As filed with the Securities and Exchange Commission on September 13,
1999.Registration No. 333-82103
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
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 (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6355 TOPANGA CANYON BOULEVARD, SUITE 120
WOODLAND HILLS, CALIFORNIA 91367
(818) 346-3653
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
MARK DYNE, CHIEF EXECUTIVE OFFICER
6355 TOPANGA CANYON BOULEVARD, SUITE 120
WOODLAND HILLS, CALIFORNIA 91367
(818) 346-3653
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
COPIES TO:
Murray Markiles, Esq.
John J. McIlvery, Esq.
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East
Los Angeles, California 90067
(310) 728-3200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time 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 number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum Amount Of
Title of Each Class of Securities Amount To Be Offering Price Aggregate Registration
To Be Registered Registered(1) Per Unit Offering Price Fee
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per share..... 2,402,011 $3.34 (2) $8,022,717 $2,231
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share,
issuable upon conversion of debenture....... 200,000 $3.34 (2) $668,000 $186
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share,
issuable upon exercise of warrants.......... 300,000 $3.34 (2) $1,002,000 $279
- ---------------------------------------------------------------------------------------------------------------------------
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(1)In the event of a stock split, stock dividend, or similar transaction
involving the Registrant's common stock, in order to prevent dilution, the
number of shares registered shall automatically be increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act.
(2)Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average high and low prices of
the Registrant's common stock reported on the American Stock Exchange on
September 9, 1999.
(3)A registration fee of $4,482 was paid with respect to 2,727,522 shares of
Common Stock included with the initial filing of the Registration Statement.
A registration fee of $163 is being paid with respect to an additional
174,489 shares of Common Stock included with the filing of this amendment to
the Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME 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.
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<PAGE>
SUBJECT TO COMPLETION - SEPTEMBER 13, 1999
PROSPECTUS
BRILLIANT DIGITAL ENTERTAINMENT, INC.
2,902,011 SHARES OF COMMON STOCK
This is an offering of up to 2,902,011 shares of common stock of BRILLIANT
DIGITAL ENTERTAINMENT, INC. The selling stockholders named on pages 12 through
16 of this prospectus are offering all of the shares to be sold in this
offering. We will not receive any of the proceeds from the offering.
BRILLIANT'S common stock is traded on the American Stock Exchange under
the symbol "BDE." On September 8, 1999, the closing sale price of the common
stock on the American Stock Exchange was $3.44 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SHARES.
We have filed with the Securities and Exchange Commission a registration
statement covering the resale by some of our stockholders of up to 2,046,000
shares of our common stock. The resale of the 2,046,000 shares may occur
concurrently with the resale by the selling stockholders of the shares to be
sold using this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------
The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
PROSPECTUS SUMMARY......................................................................3
RISK FACTORS............................................................................4
FORWARD-LOOKING STATEMENTS.............................................................12
USE OF PROCEEDS........................................................................12
SELLING STOCKHOLDERS...................................................................12
PLAN OF DISTRIBUTION...................................................................17
WHERE YOU CAN FIND MORE INFORMATION....................................................18
LEGAL MATTERS..........................................................................19
EXPERTS................................................................................19
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PROSPECTUS SUMMARY
ABOUT BRILLIANT DIGITAL ENTERTAINMENT
BRILLIANT DIGITAL ENTERTAINMENT is a production and development studio
that uses software to create digital entertainment for distribution over the
Internet, on CD-ROM and DVD and, in the future, as television programming and
for home video. Using our proprietary software tools, we produce Multipath(TM)
Movies. Multipath Movies 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. Our Multipath Movies feature
seamless interactivity ensuring that the plot and graphical presentation of the
story are uninterrupted by the user's decisions.
Historically, we have derived revenues primarily from the sale of
Multipath Movies distributed on CD-ROM through retail outlets, and under
Multipath Movie distribution contracts where we are entitled to fixed minimum
guaranteed payments. To date, we have not achieved significant sales of
Multipath Movies viewed in real time over the Internet, and Multipath Movies
titles on DVD will not be available for purchase until the second half of 1999.
We have recently expanded our business to offer Internet- and
television-based auction services through our subsidiary, Trojan Television
Limited, which we acquired in July 1999. Trojan Television Limited is a
London-based company doing business as The Auction Channel. Founded in 1996, The
Auction Channel integrates live satellite, cable TV and World Wide Web
broadcasts of auction events conducted by auction houses, allowing for
participants to watch auction events on television or the Internet and use the
Internet or their telephone to bid on items presented at auction. The Auction
Channel is developing a Web site at www.theauctionchannel.com to be a principal
auction site where visitors will identify, select, attend and participate in
auction events. The Auction Channel has entered into agreements to provide its
services with major auction houses like Christie's, Phillips, Bonhams and
Brooks. Our acquisition of The Auction Channel furthers our business plan of
offering products and services specifically for the converging media of Internet
and television.
ABOUT THE OFFERING
This prospectus may be used only in connection with the resale by the
selling stockholders of shares of the common stock of Brilliant, as follows:
o Up to 2,132,000 shares of common stock may be sold by thirteen investors;
o Up to 411,405 shares of common stock may be sold by Roseworth Group, Ltd.;
o Up to 300,000 shares of common stock may be sold by Intel Corporation;
o Up to 40,500 shares of common stock may be sold by Chiltern Group PLC;
o Up to 9,540 shares of common stock may be sold by HAL Nominees Limited;
and
o Up to 8,566 shares of common stock may be sold by Wendy L. Paige.
We will not receive any proceeds from the sale of the shares of common
stock offered by the selling stockholders using this prospectus. On September 8,
1999, we had 11,915,999 shares of common stock outstanding.
CORPORATE INFORMATION
We are a Delaware corporation that was incorporated in July 1996. We were
formed through the combination of two businesses: Brilliant Interactive Ideas,
Pty. Ltd., an entertainment software developer and producer, and Sega Australia
New Developments, a research and development operation for leading edge software
tools. Our executive offices are located at 6355 Topanga Canyon Boulevard, Suite
120, Woodland Hills, California 91367, and our telephone number is (818)
346-3653. Information on our Web site, www.multipathmovies.com, does not
constitute part of this prospectus.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE YOU DECIDE TO BUY
OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THE MATERIAL
ONES FACING OUR COMPANY. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IF
THIS OCCURS, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY
LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
WE WILL NOT BE ABLE TO SELL OUR MULTIPATH MOVIES IF THEY DO NOT ACHIEVE MARKET
ACCEPTANCE.
Each Multipath Movie is an individual artistic work, and its ability to
generate sales primarily will be determined by consumer reaction, which is
unpredictable. To generate sales, we must develop stories and characters that
capture the attention and imagination of consumers and license recognized
characters and properties from third parties for use in our Multipath Movies. We
cannot be certain that we will be able to do so. Other factors that influence
our ability to generate revenues from our Multipath Movies include:
o consumer reluctance to initiate time consuming downloads of data necessary
to view our products;
o our marketing strategies;
o the quality of our products and competing products;
o critical reviews; and
o the availability of alternative forms of entertainment and leisure time
activities.
WE HAVE EXPERIENCED, AND MAY CONTINUE TO EXPERIENCE, REDUCED REVENUES DUE TO
DELAYS IN THE INTRODUCTION AND DISTRIBUTION OF OUR PRODUCTS.
We cannot be certain that we will be able to meet our planned release dates for
our new Multipath Movies. If we cannot begin to ship an important new product
during the scheduled quarter, our revenues would likely be reduced in that
quarter. In the past, we have experienced significant delays in our introduction
of some new products. For instance, delays in duplication, packaging and
distribution caused our 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 1997 holiday
selling season. Similarly, we experienced distribution delays in the fourth
quarter of 1998 that caused our products to reach retail shelves only at the end
of December, after the 1998 holiday selling season. As a result, we experienced
fewer sales of these products than we would have if the products were in stores
during the holiday selling seasons, which had a materially adverse effect on our
operating results for the 1997 and 1998 fourth quarters. It is likely in the
future that delays will continue to occur and that some new products will not be
released in accordance with our internal development schedule or the
expectations of public market analysts and investors.
WE MAY NOT BE ABLE TO GENERATE SIGNIFICANT SALES OF OUR PRODUCTS VIEWED ON THE
INTERNET UNLESS THERE IS A REDUCTION IN THE TIME IT TAKES TO DOWNLOAD THE LARGE
AMOUNTS OF DATA NECESSARY TO VIEW OUR PRODUCTS ON THE INTERNET.
Our revenue growth depends in part on our ability to distribute our
products for viewing on the Internet. We believe that without reductions in the
time to download Multipath Movies over the Internet, our Multipath Movies may be
unable to gain consumer acceptance. This reduction in download time depends in
part upon advances in compression technology. We have experienced delays in the
development of compression technologies, which, we believe, has materially and
adversely affected our online sales and results of operations. We believe that
large, time-consuming downloads have deterred potential users of our products
and have reduced the effectiveness of our marketing campaigns with Microsoft and
Disney. The development of these technologies continues to be a significant
component of our business strategy and a primary focus of our research and
development efforts.
OUR PROSPECTS ARE DIFFICULT TO FORECAST BECAUSE WE HAVE ONLY BEEN SELLING
MULTIPATH MOVIES SINCE DECEMBER 1997.
We have a limited history of selling Multipath Movies upon which to
evaluate our future prospects. We acquired the software tools necessary to
produce Multipath Movies in August 1996 and introduced our first Multipath Movie
in December 1997. theWe are unable to accurately anticipate our future
performance because of this limited experience. As a
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result, we may frequently over-spend for production or marketing of titles that
will fail, or under-spend on marketing for other titles, either of which will
result in the misallocation of our limited financial resources and adversely
affect our revenues and profitability.
IF WE ARE UNABLE TO RAISE ADDITIONAL FUNDS, WE MAY BE REQUIRED TO DEFER
COMPLETION OF MULTIPATH MOVIE TITLES AND REDUCE OVERHEAD SIGNIFICANTLY.
We believe that our existing funds, cash generated from operations and
proceeds from our future sales of common stock under the securities purchase
agreement we entered into in March 1999 will be sufficient to fund our working
capital requirements for at least the next twelve months. Following fiscal 1999,
we may need to raise additional funds through debt or equity financing or by
other means. We cannot be certain that additional financing will be available at
the time we need additional funds or that, if available, it can be obtained on
terms that we deem favorable. If necessary funds are not available, we may be
required to defer completion of Multipath Movie titles and reduce overhead
significantly, which could have a material adverse effect on our business.
Additionally, our stockholders may be diluted if we raise additional funds
through the sale of our stock.
OUR SOFTWARE DISTRIBUTORS AND PUBLISHERS, OUR OEM PROVIDERS AND THE LICENSORS
FROM WHOM WE OBTAIN RIGHTS TO OUR STORIES AND CHARACTERS MAY CAUSE US TO DELAY
THE RELEASE OF OUR PRODUCTS, WHICH MAY RESULT IN LOWER PRODUCT SALES AND LOWER
REVENUES THAN ANTICIPATED.
Our distribution relationships with software distributors and publishers
and OEM providers, and our licensing arrangements with companies that own the
stories or characters used in many of our Multipath Movies, contain potentially
burdensome provisions. These provisions may affect our ability to release our
products, which would adversely affect our revenues, for a number of reasons,
such as:
o A software distributor or a licensor of a story or character may, in
the exercise of its product approval rights, arbitrarily require
expensive and time consuming changes to introduction;our products,
which may cause a delay in the release of the products; and
o An OEM provider could change the shipping schedule of the equipment
with which our products are bundled, and thereby cause a delay in their
distribution.
One delay has already occurred. Packard Bell NEC, which agreed to
distribute our initial Multipath Movie CYBERSWINE and other movies selected by
us bundled with Packard Bell computers, significantly delayed the introduction
of CYBERSWINE beyond the initially anticipated launch date. Packard Bell NEC
also delayed the release of POPEYE AND THE QUEST FOR THE WOOLLY MAMMOTH, NIGHT
OF THE WEREWOLF and the HALLOWEEN PARTY bundled on Packard Bell computers beyond
the initially anticipated launch dates. As a result, these Multipath Movies were
not available to consumers on Packard Bell computers as early as we initially
anticipated, and we experienced fewer sales of these Multipath Movies and lower
revenues than we expected.
WE MAY NOT BE ABLE TO LICENSE STORIES AND CHARACTERS THAT APPEAL TO CONSUMERS
FOR USE IN OUR MULTIPATH MOVIES, WHICH IS NECESSARY FOR OUR MULTIPATH MOVIES TO
SELL WELL IN THE MARKET.
We use stories and characters developed by third parties in our Multipath
Movies. If we cannot license stories and characters that appeal to consumers at
prices or upon terms or conditions that we consider acceptable, we may not be
able to develop Multipath Movies that consumers will purchase. To have access to
appealing stories and characters for use in our Multipath Movies, we will need
to continue to develop new relationships and maintain existing relationships
with the licensors of these stories and characters. Many licensors are reluctant
to grant broad licenses covering multiple formats, like the Internet and
television, to companies without a proven track record in the particular
industry. When rights are available, there is often significant competition for
licenses.
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IF THE VENDOR WE USE TO DELIVER MULTIPATH MOVIES THROUGH OUR INTERNET SITE
EXPERIENCES AN INTERRUPTION IN SERVICE, WE WILL NOT BE ABLE TO SELL MOVIES
THROUGH OUR INTERNET SITE UNTIL SERVICE RESUMES.
We presently use a single vendor to deliver Multipath Movies through our
Internet site. Any significant interruption in service provided by this vendor
could interrupt sales and delivery of Multipath Movies and adversely affect our
ability to conduct this portion of our business and maintain customer
satisfaction.
IF WE CANNOT OBTAIN CD-ROM AND DVD MANUFACTURING AND PACKAGING SERVICES ON A
TIMELY BASIS, WE MAY NOT BE ABLE TO TIMELY DELIVER OUR CD-ROM AND DVD PRODUCTS
TO DISTRIBUTORS AND RETAILERS AND OUR SALES WILL BE ADVERSELY AFFECTED.
We use third party vendors to press CD-ROM and DVD disks, assemble
purchased product components, print product packaging and user manuals and
package finished products in connection with the retail distribution of our
Multipath Movies. We do not have contractual agreements with any of our third
party vendors, which may result in our inability to secure adequate services in
a timely manner. If we cannot obtain adequate manufacturing services, we will
not be able to timely produce and deliver our CD-ROM and DVD products to
distributors and retail stores for ultimate sale to consumers, which will
adversely affect our sales and operating results.
IF WE ARE UNABLE TO DEVELOP A RETAIL SALES CHANNEL, EFFECTIVELY COMPETE FOR
RETAIL SHELF SPACE AND NEGOTIATE FAVORABLE TERMS WITH RETAILERS, OUR RETAIL
SALES AND OPERATING RESULTS WILL BE ADVERSELY AFFECTED.
To be profitable, we anticipate that a significant amount of sales of
Multipath Movies will need to be made by traditional retailers. We may not be
able to achieve significant retail sales at prices favorable to us. We have no
prior experience in developing or managing a retail sales channel or selling
products in retail stores. We are currently expending significant resources to
develop a retail sales channel, which expenditures must be made before we
realize any significant retail sales. The competition for shelf space in retail
stores is intense. We expect that our products will constitute a small
percentage of a retailer's sales volume, and we cannot be certain that retailers
will provide our 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 increasingly are in a better
position to negotiate favorable terms of sale, including terms relating to price
discounts, product return rights and cooperative market development funds.
Increased competition could result in loss of shelf space for our products at
retail stores, as well as significant price competition, any of which could
adversely affect our sales volume and the price we receive for our products.
WE MAY ENCOUNTER PROBLEMS IN CONNECTION WITH OUR ACQUISITION OF THE AUCTION
CHANNEL, WHICH MAY INCREASE THE COSTS OF THE ACQUISITION AND DISTRACT
MANAGEMENT'S ATTENTION FROM OPERATING THE COMBINED BUSINESS.
In July 1999, we acquired Trojan Television Limited, a London-based
company doing business as The Auction Channel. The Auction Channel integrates
live satellite, cable TV and Web broadcasts of auction events conducted by
auction houses, allowing for participants to watch auction events on television
and use the Internet or their telephone to bid simultaneously with people
actually present at the auction house. We have very little experience in
acquiring businesses and will likely encounter difficulties in integrating The
Auction Channel's operations with our existing operations, which may result in
unexpected costs and adversely affect our operating results. In addition, the
integration will require the dedication of management resources, which may
temporarily distract management's attention from the day-to-day operations of
the two companies and adversely affect our operating results. Some of the
difficulties we expect to encounter include, among others, those related to:
o integrating Brilliant's and The Auction Channel's management staffs;
o retaining The Auction Channel's key management and technical personnel; and
o coordinating the operation of geographically separated organizations with
distinct cultures.
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THE AUCTION CHANNEL MAY NEVER BE PROFITABLE, WHICH WILL ADVERSELY AFFECT OUR
CONSOLIDATED OPERATIONS.
The Auction Channel commenced operations in July 1996 and, accordingly,
has a limited operating history upon which to evaluate its future prospects.
There can be no assurance that The Auction Channel will achieve profitability or
implement its business strategy. The Auction Channel had net losses of
approximately $310,000 in fiscal 1997, $521,000 in fiscal 1998 and $1,289,000
for the nine months ended March 31, 1999, and an accumulated deficit of
$2,119,000 as of March 31, 1999 relating to net losses from the period from July
1, 1996 through fiscal 1997 and 1998 and the nine months ended March 31, 1999.
We expect that The Auction Channel will continue to sustain losses at least for
the next twelve months.
OUR AMORTIZATION EXPENSES WILL INCREASE AS A RESULT OF OUR ACQUISITION OF THE
AUCTION CHANNEL CAUSING AN ADVERSE EFFECT ON OUR OPERATING RESULTS.
Our acquisition of The Auction Channel has been accounted for as a
purchase. Based on the purchase price paid, The Auction Channel acquisition is
expected to result in significant goodwill recorded on our balance sheet. As a
result, we expect that our amortization expense will significantly increase over
historical levels. This increase in amortization expense will have an adverse
effect on our operating results during the remainder of 1999 and in subsequent
periods.
IF THE AUCTION CHANNEL LOSES ITS LICENSE TO THE COMPUTER SOFTWARE AND HARDWARE
TECHNOLOGIES IT USES IN ITS BUSINESS, THE AUCTION CHANNEL MAY NOT BE ABLE TO
CONTINUE TO SELL ITS PRODUCTS AND SERVICES.
Many of the underlying computer software and hardware technologies used by
The Auction Channel are licensed from Articulate UK Limited. The Auction Channel
has, with respect to these technologies, a worldwide, irrevocable license, with
rights to exploit and improve, to any and all software, patents, technology,
object code, documentation and know how developed or owned or licensable by
Articulate UK. If The Auction Channel loses its rights to the computer software
and hardware technologies it licenses from Articulate UK as a result of a
dispute with Articulate UK or otherwise, The Auction Channel will not be able to
continue to sell its products and services. If this occurs, The Auction
Channel's revenues will be substantially reduced.
PRODUCT RETURNS THAT EXCEED OUR ANTICIPATED RESERVES COULD RESULT IN WORSE THAN
EXPECTED OPERATING RESULTS.
At the time we ship our products to retailers, we will establish reserves,
including reserves that estimate the potential for future product returns.
Product returns or price protection concessions that exceed our reserves could
increase the magnitude of quarterly fluctuations in our operating and financial
results. Furthermore, if we incorrectly assess the creditworthiness of customers
who receive our products on credit, we could be required to significantly
increase the reserves previously established. We cannot be certain that any
future write-offs will not occur or that amounts written off will not have a
material adverse effect on our business and depress the market price of our
common stock. Actual returns to date have been within management's estimates.
FLUCTUATIONS IN OPERATING RESULTS MAY RESULT IN UNEXPECTED REDUCTIONS IN REVENUE
AND STOCK PRICE VOLATILITY.
We operate in an industry that is subject to significant fluctuations in
operating results from quarter to quarter, which may lead to unexpected
reductions in revenues and stock price volatility. Factors that may influence
our quarterly operating results include:
o shipping schedules for PC hardware with which Multipath Movies are bundled;
o the introduction or enhancement of software products by us and our
competitors;
o our ability to produce and distribute retail packaged versions of Multipath
Movies in advance of peak retail selling seasons;
o the introduction or availability of new computer hardware to be used with
our products; and
o the timing of orders from major customers.
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Additionally, a majority of the unit sales for a product typically occurs
in the quarter in which the product is introduced. As a result, our revenues may
increase significantly in a quarter in which a major product introduction occurs
and may decline in following quarters.
BECAUSE WE ARE SUBJECT TO SEASONAL BUYING PATTERNS, IF WE DO NOT ACHIEVE STRONG
FOURTH QUARTER SALES OUR REVENUES AND OPERATING RESULTS FOR THE ENTIRE FISCAL
YEAR WILL LIKELY BE ADVERSELY AFFECTED.
The entertainment software business is highly seasonal. Typically, demand
for entertainment software products and net revenues are highest during the
year-end holiday buying season, decline in the first calendar quarter and are
lowest in the second and third calendar quarters. As a result, a
disproportionate share of our net revenues historically has been generated in
the fourth quarter of our fiscal year. If we do not have strong fourth quarter
sales, our revenues and operating results for the entire fiscal year will likely
be adversely affected. We expect our revenues and operating results will
continue to reflect these seasonal factors.
IF WE DO NOT IMPROVE OUR SOFTWARE TOOLS TO PRODUCE NEW, MORE ENHANCED MULTIPATH
MOVIES, OUR REVENUES WILL BE ADVERSELY AFFECTED.
The software tools that enable us to create Multipath Movies have been
developed over the past three years. Additional refinement of these tools may be
necessary to continue to enhance the Multipath Movie format. If we cannot
develop improvements to these software tools, our Multipath Movies may not
obtain or maintain market acceptance and our revenues will be adversely
affected.
ERRORS OR DEFECTS IN OUR SOFTWARE TOOLS AND PRODUCTS MAY CAUSE A LOSS OF MARKET
ACCEPTANCE AND RESULT IN FEWER SALES OF OUR PRODUCTS.
Our products are complex and may contain undetected errors or defects when
first introduced or as new versions are released. In the past, we have
discovered software errors in some of our new products and enhancements after
their introduction into the market. Because our products are complex, we
anticipate that software errors and defects will be present in new products or
releases in the future. While to date these errors have not been material,
future errors and defects could result in adverse product reviews and a loss of,
or delay in, market acceptance of our products.
TO DEVELOP PRODUCTS THAT CONSUMERS DESIRE, WE MUST MAKE SUBSTANTIAL INVESTMENTS
IN RESEARCH AND DEVELOPMENT TO KEEP UP WITH THE RAPID TECHNOLOGICAL DEVELOPMENTS
THAT ARE TYPICAL IN OUR INDUSTRY.
The entertainment software market and the PC industry are subject to rapid
technological developments. To develop products that consumers desire, we must
continually improve and enhance our existing products and technologies and
develop new products and technologies that incorporate these technological
developments. We cannot be certain that we will have the financial and technical
resources available to make these improvements. We must make these improvements
while remaining competitive in terms of performance and price. This will require
us to make substantial investments in research and development, often times well
in advance of the widespread release of the products in the market and any
revenues these products may generate.
OUR PROPRIETARY TECHNOLOGY MAY NOT BE ADEQUATELY PROTECTED FROM UNAUTHORIZED USE
BY OTHERS, WHICH COULD INCREASE OUR LITIGATION COSTS AND ADVERSELY AFFECT OUR
SALES.
Our ability to compete with other entertainment software companies depends
in part upon our proprietary technology. Unauthorized use by others of our
proprietary technology could result in an increase in competing products and a
reduction in our sales. We rely on trademark, trade secret and copyright laws to
protect our technology, and require all employees and third-party developers to
sign nondisclosure agreements. We cannot be certain, however, that these
precautions will provide meaningful protection from unauthorized use by others.
We do not copy-protect our software, so it may be possible for unauthorized
third parties to copy our products or to reverse engineer or otherwise obtain
and use information that we regard as proprietary. Our customers may take
inadequate precautions to protect our proprietary information. If we must pursue
litigation in the future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of the proprietary
rights of others, we may not prevail and will likely make substantial
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expenditures and divert valuable resources. In addition, many foreign countries'
laws may not protect us from improper use of our proprietary technologies
overseas. We may not have adequate remedies if our proprietary rights are
breached or our trade secrets are disclosed.
IF OUR PRODUCTS INFRINGE ANY PROPRIETARY RIGHTS OF OTHERS, A LAWSUIT MAY BE
BROUGHT AGAINST US THAT COULD REQUIRE US TO PAY LARGE LEGAL EXPENSES AND
JUDGMENTS AND REDESIGN OR DISCONTINUE SELLING OUR PRODUCTS.
We believe that our products, including our software tools, do not
infringe any valid existing proprietary rights of third parties. Any
infringement claims, however, whether or not meritorious, could result in costly
litigation or require us to enter into royalty or licensing agreements. If we
are found to have infringed the proprietary rights of others, we could be
required to pay damages, redesign the products or discontinue their sale. Any of
these outcomes, individually or collectively, could have a material adverse
effect on our business and financial condition.
WE MAY BE REQUIRED TO ISSUE SHARES OF COMMON STOCK TO PACKARD BELL NEC UPON ITS
EXERCISE OF WARRANTS WE REDEEMED IN JULY 1999.
In July 1999, we redeemed from Packard Bell NEC warrants to purchase
600,000 shares of our common stock. The warrants were exercisable at $5 per
share and would have expired on September 14, 1999. Packard Bell NEC is claiming
that we did not properly redeem the warrants, and considers the warrants to be
outstanding. If Packard Bell NEC attempts to exercise the warrants, we may be
required to issue up to 600,000 shares of common stock to Packard Bell NEC at a
purchase price of $5.00 per share if Packard Bell NEC prevails in our dispute
over redemption of the warrants. The information in this prospectus, including
the number of shares that we may issue upon exercise of outstanding options and
warrants, is presented as if we properly redeemed all of the Packard Bell NEC
warrants and they are no longer outstanding.
OUR STOCK PRICE AND TRADING VOLUME FLUCTUATE WIDELY AND MAY CONTINUE TO DO SO IN
THE FUTURE. AS A RESULT, WE MAY EXPERIENCE SIGNIFICANT DECLINES IN OUR STOCK
PRICE.
The market price and trading volume of our common stock, which trades on
the American Stock Exchange, has been subject to substantial volatility, which
is likely to continue. This volatility may result in significant declines in the
price of our common stock. Factors that may cause these fluctuations include:
o variations in quarterly operating results;
o the gain or loss of significant contracts;
o changes in management;
o announcements of technological innovations or new products by us or our
competitors;
o recommendations by securities industry analysts;
o dilution to existing stockholders resulting from the issuance of additional
shares of common stock; and
o short sales and hedging of our common stock.
Additionally, the stock market has experienced extreme price and trading
volume fluctuations that have affected the market price of securities of many
technology companies. These fluctuations have, at times, been unrelated to the
operating performances of the specific companies whose stock is affected. The
market price and trading volume of our stock may be subject to these
fluctuations.
IF OUR STOCK DOES NOT SUSTAIN A SIGNIFICANT TRADING VOLUME, STOCKHOLDERS MAY BE
UNABLE TO SELL LARGE POSITIONS IN OUR COMMON STOCK.
In the past, our common stock has not experienced significant trading
volume on a consistent basis and has not been actively followed by stock market
analysts. The average trading volume in our common stock may not increase or
sustain its current levels. As a result, we cannot be certain that an adequate
trading market will exist to permit stockholders to sell large positions in our
common stock.
Page 9
<PAGE>
BECAUSE OUR OFFICERS AND DIRECTORS OWN A SIGNIFICANT PORTION OF OUR COMMON
STOCK, THEY MAY BE ABLE TO INFLUENCE STOCKHOLDER VOTES AND DISCOURAGE OTHERS
FROM ATTEMPTING TO ACQUIRE US.
As of July 22, 1999, our officers and directors owned, in total,
approximately 17.8% of the outstanding shares of our common stock. As a result,
our officers and directors are able to exert influence over the outcome of all
matters submitted to a vote of the holders of our common stock, including the
election of our Board of Directors. The voting power of these officers and
directors could also discourage others from seeking to acquire control of us
through the purchase of our common stock, which might depress the price of our
common stock.
WE HAVE ADOPTED A NUMBER OF ANTI-TAKEOVER MEASURES THAT MAY DEPRESS THE PRICE OF
OUR COMMON STOCK.
Our adoption of a stockholders' rights plan, our ability to issue up to
700,000 shares of preferred stock and some provisions of our certificate of
incorporation and bylaws and of Delaware law could make it more difficult for a
third party to make an unsolicited takeover attempt of us. These anti-takeover
measures may depress the price of our common stock by making third parties less
able to acquire us by offering to purchase shares of our stock at a premium to
its market price. Our board of directors can issue up to 700,000 shares of
preferred stock and determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by our stockholders. Our board of directors could issue the preferred
stock with voting, liquidation, dividend and other rights superior to the rights
of our common stock. The rights of holders of our common stock will be subject
to, and may be adversely affected by, the rights of 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 make it more
difficult for a third party to acquire a majority of our outstanding voting
stock.
OUR SALE OF SHARES TO ST. ANNES AT A PRICE BELOW THE MARKET PRICE OF OUR COMMON
STOCK WILL HAVE A DILUTIVE IMPACT ON OUR STOCKHOLDERS.
We have entered into a securities purchase agreement with St. Annes
Investments, Ltd. that allows us to sell to St. Annes up to $6,000,000 worth of
shares of our common stock at a discount to the then-prevailing market price of
our common stock. If the market price is $4.00 or less, St. Annes will receive a
discount equal to 14% of the market price, and if the market price is greater
than $4.00, St. Annes will receive a discount equal to 12% of the market price.
Accordingly, the issuance of shares under the securities purchase agreement will
have a dilutive impact on our stockholders. As a result, our net income or loss
per share could be materially decreased in future periods, and the market price
of our common stock could be materially and adversely affected.
The table below sets forth the number of shares and the percentages of our
common stock that St. Annes would own if we elected to sell the entire
$6,000,000 worth of stock under the purchase agreement. The share amounts and
the percentages are based on our closing share price of $3.4375 on September 8,
1999, and on assumed closing share prices of $2.58, $1.72 and $0.86, which
prices represent a 25%, 50% and 75% decline, respectively, in our September 8,
1999 closing share price. The percentages are also based on 11,915,999 shares of
our common stock outstanding on September 8, 1999.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
DECLINE IN ASSUMED OF
SEPTEMBER 8, 1999 CLOSING SHARES OF OUTSTANDING
CLOSING PRICE PRICE COMMON STOCK COMMON STOCK
------------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
-- $ 3.44 2,028,123 14.5%
25% $ 2.58 2,704,164 18.5%
50% $ 1.72 4,056,247 25.4%
75% $ 0.86 8,112,493 40.5%
</TABLE>
Page 10
<PAGE>
WE MAY NOT BE ABLE TO SELL THE ENTIRE $6,000,000 WORTH OF SHARES OF OUR COMMON
STOCK TO ST. ANNES WITHOUT OBTAINING STOCKHOLDER APPROVAL, WHICH MAY REQUIRE
THAT WE SEEK ALTERNATIVE SOURCES OF FINANCING THAT MAY NOT BE AVAILABLE ON TERMS
FAVORABLE TO US.
Under the rules of the American Stock Exchange, we cannot sell to St.
Annes under our securities purchase agreement more than 1,881,800 shares of
common stock unless we obtain stockholder approval of the issuance of shares in
excess of this amount. Accordingly, if the average price at which we sell our
stock to St. Annes under the securities purchase agreement is less than $3.19
per share, we will not be able to sell the entire $6,000,000 worth of shares of
our common stock to St. Annes without first obtaining stockholder approval. If
we are unable to obtain stockholder approval, or if we choose not to pursue
stockholder approval, we may be required to seek alternative sources of
financing to fund our working capital requirements. We cannot guarantee that
additional financing will be available or that, if available, it can be obtained
on terms favorable to us and our stockholders.
OUR SALE OF SHARES TO ROSEWORTH UPON CONVERSION OF A DEBENTURE AT A PRICE BELOW
THE MARKET PRICE OF OUR COMMON STOCK WILL HAVE A DILUTIVE IMPACT ON OUR
STOCKHOLDERS.
We have issued to Roseworth a $1,000,000 debenture that Roseworth may
convert into common stock at a discount to the then-prevailing market price of
our common stock. As of the date of this prospectus, Roseworth has converted
$750,000 of the debenture into 205,522 shares of common stock, and may convert
the remaining $250,000 of principal and all accrued interest into shares of
common stock upon notice to us. Accordingly, the issuance of shares upon
conversion of the remaining principal and interest under the debenture will have
a dilutive impact on our stockholders. Discounted sales resulting from the
conversion of the debenture could have an immediate adverse effect on the market
price of the common stock.
DECREASES IN THE PRICE OF OUR COMMON STOCK COULD INCREASE SHORT SALES OF OUR
COMMON STOCK BY THIRD PARTIES, WHICH COULD RESULT IN FURTHER REDUCTIONS IN THE
PRICE OF OUR COMMON STOCK.
Our sales of common stock to St. Annes and Roseworth at a discount to the
market price of our common stock could result in reductions in the market price
of our common stock. Downward pressure on the price of our common stock could
encourage short sales of the stock by third parties. Material amounts of short
selling could place further downward pressure on the market price of the common
stock. A short sale is a sale of stock that is not owned by the seller. The
seller borrows the stock for delivery at the time of the short sale, and buys
back the stock when it is necessary to return the borrowed shares. If the price
of the common stock declines between the time the seller sells the stock and the
time the seller subsequently repurchases the common stock, then the seller sold
the shares for a higher price then he purchased the shares and may realize a
profit.
Page 11
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains statements that constitute forward-looking
statements within the meaning of Section 21E of the Exchange Act of 1934 and
Section 27A of the Securities Act of 1933. 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 prospectus and include statements regarding
our intent, belief or current expectations regarding our strategies, plans and
objectives, our product release schedules, our ability to design, develop,
manufacture and market products, our intentions with respect to strategic
acquisitions, and the ability of our products to achieve or maintain commercial
acceptance. Any forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual results may differ
materially from those projected in this prospectus, for the reasons, among
others, described in the Risk Factors section beginning on page 4. You should
read the Risk Factors section carefully, and should not place undue reliance on
any forward-looking statements, which speak only as of the date of this
prospectus. We undertake no obligation to release publicly any updated
information about forward-looking statements to reflect events or circumstances
occurring after the date of this prospectus or to reflect the occurrence of
unanticipated events.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock offered by the selling stockholders using this prospectus.
SELLING STOCKHOLDERS
This prospectus may be used only in connection with the resale by the
selling stockholders of shares of the common stock of Brilliant, as follows:
o Up to 2,132,000 shares of common stock may be sold by thirteen investors;
o Up to 411,405 shares of common stock may be sold by Roseworth Group, Ltd.;
o Up to 300,000 shares of common stock may be sold by Intel Corporation;
o Up to 40,500 shares of common stock may be sold by Chiltern Group PLC;
o Up to 9,540 shares of common stock may be sold by HAL Nominees Limited;
and
o Up to 8,566 shares of common stock may be sold by Wendy L. Paige.
Other than the transactions described below, no selling stockholder has
had any material relationship with us within the last three years.
THE INVESTORS
We are registering 2,132,000 shares of common stock on behalf of thirteen
investors. We issued these shares of common stock to Prince Ahmad Bin Khalid
Al-Saud, Barry Baeres, Brent Cohen, Tim Helfet, Schuermann GbR, Tatich
Financing, Inc. and Werner Family Trust in a series of private sales in May
1999. In June 1999, Mr. Helfet sold a total of 60,000 shares to Harris Toibb,
Don Kinder, Gail Toibb-Carrier, Howard Smuckler, Ronald and Barbara Gilesfsky
and Michael Toibb. We agreed to register these shares on a Form S-3 registration
statement.
Page 12
<PAGE>
PRINCE AHMAD BIN KHALID AL-SAUD
We have agreed to elect Prince Ahmad Bin Khalid Al-Saud or his designee as
a Class I director for a term ending in 2000. Additionally, we have agreed that
so long as Mr. Al-Saud maintains ownership of at least 5% of our outstanding
equity securities, we will use our best efforts to continue to cause Mr. Al-Saud
or his designee to be nominated for election as a director.
TIM HELFET AND BRENT COHEN
In July 1999, we acquired The Auction Channel through our purchase of
substantially all of its outstanding shares from its shareholders. These
shareholders include TB Investments LLC, which owned approximately 34% of the
outstanding shares of The Auction Channel. Tim Helfet and Brent Cohen each own
50% of TB Investments LLC. The purchase price we will pay to the shareholders of
The Auction Channel, including Mr. Helfet and Mr. Cohen, will consist of shares
of our common stock, the number of which will be determined following completion
of an audit of The Auction Channel's financial statement for the fiscal year
ended June 30, 1999. As of the date of this prospectus, the audit has not been
completed and the actual number of shares of common stock to be issued by us has
not been determined. We anticipate that we will issue approximately 500,000
shares to the prior shareholders of The Acution Channel, of which approximately
170,000 shares will be issued to TB Investments LLC. Initially, all of these
shares will be deposited into an escrow account and will be subject to offset
for any claims we may make for indemnification under the share purchase
agreement.
Prior to our acquisition of The Auction Channel, TB Investments LLC had
loaned to The Auction Channel approximately 134,000 British Pounds. When we
acquired The Auction Channel, we purchased this indebtedness from TB Investments
LLC for a purchase price of approximately $45,000 and 15,445 shares of our
common stock. The shares of common stock have been deposited into an escrow
account and will be subject to offset for any claims we may make for
indemnification under the purchase agreement for the indebtedness or under the
share purchase agreement for The Auction Channel.
HARRIS TOIBB
We lease our principal executive offices in Woodland Hills, California
from Topanga & Victory Partners L.P. Harris Toibb, Don Kinder, Gail
Toibb-Carrier, Howard Smuckler and Michael Toibb are limited partners of Topanga
& Victory Partners L.P., and Harris Toibb is an officer, director and
significant stockholder of Toibb II, which is the general partner of Topanga &
Victory Partners L.P. The lease agreement for the premises provides for a term
of 66 months and rent of approximately $69,000 per annum.
ROSEWORTH GROUP, LTD.
We are registering a total of 411,405 shares of common stock on behalf of
Roseworth Group, Ltd. In April 1999, we issued to Roseworth a 4% convertible
debenture in the principal amount of $1,000,000. We paid Roseworth $30,000 and
issued to Roseworth 5,883 shares of our common stock as a fee for the loan.
The debenture is due on the later of April 27, 2000 or six months
following the date the Securities and Exchange Commission declares effective the
registration statement covering the resale of the shares of common stock
underlying the debenture. The debenture may be converted by Roseworth or any
other holder of the debenture into shares of our common stock at a conversion
price per share equal to the lower of 95% of the market price of our common
stock or $6.00. On the maturity date of the debenture, the unpaid balance of the
debenture and any accrued and unpaid interest will convert automatically into
shares of common stock at the conversion price on the maturity date.
On May 13, 1999, Roseworth converted $250,000 of the principal amount of
the debenture into 76,489 shares of our common stock, and on May 24, 1999
Roseworth converted an additional $500,000 of the principal amount of the
debenture into 129,033 shares of our common stock. Roseworth may use this
prospectus to sell the following:
Page 13
<PAGE>
o Up to 5,883 shares of common stock we paid to Roseworth in connection with
the debenture;
o Up to 205,522 shares of common stock Roseworth acquired upon conversion of
the debenture; and
o Up to an additional 200,000 shares of common stock that Roseworth may
acquire in the future upon conversion of the remaining principal portion of
the debenture and any accrued interest.
We agreed to register these shares of common stock on a Form S-3
registration statement for resale by Roseworth or any other holders of the
shares.
INTEL CORPORATION
We are registering 300,000 shares of common stock on behalf of Intel
Corporation. Intel may acquire the 300,000 shares of common stock by exercising
a warrant we granted to Intel in July 1998. We granted the warrant to Intel in
connection with a technology alliance we entered into with it in July 1998. The
warrants currently are exercisable at an exercise price of $4.00 per share and
expire in July 2001. We agreed to register the shares of common stock underlying
the warrant on a Form S-3 registration statement.
CHILTERN GROUP PLC
Chiltern Group PLC provided investment banking services to The Auction
Channel in connection with the sale of The Auction Channel to us in July 1999.
The fees for these services amounted to approximately $255,000. In September
1999, we issued 40,500 shares of our common stock to Chiltern in payment of
$162,000 of these fees. We agreed to register these shares on a Form S-3
registration statement.
HAL NOMINEES LIMITED
In September 1999, we issued 9,540 shares of our common stock to HAL
Nominees Limited in payment of $47,700 in legal fees incurred by us in
connection with our acquisition of The Auction Channel. We agreed to register
these shares on a Fom S-3 registration statement. HAL Nominees Limited, or its
affiliates, may continue to represent us as legal counsel in the future.
WENDY L. PAIGE
In September 1999, we issued 8,566 shares of our common stock to Wendy L.
Paige in payment of approximately $55,200 in legal fees incurred by The Auction
Channel. We agreed to register these shares on a Form S-3 registration
statement.
Page 14
<PAGE>
SELLING STOCKHOLDERS TABLE
The following table contains information about the selling stockholders'
beneficial ownership of our common stock as of September 8, 1999. On September
8, 1999, there were 11,915,999 shares of our common stock outstanding. We do not
know if, when, or in what amounts the selling stockholders will sell shares of
the common stock. Therefore, we cannot estimate how many shares the selling
stockholders will hold after completion of the offering.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
PRIOR TO OFFERING
------------------
NUMBER OF
SHARES
NAME AND ADDRESS NUMBER PERCENT OFFERED
- ---------------- ------- ------- ----------
<S> <C> <C> <C>
Prince Ahmad Bin Khalid Al-Saud................... 1,000,000 8.4 % 1,000,000
P. O. Box 1011
Riyadh, Saudi Arabia 11431
Harris Toibb...................................... 530,540 4.5 36,000
307 21st Street
Santa Monica, CA 90402
Schuermann GbR (1)................................ 350,000 2.9 350,000
Grevener Damm 260
48282 Emsdetten, Germany
Intel Corporation................................. 300,000 (2) 2.5 300,000 (2)
2200 Michigan College Boulevard
Santa Clara, CA 95052
Barry Baeres...................................... 250,000 2.1 250,000
Widenmayerstr. 49
80538 Muenchen, Germany
Roseworth Group, Ltd (3).......................... 286,707 (4) 2.4 411,405 (5)
c/o Dr. Batliner & Partners
Aeulestrasse 74
FI-9490
Vaduz, Liechtenstein
Tatich Financing, Inc. (6)........................ 205,000 1.7 205,000
c/o Horwath Fiducaire & Revision S.A.
15 Rue Du Jeu-De-L'Arc
P. O. Box 6259
CH-1211 Geneva 6 Switzerland
Brent Cohen....................................... 141,445 (7) 1.2 126,000
11701 Wetherby Lane
Los Angeles, CA 90077
Tim Helfet........................................ 81,445 (7) * 66,000
1652 Mandeville Canyon Road
Los Angeles, CA 90049
Werner Family Trust............................... 75,000 * 75,000
c/o Heinz Laumann
Rodelhang 8
90542 Eckental, Germany
Chiltern Group PLC (8)............................ 40,500 * 40,500
Sceptre House
169/173 Regent Street
London W1R 7FB
England
Page 15
<PAGE>
Michael Toibb..................................... 32,500 * 10,000
1271 Granville Avenue, #304
West Los Angeles, CA 90025
Gail Toibb-Carrier................................ 25,500 * 3,000
656 26th Street
Manhattan Beach, CA 90266
Ronald & Barbara Gilefsky......................... 14,800 * 5,000
9 Arlyn Road
Marblehead, MA 01945
HAL Nominees Limited (9).......................... 9,540 * 9,540
Hanover House
14 Hanover Square
London W1R 0BE
England
Wendy L. Paige.................................... 8,566 * 8,566
5 Eghams Court
Boston Drive
Bourne End
Buckinghamshire SL8 5YS
England
Don Kinder........................................ 6,500 * 3,000
6548 Deerbrook Road
Oak Park, CA 91377
Howard Smuckler................................... 5,500 * 3,000
7474 Darnoch Way
West Hills, CA 91307
- -------------------------------
<FN>
* Represents less than 1%.
(1)Juergen Schuermann, the Managing Partner of Schuermann GbR, has the
authority to vote and dispose of the shares held by Schuermann GbR.
(2)Consists of 300,000 shares reserved for issuance upon exercise of warrants
that currently are exercisable.
(3)Johann Hans Gassner, a director of Roseworth, has the authority to vote and
dispose of the shares held by Roseworth.
(4)Includes 75,302 shares that Roseworth could acquire as of September 8, 1999
upon conversion of $250,000 principal amount of the convertible debenture.
This information will be modified with a Prospectus Supplement to reflect the
number of shares of common stock acquired by Roseworth upon conversion of the
remaining portion of the principal amount of the convertible debenture and
any accrued interest under the debenture.
(5)This information will be modified with a Prospectus Supplement to reflect
the number of shares of common stock acquired by Roseworth upon conversion of
the remaining portion of the principal amount of the convertible debenture
and any accrued interest under the debenture.
(6)V.S. Simon, President of Tatich Financing, has the authority to vote and
dispose of the shares held by Tatich Financing.
(7)Includes 15,445 shares of TB Investments LLC held in escrow to satisfy
claims we may have against TB Investments. Messrs. Cohen and Helfet each own
50% of TB Investments and have the authority to vote and dispose of the
shares held by TB Investments. Does not include shares to be issued to TB
Investments in connection with our acquisition of Trojan Television Limited,
which number of shares has not been determined as of September 8, 1999.
(8)Andre Bischoff, the Managing Director of Chiltern, has the authority to vote
and dispose of the shares held by Chiltern.
(9)Colin Howes, a director of HAL Nominees Limited, has the authority to
vote and dispose of the shares held by HAL Nominees Limited.
</FN>
</TABLE>
Page 16
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of the selling
stockholders described in this prospectus. As used in this prospectus, the
selling stockholders include donees and pledgees selling shares received after
the date of this prospectus from the selling stockholders named in this
prospectus.
We will pay substantially all the expenses incident to the registration,
offering and sale of the shares to the public by the selling stockholders other
than fees, discounts and commissions of underwriters, dealers or agents, if any,
transfer taxes and counsel fees. We also have agreed to indemnify the selling
stockholders and any underwriters against certain liabilities, including
liabilities under the Securities Act.
The shares may be offered and sold by the selling stockholders directly to
purchasers or through one or more underwriters, brokers, dealers or agents, in
one or more types of transactions:
o on the American Stock Exchange,
o in negotiated transactions,
o through put or call options relating to the shares,
o through short sales of shares, or
o a combination of such methods of sale, at market prices prevailing
at the time of sale, or at negotiated prices.
The selling shareholders may also pledge shares under loans, and upon a
default by the selling shareholder, the pledged shares might be sold using this
prospectus. The selling stockholders have advised us that they have not entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of shares by the selling stockholders.
The selling stockholder and any broker-dealers that act in connection with
the sale of shares might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any commissions received by the such
broker-dealers and any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. Because the selling stockholders may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act, the
selling stockholders will be subject to the prospectus delivery requirements of
the Securities Act. We have informed the selling stockholders that the
anti-manipulative provisions of Regulation M promulgated under the Securities
Exchange Act may apply to their sales in the market.
If required, the following information will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement:
o the specific shares to be sold,
o the names of the selling stockholders,
o the respective purchase prices and public offering prices,
o the names of any agent, dealer or underwriter, and
o any applicable commissions or discounts.
The table below sets forth the number of shares of our common stock that
Roseworth Group, Ltd. would acquire if it elected to convert the remaining
$250,000 principal amount of its debenture. The share amounts are based on our
closing
Page 17
<PAGE>
share price of $3.4375 on September 8, 1999, and on assumed closing
share prices of $2.58, $1.72 and $0.86, which prices represent a 25%, 50% and
75% decline, respectively, in our September 8, 1999 closing share price. There
were 11,915,999 shares of our common stock outstanding on September 8, 1999.
<TABLE>
<CAPTION>
PERCENTAGE SHARES OF
DECLINE IN ASSUMED COMMON STOCK
SEPTEMBER 8, 1999 CLOSING ISSUED UPON
CLOSING PRICE PRICE CONVERSION
------------------- ------------ ----------------
<S> <C> <C> <C>
-- $ 3.44 75,302
25% $ 2.58 101,999
50% $ 1.72 152,999
75% $ 0.86 305,998
</TABLE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You can read and copy
these documents at the SEC's Public Reference Room, located at 450 Fifth Street,
NW, Room 1024, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Our SEC filings are also
available on the SEC's website at "http://www.sec.gov." You can also read our
SEC filings at the American Stock Exchange, 86 Trinity Plaza, New York, New
York.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede the information in this prospectus.
We incorporate by reference the documents listed below and any future filings
made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until the selling stockholders sell all of the shares:
o Annual Report on Form 10-KSB for the year ended December 31, 1998,
as amended.
o Quarterly Reports on Form 10-QSB for the quarter ended March 31,
1999 and June 30, 1999.
o Current Reports on Form 8-K dated July 1, 1999 and July 14, 1999.
o Description of our capital stock contained in our Registration
Statement on Form 8-A, filed on October 29, 1996, as amended by our
Registration Statement on Form 8-A/A, filed on November 20, 1996.
This prospectus is part of a registration statement we filed with the SEC.
You may request a copy of the above information incorporated by reference, at no
cost, by writing to or calling:
Michael Ozen
Chief Financial Officer
Brilliant Digital Entertainment, Inc.
6355 Topanga Canyon Boulevard, Suite 120
Woodland Hills, California 91367
(818) 615-1500
Page 18
<PAGE>
LEGAL MATTERS
Troop Steuber Pasich Reddick & Tobey, LLP, Los Angeles, California, has
rendered to Brilliant Digital Entertainment, Inc. a legal opinion as to the
validity of the common stock covered by this prospectus.
EXPERTS
The financial statements of Brilliant Digital Entertainment, Inc. as of
December 31, 1998 and for each of the two years in the period ended December 31,
1998 incorporated in this prospectus by reference to the Annual Report on Form
10-KSB of Brilliant Digital Entertainment, Inc. for the fiscal year ended
December 31, 1998 have been incorporated in this prospectus in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on their
authority as experts in auditing and accounting. The financial statements of
Trojan Television Limited as of June 30, 1998 and 1997 and for the years then
ended incorporated in this prospectus by reference to the Current Report on Form
8-K of Brilliant Digital Entertainment, Inc. have been incorporated in this
prospectus in reliance on the report of Edwards & Co, independent accountants,
given on their authority as experts in auditing and accounting.
Page 19
<PAGE>
- -------------------------------------------------------------------------------
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement to this prospectus. We have not
authorized anyone else to provide you with different information. The selling
stockholders should not make an offer of these shares in any state where the
offer is not permitted. You should not assume that the information in this
prospectus or any supplement to this prospectus is accurate as of any date other
than the date on the cover page of this prospectus or any supplement.
- ------------------------------------------------------------------------------
--------------------
BRILLIANT DIGITAL ENTERTAINMENT, INC.
PROSPECTUS
, 1999
--------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the offering. All the amounts shown are estimates except the
Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
<S> <C>
Registration fee - Securities and Exchange Commission.. $ 4,645
Legal Fees and Expenses................................ 10,000
Accounting Fees and Expenses........................... 5,000
Miscellaneous Expenses................................. 2,000
---------
TOTAL........................................ $21,645
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation and its Bylaws provide for
the indemnification by the Registrant of each director, officer and employee of
the Registrant 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 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 Registrant's Certificate of Incorporation provides that a director of
the Registrant shall not be liable to the Registrant 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.
Page II-1
<PAGE>
The Registrant has entered into separate but identical indemnity
agreements (the "Indemnity Agreements") with each director of the Registrant and
certain officers of the Registrant (the "Indemnitees"). Pursuant to the terms
and conditions of the Indemnity Agreements, the Registrant 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 Registrant 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 Registrant and, with respect to any criminal action, had no reasonable cause
to believe Indemnitee's Conduct was unlawful.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
5.1 Opinion and Consent of Troop Steuber Pasich Reddick & Tobey, LLP.
10.1 Debenture and Warrant Purchase Agreement, dated as of April 21, 1999,
between the Registrant and Roseworth Group, Ltd. Incorporated by reference
to Exhibit 10.1 to Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1999.
10.2 4% Convertible Debenture Due April 27, 2000 of the Registrant, in the
principal amount of $1,000,000, dated as of April 27, 1999. Incorporated
by reference to Exhibit 10.2 to Quarterly Report on Form 10-QSB for the
quarter ended March 31, 1999.
10.3 Registration Rights Agreement, dated as of April 21, 1999, between the
Registrant and Roseworth Group, Ltd. Incorporated by reference to Exhibit
10.3 to Quarterly Report on Form 10-QSB for the quarter ended March 31,
1999.
10.4 Warrant, dated July 16, 1998. Incorporated by reference to Exhibit 10.2 to
Amendment No. 1 to Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1998.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Edwards & Co.
23.3 Consent of Troop Steuber Pasich Reddick & Tobey, LLP (included in Exhibit
5.1).
24.1 Power of Attorney (included on signature page).*
- ----------------------------
* Previously filed.
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 s
Page II-2
<PAGE>
ecurities 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 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 II-3
<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 authorized this Registration Statement
to be signed on its behalf by the undersigned, in the City of Los Angeles, State
of California, on September 10, 1999.
BRILLIANT DIGITAL ENTERTAINMENT, INC.
By: /s/ MICHAEL OZEN
---------------------------------
Michael Ozen, Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Chief Executive Officer and Chairman September 10, 1999
- -------------------------------------------- of the Board of Directors
Mark Dyne
* President and Director September 10, 1999
- --------------------------------------------
Kevin Bermeister
/s/ MICHAEL OZEN Chief Financial Officer (Principal Financial September 10, 1999
- -------------------------------------------- and Accounting Officer) and Secretary
Michael Ozen
* Vice President, Operations and Production September 10, 1999
- -------------------------------------------- and Director
Mark Miller
* Director September 10, 1999
- --------------------------------------------
Diana Maranon
* Director September 10, 1999
- --------------------------------------------
Ray Musci
* Director September 10, 1999
- --------------------------------------------
Garth Saloner
* Director September 10, 1999
- --------------------------------------------
Jeff Scheinrock
* By: /s/ MICHAEL OZEN
---------------------------
Michael Ozen
Attorney-In-Fact
</TABLE>
Exhibit 5.1
[Letterhead of Troop Steuber Pasich Reddick & Tobey, LLP]
September 13, 1999
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"), 2,902,011 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 Steuber Pasich Reddick & Tobey, LLP
TROOP STEUBER PASICH
REDDICK & TOBEY, LLP
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTAN TS
To the Board of Directors and Shareholders of
Brilliant Digital Entertainment, Inc.
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated March 29, 1999, except for the third
paragraph of Note 11, as to which the date is April 14, 1999, relating to the
financial statements, which appears in Brilliant Digital Entertainment, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1998. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
September 8, 1999
CONSENT OF INDEPENDENT ACCOUNTANTS
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
25 June 1999 relating to the financial statements of Trojan Television Limited
which appears in the Current Report on Form 8-K of Brilliant Digital
Entertainment, Inc. dated June 28, 1999. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
/s/ Edwards & Co
Edwards & Co
London, England
September 9, 1999
