As filed with the Securities and Exchange Commission on November 9, 2001
Registration No. 333--60172
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2/A
AMENDMENT NO. 1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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THIRD WAVE MEDIA LTD.
(Name of issuer in its charter)
DELAWARE 11-3480018
(State or other jurisdiction (Primary Standard Industrial (I.R.S.
of incorporation Classification Code) Employer
or organization) Identification)
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)
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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)
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Common stock, par value
$0.00001 5,000,000 $.10 (2) $500,000 $ 132.00
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Total 5,000,000 $500,000 $ 132.00
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(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, NOVEMBER 9, 2001
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THIRD WAVE MEDIA LTD.
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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 over-the-counter bulletin board popularly known as 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 ________, 2001.
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 it is uncertain if our
business plan can be successfully implemented. Thus, our prospects must be
considered in light of the well-known competition within the rapidly evolving
market for multimedia entertainment. Accordingly, 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. We anticipate spending
approximately $1 million on building and equipment. It is currently estimated
that our proposed facility will cost approximately $3.8 million, significantly
more than we currently have, or will have available following our private
placement with Adevam Investments, for such construction costs. There can be no
assurance that we will ever operate profitably.
OUR INDEPENDENT AUDITORS HAVE EXPRESSED CONCERNS OVER OUR FINANCIAL VIABILITY.
Our auditors, after auditing our financial statements have stated that they
have "substantial doubts" about our ability to continue as a going concern. If
these concerns are correct, we could be forced to close for financial reasons
and you could lose your entire investment.
OUR PLANNED PRIVATE PLACEMENT WOULD CAUSE SUBSTANTIAL DILUTION TO SHAREHOLDERS.
We plan to enter an agreement with Adevam Investments to sell up to
5,000,000 additional shares of our common stock in a private placement. If
successful, these additional shares would increase our total outstanding shares
to 40,000,000. This increase would cause a substantial dilution of our shares
for anyone purchasing in this offering.
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SINCE WE ARE CONTROLLED BY OUR MAJOR SHAREHOLDER AND SOLE DIRECTOR, OTHER
SHAREHOLDERS WILL HAVE LIMITED CONTROL OVER OUR MANAGEMENT.
Our president and sole director, Mr. Andrew Melzer, is also the owner of
85.7% of the shares of the votes cast in any election or shareholder vote.
Additionally, according to our bylaws, Mr. Melzer has to approve the election of
any additional directors. Purchasers of our common stock should be aware that
due to Mr. Melzer's overwhelming electoral majority it will be essentially
impossible for other shareholders to remove or replace him and exert control
over us.
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.
RISKS RELATING TO OUR BUSINESS PLAN
OUR SUCCESS DEPENDS UPON THE PERSONAL EFFORT OF ANDREW MELZER AND OTHER KEY
PERSONNEL.
Mr. Melzer is our sole Director, President and key employee. Without
Mr. Melzer, we would be unable to continue operations. 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.
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. As a
young company we will initially be short of experienced manpower and the number
of replication lines needed to service "rush orders." While we currently
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service rush orders, the majority of the profit for the extra charges goes to
outside replication plants and not to us. Addressing this could delay our plans
and cause us to incur substantial additional costs in either training or tooling
at our production facility at an estimated cost of $1,500,000. Alternatively,
we could outsource production to other replicators and lose out on the majority
of the profits. 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 based on the nature
and content of such materials. Our customers sign a copyright indemnification
form with us. However we can't be sure of the accuracy or the intent of our
clients. There have been some high profile lawsuits regarding copyright
infringement in the last four years. The Record Industry Association of America
sued and settled out of court with several replicators regarding this issue.The
liability we may face as a result of content disseminated through our system
could cause a substantial monetary loss for us which would directly affect our
earnings and profitability.
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 which would result in a decline
in our revenues, profitability and earnings.
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
replication business could reduce our revenues and margins, which would lower
our profits and earnings.
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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 SUCH AS A CHANGE IN CHEMICAL DISPOSAL
REGULATIONS.
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 which cannot be
forecast as a result of a change in governmental regulations which would force
us to engage in additional preventive or remedial action, having to reduce
chemical exposure beyond what is currently mandated or dealing with additional
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.
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STATEMENT OF OPERATIONS DATA
For the Year For the Year
Ended 12/31/00 Ended 12/31/99
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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
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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 duplicate audio cassettes, video cassettes, computer diskettes and
tape cartridges. We replicate audio CD discs, CD-ROM discs, DVD discs (to
include DVD-Video, DVD-Audio and DVD-ROM). In addition we duplicate CD-R and
DVD-R media. 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 (services associated with
replication/duplication, not all replicators offer the following services;
authoring, programming, graphic design, printing and custom package
manufacturing) include graphic design, film output, printing, packaging,
computer programming, authoring, encoding, world wide shipping, credit card
capturing (we accept all major credit cards -VISA, M.C., DISC, Amex, Diners),
world wide (800) services via our (800) THIRDWAVE telephone number which is set
up to receive toll free calling from more then forty countries and
WWWInternetServices via our website which contains descriptive and pricing
information along with an ability of a customer to submit their order
information.
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Through direct sales and through agencies, we have been responsible
for the manufacturing of replicated media for hundreds of companies and
organizations. A representative selection of our customer base includes:
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 Defense, American Express, CMJ
Communications, AC Technology, Federal Aviation Administration, 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. Our sales staff writes these
orders and we have filled them using our relationship and pricing with our
outsource contractors. Our customers are using media that were manufactured by
our contractors, with our name on them. The majority of our customers have
ordered their products directly from us, although some orders came to us through
advertising agencies, programmers or authoring facilities.
We subcontract the various aspects of each job to our vendors and
charge a markup to our clients. We are able to charge higher fees since we
provide additional services to our customers which are generally not provided by
replicating companies. Project management and product integration are some of
the extra services we provide to our customers beyond what most replicators
provide. 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 lower sales due to
normal market fluctuation.
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
in anticipation of growth amounting to approximately a $5,703 increase; as well
as the installation and lease of telephone/computer servers and related
equipment which was an additional expense of $20,908. In addition, we were
involved in litigation which caused a major increase in our legal expenses of
$78,437. We ultimately prevailed in this litigation and received a settlement
of $150,000 in fiscal year 2000.
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FISCAL YEAR ENDED DECEMBER 31, 1999 VS. FISCAL YEAR ENDED DECEMBER 31, 1998
(UNAUDITED).
Revenues. Revenues increased by $489,469, or 40.8% from $708,570 in
the fiscal year ended December 31, 1998 to $1,198,039 in the fiscal year ended
December 31, 1999. The increased revenue resulted from higher sales due to
normal market fluctuation.
Cost of revenues. Cost of revenues increased from $453,764 in the
fiscal year ended December 31, 1998 to $806,667 in the fiscal year ended
December 31, 1999. The increased was a direct result of higher revenues. Cost
of revenues increased as a percent of revenues from 64.03% in 1998 to 67.33% in
1999. This increase was primarily due to higher costs for raw materials.
Sellling, general and administrative expenses. Selling general and
administrative expenses increased from $368,775, or 51.9% of revenues, in the
fiscal year ended December 31, 1998 to $571,161 or 47.6% of revenues, in the
fiscal year ended December 31, 1999. The increase was a result of higher volume
of sales.
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SIX MONTHS ENDED JUNE 30, 2001 VS. SIX MONTHS ENDED JUNE 30, 2000.
Revenues. Revenues decreased by $269,692, or 42% from $642,117 in the
six months ended June 30, 2000 to $372,425 in the six months ended June 30,
2001. The decreased revenue resulted from lower sales due to adverse market
conditions and a decreased sales staff.
Cost of revenues. Cost of revenues decreased from $475,456 in the six
months ended June 30, 2000 to $255,145 in the six months ended June 30, 2001.
The decrease was a direct result of lower revenues. Cost of revenues decreased
as a percent of revenues from 74.05% in 2000 to 68.51% in 2001. This increase
was primarily due to unusually higher costs for raw materials during the first
six months of 2000.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased in absolute numbers from $281,465 in the six
months ended June 30, 2000 to $269,990. However, as a percentage of revenues,
it increased from 43.83% for the six monthe ended June 30, 2000 to 72.50% of
revenues, in the six months ended June 30, 2001. The decrease in the absolite
number is due to lower revenues and the increase in the category as a percentage
of revenues is due to higher overhead costs.
LIQUIDITY
As of June 30, 2001, we had $7,042 cash on hand and a working capital
deficit of $533,284. 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 agreements to raise funds through the sale of securities. We
are currently contemplating to place a private placement in the fall/winter of
$1.5 million for up to 5,000,000 shares of our common stock with Adevam
Investments but 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.
We intend to use the proceeds of any additional funding to construct our
proposed replication facility. The cost of such a facility can be from
$2,000,000 to $8,000,000 depending what machinery is bought or leased. Based
upon our plan our proposed facility will cost approximately $3.8 million. At
this time no commitment has been made by us regarding the facility.
Our auditors have expressed concern over our ability to continue as a
"going concern". Due to the fact that we maintain no long term contracts with
our customers and are therefore unable to predict our cash flow. However, we
believe that - as we have historically done, we will use our revenues and loans
from management to continue operations. In the event we are unable to generate
additional cash flow, we will postpone the construction of the replicator
facility, not hire additional employees and, if necessary, 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. If absolutely necessary to insure our survival,
management will defer salary.
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We currently operate with negative cash flows, and given our
historical numbers, we believe we can survive for 12 months under these
conditions. However, our longer term viability is certainly questionable if we
do not dramatically increase sales or obtain outside funding. While we believe
that as a publicly traded company we will have greater access to sources of
funding, no assurance can be given that we will be able to raise additional
funds.
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.
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BUSINESS
BACKGROUND
D.W. Industries, Inc., a Delaware corporation was formed as a development stage
company on March 19, 1999. The company was formed to develop and manage a
webstore for children and juvenile fashions via a internet website. Subsequent
to the formation of the company while management was forming the website and
working to setup distribution, the market for small internet sites such as the
one envisioned by DW fell apart. Management determined that it would be, in
their opinion, not in the best interests of the company to pursue the original
business plan of the company, and D.W. industries, Inc. had been essentially
dormant until its merger with Third Wave Media Ltd. of California.
On February 23, 2001 the company agreed to a reverse merger with Third Wave
Media Ltd., a California Corporation. While D.W. Industries, Inc. was the
surviving corporation, following the close of the merger, the company will
continue the business of Third Wave Media Ltd. Since the company did not have
any operations prior to the merger and now it does the business of Third Wave,
this section will discuss the historic business of Third Wave.
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.
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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:
- - Higher storage capacity / longer play time;
- - Greater portability and ease of storage;
- - Higher quality presentation including crisper sounds and sharper video;
and
- - 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.
-12-
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%.
Competition has been strong in all segments of the replication markets, in
music, multimedia and video. No one company dominates a specific market sector.
It is our belief that within the music sector a company called DiscMakers
currently dominates the self-released artist market sub sector.
MARKET ANALYSIS
Based upon our experince in the marketplace, we believe that 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. As reported in "The Economist" on January 28, 1995 and in the 1995 edition
of the "Optical Publishing Industry Assessment" 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.
-13-
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.
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.
We currently market to the independent audio and video segments primarily. The
DVD-ROM market has not developed yet and we simply cannot compete for the game
console based disc manufacturing.
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. We replicate/duplicate Audio CD, Video CD,
CD-ROM, DVD-Video, DVD-ROM, DVD-Audio, CD-R, DVD-R, Audio Cassette and Video
Cassette. We do not duplicate ZIP or Jazz discs as clients or their graphic
designers only send them to us with art files on them.
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.
-14-
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 number of suppliers varies from time to time. Currently we use about
fifteen to twenty subcontractors. We have no written contracts with these
vendors and consider price charts and specific quotes a highly guarded secret
from the public. While many vendors are available, we have found that it is in
our best interest to purchase from a limited number of suppliers instead of
spreading our business amongst several suppliers. By this strategy we are often
able to get volume discounts they make available to selected good customers. In
2000, we had one replicator with whom we placed about 15%-19% of our disc
business. We did not have a contract with this plant and currently send them no
orders. Since January 2001, we have utilized six replication facilities and do
not have contracts with any of them. In the event of a disruption with any of
our current vendors, we believe we have demonstrated the abillity to switch to
any number of other vendors with virtually no disruption to the business.
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
The DVD and CD manufacturing process consists of three stages:
- - Pre-production,
- - Replication and Printing
- - 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.
-15-
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.
Post-production services primarily involve printing, packaging,
fulfillment and distribution, including confectionering, stickering,
cellophaning, shrink-wrapping, spine printing, bundling and other services.
Based upon advice of counsel, we do not believe that we require a
license to replicate, however our clients do if they are not the copyright
owners. Whenever we had doubts about this in the past, we asked our clients to
produce contracts or licenses to us to prove that they had the authority to
reproduce the discs. The law in this area is unsettled and it is possible that
in some jurisdictions or at some future time we could also face liability for
filling orders by our customers.
GROWTH OBJECTIVE
We plan to build, establish, and operate a high-visibility, quick-turn
Compact Disc manufacturing facility. The plant is designed to have a first year
capacity of 23 million units. Once our replication facility is built, it will
satisfy our needs for the manufacturing of optical discs such as CDs, DVDs,
CD-ROMs, etc. We will still have to subcontract for printing and cardboard/box
package manufacturing. We have not found a specific site for our proposed plant,
however we have identified the Hollywood area of Los Angeles to be the most
logical area for us. Most major record labels, film studios, television
networks and independent production and post-production companies are located
within a 10-mile radius.
-16-
Our strategy will be to:
- - offer standard and expedited service for the production of Audio, CD-ROM,
and DVD discs;
- - 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;
- - establish the company as a "boutique" facility that adheres to the highest
standards of quality;
- - allow recording artists, producers, graphic designers, and record label
executives to control their project from concept to finished product; and
- - 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. We intend
to assemble equipment for our facility which will represent the best of the
latest in the evolution of this manufacturing art. While at this time, we do
not have a specific comprehensive list of the equipment we intend to buy or
lease, we constantly monitor the replication business publications and attend
the replication business trade shows to stay current with the state-of-the-art
technology which is what we intend to purchase for the new facility.
Our proposed "boutique approach" is to provide specialized services
other facilities either do not offer or that they are not willing to do easily,
specifically the short run/quick turn approach that is our specialty. We
believe this will allow for maximum utilization of the installation and whatever
additional overtime and materials costs we incur, over and above a standard 12
hour operating day, will be more than made up by the previously noted premium
surcharge fees we will charge.
-17-
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, it is our understanding that Capitol
Records did not have mastering in its Illinois plant until 1994. We believe that
approximately 60% of the plants in California have no mastering capability. We
did business with several California replicating plants in 2000, none of which
had a mastering room at that time.
It is common to charge a client a mastering fee if (i) it falls bellow
a minimum quantity or (ii) it needs to be completed on a rush basis, one day
turnaround being the fastest. Since the client will be billed on both of these
charges, it can be argued that the smaller the order and the faster the order,
the more attractive the order for profit. This is a key consideration in our
growth model which is contrary to, and differentiates us from, the operating
philosophy of the entire industry, which is based on volume generated profits.
We believe our unique profit model 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. However, our plant is being designed with a
mastering suite, so we can make masters for plants that do not have mastering
capabilities. It will be unlikely that we will build enough lines in the
beginning to utilize the total output of our mastering suite. As a result, our
proposed plant is ideally suited to take outside mastering and supply metal
manufacturing parts within the industry to optimize our mastering output
capacities.
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:
- - these plants were built to run "mainstream" product, popular current titles
with press runs of 50,000 or more;
- - 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;
- - for the most part, these factories are located in rural areas east of the
Mississippi; and
- - 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
-18-
Accordingly, we believe that there is a need for such a 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. We believe that a
facility such as our's which offers quick turns along with an art department and
an in-house mastering suite will allow a project's creative staff to view and
listen to art proofs and test pressings. This will involve them more directly in
the process and will permit them to practically instantly approve or make
changes to their projects. In our proposed facility, 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. Large labels such as EMI/Capitol, AOL Warner and BMG
RCA own their own replication facilities. These plants obviously press their
"hit" albums. One CD line produces 25,000 CDs in a 24-hour period. An album that
needs pressing of 500,000 will need 10 lines for two days or 2 lines for ten
days. Their promotion department will need 2,500 to 5,000 copies for radio
stations and other media. Often the CD label will be different to the
commercially released albums as well. Their plants are not going to stop their
massive runs to run 2,500 to 5,000 copies for their promotion department. 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. By producing these special promotional runs for these labels, they are
able to dedicate their own lines to the production run without having to switch
back and forth.
-19-
We will also offer many processing advantages most other "short run"
manufacturers which is a plant that is willing and able to replicate product in
quantities that large plants are unwilling to replicate. These include:
- - in-house mastering;
- - in-house disc print design of the disc identifying artwork;
- - production of gold vs. aluminum CDs; laser etching on the CD for
serializing or issuing collector's editions;
- - fulfillment of special processing/delivery requirements; and
- - high resolution full color application of the disc identifying artwork.
We anticipate our facility will be built once we have succeeded in
raising the capital we are seeking in our upcoming private placement,
establishing the credit facilities we will require and making strategic
partnerships.
At this time we do not own a replication facility, a graphic design
house, a printing facility or a packaging house nor do we act as a distributor
to any clients. Many customers or prospects are used to dealing with several or
all of the above as their vendors. Utilizing our business philosophy known as
project management and product integration we fulfill all of the above functions
for them. We take over responsibility for coordinating all aspects of
production and interfacing with all the necessary vendors on behalf of our
customers thereby simplifying their work.
We solicit clients through "direct sales" which are orders placed
directly through our sales force. We also make sales through "agencies" which
are orders sold to the end user by an advertising agency, an authoring facility,
a computer programmer, a post production facility, a printer or any other entity
that can contribute something to a project but not have the ability to perform
all functions necessary to produce replicated material. Our "vendors" provide
the following functions: disc manufacturing, graphic design, printing, package
manufacturing, authoring, computer programming, label printing, shipping and
courier services. We can warehouse a client's order by not shipping all of it
from a replication facility or, if the customer prefers, we can ship the CD's
using UPS, FedEx, or other options at our disposal to destinations selected by
the customer, such as their distributor.
We have a website that describes the services we offer and our pricing
structure. We offer clients an opportunity to download and fill out a
preliminary sales form. The actual order form must be filled out by us and
signed by the client and therefore can only be faxed or mailed out. Generally
speaking, the website is the same as our catalog.
-20-
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 efforts 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 currently involved in any material legal proceedings. We
were involved in litigation with one of our vendors, a replication facility that
we had a non-compete agreement with. We prevailed in our suit and were awarded
$213,000. They filed an appeal. Our attorneys informed us that it might take
another year and $75,000 to fight the appeal. We settled the case by collecting
$150,000 in 2000. As long as we do not run our own facility, there is a
potential for this scenario to repeat.
Additionally, we are currently in a dispute with a certain vendor
pertaining to a replication facility's missing release dates, shipping our
client's products to unknown companies, replicating other people's music on our
client's discs, losing our client's artworks, not returning masters, and not
answering their telephones during business hours. This dispute is as yet
unresolved.
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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
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 which all released, distributed and sold records produced
by Mr. Melzer. 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, Third Wave Media Ltd. of California, 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
- - each person known by us to own beneficially more than five (5%) percent of
our outstanding common stock,
- - each of our officers and directors, who uses our address, and
- - all of our officers and directors as a group.
-22-
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
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. The term of the agreement is seven years from
January 1, 1997 through December 31, 2003. 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.
In the event of Mr. Melzer's disability, he is entitled to receive his base
salary until the Board terminates his employment. Furthermore, until such
termination of employment or his death, whichever occurs first, he is entitled
to 25% of his salary every month. Additionally, any portion of Mr. Melzer's
base salary and incentive compensation that are unpaid when due will bear a
minimal interest rate of 10% per year. This agreement is now our obligation.
-23-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1999 and 2000, our predecessor made advances in the aggregate
amount of $44,388 to Andrew Melzer, pursuant to the terms of a loan agreement
through which he is entitled to borrow up to $250,000. 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 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, if
any, which we may impose in the future, although we have no current plans to do
so, 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
-24-
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.
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.
-25-
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 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.
-26-
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 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.
SHARES BENEFICIALLY OWNED
NAME OF SELLING STOCKHOLDER BEFORE OFFERING OFFERING AFTER OFFERING
- --------------------------- --------------- --------- --------------
Abraham Garfinkel c/f Raphael Garfinkel 100 100 0
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 Jennifer Wengrofsky 100 100 0
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 Victoria Rosenfeld 100 100 0
Elizabeth Rosenfeld c/f Michael Rosenfeld 100 100 0
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 Yehuda Kamenetzky 100 100 0
Modecai Kamanetzky c/f Samuel Kamenetzky 100 100 0
-27-
Modecai Kamanetzky c/f Itta Kamenetzky 100 100 0
Modecai Kamanetzky c/f Pincus Kamenetzky 100 100 0
Modecai Kamanetzky c/f Basya Kamenetzky 100 100 0
Modecai Kamanetzky c/f Anna Kamenetzky 100 100 0
Modecai Kamanetzky c/f Zvi Kamenetzky 100 100 0
Modecai Kamanetzky c/f Ettil Kamenetzky 100 100 0
Modecai Kamanetzky c/f Nechama Kamenetzky 100 100 0
Modecai Kamanetzky c/f Hadassah Kamenetzky 100 100 0
Scott Fagan 100 100 0
Ileen Fagan 100 100 0
Ileen Fagan c/fZalman Fagan 100 100 0
Ileen Fagan c/f Naftali Fagan 100 100 0
Ileen Fagan c/f David Abikzer 100 100 0
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 Avigail Zaiman 100 100 0
Bina Zaiman 100 100 0
Naomi Schwartz c/f Ephraim Schwartz 100 100 0
Naomi Schwartz c/f Malka Schwartz 100 100 0
Naomi Schwartz c/f Raizel Schwartz 100 100 0
Naomi Schwartz 100 100 0
Alan Schwartz 100 100 0
Lewis Calderon 100 100 0
Lewis Calderon c/f Chaya Calderon 100 100 0
-28-
Lewis Calderon c/f Etti Calderon 100 100 0
Anne Vayner 100 100 0
Anne Vayner c/f Bridgette Vayner 100 100 0
Arieh Uzan 100 100 0
Barbra Uzan 100 100 0
Barbra Uzan c/f Yonatan Uzan 100 100 0
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 Yehuda Broderick 100 100 0
Chaia Broderick c/f Doniel Broderick 100 100 0
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
_______
(1) Holds option to purchase up to an additional 46,333 shares from each of
Stuart Katz and David Pomerantz.
-29-
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.
-30-
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, THERE MAY HAVE BEEN CHANGES IN OUR 5,000,000 SHARES OF COMMON STOCK
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 2
Special note regarding
forward-looking statements 5
Summary historical financial
Information 5
Plan of operations 6 THIRD WAVE MEDIA LTD.
Use of proceeds 10
Business 11
Management 22
Security ownership of certain
Beneficial owners and management 22
Executive compensation 23
Certain relationships Prospectus
and related transactions 24
Disclosure of commission position
on indemnification for securities
act liability 24
Description of securities 24
Plan of distribution 26
Selling stockholders 26
Legal matters 30
Experts 30
Available information 30
Index to financial statements F
_____________ , 2001
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, or an
aggregate of $24.95 for each. 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. Most of the purchasers were
family members and there were approximately only 22 individual purchaser groups.
The purchasers of these shares were all residents of either the State of New
York where appropriate state disclosure documents had been filed, the State of
Florida where the number of purchasers did not pass the threshold after which
only accredited investors are allowed to participate in such exempt offerings or
overseas residents. All of the purchasers of the shares were personally known to
management of the company.
On ___________ [prior to effective date], the Company issued 30,000,000
shares of common stock to Andrew Melzer in exchange for his shares of Third Wave
Media Ltd. This transaction was pursuant to the Agreement and Plan of
Reorganization. The issuance was exempt from registration pursuant to Section
4(1) inasmuch as Mr. Melzer was the sole recipient and it was a non-public
transaction. The issuance also qualified for exemption under Regulation D, Rule
506 as Mr. Melzer is a sophisticated investor and received a complete set of
disclosure documents including audited financial statements.
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
* Previously filed
** 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 LIMITED
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999 AND
FOR THE SIX MONTHS ENDED
JUNE 30, 2001 AND 2000 (UNAUDITED)
THIRD WAVE MEDIA LIMITED
CONTENTS
DECEMBER 31, 2000 AND JUNE 30, 2001 (UNAUDITED)
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3 - 4
Statements of Shareholder's Deficit 5
Statements of Cash Flows 6 - 7
Notes to Financial Statements 8 - 17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder
Third Wave Media Limited
We have audited the accompanying balance sheet of Third Wave Media Limited 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 Limited 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.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
March 23, 2001
THIRD WAVE MEDIA LIMITED
BALANCE SHEETS
DECEMBER 31, 2000 AND JUNE 30, 2001 (UNAUDITED)
-----------------------------------------------
ASSETS
June 30, December 31,
2001 2000
---------- --------------
(unaudited)
CURRENT ASSETS
Cash $ 7,042 $ 7,706
Accounts receivable 41,576 95,823
Inventory 10,901 8,084
---------- --------------
Total current assets 59,519 111,613
PROPERTY AND EQUIPMENT, net 42,619 52,540
---------- --------------
TOTAL ASSETS $ 102,138 $ 164,153
========== ==============
LIABILITIES AND SHAREHOLDER'S DEFICIT
CURRENT LIABILITIES
Current portion of note payable $ 4,931 $ 4,727
Current portion of capitalized lease obligations 5,831 4,252
Lines of credit 131,855 134,617
Accounts payable 271,991 257,009
Credit cards payable 116,005 98,985
Loan payable/advances to shareholder 53,494 -
Deferred revenue 5,212 10,363
Other 3,484 7,398
---------- --------------
Total current liabilities 592,803 517,351
NOTE PAYABLE, net of current portion 7,644 13,848
CAPITALIZED LEASE OBLIGATIONS, net of current portion 2,362 6,142
---------- --------------
Total liabilities 602,809 537,341
---------- --------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S DEFICIT
Common stock, $0.00001 par value
40,000,000 shares authorized
35,000,000 (unaudited) and 30,000,000 shares issued
and outstanding 350 300
Additional paid-in capital 59,517 16,567
Accumulated deficit (560,538) (390,055)
---------- --------------
Total shareholder's deficit (500,671) (373,188)
---------- --------------
TOTAL LIABILITIES AND SHAREHOLDER'S DEFICIT $ 102,138 $ 164,153
========== ==============
THIRD WAVE MEDIA LIMITED
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
For the Six Months Ended For the Year Ended
June 30, December 31,
------------------------- ------------------------
2001 2000 2000 1999
------------ ------------ ------------ ------------
(unaudited) (unaudited)
INCOME $ 372,425 $ 642,117 $ 1,102,719 $ 1,198,039
COST OF GOODS SOLD 255,145 475,456 757,270 806,667
------------ ------------ ------------ ------------
GROSS PROFIT 117,280 166,661 345,449 391,372
------------ ------------ ------------ ------------
OPERATING EXPENSES
Selling 36,937 41,093 86,586 111,103
General and administrative 233,053 240,372 490,278 460,058
------------ ------------ ------------ ------------
Total operating expenses 269,990 281,465 576,864 571,161
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (152,710) (114,804) (231,415) (179,789)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 26 - 2,843 6,009
Interest expense (16,999) (13,191) (26,790) (4,424)
Legal settlement - 150,000 150,000 -
------------ ------------ ------------ ------------
Total other income (expense) (16,973) 136,809 126,053 1,585
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (169,683) 22,005 (105,362) (178,204)
PROVISION FOR INCOME TAXES 800 800 800 800
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (170,483) $ 21,205 $ (106,162) $ (179,004)
============ ============ ============ ============
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE $ (0.005) $ 0.001 $ (0.004) $ (0.006)
============ ============ ============ ============
BASIC AND DILUTED WEIGHTED-AVERAGE
SHARES USED TO COMPUTE EARNINGS
(LOSS) PER SHARE 33,527,778 30,000,000 30,000,000 30,000,000
============ ============ ============ ============
THIRD WAVE MEDIA LIMITED
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
For the Six Months Ended For the Year Ended
June 30, December 31,
------------------------- ------------------------
2001 2000 2000 1999
------------ ----------- ------------ ------------
(unaudited) (unaudited)
UNAUDITED PRO FORMA INFORMATION
Income (loss) before provision for
income taxes $ (169,683) $ 22,005 $ (105,362) $ (178,204)
Income taxes assuming subchapter
"S" corporation election had not
been made 800 800 800 800
------------ ----------- ------------ ------------
NET INCOME (LOSS) $ (170,483) $ 21,205 $ (106,162) $ (179,004)
============ =========== ============ ============
PRO FORMA BASIC AND FULLY DILUTED
EARNINGS (LOSS) PER SHARE $ (0.005) $ 0.001 $ (0.004) $ (0.006)
============ =========== ============ ============
WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING 33,527,778 30,000,000 30,000,000 30,000,000
============ =========== ============ ============
THIRD WAVE MEDIA LIMITED
STATEMENTS OF SHAREHOLDER'S DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND
FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
Common Stock Additional
----------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
----------- ---------- --------- ---------- ----------
BALANCE, DECEMBER
31, 1998 30,000,000 $ 300 $ 700 $(104,889) $(103,889)
NET LOSS (179,004) (179,004)
----------- ---------- --------- ---------- ----------
BALANCE, DECEMBER
31, 1999 30,000,000 300 700 (283,893) (282,893)
FORGIVENESS OF ACCRUED
SALARIES BY
SHAREHOLDER 15,867 15,867
NET LOSS (106,162) (106,162)
----------- ---------- --------- ---------- ----------
BALANCE, DECEMBER
31, 2000 30,000,000 300 16,567 (390,055) (373,188)
CHANGES DUE TO
RECAPITALIZATION
(unaudited) 5,000,000 50 (50) -
FORGIVENESS OF
SALARIES BY
SHAREHOLDER 43,000 43,000
NET LOSS (unaudited) (170,483) (170,483)
----------- ---------- --------- ---------- ----------
BALANCE, JUNE 30,
2001 (UNAUDITED) 35,000,000 $ 350 $ 59,517 $(560,538) $(500,671)
=========== ========== ========= ========== ==========
THIRD WAVE MEDIA LIMITED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
For the Six Months Ended For the Year Ended
June 30, December 31,
------------------------- ------------------------
2001 2000 2000 1999
------------ --------- ---------- ----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (170,483) $ 21,205 $(106,162) $(179,004)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities
Depreciation 10,197 8,722 18,115 9,651
(Increase) decrease in
Accounts receivable 54,247 79,121 33,705 (104,872)
Other current assets (2,817) (4,291) 78 (13,016)
Increase (decrease) in
Accounts payable 14,982 (96,760) (14,996) 163,405
Other current liabilities (9,065) (26,925) (32,777) 25,315
Forgiveness of salaries 43,000 - - -
------------ --------- ---------- ----------
Net cash used in operating activities (59,939) (18,928) (102,037) (98,521)
------------ --------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (276) (2,429) (4,564) (15,577)
------------ --------- ---------- ----------
Net cash used in investing activities (276) (2,429) (4,564) (15,577)
------------ --------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) on lines of
credit (2,762) 12,530 37,082 84,414
Net payments on credit cards payable 17,020 24,118 54,588 33,891
Net proceeds (borrowings) from
related parties 53,494 (11,901) - 27,264
Payments on lease (2,201) - - -
Payments on note payable (6,000) (6,702) (7,194) (5,119)
------------ --------- ---------- ----------
Net cash provided by financing
activities 59,551 18,045 84,476 140,450
------------ --------- ---------- ----------
Net increase (decrease) in cash (664) (3,312) (22,125) 26,352
CASH, BEGINNING OF PERIOD 7,706 29,831 29,831 3,479
------------ --------- ---------- ----------
CASH, END OF PERIOD $ 7,042 $ 26,519 $ 7,706 $ 29,831
============ ========= ========== ==========
THIRD WAVE MEDIA LIMITED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
For the Six Months Ended For the Year Ended
June 30, December 31,
--------------------- ------------------
2001 2000 2000 1999
------------ ------- ------- ------
(unaudited) (unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
INTEREST PAID $ 16,999 $13,191 $26,790 $8,489
============ ======= ======= ======
INCOME TAXES PAID $ 8,000 $ 800 $ 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.
NOTE 1 - BUSINESS ACTIVITY
General
- -------
Third Wave Media Limited (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.
Merger
- ------
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 owns the majority of the combined companies' stock amounting to
35,000,000 shares of common stock, the merger was accounted for as a reverse
acquisition of DWI by the Company. DWI has insignificant assets and operations.
Accordingly, the transaction resulted in a recapitalization of the Company. All
per share data has been retroactively restated to reflect this transaction. No
pro forma disclosure has been made to show the effect of the merger as the
amounts are insignificant.
NOTE 2 - GOING CONCERN
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 as well as obtaining a loan from its President (see Note 8).
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.
NOTE 2 - GOING CONCERN (CONTINUED)
Basis of Presentation (Continued)
- -----------------------
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:
- - The Company plans to raise capital during the next year through a secondary
offering after the consummation of the merger (see Note 1).
- - The Company's sole shareholder has contributed $40,000 (unaudited) during
the first quarter of 2001.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
At December 31, 2000, inventory consisted only of finished goods.
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 and the six months ended June 30, 2001
and 2000 were $82,701, $101,977, $36,937 (unaudited), and $41,093 (unaudited),
respectively.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Earnings (Loss) per Share
- ----------------------------
The Company calculates earnings (loss) per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Basic
earnings (loss) per share is computed by dividing income (loss) available to
common shareholders by the weighted-average number of common shares outstanding.
Diluted earnings (loss) per share is computed similar to basic earnings (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.
There were no options or warrants outstanding at December 31, 2000 and June 30,
2001.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income
- ---------------------
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 period financial statements have been
reclassified to conform with the current period 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.
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.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements (Continued)
- --------------------------------------------
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.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations." This
statement addresses financial accounting and reporting for business combinations
and supersedes Accounting Principles Bulletin ("APB") Opinion No. 16, "Business
Combinations," and SFAS No. 38, "Accounting for Pre-Acquisition Contingencies of
Purchased Enterprises." All business combinations in the scope of this statement
are to be accounted for using one method, the purchase method. The provisions
of this statement apply to all business combinations initiated after June 30,
2001. Use of the pooling-of-interests method for those business combinations is
prohibited. This statement also applies to all business combinations accounted
for using the purchase method for which the date of acquisition is July 1, 2001
or later.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supersedes APB Opinion No. 17,
"Intangible Assets." It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. This statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. It is effective for fiscal years beginning after December
15, 2001. Early application is permitted for entities with fiscal years
beginning after March 15, 2001, provided that the first interim financial
statements have not been issued previously.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development, and/or the normal operation of long-lived assets, except for
certain obligations of lessees. This statement is not applicable to the
Company.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
June 30, December 31,
2001 2000
---------- ----------
(unaudited)
Automobiles $ 44,234 $ 44,234
Furniture and equipment 46,616 46,340
------ ------
90,850 90,574
Less accumulated depreciation 48,231 38,034
------ ------
TOTAL $ 42,619 $ 52,540
====== ======
Depreciation expense for the years ended December 31, 2000 and 1999 and the six
months ended June 30, 2001 and 2000 was $18,115, $9,651, $10,197 (unaudited),
and $8,722 (unaudited), respectively.
NOTE 5 - LINES OF CREDIT
As of December 31, 2000 and June 30, 2001, 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 (9.5% at December 31, 2000 and
6.75% at June 30, 2001). The credit line expires on October 1, 2001 and is
guaranteed by the shareholder. At December 31, 2000 and June 30, 2001, the
outstanding balance was $86,750 and $89,982 (unaudited), respectively.
As of December 31, 2000 and June 30, 2001, the Company also had a $50,000
revolving line of credit agreement with a bank. Borrowings on the line bear
interest at 15% per annum. The credit line expires on December 31, 2001 and is
guaranteed by the shareholder. At December 31, 2000 and June 30, 2001, the
outstanding balance was $47,867 and $41,873 (unaudited), respectively.
NOTE 6 - NOTE PAYABLE
Note payable consisted of the following:
June 30 December 31,
2001 2000
---------- ----------
(unaudited)
Note payable to a motor credit corporation, for
the purchase of an automobilecollateralized
by the automobile. Thenote is due in aggregate
monthly payments of $523, including interest at
8.5% per annum. Debt matures in January 2004. $ 12,575 $ 18,575
Less current portion 4,931 4,727
----- -----
LONG-TERM PORTION $ 7,644 $ 13,848
===== ======
Future maturities of the note payable at June 30, 2001 were as follows:
12 Months
Ending
June 30,
-------------
2002 $ 4,931
2003 5,367
2004 2,277
-----
TOTAL $ 12,575
======
NOTE 7 - CREDIT CARDS PAYABLE
The sole shareholder utilized several personal credit card lines for
Company-related expenses. The average borrowing rate at December 31, 2000 and
June 30, 2001 was 16% and 16% (unaudited), respectively, and there are no stated
maturity dates. At December 31, 2000 and June 30, 2001, the Company had an
aggregate of $98,985 and $116,005 (unaudited), respectively, due to the
shareholder.
NOTE 8 - LOAN PAYABLE/ADVANCES TO SHAREHOLDER
During the six months ended June 30, 2001, the Company's principal shareholder
loaned the Company $53,494. The loan is unsecured, bears interest at 6.75% per
annum, and is payable on demand.
NOTE 8 - LOAN PAYABLE/ADVANCES TO SHAREHOLDER (CONTINUED)
At December 31, 1999, the Company had advanced to its shareholder of $32,633.
During the year ended December 31, 2000, this advance was off-set with the
shareholder's salary owed to him at December 31, 2000, which aggregated to
$48,500. The amount of interest income related to the note receivable at
December 31, 2000 and 1999 was $0 and $10,567, respectively. The interest
receivable 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.
NOTE 9 - 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. In
addition, the Company leases office equipment under a non-cancelable capital
lease agreement, which expires in January 2003. Future minimum lease payments
at June 30, 2001 were as follows:
12 Months
Ending Operating Capital
June 30, Leases Leases
------------- ---------- ----------
2002 $ 28,080 $ 6,457
2003 4,680 2,362
----- -----
$ 32,760 8,819
======
Less amount representing interest 626
---
8,193
Less current portion 5,831
-----
LONG-TERM PORTION $ 2,362
=====
Rent expense was $25,324, $26,392, $15,408 (unaudited), and $13,001 (unaudited)
for the years ended December 31, 2000 and 1999 and the six months ended June 30,
2001 and 2000, respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Leases (Continued)
------
Property and equipment under capitalized leases and the related accumulated
depreciation were as follows:
June 30, December 31,
2001 2000
---------- ----------
(unaudited)
Property and equipment $ 16,011 $ 16,011
Less accumulated depreciation 6,404 3,202
----- -----
TOTAL $ 9,607 $ 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 will not
be less than the sum of $25,000 for each and every $500,000 increase in gross
sales for the prior calendar year.
In accordance with the employment agreement, the shareholder's salary expense
was $125,000 and $100,000 for the years ended December 31, 2000 and 1999,
respectively, and $75,000 (unaudited) for the six months ended June 30, 2001.
Since there was not an increase in sales of $500,000 from December 31, 1999 to
December 31, 2000, no incentive expense was incurred.
During the six months ended June 30, 2001, the Company's President waived
$43,000 (unaudited) in salaries. This amount was treated as additional paid-in
capital.
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 10 - SETTLEMENT INCOME
In April 2000, the Company received $150,000 from the settlement of a lawsuit
against a vendor, which had commenced in 1998.
NOTE 11 - 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.
As of June 30, 2001, 97% (unaudited) of the Company's accounts receivable were
from four (unaudited) customers. In addition, the Company had sales to two
(unaudited) customers, which represented 22% (unaudited) and 18% (unaudited) of
total revenues at June 30, 2001. As of June 30, 2000, 90% (unaudited) of the
Company's accounts receivable were from four (unaudited) customers. In
addition, the Company had sales to three (unaudited) customers, which
represented 51% (unaudited) of total revenues at June 30, 2000.
The Company had one major supplier, which represented 15%, 19%, 24% (unaudited),
and 28% (unaudited) of total purchases during the years ended December 31, 2000
and 1999 and the six months ended June 30, 2001 and 2000, respectively.
NOTE 12 - PRO FORMA INFORMATION (UNAUDITED)
For information purposes, the accompanying statements of operations for the
years ended December 31, 2000 and 1999 include the unaudited pro forma
adjustment for income taxes which would have been recorded if the Company had
been a "C" corporation, based on a combined federal and state income tax rate of
40%, which approximates the federal and state income tax rates in effect during
those periods.
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 31st day of August, 2001.
THIRD WAVE MEDIA LTD.
By:/s/Andrew Melzer
Andrew Melzer, President/CFO
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, CFO and August 31, 2001
Managing Director