As filed with the Securities and Exchange Commission on May 3, 2001
Registration No. 333-_______________
-----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------------------------
THIRD WAVE MEDIA LTD.
(Name of issuer in its charter)
Delaware ?? 11-3480018
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code) Identification Number)
5225 Wilshire Boulevard Irving Rothstein, Esq.
Suite 700 Heller, Horowitz & Feit, P.C.
Los Angeles, CA 90036 292 Madison Avenue
(323) 931-1746 New York, New York 10017
(Address and telephone number (212) 685-7600
of registrant's principal executive (Name, address and
telephone offices and principal place of business) number of agent for service)
------------------------------------
Copies to:
Irving Rothstein, Esq.
Heller, Horowitz & Feit, P.C.
292 Madison Avenue
New York, New York 10017
Telephone: (212) 685-7600
Approximate date of commencement of proposed sale to public: At the discretion
of the selling stockholders.
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 check the following box. [X]
CALCULATION OF REGISTRATION FEE
- --------------------------------- ------------------ ------------------------ ------------------------- ----------------------
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per aggregate offering registration fee
security(1) price(1)
- --------------------------------- ------------------ ------------------------ ------------------------- ----------------------
- --------------------------------- ------------------ ------------------------ ------------------------- ----------------------
$500,000 $132.00
Common stock, par value $0.00001 5,000,000 $.10 (2)
- --------------------------------- ------------------ ------------------------ ------------------------- ----------------------
- --------------------------------- ------------------ ------------------------ ------------------------- ----------------------
Total $500,000 $132.00
5,000,000
- --------------------------------- ------------------ ------------------------ ------------------------- ----------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Based upon the price of a recent private offering.
The registrant hereby amends the 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 this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Special Note
The registrant is D.W. Industries, Inc., a Delaware corporation. The
registrant is currently inactive with minimal assets and no liabilities.
Immediately prior to the effectiveness of this registration statement, the
registrant will (i) acquire Third Wave Media Ltd., (ii) change its name to Third
Wave Media Ltd., and (iii) amend its certificate of incorporation to increase
its authorized capital. Since this registration statement absolutely will not be
declared effective unless these three items occur, the prospectus is drafted as
though they have occurred. Accordingly, while the descriptions of the business
and mangement's discussion is not technically accurate today, it will be when
declared effective. The registrant will delete this section prior to the
registration statement being declared effective. Similarly, prior to
effectiveness, the founders will have sold shares to others in a private
transaction and the disclosures herein assume this transaction.
SUBJECT TO COMPLETION DATED, May 3, 2000
-----------------
THIRD WAVE MEDIA LTD.
----------------------
5,000,000 shares of common stock
This prospectus covers 5,000,000 shares of the common stock of
Third Wave Media Ltd. The common stock offered here is already outstanding and
will be sold solely by the selling stockholders.
The securities offered hereby involve a high degree of risk. Please read the
"Risk factors" beginning on page 2.
There is presently no public market for our securities. We intend
to apply for a listing on the OTC:BB.
---------------------------------
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
Our principal executive offices are located at 5225 Wilshire
Boulevard, Suite 700, Los Angeles, CA 90036. Our telephone number is (323)
931-1746.
The date of the prospectus is ________, 2000.
Risk factors
You should carefully consider the following facts and other
information in this prospectus before deciding to invest in the shares.
Risks relating to our viability
Since we have only a limited operating history, it is difficult for you to
evaluate if we are a good investment
We have only conducted business operations since July 1996.
Accordingly, we have only a very limited operating history, and we face all of
the risks and uncertainties encountered by early-stage companies. Thus, our
prospects must be considered in light of the risks, expenses and difficulties
associated with a new and rapidly evolving market for multimedia entertainment.
In sum, because of our limited history and the youth and inherent risks of our
industry, predictions of our future performance are very difficult.
We have incurred substantial losses and anticipate even more losses in the
future which may cause us to become insolvent
Since commencing our business through December 31, 2000, we
incurred an accumulated deficit of $390,055. We anticipate continuing to incur
significant losses until, at the earliest, we generate sufficient revenues to
offset the substantial up-front expenditures and operating costs associated with
developing and commercializing products utilizing our technology. There can be
no assurance that we will ever operate profitably.
We need substantial additional financing or we may have to curtail operations
Our capital requirements relating to further develop and expand
our business and to the building of our new production facility will continue to
be significant. We are dependent on the proceeds of future financing in order to
continue in business and to develop and commercialize additional proposed
products. We anticipate requiring at least $1.5 million in additional
financing. There can be no assurance that we will be able to raise the
substantial additional capital resources necessary to permit us to pursue our
business plan. We have no current arrangements with respect to, or sources of,
additional financing and there can be no assurance that any such financing will
be available to us on commercially reasonable terms, or at all. Any inability to
obtain additional financing will have a material adverse effect on us, such as
requiring us to significantly curtail or cease operations.
2
Risks relating to our business plan
We may be unable to meet customer demands for quick production
schedules and for customized content since that requires significant manpower
and resources that as a young company we are chronically short of and as a
result we will lose customers and our business will not survive.
As customers will demand very quick production schedules and will
want to customize their product, providing customized content on schedule, and
coping with increasing volume will take time and cost money and create overload.
Addressing this could delay our plans and cause us to incur substantial
additional costs. In addition, if these problems occur, we will likely lose
customers and if we lose too many customers our business will not survive.
We may face liability because of the proprietary nature of certain of the
content transmitted over our systems such as music and other copyrighted
material or liability for material deemed defamatory which could cause us
significant expenses
The law relating to the liability of businesses such as ours
for content produced by us is currently unsettled. We could become involved in
litigation regarding the content transmitted over our system which could create
adverse publicity, significant defense costs and substantial damage awards. In
addition, there is a potential that claims will be made against us for
defamation, negligence, copyright or trademark infringement or other theories
based on the nature and content of such materials. The liability we may face as
a result of content disseminated through our system could have a negative impact
on our financial condition.
We do not have long-term purchase contracts with our customers
and therefore our customers could stop doing business with us at any time.
Generally, we do not have agreements with our customers that contain purchase
commitments or guarantees for an ongoing business relationship. Accordingly, our
customers could stop doing business with us at any time and we cannot guarantee
an ongoing business relationship with our customers. Since we operate with
virtually no backlog, if a customer stops doing business with us, we may not be
able to replace the lost business with business from another existing client or
a new client. To the extent we are unable to replace the business, some of our
capacity would go unused, our revenues could decline and our results of
operations may be adversely affected.
A decline in CD prices could force us to lower prices thereby
reducing our profit margins. Since the introduction of CD media in 1982, there
has been a significant growth in the CD replicating business, which has
attracted numerous entrants and resulted in increased worldwide CD production
capacity. As a result of this increased competition, wholesale CD prices have
historically declined. If CD prices decline further we may not be able to reduce
our costs or increase our volume to offset the decline in price. These pricing
pressures in the CD
3
replication business could reduce our revenues and margins, which would
adversely impact our operating results.
We currently rely upon a small amount of customers for a large
portion of our revenues and accounts receivable and if we lose these customers
our revenues may decline precipitously forcing us into insolvency. As of
December 31, 2000, accounts receivable from four significant customers comprised
72%, of total accounts receivable. In addition, we had sales to three customers,
representing 19%, 13%, and 12%, of total revenues for the year ended December
31, 2000. Concentrations this high leaves us vulnerable in the event one of them
should leave us which could have a seriously negative impact on our financial
results.
Our operating results could be impaired by burdensome
environmental regulation and other legal uncertainties. Since the CD
manufacturing processes involve the use of hazardous materials, we are subject
to federal, state and local regulations governing the storage, use and disposal
of hazardous materials. Our liability in the event of an accident or the costs
of remediation could exceed our resources or insurance coverage. Also, we may
have to incur substantial expenditures as a result of having to engage in
preventive or remedial action, having to reduce chemical exposure or dealing
with waste treatment or disposal.
Special note regarding forward-looking statements
Some of the statements under "Risk factors," "Plan of operations,"
"Business" and elsewhere in this prospectus are forward-looking statements that
involve risks and uncertainties. These forward-looking statements include
statements about our plans, objectives, expectations, intentions and assumptions
and other statements contained in this prospectus that are not statements of
historical fact. You can identify these statements by words such as "may,"
"will," "should," "estimates," "plans," "expects," "believes," "intends" and
similar expressions. We cannot guarantee future results, levels of activity,
performance or achievements. Our actual results and the timing of certain events
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a discrepancy include those discussed
in "Risk factors" and elsewhere in this prospectus. You are cautioned not to
place undue reliance on any forward-looking statements.
Summary historical financial information
The following selected financial data for the years ended
December 31, 2000 and 1999 is derived from our audited financial statements
included in this prospectus.
The following data should be read in conjunction with our
financial statements and those of our predecessor.
4
Statement of operations data
- ---------------------------------------- --------------------------------------- ------------------------
For the Year For the Year
Ended 12/31/00 Ended 12/31/99
-------------- --------------
- ---------------------------------------- --------------------------------------- -------------------
- ---------------------------------------- --------------------------------------- -------------------
Net Revenues $1,102,719 $1,198,039
- ----------------------------------------- --------------------------------------- -------------------
- ----------------------------------------- --------------------------------------- -------------------
Operating Loss $(231,415) $(179,789)
- ----------------------------------------- --------------------------------------- -------------------
- ----------------------------------------- --------------------------------------- -------------------
Income Taxes $800 $800
- ----------------------------------------- --------------------------------------- -------------------
- ----------------------------------------- --------------------------------------- -------------------
Net Loss $(106,162) $(179,004)
- ----------------------------------------- --------------------------------------- -------------------
Balance sheet data
December 31, 2000
Working Capital $ (405,738)
Total Assets $ 164,153
Total Liabilities $ 537,341
Stockholders' Deficit $ (373,188)
Management's discussion and analysis of financial
condition and results of operations
The following discussion includes forward-looking statements
with respect to our future financial performance. These forward-looking
statements are subject to various risks and uncertainties, including the factors
described in the section titled Risk factors and elsewhere in this prospectus,
that could cause actual results to differ materially from historical results or
those currently anticipated.
Overview
We provide first class value enhanced media replication
services consisting of Audio-CD, Video-CD, CD-ROM, CD-R, meaning replication and
printing, DVD-Video, DVD-ROM, DVD-R, meaning replication and printing, audio
cassette, video cassette, computer diskettes, and tape cartridges.
Our enhanced capabilities include graphic design, film output,
printing, packaging, computer programming, authoring, encoding, world wide
shipping, credit card capturing (VISA, M.C., DISC, Amex, Diners) world wide
(800) services and WWWInternetServices.
Through direct sales and through agencies, we have been
responsible for the manufacturing of replicated media for hundreds of companies
and organizations including Turner Broadcasting, Twentieth Century Fox Film
Corporation, N.A.S.A., U.S. Army, Playboy, Strata, Pulse Entertainments,
Citicorp, Warner Bros. Online, Vivid Interactive, Princeton Softech, The World
Bank, Bergwall Productions, NAMM (International Musci Market Association), CBS,
Pitney Bowes, The Hollywood Reporter, NCR Corp., East West Players, Adobe
Systems, Intel, Ilio Entertainments, U.S. Department of Software, American
Express, CMJ Communications, AC Technology, Federal Aviation Administration,
5
Philips Interactive Media, Virgin Interactive, Amtrak, Acura, Rainmaker
Interactive, Australian Tourist Commission, Lexus Cars, Tennessee Valley
Authority and Boston University School of Medicine along with other companies
and hundreds of self released music artists/interactive developers.
We subcontract the various aspects of each job to our vendors
and charge a markup to our clients. The project management and product
integration are the value added services we provide to customers. Our cost of
revenues is comprised primarily of subcontracting costs and overhead expenses.
Direct subcontract costs consist of manufacturing, labor and shipping costs.
Overhead expenses consist primarily of advertising, marketing, operating and
facility related expenses. Selling, general and administrative costs generally
consist of management and administrative support costs.
Results of operations
Fiscal year ended December 31, 2000 vs. fiscal year ended December 31, 1999.
Revenues. Revenues decreased by $95,320, or 8% from $1,198,039
in the fiscal year ended December 31, 1999 to $1,102,719 in the fiscal year
ended December 31, 2000. The decreased revenue resulted from additional
expenditures for advertizing/marketing, as well as an increase in staffing.
Cost of revenues. Cost of revenues decreased from $806,667 in
the fiscal year December 31, 1999 to $757,270 in the fiscal year ended December
31, 2000. The decrease was a direct result of lower revenues. Cost of revenues
increased as a percent of revenues from 67.33% in 1999 to 68.67% in 2000. This
increase was primarily due to higher costs for raw materials.
Selling, general and administrative expenses. Selling, general
and administrative expenses increased from $571,161, or 47.67% of revenues, in
the fiscal year ended December 31, 1999 to $576,864, or 52.31% of revenues, in
the fiscal year ended December 31, 2000. The increase is due to additional
staffing, advertizing/marketing as well as the installation and lease of
telephone/computer servers and related equipment. In addition, we were involved
in litigation which caused a major increase in our legal expenses. We ultimately
prevailed in this litigation and received a settlement of $150,000 in fiscal
year 2000.
Liquidity
As of December 31, 2000 we had $7,706 cash on hand and a
working capital deficit of $405,738. We currently require approximately $35,000
per month to fund operations. We intend to satisfy our liquidity requirements
from the proceeds of sales of our securities, from loans from management and
from our currently existing lines of credit in the aggregate amount of $150,000.
We currently have no plans to raise funds through the sale of securities and we
can offer no assurance that any such effort, if undertaken in the future, would
be successful. Our primary uses of cash are to fund operations as well as
advertising/marketing and to hire additional employees. In the event we are
unable to generate additionalcash flow, we will not hire additional employees
and, if necessaary, reduce expenditures for advertising and/or marketing. While
these steps will have the effect of temporarily halting our growth, they may be
necessary to allow us to survive a period of poor cash flow.
6
Effect of recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires companies to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999. We do not presently enter into
any transactions involving derivative financial instruments and, accordingly, we
do not anticipate the new standard will have any effect on our financial
statements.
Use of proceeds
We will not receive any proceeds from the sale of the shares
of common stock by the selling stockholders, rather, proceeds from sales of the
shares registered here will go to the selling stockholder.
Business
Overview
The digital versatile disc, popularly known as the DVD and
compact disc, popularly known as the CD, are among the most popular optical
media for content delivery and are widely used in the distribution of movies,
music, application and edutainment software, publishing content and
internet/online promotional materials. The wide acceptance of DVD and CD as a
content delivery media has fueled the growth of the replication industry.
The first commercial application of CD technology was storage
and playback of pre-recorded music, or CD-Audio, which was adopted as an
international standard in 1982, and introduced to the consumer market in 1983.
The CD-ROM entered the market in 1991, providing cost-effective storage and
retrieval of any combination of data, text, graphics, audio and video. The DVD
entered commercial distribution in December 1996.
DVDs are currently capable of storing up to 13 times as much
data as CDs and are suitable for high quality playback of film and video,
multi-channel surround sound audio and interactive media. An important advantage
of DVD players and DVD-ROM drives, which should speed their market penetration,
is their compatibility with CD-Audio and CD-ROMs. We believe this compatibility
feature of DVD players and DVD-ROM drives will increase consumer acceptance of
DVD technology.
Unlike the introduction of CDs, when consumers were reluctant
to purchase CD players because they would be required to spend substantial
amounts on new music collections, consumers will be able to acquire the DVD
players and DVD-ROM drives without making their CDs obsolete. During the past
decade, CDs have become the dominant format in audio and portable data storage
and retrieval markets.
7
Since its introduction, the popularity of DVDs has grown
rapidly and the DVD is increasingly becoming a standard format for video. DVDs
and CDs can be replicated faster than traditional tape storage mediums at a
comparable cost. In addition, consumer acceptance of the DVD and CD formats is
due in part to the following combination of advantages over other mass storage
formats:
o Higher storage capacity / longer play time;
o Greater portability and ease of storage;
o Higher quality presentation including crisper sounds and sharper
video; and
o Longer life as a result of lack of degradation; and Random
accessibility of data.
According to Infotech, an industry trade organization, CD-ROM
disc units sold in the United States by CD-ROM replicators have grown at a
compound annual growth rate of 34.0% from approximately 443 million units in
1996 to approximately 1.066 billion units in 1999. The consumer market has
emerged within the past several years and its substantial growth is expected to
help sustain CD-ROM unit sales in the next few years. Infotech estimates that
total worldwide CD-ROM disc units sold will continue to increase through the
year 2001.
CD-ROM is well suited to applications involving the storage of
large amounts of information in a form that can be distributed to a diverse user
population. CD-ROM was developed in the late 1980s and when it was first
introduced to the market in 1991, it was initially limited to business and
professional applications such as library references and parts catalogs.
In the 1990s, the increasingly widespread presence of personal
computers and CD-ROM drives has created a thriving consumer market for CD-ROM
applications. Infotech estimates that in the United States, the installed base
of CD-ROM drives will grow from approximately 60.4 million in 1996 to
approximately 338.8 million by 2004 representing a compounded annual growth rate
of 24.1%. In addition, CD-ROM discs can be played on DVD-ROM drives. This
rapidly growing installed base of CD-ROM drives, as well as the growth in the
installed base of DVD-ROM drives, expands the potential consumer market for
publishers of CD-ROM software, data and entertainment products.
We believe DVD is becoming the accepted new medium for home
video distribution. Unlike videocassettes, DVD-Video experiences no image or
sound degradation with normal use and offers greater storage capacity, indexing,
random access and lower manufacturing costs. DVD is capable of holding a full
length motion picture with up to three spoken languages, three foreign language
subtitles and multi-channel, digital surround sound. Added features such as
multilingual voice tracks, soundtrack albums, director's notes, out takes,
story-based games and other CD applications may be available with the higher
storage capacity afforded with DVDs. The home video market, both rental and
purchased videos, has been served primarily by pre-recorded videotape.
8
Infotech estimates that the installed base of DVD-Video
players in the United States will increase from approximately 300,000 in 1997 to
39.6 million in 2004, representing a compounded annual growth rate of
approximately 100.9%. Infotech also estimates the worldwide installed base of
DVD-Video players will reach 96.7 million players by 2004 and that DVD-Video
disc units sold in the United States by replicators will increase from 3.4
million units in 1997 to approximately 991.0 million units in 2004, representing
a compounded annual growth rate of 124.9%.
In addition to the growth in home video, Infotech projects
that DVD-ROM drive shipments in the United States will increase from
approximately 125,000 in 1997 to 134.2 million in 2004, representing a
compounded growth rate of 171.0%. Also, the next generation of game consoles
being manufactured by Sega, Nintendo, Sony and Microsoft will be DVD-based.
Consequently, there will be pressure on some software game manufacturers to
produce higher-capacity software games in the DVD format.
Infotech estimates that DVD-ROM disc units sold by replicators
in the United States will increase from approximately 520,000 in 1997 to 589.0
million in 2004, representing a compounded growth rate of 173.1%.
Market analysis
CD consumption is growing rapidly and is under supplied,
nationally and internationally. If the CD market is segmented along technical
standards, all categories appear to be at, or near the bottom of, an exponential
growth curve starting from the mid-1980s and extending through the 1990s. At the
end of 1994, there was an installed base of approximately 14 million CD-ROM
players in the USA. Several independent market research reports indicated a unit
volume of one billion CDs sold in the USA by 1994. As new CD formats are
developed, the mastering processes will change, but the same basic
electroforming, replication, printing, and packaging will be utilized. This
means that a high volume CD-ROM manufacturer with an established reputation for
quality, can also replicate the new formats without incurring dramatic process
improvement costs. Disc replication gross profit margins have been driven to
$0.10 per disc, which makes them a commodity product. The key to success in a
commodity market is being the lowcost producer by generating the highest
possible production volume to take advantage of economies of scale. In the CD
manufacturing industry, being a high-service provider creates a competitive
advantage. The International Recording Media forecasts a total of 290,000,000
DVD discs being replicated by the end of 2000, reaching one billion by 2003.
Market segmentation
The Optical Publishing Industry of America segments the CD-ROM
market into institutional sales and consumer sales. Institutional sales are
characterized by low unit volume and high per unit pace. Consumer titles are
just the opposite. Consumer titles are judged primarily on their entertainment
value. Another key difference is that institutional titles have a perpetual life
cycle based on continuous upgrades, while consumer titles have a life cycle of
12 months to 24 months.
9
Due to the technical nature of CD-ROMs, the market
segmentation can, to a certain extent, follow the technical specifications
written for different formats, as established primarily by the International
Standards Organization and American National Standards Institute. In the past
fifteen years a great many varieties of CD-ROM specifications have been
developed, including CD-Audio, CD-V or high fidelity videos and CD-I or
interactive video, to name but a few.
Our business
We are an independent manufacturer/replicator of CDs. We
target our sales to companies in industries including the music industry, the
motion picture industry, software developers and any other company involved in
low volume CD media production. Our sales are generally in the range of 500 -
5,000 CDs per order. We provide all facets of the manufacturing process to our
clients on an as needed basis.
Through direct sales and through agencies, we have been
responsible for the manufacturing of replicated media for hundreds of companies
and organizations including Turner Broadcasting, Twentieth Century Fox Film
Corporation, NASA, US Army, Playboy, Strata, Pulse Entertainment, Citicorp,
Warner Bros. Online, Vivid Interactive, Princeton Softech, The World Bank,
Vidcad, Bergwall Productions, NMAA (International Music Marketing Association),
Magnet Interactive, CBS, Pitney Bowes, the Hollywood Reporter, NCR Corp., East
West Players, Adobe Systems, Intel, Ilio Entertainment, US Dept. Of Defense,
National Windows, Siemens, Real Applications, Private Digital Media, Screenplay
Systems, Purdue University, Pinnacle Publishing, PBS, New Orleans Publishing
Group, DigiEffetcs, Hills University, Ivy Software, Grace Fellowship, American
Express, CMJ Communications, AC Technology, Federal Aviation Administration,
Phiips Interactive Media, Virgin Interactive, Horizons Technology, Amtrak,
Acura, Rainmaker Interactive, American Savings Bank, Australian Tourist
Commission, Lexus Cars, Tennessee Valley Authority and Boston University School
of Medicine along with other companies and hundreds of self-released music
artists/interactive developers.
At present, we subcontract out production to various
suppliers. It is our intention to open a fully functional manufacturing facility
in the heart of Hollywood capable of high speed CD production.
We seek to reduce costs and enhance quality by purchasing from
a limited number of suppliers. However, all raw materials needed to manufacture
our products are readily available from multiple suppliers at competitive
prices. The principal raw materials used to manufacture CDs are optical grade
polycarbonate, aluminum, nickel, ultraviolet-curable lacquers and ink. Also,
certain types of DVDs require a minimal amount of gold.
Manufacturing process
10
The DVD and CD manufacturing process consists of three stages:
o Pre-production,
o Replication and Printing
o Post-Production Services
Pre-production of DVDs and CDs consists of three distinct
processes: pre-mastering, mastering and electroplating. Through these processes,
metal stampers are created which contain tracks with pits and lands holding data
in a digital format. The metal stampers are then mounted in the proper injection
molding equipment to produce either DVDs or CDs. Pre- production begins with
receipt of the customer's data, which is supplied in any number of approved
input media. The mastering process forms the master image of the DVD or CD from
which the polycarbonate replicas are molded. Mastering begins with the
preparation of a glass substrate, which is coated with a thin photo resist layer
and placed on a computer-controlled laser beam recorder. The laser exposes a
series of areas in the photo-resist layer on the glass plate as the data is
transferred from a playback device. Chemicals etch the exposed areas of photo
resist layer, producing a series of microscopic "pits" and "lands," or physical
representations of the digital information. The glass substrate is then
developed and then initialized to produce the glass master. An electroplating
unit is then used to electroplate the glass master with nickel vanadium to
create the metal master, commonly referred to as the metal "father". The metal
father is then separated from the glass master and electroplated a second time
to create an inverted impression on a metal "mother." A further electroplating
process is used to produce several stampers from the metal mother. The
nickel-plated stampers are punched, polished and mounted in the proper injection
molding machine to replicate DVDs or CDs.
CD replication uses a fully integrated in-line process, which
incorporates injection molding machines, metallizing equipment, protective
coating machinery and inspection equipment. To begin, optical grade
polycarbonate plastic is heated and injected under high pressure into the mold
cavity of the machine against the metal stamper. The molding process creates a
clear polycarbonate disc with pits on one side containing all of the digitized
data. In order to make the disc readable by reflected laser light, a thin layer
of reflective aluminum is deposited onto the disc surface by a metallizing
machine. A clear protective coating is then applied to the disc by a spin
coating device in order to protect the disc from scratches and oxidation and to
serve as a base for printing on the disc. An in-line inspection device is used
to scan each disc for physical flaws. Thereafter, the disc is ready for label
printing, the final step of production. The DVD production process is
essentially the same as the CD production process, except that DVD replication
entails the use of a special substrate-bonding machine, which is integrated into
the replication line itself. In addition, the replication process is slightly
different from the production of other CD formats in that each replication line
has two presses, which produce two polycarbonate substrates, each one-half the
thickness of a standard CD. Information is molded onto a layer or multiple
layers of a substrate depending on the specific data requirements. The two
substrates are bonded together to form a DVD.
11
Post-production services primarily involve printing,
packaging, fulfillment and distribution, including confectionering, stickering,
cellophaning, shrink-wrapping, spine printing, bundling and other services.
Growth objective
We plan to build, establish, and operate a high-visibility,
quick-turn Compact Disc manufacturing facility in the Greater Los Angeles area.
The plant is designed to have a first year capacity of 23 million units.
Our strategy will be to:
o offer standard and expedited service for the production
of Audio, CD-ROM, and DVD discs;
o address the manufacturing needs that are unique to the
entertainment industry, specifically, short orders of up
to 5,000 completed in less than twenty-four hours;
o establish the company as a "boutique" facility that
adheres to the highest standards of quality;
o allow recording artists, producers, graphic designers,
and record label executives to control their project
from concept to finished product; and
o address the CD-ROM (Compact Disc Read Only Memory) needs
of the many data providers on the West Coast, including
oil companies, aerospace concerns, and the university
market.
With a location in the heart of Greater Los Angeles, the
entertainment capital of the world, we believe that our facility will offer us
several competitive advantages.
Our plant will be designed specifically for the compact disc
replication in the 500 to 5,000 unit range with an emphasis on fast "turnaround"
of the complete job. Even faster "turns" would be available at a premium
surcharge. Clients desiring quick turns and large quantity would be able to rent
one of the replication lines for extended time periods - where the line would be
solely dedicated to a quick turn rolling immediately into a quantity run. It is
possible for an order of 5,000 discs to be completely replicated and packaged
within a 24 hour period. We believe that our turnaround time will be the fastest
turnaround time available anywhere in the world.
Our cost effective, low maintenance facility is designed so
that it will not begin to approach obsolescence for nine years. Since the
acceptance of the compact disc format worldwide, equipment manufacturers have
designed and built equipment specific to the industry. This new generation of
equipment has a higher throughput capability, less down time, and easier
maintenance. The pieces assembled for our facility represent the best of the
latest in the evolution of this manufacturing art. Our proposed "boutique
approach" will allow for maximum utilization of the installation, whatever
12
overtime and materials cost, over and above a 12 hour operating day, will be
more than made up by the previously noted premium surcharge.
An additional revenue stream can be generated by our ability
to sell off mastering capability and disc moldings generated for production to
other plants throughout the world. For instance, Capitol Records did not have
mastering in it's Illinois plant until 1994. Many plants in California have no
mastering.
Since it is proposed that mastering be changed at a rate
independent of any per disc charge, it can be argued that the smaller the order,
the more attractive the order. This is a key consideration in our growth model.
It is totally opposite to the operating philosophy of the entire industry. This
uniqueness is the primary attraction of installing a facility of this type.
While there is an overabundance of production capacity, there
is a shortage of capable mastering suites. Since these suites cost about $4
million dollars each, there is a natural inclination to make do with as few as
possible. Yet, this is the biggest single factor affecting plants throughout
and, therefore, profitability.
Typical Scenario: Take a factory that has an output capability
of 150,000 discs per day and has one mastering suite. Typical yield of mastering
is 12 to 14, per 24 hour day. The optimal order size then becomes 10,700 discs,
per good master. Mastering scheduling must optimize the order of cut in order to
allow for sufficient order size for plant optimization. Since small orders of
3,000 or less do not fit the above equation easily, they tend to be unattractive
to virtually every facility, even those with two or more mastering suites. Some
plants have opted not to install mastering equipment at all, jobbing out all of
their work to other plants. Our proposed plant is ideally suited to take outside
mastering and supply metal manufacturing parts within the industry.
We will be positioned to meet the growing demand for quick
turns and short runs for CDs. There are about 80 facilities in North America
involved in the production of CDs. While the total capacity of those plants can
keep up with the current and foreseeable demand for audio projects, we believe
these older CD facilities suffer from the following deficiencies:
o these plants were built to run "mainstream" product,
popular current titles with press runs of 50,000 or more;
o the equipment and robotics of these plants reflects what
was state-of-the-art for the original date of
installation, ranging from 1985 to 1997;
o for the most part, these factories are located in rural
areas east of the Mississippi; and
o these plants currently run at 60% to 89% capacity and
running at a higher capacity would involve the hiring of
new, untrained workers, who have yet to either go through
proper training or experience a learning curve
Accordingly, we believe that there is a need for such a
13
production facility in the Hollywood area of Los Angeles. There is an enormous
concentration of films and music publishers, recording studios, sound stages,
video and film production lots, and entertainment-related development businesses
in Hollywood and the Los Angeles area. These industries generate a vast amount
of product, and the extraordinary success and product longevity of the compact
disc as a preferred distribution media mandates that most of the output of
Hollywood's creative product be moved to CDs and DVDs.
Our business plan will allow for the project's creative staff
to exercise editorial control at the point of replication. For the first time,
producers, musicians, engineers, and multimedia programmers can go "just around
the corner" and be part of the manufacturing process. The lead-time required to
make creative decisions that previously required test samples to undergo two
days of travel from the plant to the decision-maker will be eliminated. It is of
great value to have these decisions made on-site, where eye-to-eye explanations
and instructions can be given. Sometimes the barriers to quick understanding of
a problem can be surmounted by both parties being at the same place at the same
time. We will be able to offer open dialogue to creative decision makers,
combined with the only acceptable answer to a quick turnaround scenario.
All the major record labels are within a ten mile radius of
the plant site. The fact that a local firm with an exceptional service history
can not only manufacture quick-turn product, but warehouse it, package it, and
ship it, will prove indispensable to certain types of label releases. Even
labels with their own pressing plants like Capitol Records and Warner Electra
Atlantic may utilize our plant for advance releases and disc jockey copies.
These promotional copies MUST reach the radio stations two weeks prior to the
appearance of the CDs in the stores. Millions of promotional dollars depend on
the timing of air play versus availability.
Quite often the label artwork for a promotional copy is
different and more elaborate than the production copies. Some are serialized and
become instant collectors items. A typical run in this genre is 3,500 discs. We
can save these companies a working week over what their own plants can provide -
and with a greater confidence factor.
We will also offer many processing advantages most other
"short run" manufacturers can or will not provide. These include:
o in-house mastering;
o in-house disc print design of the disc identifying
artwork;
o production of gold vs. aluminum CDs; laser etching on
the CD for serializing or issuing collector's editions;
o fulfillment of special processing/delivery requirements;
and
o high resolution full color application of the disc
identifying artwork.
14
Employees
We currently have seven full time employees of which one is an
executive, two are engaged in administrative activities and four are engaged in
production and sales and marketing activities. Additional financing permitting,
we intend to hire up to five additional employees. None of our employees
are represented by a labor union. We believe that relations with our employees
are good.
Our success depends upon the personal effort of Andrew Melzer and
other key personnel. Our success is also dependent upon our ability to hire and
retain additional qualified management, marketing, technical, financial, and
other personnel. Competition for qualified personnel is intense and in our
current financial condition it is even more difficult to hire or retain
additional qualified personnel. If we do not attract and retain qualified
management and other personnel we will be unable to successfully implement our
business plan. At present, affordable "key person" insurance is unavailable.
Properties
Our facilities are located in approximately 1,450 square feet of leased
office space in Los Angeles. The lease expires in August 2002 and provided for
an annual rental of $25,324 and $26,392 for 1999 and 2000, respectively, and
$29,760 for 2001 and for 2002 until expiration. We currently have only
negligible costs relating to environmental compliance laws, although these costs
will likely increase once we establish our own manufacturing facility.
Legal proceedings
We are not involved in any material legal proceedings.
Management
Officers and directors
Our officers and directors are as follows:
Name Age Position
- ---- --- --------
Andrew Melzer 55 president, and managing director
Mr. Andrew Melzer is our current president and managing director. Mr.
Melzer was born in Budapest, Hungary in 1946. With his parents, he escaped the
Stalinist regime in 1956 and settled in Toronto, Canada, where he studied at The
Royal Conservatory of Music. In 1967, he formed a music production/publishing
company, HitBound Music Ltd., and produced a Canadian record that year which
charted in the Top Ten. Over the next ten years, he produced and composed
15
numerous recordings that were successfully released in the U.S.A., Canada,
Japan, Australia, the U.K., Italy, France, Germany, and South Africa. Some of
the record labels involved were United Artists, Warner Bros., Attic Records, and
Bradley International. In 1967 Mr. Melzer also entered the talent management
arena where he worked with Stitch in Tyme, Everyday People, Soma, Beverly
D'Angelo, Don Scardino, Tanya Roberts, Scatman Crothers, Pinky Dauvin, Debbie
Fleming, and many more artists. In 1977, Mr. Melzer moved to Los Angeles where
he attended marketing seminars at U.C.L.A. He left the music business in 1980
and began a marketing position with Dow Jones & Co. In 1985, he received a
Series 7 license from the National Association of Securities Dealers and worked
as an institutional stock broker with various firms until 1990. Mr. Melzer
formed our predecessor in 1995 and was its president and a director until it
merged into us. Mr. Melzer is a director of InterRent Properties Ltd., a public
company involved in residential real estate.
Indemnification of directors and officers
Our certificate of incorporation and by-laws currently provide
indemnification to our officers or directors to the maximum extent permitted by
Delaware law.
Compensation of directors
Directors do not receive any compensation for their service as
members of the board of directors.
Security ownership of certain
beneficial owners and management
The following table sets forth, as of [effective date], 2001,
information regarding the beneficial ownership of our common stock based upon
the most recent information available to us for
o each person known by us to own beneficially more than
five (5%) percent of our outstanding common stock,
o each of our officers and directors, who uses our
address, and
o all of our officers and directors as a group.
Name and address Amount and nature
of beneficial owner of beneficial owner Percent of class
- ------------------- ------------------- ----------------
Andrew Melzer 30,000,000 85.7%
All directors and 30,000,000 85.7%
executive officers
as a group (one person)
Executive compensation
16
Summary Compensation Table
Name and Other Long-term
Principal Position Year Salary Bonus Compensation Compensation
- ------------------ ---- ------------- ------------ ------------ -------------
Andrew Melzer 2000 $125,000
(president & 1999 $100,000
managing director) 1998 $ 75,000
Employment agreements
On January 1, 1997, our predecessor entered into an employment
agreement with Andrew Melzer, our current president, which provides for salaries
of $125,000, $150,000, $175,000 and $200,000 during the years ended December 31,
2000 through 2003, respectively. Mr. Melzer is also entitled to receive
incentive compensation that shall be not less than the sum of $25,000 for each
and every $500,000 increase in gross sales for the prior calendar year. This
agreement is now our obligation.
Certain relationships and related transactions
During 1999 and 2000, our predecessor made advances to Andrew
Melzer, our president and managing director, in the amount of $15,867. The
advances were unsecured, bore interest at a rate of 6.75% per annum, and was
payable on demand. These advances were repaid by offsetting salary due Mr.
Melzer. As of December 31, 2000, none of the advances remained outstanding.
Our policy is to obtain all supplies and services on a normal
competitive basis, but that, all things being equal, to purchase from affiliated
or related entities. All related party transactions must be reviewed by the
board of directors to assure that we are not paying higher than fair market
arms-length prices.
Disclosure of commission position on
indemnification for securities act liabilities
Our by-laws and our certificate of incorporation currently
provide indemnification to our officers or directors for the maximum permitted
by Delaware law.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons, pursuant to the foregoing provisions, or otherwise, we have been
17
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore unenforceable.
Description of securities
Authorized and outstanding stock
Our authorized capital stock consists of 40,000,000 shares of
common stock, $.00001 par value. As of November 30, 2000, there were 35,000,000
shares of common stock outstanding which were held by approximately 102
stockholders of record.
Common stock
Subject to legal and contractual restrictions on payment of
dividends, the holders of common stock are entitled to receive such lawful
dividends as may be declared by the board of directors. In the event of our
liquidation, dissolution or winding up, the holders of shares of common stock
are entitled to receive all of our remaining assets available for distribution
to stockholders after satisfaction of all liabilities and preferences. Holders
of our common stock do not have any preemptive, conversion or redemption rights
and there are no sinking fund provisions applicable to our common stock. Record
holders of our common stock are entitled to vote at all meetings of
stockholders and at those meetings are entitled to cast one vote for each share
of record that they own on all matters on which stockholders may vote.
Stockholders do not have cumulative voting rights in the election of our
directors. As a result, the holders of a plurality of the outstanding shares
can elect all of our directors, and the holders of the remaining shares are not
able to elect any of our directors. All outstanding shares of common stock are
fully paid and non-assessable, and all shares of common stock to be offered and
sold in this offering will be fully paid and non-assessable.
Transfer agent and registrar
The stock transfer agent and registrar for our common stock is
Executive Registrar and Transfer Agency, Inc., located at 3118 W. Thomas Road,
Suite 707, Phoenix, AZ 85017.
Dividend policy
Under applicable law, dividends may only be paid out of
legally available funds as proscribed by a statute, subject to the discretion of
the board of directors. In addition, it is currently our policy to retain
internally generated funds to support future expansion of our business.
Accordingly, even if we do generate earnings, and even if we are not prohibited
from paying dividends, we do not currently intend to declare or pay cash
dividends on our common stock for the foreseeable future.
18
Shares available for future sale
On the date of this prospectus, all 5,000,000 shares included
in this prospectus will generally be freely tradable without restriction imposed
by, or further registration under, the Securities Act. An additional 30,000,000
shares of our common stock may be deemed "restricted securities," as that term
is defined under Rule 144 promulgated under the Securities Act. Such shares may
be sold to the public, subject to volume restrictions, as described below.
Commencing at various dates, these shares may be sold to the public without any
volume limitations.
In general, under Rule 144 as currently in effect, subject to
the satisfaction of certain other conditions, a person, including one of our
affiliates, or persons whose shares are aggregated with affiliates, who has
owned restricted shares of common stock beneficially for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed 1% of the total number of outstanding shares of the same class. In
the event our shares are sold on an exchange or are reported on the automated
quotation system of a registered securities association, you could sell during
any three-month period the greater of such 1% amount or the average weekly
trading volume as reported for the four calendar weeks preceding the date on
which notice of your sale is filed with the SEC. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about us. A person who has not been
one of our affiliates for at least the three months immediately preceding the
sale and who has beneficially owned shares of common stock for at least two
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above.
You should note that we anticipate that our shares of common
stock will initially be included for quotation on the OTC Bulletin Board.
Pursuant to SEC regulations, the OTC Bulletin Board is not considered an
"automated quotation system of a registered securities association" and Rule 144
will only permit sales of up to 1% of the outstanding shares during any three
month period.
Plan of distribution
The sale of the shares of common stock by the selling
stockholders may be effected by them from time to time in the over the counter
market or in such other public forum where our shares are publicly traded or
listed for quotation. These sales may be made in negotiated transactions through
the timing of options on the shares, or through a combination of such methods of
sale, at fixed prices, which may be charged at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The selling stockholders may effect such transactions by
selling the shares through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
19
selling stockholders and/or the purchasers of the shares for which such
broker-dealer may act as agent or to whom they sell as principal, or both. The
compensation as to a particular broker-dealer may be in excess of customary
compensation.
The selling stockholders and any broker-dealers who act in
connection with the sale of the shares hereunder may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act, and any
commissions received by them and any profit on any sale of the shares as
principal might be deemed to be underwriting discounts and commissions under the
Securities Act.
Selling stockholders
We are registering shares of common stock purchased by
investors in our 1999 private placement offerings and shares of common stock
formerly owned by our founders.
Other than the costs of preparing this prospectus and a
registration fee to the SEC, we are not paying any costs relating to the sales
by the selling stockholders. Each of the selling stockholders, or their
transferees, and intermediaries to whom such securities may be sold may be
deemed to be an "underwriter" of the common stock offered in this prospectus, as
that term is defined under the Securities Act. Each of the selling stockholders,
or their transferees, may sell these shares from time to time for his own
account in the open market at the prevailing prices, or in individually
negotiated transactions at such prices as may be agreed upon. The net proceeds
from the sale of these shares by the selling stockholders will inure entirely to
their benefit and not to ours.
None of the selling stockholders has held any position or
office, or had any material relationship with us or any of our predecessors or
affiliates within the last three years, and after completion of this offering
will own the amount of our outstanding common stock listed opposite their name.
The shares reflected by each selling stockholder is based upon information
provided to us by our transfer agent and from other available sources.
These shares may be offered for sale from time to time in
regular brokerage transactions in the over-the-counter market, or through
brokers or dealers, or in private sales or negotiated transactions, or
otherwise, at prices related to the then prevailing market prices. Thus, they
may be required to deliver a current prospectus in connection with the offer or
sale of their shares. In the absence of a current prospectus, if required, these
shares may not be sold publicly without restriction unless held by a
non-affiliate for two years, or after one year subject to volume limitations and
satisfaction of other conditions. The selling stockholders are hereby advised
that Regulation M of the General Rules and Regulations promulgated under the
Securities Exchange Act of 1934 will be applicable to their sales of these
shares. These rules contain various prohibitions against trading by persons
interested in a distribution and against so-called "stabilization" activities.
The selling stockholders, or their transferees, might be
deemed to be "underwriters" within the meaning of Section 2(11) of the Act and
any profit on the resale of these shares as principal might be deemed to be
20
underwriting discounts and commissions under the Act. Any sale of these shares
by selling shareholders, or their transferees, through broker-dealers may cause
the broker-dealers to be considered as participating in a distribution and
subject to Regulation M promulgated under the Securities Exchange Act of 1934,
as amended. If any such transaction were a "distribution" for purposes of
Regulation M, then such broker-dealers might be required to cease making a
market in our equity securities for either two or nine trading days prior to,
and until the completion of, such activity.
21
Shares beneficially owned
Name of selling stockholder Before offering Offering After offering
- --------------------------- --------------- -------- --------------
Abraham Garfinkel c/f 100 100 0
Raphael Garfinkel
Tova Garfinkel 100 100 0
Yocheved Garfinkel 100 100 0
Lynn Garfinkel 100 100 0
Abraham Garfinkel 100 100 0
Ted Wengrofsky 100 100 0
Zelda Wengrofsky 100 100 0
Debra Wengrofsky c/f 100 100 0
Jennifer Wengrofsky
Beverly Pomerantz 100 100 0
Barry Pomerantz 100 100 0
Richard Pomerantz 100 100 0
Robert Pomerantz 100 100 0
Daniel Pomerantz 100 100 0
Sandra Pomerantz 100 100 0
Claire Psaty 100 100 0
Martin Psaty 100 100 0
Estee Psaty 100 100 0
Michelle Psaty 100 100 0
Benjamin Psaty 100 100 0
Alan Psaty 100 100 0
Sara Psaty 100 100 0
Howard Rosenfeld 100 100 0
Elizabeth Rosenfeld c/f 100 100 0
Victoria Rosenfeld
Elizabeth Rosenfeld c/f 100 100 0
Michael Rosenfeld
Elizabeth Rosenfeld 100 100 0
Howard Odzer 100 100 0
Doris Odzer 100 100 0
Arnold Odzer 100 100 0
Ari Odzer 100 100 0
Judd Odzer 100 100 0
Lori Odzer 100 100 0
Mordecai Kamentzky 100 100 0
Sora Kamentzky 100 100 0
Modecai Kamanetzky c/f 100 100 0
Yehuda Kamenetzky
Modecai Kamanetzky c/f 100 100 0
Samuel Kamenetzky
22
Modecai Kamanetzky c/f 100 100 0
Itta Kamenetzky
Modecai Kamanetzky c/f 100 100 0
Pincus Kamenetzky
Modecai Kamanetzky c/f 100 100 0
Basya Kamenetzky
Modecai Kamanetzky c/f 100 100 0
Anna Kamenetzky
Modecai Kamanetzky c/f 100 100 0
Zvi Kamenetzky
Modecai Kamanetzky c/f 100 100 0
Ettil Kamenetzky
Modecai Kamanetzky c/f 100 100 0
Nechama Kamenetzky
Modecai Kamanetzky c/f 100 100 0
Hadassah Kamenetzky
Scott Fagan 100 100 0
Ileen Fagan 100 100 0
Ileen Fagan c/f 100 100 0
Zalman Fagan
Ileen Fagan c/f 100 100 0
Naftali Fagan
Ileen Fagan c/f 100 100 0
David Abikzer
Ileen Fagan c/f Atara Abikzer 100 100 0
Debra Kreinberg 100 100 0
Sheldon Kreinberg 100 100 0
Shoshana Kreinberg 100 100 0
Eric Zaiman 100 100 0
Eric Zaiman c/f Tzvi Zaiman 100 100 0
Eric Zaiman c/f 100 100 0
Avigail Zaiman
Bina Zaiman 100 100 0
Naomi Schwartz c/f 100 100 0
Ephraim Schwartz
Naomi Schwartz c/f 100 100 0
Malka Schwartz
Naomi Schwartz c/f 100 100 0
Raizel Schwartz
Naomi Schwartz 100 100 0
Alan Schwartz 100 100 0
Lewis Calderon 100 100 0
Lewis Calderon c/f 100 100 0
Chaya Calderon
23
Lewis Calderon c/f 100 100 0
Etti Calderon
Anne Vayner 100 100 0
Anne Vayner c/f 100 100 0
Bridgette Vayner
Arieh Uzan 100 100 0
Barbra Uzan 100 100 0
Barbra Uzan c/f 100 100 0
Yonatan Uzan
Barbra Uzan c/fSivan Uzan 100 100 0
Barbra Uzan c/f Idan Uzan 100 100 0
Ely Katz 100 100 0
Ilana Katz 100 100 0
Ely Katz c/f Yeshayahu Katz 100 100 0
Ely Katz c/f Gavriel Katz 100 100 0
Irving Rothstein 100 100 0
Miriam Rothstein 100 100 0
Elana C. Rothstein 100 100 0
Jonathan E. Rothstein 100 100 0
Abigail C. Rothstein 100 100 0
Leora L. Rothstein 100 100 0
Gabriel A. Rothstein 100 100 0
Chaia Broderick 100 100 0
Chaia Broderick c/f 100 100 0
Yehuda Broderick
Chaia Broderick c/f 100 100 0
Doniel Broderick
Joseph Grayson 100 100 0
Rozann Pomerantz 100 100 0
Stuart Katz 155,000 155,000 0
Golda Katz 100 100 0
Golda Katz c/f Jason Katz 100 100 0
Golda Katz c/f Rachel Katz 100 100 0
Golda Katz c/f Aliza Katz 100 100 0
David Pomerantz 155,000 155,000 0
Zvi Pinter 100 100 0
Zvi Pinter c/f Aryeh Pinter 100 100 0
Zvi Pinter c/f Samson Pinter 100 100 0
Zvi Pinter c/f Tova M. Pinter 100 100 0
Ethel Pinter 100 100 0
Dynaventures, Inc. (1) 1,563,333 1,563,333 0
I.C.M. International 1,563,333 1,563,333 0
St. Georges Trust (1) 1,563,334 1,563,334 0
24
- -----------------
(1) Holds option to purchase up to an additional 46,333 shares from each of
Stuart Katz and David Pomerantz.
Legal matters
Certain legal matters in connection with this offering are
being passed upon by the law firm of Heller, Horowitz & Feit, P.C., New York,
New York. Irving Rothstein is a partner in this firm and he and his immediate
family members own an aggregate of approximately 1/10th of 1% of the shares
being registered.
Experts
Our financial statements as of December 31, 2000 and for
the years ended December 31, 2000 and 1999 have been audited by Singer Lewak
Greenbaum & Goldstein LLP, independent public accountants, as indicated in their
report with respect thereto, which contains an explanatory paragraph relating to
our ability to continue as a going concern, and are included in reliance upon
the authority of said firm as experts in giving said reports.
Available information
Commencing on the date of this prospectus, we will be subject
to the information requirements of the Securities Exchange Act of 1934, as
amended. This Act requires us to file reports, proxy statements and other
information with the Securities and Exchange Commission. Copies of the reports,
proxy statements and other information we file can be inspected at the
Headquarters Office of the Securities and Exchange Commission located at 450
Fifth Street, N.W., Room 1024, Washington, D.C.
Copies of the material we file may be obtained from the Public
Reference Section of the Commission, at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. at prescribed rates. The Public Reference Room can be reached
at (202) 942-8090. The Commission also maintains a web site that contains
reports, proxy and information statements and other information regarding us.
This material can be found at http://www.sec.gov.
25
You should only rely on the information contained in this document or
other information that we refer you to. We have not authorized anyone
to provide you with any other information that is different. You
should note that even
though you received a copy of this prospectus, 5,000,000 Shares of Common Stock
there may have been changes in our affairs since
the date of this prospectus. This prospectus
does not constitute an offer to sell securities
in any jurisdiction in which such offer or
solicitation is not authorized
TABLE OF CONTENTS PAGE
Risk factors 3 THIRD WAVE MEDIA LTD.
Special note regarding
forward-looking statements 8
Summary historical financial
Information 9
Plan of operations 9
Use of proceeds 13
Business 14 PROSPECTUS
Management 27
Security ownership of certain
Beneficial owners and management 29
Executive compensation 30
Certain relationships
and related transactions 30
Disclosure of commission position
on indemnification for securities
act liability 31
Description of securities 26
Plan of distribution 33
Selling stockholders 33 _____________ , 2001
Legal matters 47
Experts 47
Available information 47
Index to financial statements F-
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other expenses of issuance and distribution
The following statement sets forth the estimated expenses in
connection with the offering described in the Registration Statement, all of
which will be borne by the Registrant.
Securities and Exchange Commission Fee........... $ 132
Accountants' Fees................................................ $ 5,000
Legal Fees............................................................ $ 15,000
Company's Administrative Expenses................... $ 1,000
Printing and engraving......................................... $ 500
Miscellaneous....................................................... $ 368
Total $ 22,000
Item 14. Indemnification of directors and officers.
Section 145 of the Delaware General Corporation Law, as
amended, authorizes the Company to Indemnify any director or officer under
certain prescribed circumstances and subject to certain limitations against
certain costs and expenses, including attorney's fees actually and reasonably
incurred in connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which a person is a party by
reason of being a director or officer of the Company if it is determined that
such person acted in accordance with the applicable standard of conduct set
forth in such statutory provisions. The Company's Certificate of Incorporation
contains provisions relating to the indemnification of director and officers and
the Company's By-Laws extends such indemnities to the full extent permitted by
Delaware law.
The Company may also purchase and maintain insurance for the
benefit of any director or officer which may cover claims for which the Company
could not indemnify such persons.
Item 15. Recent sales of unregistered securities
On March 19, 1999, upon inception of the Company, its
founders, Stuart Katz and David Pomerantz each purchased 2,495,000 shares at par
value. These shares were issued pursuant to the exemption from registration
contained in Section 4(2).
From March 24, 1999 through March 31, 1999, an aggregate of
10,000 shares were sold at a price of $.10 per share to an aggregate of 100
people pursuant to the exemption contained in Regulation D, Rule 504.
Item 16. Exhibits and financial statements schedules.
3.1 Certificate of Incorporation, as amended
3.2 By-Laws
4.1 Specimen Common Stock Certificate*
5 Opinion of Heller, Horowitz & Feit, P.C.*
10.1 Lease*
10.2 Employment Agreement with Mr. Melzer
10.3 Agreement and Plan of Reorganization
23.1 Consent of Heller, Horowitz & Feit, P.C.
(included in the Opinion filed as Exhibit 5)
23.2 Consent of Singer Lewak Greenbaum & Goldstein LLP
* To be filed by amendment.
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:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(iv) Include any additional or changed material 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 the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
THIRD WAVE MEDIA
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999
THIRD WAVE MEDIA
CONTENTS
December 31, 2000
- -------------------------------------------------------------------------------------------------------------------
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 3
Statements of Shareholder's Deficit 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 12
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder
Third Wave Media
We have audited the accompanying balance sheet of Third Wave Media as of
December 31, 2000, and the related statements of operations, shareholder's
deficit, and cash flows for each of the two years in the period ended December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Third Wave Media as of December
31, 2000, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 2000 in conformity with generally
accepted accounting principles.
The accompanying financial statements for the year ended December 31, 2000 have
been prepared assuming that the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company has incurred
recurring losses from operations and has both a working capital and an
accumulated shareholder's deficit. These conditions raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
March 23, 2001
THIRD WAVE MEDIA
BALANCE SHEET
December 31, 2000
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 7,706
Accounts receivable 95,823
Inventory 8,084
----------------
Total current assets 111,613
Property and equipment, net 52,540
----------------
Total assets $ 164,153
================
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities
Current portion of note payable $ 4,727
Current portion of capitalized lease obligations 4,252
Lines of credit 134,617
Accounts payable 257,009
Credit cards payable 98,985
Deferred revenue 10,363
Other 7,398
----------------
Total current liabilities 517,351
Note payable, net of current portion 13,848
Capitalized lease obligations, net of current portion 6,142
----------------
Total liabilities 537,341
----------------
Commitments and contingencies
Shareholder's deficit
Common stock, no par value
100 shares authorized
10 shares issued and outstanding 1,000
Additional paid-in capital 15,867
Accumulated deficit (390,055)
----------------
Total shareholder's deficit (373,188)
----------------
Total liabilities and shareholder's deficit $ 164,153
================
The accompanying notes are an integral part of these financial statements.
2
THIRD WAVE MEDIA
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
2000 1999
--------------- ----------------
Income $ 1,102,719 $ 1,198,039
Cost of goods sold 757,270 806,667
--------------- ----------------
Gross profit 345,449 391,372
Operating expenses 576,864 571,161
--------------- ----------------
Loss from operations (231,415) (179,789)
--------------- ----------------
Other income (expense)
Interest income 2,843 6,009
Interest expense (26,790) (4,424)
Legal settlement 150,000 -
--------------- ----------------
Total other income (expense) 126,053 1,585
--------------- ----------------
Loss before provision for income taxes (105,362) (178,204)
Provision for income taxes 800 800
--------------- ----------------
Net loss $ (106,162) $ (179,004)
=============== ================
Basic and diluted loss per share $ (10,616) $ (17,900)
=============== ================
Basic and diluted weighted-average shares used to
compute loss per share 10 10
=============== ================
The accompanying notes are an integral part of these financial statements.
3
THIRD WAVE MEDIA
STATEMENTS OF SHAREHOLDER'S DEFICIT
For the Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
Common Stock Additional
--------------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
--------------- --------------- ---------------- --------------- ----------------
Balance, December 31, 1998 10 $ 1,000 $ - $ (104,889) $ (103,889)
Net loss (179,004) (179,004)
--------------- --------------- ---------------- --------------- ---------------
Balance, December
31, 1999 10 1,000 - (283,893) (282,893)
Forgiveness of accrued
salaries by
shareholder 15,867 15,867
Net loss (106,162) (106,162)
---------------- -------------- --------------- -------------- --------------
Balance, December
31, 2000 10 $ 1,000 $ 15,867 $ (390,055) $ (373,188)
================ ============== =============== ============== ==============
The accompanying notes are an integral part of these financial statements.
4
THIRD WAVE MEDIA
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------
2000 1999
--------------- ----------------
Cash flows from operating activities
Net loss $ (106,162) $ (179,004)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 18,115 9,651
Write-off of interest receivable-shareholder 10,567 -
Forgiveness of accrued salary 15,867 -
(Increase) decrease in
Accounts receivable 33,705 (104,872)
Other current assets 15,945 (13,016)
Increase (decrease) in
Accounts payable (41,430) 163,405
Other current liabilities (32,777) 25,315
---------------- ----------------
Net cash used in operating activities (102,037) (98,521)
--------------- ----------------
Cash flows from investing activities
Purchase of property and equipment (4,564) (15,577)
--------------- ----------------
Net cash used in investing activities (4,564) (15,577)
--------------- ----------------
Cash flows from financing activities
Proceeds from lines of credit 71,482 116,404
Payments on lines of credit (34,400) (31,990)
Net payments on credit cards payable 54,588 33,891
Net proceeds from related parties - 27,264
Payments on note payable (7,194) (5,119)
---------------- ----------------
Net cash provided by financing activities 84,476 140,450
---------------- ----------------
Net increase (decrease) in cash (22,125) 26,352
Cash, beginning of year 29,831 3,479
---------------- ----------------
Cash, end of year $ 7,706 $ 29,831
================ ================
Supplemental disclosures of cash flow information
Interest paid $ 26,790 $ 8,489
================ ================
Income taxes paid $ 800 $ 800
================ ================
Supplemental schedule of non-cash investing and financing activities
The Company entered into capital lease obligations of $41,282 during the year
ended December 31, 1999.
The accompanying notes are an integral part of these financial statements.
5
THIRD WAVE MEDIA
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
NOTE 1 - BUSINESS ACTIVITY
Third Wave Media (the "Company") was incorporated in the State of
California on July 29, 1996 and is engaged in the wholesale and retail
printing, packaging, and duplication of computer software through its
vendors.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which assume that the
Company will continue as a going concern. As shown in the financial
statements, during the years ending December 31, 2000 and 1999, the
Company incurred losses from operations of $231,415 and $179,789,
respectively. In addition, the Company has both a working capital and
an accumulated shareholder's deficit of $405,738 and $390,055,
respectively, as of December 31, 2000. Further, the Company's cash flow
requirements have been met by obtaining and drawing upon its lines of
credit.
The financial statements do not include any adjustments relating to the
recoverability of assets and classification of liabilities that might
be necessary should the Company be unable to continue as a going
concern. The Company's continuation as a going concern is dependent
upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to retain its current financing, to
obtain additional financing, and to attain profitability.
Management has taken the following steps to revise its operating and
financial requirements which it believes are sufficient to provide the
Company with the ability to continue in existence:
o The Company plans to raise capital during the next year through a
secondary offering after the consummation of the merger (see Note
10).
o The Company's sole shareholder has contributed $40,000 (unaudited)
during the first quarter of 2001.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Inventory
Inventory is valued at the lower of cost (first-in, first-out method)
or market.
6
THIRD WAVE MEDIA
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred Revenue
Deferred revenue consists of cash received for jobs in process or
billings on products that have not been shipped.
Revenue Recognition
The Company recognizes revenue from the sale of products when the
products are shipped.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with original maturities of three
months or less to be cash equivalents.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs
for the years ended December 31, 2000 and 1999 were $82,701 and
$101,977, respectively.
Property and Equipment
Property and equipment are recorded at cost, less accumulated
depreciation. Depreciation is provided using the straight-line and
accelerated methods over the estimated useful lives as follows:
Automobiles 5 years
Furniture and equipment 5 to 7 years
Betterments, renewals, and extraordinary repairs that extend the life
of the asset are capitalized; other repairs and maintenance charges are
expensed as incurred.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of the
assets to future net cash flows expected to be generated by the assets.
If the assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
exceeds the fair value of the assets. To date, no impairment has
occurred.
Income Taxes
The Company has elected the federal and state income tax status of an
"S" corporation; therefore, all income, losses, gains, and credits are
passed through to the Company's shareholder and included in his
personal income tax return. The provision for income taxes in the
accompanying statements of operations represents the state franchise
tax applied to "S" corporations at a tax rate of the lesser of $800 or
1.5% of taxable income.
7
THIRD WAVE MEDIA
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss per Share
The Company calculates loss per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share."
Basic loss per share is computed by dividing loss available to common
shareholders by the weighted-average number of common shares
outstanding. Diluted loss per share is computed similar to basic loss
per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional
common shares were dilutive. For the years ended December 31, 2000 and
1999, the Company incurred net losses; therefore, basic and diluted
loss per share are the same.
Comprehensive Loss
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting comprehensive loss
and its components in a financial statement. Comprehensive loss as
defined includes all changes in equity (net assets) during a period
from non-owner sources. Examples of items to be included in
comprehensive loss, which are excluded from net loss, include foreign
currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on available-for-sale
securities. Comprehensive loss is not presented in the Company's
financial statements since the Company did not have any of the items of
comprehensive income in any period presented.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash, accounts receivable,
and accounts payable, the carrying amounts approximate fair value due
to their short maturities. The amounts shown for lines of credit,
credit cards payable, and note payable also approximate fair value
because current interest rates offered to the Company for debt of
similar maturities are substantially the same or the difference is
immaterial.
Reclassifications
Certain amounts included in the prior year financial statements have
been reclassified to conform with the current year presentation.
Recently Issued Accounting Pronouncements
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," to
provide guidance on the recognition, presentation, and disclosure of
revenue in financial statements. Changes in accounting to apply the
guidance in SAB No. 101 may be accounted for as a change in accounting
principle effective January 1, 2000. Management has not yet determined
the complete impact of SAB No. 101 on the Company; however, management
does not expect that application of SAB No. 101 will have a material
effect on the Company's revenue recognition and results of operations.
8
THIRD WAVE MEDIA
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements (Continued)
-----------------------------------------
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation," (an Interpretation of Accounting
Principles Bulletin Opinion No. 25 ("APB 25")) ("FIN 44"). FIN 44
provides guidance on the application of APB 25, particularly as it
relates to options. The effective date of FIN 44 is July 1, 2000, and
the Company has adopted FIN 44 as of that date.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Instruments and Certain Hedging Activities." This statement is not
applicable to the Company.
In June 2000, the FASB issued SFAS No. 139, "Rescission of FASB
Statement No. 53 and Amendments to Statements No. 63, 89, and 121."
This statement is not applicable to the Company.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, a replacement of FASB Statement No. 125." This statement
is not applicable to the Company.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2000 consisted of the following:
Automobiles $ 44,234
Furniture and equipment 46,340
----------------
90,574
Less accumulated depreciation 38,034
----------------
Total $ 52,540
================
Depreciation expense for the years ended December 31, 2000 and 1999 was
$18,115 and $9,651, respectively.
NOTE 4 - NOTE RECEIVABLE - SHAREHOLDER
At December 31, 1999, the Company had advances to its shareholder in
the amount of $28,521. The advances were unsecured, bore interest 6.75%
per annum, and were payable on demand. During the year ended December
31, 2000, these advances were off-set with the shareholder's salary
owed to him at December 31, 2000. All interest related to this
receivable amounting to $10,567 was written-off during the year ended
December 31, 2000. In addition, the shareholder contributed $15,867 of
salary owed to him as additional paid-in capital.
9
THIRD WAVE MEDIA
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
NOTE 5 - LINES OF CREDIT
As of December 31, 2000, the Company had a $100,000 revolving line of
credit agreement with a local bank. Borrowings on the line bear
interest at 2.35% above the bank's reference rate (10.35% at December
31, 2000). The credit line expires on October 1, 2001 and is guaranteed
by the shareholder. At December 31, 2000, the outstanding balance was
$86,750.
As of December 31, 2000, the Company also had a $50,000 revolving line
of credit agreement with a bank. Borrowings on the line bear interest
at 15%. The credit line expires on December 31, 2001 and is guaranteed
by the shareholder. At December 31, 2000, the outstanding balance was
$47,867.
NOTE 6 - NOTE PAYABLE
Note payable at December 31, 2000 consisted of the following:
Note payable to a motor credit corporation, collateralized by
applicable equipment. The note is due in aggregate monthly
payments of $523, including interest at 8.5% per annum. $ 18,575
Less current portion 4,727
---------
Long-term portion $ 13,848
=========
Future maturities of the note payable at December 31, 2000 were as
follows:
Year Ending
December 31,
2001 $ 4,727
2002 5,145
2003 5,600
2004 3,103
-------------
Total $18,575
=============
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities for its corporate office under a
non-cancelable operating lease agreement that expires in August 2002.
The Company also leases office equipment under a non-cancelable capital
lease agreement.
10
THIRD WAVE MEDIA
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
Leases (Continued)
------
At December 31, 2000, future minimum lease payments were as follows:
Year Ending Operating Capital
December 31, Leases Leases
------------ ----------- ------------
2001 $ 28,080 $ 4,843
2002 18,720 6,359
----------- ------------
$ 46,800 11,202
=========== ============
Less amount representing interest 808
------------
10,394
Less current portion 4,252
------------
Long-term portion $ 6,142
============
Rent expense was $25,324 and $26,392 for the years ended December 31,
2000 and 1999, respectively.
Property and equipment under capitalized leases and the related
accumulated depreciation at December 31, 2000 were as follows:
Property and equipment $16,011
Less accumulated depreciation 3,202
--------------
Total $12,809
==============
Employment Agreements
On January 1, 1997, the Company entered into an employment agreement
with its shareholder, which provides for salaries of $125,000 and
$100,000 during the years ended December 31, 2000 and 1999,
respectively. The agreement further calls for future salaries totaling
$525,000 to be paid through December 2003. The shareholder is also
entitled to receive incentive compensation that shall not be less than
the sum of $25,000 for each and every $500,000 increase in gross sales
for the prior calendar year.
Asserted Claim
The Company is currently involved in a dispute with a certain vendor
which arose in the ordinary course of business. Management does not
believe that the outcome of this matter will have a material adverse
effect on the Company's results of operations.
NOTE 8 - SETTLEMENT INCOME
In April 2000, the Company received $150,000 from the settlement of a
lawsuit against a vendor, which had commenced in 1998.
11
THIRD WAVE MEDIA
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
NOTE 9 - CONCENTRATIONS OF CREDIT RISK
As of December 31, 2000, 72% of the Company's accounts receivable were
from four customers. In addition, the Company had sales to three
customers, which represented 19%, 13%, and 12% of total revenues at
December 31, 2000. As of December 31, 1999, 83% of the Company's
accounts receivable were from four customers. In addition, the Company
had sales to one customer, which represented 11% of total revenues at
December 31, 1999.
The Company had one major supplier, which represented 15% and 19% of
total purchases during the years ended December 31, 2000 and 1999,
respectively.
NOTE 10 - SUBSEQUENT EVENT
On February 23, 2001, the Company entered into an agreement with D.W.
Industries, Inc. ("DWI"), a development stage company and a Delaware
Corporation. The agreement is a plan of reorganization, whereby DWI
acquired all of the Company's shares of common stock, making the
Company a wholly owned subsidiary of DWI. In exchange, the Company's
sole shareholder received 30,000,000 shares of common stock of DWI with
a par value of $0.00001. Since the Company will own the majority of the
combined companies' stock amounting to $35,000,000, the merger will be
accounted for as a reverse acquisition of DWI by the Company. DWI has
insignificant assets and operations. Accordingly, the transaction will
result in a recapitalization of the Company.
SIGNATURES
In accordance with the requirements of the Securities Act, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has authorized this registration
statement or amendment to be signed on its behalf by the undersigned, in the
City of Los Angeles on the 27th day of April, 2001.
THIRD WAVE MEDIA LTD.
By:/s/Andrew Melzer
Andrew Melzer, President
In accordance with the requirements of the Securities Act, this
registration statement or amendment was signed by the following persons in the
capacities and on the dates stated:
Signature Title Date
By:/s/Andrew Melzer
Andrew Melzer President and April 27, 2001
Managing Director