<PAGE>
As filed with the Securities and Exchange Commission on July 28, 1997
Securities Act File No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
DIGITAL VIDEO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0333728
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2710 Walsh Avenue
Santa Clara, California 95051
(408) 748-2100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Thomas R. Parkinson, President
Digital Video Systems, Inc.
2710 Walsh Avenue
Santa Clara, California 95051
(408) 748-2100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With a copy to:
Sanford J. Hillsberg, Esq.
Troy & Gould Professional Corporation
1801 Century Park East, Suite 1600
Los Angeles, California 90067
(310) 553-4441
Approximate date of commencement of proposed sale to public:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
========================================================================================================================
<CAPTION>
Proposed Maximum Proposed
Amount to Be Offering Price Per Maximum Amount of
Title of each class of securities to be Registered Share (1) Aggregate Registration Fee
registered Offering Price(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.0001 par value)........... 491,253 shares $3.125 $1,535,166 $465
=======================================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(c), solely for the purpose of calculating
the registration fee, based on the average of the high and low sale prices
per share of Common Stock, as reported on the Nasdaq National Market, on
July 24, 1997.
____________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this Registration Statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated July 28, 1997
PROSPECTUS
DIGITAL VIDEO SYSTEMS, INC.
491,253 SHARES OF COMMON STOCK
This Prospectus relates to the offer by the securityholders named herein
("Selling Securityholders") for sale from time to time of 491,253 shares of
Common Stock, $.0001 par value (the "Common Stock") of Digital Video Systems,
Inc. (the "Company"). The Company will not receive any proceeds from the sale of
the Common Stock offered hereby.
Pursuant to that certain Agreement and Plan of Merger dated as of October
17, 1996 by and among the Company, Digital Video Acquisition Co., ViComp
Technology, Inc. ("ViComp"), and the shareholders of ViComp listed on Exhibit A
thereto, the Company acquired ViComp (the "ViComp Acquisition") for a
combination of cash and the Company's common stock. The sale of the shares
covered by this Prospectus by the Selling Securityholders has been registered
under the Securities Act of 1933, as amended (the "Securities Act") pursuant to
registration rights granted in connection with the issuance of these shares to
the Selling Securityholders in the ViComp Acquisition.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"DVID." The closing price of the Common Stock reported on the Nasdaq National
Market on July 24, 1997 was $3.125 per share.
The Selling Securityholders have advised the Company that they may sell,
directly or through brokers, all or a portion of the securities offered hereby
in negotiated transactions or in one or more transactions in the market at the
price prevailing at the time of sale. In connection with such sales, the Selling
Securityholders and any participating broker may be deemed to be "underwriters"
of the Common Stock within the meaning of the Securities Act. It is anticipated
that usual and customary brokerage fees will be paid by the Selling
Securityholders in all open market transactions. The Company will pay all other
expenses of this offering. See "Plan of Distribution."
__________________________
THE SECURITIES OFFERED HEREBY INVOLVE
A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON
PAGES 4 THROUGH 11 OF THE PROSPECTUS.
__________________________
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.
The date of this Prospectus is ___________, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy or information statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the following regional
offices: Seven World Trade Center, New York, New York 10048, and Citicorp
Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, the Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's Web site is http://www.sec.gov. The Common Stock of the
Company is quoted on the Nasdaq National Market. Reports, proxy statements and
other information concerning the Company may be inspected at the offices of the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
Additional information regarding the Company and the securities offered
hereby is contained in the Registration Statement of which this Prospectus is a
part, and the exhibits thereto, filed with the Commission under the Securities
Act. For further information pertaining to the Company and the securities
offered hereby, reference is made to the Registration Statement and the exhibits
thereto, which may be inspected without charge at, and copies thereof may be
obtained at prescribed rates from, the office of the Commission at Judiciary
Plaza, 450 Fifth Street, Washington, D.C. 20549. Statements contained herein
concerning the provisions of any document are not necessarily complete and in
each instance reference is made to the copy of the document filed as an exhibit
or schedule to the Registration Statement. Each such statement is qualified in
its entirety by reference to the copy of the applicable documents filed with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission under the
Exchange Act are incorporated in this Prospectus by reference: (a) the Company's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997 (the "1997
10-KSB"); (b) the Company's current reports on Form 8-K filed on June 11, 1996,
August 12, 1996, October 31, 1996, November 25, 1996 (as amended by a Form 8-K/A
filed on November 26, 1996) and January 7, 1996; (c) all other reports filed
with the Commission pursuant to Section 13 and 15(d) of the Exchange Act since
March 31, 1997; and (d) the description of the Common Stock set forth in the
Company's Registration Statement on Form 8-A (File No. 000-28472) filed with the
Commission pursuant to Section 12(g) of the Exchange Act on April 26, 1996,
including any amendment or report subsequently filed by the Company for the
purpose of updating that description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the securities offered hereby shall be deemed
to be incorporated by reference into this Prospectus and to be a part of this
Prospectus from the date of filing of such documents. Any statement contained in
a document incorporated by reference 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 such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated by reference (other than
exhibits to such documents that are not themselves specifically incorporated by
reference in such documents). Written requests for such copies should be
directed to Seth Halio, Controller, Digital Video Systems, Inc., 2710 Walsh
Avenue, Santa Clara, California 95051. Telephone requests may be directed to
Seth Halio at (408) 748-2100.
2.
<PAGE>
Safe Harbor Statement under the Private Securities Litigation Reform Act
------------------------------------------------------------------------
of 1995.
-------
In addition to historical information, this Prospectus contains forward-
looking statements. The forward-looking statements contained herein are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Factors that
might cause such a difference include, but are not limited, those discussed
below under "Risk Factors" and in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in the
1997 10-KSB incorporated herein by reference, as well as other factors that are
described in other documents the Company files from time to time with the
Securities and Exchange Commission. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof.
THE COMPANY
The Company was founded in 1992 to develop, manufacture, and market digital
video compression and decompression hardware and software for entertainment,
business and education uses. The Company offers Video CD players, sub-assemblies
and components for the consumer market, and interactive video engines and video-
on-demand systems for the hospitality, entertainment, education and kiosk
markets, and to a lesser extent, digital MPEG compression systems and sub-
assemblies. The Company also is developing DVD products for home entertainment
and computer markets.
During the fiscal year ended March 31, 1997 ("fiscal 1997"), the Company
completed its initial public offering (the "IPO") and a follow-on public
offering, which generated aggregate net proceeds of approximately $43.7 million.
These proceeds were used principally to repay $7 million of bridge notes and to
fund the growth in the Company's operations and losses generated to date by
those operations. It is anticipated that the remaining proceeds will be used to
further expand the Company's operations, including its product development
efforts, and may also be used to acquire complementary businesses or
technologies or to enter into strategic alliances. Although the Company
currently is pursuing such transactions, except as described below under "Recent
Developments", it currently does not have any other agreements or commitments
with respect to any proposed material acquisitions, joint ventures or other
strategic alliances, and no assurances can be given that any such transactions
will be consummated in the future.
In October 1996, the Company acquired ViComp, a development stage company
that designs integrated circuits for use in Video CD players and sub-assemblies.
Pursuant to the acquisition, the Company issued 491,253 shares of its Common
Stock for all the outstanding ViComp capital stock and granted options to
certain ViComp shareholders exercisable for 189,557 shares of the Company's
Common Stock. The transaction has been accounted for as a purchase and,
accordingly, the initial purchase price and acquisition costs have been
allocated to identifiable assets and liabilities, including in-process research
and development of $1.8 million that was immediately expensed. The shares
offered hereby were issued by the Company to the Selling Securityholders in
connection with the acquisition by the Company of ViComp on October 17, 1996.
The principal executive offices of the Company are located at 2710 Walsh
Avenue, Santa Clara, California 95051. The Company's telephone number is (408)
748-2100.
3.
<PAGE>
RISK FACTORS
The securities offered hereby are highly speculative in nature and involve
a high degree of risk. Prospective investors should carefully consider, along
with the other information contained in this Prospectus, the following
considerations and risks in evaluating an investment in the Company.
HISTORY OF LOSSES AND ACCUMULATED DEFICIT; EXPECTATION OF FUTURE LOSSES. To
date, the Company has incurred significant losses. At March 31, 1997 the Company
had an accumulated deficit of approximately $20,297,000. The Company incurred
operating losses of approximately $3,154,000 and $12,206,000 for the fiscal
years ended December 31, 1995 and March 31, 1997, respectively. Such losses
resulted principally from limited revenues from operations, price competition
for the Company's products, including pricing strategies implemented in order to
penetrate certain markets and significant costs associated with the development
of the Company's technologies. The Company incurred losses in the fiscal quarter
ended June 30, 1997 and expects to incur losses in the future until such time,
if ever, as there is a substantial increase in product sales. There can be no
assurance that sales of the Company's products will ever generate significant
revenue, or that the Company will generate positive cash flow from its
operations or attain or thereafter sustain profitability in any future period.
UNCERTAINTY OF MARKET ACCEPTANCE OF VIDEO CDS; LACK OF ESTABLISHED MARKET
FOR PRODUCTS. The Company's business is dependent on market acceptance of its
digital video technology and the successful commercialization of products
utilizing this technology. To date, demand for the Company's Video C D products
has been principally in China and Taiwan, and there can be no assurance that
demand in these countries will increase or that acceptance of Video CD products
in any other countries, specifically the United States, will ever materialize.
The Company's ability to successfully market its Video CD products and network
video products will depend in part on the willingness of potential customers to
incur the costs involved in purchasing Video CD players, which in turn will
depend on the Company and others convincing potential customers of the benefits
of digital video. The consumer market for Video CD players in the United States
and other developed countries is generally not significant. The Company believes
that this has been due in substantial part to the fact that few motion picture
titles are available in a Video CD format in the United States and other
developed countries and, consequently, few consumers in these markets have an
incentive to purchase a Video CD player. Moreover, the recent introduction of
DVD players in the United States and other developed countries is likely to
create consumer digital video product demand in these markets for DVD players
rather than Video CD players.
Because a large market for consumer entertainment uses of the Video CD
players does not exist in the United States and certain other developed
countries, the Company has focused on commercial applications for Video CD in
these markets. These commercial applications include a family of products
("Video Engines") which provide solutions for information displays and
interactive kiosks. These Video Engines are similar to consumer Video CD
players, but are adapted for commercial applications. There can be no assurance
that significant sales of Video Engine products will ever materialize. Failure
of the Company's products in general (and the Video CD player or player
components in particular) to attain significant market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISK OF PLANNED RAPID GROWTH. The Company plans to significantly expand its
operations, which could place a significant strain on its limited personnel,
financial and other resources. The Company's ability to manage this expansion
will require significant expansion of its product development and marketing and
sales capabilities and personnel. The Company is in the process of expanding its
sales and marketing. There can be no assurance that the Company will be able to
find qualified personnel to fill such sales and marketing positions or be able
to successfully manage a broader sales and marketing organization. In addition,
the contemplated sale and distribution of products to numerous licensees and
subcontractors who will manufacture products incorporating the Company's
products in diverse markets and the requirements of such manufacturers for
design support will also place substantial demands on the Company's product
development, quality control and sales functions. The failure of the Company's
management to effectively expand or manage these functions consistent with any
growth which may occur could have a materially adverse effect on the Company's
business, financial condition and results of operations.
RISKS ASSOCIATED WITH ACQUISITIONS AND JOINT VENTURES. An element of the
Company's strategy is to pursue acquisitions and joint ventures that would
complement its existing range of products, augment its market coverage or
enhance its technological capabilities or that may otherwise offer growth
opportunities. Such future acquisitions
4.
<PAGE>
or joint ventures by the Company could result in potentially dilutive issuances
of equity securities, the incurrence of debt and contingent liabilities, and the
amortization of expenses related to goodwill and other intangible assets, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Acquisitions and joint ventures entail
numerous risks, including difficulties in the assimilation of acquired
operations, technologies and products, diversion of management's attention to
other business concerns, risks of entering markets in which the Company has no,
or limited, prior experience, the potential loss of key employees of acquired
organizations or joint ventures and the need to share managerial control of
joint ventures with one or more joint venture partners. No assurance can be
given as to the ability of the Company to successfully integrate any acquired
business (including the DV Business), product, technology or personnel with the
operations of the Company, and the failure of the Company to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON LIMITED NUMBERS OF SUPPLIERS. The Company's products
incorporate computer chips produced by C-Cube Microsystems Inc. ("C-Cube"). The
Company has no contractual right to obtain any specified number of chips from C-
Cube. Although C-Cube substantially increased its capacity to supply chips in
April 1996, there can be no assurance that the Company's allocation will
increase sufficiently to meet the Company's future needs. Should the Company's
ability to obtain the requisite number of C-Cube chips be limited for any
lengthy period of time or further impaired or if the cost of the C-Cube chips
increases or if the C-Cube chip is only available to the Company at prices
substantially higher than those paid by the Company's competitors for these
chips or other functionally equivalent chips, the Company's ability to supply
products to its customers on a competitive basis or at all could be materially
and adversely affected. In addition, increases in the supply of chips may allow
the Company's existing competitors to produce more competing products or
encourage new competitors to produce Video CD products and may allow the
Company's competitors to produce products at lower costs that those incurred by
the Company.
From time to time several of the Company's customers for its Video CD sub-
assembly products have experienced difficulties in obtaining certain Video CD
components from vendors. To the extent a significant customer of the Company
cannot obtain sufficient quantities of components from vendors, such shortages
could have a material adverse effect on the Company's business, financial
condition and results of operations.
RISKS OF VICOMP ACQUISITION. In October 1996, the Company acquired all of
the outstanding capital stock of ViComp ("ViComp Acquisition") in exchange for
491,253 shares of the Company's common stock (the "Acquisition Shares"). ViComp
is engaged in the design and development of integrated circuits to decode MPEG-1
signals. The Company anticipates that the ViComp MPEG-1 Chip (the "ViComp MPEG-1
Chip") under development by ViComp, which the Company plans to incorporate into
certain of its products and which the Company may market to other manufacturers,
will be available for production in commercial quantities prior to the end of
calendar year 1997. Although ViComp has completed a substantial portion of the
design and development work for the ViComp MPEG-1 Chip, there can be no
assurance that it will be able to successfully complete development of this
product. ViComp may experience significant delays due to, among other things,
unexpected design problems, loss of key ViComp personnel or other factors in
completing development of this chip. Further, if the costs to commercially
produce the ViComp MPEG-1 Chip are higher than currently anticipated or if third
parties develop MPEG-1 decoder chips that can be commercially produced at costs
lower than the ViComp MPEG-1 Chip, the ViComp MPEG-1 Chip could be of limited or
no value to the Company. ViComp has also conducted preliminary analysis in
connection with potential new products, however, there can be no assurance that
any additional products will be successfully developed by ViComp or that such
products will be commercially viable. In order to produce any chips developed by
ViComp, the Company will need to obtain sufficient foundry capacity and there
can be no assurance that prior shortages of foundry capacity in the integrated
circuit industry will not recur in the future. In addition, an increase in
production by C-Cube or other chip makers could increase the Company's cost and
difficulty of obtaining foundry capacity. These events could also have an
adverse impact on the commercial viability of the Company's ViComp MPEG-1 Chip.
It is the Company's intention ultimately to utilize the ViComp MPEG-1 Chip
in certain of its products. However, there can be no assurance that development
of this chip by ViComp will be successfully completed on a timely basis, if at
all. The Company's inability to obtain a sufficient quantity of chips from one
or more sources at a competitive cost would have a material adverse effect on
the Company's business, financial condition and results of operations.
5.
<PAGE>
ViComp was founded in August 1995 by Dr. Edmund Y. Sun, the Chairman of the
Board and Chief Executive Officer of the Company, and James Kirkpatrick, Jr.,
who had previously been employed by C-Cube as its Vice President of Engineering
and by Hyundai as a Vice President and the General Manager of its Digital
Medical Division. Mr. Kirkpatrick served as ViComp's Chief Executive Officer
prior to the ViComp Acquisition and is currently serving in a full-time capacity
as ViComp's Chief Technical Officer. The success of ViComp's design and
development work will be heavily dependent upon the efforts of Mr. Kirkpatrick.
Although Mr. Kirkpatrick is currently employed by ViComp, the Company does not
have an employment contract with Mr. Kirkpatrick, and the loss of his services
could have a material adverse effect on the Company's business, financial
condition and results of operations. Although certain of the ViComp engineers
employed by the Company subsequent to the ViComp Acquisition have left, the
Company is actively seeking replacements for such engineers and believes that it
can replace them with new engineers or a combination of engineers currently
employed by the Company and new engineers. However, there can be no assurance
that the Company will be able to retain the services of such engineers. In
addition, the departure of ViComp engineers may result in a slower rate of
product development than might otherwise have occurred. The Company's failure to
attract qualified replacements for the departed ViComp engineers could have a
material adverse effect on the Company's business, financial condition and
results of operations. Mr. Kirkpatrick is one of the Selling Securityholders in
this offering. Dr. Sun received 281,520 of the Acquisition Shares in exchange
for his shares of ViComp capital stock, all of which shares have been deposited
in escrow (the "Sun Escrow Acquisition Shares"). A total of 140,760 of the Sun
Escrow Acquisition Shares deposited into an escrow pursuant to the terms of the
ViComp Acquisition will be cancelled in the event that ViComp fails to meet
certain performance conditions. The other 140,760 of the Sun Escrow Acquisition
Shares have been deposited in escrow in connection with the Company's follow-on
public offering completed in November 1996, and will be subject to cancellation
upon the same terms and conditions as the arrangement with respect to the escrow
securities deposited into escrow by certain holders of the Company's securities
in connection with the Company's IPO.
The Company will incur a substantial non-cash charge to earnings at such
time, if ever, that the conditions for the release of any or all of Dr. Sun's
Escrow Acquisition Shares from escrow are satisfied, which would increase the
Company's loss or reduce or eliminate the Company's net income, if any, for
financial reporting purposes for the period or periods during which such
securities are, or become possible of being, released from escrow (except that,
with respect to the release of any of Dr. Sun's Escrow Acquisition Shares
escrowed in connection with the ViComp Acquisition, the Company may capitalize a
portion of this amount and amortize it over future periods).
RISKS OF INTERNATIONAL OPERATIONS. Sales outside the United States have
accounted for a significant portion of the Company's revenues to date (with
sales to China and Taiwan accounting for substantially all of the Company's
product revenues in fiscal 1997), and the Company believes that foreign sales
will continue to account for a significant portion of its future revenues.
Moreover, the Company has been manufacturing Video CD players and Video Engine
products at its Taiwan facility and has been utilizing subcontractors in China
to produce Video CD sub-assemblies. The Company intends to shift assembly of
Video CD and Video Engine products to China to reduce manufacturing costs.
However, there can be no assurance that the Company will be effective in
establishing the necessary arrangements for production of these products in
China. In addition, the Company may establish manufacturing operations in other
countries to meet local demand for its products in those markets when, if ever,
such demand develops.
The Company will be subject to all of the risks inherent in international
operations in connection with its foreign operations, including work stoppages,
transportation delays and interruptions, political instability in, or conflict
between, countries in which the Company is doing business, such as Taiwan and
China, foreign currency fluctuations, economic disruptions, expropriation, the
imposition of tariffs and import and export controls, the payment of significant
customs duties to deliver products into markets such as China where the
smuggling of competing products into such markets without the payment of duties
may be widespread, changes in governmental policies (including United States
trade policy toward certain countries such as China and Japan) and other factors
which could have a material adverse effect on the Company's business, financial
condition and results of operations. In particular, the Company's markets may be
adversely affected by the political environment in China. The Company will also
be subject to the burdens of complying with a wide variety of foreign laws and
regulations. These international trade factors may, under certain circumstances,
materially and adversely impact demand for the Company's products or the
Company's ability to deliver its products in a timely manner, which in turn may
have an adverse impact on the Company's relationships with its customers. In
order to manufacture or market its products in foreign countries such as China,
the Company may be required or deem it advisable to conduct these operations
through joint ventures with local partners, which could expose the Company to
various risks, including potentially reduced profitability of these operations
for the Company and the need to share management control with such local
partners. The Company's success will depend in part upon its ability to manage
international marketing and sales operations and manufacturing relationships,
which are generally more complex than domestic marketing and sales operations or
manufacturing relationships.
6.
<PAGE>
Should the Company substantially increase its product sales in China or
other countries, the Company anticipates that it will be required to
significantly increase the amount of credit it extends to purchasers in these
markets. The Company has had only limited experience in extending credit to
foreign customers and will encounter increased risks in extending credit to new
customers in these markets, including the creditworthiness of such customers and
the difficulty of collecting accounts receivable in these countries. While the
Company sells certain of its products in international markets and buys limited
quantities of certain items incorporated into its products in currencies other
than the U.S. dollar, the Company does not currently hedge its exposure to
foreign currency fluctuations. As a result, currency fluctuations could have a
material adverse effect on the Company's business and results of operations.
With respect to international sales that are denominated in U.S. dollars, an
increase in the value of the U.S. dollar relative to foreign currencies could
increase the effective price of, and reduce demand for, the Company's products
relative to competitive products priced in the local currency.
EFFECT OF TRADE DISPUTES. The United States has had disputes with China
relating to trade and human rights issues and has considered trade sanctions
against China and Japan. If trade sanctions were imposed, China or Japan could
enact trade sanctions in response. Because a number of the Company's current and
prospective customers and suppliers of items incorporated into its products are
located in China, Taiwan or Japan, trade sanctions, if imposed, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Similarly, protectionist trade legislation in either the
United States or foreign countries, such as China and Taiwan, could affect the
Company's ability to import and export products and have a material adverse
effect on the Company's ability to manufacture or to sell its products in
foreign markets. In addition, recent efforts by China to limit certain ongoing
practices, such as the pirating of Video CD titles, may increase the cost of
such titles and result in a substantial decrease in demand in that country for
the Company's Video CD products, including the Video CD player.
RAPID TECHNOLOGICAL CHANGE AND OBSOLESCENCE; RISKS ASSOCIATED WITH PRODUCT
DEVELOPMENT INTRODUCTIONS AND ANNOUNCEMENTS. The markets for the Company's
products are characterized by evolving industry standards, rapid technological
advances resulting in short product life cycles, price reductions, significant
price/performance improvements and frequent new product introductions. The
Company's future success will depend at least in part upon its ability to
enhance its existing products and to develop and introduce new products and
features that meet changing customer requirements and emerging industry
standards on a timely basis. There can be no assurance that one or more of the
Company's products will not be rendered noncompetitive or obsolete by
technological advances or changing customer preferences. In addition, from time
to time, the Company or others may announce products, features or technologies
that have the potential to shorten the life cycle of or replace the Company's
then existing products, including the Company's products that only use the MPEG-
1 format. Such announcements could cause customers to defer the decision to buy
or determine not to buy the Company's products or cause the Company's
distributors to seek to return products to the Company, any of which could cause
the Company to write down some or all of its inventory. Any such writedown could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company has from time to time experienced delays in introducing new
products and product enhancements, and there can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of new products or product
enhancements in the future. The Company will be required to continue to invest
in research and development to attempt to maintain and enhance its existing
technologies, and there can be no assurance that it will have the funds
available at such time as it will be necessary to do so. Furthermore, products
such as those offered by the Company may contain defects when they are first
introduced or as new or enhanced versions are released. The Company has in the
past discovered defects in certain of its new products, such as the karaoke
jukebox, and in certain of its product enhancements. These defects have required
correction by the Company, thereby resulting in delays in the marketing of such
products or product enhancements. There can be no assurance that, despite
significant quality control testing by the Company, defects will not be found in
new products and product enhancements after commencement of commercial
shipments, resulting in delays in or loss of market acceptance.
UNCERTAINTY OF MARKET ACCEPTANCE OF DVDS; LACK OF ESTABLISHED MARKET FOR
PRODUCTS. In March 1997, the next-generation CD product, known as DVD, began
selling in the Unites States in its home-video format. A product for computer
applications, known as the DVD-ROM has recently entered the market as well. The
Company believes a number of factors should contribute to the long-term success
of the DVD player. These factors include:
7.
<PAGE>
the movie industry's endorsement; the computer industry's demand; a unified
product standard; and the general movement towards digital technology.
While the Company's research and development activities have included
products incorporating MPEG-2 standards, substantially all of the Company's
current products are in the MPEG-1 format. The Company recently has begun the
development of DVD products for the home entertainment, business and computer
markets. It is anticipated that these products, if and when successfully
developed, will be marketed to original equipment manufacturers on a proprietary
basis and will be available in both consumer and commercial products. The
Company may have less experience with the new DVD format than other companies
and could be slower than its competitors in developing products for this or any
other new format. Accordingly, there can be no assurance that the Company will
be able to compete effectively in the market for video products using the new
format or any different format.
Moreover, there can be no assurances that the DVD market will become a
significant one. Further, the competition for DVD consumer players and computer
devices is expected to be intense. Among the factors which may limit widespread
adoption of the current DVD player are the inability of current models to
record, the limited number of software titles currently available, the relative
high current retail price, and remaining unresolved technical issues, including
certain issues with respect to copyright protection. Potential customers for the
Company's products utilizing the DVD format may be deterred from purchasing such
products due to the possibility that such products may become obsolete (as was
the case with beta video cassettes). Should this occur, demand for the Company's
products could be adversely affected.
DEPENDENCE ON KEY PERSONNEL AND NEED FOR ADDITIONAL MANAGEMENT PERSONNEL.
The Company's success to date has depended in large part on the skills and
efforts of Dr. Edmund Y. Sun, the Company's Chairman, Chief Executive Officer
and founder and, to a lesser extent, Thomas R. Parkinson, the Company's
President, James A. Munro, the Company's Director of Engineering, Ed Martini,
the Company's Project Manager for Network Video and Robert B. Pfannkuch, the
Company's former President. Mr. Pfannkuch ended his service as President in
April 1997 upon the hiring of Mr. Parkinson but continues to serve on the
Company's board of directors. The Company's success also depends to a
significant extent on the performance and continued service of certain other key
employees. The Company is seeking other personnel to complete its management
team in connection with the Company's proposed expansion of its operations.
Competition for highly-skilled business, product development, technical and
other personnel is intense, and there can be no assurance that the Company will
be successful in recruiting new personnel or in retaining any of its existing
personnel. The Company may experience increased costs in order to retain and
attract skilled employees. In addition, other than employment agreements with
Dr. Sun and Mr. Parkinson, the Company does not have employment contracts with
any of its employees. The Company's failure to attract additional qualified
employees or to retain the services of key personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations.
COMPETITION. The Company's products compete with products marketed by other
manufacturers of Video CD players, subassemblies and components as well as with
alternative methods of displaying audio and video such as video cassette
players, laser discs, multimedia computers and game machines, as well as with
other companies' products that use similar technologies. The large video
entertainment markets of the United States and other industrial nations are
currently served primarily by VHS video cassettes and laser discs, and there can
be no assurance that Video CDs and newer DVD formats will be able to effectively
compete for these markets in the future. Should a significant market for DVD
develop, many of the major electronics manufacturers are expected to compete for
this market. Most of the Company's competitors and potential competitors are
substantially larger in size and have far greater financial, technical,
marketing, customer service and other resources than the Company. Certain of the
Company's potential competitors may have technological capabilities or other
resources that would allow them to develop alternative products which could
compete with the Company's products.
Potential competitors may begin operations or expand their existing
operations into the Company's proposed markets before the Company is able to
successfully market its products. The Company's ability to effectively compete
may be adversely affected by the ability of these competitors to offer their
products at lower prices than the price of the Company's products and to devote
greater resources to the sales and marketing of their products than are
available to the Company. Competition in the Video CD market generally occurs on
the basis of price and features. There can be no assurance that the Company can
offer its customers products that are as competitively
8.
<PAGE>
priced or as feature rich as its larger competitors. Moreover, manufacturers of
Video CD player sub-assemblies and components have substantially reduced the
selling prices of these items and further reductions in those prices can be
expected, which will require the Company to reduce its production costs in order
to remain competitive in the Video CD player, sub-assembly and component
markets. Although the Company has been reducing its costs of production for
these products, there can be no assurance that it will be able to remain
competitive or that its operations will not be materially adversely affected
should competitors substantially reduce their prices in the future. Several
companies have announced their intention to introduce MPEG-1 decoder chips into
the Video CD market, including Sony and Toshiba. Any increases in the supply of
chips may allow the Company's existing competitors to produce more competing
products or encourage new competitors to produce Video CD products. There can be
no assurance that future technological advances will not result in improved
products or services that could adversely affect the Company's business.
Competition in the electronics industry also extends to attracting and retaining
qualified technical and marketing personnel, and there can be no assurance that
the Company will be successful in attracting and retaining such qualified
personnel.
DEPENDENCE ON NONAFFILIATED AND FOREIGN MANUFACTURERS. The Company
primarily relies on subcon tractors and licensees (most of whom have been or are
expected to be located in China or Taiwan) to manufacture its products or
products incorporating the Company's products. None of these manufacturers are
contractually obligated to meet the long-term production requirements of the
Company. There can be no assurance that the Company will be successful in
entering into any such future manufacturing arrangements with third parties on
terms acceptable to the Company, or at all. The Company's arrangements with
manufacturers in China or elsewhere may not prevent these manufacturers from
entering into similar arrangements with competitors of the Company or competing
directly with the Company. The Company's reliance on third parties for
manufacturing components of its products reduces the Company's control over the
manufacture of its products and makes the Company sub stantially dependent upon
such third parties to deliver its products in a timely manner, with satisfactory
quality controls and on a competitive basis. On several occasions, the Company
has had a number of its products manu factured in Taiwan returned to it by
customers due to quality control problems. There can be no assurance that the
Company will not experience quality control problems or require product recalls
in the future in its foreign manu facturing operations that could have a
material adverse effect on the Company's business, financial condition and
results of operations. Further, foreign manufacturing is subject to a number of
risks inherent in foreign operations, including risks associated with the
availability of and time required for the transportation of products from such
foreign countries and increased risks of theft by personnel of source codes and
other proprietary product information in countries where intellectual property
is not well protected by law. To the extent the Company ultimately determines to
undertake commercial scale manufacturing, if ever, it will require substantial
additional personnel and financial resources.
LIMITED SALES AND MARKETING EXPERIENCE. The Company's operating results
will depend to a large extent on its ability to successfully sell and market its
Video CD products and network video products (and DVD products when it develops
them). The Company currently has limited marketing capabilities and needs to
hire additional sales and marketing personnel. There can be no assurance that
the Company will be able to recruit, train or retain qualified personnel to
market and sell its products or that it will develop a successful sales and
marketing strategy. The Company also has very limited marketing experience.There
can be no assurance that any marketing efforts undertaken by the Company will be
successful or will result in any significant sales of its products.
RISKS OF LIMITED PROTECTION FOR COMPANY'S INTELLECTUAL PROPERTY AND
PROPRIETARY RIGHTS AND INFRINGEMENT OF THIRD PARTIES' RIGHTS. The Company
regards its products as proprietary and relies primarily on a combination of
trademark, copyright and trade secret laws and employee and third-party
nondisclosure agreements to protect its proprietary rights. The Company does not
possess any patent or other intellectual property rights which would limit
competition against it (including with respect to the ViComp MPEG-1 Chip), but
has applied for patent protection in the United States and certain other
countries covering certain of the technologies that relate to its network video
systems. There are few barriers to entry into the market for the Company's
products, and there can be no assurance that any patents applied for by the
Company will be granted for any of these technologies or that the scope of any
patent claims allowed will be sufficiently broad to protect against the use of
similar technologies by the Company's competitors. There can be no assurance,
therefore, that any of the Company's competitors, many of whom have far greater
resources than the Company, will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. Further, the
Company distributes its products in countries where intellectual property laws
are not well developed or are poorly enforced. Legal protections of the
Company's rights
9.
<PAGE>
may be ineffective in such countries, and software developed in such countries
may not be protectable in jurisdictions where protection is ordinarily
available. Software piracy and ineffective legal protection of the Company's
software in foreign jurisdictions may cause substantial losses of sales by the
Company, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
There can also be no assurance that third parties will not assert
infringement claims against the Company in the future with respect to current or
future products, including without limitation, the ViComp MPEG-1 Chip or any
other future products developed by ViComp. If infringement is alleged, the
Company could be required to discontinue the use of certain software codes or
processes, to cease the manufacture, use and sale of infringing products, to
incur significant litigation costs and expenses and to develop non-infringing
technology or to obtain licenses to the alleged infringing technology. There can
be no assurance that the Company would be able to develop alternative
technologies or to obtain such licenses or, if a license were obtainable, that
the terms would be commercially acceptable to the Company.
The Company may be involved from time to time in litigation to determine
the enforceability, scope and validity of any proprietary rights of the Company
or of third parties asserting infringement claims against the Company. Any such
litigation could result in substantial costs to the Company and diversion of
efforts by the Company's management and technical personnel.
CONTROL BY INSIDERS. The Company's directors and officers, together with
Hyundai (a principal shareholder of the Company), beneficially own shares of the
Company's capital stock representing in excess of 50% of the total voting power
of the Company. Accordingly, it is likely that they will continue to be able to
elect at least a majority of the Company's directors and thereby direct the
policies of the Company for the foreseeable future.
CHARGE TO INCOME IN THE EVENT OF RELEASE OF ESCROWED SECURITIES. In the
event that certain shares of Common Stock and certain options to purchase Common
Stock which were deposited into an escrow in connection with the IPO ("Escrow
Securities") owned by securityholders of the Company who are officers,
directors, consultants or employees of the Company, or 140,760 of the Escrow
Acquisition Shares owned by Dr. Edmund Y. Sun that have been escrowed in
connection with the Company's follow-on offering are released from escrow,
compensation expense will be recorded for financial reporting purposes.
Therefore, in the event the Company attains any of the earnings or stock price
thresholds required for the release of the Escrow Securities and the foregoing
Escrow Acquisition Shares owned by Dr. Sun, the release will be treated, for
financial reporting purposes, as expense of the Company. In the event that the
140,760 of the Escrow Acquisition Shares owned by Dr. Sun that have been
escrowed in connection with the ViComp Acquisition are released from escrow, the
Company will record additional purchase price for the ViComp Acquisition at the
time of such release, which will either be (i) expensed at that time or (ii)
capitalized and amortized over future periods. Accordingly, the Company will, in
the event of the release of the Escrow Securities or Dr. Sun's Escrow
Acquisition Shares escrowed in connection with the Company's follow-on offering,
recognize, during the period that the conditions for such release are met, a
substantial non-cash charge to earnings that would increase the Company's loss
or reduce or eliminate earnings, if any, at such time. In the event of the
release of Dr. Sun's Escrow Acquisition Shares escrowed in connection with the
ViComp Acquisition, the Company will either recognize such charge during the
period that the conditions for such release are met or recognize such charge
over future periods. The amount of those charges will be equal to the aggregate
market price of such Escrow Securities or Escrow Acquisition Shares at the time
of release from escrow. Although the amount of expense recognized by the Company
will not affect the Company's total shareholders' equity or cash flow, it may
have a depressive effect on the market price of the Company's securities.
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. The Company previously has
issued or granted warrants and stock options, some of which are currently
exercisable, for a substantial number of shares of the Company's common stock.
Holders of such options and warrants may exercise them at a time when the
Company would other wise be able to obtain additional equity capital on terms
more favorable to the Company. Moreover, while these options and warrants are
outstanding, the Company's ability to obtain financing on favorable terms may be
adversely affected. If the trading price of the Company's common stock at the
time of exercise of any such options or warrants exceeds the exercise price, as
the Company anticipates it will, such exercise will have a dilutive effect on
the Company's shareholders.
POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK; POTENTIAL
ANTI-TAKEOVER PROVISIONS. The Company's Amended and Restated Certificate of
Incorporation authorizes the issuance of a maximum of 5,000,000
10.
<PAGE>
shares of Preferred Stock on terms which may be fixed by the Company's Board of
Directors without further shareholder action. The terms of any series of
preferred stock, which may include priority claims to assets and dividends and
special voting rights, could adversely affect the rights of holders of the
Common Stock and thereby reduce the value of the Common Stock. The issuance of
preferred stock could make the possible takeover of the Company or the removal
of management of the Company more difficult, discourage hostile bids for control
of the Company in which shareholders may receive premiums for their shares of
Common Stock or otherwise dilute the rights of holders of Common Stock. In
addition, the agreement governing the Escrow Securities contains certain
procedures that may make a possible takeover of the Company more difficult.
POSSIBLE VOLATILITY OF PRICE OF SECURITIES. The Company believes factors
such as quarterly fluctuations in financial results and announcements of new
technology in the entertainment industry may cause the market price of the
Company's securities to fluctuate, perhaps substantially. These fluctuations, as
well as general economic conditions, such as recessions or high interest rates,
may adversely affect the market price of the securities.
NO DIVIDENDS. The Company has not paid any dividends on its Common Stock
since its inception. The Company has no current plans to pay dividends on its
Common Stock and intends to retain earnings, if any, for working capital
purposes.
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES UNDER DELAWARE LAW.
Pursuant to the Company's Amended and Restated Certificate of Incorporation, and
as authorized under applicable Delaware law, directors of the Company are not
liable for monetary damages for breach of fiduciary duty, except (i) in
connection with a breach of the duty of loyalty; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) for dividend payments or stock repurchases illegal under Delaware
law; or (iv) for any transaction in which a director has derived an improper
personal benefit.
POSSIBLE ADVERSE EFFECT ON LIQUIDITY OF THE COMPANY'S SECURITIES DUE TO
INVESTIGATION BY THE SECURITIES AND EXCHANGE COMMISSION OF D.H. BLAIR INVESTMENT
BANKING CORP. AND D.H. BLAIR & CO. The Commission is conducting an investigation
concerning various business activities of D.H. Blair Investment Banking Corp.,
the underwriter of the IPO and follow-on offering ("D.H. Blair"), and D.H. Blair
& Co., Inc., the parent of D.H. Blair ("Blair & Co."). The investigation appears
to be broad in scope, involving numerous aspects of D.H. Blair and Blair & Co.'s
compliance with the Federal securities laws and compliance with the Federal
securities laws by issuers whose securities were underwritten by D.H. Blair or
Blair & Co., or in which D.H. Blair or Blair & Co. made over-the counter
markets, persons associated with D.H. Blair or Blair & Co., such issuers and
other persons. The Company has been advised by D.H. Blair that the investigation
has been ongoing since at least 1989 and that it is cooperating with the
investigation. D.H. Blair cannot predict whether this investigation will ever
result in any type of formal enforcement action against D.H. Blair or Blair &
Co. or, if so, whether any such action might have an adverse effect on D.H.
Blair or the securities offered hereby. An unfavorable resolution of the
Commission's investigation could have the effect of limiting such firm's ability
to make a market in the Company's securities, which could adversely affect the
liquidity or price of such securities.
RECENT DEVELOPMENTS
On July 25, 1997, the Company entered into an agreement with Arris
Interactive L.L.C. ("Arris") to acquire substantially all of the assets of the
Digital Video division of Arris (the "DV Business") for a combination of cash,
600,000 shares of the Company's common stock, and additional cash consideration
to be based on the future revenues of the DV Business. The DV Business designs,
manufactures and distributes MPEG-2 decoding, switching, streaming and
multiplexing solutions that deliver advanced video systems like digital ad
insertion and near video on demand to subscribers. Consummation of the
transaction is subject to the parties satisfying customary conditions to
closing, including a satisfactory due diligence review of the DV Business by the
Company. There can be no assurance that the Company will be able to complete the
acquisition of the DV Business.
11.
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale by the
Selling Securityholders of any of the shares of Common Stock offered hereby. The
Company will pay all of the costs of this offering, excluding any brokerage fees
paid by the Selling Securityholders.
SELLING SECURITYHOLDERS
The following table lists the Selling Securityholders, the number of shares
of Common Stock beneficially owned by each such Selling Securityholder as of the
date of this Prospectus, the number of shares offered by them pursuant to this
Prospectus, and the number of shares of Common Stock beneficially owned by each
Selling Securityholder after the completion of this offering. The shares listed
under the caption "Number of Shares of Common Stock Being Offered" refers to the
shares of Common Stock owned by such Selling Securityholder that are included in
this Prospectus. All shares of Common Stock listed under the caption "Number of
Shares of Common Stock Being Offered" may be sold pursuant to this Prospectus.
The Company believes that the Selling Securityholders own no securities of the
Company other than as listed in the table.
<TABLE>
<CAPTION>
SHARES OF AFTER OFFERING(1)(2)
COMMON STOCK NUMBER OF --------------------------
BENEFICIALLY SHARES SHARES OF
OWNED AS OF OF COMMON COMMON STOCK
THE DATE OF STOCK BENEFICIALLY
PROSPECTUS(1) BEING OFFERED OWNED PERCENT
------------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
James W. Kirkpatrick, Jr.(3) 9,384 9,384 0 0
Kirkpatrick Family Trust 83,284 83,284 0 0
Fen-Yu Su 1,172 1,172 0 0
Dr. Michael R. Mruzik(4) 24,398 24,398 0 0
Frances Hung(4) 11,965 11,965 0 0
Dr. Edmund Y. Sun 7,822,418(5) 281,520 7,540,898 39.5
Lish Chen(4) 46,920 46,920 0 0
Mihailo Stojancic(4) 20,645 20,645 0 0
Tai Sato(4) 11,965 11,965 0 0
</TABLE>
________________________________
* less than 1%.
(1) Pursuant to the rules promulgated under the Exchange Act, a person is
deemed to be the beneficial owner of a security if that person has the
right to acquire ownership of such security within 60 days.
(2) The table assumes that the Selling Securityholders will dispose of all
shares of Common Stock owned by them or issuable to them that are being
registered for sale by this Prospectus.
(3) Mr. Kirkpatrick is the Chief Technical Officer of ViComp. Does not include
83,284 shares owned by the Kirkpatrick Family Trust of which Mr.
Kirkpatrick is a trustee. All of the shares offered by Mr. Kirkpatrick have
been placed in escrow pursuant to an escrow agreement, with American Stock
Transfer & Trust Company as escrow agent. All or a portion of such shares
are subject to forfeiture in the event the Company incurs certain losses in
connection with the ViComp Acquisition. The escrowed shares may not be
assigned, transferred or otherwise disposed of prior to the earlier of (i)
June 30, 1998 or (ii) the date that the Company's annual report on Form
10-K for the year ending March 31, 1998 is filed with the Commission.
(4) Ten percent of the shares offered by such Selling Securityholder have been
placed in escrow pursuant to an escrow agreement, with American Stock
Transfer & Trust Company as escrow agent. All or a portion of such shares
are subject to forfeiture in the event the Company incurs certain losses in
connection with the ViComp Acquisition. The escrowed shares may not be
assigned, transferred or otherwise disposed of prior to the earlier of (i)
June 30, 1998 or (ii) the date that the Company's annual report on Form 10-
K for the year ending March 31, 1998 is filed with the Commission.
(5) Includes 281,520 shares of Common Stock acquired by Dr. Sun in the ViComp
Acquisition, all of which have been deposited in escrow and are subject to
cancellation in certain circumstances. Also includes 280,334 shares owned
by Dr. Sun's sons and 21,564 shares owned by Dr. Sun's sister.
12.
<PAGE>
PLAN OF DISTRIBUTION
The Selling Securityholders may sell, directly or through brokers, the
shares of Common Stock in negotiated transactions or in one or more transactions
in the market at the price prevailing at the time of sale. In connection with
such sales, the Selling Securityholders and any participating broker may be
deemed to be "underwriters" of the shares within the meaning of the Securities
Act, although the offering of these securities will not be underwritten by a
broker-dealer firm. Sales in the market may be made to broker-dealers making a
market in the Common Stock or other broker-dealers, and such broker-dealers,
upon their resale of such securities, may be deemed to be "selling
securityholders" in this offering. The Company will not receive any of the
proceeds from the sale of the shares of Common Stock by the Selling
Securityholders. Pursuant to the terms under which the shares of Common Stock
were issued to the Selling Securityholders, the Company has agreed to indemnify
the Selling Securityholders against such liabilities as they may incur as a
result of any untrue statement of a material fact in the Registration Statement
of which this Prospectus forms a part, or any omission herein or therein to
state a material fact necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading. Such
indemnification includes liabilities that the Selling Securityholders may incur
under the Securities Act.
Each Selling Securityholder and any other persons participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of securities by, Selling Securityholders and
other persons participating in a distribution of securities. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distribution, subject to specified exceptions or
exemptions. All of the foregoing may affect the marketability of the securities
offered hereby.
The Company will bear all costs and expenses of the registration under the
Securities Act and certain state securities laws of the Common Stock, other than
fees of counsel (if any) for the Selling Securityholders and any discounts or
commissions payable with respect to sales of such securities.
From time to time this Prospectus may be supplemented or amended as
required by the Securities Act. During any time when a supplement or amendment
is so required, the Selling Securityholders are required to cease sales until
the Prospectus has been supplemented or amended.
Pursuant to the terms of the registration rights agreement signed in
connection with the ViComp Acquisition, the Company is required to keep this
Registration Statement effective for a period of 180 days following the date on
which this Registration Statement is declared effective.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon by Troy
& Gould Professional Corporation, Los Angeles, California. Joseph F. Troy, a
member of Troy & Gould Professional Corporation, is a director of the Company
and holds options to purchase 136,608 shares of Common Stock at $3.50 per share.
In addition, members of Troy & Gould own 700 of the Company's Class B Warrants.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report (Form 10-KSB) for the year ended March 31, 1997, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements have been incorporated herein by reference and
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
13.
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or make any representations, other than those contained in this
Prospectus, in connection with the offering hereby, and, if given or made, such
information and representations must not be relied upon as having been
authorized by the Company or the Selling Securityholders. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, any
securities to any person in any State or other jurisdiction in which such offer
or solicitation is unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company or the facts herein set
forth since the date hereof.
_______________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information...... 2
Incorporation of Certain...
Documents by Reference... 2
The Company................ 3
Risk Factors 4
Use of Proceeds............ 12
Selling Securityholders.... 12
Plan of Distribution....... 12
Legal Matters.............. 13
Experts 13
</TABLE>
================================================================================
491,253 Shares of Common Stock
DIGITAL VIDEO SYSTEMS, INC.
____________
PROSPECTUS
____________
____________, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company estimates that expenses in connection with the distribution
described in this Registration Statement will be as follows. All expenses
incurred with respect to the distribution will be paid by the Company, and such
amounts, with the exception of the Securities and Exchange Commission
registration fees, are estimates.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee................................... $ 465
Accounting fees and expenses........................... 10,000
Legal fees and expenses................................ 25,000
Printing expenses...................................... 1,500
Miscellaneous.......................................... 500
-------
Total............................................... $37,465
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and officers and may
indemnify its employees and other agents to the fullest extent not prohibited by
Delaware law.
The Registrant's Certificate of Incorporation provides for the
elimination of liability for monetary damages for breach of the directors'
fiduciary duty of care to the Registrant and its shareholders. These provisions
do not eliminate the directors' duty of care and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Registrant has entered into agreements with its directors and
executive officers that require the Registrant to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of the Registrant or any of its affiliated enterprises, provided such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Registrant and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The indemnification agreements also set forth certain procedures
that will apply in the event of a claim for indemnification thereunder.
(i)
<PAGE>
ITEM 16. EXHIBITS
The following exhibits, which are furnished with this Registration
Statement or incorporated by reference, are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
--- -------------------
<C> <S>
4.1 Form of Common Stock certificate.(1)
5.1 Opinion of Troy & Gould Professional Corporation.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit 5.1).
24.1 Power of Attorney (contained in Part II).
- -----------------
</TABLE>
(1) Incorporated by reference from Amendment No. 2 to the Company's
Registration Statement on Form SB-2 (Registration No. 333-2228), as filed
with the Commission on May 8, 1996.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made of the securities registered hereby, a post-effective amendment to
this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
Registration Statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement; provided, however, that (i) and (ii) do not apply if the information
required to be included in a post-effective amendment is contained in periodic
reports filed by the registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
(ii)
<PAGE>
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(iii)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Santa Clara, State of California, on July 28, 1997.
DIGITAL VIDEO SYSTEMS, INC.
By /s/ Dr. Edmund Y. Sun
-------------------------------------------------
Dr. Edmund Y. Sun
Chairman of the Board and Chief Executive Officer
POWER OF ATTORNEY
The officers and directors of Digital Video Systems, Inc., whose
signatures appear below, hereby constitute and appoint Dr. Edmund Y. Sun and
Thomas R. Parkinson, and each of them, their true and lawful attorneys and
agents, each with power to act alone, to sign, execute and cause to be filed on
behalf of the undersigned any amendment or amendments, including post-effective
amendments, to this Registration Statement of Digital Video Systems, Inc. on
Form S-3. Each of the undersigned does hereby ratify and confirm all that said
attorneys and agents shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dr. Edmund Y. Sun Chairman of the Board and July 28, 1997
- ------------------------- Chief Executive Officer
Dr. Edmund Y. Sun (Principal Executive Officer)
/s/ Robert B. Pfannkuch Director July 28, 1997
- -------------------------
Robert B. Pfannkuch
Director
- -------------------------
Philip B. Smith
Director
- -------------------------
Janis P. Gemignani
/s/ Joseph F. Troy Director July 28, 1997
- -------------------------
Joseph F. Troy
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Sanford Sigoloff Director July 28, 1997
- -------------------------
Sanford Sigoloff
Director
- -------------------------
Sung Hee Lee
/s/ Thomas R. Parkinson President, Chief Operating Officer July 28,1997
- ------------------------- and Principal Financial Officer
Thomas R. Parkinson
/s/ Seth Halio Controller July 28, 1997
- -------------------------
Seth Halio
</TABLE>
<PAGE>
EXHIBIT LIST
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<C> <S>
4.1 Form of Common Stock certificate.(1)
5.1 Opinion of Troy & Gould Professional Corporation.
23.1 Consent of Ernest & Young LLP.
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit 5.1).
24.1 Power of Attorney (contained in Part II).
- -------------------
</TABLE>
(1) Incorporated by reference from Amendment No. 2 to the Company's
Registration Statement on Form SB-2 (Registration No. 333-2228), as filed
with the Commission on May 8, 1996.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<C> <S>
4.1 Form of Common Stock certificate.(1)
5.1 Opinion of Troy & Gould Professional Corporation.
23.1 Consent of Ernest & Young LLP.
23.2 Consent of Troy & Gould Professional Corporation (contained in Exhibit 5.1).
24.1 Power of Attorney (contained in Part II).
- -------------------
</TABLE>
(1) Incorporated by reference from Amendment No. 2 to the Company's
Registration Statement on Form SB-2 (Registration No. 333-2228), as filed
with the Commission on May 8, 1996.
<PAGE>
EXHIBIT 5.1
July 28, 1997
DIG3-4
Digital Video Systems, Inc.
2710 Walsh Avenue
Santa Clara, California 95051
Re: Registration Statement on Form SB-2
-----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Digital Video Systems, Inc., a Delaware
corporation (the "Company") in connection with the registration of 491,253
shares of Common Stock of the Company (the "Selling Securityholder Shares").
This opinion is being furnished in accordance with the requirements of Item
601(b)(5) of Regulation SB under the Securities Act of 1933, as amended (the
"1933 Act").
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
such documents as we have deemed necessary or appropriate as a basis for the
opinions set forth herein, including (i) the Registration Statement of the
Company on Form S-3 relating to the Selling Securityholder Shares, filed with
the Securities and Exchange Commission (the "Commission") on the date hereof
(the "Registration Statement") and the prospectus made a part thereof (the
"Prospectus"); (ii) the Amended and Restated Certificate of Incorporation and
Bylaws of the Company, as amended to date; (iii) the form of Common Stock
Certificate; and (iv) such other documents as we have deemed necessary or
appropriate as a basis for the opinions set forth below.
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed by parties other than the Company, we have
assumed that such parties had the power,
<PAGE>
Digital Video Systems, Inc.
July 28, 1997
Page 2
corporate or other, to enter into and perform all obligations thereunder and
have also assumed the due authorization by all requisite action, corporate or
other, and execution and delivery by such parties of such documents and the
validity and binding effect thereof. As to any facts material to the opinions
expressed herein which were not independently established or verified, we have
relied upon oral or written statements and representations of officers and other
representatives of the Company and others.
Based on the foregoing examination, we are of the opinion that (i) the
Selling Securityholder Shares have been duly and validly authorized and are duly
and validly issued, fully paid and nonassessable and (ii) the Selling
Securityholder Shares, when sold by the Selling Securityholders in the manner
contemplated in the Prospectus made part of the Registration Statement will be
legally and validly issued, fully paid and nonassessable.
We are admitted to practice only in the State of California, and this
opinion is limited in all respects to the federal laws of the United States of
America, the laws of the State of California and the General Corporation Law of
the State of Delaware, and no opinion is expressed with respect to the laws of
any other jurisdiction or any effect which such laws may have on the opinions
expressed herein.
We consent to the use of our name under the caption "Legal Matters" in the
Registration Statement, and to the filing of this opinion as an exhibit to the
Registration Statement. By giving you this opinion and consent, we do not admit
that we are experts with respect to any part of the Registration Statement
within the meaning of the term "expert" as used in Section 11 of the 1933 Act,
or the rules and regulations promulgated thereunder, nor do we admit that we are
in the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ Troy & Gould
TROY & GOULD
Professional Corporation
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Digital Video
Systems, Inc. for the registration of 491,253 shares of its common stock and to
the incorporation by reference therein of our report dated May 1, 1997, with
respect to the consolidated financial statements of Digital Video Systems, Inc.
included in its Annual Report (Form 10-KSB) for the year ended March 31, 1997,
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Ernst & Young LLP
San Jose, California
July 25, 1997
