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As filed with the Securities and Exchange Commission on August 3, 1998
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ADRENALIN INTERACTIVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3779546
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5301 BEETHOVEN STREET, SUITE 255, LOS ANGELES, CALIFORNIA
90066, (310) 821-7880 (Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JAY SMITH, III
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ADRENALIN INTERACTIVE, INC.
5301 BEETHOVEN STREET, SUITE 255, LOS ANGELES, CALIFORNIA 90066, (310) 821-7880
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Please send a copy of communications to:
ALEXANDER C. MCGILVRAY, JR., ESQ.
CLARK & TREVITHICK, A PROFESSIONAL LAW CORPORATION
800 WILSHIRE BOULEVARD, 12TH FLOOR, LOS ANGELES, CALIFORNIA 90017
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 being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest investment 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 delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of Each Class Amount to Proposed maximum Proposed maximum Amount of
of Securities to be Registered be registered(1) offering price per unit(2) aggregate offering price(2) Registration Fee
- ------------------------------ ---------------- -------------------------- --------------------------- ----------------
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Common Stock, $.01 par value 4,454,384 $1.313 $5,848,606 $1,725.34
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(1) The number of shares of the Company's common stock, $.01 par value
(the "Common Stock"), registered hereunder includes 3,094,384 shares of Common
Stock which are issued and outstanding, 1,200,000 shares of Common Stock which
are issuable upon exercise of warrants to purchase shares of Common Stock (the
"Warrants") and 160,000 shares of Common Stock which are issuable upon exercise
of options to purchase shares of Common Stock (the "Options").
(2) The offering price is estimated solely for the purpose of
calculating the registration fee in accordance with Rule 457(c), using the
closing price reported by the Nasdaq SmallCap Market for the Common Stock on
July 29, 1998 which was $1.313 per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT 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> 2
SUBJECT TO COMPLETION, DATED AUGUST __, 1998
PROSPECTUS
ADRENALIN INTERACTIVE, INC.
4,454,384 SHARES OF
COMMON STOCK, $.01 PAR VALUE
This Prospectus (the "Prospectus") covers the registration for possible
resale of 4,454,384 shares (the "Shares") of Common Stock, par value of $.01
(the "Common Stock"), of Adrenalin Interactive, Inc., a Delaware corporation
previously known as Wanderlust Interactive, Inc. (the "Company"), that have
either been issued to, or that may in the future be issued to, certain
stockholders of the Company (the "Selling Stockholders"), including shares of
Common Stock issuable upon the exercise of outstanding warrants owned by certain
of the Selling Stockholders (the "Warrants") and outstanding options owned by
certain other of the Selling Stockholders (the "Options"). (The Shares, the
Warrants and the Options are referred to collectively herein as the
"Securities").
Of the 4,454,384 shares being registered hereby, 3,094,384 shares have
previously been issued to certain of the Selling Stockholders, 1,200,000 shares
are issuable upon the exercise of outstanding Warrants and 160,000 shares are
issuable upon the exercise of outstanding Options. See "Selling Stockholders"
and "Plan of Distribution".
The distribution of the Common Stock offered hereby may be effected
from time to time in one or more transactions. All or a portion of the Common
Stock offered by this Prospectus may be offered for sale, from time to time, by
the Selling Stockholders, or by permitted transferees or successors of the
Selling Stockholders, in private or negotiated transactions, in open market
transactions on the National Association of Securities Dealers Automated
Quotation ("Nasdaq") SmallCap Market, or otherwise, or a combination of these
methods, at prices and terms then obtainable, at fixed prices, at prices then
prevailing at the time of sale, at prices related to such prevailing prices or
at negotiated prices. The shares of Common Stock offered hereby may be sold by
one or more of the following: (i) through underwriters; (ii) through dealers or
agents (which may include underwriters) including: (a) a block trade in which
the broker or dealer so engaged will attempt to sell the shares of Common Stock
as agent, but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker or dealer and resale by
such broker or dealer as a principal for its account pursuant to this
Prospectus; (c) ordinary brokerage transactions; and (d) transactions in which
the broker solicits purchasers; or (iii) directly to one or more purchasers.
Usual and customary or specifically negotiated brokerage fees or commissions may
be paid by the Selling Stockholders. Concurrently with sales under this
Prospectus, certain of the Selling Stockholders may effect other sales of Common
Stock under Rule 144 or other exempt resale transactions. The Selling
Stockholders and any underwriters, dealers, brokers or agents executing sell
orders on behalf of the Selling Stockholders may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), in which event commissions received by such persons may be deemed to be
underwriting commissions under the Securities Act.
The Company will not receive any of the proceeds from the sale of the
Common Stock offered hereby; however, the Company will receive proceeds from the
exercise of the Warrants and Options, if any. To the extent required, the
specific amount of Common Stock to be sold, the public offering price, the names
of any such broker, dealer underwriter or agent, any applicable commission or
discount with respect to the particular offer will be set forth in a supplement
to this Prospectus. The Company has agreed to bear substantially all expenses of
registration of the Common Stock under federal and state securities laws, other
than such expenses as are in the nature of commissions incurred in connection
with the sale of shares of Common Stock by the Selling Stockholders. The Company
has also agreed to indemnify certain of the Selling Stockholders against certain
liabilities under the Securities Act. See "Use of Proceeds", "Selling
Stockholders" and "Plan of Distribution".
The Common Stock is traded on Nasdaq SmallCap Market under the symbol
"ADRN". On _______, 1998, the last reported sale price of the Common Stock was
$______ per share.
---------------------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. POTENTIAL PURCHASERS SHOULD NOT
INVEST IN THESE SECURITIES UNLESS THEY CAN AFFORD A TOTAL LOSS OF THEIR
INVESTMENT IN SUCH SECURITIES. SEE "RISK FACTORS" COMMENCING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ____________, 1998
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TABLE OF CONTENTS
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PAGE
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<S> <C>
THE COMPANY........................................................................ 3
RISK FACTORS....................................................................... 5
AVAILABLE INFORMATION.............................................................. 13
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.................................. 14
USE OF PROCEEDS.................................................................... 14
SELLING STOCKHOLDERS............................................................... 15
PLAN OF DISTRIBUTION............................................................... 18
LEGAL MATTERS...................................................................... 18
EXPERTS............................................................................ 18
LIMITATION ON LIABILITY AND DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES............................... 19
</TABLE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL T MAKE SUCH AN
OFFER IN SUCH JURISDICTION.
THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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THE COMPANY
GENERAL
Established in May 1994, the Company develops and sells or licenses
toys and games delivered over a wide range of consumer formats including
electronic toys, video games, CD-ROMs, interactive television software products
and products for other mediums. In March 1996, the Company completed an initial
public offering, the proceeds of which were principally used to establish its
New York headquarters and to produce two CD-ROM games based upon the Pink
Panther(TM) character, which games were completed in September 1996 and
September 1997, respectively. The Company initially marketed such games in the
United States and now licenses for distribution such games both in the United
States and in over fifteen foreign countries.
In February 1997, the Company acquired all of the outstanding stock of
Western Technologies, Inc. ("Western") as well as certain assets and liabilities
of Smith Engineering from Jay Smith, III, the Company's current President and
Chief Executive Officer. Western designs and develops video and computer games
and electronic toys and electronic consumer products, largely pursuant to funded
contracts with other name brand manufacturers.
MATERIAL DEVELOPMENTS DURING LAST YEAR
After expending the funds raised in its initial public offering to
produce the two Pink Panther(TM) CD-ROM games, the Company realized that the
development costs of such CD-ROM games substantially exceeded both their
short-term and long-term anticipated revenue streams and shifted its focus to
pre-funded or contract design and development work, such as that historically
conducted by Western. In September 1997, the Company substantially downsized its
New York office and shifted its headquarters to Western's offices located in Los
Angeles. In April 1998, the Company closed its New York office permanently,
terminated its New York office lease, subleased approximately 50% of its Los
Angeles office and consolidated its entire staff in Los Angeles.
Although the Company has made progress in bringing its expenses in line
with its revenues during the last year as a result of such downsizing and change
in focus, the Company has remained unprofitable. For its fiscal nine months
ended March 31, 1998, the Company realized losses of $1,098,634. The Company
further expects to report a loss for its fiscal quarter ended June 30, 1998. The
majority of such losses are due to non-cash charges for depreciation and
amortization.
During the past year, the Company has developed, or is currently
developing, a number of new games, toys and other miscellaneous products
pursuant to funded contracts with brand name manufacturers. In addition to
payment for its development work, the Company is entitled to receive bonus
payments or royalties for a majority of such products based upon the success of
such products in the marketplace. Such new products include the following:
- - TIGER WOODS PGA TOUR GOLF - The Company has devoted a significant
amount of effort during the last year developing an interactive video
golf game pursuant to a funded development contract with Electronic
Arts. "Tiger Woods 99" is designed for use on Sony PlayStations.
Electronic Arts anticipates that the game will be shipped commencing in
the last quarter of 1998. In addition to milestone payments for its
development work, the Company is entitled to receive bonus payments
based upon the success of the product.
- - TALK WITH ME BARBIE - A talking doll with interactive PC CD-ROM
capabilities allowing the doll's speech to be programmed. This project
was developed for and is currently being marketed by Mattel.
- - LAUGH LICKS - A candy dispensing novelty item combining fun action
features and innovative electronics. This product is currently being
manufactured and marketed by Target Games in various international
markets.
- - GAME OF OPERATION - An electronic version of the classic board game.
This game was developed and sold by the Company to Hasbro Interactive.
- - TRIVIAL PURSUIT - An Interactive TV version of the popular board game.
This game is currently in development for Telia of Sweden primarily for
distribution to owners of new digital TV systems.
- - BRUNSWICK BOWLING - A second generation interactive video bowling game
for use on PCS and Sony PlayStations. This game is currently being
developed for THQ Entertainment.
- - TV MOUSE(TM) - A patented remote controller for use on PCS, interactive
TV set-top boxes and video games systems. This product is currently
licensed to and being developed by Reality Quest Corporation.
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- - THEME PARK ARCADE - The Company has designed and anticipates being
selected to develop and build approximately 20 video arcade games for
Universal Studios' theme park currently being constructed in Japan.
- - "DIGITAL RC" RADIO CONTROLLED VEHICLES - The Company is currently
developing two digital, radio-controlled toy vehicles. One such vehicle
is a high-speed, low-cost product aimed for the mass toy market. These
toys will be manufactured and marketed by Playcorp.
- - KISSIE KRISSIE DOLL - A doll which talks when it is kissed on its
cheeks, forehead or hands. This toy is licensed to Irwin Toys of Canada
primarily for distribution in the United States and Canada.
- - NASCAR SUPERSOUND SPEEDWAY - A slot car track with sound effects. This
product is being manufactured and marketed by Mattel.
- - ELECTRONIC LEARNING AID TOY - The Company is presently developing an
electronic object recognition toy to serve as a learning aid for
toddlers and infants. This toy will be manufactured and marketed by
Educational Insights.
BUSINESS STRATEGY
The Company's short-term strategy is to principally work on funded toy
and game development projects. The Company intends to create longer-term
revenues streams through the licensing of such products, the continued licensing
of the products and technology it has previously developed or acquired and the
adaptation of its existing and future products and technology for licensing to
new market segments. The Company believes this strategy will enable it to expose
its products and technology to larger markets through the distribution and
marketing capabilities of much larger name brand manufacturers. Once the Company
has established a more solid financial foundation, it intends to attempt to
increase its profit potential by investing more of its own capital in the
production and/or the joint venturing of future products.
As a key part of its longer-term strategy, the Company has also
recently begun adapting its video game software technology for use in
interactive games of skill and chance to be played on-line in games and
tournaments on the Internet, where players can win cash prizes. To this end, the
Company has recently entered into a non-binding agreement in principle with
Netbet, Inc. ("NetBet") to license the Company's technology and concepts to
NetBet for a 50% share of the net revenues generated by NetBet from games and
tournaments utilizing such technology and concepts. Netbet, which is a developer
and licensor of Internet gaming technology, has an exclusive agreement with
Casinos of the South Pacific, an offshore on-line casino operator, for 80% of
the net revenues generated by such casino operator from on-line gaming. The
future of Internet gambling is subject to a great deal of legal uncertainty and
may soon be deemed to be illegal in the United States. See "Risk Factors -Legal
Uncertainty and Governmental Prohibition or Regulation of Internet Gambling.
As another key part of its long-term strategy, the Company is actively
looking at other companies for possible acquisitions or other business
combinations. At the present time, however, the Company has not entered into any
preliminary or definitive agreements or understandings with any such acquisition
or business combination candidates.
HISTORICAL INFORMATION
The Company was incorporated in Delaware on May 17, 1994 as CD Kidz
Inc. On March 20, 1995, the Company's name was changed to Wanderlust
Interactive, Inc. On May 14, 1998, the Company's name was further changed to
Adrenalin Interactive, Inc. Unless the context otherwise requires, references to
the "Company" include CD Kidz Inc., Wanderlust Interactive, Inc. and the
Company's wholly-owned subsidiary, Western.
ADDRESS AND TELEPHONE NUMBER
The Company's principal executive offices are located at 5301 Beethoven
Street, Suite 255, Los Angeles, California 90066 and its telephone number is
(310) 271-7880.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer & Trust Company located at 40 Wall Street, New York, New
York 10005.
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RISK FACTORS
The purchase of the shares of Common Stock offered hereby involves a
high degree of risk. In addition to the other information set forth elsewhere in
this Prospectus, the following factors relating to the Company and this offering
should be considered when evaluating an investment in the Common Stock offered
hereby. This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1993 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results may differ materially from
the results projected in such forward-looking statements. Factors that might
cause such a difference include, but are not limited to, the following:
LIMITED OPERATING HISTORY; LOSSES TO DATE; LOSSES EXPECTED TO CONTINUE
The Company commenced activities in July 1994 and began marketing its
first product in late 1996. The Company has a limited operating history upon
which an evaluation of the Company's prospects can be made. In February 1997,
the Company acquired its subsidiary, Western, a 19-year old video game and toy
manufacturer. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in the establishment of a
relatively new and unstable business in an intensely competitive industry. As of
March 31, 1998, the Company had an accumulated deficit of $7,941,854 and such
deficit has increased since then. Since inception, the Company has generated
limited revenue. For its fiscal year ended June 30, 1997, the Company incurred
losses of $4,486,396. For its fiscal nine-month period ended March 31, 1998, the
Company incurred additional losses of $1,098,634. The Company anticipates that
losses will continue for the foreseeable future. Further, there can be no
assurance that the Company will be able to compete successfully, generate
significant revenues or ever achieve profitable operations.
POSSIBLE FAILURE TO CONTINUE AS A GOING CONCERN
In the Company's audited financial statements for its fiscal year ended
June 30, 1997, the Company's independent auditors expressed their uncertainty as
to the Company's ability to continue as a going concern. If the Company is
unable to improve its financial position, develop significant revenues from
operations and ultimately realize profits from ongoing operations, it will not
be able to continue as a going concern or raise additional capital, resulting in
a total loss to purchasers of the Common Stock.
NEED FOR ADDITIONAL FINANCING
The Company anticipates that it will require additional financing in
order to accomplish its longer-term business objectives and intends to seek such
additional financing once it has stabilized its current business operations. The
Company has no preliminary or definitive agreement to complete such additional
financing with any other person or persons. Accordingly, there can be no
assurance that the Company will be able to raise additional capital. In
addition, the Company's ability to successfully complete any such future
financing will depend upon its then current financial condition, results of
operations and future prospects as well as market conditions at the time such
additional financing is consummated. Many of the factors which will influence
the Company's ability to conduct a future financing are outside of the control
of the Company. For these reasons, there can be no assurance that the Company
will successfully complete any equity and/or debt financing. In that event, the
Company may not have the ability to continue its ongoing business operations.
Purchasers of the Common Stock should, therefore, be prepared to possibly lose
their entire investment in the Company.
LACK OF FINANCIAL OFFICER AND FINANCIAL SYSTEMS AND CONTROLS
The Company does not presently have an experienced, full-time Chief
Financial Officer. As a result, the Company may not have the proper internal
accounting, financial and management information systems, procedures and
controls to insure the Company's continued viability from an accounting,
financial or management viewpoint, which may adversely affect the Company's
business, results of operations and financial condition.
LEGAL UNCERTAINTY AND GOVERNMENTAL PROHIBITION OR REGULATION OF INTERNET GAMING
As a key component of its longer-term growth strategy, the Company
intends to pursue opportunities to adapt its video game sports technology for
use in interactive games of skill and chance played on-line in games and
tournaments on the Internet pursuant to licenses and/or other agreements with
NetBet, other developers of Internet gaming technology and/or on-line casino
operators. Although the Company does not intend to get directly involved in
Internet gaming, the Company
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may well be indirectly affected by the extensive local, state, federal and
foreign government regulation relating to the ownership and operation of gaming
facilities in the United States and elsewhere in the world. Due to the
relatively recent development of casino wagering over the Internet, there are
presently only limited direct regulations that deal with on-line casino wagering
or gaming. However, the United States Senate recently passed, as an amendment to
an appropriations bill, legislation entitled the "Internet Gambling Prohibition
Act of 1997" (the "Proposed Law"). If enacted, the Proposed Law would make it a
crime for any person engaged in the business of betting or wagering to engage in
such business through the Internet or any other interactive computer service in
any state, the District of Columbia, Puerto Rico or any other commonwealth,
territory or possession of the United States. The Proposed Law would also make
it a crime for any person to make a bet or wager by means of the Internet or any
other interactive computer service in any such jurisdiction. Furthermore, the
Proposed Law would allow the Unites States Attorney General or the attorney
general (or other appropriate official) of any such jurisdiction to institute
civil proceedings against persons violating the Proposed Law and to seek
restraining orders, injunctions and other appropriate actions to prevent persons
from violating the Proposed Law. Finally, the Proposed Law authorizes
representatives of the federal government to commence negotiations with foreign
countries to adopt international agreements that would enable the United States
to enforce the Proposed Law against persons who violate the Proposed Law from
outside the United States. The Proposed Law or any other legislation or
regulation which prohibits or severely limits the jurisdictions and/or manner in
which on-line casinos are able to operate could materially adversely affect the
revenues that might otherwise be received by the Company through the adaptation
and licensing of its technology, especially pursuant to revenue sharing
agreements, such as that proposed in the Company's non-binding agreement in
principle with NetBet. See "The Company - Business Strategy".
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
As a key component of its long-term growth strategy, the Company
intends to continue to pursue one or more acquisitions of, or other business
combinations with, other companies. Execution of its growth strategy requires
the Company's management to, among other things: (i) identify new markets or
market segments in which the Company can successfully compete; (ii) identify
acquisition or business combination candidates who are willing to enter into
transactions at prices acceptable to the Company; (iii) consummate any such
identified acquisitions or other business combinations; and (iv) obtain
financing for any such future acquisitions or business combinations. Certain
risks are inherent in such a strategy, such as dilution of outstanding equity
securities, increased leverage and debt service requirements and the difficulty
in combining different company cultures and facilities, any of which could
materially adversely affect the Company's operating results or the market price
of the Common Stock prevailing from time to time. The success of any completed
acquisition or business combination will depend in part on the Company's ability
to effectively integrate the acquired or combining business, which integration
may involve unforeseen difficulties and may require a disproportionate amount of
management's attention and the Company's limited financial and other resources.
The Company is currently considering a few potential acquisition or
business combination candidates. No agreement, definitive or otherwise, with
respect to any of such potential acquisitions or business combinations has been
reached. From time to time the Company has, and in the future may continue to,
enter into negotiations with respect to potential acquisitions or business
combinations for these purposes, some of which may result in preliminary
agreements. In the course of the Company's negotiations and/or due diligence,
these negotiations and/or preliminary agreements may be abandoned or terminated.
No assurance can be given that the Company will complete any of the acquisitions
or business combinations currently under consideration, that additional suitable
acquisition or business combination candidates will be identified, that such
future acquisitions or business combinations will be financed and made on
acceptable terms, or that future acquisitions or business combinations, if
completed, will be successful.
The Company's business has changed significantly since the Company's
acquisition of Western, which has placed demands on the Company's
administrative, operational and financial resources. Any future acquisition
could place an additional strain on capacity, management and operations. The
Company's future performance and profitability will depend in part on its
ability to successfully implement improved financial and management systems, to
add capacity as and when needed and to hire qualified personnel to respond to
changes in its business. The failure to implement such systems, add any such
capacity or hire such qualified personnel may have a material adverse effect on
the Company's business, financial condition and results of operations.
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CHANGES IN BUSINESS PLAN
Since its initial public offering in March 1996, the Company has
discontinued its operations in New York and has modified its business plan to
focus its resources on the business operations being conducted by Western
acquired in February 1997. The Company has abandoned the previous focus of its
operations out of New York where it produced CD-ROM entertainment products after
expending approximately $5,000,000 in this field on two related projects. There
is no assurance that the Company's revised business strategy will be successful.
RISKS OF NEW PRODUCT DEVELOPMENT
The Company has experienced difficulties in the past that have delayed
the development, introduction and marketing of its products. There can be no
assurance that the Company will not continue to experience such difficulties or
that any of the Company's products currently being developed or proposed to be
developed will meet the requirements of the marketplace and achieve market
acceptance. The Company will be substantially dependent in the near future upon
products that have recently been, or are currently being, developed. There can
be no assurance that any of the Company's products currently being developed
will not contain substantial errors or flaws or, if such flaws or errors are
discovered, such flaws or errors will be corrected in a cost effective or timely
manner. If the Company is unable to consistently develop new products,
enhancements to existing products or cost-effective error corrections, or if its
products do not achieve satisfactory market acceptance, the Company's business,
operating results and financial condition will be adversely affected.
RISK OF DELAYS IN PRODUCTION AND COST OVERRUNS
Delays and cost overruns are prevalent in the business of software
development and generally in the invention of new products from scratch. Such
events have occurred in the past to the Company. Delays or cost overruns can
negatively impact the release of a product, inflate its sales price and diminish
its commercial appeal and profitability. There can be no assurance that the
Company will not continue to suffer from these or any other problems, which may
have a material adverse effect on the Company's operations. The Company also
expends substantial resources on the development of new products and inventions
to meet possible demands from manufacturers and marketers of products. While the
Company has established a policy to limit developing products other than those
funded by purchase or development orders, the Company has expended substantial
funds in the past to develop products on a speculative basis, which has
accounted for extensive operating losses. Even when the Company develops
products on projects that are funded by its customers, the funding generally
only covers the development cost and not the Company's general administrative
and overhead costs. The Company is then dependent upon mass sales of the
products to earn significant royalties. The Company must also wait for actual
retail sales of the products before it collects on its royalties, if ever. For
these reasons, even when the Company has numerous development projects in the
works, it can operate at a substantial loss.
UNCERTAINTY OF MARKET ACCEPTANCE OF PRODUCTS
The markets for software products, video games and toys are subject to
frequent and rapid changes in technology and consumer preferences. As a result,
the Company's growth potential and future financial performance will depend upon
its ability to get contracts to develop and introduce new products to
accommodate technological advances and consumer preferences. There can be no
assurance that other software vendors or video game and toy manufacturers will
not develop and market software titles or toys that render obsolete or less
marketable the Company's products. Failure of new products to achieve or sustain
market acceptance, or the Company's inability to get new contracts to develop
such products, will have a material adverse effect on the Company and impair its
ability to continue operations.
COMPETITION
The market for the Company's products is characterized by intense
competition. The Company expects that companies which have developed similar
products, as well as other companies with the financial resources and expertise
that would enable them to attempt to develop competitive products, make it more
difficult for the Company to get contracts to develop such products. Many of the
Company's competitors such as Sega, Nintendo and Sony are well-established, have
substantially greater financial resources, greater public and industry
recognition and broader marketing capabilities than the Company. They also have
the ability to control the use of the Company's products on their proprietary
systems. The Company believes the principal competitive factors in such market
are product quality, reliability, features, functions, creativeness,
performance, price, financial stability, product reputation, ease of use and
quality of support. A number of
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companies offer competitive products addressing the Company's market. There can
be no assurance that the Company will be able to compete successfully, or that
competitors or others will not develop technologies or products that render the
Company's products obsolete or less marketable.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success and ability to compete is dependent in part on
its proprietary technology including its software codes. The Company relies on a
combination of trade secret, nondisclosure, patent, trademark and copyright law,
which may afford only limited protection. In addition, effective copyright,
patent, trademark and trade secret protection may be unavailable or limited in
certain foreign countries. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties, including customers who receive listings of the source codes for the
Company's products pursuant to the terms of their license agreements with the
Company, may attempt to reverse engineer or copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. As a result, there can be no assurance that unauthorized use of the
Company's technology may not occur.
Certain technology used in the Company's products is licensed from
third parties. The termination of any such licenses, or the failure of the
third-party licensors to adequately maintain or update their products, could
result in delay in the Company's ability to ship certain of its products while
it seeks to implement technology offered by alternative sources, and any
required replacement licenses could prove costly. It may also be necessary or
desirable in the future for the Company to obtain other licenses relating to one
or more of the Company's future products or relating to current or future
technologies. There can be no assurance that the Company will be able to do so
on commercially reasonable terms or at all.
DEPENDENCE ON VIDEO GAME AND TOY MANUFACTURERS
A substantial portion of the Company's total revenues is, and will
continue in the foreseeable future to be, derived from royalties on the sale of
products, none of which are manufactured by the Company. The Company's business
is dependent upon close relationships with the video game and toy manufacturers
of the products developed by the Company. There can be no assurance that the
Company's relationship with such video game and toy manufacturers will continue
in the future. The Company's inability to maintain good relationship with such
video game and toy manufacturers could have a material adverse affect on the
Company's business, results of operations, financial condition and cash flows.
DEPENDENCE ON KEY PERSONNEL
The success of the Company is substantially dependent on the
performance of Jay Smith, III, its President and Chief Executive Officer, and
certain other key employees. The Company has entered into an employment
agreement with Mr. Smith expiring October 31, 2000. The Company's prospects for
growth, new products and new sales are dependent upon the continued active
participation of Mr. Smith and the Company's other key employees. The Company
does not have in place "key person" life insurance policies on Mr. Smith or any
of its other key employees. The loss of the services of Mr. Smith or any of such
other key employees could have a material adverse effect on the Company's
business.
HIGH COSTS TO MAINTAIN SKILLED LABOR FORCE
A high percentage of the Company's work force is either highly skilled
computer or creative-oriented personnel, both of which are expensive and
contribute to a high monthly payroll for a business of the Company's size and
revenues. Presently, a total of 11 of the Company's 21 employees are paid more
than $60,000 per year. This high payroll creates a high fixed cost and makes it
difficult for the Company to rapidly adjust to downturns in business in a timely
manner.
ABILITY TO ATTRACT AND RETAIN PERSONNEL
The Company 's prospects for growth and ultimate success are heavily
dependent upon its ability to attract, retain and motivate skilled personnel,
including a full-time, experienced Chief Financial Officer, personnel involved
in ongoing product development and other marketing and management personnel. In
particular, the Company's ability to conceptualize, develop, maintain and
enhance its products is substantially dependent upon its ability to locate, hire
and train qualified software engineers, graphic artists, computer programmers
and toy and game inventors. The market for such individuals is intensely
competitive. The software industry is characterized by a high level of employee
mobility and aggressive recruiting
8
<PAGE> 10
of skilled personnel. There can be no assurance that the Company will be able to
retain its current personnel, or that it will be able to attract, assimilate or
retain other highly qualified personnel in the future. The inability to attract,
hire or retain the necessary personnel could have a material adverse effect on
the Company's business, operating results and financial condition.
LACK OF LONG-TERM CUSTOMER CONTRACTS
The Company's contracts or other arrangements with its customers are
generally entered into on a project-by-project basis. Moreover, if the Company
were to lose a customer, replacing such customer with a comparable customer may
require significant lead time. Although the Company believes that historically
it has achieved satisfactory levels of customer retention, no assurance can be
given that the Company will be able to do so in the future.
POSSIBLE LIMITATION ON ABILITY TO DO BUSINESS WITH CERTAIN CLIENTS
The Company may determine from time to time in its business judgment
that it is not prudent to pursue business opportunities with, or accept business
from, competitors of existing or potential clients or from groups which may have
interests adverse to interests of the Company's existing or potential clients.
Although to date such considerations have not significantly impaired the
Company's ability to do business with existing or new clients, no assurance can
be given that these considerations will not increase in the future and reduce
opportunities that would otherwise be available to the Company.
CHANGING PRODUCT PLATFORMS
When the Company develops proposed products for video game or toy
manufacturers or on its own, it must make substantial development investments
one to two years in advance of retail distribution and sales of the products. If
the Company develops its proposed products for use in platforms that do not
achieve significant market penetration and success, the Company's revenues from
those products will be materially less than anticipated. There can be no
assurance that any of the Company's recently-developed or proposed products will
be compatible with platforms that achieve high levels of consumer acceptance.
RISK OF SOFTWARE ERRORS, FAILURES OR INCOMPATIBILITY
Software products and video and electronic games such as those
developed by the Company may contain undetected errors when first introduced or
when new versions are released. The Company may experience delays and incur
significant technical support expenses in connection with system compatibility
requirements and quality assurance issues associated with its products. There
can be no assurance that, despite testing by the Company, errors or
incompatibility will not be found in the Company's products or releases after
commencement of commercial shipments, resulting in the loss of or a delay in
market acceptance, which could have a material adverse effect on the Company's
business.
RISKS OF DOING BUSINESS ABROAD
The Company distributes certain of its proprietary products
internationally through distributors, and has entered into licenses to market
certain of its products internationally. The Company's potential growth
prospects could be adversely affected by unfavorable general economic conditions
internationally, including downturns in the economy, which could result in the
reduction or deferral of purchases of personal computers or software by
prospective customers. In addition, the Company will be subject to all of the
risks associated with trade restrictions, export duties and tariffs,
fluctuations in foreign currencies and international political, regulatory and
economic developments affecting foreign trade.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's revenue and operating results are subject to significant
fluctuation between fiscal quarters. A significant portion of the Company's
quarterly revenues is derived from new projects and contracts, the timing of
which is subject to a variety of factors outside the Company's control, such as
client marketing budgets and modifications in client strategies. The Company
cannot predict the degree to which these trends will continue. Additionally, the
Company periodically incurs cost increases due to both hiring and training of
new employees and computer capacity upgrades in anticipation of future
contracts. Moreover, the Company's business is subject to seasonal influences
due to the fact that most of the sales of the products developed by the Company
occur during the holiday selling season which results in the
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<PAGE> 11
Company's revenues being higher in the quarters ending December 31 and March 31
of each year. In addition, the size, timing and integration of possible future
acquisitions or business combinations may cause substantial fluctuations in
operating results from quarter to quarter. As a result, operating results for
any fiscal quarter may not be indicative of the results that may be achieved for
any subsequent fiscal quarter or for a full fiscal year. These fluctuations
could adversely affect the market price of the Company's Common Stock.
AMORTIZATION OF INTANGIBLE ASSETS
Approximately $4,324,395, or 74%, of the Company's total assets as of
March 31, 1998 consisted of goodwill and patents and licenses arising from the
Company's acquisition of Western. Such goodwill and patents and licenses
represent the difference between the aggregate purchase price for the assets
acquired and the amount of such purchase price allocated to the tangible assets
so acquired. The goodwill is presently being amortized over a 40-year period and
the patents and licenses are presently being amortized over an eight-year
period, with the amounts amortized in a particular period constituting non-cash
expenses that decrease the Company's net income (or increase its net loss) in
that period. The reduction in net income (or increase in net loss) resulting
from the amortization of such goodwill and patents and licenses as a result of
the Company's acquisition of Western or possible future acquisitions by the
Company may have an adverse impact upon the market price of the Company's Common
Stock prevailing from time to time.
MAINTENANCE CRITERIA FOR NASDAQ; RISKS OF LOW-PRICED SECURITIES
The Company's Common Stock is presently traded on the Nasdaq SmallCap
Market. To maintain inclusion on the Nasdaq SmallCap Market, the Company's
Common Stock must continue to be registered under Section 12(g) of the Exchange
Act and the Company must continue to have at least $2,000,000 in net tangible
assets or $500,000 in income in two of the last three years, a public float of
at least 500,000 shares, $1,000,000 in market value of public float, a minimum
bid price of $1.00 per share, at least two market makers and at least 300
stockholders. While the Company currently meets Nasdaq's maintenance standards,
there is no assurance that the Company will be able to maintain the standards
for Nasdaq SmallCap Market inclusion with respect to its securities. If the
Company fails to maintain its Nasdaq SmallCap Market listing, the market value
of the Company's Common Stock likely would decline and stockholders would find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Common Stock.
POSSIBLE REVERSE STOCK SPLIT
In the event the Company's Common Stock trades at less than $1.00 per
share and Nasdaq notifies the Company that it intends to delist the trading of
the Company's Common Stock on the Nasdaq SmallCap Market, the Company may be
forced to conduct a reverse stock split in an attempt to support the price of
the Company's Common Stock at $1.00 or more. Reverse stock splits usually cause
additional drops in the price of a stock and the value of the Company's Common
Stock would probably drop as a result thereof. While such a stock reverse split
will not change a shareholder's percentage ownership of the Company, it will
likely lessen public confidence in the Company and its Common Stock.
VOLATILITY OF STOCK PRICE
The stock market from time to time experiences significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may materially adversely
affect the market price of the Company's Common Stock. In addition, the market
price of the Company's Common Stock has been, and may continue to be, highly
volatile. Factors such as possible fluctuations in the Company's business,
results of operations or financial condition, failure of the Company to meet
expectations of security analysts and investors, announcements of new
acquisitions or business combinations, the timing and size of acquisitions or
business combinations, the loss of customers, announcement of new or terminated
product development contracts by the Company, the loss of the services of Jay
Smith, III or any of the Company's other key personnel, the filing and/or
prosecution of litigation involving the Company and changes in general market
conditions all could have a material adverse affect on the market price of the
Company's Common Stock.
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<PAGE> 12
EXISTING AND POTENTIAL DISPUTES INVOLVING SMITH ENGINEERING
In February 1997, the Company acquired the operations of Western, which
was closely interwound with the operations of Jay Smith, III's sole
proprietorship, Smith Engineering. Smith Engineering had previously entered into
several toy and video game development contracts, a few of which have become the
subject of disputes, threatened litigation and, in two cases, actual litigation
(one of which lawsuits has been resolved). The existence of such lawsuits,
threatened litigation and disputes has detracted, and is anticipated to continue
to detract, from Mr. Smith's ability to manage the Company and could conceivably
result in successor liability for the Company or in the Company expending
substantial resources in defending itself. Such events could have a material
adverse effect on the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market, or
the perception that such sales could occur, could adversely affect the market
price of the Common Stock prevailing from time to time. As of the date of this
Prospectus, the Company had 8,691,061 shares of Common Stock outstanding. Up to
an additional 4,470,624 shares of Common Stock are issuable upon the exercise of
presently-exercisable warrants (including the Warrants). Up to an additional
541,478 shares of Common Stock are issuable upon the exercise of
presently-exercisable options (including the Options).
Of the 8,691,061 shares of Common Stock outstanding as of the date of
this Prospectus, 85,000 of such shares are "restricted securities" within the
meaning of Rule 144 under the Securities Act and may not be sold in the absence
of registration under the Securities Act unless an exemption from registration
is available, including the exemption contained in Rule 144. In general, under
Rule 144, as currently in effect, a person who has beneficially owned shares for
at least one year is entitled to sell, within any three-month period, that
number of "restricted securities" that does not exceed the greater of 1% of the
then outstanding shares of Common Stock or the average weekly trading volume
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain manner of sale limitations, notice requirements and the
availability of current public information about the Company. Rule 144(k)
provides that a person who is not deemed an "affiliate" and who has beneficially
owned shares for at least two years is entitled to sell such shares at any time
under Rule 144 without regard to the limitations described above.
The remaining 8,606,061 shares of Common Stock outstanding as of the
date of this Prospectus are freely tradeable, registered for sale herein or
presently eligible for sale pursuant to Rule 144 under the Securities Act.
No prediction can be made as to the effect, if any, that future sales
of shares of Common Stock or the availability of such shares for sale, either
pursuant to this Prospectus or under Rule 144, will have on the market price of
the Company's Common Stock prevailing from time to time. The possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect the market price of the Common Stock prevailing from time to
time and could impair the future ability of the Company to raise capital through
the sale of its equity securities.
EFFECT OF EXERCISE OF OPTIONS AND WARRANTS
The Company has reserved an aggregate of 720,000 shares of Common Stock
for issuance pursuant to the exercise of options that may be granted under the
Company's 1995 Stock Option Plan and 1996 Stock Option Plan (collectively the
"Plans"). As of the date of this Prospectus, options to acquire 285,500 shares
of Common Stock have been granted pursuant to the Plans, 98,146 of which options
are presently exercisable. The exercise prices of such options range from
approximately $0.47 per share to $5.00 per share and the expiration dates of
such options range from January 19, 2002 to June 11, 2003.
In addition, the Company has reserved an aggregate of 910,000 shares of
Common Stock for issuance pursuant to the exercise of options (including the
Options) granted by the Company otherwise than pursuant to the Plans. An
aggregate of 443,332 of these options are presently exercisable. The exercise
prices of such options range from $0.40 per share to $5.00 per share and such
options expire between May 19, 2002 and May 11, 2003.
The Company has also reserved an aggregate of 1,200,000 shares of
Common Stock for issuance pursuant to the exercise of the Warrants, all of which
were issued within the last year by the Company. All of the Warrants are
presently exercisable. The exercise prices of the Warrants range from $0.25 per
share to $1.25 per share and the expiration dates of the Warrants range from
November 3, 1998 to December 31, 2004.
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<PAGE> 13
In connection with its initial public offering in March 1996, the
Company also issued presently-outstanding, publicly-traded warrants to purchase
up to an aggregate of 2,930,624 shares of Common Stock at a price equal to $7.00
per share, which warrants expire March 20, 2001 (the "Publicly-Traded
Warrants"). As part of the underwriters' compensation in such initial public
offering, the Company also issued warrants to purchase up 130,000 shares of
Common Stock on or prior to March 20, 2001 at an exercise price equal to $6.00
per share and the right to acquire additional warrants, at a price equal to
$0.30 per additional warrant, which additional warrants, if issued, will entitle
the holders thereof to purchase up to 210,000 shares of Common Stock on or prior
to March 20, 2001 at a price equal to $6.00 per share (collectively the
"Underwriters' Warrants").
For the respective terms of the foregoing warrants and options
(including the Warrants, the Options, the Publicly-Traded Warrants and the
Underwriters' Warrants) granted or that may be granted by the Company under the
Plans or otherwise, the holders thereof are given an opportunity to profit in
the event of a rise in the market price of the Common Stock, with a resulting
dilution in the interest of the other stockholders, without assuming the risk of
ownership. Further, the terms on which the Company may obtain additional equity
financing during the periods that such warrants and options (including the
Warrants, the Options, the Publicly-Traded Warrants and the Underwriters'
Warrants) may be exercised may be materially adversely affected by the existence
of such warrants, options, the Plans and the Board of Directors' discretion to
issue additional such securities. The holders of options or warrants to purchase
Common Stock may exercise such options or warrants at a time when the Company
might be able to obtain additional capital through new offerings of securities
on terms more favorable than those provided by such options or warrants.
RISK OF DILUTION
As noted above, up to 5,666,124 shares of Common Stock are, or may in
the future become, issuable upon exercise of outstanding options or warrants
(including the Options, the Warrants, the Publicly-Traded Warrants and the
Underwriters' Warrants) previously granted by the Company. No assurance can be
given that these options and warrants will be exercised in whole or in part or
at all. However, if all of the _________ of presently-exercisable options and
warrants having exercise prices at or below the market price for the Company's
Common Stock as of the date of this Prospectus were to be exercised, purchasers
of the Common Stock in this offering would experience immediate substantial
dilution in percentage voting power, pro forma net tangible book value per share
of such Common Stock and earnings (loss) per share of such Common Stock.
The Company's acquisition of Western in February 1997 involved, and
possible future acquisitions or business combinations may involve, the issuance
of additional shares of Common Stock and/or payments based on earnings formulas
which could require the issuance of additional shares of Common Stock. No
assurance can be given that any future share issuances will be at prices that
would avoid potential dilution to existing stockholders.
NO INTENTION TO PAY DIVIDENDS
The Company has not paid any cash dividends on any of its Common Stock
since its inception and does not intend to pay any cash dividends on its Common
Stock for the foreseeable future. It is anticipated that future earnings, if
any, will be used to finance the future growth of the Company. In addition,
there can be no assurance that the Company's operations will generate sufficient
revenues to enable the Company to declare or pay cash dividends.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, BYLAW AND DELAWARE LAW PROVISIONS.
Certain provisions of the Company's Certificate of Incorporation, as
amended (the "Certificate"), the Company's Bylaws and the Delaware General
Corporation Law (the "Delaware Law") may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. These provisions make it more
difficult for stockholders to take certain corporate actions and could have the
effect of delaying or preventing a change in control of the Company. For
example, the Company has not elected to be excluded from the provisions of
Section 203 of the Delaware General Corporation Law, which impose certain
limitations on business combinations with interested stockholders upon acquiring
15% or more of the Common Stock. This statute may have the effect of inhibiting
a non-negotiated merger or other business combination involving the Company,
even if such event would be beneficial to the Company's then-existing
stockholders. In addition, the Company's Certificate authorizes the issuance of
up to 100,000 shares of preferred stock with such rights and preferences as may
be determined from time to time by the Company's Board of Directors.
Accordingly, the Company's Board of Directors may, without stockholder approval,
issue preferred stock with dividends, liquidation, conversion, and voting or
other rights, which could adversely affect the voting power or other rights of
the holders of the Company's Common Stock. The issuance of preferred stock could
have the effect of entrenching the Company's Board of Directors and making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company.
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<PAGE> 14
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate includes provisions that eliminate its
Directors' personal liability for monetary damages to the fullest extent
possible under Section 102(b)(7) of the Delaware Law (the "Director Liability
Provision"). The Director Liability Provision eliminates the liability of
Directors to the Company and its stockholders for monetary damages arising out
of any violation by a Director of his fiduciary duty of due care. Under the
Delaware Law, however, the Director Liability Provision does not eliminate
liability of a Director for (i) breach of the Director's duty of loyalty, (ii)
acts or omissions not in good faith or involving intentional misconduct or
knowing violation of law, (iii) payment of dividends or repurchases or
redemptions of stock other than from lawfully available funds, or (iv) any
transaction from which the director derived an improper benefit. The Director
Liability Provision also does not affect a Director's liability under the
federal securities laws or the recovery of damages by third parties.
Furthermore, pursuant to the Delaware Law, the limitation on liability afforded
by the Director Liability Provision does not eliminate a Director's personal
liability for breach of the Director's duty of due care.
The Company's Certificate also includes provisions that require the
Company to indemnify its Directors, officers, employees and agents to the
fullest extent permitted by Section 145 of the Delaware Law ("Section 145").
Section 145 provides that a director, officer, employee or agent of a
corporation: (i) shall be indemnified by the corporation for expenses actually
and reasonably incurred in defense of any action or proceeding if such person is
sued by reason of his service to the corporation, to the extent that such person
has been successful in defense of such action or proceeding, or in defense of
any claim, issue or matter raised in such litigation, (ii) may, in actions other
than actions by or in the right of the corporation (such as derivative actions),
be indemnified for expenses actually and reasonably incurred, judgments, fines
and amounts paid in settlement of such litigation, even if he is not successful
on the merits, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation (and in a
criminal proceeding, if he did not have reasonable cause to believe his conduct
was unlawful), and (iii) may be indemnified by the corporation for expenses
actually and reasonably incurred (but not judgments or settlements) of any
action by the corporation or of a derivative action (such as a suit by a
shareholder alleging a breach by the director or officer of a duty owed to the
corporation), even if he is not successful, provided that he acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, provided that no indemnification is permitted
without court approval if the director or officer has been adjudged liable to
the corporation. See "Limitation on Liability and Disclosure of Commission
Position on Indemnification of Securities Act Liabilities".
AVAILABLE INFORMATION
The Company is a reporting company pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as a "small business issuer" as
defined under Regulation S-B promulgated under the Securities Act. In accordance
with the Exchange Act, the Company files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information may be inspected and copied at,
and copies of such materials can be obtained at prescribed rates from, the
Public Reference Section of the Commission located at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's Pacific Regional Office located
at 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California, the
Commission's Northeast Regional Office located at 7 World Trade Center, Suite
1300, New York, New York and at the Commission's Midwest Regional Office located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois. In
addition, the Company has filed a Registration Statement on Form S-3 of which
this Prospectus is a part and other filings pursuant to the Securities Act and
the Exchange Act with the Commission through its Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system, and such filings are publicly available
through the Commission's site on the World Wide Web on the Internet, located at
http://www.sec.gov.
This Prospectus does not contain all of the information set forth in
the Registration Statement on Form S-3 of which this Prospectus is a part and
which the Company has filed with the Commission. For further information with
respect to the Company and the Securities offered hereby, reference is made to
such Registration Statement on Form S-3, including the exhibits filed as a part
thereof, copies of which can be inspected at, or obtained at prescribed rates
from, the Public Reference Section of the Commission at the address set forth
above. Additional updating information with respect to the Company may be
provided in the future by means of appendices or supplements to this Prospectus.
The Company's Common Stock is quoted on the Nasdaq SmallCap Market
under the symbol "ADRN". Reports, proxy statements and other information
concerning the Company may also be inspected at the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
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<PAGE> 15
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The documents listed below have been filed by the Company with the
Commission under the Exchange Act and are specifically incorporated by reference
into this Prospectus:
a. The Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1997, filed with the Commission on October 14,
1997 (pursuant to a Notification of Late Filing on Form
12b-25).
b. The Company's Quarterly Reports on Form 10-QSB for the quarter
ended September 30, 1997 filed with the Commission on November
14, 1997, for the quarter ended December 31, 1997 filed with
the Commission on February 20, 1998 (pursuant to a
Notification of Late Filing on Form 12b-25), and for the
quarter ended March 31, 1998 filed with the Commission on May
20, 1998 (pursuant to a Notification of Late Filing on Form
12b-25).
c. The Company's definitive proxy materials utilized in
connection with the Company's 1998 Annual Meeting of
Shareholders held May 12, 1998, filed with the Commission on
Schedule 14A on April 15, 1998.
d. The Company's Current Report on Form 8-K, filed with the
Commission on June 3, 1998.
e. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A under the
Exchange Act, filed with the Commission on February 23, 1996
(and an amendment thereto filed with the Commission on Form
8-A/A on March 12, 1996).
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the filing of a post-effective amendment which indicates that all of
the Shares have been sold or which deregisters all Shares then remaining unsold
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing such documents.
Any statement contained in a document incorporated by reference shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement in this Prospectus or in any subsequently filed document
that also is, or is deemed to be, incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide, without charge, to each person who receives
this Prospectus, upon written or oral request of such person, a copy of any and
all of the information that has been or may be incorporated by reference in this
Prospectus (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be made to Adrenalin Interactive, Inc. Attn: President, 5301 Beethoven
Street, Suite 255, Los Angeles, California 90066, telephone number (310)
271-7880.
USE OF PROCEEDS
The proceeds from the sale of the Selling Stockholders' Common Stock
will belong to the Selling Stockholders. The Company will not receive any
proceeds from such sales of the Common Stock. In the event any of the Warrants
or any of the Options are exercised, the Company will receive the proceeds from
such exercise. The actual amount of proceeds to be received by the Company, if
any, will depend on, among other things, the number of Warrants and Options
exercised and whether any such exercise is effected pursuant to the "cashless
exercise" provisions applicable to certain of such Warrants and Options (the
Company will not receive any proceeds from the exercise of any Warrants or
Options which are exercised pursuant to such "cashless exercise" provisions).
The Company intends to use any proceeds received from the exercise of the
Warrants and Options for general working capital purposes.
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<PAGE> 16
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of August __, 1998 by the
Selling Stockholders as follows: (i) the name of each Selling Stockholder; (ii)
the number of shares of Common Stock beneficially owned by each Selling
Stockholder (including shares obtainable upon exercise of Warrants or Options
with 60 days of such date); (iii) the number of shares of Common Stock being
offered hereby; and (iv) the number of the Company's outstanding shares of
Common Stock to be beneficially owned by each Selling Stockholder after
completion of the sale of Common Stock. Except as indicated in the footnotes to
this table, the Selling Stockholders have not held any position or office or had
a material relationship with the Company or any of its affiliates within the
past three years.
<TABLE>
<CAPTION>
Common Stock
Common Stock Shares Beneficially Owned
Beneficially Owned Being After the Offering(2)
Name of Selling Stockholder(1) Prior to the Offering Offered Number Percent
- ------------------------------------------------ --------------------- ------- ------ -------
<S> <C> <C> <C> <C>
Joseph W. Abrams and Patricia G. Abrams,
Trustees of the Joseph W. Abrams and
Patricia G. Abrams Trust UA DTD 3/15/95 ......... 17,500 12,500 5,000 *
Avon Brill, LLC(3)(4) .............................. 350,000 350,000 0
Ron Ardt(5)(6) ..................................... 15,000 15,000 0
Barrow Street Research ............................. 4,000 4,000 0
Ralph H. Baer ...................................... 16,400 16,400 0
Lawrence Berk(7) ................................... 62,500 62,500 0
BKS International Business Consulting(4)(8) ........ 50,000 50,000 0
Boyd & Chang LLP(8) ................................ 99,000 99,000 0
Linda Eloise Brasseal(9) ........................... 50,000 50,000 0
James I. Charne .................................... 18,600 18,600 0
Thomas M. Chin(4) .................................. 5,000 5,000 0
Clark & Trevithick(10) ............................. 50,000 50,000 0
Clink Cronkite ..................................... 11,000 11,000 0
Nykki DeSoto ....................................... 1,000 1,000 0
Donaldson, Lufkin and Jenrette Securities
Corp., Custodian F/B/O Kenneth E. Millette(11) .. 25,000 25,000 0
Hahn & Flores ...................................... 44,800 44,800 0
John A. Gangl, Trustee of the John A. Gangl
Trust U/A 11/8/89(11) ........................... 25,000 25,000 0
John Gentilella(6)(12) ............................. 4,000 4,000 0
Jerome and Barbara Gschwend, Trustees of the
Jerome and Barbara Gschwend Trust DTD 8/26/93(11) 25,000 25,000 0
Steven Hauck(13) ................................... 25,000 25,000 0
Steven Hauck Pension Plan & Trust .................. 50,000 50,000 0
Teresa Hernandez(14) ............................... 312,500 312,500 0
Intervest Holdings(15) ............................. 125,000 125,000 0
Allan Johnson ...................................... 11,400 11,400 0
Richard S. Kalin(16) ............................... 333,883 10,400 323,483 3.7%
Kayne International Corp.(17) ...................... 220,000 220,000 0
Darci R. Kendrick(4) ............................... 60,000 60,000 0
Babetta Lanzilli (5) ............................... 37,500 37,500 0
Limpos Financial, S.A.(18) ......................... 250,000 250,000 0
Lloyd Wade Securities, Inc(19) ..................... 273,000 273,000 0
MacAlister Credit Trust U/A/D 11/25/98(9) .......... 50,000 50,000 0
Glen MacAlister, Trustee of the Glen MacAlister
Trust DTD 10/11/95(20) .......................... 12,500 12,500 0
Spencer Mackay ..................................... 11,400 11,400 0
Michael Matto(8) ................................... 125,000 125,000 0
</TABLE>
15
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
Peter Mintz ............................... 6,000 6,000 0
Miyamoto Investment Company(8) ............ 125,000 125,000 0
Harvey Morrow(6)(21) ...................... 8,000 8,000 0
William C. Nolan(11) ...................... 25,000 25,000 0
Masaji Ota(7) ............................. 62,500 62,500 0
Pacific Business Funding(13) .............. 10,000 10,000 0
Price, Gess & Ubell ....................... 32,000 32,000 0
Paul Rioux ................................ 64,000 64,000 0
Michael Roda .............................. 11,000 11,000 0
Rogue Studios, Inc. ....................... 47,568 47,568 0
Michael N. Saleman ........................ 23,784 23,784 0
Thomas A. Schultz (22) .................... 50,000 50,000 0
SOMA 2000, LLC(3)(4) ...................... 300,000 300,000 0
Sione Tangen (4)(18) ...................... 60,000 60,000 0
Swan Alley (Nominees) Limited ............. 500,000 500,000 0
TBF Enterprises ........................... 225,000 125,000 100,000 1.2%
The Center for AIDS Research & Training(8) 127,000 125,000 2,000 *
Masayuki Tsuda ............................ 32,000 32,000 0
Michael Voss(7) ........................... 62,500 62,500 0
Wilshire Center Geriatrics Medical Group(8) 125,000 125,000 0
Robert A. D. Wilson(23) ................... 192,532 192,532 0
Wolfe Axelrod Associates(13) .............. 25,000 25,000 0
--------- --------- -------
Totals 4,885,047 4,454,384 430,663
========= ========= =======
</TABLE>
* Less than 1%
(1) Unless otherwise indicated in these footnotes, each Selling Stockholder
has sole voting and investment power with respect to the shares
beneficially owned by such Selling Stockholder. All share amounts
reflect beneficial ownership determined pursuant to Rule 13d-3 under the
Exchange Act.
(2) Assumes all of the shares of Common Stock beneficially owned by the
Selling Stockholders and registered hereunder are sold.
(3) All of the shares of Common Stock beneficially owned by this Selling
Stockholder are issuable upon the exercise of Warrants.
(4) This Selling Stockholder may be deemed to be an "affiliate" of Mackenzie
Shea, Inc. ("MSI") within the meaning of such term under Rule 405
promulgated pursuant to the Securities Act. MSI has provided material
business consulting services to the Company since approximately October
1997.
(5) Includes 7,500 shares of Common Stock which are issuable upon the
exercise of Warrants.
(6) This Selling Stockholder may be deemed to be an "affiliate" of Lloyd
Wade Securities, Inc. ("LWSI") within the meaning of such term under
Rule 405 promulgated pursuant to the Securities Act. LWSI is another
Selling Stockholder pursuant to this Prospectus and has provided
material investment banking advisory services to the Company since
approximately January 1998.
(7) Includes 12,500 shares of Common Stock which are issuable upon the
exercise of Warrants.
(8) Includes 25,000 shares of Common Stock which are issuable upon the
exercise of Warrants.
(9) Includes 10,000 shares of Common Stock which are issuable upon the
exercise of Warrants.
16
<PAGE> 18
(10) This Selling Stockholder has served as the Company's general outside
legal counsel since approximately the beginning of March 1998.
(11) Includes 5,000 shares of Common Stock which are issuable upon the
exercise of Warrants.
(12) Includes 2,000 shares of Common Stock which are issuable upon the
exercise of Warrants.
(13) All of the shares of Common Stock beneficially owned by this Selling
Stockholder are issuable upon the exercise of Options.
(14) Includes 62,500 shares of Common Stock which are issuable upon the
exercise of Warrants.
(15) Includes 100,000 shares of Common Stock which are issuable upon the
exercise of Warrants.
(16) This Selling Stockholder served as a Director and Secretary of the
Company until August 28, 1997 and as the Company's general outside legal
counsel until approximately the end of February 1998. Includes 74,199
shares of Common Stock owned of record by this Selling Stockholder's
spouse and 40,000 shares of Common Stock which are issuable upon the
exercise of options which are not being registered for sale pursuant to
this Prospectus.
(17) This Selling Stockholder has served as a business consultant to the
Company since approximately November 18, 1997. This Selling Stockholder
may be deemed to be an "affiliate" of Thomas A. Schultz within the
meaning of such term under Rule 405 promulgated pursuant to the
Securities Act. Mr. Schultz is another Selling Stockholder pursuant to
this Prospectus and has served as a Director of the Company since
October 7, 1997.
(18) Includes 50,000 shares of Common Stock which are issuable upon the
exercise of Warrants.
(19) This Selling Stockholder has provided material investment banking
advisory services to the Company since approximately January 1988.
36,500 of the shares of Common Stock beneficially owned by this Selling
Stockholder are issuable upon the exercise of Warrants.
(20) Includes 2,500 shares of Common Stock which are issuable upon the
exercise of Warrants.
(21) Includes 4,000 shares of Common Stock which are issuable upon the
exercise of Warrants.
(22) This Selling Stockholder has served as a Director of the Company since
October 7, 1997. All of the shares of Common Stock beneficially owned by
this Selling Stockholder are issuable upon the exercise of Options. This
Selling Stockholder may be deemed to be an "affiliate" of Kayne
International Corp. ("KIC") within the meaning of such term under Rule
405 promulgated pursuant to the Securities Act. KIC is another Selling
Stockholder pursuant to this Prospectus and has provided material
business consulting services to the Company since approximately November
18, 1997.
(23) This Selling Stockholder has served as a Director of the Company since
November 26, 1997. 50,000 of the shares of Common Stock beneficially
owned by this Selling Stockholder are issuable upon the exercise of
Options.
17
<PAGE> 19
PLAN OF DISTRIBUTION
Effective as of June 30, 1998, the Company sold an aggregate of 625,000
shares of Common Stock to Swan Alley (Nominees) Limited and TBF Enterprises
(collectively the "Investors") for an aggregate of $500,000 pursuant to
Subscription Agreements (the "Subscription Agreements") entered into between the
Company and each of the Investors. Pursuant to the Subscription Agreements, the
Company agreed to register the 625,000 shares of Common Stock sold to the
Investors by the Company for sale under the Securities Act pursuant to this
Prospectus.
In addition, this Prospectus also relates to 2,469,384 shares of Common
Stock previously issued to other Selling Stockholders, 1,200,000 shares of
Common Stock issuable upon exercise of the Warrants and 160,000 shares of Common
Stock issuable upon exercise of the Options. The Company issued these Securities
in various other financing efforts, as part of the compensation of its outside
directors and certain of its business consultants and in settlement of
previously-incurred liabilities to certain of its creditors including certain of
its business consultants.
The distribution of the shares of Common Stock offered hereby may be
effected from time to time in one or more transactions. All or a portion of the
Common Stock offered by this Prospectus may be offered for sale, from time to
time, by the Selling Stockholders, or by permitted transferees or successors of
the Selling Stockholders, in private or negotiated transactions, in open market
transactions on the National Association of Nasdaq SmallCap Market, or
otherwise, or a combination of these methods, at prices and terms then
obtainable, at fixed prices, at prices then prevailing at the time of sale, at
prices related to such prevailing prices, at negotiated prices or otherwise. The
shares of Common Stock offered hereby may be sold by one or more of the
following: (i) through underwriters; (ii) through dealers or agents (which may
include underwriters) including: (a) a block trade in which the broker or dealer
so engaged will attempt to sell the shares of Common Stock as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer and resale by such broker or
dealer as a principal for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions; and (d) transactions in which the broker solicits
purchasers; or (iii) directly to one or more purchasers. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Stockholders. Concurrently with sales under this Prospectus, the Selling
Stockholders may effect other sales of Common Stock under Rule 144 or other
exempt resale transactions. The Selling Stockholders and any underwriters,
dealers, brokers or agents executing selling orders on behalf of the Selling
Stockholders may be deemed to be "underwriters" within the meaning of the
Securities Act, in which event commissions received by such persons may be
deemed to be underwriting commission under the Securities Act.
The Company has agreed to indemnify certain of the Selling Stockholders
against certain liabilities, including certain liabilities under the Securities
Act.
LEGAL MATTERS
Certain legal matters regarding the securities offered hereby are being
passed upon for the Company by Clark & Trevithick, a Professional Law
Corporation, Los Angeles, California. Such law firm presently owns an aggregate
of 50,000 shares of the Company's Common Stock.
EXPERTS
The Company's consolidated financial statements as of June 30, 1997 and
1996 and for the fiscal years ended June 30, 1997 and 1996 appearing in the
Company's Annual Report on Form 10-KSB for the year ended June 30, 1997 have
been audited by Drucker, Math & Whitman, P.C., independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
18
<PAGE> 20
LIMITATION ON LIABILITY AND DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company's Certificate of Incorporation (the "Certificate") includes
provisions that eliminate its Directors' personal liability for monetary damages
to the fullest extent possible under Section 102(b)(7) of the Delaware General
Corporation Law (the "Director Liability Provision"). The Director Liability
Provision eliminates the liability of Directors to the Company and its
stockholders for monetary damages arising out of any violation by a Director of
his fiduciary duty of due care. Under Delaware law, however, the Director
Liability Provision does not eliminate liability of a Director for (i) breach of
the Director's duty of loyalty, (ii) acts or omissions not in good faith or
involving intentional misconduct or knowing violation of law, (iii) payment of
dividends or repurchases or redemptions of stock other than from lawfully
available funds, or (iv) any transaction from which the Director derived an
improper benefit. The Director Liability Provision also does not affect a
Director's liability under the federal securities laws or the recovery of
damages by third parties. Furthermore, pursuant to Delaware law, the limitation
on liability afforded by the Director Liability Provision does not eliminate a
Director's personal liability for breach of the Director's duty of due care.
Although the Directors would not be liable for monetary damages to the Company
or its stockholders for negligent acts or omissions in exercising their duty of
due care, the Directors remain subject to equitable remedies, such as actions
for injunction or rescission, although these remedies, whether as a result of
timeliness or otherwise, may not be effective in all situations. With regard to
Directors who also are officers of the Company, these persons would be insulated
from liability only with respect to their conduct as Directors and would not be
insulated from liability for acts or omissions in their capacity as officers.
The Company's Certificate also includes provisions that require the
Company to indemnify its Directors, officers, employees and agents to the
fullest extent permitted by Section 145 of the Delaware General Corporation Law
("Section 145"). Section 145 provides that a Director, officer, employee or
agent of a corporation: (i) shall be indemnified by the corporation for expenses
actually and reasonably incurred in defense of any action or proceeding if such
person is sued by reason of his service to the corporation, to the extent that
such person has been successful in defense of such action or proceeding, or in
defense of any claim, issue or matter raised in such litigation, (ii) may, in
actions other than actions by or in the right of the corporation (such as
derivative actions), be indemnified for expenses actually and reasonably
incurred, judgments, fines and amounts paid in settlement of such litigation,
even if he is not successful on the merits, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation (and in a criminal proceeding, if he did not have reasonable
cause to believe his conduct was unlawful), and (iii) may be indemnified by the
corporation for expenses actually and reasonably incurred (but not judgments or
settlements) of any action by the corporation or of a derivative action (such as
a suit by a shareholder alleging a breach by the Director or officer of a duty
owed to the corporation), even if he is not successful, provided that he acted
in good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation, provided that no indemnification is permitted
without court approval if the Director or officer has been adjudged liable to
the corporation.
Insofar as indemnification for Directors, officers and controlling
persons of the Company with respect to liabilities arising under the Securities
Act may be granted pursuant to the provisions described above, or otherwise, the
Company 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.
19
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14 - Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities being registered hereby. The
Selling Stockholders will pay the commissions and discounts of underwriters,
dealers of agents, if any, incurred in connection with the sale of the Shares.
The Company will pay all other expenses incident to the offering and sale of the
Shares.
<TABLE>
<CAPTION>
Amount*
-----------
<S> <C>
SEC Registration Fee................................ $ 1,725.34
Legal Fees and Expenses............................. 15,000.00
Accounting Fees and Expenses........................ 3,000.00
Printing and Filing Expenses........................ 2,500.00
-----------
Total $ 22,225.34
===========
</TABLE>
- ----------------------
* All amounts, except the SEC Registration Fee, are estimates.
ITEM 15 - Indemnification of Directors and Officers
See "Limitation on Liability and Disclosure of Commission Position on
Indemnification for Securities Act Liabilities" commencing on page 18 of the
Prospectus.
ITEM 16 - Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Item
- ------- ------------------------------------------------------------------------
<S> <C>
4.1 Form of Subscription Agreement entered into between the Company and each
of the Investors.
4.2 Form of Warrant Agreement and Warrant Certificate entered into between
the Company and 17 of the Selling Stockholders.
4.3 Form of Warrant to Purchase Common Stock entered into between the
Company and two of the Selling Shareholders.
4.4* Form of Warrant Certificate entered into between the Company and four of
the Selling Shareholders.
4.5* Form of Warrant to Purchase Common Stock entered into between the
Company and four of the Selling Stockholders.
4.6* Form of Nonqualified Stock Option Agreement entered into between the
Company and five of the Selling Stockholders.
5.1 Opinion of Clark & Trevithick, a Professional Law Corporation.
23.1 Consent of Clark & Trevithick, a Professional Law Corporation (included
in Exhibit 5.1).
</TABLE>
II-1
<PAGE> 22
<TABLE>
<S> <C>
23.2 Consent of Drucker, Math & Whitman, P.C.
24.1 Power of Attorney (included on the signature page to this Registration
Statement - see page II-3).
</TABLE>
- ----------------------
* Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the quarter ended March 31, 1998, filed with the Commission on
May 20, 1998 (pursuant to a Notification of Late Filing on Form 12b-25).
ITEM 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or
sells securities, a post-effective amendment to this
Registration Statement to include any additional or changed
information on the plan of distribution;
(2) For determining liability under the Securities
Act, treat each post-effective amendment as a new Registration
Statement of the securities offered, and the offering of the
securities at that time to be deemed the initial bona fide
offering; and
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the
end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company 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 Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such Director, officer
or controlling person in connection with the securities registered, the Company
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Los Angeles, State of California, on July 31, 1998.
ADRENALIN INTERACTIVE, INC.
By: /s/ Jay Smith, III
----------------------------------------------
Jay Smith, III, President, Chief Executive
Officer and Treasurer
II-2
<PAGE> 23
POWER OF ATTORNEY
We, the undersigned officers and directors of Adrenalin Interactive,
Inc., do hereby constitute and appoint Jay Smith, III and Michael Cartabiano, or
either of them, our true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with 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 are
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that each of said attorney-in-fact and agents, or his substitute or 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 indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jay Smith, III President, Chief Executive Officer, Treasurer July 31, 1998
- ------------------------------------------ and Director (principal executive, financial
Jay Smith, III and accounting officer)
/s/ Michael Cartabiano Vice President and Secretary July 31, 1998
- ------------------------------------------
Michael Cartabiano
/s/ Thomas A. Schultz Director July 31, 1998
- ------------------------------------------
Thomas A. Schultz
/s/ Robert A.D. Wilson Director July 31, 1998
- ------------------------------------------
Robert A.D. Wilson
</TABLE>
II-3
<PAGE> 1
EXHIBIT 4.1
Purchaser's Name:_________________________
Date:____________________________________
Number of Shares:_________________________
Total Investment:__________________________
ADRENALIN INTERACTIVE, INC.
a Delaware corporation
SUBSCRIPTION AGREEMENT
Adrenalin Interactive, Inc,
5301 Beethoven Street
Los Angeles, CA 90066-7047
Attn: Jay Smith, III
Dear Mr. Smith:
1. Application. The undersigned, intending to be legally
bound, hereby subscribes for the number of shares set forth above (the "Shares")
of the common stock, $0.01 par value (the "Common Stock"), of Adrenalin
Interactive, Inc., a Delaware corporation (the "Company"), at a purchase price
of $0.80 per Share, for the total investment set forth above, pursuant to the
Company's offering of up to 625,000 shares of Common Stock to a limited number
of "accredited investors" within the meaning of such term under Regulation D
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
The undersigned understands that this subscription is, and shall be, irrevocable
unless the Company for any reason rejects this subscription.
2. Escrow of Funds.
(a) Until acceptance by the Company, the subscription
proceeds will be held in an account with Clark & Trevithick, the Company's legal
counsel, as escrow agent, for the benefit of the undersigned. If the Company
rejects this subscription, the escrow agent will promptly mail or cause to be
mailed to the undersigned a check for all of the amount submitted with this
subscription without interest. If the Company has not accepted this subscription
by July 31, 1998, the subscription proceeds will also be promptly refunded
without interest. After such refund has been made, the Company and its
directors, officers, shareholders, employees, representatives and agents
(including the escrow agent) will have no further liability to the undersigned.
1
<PAGE> 2
(b) Upon acceptance of this subscription by the
Company on or before July 15, 1998, a closing (the "Closing") of the sale of the
Shares will be held, at which time the funds will be released by the escrow
agent to the client trust account of the escrow agent maintained for the benefit
of the Company. Funds shall thereafter be released from such client trust
account for the benefit of the Company only upon the instructions of Thomas A.
Schultz, an outside member of the Company's Board of Directors, and the
undersigned will receive certificates representing the Shares from the Company's
transfer agent.
3. Representations and Warranties. The undersigned represents
and warrants as follows:
(a) The undersigned has relied solely on the public
information relating to the Company and contained in (i) the Company's Annual
Report on Form 10-KSB for the fiscal year ending June 30, 1997; (ii) the
Company's Quarterly Reports on Form 10- QSB for the quarterly periods ending
September 30, 1997, December 31, 1997 and March 31, 1998; and (iii) the
Company's Current Report on From 8-K filed June 3, 1998, each of which has been
filed with the SEC (as hereinafter defined) under the Securities Exchange Act of
1934, as amended (the "Exchange Act") (such reports being hereinafter
collectively referred to as the "SEC Reports); no oral representations have been
made or oral information furnished to the undersigned in connection with the
purchase of the Shares which were in any way inconsistent with the SEC Reports;
and the undersigned and/or his advisors have had a reasonable opportunity to ask
questions of and receive answers from the Company concerning the SEC Reports and
its current financial condition, results of operations and business prospects as
well as concerning the Shares.
(b) The undersigned is able to bear the economic
risks of an investment in the Shares for an indefinite period and at the present
time could afford the entire loss of such investment.
(c) The undersigned understands that an investment in
the Shares is extremely speculative and involves a high degree of risk and has
the knowledge and experience in financial and business matters generally such
that the undersigned is capable of evaluating the merits and risks of an
investment in the Shares.
(d) The undersigned understands and acknowledges that
the Shares have not been registered for sale under the Securities Act or under
any applicable state's securities laws in reliance upon exemptions therefrom for
non-public offerings and that the Shares may not be resold or transferred unless
the resale or transfer is subsequently registered under the Securities Act or an
exemption from such registration is available.
(e) The Shares are being purchased solely for the
undersigned's account, for investment purposes only, and not with a view to the
distribution, assignment
2
<PAGE> 3
or resale thereof, and no other person has a direct or indirect beneficial
interest in such Shares.
(f) The undersigned, if a corporation, partnership,
limited liability company, trust or other entity, is authorized and otherwise
duly qualified to purchase and hold the Shares and to enter into this
Subscription Agreement, and such entity has not been formed for the specific
purpose of acquiring the Shares, unless all of its equity owners qualify as
Accredited Investors (as defined in Regulation D under the Securities Act) under
one or more of the standards set forth below.
(g) The undersigned is an Accredited Investor as that
term is defined in Regulation D of the Securities Act.
(h) The undersigned has read and understands this
Agreement and has been advised to, and has had an opportunity to, consult with
the undersigned's legal, tax and business advisors.
(i) Each and every response the undersigned has
provided in the attached Subscriber Questionnaire is true and correct.
(j) The undersigned has all requisite power,
authority and capacity to acquire and hold the Shares and to execute, deliver
and comply with the terms of each of the instruments required to be executed and
delivered by the undersigned in connection with the undersigned's subscription
for the Shares as contemplated by this Agreement, and such execution, delivery
and compliance does not conflict with, or constitute a default under, any
instruments governing the undersigned, any law, regulation or order, or any
agreement to which the undersigned is a party or by which the undersigned may be
bound.
4. Indemnification. The undermined agrees to indemnify and
hold harmless the Company and its officers, directors, shareholders, employees,
agents and representatives from and against all liability, damage, loss, cost
and expense (including reasonable attorneys' fees) which they may incur by
reason of the failure of the undersigned to fulfill any of the terms or
conditions of this Subscription Agreement, or by reason of any inaccuracy or
omission in the information furnished by the undersigned herein or any breach of
the representations and warranties made by the undersigned herein or any
document provided by the undersigned to the Company.
5. Registration Rights
(a) Definitions. The following definitions shall
apply with respect to a registration (a "Registration") pursuant to this
paragraph 5:
3
<PAGE> 4
(i) The term "Public Offering" shall mean a
public offering of equity securities of the Company by selling stockholders
pursuant to an effective Registration Statement (as hereinafter defined) under
the Securities Act covering the offer and sale of Common Stock to the public by
such selling stockholders.
(ii) The term "Registerable Securities"
shall mean the Shares.
(iii) The term "Registration Statement"
shall mean a Registration Statement on Form S-3 of the Company that covers the
Registerable Securities, including the prospectus included therein, any
amendment or supplement thereof, including post-effective amendments, and all
exhibits and all material incorporated by reference in such Registration
Statement on Form S-3.
(iv) The term "SEC" shall mean the United
States Securities and Exchange Commission or any successor thereto.
(b) Mandatory Registration. The Company shall prepare
and file with the SEC, as soon as possible after the Closing, but not later than
15 days after the Closing, a Registration Statement registering for resale all
of the Registrable Securities by the undersigned.
(c) Provisions Applicable to Registration. The
following provisions shall apply, as applicable, in connection with the
undersigned's Registerable Securities included in a Registration Statement
pursuant to this paragraph 5:
(i) the undersigned shall promptly provide
the Company with such nonconfidential and nonproprietary information as the
Company shall reasonably request and that is available to the undersigned in
order to prepare the Registration Statement;
(ii) all reasonable and necessary expenses
in connection with the preparation of the Registration Statement including,
without limitation, any and all legal, accounting and filing fees, but not
including fees and disbursements of experts and counsel who may be retained by
the undersigned or underwriting discounts and commissions which may be paid by
the undersigned, shall be borne by the Company; and
(iii) in connection with a Registration
pursuant to this paragraph 5, the Company shall use its best efforts to effect
such Registration permitting the sale of such Registerable Securities in
accordance with the intended method or methods of distribution thereof, and
pursuant thereto, the Company shall as expeditiously as possible:
(1) prepare and file with the SEC the
Registration Statement within the time period set forth above and use its best
efforts to cause such
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<PAGE> 5
Registration Statement to become effective and keep such Registration Statement
effective in accordance with subparagraph (b)(iii)(2) below;
(2) prepare and file with the SEC such
amendments and post-effective amendments to the Registration Statement as may be
necessary to keep the Registration effective until all such Registerable
Securities are sold, provided that Rule 415 under the Securities Act or any
successor rule permits such offering by the Company on a continuous or delayed
basis; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended method or
methods of distribution by the selling stockholders thereof as set forth in such
Registration Statement or supplement to the Prospectus;
(3) notify the undersigned promptly, and
(if requested by the undersigned) confirm such advice in writing, (A) when the
prospectus or any prospectus supplement or post-effective amendment has been
filed, and, with respect to the Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any request by the
SEC for amendments or supplements to the Registration Statement or the
prospectus or for additional information, (C) of the issuance by the SEC of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (D) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Registerable Securities for sale in any jurisdiction or the initiation of
any proceedings for such purpose, and (E) of the happening of any event as a
result of which the prospectus included in such Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact to be stated therein necessary to make the statements therein not
misleading in light of the circumstances then existing and, at the request of
the undersigned, prepare and furnish to the undersigned a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such shares, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
(4) if requested by the undersigned,
promptly incorpo rate in a prospectus supplement or post-effective amendment
such information as the undersigned agrees should be included therein relating
to the plan of distribution with respect to such Registerable Securities
including, without limitation, the purchase price being paid therefor by any
underwriters and with respect to any other terms of any underwritten resale of
the Registerable Securities to be resold in such offering; and make all required
filings of such prospectus supplements or post-effective amendments as soon as
notified of the matters to be incorporated in such prospectus supplements or
post-effective amendments;
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<PAGE> 6
(5) deliver to the undersigned, without
charge, as many copies of the prospectus in conformity with the requirements of
the Securities Act and any amendments or supplements thereto as the undersigned
may reasonably request and such other documents as the undersigned may
reasonably request to facilitate the prior sale or other disposition of the
Registerable Securities;
(6) prior to the resale of the
Registerable Securities pursuant to such Registration, register or qualify, or
cooperate with the undersigned, in connection with the registration or
qualification of the Registerable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions as the undersigned reasonably
requests in writing and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registerable
Securities covered by the Registration Statement; provided, however, that the
Company shall not be required to qualify to do business in any jurisdiction
where it is not then so qualified or to take any action that would subject it to
general service of process in any such jurisdiction where it is not then so
subject or would subject the Company to any tax in any such jurisdiction where
it is not then so subject; and
(7) with a view to making available the
benefits of certain rules and regulations of the SEC which may at some time in
the future permit the resale of the Registerable Securities to the public
without registration, during such time as a public market exists for its equity
securities, the Company agrees to:
a) make and keep public information
available, as such phrase is understood and defined in Rule 144 under the
Securities Act, at all times after the effective date of the Registration
Statement;
b) use its best efforts to file with
the SEC in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act;
c) furnish to the undersigned
forthwith, upon the undersigned's request, a written statement by the Company as
to the Company's compliance with the reporting requirements of said Rule 144,
and of the Securities Act and the Exchange Act, a copy of the most recent annual
or quarterly report of the Company and such other reports and documents of the
Company as the undersigned may reasonably request in availing itself of any rule
or regulation of the SEC allowing a holder to resell any of the Registerable
Securities without registration.
(d) Indemnification. In connection with the
registration or qualification of the Registerable Securities under the
Securities Act pursuant to the provisions of this paragraph 5, the Company shall
indemnify and hold harmless the
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<PAGE> 7
undersigned, the officers and directors of the undersigned and each director or
officer of any person or entity who controls the undersigned, and each other
person or entity who controls the undersigned, within the meaning of the
Securities Act (collectively the "undersigned Indemnitees"), from and against
any and all losses, claims, damages or liabilities, joint or several, to which
any of the undersigned Indemnitees may become subject under the Securities Act
and all applicable state securities laws or otherwise.
6. Miscellaneous.
(a) This Subscription Agreement shall survive the
death or disability of the undersigned and shall be binding upon the
undersigned's heirs, executors, administrators, successors and permitted
assigns.
(b) This Subscription Agreement has been duly and
validly authorized, executed and delivered by the undersigned and constitutes
the valid, binding and enforceable agreement of the undersigned. If this
Subscription Agreement is being completed on behalf of a corporation,
partnership, limited liability company or trust, it has been completed and
executed by an authorized corporate officer, general partner, managing member or
trustee.
(c) This Subscription Agreement and the documents
referred to herein constitute the entire agreement between the parties hereto
with respect to the subject matter hereof and together supersede all prior
discussions or agreements in respect thereof.
(d) Within five (5) days after receipt of a written
request from the Company, the undersigned agrees to provide such information, to
execute and deliver such documents and to take, or forbear from taking, such
actions or provide such further assurances as reasonably may be necessary to
correct any errors in documentation, to comply with any and all laws to which
the Company is subject or to effect the terms of this Subscription Agreement.
(e) The Company shall be notified immediately of any
change in any of the information contained above or in the attached Subscriber
Questionnaire occurring prior to the undersigned's purchase of the Shares or at
any time thereafter for so long as the undersigned is a holder of the Shares.
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<PAGE> 8
IN WITNESS WHEREOF, the undersigned has executed this
Subscription Agreement as of the date first written above.
________________________________ Residence or Business Address:
(Signature of Subscriber)
_______________________________________
________________________________ Street
(Print of Type Name)
_______________________________________
City State Country Zip Code
Social Security or Taxpayer
Identification Mailing Address (if different from
No.: ___________________________ Residence or Business Address):
_______________________________________
Street
U.S. Citizen: _____ Yes _____ No _______________________________________
City State Country Zip Code
8
<PAGE> 1
EXHIBIT 4.2
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement"), dated ___, is between
WANDERLUST INTERACTIVE, INC., a Delaware corporation (the "Company"), and
________________ , one of the persons purchasing "Units" in a private offering
by the Company.
RECITALS
A. The Company is offering (the "Private Offering") a minimum of 2
Units and a maximum of 12 Units, each Unit to consist of One Hundred Thousand
(100,000) shares of the Company's common stock ("Common Stock"), and the right
to purchase Twenty Five Thousand (25,000) additional shares of Common Stock,
such right to be evidenced by warrants (the "Warrants").
B. In connection with the Private Offering, the Company anticipates its
issuance of Warrants to purchase shares of Common Stock (the "Warrant Shares").
C. The Company desires to provide for the issuance of certificates
representing the Warrants.
D. The Company desires to act as its own warrant agent in connection
with the issuance, registration, transfer and exchange of certificates and the
exercise of the Warrants.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the above and foregoing premises
and the mutual promises and agreements hereinafter set forth, it is agreed as
follows.
1. WARRANT CERTIFICATES. Each Warrant shall entitle the holder (the
"Registered Holder") in whose name the certificate shall be registered on the
books maintained by the Company to purchase one (1) share of Common Stock on
exercise thereof, subject to modification and adjustment as provided in Section
8 hereof. Warrant certificates shall be executed by the Company's President. The
Warrant certificates shall be immediately detachable from certificates
representing shares of Common Stock and shall be distributed to the Registered
Holder thereof within 60 days following the final closing of the Private
Offering of the Units. The Company shall also deliver Warrant certificates in
required whole number denominations to the Registered Holder's transferee(s) in
connection with any transfer
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<PAGE> 2
or exchange permitted under this Agreement. Except as provided in Section 8
hereof, no Warrant certificates shall be issued except (i) certificates
initially issued hereunder, (ii) certificates issued on or after the initial
issuance date upon the exercise of any Warrant to evidence the unexercised
Warrants held by the exercising Registered Holder and (iii) certificates issued
after the initial issuance date upon any permitted transfer or exchange of
Warrant certificates.
2. FORM AND EXECUTION OF CERTIFICATES. The Warrant certificates shall
be dated as of the date of their issuance, whether on initial transfer or
exchange or in lieu of mutilated, lost, stolen or destroyed certificates. The
form of the Warrant certificate is attached hereto as Exhibit "A." Each Warrant
certificate shall be numbered serially. The Warrant certificates shall be
manually signed on behalf of the Company as the warrant agent by the Company's
President and shall not be valid for any purpose unless so signed. In the event
the President of the Company who executed Warrant certificates shall cease to be
the President of the Company, such certificates may be issued and delivered by
the Company or transferred by the Registered Holder with the same force and
effect as though the President of the Company who signed such certificate had
not ceased to be the President of the Company, and any certificate signed on
behalf of the Company by any person who at the actual date of the execution of
such certificate was the President of the Company shall be proper.
3. EXERCISE. Subject to the provisions of Sections 8 hereof and the
limitations on exercise set forth in the Company's Private Placement Memorandum
published in connection with the Private Offering of the Units, the Warrants, as
they may be adjusted as set forth herein, may each be exercised to acquire one
(1) share of Common Stock at a price (the "Warrant Exercise Price") of $1.25,
subject to adjustment as hereinafter provided, in whole or in part at any time
during the period (the "Warrant Exercise Period") beginning on the date of their
issuance and ending one year after the date of their issuance (the "Warrant
Expiration Date"), unless extended by a majority vote of the Board of Directors
for the Company (the "Board of Directors") for such length of time as they, in
their sole discretion, deem reasonable and necessary. Warrants shall be deemed
to have been exercised immediately prior to the close of business on the date
(the "Exercise Date") of the surrender for exercise of the certificate
evidencing the Warrants being exercised. An exercise form in the form of Exhibit
"A" attached to the Warrant certificate shall also be executed by the Registered
Holder thereof or his attorney duly authorized in writing and shall be
delivered, together with payment to the Company at its corporate offices located
at 5301 Beethoven Street, Los Angeles, CA 90066-7047 (the "Corporate Office"),
or at any such other office or agency as the Company may designate, in cash or
by official bank or certified check, in an amount equal to the aggregate Warrant
Exercise Price for the Warrant Shares being purchased, all in lawful money of
the United States of America.
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<PAGE> 3
The person entitled to receive the number of Warrant Shares deliverable
on exercise shall be treated for all purposes as the holder of such Warrant
Shares as of the close of business on the Exercise Date. The Company shall not
be obligated to issue any fractional share interest in Warrant Shares issuable
or deliverable on the exercise of any Warrant or scrip or cash therefor and such
fractional shares shall be of no value whatsoever. Within 10 days after the
Exercise Date and in any event prior to the Warrant Expiration Date, the Company
at its sole expense shall cause to be issued and delivered to the person or
persons entitled to receive the same a certificate or certificates in the name
requested by the Registered Holder for the number of Warrant Shares deliverable
on such exercise. No adjustment shall be made in respect of cash dividends on
Warrant Shares delivered on exercise of any Warrant. All shares of Common Stock
or other securities delivered upon the exercise of the Warrants shall be validly
issued, fully paid and non-assessable. The Company may deem and treat the
Registered Holder of the Warrants at any time as the absolute owner thereof for
all purposes, and the Company shall not be affected by any notice to the
contrary. The Warrants shall not entitle the holder thereof to any of the rights
of a shareholder of the Company or to any dividend declared on the Common Stock
unless the holder shall have exercised the Warrants prior to the record date
fixed by the Board of Directors for the determination of holders of Common Stock
entitled to such dividends or other rights.
4. REGISTRATION RIGHTS. Registered Holders shall have the registration
rights under the Securities Act of 1933, as amended (the "Act" ), provided for
in that certain Subscription Agreement executed by the Company and the
Registered Holder in connection with the Private Offering of the Units.
5. RESERVATION OF SHARES AND PAYMENT OF TAXES. The Company covenants
that it shall at all times reserve and have available from its authorized Common
Stock such number of shares as shall then be issuable on the exercise of all
outstanding Warrants. The Company covenants that all Warrant Shares shall be
duly and validly issued, fully paid and non-assessable, and shall be free from
all taxes, liens and charges with respect to the issuance thereof. No Warrants
may be exercised, nor may any Warrant Shares be issued or delivered by the
Company, unless on the Exercise Date (i) there is an effective registration
statement covering the issuance of the securities being acquired under the Act
and all applicable "blue sky" statutes or (ii) an exemption is available from
registration thereunder. The Company shall pay all documentary, stamp or similar
taxes and other government charges that may be imposed with respect of the
issuance of the Warrants, or the issuance, transfer or delivery of any Warrant
Shares on exercise of the Warrants. In the event Warrant Shares are to be
delivered in a name other than the name of the Registered Holder of the Warrant
certificate, no such delivery shall be made unless the person requesting the
same has paid to the Company the amount of any such taxes, charges or transfer
fees incident thereto.
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<PAGE> 4
6. LOSS OR MUTILATION. On receipt by the Company of evidence
satisfactory as to the ownership of and the loss, theft, destruction or
mutilation of any Warrant certificate, the Company shall execute and deliver in
lieu thereof a new Warrant certificate representing an equal number of Warrants.
In the case of loss, theft or destruction of any Warrant certificate, the
individual requesting reissuance of a new Warrant certificate shall be required
to indemnify the Company and also to post an open-penalty insurance or indemnity
bond. In the event a Warrant certificate is mutilated, such Warrant certificate
shall be surrendered and canceled by the Company prior to delivery of a new
certificate. Applicants for a new Warrant certificate shall also comply with
such other regulations and pay such other reasonable charges as the Company may
prescribe.
7. REDEMPTION OF WARRANTS. The Company has no right to redeem any or
all of the Warrants.
8. ADJUSTMENT OF INITIAL EXERCISE PRICE AND NUMBER OF SHARES
PURCHASABLE. For purposes hereof, the term "Initial Exercise Price" shall mean
$1.25. The Initial Exercise Price and the number of shares of Common Stock
purchasable pursuant to the Warrants shall be subject to adjustment from time to
time as follows:
(a) Subdivisions or Combinations. In case the Company shall at
any time change as a whole, by subdivision or combination in any manner or by
the making of a stock dividend, the number of outstanding shares of Common Stock
into a different number of shares, with or without par value, (i) the number of
shares which immediately prior to such change the Registered Holder shall have
been entitled to purchase pursuant to this Agreement shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease,
respectively, in the number of shares entitled to be purchased immediately prior
to such change, and (ii) the Warrant Exercise Price in effect immediately prior
to such change shall be increased or decreased, as the case may be, in inverse
proportion to such increase or decrease in the number of such shares entitled to
be purchased immediately prior to such change.
(b) Terminology of "Shares". Whenever reference is made in
this Section 8 to shares of Common Stock, or simply shares, of the Company, such
term shall mean any stock of any class of the Company other than preferred stock
with a fixed limit on dividends and a fixed amount payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company.
The shares issuable upon exercise of the Warrants shall, however, be shares of
Common Stock of the Company, as constituted at the date hereof, except as
otherwise provided in Section 8(d).
(c) Reorganizations; Asset Sales; etc. In case of any capital
reorganization or any reclassification of the capital stock of the Company or in
case of a non-surviving
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<PAGE> 5
combination or a disposition of the assets of the Company other than in the
ordinary course of the Company's business, the Registered Holder shall
thereafter be entitled to purchase (and it shall be a condition to the
consummation of any such reorganization, reclassification, non-surviving
combination or disposition that appropriate provision shall be made so that such
Registered Holder shall thereafter be entitled to purchase) the kind and amount
of shares of stock and other securities and property receivable in such
transaction by a holder of the number of shares of Common Stock of the Company
into which this Agreement entitled the Registered Holder to purchase immediately
prior to such capital reorganization, reclassification of capital stock,
non-surviving combination or disposition; and in any such case appropriate
adjustment shall be made in the application of the provisions of this Section 8
with respect to rights and interests thereafter of the Registered Holder to the
end that the provisions of this Section 8 shall thereafter be applicable, as
near as reasonably may be, in relation to any shares or other property
thereafter purchasable upon the exercise of a Warrant.
(d) Options; etc. In the event the Company shall distribute to
any holder of shares of Common Stock evidences of indebtedness or rights,
options or warrants or other securities exercisable or convertible into or
exchangeable for shares of Common Stock, the Registered Holder of Warrants shall
receive, upon exercise, against payment of the Warrant Exercise Price therefor,
but without further consideration, the indebtedness or securities which would be
receivable in such transaction by holders of the number of shares of Common
Stock which the Warrant entitled the Registered Holder thereof to purchase
immediately prior to such distribution.
(e) Adjustment Statement. Whenever the Warrant Exercise Price
is adjusted as herein provided, the Company shall forthwith deliver to each
Registered Holder of Warrants a statement signed by the President of the Company
stating the adjusted Warrant Exercise Price and number of shares for which the
Warrant is exercisable, determined as herein specified. The statement shall show
in detail the facts requiring such adjustment.
9. NOTICES. All notices, demands, elections, opinions or requests
(however characterized or described) which are required or authorized hereunder
shall be deemed given sufficiently if in writing and sent by registered or
certified mail, return receipt requested and postage prepaid, or by telex,
telegram, facsimile or cable to, in the case of the Company:
WANDERLUST INTERACTIVE, INC.
5301 Beethoven Street
Los Angeles, CA 90066-7047
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<PAGE> 6
and if to the Registered Holder at the address of such Registered Holder as set
forth on the books maintained by or on behalf of the Company.
10. BINDING AGREEMENT. This Agreement shall be binding upon and inure
to the benefit of the Company and the Registered Holder. Nothing in this
Agreement is intended or shall be construed to confer upon any other person any
right, remedy or claim or to impose on any other person any duty, liability or
obligation.
11. FURTHER INSTRUMENTS. The parties hereto shall execute and deliver
any and all such other instruments and take any and all such other actions as
may be reasonably necessary to carry out the intention of this Agreement.
12. SEVERABILITY. If any provision of this Agreement shall be held,
declared or pronounced void, voidable, invalid, unenforceable, or inoperative
for any reason by any court of competent jurisdiction, government authority or
otherwise, such holding, declaration or pronouncement shall not affect adversely
any other provision of this Agreement, which shall otherwise remain in full
force and effect and be enforced in accordance with its terms, and
the effect of such holding, declaration or pronouncement shall be limited to the
territory or jurisdiction in which made.
13. WAIVER. No delay or failure on the part of any party in the
exercise of any right or remedy arising from a breach of this Agreement shall
operate as a waiver of any subsequent right or remedy arising from a subsequent
breach of this Agreement.
14. GENERAL PROVISIONS. This Agreement shall be construed and enforced
in accordance with, and governed by, the laws of the State of California. This
Agreement may not be modified or amended or any term or provisions hereof waived
or discharged except in writing by the party against whom such amendment,
modification, waiver or discharge is sought to be enforced. The headings of this
Agreement are for convenience in reference only and shall not limit or otherwise
affect the meaning hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first set forth above.
WANDERLUST INTERACTIVE, INC., A
DELAWARE CORPORATION
By:
------------------------------------
Jay Smith, III, President
WARRANT HOLDER:
NAME:
By:
---------------------------------
Its:
-----------------------------
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<PAGE> 1
EXHIBIT 4.3
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT HAS BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT AND SAID STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO COMPANY THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT AND SAID STATE SECURITIES LAWS.
WANDERLUST INTERACTIVE, INC.
WARRANT TO PURCHASE COMMON STOCK
WANDERLUST INTERACTIVE, INC, a Delaware corporation ("Company"),
certifies that _________ ("Holder"), is entitled to purchase from Company, at
any time during the period set forth in Section 2.1 hereof, up to a maximum of
______ fully paid and nonassessable shares (the "Shares") of Company's common
stock, $0.01 par value per share (the "Common Stock"), for a price per share
equal to the Purchase Price (as hereafter defined).
This Warrant and the Common Stock issuable upon exercise hereof are
subject to the terms and conditions hereinafter set forth:
1. Definitions. As used in this Warrant, the following terms shall
mean:
1.1 "Issuance Date" - December 16, 1997, the effective date of
the original issuance of this Warrant.
1.2 "Purchase Price" - $0.625 per share of the Company's Common
Stock.
1.3 "Subscription Form" - The form attached to this Warrant as
Exhibit A.
1.4 "Warrant" - This Warrant or any warrant delivered in
substitution or exchange therefor as provided herein.
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2. Exercise.
2.1 Time of Exercise. This Warrant may be exercised at the
office of Company in whole or part at any time commencing on the Issuance Date
and terminating on December 31, 2004.
2.2 Manner of Exercise. Subject to the provisions of Section
2.3 hereof, this Warrant is exercisable at the Purchase Price per share of
Common Stock issuable hereunder payable in cash or by check, payable to the
order of Company, or by cancellation of any then existing indebtedness owed by
Company to the Holder, or any combination thereof. Upon surrender of this
Warrant with the annexed Subscription Form duly executed, together with payment
of the Purchase Price for the Shares purchased at Company's principal executive
offices in California, the Holder shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
this Warrant are exercisable at the option of the Holder hereof, in whole or
part, during any period in which this Warrant may be exercised as set forth
above.
2.3 Net Issue Election. The Holder may elect to receive,
without the payment by the Holder of any additional consideration, that number
of shares of Common Stock equal to the value of this Warrant, or any portion
hereof, by the surrender of this Warrant, or such portion, to the Company, with
the annexed Subscription Form duly executed by Holder, at the principal
executive offices of the Company. Thereupon, the Company shall issue to such
Holder such number of fully paid and nonassessable shares of Common Stock as is
computed using the following formula:
X = Y (A-B)
_______
A
where X = the number of shares of Common stock to be
issued to Holder pursuant to this Section 2.3;
Y = the number of shares of Common
Stock covered by this Warrant in
respect of which the net issue
election is made;
A = the "fair market value" of one
share of Common Stock, at the time
the net issue election is made; and
B = the Purchase Price in effect under
this Warrant at the time the net
issue election is made.
The term "fair market value" of one share of Common Stock on any date shall mean
the average of the daily closing prices for a share of Common Stock on the five
consecutive trading days commencing 10 business days before the date upon which
this Warrant, with the annexed Subscription Form duly executed, is received by
the Company. The closing price for each day shall be: (i) the average of the
last reported sales prices on the specified days (or if there is no reported
sale on any such trading date, the average of the closing bid and asked prices
on such trading date)
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if the Common Stock shall be listed or admitted to trading on any national
securities exchange; (ii) the closing price, if reported, or if the closing
price is not reported, the average of the closing bid and asked prices, as
reported by the Nasdaq SmallCap Market(sm) or similar source or, if no such
source exists, as furnished by two members of the National Association of
Securities Dealers, Inc., selected by the Company for that purpose, on the
specified dates if the Common Stock is not traded or admitted to trading on
Nasdaq. In the event that clause (iii) in the immediately preceding sentence is
applicable, the Board of Directors of the Company shall promptly respond in
writing to any inquiry by the Holder hereof as to the fair market value of one
share of Common Stock.
2.4 Delivery of Stock Certificates. As soon as practicable,
but not exceeding 10 business days, after exercise of this Warrant, Company, at
its expense, shall cause to be issued in the name of the Holder and deliver to
the Holder a certificate for the number of fully paid and nonassessable Shares
so purchased.
2.5 Record Date of Transfer of Shares. Irrespective of the
date of issuance and delivery of certificates for any Shares of Common Stock or
other securities issuable upon the exercise of this Warrant, each person in
whose name any such certificate is to be issued shall for all purposes be deemed
to have become the holder of record of the Shares of Common Stock or other
securities represented thereby immediately prior to the close of business on the
date on which a duly executed Subscription Form containing notice of exercise of
this Warrant and payment for the number of Shares as to which this Warrant shall
have been exercised shall have been delivered to Company.
3. Adjustments. In the event that the outstanding shares of Common
Stock of Company are at any time increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of
Company or of another corporation through reorganization, merger, consolidation,
liquidation, recapitalization, stock split, combination of shares or stock
dividends payable with respect to such shares of Common Stock, appropriate
adjustments in the number, kind and price of such securities then subject to
this Warrant shall be made effective as of the date of such occurrence so that
the position of the Holder upon exercise will be the same as it would have been
had the Holder owned immediately prior to the occurrence of such event the
number of shares of Common Stock subject to this Warrant. Such adjustment shall
be made successively whenever any event listed above shall occur and Company
will notify the Holder of each such adjustment. Any fraction of a share
resulting from any adjustment shall be eliminated and the price per share of the
remaining shares subject to this Warrant adjusted accordingly.
4. Transfer of Warrant and Shares.
4.1 Restrictions on Transfer. The Holder, by the Holder's
acceptance hereof, represents, warrants, covenants, and agrees that (a) the
Holder has knowledge of the business and affairs of Company, and (b) this
Warrant and the Shares issuable upon the exercise of this Warrant are being
acquired for investment and not with a view to the distribution hereof, and that
absent an effective registration statement under the Securities Act of 1933, as
amended ("1933 Act"), covering the disposition of this Warrant or the Shares
issued or issuable upon exercise of this Warrant, they will not be sold,
transferred, assigned, hypothecated or otherwise disposed of without first
providing Company, if Company so requests, with an opinion of counsel,
reasonably satisfactory to Company, to the effect that such sale, transfer,
assignment, hypothecation or other disposal will be exempt from
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the registration and prospectus delivery requirements of the 1933 Act, and the
Holder consents to Company making a notation in its records or giving to any
transfer agent of the Warrant or the Shares an order to implement such
restriction on transferability. Subject to the foregoing, this Warrant is
transferable and may be assigned or hypothecated from the date hereof. Upon
surrender of this Warrant to the Company at its principal office with the
Subscription Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, Company shall, without charge, execute and deliver a new Warrant
in the name of the assignees named in such instrument of assignment and this
warrant shall promptly be canceled.
5. Payment of Taxes. All Shares issued upon the exercise of this
Warrant shall be validly issued, fully paid and nonassessable, and Company shall
pay all taxes and other governmental charges that may be imposed in respect of
the issue or delivery thereof. Company shall not be required, however, to pay
any tax or other charge imposed in connection with any transfer involved in the
issue of any Shares into any name other than that of the Holder surrendered in
connection with the purchase of such Shares, and in such case Company shall not
be required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to Company's satisfaction that
no tax or other charge is due.
6. Reservation of Common Stock. Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of issuance upon the exercise of this Warrant, such number of
shares of Common Stock as shall be issuable upon the exercise hereof.
7. Piggyback Registration Rights. Company acknowledges and agrees that
the Holder will have the following "piggyback" registration rights with respect
to the Shares of Common Stock purchased by the Holder pursuant to the Holder's
exercise of this Warrant:
(a) If any time Company proposes to register any of its shares
of Common Stock under the 1933 Act (other than in connection with a merger,
acquisition or exchange offer or pursuant to Form S-8 or successor form),
Company will give written notice, by registered mail, at least 30 days prior to
the filing of such registration statement to the Holder of its intention to do
so. Upon written request of the Holder given within 15 days after receipt of any
such notice of the Holder's desire to include any of the Shares purchasable by
the Holder pursuant to this Warrant in such proposed registration statement,
Company shall afford the Holder the opportunity to have such Shares registered
under such registration (subject to any underwriter's approval thereof). The
"piggyback" registration rights described in this Section 7(a) shall terminate
as to any Shares elected to be purchased by Holder on the date which is two
years after the issuance of such Shares. Any sales of such Shares by the Holder
pursuant to such registration statement shall be effected through the
underwriter of such registered offering, if any, and the Holder shall compensate
the underwriter in accordance with its customary compensation practices.
(b) Notwithstanding anything to the contrary contained in the
provisions of this Section 7, Company shall have the right at any time after it
shall have given written notice pursuant to this Section 7 (irrespective of
whether a written request for inclusion of any such Shares shall have been made
by the Holder) to elect not to file any such proposed registration statement, or
to withdraw the same after the filing but prior to the effective date thereof.
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(c) Company shall indemnify and hold harmless the Holder from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement of a material fact contained in any registration statement
filed by Company under the 1933 Act by reason of this Section 7, any
post-effective amendment to such registration statement, or any prospectus
included therein, or caused by any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission based upon information furnished
or required to be furnished in writing to the Company by the Holder (or the
authorized representatives or agents of the Holder) expressly for use therein,
which indemnification shall include each person, if any, who controls the Holder
within the meaning of the 1933 Act and each officer, director, employee and
agent of the Holder; provided, however, that the indemnification in this Section
7(c) with respect to any prospectus shall not inure to the benefit of the Holder
(or to the benefit of any person controlling the Holder) on account of any such
loss, claim, damage or liability arising from the sale of such Shares by the
Holder, if a copy of a subsequent prospectus correcting the untrue statement or
omission in such earlier prospectus was provided to the Holder of such Shares by
Company prior to the subject sale and the subsequent prospectus was not
delivered or sent by the Holder to the purchaser of such Shares prior to such
sale; and provided further that Company shall not be obligated to so indemnify
the Holder of such Shares or any other person referred to above unless the
Holder or such other person, as the case may be, shall at the same time
indemnify Company, its directors, each officer signing the registration
statement and each person, if any, who controls Company within the meaning of
the 1933 Act, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement of a material fact contained in any
registration statement or any prospectus required to be filed or furnished in
connection with such public offering or caused by any omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission based upon
information furnished in writing to Company by Holder of such Shares expressly
for use therein.
(d) If for any reason the indemnification provided for in
Section 7(c) above is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim, damage,
liability or expense referred to therein, then the indemnifying party, in lieu
of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party and the indemnifying party,
but also the relative fault of the indemnified party and the indemnifying party,
as well as any other relevant equitable considerations.
(e) All expenses, filing fees and other costs incurred by
Company in connection with any registration of securities pursuant to this
Section 7 (exclusive of underwriting discounts and selling commissions
applicable to any sale of registered securities) shall be borne by Company.
(f) In the case of any registration effected by Company
pursuant to the provisions of this Section 7, Company will: (i) furnish to the
Holder of such Shares such number of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the 1933 Act, and
such other documents as the Holder may reasonably request in order to facilitate
the disposition of such Shares owned by the Holder, and (ii) notify the Holder
of such Shares covered
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by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
8. Notices.
8.1 Notices to be Given. Nothing contained in this Warrant
shall be construed as conferring upon the Holder hereof the right to vote or to
consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter or as having any
rights whatsoever as a shareholder of Company. If, however, at any time prior to
the expiration of the Warrant and prior to its exercise, Company intends to
issue a cash dividend, then Company shall give written notice of such issuance
of such cash dividend to the Holder at least 15 days prior to the date fixed for
issuance of such cash dividend.
8.2 Addresses. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, postage
prepaid, return receipt requested, to the parties at the following addresses:
(a) If to Holder:
-------------------------
-------------------------
-------------------------
-------------------------
Attn: -------------------
(b) If to Company:
Wanderlust Interactive, Inc.
5301 Beethoven Street, Suite 255
Los Angeles, CA 90066
Attn: Jay Smith, III, Chief
Executive Officer
9. Miscellaneous.
9.1 Replacement of Warrants. Upon receipt of evidence
reasonably satisfactory to Company of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and (in the case of loss, theft or
destruction) upon delivery of an indemnity agreement in an amount reasonably
satisfactory to Company, or (in the case of mutilation) upon surrender and
cancellation of the mutilated Warrant, Company will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
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9.2 Successors. All the covenants, agreements, representations
and warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
9.3 Change; Waiver. Neither this Warrant nor any term hereof
may be changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
9.4 Headings. The section headings in this Warrant are
inserted for purposes of convenience only and shall have no substantive effect.
IN WITNESS WHEREOF, Company has caused this Warrant to be signed by
its duly authorized officer, and this Warrant to be dated as of December 16,
1997.
WANDERLUST INTERACTIVE, INC.
By:
---------------------------------------
Jay Smith, III, Chief Executive Officer
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EXHIBIT A
SUBSCRIPTION FORM
To: Wanderlust Interactive, Inc.
The undersigned, the holder of the attached Warrant, hereby
irrevocably elects to exercise the purchase right represented by that Warrant
for, and to purchase under that Warrant, ________ shares of Common Stock of
Wanderlust Interactive, Inc., a Delaware corporation, and herewith makes payment
of ________ ($____) for those shares, and requests that the certificates for
those shares be issued in the name of ____________ and delivered to ____________
whose address is _____________.
Dated: _____________________
_________________________________
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<PAGE> 1
EXHIBITS 5.1 AND 23.1
July 31, 1998
Adrenalin Interactive, Inc.
5301 Beethoven Street, Suite 255
Los Angeles, CA 90066
Re: Registration Statement on Form S-3
Dear Ladies and Gentlemen:
We have acted as counsel to Adrenalin Interactive, Inc., a
Delaware corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-3 (the "Registration Statement") being filed by
the Company with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), with respect to the
registration by the Company of 4,454,384 shares (the "Shares") of common stock,
par value $0.01 per share (the "Common Stock"), of the Company representing
3,094,384 shares owned by the Selling Stockholders (the "Selling Stockholder
Shares"), 1,200,000 shares (the "Warrant Shares") issuable upon exercise of
warrants (the "Warrants") held by the Selling Stockholders and 160,000 shares
(the "Option Shares") issuable upon exercise of options (the "Options") held by
the Selling Stockholders. Capitalized terms not defined in this opinion letter
have the meanings given to them in the Registration Statement.
This opinion is being furnished to you in accordance with the
requirements of Item 601(b)(5) of Regulation S-B promulgated under the Act.
In connection with the opinions hereinafter given, we have
examined copies of the following documents: (i) the Registration Statement; (ii)
the Warrants; (iii) the Options; (iv) the Articles of Incorporation of the
Company, as currently in effect; (v) the Bylaws of the Company, as currently in
effect; (vi) a specimen certificate representing the Shares; and (vii) copies of
certain resolutions adopted by the Board of Directors of the Company relating
to, among other things, the Selling Stockholders Shares, the Warrants, the
Options and related matters. We have also examined originals or copies certified
or otherwise identified to our satisfaction of such other corporate records and
certificates of public officials as we have deemed necessary or advisable for
the purposes of this opinion. We have assumed the authenticity of all documents
submitted to us as originals, the genuineness of all signatures, the legal
capacity of natural persons and the conformity to originals of all copies of all
documents submitted to us. We have relied upon the certificates of all public
officials with respect to the accuracy of all matters contained therein.
Based upon and subject to the foregoing, and assuming: (i) the
conformity of the certificates representing the Shares to the form of specimen
thereof examined by us; (ii) the due execution and delivery of such
certificates; and (iii) the receipt of the consideration for the Selling
Stockholder Shares, the Warrant Shares and the Option Shares designated in the
resolutions approving the issuance of the Selling Stockholder Shares, the
Warrants and/or the Options, as the case may be, we are of the opinion that the
Shares have been duly authorized by requisite corporate action by the Company,
and when the Warrant Shares and the Option Shares have been issued, delivered
and paid for in accordance with the terms and conditions of the Warrants and the
Options, respectively, will be validly issued, fully paid and nonassessable.
Nothing herein shall be deemed an opinion as to the laws of
any jurisdiction other than the State of Delaware.
This opinion is intended solely for the use of the Company in
connection with the registration of the Shares. It may not be relied upon by any
other person or for any other purpose, or reproduced without the written consent
of this firm; provided, however, we hereby consent to the filing of this opinion
as an exhibit to the Registration Statement. In giving this consent, we do not
thereby admit that we are in the category of person whose consent is required
under Section 7 of the Act or the rules and regulations of the Commission
promulgated hereunder.
Very truly yours,
/s/ Clark & Trevithick
CLARK & TREVITHICK
a Professional Law Corporation
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this
Registration Statement on Form S-3 of Adrenalin Interactive, Inc. (formerly
Wanderlust Interactive, Inc.), relating to the registration of 4,454,384 shares
of common stock, of our report, dated August 28, 1997, on the consolidated
financial statements of Wanderlust Interactive, Inc. and subsidiary, and to the
use of our name, and the statements with respect to us, under the heading
"Experts" in the Registration Statement.
/s/ DRUCKER, MATH & WHITMAN, P.C.
----------------------------------------
DRUCKER, MATH & WHITMAN, P.C.
North Brunswick, New Jersey
July 31, 1998
