As filed with the Securities and Registration No. 333-______
Exchange Commission on July 1, 1999.
==============================================================================
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 (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. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
=============================================================================================
<CAPTION>
Proposed
Maximum Proposed
Title of Each Class of Amount To Offering Maximum Amount Of
Securities Be 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..................... 2,337,522 $5.91 (2) $13,814,755 $3,841
- ---------------------------------------------------------------------------------------------
Common Stock, par value $.001
per share, issuable upon
conversion of debenture....... 90,000 $5.91 (2) $531,900 $148
- ---------------------------------------------------------------------------------------------
Common Stock, par value $.001
per share, issuable upon
exercise of warrants.......... 300,000 $5.91 (2) $1,773,000 $493
=============================================================================================
<FN>
(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 June
30, 1999.
</FN>
</TABLE>
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.
<PAGE>
SUBJECT TO COMPLETION - JULY 1, 1999
PROSPECTUS
BRILLIANT DIGITAL ENTERTAINMENT, INC.
2,727,522 SHARES OF COMMON STOCK
This is an offering of up to 2,727,522 shares of common stock of BRILLIANT
DIGITAL ENTERTAINMENT, INC. The selling stockholders named in 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 June 24, 1999, the closing sale price of the common stock
on the American Stock Exchange was $6.50 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SHARES.
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
PAGE
ABOUT BRILLIANT DIGITAL ENTERTAINMENT.......................................3
RISK FACTORS................................................................5
FORWARD-LOOKING STATEMENTS.................................................12
USE OF PROCEEDS............................................................12
SELLING STOCKHOLDERS.......................................................12
PLAN OF DISTRIBUTION.......................................................15
WHERE YOU CAN FIND MORE INFORMATION........................................16
LEGAL MATTERS..............................................................16
EXPERTS....................................................................16
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<PAGE>
ABOUT BRILLIANT DIGITAL ENTERTAINMENT
GENERAL
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, as television programming and for home video. Using
our proprietary state-of-the-art 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. We utilize 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 and, in the future, television programming. In addition, we have
developed software that permits real time distribution of, and user interaction
with, our Multipath Movies over the Internet.
We have entered into an agreement which gives us the right to acquire at
least 85% of the common shares of Trojan Television Limited, which we intend to
exercise. Trojan Television Limited is a London-based company doing business as
The Auction Channel. Founded in 1996, Trojan 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. Trojan has entered into agreements to provide its services with major
auction houses like Christie's, Phillips, Bonhams and Brooks.
OUR MARKETING STRATEGY
We have secured content and characters for our Multipath Movies from a
number of sources, including:
o SUPERMAN from D.C. Comics, a subsidiary of Warner Bros.;
o XENA: WARRIOR PRINCESS and HERCULES & XENA THE ANIMATED MOVIE, each
from Universal Studios;
o ACE VENTURA from Morgan Creek;
o POPEYE from King Features Syndicate;
o the CHOOSE YOUR OWN NIGHTMARE series for kids from Bantam Doubleday
Dell Books; and
o content from the rock group, KISS.
We also develop Multipath Movies based on internally-developed content. Further
to our strategy, we have entered into distribution agreements with industry
participants including Packard Bell NEC, CompuServe, @Home, DVD Express,
Kesmai's Gamestorm and Slingshot.
Our first Multipath Movie title, CYBERSWINE, together with two titles in
the CHOOSE YOUR OWN NIGHTMARE series and one POPEYE title, were completed and
released at the end of 1997. During 1998, an additional 11 titles were
completed, including episodes of XENA, ACE VENTURA, POPEYE and GRAVITY Angels,
our internally developed title. During the last quarter of 1998 and the first
quarter of 1999, we launched licensed properties, led by XENA, in retail stores
in domestic and international markets. Many of these titles also are available
online at www.multipathmovies.com as previews, webisodes and/or CD-ROM's.
Webisodes are serialized Multipath Movie episodes we offer through subscription.
We also have agreements with @Home, DVD Express and Kesmai's Gamestorm to offer
Multipath Movies to their online users. In addition, Slingshot also has agreed
to develop certain technologies required to play Hi-Fidelity Multipath Movies on
DVD. Slingshot has agreed to publish and distribute on DVD up to 20 titles to
retailers worldwide.
We have progressed with our plans to release some of our Multipath Movies
in non-interactive format as television broadcast/cable programming and home
video features. In January 1999, we entered into an agreement with Kaleidoscope
Media Group for the distribution of GRAVITY ANGELS, a two hour 3D animated
science fiction thriller, to the television broadcast/cable and home video
markets. We intend to segment Multipath Movies into 30-minute episodes and
package together multiple episodes to create a season-length series for the
television market. Similarly, we intend to produce 80- to 120-minute animated
features for the home video market. We believe that we can produce Multipath
Movies for television programming and home video features at costs substantially
below typical industry costs. We intend to enter into joint ventures or
partnerships with film and television production companies to jointly develop
and release digital entertainment for the television broadcast/cable and home
video markets. Utilizing our proprietary tools we can convert this content for
distribution on the Internet, DVD and CD-ROM, at a nominal cost, thereby
increasing our revenue opportunities. Although, as described above, we are
presently implementing our plans to release some of the Multipath Movies in
non-interactive format as television broadcast/cable programming and home video
features, we note that we cannot guarantee that our efforts will be successful.
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<PAGE>
OUR SOFTWARE TOOLS
Using our proprietary software tools in conjunction with our digital
production and lay up skills, we develop Multipath Movies in a single production
process. We have five proprietary software tools:
o SCRIPNAV -- a software tool that enables a script writer to write,
review and correct branching multipath scripts;
o TALKTRACK -- a software tool used to synchronize facial expressions and
mouth movements to voice soundtracks automatically;
o SCUD ENGINE -- a software system which collects and integrates the
output from all of the component tools to produce the Multipath Movie;
o MR. COPY -- a 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
o DIGITAL PROJECTOR -- which contains all the necessary elements to load
and play a Multipath Movie.
Our proprietary software tools allow us to produce each title in multiple
formats in a single cost-efficient production process. This enables us to
amortize our production costs across the revenue streams we realize from each
format. In addition, our TalkTrack tool allows for low-cost modification of
Multipath Movies to other languages without the awkward appearance of dubbed
movies. Our proprietary software tools and production process are designed to
emulate traditional film writing and production techniques and allow
screenwriters, directors and producers to develop Multipath Movies without any
detailed knowledge of computer programming or significant assistance from
expensive programming teams. We believe that by utilizing existing entertainment
resources we will be able to generate high-quality digital entertainment at a
low cost.
OUR ACQUISITION OF TROJAN TELEVISION
We intend to acquire at least 85% of the common shares of Trojan by
exercising our right to close a share purchase agreement with the majority
shareholders of Trojan. Approximately 28 minority shareholders hold the
remaining 15% of the outstanding common shares of Trojan. The majority
shareholders have agreed to use their reasonable efforts to cause each of the
minority shareholders to become a party to the share purchase agreement and sell
their shares to us. We intend to actively seek to acquire the remaining shares
in Trojan from the minority shareholders. If we acquire Trojan, we will pay the
purchase price in shares of our common stock that we will issue to the Trojan
shareholders in exchange for their Trojan shares.
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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<PAGE>
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.
Our ability to sell Multipath Movies will depend largely upon the market's
acceptance of our Multipath Movies. Each Multipath Movie will be an individual
artistic work, and its commercial success 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.
The market's acceptance of our Multipath Movies has taken longer than we
initially anticipated. This is due, in part, to the disappointing performance by
Packard Bell NEC of its obligations under our agreement to bundle our titles
with Packard Bell NEC computers, and delays in the retail distribution of our
products. As a result of these factors, our Multipath Movies were not available
to consumers as early and as broadly as we initially anticipated. This has
resulted in fewer sales of our Multipath Movies and lower revenues than
expected.
WE HAVE EXPERIENCED, AND MAY CONTINUE TO EXPERIENCE, REDUCED REVENUES DUE TO
DELAYS IN THE INTRODUCTION AND DISTRIBUTION OF OUR PRODUCTS.
Due to the numerous obstacles and uncertainties involved in developing and
distributing software to the market, 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 certain 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 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. Our dependence
upon certain strategic partners has also caused delays in the release of our
products. All of these factors have resulted in fewer sales of our products and
lower revenues and earnings than we anticipated. 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 OVER THE
INTERNET UNLESS THERE IS A REDUCTION IN THE TIME IT TAKES TO DOWNLOAD LARGE
AMOUNTS OF DATA OVER THE INTERNET.
We distribute some of our Multipath Movies through our Internet site and
through a site on the CompuServe on-line service. In 1999, we also intend to
distribute some of our products through the @Home Network and Kesmai
Corporation's popular Internet online games service, GameStorm. We believe that
reductions in the time to download Multipath Movie content over the Internet may
be a requirement to any increase in online sales of our products. This reduction
in download time depends in part upon advances in compression technology. We
have experienced delays in the development of compression technologies. We
believe that large, time-consuming downloads have deterred potential users of
our products and
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<PAGE>
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.
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH TO EVALUATE OUR BUSINESS MODEL
AND LIKELIHOOD OF SUCCESS.
We have a limited operating history upon which to evaluate our future
prospects. We were founded in September 1993 and shipped our initial traditional
CD-ROM product in November 1994. In 1996, we substantially reduced this aspect
of our business to begin producing and distributing Multipath Movies. We
acquired the software tools necessary to produce Multipath Movies in August 1996
and introduced our first Multipath Movie in December 1997. You must consider our
prospects in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as entertainment software.
These risks include, but are not limited to, the inability to respond promptly
to changes in a rapidly evolving and unpredictable business environment and the
inability to manage growth.
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, OEM PROVIDERS AND CONTENT LICENSORS
MAY DELAY THE RELEASE OF OUR PRODUCTS.
We have entered into strategic relationships with software distributors
and publishers and OEM providers, as well as licensing arrangements with
numerous companies that own the stories or characters used in many of our
Multipath Movies. Our business strategy is based largely on our strategic and
licensing relationships and our ability to continue to enter into similar
relationships in the future. These relationships may affect our ability to
release our products, which would adversely affect our revenues, for a number of
reasons, such as:
o A strategic partner or content licensor may, in the exercise of its
product approval rights, arbitrarily reject our products, require
expensive and time consuming changes to the products or otherwise delay
their introduction; and
o An OEM provider could change the shipping schedule of the equipment
with which our products are bundled and thereby affect their
distribution.
One delay has already occurred. Packard Bell NEC, which agreed to
distribute some of our Multipath Movie titles bundled with Packard Bell
computers, has significantly delayed the introduction of some titles beyond the
initially anticipated launch dates. Additionally, we believe that because
Packard Bell NEC is distributing our titles with only its middle- to high-end
machines, Packard Bell NEC will not comply with its commitment to ship our
products with 6 million computers during the term of our agreement. We have
formally notified Packard Bell NEC of their failure to comply with the terms of
our agreement. We cannot be certain that we will resolve these issues with
Packard Bell NEC, that Packard Bell NEC will achieve its committed shipment
level or that adequate remedies will be available to us to compensate for
Packard Bell NEC's failure to perform under our agreement. Our problems with
Packard Bell NEC have resulted in fewer sales of our products and lower revenues
and earnings than we expected.
Page 6
<PAGE>
WE MAY NOT BE ABLE TO OBTAIN THE SERVICES OF INDEPENDENT SOFTWARE DEVELOPERS
THAT ARE NECESSARY FOR THE PRODUCTION AND DISTRIBUTION OF OUR PRODUCTS ON A
TIMELY BASIS.
In addition to internally developing software, we use entertainment
software created by independent software developers. We have less control over
the scheduling and the quality of the software generated by independent
contractors than over that developed by our own employees. Our ability to obtain
software generated by others will depend in part on our continued ability to
maintain relationships with skilled independent software developers, and to
enter into and renew product development agreements with these developers. There
can be no assurance that we will be able to maintain these relationships or
enter into and renew these agreements.
WE MAY NOT BE ABLE TO ACQUIRE LICENSED CONTENT THAT WE DESIRE TO USE IN OUR
MULTIPATH MOVIES.
We use content developed by third parties in our Multipath Movies. To have
access to appealing content for use in our Multipath Movies, we will need to
continue to develop new relationships and maintain existing relationships with
content providers. Many content providers are reluctant to grant broad licenses
for their properties 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. We may not be able to acquire licensed content at prices or upon terms
or conditions that we consider acceptable.
IF OUR INTERNET PROVIDER EXPERIENCES AN INTERRUPTION IN SERVICE, WE WILL NOT BE
ABLE TO SELL MULTIPATH MOVIES THROUGH OUR INTERNET SITE.
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.
WE MAY NOT BE ABLE TO OBTAIN CD-ROM AND DVD MANUFACTURING AND PACKAGING SERVICES
ON A TIMELY BASIS.
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, retail stores and consumers.
TO INCREASE RETAIL SALES, WE MUST DEVELOP A RETAIL SALES CHANNEL, EFFECTIVELY
COMPETE FOR RETAIL SHELF SPACE AND NEGOTIATE FAVORABLE TERMS WITH RETAILERS.
We anticipate that a significant amount of sales of Multipath Movies will
need to be made through distributors to traditional retailers. 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 TROJAN
TELEVISION.
We have entered into an agreement to acquire Trojan Television Limited, a
London-based company doing business as The Auction Channel. Trojan integrates
live satellite, cable TV and Web broadcasts of auction events conducted by
auction
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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 intend to operate Trojan as a European
subsidiary.
We have very little experience in acquiring businesses, and will likely
encounter difficulties in integrating Trojan's operations with our existing
operations. Some of the difficulties we expect to encounter include, among
others, those related to:
o integrating Brilliant's and Trojan's management staffs;
o retaining Trojan's key management and technical personnel; and
o coordinating the operation of geographically separated organizations
with distinct cultures.
The integration of Trojan's and Brilliant's operations following the
acquisition will require the dedication of management resources, which may
temporarily distract attention from the day-to-day business of the two
companies. The inability of management to integrate successfully the operations
of the companies could have an adverse effect on our consolidated operating
results. In addition, even if the operations of the two companies are ultimately
successfully integrated, it is anticipated that the integration will be
accomplished over time and, in the interim, the combination may have an adverse
effect on our business and operations.
TROJAN TELEVISION MAY NEVER ACHIEVE PROFITABILITY.
Trojan Television has a limited operating history upon which to evaluate
its future prospects. Trojan was founded in 1996 and commenced operations in
July 1996. Trojan 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 Trojan will continue to sustain
losses at least for the next twelve months. There can be no assurance that
Trojan will achieve profitability or successfully implement its business
strategy.
OUR AMORTIZATION EXPENSES WILL INCREASE AS A RESULT OF THE TROJAN ACQUISITION.
The Trojan acquisition will be accounted for as a purchase. Based on the
purchase price paid, the Trojan acquisition is expected to result in significant
goodwill 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 results of operations in
the remainder of 1999 and in subsequent periods.
WE WILL LOSE OUR EXCLUSIVE RIGHTS TO SOFTWARE TECHNOLOGY USED BY TROJAN IN ITS
BUSINESS IF WE DO NOT MAKE MINIMUM PAYMENTS TO THE LICENSOR OF THE TECHNOLOGY.
At the time we acquire Trojan, we intend to acquire a license to software
technology used by Trojan in the operation of its auction business. If we do not
make minimum payments to the licensor of the technology, our rights to the
technology will become non-exclusive. If this occurs, the software technology
may be licensed to Trojan's competitors, which could reduce Trojan's competitive
advantage and adversely affect its revenues.
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 these
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.
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;
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o the introduction or availability of new computer hardware to be used
with our products; and
o the timing of orders from major customers.
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.
SEASONAL BUYING PATTERNS MAY RESULT IN PERIODS OF LOW SALES VOLUME.
The entertainment software business is highly seasonal. Typically, net
revenues are highest during the fourth calendar quarter, 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 our net revenues historically have been generated in
the fourth quarter of our fiscal year. We expect our revenues and operating
results will continue to reflect these seasonal factors.
OUR AMORTIZATION EXPENSE MAY INCREASE IF SOME OF OUR MULTIPATH MOVIES DO NOT
SELL AS WELL AS WE ANTICIPATED.
Our accounting policy follows Statement of Financial Accounting Standards
No. 86, which statement provides for the capitalization of software development
costs once technological feasibility is established. The capitalized costs are
amortized beginning on the date the product is made available for sale either on
a straight-line basis over the product's estimated revenue or on a ratio of
current revenues to total projected product revenues, whichever results in the
greater amortization amount.
In accordance with SFAS No. 86, we capitalized certain development costs
related to the production of Multipath Movies during the third and fourth
quarters of 1997 and the first quarter of 1998. The majority of the capitalized
costs relate to Multipath Movie which we are currently attempting to market
in non-interactive format as television broadcast/cable programming and home
video features. We cannot guarantee that our efforts will be successful. If our
efforts are not successful, our amortization costs will increase, which will
have an adverse affect on our results of operations.
WE MUST IMPROVE OUR SOFTWARE TOOLS TO PRODUCE NEW, MORE ENHANCED MULTIPATH
MOVIES.
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.
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 COMPETE EFFECTIVELY, WE MUST MAKE SUBSTANTIAL INVESTMENTS IN RESEARCH AND
DEVELOPMENT TO KEEP UP WITH THE RAPID TECHNOLOGICAL DEVELOPMENTS AND CHANGING
SOFTWARE OPERATING ENVIRONMENTS THAT ARE TYPICAL IN OUR INDUSTRY.
The entertainment software market and the PC industry are subject to rapid
technological developments and frequent changes in software operating
environments. To compete successfully, we must continually improve and enhance
our existing products and technologies and develop new products and technologies
that incorporate technological advances. We must make these improvements while
remaining competitive in terms of performance and price. Our sales will depend
substantially upon our ability to anticipate the emergence of, and to adapt our
products to, popular software operating
Page 9
<PAGE>
environments. This will require us to make substantial investments in research
and development. We cannot be certain that we will have the financial and
technical resources available to make these substantial expenditures.
IF A NEW OPERATING ENVIRONMENT FOR WHICH WE DEVELOP PRODUCTS DOES NOT ACHIEVE
MARKET ACCEPTANCE, OUR PRODUCTS MAY NOT SELL WELL IN THE MARKET.
We intend to design future products for use with new software operating
environments. To coordinate the release of our products with the release of a
new operating environment, we will need to make substantial investments in
research and development at least one to two years in advance of the widespread
release of the operating environment in the market. If a new operating
environment for which we develop products does not achieve market acceptance, we
may incur substantial research and development expenses in developing products
that do not sell well in the market. Our failure to anticipate the emergence of
widely accepted operating environments and to timely develop products for use on
these new environments would result in lower sales volume and have a material
adverse effect on our business.
OUR PROPRIETARY TECHNOLOGY MAY NOT BE ADEQUATELY PROTECTED FROM COPYING BY
OTHERS.
Our future success and ability to compete depends in part upon our
proprietary technology. 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 competition or that
competitors will not be able to develop similar or superior technology
independently. 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 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. The software
tools used to create Multipath Movies were developed by SAND when it was a
division of Sega Ozisoft. In connection with our acquisition of the software
tools, Sega Ozisoft represented to us that, to its best knowledge, the SAND
technology and software acquired by us does not infringe the proprietary rights
of others. We rely entirely on these representations of Sega Ozisoft. While we
have received no communication from third parties alleging infringement of any
of their proprietary rights, we cannot be certain that any infringement claims
will not be made in the future. Any infringement claims, 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.
OUR STOCK PRICE AND TRADING VOLUME FLUCTUATE WIDELY.
Our common stock is traded on the American Stock Exchange. The market
price and trading volume of our common stock have been subject to substantial
volatility, and are likely to continue to be subject to significant fluctuations
due to many factors, including:
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;
Page 10
<PAGE>
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. 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. We cannot be certain that an adequate trading market will exist
to sell large positions in our common stock.
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 May 14, 1999, our officers and directors owned, in total,
approximately 18.2% 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.
In March 1998, we adopted a stockholder's rights plan. We adopted the
rights plan to make it more difficult for a third party to make an unsolicited
takeover attempt of us. Under the rights plan we distributed one preferred share
purchase right for each outstanding share of our common stock outstanding on
April 2, 1998. Upon the occurrence of certain triggering events related to an
unsolicited takeover attempt of us, each purchase right not owned by the party
or parties making the unsolicited takeover attempt will entitle its holder to
purchase shares of our Series A Preferred Stock at a value below the then market
value of the Series A Preferred Stock. Our board of directors can issue up to an
additional 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. Further, certain provisions of our
certificate of incorporation and bylaws and of Delaware law could delay or make
more difficult a merger, tender offer or proxy contest involving us.
OUR SALE OF SHARES 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 an investor that
allows us to sell to the investor 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. The
table below sets forth percentages of our common stock the investor would own if
we elected to sell the entire $6,000,000 worth of stock under the purchase
agreement. The percentages are based on our closing share price of $6.375 on
June 25, 1999, and on assumed prices of $4.78 and $3.71, which prices represent
a 25% and 42% decline, respectively, in our June 25, 1999 closing share price.
The percentages are also based on the number of shares of common stock
outstanding on June 25, 1999. We cannot issue to the investor more than 19.99%
of our common stock that was outstanding at the time we entered into the
securities purchase agreement, which equals 13.8% of our common stock
outstanding on June 25, 1999.
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<PAGE>
Percentage Percentage of
Discount to Assumed Outstanding
Market Price Market Price Common Stock
------------ ------------ ------------
0% $ 6.38 8.3%
25% $ 4.78 10.8%
42% $ 3.71 13.8%
Additionally, we have issued to a selling stockholder a debenture which
may be converted into common stock at a discount to the then-prevailing market
price of our common stock. Accordingly, the issuance of shares under the
securities purchase agreement and the debenture 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. These discounted sales could have an
immediate adverse effect on the market price of the common stock. We also have
agreed to issue to our financial advisor a fee in shares of common stock having
an aggregate market price equal to 2% of the purchase price of the shares of
common stock to be issued and sold under the securities purchase agreement. The
issuance or resale of these shares would have a further dilutive effect on our
common stock and could adversely affect its price. Downward pressure on the
market price of our common stock could encourage short sales of common stock by
the investor (to the extent permitted by, and pursuant to, the securities
purchase agreement) or others. 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. Material amounts of short selling could place
further downward pressure on the market price of the common stock.
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 5. 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 under 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:
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<PAGE>
o Up to 2,132,000 shares of common stock may be sold by seven investors;
o Up to 300,000 shares of common stock may be sold by Intel Corporation;
and
o Up to 295,522 shares of common stock may be sold by Roseworth Group,
Ltd.
THE INVESTORS
We are registering 2,132,000 shares of common stock on behalf of seven
investors. These investors include Prince Ahmad Bin Khalid Al-Saud, Barry
Baeres, Brent Cohen, Tim Helfet, Schuermann GbR, Tatich Financing, Inc. and
Werner Family Trust. We issued these shares of common stock to the seven
investors in a series of private sales in May 1999. We agreed to register these
shares on a Form S-3 registration statement.
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.
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.
ROSEWORTH GROUP, LTD.
We are registering a total of 295,522 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. 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 (as defined below) 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. The market price of our
common stock, for purposes of calculating the conversion price, is the lowest
volume adjusted price during the ten trading days immediately preceding the date
the price is determined. The volume adjusted price on a trading day is equal to
the total dollar value of all shares of our common stock traded on the American
Stock Exchange on that trading day, divided by the total number of shares of our
common stock traded on the American Stock Exchange on that trading day.
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 205,522 shares of common stock it acquired upon these
conversions and up to an additional 90,000 shares of common stock that it may
acquire in the future upon conversion of the remaining principal portion of the
debenture and any accrued interest. We agreed to register the shares of common
stock underlying the debenture on a Form S-3 registration statement for resale
by Roseworth or any other holders of the shares.
We paid Roseworth $30,000 and issued to Roseworth 5,883 shares of our
common stock as a financial advisory fee in connection with the convertible
debenture.
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<PAGE>
SELLING STOCKHOLDERS TABLE
The following table contains information about the selling stockholders'
beneficial ownership of our common stock as of June 11, 1999. We do not know if,
when, or in what amounts the selling stockholders will sell shares of the common
stock. Thus, 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 8.5 % 1,000,000
P. O. Box 1011
Riyadh, Saudi Arabia 11431
Schuermann GbR.................................... 350,000 3.0 350,000
Grevener Damm 260
48282 Emsdetten, Germany
Intel Corporation................................. 300,000 (1) 2.6 300,000 (1)
2200 Michigan College Boulevard
Santa Clara, CA 95052
Barry Baeres...................................... 250,000 2.1 250,000
Widenmayerstr. 49
80538 Muenchen, Germany
Roseworth Group, Ltd.............................. 247,188 (2) 1.7 295,522 (3)
c/o Dr. Batliner & Partners
Aeulestrasse 74
FI-9490
Vaduz, Liechtenstein
Tatich Financing, Inc............................. 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....................................... 126,000 1.1 126,000
11701 Wetherby Lane
Los Angeles, CA 90077
Tim Helfet........................................ 126,000 1.1 126,000
1652 Mandeville Canyon Road
Los Angeles, CA 90049
Werner Family Trust............................... 75,000 * 75,000
c/o Heinz Laumann
Rodelhang 8
90542 Eckental, Germany
<FN>
- -------------------------------
* Represents less than 1%.
(1)Consists of 300,000 shares reserved for issuance upon exercise of warrants
that currently are exercisable.
(2)Includes 41,666 shares that Roseworth could acquire as of June 11, 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.
(3)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.
</FN>
</TABLE>
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<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 under 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.
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<PAGE>
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 Report on Form 10-QSB for the quarter ended March 31, 1999.
o Current Report on Form 8-K dated July 1, 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
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 so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm 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 so incorporated in
reliance on the report of Edwards & Co, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
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<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.. $ 4,482
Legal Fees and Expenses................................ 7,500
Accounting Fees and Expenses........................... 5,000
Miscellaneous Expenses................................. 2,000
---------
TOTAL........................................ $ 18,982
=========
</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
II-1
<PAGE>
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 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 Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1998. [Portions of this Exhibit have been deleted and
filed separately with the Securities and Exchange Commission
pursuant to a request for an order granting confidential treatment.]
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).
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.
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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 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.
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<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 July 1, 1999.
BRILLIANT DIGITAL ENTERTAINMENT, INC.
By: /S/ MICHAEL OZEN
-------------------------------------
Michael Ozen, Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Mark
Dyne and Michael Ozen, and each of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and his name, place and stead, in any and all capacities, to sign any or
all amendments (including post effective amendments) to this Registration
Statement and a new Registration Statement filed pursuant to Rule 462(b) of the
Securities Act of 1933 and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/S/ MARK DYNE Chief Executive Officer and June 25, 1999
--------------------------- Chairman of the
Mark Dyne Board of Directors
/S/ KEVIN BERMEISTER President and Director June 25, 1999
---------------------------
Kevin Bermeister
/S/ MICHAEL OZEN Chief Financial Officer June 25, 1999
--------------------------- (Principal Financial
Michael Ozen and Accounting Officer)
and Secretary
/S/ MARK MILLER Vice President, June 25, 1999
--------------------------- Operations and Production
Mark Miller and Director
/S/ DIANA MARANON Director June 25, 1999
---------------------------
Diana Maranon
/S/ RAY MUSCI Director June 25, 1999
---------------------------
Ray Musci
/S/ GARTH SALONER Director June 25, 1999
---------------------------
Garth Saloner
/S/ JEFF SCHEINROCK Director June 25, 1999
---------------------------
Jeff Scheinrock
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[Letterhead of Troop Steuber Pasich Reddick & Tobey, LLP
July 1, 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"), 2,727,522 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
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 29, 1999 except for the third paragraph of Note 11, as to which the date
is April 14, 1999, appearing on page 29 of Brilliant Digital Entertainment's
Annual Report on Form 10-KSB for the year ended December 31, 1998. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
June 28, 1999
Exhibit 23.2
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 July 1, 1999. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
/s/ Edwards & Co.
Edwards & Co
London, England
July 1, 1999
