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Filed Pursuant to
Rule 424(b)(3)
Registration No. 333-60485
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 August 19, 1998, the last reported sale price of the Common Stock was
approximately $1.19 per share.
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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 August 20, 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 calendar 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
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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
9
<PAGE> 10
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.
10
<PAGE> 11
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.
11
<PAGE> 12
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, 1999 (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 1,351,478 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.
12
<PAGE> 13
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.
13
<PAGE> 14
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.
14
<PAGE> 15
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of August 19, 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> 16
<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> 17
(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> 18
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 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
