99
As filed with the Securities and Exchange Commission on February
__, 1998
Registration No. 333-24511
================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 25409
Amendment No. 2 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 Jurisdiction (Primary Standard (IRS Employer
of Incorporation Industrial Identification
Classification No.)
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. { }
<TABLE>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
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 3,000,00 $4.00 $12,000,00 $3,636
0 0
</TABLE>
(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.
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".
The Company also has Preferred Shares which have a liquidation preference over
the common shares offered hereby. These Preferred Shares are non-voting, non-
yielding and non-convertible.
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.
<TABLE>
<S> <C> <C> <C>
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)
</TABLE>
The offering of the Shares hereunder will terminate not later than
_______________, 1998 (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 discre-
tion 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 in-
clude 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: [email protected]
Internet address: http://www.mrcdrom.com
SUBJECT TO COMPLETION DATED FEBRUARY _____, 1998
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.
- ---------------
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
[email protected]. 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.
- ---------------
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.
- ---------------
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 was
created as a successor to software stores previously operated and subsequently
closed by Camelot. 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
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. Camelot will be the sole shareholder of all outstanding Preferred
Stock which is non-yielding, non-voting, non-convertible but has a preference
over the Company common stock. There currently is no market and one may not
develop for the shares offered hereby. 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.
Selected Financial Data
The following selected financial data should be read in conjunction with the
financial statements and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein. The statement of operations data for the period from November 22, 1994
(inception) to April 30, 1995 and for the years ended April 30, 1996 and 1997
and the balance sheet data at April 30, 1996 and 1997 are derived from the
financial statements of the Company, which have been audited by Lane Gorman
Trubitt LLP, independent auditors, and are included elsewhere in this
Prospectus, and are qualified by reference to such financial statements and the
notes thereto. The balance sheet data at April 30, 1995 are derived from the
financial statements of the Company which were also audited by Lane Gorman
Trubitt LLP, which are not included herein. The selected financial data as of
October 31, 1997, and for the quarter ended July 31, 1997 are derived from
unaudited financial statements of the Company, which in the opinion of
management include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial information set
forth therein. The historical results are not necessarily indicative of future
results.
NOTE: The Company was formed on March 27, 1997. The numbers below include the
activities of the subsidiaries, consider a predecessor business to the Company.
For the year ended
April 30,
For the period
from November
22, 1994
(inception) to
1996 1995
1997
(In Thousands, Except Per Share
Data)
Statement of
Operations
Net Sales 1,158.4 483.8 94.1
Cost of Sales 1,435.0 547.2 45.5
Gross Profit (276.6) (63.4) 48l.6
Operating Expenses
Marketing and Sales 304.8 449.7 115.1
Product Development - - -
General and 1,419.9 862.4 100.9
Administrative
Total Operating 1,724.7 1,312.1 216.0
Expenses
Loss for Operations (2,001.3 (1,375.5 (167.4)
) )
Interest/Other Income (463.0) (140.3) 0.2
(Expense)
Net Loss (2,464.3 (1,515.8 (167.2)
) )
Net loss per share (1) (0.411) (0.253) (0.028)
Shares used in 6,000 6,000 6,000
computation of
Net loss per share
(1)
Balance Sheet Data
For the Years Ended April 30,
1997 1996 1995
Cash and Cash 76.5 26.2 67.9
Equivalents
Working Capital 454.4 (2,003.3 131.2
(Deficiency) )
Total Assets 767.3 1,703.7 198.4
Long-Term Obligations, - - -
Net of current
maturities
Stockholders' equity 553.4 (1,641.0 138.8
)
For the Quarter Ended
(Unaudited)
July 31, October
1997 31,
1997
(In Thousands, Except
Per Share Data
Statement of
Operations
Net Sales 9.5 14.7
Cost of Sales 2.1 150.2
Gross Profit 7.4 (135.5)
Operating Expenses
Marketing and Sales - 0.4
Product Development - -
General and 96.8 98.3
Administrative
Total Operating 96.8 98.7
Expenses
Loss for Operations (89.4) (234.2)
Interest/Other Income 1 -
(Expense)
Net Loss (88.4) (234.2)
Net loss per share (1) (0.015) (0.039)
Shares used in 6,000 6,000
computation of
Net loss per share
(1)
Balance Sheet Data
As As
Adjusted Adjusted
Minimum Maximum
(1) (2)
Cash and Cash 4.0 3.7 203.7 11,903.7
Equivalents
Working Capital 373.9 204.1 404.1 12,104.1
(Deficiency)
Total Assets 717.5 541.8 741.8 12,441.8
Long-Term Obligations, - - - -
Net of current
maturities
Stockholders' equity 495.1 264.0 864.0 12,164.0
(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 was created as a successor to software stores
previously operated and subsequently closed by Camelot. 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 Ingram Micro, 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. The intended
plan is to have a distribution or publisher directly ship to customers thereby
eliminating the need for mrcdrom.com to maintain high levels of inventory. The
Company has not developed these relationships yet and there can be no assurances
that the Company will be able to establish any such relationships.
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. The Company has
incurred $2,375,170 funds on research and development in fiscal year 1997 to
establish the catalogue. 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. The value of the assets received from Camelot was the audited
book value of the assets. In addition, the value of the inventory was decreased
by approximately one third to reach the value. The preferred stock was issued
at a dollar per share value. 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.
Camelot, previous to establishing the Company, operated software stores in the
Dallas metropolitan area. These stores were closed by Camelot when it was
determined that those operations were not viable. Camelot transferred the
assets it owned from the stores to the Company. In contrast, the Company
believes its operations will be successful because the Company does not have the
overhead from real estate, fixtures and store personnel. The Company hopes to
capitalize on lower operating costs to operate profitability.
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. 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.
Camelot previously operated software retail stores in the Dallas metropolitan
area and then closed the stores due to what it believed was a very competitive,
limited market. 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, transaction-processing
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 vendor for the secured
transactions namely Automated Transaction Services, Inc. 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 transaction-processing, 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".
DEPENDENCE ON WIDESPREAD ACCEPTANCE OF ONLINE COMMERCE BY GENERAL
PUBLIC. 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.
OUTSTANDING LIQUIDATION PREFERENCE SHARES. The Company currently has
outstanding Preferred Shares, Series A issued to Camelot which is non-yielding,
non-voting, and non-convertible but has a liquidation preference over the Common
Stock including the Common Stock offered by this prospectus.
COST OF MAINTAINING STATE OF THE ART TECHNOLOGY 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".
NEED TO REMAIN COMPETITIVE WITH INDUSTRY AND METHOD OF DELIVERY TO
MARKET. 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, such as Egghead.com; 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 OF LOSS OF MAJOR SUPPLIER FOR GOODS AND DELIVERY The Company carries
minimal inventory and relies to a large extent on rapid fulfillment from
vendors. The Company intends to get to a position where the vendors it uses
will deliver to the Company's customers directly. There can be no assurances
that the Company will be able to develop these relationships. 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 a 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 DUE TO EXPENSE TO DEFEND TRADEMARK AND OTHER INTELLECTUAL PROPERTY
ASSETS. 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 UNCLEAR LEGAL BOUNDARIES AS
STATES AND NATIONAL GOVERNMENT REGULATIONS EVOLVE 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 DUE TO THE CONTINUING EVOLUTION OF STATE SALES TAX COLLECTION 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 DUE TO OF CONCENTRATED CONTROL OF THE COMPANY BY CAMELOT
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 POSSIBLE ADVERSE EFFECT ON MARKET PRICE DUE TO THE 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 1,012,248 in addition to the already issued 3,987,752 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 broker-dealers 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 broker-dealer 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 $0.11
Shareholders
Public Offering Price Per Share $4.00
Net Tangible Book Value Per Share, Before $0.086
Offering
Increase Per Share Attributable to Payment $0.032
by Public Investors
Net Tangible Book Value Per Share, After $0.118
Offering
Dilution to Public Investors Per Share $3.882
ASSUMING MAXIMUM NUMBER OF SHARES SOLD
Price Paid Per Share by Present $0.11
Shareholders
Public Offering Price Per Share $4.00
Net Tangible Book Value Per Share, Before $0.086
Offering
Increase Per Share Attributable to Payment $1.29
by Public Investors
Net Tangible Book Value Per Share, After $1.38
Offering
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 forward-looking
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. 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.
Traditional Software Retailing
Several characteristics of traditional software retailing have created
inefficiencies for all participants. Physical store-based 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, high-quality 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-of-mouth 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 high-profile 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 e-mail 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, Ingram Micro. . 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 initially used the
services of Camelot Internet Access Services, Inc. an affiliated company to
obtain connectivity to the Internet over dedicated T1 lines. The Company has
determined to use outside third parties to obtain connectivity to the Internet
in a more economical manner.
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.
Management has reviewed the software used in its technology. Management has
been assured by outside vendors, where appropriate, or internal staff that its
software is Year 2000 compliant. Management does not believe there will be any
Year 2000 compliant issues (the cost of making its internal systems Year 2000
compliant as well as the cost to the Company of making its clients' systems Year
2000 compliant where it is obligated to do so) and if any issues arise they will
not have a major impact on its operations. 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; i.e. Egghead.com, Inc., (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. The financial statements of mrcdrom.com include its results of
operations since inception on March 27, 1997 and those of its predecessors, Mr.
CD-ROM Stores, Inc., Camelot Distributing, Inc., SAC Distributing, Inc., and
Software @Cost + 10% Inc. during the period they were in operation. Camelot
Distributing, Inc. and SAC Distributing, Inc. were established as support
operations for the retail outlets. 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 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.
RESULTS OF OPERATIONS
The historical financial statements, as noted above, 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 non-recurring sales to non-related entities, no longer
a material portion of its business. Management determined that as the
products were in a fast evolving industry, the obsolescence of the inventory
needed to be accounted for and a reserve needed to be established. At the end
of fiscal year 1996, management determined that the reserve amount should be
$198,000. At the end of fiscal year 1997, a more complete analysis was
conducted which included a reflection of the age of the inventory, and the level
of sales both specific to the product and overall sales of the stores. This
reserve was $494,744. During the second quarter of the fiscal year 1998, an
additional reserve of $135,000 was recorded to reflect the lower competitive
price changes made in the Internet catalogue.
The Statement of Operations reflect the progression of the operations from the
beginning during the period November 1994 to April 1995 and through the
subsequent fiscal years. The revenues, expenses, and losses steadily increased
through the progression of the operations. During the fiscal year 1996,
Management determined to open five (5) retail outlets in the Dallas, Texas area
which dramatically increased the general and administrative expenses due to
increased personnel, and lease expenses. The General and Administration item
for the fiscal year 1996 was $1,272,213 compared to $214,831 in the fiscal year
1995. As the losses increased, as reflected in the Statement of Operations from
$1,393,788 in the fiscal year 1996 and $2,464,292 in the fiscal year 1997,
management determined that the overhead was too high. Further, the competitive
nature of the business required the ability to reach a larger number of
potential customers and keep expenses and prices down. Thus management
determined to reduce the overhead by closing all the retail outlets and begin a
new company, mrcdrom.com, inc., to offer the products using the medium of the
World Wide Web. The Other Income(Expense) section for the fiscal year 1996
reflects a one time expense due to the closing of the stores described as loss
on disposition of assets.
Dividends on Preferred Stock reflect dividends paid by Mr. CD-ROM Stores, Inc.
to preferred shareholders. The stock was later reacquired and is no longer
outstanding.
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 cash flow from the store operations throughout the history of the
predecessor operations was not sufficient to cover operations. Mr. CD-ROM
Stores, Inc. raised $264,044 during fiscal year 1995 additional funds by
issuing Preferred Shares and paid $31,975 in dividends on said shares. The
Preferred Shares were redeemed in fiscal year 1996. The Company also received
$3,012,513 in advances from affiliates to cover any shortfall in cash. The
Company through fiscal 1997 has also received $1,510,724 in advances from
affiliates to cover its operations.
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 sales of private stock was
solely to Camelot, the present sole shareholder of the Company. 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. All lawsuits against any of the Company's subsidiaries for rent
on some stores which were closed as they were not viable have been settled
favorably for the subsidiary.
EMPLOYEES
As of January 1, 1998, the Company employed 5 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:
<TABLE>
<S> <C> <C>
Name Age Position
Daniel Wettreich (1) 46 Chairman, Director,
President and CEO
Jason Conway (2) 29 Director
Jeanette Fitzgerald 36 Director
(2)
Margaret Cooper 49 Vice President of Operations
(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.
Jeanette 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.
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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee consists of Daniel Wettreich and Jeanette
Fitzgerald. 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, 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 January 1, 1998, 10,000 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 383,200 stock
options each with an exercise price of $4.00 per share. The $4.00 price per
share was selected as the same price as the offering of the shares.
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
On April 1, 1997, the Company entered into a month to month lease agreement
with Camelot Corporation, the present sole 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.
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.
On April 1, 1997, the Company entered into a month to month lease agreement
with Camelot Corporation, the present sole 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 February 1, 1998 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.
</TABLE>
<TABLE>
Percentage of
Shares Outstanding
<S> <C> <C> <C>
Name and Address Number of Shares Prior to After
Beneficially Owned Offering Offering
(1)
Camelot Corporation 6,000,000 100 60
17770 Preston Road
Dallas, Texas 75252
Daniel Wettreich 6,375,000 (2)(3) 100 62
17770 Preston Road
Dallas, Texas 75252
Jason Conway 5,000 (4) * *
54 Baker Street
London, England
Jeanette Fitzgerald 6,005,000 (2)(5) 100 60
17770 Preston Road
Dallas, Texas 75252
All officers and 6,393,200(2)(3)(4) 100 62
directors as a (5)(6)
group (6 person)
</TABLE>
*less than 1%
(1) Assumes all shares offered are sold.
(2) Includes 6,000,000 Common Shares owned by Camelot Corporation of which Mr.
Wettreich and Ms. Fitzgerald are directors . Both 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 5,000 options granted to Mr. Conway pursuant to the 1997 Directors
Stock Option Plan.
(5) Includes 5,000 options granted to Ms. Fitzgerald pursuant to the 1997
Directors Stock Option Plan.
(6) 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 has issued 3,992,752
Preferred Shares, Series A to date to Camelot. These shares are non-voting,
non-yielding, and non-convertible but have a preference over the Common Shares.
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 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.
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
As noted above, the Company's Board of Directors, without common
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 Preferred
Stock could out vote the Common Stockholders. Even if all the Common Shares
offered are old, Camelot will retain a majority of the outstanding Common Stock
and therefore able to vote in at least a majority of the directors of the
Company. As Camelot will own all the outstanding preferred shares and a
majority of the Common Stock, change of control could not occur without the
agreement of Camelot.
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.
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, LLP
Dallas, Texas
July 7, 1997
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
April 30,
ASSETS
<TABLE>
<S> <C> <C>
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
obsolescence of $469,744 and $198,000
at April 30, 1997 and 1996, respectively 511,293 1,213,005
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
amortization 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
</TABLE>
See accompanying notes to financial statements.
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<S> <C> <C>
April 30,
1997 1996
CURRENT LIABILITIES
Accounts payable $ 72,292 $ 241,996
Accrued expenses 141,645 73,831
Due to affiliate 3,025,911
-
Total current liabilities 3,341,738
213,937
STOCKHOLDER'S EQUITY
(DEFICIT)
Common stock, $.001 par value,
25,000,000
shares authorized, 6,000 -
6,000,000 shares
issued and outstanding
Common stock, of - 5,000
subsidiaries
Preferred stock, $.01 par value,
5,000,000 shares authorized,
3,992,752 shares 39,928 -
issued and outstanding
at April 30, 1997
Additional paid-in capital 4,614,716
Accumulated deficit (4,107,281) (1,642,989)
Total stockholder's equity
(deficit) 553,363 (1,637,989)
$ 767,300 $1,703,749
</TABLE>
See accompanying notes to financial statements.
<PAGE>
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS
October 31, 1997
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash $ 3,688
Accounts receivable 111,186
Prepaid expenses -
Inventories, net of allowance for obsolescence of
$594,592, at October 31, 1997
367,043
Total current assets 481,917
PROPERTY AND EQUIPMENT - AT COST
Office equipment and fixtures 82,866
Leasehold improvements -
Less accumulated depreciation and amortization (29,144)
53,722
OTHER ASSETS
Trademark, net of accumulated amortization of
$19,578 at October 31, 1997
20,422
Deferred offering costs/other 36,900
Total other assets 57,322
592,961
</TABLE>
See accompanying notes to financial statements.
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
October 31, 1997
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<S> <C>
CURRENT LIABILITIES
Accounts payable $45,085
Accrued expenses 130,269
Due to affiliate 153,563
Total current liabilities 328,917
STOCKHOLDER'S EQUITY (DEFICIT)
Common stock, $.001 par value, 25,000,000
shares authorized, 6,000,000 shares issued and 6,000
outstanding
Common stock, of subsidiaries -
Preferred stock, $.01 par value, 5,000,000 and
4,022,897 shares issued shares authorized, and -
outstanding October 31, 1997
Additional paid-in capital 4,644,561
Accumulated deficit (4,426,746)
Total stockholder's equity (deficit) 264,044
$ 592,961
</TABLE>
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended April 30,
<TABLE>
<S> <C> <C> <C>
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 administration 1,686,967 1,272,213 214,831
Provision for inventory 470,942 198,000
obsolescence
Loss on disposition of assets (443,055) (18,280) -
Depreciation and amortization 57,721 39,917 1,115
OTHER INCOME (EXPENSE)
Interest and miscellaneous - - 151
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 operations $ (.41) $ (.23) $ (.03)
Dividends on preferred stock - (.02) -
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
</TABLE>
See accompanying notes to financial statements.
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter Ended
<TABLE>
<S> <C> <C>
July 31, October
1997 31, 1997
REVENUES 9,490 14,683
COSTS AND EXPENSES
Cost of sales 2,113 15,146
General and administration 90,086 91,420
Provision for inventory - 135,000
obsolescence
Loss on disposition of assets (1,000) -
Depreciation and amortization 6,704 7,293
Total costs and expenses 98,903 248,859
LOSS FROM OPERATIONS (88,413) (234,176)
OTHER INCOME (EXPENSE)
Interest and miscellaneous - -
Total other income (expense) - -
NET LOSS (88,413) (234,176)
DIVIDENDS ON PREFERRED STOCK
(of Subsidiary) - -
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS (88,413) (234,176)
LOSS PER SHARE
Loss from continuing operations (.01) (.04)
Dividends on preferred stock - -
NET LOSS PER COMMON SHARE (.01) (.04)
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING 6,000,000 6,000,000
</TABLE>
See accompanying notes to financial statements.
<TABLE>
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
Years ended April 30, 1997, 1996 and 1995
<S> <C> <C> <C> <C>
Common Common Common Common
Stock Stock Stock Stock
Shares Amount Shares Amount
Beginning balance - $ - 3,000 $ 3,000
Common stock
issued to - - 200,000 2,000
affiliate for
cash and certain
assets
Sale of preferred - - - -
stock
Net loss - - - -
Balance at April - - 203,000 5,000
30, 1995
Redemption of - - - -
preferred stock
Preferred stock - - - -
dividends
Net loss - - - -
Balance at April - - 203,000 5,000
30, 1996
Common stock
issued to 6,000,000 6,000 - -
affiliate
for certain
assets
Preferred stock
issued to
affiliate in - - (203,000) (5,000)
exchange for
common stock
of subsidiaries
Preferred stock
issued to pay - - - -
amounts due to
affiliate
Net loss - - - -
Balance at April 6,000,000 $ 6,000 - $
30, 1997 -
</TABLE>
See accompanying notes to financial statements.
<TABLE>
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
Years ended April 30, 1997, 1996 and 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Preferred Preferred Preferred Preferred Additional Total
Stock Stock Stock Stock Paid-in Accumulated Stockholder's
Shares Amount Shares Amount Capital Deficit Equity
(Deficit)
Beginning - $ - - $ - $ - $ - $ 3,000
balance
Common stock
issued to - - - - 40,000 - 42,000
affiliate
for cash and
certain assets
Sale of - - 60,700 607 263,437 - 264,044
preferred stock
Net loss - - - - - (167,233) (167,233)
- - 60,700 607 303,437 (167,233) 141,811
Balance at April
30, 1995
Redemption of - - (60,700) (607) (271,462) (21,268) (354,037)
preferred stock
Preferred stock - - - - 31,975 - 31,975
dividends
Net loss - - - - - (1,393,788) (1,393,788)
- - - - - (1,642,989) (1,637,989)
Balance at April
30, 1996
Common stock
issued to - - - - 661,892 - 667,892
affiliate
for certain
assets
Preferred stock
issued to
affiliate 5,000 50 - - 4,950 - -
In exchange for
common stock
Of subsidiaries
Preferred stock
issued to pay 3,987,752 39,878 - - 3,947,874 - 3,987,752
amounts due to
affiliate
Net loss - - - - - (2,464,292) (2,464,292)
Balance at April 3,992,752 $ 39,928 - $ - $4,614,716 $4,107,281) $ 553,363
30, 1997
</TABLE>
mrcdrom.com, inc. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended April 30,
<TABLE>
<S> <C> <C> <C>
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 operating activities (1,341,929)
(2,307,884) (193,197)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment (205,350) (360,274) (21,381)
Net cash used in investing activities (205,350)
(360,274) (21,381)
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
by financing activities 2,626,501 282,442
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 $ - $ - $ -
</TABLE>
In fiscal 1997, the Company acquired certain assets in exchange for
shares of the Company's stock valued at $1,624,593. $956,701 was
preferred stock issued to Software at Cost + 10%, $667,892 common
stock was issued to Mr. CD-Rom Stores, Inc. 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
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarters Ended
<TABLE>
<S> <C> <C> <C>
July 31, October 31,
1997 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (89,413) $(234,176)
Adjustments to reconcile net loss to
net cash used in
operating activities:
Depreciation and amortization 6,704 7,293
Loss on disposal of assets - -
Provision for inventory - 135,000
obsolescence
Change in assets and liabilities
Accounts receivable (18,482) (30,131)
Prepaid expenses - -
Inventories (3) 9,253
Accounts payable and 8,422 106,556
accrued expenses
Net cash used in (92,772)
operating activities (6,205)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and 1,000 -
equipment
Net cash used in 1,000 -
investing activities
CASH FLOW FROM FINANCING ACTIVITIES:
Deferred offering costs (10,995) 2,851
Redemption of preferred stock - -
Sale of common stock - -
Sale of preferred stock 30,146 -
Dividends on preferred stock - 3,125
Advances from affiliate - -
Net cash provided 19,151
by financing activities 5,976
NET INCREASE (DECREASE) IN CASH (72,621)
(229)
CASH AT BEGINNING OF PERIOD 76,538 3,917
CASH AT END OF PERIOD $ $
3,917 3,688
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ - $ -
Cash paid for taxes $ - $ -
</TABLE>
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 subsidiaries were initially acquired from Camelot by the
Company through the issuance of non-voting, non-yielding and non-
convertible preferred stock of the Company. The transaction has
been treated as a pooling of interest.
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. The assets related to the
closure were reduced to net realizable value which in most cases
was zero. The leasehold improvements were no value, the store
operations software has no value, the minor amounts of remaining
equipment has been sold or stored awaiting disposition. A
reserve has been set up for the settlement of the store
leases.
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. The total research
and development costs were $ 2,375,170 for the fiscal year 1997,
$1,319,253, and $162,616 for the fiscal year 1995.
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. The Company
valued Long-Lived Assets to be disposed of at net realizable
value which was estimated to be zero. All other Long-Lived
assets are held at carrying value.
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 hence management determined
in fiscal year 1996 to include a reserve against the value of the
inventory taking into account the item sales, store sales, and
the age of the inventory. The amount of $198,000was established
in fiscal year 1996 and the amount of $494,744 was established in
fiscal year 1997. A more detailed analysis resulted in a higher
reserve.. 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 price of
the shares was determined by the board based on the size of the
block. 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 outstanding.. 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. The Company issued preferred shares to Camelot in
exchange for the common stock owned by Camelot in Mr. CD ROM
Stores, Inc., Software @ Cost + 10%, Inc. (it's wholly owned
subsidiary is SAC Distributing, Inc.), and Camelot Distributing,
Inc. This transaction, accounted for as a pooling of interest,
resulted in mrcdrom.com, inc., owning all the outstanding shares
of these companies and they become wholly owned subsidiaries 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, and
MIS services along with office and warehouse space from Camelot
Corporation and/or one of its subsidiaries. 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. Camelot and its subsidiaries would be
able to secure software products through normal retail
distribution.
The Company originally used an affiliated entity, Camelot
Internet Access Services, Inc. ("CIAS") to obtain connectivity to
the Internet. Through April 30, 1997, the Company received
services from CIAS and compensated CIAS through its management
fee to Camelot which owns CIAS.
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, operations or
statements as a whole 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.
The value of the stock options is zero because the exercise price
is the same price at which the shares are offered in this
offering. There is no present market for the common shares and
if no public market develops the options will most likely not be
exercised. There are no expected dividends. The options all
have a ten year life, there is no risk-free interest rate and no
way to measure volatility.
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 393,860
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 ________________, 1998 (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
10.5 Agreement with Ingram Micro
24.0 Consent of Lane Gorman and Trubitt,
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
February, 1998.
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 February, 1998.
___/s/ Daniel Wettreich____________ Chairman of the
Board, Chief Executive
Daniel Wettreich Officer
(Principal Executive Officer)
(Principal Financial and
Accounting Officer)
__/s/ Jason Conway_______________ Director
Jason Conway
__/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
10.5 Agreement with Ingram Micro
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)
<PAGE>
INGRAM
MICRO
Content Agreement
This agreement (Agreement) is made and entered into as of the
______ day of ________________, 199___ (The Commencement Date)
between Ingram Micro Inc., a Delaware corporation (Ingram), and
Camelot Distributing Inc. (Reseller).
The parties agree as follows:
1. Delivery and License. Pursuant to this Agreement, Ingram may
provide Reseller data and information, which may include text, music,
video, drawings and photographs that may be updated from time to
time, regarding Tech Notes II (collectively Content) for use by
Reseller including, but not limited to, display via the World Wide
Web, CD-ROM disk, and other electronic media. Ingram hereby grants
Reseller a non-exclusive, limited, worldwide license to use and
display to end users the Content. Reseller may, at its discretion,
make minor additions or minor deletions to data from the Content but
Reseller is not authorized to alter Content data or the fields or
data structure thereof. Any use, distribution, display or
transmission not expressly authorized in this Section 1 or to other
than Reseller's end users is a material breach of this Agreement and
Ingram may seek all available remedies at law and in equity.
2. Use. Reseller agrees that whether or not Ingram owns all
proprietary rights in materials and data comprising the Content,
Ingram owns the copyright in the selection, coordination,
enhancement, arrangement, and compilation of the Content, including
the fields and data structures thereof. Reseller will not use,
reproduce, display, transmit or redistribute the Content or the
selection, coordination, enhancement, arrangement, or compilation of
such Content or the fields and data structures thereof except as
expressly authorized pursuant to Section 1.
3. Warranties. Ingram warrants that it either is the owner of all
applicable rights necessary to provide the Content to Reseller or has
acquired all such necessary rights and permission from the owner(s)
of those rights. Ingram does not warrant that the distribution of
the Content will be uninterrupted or error free. Ingram shall not be
responsible for screening, editing, or monitoring the Content prior
to its delivery to Reseller.
4. No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, INGRAM MAKES NO OTHER WARRANTIES AND RESELLER ACKNOWLEDGES
THAT THE CONTENT IS DISTRIBUTED "AS IS". INGRAM HEREBY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED REGARDING THE
CONTENT, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE
OF DEALING OR COURSE 0F PERFORMANCE.
5. Limitation of Liability. EXCEPT AS OTHERWISE PROVIDED HEREIN,
UNDER NO CIRCUMSTANCES SHALL INGRAM BE LIABLE TO THE RESELLER OR ANY
THIRD PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR
EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES), ARISING FROM THE USE OR INABILITY TO
USE THE CONTENT, OR ANY OTHER PROVISIONS OF THIS AGREEMENT, SUCH AS,
BUT NOT LIMITED TO, LOSS OF REVENUE, ANTICIPATED PROFITS OR LOST
BUSINESS.
6. Indemnity. Each party will defend, indemnify, save and hold
harmless the other party and the officers, directors, agents,
affiliates, distributors, franchisees and employees of the other
party from any and all third party claims, demands, liabilities, cost
or expenses, including reasonable attorney's fees (''Liabilities''),
resulting from the indemnifying party's material breach of any duty,
representation, or warranty of this Agreement, except where
Liabilities result from the gross negligence or knowing and willful
misconduct of the other party.
7. Term and Termination. This Agreement shall be effective from the
Commencement Date for a period of one (1) year and shall
automatically renew on the anniversary unless terminated by written
notice of either party thirty (30) days prior to the expiration.
Either party may terminate this Agreement without cause upon thirty
(30) days written notice to the other party. Ingram may terminate
this Agreement for cause upon written notice which notice will
include a ten (10) day opportunity to cure. Upon termination
Reseller shall immediately cease all use and display of the Content
and upon request by Ingram promptly return all id documentation
embodying or relating to the Content.
8. Law. The validity, construction, and performance of this
Agreement will be governed by the substantive law of the State of
California, not including its law of conflicts of laws. If any
provision of this Agreement is held by a court of competent
jurisdiction to
<PAGE>
<PAGE>
be illegal, invalid, unenforceable, or otherwise contrary to law, the
remaining provisions of this Agreement shall remain in full force and
effect.
9. Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other, unless that
assignment occurs in connection with the acquisition of substantially
all of a party' assets or by reason of a merger or corporate
reorganization.
10. Independent Contractors. The parties hereto hereby agree that
in the performance of their respective obligations hereunder, they
are, and shall be, independent contractors and not agents of each
other.
11. Waiver. The failure of either party to enforce or to exercise,
at any time or for any period of time, any term of or any right
arising pursuant to this Agreement does not constitute, and shall not
be construed as, a waiver of such term or right, and shall in no way
affect that party's right later to enforce or exercise it.
12. Confidential Information. Each party acknowledges that
confidential information may be disclosed to the other party during
the course of this Agreement. Each party agrees that it shall take
reasonable steps, at least substantially equivalent to the steps it
takes to protect its own proprietary information (at all times
executing at least reasonable care), during the period this Agreement
is in effect, three (3) years following expiration or termination of
this Agreement, to prevent the duplication or disclosure of
confidential information to other than by or to its employees or
agents who must have access to the confidential information to
perform such party's obligations hereunder.
13. Notices. All notices or other communications required to be
given hereunder shall be in writing and either delivered personally
or by mail or overnight courier to the parties at the address
provided by each party below, unless such address has been changed
and notice of such change has been delivered in accordance with this
provision. All notices so mailed shall be deemed received two (2)
days after postmark date.
14. Entire Agreement. The provisions of this Agreement or other
agreements authorizing Reseller to use the Content constitute the
entire Agreement between the parties as to the subject matter hereof.
No amendment, modification, or waiver of any provision of this
Agreement shall be effective unless it is set forth in a writing that
refers to the Agreement and provisions so affected and is executed by
authorized representatives of both parties.
_____________________________________________________________________
Agreed as of the Commencement Date stated above.
Reseller Ingram
Camelot Distributing Inc. Ingram Micro Inc.
17770 Preston Road 1600 E. St. Andrew Place
Dallas, Texas 75252 Santa Ana, California 92705
By: /s/ Daniel Wettreich By: /s/ Greg Hawkins
Title: CEO Title: Sr. Vice President Sales
<PAGE>
NUMBER SHARES
mrcdrom.com, inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERRABLE IN $0.01 PAR
DALLAS, TEXAS COMMON STOCK
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF $0.01 PAR VALUE,
COMMON STOCK OF mrcdrom.com, inc.
therein called the "Corporation" transferable on the
books of the Corporation by the holder hereof, in person or
by duly authorized attorney, upon surrender of this
Certificate properly endorsed or accompanied by a proper
assignment. This certificate and the shares represented
hereby are issued under and shall be subject to all of the
provisions of Articles of Incorporation and By Laws of the
Corporation and all amendments thereto copies of which are
on file at the principal offices of the Corporation and the
Transfer Agent, to all of which the holder of this
Certificate by acceptance hereof assents. This Certificate
is not valid unless counter-signed by the Transfer Agent and
registered by the Registrar of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused the
facsimile signatures of duly authorized officers and its
facsimile seal to be hereunto affixed.
Dated:
mrcdrom.com, inc.
ATTEST BY:
Secretary Chairman of the Board
COUNTERSIGNED AND REGISTERED
Stock Transfer Company
of America, Inc. TRANSFER AGENT
P.O. Box 796277 AND REGISTRAR
Dallas, Texas 75379
By AUTHORIZED SIGNATURE
<PAGE>
mrcdrom.com, inc.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were
written in full according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT - ________ Custodian
__________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
Act(State)
survivorship and not as tenants
in common.
Additional abbreviations may also be used though not in the above list.
For Value Received ____________________________________________________ hereby
sell(s), assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL
SECURITY OR OTHER
IDENTIFYING NUMBER OF
ASSIGNEE
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
Shares of the par value $0.01, Common Stock
represented by the
within Certificate and do(es) hereby irrevocably constitute and appoint
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated:
X
(SIGNATURE)
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S)
AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
X
(SIGNATURE)
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN "ELIGIBLE
GUARANTOR INSTITUTION" AS
DEFINED IN RULE 17 AND 15 UNDER THE SECURITIES AND
EXCHANGE ACT OF 1934 AS AMENDED
SIGNATURE(S) GUARANTEED BY:
TRANSFER FEE OF $14.00 per new certificate issued.
$2.00 per certificate cancelled
