As filed with the Securities and Exchange Commission on January ___, 2001.
Registration No. 333-_________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
MERCADO INDUSTRIES, INC.
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(Name of small business issuer in its charter)
NEVADA 76-0639842
------------------------ ----------------- ----------------------
(State of Incorporation) (Primary Standard (I.R.S. Employer ID #)
Industrial
Classification
Number
14601 Bellaire Blvd., Suite 338
Houston, TX 77083
(281) 564-6418
-------------------------------------------------------------
(Address and telephone number of principal executive offices)
Copies to:
Thomas C. Cook, Esq.
Thomas C. Cook & Associates, Ltd.
3110 S. Valley View Suite #106
Las Vegas, Nevada 89102
(702) 876-5941
Approximate date of proposed commencement of sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, 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(d)
under the Securities Act, check the following box and list the Securities Act
registration 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. [ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
-------------------------------------
========================================================================
TITLE OF EACH PROPOSED
CLASS OF PROPOSED MAXIMUM
SECURITIES AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE TO BE PRICE PER OFFERING REGISTRATION
REGISTERED RESISTERED SHARE(1) PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
Common stock
$0.001 par value 3,000,000 $0.025
TOTAL 3,000,000 N/A $75,000 $19.80
=======================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457 (o) under the Securities Act of 1933
(the "Securities Act").
(2) Paid herein by electronic transfer
The registrant hereby amends the Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Acts of 1933 or until the Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
PROSPECTUS Subject to Completion; Dated January ______, 2001
The information in this prospectus is subject to completion or amendment.
We may not sell these securities until the registration statement filed with
the Securities and Exchange Commission 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 an
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of that state.
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MERCADO INDUSTRIES, INC.
PROSPECTUS
This is an initial public offering of up to 3,000,000 shares of our common
stock. we will be selling our shares on a "best efforts" basis. The shares
will be sold by our officers and directors. No one has agreed to buy any of
our shares, and there is no assurance that any sales will be made. Even if
not all, or very few, of the 3,000,000 shares are sold, we will not refund any
payments for the shares. There is no minimum amount of shares we must sell
and no money raised from the sale of our stock will go into escrow, trust or
another similar arrangement. The offering will remain open until June 30,
2001, unless we decide to cease selling efforts prior to this date
Prior to this offering there has been no public market for the trading of
the shares, and it is possible that no such market will develop or trading
will commence for a substantial period of time after the closing of this
offering. We expect one or more brokers to trade our shares and to apply for
the approval of the shares for quotation on the NASDAQ Bulletin Board, but
there is no assurance that we will be able to secure such listing. The price
of the shares has been determined solely by us, and does not bear any direct
relationship to our assets, operations, book value or other established
criteria of value.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER CAREFULLY THE RISK FACTORS CONTAINED IN THIS PROSPECTUS BEGINNING ON
PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================
SHARES PRICE TO SELLING PROCEEDS TO
OFFERED PUBLIC(1) COMMISSIONS(2) COMPANY(3)
<S> <C> <C> <C> <C>
Per share
Max. Share Amount 3,000,000 $0.025 $ 0.00 $ 75,000
=========================================================================
</TABLE>
(1) Does not include offering costs, including filing, printing, legal,
accounting, transfer agent fees estimated at $4,000.
(2) We are offering for sale 3,000,000 shares of common stock, at a
purchase price of $0.025 per share. The shares shall be sold
exclusively by our sole officer and director according
to the safe harbor provisions of Rule 3a4(1) of the Securities
Exchange Act of 1934.
Under SEC Rule 3a51-1(d) under the Exchange Act, the securities we are
offering constitute penny stocks, and as such, certain sales
restrictions apply to these securities. Up to 80% of the offering may
be purchased by our officer/director and current shareholder or any of
her affiliates or associates. No public market currently exists for
our common stock. No public market may ever develop. Even if a market
develops, you may not be able to sell your shares.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this prospectus is January __, 2001
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YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK.
TABLE OF CONTENTS
-----------------
Our Company...........................................................5
SUMMARY...............................................................5
RISK FACTORS..........................................................6
MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..............11
USE OF PROCEEDS......................................................12
DILUTION.............................................................14
BUSINESS.............................................................15
MANAGEMENT...........................................................22
INDEMNIFICATION .....................................................24
PLAN OF DISTRIBUTION/SELLING SECURITY HOLDERS........................26
SHARES ELIGIBLE FOR FUTURE SALE......................................26
PRINCIPAL SHAREHOLDER................................................26
DESCRIPTION OF SECURITIES ...........................................27
THE OFFERING.........................................................28
LEGAL PROCEEDINGS....................................................28
LEGAL MATTERS........................................................28
FINANCIAL STATEMENTS.................................................30
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PROSPECTUS SUMMARY
------------------
Because this is only a summary, it does not contain all the information that
may be important to you. You should read the entire prospectus, specially
"Risk Factors," beginning on Page 6, and the Consolidated Financial Statements
and Notes, before deciding to invest in our common stock.
OUR COMPANY
Mercado Industries, Inc., a startup company organized in the State of
Nevada to market online travel services, is offering a minimum of
1,600,000 and a maximum of 3,000,000 shares at the purchase price of
$0.025 per share on a "best efforts all or none basis" as to the first
1,600,000 shares; and on a "best efforts" basis with regard to the
remaining 1,400,000 shares. We will conduct this offering directly and
exclusively through our sole officer, Ruth Selmon, for a period
of ninety days following the date of this prospectus.
The shares will be offered and sold only to residents in the states
of Texas and Nevada. The minimum offering or proceeds to be raised
is $40,000. The maximum offering or proceeds to be raised is $75,000.
Our executive offices are located at 14601 Bellaire Blvd., Suite 338,
Houston, TX 77083. Our phone number is (281) 564-6418. We were
Incorporated in March 1999 under the laws of the State of Nevada.
SUMMARY
We are selling 3,000,000 shares of our common stock. We are not registering
for sale any of the shares held by our current stockholder. We have a fixed
price of$0.025 per share for the common stock we are selling in this offering.
Our principal executive offices are located at: 14601 Bellaire Blvd., Suite
338, Houston, TX 77083. Our telephone number is (281)564-6418
The Offering
------------
Common stock offered for sale We are offering up to 3,000,000
shares of our common stock.
Offering Price to the public $0.025 per share
Number of shares outstanding
prior to the offering 2,000,000 shares (1)
Number of shares to be
outstanding after the offering 5,000,000 shares (2)
Terms of the offering There is no minimum offering.
Accordingly, as we sell shares of
common stock, we will use the proceeds
for our activities. The offering will
remain open until June 30, 2001, unless
we decide to cease selling efforts prior
to this date.
Use of proceeds. We intend to use the net proceeds of this
offering primarily for research and product
development, analytical research and
general corporate purposes.
Plan of distribution. This is a direct participation with no
minimum offering. We have not accepted
commitments from prospective purchasers
of our shares. The shares will be offered
and sold by our principal executive
officer director, although we may retain
the services of one or more NASD
registered broker-dealers as selling
agent(s) to effect offers and sales on
our behalf. We have not retained a
registered broker-dealer as of the date
of this filing.
(1) Such figure is based on the number of shares we had outstanding as of
December 19, 2000
(2) Such figure assumes that all of the shares being offered herein are sold.
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RISK FACTORS
An investment in our common stock is speculative in nature and involves a
high degree of risk. You should carefully consider the following risks and
the other information contained in this prospectus before investing in the
common stock offered hereby. The price of our common stock could decline due
to any of these risks, and you could lose all or part of your investment. You
also should refer to the other information included in this prospectus,
including the financial statements and related notes thereto. In addition,
the risks described below are not the only ones facing us. We have described
only the risks we consider material. However, there may be additional risks
that we view as not material or of which we are not presently aware.
If any of the events described below were to occur, our business, prospects,
financial condition or results of operations or cash flow could be materially
adversely affected. When we say that something could or will have a material
adverse effect on it, we mean that it could or will have one or more of these
effects.
Special note regarding forward-looking statements
This prospectus may contain certain forward-looking statements and information
relating to us that are based on beliefs and its principals as well as
assumptions made by and information currently available to them. These
statements include, among other things, the discussions of our business
strategy and expectations concerning our market position, future operations,
expansion opportunities, and profitability. When used in these documents,
the words "anticipate," "feel," "believe," "estimate," "expect," "plan," and
"intend" and similar expressions, as they relate to us or our principals, are
intended to identify forward-looking statements. Such statements reflect the
current view of respecting future events and are subject to certain risks,
uncertainties, and assumptions, including the meaningful and important risks
and uncertainties noted, particularly those related to our operations, results
of operations, and growth strategy, liquidity, competitive factors and pricing
pressures, changes in legal and regulatory requirements, general economic
conditions, and other factors described in this prospectus.
OUR LACK OF AN OPERATING HISTORY MAKES US A VERY HIGH RISK.
-----------------------------------------------------------
Mercado, Industries, Inc. was organized under the laws of the State of
Nevada on March 29, 2000, and has no revenues from operations or
meaningful assets. Mercado faces all of the risks inherent in a new
business and those risks specifically inherent in the type of business
in which it proposes to engage, namely, to market "Book It Yourself"
online travel services through links we have established with an online
website called: http://www.MercadoIndustries.com, from whom we will
receive a percentage of all sales that come to them through our website.
Though we are in the midst of establishing referrals to our conduit-site
from major Internet search engines, those links are not yet operational
and may never be. If they do become operational, there is no guarantee
that enough business will be generated to make Mercado a fully viable operation.
The purchase of the securities offered hereby must be regarded as the
placing of funds at a high risk in a new or start-up venture with all
of the unforeseen costs, expenses, problems, and difficulties to which
such ventures are subject. (See "USE OF PROCEEDS" and "BUSINESS.")
OUR SUCCESS DEPENDS ON GROWTH OF OUR ONLINE SALES AND THE VIABILITY OF
TRAVELSPACE.COM, THE ONLINE TRAVEL SERVICE TO WHICH OUR WEBSITE WILL BE
LINKED. BECAUSE WE HAVE A LIMITED ONLINE OPERATING HISTORY, WE CANNOT
BE SURE THAT OUR ONLINE SALES WILL GROW.
Our future success is heavily dependent upon growth of the operations
of the online travel company to which our website will be linked,
Travelscape.com. Our ability to fulfill the expectations of our
customers is entirely dependent on the service provided by Travelspace.
Any and all customer service problems or failures of any sort connected
to Travelspace will have an adverse effect on our ability to grow our
business, or even to stay in business, and would place your investment
at risk.
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Furthermore, we believe the ability to grow our online operations will
depend upon a number of factors, many of which we do not control.
These factors include, among others:
o Increased market acceptance of e-commerce. While e-commerce
has grown rapidly to date, there is no guarantee that this
growth will continue or that our business will benefit from
this growth.
o Our success in establishing brand awareness and increasing
website traffic through online and offline marketing, and
strategic relationships.
o Increased customer acceptance of MercadoIndustries's automated
online booking system. Booking travel has traditionally
involved intensive human contact, and we do not know if
customers will accept their system as a substitute for
personal interaction.
o Our ability to build customer loyalty and increase the
percentage of visitors to our web sites who actually book
their travel arrangements through that site.
If we are unable to take advantage of growth in e-commerce, or to
meet successfully any of the foregoing challenges, we may not be able
to grow our online travel business and operating results and our stock
price would be adversely affected.
WE WILL RELY ON OUR RELATIONSHIPS WITH INTERNET SEARCH ENGINES TO
DEVELOP OUR BRAND AND INCREASE TRAFFIC TO OUR WEB SITES. A FAILURE OF
THESE RELATIONSHIPS TO DELIVER THE EXPECTED TRAFFIC OR A TERMINATION
OF THESE RELATIONSHIPS COULD ADVERSELY EFFECT THE VALUE OF YOUR
INVESTMENT.
---------------------------------------------------------------------
In order to enhance our brand and increase traffic to our web sites,
we are in the process of negotiating referral relationships with the
major Internet search engines like Lycos-Bertelsmann, Yahoo!, Nomade
InfoSpace, and Alta Vista, to name a few. We expect that this will
result in substantial financial commitments that will cause us to
experience increasing operating losses for the foreseeable future. In
addition, there can be no assurance that we will achieve sufficient
online traffic to justify these expected payments, and failure to do
so would likely have a material adverse effect on our operating
results.
Furthermore, our significant investment in our relationships with
these search engines is based on the continued positive market
presence, reputation and anticipated growth of their web sites. Any
decline in the significant market presence, business or reputation of
any of them or their web sites will reduce the value of these
strategic agreements to us.
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OUR PROFITABILITY IS BASED ON A SEVEN PERCENT OVERWRITE ON THE SALES
OF TRAVELSCAPE.COM WHICH MAY PROVE AN INSUFFICIENT PERCENTAGE OF THE
TOTAL TRAVEL REVENUES WE GENERATE TO SUSTAIN OUR INVESTMENT AND
ESTABLISH A VIABLE BUSINESS
Our agreement with Travelscape.com gives us a seven percent (7%)
overwrite on all travel sales generated on the Mercado website by
the links that come from our site or affiliated sites. It is our
belief that this percentage will be more than adequate to pay for all
the fees we will incur to advertise and promote the site through
advertising on the Internet and in print media and through referral
relationships with the major Internet search engines. However, we
cannot be sure of this until we have been in operation and until we
know both our costs and our income. It is entirely possible that the
seven percent figure will be too small to meet the necessary expenses
and will thus place both our viability and your investment in jeopardy.
OUR OPERATING RESULTS ARE SUBJECT TO QUARTERLY FLUCTUATIONS AND OUR
REVENUE IS UNPREDICTABLE. FUTURE FLUCTUATIONS IN OPERATING RESULTS OR
REVENUE SHORTFALLS COULD ADVERSELY AFFECT THE VALUE OF YOUR INVESTMENT.
Because we have a limited operating history in e-commerce and because
of the emerging nature of the markets in which we compete, as well as
an untested relationship with Travelscape.com, our revenue is highly
unpredictable. At the same time, our current and future expense levels
are based on our operating projections and are not yet fully clear to
us. We are unable to predict with certainty how the numbers will
ultimately play out. As a result, any significant revenue shortfall
would have an immediate negative effect on the results of our
operations and stock price.
We expect to experience significant fluctuations in our future
quarterly operating results due to a variety of factors, many of which
we do not control. Factors that may adversely affect our quarterly
operating results include, but are not limited to:
o our inability to develop strong brand recognition, build
customer loyalty and attract new and repeat customers;
o our inability to increase the level of traffic on our web
sites;
o our inability to control or influence the level of service
our customers will receive on www.MercadoIndustries.com;
o the announcement or introduction of lower prices or new
travel services and products by our competitors;
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o any deterioration in general economic conditions, such as a
global recession, or economic conditions specific to the
Internet or travel industry;
o seasonal fluctuations in consumer travel spending patterns;
o slower growth in the level of use of online services and
consumer acceptance of the Internet for the purchase of
consumer products and services such as those we offer;
o any inability to upgrade and develop our systems and
infrastructure;
o any inability to retain or to attract qualified personnel in
a timely and effective manner;
o technical difficulties, system downtime or slowdowns in
Internet response times;
o increases in operating expenses or capital expenditures
relating to expansion of our business, operations and
infrastructure that are not accompanied by increased revenue;
o adverse government regulation; and
o events affecting the travel industry such as natural
disasters, wars or terrorist attacks.
For any of the foregoing reasons, or for other reasons we do not
presently anticipate, in a future quarter it is possible that our
operating results will not meet market expectations, including the
expectations of financial analysts. If this occurs, it would have a
material adverse effect on our stock price.
DECLINES IN CONSUMER TRAVEL SPENDING COULD HARM OUR OPERATING RESULTS.
Our online revenue is derived from consumer spending in the travel
industry. The travel industry, especially leisure travel, depends on
personal discretionary spending levels and suffers during economic
downturns and recessions. The travel industry is also highly
susceptible to unforeseen events, such as political instability,
regional hostilities, terrorism, fuel price escalation, travel-related
accidents, natural disasters, unusual weather patterns or travel
industry related labor strikes. Any event that results in decreased
consumer travel spending would likely have a negative effect on our
operating results.
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WE COULD FACE LITIGATION BECAUSE OF OUR WEB PAGE CONTENT, WHICH MIGHT
REQUIRE CONSIDERABLE EFFORT AND EXPENSE TO DEFEND AND WHICH MIGHT
RESULT IN SIGNIFICANT LIABILITY.
As a publisher and distributor of online content, we face potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the
materials that we publish or distribute. Such claims have been
brought, and sometimes successfully pressed, against other online
services. In addition, we do not and cannot practically screen all of
the content generated by other web sites that are linked to our web
sites, and we could be exposed to liability with respect to such
content. Although we carry general liability insurance, our insurance
may not cover claims of these types or may not be adequate to
indemnify us for all liability that may be imposed. Any imposition of
liability, particularly liability that is not covered by insurance or
is in excess of insurance coverage, could have a damaging effect on
our reputation, operating, results, financial condition and stock
price.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE.
The market for our services is characterized by rapidly changing
technology, evolving industry standards, emerging competition and
frequent product introductions. There can be no assurance that we can
successfully identify new product and service opportunities as they
arise and develop and bring new products and services to market in a
timely manner or that products, services or technologies developed by
others will not render our services or technologies noncompetitive,
obsolete or less marketable.
WE COULD LOSE MARKET SHARE IF TRAVELSCAPE.COM DOES NOT KEEP UP WITH THE
SIGNIFICANT COMPETITION IN THE TRAVEL SERVICES MARKET.
The online travel services market is new, rapidly evolving, intensely
competitive and has relatively low barriers to entry. Travelscape.com,
the online service to whom we funnel all of our clients, competes
primarily with online travel reservation services such as Preview
Travel, Expedia Travel and Travelocity, as well as online travel
wholesalers such as Cheap Tickets, Hotel Reservation Network,
Lowestfare.com, Best Fares.com and Priceline.com. In addition, and to
a lesser extent, it competes with traditional travel agencies,
such as American Express Travel Service, Carlson Wagonlit Travel and
Uniglobe Travel, individual airlines and hotels selling directly to
consumers and consolidators and wholesalers of airline tickets and
other travel products such as Global Vacation Group and 800 Travel
Systems. As our relationship to the business is linked exclusively to
Travelscape.com.
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Some of our current and potential competitors have competitive
advantages due to various factors, which include, among others:
o greater brand recognition and web site traffic;
o longer operating histories;
o larger customer bases;
o greater financial, marketing and other resources; and
o ability to obtain travel inventory at greater discounts and
on more favorable terms than we can.
In addition, we may face competitive pressure due to the expansion of
current and the creation of new technologies. Announcements of
technological innovations, new services, business relationships or
acquisitions by our competitors could cause our stock price to
decline. Increased competition could reduce Travelscape's operating
margins and profitability, and result in loss of market share and
diminish its brand recognition, which would materially and adversely
affect its business, results of operations and financial condition,
and thus significantly reduce the revenue we derive from our overwrite
agreement.
WE DEPEND ON INTERNALLY AND EXTERNALLY DEVELOPED TECHNOLOGY SYSTEMS
AND INTERNET CAPACITY TO HANDLE ALL TRAFFIC TO OUR WEB SITES, AND WE
COULD BE SUBJECT TO INTERNET CAPACITY CONSTRAINTS. IF OUR SYSTEMS FAIL
OR DO NOT PERFORM OPTIMALLY, OUR OPERATIONS AND REVENUE MAY BE
NEGATIVELY AFFECTED.
Our revenue depends on the number of customers who funnel through our
website to book their travel reservations with Travelscape.com.
Accordingly, the satisfactory performance, reliability and
availability of our web sites and network infrastructure are critical
to our operating results, as well as our ability to attract and retain
customers and Travelscapes's ability to maintain adequate customer
service levels. Any system interruptions that result in the loss of
data, the unavailability of our web sites or reduced performance of the
linking system would reduce the volume of reservations on which we
would receive our overwrite and the attractiveness of our service
offerings, which could have a negative effect on our operating results
and stock price.
Our systems and operations are vulnerable to damage or interruption
from human error, fire, flood, power loss, telecommunications failure,
break-ins, sabotage, intentional acts of vandalism, natural disasters
and similar events. We currently do not have redundant systems or a
disaster recovery plan and do not carry sufficient business
interruption insurance to compensate us for losses that may occur.
Despite our implementation of network security measures, our servers
are vulnerable to computer viruses, physical or electronic break-ins
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and similar disruptions, which could lead to interruptions, delays,
loss of data or the inability to link customers from our website to
the travelscape.com website.
OUR OPERATIONS ARE SUSCEPTIBLE TO SECURITY RISKS.
Experienced programmers may attempt on occasion to penetrate the
security on our websites. We expect that an attempt may occur from
time to time. Because a hacker who is able to penetrate the security
on our web sites could misappropriate proprietary information or cause
interruptions in our links to Travelscape's products and services, we
may be required to expend significant capital and resources to protect
against or to alleviate problems caused by such parties. Additionally,
we may not have a timely remedy against a hacker who is able to
penetrate the security on our websites. Such purposeful security
breaches could have a material adverse effect on our business, results
of operations and financial condition. In addition to purposeful
security breaches, the inadvertent transmission of computer viruses
could expose us to a material risk of loss or litigation and possible
liability.
WE ARE SUBJECT TO GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES.
We are subject to various laws and regulations relating to our
business. Few laws or regulations are currently directly applicable to
access to the Internet. However, because of the Internet's popularity
and increasing use, new laws and regulations may be adopted. Such laws
and regulations may cover issues such as:
o user privacy;
o pricing;
o content;
o copyrights;
o distribution; and
o characteristics and quality of products and services.
In addition, the growth of the Internet and electronic commerce,
coupled with publicity regarding Internet fraud, may lead to the
enactment of more stringent consumer protection laws. These laws may
impose additional burdens on our business. The enactment of any
additional laws or regulations may impede the growth of the Internet,
which could decrease our potential revenues form electronic commerce
or otherwise adversely affect our business, financial condition and
operating results.
Laws and regulations directly applicable to electronic commerce or
Internet communications are becoming more prevalent. A recent session
of Congress enacted Internet laws regarding on-line copyright
infringement. Although not yet enacted, Congress is considering laws
regarding Internet taxation. The European Union recently enacted new
privacy regulations. These are all recent enactments, and there is
uncertainty regarding their marketplace impact. In addition, various
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jurisdictions already have enacted laws that are not specifically
directed to electronic commerce but that could affect our business.
The applicability of many of these laws to the Internet is uncertain
and could expose us to substantial liability.
Any new legislation or regulation regarding the Internet, or the
application of existing laws and regulations to the Internet, could
materially adversely affect us. If we were alleged to violate federal,
state or foreign, civil or criminal law, even if we could successfully
defend such claims, it could materially adversely affect us.
Several telecommunications carriers are seeking to have telecommunications
over the Internet regulated by the Federal Communications Commission in the
same manner as other telecommunications services. Additionally, local
telephone carriers have petitioned the Federal Communications Commission to
regulate Internet service providers and online service providers in a manner
similar to long distance telephone carriers and to impose access fees on such
providers. If either of these petitions are granted, the costs of
communicating on the Internet could increase substantially. This, in turn,
could slow the growth of use of the Internet. Any such legislation or
regulation could materially adversely affect our business, financial
condition and operating results.
WE MAY NEED ADDITIONAL FINANCING, WHICH MAY OR MAY NOT BE AVAILABLE.
--------------------------------------------------------------------
We believe the proceeds from the investment agreement will be
sufficient to meet our cash requirements and current plans over the
next 12 months. Our ability to raise funds under the investment
agreement is subject to certain conditions, however, including, among
others, an effective registration statement covering the resale of the
shares sold under the investment agreement, the price of the stock and
a limitation on our ability to issue shares. There is no guarantee
that the conditions required to raise funds under the investment
agreement will be met. If we are unable to raise funds under the
investment agreement, our financial condition could be harmed.
We anticipate that we can meet future cash needs with improved product
and advertising sales, sponsorship and partner revenues, services
revenue, the sale of equity securities and/or debt financing. There is
no guarantee, however, that we will be able to meet our cash
requirements from these sources. If our capital requirements or cash
flow vary significantly from our current estimates or if unforeseen
circumstances occur, we may require additional financing sooner than we
currently anticipate. Our failure to raise these funds may:
o restrict our growth and limit our development;
o limit our ability to improve existing products and services;
o limit our ability to take advantage of future opportunities;
o lessen our ability to compete; and
o limit our ability to continue operations.
15
<PAGE>
There is no assurance that additional financing will be available, if
needed, or that it will be available on attractive terms. In addition,
any sale of equity securities may involve substantial dilution to our
then-existing shareholders. Rising interest rates could increase the
costs of any debt financing.
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
------------------------------------------------------------
We currently intend to retain any future earnings to finance the growth
and development of our business. Therefore, we do not expect to pay any
cash dividends in the foreseeable future. Any future dividends will
depend on our earnings, if any, and our financial requirements.
WE MAY BE UNABLE TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES OR KEY
PERSONNEL.
-----------------------------------------------------------------
Our future success depends on our ability to find, hire, train,
motivate and keep highly qualified technical, managerial and other
personnel. The competition for qualified employees is high and we may
be unable to attract, assimilate, motivate and keep the personnel we
need. This could have a negative affect on our business, operating
results and financial condition.
We rely heavily on the performance of our executive officers and key
technical and advisors. We do not have employment agreements or "key
person" life insurance policies on any of our officers or other
employees. If we lose the services of any of our executive officers or
key employees, it could harm our business.
WE HAVE ARBITRARILY DETERMINED THE OFFERING PRICE OF THE SHARES.
----------------------------------------------------------------
The offering price of $0.025 per share has been arbitrarily determined
by us. This price bears no relation to our assets, book value, or any
other customary investment criteria, including our prior operating
history. Among factors we considered in determining the offering
price were:
16
<PAGE>
o Estimates of our business potential
o Our limited financial resources
o The amount of equity desired to be retained by present shareholders
o The amount of dilution to the public
o The general condition of the securities markets
o We have some discretion in the use of proceeds.
We will use these proceeds as indicated in this document under the
section entitled "Use of Proceeds" but have considerable discretion
in deciding how to allocate funds.
WE HAVE EXTREMELY LIMITED CAPITALIZATION.
-----------------------------------------
The offering is a best efforts offering in which we intend to raise
only a minimum of $40,000. Management faces the challenge of
successfully implementing our business strategy and plan. We may not be
able to successfully manage our business to achieve our goals
especially in light of the fact the minimum we seek to raise is not a
substantial amount. Investors could suffer a loss if as a consequence
the amount raised is not enough to fully implement the intended business
strategy. Even if we are successful in raising up to the maximum amount
we seek, $75,000, this might not be enough to promote our website
successfully and to establish the relationships with Internet search
engines we need to bring enough serious and qualified travel consumers
to us for the booking of their own reservations and accommodations.
WE CAN OFFER NO ASSURANCE OF PROFITABILITY.
-------------------------------------------
There can be no assurance that Mercado will be establish the publicity
network necessary to generate business from its website link to
Travelscape.com. In addition, even if we are able to do so, there can be
no assurance we will be able to generate revenues or profits from it.
WE ARE DEPENDENT ON ONE OFFICER WITH LIMITED EXPERIENCE IN TRAVEL-RELATED
OR INTERNET BUSINESSES.
-----------------------------------------------------------------------
Mercado, Inc., is highly dependent of the services of Ruth Selmon,
the president and sole director of the company. Over-reliance on a
single individual puts the company at risk; should anything happen to
Ms. Selmon, or if she for unpredictable reasons became disabled or lost
interest in Mercado, the effect on our prospects would be severe. Though
she has been passionately devoted to the company and its interests, she
also lacks experience in the travel industry or indeed in e-commerce;
despite the advice she is receiving from skilled advisors, the
complexities of the industry could prove too challenging for her to
overcome despite her proven talent, intelligence, and ability to handle
tough situations.
17
<PAGE>
WE ARE DEPENDENT ON OUTSIDE ADVISORS WHO MAY GIVE THE WRONG ADVICE.
-------------------------------------------------------------------
In connection with its investigation of Internet links and methods
that will insure a large number of "hits" to the Travelscape.com website
from ours, Mercado may employ accountants, technical experts, appraisers,
attorneys, or other consultants or advisors. The selection of any such
advisors will be made by management without any input from controlling
shareholders. Furthermore, it is anticipated such persons may be engaged
by Mercado on an independent basis without a continuing fiduciary or other
obligation to it.
YOU ARE SUBJECT TO DILUTION.
----------------------------
The difference between the initial public offering price per share of
common stock and the net tangible book value per share after this
offering constitutes the dilution to investors in this offering. Net
tangible book value per share of common stock is determined by dividing
our net tangible book value (total tangible assets less total
liabilities) by the number of shares of common stock outstanding.
Assuming the sale of the maximum number of shares (based on our
financial statements as of December 31, 2000), new investors will incur an
immediate dilution of approximately $0.025 per share after the offering
of the maximum number of shares is consummated. The existing stockholder
of our company acquired her shares of common stock at a price of $.001
per share which is $.024 per share lower than the offering price of the
shares. Accordingly, new investors will bear virtually all of the risks
inherent in an investment in this company. See "Dilution."
THERE MAY NOT A PUBLIC MARKET FOR THE SHARES YOU BUY.
------------------------------------------------------
There is no current trading market for the shares and there can be no
assurance that a trading market will develop, or, if a trading market
does develop, that it will be sustained even after all our referral
links to Internet search engines are put in place. The shares, to
the extent that a market develops for the shares at all, will likely
appear in what is customarily known as the "pink sheets" or on the
NASD's Over-the-Counter Bulletin Board, which may limit the
marketability and liquidity of the shares. There is no present market
for our common stock. Thus, stockholders may find it difficult to sell
their shares.
HAVING NO UNDERWRITER COULD MEAN LESS EFFECTIVE OFFERING PRACTICES.
-------------------------------------------------------------------
We are selling the shares through our president without the use of a
professional securities underwriting firm. Consequently, there may be
less due diligence performed in conjunction with this offering than
would be performed in an underwritten offering.
18
<PAGE>
THERE ARE RULES FOR LOW-PRICED STOCKS THAT MAY AFFECT YOUR ABILITY TO
RESELL YOUR SHARES
---------------------------------------------------------------------
Our common stock is currently considered "penny stock" under federal
securities laws. Penny stock rules generally impose additional sales
practice and disclosure requirements on broker-dealers who sell our
shares to certain investors. These rules may affect the ability of
broker-dealers to make a market in or trade our shares. This, in turn,
may affect your ability to resell those shares in the public market.
SHARES IN THIS OFFERING ARE AVAILABLE ONLY TO RESIDENTS OF NEVADA AND
TEXAS AND WILL BE DIFFICULT TO RESELL OR TRANSFER.
---------------------------------------------------------------------
Initially, these shares are being made available only to residents of
the states of Texas and Nevada because of the simplicity of selling a
small offering under the laws of those states: Registration there is
not necessary if fewer than twenty-five people purchase the shares in
a given offering. Without registering them there, however, the shares
cannot be sold or transferred. As this may never happen, the ability
to resell or transfer these shares is unlikely.
THERE IS NO CURRENT TRADING MARKET FOR MERCADO'S SECURITIES AND, IF A TRADING
MARKET DOES NOT DEVELOP, PURCHASERS OF ITS SECURITIES MAY HAVE DIFFICULTY
SELLING THEIR SHARES.
----------------------------------------------------------------------------
There is currently no established public trading market for our securities.
A trading market in our securities may never develop or, if developed, it may
not be able to be sustained. We intend to apply for admission to quotation
of its securities on the NASD OTC Bulletin Board and, if and when qualified,
it intends to apply for admission to quotation on the Nasdaq SmallCap Market.
If for any reason our common stock is not listed on the NASD OTC Bulletin
Board or a public trading market does not otherwise develop, purchasers of
the shares may have difficulty selling their common stock should they desire
to do so. Various factors, such as our operating results, changes in laws,
rules or regulations, general market fluctuations, changes in financial
estimates by securities analysts and other factors may have a significant
impact on the market price of our securities.
<PAGE>
WE MAY, IN THE FUTURE, ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK WHICH WOULD
REDUCE INVESTORS PERCENT OF OWNERSHIP AND MAY DILUTE OUR SHARE VALUE.
Our Certificate of Incorporation authorizes the issuance of 20,000,000
shares of common stock, par value $0.001 per share. The future issuance of
all or part of our remaining authorized common stock may result in substantial
dilution in the percentage of our common stock held by our then existing
shareholders. We may value any common or preferred stock issued in the
future on an arbitrary basis. The issuance of common stock for future
services or acquisitions or other corporate actions may have the effect of
diluting the value of the shares held by our investors, and might have an
adverse effect on any trading market for our common stock.
IN THE FUTURE, THE AUTHORIZATION OF OUR PREFERRED STOCK MAY HAVE AN ADVERSE
EFFECT ON THE RIGHTS OF HOLDERS OF OUR COMMON STOCK.
We may, without further action or vote by our shareholders, designate
and issue shares of our preferred stock. The terms of any series of
preferred stock, which may include priority claims to assets and dividends
and special voting rights, could adversely affect the rights of holders of the
common stock and thereby reduce the value of the common stock. The
designation and issuance of preferred stock favorable to current management
or shareholders could make the possible takeover of us or the removal of our
management more difficult and discharge hostile bids for control of us which
bids might have provided shareholders with premiums for their shares.
OUR OFFICER AND DIRECTOR HAVE LIMITED LIABILITY AND HAVE INDEMNITY RIGHTS
Our Certificate of Incorporation and By-Laws provide that we may indemnify
our officer and director against losses sustained or liabilities incurred
which arise from any transaction in that officer's or director's respective
managerial capacity unless that officer or director violates a duty of
loyalty, did not act in good faith, engaged in intentional misconduct or
knowingly violated the law, approved an improper dividend, or derived an
improper benefit from the transaction.
19
<PAGE>
MANAGEMENT'S DISCRETION IN THE USE OF PROCEEDS MAY CONFLICT WITH YOUR
WISHES.
----------------------------------------------------------------------
Our management has broad discretion on how to spend any proceeds we
receive from this offering and may spend the proceeds in ways that differ
from the proposed uses in this prospectus. Our shareholders may
not agree with our spending decisions. If we fail to spend the proceeds
effectively, our business and financial condition could be harmed.
DIVIDEND POLICY
We have not paid any dividends on our common stock, nor do we anticipate
paying any in the foreseeable future. The Board of Directors intends to
follow a policy of using retaining earnings, if any, to finance the growth
of the company. The declaration and payment of dividends in the future will
be determined by the Board of Directors in light of conditions then existing,
including the company's earnings, financial condition, capital requirements
and other factors.
20
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Mercado Industries, Inc. was formed on March 29, 2000, through December 31,
2000, the company has been inactive. We have yet to generate any revenues
and have no expenses, as we will remain inactive until this offering is
approved.
REVENUES
We have yet to generate any revenues, and we do not expect to generate any
revenues until we can obtain traffic to our website.
LIQUIDITY AND CAPITAL RESOURCES
In March, 2000, we issued 2,000,000 shares of its common stock to our
founder, for $2,000 in cash. We have not issued any additional stock.
The following table sets forth our capitalization as of December 31, 2000,
and pro-forma as adjusted to give close to the sale of 3,000,000 shares
in our offering.
<TABLE>
<CAPTION>
Capitalization
As Adjusted
Actual after Offering
------ --------------
<S> <C> <C>
Long-term debt
Stockholders' equity:
Common stock, $.001 par value; - -
authorized 20,000,000 shares,
issued and outstanding
2,000,000 shares 2,000 5,000
Additional paid-in capital 0 72,000
Deficit accumulated during the
development period (0) (0)
Total stockholders equity 2,000 77,000
Total Capitalization 2,000 77,000
</TABLE>
11
<PAGE>
USE OF PROCEEDS
Our success is entirely dependent on our ability to sell the shares in this
Offering. The gross proceeds of this offering will be $75,000.
We have discretion over how to use a significant portion of the net proceeds
of this offering. We cannot assure investors that our use of the net proceeds
will not vary substantially due to unforeseen factors. The proceeds, if any,
will be used to pay the following expenses:
<TABLE>
<CAPTION>
USE OF PROCEEDS - Mercado Industries Inc.
-----------------------------------------
If Minimum If Maximum
Sold Sold
Amount % Amount %
<S> <C> <C> <C> <C>
Offering Proceeds $50,000 $75,000
------- -------
Total Proceeds $50,000 100.00 $75,000 100.00
Less: Offering Expenses
Commissions & Finders Fees $ 0 0.00 $ 0 0.00
Consulting and Accounting $ 3,000 6.00 $ 3,000 4.00
Copying and Advertising $ 500 1.00 $ 750 1.00
Organizational $ 250 0.50 $ 250 0.33
TOTAL OFFERING EXPENSES(1) $ 3,750 7.50 $ 4,000 5.33
Net Proceeds From Offering $46,250 92.50 $71,000 94.66
Use of Proceeds
Research & Development $ 2,000 4.00 $ 3,000 4.00
Website Development $ 4,000 8.00 $ 5,000 6.67
Marketing $25,000 46.00 $35,000 46.66
Advertising $ 3,000 6.00 $ 3,000 4.00
Promotion of website $ 5,000 10.00 $ 8,000 10.67
General Working Capital $ 9,250 19.45 $17,000 22.67
Total Use of Net Proceeds $46,250 100.00 $71,000 100.00
</TABLE>
(1) Offering costs include filing, printing, legal, accounting,
transfer agent and escrow agent fees.
No compensation will be paid, due or owing to any officer or director.
21
<PAGE>
We will use the business office of our President, rent free, until such
time as we have developed a working network of Internet links and begun
to generate a profit.
No portion of the proceeds of the offering will be paid to our
officer/director and/or her affiliates or associates.
If this capital is insufficient, the company may seek to obtain
additional financing through offerings of equity and/or debt
securities. It is unlikely that we will seek loan financing as the
costs of our operations are negligible and we do not expect to incur
any significant additional costs. However, if we are able to raise only
the minimum amount of $40,000, and no additional funds are secured,
then we face the risk that our company might be under-funded, placing
all investments substantially at risk. Under those circumstances, we
might attempt to borrow funds. Any loan we undertook would be repaid in
lump sum from the proceeds we expect to derive from the sale of the
company to a merger candidate upon receipt of final payment.
Working Capital
---------------
Upon consummation of the offering, we believe that we will have
sufficient working capital to pay expenses related to (1) the offering,
(2) the creation of a website for the sale of discounted 'book-it-
yourself' travel and the network of links and search engine referrals
necessary to make it profitable, and (3) our general administrative
expenses over the next 18 month period. We believe this is the case
because of our minimal operating expenses and the fact that our sole
officer, the president, will receive no salary, wages, commissions,
etc., in connection with any services rendered for the benefit of our
company. Working capital is expected to include incidental expenses
related to the marketing of our website as well as incidental
operational expenses like basic office supplies.
Other Arrangements
------------------
Mercado Inc. has no agreement or understanding, express or implied, with
our officer/director, or her affiliates or associates, regarding
employment with us or compensation for services; nor do we have any
plan, agreement, or understanding, express or implied, with her
regarding the issuance of any shares of Mercado's authorized and
unissued common stock. The existing officer/director reserves the right
to acquire shares in this offering. No advances to her or any associates
have been made or contemplated.
Except for reimbursement of offering costs and expenses incurred by our
officer/director on company matters described above, no portion of
the net proceeds of the offering may be paid to her or anyone associated
with her, directly or indirectly, as consultant fees, officer salaries,
director fees, purchase of their shares, or other payments. No portion
22
<PAGE>
of the net proceeds will be used to make loans to any person, nor will
we borrow funds and use the proceeds from them to make payments to our sole
officer/director or her affiliates or associates.
We have no agreement or understanding with any consultant or advisor to
provide services, although the possibility exists management may find it
to be beneficial to retain the services of such a consultant. Mercado will
not retain the services of any consultant who is also an officer or
a promoter, or her affiliates and associates. Compensation to a
consultant may take various forms, including one time cash payments,
payments based on a percentage of revenues or product sales volume,
payments involving issuance of securities (including those of Mercado,
Inc.) or any combination of these or other compensation arrangements.
The following table(s) set forth the percentage of equity to be
purchased by public investors in the offering compared to the percentage
equity to be owned by the present stockholders, and the comparative
amounts paid for the shares by the public investors as compared to the
total consideration paid by the present stock holders of the company.
<TABLE>
<CAPTION>
Assuming the Minimum Number of Shares Sold
------------------------------------------
Shares Approx Percent Total Approx. Percent
Purchased of Total Shares Dollars of Total Dollars
<S> <C> <C> <C> <C>
Public
Stockholders 1,600,000 44.4% 40,000 95.2%
Present
Stockholders 2,000,000 55.6% 2,000 4.8%
Total 3,600,000 100.0% 43,000 100.0%
Assuming the Maximum Number of Shares Sold
------------------------------------------
Public
Stockholders 3,000,000 60.0% 75,000 97.4%
Present
Stockholders 2,000,000 40.0% 2,000 2.6%
Total 5,000,000 100.0% 77,000 100.0%
</TABLE>
23
<PAGE>
DILUTION
--------
The dilution to investors in this offering is constituted by the
difference between the public offering price per share and the pro forma
net tangible book value per share, of common stock of Mercado Industries
Inc., after this offering.
Net tangible book value per share is determined by dividing the net
tangible book value of the company by the number of outstanding shares
of common stock. The net tangible book value of the company is equal to
the total tangible assets less the total liabilities.
Dilution arises mainly from the arbitrary decision by us 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
incurred in connection with the public offering.
Net tangible book value is equal to the net tangible assets of the
company. The net tangible assets of the company are equal to the total
assets less the total liabilities and intangible assets. (See "Financial
Statements.")
As of December 31, 2000, Mercado Industries, Inc. had an unaudited net
tangible book value deficit of $2,000. The net tangible book value
deficit is equal to the total tangible assets less the total
liabilities. The net tangible book value deficit per share of common
stock is approximately $0. (See "Certain Transactions.")
The information below sets forth the dilution to persons purchasing
shares in this offering without taking into account any changes in the
net tangible book value of Mercado Industries, Inc. after December 31,
2000, except the sale of the minimum and maximum number of shares offered
at the public offering price and receipt of the net proceeds of that sale.
24
<PAGE>
<TABLE>
<CAPTION>
DILUTION
Minimum Maximum
------- -------
<S> <C> <C>
Public Offering Price Per Share $0.025 $0.025
Net Tangible Book Value Per Share $0.001 $0.001
Before Offering
Net Tangible Book Value Per Share
After Offering* $0.011 $0.015
Increase Per Share Attributable to
Payment by Public Investors $0.010 $0.014
Dilution Per Share to Public Investors
Percentage 53.3% 38.4%
Numerical* $0.011 $0.015
</TABLE>
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
OVERVIEW
PRINCIPAL PRODUCTS AND PRINCIPAL MARKETS
Mercado Industries, Inc. is a development stage entity, and has neither
engaged in any operations nor generated any revenues to date.
27
<PAGE>
PLAN OF OPERATION
We plan to take advantage of the great boom in online travel companies
by creating an Internet site that is aimed at drawing consumers who wish
to book their own travel arrangements
STATUS OF PRODUCTS AND SERVICES
Mercado Industries, Inc. has a limited operating history. We were
organized under the laws of the State of Nevada on March 29, 2000, and
have no revenues from operations or meaningful assets. Activities to
date have been limited primarily to organization, initial capitalization,
finding an appropriate operating facility in Houston, and commencing
with initial operational plans.
As of December 31, 2000, the company had developed a business plan, and
established what steps need to be taken to achieve the results set forth
in this plan. The Company established its website at: http://
www.mercadoindustries.com.
We plan to take advantage of the great boom in online travel companies
by creating an Internet site that is aimed at drawing consumers who wish
to make their own travel arrangements for the lower fares that go along
with self-booked reservations. This site is linked to an already
operational website called www.mercadoindustries.com that is set up to
facilitate these arrangements.
Mercadoindustries.com is a simple, usable and complete do-it-yourself
travel site on the Internet. It offers travel value in all-inclusive
travel at any price for both leisure and business travelers.
MercadoIndustries.com has a unique "10 clicks or less" that it will
outperform any other online travel site in providing the quickest,
easiest and most convenient way to configure and book any air, lodging
and auto rental package to top destinations in the U.S.
Designed to fully automate and individualize personal travel planning,
the company utilizes the services of travelscape.com which is operated by
one a leading direct-to-the-consumer wholesalers of travel services. The
Company's link through Travelscape.com qualifies the travel partners it
works with and has entered into preferential service agreements with
hundreds to assure the highest level of comfort, satisfaction and value.
For further assurance of travel integrity, travelscape.com has round-the-
clock personal assistance, seven days a week from customer service
representatives via a toll-free telephone line.
Travelscape.com draws on an extensive travel industry knowledge base
and a proprietary booking engine technology to provide the most
satisfying interactive travel planning experience on the Internet.
The beauty of the situation for Mercado is that it will be a conduit for
clients to the Travelscape website and thus be obliged to bear none of
the complex expenses necessary to run a profitable internet travel
business. Mercado's override of 7% (seven percent) will account for its
profitability.
28
<PAGE>
Mercado's sole major expense will lie in providing the revenues
necessary to purchase listings with major Internet search engines who
will funnel clients to the Mercado website when those clients request
low-cost fares, room rates and vehicle rentals for travel. The major
purpose of this offering is to generate the revenues necessary to set up
the relationships with the search engines. As in the world of print
advertising, the more you pay, the greater the reach; though on the
Internet, it is not column inches you buy with the extra dollars, but
prioritized placement of our website's listing in response to customer
requests for discounted travel providers.
The other proposed means of revenue generation is through direct-to-the-
customer advertising. We are currently engaged in research to ascertain
what will be the most profitable way to apportion our advertising
budget. Plans include print ads and links that will be activated on
other Internet sites.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND ONLINE COMMERCE. The Internet and commercial
online services are emerging as a significant global communications
media enabling millions of people to share information and conduct
business electronically. A number of factors have contributed to the
growth of the Internet and commercial online services usage. These
factors include the large and growing installed base of advanced
personal computers in the home and workplace; improvements in network
infrastructure; easier, faster and cheaper access to the Internet and
commercial online services; the introduction of alternative Internet
access devices and increased awareness of the Internet; and additional
commercial online services among consumer and business users.
Computer Industry Almanac, Inc. estimates that the number of World Wide
Web users in the year 2000 will have grown to approximately 319
million. The functionality and accessibility of the Internet and
commercial online services have made them an increasingly attractive
commercial medium by providing features that historically have been
unavailable through traditional channels. The Internet and commercial
online services provide users with convenient access to large volumes
of dynamic data to support their investment, purchase and other
decisions. Online retailers are able to communicate effectively with
customers by providing frequent updates of featured selections,
content, pricing and visual presentations and provide tailored
services by capturing valuable data on customer tastes, preferences,
shopping and buying patterns. Online retailers are also able to
utilize consumer buying patterns to target their audience more
effectively. Unlike most traditional distribution channels, online
retailers do not have the burden of managing and maintaining numerous
local sales facilities to provide their services on a global scale.
Because of these advantages, online retailers benefit from the
relatively low cost of reaching and electronically serving customers
worldwide from a central location. As a result, an increasingly broad
29
<PAGE>
base of products and services are being sold online, including books,
brokerage services, computers and music, as well as travel services.
Forrester Research estimates that online retail sales will reach $184
billion by 2004, and that online travel revenues will exceed $29
billion by 2003, representing 12% of total industry revenue.
Moreover, as the number of online content, commerce and service
providers has expanded, strong brand recognition and strategic
alliances have become critical to the success of such providers. Brand
development is especially important for online retailers due to the
need to establish trust and loyalty among consumers in the absence of
face-to-face interaction.
THE TRADITIONAL TRAVEL INDUSTRY. The travel industry is large and
growing. Historically, airlines, hotels, rental car agencies, cruise
lines and vacation packagers have relied on internal sales departments
and travel agencies as their primary distribution channels. The
traditional travel agency channel is highly fragmented, with few
nationally recognized brands. According to the American Society of
Travel Agents, there are over 23,000 travel agencies operating in more
than 33,000 locations in the United States alone, with the average
travel agency generating less than $3 million in annual gross bookings
per location.
Travel agents are compensated primarily through commissions paid by
travel suppliers on services booked. Some travel agencies also charge
service fees to their customers. Traditionally, standard retail base
commission rates paid by travel suppliers to travel agents have been
7% - 10% for airline tickets, 10% for hotel reservations and car
rentals, and 10% to 15% for cruises and vacation packages. In
addition, travel agencies can earn significant performance-based
incentive compensation from travel suppliers that can substantially
impact financial performance. These commission rates and override
commissions are determined by travel suppliers and are subject to
frequent change. In recent years, commission capping has led to a
reduction in average commission rates.
Travel agencies typically book reservations by telephone and fax and
through electronic global distribution services, often referred to as
GDS systems. Two such GDS systems are Galileo International's Apollo
system and SABRE Group Holdings Inc.'s SABRE system. The GDS systems
provide real-time access to voluminous data on fares, availability and
other travel information. The GDS data is constantly changing, with as
many as one million airfare changes being made daily. Customers
traditionally have relied on travel agents to access and interpret
such rapidly changing information via complex and proprietary
interfaces to GDS systems. As a result, the customer's prospects for
obtaining the most favorable schedules and fares has been subject to the
skill and experience of individual travel agents, whose availability may
be limited, as well as to the commission offered to travel agents.
30
<PAGE>
THE NEW ONLINE TRAVEL INDUSTRY. The opportunity in the online travel
industry is augmented by the trend in the traditional travel industry
to drive distribution costs lower combined with the need for a more
effective and efficient means of purchasing and distributing travel
services to address the needs of consumers. The online market benefits
from this drive to lower costs. In addition, at a time when many
traditional travel agencies are experiencing pressure to reduce levels
of service as a result of recent reductions in commission rates, many
customers are demanding greater convenience and flexibility in how,
where and when they shop for travel services. Customers are also
demanding more control over their travel decisions, including the
opportunity to compare prices and products and review availability. In
an effort to reduce their distribution costs and develop more direct
relationships with their customers, travel suppliers are seeking ways
to distribute their services outside of the traditional travel agency
channel. The Internet provides this and, as a result of these trends,
has emerged as an attractive medium through which travel services can
be purchased.
The Travel Industry Association of America estimates that online
travel revenues will grow to $9 billion in 2002. Jupiter
Communications is even more optimistic, projecting that online travel
bookings will reach over $16.6 billion in 2003. Whoever's figures one
credits, it is clear that online travel is revolutionizing the way
that people get where they are going and is growing at a phenomenal
rate. The interactive nature of the online medium enables consumers
to use reservation engines which automate the processing and
confirmation of travel reservations. We believe that this has
increased the consumers' control over the process by providing them
with additional choices, resulting in better service.
Mercado's strategy for tapping into this enormous market is a simple
one. We will purchase prime listings on major Internet search engines,
establish links from popular websites and advertise in newspapers and
other print media. Travelscape.com will handle all the details and we
will draw a 7% overwrite on orders generated on Travelscape from all of
our affiliated links.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY
AGREEMENTS, OR LABOR CONTRACTS
None
EMPLOYEES
Mercado, Inc. currently has one (1) employee: our president. All of the
actual work on the travel services website will be done by employees of
Travelscape.com; the initial work on setting up our website and forming
the necessary referral network and hot links and advertisements will be
handled by our president. Once the website is up and running and sales
are being generated we will consider adding employees in both technical
and sales areas.
31
<PAGE>
FACILITIES
Our corporate offices are located in Houston. While our current
arrangement---using office space donated by our president---is
adequate for the near term, we plan to begin looking for new space in
the next several months that will support our potential growth.
MANAGEMENT
EXECUTIVE OFFICER AND DIRECTOR
The following table sets forth certain information with respect to
our director and executive officer
<TABLE>
<CAPTION>
Name Age Position
---------------------- ----------- ---------------------------
<S> <C> <C>
Ruth Selmon 48 President, Director
</TABLE>
RUTH SELMON, PRESIDENT & CEO, has served in this capacity since
the inception of Mercado Industries, Inc. Born April 17, 1952 in Houston,
Texas, she graduated from Austin High School in Houston. She has been
married for 25 years and has three children. Mrs. Selmon began working
with Southwestern Bell Telephone in 1970 and then later with AT&T prior to
her retirement from the telephone industry in 1992. Currently devoting her
energies to her family, Mrs. Selmon also volunteers her time to the local
Girl Scout chapter, the local elementary school, and various church
functions. She is a computer adept which serves her well in setting up
the start-up process for Mercado Industries, Inc.
DIRECTOR COMPENSATION
Directors shall receive no cash compensation for their services to
Mercado as directors, but are reimbursed for expenses actually incurred
in connection with attending meetings of the Board of Directors.
22
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by,
or paid for services rendered to us in all capacities for the period
ended December 31, 2000.
Summary Compensation Table
Long-Term Compensation Awards
<TABLE>
<CAPTION>
Name and Principal Position -- Annual Compensation
--------------------------- --------------------
2000
----
Number of Shares
Underlying
Position Salary Bonus Options (#)
-------- -------- ----------------------
<S> <C> <C> <C> <C>
Ruth Selmon, President None None None
</TABLE>
EMPLOYMENT AGREEMENTS
We do not have any written employment agreements.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 2000, the beneficial
ownership of our 2,000,000 outstanding shares of common stock by (1) the only
persons who own of record or are known to own, beneficially, more than 5% of
our common stock; (2) each director and executive officer of the Company; and
(3) all directors and officers as a group.
<TABLE>
<CAPTION>
Percent of Percent of
Ownership Ownership
Number of Before the After Full
Name Position Shares Offering Offering
---- -------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Ruth Selmon(1) CEO/Director 2,000,000 100.00% 40%
-----------------------------------------
All officers and directors
as a group (1 person) 2,000,000 100.00% 40%
</TABLE>
(1) Ruth Selmon, 14601 Bellaire Blvd., Suite 338, Houston, TX 77083
23
<PAGE>
INDEMNIFICATION
Subsection 1 of Section 78.037 of the Nevada Revised Statutes (the "Nevada
Law") empowers a corporation to eliminate or limit the personal liability of
a director or officer to the corporation or its stockholders for damages for
breach of fiduciary duty as a director or officer, but such a provision must
not eliminate or limit the liability of a director or officer for (a) acts or
omissions which involve intentional misconduct, fraud or a knowing violation
of law or (b) the payment of distributions in violation of Section 78.300 of
the Nevada Law.
Our articles of incorporation limit the personal liability of our director
and officer for damages for breach of fiduciary duty in a manner identical in
scope to that permitted under the Nevada Law. Our articles of incorporation
also provide that any repeal or modification of that provision shall apply
prospectively only.
Subsection 1 of Section 78.7502 of the Nevada Law empowers a corporation
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he or she is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise (an "Indemnified Party"), against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the Indemnified Party in connection with such action, suit or
proceeding if the Indemnified Party acted in good faith and in a manner the
Indemnified Party reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe the Indemnified Party's
conduct was unlawful.
Subsection 2 of Section 78.7502 of the Nevada Law empowers a corporation
to indemnify any Indemnified Party who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor by reason
of the fact that such person acted in the capacity of an Indemnified Party
against expenses, including amounts paid in settlement and attorneys' fees
actually and reasonably incurred by the Indemnified Party in connection with
the defense or settlement of such action or suit if the Indemnified Party
acted under standards similar to those set forth above, except that no
indemnification may be made in respect of any claim, issue or matter as to
which the Indemnified Party shall have been adjudged to be liable to the
corporation or for amounts paid in settlement to the corporation unless and
only to the extent that the court in which such action or suit was brought
determines upon application that in view of all the circumstances the
Indemnified Party is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
Section 78.7502 of the Nevada Law further provides that to the extent an
Indemnified Party has been successful on the merits or otherwise in the
defense of any action, suit or proceeding referred to in subsection (1) or (2)
described above or in the defense of any claim, issue or matter therein, the
corporation shall indemnify the Indemnified Party against expenses (including
attorneys' fees) actually and reasonably incurred by the Indemnified Party in
connection therewith.
Subsection 1 of Section 78.751 of the Nevada Law provides that any
discretionary indemnification under Section 78.7502 of the Nevada Law, unless
ordered by a court or advanced pursuant to Subsection 2 of Section 78.751, may
be made by a corporation only as authorized in the specific case upon a
determination that indemnification of the Indemnified Person is proper in the
circumstances. Such determination must be made (a) by the stockholders, (b) by
the board of directors of the corporation by majority vote of a quorum
consisting of directors who were not parties to the action, suit or
proceeding, (c) if a majority vote of a quorum of such disinterested directors
so orders, by independent legal counsel in a written opinion, or (d) by
independent legal counsel in a written opinion if a quorum of such
disinterested directors cannot be obtained.
24
<PAGE>
Subsection 2 of Section 78.751 of the Nevada Law provides that a
corporation's articles of incorporation or bylaws or an agreement made by the
corporation may require the corporation to pay as incurred and in advance of
the final disposition of a criminal or civil action, suit or proceeding, the
expenses of officers and directors in defending such action, suit or
proceeding upon receipt by the corporation of an undertaking by or on behalf
of the officer or director to repay the amount if it is ultimately determined
by a court that he is not entitled to be indemnified by the corporation. Said
Subsection 2 further provides that the provisions of that Subsection 2 do not
affect any rights to advancement of expenses to which corporate personnel
other than officers and directors may be entitled under contract or otherwise
by law.
Subsection 3 of Section 78.751 of the Nevada Law provides that
indemnification and advancement of expenses authorized in or ordered by a
court pursuant to said Section 78.751 does not exclude any other rights to
which the Indemnified Party may be entitled under the articles of
incorporation or any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official capacity or in
another capacity while holding his office. However, indemnification, unless
ordered by a court pursuant to Section 78.7502 or for the advancement of
expenses under Subsection 2 of Section 78.751 of the Nevada Law, may not be
made to or on behalf of any director or officer of the corporation if a final
adjudication establishes that his or her acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and was
material to the cause of action. Additionally, the scope of such
indemnification and advancement of expenses shall continue as to an
Indemnified Party who has ceased to hold one of the positions specified above,
and shall inure to the benefit of his or her heirs, executors and
administrators.
Section 78.752 of the Nevada Law empowers a corporation to purchase and
maintain insurance or make other financial arrangements on behalf of an
Indemnified Party for any liability asserted against such person and
liabilities and expenses incurred by such person in his or her capacity as an
Indemnified Party or arising out of such person's status as an Indemnified
Party whether or not the corporation has the authority to indemnify such
person against such liability and expenses.
Our bylaws provide for indemnification of Indemnified Parties substantially
identical in scope to that permitted under the Nevada Law. Such bylaws provide
that the expenses of our directors and officers incurred in defending any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, must be paid by us as they are incurred and in advance of the
final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of such director or officer to repay all amounts
so advanced if it is ultimately determined by a court of competent
jurisdiction that the director or officer is not entitled to be indemnified
by us.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors and officers, and to persons controlling
our company pursuant to the foregoing provisions, we have been informed that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act and is therefore
unenforceable.
25
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We are currently using facilities provided to us by our president on a rent
free basis.
32
<PAGE>
PLAN OF DISTRIBUTION/SELLING SECURITY HOLDERS
We will sell the shares ourselves and do not plan to use underwriters or pay
any commissions. We will be selling our shares in a direct participation
offering and no one has agreed to buy any of our shares. There is no minimum
amount of shares we must sell.
We are not registering or reselling shares from our stockholder. These
shares will remain restricted.
We are offering 3,000,000 shares at the purchase price of $0.025 per share on
a "best efforts basis." The shares will be offered and sold only to residents
in the states of Texas and Nevada. We have no arrangements or agreements,
verbal or written, with any underwriters to help underwrite this offering.
Our sole officer/director, will not receive any compensation or commissions
with respect to such offers and sales.
This offering is intended to be made solely by the delivery of this
Prospectus and the accompanying subscription application to prospective
investors. Our officer/director will not participate in the making of
this offering other than by the delivery of this Prospectus or by
responding to inquiries by prospective purchasers. Her responses will be
limited to the information contained in the Registration Statement of
which this Prospectus is a part.
We will pay our own legal and accounting fees and other expenses
incurred in connection with the offering. However, we reserve the right
to use broker-dealer(s) in the sale of these securities We will amend
the registration statement via post-effective amendment if in fact we do
require the services of a broker-dealer and if or when the broker-dealer
sells a portion of the offering. Prior to the involvement of the
broker-dealer, we will secure a no objection position from the NASD.
Our officer/director and the principals of our counsel may purchase
shares on the same terms and conditions as all other investors.
Prior to this offering, there has been no public market for the common
stock underlying the units. The offering price of $0.025 per share was
arbitrarily determined by Mercado and bears no relationship to any
recognized criteria of value, nor is it indicative of the market price
for the common stock after this offering. We make no representations as
to any objectively determinable value of the shares. The proceeds
received under this offering will be deposited in an interest bearing
account with Bank of America.
SHARES ELIGIBLE FOR FUTURE SALE
Of the shares outstanding after the offering, the 3,000,000 shares sold in
this offering, will have been registered with the SEC under the Securities
Act of 1933 and will be eligible for resale without registration under the
Securities Act except if they were acquired by our directors, executive
officers or other affiliates. There are no warrants, options or preferred
shares outstanding.
Our director, executive officer, and persons or entities that they control
will be able to sell shares of stock without violating the limitations of
Rule 144 under the Securities Act. The remaining 2,000,000 outstanding
shares may only be sold under Rule 144. Under Rule 144, directors, executive
officers, and persons or entities that they control or who control them may
sell shares of common stock in any three-month period in an amount limited to
the greater of 1% of our outstanding shares of common stock or the average
weekly trading volume in our common stock during the four calendar weeks
preceding a sale. Sales under Rule 144 also must be made without violating
the manner-of-sale provisions, notice requirements and the availability of
current public information about us.
26
<PAGE>
Before the offering, no public trading market for our common stock existed.
We cannot predict what effect, if any, that sales of shares or the
availability of shares for sale will have on the prevailing market
price of our common stock after completion of the offering. Nevertheless,
sales of substantial amounts of common stock in the public market could have
an adverse effect on prevailing market prices.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 20,000,000 shares of common stock, $.001 par
value per share. The holders of the common stock are entitled to one vote per
each share held and have the sole right and power to vote on all matters on
which a vote of stockholders is taken. Voting rights are non-cumulative. The
holders of shares of our common stock are entitled to receive dividends when,
as and if declared by our board of directors, out of funds legally available
therefore and to share pro-rata in any distribution to stockholders. We
anticipate that any earnings will be retained for use in our business for the
foreseeable future. Upon our liquidation, dissolution, or winding up, the
holders of our common stock are entitled to receive the net assets held by us
after distributions to the creditors. The holders of our common stock do not
have any preemptive right to subscribe for or purchase any shares of any class
of our stock. The outstanding shares of our common stock and the shares
offered hereby will not be subject to further call or redemption and will be
fully paid and non-assessable.
Preferred Stock
Our Board of Directors has the authority to cause us to issue without any
further vote or action by our stockholders, up to 5,000,000 shares of
preferred stock, in one or more series, and to designate the number of shares
constituting any series, and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, voting rights, rights and
terms of redemption, redemption price or prices and liquidation preferences of
such series. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of our company without further
action by our stockholders. The issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of
common stock, including the loss of voting control. No preferred stock is
outstanding as of the date hereof.
Transfer Agent and Registrar
Our Transfer Agent and Registrar is Shelley Godfrey, Pacific Stock Transfer
Company, 5844 S. Pecos, Suite D, Las Vegas, Nevada 89120 (702) 361-3033.
27
<PAGE>
THE OFFERING
We are selling 3,000,000 shares of our common stock. None of our
stockholders are selling any of their shares.
No public trading market for the common stock exists, and one may never
exist. We hope to have our common stock prices listed on the bulletin
board maintained by the National Association of Securities Dealers. The
development of a public trading market depends upon the existence of willing
buyers and sellers, which is not within our control or that of any market
maker. We do not currently have a market maker. Market makers are not
required to maintain a continuous two-sided market and are free to withdraw
firm quotations at any time.
PENNY STOCK
The Securities and Exchange Commission has adopted Rule 15g-9 which
established the definition of a "penny stock," for the purposes
relevant to Mercado, Inc., as any equity security that has a market
price of less than $5.00 per share or with an exercise price of less
than $5.00 per share, subject to certain exceptions. For any
transaction involving a penny stock, unless exempt, the rules require:
(1) that a broker or dealer approve a person's account for transactions
in penny stocks; and (2) the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased. In order to
approve a person's account for transactions in penny stocks, the broker
or dealer must (1) obtain financial information and the investment
experience objectives of the person; and (2) make a reasonable
determination that the transactions in penny stocks are suitable for
that person and the person has sufficient knowledge and experience in
financial matters to be capable of evaluating the risks of transactions
in penny stocks. The broker or dealer must also deliver, prior to any
transaction in a penny stock, a disclosure schedule prepared by the
Commission relating to the penny stock market, which, in highlight
form, (1) sets forth the basis on which the broker or dealer made the
suitability determination; and (2) that the broker or dealer received
a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and the rights
and remedies available to an investor in cases of fraud in penny stock
transactions. Finally, monthly statements have to be sent disclosing
recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
LEGAL PROCEEDINGS
We are not a party to any litigation and management has no knowledge of any
threatened or pending litigation against it.
LEGAL MATTERS
The validity of the shares offered hereby is being passed upon for the
Company by Thomas C. Cook, Esq., Las Vegas, Nevada.
EXPERTS
The financial statements as of December 31, 2000 appearing in this prospectus
and registration statement have been audited by G. Brad Beckstead, CPA,
independent certified public accountants, as set forth in their report
thereon appearing elsewhere herein and in the registration statement, and are
included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
28
<PAGE>
ADDITIONAL INFORMATION
We have not previously been subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended. The Company has filed with the
Securities and Exchange Commission a registration statement on Form SB-2
under the Securities Act with respect to the securities being offered. This
prospectus, filed as a part of the registration statement, does not contain
certain information contained in or annexed as exhibits to the registration
statements. Reference is made to exhibits to the registration statement for
the complete text. For further information with respect to the Company and
the securities hereby offered, reference is made to the registration
statement and to the exhibits filed as part of it, which may be inspected
and copied at the public reference facilities of the commission in Washington
D.C., and at the Commission's regional offices at:
* 500 West Madison Street, Chicago, IL 60604;
* 7 World Trade Center, New York, NY 10048;
* and 5757 Wilshire Boulevard, Los Angeles, CA 90034;
* and copies of such material can be obtained from the Public Reference
Section of the Commission, 450 5th Street, N.W., Washington, D.C. 20549, at
prescribed rates and are available on the World Wide Web at:
http://www.sec.gov.
You can also call or write us at any time with any questions you may have.
We would be pleased to speak with you about any aspect of this offering.
29
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
PAGE #
<S> <C>
INDEPENDENT AUDITORS REPORT F-1
BALANCE SHEET F-2
INCOME STATEMENT F-3
STATEMENT OF STOCKHOLDERS' EQUITY F-4
STATEMENT OF CASH FLOWS F-5
FOOTNOTES F-6-8
</TABLE>
PART F/S
Financial Statements
Mercado Industries, Inc.
(A Development Stage Company)
Balance Sheet
as of
December 31, 2000
And
Statements of Income
Stockholders' Equity, and
Cash Flows
for the period
March 29, 2000 (Inception)
To December 31, 2000
.......................................F1
<PAGE>
G. BRAD BECKSTEAD
Certified Public Accountant
330 E. Warm Springs
Las Vegas, NV 89119
702.528.1984
425.928.2877 (efax)
INDEPENDENT AUDITOR'S REPORT
January 9, 2001
Board of Directors
Mercado Industries, Inc.
Las Vegas, NV
I have audited the Balance Sheet of Mercado Industries, Inc.(the "Company")
(A Development Stage Company), as of December 31, 2000, and the related
Statements of Operations, Stockholders' Equity, and Cash Flows for the
period March 29, 1999 (Date of Inception) to December 31, 2000. These
financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements
based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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 statement presentation. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for
my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mercado Industries, Inc.,
(A Development Stage Company), as of December 31, 2000, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 5 to
the financial statements, the Company has had limited operations and
have not commenced planned principal operations. This raises
substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters are also described in
Note 5. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ G. Brad Beckstead
----------------------
G. Brad Beckstead, CPA
F-2
<PAGE>
Mercado Industries, Inc.
(A Development Stage Company)
Balance Sheet
December 31
<TABLE>
<CAPTION>
BALANCE SHEET
2000
----
<S> <C>
ASSETS $2,000
------
Total Assets $2,000
======
Liabilities and Stockholders' Equity
Common stock, $0.001 par value,
20,000,000 shares authorized;
2,000,000 shares issued and
outstanding at 12/31/00 2,000
Deficit accumulated during development stage (0)
-----
Total Stockholders' Equity 2,000
-----
Total Liabilities and Stockholders' Equity $2,000
======
</TABLE>
See accompanying "Independent Auditor's Report"
F-3
<PAGE>
Mercado Industries, Inc.
(A Development Stage Company)
Income Statement
For the period
March 29, 2000 (Date of Inception) to
December 31, 2000
<TABLE>
<CAPTION>
INCOME STATEMENT
<S> <C>
Revenue $-0-
General and administrative expenses (0)
_____
Net loss $(0)
=====
Weighted average number of
common shares outstanding 2,000,000
Net loss per share $-0-
=========
</TABLE>
See accompanying "Independent Auditor's Report"
F-4
<PAGE>
Mercado Industries, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
For the period
March 29, 2000 (Date of Inception)
to December 31, 2000
<TABLE>
<CAPTION>
CHANGES IN STOCKHOLDERS' EQUITY
Deficit
Accumulated
Common stock During Total
Common Stock Development Stockholders'
Shares Amount Stage Equity
<S> <C> <C> <C> <C>
March 29, 2000
issued
for cash 2,000,000 2,000 2,000
Net Loss,
March 29, 2000
(inception) to
December 31, 2000 (0) (0)
----------------------------------------------
Balance as of
December 31, 2000 2,000,000 $2,000 $(0) $2,000
========== ====== ====== =======
</TABLE>
See accompanying "Independent Auditor's Report"
F-5
<PAGE>
Mercado Industries, Inc.
(A Development Stage Company)
Statement of Cash Flows
For the period
March 29, 2000 (Date of Inception)
to December 31, 2000
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
CASH FLOWS USED BY OPERATING ACTIVITIES
<S> <C>
Net loss (0)
_______
Net cash used by operating activities (0)
_______
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used by investing activities -0-
_______
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of capital stock 2,000
Net cash provided by financing activities 2,000
______
Beginning cash and equivalents -0-
______
Ending cash and equivalents 2,000
======
NON-CASH TRANSACTIONS
Interest expense -0-
Income taxes -0-
</TABLE>
See accompanying "Independent Auditor's Report"
F-6
<PAGE>
Mercado Industries, Inc.
(A Development Stage Company)
Footnotes
Note 1 - History and organization of the company
Mercado Industries, Inc. was organized March 29, 2000 (Date of
Inception) under the laws of the State of Nevada. We have no operations
and in accordance with SFAS #7, are considered a development stage
company. We are authorized to issue 20,000,000 shares of $0.001 par
value common stock and 5,000,000 of our $0.001 par value preferred
stock.
Note 2 - Summary of significant accounting policies
Accounting policies and procedures have not been determined except as
follows:
1. Mercado Industries, Inc. uses the accrual method of accounting.
2. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
significantly from those estimates.
3. Mercado Industries, Inc. maintains a cash balance in a non-interest-
bearing bank that currently does not exceed federally insured limits.
For the purpose of the statements of cash flows, all highly liquid
investments with the maturity of three months or less are considered to
be cash equivalents.
4. Earnings per share (EPS) is computed using the weighted average
number of shares of common stock outstanding during the period.
Diluted EPS is computed by dividing net income by the weighted average
shares outstanding, assuming all dilutive potential common shares were
issued. Since Mercado has no common shares that are potentially
issuable, such as stock options, convertible preferred stock and
warrants, basic and diluted EPS are the same. We had no dilutive common
stock equivalents such as stock options as of December 31, 2000.
5. Mercado Industries, Inc. has not yet adopted any policy regarding
payment of dividends. No dividends have been paid since inception.
6. Mercado Industries, Inc. will review its need for a provision for
federal income tax after each operating quarter and each period for
which a statement of operations is issued.
7. Mercado Industries, Inc. has adopted December 31 as its fiscal year
end.
F-7
<PAGE>
Mercado Industries, Inc.
(A Development Stage Company)
Footnotes
Note 3 - Income taxes
Income taxes are provided for using the liability method of accounting
in accordance with Statement of Financial Accounting Standards No. 109
(SFAS #109) "Accounting for Income Taxes". A deferred tax asset or
liability is recorded for all temporary differences between financial
and tax reporting. Deferred tax expenses (benefit) results from the
net change during the year of deferred tax assets and liabilities.
There is no provision for income taxes for the year ended December 31,
2000, due to the net loss and no state income tax in Nevada.
Note 4 - Stockholders' Equity
Mercado Industries, Inc. is authorized to issue 20,000,000 shares of its
$0.001 par value common stock and 5,000 shares of our $0.001 par value
preferred stock.
On March 29, 2000, Mercado Industries, Inc. issued 2,000,000 shares of
our $.001 par value common stock for cash of $2,000. There have been no
other issuances of common or preferred stock.
Note 5 - Going concern
Mercado Industries, Inc. financial statements are prepared using the
generally accepted accounting principles applicable to a going concern,
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, Mercado
Industries, Inc. has not commenced its planned principal operations.
Without realization of additional capital, it would be unlikely for
Mercado to continue as a going concern.
Note 6 - Related party transactions
Mercado Industries, Inc. does not lease or rent any property. Office
services are provided without charge by a director. Such costs are
immaterial to the financial statements and, accordingly, have not been
reflected therein. The officers and directors of the Company are
involved in other business activities and may, in the future, become
involved in other business opportunities. If a specific business
opportunity becomes available, such persons may face a conflict in
selecting between the Company and their other business interests. The
Company has not formulated a policy for the resolution of such
conflicts.
Note 7 - Warrants and options
There are no warrants or options outstanding to acquire any additional
shares of common stock.
F-8
<PAGE>
Mercado Industries, Inc.
(A Development Stage Company)
Footnotes
Note 8- Year 2000 issue
The Year 2000 issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems
may recognize the year 2000 as 1900 or some other date, resulting in
errors when information using year 2000 dates is processed. In
addition, similar problems may arise in systems which use certain
dates in 1999 to represent something other than a date. The effects of
the Year 2000 issue may be experienced before, on, or after January 1,
2000, and if not addressed, the impact on operations and financial
reporting may range from minor errors to significant system failure
which could affect an entity's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the
Year 2000 issue affecting the entity, including those related to the
efforts of customers, suppliers, or other third parties will be fully
resolved.
------------------------------------------------ ---------------------
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Except as set forth in the following part of this document, there is no
charter provision, bylaw, contract, arrangement or statute under which any
officer or director of the registrant is insured or indemnified in any manner
against any liability which he may incur in his capacity as such.
Nevada Law
----------
Pursuant to the provisions of Nevada Revised Statutes 78.751, the Corporation
shall indemnify its directors, officers and employees as follows:
Every director, officer, or employee of the corporation shall be indemnified
by the corporation against all expenses and liabilities, including counsel
fees, reasonably incurred by or imposed upon her/her in connection with any
proceeding to which he/she may be made a party, or in which he/she may become
involved, by reason of being or having been a director, officer, employee or
agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of the corporation,
partnership, joint venture, trust or enterprise, or any settlement thereof,
whether or not he/she is a director, officer, employee or agent at the time
such expenses are incurred, except in such cases wherein the director,
officer, employee or agent is adjudged guilty of willful misfeasance or
malfeasance in the performance of his/her duties; provided that in the event
of a settlement the indemnification herein shall apply only when the Board of
Directors approves such settlement and reimbursement as being for the best
interests of the Corporation.
The Corporation shall provide to any person who is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of the
corporation, partnership, joint venture, trust or enterprise, the indemnity
against expenses of a suit, litigation or other proceedings which is
specifically permissible under applicable law.
The Securities and Exchange Commission's Policy on Indemnification.
-------------------------------------------------------------------
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to any provisions contained in its Certificate of
Incorporation, or bylaws, or otherwise, the registrant has been advised 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. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant 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 indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
32
<PAGE>
Item 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the
issuance and distribution of the securities offered hereby.
<TABLE>
<CAPTION>
<S> <C>
Registration Fee $ 20
Printing Expenses* 480
Legal Fees and Expenses* 2,000
Accounting Fees and Expenses* 1,500
Blue Sky Fees and Expenses* 1,000
Transfer Agent Fees and Expenses* 500
Misc.* 500
-------
Total $ 6,000
</TABLE>
*Estimated
Item 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past year, the registrant has sold securities in the manner
set forth below without registration under the Securities Act of 1933
(the "Act").
On or about March 29, 2000, our date of inception, Mercado Industries, Inc.
raised $2,000.00 through the sale of shares of our common stock. The
following table sets forth information regarding that sale which represents
all securities we have sold since our inception:
On March 29, 2000 we sold 2,000,000 shares of our common stock to our founder
and president, Candace J. Sherman for an aggregate of $2,000. Such issuance
was pursuant to Section 4(2) of the Act as a transaction not involving a public
offering.
These shares are "restricted securities," as that term is defined in the
rules and regulations promulgated under the Securities Act of 1933 and
are subject to certain restrictions regarding resale. Certificates
evidencing all of the above-referenced securities have been stamped with
a restrictive legend and will be subject to stop transfer orders.
33
<PAGE>
Item 27. Exhibits.
---------
The following exhibits are filed as part of this Registration statement
with the Securities and Exchange Commission, following Item 601 of
Regulation S-B.
------------------------------------------------------------------------
EXHIBITS
SEC REFERENCE TITLE OF DOCUMENT LOCATION
NUMBER
------------------------------------------------------------------------
3.1 Articles of Incorporation This filing
------------------------------------------------------------------------
3.2 Bylaws of the Registrant This filing
------------------------------------------------------------------------
5.1 Consent of Thomas C. Cook, Esq. This filing
------------------------------------------------------------------------
23 Consent of counsel is contained
in Exhibit 5.1 This filing
------------------------------------------------------------------------
23.1 Independent Auditors Consent This filing
------------------------------------------------------------------------
27.1 Financial Data Schedule This filing
------------------------------------------------------------------------
99.1 Subscription Agreement This filing
------------------------------------------------------------------------
Item 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised 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. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel, the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
questions whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To 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.
(iii) To 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.
34
<PAGE>
2. That for the purpose of determining any liability under the Securities
Act of 1935, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
Signatures
According to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and has duly
caused this the Registration statement to be signed on its behalf by the
undersigned hereunto duly authorized in the City of Houston on this day,
January 10, 2001.
Mercado Industries, Inc.
--------------------------
(Registrant)
/s/ Ruth Selmon
--------------------------
Ruth Selmon
President, CEO and Director
principal executive officer/
principal accounting officer
and sole director
35
<PAGE>
