As filed with the Securities and Exchange Commission on
September 8, 1997
Registration No. 33324511
============================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 25409
Amendment No. 1 to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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mrcdrom.com, inc.
(Exact Name of the Company as specified in Its Charter)
Delaware 5960 75-2699241
(State or Other (Primary Standard (IRS Employer
Jurisdiction) Industrial Identification No.)
of Incorporation Classification
or Organization) Code Number)
2415 Midway, Suite 115
Carrollton, Texas 75006
(972) 713-2609
(Address and Telephone number of Principal Executive Officers)
Ms. Jeanette Fitzgerald
17770 Preston Road
Dallas, Texas 75252
(972) 733-3005
(Address and Telephone number of Agent for Service)
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date
of this Registration Statement.
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 :{x }
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities
Act of 1933, check the following box and list the
Securities Act registration statement number of the
earlier registration statement for the same offering. { }
If this Form is a post-effective amendment filed pursuant to
Rule 462( c) under the Securities Act of 1933, check the
following box and list the Securities Act Registration
statement number of the earlier effective registration
statement for the same offering. { }
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. { }
CALCULATION OF REGISTRATION FEE
TITLE OF EACH AMOUNT PROPOSED PROPOSED AMOUNT
OF
CLASS TO BE MAXIMUM MAXIMUM
REGISTRATI
OF SECURITIES TO REGISTER OFFERING AGGREGATE ON FEE
BE REGISTERED ED PRICE PER OFFERING
SHARE (1) PRICE (1)
Common Stock,
$0.01 par
value per share 3,000,000 $4.00 $12,000,000 $3,636
(1) Estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457 (c).
The Company hereby amends this Registration Statement on
such date or dates as may be necessary to delay its
effective date until the Company 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.
=======================================================
PRELIMINARY PROSPECTUS
THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION
OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS
SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
mrcdrom.com, inc.
Up to 3,000,000 Shares of Common Stock
mrcdrom.com, inc. (the "Company") an Internet catalogue
Company which intends to offer over 10,000 computer software
titles by means of a site on the World Wide Web, and which
presently has very limited revenues, is offering for sale
up to 3,000,000 Shares of its Common Stock, par value $0.001
("Common Stock" or "Shares". The minimum offering by the
Company will be 62,500 shares ($250,000) and the maximum
offering will be 3,000,000 shares ($12,000,000). A minimum
investment of 50 Shares ($200) is required of each investor.
See "Description of Capital Stock" and "Plan of Distribution".
The Shares are being offered on a "maximum/minimum best
efforts" basis. Pending the payment for not less than 62,500
Shares, all proceeds of this offering will be deposited in a
non interest bearing escrow account with The Oaks Bank and
Trust Company, 4849 Greenville Avenue, Dallas, Texas 75206,
(214) 361-7400("Escrow Agent").
Prior to this offering, there has been no public market for
the Common Stock and the Company does not have any
arrangements, commitments or understanding with respect to the
creation of a public market for the Common Stock. Therefore,
there can be no assurance that a public market will develop
by reason of this offering. If such a market should develop,
there is no assurance that it will be sustained, or that it
will develop into a market greater than a limited market. It
is currently estimated that the initial public offering price
will be $4.00 per share. The initial public offering price for
the Shares has been determined solely by the Company, and does
not necessarily bear any direct relationship to the Company's
assets, operations, book or other established criteria of
value. See "Risk Factors", "Dilution" and "Plan of
Distribution".
It is intended that the Company's Stock will be traded on
the NASDAQ OTC Bulletin Board and an investor would likely
find it more difficult to dispose of the Shares, or to
obtain current quotations as to the value of the Shares. See
"RISK FACTORS-NO PUBLIC MARKET" and "PLAN OF DISTRIBUTION."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION FROM THE OFFERING PRICE.
FOR
INFORMATION CONCERNING THESE AND OTHER RISK FACTORS WHICH
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK
FACTORS" PAGE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price to Public Underwriting Proceeds to
Discount Company
Per Share $4.00 $ - $4.00
Total Minimum $250,000 $ - $200,000
Total Maximum $12,000,000 $ - $11,900,000
(4)
The offering of the Shares hereunder will terminate not
later than _______________, 1997 (the "Termination Date"),
provided that, in the sole discretion of the Company, the
offering period may be extended for an additional period not
to exceed 90 days. The Company has entered into an escrow
agreement with The Oaks Bank and Trust Company to hold any
proceeds from this offering in a non-interest bearing escrow
account subject to certain terms
and conditions. If subscriptions for the minimum number
of Shares offered hereby have not been received and accepted by
the Company by the Termination Date, no Shares will be sold,
and all funds held in escrow will be returned promptly to
investors without any interest accrued thereon. See
"Plan of Distribution".
(1) Shares are being offered for sale at $4.00 per Share.
A minimum investment of 50 Shares ($200) is required of
each investor, provided that the Company, in its
discretion, may reduce the size of the minimum investment.
Payment in full is due upon subscription. Stock purchase
funds will initially be held in a non-interest bearing
escrow account with The Oaks Bank and Trust Company. This
offering will terminate on or before a date 90 days from the
date of this prospectus unless the maximum amount of Shares
offered hereby is sold prior to such date or unless this
offering is otherwise extended at the discretion of the
Company for a period not to exceed 90 days. When
subscriptions for the minimum amount of Shares offered
hereby
have been received and accepted by the Company, such funds
will be released from escrow to the Company, and investors
whose subscriptions for Shares have been accepted by the
Company will be issued Common Stock certificates evidencing
the number of Shares acquired, and the initial escrow will
close. The payment for accepted subscriptions after the
closing of the escrow will be deposited directly into the
Company's accounts. See "Stock Purchase Information" and
"Plan of Distribution".
(2) The Shares are being offered by the Company on a
"maximum/minimum best efforts" basis. There is no underwriter
or independent broker-dealer involved in the distribution of
the Shares. The offering of the Shares will be made by the
Company's officers and directors without the use of an
underwriter or any independent broker-dealer. No underwriting
discounts or commissions will be paid to such officers and
directors. It is the intention of the Company to offer and
sell the Shares by contacting prospective investors through
appropriate newspaper and magazine and Internet advertisements
as well as through the use of the Internet to electronically
deliver copies of this Prospectus to the prospective investors.
See "Stock Purchase Information" and "Plan of Distribution".
(3) This amount is after deduction of offering and related
expenses incurred by the Company in this offering which are
estimated to be approximately $50,000 if a minimum is sold or
up to $100,000 if the maximum amount is sold and include
filing,printing, legal, electronic delivery and other
miscellaneous fees.
mrcdrom.com, inc.
2415 Midway, Suite 115
Carrollton, Texas 75006
Telephone (972) 713-2609
e-mail: investor@mrcdrom.com
Internet address: http://www.mrcdrom.com
SUBJECT TO COMPLETION DATED SEPTEMBER 8, 1997
The Company is not currently a reporting company under
the Securities Exchange Act of 1934, as amended. Upon
completion of the offering of the Shares, the Company intends
to deliver annual reports to the holders of its securities.
The annual reports will contain financial information that
has been examined and reported upon by an independent
certified public accountant.
mrcdrom is a trademark of the Company. This Prospectus
also includes product names and other trade names and
trademarks of the Company, as well as the names and product
names of companies other than the Company.
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STOCK PURCHASE INFORMATION
Shares are being offered for sale at $4.00 per Share. A
minimum investment of 50 Shares ($200) is required of
each investor,
provided that the Company, in its discretion, may reduce the
size of the minimum investment. Payment in full is due
upon
subscription. Stock purchase funds will initially be held in
a non-interest bearing escrow account with The Oaks Bank &
Trust Company. There are two methods by which
subscriptions and funds may be submitted. Firstly, investors
may purchase Shares by making checks payable to
"mrcdrom.com Escrow Account".
Purchasers should also complete a Stock Purchase Agreement in
the form included as Appendix A to this Prospectus. For
convenience, an actual Stock Purchase Agreement has been
included with this Prospectus. Additional copies of the
Stock Purchase Agreement
may be obtained by writing or calling the Company at
its executive office, 2415 Midway, Suite 115, Carrollton,
Texas 75006, telephone number (972) 713-2609, or via its World
Wide Web site on the Internet at http://www.mrcdrom.com, or
through e-mail communication directed to investor@mrcdrom.com.
All checks and Stock Purchase Agreements should be
forwarded to the Escrow Agent, The Oaks Bank and Trust
Company, 4849 Greenville Avenue, Dallas, Texas 75206.
Secondly, investors may pay for your stock by executing a
Stock Purchase Agreement online and paying by means of an
electronic funds transfer similar to paying for items for the
catalogue on-line. The funds can be automatically debited
from your checking account or credit card. No shares will
be issued until payment is confirmed.
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ELECTRONIC FORMAT OF PROSPECTUS
An electronic version of this Prospectus is available on
the Company's Internet World Wide Web site at
http://www.mrcdrom.com. The paper format of this Prospectus is
substantially the same as the electronic format of this
Prospectus.
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PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and
is qualified in its entirety by, the more detailed information
and financial statements and notes thereto appearing
elsewhere in this Prospectus.
THE COMPANY
mrcdrom.com, inc. was formed by Camelot Corporation
("Camelot") on March 27, 1997 and was established to offer
over 2,000 titles of computer software to the public by means
of a site on the World Wide Web ("Web"). The Company
is developing a new catalogue which will offer more than
10,000 titles. mrcdrom.com intends to offer its customers the
widest selection of one stop computer software shopping
through a secure site. A secure site uses encryption
technology to encode, decode and recode messages sent between
the site and the customer's computer. The
purpose
of the encryption is to prevent third parties from
intercepting and reading the messages sent between the
computers. Shoppers will be able to receive information
and purchase the latest computer software titles in addition
to many hard-to-find titles. mrcdrom.com will have unlimited
shelf space through relationships with vendors who will
supply titles as needed, without the accompanying expense
of a store front, and related personnel. Purchasing software
from mrcdrom.com is more convenient because on-line shopping
can occur 24 hours a day with no reason for shoppers to
leave the comfort of their own home.
mrcdrom.com began test marketing its Internet catalogue on
April 3, 1997. Through August 1, 1997, the Company, made no
marketing efforts and attained catalogue sales of $5,164.00.
On March 31, 1997, the Company acquired $511,428 of
computer software inventory, proprietary web design
software, the trademark "mrcdrom", cash, and other assets for
the issuance of 6,000,000 common shares from Camelot.
THE OFFERING
Common Stock Offered.......... 3,000,000 shares at a price of
$4.00 per share and a minimum
investor subscription of 50
shares ($200).
Common Stock to be Outstanding
after this 9,000,000 shares (1)(2)
offering.................
Use of Proceeds............ For working capital and other
general corporate purposes.
(1) Excludes 408,860 shares of Common Stock issuable
upon exercise of options outstanding at March 28, 1997
under the Company's Stock Option Plans at an exercise price
of $4.00 per share. See "Executive
Compensation" and "Directors
Compensation".
(2) Assumes maximum shares offered are sold.
RISK FACTORS
The securities offered hereby involve a high degree of risk.
The Company has just recently completed the web site through
which its operations will be conducted, thus this method of
operation has not been proven and may not be viable. Further
the methods of displaying product and collecting payment may
not be adequate if volume increases. The Company will be
operating in a new, not yet widely accepted market. Some
people who would otherwise be investors or customers will
not purchase because they do not trust computers. There can
be no assurance that the Company will have profitable
operations. Other risk factors include, but are not limited
to, new and rapidly changing technology, which may make the
Company's web site, inventory and other information obsolete
requiring expensive investments in hardware
and
software. Retail operations historically have seasonal
sales and there is specific seasonality for Internet usage.
Computer systems have a risk of a system failure thereby
effectively locking the door on customers ability to purchase,
view product and/or pay for the product. Further, the
Internet, itself, on which the site operates has suffered
brown outs and black outs. Though encryption technology is
changing what can be used for international activities is
still limited. Though the government is discussing making
changes to what encryption technology can be exported, at
the present time the exportable encryption technology is
limited. This means information sent encrypted by these
methods has a certain amount of risk that the information can
be read by third parties. Thus there are online commerce
security risks which affect the operations of the
Company. Control of the Company will not change even if all
shares offered are sold as Camelot will retain
approximately 67% of the outstanding shares if all
shares offered are sold. There currently is no market
and one may not develop for the shares offered hereby.
Further even if a market develops the price may be extremely
volatile. An investment in the securities offered hereby
should be considered only by investors who can afford the loss
of their entire investment.
Summary Financial Data
For the year ended April 30,
1997 1996 1995
Statement of Operations
Revenues $1,158,408 483,842 94,070
Net loss (2,464,292)(1,393,788)(167,233)
Net loss per share (.41) (.23) (.03)
Shares used in
calculation 6,000,000 6,000,000 6,000,000
Balance Sheet Data
As As
Adjusted Adjusted
Actual Minimum Maximum
(1) (2)
Cash $ 76,538 $276,538 $11,976,538
Working Capital 454,323 654,323 12,354,323
Total Assets 767,300 967,300 12,667,300
Total Shareholders 553,363 753,363 12,453,363
Equity
(1) To give effect to the sale of 62,500 Shares by the
Company in this offering less offering expenses of $50,000.
(2) To give effect to the sale of 3,000,000 Shares by the
Company in this offering less offering expenses of $100,000.
(3) Including subsidiaries operating six retail store units
(now closed) and software distribution to third parties (now
discontinued).
THE COMPANY
mrcdrom.com was founded on March 27, 1997 by Camelot to
offer over 2,000 titles of computer software to the public by
means of a site on the World Wide Web ("Web"). The
Company is developing
a new catalogue which will offer more than 10,000
titles.
mrcdrom.com intends to offer its customers the widest
selection of one stop computer software shopping through a
secure site. A secure site uses encryption technology to
encode, decode and recode messages sent between the site and
a customer's computer. The purpose of the encryption is to
prevent third parties from intercepting and reading the
messages sent between the computers. Shoppers will be able to
receive information and purchase the latest computer
software titles including many hard-to-find titles.
mrcdrom.com will have unlimited shelf space through
relationships with vendors who will supply titles as
needed, without the accompanying expense of a store front,
and related personnel. mrcdrom.com has an agreement
with a major
distributor, and in excess of 130 publishers which enable it
to expand its product line without carrying any
additional inventory. The distributor will provide direct
shipment to the customer if required by mrcdrom.com. The
publishers will require mrcdrom.com or subsidiaries to
purchase and ship to customers. Purchasing software from
mrcdrom.com is more convenient because on-line shopping can
occur 24 hours a day with no reason for
shoppers to leave the comfort of their own home.
mrcdrom.com began test marketing its Internet catalogue on
April 3, 1997. The Company is still refining the catalogue
and with no
marketing effort has had sales of $5,164 from April 3, 1997
until August 1, 1997. On March 31, 1997, it acquired $
511,428 of computer software inventory, proprietary web design
software, the trademark "mrcdrom", cash, and other assets for
the issuance of 6,000,000 common shares from Camelot.
Camelot also transferred all shares owned by it in related
retail and wholesale companies which became wholly owned
subsidiaries of the Company. As a result of these actions
by Camelot and the Company, the Company has had previous
operations but not in the Internet commerce market.
Management believes that mrcdrom.com is one of a few
Internet catalogues offering over 2,000 software titles
through its web site. The
Company is developing a new catalogue which is
intended to offer over 10,000 items. By offering customers
an authoritative selection of more than 10,000 software
titles, as well as competitive pricing and outstanding
customer service, mrcdrom.com believes it has the ability
to achieve the most recognized and used Internet
catalogue among online software retailers.
Customers can access the mrcdrom.com catalogue through the
web site http://www.mrcdrom.com. A customer can order
software, run searches in various categories, and can
check order status. Customers simply click on buttons to add
or remove software in their virtual shopping baskets up to
the time of making the final purchase decision. To execute an
order, customers click on the buy button and are prompted
to supply shipping and payment details through secure order
processing. Shipping is generally done through United
Parcel Service though the Company has the ability to ship
through the U. S. Post Office, or Federal Express, if
requested by a customer or otherwise required. Customers
provide payment to the Company prior to shipment to reduce
the Company's exposure to credit risk. The Company uses a
secure unaffiliated third party proprietary software
which obtains payment electronically, from the customers
checking account or credit card as determined by the
customer. This method permits the Company to confirm payment
prior to shipment thereby reducing any credit risk. A
customer has the option to return the product or dispute the
charge so not all risk is eliminated.
The market for computer software has grown dramatically in
recent years but online selling represents only a small
percentage. According to Forrester Research, a market research
firm, online sales of computer products are expected to
increase from $140 million to $2,105 million from 1996 to
2000.
Projected Growth in Online Commerce ($millions)
1996 1997 1998 1999 2000
Computer $140 323 701 1,228 2,105
Products
Total 518 1,138 2,371 3,990 6,579
Products
Source: Forrester Research, Inc., Cambridge, MA
Total U.S. sales of computer products through retailers grew
20.4 percent in 1996 to a record $28.2 billion, according to
Computer Retail Week, a trade publication. Software sales grew
16 percent to $4.5 billion worldwide, International Data
Corporation ("IDC") reported. The
Internet is an increasingly significant global
medium for communications, content and online commerce.
IDC
estimates that the number of Web users grew to approximately
35 million by the end of 1996 and will grow to approximately
163 million by 2000. The increasing functionality,
accessibility and overall usage of the Internet and online
services have made them an attractive commercial medium.
The Internet and other online services are evolving into a
unique sales and marketing channel, just as retail stores,
mail-order catalogues and television shopping have done.
Unlike traditional retail channels, online retailers do not
have the burdensome costs of managing and maintaining a
significant retail store infrastructure or the continuous
printing and mailing costs of catalogue marketing. Because
of the above advantages over traditional retailers, i.e.
ability to reach customers worldwide simply by being on the
Web and decreased overhead costs, online retailers have the
potential to build a large, global customer base quickly and
to achieve economic returns generally better than store
front retailers over the long term. An increasingly broad
base of products is being sold successfully online,
including computers, travel services, brokerage
services,
automobiles, music, and books. However, as the Internet is
a fairly new commercial medium there can be no assurance of
wide spread acceptance in the volumes necessary for the
Company to make a profit. Additionally, the technology both
in terms of the medium on which the products are sold and the
products themselves may have an adverse impact on the
Company's ability to sell enough product in a volume
sufficient to make a profit for the Company. The Company
will initially have the catalogue available in just English.
Management believes that a majority of those areas around the
world which use computers and the Internet speak English.
However, management anticipates the need to add
additional languages thereby reaching more of the globe
and increasing its potential customer base.
Camelot, which previously operated retail stores
selling primarily CD-ROM software, established the Company to
move out of what it considered to be a highly competitive,
saturated market to a new much larger market. The Company
believes that as Internet users are already computer users
they provide a ready market. Further, the economics of
having a wide range of titles without the overhead of real
estate costs and personnel to staff the stores offers a chance
for profits with a profit margin lower than traditional store
front retailing. These factors will allow the Company to reach
more potential customers at a lower cost per customer. The
provision of publisher descriptions offered in the catalogue
enables customers to make informed decisions.
The Company believes the Internet is a new means of
communication and is beginning to become an accepted
method of commerce. However, not all households and
businesses have access to the Internet nor have all
individuals who purchase software accepted the Internet for
making purchases, i.e. completing the sale. By
having the catalogue solely on the Internet, the Company
limits its reach to a specific consumer base i.e. computer
users who accept and use the Internet to locate and purchase
goods.
It is expected, that the initial growth rate of web "hits"
[i.e. visits to the site without necessarily any purchases]
will be relatively large with that rate stabilizing at a
lower growth rate. It is expected that a percentage of hits
on a web site will result in sales. As the number of
hits increases the opportunity for a purchase from the
public increases. For instance, if ten percent of all hits
result in a purchase, having 100 hits results in 10 purchases
but 1,000 hits results in 100 purchases. The
rate at which hits result in a purchase may
decrease as the number of hits increases so in the last
example 1,000 hits may only result in 90 purchases. An analogy
would be the mailing of marketing material results in
contacts by
potential customers. The increase in the number of pieces
mailed does not increase the percentage of potential customer
contacts. Thus Management believes that as the number of hits
increases the number of purchases will increase, even if the
percentage of conversions from hits to purchases decreases.
The Company was incorporated on March 27, 1997 in Delaware.
The Company was incorporated by Camelot Corporation and is
presently a wholly owned subsidiary. Further Camelot
exchanged the common shares
it owned in Mr. CD-ROM Stores, Inc. and Camelot
Distributing, Inc. and two other inactive companies for
preferred shares of mrcdrom.com, inc. The Company's
headquarters are located at 2415 Midway, Suite 115,
Carrollton, Texas 75006. Its telephone number is (972) 713-
2609. Information other than the Prospectus contained on the
Company's web site will not be deemed to be a part of this
Prospectus but is available for review at
http://www.mrcdrom.com. mrcdrom is a trademark of the
Company and all other trademarks are the respective trademarks
of their owners.
RISK FACTORS
In addition to the other information contained in
this Prospectus, Investors should carefully consider the
following risk factors before making an investment decision
concerning the common stock.
LIMITED OPERATING HISTORY The Company has no prior history
in the Internet commerce field upon which investors may
evaluate the Company's performance.
To date the Company has engaged in
primarily organization efforts in relation to its
Internet operations. Though it has previously operated in the
retail area through its subsidiaries, the Company believes
Internet commerce is substantially different from operating a
store front. The
Company has had no material sales from the Internet
catalogue. The Company's prospects must be considered in light
of the risks, expenses and difficulties frequently encountered
by companies in their early stage of new market
development, particularly companies in new and rapidly
evolving markets such as online commerce. Such risks for
the Company include, but are not limited to, an evolving
and unpredictable business model and the management of growth.
To address these risks, the Company must, among other
things, obtain, maintain and increase its customer base,
implement and successfully execute its business
and
marketing strategy, continue to develop and upgrade
its
technology and transaction-processing systems, improve its
web site, provide superior customer service and order
fulfillment, respond to competitive developments, and
attract, retain and motivate qualified personnel. There can
be no assurance that the Company will be successful in
addressing such risks, and the failure to do so could
have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
The Company believes that its success will depend to large
extent on its ability to (a) extend its brand position, (b)
provide its customers with outstanding value and a
superior shopping experience, and (c) achieve sufficient
sales volume to realize
economies of scale. Accordingly, the Company intends to
invest in site development and technology and operating
infrastructure development. The Company also intends to
offer attractive pricing programs, which will reduce its
gross margins. As a result, the Company believes that it
will incur operating losses for the next twelve (12) months.
The Company expects to use a portion of the net proceeds
of this offering to fund its operating losses. If such
net proceeds, together with cash generated by
operations, are insufficient to fund future
operating losses, the Company may be required to raise
additional funds. There can be no
assurance that such financing will be
available in amounts or on terms acceptable to the Company, if
at all.
POTENTIAL FLUCUATIONS IN QUARTERLY OPERATING RESULTS;
SEASONALITY As a company beginning operations in a new and
rapidly changing market, the Company is unable to
accurately forecast its
revenues. The Company's current and future expense levels
are
based largely on its investment plans and estimates of
future revenues. Sales and operating generally depend on the
volume of, timing of and ability to fulfill orders
received, which are difficult to forecast without any
historical trends. Further in an industry such as software
new developments come at a rapid pace resulting in even
historical comparisons being of limited value. The
Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues
in relation to the Company's planned expenditures would
have an immediate adverse effect on the Company's business,
prospects, financial condition and results of operation.
Further, as a strategic response to changes in the
competitive environment, the Company may from time to time
make certain pricing, service or marketing decisions that
could have a material adverse effect on its business,
prospects, financial condition and results
of
operations. See "Business - Competition."
The Company expects to experience significant fluctuations in
its future quarterly operating results due to a variety of
factors, many of which are outside the Company's control.
Factors that may adversely effect the Company's quarterly
operating results include (a) the Company's ability to retain
existing customers, attract new customers at a steady rate
and maintain customer satisfaction, (b) the Company's
ability to manage inventory and fulfillment operations and
maintain gross margins, (c) the announcement or
introduction of new sites, services and products by the
Company and its competitors, (d) price competition or higher
wholesale prices in the industry, (e) the level of use of the
internet and online services and increasing consumer
acceptance of the Internet and other online services for
the purchase of consumer products such as those offered
by the Company (f) the Company's ability to upgrade and
develop its systems and infrastructure and attract new
personnel in a timely and effective manner, (g) the level of
traffic on the Company's web site (h) technical difficulties,
system downtime or Internet brownouts, (i) the amount and
timing of operating costs and capital expenditures
relating to expansion of the Company's business,
operations and infrastructure, (j) the number of popular
software titles introduced, (k) the level of merchandise
returns, (l) governmental regulation and (m) general
economic conditions specific to the Internet, online
commerce and the software industry in total.
The Company expects seasonality in its sales. Traditional
retail sales are greatest in the fourth quarter of the calendar
year and software sales, in particular, seem to increase in
the first quarter of the
calendar year. Further, Internet usage
historically drops during the summer months. As the
operations of the Company in this market are new, there is
no historical data to suggest the affect of seasonality on
the revenues and profits of the Company.
RISK OF CAPACITY CONSTRAINTS; SYSTEM DEVELOPMENT RISKS In
order to maximize the revenues from the sale of low margin
products, high volumes must be achieved on the web site.
Thus, the satisfactory performance, reliability and
availability of the Company's web
site, transaction-processing systems, and network
infrastructure are critical to the Company's reputation
and ability to attract and retain customers and maintain
adequate customer service levels. Any system interruptions
that result in the unavailability of the web site or reduced
order fulfillment performance would reduce the volume of
goods sold and the attractiveness of the Company's product
and service offering. Web sites experience periodic system
interruptions, which the Company believes will occur from
time to time. Any substantial increase in the volume of
traffic on the Company's web site or the number of orders
place by customers will require the Company to expand and
upgrade further its technology, transactionprocessing
systems and network infrastructure. There can be no
assurance that the Company will be able to accurately project
the rate or timing to increases, if any, in the use of its web
site or timely expand and upgrade its systems and
infrastructure to accommodate such increases.
The Company uses systems for its web site developed by
the Company's product development personnel, and software
developed
by outside non affiliated vendor for the secured transactions.
There can be no assurance that the software developed
internally will perform satisfactorily at the volume levels
that are required to attain profits for the Company. The
Company has expended salaries and license fees for both the
internal and external software. Further, there can be no
assurance that the Company will be able to modify either
software to adapt to the increased volume if it occurs or
any other standards that may later be adopted in order for
online commerce to occur on the Internet.
RISK OF SYSTEM FAILURE; SINGLE SITE AND ORDER INTERFACE
The
Company's success, in particular its ability to
successfully
receive and fulfill orders and provide high-quality
customer service, largely depends on the efficient and
uninterrupted operation of
its computer and communications hardware systems.
Its computer and communications hardware system was acquired
from Camelot as part of Camelot's subscription for Company
common shares.
Substantially all of the Company's computer and
communications hardware is located at a single leased facility
in Carrollton, Texas. The Company's system could experience
failure due to flood, power loss, telecommunications failure,
break-ins, earthquake, and similar events. The Company
presently has redundant
systems however, they are located at the same site.
Despite the implementation of network security measures by
the Company, its servers are vulnerable to computer viruses,
physical or electronic break-ins, and similar disruptions,
which could lead to interruptions, delays, loss of data or
the inability to accept and fulfill customer orders. The
occurrence of any of the foregoing risks
could have a material adverse effect on the
Company's business, prospects, financial condition and results
of operations.
RISK OF MANAGING POTENTIAL GROWTH; NEW MANAGEMENT TEAM;
LIMITED SENIOR MANAGEMENT
RESOURCES The Company anticipates that
significant expansion of its operations will be required
to address potential growth in its customer base and
market
opportunities. This expansion will place a significant strain
on the Company's management, operational and financial
resources. To manage the expected growth of its operations, the
Company will be required to improve existing and implement
new transactionprocessing, operational and financial
systems, procedures and controls, and to train and manage its
employee base. The Company also will be required to expand its
finance, administrative, and operations staff. Further, the
Company's management will be required to maintain and
expand its relationships with various distributors and
publishers, freight companies, other web sites and other
web service providers, the Internet and other online service
providers and other third parties necessary to the
Company's business. There can be no assurance that the
Company's current and planned personnel, systems, procedures
and controls will be adequate to support the Company's future
operations, that management will be able to hire, train,
motivate and exploit existing and potential market
opportunities. If the Company is unable to manage growth
effectively, its business, prospects, financial condition and
results of operations will be materially adversely affected.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
RISK OF DEPENDENCE ON CONTINUED GROWTH OF ONLINE COMMERCE
The
Company's future revenues and any future profits
are
substantially dependent upon the widespread acceptance and use
of the Internet and other online services as an effective
medium of commerce by consumers. Rapid growth in the use of
and interest in the Internet, the web and online
services is a recent phenomenon, and there can be no
assurance that acceptance and use will continue to develop or
that a sufficiently broad base of consumers will adopt, and
continue to use the Internet and other online services.
Products over the Internet are subject to a high level of
uncertainty and there exist few proven services and products.
The Company relies on consumers who have historically used
traditional means of commerce to purchase merchandise. For
the Company to be successful, these consumers must accept
and utilize novel ways of conducting business and
exchanging
information.
In addition, the Internet and other online services may not
be accepted as a viable commercial marketplace for a
number of reasons, including potentially inadequate
development of the necessary network infrastructure or
delayed development of
enabling technologies and performance improvements. To
the
extent that the Internet and other online services continue
to experience significant growth in the number of users,
their frequency of use or an increase in their bandwidth
requirements, there can be no assurance that the
infrastructure for the Internet and online services will be
able to support the demands placed upon them. In addition,
the Internet or other online services could lose their
viability due to delays in the development or adoption of
new standards and protocols required to handle increased
levels of Internet activity, or due to increased
governmental regulation. Changes in or insufficient
availability of telecommunications services to support
the
Internet or other online services also could result in
slower response times and adversely affect usage of the
Internet and online series generally and mrcdrom.com in
particular. If use of the Internet and other online services
does not continue to grow or grows more slowly than expected,
if the infrastructure for the Internet and other online
services does not effectively support growth that may
occur, or if the Internet and other online services do
not become a viable commercial marketplace, the Company's
business, prospects, financial condition and results of
operations would be materially adversely affected.
RISK OF RAPID TECHNOLOGICAL CHANGE To remain competitive,
the Company must continue to enhance and improve the
responsiveness, functionality and features of the mrcdrom.com
online catalogue. The Internet and the online commerce
industry are characterized by rapid technological change,
changes in user and customer requirements and preferences,
frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and
practices that could render the Company's existing web site
and proprietary technology and systems
obsolete. The Company's success will depend, in part, on
its ability to license technologies useful in its business,
enhance its existing services, develop new services and
technology that address the increasingly sophisticated and
varied needs of its prospective customers, and respond to
technological advances and emerging industry standards and
practices on a cost-effective and timely basis. The
development of web site and other proprietary technology
entails significant technical and business risks. The
development of web site and other proprietary technology
entails significant technical and business risks. There
can be no assurance that the Company will successfully use
new technologies effectively or emerging industry standards.
If the Company is unable, for technical, legal, financial
or other reasons, to adapt in a timely
manner in response to changing market
conditions or customer requirements, its business,
prospects, financial condition and results of operations would
be materially adversely affected. See "Business-Technology".
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
The
Company's performance is substantially dependent on the
continued services and on the performance of its senior
management and other key personnel,
particularly Daniel Wettreich, Chief
Executive Officer and Chairman of the Board. The
Company's performance also depends on the Company's ability to
retain and motivate its other officers and key employees. The
loss of the services of any of its executive officers or
other key employees could have a material adverse effect on
the Company's business, prospects, financial condition and
results of operations. The
Company does not have long-term employment agreements with any
of its key personnel, other than Mr. Wettreich, and
maintains no "key person" life insurance policies. The
Company's future success also depends on its ability to
identify, attract, hire, train, retain and motivate other
highly skilled technical, managerial, merchandising,
marketing and customer service
personnel. Competition for such personnel is intense, and
there can be no assurance that the Company will be able to
successfully attract, assimilate or retain sufficiently
qualified personnel. The failure to retain and attract
the necessary technical, managerial, merchandising,
marketing and customer service
personnel could have a material adverse effect on the
Company's business, prospects, financial condition and
results of
operations. See "Business - Employees" and "Management".
ONLINE COMMERCE SECURITY RISKS A significant barrier to
online commerce and communications is the secure
transmission of
confidential information over public networks. The
Company relies on encryption and authentication technology
licensed from third parties to
provide the security and authentication
necessary to effect secure transmission to
confidential
information, such as customer credit card and checking
account numbers. There can be no assurance that advances in
computer capabilities, new discoveries in the field of
cryptography, or other events or developments will not result
in a compromise or breach of the algorithms used by the
Company to protect customer transaction data. If any such
compromise of the Company's security were to occur, it
could have a material adverse effect on the Company's
reputation, business, prospects, financial
condition and results of operations. A party who is able
to circumvent the Company's security measures could
misappropriate proprietary information or cause interruptions
in the Company's operations. The
Company may be required to expend significant
capital and other resources to protect against such
security breaches or to alleviate problems caused by such
breaches. Concerns over the security of the Internet and
other online services generally, and the web in particular,
especially as a means of conducting commercial transactions.
To the extent that activities of the Company or third-party
contractors involve the storage and transmission of
proprietary information, such as credit card or checking
account numbers, security breaches could damage the Company's
reputation and expose the Company to a risk of loss or
litigation and possible liability. There can be no assurance
that the Company's security measures will prevent security
breaches or that failure to prevent such security
breaches will not have a material adverse effect on the
Company's business, prospects, financial condition and
results of
operations. See "Business-Technology".
RISK OF COMPETITION The online commerce market,
particularly
over the Internet, is new, rapidly evolving and
intensely competitive, which competition the Company expects
to intensify in the future. Barriers to entry are minimal,
and current and new competitors can launch new sites at a
relatively low cost. In addition, the software industry is
intensely competitive. The Company will compete with a
variety of other companies. These competitors include
a) various other online vendors and
publishers; b) indirect online commerce providers like AOL
and Microsoft who offer software of their own and others; c)
retail vendors of software such as CompUSA, Computer City, and
Best Buy.
The Company believes that the principal competitive factors
in its market are brand recognition, selection, customer
service, convenience, price, accessibility, reliability and
speed of fulfillment. The Company's competitors have
longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial,
marketing and other resources than the Company. In
addition, online retailers may be acquired by, receive
investments from or enter into other commercial
relationships with larger, well-established and well-
financed companies as use of the Internet and other
online services increases. Certain of the Company's
competitors may be able to secure merchandise from
publishers on more favorable terms, devote greater
resources to marketing and promotional campaigns, adopt more
aggressive pricing or inventory availability policies and
devote substantially more resources to web site and systems
development than the Company. Increased competition may
result in reduced operating margins, loss of market
share and a diminished brand franchise. There can be no
assurance that the Company will be able to compete
successfully against current and future competitors, and
competitive pressures faced by the Company may have a
material adverse effect on the Company's business,
prospects, financial condition and results of
operation. Further, as a strategic response to changes in
the
competitive environment, the Company may from time to time
make certain pricing, service or marketing decisions or
acquisitions that could have a material adverse effect on
its business, prospects, financial condition and results of
operations. New
technologies and the expansion of existing technologies
may increase the competitive pressures on the Company. For
example, companies that control access to transactions
through network access or web browsers could promote the
Company's competitors or charge the Company a substantial fee
for inclusion.
RISK RELATING TO RELIANCE ON SUPPLIERS The Company
carries
minimal inventory and relies to a large extent on
rapid fulfillment from vendors. The Company has no long-term
contracts or arrangements with any of its vendors that
guarantee the availability of merchandise, the
continuation of particular payment terms or the extension of
credit limits. The Company, through one of its subsidiaries,
has an relationship with Ingram Micro a major distributor.
The relationship permits purchasing, but does not include a
long term contract. If this relationship were terminated the
Company would be severely impacted in its ability to
fulfill orders. In most cases the relationship is with a
distributor and not the publisher of the software. There can
be no assurance that the Company's current vendors will
continue to sell merchandise to the Company on current terms
or that the Company will be able to establish new or extend
current vendor relationships to ensure acquisition of
merchandise in a timely and efficient manner and on
acceptable commercial terms. If the Company were unable to
develop and maintain relationships with vendors that would
allow it to obtain sufficient quantities of merchandise on
acceptable commercial terms, its business, prospects,
financial condition and results of operation would be
materially adversely affect. See "Business - Warehousing
and Fulfillment".
RISKS ASSOCIATED WITH ENTRY INTO NEW BUSINESS AREAS The
Company may choose to expand its operations by developing new
web sites, promoting new or complementary products or
sales formats, expanding its market presence through
relationships with third parties. In addition, the Company
may pursue the acquisition of new or complementary business,
products or technologies, although it has no present
understanding, commitments or agreements with respect to any
material acquisitions or investments. There can be no
assurance that the Company would be able to expand its
efforts and operations in a cost-effective or timely manner
or that any such efforts would increase overall market
acceptance. Furthermore, any new business or web site launched
by the Company that has not been favorably received by
consumers could damage the Company's reputation or the
mrcdrom.com brand. Expansion of the Company's operations
in this manner would also require significant additional
expenses and development, operations and editorial resources
and would strain the Company's management, financial and
operational resources. The lack of market acceptance of
such efforts or the Company's inability to generate
satisfactory revenues from such expanded services or products
to offset their cost would have a material adverse effect on
the Company's business, prospects, financial condition and
results of operations.
RISKS OF TRADEMARKS AND PROPRIETARY RIGHTS INFRINGEMENT.
The
Company regards its copyrights, service marks, trademarks,
trade dress, trade secrets and similar intellectual
property as
critical to its success, and relies on trademark and
copyright law, trade secret protection and confidentiality
and/or license agreements with its employees, customers,
partners and others to protect its proprietary rights. The
Company currently copyrights its catalogue and owns the
trademark "mrcdrom.com". Applications have been made for
international filings of mrcdrom.com. There can be no
assurance that such international filings will result in
granted trademarks. The Company pursues the registration of
its trademarks and service marks in the U.S. and
internationally, and has applied for the registration of
certain of its trademarks and service marks. Effective
trademark, service mark, copyright and trade secret protection
may not be available in every country in which the Company's
products and services are made available online. The Company
expects that it may license in the future, certain of its
proprietary rights or reputation, which could have a material
adverse effect on the Company's business, prospects,
financial condition and results of operations. There can be
no assurance that the steps taken by the Company to protect
its proprietary rights will be adequate or that third parties
will not infringe or misappropriate the Company's
copyrights,
trademarks, trade dress and similar proprietary rights. In
addition, there can be assurance that other parties will
not assert infringement claims against the Company. The
Company is not currently aware of any legal proceedings
pending against it. See "Business - Intellectual Property".
RISK OF CHANGING GOVERNMENTAL REGULATION AND LEGAL
UNCERTAINTIES The Company is not currently subject to direct
regulation by a domestic or foreign governmental agency,
other than regulations applicable to business generally,
and laws or regulations directly applicable to access to
online commerce. However, due to the increasing popularity
and use of the Internet and other online services, it is
possible that a number of laws and regulations may be
adopted with respect to the Internet or other online services
covering issues such as user privacy, pricing, content,
copyrights, distribution and characteristics and quality of
products and services. Furthermore, the growth and
development of the market for online commerce may prompt
calls for more stringent consumer protection laws that may
impose additional burdens on those companies conducting
business online. The adoption of any additional laws or
regulations may decrease the growth of the Internet or other
online services, which could, in turn, decrease the demand
of the Company's products and services and increase the
Company's cost of doing business, or otherwise have an
adverse effect on the Company's business, prospects,
financial condition and results of
operations.
Moreover, the applicability to the Internet and other
online services of existing laws in various jurisdictions
governing issues such as property ownership, sales tax, libel
and personal privacy is uncertain and may take years to
resolve. Any such new legislation or regulation, the
application of laws and regulations from jurisdictions
whose laws do not currently apply to the Company's business,
or the application of existing laws and regulations to the
Internet and other online services could have a material
adverse effect on the Company's business, prospects,
financial condition and results of operations.
RISK OF SALES TAX COLLECTION UNCERTAINTIES The Company does
not currently collect sales or other similar taxes in
respect of shipments of goods into states other than Texas.
However, one or more states may seek to impose sales tax
collection obligations on out-of-state companies such as the
Company which engage in online commerce. In addition, any
new operation in states outside Texas could subject
shipments into such state sales taxes. A
successful assertion by one or more state or any
foreign county that the Company should collect sales or
other similar taxes on the sale of merchandise could have a
material adverse effect on the Company's business, prospects,
financial condition and results of operations.
RISK OF CONCENTRATED CONTROL OF THE COMPANY Immediately
upon completion of this offering the outstanding Common Stock
will be beneficially owned approximately 67% by Camelot
Corporation ("Camelot"). Camelot will hold an aggregate of
approximately 67% of the outstanding voting power of the
Company immediately upon completion of this offering. As a
result, upon completion of this offering, Camelot will be
able to (a) elect, or defeat the election of, any of the
Company's directors, (b) amend or prevent amendment of the
Company's certificate of Incorporation or Bylaws, or (c)
effect or prevent a merger, sale of assets or other
corporate transaction, and the Company public stockholders, for
so long as they hold less than 50% of the outstanding voting
power of the Company, will not be able to control the outcome
of such transactions. The extent of ownership by Camelot may
have the effect of preventing a change in control of the
Company or discouraging a potential acquirer from making a
tender offer or otherwise attempting to obtain control of the
Company, which in turn could have an adverse effect on the
market price of the Common Stock. See "Management,"
"Certain Transactions" and "Principal Stockholder".
NO PUBLIC MARKET Prior to this offering there has been no
public market for the Company's Common Stock and there
can be no assurance that an active public market for the
Common Stock will develop, or if developed, be sustained
after the offering, or that the market price of the Common
Stock will not decline below the initial public offering price.
See "Plan of Distribution".
POSSIBLE VOLATILITY OF STOCK PRICE The trading price of
the Common Stock is likely to be highly volatile and could be
subject to wide fluctuations in response to factors such as
actual or anticipated variations
in quarterly operating results,
announcements or technological innovations, new sales formats
or new products or services by the Company or its
competitors, changes in financial estimates by securities
analysts, conditions or trends in the Internet and online
commerce industries, changes in the market valuations of
other Internet, online service or retail companies,
announcements by the Company of significant acquisitions,
strategic partnerships, joint ventures or capital
commitments, additions or departures of key personnel, sales
of common stock and many other factors many of which are beyond
the Company's control. In addition, the stock market in
general, and the market for Internet-related and technology
companies in particular, has experienced extreme price and
volume fluctuations that have often been unrelated or
disproportionate to the operating performance of such
companies.
RISK RELATED TO NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Company's common stock
in the public market after this offering could
adversely affect
prevailing market prices for the Common Stock. The
3,000,000 shares of Common Stock offered hereby will be
freely tradable without restriction in the public market.
Taking into account restrictions imposed by the Securities
Act of 1933, as amended (the "Securities Act"), and rules
promulgated by the Securities and Exchange Commission (the
"Commission") thereunder the number of additional shares that
will be available for sale in the public market, subject
in some cases to the volume and other restrictions of Rule
144 under the Securities Act, will be as follows:
approximately 6,000,000 additional shares will be eligible
for sale beginning March 28, 1998. In addition, the Company
intends to file a registration statement on Form S-8 under
the Securities Act approximately 180 days after the date of
this Prospectus to register approximately 500,000 shares
of Common Stock reserved for issuance under the Company Stock
Option Plans. See "Description of Capital Stock" and "Shares
Eligible
for Future Sale".
ANTITAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS Upon
the closing of this offering, the Company's Board of Directors
will have the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or
action by the stockholders. The
rights of holders of Common Stock will be subject to, and may
be adversely affected by the rights of the holders of any
Preferred Stock that may be issued in the future. The
issuance of Preferred Stock may have the effect of delaying,
deferring or
preventing a change in control of the Company without
further action by the stockholders and may adversely affect
the voting and other rights of the holders of Common Stock.
The Company has no present plans to issue shares of Preferred
Stock. Further, certain provisions of the Company's
Certificate of Incorporation and Bylaws and Delaware law could
delay or make more difficult a merger, tender offer or proxy
contest involving the Company. See "Description of Capital
Stock".
MANAGEMENT HAS BROAD DISCRETION IN USE OF PROCEEDS The
Company has not designated any specific use for the net
proceeds from the sale by the Company of the Common Stock
offered hereby.
The
Company expects to use the net proceeds for general
corporate purposes, including working capital to fund
anticipated operating losses, marketing expenses and capital
expenditures. A portion of net proceeds may also be used
to acquire or invest in complementary businesses, products
and technologies. From time to time, in the ordinary course
of business, the Company expects to evaluate potential
acquisitions or such business, products or technologies.
However, the Company has no present understandings,
commitments, or agreements with respect to any material
acquisition or investment. Accordingly, management will have
significant flexibility in applying the net proceeds of this
offering. The failure of management to apply such
funds effectively could have a material adverse effect on the
Company's business, prospects, financial condition and
results
of
operations. See "Use of Proceeds".
IMMEDIATE AND SUBSTANTIAL DILUTION The initial public
offering price is substantially higher than the book value per
outstanding share of Common Stock. Accordingly, purchasers in
this offering will suffer an immediate and substantial
dilution of $3.882 per share
and $2.62 per share (minimum and maximum offering
respectively) in the net tangible book value of the Common
Stock from the initial public offering price. Additional
dilution will occur upon exercise of outstanding options
granted by the Company. See "Dilution".
ARBITRARY DETERMINATION OF OFFERING PRICE The offering price
of the Common Shares was arbitrarily determined by the
Company, and may not be indicative of the market price of the
Common Shares after
this offering. Among the factors considered in
establishing the offering price were the proceeds to be raised
by the Company, the percentage of ownership to be held by
investors in this offering, the experience of Company
management and the current market conditions in the over-
the counter securities market. Accordingly, there is no
relationship whatsoever between the offering price and the
assets, earnings or book value of the Company, or any other
recognized criteria of value. See "Plan of Distribution".
ESCROW OF INVESTORS' FUNDS PENDING SALE OF MINIMUM NUMBER
OF SHARES OFFERED Under the terms of this offering, the
Company is offering the Shares on a "maximum/minimum, best
efforts" basis. If the minimum number of Shares is sold, the
remaining 2,937,500 Shares will be offered on a "best efforts"
basis until all the shares are sold or the offering period
ends, whichever occurs first, unless the offering is
terminated earlier by the Company. Therefore, no commitment
exists by anyone to purchase all or any part of the Shares
offered hereby. Consequently, as there is no assurance that
the minimum number of Shares being offered will be sold,
subscribers' funds may be escrowed for as long as 90 days (or
a period of 180 days if the offering period is extended by
the Company). Investors, therefore will not have the use of
any funds paid for the purchase of Shares during the offering
period. In the event that the minimum number of Shares offered
hereby are
not sold within the offering period, subscribers' funds will
then be promptly returned without interest, and the offering
will be withdrawn. See "Plan of Distribution".
RISKS OF LOW-PRICED STOCK; POSSIBLE EFFECT OF "PENNY STOCK"
RULES OF LIQUIDITY OF THE COMPANY'S SECURITIES There can
be no assurance that the Company's Common Stock will not
become subject to certain rules and regulations promulgated
by the Commission pursuant to the Securities Enforcement
Remedies and Penny Stock Reform Act of 1990 (the "Penny
Stock Rules"). Such rules and regulations impose strict
sales practice requirements on brokerdealers who sell such
securities to persons other than established customers
and certain "accredited investors."
For
transactions covered by Penny Stock Rules, a broker-dealer
must make a special suitability determination for the
purchaser and must have received the purchase's written
consent for the transaction prior to sale. Consequently,
such rule may affect the ability of broker-dealers to sell
the Company's securities and may affect the ability of
purchasers in this offering to sell any of the Shares acquired
hereby in the Secondary market.
The Penny Stock Rules generally define a "penny stock" to be
any security not listed on an exchange or not
authorized for quotation on the NASDAQ Stock Market and has a
market price (as therein defined) less than $5.00 per share
or an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transactions by broker-dealers
involving a penny stock (unless exempt), the rules
require delivery, prior to a transaction in a penny
stock, of a risk disclosure document relating to the
market for penny stocks. Disclosure is also required to be
made about compensation payable to both the brokerdealer and
the registered representative and current quotations for the
securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stocks.
The foregoing penny stock restrictions will not apply to
the Company's securities if such securities are listed on an
exchange or quoted on the Nasdaq Stock Market and have certain
price and volume information provided on a current and
continuing basis or if the Company meets certain minimum
net tangible asset or average revenue criteria. The Company
will trade on the Nasdaq OTC Bulletin Board and there can
be no assurance that the Company's securities will qualify
for exemption from the Penny Stock Rules. In any event, even
if the Company's securities were exempt from the Penny Stock
Rules, they would remain subject to Section 15(h)(6) of the
Exchange Act, which gives the Commission the authority to
prohibit any person that is engaged in unlawful conduct while
participating in a distribution of a penny stock from
associating with a broker-dealer or participating in a
distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If the
Company's Shares were subject to the rules on penny stocks,
the market liquidity for the Company's Shares could be
severely adversely affected.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the
minimum number of shares offered (62,500) will be $200,000 and
from the sale of the maximum number of shares offered
(3,000,000) will be $11,900,000 at an initial public
offering price of $4.00 per share and after deducting the
estimated offering expenses of approximately $50,000 if the
minimum shares offered are sold or $100,000 if the maximum
shares offered are sold.
The principal purposes of this offering are to obtain
additional
capital, to create a public market for the Common Stock,
to facilitate future access by the Company to public equity
markets, and to provide increased visibility and
credibility in a marketplace where many of the Company's
current and potential competitors are or will be publicly
held companies. The Company intends to use the proceeds
of this offering for general corporate purposes. The
Company has no specific plan for the net proceeds of the
offering. The Company expects to use the net proceeds for
general corporate purposes, including
working
capital to fund anticipated operating losses, marketing
expenses and capital expenditures. If there are funds left, a
portion of net proceeds may also be used to acquire
or invest in
complementary businesses, products and technologies. From
time to time, in the ordinary course of business, the Company
expects to evaluate potential acquisitions of such business,
products or technologies. However, the Company has no present
understanding, commitments or agreements with respect to
any material
acquisitions or investments. Pending use of the net proceeds
for the above purposes, the Company intends to invest such
funds in short-term, interest-bearing, investment-grade
securities. See
"Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources".
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on
its capital stock. The Company currently intends to
retain any future earnings of its business, and
therefore does not
anticipate paying any cash dividends in the foreseeable future.
DILUTION
As of April 30, 1997, there were 6,000,000 Shares of
the Company's Common Stock outstanding having a net tangible
book value of $ 516,249 or approximately $ 0.086 per
share. Net
tangible book value per share is the net tangible assets of
the Company (total assets less total liabilities and
intangible assets) divided by the number of shares of
Common Stock outstanding. Upon completion of this offering,
there will be 6,062,500 shares of the Company's Common Stock
outstanding having a net tangible book value of
approximately $ 716,249 or approximately $0.118 per share if
the minimum number of Shares is sold; and 9,000,000 shares
of the Company's Common Stock outstanding having a net
tangible book value of approximately $12,416,249 or
approximately $ 1.38 per share if the maximum number of
Shares is sold. The net tangible book value of each share
will have increased by approximately $ 0.032 per share to
present stockholders, and decreased by approximately $ 3.882
per share (a dilution of 97%) to public investors if the
minimum number of Shares is sold, and the net tangible book
value of each share will have increased by approximately $1.29
per share to the present stockholders and decreased by
approximately $2.62 per share (a dilution of 66%) to public
investors if the maximum number of Shares is sold.
Dilution represents the difference between the public
offering price and the net tangible book value per share
immediately after the completion of the public offering.
Dilution arises mainly from the arbitrary decision by the
Company as to the offering price per share. Dilution of
the value of the Shares purchased by the public in this
offering will also be due, in part, to the lower book value of
the shares presently outstanding and in part to expenses which
are, or may be, incurred in connection with the offering of
the Shares. The following table illustrates this
dilution:
ASSUMING MINIMUM NUMBER OF SHARES SOLD
Price Paid Per Share by Present Shareholders $0.11
Public Offering Price Per Share $4.00
Net Tangible Book Value Per Share,
Before Offering $0.086
Increase Per Share Attributable to Payment
by Public Investors $0.032
Net Tangible Book Value Per Share,
After Offering $0.118
Dilution to Public Investors Per Share $3.882
ASSUMING MAXIMUM NUMBER OF SHARES SOLD
Price Paid Per Share by Present Shareholders $0.11
Public Offering Price Per Share $4.00
Net Tangible Book Value Per Share,
Before Offering $0.086
Increase Per Share Attributable to Payment
by Public Investors $1.29
Net Tangible Book Value Per Share,
After Offering $1.38
Dilution to Public Investors Per Share $2.62
BUSINESS
All statements, trend analysis and other information contained
in this Prospectus relative to markets for the Company's
products and trends in net sales, gross margin and
anticipated expense levels, as well as other statements
including words such as "anticipate", "believe", "plan",
"estimate", "expect", and "intend" and other similar
expressions, constitute forwardlooking statements. These
forward-looking statements are subject to business and
economic risks, and the Company's actual results of operations
may differ materially from those contained in the forward-
looking statements. No investor should participate in this
offering unless such investor can afford a complete loss of
their entire investment.
mrcdrom.com, inc. was established by Camelot to offer an
Internet software catalogue. Camelot presently owns all the
outstanding shares of the Company. Camelot has
restructured its former
retail operations and mrcdrom.com, inc. is the owner of all
the outstanding shares of Mr. CD-ROM Stores, Inc. which
previously operated retail stores selling primarily CD-ROM
Software in Dallas, Texas. These stores were closed as
management felt the market could not support an upscale
software retailer. The
Company will offer its customers value through innovative use
of technology, broad selection, high-quality content, a high
level of customer service, and competitive pricing. As an
online software catalogue, mrcdrom.com, has virtually
unlimited online shelf space and can offer a large selection
through an efficient search and retrieval interface. The
current catalogue offers approximately 2,000 titles and the
Company is developing a new catalogue which will offer more
than 10,000 titles. Beyond the benefits of selection,
purchasing software from mrcdrom.com is more convenient than
shopping in a physical store because online shopping can be
done 24 hours a day and does not require a trip to a store.
Furthermore, mrcdrom.com's limited investment in
inventory, lack of investment in expensive retail real estate
and reduced personnel requirements give it meaningful
structural economic advantages relative to traditional
retailers. See "Risk Factors - Limited Operating History".
Inventory owned as a result of the closing of the retail
stores was transferred to mrcdrom.com, inc. Publisher
relationships developed for the Mr. CD-ROM Stores will be
continued for mrcdrom.com, inc. through Camelot Distributing,
Inc.
INDUSTRY BACKGROUND
Growth of the Internet and Online Commerce
The Internet is an increasingly significant global medium
of communications, content and online commerce. International
Data Corporation ("IDC") estimates that the number of Web
users grew to approximately 35 million by the end of 1996 and
will grow to approximately 163 million by 2000. Growth in
Internet usage has been fueled by a number of factors,
including the large and growing installed base of personal
computers in the workplace and home, advances in the
performance and speed of personal computers and modems,
improvements in network infrastructure, easier and cheaper
access to the Internet and increased awareness of the
Internet among businesses and consumers.
The increasing functionality, accessibility and overall usage
of the Internet and online services have made them an
attractive commercial medium. The Internet and other online
services are evolving into a unique sales and marketing
channel, just as retail stores, mail-order catalogs and
television shopping have done. Online retailers can interact
directly with customers by frequently adjusting their
featured selections, editorial insights, shopping
interfaces, pricing and visual presentations. The minimal cost
to publish on the web, the ability to reach and serve a large
and global group of customers electronically from a central
location, and the potential for personalized low-cost
customer interaction provide additional economic benefits
for online retailers. Unlike traditional retail channels,
online retailers do not have the burdensome costs of
managing and maintaining a significant retail store
infrastructure or the continuous printing and mailing costs
of catalogue marketing. Because of these advantages over
traditional retailers, online retailers have the potential
to build a large, global customer base quickly and to achieve
superior economic returns over the long term. An
increasingly broad base of products is being sold successfully
online, including computers, travel services, brokerage
services, automobiles and music, and books. IDC
estimates that the total value of goods and services
purchased over the Web grew from $318 million in 1995, to an
annualized run rate of $5.4 billion in December 1996, and will
increase to $95 billion in 2000.
Traditional Software Retailing
Several characteristics of traditional software retailing
have created inefficiencies for all participants. Physical
storebased retailers must make significant investments in
inventory, real estate and personnel for each retail location.
This capital and real estate intensive business model, among
other things, limits the amount of inventory that can be
economically carried in any location. The average store
limits customer selection and available retail shelf space
for the majority of published titles. In
addition, software publishers typically offer
generous rights of return to their customers and, as a
result, effectively bear the risk of their customers' demand
forecasting
which encourages overordering. As a result, returns are
high, creating substantial additional costs. Finally,
traditional retailers cannot easily obtain demographic
and behavioral personalized services.
THE MRCDROM.COM, INC. SOLUTION
mrcdrom.com, inc. was founded to capitalize on the
opportunity for online retailing. The Company believes that
the software industry is particularly suited to online
retailing for many compelling reasons. An online retailer
has virtually unlimited online shelf space limited only
by its connections with suppliers, and can offer customers
a large selection through an efficient search and retrieval
interface. This is particularly valuable in the software
market because the extraordinary number of different items
precludes even the largest physical store from economically
stocking more than a small minority of available titles. In
addition, by serving a large and global market
through centralized distribution and operations, online
retailers can realize significant structural cost advantages
relative to traditional retailers. Furthermore, unlike
with clothing or other personal products, consumers can
make educated purchase decisions using online information.
In addition, the demographic overlap between frequent buyers
and Internet users is high. Further, online selling
promises significant benefits for publishers because
centralized distribution is believed to greatly reduce
product returns and because consumers preference information
can be efficiently captured and utilized. By offering
customers an authoritative selection of titles, as well as
competitive pricing and outstanding customer service,
mrcdrom.com, inc. believes it can achieve a preeminent
position among online retailers. Key components of the
mrcdrom.com solution include:
Selection. mrcdrom.com will offer a breadth of
selection that would be economically impractical to stock in
a physical store or to include in a mail-order catalogue.
mrcdrom.com
currently offers more than 2,000 titles through a
consistent search and retrieval interface and is designing a
catalogue which will offer over 10,000 items.
Online Economics. As an online seller, mrcdrom.com
will enjoy economic advantages relative to traditional
retailers. As a result of its online business model
and centralized
distribution, mrcdrom.com can offer significantly
improved
inventory turnover, and eliminates investment in expensive
retail real estate and dramatically reduced personnel
requirements. Further, mrcdrom.com intends to serve a global
market through centralized operations.
Customer Convenience. Beyond the benefits of
selection, purchasing from mrcdrom.com is more convenient than
shopping in a physical store because the mrcdrom.com catalogue
is open 24 hours per day and shopping does not require a
trip to a store. Software can be shipped directly to the
customers home or office. The Company believes that customers
may buy more software because they have more hours to shop,
can act immediately on a purchase impulse and can locate
software that is hard to find. Because the mrcdrom.com
online catalogue has a global reach, it can deliver an
extremely broad selection to customers in rural,
international or other locations that cannot support large-
scale physical stores. At the present time it is limited
to only English. International sales may be limited by
U.S. Export restrictions, publisher limitations and
compatibility problems between the software and computer
systems. Payment is required in U.S. funds. Any disputes
cannot be readily settled in the
courts and thus these sales have an element of risk. However,
as the Company requires payment prior to shipping there is less
risk to the Company
Compelling Content. mrcdrom.com will deliver
relevant, informative and other content, including reviews.
In addition, it will offer reviews by other users, and third-
party reviewers who can provide diverse and often stimulative
points of view to inform and entertain customers while
shopping.
Personalized Service. Over time, the Company can
accumulate substantial behavior and preference information that
will allow it to provide increasingly rich value-added
services to its customers and suppliers.
Benefits to Vendors. mrcdrom.com methods of
online retailing offer substantial benefits to publishers.
Because mrcdrom.com incorporates centralized distribution and
orders most products based on actual customer demand, it
believes that its returns to publishers and wholesalers will
be significantly below industry norms. The Company believes
its market approach may increase sales of many second- and
third-tier titles that are not typically stocked in physical
stores. In addition, the Company believes it will be able to
help publishers target customers for particular product
offerings.
STRATEGY
mrcdrom.com's objective is to be the leading online retailer
of computer software. The Company plans to attain this goal
through the following key strategies:
Create Customer Loyalty. The Company's goal is to be
a leading source for software by delivering to its customers
the benefits of online commerce. mrcdrom.com offers its
customers value through innovative use of technology, broad
selection, highquality shopping experience through
informative and editorial content, as well as simple and
efficient navigation and search capabilities.
Build Brand Recognition. The Company's strategy is
to promote, advertise and increase its brand equity and
visibility through excellent service and a variety of
marketing and
promotional techniques, including advertising on leading
Web sites and
other media, conducting an ongoing public relations
campaign and developing business alliances and
partnerships. This will require a large expenditure of
funds that will initially come from this offering and the
amount of funds raised here will be a large factor in
determining the amount of advertising conducted.
Create a Superior Economic Model. Because it is
not burdened by the costs or legacy of physical store
network and related personnel, the Company believes it
has an inherent economic advantage relative to
traditional retailers. The
Company's goal is to capitalize on this advantage by
aggressively driving revenue growth to achieve economies of
scale and by incorporating technological advances throughout
its business.
Maintain Technology. A state-of-the-art
interactive
commerce platform is necessary to enhance the
mrcdrom.com service, and leverage the unique
characteristics of online retailing. mrcdrom.com will
continue to expend efforts developing, acquiring and
implementing technology-driven enhancements to its Web site
and transaction-processing systems. Among other
technology objectives, the Company intends to make
the user interface as intuitive, engaging and fast as
possible and continuously improve the efficiency of its
fulfillment activities.
Build Vendor Relationships. The Company will seek
to utilize the structural advantages inherent in its business
model to build strong relationships with its vendors. The
demographic and purchasing data that will be accumulated by
the Company will enable it to help publishers target
customers for particular product offering. Through
targeted marketing and virtually unlimited online shelf
space, the Company can offer publishers enhanced promotional
opportunities for new titles and second- and third-tier titles.
Pursue Incremental Revenue. The Company intends to
leverage its brand, online commerce experience, operating
infrastructure and customer base to broaden its presence and
develop additional revenue opportunities. The Company will
consider developing incremental revenue through affiliated or
related sites, related product areas, geographic
expansion or acquisition of complementary businesses,
products or technologies. Finally, the Company's customer
demographic and substantial site traffic create a
meaningful opportunity for advertising sales.
THE MRCDROM.COM ONLINE CATALOGUE
Customers open the mrcdrom.com catalogue through the
Company's Web site and, in addition to ordering software,
can conduct targeted searches, browse from among highlighted
selections and participate in promotions and check order
status.
Browsing. The mrcdrom.com site offers visitors a variety
of highlighted subject areas and special features. As a
customer proceeds through the catalogue, he or she
encounters featured software. Clicking with the mouse on any
of these images pulls up more information about the
featured software, as well as button which, if clicked on,
adds the software to the customer's order.
Searching. A primary feature of mrcdrom.com is
its interactive, searchable catalogue. The Company
provides a selection of search tools to find software
based on title, subject, keyword, or publishers. The
Company licenses some of its catalogue and other information
from third parties.
Online Community. By creating an online community,
the Company hopes to provide customers with an inviting and
familiar experience that will encourage them to return
frequently to the site and to interact with other users,
and that will promote loyalty and repeat purchase.
Ordering. To purchase customers simply click on a button
to add items to their virtual shopping baskets. Customers can
add and subtract from their shopping baskets as they browse,
prior to making a final purchase decision, just as in a
physical store. To execute orders, customers click on the
buy button and are prompted to
supply shipping and payment details. This
information is stored on the Company's secure server and need
not be provided again by repeat registered customers. The
personal password allows repeat customers to automatically
access their previously provided shipping and payment
information. The
payment is electronically submitted using a customers
checking account or charge cards. There is a small fee
paid by the Company per transaction. The availability of
funds or ability to charge is confirmed prior to shipment.
The Company's system automatically confirms each order by
e-mail to the customer
within minutes after the order is placed and advises customers
by e-mail shortly after orders are shipped.
Availability and Fulfillment. Some of the Company's
titles are available for immediate shipment, others are
available for shipment within 48 to 72 hours and the
remainder of titles are generally available within four to
six weeks. Customers select from a variety of delivery
options, including overnight and various international
shipping options. The Company uses e-mail to notify
customers of order status under various conditions. The
Company seeks to provide rapid and reliable fulfillment of
customer orders, and intends to continue to improve
its
availability and fulfillment in the future. The Company
offers shipment via UPS, U.S. Mail or Federal Express at the
customer option with a charge paid by the customer separate and
apart from the product charges.
MARKETING AND PROMOTION
mrcdrom.com's marketing strategy is designed to strengthen
the mrcdrom.com brand name, increase customer traffic
to the
mrcdrom.com catalogue, build strong customer loyalty,
maximize repeat purchases and develop incremental revenue
opportunities.
mrcdrom.com intends to build customer loyalty by creative
and flexible merchandising. The Internet allows rapid and
effective experimentation and analysis, and instant user
feedback which the Company intends to incorporate in its
merchandising. The Company seeks to increase the number of
visitors that make a purchase, to encourage repeat visits and
purchases and to extend customer retention. Loyal,
satisfied customers also generate word-ofmouth advertising
and awareness, and are able to reach thousands of other
customers and potential customers because of the reach of
online communications.
The Company intends to place advertisements on various
highprofile and high-traffic Web sites. These advertisements
usually will take the form of banners that encourage readers
to click through directly to the mrcdrom.com web site.
CUSTOMER SERVICE
The Company believes that its ability to establish and
maintain long-term relationships with its customers and
encourage repeat visits and purchases depends, in part, on
the strength of its customer support and service operations
and staff. The Company has sought support personnel who have
experience in this field. Though the Company has presently
limited the size of this department, if the revenues of
the Company increase and the customers service demands
increase the Company will expand the customer service
department with experienced customer service representatives.
mrcdrom.com offers e-mail addresses to enable customers to
request information and to encourage feedback and suggestions.
The Company's customer support and service personnel
are responsible for handling general
customer
inquiries, answering customer questions about the
ordering
process, and investigating the status of orders, shipments
and payments. Customers who are reluctant to enter their
credit card or checking account numbers through the Web site
may call or email in their orders.
WAREHOUSING AND FULFILLMENT
The Company sources product from a network of distributors
and publishers, however its primary source is one major
distributor. The Company carries minimal inventory and
relies to a large
extent on rapid fulfillment from major distributors
and
wholesalers which carry a broad selection of titles. As
the Company relies on outside vendors there is the risk the
Company cannot fill an order(s) thereby losing customers
resulting in word of mouth which can be very damaging on the
Internet.
TECHNOLOGY
The Company uses a set of applications for accepting
and validating customer orders, organizing, placing and
managing orders with the Company's warehouse or suppliers as
appropriate, receiving product and assigning it to
customer orders, and managing shipment
to customers based on various ordering
criteria. The Company's transaction-processing systems
manage the process of accepting, authorizing and charging
customer credit cards or checking accounts. In addition, the
Company's systems allow it to maintain ongoing
automated e-mail communications with customers at a
negligible incremental cost. These systems automate many
routine communications entirely, facilitate management or
customer e-mail inquiries and allow customers to check
order status, change their e-mail address or password. As the
Company has only been operating for less that six (6)
months its systems have not been heavily tested "in
action". As such there is the risk that increased volume
may
uncover problems in the system.
Systems administrators and managers monitor and operate
the Company's Web site, network operations and transaction-
processing systems. The
continued uninterrupted operation of the Company's
Web site and transaction-processing systems is essential to
its business, and it is the job of the operations staff to
ensure, to the greatest extent possible, the reliability of
the Company's Web site and transaction-processing systems.
The Company uses the services of Camelot Internet Access
Services, Inc. an affiliated company to obtain connectivity
to the Internet over dedicated T1 lines.
The Company's transaction-processing system is not
integrated with the remainder of the Company's accounting
and financial systems. As a
result, the Company's current management
information system, which produces requested operational
reports, is inefficient with respect to traditional
accounting-oriented reporting and requires a significant
amount of manual effort to prepare information for financial
and accounting reporting. See
"Risk Factors - Risk Capacity Constraints; System
Development Risks," "-Risk of System Failure; Single
Site and Order Interface" and "- Online Commerce Security
Risks".
INTELLECTUAL PROPERTY
The Company regards its copyrights, service marks,
trademarks, trade dress, trade secrets and similar
intellectual property as critical to its success, and
customers, partners and others to protect its proprietary
rights. The Company pursues the
registration of its trademarks and service marks in the U.S.
and internationally, and has obtained registered
trademarks.
Effective trademark, service mark, copyright and trade
secret protection may not be available in every county in
which the Company's products and services are made available
online. The
Company expects that it may license in the future, certain of
its proprietary rights, such as trademarks or copyrighted
material, to third parties. While the Company attempts to
ensure that the quality of its brand is maintained by such
licensees, there can be no assurance that such licensees
will not take actions that might materially adversely affect
the value of the Company's proprietary rights or
reputation, which could have a material
adverse affect on the Company's business, prospects,
financial condition and results of operations. There can be
no assurance that the steps taken by the Company to protect
its proprietary rights will be adequate or that third parties
will not infringe or misappropriate the Company's
copyrights, trademarks, trade dress and similar proprietary
rights. In addition, there can be no assurance that other
parties will not assert infringement claims against the
Company. The Company expects to be subject to legal
proceedings and claims from time to time in the ordinary
course of its business, including claims of alleged
infringement of the trademarks and other intellectual property
rights of third parties by the Company and its licensees.
Such claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.
COMPETITION
The online commerce market, particularly over the Internet,
is new, rapidly evolving and intensely competitive,
which competition the Company expects to intensify in the
future. Barriers to entry are minimal, and current and new
competitors can launch new sites at a relatively low cost. In
addition, the retail software industry is intensely
competitive. The Company currently or potentially competes
with a variety of other companies. These competitors
include (i) various online sellers and vendors of other
information-based products, (ii) a number of indirect
competitors that specialize in online commerce or derive a
substantial portion of their revenues from online commerce,
including AOL and Microsoft Corporation, through which
other stores may offer products, and (iii) retail
vendors with significant brand awareness, sales volume and
customer.
The Company believes that the principal competitive factors
in its market are brand recognition, selection,
personalized services, convenience, price, accessibility,
customer service, quality of search tools, quality of
editorial and other site content and reliability and speed
of fulfillment. Many of the Company's current and potential
competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater
financial, marketing and other resources than the Company.
In addition, online retailers may be acquired by, receive
investments from or enter into other commercial
relationships with large, well-established and well-
financed companies as use of the Internet and other
online services increases. Certain of the Company's
competitors may be able to secure merchandise from vendors
on more favorable terms, devote greater resources to
marketing and promotional campaigns, adopt more aggressive
pricing or inventory availability policies and devote
substantially more resources to Web site and systems
development than the Company. Increased competition may
result in reduced operating margins, loss of market
share and a diminished brand franchise. There can be no
assurance that the Company will be able to compete
successfully against current and future competitors, and
competitive pressures faced by the Company may have a
material adverse effect on the Company's business,
prospects, financial condition and results
of
operations. Further, as a strategic response to changes in
the competitive environment, the Company may from time to time
make certain pricing, service or marketing decisions or
acquisitions that could have a material adverse effect on
its business, prospects, financial condition and results of
operations. New
technologies and the expansion of existing technologies
may increase the competitive pressures on the Company. In
addition, companies that control access to transactions
through network access or Web browsers could promote the
Company's competitors or charge the Company a substantial fee
for inclusion. See "Risk
Factors - Competition".
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
mrcdrom.com was formed on March 27, 1997 to offer
computer software to the public by means of a site on the
World Wide Web ("Web").
The Company was created by Camelot to capitalize on the
emerging Internet commercial market. Camelot had offered CD-
ROM software to the public through six retail stores, which
are now closed. As the historical financial statements
reflect entirely the previous retail and wholesale
operations, management believes they are not indicative of
future operations of the Company.
The Company's Prospectus must be considered in light of
the risks, expenses and difficulties frequently
encountered by
companies moving into new markets, particularly companies in
new and rapidly evolving markets such as online commerce. Such
risks for the Company include, but are not limited to, an
evolving and unpredictable business model and management
of growth. To
address these risks, the Company must, among other
things, maintain and increase its customer base,
implement and
successfully execute its business and marketing
strategy, continue to develop and upgrade its technology and
transactionprocessing systems, improve its Web site,
provide superior customer service and order fulfillment,
respond to competitive developments, and attract, retain
and motivate qualified personnel.
There can be no assurance that the Company will be
successful in addressing such risks, and the failure to do
so could have a material adverse effect on the Company's
business, prospects, financial condition and results of
operations.
RESULTS OF OPERATIONS
The historical financial statements reflect primarily
the
activities of the previous retail and wholesale operations in
a limited, highly competitive and saturated market. The
financial statements also reflect the overhead costs of six,
now closed , storefronts which are not required with the
Internet based method by which the Company intends to
offer its products.
The
overhead costs are reflected in the prepaid expenses,
office equipment, leasehold improvements, accounts payable and
general and administration (store and support personnel).
The increase in accounts payable is due to a distributing
subsidiary's nonrecurring sales to non-related entities, no
longer a material portion of its business. The Statement of
Operations reflect a one time expense due to the closing of
the stores described as loss on disposition of assets.
The Company did not have mailing or delivery costs in
the previous operations but will have them as the catalogue
sells goods. It intends to capitalize on the relationships
developed
with publishers, where possible, and third party distributors
to supply product for the Internet catalogue thereby reducing
any delivery costs. There can be no assurances that the
Company's suppliers will deliver the products to the
customers. The
Company intends to use United Parcel Service, the U.S.
Postal Service, and Federal Express as requested by the
customers. The
Company's customers are charged an amount to cover the costs
of shipping and handling charges. If the Company's
suppliers directly ship the products as the Company intends,
the Company
may not be required to purchase the inventory ahead of
time thereby eliminating the possibility of inventory
obsolescence which is reflected in the financial statements.
The Company is also working to establish agreements which
permit it to return items which become outdated.
As a result of the Company's limited operating history and
the emerging nature of the markets in which it competes, the
Company is unable to accurately forecast its revenues. The
Company's current and future expense levels are based
largely on its investment plans and estimates of future
revenues and are to a large extent fixed. The Company
will have fees related to personnel, rent, fixtures,
technology, maintenance, advertising and marketing. Sales
and operating results generally depend on the volume of,
timing of and ability to fulfill orders received, which are
difficult to forecast. The Company may be unable to adjust
spending in a timely manner to compensate for any
unexpected revenue shortfall. Accordingly, any
significant
shortfall in revenues in relation to the Company's
planned expenditures would have an immediate adverse
effect on the Company's business, prospects, financial
condition and results of operations. The
Company expects to experience significant
fluctuations in its future quarterly operating results due to
a variety of factors, many of which are outside the
Company's control. Factors that may adversely affect
the Company's quarterly operating results include (i) the
Company's ability to obtain and retain existing customers,
attract new customers at a steady rate and maintain
customer satisfaction, (ii) the
Company's ability to manage inventory and fulfillment
operations and maintain gross margins, (iii) the
announcement or
introduction of new sites, services and products by the
Company and its competitors, (iv) price competition or higher
wholesale prices in the industry (v) the level of use of the
Internet and online services and increasing consumer
acceptance of the
Internet and other online services for the purchase of
consumer products such as offered by the Company, (vi) the
Company's ability to upgrade and develop systems and
infrastructure and attract new personnel in a timely and
effective manner, (vii) the level of traffic on the
Company's Web site, (viii) technical difficulties, system
downtime or Internet brownouts, (ix) the amount and timing
of operating costs and capital expenditures relating to
expansion of the Company's business, operations and
infrastructure, (x) the number of software titles
introduced during the period, (xi)
the level of merchandise returns
experienced by the Company, (xii) governmental regulation,
and (xiii) general economic conditions and economic
conditions
specific to the Internet, online commerce and the
software industry. The
Company expects that it will experience
seasonality in its business, reflecting a combination of
seasonal fluctuations in Internet usage and traditional retail
seasonality patterns. Internet usage and the rate of Internet
growth may be expected to decline during the summer.
Further, sales in the traditional retail industry are
significantly higher in the fourth calendar quarter of each
year than in the preceding three quarters. Due to the
foregoing factors, in one or more future quarters the
Company's operating results may fall below the expectations
of securities analysts and investors. In such event, the
trading price of the Common Stock would likely be materially
adversely affected. See "Risk Factors - Potential
Fluctuations in Quarterly Results; Seasonality".
LIQUIDITY AND CAPITAL RESOURCES
The Company's subsidiaries previous operations comprising
retail stores and software wholesaling have not resulted in
profits to date. The fiscal year ended April 30, 1997 reflect
almost a full
years operations for the six stores all of which are now
closed, resulting in losses. The
Company's subsidiaries have been able
to raise the funds necessary to continue to operate
through advances from affiliates and the issuance of common
stock. The costs incurred by the Company to establish a new
business of Internet software marketing were financed through
private sales of Common Stock which, through March 31, 1997,
totaled $667,892. The Company believes with the funds raised
from this offering it will have enough funds for the next
twelve months. If only the minimum shares offered are sold
the Company may have to limit its spending on marketing and
advertising efforts. Management believes some of its
advertising can be accomplished by bartering space with other
commercial entities on the World Wide Web but expects that
it will also have to use funds raised in this offering to
advertise the catalogue in consumer and trade journals
which will increase its brand awareness. Management also
intends to sell space to publishers thereby obtaining
another source of revenue.
Management recognizes that as the level of business increases
the number of employees will need to be increased to
assist in shipping and customer service. There can be no
assurances that the Company can hire properly experienced
staff to fill these shortages and it may have to compensate
any new employees at a higher rate. If only the minimum
amount of shares offered are sold the ability of the
Company to hire experienced employees could be affected.
The Company will continuously review its technology and
systems to keep them operating in a competitive manner. This
may require capital expenditures which without funds raised
from the offering the Company may be unable to accomplish.
Management believes that without the funds to be raised in
this offering the Company will not have sufficient funds to
operate for the next twelve months. It does have the ability
to borrow using its inventory as collateral but any
borrowings would probably be at a substantial discount from
their book value. The Company believes the net proceeds from
this offering, together with its current cash and cash
equivalents, will be sufficient to meet its anticipated cash
needs for working capital and capital expenditures for the
next 12 months. If cash generated from operations is
insufficient to satisfy the Company's liquidity requirements,
the Company may seek to sell additional equity or debt
securities or to obtain a credit facility. The sale of
additional equity or convertible debt securities could result
in additional dilution to the Company's stockholders. There
can be no assurance that financing will be available in
amounts or on terms acceptable to the Company, if at
all. See "Use of Proceeds".
LEGAL PROCEEDINGS
The Company is not currently aware of any material
legal proceeding pending against it. There are lawsuits
against one of the Company's subsidiaries for rent on some
stores where the subsidiary believes the landlord has made
no or minimal efforts to relet the premises.
EMPLOYEES
As of August 1, 1997, the Company employed 6 full-time
employees. None of the Company's employees is represented by a
labor union, and the Company considers its employee relations
to be good. Competition for qualified personnel in the
Company's industry is intense, particularly among software
development and other
technical staff. The Company believes that its future
success will depend in part on its continued ability to
attract, hire and retain qualified personnel. See "Risk
Factors - Management of Potential Growth; New Management
Team; Limited Senior Management Resources" and "Dependence on
Key Personnel; Need for Additional Personnel".
FACILITIES
The leased facilities total approximately 3,000 square feet
and are located in Carrollton, Texas pursuant to a month to
month lease. The Company leases the premises from Camelot
Corporation the majority shareholder of the Company as part of
a management agreement entered into between the Company and
Camelot for $ 4,000 per month. The Company believes that the
lease was made on terms no less favorable to the Company
than could have been obtained from unaffiliated third
parties. The Company anticipates that it will require
additional administrative, customer service, warehouse and
fulfillment space within the next three (3) years, but that
suitable additional space will be available on commercially
reasonable terms, although there can be no assurance in this
regard. The Company does not own any real estate.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information
regarding the executive officers and directors of the Company
as of August 1, 1997:
Name Age Position
Daniel Wettreich (1) 46 Chairman, Director and CEO
Robert Gregory 45 President and Director
Jason Conway (2) 28 Director
Colin Grant (1)(2) 35 Director
Jeanette Fitzgerald 36 Director
(2)
Margaret Cooper 49 VicePresident of Oerations
Scott Stoddard 34 Vice President of Product
Development
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Daniel Wettreich
Daniel Wettreich is Chairman, Chief Executive Officer
and Director of the Company since March 28, 1997 and spends
such time as required on Company matters. He is also a
Director and Chief Executive Officer of Camelot Corporation
since September 1988. A subsidiary of Camelot, Camelot
Entertainment, Inc. filed for bankruptcy protection in
January 1995. Since August 1996, he has
been Director and Chief Executive of Meteor Technology plc, a
United Kingdom public company. Additionally, he currently
hold directors positions in the following public companies: Forme
Capital, Inc., a real estate company, Alexander Mark
Investments (USA), Inc., and Adina, Inc. holding companies, and
Malex, Inc., and Tussik, Inc. which are inactive companies
seeking merger opportunities. In July 1993, following an
investment by Camelot he was appointed a Director of Goldstar
Video Corporation which has since had a Chapter 7 bankruptcy
petition filed and closed. Mr. Wettreich has a Bachelor of
Arts in Business Administration from the University of
Westminister, London, England.
Robert B. Gregory
Robert Gregory is President of the Company since April 15,
1997 and spends such time as required on Company matters. He
is also the Vice President of Finance for Camelot Corporation
since July 1996. He was previously Director of Finance
of Jenkens &
Gilchrist, one of Texas's largest law firms, prior to which
he was controller of Memorex Telex Corporation, a
manufacturer of computer equipment. Previously, from 1985 he
was Controller of the communications division of
Electronic Data Systems, an international provider of
information technology. He is a
Director of Adina, Inc. In addition to being a Certified
Public Accountant, he has an MBA from Creighton University and
a BS in Accounting from the University of Nebraska.
Jeanette P. Fitzgerald
Jeanette Fitzgerald is a Director of the Company since March
28, 1997. Since September 1988, she has been a Director,
Vice President and
General Counsel of Camelot Corporation. A
subsidiary of Camelot, Camelot Entertainment, Inc. filed
for bankruptcy protection in January 1995. She is a member
of the State Bar of Texas and the Business Law Section.
Since August 1996, she has been a Director of Meteor
Technology, plc, a United Kingdom public company. She is also
the Corporate Secretary and Director of Malex, Inc., and
Tussik, Inc., which are public companies. In July 1993,
following an investment by Camelot she was appointed a
Director of Goldstar Video Corporation which has since had a
Chapter 7 bankruptcy petition filed and closed. Previous to
these positions, from 1987 to 1988 she worked as a
staff attorney and in the compliance department at H.D.
Vest, Inc., a holding company with subsidiaries including a
securities brokerage firm. She graduated from Texas Tech
University School of Law receiving both a Doctorate of
Jurisprudence and a Masters of Business Administration in May
1986, and from the University of Michigan with a Bachelors
of Business Administration in December 1982.
Jason Conway
Jason Conway is a Director of the Company since March 28,
1997. Since 1996, he has been Executive Director of Meteor
Technology plc, a UK public company. Previously, he was
employed by National Car Parks for seven years culminating in
his appointment as Director for the Southeast Region. Mr.
Conway was the youngest Regional Director in the history of
National Car Parks. He has a B.Sc. in Estate Management from
South Bank University.
Colin Grant
Colin Grant is a Director of the Company since March 28,
1997. Since 1996, he has been Managing Director of
Alexander Mark Capital Ltd., a U.K. financial services
company. He was previously Finance Director of Meteor
Technology plc and is a
Director of that company. From 1983 - 1995 he was
Managing Director and previously Finance Director of Network
Designers Limited, a company involved in developing
and marketing
communications software and hardware products.
Previously, between 1989 and 1993 he was Financial Controller
of Softwright Systems Ltd. He graduated with a B.Sc. from
the University of St. Andrews in 1984.
Margaret Cooper
Margaret Cooper is Vice President of Operations of the
Company since March 28, 1997 and spends all her time on
Company matters. Previously she was President of Software @
Cost + 10%, Inc., a retailer of computer software and prior
to that she was President of Camelot Distributing, Inc., a
distributor of computer
software; both subsidiaries of Camelot Corporation. From 1991
to 1992 she was a Marketing Executive with Quest
Entertainment, a video distributor.
Scott Stoddard
Scott Stoddard is Vice President of Product Development for
the Company since March 28, 1997 and spends all his time on
Company matters. Previously he was General Manager of
Camelot Creative
Designs, Inc., a web page design company and a subsidiary
of Camelot Corporation. He was a production manager or a
computer artist/editor for a series of magazines,
catalogues and newsletters from 1989 to 1994, prior to which
he was Production Director of Movieline Magazine.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee consists of Daniel Wettreich and Colin
Grant. Among other functions, the Audit Committee makes
recommendation to the Board of Directors regarding the
selection of independent auditors, reviews the results and
scope of the audit and other services provided by the
Company's independent auditors, reviews the Company's
balance sheet, statement of operations and cash flows and
reviews and evaluates the Company's internal control
functions.
The Compensation Committee consists of Jason Conway, Colin
Grant, and Jeanette Fitzgerald. The Compensation Committee
reviews and approves the compensation and benefits for
the Company's
executive officers, administer the Company's stock option
plans and make representation to the Board of Directors
regarding such matters.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation
for their services as directors or member of committees of the
Board of Directors, but are reimbursed for their reasonable
expenses incurred in attending meeting of the Board of
Directors.
Directors, who are not otherwise employees of the Company,
are eligible to receive Stock Options pursuant to the 1997
Director Stock Option Plan.
1997 Directors' Stock Option Plan. The 1997 Directors'
Stock Option Plan (the "Directors' Plan") was adopted by the
Board of Directors in March, 1997. The Directors' Plan was
approved by shareholders of the Company on March 28, 1997.
A total of 250,000 shares of Common Stock has been reserved
for issuance under the Directors' Plan. As of August 1,
1997, 15,000 options have been granted all with an exercise
price of $4.00 per share.
The Directors' Plan provides for the grant of stock options to
nonemployee directors of the Company. The Directors' Plan is
designed to work automatically without administration;
however, to the extent administration is necessary, it will
be performed by the Board of Directors. The Directors' Plan
provides that each person who is a nonemployee director of
the Company upon joining the Board of Directors, shall be
granted a stock option to purchase 5,000 shares of Common
Stock (the "First Option"). Thereafter, on January 1, of
each year, commencing January 1,
1998 each nonemployee director shall be automatically granted an
additional option to purchase 1,000 shares of Common Stock (a
"Subsequent Option") if, on such date, he or she shall
have served on the Company's Board of Directors for at
least six months. The
Options are immediately exercisable. The exercise
price of all stock options granted under the Directors'
Plan shall be equal to the fair market value of a share
of the Company's Common Stock on the date of grant of
the option. Options granted under the Directors' Plan have a
term of ten years. In the event
of the dissolution or liquidation of the
Company, a sale of all or substantially all of the assets of
the Company, the merger of the Company with or into
another
corporation in which the Company is not the surviving
corporation or any other capital reorganization in which more
than 50% of the shares of the Company entitled to vote are
exchanged, each nonemployee director shall have either (i)
a reasonable time within which to exercise the option,
including any part of the option that would not otherwise
be exerciseable, prior to the effectiveness of such
dissolution, liquidation, sale, merger or
reorganization, at the end of which time the option
shall terminate or (ii) the right to exercise the option,
including any part of the option that would not otherwise be
exercisable, or
receive a substitute option with comparable terms, as to an
equivalent number of shares of stock of the
corporation succeeding the Company or acquiring its business
by reason of
such dissolution, liquidation, sale, merger or
reorganization. The Board of Directors may amend or
terminate the Directors' Plan; provided, however, that no
such action may adversely affect any outstanding option, and
the provisions regarding the grant of options under the plan
may be amended only once in any six-month period, other than
to comport with changes in the Employee Retirement Income
Security Act of 1974, as amended or the Code. If not
terminated earlier, the Directors' Plan will have a term of
ten years.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the
liability of directors to the full extent permitted by
Delaware law. Delaware law provides that a corporation's
certificate of
incorporation may contain a provision eliminating or limiting
the personal liability of directors for monetary damages for
breach of their fiduciary duties as directors, except for
liability (i) for any breach of their duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions
not in good faith or
which involve intentional misconduct or a knowing violation of
law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174
of the Delaware General Corporation Law (the "DGCL"), or (iv)
for any transaction from which the director derived an
improper personal benefit. The Company's Bylaws provide
that the Company shall indemnify its directors and officers
may indemnify its employees and agents to the fullest extent
permitted by law. The Company believes that indemnification
under its Bylaws covers at least negligence and gross
negligence on the part of the indemnified parties.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers or persons controlling the registrant pursuant to
the foregoing provisions, the registrant has been informed
that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in
the Act and is therefore unenforceable.
At present, there is no pending litigation or
proceeding involving any director, officer, employee or agent
of the Company where indemnification will be required or
permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
EXECUTIVE COMPENSATION
No executive officer of the Company who held office at August
1, 1997 met the definition of "highly compensated" within
the meaning of the Commission's executive compensation
disclosure rules. As of
April 1, 1997 no compensation was paid to any
officers or directors of the Company. For the period April
1, 1997 to August 1, 1997 a total $60,476 has been paid to
officers of the Company. Officers have been granted options
pursuant to the 1997 Stock
Option Plan as set out in "Principal
Stockholders".
On March 28, 1997, the Company entered into an
employment contract with Mr. Wettreich whereby he was employed
as Chairman and Chief Executive Officer of the Company for a
period of ten years at an annual salary of $50,000 and a cash
bonus equal to 5% of the Company's annual profits before
taxation. In the event of Mr. Wettreich's death during the
term of the agreement, the Company will pay annual death
benefits of $50,000 for a period of four years. Mr. Wettreich
may terminate his employment after the date of a change in
control of the Company. A change in control is defined as any
person other than Mr. Wettreich or his family interests
becomes beneficial owner, directly or indirectly of common
stock of the Company representing 30% or more of the
Company's issued and outstanding common stock or if the
Incumbent Board as defined, ceases to constitute a majority of
the board of directors. If Mr.
Wettreich terminates his employment after a
change of control in the Company, he shall be paid (i) the
base salary and any bonuses payable to him under the agreement
or (ii) an amount equal to the product of the annual base
salary and bonus paid to Mr. Wettreich during the year
preceding the termination date multiplied by five whichever of
(i) or (ii) is more. In the circumstances whereby Mr.
Wettreich terminates his employment for good reason, as
defined, he will receive payments in accordance with the
payments received if termination occurs after a change of
control of the Company.
1997 Stock Option Plan. The purpose of the 1997
Stock Option Plan is to enhance the long-term stockholder value
of the Company be offering opportunities to employees,
directors, officers, consultants, agents, advisors and
independent
contractors of the Company to participate in the Company's
growth and success, and to encourage them to remain in the
service of the Company and acquire and maintain stock
ownership in the Company. The Company has granted 393,860
stock options each with an exercise price of $4.00 per share.
The 1997 Stock Option Plan is administered by the
Compensation Committee, which has the authority to select
individuals who are to receive options under the 1997 Stock
Option Plan and to specify the terms and conditions of
each option so granted (incentive or nonqualified), the
vesting provisions, the option
term and the exercise price. Unless otherwise provided by
the Plan Administrator, an option granted under the 1997 Stock
Option Plan expires 10 years from the date of grant (five
years in the case of an incentive stock option granted to the
holder of 10% or more of the Company's outstanding capital
stock) or, if earlier, three months after the optionee's
termination of employment or service other than termination
for cause, one year after the optionee's retirement at
the Company's request, death or disability, or
immediately upon notification to an optionee of termination
for cause. Options granted under the 1997 Stock Option
Plan are not generally transferable by the optionee except by
will or the laws of descent and distribution and generally are
exercisable during the lifetime of the optionee only by
such optionee.
Repurchase Right Under Option Plan. With respect to the
1997 Stock Option Plan and the 1997 Directors Stock
Option Plan (collectively, the "Plans"), the Compensation
Committee has the discretion to authorize the issuance of
unvested shares of Common Stock pursuant to the exercise of
a stock option under the applicable Plan. If the optionee
ceases to be employed by or provide services to the
Company, all shares of Common Stock issued on exercise of
stock option which are unvested at the time of cessation shall
be subject to repurchase by the Company at the exercise price
paid for such shares. The terms and conditions upon which
the repurchase rights are exercisable by the Company are
determined by the Compensation Committee and set forth in the
agreement evidencing such right. The Compensation Committee
has discretionary authority to cancel the Company's
outstanding repurchase rights with respect to one or more
shares purchased or purchasable under an option granted
pursuant to that Plan. In the event of a Terminating Event
or a Corporate Transaction under the 1997 Stock Option Plan,
respectively, if vesting of the options accelerates, the
repurchase rights of the Company with respect to shares
previously acquired on exercise of options granted under
the 1997 Stock Option Plan, respectively, shall terminate.
CERTAIN TRANSACTIONS
Since the inception of the Company in March 27, 1997,
the Company has issued 6,000,000 Shares of Common Stock to
Camelot Corporation in exchange for $511,428 of inventory,
proprietary software, the trademark "mrcdrom", cash and other
assets. The inventory software, trademarks and other was
valued at Camelot's carrying cost. The shares were issued at
$.11 per share after accounting for the write down of the
value of the inventory.
On April 1, 1997, the Company entered into a month to
month lease agreement with Camelot Corporation, the
majority shareholder of the Company, for the office and
warehouse premises and for bookkeeping services at a total rate
of $4,000 per month. The lease covers 3,000 square feet and
it is anticipated that this space will be sufficient for the
next twelve (12) months.
The Company believes that all the transactions set
forth above were made on terms no less favorable to the
Company than could have been obtained from unaffiliated
third parties. Any future transactions, including loans,
between the Company and its officers,
directors and principal stockholders and
their
affiliates will be approved by a majority of the Board
of Directors,
including a majority of the independent and
disinterested directors, and will be on terms no less
favorable to the Company than could be obtained from
unaffiliated third parties.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information
regarding the beneficial ownership of the company's
outstanding Common Stock as of August 1, 1997 and as adjusted
to reflect the sale of the Common Stock offered hereby for
(i) each person or entity know by the company to
beneficially own more than 5% of the Common Stock, (ii) each
director of the Company, and (iv) all of the Company's
directors and executive officers as a group. Except as
otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below, based
on information furnished by such owners, have sole voting
and investments power with respect to such shares.
Percentage of
Shares
Outstanding
Name and Address Number of Shares Prior to After
Beneficially Owned Offering Offering
(1)
Camelot Corporation 6,000,000 100 67
17770 Preston Road
Dallas, Texas 75252
Daniel Wettreich 6,375,000 (2)(3) 100 68
17770 Preston Road
Dallas, Texas 75252
Robert Gregory 10,660 (2)(4) 100 *
17770 Preston Road
Dallas, Texas 75252
Jason Conway 5,000 (5) * *
54 Baker Street
London, England
Colin Grant 5,000 (6) * *
54 Baker Street
London, England
Jeanette Fitzgerald 6,005,000 (2)(7) 100 67
17770 Preston Road
Dallas, Texas 75252
All officers and 6,408,860 100 68
directors as a (2)(3)(4)(5)(6)
group (8 person) (7)(8)
*less than 1%
(1) Assumes all shares offered are sold.
(2) Includes 6,000,000 Common Shares owned Camelot Corporation
of which Mr. Wettreich and Ms. Fitzgerald are directors and of
which Mr. Gregory is an officer. All have disclaimed any
ownership interest in these shares.
(3) Includes 375,000 options granted to Mr. Wettreich pursuant
to the 1997 Stock Option Plan.
(4) Includes 10,660 options granted to Mr. Gregory pursuant to
the 1997 Stock Option Plan.
(5) Includes 5,000 options granted to Mr. Conway pursuant to
the 1997 Directors Stock Option Plan.
(6) Includes 5,000 options granted to Mr. Grant pursuant to
the 1997 Directors Stock Option Plan.
(7) Includes 5,000 options granted to Ms. Fitzgerald pursuant
to the 1997 Directors Stock Option Plan.
(8) Includes 8,200 options granted to additional officers of
the Company pursuant to the 1997 Stock Option Plan.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists
of 25,000,000 shares of Common Stock, $0.001 par value per
share, and 5,000,000 shares of Preferred Stock, $0.01 par
value per share. The following summary of certain provisions
of the Common Stock and Preferred Stock does not purport to be
complete and is subject to, and qualified in its entirety by,
the provisions of the Company's Certificate of Incorporation,
which is included as an exhibit to the Registration Statement
of which this Prospectus is a part, and by the provisions of
applicable law.
COMMON STOCK
As of April 1, 1997, there was 6,000,000 shares of
Common Stock outstanding held of record by one (1)
stockholder. There will be 9,000,000 shares of Common Stock
outstanding after giving effect to the sale of all the Common
Stock offered to the public hereby. The holders of Common
Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of stockholders. See
"Risk Factors - Control of the Company." Subject to
preferences that may be applicable to any outstanding shares
of Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may
be declared by the Board of Directors out of funds legally
available for the payment of dividends. See "Dividend
Policy." In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after
payment of liabilities and liquidation preferences of any
outstanding shares of Preferred Stock. Holders of Common
Stock have no preemptive rights or rights to convert their
Common Stock into any other securities. There are no
redemption or sinking fund to convert their Common Stock into
any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock to be issued
upon completion of this offering will be fully paid and
nonassessable.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation,
the Board of Directors will have the authority, without
further action by the stockholder, to issue up to 5,000,000
shares of Preferred
Stock in one or more series and to fix
the
designations, powers preferences, privileges and
relative participating, option or special rights and the
qualifications, limitation or restrictions thereof, including
dividend rights, conversion rights, voting rights, terms
of redemption and
liquidation preferences, any or all of which may be greater
than the rights of the Common Stock. The Board of Directors,
without stockholder approval, can issue Preferred Stock
with voting, conversion or other rights that could adversely
affect the voting power and other rights of the holders of
Common Stock. Preferred
Stock could thus be issued quickly with terms calculated to
delay or prevent a change in control of the Company or make
removal of management more difficult. Additionally, the
issuance of
Preferred Stock may have the effect of decreasing the
market price of Common stock, and may adversely affect the
voting and other rights of the holders of Common Stock.
The Company currently has 3,992,752 shares of Preferred
Stock, Series A outstanding and owned by Camelot. The
shares were issued in exchange for the outstanding shares
owned by Camelot of the Company's subsidiaries. The
Preferred Shares, Series A are nonvoting, non-yielding and
non-convertible but have a preference over the common shares
in the event of a liquidation or similar event of the Company.
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF CERTIFICATE
OF INCORPORATION AND DELAWARE LAW
As noted above, the Company's Board of Directors,
without stockholder approval, have the authority under the
Company's Certificate of Incorporation to issue Preferred Stock
with rights superior to the rights of the holders of Common
Stock. As a result, Preferred Stock could be issued quickly
and easily, could adversely affect the rights of holder of
Common Stock and could be issued with terms calculated to
delay or prevent a change in control of the Company or
make removal of management more difficult.
The Company has opted out of Section 203 of the
Delaware Code permitting transactions between interested
stockholders and the Company in certain instances.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock
is Stock Transfer Company of America, Inc., P.O. Box 896277,
Dallas, Texas 75379-6277.
ESCROW AGENT
The escrow agent for the Common Stock offered pursuant
to this prospectus is The Oaks Bank and Trust Company,
4849 Greenville Avenue, Dallas, Texas 75206.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market
for the Common Stock and there can be no assurance that a
significant public market for the Common Stock will be
developed or be sustained after this offering. Sales of
substantial amounts of Common Stock in the public market
after this offering, or the possibility of such sales
occurring, could adversely affect prevailing market prices
for the Common Stock or the future ability of the Company
to raise capital through an offering of equity securities.
After this offering, the Company will have
outstanding 9,000,000 shares of Common Stock. Of these shares,
the 3,000,000 shares offered hereby will be freely tradable
in the public market without restriction under the Securities
Act, unless such shares are held by "affiliates" of the
Company, as that term is defined in Rule 144 under the
Securities Act.
The remaining 6,000,000 shares of Common Stock
outstanding upon completion of this offering will be
"restricted securities," as that term is defined in Rule 144
("Restricted Shares"). The
Restricted Shares were issued and sold by the Company in
private transactions in reliance upon exemptions from
registration under the Securities Act. Restricted Shares may
be sold in the public market only if they are registered or
if they qualify for an exemption from registration under
Rules 144 or 701 under the Securities Act, which are
summarized below.
Rule 701 permits resales of such shares in reliance
upon Rule 144 but without compliance with certain
restrictions, including the holding period requirement, imposed
under Rule 144. In general, under Rule 144 as in effect at the
closing of this offering, beginning 90 days after the date of
this Prospectus, a person (or persons whose shares of the
Company are aggregated) who has beneficially owned
Restricted Shares for as least one year (including the
holding period of any prior owner who is not an affiliate of
the Company) would be entitled to sell within any three-month
period a number of shares that does not exceed the greater
of (i) one percent of the then outstanding shares of Common
Stock (approximately 90,000 shares immediately after this
offering) or (ii) the average weekly trading volume of the
Common Stock during the four calendar weeks preceding the
filing of a Form 144 with respect such sale. Sales under
Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public
information about the Company. Under Rule 144 (k), a person
who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least
two years (including the holding period of any prior owner
who is not an affiliate of the Company) is entitled to sell
such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule
144.
The Company intends to file after the effective date of
this offering a Registration Statement on Form S-8 to
register an aggregate of approximately 500,000 shares of
Common stock
reserved for issuance under the 1997 Stock Option Plan and
the 1997 Directors Stock Option Plan. Such Registration
Statement will become effective automatically upon filing.
Shares issued under the foregoing plans, after the filing of
a Registration Statement on Form S-8, may be sold in the open
market, subject, in the case of certain holders, to the
Rule 144 limitations applicable to affiliates, and vesting
restrictions imposed, if any, by the Company.
PLAN OF DISTRIBUTION
The Company is offering up to 3,000,000 shares in the
Company, all at $4.00 per share. The shares will be
offered on a maximum/minimum "best efforts" basis. The
minimum number of Shares offered hereby must be sold, if any
are to be sold, within a period of 90 days (or a period of 180
days if extended by the Company from the date of this
Prospectus. The Company may allocate among or reject any
subscriptions, in whole or in part. These subscriptions may be
rejected if the Company receives more subscriptions than it
offers, the payments are not made with the subscription, the
subscriptions are otherwise incomplete or other reason deemed
appropriate by the Company.
The Shares will be offered and sold by the Company's officers
and directors, without compensation. Neither the Company nor
any of its officers or directors is registered as a broker
or dealer under Section 15 of the Exchange Act. If
required by a particular state the Company or an officer will
become registered to offer and sell the securities offered as
that particular state requires.
The Company has not retained an underwriter or any
Independent broker-dealer to assist in offering the Shares.
It is the intention of the Company to offer and sell
the Shares by contacting prospective investors through
appropriate newspaper and magazine advertisements as well as
through the use of the Internet to electronically deliver
copies of this Prospectus to prospective investors. The
prospective investor will have an option to have a paper
copy of the prospectus sent to them or if they execute a
consent form to have it sent electronically. If a consent
form is executed all further information will be sent
electronically until such time as the Company is notified
that the investor no longer wants electronic delivery.
Those subscribing to purchase Shares must complete a
Stock Purchase Agreement, a form of which is included as an
appendix to this Prospectus. All funds received by the Company
with respect to the minimum number of Shares that may be
sold will, promptly following receipt by the Company, be
deposited in an escrow account with the Escrow Agent
pursuant to the terms of an escrow agreement entered into
between the Company and the Escrow Agent ( the "Escrow
Agreement"). In the event that the minimum number of Shares
offered hereby is not sold within the permitted time
period, then all funds received by the Company will be
promptly refunded to the subscribers, in full, without
interest or deduction therefrom.
The Company reserves the right to reject any subscription
for Shares in its entirety or to allocate Shares among
prospective purchasers. The Company may be required to reject
a subscription if the offering is not registered in the state
which the proposed subscriber resides or the subscriber does
not otherwise meet a state imposed requirement. Further, if
there are more shares subscribed than offered the Company
may be required to allocate the shares offered among
subscribers. If a subscription is rejected, funds
received by the Company for each subscription will be
returned to the applicable prospective purchaser without
interest or deduction.
Certificates representing Shares purchased will be issued
to purchasers only if the proceeds from the sale of at least
62,500 shares are released from escrow. Until the
certificates are delivered to the purchasers thereof, such
purchasers, if any, will be deemed subscribers only, and not
shareholders. The funds in escrow will be held for the benefit
of those subscribers until released to the Company. All funds
received by the Company after the minimum number of Shares
offered hereby is sold will not be placed in escrow, but
placed directly into the Company's operating account for
immediate use by the Company.
Subscribers may subscribe by one of two methods. Firstly,
the subscriber may complete the Stock Purchase Agreement
attached and send that along with their completed check to
the Company who will forward the payment to the Escrow Agent
if the minimum has not been reached yet or deposit said
payment into the accounts of the Company if the minimum has
been reached. Secondly,
the
subscriber may go on-line to the mrcdrom.com web page
and complete the Stock Purchase Agreement and then pay for the
shares via electronic transfer where the money is directly
withdrawn from their checking account or credit card.
Although it is the Company's intention to develop a public
market for its Common Stock by soliciting broker-dealers who
are members of the NASD to make a market in the Company's
Common Stock, to date the Company has
not entered into any arrangements,
commitments or understandings with any persons with respect
to
the creation of a public market for its Common Stock.
The Company intends to apply for NASDAQ SmallCap Market
listing for the Common shares when it appears to qualify
for NASDAQ listing under the new guidelines. Besides
certain governance guidelines, the newly approved initial
listing SmallCap Market requirements are as follows:
Initial Listing
Net Tangible Assets1 $4 million
or
Market Capitalization $50 million
or
Net Income (in latest fiscal $750,000
year or 2 of last 3 fiscal years)
Public Float (shares)2 1 million
Market Value of Public Float $5 million
Minimum Bid Price $4
Market Makers 3
Shareholders 300
(round lot holders)3
Operating History4 1 year
or
Market Capitalization $50 million
Corporate Governance Yes
______________
FN 1. For initial or continued listing, a company must
satisfy
one of the following to be in compliance: the net
tangible assets requirement, (net tangible assets means
total assets, excluding goodwill, minus total
liabilities) the market capitalization requirement or the
net income requirement.
2. Public float is defined as shares that are not held
directly or indirectly by any officer or director of the
issuer and any other person who is the beneficial owner of more
than 10 percent of the total shares outstanding.
3. Round lot holders are considered holders of 100 shares
or more.
4. If operating history is less than 1 year, initial listing
requires market capitalization of at least $50million.
Excerpted from The NASDAQ Stock Market, Inc.-from their
Bulletin dated August 25, 1997 entitled "NASDAQ Announces
New Listing Requirements".
LEGAL MATTERS
Certain legal matters will be passed on for the Company
by Jeanette Fitzgerald, Esq. Ms. Fitzgerald has been
granted options to purchase 5,000 Shares of the Company
pursuant to the 1997 Director Stock Option Plan. Ms.
Fitzgerald is also a Director of the Company and of Camelot
Corporation. She is the Vice President and General Counsel
of Camelot. See "Directors Compensation" and "Principal
Stockholders".
EXPERTS
The financial statements of mrcdrom.com, inc. and subsidiaries
at April 30, 1997 appearing in this Prospectus and the
Registration Statement have been audited by Lane Gorman
Trubitt, L.L.P., independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are
included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a
Registration Statement, of which this Prospectus constitutes a
part, under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus omits certain
information contained in the
Registration Statement, and reference is made to the
Registration Statement and the exhibits thereto for
further information with respect to the Company and the
Common Stock offered hereby. Statements contained herein
concerning the provisions of any documents are not necessarily
complete, and in each instance reference is made to the copy
of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement,
including exhibits filed therewith, may be inspected without
charge at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional officer of
the Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of
such materials may be obtained from the Public Reference
Section of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The
Commission maintains a Web site (http://www.sec.gov)
that contains reports, proxy and information statements and
other information regarding registrants, that file
electronically with the Commission.
STOCK PURCHASE AGREEMENT
(All Investors must sign this Stock Purchase Agreement)
No. of Shares Being Purchased: ____________ x $4.00
per Share = Total
Purchase Price for Shares: $___________
PURCHASER DATA: (Must be completed in full)
_____________________________________________________________
First Full Name (Do not use initials) M.I. Last Name
Residence Address, including Zip Code: (Do not use P.O. Box)
_________________________________
Resident Telephone Number: -or- Business Telephone Number:
______________________________ __________________________
Social Security Number (Individual):-or- Tax I.D. Number:
______________________________ ____________________________
SIGNIFICANT DISCLOSURE
THIS STOCK PURCHASE IS MADE PURSUANT TO, AND IS SUBJECT TO, THE
TERMS AND CONDITIONS OF THE QUALIFICATION APPROVED BY THE
SECURITIES COMMISSIONS OF THE STATES IN WHICH THE SHARES ARE
BEING OFFERED. SIGNATURE MUST BE IDENTICAL TO NAME OF
REGISTERED OWNER.
____________________________________
Printed Name of Purchaser
____________________________________ __________________
Signature of Purchaser Date
____________________________________
Printed Name of Purchaser (if more than one)
____________________________________ __________________
Signature of Purchaser (if more than one) Date
ADDITIONAL INFORMATION
In order to facilitate processing of your purchase, please be
sure you have completed each of the following:
- - A check made out to mrcdrom.com
- - Enter the number of Shares being purchased and total cash
price of the Stock Purchase Agreement
- - Enter the State in which you are a legal resident in the
"Residence Address" line above.
Please mail check and this Stock Purchase Agreement to:
mrcdrom.com, inc. Escrow Account
The Oaks Bank and Trust Company
4849 Greenville Ave.
Dallas, Texas 75206
4. Escrow Agent is not a party to, nor is it bound by nor
need it give consideration to the terms or provisions of any
other agreement or undertaking between the undersigned or
between any of the undersigned and other persons, or any
agreement or undertaking which may be evidenced by or disclosed
by any items included among the deposited funds, and Escrow
Agent assents to and is to give consideration only to the terms
and provisions of this Escrow Agreement. Unless it is
specifically provided otherwise herein, Escrow Agent has no
duty to determine or inquire into the happening or occurrence
of any event or contingency or the performance or failure of
performance of any of the undersigned with respect to
arrangements or contracts with each other or with others, and
the Escrow Agent's sole duty hereunder is to hold the deposited
funds and to dispose of and deliver the same in accordance with
instructions given to it in the form and tenor provided in this
Escrow Agreement. mrcdrom.com represents and warrants that
each Investor has been apprised of this Escrow Agreement and
had an opportunity to receive a copy of the Escrow Agreement.
5. Escrow Agent shall not be responsible or liable to any
person in any manner whatever for the sufficiency, correctness,
genuiness, effectiveness or validity of any of the deposited
funds or for the form or execution thereof, or for the identity
or authority of any person executing or depositing it. If any
of the undersigned are acting as agent for others, all of the
undersigned represent and warrant that such agent is authorized
to make and enter into this Escrow Agreement. This Escrow
Agreement is a personal one between the undersigned and the
Escrow Agent only, and in connection therewith Escrow Agent is
authorized by each of the undersigned to rely upon the
representations, both actual and implied, of the undersigned
and all other persons connected with this Escrow Agreement and
the deposited funds, as to marital status, authority to execute
and deliver this Escrow Agreement, notifications, receipts, or
instructions hereunder, and relationships among persons,
including persons authorized to receive delivery hereunder, and
Escrow Agent shall not be liable to any person in any manner
for such reliance. The duty of Escrow Agent hereunder shall
only be to the undersigned, their successors, and assigns and
to no other person or persons whomsoever.
6. Escrow Agent may act upon any written notice, request,
waiver, consent, certificate, receipt, authorization, power of
attorney or other instrument or document, from mrcdrom.com and
Escrow Agent may consider such to be genuine and to be what it
purports to be. Escrow Agent shall be liable as a depository
only and shall not be responsible for the sufficiency or
accuracy of the form, execution or validity of documents
deposited hereunder, or any description of funds or other thing
therein, nor shall it be liable in any respect on account of
the identity, authority, or rights of the persons executing or
delivering or purporting to execute or deliver any such
document or paper. The undersigned parties, jointly and
severally, agree to indemnify and hold harmless Escrow Agent
from and against any and all liabilities, including attorney's
fee, incurred in connection with this Escrow Agreement."
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS
Board of Directors and Stockholder
mrcdrom.com, inc. and subsidiaries
We have audited the accompanying consolidated balance
sheets of mrcdrom.com, inc. and subsidiaries as of April 30,
1997 and 1996 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of
the three years in the period ended April 30, 1997. 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 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
consolidated financial position of mrcdrom.com, inc. and
subsidiaries as of April 30, 1997 and 1996, and the
consolidated results of their operations and their
consolidated cash flows for each of the three years in the
period ended April 30, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As discussed in Note 11 to the financial statements, the
Company has suffered recurring losses from operations and is
dependent on its ability to raise additional funds. This
raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to
these matters are also described in Note 11. The financial
statements do not include any adjustments that might result
from the outcome of this uncertainty.
We have also audited Schedule II of mrcdrom.com, inc.
and subsidiaries for each of the three years in the period
ended April 30, 1997. In our opinion, this schedule presents
fairly, in all material respects, the information required to
be set forth therein.
Lane Gorman Trubitt, L.L.P.
Dallas, Texas
July 7, 1997
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
April 30,
ASSETS
1997 1996
CURRENT ASSETS
Cash $ 76,538 $ 26,207
Accounts receivable 62,573 1,595
Prepaid expenses 17,856 100,599
Inventories, net of
allowance for obsol-
escence of $469,744
and $198,000 at April
30, 1997 and 1996 511,293 1,213,005
respectively
Total current assets 668,260 1,341,406
PROPERTY AND EQUIPMENT
- AT COST
Office equipment and
fixtures 82,866 188,706
Leasehold improvements - 153,595
Less accumulated
depreciation and (20,940) (11,958)
amortization
61,926 330,343
OTHER ASSETS
Trademark, net of
accumulated amortiza-
tion of $16,000 and
$8,000, at April 30,
1997 and 1996 respectively 24,000 32,000
Deferred offering costs 13,114 -
Total other assets 37,114 32,000
$ $1,703,749 767,300
See accompanying notes to financial statements.
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
April 30,
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
1997 1996
CURRENT LIABILITIES
Accounts payable $ 72,292 $241,996
72,292 241,996
Accrued expenses 141,645 73,831
Due to affiliate -
3,025,911
Total current liabilities 213,937
3,341,738
STOCKHOLDER'S EQUITY (DEFICIT)
Common stock, $.001 par value,
25,000,000
shares authorized, 6,000,000 6,000
- -
shares issued and outstanding
Common stock, of subsidiaries -
5,000
Preferred stock, $.01 par value,
5,000,000
shares authorized, 3,992,752 39,928
- -
shares
issued and outstanding
Additional paid-in capital 4,614,716
Accumulated deficit (4,107,281)
(1,642,989
)
Total stockholder's 553,363
(1,637,989
equity (deficit) )
$
$
767,300
1,703,749
See accompanying notes to financial statements.
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended April 30,
1997 1996 1995
REVENUES $ 1,158,408 $ 483,842 $94,070
COSTS AND EXPENSES
Cost of sales 964,015 349,220 45,508
General and 1,686,967 1,272,213 214,831
administration
Provision for inventory 470,942 198,000 -
obsolescence
Depreciation and 57,721 39,917 1,115
amortization
Total costs and 3,179,645 1,859,350 261,454
expenses
LOSS FROM OPERATIONS (2,021,237) (1,375,508) (167,384)
OTHER INCOME (EXPENSE)
Interest and - - 151
miscellaneous
Loss on disposition of (443,055) (18,280) -
assets
Total other (443,055) (18,280) 151
income (expense)
NET LOSS (2,464,292) (1,393,788) (167,233)
DIVIDENDS ON PREFERRED STOCK
(of Subsidiary) - - (121,968)
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS $(2,464,292 $(1,515,756) $(167,233)
LOSS PER SHARE
Loss from continuing $ (.41) $ (.23) $ (.03)
operations
Dividends on preferred - (.02) -
stock
NET LOSS PER COMMON SHARE
$ (.41) $ (.25) $ (.03)
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES
OUTSTANDING 6,000,000 6,000,000 6,000,000
See accompanying notes to financial statements.
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY(DEFICIT)
Years ended April 30, 1997, 1996 and 1995
Common Common Common Common Preferred
Stock Stock Stock Stock Stock
Shares Amount Shares Amount Shares
Beginning balance - $ - 3,000 $ 3,000 -
Common stock issued
to affiliate for cash - - 200,000 2,000 -
and certain assets
Sale of preferred - - - - -
stock
Net loss - - - - -
Balance at - - 203,000 5,000 -
April 30, 1995
Redemption of - - - - -
subsidiary preferred
stock
Preferred stock - - - - -
dividends
Net loss - - - - -
Balance at - - 203,000 5,000 -
April 30, 1996
Common stock issued
to affiliate for 6,000,000 6,000 - - -
certain assets
Preferred stock
issued to affiliate
in exchange for - - (203,000) (5,000) 5,000
common stock of
subsidiaries
Preferred stock
issued to pay - - - - 3,987,752
amounts due to
affiliate
Net loss - - - - -
Balance at 6,000,000 $6,000 - - $3,992,752
April 30, 1997
See accompanying notes to financial statements.
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
Years ended April 30, 1997, 1996 and 1995
Preferred Preferred Preferred Additional Total
Paid- Accumulated Stockholder's
Stock Stock Stock in
Amount Shares Amount Capital Deficit Equity
(Deficit)
Beginning balance $ - - $ - $ - $ - $3,000
Common stock
issued to - - - 40,000 - 42,000
affiliate for cash
and certain assets
Sale of preferred - 60,700 607 263,437 - 264,044
stock
Net loss - - - - (167,233) (167,233)
Balance at - 60,700 607 303,437 (167,233) 141,811
April 30, 1995
Redemption of - (60,700) (607) (263,437) - (264,044)
preferred stock
Preferred stock - - - (40,000) (81,968) (121,968)
dividends
Net loss - - - - (1,393,788) (1,393,788)
Balance at - - - - (1,642,989) (1,637,989)
April 30, 1996
Common stock
issued to - - - 661,892 - 667,892
affiliate for
certain assets
Preferred stock
issued to
affiliate in 50 - - 4,950 - -
exchange for
common stock of
subsidiaries
Preferred stock
issued to pay 39,878 - - 3,947,874 - 3,987,752
amounts due to
affiliate
Net loss - - - - (2,464,292) (2,464,292)
Balance at $ 39,928 - $ - $4,614,716 $(4,107,281) $553,363
April 30, 1997
See accompanying notes to financial statements.
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30,
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,464,292) $(1,393,788) $(167,233)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 57,721 39,917 1,115
Loss on disposal of assets 443,055 18,280 -
Provision for inventory 470,942 198,000 -
obsolescence
Change in assets and liabilities
Accounts receivable (60,978) (1,595) -
Prepaid expenses 82,743 (90,183) (10,416)
Inventories 230,770 (1,351,182) (59,823)
Accounts payable and (101,890) 272,667 43,160
accrued expenses
Net cash used in (1,341,929) (2,307,884) (193,197)
operating activities
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and (205,350) (360,274) (21,381)
equipment
Net cash used in (205,350) (360,274) (21,381)
investing activities
CASH FLOW FROM FINANCING ACTIVITIES:
Deferred offering costs (13,114) - -
Redemption of preferred stock - (264,044) -
Sale of common stock 100,000 - 2,000
Sale of preferred stock - - 264,044
Dividends on preferred stock - (121,968) -
Advances from affiliate 1,510,724 3,012,513 16,398
Net cash provided 1,597,610 2,626,501 282,442
by financing activities
NET INCREASE (DECREASE) IN CASH 50,331 (41,657) 67,864
CASH AT BEGINNING OF PERIOD 26,207 67,864 -
CASH AT END OF PERIOD $76,538 $ 26,207 $ 67,864
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ - $ - $ -
Cash paid for taxes $ - $ - $ -
In fiscal 1997, the Company acquired certain assets in exchange
for
shares of the Company's stock valued at $1,624,593. In
fiscal 1995, the Company acquired an intangible asset in
exchange for shares of the Company's common stock valued
at $40,000. In fiscal 1997, the Company issued preferred
stock to pay amounts to affiliate in the amount of
$3,987,752. In fiscal 1997, the Company issued 5,000
shares of preferred stock in exchange for the outstanding
common shares owned by Camelot of the Company's subsidiaries.
See accompanying notes to financial statements.
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity and Principles of Consolidated
The consolidated financial statements include mrcdrom.com,
inc. and four subsidiaries; Mr. CD-ROM Stores, Inc.,
Camelot Distributing, Inc., SAC Distributing, Inc. and Software
@ Cost + 10%, Inc. (collectively the "Company"). The Company
is a wholly owned subsidiary of Camelot Corporation
("Camelot").
The Company is engaged in the retailing and distribution
of computer software products. The Company sells software
products through an Internet web page catalog. During 1997,
the Company ceased selling its software products through
Mr. CD ROM and Software @ Cost + 10% retail stores which
were located in the Dallas Metroplex. A loss on disposal of
assets of $443,055 was recognized in 1997. Significant
intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents. The
Company maintains cash balances at a local financial
institution in Dallas, Texas. The Company believes it is not
exposed to any significant credit risk on cash and cash
equivalents.
Accounts Receivable
The Company considers accounts receivable to be
fully collectible; accordingly, no allowance for doubtful
accounts is required. If accounts become uncollectible, they
will be charged to operations when that determination is made.
Inventories
Inventories of computer software (CD-ROM) held for resale,
are stated at the lower of cost or market using the weighted
average cost method. An allowance for inventory
obsolescence is maintained to provide for an estimate of
inventory items that have declined in value.
Trademark
Trademarks are stated at cost, net of accumulated
amortization, which is provided using the straight-line method
over 5 years.
Fair Value of Financial Instruments
Fair value of financial instruments are estimated to
approximate the related book value, unless otherwise
indicated, based on market information available to the
Company.
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Property and Equipment
Property and equipment are carried at cost, less
accumulated depreciation. Major additions and betterments
are capitalized while replacements and maintenance and
repairs that do not improve or extend the life of the
respective assets are expensed. Leasehold improvements are
amortized over the lesser of the term of the related lease or
the estimated useful lives of the assets. When property is
retired or otherwise disposed of, the related costs and
accumulated depreciation are removed from the accounts and any
gain or loss is reflected in operations.
Depreciation and amortization of property and equipment
is provided on the straight-line method over the following
estimated useful lives:
Office furniture and fixtures 7 years
Computer and office equipment 5 years Computer software
5 years
Leasehold improvements Length of lease ranging to
5 years
Software Development
Certain software development costs are capitalized upon
the establishment of technological feasibility for each
product or process and capitalization ceases when the product
is available for general release to customers or is put into
service. The establishment of technological feasibility
and the ongoing assessment of recoverability of capitalized
software development costs require considerable judgment by
management with respect to certain external factors,
including, but not limited to, anticipated future
revenues, estimated economic life and changes in software
and hardware technology. Research and development costs
related to software development that has not reached
technological feasibility are expensed as incurred. There
were no capitalized software development costs.
Loss Per Share
Loss per common share is computed on the basis of the
weighted average number of common shares outstanding.
Outstanding stock options are excluded from the computation
as their effect would be anti-dilutive.
Revenue Recognition
Revenue from sales of software is generally recognized
upon delivery of the software provided that no significant
obligations remain and collection of the resulting
receivable is deemed probable.
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Stores Preopening Costs
Store preopening costs are capitalized and amortized over
twelve months.
Advertising Costs
Advertising costs are charged to operations when the
advertising first takes place and were $252,447, $392,801 and
$23,885 for 1997, 1996 and 1995, respectively.
Income Taxes
Deferred income taxes are determined using the liability
method under which deferred tax assets and liabilities are
determined based upon differences between financial accounting
and tax basis of assets and liabilities.
Deferred Offering Costs
Deferred offering costs include the costs associated with
a proposed initial public offering. The costs related to
the initial public offering will be capitalized and netted
against the amount received from the public offering. All
deferred offering costs will be expensed in the event the
offering is not consummated.
Impairment of Long-Lived Assets
Impairment losses are recognized on long-lived assets and
certain identifiable intangible assets held and used in
operations whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable.
Use of Estimates
In preparing financial statements in conformity with
generally accepted accounting principles, management is
required to make estimates and assumptions that effect the
reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the
financial statements, and the reported amount of revenues
and expenses during the period. Actual results could differ
from those estimates.
2. ACCOUNTS RECEIVABLE AND CREDIT RISK
The Company's trade receivables include amounts due from
credit card vendors, customers and suppliers for returned
product. The
Company believes it is not exposed to significant credit risk.
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
3. INVENTORIES
Included in the accompanying balance sheet is inventory
of computer software at a carrying value of $511,293,
which represents management's estimate of its net realizable
value. The computer software industry is characterized
by rapid
technological advancements and change. Should demand prove
less than anticipated, the ultimate realizable value of such
products will probably be less than the amount shown in the
balance sheet.
4. ACCRUED EXPENSES
The following is a summary of accrued expenses at April 30,:
1997 1996
Management fee to related $ $
party 4,000 -
Compensation 11,945 -
Taxes 5,025 32,618
General and administrative 2,451 7,550
Other 3,125 33,663
Lease obligations 115,099 -
$ $
141,645 73,831
5. INCOME TAXES
The Company joins with its parent, Camelot, in filing
a
consolidated federal income tax return. Each company in
the consolidated group determines its taxable income or loss,
on a separate company basis, and the consolidated tax
liability is allocated to each company with taxable income
in proportion to the total of the taxable income amounts.
The Company had no current State or Federal income tax
expense for each of the years ended April 30, 1997, 1996 and
1995.
Deferred tax assets and liabilities are determined based on
the difference between financial statement and tax bases of
assets and liabilities as measured by the currently enacted
tax rates. Deferred tax expense or benefit is the result of
the changes in deferred tax assets and liabilities.
Deferred income taxes arise principally from the
temporary
differences between financial statement and income
tax
recognition of inventory reserves and net operating losses.
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
5. INCOME TAXES - Continued
The components of deferred taxes in the accompanying
balance sheets are summarized below:
1997 1996
Allowance for doubtful $ $
accounts - 782
Inventories 159,713 66,795
Net operating loss
carryforward 1,208,749 463,170
1,368,462 530,747
Less valuation allowance
(1,368,462) (530,747)
Deferred tax asset-net $ $
- -
At April 30, 1997, the Company has approximately $3,555,000
of unused Federal net operating loss carryforwards, which
expire in the years 2010 through 2012.
6. STOCKHOLDER'S EQUITY
On March 31, 1997, mrcdrom.com, inc. accepted the
stock subscription by Camelot for 6,000,000 shares of
mrcdrom.com, inc. for a total subscription payment of
$667,892, in exchange for $100,000 in cash, $511,428 of
inventory, $30,464 of equipment and $26,000 of other assets.
Valuation of assets contributed was based on Camelot's book
value at time of transfer. An additional inventory reserve
was recorded on Camelot's books to reflect current market
value prior to the transfer to mrcdrom.com.
In March 1997, the Company's Board of Directors approved
the filing of a registration statement under the Securities
Act of 1933, for a public offering of 3,000,000 shares of
mrcdrom.com, inc. common stock.
Pursuant to the planned offering, the Company
extinguished $3,987,752 of amounts payable to Camelot,
into shares of
preferred stock at the price of $1.00 per share. The
Company
also issued 5,000 shares of preferred stock in exchange for
the outstanding common shares owned by Camelot of the
Company's subsidiaries. The per share information has been
adjusted to reflect the common stock exchange on a retroactive
basis.
The Company currently has 3,992,752 shares of preferred
stock, Series A. The preferred Series A are non-voting, non-
yielding and non-convertible but have a preference over the
common shares in the event of a liquidation or similar event of
the Company.
During the year ended April 30, 1995, a subsidiary of the
Company authorized 15,000,000 shares of $.01 par value
preferred stock. Proceeds from the sale of the 60,700
issued shares, net of expenses of $39,456, were $264,044.
During fiscal 1996, the Company purchased 60,700 shares of
the 10% Convertible Preferred Shares, Series A. The 10%
Convertible Preferred Shares, Series A, have one vote per
share, and no preemptive rights. The
dividend is cumulative and must be paid before any dividends
can be paid to the common shareholders. The Preferred shares
have a preference upon liquidation over the common shares.
The Company has the right to redeem the Preferred shares
within twelve months of issuance at $6.00 per share and the
second twelve months for $6.60 per share. Dividends in the
amount of $121,968 were paid in 1996. All shares were
redeemed in fiscal year 1996.
7. RELATED PARTY TRANSACTIONS
The Company receives administrative, legal and
accounting services along with office and warehouse space
from Camelot Corporation. Beginning in April 1997, the
Company pays a monthly management fee of $4,000 that
compensates Camelot Corporation for these expenses. Total
management fee expense charged to
operations in 1997 was $4,000. A subsidiary of
mrcdrom.com, Camelot Distributing, Inc., will be the
exclusive supplier of products to mrcdrom.com. If
relationships between Camelot
Distributing and its suppliers were terminated, then
mrcdrom.com would be severely impacted in its ability to
fulfill orders.
Some of the officers and directors of the Company are
also officers and directors of Camelot. These officers and
directors are in the position to, and in the future may,
influence the operations of the Company.
Amounts due to affiliates are non interest bearing and are
due upon demand.
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company conducts operations from leased premises in
the Dallas, Texas area. Total rent expense, all of which
were minimum rentals, for fiscal 1997, 1996 and 1995 was
$495,507, $164,301 and $13,500, respectively. The Company has
negotiated or is in the process of negotiating early
termination of its retail lease obligations. An accrual
of $115,099, for the settlement of the leases, is
included in accrued expenses at April 30, 1997. If the
negotiations are not successful, the ultimate loss will
probably be greater than the accrued amount.
Litigation
During the ordinary course of business, the Company is
involved in legal proceedings which management does not expect
to have a material effect on the financial position of the
Company.
9. STOCK OPTIONS
mrcdrom.com, inc. has approved two stock option plans, a
1997 Incentive Stock Option Plan (the "Incentive Stock Option
Plan") and the 1997 Directors' Stock Option Plan (the
"Director's Stock Option Plan") in March 1997, reserving
500,000 shares of common stock for issuance upon the exercise
of options granted under the Plans. The Incentive Stock
Option Plan is available to all employees of mrcdrom.com,
inc. (including officers and employee directors). The
Director's Stock Option Plan is available for all
nonemployee directors of mrcdrom.com, inc. The option
exercise price is equal to the fair market value of a share
of common stock on the grant date unless the optionee is
granted more than 10% of the maximum number of shares
available for issuance under the Plans in which case the
exercise price is equal to 110% of the fair market value of a
share of common stock on the date of grant. The term of the
options under the Plans may not exceed 10 years.
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
The following schedule summarized the changes in the Plans:
Incentive Stock Option Plan
1997 1996
1995
Options outstanding at
beginning of year
Granted 393,860 - -
Exercised - - -
Canceled
- - -
Options outstanding at end 393,860
of year - -
Options exercisable at 408,800
end of year - -
Average price of options
Granted during year $ 4.00 $ $
- -
Exercised during year - - -
Canceled during year - - -
Outstanding at end of 4.00 - -
year
Director's Stock Option Plan
1997 1996 1995
Options outstanding at
beginning of year
Granted 15,000 - -
Exercised - - -
Canceled - - -
Options outstanding at end 15,000
of year - -
Options exercisable at 15,000
end of year - -
Average price of options
Granted during year $ 4.00 $ $
- -
Exercised during year - - -
Canceled during year - - -
Outstanding at end of 4.00 - -
year
The Company recognizes and measures compensation costs related
to stock option plans utilizing the intrinsic value based
method. Accordingly, no compensation cost has been
recorded. Had compensation expense been determined on the
fair value of awards granted, the effect on the Company's
earnings would not have been material.
The Company granted stock options to purchase 408,860 shares
of common stock to officers and directors of the Company.
mrcdrom.com, inc. and subsidiaries
NOTES TO FINANCIAL STATEMENTS
10. INDUSTRY SEGMENT
The Company is operating in one industry segment, engaged in
the retailing and distribution of software and computer
accessories, primarily CD-ROM software.
11. UNCERTAINTY
The accompanying financial statements have been prepared
in conformity with generally accepted accounting principles,
which contemplates continuation of the Company as a going
concern. The Company requires capital to maintain and
increase its customer base, implement and successfully
execute its business and marketing strategy, continue
to develop and upgrade its
technology and transaction processing system, improve its
web site, provide customer service and order fulfillment,
respond to competitive developments, and attract, retain
and motivate qualified personnel. The Company believes that
its success will depend on its ability to extend its brand
position, provide its customers
with outstanding value and a superior shopping
experience, and achieve sufficient sales volume to
realize economies of scale. Accordingly, the Company intends
to invest in site development, technology and operating
infrastructure
development. The future success of the Company is dependent
on
its ability to obtain additional working capital to market
its
products and ultimately, upon its ability to attain
future profitable operations. If the net proceeds of
the public offering, together with cash generated by
operations, are
insufficient to fund operations, the Company may be required
to raise additional funds. There can be no assurance that
the Company will be able to obtain necessary financing in
amounts or on terms acceptable to the Company to be able
to successfully
market its products, or attain successful future operations. In
view of these matters, realization of a major portion of
the assets in the accompanying balance sheets is dependent
upon continued operations of the Company, which in turn is
dependent upon the Company's ability to meet its financing
requirements, and the success of its future
operations. Management believes
that actions presently being taken to meet the
Company's operating and financial requirements provide the
opportunity for the Company to continue as a going concern.
mrcdrom.com, inc. and subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended April 30, 1997, 1996 and 1995
Allowance deducted
from assets to which
it applies:
Balance at
Beginning Charged to Charged to Balance
Description of Period Costs Other Deductio at
and Accounts ns End of
Expenses Period
Inventories
Year Ended
April 30, $ 198,000 $ 470,942 $ $ $
469,744
1997 - 199,198
April 198,000 - - 198,000
30,1996 -
April - - - - -
30,1995
STOCK PURCHASE AGREEMENT
(All Investors must sign this Stock Purchase Agreement)
No. of Shares Being Purchased: ____________ x $4.00
per Share = Total
Purchase Price for Shares: $___________
PURCHASER DATA: (Must be completed in full)
_____________________________
_________ ____________________________________
First Full Name (Do not use initials) M.I. Last
Name
Residence Address, including Zip Code: (Do not use P.O. Box)
_______________________________________________________________
__ _____________
Resident Telephone Number: -or-
Business Telephone Number:
______________________________
______________________________
Social Security Number (Individual): -or- Tax
I.D. Number:
______________________________
______________________________
SIGNIFICANT DISCLOSURE
THIS STOCK PURCHASE IS MADE PURSUANT TO, AND IS SUBJECT TO,
THE TERMS AND CONDITIONS OF THE QUALIFICATION APPROVED
BY THE SECURITIES COMMISSIONS OF THE STATES IN WHICH THE
SHARES ARE BEING OFFERED. SIGNATURE MUST BE IDENTICAL TO NAME
OF REGISTERED OWNER.
____________________________________
Printed Name of Purchaser
____________________________________
__________________
Signature of Purchaser Date
____________________________________
Printed Name of Purchaser (if more than one)
____________________________________
__________________
Signature of Purchaser (if more than
one) Date
ADDITIONAL INFORMATION
In order to facilitate processing of your purchase, please
be sure you have completed each of the following:
- - A check made out to mrcdrom.com
- - Enter the number of Shares being purchased and total cash
price of the Stock Purchase Agreement
- - Enter the State in which you are a legal resident in
the "Residence Address" line above.
Please mail check and this Stock Purchase Agreement to:
mrcdrom.com, inc. Escrow Account
The Oaks Bank and Trust Company
4849 Greenville Ave. Dallas, Texas 75206
4. Escrow Agent is not a party to, nor is it bound by nor
need
it give consideration to the terms or provisions of any
other agreement or undertaking between the undersigned or
between any of the undersigned and other persons, or any
agreement or undertaking which may be evidenced by or
disclosed by any items included among the deposited funds,
and Escrow Agent assents to and is to give consideration only
to the terms and provisions of this Escrow Agreement.
Unless it is specifically
provided
otherwise herein, Escrow Agent has no duty to determine
or inquire into the happening or occurrence of any
event or contingency or the performance or failure of
performance of any of the undersigned with respect to
arrangements or contracts with each other or with others,
and the Escrow Agent's sole duty hereunder is to hold the
deposited funds and to dispose of and deliver the same in
accordance with instructions given to it in the form
and tenor provided in this Escrow
Agreement.
mrcdrom.com represents and warrants that each Investor has
been apprised of this Escrow Agreement.
5. Escrow Agent shall not be responsible or liable to
any
person in any manner whatever for the sufficiency,
correctness, genuiness, effectiveness or validity of any of
the deposited funds or for the form or execution thereof, or
for the identity or authority of any person executing or
depositing it. If any of the undersigned are acting as
agent for others, all of the undersigned represent and
warrant that such agent is authorized to make and enter
into this Escrow Agreement. This Escrow Agreement is a
personal one between the undersigned and
the
Escrow Agent only, and in connection therewith Escrow Agent
is authorized by each of the undersigned to rely upon
the
representations, both actual and implied, of the undersigned
and all other persons connected with this Escrow Agreement and the
deposited funds, as to marital status, authority to execute
and deliver this Escrow Agreement, notifications,
receipts, or
instructions hereunder, and relationships among
persons,
including persons authorized to receive delivery hereunder,
and Escrow Agent shall not be liable to any person in any
manner for such reliance. The duty of Escrow Agent hereunder
shall only be to the undersigned, their successors, and
assigns and to no other person or persons whomsoever.
6. Escrow Agent may act upon any written notice,
request,
waiver, consent, certificate, receipt, authorization, power
of attorney or other instrument or document, from mrcdrom.com
and Escrow Agent may consider such to be genuine and to be what it
purports to be. Escrow Agent shall be liable as a
depository only and shall not be responsible for the
sufficiency or accuracy of the form, execution or validity
of documents deposited hereunder, or any description of
funds or other thing
therein,
nor shall it be liable in any respect on account of the
identity, authority, or rights of the persons executing or
delivering or purporting to execute or deliver any such
document or paper. The undersigned parties, jointly and
severally, agree to indemnify and hold harmless Escrow
Agent from and against any and
all
liabilities, including attorney's fee, incurred in
connection with this Escrow Agreement."
No dealer, salesman or other person has
been
mrcdrom.com, inc.
authorized to give any information or to make
any representations other than those contained in this
Prospectus, and if given or made, such
information or representations must not be
3,000,000 Shares
relied upon as having been authorized by the Company. This
Prospectus does not constitute
an offer to sell or a solicitation of an offer to
buy Common Stock
any security other than the shares of Common
Stock offered by this Prospectus, or an offer to
sell or a solicitation of any offer to buy any security to any
person in any jurisdiction in which such
offer or solicitation would be unlawful. Neither the delivery
of this Prospectus nor any sale made hereunder shall, under any
circumstances, imply that the information in the Prospectus is
correct as of any time subsequent to the date of this
Prospectus.
TABLE OF CONTENTS
Page
Stock Purchase Information
Electronic Format of Prospectus
Prospectus Summary
Risk Factors
The Company
Use of Proceeds
Prospectus
Dividend Policy
Dilution
Capitalization
Selected Financial Data
Plan of Operation
Business
Management
Certain Relationships and Related Transactions
Principal Stockholders Description of Capital Stock Shares
Eligible for Future Sale Plan of Distribution
Legal Matters
Experts
Available Information
Index to Financial Statements Stock Purchase Agreement and
Signature Page (Appendix A)
Until ________________, 1997 (90 days after the date of this
Prospectus), all dealers effecting transactions in the
registered securities, whether or not participating in this
distribution, may be
required to deliver a Prospectus. This is in addition to the
obligation of dealer to deliver a Prospectus when acting as
underwriters.
Part II
Information Not Required in Prospectus
Item 24. The Certificate of Incorporation and the Bylaws of
the Company contain provisions providing for the
indemnification by the Company of all directors, officers
employees or agents of the Company. Such indemnification
applies only to the extent that any such person by reason of
acting in such capacity is, or is threatened to be made, a
witness in, or party to, any action, suit, arbitration,
alternative dispute resolution mechanism, investigation,
administrative hearing or other proceeding brought
by or in the right of the Company, against all
judgments, penalties, fines and amounts paid in
settlement, and all reasonable expenses incurred, in
connection therewith, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to
the best interests of the Company. The provisions provide
for indemnification to the fullest extent permitted by
applicable law.
Specifically the provisions in the Certificate of
Incorporation are as follows:
NINTH: The personal liability of the directors of
the corporation is hereby eliminated to the fullest extent
permit by the General Corporation Law of Delaware.
TENTH: The corporation shall, to the fullest extent permitted
by the General corporation Law of the State of Delaware
may indemnify any and all persons whom it shall have
power to indemnify under said section from and against any and
all of the expenses, liabilities, or other matters referred to
in or covered by said section, and the indemnification
provided for herein shall not be deemed exclusive of any
other rights to which those indemnified provided for herein
shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office,
and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of
such a person.
In addition, to the indemnification provided by the
Certificate of Incorporation, the Bylaws provide for
indemnification and have the ability to be amended by the
directors at any time to provide for indemnification to the
fullest extent permitted by Delaware laws. Further the
directors may cause the Company to purchase and maintain
insurance on behalf of any person who is or was a director
of officer of the corporation, or is or was serving at the
request of the Company as director or officer of another
corporation, or as its representative in a partnership,
joint venture, trust or other enterprises against any
liability asserted against such person and incurred in any such
capacity or arising out of such status, whether or not the
Company would have the power to indemnify such person.
The indemnification provided in this Certificate shall
continue as to a person who has ceased to be director,
officer, employee or agent, and shall inure to the benefit of
the heirs, executors, and administrators of such person.
Item 25. Other Expenses of Issuance and Distribution
The expenses of this offering are estimated as if all
shares offered are sold as follows:
SEC Registration Fee................$ 3,636
Blue Sky fees and expenses...............$ 10,000
Transfer Agent and Registrar fees...........$ 4,000 Printing
and engraving expenses.............$ 15,000 Legal fees and
expenses.................$ 5,000 Accounting fees and
expenses..............$ 22,000 Escrow Agent
fees.................$ 1,250 Miscellaneous
....................$ 39,114
Total.................$100,000
(1) All amounts other than the SEC Registration Fee
are estimated and the total fees are not expected to exceed
$50,000 if only the minimum is raised or $100,000 if the
entire offering is raised.
Item 26. Recent Sales of Unregistered Securities
Within the past three years, the Company sold securities
without registration under the Securities Act of 1933, as
amended (the "Act") as follows:
Consideration
Exemption from
Securities Sold Name of Investor
Received Registration
6,000,000 Camelot Corporation $667,892
Section 4(2) of the Act
Camelot Corporation subscribed for 6,000,000 common shares of
the Company in exchange for $667,892 in inventory,
proprietary software, cash and other assets.
Item 27. Exhibits
1.2 Escrow Agreement by and between mrcdrom.com, inc. and
The Oaks Bank and Trust Company
3.0 Certificate of Incorporation of mrcdrom.com, inc.
3.1 Bylaws of mrcdrom.com, inc.
4.0 Specimen Stock Certificate*
5.0 Opinion of Jeanette Fitzgerald, Esq.
10.0 mrcdrom.com, inc. 1997 Stock Option Plan
10.1 mrcdrom.com, inc. 1997 Directors Stock Option Plan
10.2 Employment Agreement between mrcdrom.com, inc. and
Daniel Wettreich
10.3 Assignment of trademark mrcdrom
10.4 Lease and Bookkeeping Agreement by and between
mrcdrom.com, inc. and Camelot Corporation
24.0 Consent of Lane Gorman, Trubitt, L.L.P.,
independent
certified public accountants
24.1 Consent of Jeanette Fitzgerald, Esq. (included
in
Exhibit 5.0)
*To be filed by amendment.
Item 28. Undertakings
a. Undertaking pursuant to Rule 415.
The undersigned the Company hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement to:
(a) Include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(b) Reflect in the prospectus any facts or events
arising after the effective date of the
Registration Statement (or the most recent post-
effective amendment thereof), which, individually
or in the aggregate, represent a fundamental change
in the information set forth in the Registration
Statement; and
(c) Include any material information with respect to
the plan of
distribution not previously disclosed in the
Registration Statement or any material change to
such information in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment will
be deemed
to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that
time will be deemed to be the initial bona fide offering
thereto.
(3) To remove from registration, by means of a post-
effective
amendment, any of the securities being registered that
remain unsold at the termination of the offering.
B. Undertaking in respect to indemnification.
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and
other agents of the Company, the Company has been informed that
in the opinion of the Securities and Exchange
Commission, such indemnification is against policy as
expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities, the Company will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, the registrant has duly caused this
Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of
Dallas, State of Texas, on the ____ day of September, 1997.
mrcdrom.com, inc.
By:/s/ Daniel Wettreich
Daniel
Wettreich,
Chairman
and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of
1933, as amended this Registration Statement has been signed
by the following persons in the capacities indicated below on
the ____ day of September, 1997.
___/s/ Daniel Wettreich____________ Chairman of the
Board,
Chief Executive
Daniel Wettreich Officer
(Principal
Executive Officer)
___/s/ Robert Gregory_____________ President, Chief
Financial Officer, (Principal
Robert Gregory Financial and Accounting Officer)
__/s/ Jason Conway_______________ Director
Jason Conway
__/s/ Colin Grant_________________ Director
Colin Grant
__/s/ Jeanette Fitzgerald____________ Director
Jeanette Fitzgerald
EXHIBITS
1.2 Escrow Agreement by and between mrcdrom.com, inc. and
The Oaks Bank and Trust Company.
3.0 Certificate of Incorporation of mrcdrom.com, inc.
3.1 Bylaws of mrcdrom.com, inc.
5.0 Opinion of Jeanette Fitzgerald, Esq.
10.0 mrcdrom.com, inc. 1997 Stock Option Plan
10.1 mrcdrom.com, inc. 1997 Directors Stock Option Plan
10.2 Employment Agreement between mrcdrom.com, inc. and
Daniel Wettreich
10.3 Assignment of trademark mrcdrom
10.4 Lease and Bookkeeping Agreement by and between
mrcdrom.com, inc. and Camelot Corporation
24.0 Consent of Lane Gorman and Trubitt, L.L.P.,
independent
certified public accountants
24.1 Consent of Jeanette Fitzgerald, Esq. (included
in
Exhibit 5.0)