As filed with the Securities and Exchange Commission on June 10, 1998
Registration No. 333-________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
BRILLIANT DIGITAL ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 95-4592204
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6355 TOPANGA CANYON BOULEVARD, SUITE 120
WOODLAND HILLS, CALIFORNIA 91367
(818) 615-1500
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
-----------------------
MARK DYNE, CHIEF EXECUTIVE OFFICER
BRILLIANT DIGITAL ENTERTAINMENT, INC.
6355 TOPANGA CANYON BOULEVARD, SUITE 120
WOODLAND HILLS, CALIFORNIA 91367
(818) 615-1500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
----------------------
Copies to:
MURRAY MARKILES, ESQ.
TROOP MEISINGER STEUBER & PASICH, LLP
10940 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(310) 824-7000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities 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 of
1933, 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 for the same offering.
[ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration 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 Maximum
Title Of Shares Amount To Be Aggregate Price Aggregate Amount Of
To Be Registered Registered Per Unit(1) Offering Price(1) Registration Fee
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.001 per share 940,262 $3.125 $2,938,319 $867
===============================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), and based on the average of the high and low
prices of the Common Stock on the American Stock Exchange on June 8,
1998.
</TABLE>
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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
<PAGE>
PROSPECTUS
BRILLIANT DIGITAL ENTERTAINMENT, INC.
940,262 SHARES OF COMMON STOCK
This prospectus (this "Prospectus") relates to the sale of an aggregate
of 940,262 shares (the "Shares") of the common stock, par value $.001 per
share (the "Common Stock") of Brilliant Digital Entertainment, Inc. (the
"Company" or "Brilliant") offered for the account of certain stockholders of
the Company (the "Selling Stockholders"). The Common Stock offered by the
Selling Stockholders was acquired by the Selling Stockholders as follows: (i)
600,000 shares of Common Stock are the shares of Common Stock underlying the
warrant granted by the Company to Packard Bell NEC, Inc. ("Packard Bell NEC")
pursuant to that certain Nontransferable Redeemable Warrant Agreement, dated
September 14, 1996, between the Company and Packard Bell NEC (the "1996
Packard Bell Warrant"); (ii) 200,000 shares of Common Stock are the shares of
Common Stock underlying the warrant granted by the Company to Packard Bell NEC
pursuant to that certain Redeemable Warrant Agreement, dated September 1,
1997, between the Company and Packard Bell NEC (the "1997 Packard Bell
Warrant" and collectively with the 1996 Packard Bell Warrant, the "Packard
Bell Warrants"); (iii) 85,000 shares of Common Stock are the shares of Common
Stock underlying the warrant granted by the Company to Morgan Creek
Interactive, Inc. ("Morgan Creek") pursuant to that certain Nontransferable
Redeemable Warrant Agreement, dated September 14, 1996, between the Company
and Morgan Creek (the "Morgan Creek Warrant"); (iv) 40,222 shares of Common
Stock are the shares of Common Stock underlying the warrant granted by the
Company to Chloe Holdings, Inc. ("Chloe") pursuant to that certain Warrant
Agreement, dated September 14, 1996, between the Company and Chloe (the "1996
Chloe Warrant"); and (v) 15,040 shares of Common Stock are the shares of
Common Stock underlying the warrant granted by the Company to Chloe pursuant
to that certain Warrant Agreement, dated November 4, 1997, between the Company
and Chloe (the "1997 Chloe Warrant" and collectively with the 1996 Chloe
Warrant, the "Chloe Warrants"). See "Selling Stockholders and Plan of
Distribution."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
The Selling Stockholders may from time to time sell all or a portion of
the Common Stock which may be offered by them under this Prospectus in routine
brokerage transactions on the American Stock Exchange, or otherwise, at prices
and terms prevailing at the time of sale or at negotiated prices. The Selling
Stockholders may also make private sales directly or through brokers. The
Selling Stockholders may pay customary brokerage fees, commissions and
expenses. The Company will pay all other expenses of the offering. The
Selling Stockholders and the brokers executing selling orders on behalf of the
Selling Stockholders may be deemed to be "underwriters" within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"), in which event
commissions received by such brokers may be deemed underwriting commissions
under the Securities Act.
The Company will not receive any proceeds from the sale of the Common
Stock offered by the Selling Stockholders pursuant to this Prospectus. The
Common Stock is traded on the American Stock Exchange under the symbol "BDE."
On June 1, 1998, the closing price of the Common Stock as reported by the
American Stock Exchange was $2.625.
THESE SHARES OF COMMON STOCK HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY 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.
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.
Prospectus dated , 1998
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company or its managers. This
Prospectus does not relate to any securities other than those described herein
or constitute an offer to sell, or the solicitation of an offer to buy,
securities in any jurisdiction where, or to any person to whom, it is unlawful
to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
an implication that the information herein is correct as of any time
subsequent to the date hereof or that there has been no change in the affairs
of the Company since such date.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement) under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to such Registration Statement, and the exhibits and
schedules thereto which may be obtained from the Commission's principal office
in Washington, D.C., upon payment of the fees prescribed by the Commission.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
each such statement being qualified in all respects by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Commission. These reports, proxy statements and other information
can be inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: Offices located at 7 World
Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of the material can be
obtained at prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission also maintains a web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission (such as
the Company). The Common Stock is traded on the American Stock Exchange and
the Company's reports, proxy or information statements, and other information
filed with the American Stock Exchange may be inspected at the offices of the
American Stock Exchange at 86 Trinity Place, New York, New York 1006-1881.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission pursuant to the Exchange Act, are incorporated by reference into
this Prospectus:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997;
(2) The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1998;
(3) The Company's Current Reports on Form 8-K, filed on February 24,
1998 and April 6, 1998; and
(4) The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A, filed on October 29, 1996, as amended by
the Company's Registration Statement on Form 8-A/A, filed on November 20,
1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the offering of the securities covered by this Prospectus
shall be deemed to be incorporated by reference herein and to be part hereof
from the date of filing of such documents. Any statement contained herein or
in a document, all or a portion of which is incorporated or deemed to be
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
PAGE 2
<PAGE>
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the oral or written
request of any such person, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such
exhibits are expressly incorporated by reference into such documents).
Written requests for such copies should be directed to Michael Ozen, Chief
Financial Officer, Brilliant Digital Entertainment, Inc., 6355 Topanga Canyon
Boulevard, Suite 120, Woodland Hills, California 91367. Telephone inquiries
may be directed to Brilliant Digital Entertainment, Inc. at (818) 615-1500.
PAGE 3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION CONTAINED HEREIN AND IN THE
CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCORPORATED
BY REFERENCE INTO THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL
REFERENCES HEREIN TO THE "COMPANY" AND "BRILLIANT" REFER TO BRILLIANT DIGITAL
ENTERTAINMENT, INC. AND ITS WHOLLY OWNED AUSTRALIAN SUBSIDIARY, BRILLIANT
INTERACTIVE IDEAS PTY. LIMITED. THE DOCUMENTS INCORPORATED IN THIS PROSPECTUS
CONTAIN FORWARD LOOKING STATEMENTS, WHICH ARE INHERENTLY UNCERTAIN. ACTUAL
RESULTS MAY DIFFER FROM THOSE DISCUSSED IN SUCH FORWARD LOOKING STATEMENTS FOR
THE REASONS, AMONG OTHERS, DISCUSSED IN "RISK FACTORS."
THE COMPANY
Brilliant is a production and development studio producing a new
generation of digital entertainment that is being distributed over the
Internet and on CD-ROM. The Company plans to market versions of its digital
stories also as television programming and for home video. Using its
proprietary state-of-the-art software tools, the Company produces
Multipath[TM] Movies, which are three-dimensional digitally animated stories
each with up to hundreds of plot alternatives, or paths, leading to multiple
distinct conclusions that are influenced by the user. The Company's Multipath
Movies feature seamless interactivity leaving the plot and graphical
presentation of the story uninterrupted by the user's decisions. The Company
utilizes a single cost-efficient production process to produce multiple
formats of a particular Multipath Movie title for different distribution
channels, such as the Internet, CD-ROM or television programming. In addition,
the Company has developed a system that permits real time distribution of, and
user interaction with, its Multipath Movies over the Internet.
As a key part of its strategy, the Company has secured quality content
for its Multipath Movies from a number of proven sources, including SUPERMAN
from D.C. Comics (a subsidiary of Warner Bros.), XENA: WARRIOR PRINCESS and
HERCULES & XENA THE ANIMATED MOVIE, each from Universal Studios, ACE VENTURA
from Morgan Creek, POPEYE from King Features Syndicate and the CHOOSE YOUR OWN
NIGHTMARE series for kids from Bantam Doubleday Dell Books. The Company also
develops Multipath Movies based on internally-developed content. Further to
its strategy, the Company has entered into distribution agreements with key
industry participants Packard Bell NEC, CompuServe, and graphics acceleration
hardware manufacturers Matrox and S3.
The Company's Multipath Movies combine the best qualities of traditional
filmed entertainment - complex characters, stories and plots, with the best of
the traditional computer game - interactivity. The Company's Multipath Movies
are designed to appeal to the entire home PC market, including both the core
gamer and the much larger segment of PC users not currently served by
traditional game developers. In order to offer digital entertainment products
with wide appeal, the Company is producing a variety of Multipath Movies
tailored to various demographic groups, such as its STORYTELLER[TM] SERIES in
which an animated StoryTeller narrates engaging interactive stories targeted
at children eight to twelve years of age, and Multipath Movies for Kids[TM],
including POPEYE, targeted to children as young as three years old. Multipath
Movies incorporate a number of features that the Company believes represent
significant technical enhancements over existing digital entertainment. For
example, animated characters created using the Company's tools appear
human-like and have realistic features, facial expressions and mouth
movements. Multipath Movies also allow users to control characters' moods as
opposed to only their actions. In addition, a typical Multipath Movie will
encourage viewers to interact with the story seamlessly, influencing the plot
without interrupting its flow or graphical presentation.
The Company's first Multipath Movie title, CYBERSWINE, was released at
the end of the fourth quarter of 1997. The Company expects to expand the
release of CYBERSWINE during the second quarter of 1998 through its
distribution agreement with Packard Bell NEC. Pursuant to additional
distribution agreements, Matrox is also bundling CYBERSWINE with its m3D line
of 3D graphics acceleration chip sets, and S3 may bundle CYBERSWINE with its
graphics chip sets. The Company has also entered into a distribution
agreement with CompuServe through which the Company is establishing its own
Multipath Movie site on the CompuServe service enabling each of CompuServe's
subscribers in the United States to purchase CYBERSWINE and other Multipath
Movies. The Company intends to use its existing and future distribution
relationships for subsequent Multipath Movie titles that are currently in
production.
PAGE 4
<PAGE>
Beginning in 1998, the Company plans to release certain of its Multipath
Movies in non-interactive format as television broadcast/cable programming and
home video features. The Company intends to segment such Multipath Movies into
30-minute episodes and, by packaging together multiple episodes, can create a
season-length series for the broadcast market. Similarly, the Company intends
to produce 80- to 120-minute animated features for the home video market. The
Company believes that it can produce Multipath Movies for television
programming and home video features at costs substantially below typical
industry costs. The Company intends to enter into joint ventures or
partnerships with film and television production companies to jointly develop
and release digital entertainment for the broadcast and home video markets
utilizing the Company's proprietary tools.
Using its proprietary software tools in conjunction with the Company's
digital production and layup skills, the Company develops Multipath Movies in
a single production process. The Company has five proprietary software tools:
(i) SCRIPNAV, a software tool that enables a script writer to write, review
and correct branching multipath scripts; (ii) TALKTRACK, a software tool used
to synchronize facial expressions and mouth movements to voice soundtracks
automatically; (iii) SCUD ENGINE, a software system which collects and
integrates the output from all of the component tools to produce the Multipath
Movie; (iv) MR. COPY, a new software tool that arranges, reorders and, using
licensed technology, compresses and decompresses audio and bit map files
created during the production of a Multipath Movie and optimally organizes the
files for use in playing the Multipath Movie; and (v) DIGITALPROJECTOR, which
contains all the necessary elements to load and play a Multipath Movie.
Utilizing its proprietary software tools, the Company can produce each title
in multiple formats in a single cost-efficient production process, enabling
the Company to amortize its production costs across the revenue streams from
each format. In addition, the Company's TalkTrack tool allows for low-cost
modification of Multipath Movies to other languages without the awkward
appearance of dubbed movies. The Company believes that its proprietary
software tools emulate film writing and production techniques, allowing
screenwriters, directors and producers to develop Multipath Movies without the
use of expensive programming teams. The Company believes that the utilization
of existing entertainment resources will enable it to generate high-quality
digital entertainment at a low cost.
The Company is a Delaware corporation, was formed in July 1996 and is the
parent of Brilliant Interactive Ideas, Pty. Ltd., a corporation formed under
the laws of New South Wales, Australia in September 1993. Its executive
offices are located at 6355 Topanga Canyon Boulevard, Suite 120, Woodland
Hills, California 91367, and its telephone number is (818) 615-1500.
PAGE 5
<PAGE>
RISK FACTORS
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 21E of the Exchange Act and Section
27A of the Securities Act. The words "expect", "estimate", "anticipate",
"predict", "believe" and similar expressions and variations thereof are
intended to identify forward-looking statements. Such statements appear in a
number of places in this filing and include statements regarding the intent,
belief or current expectations of the Company, or its directors or officers
with respect to, among other things, the Company's strategies, plans,
objectives and expectations, product release schedules, the Company's ability
to design, develop, manufacture and market products, and the ability of the
Company's products to achieve or maintain commercial acceptance. Readers are
cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual
results may differ materially from those projected in this Prospectus, for the
reasons, among others, set forth below.
ACCEPTANCE OF MULTIPATH MOVIE CONCEPT; SUCCESSFUL DEVELOPMENT OF MULTIPATH
MOVIES WITH APPEALING CREATIVE CONTENT
The success of the Company's Multipath Movie products will depend to a
significant extent on acceptance by the market of the Multipath Movie concept.
The market for entertainment software is emerging and is dependent upon a
number of variables, including consumer preferences, the installed base of
personal computers and a sufficient number of entertainment software titles to
stimulate market development. Any competitive, technological or other factor
materially adversely affecting the introduction or sale of personal computers
or entertainment software would have a material adverse effect on the Company.
Because the market for entertainment software is relatively small in
comparison to the overall market for consumer software products, it is
impossible to predict with any degree of certainty the future rate of growth,
if any, and the size of the market for the Company's products.
Each Multipath Movie will be an individual artistic work, and its
commercial success primarily will be determined by user reaction, which is
unpredictable. The Company introduced CYBERSWINE, its first Multipath Movie,
at the end of the fourth quarter of 1997. The commercial success of the
Company's Multipath Movies will depend on its ability to predict the type of
content that will appeal to a broad audience and to develop stories and
characters that capture the attention and imagination of the market. In
addition, the success of the Company's Multipath Movies will depend upon the
Company's ability to develop popular characters and to license recognized
characters and properties from third parties for its software titles. There
can be no assurance that the Company will be able to develop or license
popular stories or characters. The success of a Multipath Movie also depends
upon the effectiveness of the Company's marketing and successful introduction
of the first Multipath Movie through the Company's bundling relationship with
Packard Bell NEC and the retail channel, as well as the quality and acceptance
of other competing programs released into the market at or near the same time,
critical reviews, the availability of alternative forms of entertainment and
leisure time activities, general economic conditions and other tangible and
intangible factors, all of which can change and cannot be predicted with
certainty. There can be no assurance that the Company will be able to
successfully introduce the Multipath Movie through its bundling relationship
with Packard Bell NEC, in the retail channel or otherwise. Accordingly, there
exists substantial risk that some or all of the Company's Multipath Movies
will not be commercially successful, resulting in certain costs not being
recouped or anticipated profits not being realized. Further, the success of
the Multipath Movie genre will substantially depend on the market's reception
of the first Multipath Movie. The failure of the Company's initial Multipath
Movie to achieve commercial success would damage the ability of the Company to
introduce additional titles. Accordingly, the failure of any of the Company's
Multipath Movies, and especially its first Multipath Movie, to achieve
commercial success, could have a material adverse affect on the business,
operating results and financial condition of the Company.
LIMITED OPERATING HISTORY; UNCERTAIN PROFITABILITY
The Company was founded in September 1993, and shipped its initial
traditional CD-ROM product in November 1994 and substantially curtailed this
aspect of its business in 1996. The Company acquired the software tools
necessary to produce Multipath Movies in August 1996 and has only recently
introduced its first Multipath Movie. The Company has only a limited
operating history upon which an evaluation of the Company and its prospects
can be based.
In the third quarter of 1997 the Company was profitable due to revenues
associated with its Packard Bell NEC bundling agreement. However, revenues in
the fourth quarter of 1997 were adversely affected by delays in
PAGE 6
<PAGE>
duplication, packaging and distribution which caused the Company's first
Multipath Movies to begin arriving at retailers at the end of December, after
the holiday selling season. In addition, as a result of delays in the
commencement of the U.S. shipment of personal computers upon which the
Company's products are bundled, the first U.S. Multipath Movie bundles are now
expected to begin shipment during mid-1998. Although this delay should not
affect the number of units to be shipped pursuant to the Company's bundling
relationship with Packard Bell NEC, it will impact the Company's 1998 revenues
and earnings since users will not be equipped to purchase on-line episodes
over the Internet as early as expected. In order for the Company to achieve
sustained profitability, the Company must continue to enter into a variety of
distribution and revenue generating arrangements of this type, as well as
arrangements with Internet service providers, traditional CD-ROM publishers
and retailers. There can be no assurance that the Company will enter into any
such arrangements, or that the Company will be able to sustain quarterly
profitability.
FLUCTUATING OPERATING RESULTS
The Company intends to generate a substantial majority of its future
revenue from the development and production of Multipath Movies and other
three-dimensional digitally created entertainment. The Company commenced the
launch of the first of its Multipath Movies, CYBERSWINE, at the end of the
fourth quarter of 1997. The Company also released the first products in the
StoryTeller Series and Multipath Movies for Kids series at that time. The
Company's annual and quarterly revenue will depend upon the successful
development, timing and market acceptance of its interactive products and upon
the costs to distribute and promote these products. Specifically, the
revenues derived from the production and distribution of the Company's
Multipath Movies will depend primarily on the acceptance by the market of the
Multipath Movie concept and the underlying content of the Multipath Movie,
neither of which can be predicted nor necessarily bear a direct correlation to
the production or distribution costs incurred. See " - Acceptance of Multipath
Movie Concept; Successful Development of Multipath Movies with Appealing
Creative Content," and "- Dependence on Development of Additional Multipath
Movies." The commercial success of a film also depends upon promotion and
marketing, production costs, the impact of competition and other factors.
Accordingly, the Company's annual and quarterly revenues are and will continue
to be extremely difficult to forecast.
Historically, the Company has experienced significant fluctuations in its
operating results from quarter to quarter and it expects these fluctuations to
continue in the future. Factors that may influence the Company's quarterly
operating results include customer demand for the Company's products, shipping
schedules for PC hardware with which Multipath Movies are bundled,
introduction or enhancement of products by the Company and its competitors,
the ability of the Company to produce and distribute retail packaged versions
of Multipath Movies in advance of peak retail selling seasons, the timing of
releases of new products or product enhancements by the Company and its
competitors, introduction or availability of new hardware, market acceptance
of the Multipath Movies and other new products, development and promotional
expenses relating to the introduction of new products or enhancements of
existing products, reviews in the industry press concerning the products of
the Company or its competitors, changes or anticipated changes in pricing by
the Company or its competitors, mix of distribution channels through which
products are sold and the timing of negotiation and completion of distribution
arrangements, mix of products sold, product returns, the timing of orders from
major customers, order cancellations, delays in shipment and other
developments and decisions including the timing and extent of development
expenditures, management's evaluation and judgment regarding a title's
acceptance, other unanticipated operating expenses and general economic
conditions. Additionally, a majority of the unit sales for a product
typically occurs in the quarter in which the product is introduced. As a
result, the Company's revenues may increase significantly in a quarter in
which a major product introduction occurs and may decline in following
quarters. The Company's revenues both domestically and internationally have
varied significantly between monthly and quarterly periods. Therefore, in the
future, the operating results for any quarter should not be taken as
indicative of the results for any quarter in subsequent periods.
The Company's expense levels are, to a large extent, fixed. The Company
may be unable to adjust spending in a timely manner to compensate for any
revenue shortfall. As a result, any significant shortfall in revenue from the
Company's Multipath Movies would have an immediate material adverse effect on
the Company's business, operating results and financial condition. The
Company plans to increase its operating expenses to fund greater levels of
Multipath Movie production and research and development, increased marketing
operations and expanded distribution channels. To the extent that such
expenses precede or are not subsequently followed by increased revenues, the
Company's business, operating results and financial condition will be
materially adversely affected.
PAGE 7
<PAGE>
The entertainment software business is highly seasonal. Typically, net
revenues are highest during the fourth calendar quarter (which includes the
holiday buying season), decline in the first calendar quarter and are lowest
in the second and third calendar quarters. This seasonal pattern is due
primarily to the increased demand for entertainment software products during
the year-end holiday buying season. As a result, a disproportionate share of
the Company's net revenues historically have been generated in the fourth
quarter of the Company's fiscal year. The Company expects its revenues and
operating results will continue to reflect these seasonal factors.
The entertainment industry historically has been subject to substantial
cyclical variation, with consumer spending for entertainment products tending
to decline during recessionary periods. There can be no assurance that the
Company will be able to adjust its anticipated product development
expenditures and other expenses in the event of an economic downturn during
such development. Accordingly, if a recessionary period occurs, tending to
result in decreased sales of the Company's products, product development
expenses likely will remain constant and the Company's business, operating
results and financial condition could be materially adversely affected. See
"- Rapid Technological Change; Changing Product Platforms and Formats."
Due to all of the foregoing factors, it is also likely that in some
future periods the Company's operating results will be below the expectations
of public market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially adversely affected.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's future capital requirements will depend on many factors,
including but not limited to, the number of Multipath Movies developed, the
cost of content development, marketing and distribution, the size and timing
of future acquisitions, if any, and the availability of additional financing.
The Company anticipates that its existing funds will not be sufficient to fund
completion of the entire slate of 20 Multipath Movie episodes estimated to be
completed in 1998, and intends to attempt to raise additional funds to permit
completion of all titles through debt or equity financing. No assurance can
be given that such additional financing will be available or that, if
available, it can be obtained on terms favorable to the Company and its
stockholders. If the Company is unable to obtain additional financing
sufficient to fund the completion of all titles scheduled for completion in
1998, the Company anticipates that it may defer completion of several titles.
In addition, any equity financing could result in dilution to the Company's
stockholders. The Company's inability to obtain adequate funds would
adversely affect the Company's operations and ability to implement its
strategy.
SUBSTANTIAL DEPENDENCE UPON THIRD PARTIES
The Company depends substantially upon third parties for several critical
elements of its business including the development and licensing of content
and the distribution of its products.
DEPENDENCE UPON STRATEGIC RELATIONSHIPS. The Company has entered into
strategic relationships with Packard Bell NEC, Morgan Creek and CompuServe, as
well as licensing arrangements with numerous additional companies that own the
stories underlying and/or characters in many of the Company's current and
planned products. The Company's business strategy is based largely on its
strategic and licensing relationships with these and other companies and its
ability to continue to enter into similar strategic and licensing
relationships in the future. In these relationships, mutual agreement of the
parties is generally required for significant matters, or approval of the
strategic partner or both parties is required to release products or to
commence distribution of products. For example, the Company will be dependent
on Packard Bell NEC and other OEMs to bundle Multipath Movies with their
hardware products as a significant element of the Company's launch of the
Multipath Movie genre. Packard Bell NEC's obligation to distribute such
Multipath Movies will depend upon Packard Bell NEC's acceptance of master
CD-ROMs complying with the Company's specifications. Consequently, Packard
Bell NEC may, in the exercise of its approval rights, delay the introduction
of the Company's first Multipath Movie. The Company is also unable to
control, manage or accurately predict the shipping schedules of Packard Bell
NEC and other OEM distributors. Delays in such shipping schedules or other
distribution problems affecting OEM distributors may materially adversely
affect the Company's ability to release its products. For instance, the
Company expected Packard Bell NEC to commence U.S. shipment of personal
computers bundled with CYBERSWINE in January 1998. As a result of delays in
Packard Bell NEC's shipping schedules, the Company now does not expect Packard
Bell NEC to begin U.S. shipment of the Company's first Multipath Movie bundles
until mid-1998 and the Company can give no assurance that Packard Bell NEC
will achieve
PAGE 8
<PAGE>
this schedule. Also, Morgan Creek and many other content licensors have
various creative controls and approval rights pursuant to their joint venture
agreements with the Company. These creative controls and approval rights
allow Morgan Creek as well as content licensors to arbitrarily reject or delay
the Multipath Movie productions of the respective joint ventures. There can
be no assurance that the Company will not be subject to delays resulting from
disagreements with or an inability to obtain approvals from its strategic
partners or that the Company will achieve its objectives in respect of any or
all of its strategic relationships or continue to maintain and develop these
or other strategic relationships, or that licenses between the Company and any
such third party will be renewed or extended at their expiration dates. Many
content licensors are also reluctant to grant broad licenses covering multiple
formats (e.g., a license covering both Internet and television distribution
rights) to companies without proven track records in the television production
business, and, where rights are available, there is often significant
competition for licenses. As a result of such competition, and the reluctance
by owners of content to grant broad licenses, there can be no assurance that
licensed content will be available to the Company at prices, or upon terms or
conditions acceptable to the Company or which permit the Company to implement
its strategy of producing Multipath Movies for multiple formats. Delays
resulting from disagreements with licensors or joint venture partners or the
Company's failure to renew or extend a key license, maintain any of its
strategic relationships or enter into new licenses and strategic relationships
on sound financial terms could materially adversely affect the Company's
business, operating results and financial condition.
USE OF INDEPENDENT SOFTWARE DEVELOPERS AND CONTENT PROVIDERS. In
addition to internally developing software and creating content, the Company
uses entertainment software created by independent software developers as well
as content developed by third parties. The Company has less control over the
scheduling and the quality of the software generated by independent
contractors than over that developed by its own employees. Additionally, the
Company may not be able to secure the services of talented content developers.
The Company's business and future operating results will depend in part on the
Company's continued ability to maintain relationships with skilled independent
software developers and content providers, and to enter into and renew product
development agreements with such developers. There can be no assurance that
the Company will be able to maintain such relationships or enter into and
renew such agreements.
PRODUCT DELAYS
The Company's current production schedules contemplate that it will
release a number of Multipath Movies in the third quarter of 1998. As with
any software product, however, until all aspects of the development and
initial distribution of a product are completed, there can be no assurance of
its release date. Release dates will vary depending on quality assurance
testing and other development factors. If the Company were unable to commence
volume shipments of a significant new product during the scheduled quarter,
its revenue and earnings would likely be materially and adversely affected in
that quarter. In the past, the Company has experienced significant delays in
the introduction of certain new products. For instance, delays in
duplication, packaging and distribution caused the Company's first Multipath
Movies, CYBERSWINE, POPEYE AND THE QUEST FOR THE WOOLLY MAMMOTH, NIGHT OF THE
WEREWOLF and THE HALLOWEEN PARTY to begin arriving at retailers at the end of
December 1997, after the holiday selling season. It is possible in the future
that such delays will continue to occur and that certain new products will not
be released in accordance with the Company's internal development schedule or
the expectations of public market analysts and investors. A significant delay
in the introduction of, or the presence of a defect in, one or more new
products could have a material adverse affect on the ultimate success of such
products and on the Company's business, operating results and financial
condition, particularly in the quarter in which such products are scheduled to
be completed.
DEPENDENCE ON DEVELOPMENT OF ADDITIONAL MULTIPATH MOVIES
The Company's success will depend largely upon its ability in the future
to continuously develop new, commercially-successful Multipath Movie titles
and to replace revenues from Multipath Movie titles in the later stages of
their life cycles. If revenues from new products or other activities fail to
replace declining revenues from existing products, the Company's business,
operations and financial condition could be materially adversely affected. In
addition, the Company's success will depend upon its ability to develop
popular characters and to license recognized characters and properties from
third parties for its digital entertainment products. If the Company is
unable to develop popular characters or if the cost of licensing characters
and properties from third parties becomes prohibitive, the Company's business,
operating results and financial condition could be adversely affected. Also,
the Company may from time to time, enter into agreements with licensors of
intellectual property that involve advance payments of
PAGE 9
<PAGE>
royalties and guaranteed minimum royalty payments. If the sales volumes of
products subject to such arrangements are not sufficient to recover such
advances and guarantees, the Company will be required to write off unrecovered
portions of such payments. If the Company is required to write off a material
portion of any advances, or ultimately accrue for the guarantees, its
business, operating results and financial condition could be materially
adversely affected.
RISKS ASSOCIATED WITH INTERNET DELIVERY
The Company also intends to distribute certain of its Multipath Movies
through its Internet site and through a site on the CompuServe on-line
service. Accordingly, any system failure that causes interruption or an
increase in response time on the Company's Internet site or the CompuServe
site, could result in less traffic to and distribution of Multipath Movies via
the Internet and, if sustained or repeated, could reduce the attractiveness of
the Company's products. The Company is also dependent upon Web browsers and
Internet and on-line service providers to ensure user access to its products.
User acceptance with respect to payment methods over the Internet may also
create barriers to distribution of the Company's products through the
Internet. Any disruption in the Internet access provided to the Company's
Internet site or any failure by the Company's Internet site to handle higher
volumes of transactions could have a material adverse effect on the Company's
business, operating results and financial condition.
The seamless appearance of Multipath Movies delivered over the Internet
requires that while a scene is being viewed, succeeding scenes must be
downloaded. This requires the use of 28.8 kilobits per second or faster
modems, computers equipped with high-speed Pentium (or equivalent)
microprocessors, 24 megabytes of random access memory and appropriately
configured operating systems. These requirements generally are not satisfied
by the majority of the base of currently installed PCs. There can be no
assurance that adequately equipped and configured computers will become
widespread prior to release of the Company's Multipath Movies. Users of
computers with less sophisticated PCs may experience noticeable latencies or
"lag times" between scene changes. Additionally, the performance
characteristics of Multipath Movies delivered via the Internet may not equal
those of Multipath Movies delivered solely on CD-ROMs, particularly with
respect to perceived seamlessness and sound quality. Moreover, communications
between the user and an Internet site delivering Multipath Movies may require
routing of Multipath Movie instructions through several servers and may result
in brief but noticeable lag times. Noticeable lag times or negative
comparisons to Multipath Movies distributed on CD-ROM may reduce the
attractiveness of on-line versions of the Multipath Movies.
The Company presently serves its Multipath Movies delivered over the
Internet through a single vendor. Any significant interruption in service
provided by this vendor could interrupt sales and delivery of Multipath Movies
and materially adversely affect the Company's ability to conduct its business
and maintain customer satisfaction, and thereby materially adversely affect
the Company's business, operating results and financial condition.
RISKS ASSOCIATED WITH RETAIL DISTRIBUTION
The Company anticipates that a significant proportion of sales of
Multipath Movies will be made through distributors and to retailers. The
Company is currently expending significant resources developing a retail sales
channel. The expenditures associated with this development are likely to
precede the realization of significant sales through this channel. Moreover,
the Company has no prior experience in the development or management of the
retail channel or sales through such channel. The competition for shelf space
in retail stores is intense. To the extent that the number of consumer
software products and computer platforms increases, this competition for shelf
space may further intensify. The Company's products are expected to
constitute a small percentage of a retailer's sales volume, and there can be
no assurance that retailers will provide the Company's products with adequate
levels of shelf space and promotional support. Due to the increased
competition for limited retail shelf space and promotional resources,
retailers and distributors are increasingly in a better position to negotiate
favorable terms of sale, including price discounts and product return
policies, as well as cooperative market development funds. Increased
competition could result in loss of shelf space for, and reduction in
sell-through of, the Company's products at retail stores, as well as
significant price competition, any of which could adversely affect the
Company's business, operating results and financial condition.
Retailers often require software publishers to pay fees in exchange for
preferred shelf space. The amounts paid to retailers by software publishers
and distributors for preferred shelf space are generally determined on a case
by case basis and there is, as of yet, no industry standard for determining
such fees, although larger publishers and distributors will likely have a
competitive advantage in this regard to the extent they have greater financial
resources
PAGE 10
<PAGE>
and negotiating leverage.
At the time of retail product shipment, the Company will establish
reserves, including reserves which estimate the potential for future returns
based on seasonal terms of sale and distributor and retailer inventories of
the Company's products, as well as other factors. The Company intends to
recognize revenue from the sale of its products upon shipment except for sales
made to certain distributors where the right of ownership does not pass at
shipment. Product returns or price protection concessions that exceed the
Company's reserves could materially adversely affect the Company's business,
operating results and financial condition and could increase the magnitude of
quarterly fluctuations in the Company's operating and financial results.
Furthermore, if the Company's assessment of the creditworthiness of its
customers receiving product on credit proves incorrect, the Company could be
required to significantly increase the reserves previously established. There
can be no assurance that such future write-offs will not occur or that amounts
written off will not have a material adverse effect on the Company's business,
results of operations and financial condition.
COMPETITION
The markets for the Company's digital entertainment products are
intensely competitive, subject to rapid change and characterized by constant
demand for new product features at reduced prices and pressure to accelerate
the release of new products and product enhancements. The primary competitive
areas for the Company are identified below.
COMPUTER GRAPHICS SPECIAL EFFECT FIRMS. The Company expects to compete
with computer graphics special effects firms, including Pixar, Industrial
Light & Magic Inc. ("ILM"), an affiliate of Lucasfilm Ltd. ("Lucasfilm"),
Digital Domain, Sony ImageWorks, Pacific Data Images, Rhythm & Hues and Boss
Film Studios, Inc. These computer graphics special effects firms are capable
of creating their own three-dimensional computer animated feature films and
may produce three-dimensional computer animated feature films for movie
studios that compete with the Company. Pixar already has produced and
successfully released an animated feature film, TOY STORY, and ILM has created
and produced three-dimensional character animation used for the ghosts in the
live action film CASPER. These firms, each of which has greater financial and
marketing resources than the Company, are expected to compete intensely with
the Company in the production of animated digital products.
CD-ROM PUBLISHERS. The CD-ROM industry is intensely competitive and
consumer demand for particular software products may be adversely affected by
the proliferation of competitive products. The Company believes that the
primary competitive factors in the market for CD-ROM products include creative
content, product quality, technological capabilities, pricing, breadth of
features, marketing and distribution resources and customer service and
support. The Company will compete primarily against companies offering
entertainment software and related products. The Company's competitors in this
area will include several large companies with substantially greater name
recognition, financial, technical, marketing and other resources, including
Broderbund Software, Inc. ("Broderbund"), GT Interactive Software, Inc. ("GT
Interactive"), Electronic Arts, The Learning Company, Inc. ("Learning
Company"), CUC International, Inc. ("CUC"). Moreover, large corporations, such
as the Walt Disney Company ("Disney") and Microsoft Corporation ("Microsoft"),
with substantial bases of intellectual property content and substantial
financial resources, have entered or announced their intention to enter the
market for CD-ROM entertainment products.
MOVIE STUDIOS AND PRODUCTION COMPANIES. The Company's Multipath Movies
will compete with traditional feature films and television programming
produced by major movie studios, including Disney, Warner Bros. Inc. ("Warner
Bros."), Twentieth Century Fox Film Corporation ("Twentieth Century Fox"),
Paramount Pictures ("Paramount"), Sony Pictures, Inc. ("Sony"), Lucasfilm,
Universal City Studios, Inc. ("MCA Universal") and MGM/UA, as well as numerous
other independent motion picture and television production companies. Several
movie studios already have developed and released animated feature films and
the Company expects additional competition in the animated feature film market
from these and other movie studios. Other movie studios have announced their
intention to enter the animated feature film market, including DreamWorks SKG,
a studio formed in 1994 which is expressly targeting the animated film market.
The Company's broadcast and home video products will compete with the films of
these movie studios for audience acceptance and exhibition over
broadcast/cable and home video channels. In addition, the Company will compete
with movie studios for the acquisition of literary properties, production
financing, the services of performing artists, and the services of other
creative and technical personnel, particularly in the fields of animation and
technical direction. Most of the movie studios with which the Company will
compete
PAGE 11
<PAGE>
have significantly greater name recognition and significantly greater
financial, technical, creative, marketing, and other resources than does the
Company. Due to their substantially greater resources, these movie studios
likely will be able to enter into more favorable distribution arrangements and
to promote their films and television programming more successfully than the
Company.
Several movie studios, including Disney and Lucasfilm (through its
affiliate ILM), have developed their own internal computer animation
capability and have created computer animation for special effects in animated
films. Other movie studios may internally develop, license or sub-contract
three-dimensional animation capability. Further, the Company believes that
continuing enhancements in computer hardware and software technology will
lower barriers to entry for studios or special effects companies which intend
to produce computer animated feature films or other products.
In response to all of these competitive forces, the Company will be
required to make a high level of investment in content and tool development,
marketing and customer service and support. There can be no assurance that the
Company will have sufficient resources to make such investments or, even if
they are made, that the Company's products will be competitive. Additionally,
present or future competitors may be able to develop products comparable or
superior to those offered by the Company or adapt more quickly than the
Company to new technologies or evolving customer requirements. The Company's
competitors also may increase their efforts to gain and retain market share
through competitive pricing or product giveaways. These competitive pressures
may necessitate price reductions by the Company, thus reducing the Company's
profit margins. In addition, as the number of competitors increases and
competition for valuable leisure time available to be devoted to the products
such as those of the Company and equally scarce retail shelf space becomes
more intense, the Company may need to increase marketing expenditures to
maintain sales and product differentiation. Also, as competition for popular
titles and themes that may be used in entertainment software increases, the
cost of acquiring such titles and properties is likely to increase, resulting
in reduced margins. There can be no assurance that the Company will be able to
compete successfully against current or future competitors or that competitive
pressures faced by the Company will not materially adversely affect its
business, operating results and financial condition.
MANUFACTURING RISKS
The production of the Company's Multipath Movies for the retail
distribution channel consists of pressing CD-ROM disks, assembling purchased
product components, printing product packaging and user manuals and packaging
finished products, all of which will be performed for the Company by third
party vendors in accordance with the Company's specifications and forecasts.
Currently, the Company will use primarily one vendor for each of these
services. While these services are available from multiple vendors and at
multiple sites, there can be no assurance that an interruption in the
manufacture of the Company's products could be remedied without undue delay
and without materially adversely affecting the Company's results of
operations. The Company does not have contractual agreements with any of its
third party vendors, which may result in an inability to secure adequate
services in a timely manner. Demand for the services of these vendors is also
seasonal, with peak demand, and service and production backlogs and delays
occurring in September, October and November of each year. The Company's
retail Multipath Movies must be manufactured, assembled, printed, packaged and
shipped in this environment of strained capacity and must compete for capacity
and priority with the CD-ROM products of many substantially larger competitors
of the Company which are able to wield substantially greater influence with
the Company's vendors than can currently be exerted by the Company. If the
Company is unable to secure adequate services to timely produce and deliver
its products for fourth quarter sales, the Company's business, operating
results and financial condition would be materially adversely effected.
SOFTWARE TOOLS AND PRODUCT DEVELOPMENT
The suite of software tools that will enable the Company to create its
Multipath Movie has been developed over the past three years and additional
refinement of these tools may be necessary in order continue to enhance the
Multipath Movie format. The Company believes that its future success depends
in large part upon the continuous enhancement of the software tools used to
create the Multipath Movie. If problems in the development of the Company's
software tools arise, no assurance can be given that the Company will be able
to successfully remedy these problems. Also, entertainment products as
complex as those offered by the Company may contain undetected errors or
defects when first introduced or as new versions are released. The Company
has in the past discovered software errors in certain of its new products and
enhancements after their introduction. Although the Company has not
PAGE 12
<PAGE>
experienced material adverse effects resulting from any such errors to date,
there can be no assurance that errors or defects will not be found in new
products or releases after commencement of commercial shipments, resulting in
adverse product reviews and a loss of or delay in market acceptance, which
would have a material adverse effect upon the Company's business, operating
results and financial condition.
RAPID EXPANSION AND MANAGEMENT OF GROWTH
Implementation of the Company's business plan, including introduction and
marketing of the Company's Multipath Movies, management of the Company's joint
venture with Morgan Creek, management of the Company's strategic relationship
with Packard Bell NEC, negotiation of additional content licensing and
distribution agreements, management of Internet service providers, the
expansion of the Company's studio in Australia, and the general strains of the
Company's role as a public company have resulted in a significant expansion of
the Company and will require that the Company continue to significantly expand
its operations in all areas. This growth in the Company's operations and
activities has placed and will continue to place a significant strain on the
Company's management, operational, financial and accounting resources.
Successful management of the Company's operations will require the Company to
continue to implement and improve its financial and management information
systems. In addition, the restructuring of the Company and resulting
management and reporting of Australian operations and financial results from
the United States have placed and will continue to place an additional strain
on the Company's accounting and information systems resources. The Company's
ability to manage its future growth, if any, and to increase production levels
and commence marketing and distribution of its products will also require it
to hire and train new employees, including management and technical personnel,
and motivate and manage its new employees and integrate them into its overall
operations and culture. The Company recently has made additions to its
management team and is in the process of expanding its marketing and
production staff, a process which is expected to continue. The Company's
failure to manage implementation of its business plan would have a material
adverse effect on the Company's business, operating results and financial
condition.
RISKS ASSOCIATED WITH ACQUISITIONS
In the future, the Company may acquire complementary companies, products
or technologies, and from time to time engages in discussions relating to
possible acquisitions. Acquisitions involve numerous risks, including adverse
short-term effects on the combined business' reported operating results,
impairments of goodwill and other intangible assets, the diversion of
management's attention, the dependence on retention, hiring and training of
key personnel, the amortization of intangible assets and risks associated with
unanticipated problems or legal liabilities.
RAPID TECHNOLOGICAL CHANGE; CHANGING PRODUCT PLATFORMS AND FORMATS
The entertainment software market and the PC industry in general are
characterized by rapid and significant technological developments and frequent
changes in computer operating environments. To compete successfully in these
markets, the Company must continually improve and enhance its existing
products and technologies and develop new products and technologies that
incorporate technological advances while remaining competitive in terms of
performance and price. The Company's success also will depend substantially
upon its ability to anticipate the emergence of, and to adapt its products to,
popular platforms for consumer software.
The Company has designed its Multipath Movies for use with the
IBM-compatible PC. The Company intends to design future products for use with
new platforms which will require substantial investments in research and
development. Generally, such research and development efforts must occur one
to two years in advance of the widespread release or use of the platforms in
order to introduce products on a timely basis following the release of such
platforms. The research and development efforts in connection with games for
certain advanced and emerging platforms may require greater financial and
technical resources than currently possessed by the Company. In addition,
there can be no assurance that the new platforms for which the Company
develops products will achieve market acceptance and, as a result, there can
be no assurance that the Company's development efforts with respect to such
new platforms will lead to marketable products or products that generate
sufficient revenues to offset the research and development costs incurred in
connection with their development. Failure to develop products for new
platforms that achieve significant market acceptance would have a material
adverse effect on the Company's business, operating results and financial
condition. There can be no assurance that technological developments will not
render certain of the Company's existing products obsolete, that the Company
will be able to adapt its products or technologies to emerging hardware
platforms, that the Company has chosen to support platforms that ultimately
will be successful or
PAGE 13
<PAGE>
that the Company will be able successfully to create software titles for such
platforms in a timely manner, or at all. See "_ Software Tools and Product
Development."
DEPENDENCE ON KEY PERSONNEL
The Company's success has and will continue to depend to a significant
extent upon certain key management, product development and technical
personnel, many of whom would be difficult to replace, particularly Mark Dyne,
its Chairman and Chief Executive Officer, and Kevin Bermeister, its President.
Although the Company has entered into employment agreements with certain
officers, such agreements are terminable upon 30 days notice by either party.
Accordingly, there can be no assurance that such employees will continue to be
available to the Company. The loss of the services of one or more of these
key employees could have a material adverse effect on the Company and the
Company's future success will depend in large part upon its ability to
attract, retain and motivate personnel with a variety of technical and
managerial skills, including software development and programming expertise.
Significant competition exists for such personnel and the companies with which
the Company competes are often larger and more established than the Company.
Additionally, there is currently an industry-wide shortage of technical
personnel which makes it more difficult to attract and retain such personnel.
There can be no assurance that the Company will be able to retain and motivate
its managerial and technical personnel or attract additional qualified members
to management or technical staff. The inability to attract and retain
necessary technical and managerial personnel could have a material and adverse
effect upon the Company's business, operating results and financial condition.
SHARED RESPONSIBILITIES AND OTHER EMPLOYMENT COMMITMENTS OF CHIEF EXECUTIVE
OFFICER AND PRESIDENT
The Company's Chief Executive Officer and Chairman, Mark Dyne, and its
President, Kevin Bermeister, also serve as joint managing directors of Sega
Ozisoft Pty. Limited ("Sega Ozisoft") and other businesses. Mark Dyne also
serves as Chairman of the Board of Tag-It Pacific, Inc. Kevin Bermeister also
serves as managing director of Sega Enterprises (Australia) Pty., Ltd.
Although Messrs. Dyne and Bermeister are active in the management of the
Company, they are not required to spend a certain amount of time at the
Company nor are they able to devote their full time and resources to the
Company. Further, the Company does not have employment agreements with either
of Messrs. Dyne or Bermeister. There can be no assurance that the inability
of Messrs. Dyne and Bermeister to devote their full time and resources to the
Company will not adversely affect the Company's business, operating results or
financial condition.
CONFLICTS OF INTEREST
Certain of the Company's directors and officers are directors or officers
of potential competitors and/or strategic partners of the Company. These
relationships may give rise to conflicts of interest between the Company, on
the one hand, and one or more of the directors, or officers and/or their
affiliates, on the other hand. The Company's Certificate of Incorporation
provides that Mark Dyne and Kevin Bermeister are required to present to the
Company any corporate opportunities for the development of any type of digital
entertainment with the exception of opportunities for (i) minority
participation in the development of digital entertainment and (ii)
participation in the development by others of digital entertainment where
publishing and distribution rights for the product to be developed are offered
to Messrs. Dyne and/or Bermeister solely for Australia, New Zealand and/or
Southern Africa. The Company's Certificate of Incorporation provides that
Messrs. Dyne and Bermeister are not required to present to the Company any
other opportunities which potentially may be of benefit to the Company.
LIMITED PROPRIETARY PROTECTION
The Company's success and ability to compete is dependent in part upon
its proprietary technology. The Company also relies on trademark, trade
secret and copyright laws to protect its technology, with the source code for
the Company's proprietary software being protected both as a trade secret and
as a copyrighted work. Also, it is the Company's policy that all employees
and third-party developers sign nondisclosure agreements. However, there can
be no assurance that such precautions will provide meaningful protection from
competition or that competitors will not be able to develop similar or
superior technology independently. Also, the Company has no license
agreements with the end users of its products and does not copy-protect its
software, so it may be possible for unauthorized third parties to copy the
Company's products or to reverse engineer or otherwise obtain and use
information that the Company regards as proprietary. Although the Company is
not aware of unauthorized copying of its products, if a significant amount of
unauthorized copying of the Company's products were to occur, the Company's
business,
PAGE 14
<PAGE>
operating results and financial condition could be adversely affected.
Furthermore, policing unauthorized use of the Company's products is difficult
and costly, and software piracy can be expected to be a persistent problem.
If litigation is necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets or to determine the
validity and scope of the proprietary rights of others, such litigation could
result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, operating results and
financial condition. Ultimately, the Company may be unable, for financial or
other reasons, to enforce its rights under intellectual property laws and the
laws of certain countries in which the Company's products are or may be
distributed may not protect the Company's products and intellectual rights to
the same extent as the laws of the United States.
The Company believes that its products, including its suite of software
tools, do not infringe any valid existing proprietary rights of third parties.
Since the software tools used to create the Multipath Movies were developed by
SAND, a division of Sega Ozisoft, the Company relies entirely on the
representations of Sega Ozisoft contained in the SAND Acquisition Agreement
between BII Australia and Sega Ozisoft that, to Sega Ozisoft's best knowledge,
the SAND technology and software acquired by the Company does not infringe the
proprietary rights of others. Additionally, although the Company has received
no communication from third parties alleging the infringement of proprietary
rights of such parties, there can be no assurance that third parties will not
assert infringement claims in the future. Any such third party claims,
whether or not meritorious, could result in costly litigation or require the
Company to enter into royalty or licensing agreements. There can be no
assurance that the Company would prevail in any such litigation or that any
such licenses would be available on acceptable terms, if at all. If the
Company were found to have infringed upon the proprietary rights of third
parties, it could be required to pay damages, cease sales of the infringing
products and redesign or discontinue such products, any of which alternatives,
individually or collectively could have a material adverse effect on the
Company's business, operating results and financial condition.
VOLATILITY OF STOCK PRICE
The Company's Common Stock is traded on the American Stock Exchange, and
there has been substantial volatility in the market price of the Common Stock.
The trading price of the Common Stock has been and is likely to continue to be
subject to significant fluctuations in response to variations in quarterly
operating results, the gain or loss of significant contracts, changes in
management, announcements of technological innovations or new products by the
Company or its competitors, legislative or regulatory changes, general trends
in the industry, recommendations by securities industry analysts and other
events or factors. In addition, the stock market has experienced extreme
price and trading volume fluctuations which have affected the market price of
the common stock of many technology companies in particular and which have at
times been unrelated to operating performance of the specific companies whose
stock is affected. In addition, in the past the Company has not experienced
significant trading volume in its Common Stock, has not been actively followed
by stock market analysts and has had limited market-making support from
broker-dealers. If market-making support does not continue at present or
greater levels and/or the Company does not continue to receive analyst
coverage, the average trading volume in the Common Stock may not increase or
even sustain its current levels, in which case, there can be no assurance that
an adequate trading market will exist to sell large positions in the Common
Stock.
CONTROL BY EXISTING STOCKHOLDERS
As of April 30, 1998, the Company's officers and directors and Sega
Ozisoft, of which Messrs. Dyne and Bermeister are directors and stockholders,
owned approximately 30.6% of the Company's outstanding shares. As a result,
these stockholders are able to control the Company and its operations,
including the election of at least a majority of the Company's Board of
Directors and thus, the policies of the Company. The voting power of these
stockholders could also discourage potential acquirors from seeking to acquire
control of the Company through the purchase of the Common Stock, which might
have a depressive effect on the price of the Common Stock.
EFFECT OF CERTAIN CHARTER PROVISIONS; STOCKHOLDER'S RIGHTS PLAN; ANTI-TAKEOVER
EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
The Company's Board of Directors has the authority to issue up to
1,000,000 shares of Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The Preferred
Stock could be issued with voting, liquidation, dividend and other rights
superior to those of the Common Stock. In March 1998, the Company adopted a
stockholder's rights
PAGE 15
<PAGE>
plan (the "Rights Agreement") and, in connection therewith, distributed one
preferred share purchase right for each outstanding share of the Company's
Common Stock outstanding on April 2, 1998. Pursuant to the Rights Agreement,
upon the occurrence of certain triggering events related to an unsolicited
takeover attempt of the Company, each purchase right not owned by certain
hostile acquirors will entitle its holder to purchase shares of the Company's
Series A Preferred Stock, which is convertible into Common Stock, at a value
below the then current market value of the preferred stock. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of the share purchase rights and of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Further, certain provisions of the Company's
Certificate of Incorporation and Bylaws and of Delaware law could delay or
make more difficult a merger, tender offer or proxy contest involving the
Company.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
offered by the Selling Stockholders.
PAGE 16
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The 800,000 shares of Common Stock to be sold by Packard Bell (the
"Packard Bell Shares") consist of 600,000 shares underlying the 1996 Packard
Bell Warrant and 200,000 shares underlying the 1997 Packard Bell Warrant, both
of which were issued in connection with the Company's CD-ROM Distribution
Agreement with Packard Bell NEC. The 85,000 shares of Common Stock to be sold
by Morgan Creek (the "Morgan Creek Shares") consist of shares underlying the
Morgan Creek Warrant. The Morgan Creek Warrant was issued by the Company in
connection with its joint venture with Morgan Creek to produce Multipath
Movies based on motion picture scripts contributed by Morgan Creek. The
55,262 shares of Common Stock to be sold by Chloe (the "Chloe Shares") consist
of 40,222 shares underlying the 1996 Chloe Warrant and 15,040 shares
underlying the 1997 Chloe Warrant, both of which were issued as consideration
for financial services provided by Chloe's affiliate, Averil Associates, Inc.,
a financial advisory firm founded and controlled by Diana Maranon, a member of
the Company's board of directors since August 1996. Ms. Maranon also served
as the Company's Secretary from August 1996 until March 1997.
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock by the Selling Stockholders as of June
1, 1998, and as adjusted to reflect the sale of 940,262 shares by the Selling
Stockholders. The Selling Stockholders have the sole voting and investment
power with respect to the shares owned.
<TABLE>
<CAPTION>
Common Stock Beneficially Common Stock Beneficially
Owned Prior to the Owned After the
Offering(1) Offering(1)(2)
---------------------- --------------------
Number of Percent Shares Number of Percent
Shares of Class Offered Shares of Class
------- -------- ------- ------ ----------
<S> <C> <C> <C> <C> <C>
Packard Bell NEC, Inc.(3) 800,000 7.8% 800,000 0 0
One Packard Bell Way
Sacramento, California 95828
Morgan Creek Interactive, Inc.(4) 85,000 * 85,000 0 0
4000 Warner Boulevard
Building 76
Burbank, California 91522
Diana Maranon (5) 80,262 * 55,262 25,000 *
Averil Associates, Inc.
833 17th Street, Suite Six
Santa Monica, California 90403
</TABLE>
_________________________
* Less than one percent.
(1) Assumes that the Selling Stockholders acquire no additional shares of the
Company's Common Stock before completion of the offering and that no
Selling Stockholder disposes of shares of the Company's Common Stock
before completion of the offering except for those shares sold pursuant to
this Prospectus.
(2) Assumes that all of the Packard Bell Warrants, the Morgan Creek Warrant
and the Chloe Warrants will be exercised and the underlying shares of
Common Stock will be sold in the offering.
(3) Consists of (i) 600,000 shares underlying the 1996 Packard Bell Warrant
and (ii) 200,000 shares underlying the 1997 Packard Bell Warrant, both of
which are currently exercisable.
(4) Consists of 85,000 shares underlying the Morgan Creek Warrant which is
currently exercisable.
(5) Ms. Maranon is a director of the Company. Includes (i) 25,000 shares of
Common Stock reserved for issuance upon exercise of stock options which
are currently exercisable; (ii) 40,222 shares of Common Stock underlying
the 1996 Chloe Warrant which is currently exercisable; and (iii) 15,040
shares of Common Stock underlying the 1997 Chloe Warrant which will become
fully exercisable on December 10, 1998.
The Selling Stockholders may sell all or a portion of the shares of Common
Stock offered hereby from time to time in brokerage transactions on the
American Stock Exchange at prices and terms prevailing at the times of such
sales. The Selling Stockholders may also make private sales directly or through
brokers. The Selling Stockholders may individually pay customary brokerage
commissions and expenses. In connection with any sales, the Selling
Stockholders and any brokers participating in such sales may be deemed to be
underwriters within the meaning of the Securities Act, in which event
commissions received by such brokers may be deemed underwriting commissions
under the Securities Act.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the shares of Common Stock of the Company offered by this
Prospectus may not simultaneously engage in market making activities with
respect to the shares of Common Stock of the Company during the applicable
"cooling off" periods prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Stockholders will
need to comply with applicable provisions of the Exchange Act and the rules and
regulations thereunder including, without
PAGE 17
<PAGE>
limitation, Regulation M, which provisions may limit the timing of purchases
and sales of shares of Common Stock by the Selling Stockholders. Regulation M
contains certain limitations and prohibitions and is intended to prevent
issuers and selling security holders and other participants in a distribution
of securities from conditioning the market through manipulative or deceptive
devices to facilitate the distribution.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Troop Meisinger Steuber & Pasich, LLP, Los Angeles, California.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-KSB of Brilliant Digital Entertainment, Inc. for
the year ended December 31, 1997, have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
PAGE 18
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the offering are as follows:
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
Registration Fee Under Securities Act of 1933. . . . . . . $ 867
NASD Filing Fee. . . . . . . . . . . . . . . . . . . . . . . *
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . *
Printing and Engraving Certificates. . . . . . . . . . . . . *
Legal Fees and Expenses. . . . . . . . . . . . . . . . . . . 4,000
Accounting Fees and Expense. . . . . . . . . . . . . . . . . 2,000
Registrar and Transfer Agent Fees. . . . . . . . . . . . . . *
Miscellaneous Expenses . . . . . . . . . . . . . . . . . . . *
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,867
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ========
</TABLE>
- ------------------------
* Not applicable or none.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation and its Bylaws provide for the
indemnification by the Company of each director, officer and employee of the
Company to the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended. Section 145 of the
Delaware General Corporation Law provides in relevant part that a corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that such person
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if 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 corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such person's conduct
was unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if 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
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only
PAGE 19
<PAGE>
to the extent that the Delaware Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Delaware Court of Chancery or such other court shall deem proper.
Delaware law further provides that nothing in the above-described provisions
shall be deemed exclusive of any other rights to indemnification or advancement
of expenses to which any person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
The Company's Certificate of Incorporation provides that a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director. Section 102(o)(7) of the
Delaware General Corporation Law provides that a provision so limiting the
personal liability of a director shall not eliminate or limit the liability of
a director for, among other things: breach of the duty of loyalty; acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; unlawful payment of dividends; and transactions
from which the director derived an improper personal benefit.
The Company has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director of the Company and certain
officers of the Company (the "Indemnitees"). Pursuant to the terms and
conditions of the Indemnity Agreements, the Company indemnified each Indemnitee
against any amounts which he or she becomes legally obligated to pay in
connection with any claim against him or her based upon any action or inaction
which he or she may commit, omit or suffer while acting in his or her capacity
as a director and/or officer of the Company or its subsidiaries, provided,
however, that Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action, had no reasonable cause to
believe Indemnitee's conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the above statutory provisions or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
ITEM 16. EXHIBITS.
See the Exhibit Index of this Registration Statement.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement 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;
(2) That, for the purpose of determining liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating 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; and
(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.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new
Registration Statement relating 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.
Insofar as indemnification for liabilities arising under 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
PAGE 20
<PAGE>
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
the 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.
PAGE 21
<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 Los Angeles, State of California,
on June 10, 1998.
BRILLIANT DIGITAL ENTERTAINMENT, INC.
(Registrant)
By: /s/ Michael Ozen
-------------------------------------
MICHAEL OZEN, CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark Dyne and Michael Ozen or any one of them,
his attorney-in-fact and agent, with full power of substitution, for him in
any and all capacities, to sign any amendments to this Registration Statement
on Form S-3, and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact, or their
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ------ -----
<S> <C> <C>
/s/ Mark Dyne Chief Executive Officer and June 10, 1998
- ----------------------------------- Chairman of the Board
Mark Dyne (Principal Executive Officer and
Director)
/s/ Kevin Bermeister President and Director June 10, 1998
- ----------------------------------- Kevin Bermeister
Kevin Bermeister
/s/ Michael Ozen Chief Financial Officer and Secretary June 10, 1998
- ----------------------------------- (Principal Financial and Accounting
Michael Ozen Officer)
/s/ Mark Miller Vice President, Operations and Production June 10, 1998
- ----------------------------------- and Director
Mark Miller
/s/ Diana Marannon
- ----------------------------------- Director June 10, 1998
Diana Maranon
/s/ Gary Barber
- ----------------------------------- Director June 10, 1998
Gary Barber
/s/ Ray Musci
- ----------------------------------- Director June 10, 1998
Ray Musci
/s/ Garth Saloner
- ----------------------------------- Director June 10, 1998
Garth Saloner
/s/ Jeff Scheinrock
- ----------------------------------- Director June 10, 1998
Jeff Scheinrock
</TABLE>
<PAGE>
EXHIBIT INDEX
NO. ITEM
- --- ----
5.1 Opinion of Troop Meisinger Steuber & Pasich, LLP.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Troop Meisinger Steuber & Pasich, LLP (included as part of
Exhibit 5.1).
24.1 Power of Attorney (included in signature page).
PAGE 23
<PAGE>
[LETTERHEAD OF TROOP MEISINGER STEUBER & PASICH, LLP]
June 10, 1998
Brilliant Digital Entertainment, Inc.
6355 Topanga Canyon Boulevard, Suite 120
Woodland Hills, CA 91367
Ladies/Gentlemen:
At your request, we have examined the Registration Statement on Form S-3
(the "Registration Statement") to which this letter is attached as Exhibit
5.1 filed by Brilliant Digital Entertainment, Inc., a Delaware corporation
(the "Company"), in order to register under the Securities Act of 1933, as
amended (the "Act"), 940,262 shares of Common Stock of the Company and any
additional shares of Common Stock of the Company which may be registered
pursuant to Rule 462(b) under the Act (the "Shares").
We are of the opinion that the Shares have been duly authorized and
upon issuance and sale in conformity with and pursuant to the Registration
Statement, and receipt of the purchase price therefor as specified in the
Registration Statement, the Shares will be legally and validly issued, fully
paid and non-assessable.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to use of our name in the Prospectus constituting a part
thereof.
Respectfully submitted,
/s/ Troop Meisinger Steuber & Pasich, LLP
TROOP MEISINGER STEUBER & PASICH, LLP
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
March 18, 1998 appearing on page 32 of Brilliant Digital Entertainment's Annual
Report on Form 10-KSB for the year ended December 31, 1997. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
Price Waterhouse LLP
Los Angeles, California
June 9, 1998
