of delivery
of this prospectus or of any sale
of the common stock.
In this prospectus, the
"company," "Sigma," "we," "us," and
"our" refer to Sigma Designs, Inc.
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