As filed with the Securities and Exchange Registration No. 333-34782
Commission on October 6, 2000.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
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) 728-3000
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. [ ]
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 - OCTOBER 6, 2000
PROSPECTUS
BRILLIANT DIGITAL ENTERTAINMENT, INC.
20,000 SHARES OF COMMON STOCK
This is an offering of up to 20,000 shares of common stock of BRILLIANT
DIGITAL ENTERTAINMENT, INC. Continental Capital & Equity Corporation is 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 29, 2000, the closing sale price of the common
stock on the American Stock Exchange was $3.25 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 registered with the Securities and Exchange Commission the
resale by some of our stockholders of up to 6,588,717 shares of our common
stock. The resale of the 6,588,717 shares may occur concurrently with the resale
by the selling stockholder 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 _________, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
PROSPECTUS SUMMARY..........................................................3
RISK FACTORS................................................................4
FORWARD-LOOKING STATEMENTS.................................................11
USE OF PROCEEDS............................................................11
SELLING STOCKHOLDER........................................................11
PLAN OF DISTRIBUTION.......................................................12
WHERE YOU CAN FIND MORE INFORMATION........................................13
LEGAL MATTERS..............................................................13
EXPERTS....................................................................13
</TABLE>
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<PAGE>
PROSPECTUS SUMMARY
ABOUT BRILLIANT DIGITAL ENTERTAINMENT
Brilliant Digital Entertainment is a pioneering entertainment content
provider and 3D animation technology developer for the converging Internet and
television markets. We have expanded our business to include the broadcast and
webcast over the Internet and television, of live auctions through our
subsidiary, The Auctionchannel, Inc.
We use our proprietary software tools to develop and distribute
digitally-animated interactive content for the Internet, including our
Multipath(TM) Movies. We also develop technology and software tools for sale to
others to be used by them in the development of content for the Internet. Our
subsidiary, The Auction Channel, enables viewers to watch auction events on
television or the Internet and use the Internet or their telephone to bid in
real time against bidders present at an auction.
ABOUT THE OFFERING
This prospectus may be used only in connection with the resale by the
selling stockholder, Continental Capital & Equity Corporation, of up to 20,000
shares of the common stock of Brilliant.
We will not receive any proceeds from the sale of the shares of common
stock offered by the selling stockholder using this prospectus. On September 29,
2000, we had 16,044,660 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. We acquired Trojan Television Limited in July 1999, and are
in the process of transferring Trojan to our subsidiary, The Auctionchannel,
Inc. Our executive offices are located at 6355 Topanga Canyon Boulevard, Suite
120, Woodland Hills, California 91367, and our telephone number is (818)
615-1500. Information on our websites, www.multipathmovies.com and
www.theauctionchannel.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 GENERATE REVENUES IF OUR MULTIPATH MOVIES AND B3D
TOOLSET DO NOT ACHIEVE MARKET ACCEPTANCE.
Each Multipath Movie is an individual artistic work, and its ability to
generate revenues primarily will be determined by consumer reaction, which is
unpredictable. To generate revenues, 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. The b3d toolset may have
programming errors, may be incompatible with other software or hardware products
in the market, may face slow adoption in the marketplace and may face
competition from other toolmakers. Other factors that influence our ability to
generate revenues from our Multipath Movies and the b3d toolset 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 our ability to enter into revenue share agreements with third
party web sites;
o critical reviews;
o the availability of alternative forms of entertainment and
leisure time activities;
o our ability to sell advertising and sponsorships for the content;
o our b3d toolset may contain features, functionality or workflow
conventions that may not be widely accepted by our target
audience;
o our ability to continue to develop and enhance the toolset and
deliver without delay; and
o the marketplace's reluctance to adopt a new toolset.
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 release an important new
product or Webisodes 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. 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.
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<PAGE>
WE MAY NOT BE ABLE TO GENERATE SIGNIFICANT DEMAND FOR 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 previously experienced
delays in the development of compression technologies, which, we believe,
materially and adversely affected our online sales and results of operations. We
believe that large, time-consuming downloads have previously deterred potential
users of our products and have reduced the effectiveness of our marketing
campaigns at that time. 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.
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 to St. Annes Investments, Ltd.
under the securities purchase agreement we entered into with St. Annes in March
1999 will be sufficient to fund our working capital requirements for at least
the next twelve months. After that period, 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.
THIRD PARTY WEB SITES AND THE LICENSORS FROM WHOM WE OBTAIN RIGHTS TO OUR
STORIES AND CHARACTERS MAY CAUSE THE DELAY OF THE RELEASE OF OUR PRODUCTS, WHICH
MAY RESULT IN LOWER REVENUES THAN ANTICIPATED.
Our distribution relationships with third party web sites 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 our products,
which may cause a delay in the release of the products; and
o A third party web site could delay the inclusion of our content
on the site, and thereby cause a delay in distribution.
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 HAVE APPEAL 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 watch. 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.
Page 5
<PAGE>
IF THE VENDOR WE USE TO DELIVER MULTIPATH MOVIES THROUGH OUR INTERNET SITE
EXPERIENCES AN INTERRUPTION IN SERVICE, WE WILL NOT BE ABLE TO DELIVER 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.
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.
THE AUCTION CHANNEL MAY NEVER BE PROFITABLE, WHICH WILL ADVERSELY AFFECT
OUR CONSOLIDATED OPERATIONS.
The Auction Channel, through it's subsidiary, Trojan Television, Ltd.,
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, $485,000 in fiscal 1998, $1,978,000 for the fiscal year ended June 30,
1999, $958,000 for the six months ended December 31, 1999, and $4,126,000 for
the six months ended June 30, 2000. At June 30, 2000 The Auction Channel had an
accumulated deficit of $7,857,000 relating to net losses from the period from
July 1, 1996 through June 30, 2000. We expect that The Auction Channel will
continue to sustain losses at least for the next twelve months.
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
Page 6
<PAGE>
license, with rights to exploit and improve the software, patents, technology,
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 the introduction or enhancement of software products and technology
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 our ability to create appealing content which will generate
advertising revenue; and
o our ability to enter into revenue share agreements with third
party web sites.
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.
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 four years. Additional refinement of these tools is
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.
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<PAGE>
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
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 PRODUCT.
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.
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.
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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.
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 September 8, 2000, our officers and directors owned, in total,
approximately 14.3% of the outstanding shares of our common stock. As a result,
our officers and directors may be 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.
Additionally, we have agreed to issue to St. Annes as a fee shares of common
stock having an aggregate market price equal to 2% of the purchase price of the
shares of common stock that are issued and sold to St. Annes under the
securities purchase agreement. 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 impacted
future periods, and the market price of our common stock could be
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materially and adversely affected. As of September 12, 2000, we have sold
230,075 shares of our common stock for gross proceeds of $1,000,000. We also
have issued 4,049 shares of our common stock to St. Annes as a fee.
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 remaining
$5,000,000 worth of stock under the purchase agreement. The share amounts and
the percentages include 234,124 shares already issued to St. Annes under the
securities purchase agreement and shares St. Annes will receive as a fee under
the securities purchase agreement. The share amounts and the percentages are
based on our closing share price of $3.50 on September 27, 2000, and on assumed
closing share prices of $2.62, $1.75 and $.87, which prices represent a 25%, 50%
and 75% decline, respectively, in our September 27, 2000 closing share price.
The percentages are also based on 16,044,660 shares of our common stock
outstanding on September 27, 2000.
<TABLE>
<CAPTION>
Percentage Decline in Percentage of
September 27, 2000 Assumed Shares of Outstanding
Closing Price Closing Price Common Stock Common Stock
------------------------ -------------- ---------------- --------------
<S> <C> <C> <C>
-- $3.50 1,923,825 10.00%
25% $2.62 2,494,514 13.00%
50% $1.75 3,624,600 18.00%
75% $.87 7,105,824 31.00%
</TABLE>
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 our stockholders and us.
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 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 than he purchased the shares and may realize a profit.
WE MAY RECEIVE INACCURATE STATISTICAL AND ADMINISTRATIVE DATA FROM OUR
SERVERS, WHICH MAY RESULT IN US TAKING INCORRECT ACTIONS OR NOT TAKING ACTION
WHERE WE OTHERWISE WOULD HAVE DONE SO.
We rely on our servers to collect and provide us with statistical and
administrative information which we use as the basis to run our business
decisions and make strategic decisions. The information is compiled from our
various database centers using the latest database technologies available to the
Company including hardware systems that are deployed at server systems. If our
servers malfunction due to hardware crashes or database bugs in the data
collection programs, we may collect inaccurate information. This would result in
our making incorrect business decisions, or not taking action when it would be
prudent to do so.
Page 10
<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 stockholder using this prospectus.
SELLING STOCKHOLDER
In December 1999, we entered into an agreement with Continental Capital
& Equity Corporation engaging Continental to provide public relations services.
We terminated this agreement in May 2000. We paid Continental $10,000 under the
agreement. Additionally, as payment for $60,000 in services rendered by
Continental under the Agreement, we issued 20,000 shares of our common stock to
Continental pursuant to a stock purchase agreement. We agreed to register these
shares on a Form S-3 registration statement for resale by Continental or any
other holders of the shares.
Pursuant to the terms of the marketing agreement, we also issued to
Continental a warrant to purchase up to 240,000 shares of our common stock at
purchase prices ranging from $5.00 to $8.00 per share. This warrant was
terminated in May 2000 by mutual agreement of Continental and us.
Other than the transactions described above, the selling stockholder has
not had any material relationship with us within the last three years.
SELLING STOCKHOLDERS TABLE
The following table contains information about the selling stockholder's
beneficial ownership of our common stock as of September 29, 2000. On September
29, 2000, there were 16,044,660 shares of our common stock outstanding. We do
not know if, when, or in what amounts the selling stockholder will sell shares
of the common stock. Therefore, we cannot estimate how many shares the selling
stockholder will hold after completion of the offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING
-----------------------
NUMBER OF
NAME AND ADDRESS NUMBER PERCENT SHARES OFFERED
---------------- ------ -------- ----------------
<S> <C> <C> <C>
Continental Capital & Equity Corporation ........... 20,000 *% 20,000
195 Wekiva Springs Road, Suite 200
Longwood , FL 32779
<FN>
--------------------
* Less than 1%.
</FN>
</TABLE>
Page 11
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of the selling
stockholder described in this prospectus. As used in this prospectus, the
selling stockholder includes donees and pledgees selling shares received after
the date of this prospectus from the selling stockholder 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 stockholder 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
stockholder and any underwriters against certain liabilities, including
liabilities under the Securities Act.
The shares may be offered and sold by the selling stockholder 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 stockholder may also pledge shares under loans, and upon a
default by the selling stockholder, the pledged shares might be sold using this
prospectus. The selling stockholder has advised us that it has not entered into
any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of its securities, nor is there an underwriter
or coordinating broker acting in connection with the proposed sale of shares by
the selling stockholder.
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 stockholder may be deemed to an
underwriter within the meaning of Section 2(11) of the Securities Act, the
selling stockholder will be subject to the prospectus delivery requirements of
the Securities Act. We have informed the selling stockholder that the
anti-manipulative provisions of Regulation M promulgated under the Securities
Exchange Act may apply to its 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 name of the selling stockholder,
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.
Page 12
<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,
1999.
o Quarterly Report on Form 10-QSB for the quarter ended March 31,
2000.
o Quarterly Report on Form 10-QSB for the quarter ended June 30,
2000.
o Current Report on Form 8-K, filed on September 27, 2000.
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 incorporated in this prospectus by reference to
the Annual Report on Form 10-KSB for the year ended December 31, 1999, 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.
Page 13
<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
--------------------
<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.. $ 109
Legal Fees and Expenses................................ 2,500
Accounting Fees and Expenses........................... 250
Miscellaneous Expenses................................. 500
---------
TOTAL........................................ $ 3,359
</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.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
<S> <C>
5.1 Opinion and Consent of Troop Steuber Pasich Reddick & Tobey, LLP.*
10.1 Stock Purchase Agreement, dated as of January 1, 2000, between the
Registrant and Continental Capital & Equity Corporation.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Troop Steuber Pasich Reddick & Tobey, LLP (included in
Exhibit 5.1).*
24.1 Power of Attorney (included on signature page).*
<FN>
-----------------------
* Previously filed.
</FN>
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been 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
Page II-2
<PAGE>
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 October 2, 2000.
BRILLIANT DIGITAL ENTERTAINMENT, INC.
By: /S/ MICHAEL OZEN
-------------------------------------
Michael Ozen, Chief Financial Officer
POWER OF ATTORNEY
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 October 2, 2000
------------------------------------ of the Board of Directors
Mark Dyne
* President and Director October 2, 2000
------------------------------------
Kevin Bermeister
/S/ MICHAEL OZEN Chief Financial Officer (Principal October 2, 2000
------------------------------------ Financial and Accounting Officer)
Michael Ozen and Secretary
* Vice President, Operations and October 2, 2000
------------------------------------ Production and Director
Mark Miller
* Director October 2, 2000
------------------------------------
Diana Maranon
* Director October 2, 2000
------------------------------------
Ray Musci
* Director October 2, 2000
------------------------------------
Garth Saloner
* Director October 2, 2000
------------------------------------
Jeff Scheinrock
</TABLE>
* By: /S/ MICHAEL OZEN
----------------------------
Michael Ozen
As Attorney-In-Fact
