SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended April 30, 1996 Commission File No. 0-8299
CAMELOT CORPORATION
(Exact Name of Company as specified in its charter)
Colorado 84-0691531
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Camelot Place, 17770 Preston Road, Dallas, Texas 75252
(Address of principal executive office) (Zip Code)
Company's telephone number, including area code: (214) 733-3005
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
$0.01 par Value Common Stock NASDAQ
Indicate by check mark whether the Company (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
Based on the price of $2.3125, at July 2, 1996, the aggregate market value of
the voting stock held by nonaffiliates of the Company was $43,368,054.
The number of shares outstanding of the Company's common stock, $0.01 par
value, was 23,560,918 at July 2, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
PART 1
Item 1. Business
Camelot Corporation is a holding company with subsidiaries in the publishing,
distribution and retailing of CD-ROM software, and the provision of Internet
access services.
Company was incorporated in Colorado on September 5, 1975, and completed a
public offering of 5,000,000 shares of its common stock in March, 1976 for a
total of $500,000. Company has made several acquisitions and divestment's of
History) and during the financial period ended April 1995 sold or discontinued
all its businesses operating in prior years to concentrate its resources on
the CD-ROM software industry. Effectively Company's ongoing businesses
commenced operations in August 1994. During the years ended April 1994 and
April 1995, Company undertook a restructuring which involved the sale or
closure of all subsidiaries operating in prior financial periods.
The Company's activities are now conducted through four subsidiaries. Third
Planet Publishing, Inc., (established in January 1995) is a publisher of
CD-ROM software whose flagship product is the DigiPhone, the world's first
full duplexing phone system for the Internet. Mr. CD-ROM Stores, Inc.,
(established in December 1994) is a retailer of CD-ROM software with a target
of opening 100 franchise stores by Christmas 1996. Camelot Distributing, Inc.,
(established in April 1995) is a distributor of CD-ROM software supplying the
independent retailer. Camelot Internet Access Services, Inc., (established in
June 1996) is a provider of Internet access services.
Industry Overview
The market for CD-ROM software has developed in the last three years, driven
by the increasing number of US households with CD-ROM computer hardware.
CD-ROM (or more exactly "compact disk -read only memory") provides a
multimedia experience involving video, stereo sound, and text. The growth of
the personal computer software market, results also from the development of
more sophisticated and user friendly software and the increased availability
of software through various retail channels. Increased use of personal
computers in schools and offices, the expansion of the number of home offices
and the rising computer literacy of children and adults contribute to the
growth of the personal computer software market, and the fastest growing
segment of that market is CD-ROM software which is increasingly replacing the
floppy disk based software of recent years.
The Company has taken steps to create a corporate structure that Management
believes places Company in a position to take advantage of all aspects of the
CD-ROM software industry.
Third Planet Publishing
Third Planet Publishing ("Third Planet") was created in 1994 as the publishing
arm of Camelot Corporation. Third Planet's flagship product is the DigiPhone.
The product represents a telecommunications breakthrough which permits the
full duplexing of voice over the Internet. By providing this software, Third
Planet has made real time worldwide voice communications possible for PC
users, for the cost of the normal monthly Internet connection fee. Third
Planet, owns the exclusive worldwide publishing rights to the DigiPhone
software.
<PAGE>
DigiPhone is a complete Internet phone system and utilizes full duplex
technology which enables simultaneous two-way voice communication across the
Internet. The most significant advantage in utilizing DigiPhone is that long
distance telephone calls can be made wherever the Internet is available, but
no long distance telephone charges are incurred. Effectively, DigiPhone
allows worldwide telephone calls to be made for no charge, other than the cost
of an Internet connection.
DigiPhone was released in the American market in October 1995 and has received
widespread acceptance by retailers, being carried by every major computer
software distributor and every major computer hardware and software retailer
in America. DigiPhone was launched as a Windows 3.1 compatible software, and
the Windows 95 compatible software and the upgraded version of DigiPhone
called DigiPhone Deluxe has just recently been released in America. In August
1996, DigiPhone for Mac will be launched being the Macintosh version of
DigiPhone which will have cross platform capability enabling Macintosh users
to communicate with PC users and vice versa.
DigiPhone and DigiPhone Deluxe include modern telephone features such as
speed dialing, voice messaging, caller ID, call record and playback,
conference calling, a personal phone book, and access to the Global Directory
listing all DigiPhone users worldwide. Conversations are encrypted and
completely private unlike the commonly used IRC connections or chat rooms.
Additionally, DigiPhone Deluxe has a full suite of Internet programs bundled
with the software including Netscape Navigator 2.0_.
The only existing competition for DigiPhone are products that require IRC
connections to connect to another party. Specifically, the other products
require access to an IRC server and the selection of a chat group to locate
the other party. DigiPhone uses a direct dial system, and requires no IRC
servers to go through before the other party is reached. DigiPhone
effectively works similar to a regular phone system using the Internet
address in place of the phone number.
DigiPhone allows an e-mail message to be left if the party called is
unavailable, and the Deluxe version has a voice message e-mail system.
DigiPhone is the only software that has input and output sound level
indicators to keep the user informed of connection quality, similar to the
signal strength indicator on a cellular phone. It is equipped with Caller ID
which displays the name and location of callers before the call is answered,
even identifying other calls if a conversation is ongoing. DigiPhone includes
TCP/IP WinSock (called DigiSock) for connection to the Internet.
DigiPhone can create multiple phone books to keep business and personal
contacts separate. The phone book stores name and address just like a
telephone book. Additionally, DigiPhone has a Global Phone Book accessible by
query screen in the program. Queries can be defined by name, state, country,
and time zone. The Global Phone Book is available through an Internet home
page on the world wide web and gives the location of all users that choose to
be listed (Internetpage is http://www.digiphone.com).
Additional benefits of DigiPhone Deluxe include record and playback features
allowing conversations to be recorded and played back if desired; a mute
button allowing the caller to listen but not be heard; conference calling
allowing three callers to be connected on the same phone call; and voice
effects allowing the creation of voice modulations and effects.
<PAGE>
DigiPhone Deluxe comes with a complete suite of Internet tools including
Netscape Navigator 2.0_, which is the latest version of the dominant browser
software used by the majority of Internet users. It is a powerful, flexible
and easy-to-use on-line environment that combines point and click network
navigation, secure e-mail, and threaded discussion groups for support for such
advanced features as Java, sophisticated layout capabilities, and in-line
multimedia plugins to give users access to a new generation of live on-line
applications. Additionally, the Deluxe comes with Telnet which allows for the
ability to remotely connect to other computers and execute programs, and FTP
(or File Transfer Protocol) which is used to transfer files and programs over
the Internet.
Management is of the opinion that it has created a sophisticated distribution
and bundling network which will enable DigiPhone to be marketed successfully
through numerous channels worldwide.
Mr. CD-ROM Stores, Inc.
Mr. CD-ROM Stores opened five corporate stores in Dallas in November 1995.
International franchise negotiations are underway with key retail
concentrations planned for Asia and Europe. The stores feature 2,000 titles
for the CD-ROM consumer to select from.
Mr. CD-ROM Stores are located in dense traffic high visibility retail
locations. The typical store size ranges between 1,000 to 3,000 square feet.
Consumers appreciate the selection, fair pricing and knowledgeable helpful
staff and also enjoy the convenience of the CD-ROM specialty concept that
eliminates the impersonal service oflarge discount appliance stores. Stores
are equipped with computerized point of purchase, inventory, and reorder
systems and continued support is provided to the franchisees in all areas of
operation including; technical support, marketing, merchandising, computer
questions, business advice, report analysis, and all operational concerns.
These Mr. CD-ROM corporate stores were intended to be first of a previously
announced target of 100 corporate and franchise stores to be opened by
Christmas 1996. However, positive results from the larger stores has lead
management to the conclusion that the most viable retail concepts are the
larger stores in prime retail locations. As such stores do not lend
themselves to franchising due to the larger investment required, management
has decided to modify its business plan by concentrating on opening a limited
number of strategically located corporate stores in prime locations throughout
the United States with sizes ranging from 2,000 to 3,000 square feet instead
of widespread US franchising. The Company will focus its franchising
activities on international master franchises who will have the responsibility
for franchising in specific countries. Negotiations are presently actively
being pursued for master franchises overseas.
<PAGE>
Camelot Distributing, Inc.
Camelot Distributing Inc., ("Camelot Distributing"), is a distributor and
exporter of CD-ROM software to the independent retailer. Camelot Distributing
serves as the exclusive supplier to Mr. CD-ROM Stores and also supplies
independent retail storefronts worldwide. Camelot Distributing has
established an 8,500 square feet warehouse, distribution and office facility
in Dallas, Texas and instituted a computerized inventory management system
that will enable it to distribute efficiently and effectively to its customer
base. Camelot Distributing has entered into numerous agreements with CD-ROM
software publishers to provide it with a comprehensive and constantly
expanding product range which presently numbers in excess of 2,000 items.
Management believes that Camelot Distributing is well placed to take advantage
of the requirements of independent retailers for CD-ROM software. The
expansion of Mr. CD-ROM Stores will lead to a consequential expansion of
Camelot Distributing as it supplies 90% of software purchased by Mr. CD-ROM
Stores.
Camelot Internet Access Services, Inc.
On January 26, 1996, the Company announced that it has concluded an agreement
with UUNET Technologies, Inc. whereby it will use UUNET's Internet backbone
for the Company's newly formed subsidiary, Camelot Internet Access Services,
Inc. (Camelot Internet). The use of UUNET's exclusive alternate Internet
backbone facilities enables Camelot Internet to instantly establish itself as
a nationwide quality Internet service provider. UUNET's network
infrastructure currently allows local access in over 200 cities in the United
States and it is the primary Internet access provider to the Microsoft
network. Camelot Internet was officially launched in April 1996 at which time
its nationwide services commenced. In addition to marketing its services in
the traditional way, Camelot Internet will be offered to users of DigiPhone.
Competition
The CD-ROM software industry is highly competitive. The Company's competitors
include other national and regional publishers, distributors and retailers and
certain of these competitors have substantially greater financial and other
resources than the company which may give them certain competitive advantages.
There are many software publishers entering the market with new products and
this trend is expected to continue. Both publishers and distributors are
competing for limited retail shelf space, and many large retail chains are
beginning to add CD-ROM software to the range of products offered to consumers
and these additional retail distribution channels will also increase the
competitiveness of the market. The ability of Company to effectively compete
in the future depends upon a number of factors, including its ability to
publish CD-ROM software with unique capabilities that generate high consumer
demand; expansion of the retail franchise concept with the resulting creation
of additional retail shelf space that will be supplied by Company's
distribution subsidiary; and effective internal cost controls.
Seasonality
The Company's businesses may be effected by a variety of factors, including
but not limited to general economic trends, additional and existing
competition, marketing programs, weather, special or unusual events,
variations in the number of store openings, the quality of new release titles
available for sale, and acquisitions made by the Company.
<PAGE>
Regulation
Certain states and certain foreign jurisdictions require a franchisor to
transmit specific disclosure statements to potential owners before issuing a
franchise. Additionally, some states and foreign jurisdictions require the
franchisor to register its franchise before its issuance. The Company
believes the offering circular that is used to market its franchises complies
with all applicable laws of states in the United States and foreign
jurisdictions regulating the offering of issuance of franchises. The
Company's business other than the franchising aspect thereof, are not
generally subject to any government regulation other than customary laws and
local zoning and permit requirements.
Trademarks and Trade Names<PAGE>
Mr. CD-ROM, DigiPhone, People are Talking, Call Anywhere. Talk Forever. Never
Pay Long Distance and Kids University are registered or have been applied for
in the United States patent and trademark office as service marks or
trademarks of the Company. The Company believes the strength of its
trademarks and service marks benefits its businesses and intends to continue
to protect and promote its registered common law trademarks and service marks.
Acquisition and Divestment History
On September 16, 1988, the Company acquired Stock Transfer Company of America,
Inc. ("STCA"), a transfer agent and registrar for publicly held companies in
a pooling of interest transaction, for 266,667 newly issued common shares of
the Company (post reverse split) with an agreed to value of $500,000. In
connection with this transaction, the Board of Directors and officers of the
Company were changed and Daniel Wettreich was appointed a Director, Chairman
and Chief Executive Officer and Jeanette Fitzgerald was appointed a Director.
The business purpose of the acquisition was to diversify the company into the
financial services field. On April 11, 1994, following a decision by the
Directors of the Company to discontinue financial services, STCA was sold to
a company affiliated with Mr. Wettreich for book value (See Item 13).
On March 2, 1990, the Company's subsidiary, Beecher Energy, Ltd. ("Beecher")
was conditionally listed on the Vancouver Stock Exchange with a trading
symbol of "BEE". Beecher raised a total of C$266,000 with an offering of
700,000 common shares of Beecher at C$0.38 per share and trading in the shares
began in August 1990. Proceeds of the offering were used to drill and
complete four wells and for workingcapital. The Company sold its 69%
shareholdings in Beecher on July 6, 1994 for C$400,000.
In November 1990, the Company purchased 17770 Preston Road, Dallas, Texas, for
cash and relocated its corporate headquarters to this building. In January of
1991, the company acquired for cash an 80% majority interest in Forme Capital,
Inc. ("Forme") a publicly traded real estate company from the wife of Mr.
Wettreich. On September 10, 1993, the Company sold all its investment in
Forme Capital for 50% of the bid price of the shares to Mrs. Wettreich. The
transaction was approved by shareholders of the Company at the Annual Meeting
held on February 15, 1994. This removed approximately $640,000 of debt and
approximately $75,000 of annual losses from the Company's financial statement.
In addition, the Company sold to Forme a vacant office property located at
17738 Preston Road, Dallas, Texas and the office property occupied by the
Company located at 17770 Preston Road, Dallas, Texas. Forme agreed that if
17738 Preston Road sold within one year at a price in excess of the price
Forme paid the Company, then such excess profit was to be paid to the Company
<PAGE>
as additional consideration. On December 10, 1993, the Company was informed
by Forme Capital that 17738 Preston Road had been sold to an unaffiliated
party, and the net price in excess of the price Forme paid the Company was
$30,810 which sum was paid to the Company in compliance with the agreement
between the Company and Forme. (See also Item 13).
In March 1991, the Company purchased for $120,000 payable $40,000 by cash and
$80,000 in a note, Vesta Land Title Company, a Henderson County, Texas title
insurance company. In July 1991, the Company purchased Business
Investigations, Inc., for 104,077 of its newly issued common shares with an
agreed to value of $312,231 which provides investigation services to financial
institutions. In July 1992, the Company acquired McKee-Blanchard and
Associates, Inc., a real estate appraisal company based in Dallas, Texas, for
33,333 common shares, and 50,000 Series C Preferred Shares with a combined
fair market value of $32,203 after reduction of goodwill. On September 25,
1992, the Company acquired First Appraisal Group, Inc., a real estate
appraisal firm, in exchange for 15,000 Convertible Preferred Shares Series F
with a fair market value of $15,000. The business purpose of these
acquisitions was to increase the Company's investment in the financial
services sector. Following the Company's decision to concentrate its
resources in software distribution, Company discontinued its financial sector
investments and these companies ceased doing business on 8th July 1994, 8th
July 1994, November 1993, and November 1993 respectively.
In July, 1993, the Company acquired approximately 40% of the issued share
capital of Goldstar Video Corporation ("GVC"), a video marketing company for
500,000 common shares with a fair market value of $218,000. The Company
renegotiated with the seller of the 40% of GVC in March, 1994 and seller
returned to the Company 288,000 common shares of the Company to treasury
thereby reducing the purchase price of the GVC investment by $125,568. The
Company also made a $150,000 secured loan to GVC. Further, the Company formed
a new wholly owned subsidiary Goldstar Entertainment, Inc. ("GEI") to acquire
for $200,000 cash and the assumption of $175,000 of liabilities, certain
licenses and other assets from GVC. The Company made this investment as it
regarded GVC as operating in a business sector into which the Company wished
to diversify and management was of the opinion that the additional cash
resources provided by the Company to GVC would stabilize GVC and enable it to
continue in business. On October 20, 1993, GVC filed for protection from
creditors under Chapter 11 of the Bankruptcy Code which was converted to
Chapter 7 on February 4, 1994. The Company was not a controlling shareholder
of GVC and its investment in GVC has been reduced to a nil value.
In March 1994, the Company's subsidiary Camelot Communications, Inc., acquired
the rights to a group of ten wireless cable televisio licenses which will
facilitate the exclusive broadcast rights for wireless cable television
services for the city of Manhattan, Kansas. The consideration, conditional on
FCC approval is $347,897 in an unsecured note and $15,000 in cash, and the
assumption of $102,103 of existing liabilities, and $60,000 in unsecured debt
and $10,000 in cash. The debt is conditional on conditional licenses for
all channels being granted and for a pro-rata reduction in debt obligation
in the event that any conditional licenses for a channel is not granted. The
Company has decided not to proceed with the development of the system due to
management's decision to focus the Company's resources on the CD-ROM software
industry and its investment in the licenses for Manhattan, Kansas has been
reduced to nil value.
<PAGE>
On June 17, 1994, the Company acquired 100% of the common stock of Maxmedia
Distributing, Inc., a Florida based distributor of CD-ROM software. The
consideration for the acquisition, inclusive of related debt, was the issuance
of 205,000 restricted common shares of the Company and $25,000 in cash.
The Company's subsidiary Camelot Entertainment, Inc., a video distributor
filed under Chapter 7 of the US Bankruptcy laws in January, 1995.
Discontinued Activities - See Item 7. Management Discussion and Analysis of
Financial Conditions and Results of Operations
Employees
As of July 1, 1996, the Company employs 82 people on a full time basis. The
Company believes that it has good employee relations.
Item 2. Properties
Real Estate
Company leases a 10,000 square feet office building in Dallas, Texas which
it occupies as its corporate headquarters from a company affiliated with
the resident. Company also leases 19,950 square feet office and warehouse
building in Dallas, Texas which it occupies as a distribution center for
Camelot Distributing and as programming and publishing facilities for Third
Planet Publishing. The Company considers all office and warehouse space
leased adequate for its needs. Mr. CD-ROM Stores leases five retail units
in Dallas, Texas.
Item 3. Legal Proceedings
No material legal proceedings to which the Company is a party is subject or
pending and no such proceedings are known by the Company to be contemplated.
In the normal course of business, the Company has been sued as detailed
below. The Company believes there is no validity to this suit, and has
denied plaintiff's allegations.
The Company has been sued by a creditor of a previous subsidiary. The
Plaintiffs alleges that the Company is the alter ego of the previous
subsidiary and is therefore liable for its debts. The Company believes the
allegations are groundless and intends to vigorously defend itself in
litigation.
There are no proceedings to which any director, officer or affiliate of the
Company, or any owner of record (or beneficiary) of more than 5% of any class
of voting securities of the Company is a party adverse to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
Item 5. Market for Company's Common Equity and Related Stockholder Matters
The Company's common stock trades on the NASDAQ Small-Cap Market under the
symbol CAML. The following table sets forth the quarterly high and low prices
of the common stock for the period from May 1, 1994 through April 30, 1996.
Real-time price information is provided from quotations take from monthly
reporting by NASDAQ. They reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions.
<TABLE>
Real Time
<C> <C>
High Low
<C>
1995
First 1 15/32 1 5/16
Second 1 11/32 1 9/32
Third 1 3/8 31/32
Fourth 3 1/4 31/32
1996
First 2 7/16 1 1/2
Second 7 1/32 1 15/16
Third 4 29/32 2 5/16
Fourth 3 3/16 1 23/32
</TABLE>
As of July 2, 1996, Company had 10,450 shareholders of which there were 2,102
shareholders on record of Company's common stock and approximately 8,348
additional beneficial owners.
Item 6. Selected Financial Data
A comparison of various financial data pertaining to the Company's operations
over the past five fiscal years is as follows:
<TABLE>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net sales...... $ 3,002,049 $ 1,184,469 $ - $ - $ -
Income (loss) from
continuing operations..(4,314,788) (2,335,977) (1,567,312) (256,320) 40,843
Income (loss) from
discontinued operations (250,925) (1,182,927) (402,981) (435,772) (633,605)
Income (loss) per share from
continuing operations (0.31) (0.23) (0.21) (0.10) 0.02
Total assets....... 16,701,863 2,098,974 3,309,132 3,337,494 2,156,914
Long-term debt.. - - - 633,528 677,384
<TABLE/>
Company's CD-ROM software subsidiaries commenced operations during fiscal
1995 (See Item 1).
On January 30, 1995, Company's subsidiary Camelot Entertainment filed under
Chapter 7 of the US Bankruptcy Code.
<PAGE>
On April 11, 1994, Company disposed of its subsidiary STCA, and on July 8,
1994 discontinued Vesta and BII its remaining financial service subsidiaries
(See Item 1).
On July 6, 1994, Company disposed of its 69% interest in Beecher Energy,
Ltd., a company trading on the Vancouver Stock Exchange representing its
energy interests (See Item 1).
On September 11, 1993, the Company disposed of its investment in Forme
Capital, a real estate holding company (See Item 1).
Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations
Certain information within this Item 7 and throughout this Form 10-K contain
forward looking statements. These statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those set forth including but not limited to Camelot's dependence upon outside
suppliers, upon the continued ability to create and/or acquire products that
customers will accept; the impact of competition and the changing competitors;
the changing nature of regulations and the manner in which they are
interpreted; and pricing pressures in addition to normal economic and world
factors beyond the control of the Company.
1996
The Company made substantial progress during the year ending April 30, 1996.
The company's revenue for the year was $3,002,049 compared with $1,184,469 in
1995, an increase of 153%. Net loss for the period was $4,565,713 compared
with a loss for the previous year of $3,518,904. These results are due to a
combination of revenue from DigiPhone, license fees received from European
distribution rights for DigiPhone, revenue from the five newly opened Mr.
CD-ROM Stores, and increased general and administrative costs related to the
development and marketing of DigiPhone.
The consolidated balance sheets for the period show stockholders' equity of
$15,680,168 compared with ($87,049) for the financial year ended April 30,
1995. Total assets were $16,701,863 compared with $2,098,874 in April 1995.
The substantial increase in stockholders' equity and total assets was due to
the completion of private placements.
During the period under review, the Company's subsidiary Third Planet
completed shipments of its preliminary orders for the Windows 3.1 version of
DigiPhone. This software achieved widespread retail distribution, and by the
end of the third quarter the first production run had sold out. Subsequent
retail reorders were limited in anticipation of the Windows 95 version of
DigiPhone which commenced shipment in May 1996 along with DigiPhone Deluxe.
DigiPhone Deluxe has enhanced telephone features including conference calling
capability, voice mail, speed dialing, voice sound effects, conversion
recording and playback, and macro command capabilities. It comes with a full
suite of Internet tools including Netscape Navigator 2.0 from Netscape
Communications Corporation, an e-mail program, a newsreader, an FTP program,
and a telnet program. In addition, a free Windows 95 upgrade for the existing
DigiPhone software is available. Both DigiPhone and DigiPhone Deluxe are now
<PAGE>
being marketed with two licenses in each retail box. Effectively, this
provides two Windows 95 compatible licenses for DigiPhone or DigiPhone Deluxe
for the price of one, and enables consumers to immediately start Internet
telephone conversations with a family member or a friend without any extra
cost. All existing DigiPhone users are being provided with a free extra
license and a free extra Windows 95 upgrade. Consumers who buy DigiPhone
currently stocked in retail stores will receive a free extra license and a
free extra Windows 95 upgrade upon registration. Third Planet has activated
the Global Directory feature of DigiPhone which allows any DigiPhone and
DigiPhone Deluxe user to search and access any other DigiPhone and DigiPhone
Deluxe user worldwide. The directory may be found on Third Planet's web site
on the Internet at http://www.digiphone.com.
During the period under review, the Company announced the acquisition of
e-Phone, formerly known as NetPhone, the only Macintosh compatible computer
software that enables voice communication over the Internet. e-Phone has been
available on the Internet as NetPhone from the original developers, Electric
Magic Company. Electric Magic sold the software to New Paradigm Software
Corporation on October 9, 1995 and the Company purchased it from New Paradigm
on October 31, 1995. The purchase price was $593,000 payable $350,000 in
Camelot restricted common shares valued at $5.1875 per share and the balance
in cash. In addition, New Paradigm will also receive for a five year period
$1 per unit and 10% of OEM revenue derived from the software. The technology
of e-Phone will be incorporated by Third Planet into a Macintosh compatible
version of DigiPhone to be called DigiPhone For Mac. Users of the DigiPhone
Windows version will be able to talk over the Internet with users of the
DigiPhone Macintosh versions. Third Planet will continue to make e-Phone
available on the Internet until DigiPhone For Mac is launched at which time
e-Phone will be discontinued. e-Phone/NetPhone users will be able to upgrade
to DigiPhone For Mac.
The appointment of Firecrest Group PLC as exclusive distributor for DigiPhone
in the United Kingdom and Ireland, occurred during the period under review.
The consideration for the granting of the UK and Ireland exclusive rights was
$1,950,575 payable by issuance by Firecrest of 1,856,453 ordinary shares
equal to approximately 10% of the increased share capital of Firecrest.
Firecrest is a media and marketing company in the United Kingdom. The
ordinary shares of Firecrest are listed on the Alternative Investment Market
of the London Stock Exchange.
The rights for Scandinavia were conditionally purchased in January 1996 by
Telepartner Holdings A/S, a Copenhagen, Denmark based company, which is the
leading telephone database services company in Scandinavia. The consideration
for the exclusive distribution rights was $1,000,000 payable by the issuance
to Camelot of shares in Telepartner equal to 2.7% of the share capital of
Telepartner. Due to the non-receipt of consideration, the Company terminated
the agreement in May 1996.
In July, 1996, after the financial year end, the Company concluded an
agreement with DigiPhone Europe, Ltd., whereby it has appointed DigiPhone
Europe, Ltd. as exclusive distributor for DigiPhone and DigiPhone Deluxe in
Europe, excluding the United Kingdom and Ireland. The consideration for the
rights was 5,000,000 (approximately $7,500,000). DigiPhone Europe, Ltd. is a
London, England based European software marketing company which has entered
into a conditional agreement with Telecom Credit Europe, PLC (TCE), a public
<PAGE>
company listed on the Alternative Investment Market of the London Stock
Exchange, whereby DigiPhone Europe will be merged with TCE. Following the
merger, Camelot will own approximately 16% of TCE. The majority stockholder
of TCE will be Danny Wettreich, who is also Chairman and Chief Executive
Officer of Camelot. Mr. Wettreich did not participate in any Directors' vote
in relation to this transaction. The 5,000,000 received by Camelot for the
distribution rights was paid in loan stock, yielding 6 percent interest and
convertible into shares of DigiPhone Europe. Upon completion of the merger
with TCE, such shares of DigiPhone Europe will be converted into shares of
TCE. After the merger, TCE will have cash of approximately #1,500,000
(approximately $2,300,000) thereby providing sufficient resources to
successfully launch DigiPhone and DigiPhone Deluxe software in Europe. The
Company anticipates that the French, German, Italian, Swedish, Norwegian and
Danish language versions of DigiPhone and DigiPhone Deluxe software will be
launched in Europe during September 1996. This agreement furthers the
Company's strategic plan to build a European distribution network and make
DigiPhone software a truly global product.
During the period the Company opened five Mr. CD-ROM Stores in the Dallas,
Texas area. The retail stores range in size from 1,000 square feet to 3,000
square feet, and specialize in CD-ROM software with up to 2,000 titles in
stock. These Mr. CD-ROM corporate stores were intended to be the first of a
previously announced target of 100 corporate and franchise stores to be opened
by Christmas 1996. However, positive results from the larger stores has led
management to the conclusion that the most viable retail concepts are the
larger stores in prime retail locations. As such stores do not lend
themselves to franchising due to the larger investment required, management
has decided to modify its business plan by concentrating on opening a limited
number of strategically located corporate stores in prime locations throughout
the United States with sizes ranging from 2,000 to 3,000 square feet instead
of widespread US franchising. The Company will focus its franchising
activities on international master franchises who will have the responsibility
for franchising in specific countries. Negotiations are presently being
pursued for master franchises overseas.
Camelot Distributing, the CD-ROM distribution subsidiary of the Company,
continues to be the principal supplier to Mr. CD-ROM Stores as well as
focusing on a telemarketing sales operation to independent retailers
throughout the US.
On January 26, 1996, the Company announced that it has concluded an agreement
with UUNET . Technologies, Inc. whereby it will use UUNET's Internet backbone
for the Company's newly formed subsidiary, Camelot Internet Access Services,
Inc. (Camelot Internet). Theuse of UUNET's exclusive alternate Internet
backbone facilities enables Camelot Internet to instantly establish itself as
a nationwide quality Internet service provider. UUNET's network
infrastructure currently allows local access in over 200 cities in the United
States and it is the primary Internet access provider to the Microsoft
network. Camelot Internet was officially launched in June 1996 at which time
its nationwide services commenced. Camelot Internet offers customers five
free hours of service each month. After that, a $2.50 per hour charge will
apply. This is the same pricing structure as a special offer that AT&T is
currently making for its Internet access service to existing AT&T long
distance customers. As an added bonus, Camelot Internet will bundle DigiPhone
with their service. Camelot Internet will also be offered as part of
<PAGE>
Camelot's DigiPhone Deluxe software package, distributed through major
computer retailers and Mr. CD-ROM Stores. New Camelot Internet customers will
receive a CD-ROM through the mail that not only provides the installation
program, but also includes a licensed copy of DigiPhone, DigiSock, an FTP
program, and Netscape Navigator Version 2.0. These customers will also have
the opportunity to upgrade their copy of DigiPhone to DigiPhone Deluxe for
$39.00, which has an MSRP of $149.95 at retailers. Effective June 3, the
users can sign up through the toll-free number (1-800-442-7120). The service
will also be available later this summer through an Internet web site. Users
signing up through the phone or Internet will be charged a one-time set up
fee of $19.95.
At the world's first Internet Telephony conference, held in London, England
on April 18-19 and called Dialing The Net, Danny Wettreich, Chairman and Chief
Executive Officer of Camelot, disclosed a development program for the
DigiPhone Multi-Protocol Frameworks. These frameworks will enable DigiPhone to
communicate with any other standards-based Internet Telephony software. The
frameworks are based on newly developed component technology that will allow
Third Planet Publishing, the software publishing subsidiary of Camelot, and
third party developers to dynamically add new functionality such as
whiteboarding and file transfer to the DigiPhone communications engine. This
new approach to software deployment will allow DigiPhone to evolve more
quickly in a rapidly maturing Internet telephony market. This open
development platform will also allow DigiPhone to integrate with current and
future Internet technologies such as Java and VRML on a variety of computing
platforms. Development of the DigiPhone Multi-Protocol Frameworks is scheduled
to be completed by the end of this year.
A 30 day free trial of DigiPhone Version 1.03 software is available through
the Company's web site on the Internet. To access this free offer, users
download the software from the Company's web page, http://www.digiphone.com.
The only system requirement for potential users are a multimedia PC, Internet
access and web browser software. At the end of the 30 day trial, users can
purchase a full version of DigiPhone or DigiPhone Deluxe software by calling
a toll-free number. Users will also be provided with a list of retailers that
carry DigiPhone Deluxe software. To gain additional exposure for DigiPhone
software, Camelot will, in the future, offer this 30 day trial version bundled
with various third party hardware products and through Internet access
provider services.
Subsequent to the period under review, the Company announced that it has
applied for a patent for VideoTalk_, a video and audio communications system
for the Internet. VideoTalk is a complete hardware and software system which,
when connected to a multimedia PC, enables full duplex video and audio
conferencing over the Internet. It is the only Internet communications system
to use Direct Dial Technology to facilitate free video and audio conferencing.
It will provide significant advantages to users as VideoTalk does not
require a soundcard or a video capture card. VideoTalk is a self contained
unit which simply connects to the computer's existing SCSI or parallel port.
There are no usage fees, other than the normal monthly Internet access
subscriber's charge. It is anticipated that the development program for
VideoTalk will be completed by the end of this year. VideoTalk will come with
a new version of DigiPhone 2.0 which will include the recently announced
Multi-Protocol Framework allowing voice communication with other Internet
telephony software. A suggested retail price for VideoTalk has yet to be
<PAGE>
established. The VideoTalk unit attaches to the side of a computer monitor
and includes a handset and a built-in camera. The camera is directionally
adjustable and allows for close-ups and wide-angle views. VideoTalk's features
are designed to incorporate new leading edge audio and video compression
technology to enable connections over devices such as 28.8 kbps modems. The
conferencing feature has the ability to receive transmissions from video
servers that distribute one-way broadcasts, such as lectures, training
sessions and corporate meetings. VideoTalk provides both color and gray
scale video capabilities which will automatically adjust to the capabilities
of the transmission medium being utilized.
VideoTalk is designed with an expansion peripheral interface that enables
attachments to be added to the VideoTalk unit. These expansion peripherals
are to include a cable TV Internet access unit, a mobile phone unit, a fax
device, and an answering machine. Further, a peripheral security enhancer
will integrate security systems to provide automatic video and audio recording
in the case of a security breach. These peripherals will be released in
phases during 1997. VideoTalk contains encryption technology which provides
security of transmission for all audio and video, as well as any data
generated by attached peripherals. The VideoTalk software will provide
integration with the recently announced ActiveX Conferencing Technology, from
Microsoft. Camelot's subsidiary, Third Planet Publishing, Inc., will provide
API specifications so that other developers can take advantage of the features
and processing power of VideoTalk in their applications. For example,
developers using Microsoft's DirectPlay will be able to incorporate live
audio and video into Internet based multimedia games.
The Company also announced the Internet Telephony Handset which is
specifically designed to enable superior voice communications over the
Internet. The handset attaches to the side of a computer monitor and
functions in a similar way to a telephone handset, thus eliminating the
necessity for a headset or microphone and speakers when Internet voice
communication software is used. The Internet Telephony Handset will have
features such as full compatibility with all popular soundcards, hands-free
speaker phone, adjustable input volume control, voice sensitive audio
frequency response, and an audio feedback limiter. The Internet Telephony
Handset will be sold as a stand-alone hardware product capable of being used
with DigiPhone and DigiPhone Deluxe, as well as any other Internet voice
communication software. The Internet Telephony Handset will have a retail
price of $49.95.
In June 1996, the Company announced that it has signed an agreement with
Lucent Technologies to incorporate packet voice technology from Bell Labs,
the research and development arm of Lucent Technologies, into the next
version of DigiPhone Internet telephony software. Camelot is the first
company to announce they will be basing their voice over the Internet product
on the Bell Labs Fidelity Plus speech coder. The Fidelity Plus coder is one
of a series of high quality voice, audio and video software products from Bell
Labs targeted at the Internet. The agreement will enable Camelot to use the
voice codec in future release of DigiPhone for PC 486 and Pentium platforms
and will be compatible with Windows 3.1, Windows 95, and Windows NT software.
In order to maximize the voice options available to them, DigiPhone users will
be able to choose between the existing DigiPhone voice codec and the Bell Labs
voice codec when making a call. Bell Labs is the R&D arm of Lucent
Technologies, which designs, builds, and delivers a wide range of public and
private networks, communications systems and software, consumer and business
telephone systems and microelectronics components.
<PAGE>
Management believes that it is at the forefront of the emerging Internet voice
communications industry and that is has positioned itself to take maximum
advantage of the technological lead it enjoys with DigiPhone and it
anticipates significant revenues to be generated by this revolutionary
software product over the next 24 months. Management expects its principal
revenue and profitability will emanate from DigiPhone and DigiPhone derivative
software products and from DigiPhone license fees, and intends to concentrate
the majority of its management and financial resources on the development and
successful marketing of Internet related software products produced by its
subsidiary Third Planet Publishing.
1995
During the year ended April 1995, Company completed its restructuring which
involved the sale or closure of all previously owned subsidiaries and
established three new operating subsidiaries, namely Third Planet Publishing,
Inc., (established in January, 1995), Mr. CD-ROM Stores, Inc. (established in
December, 1994) and Camelot Distributing, Inc. (established in April 1995).
Camelot Distributing acquired the inventory and customer list of Maxmedia
Distributing which was acquired by Company in July, 1994 and has now ceased
trading. Due to the fact that trading operations for these subsidiaries
commenced various times during the financial year, and to the fact that no
prior history exists for the ongoing operations of Company, Company is of the
belief that the financial results for the year ended April 1995, and a
comparison with prior period financial statements is not indicative of the
future results of Company.
The results of operations of the discontinued operations and the assets sold
or to be sold are presented in the financial statements as discontinued
operations. Prior year statements of operations have been restated for
comparative purposes with the result that no sales or related financial
information is shown due to the fact that the Company's CD-ROM software
subsidiaries commenced operations during the fiscal year and did not generate
any revenues during previous fiscal years.
Company's continuing operations had Sales of $1,184,469 in fiscal 1995
compared with $-0- for 1994. Company had a Loss from Operations of $2,348,155
compared with a Loss from Operations in fiscal 1994 of $1,138,387. Net Loss
for fiscal 1995 was $3,518,904 which includes Loss from Discontinued
Operations of $1,182,927 which compares with a Loss from Discontinued
Operations for fiscal 1994 of $402,981.
The primary reasons for the loss from continuing operations was due to the
start up costs relating to the commencement of CD-ROM software operations in
its newly formed subsidiaries, and the decision to discontinue Company's other
businesses. In addition to start up costs for its new subsidiary, its
subsidiary Maxmedia which was located in Orlando was closed, and the Company
incurred relocation costs of personnel, inventory, fixtures and equipment to
Dallas which is a non-recurring one time costs. Mr. CD-ROM Stores incurred
costs outside the normal course of business due to the testing and retesting
of various retail concept in its Orlando retail unit in order to establish a
permanent long term Mr. CD-ROM retail trading format. Further, Third Planet
Publishing incurred programming and data processing costs relating to the
creation of the CD-ROM interactive catalog and in relation to DigiPhone which
management has decided to expense.
<PAGE>
The Consolidated Balance Sheets for 1995 shows Stockholders' Equity of
($87,049) compared with $1,408,498 for fiscal 1994. Total Assets were
$2,098,874 compared with $3,309,132. The decrease in Stockholder's Equity is
due to a combination of the Loss from Operations and the Loss from
Discontinued Operations. Subsequent to the year end substantial increases in
stockholders equity occurred due to private placements of restricted common
and preferred stock and the conversion to common stock of debt owing to an
affiliate of the President of Company, all of which resulted in an increase
in equity of $1,875,000 during the three month period ending July 1995.
Company began its CD-ROM software operations by the acquisition of Maxmedia
Distributing, a Florida based distributor of CD-ROM software in July 1994.
The customer base of Maxmedia is now being serviced by Camelot Distributing,
a CD-ROM distributor supplying independent retailers from distribution
facilities in Dallas, Texas. Camelot Distributing now carries approximately
1,500 CD-ROM titles which it believes is the largest range of CD-ROM software
made available from any one distribution source.
Mr. CD-ROM Stores was established in December, 1994 with the opening of a
retail concept store in Orlando, Florida. This store, which was on a six
month lease, provided an opportunity to refine Mr. CD-ROM's retail concept
during which time retail franchise documentation and approvals were obtained
from the majority of states in the USA. A company owned store was opened in
Dallas in July, 1995 and it is anticipated that an additional four retail
units will be opened by September 1995 in the Dallas area. Mr. CD-ROM Stores
is presently negotiating with over 400 potential franchisees both in the USA
and internationally with a view to establishing retail franchise units
worldwide. Management has announced that it has a target of opening 100
retail franchise units by Christmas, 1996.
Third Planet Publishing commenced operations in January 1995 and shortly
thereafter acquired the worldwide distribution rights to DigiPhone, the
world's first full duplex Internet phone system. Third Planet expanded the
number of software programmers developing the DigiPhone technology and
arranged for quality retail distribution as well as establishing marketing
and advertising plans for launching DigiPhone. Management anticipates that
DigiPhone will be shipping to retailers in August 1995.
Subsequent to the period under review, Company completed a private placement
of restricted common and preferred shares raising $1,200,000 for the Company.
The investors are a investment fund managed by Suisse Finance Corporation and
have agreed not to dispose of their common shares for a minimum of twelve
months. The preferred shares can convert into common shares over a nine
month period in equal monthly installments. The preferred shares yield 12%
and the transaction was completed at a price equivalent to 30% discount from
the price of Camelot shares prevailing at the time of conversion. Hunt and
Wissman of Dallas, Texas served at consultants to Suisse Finance on the
transaction. Management believes that to have investment advisors of the
quality of the Hunts directing a substantial investment into Company is an
expression of confidence in Company's future prospects.
Discontinued Activities
During the year Company's directors determined to discontinue its remaining
non CD-ROM software activity and accordingly its subsidiary Camelot
<PAGE>
Entertainment, Inc., a video distribution company filed Chapter 7 liquidation
under the US Bankruptcy laws in January 1995. Company's only continuing
material liability in relation to Camelot Entertainment is a corporate
guarantee in the original amount of $200,000 to a creditor of Camelot
Entertainment. Such corporate guarantee has been fully allowed for in
Company's financial statements. (See Item 3). Company's subsidiary, Camelot
Communications which had acquired certain wireless cable licenses in
Manhattan, Kansas ceased activities. Company determined not to pursue the
development of this project and its investment has been written down to
$50,000. Revenues of Camelot Entertainment which are not shown in the
financial statements as they are discontinued operations were $694,666 for
fiscal 1995 compared with $2,597,366 for the previous year. Loss from
Operations for fiscal 1995 was $406,057 compared with $1,563,174.
As reported in the 1994 financial statements, Company's controlling 69%
interest in Beecher Energy, Ltd. was sold on May 31, 1994. The transaction
was closed in late July 1994. Also as disclosed in the 1994 financial
statements, Company's subsidiary Business Investigations which provided
investigation services to financial institutions and Vesta Land Title Company
which provided title insurance services both discontinued operations on July
8, 1994.
1994
The Company had a Loss from Operations of $1,138,387 compared with a Loss from
Operations in fiscal 1993 of $259,160. Net Loss for fiscal 1994 was
$1,970,293 after Other Expenses of $428,925 and Loss from Discontinued
Operations of $402,981, which compares with a Loss from Operations for fiscal
1993 of $692.092. Included in Other Expenses is a lawsuit settlement of
$342,604, a loss on investment in Goldstar Video of $92,750 and an unrealized
loss of marketable securities of $58,215. The Loss from Discontinued
Operations reflects a discontinuance of the Company's previous businesses in
real estate, financial services, and energy. Due to the discontinuance of all
business that existed at April 30, 1994, and the commencement of software
subsidiaries during fiscal 1995, the Company believes that a comparision with
previous financial periods is inappropriate.
The primary reasons for the loss was the start up costs relating to the
commencement of the entertainment and communications subsidiaries, the
decision to discontinue Company's energy, real estate and financial services
subsidiaries, and various Other Expenses such as the lawsuit settlement and
the write down or loss on investments. In commencing operations in the
distribution of video and computer software, Company incurred expenses in the
creation of its distribution facility in Tinton Falls, New Jersey, marketing
and advertising expenses for the establishing of its new products and the
Professor Nozall and Kids University brand names in the marketplace, costs
related to the creation of a sales force capable of marketing directly to
15,000 retail units throughout the United States and Canada, packaging costs
relating to display materials and video and computer software packaging, and
the creation of a computerized inventory and accounting system linking its
Tinton Falls distribution facility with Company's corporate offices in Dallas.
During the year Company settled outstanding litigation relating to the
acquisition of Business Investigations with a settlement including legal fees
of $342,604, which settlement adversely affected profitability for the period.
<PAGE>
The Consolidated Balance Sheets for 1994 show Stockholder's Equity of
$1,408,498 compared with $2,519,731 for fiscal 1993, a decrease of
approximately 44%. Total Assets were $3,309,132 compared with $3,377,494, a
decrease of approximately 2%. The decrease in Stockholder's Equity is due to
a combination of the Loss from Operations and the Loss from Discontinued
Operations.
Camelot Corporation began its Entertainment and Communications activities in
Fiscal Year 1994. Its subsidiary, Goldstar Entertainment, acquired certain
licenses from Goldstar Video Corporation in July, 1993, but discontinued
trading activities in September, 1993 and became a holding company for
licensed properties. Goldstar Entertainment was sold to an affiliate of the
President of Company in April, 1994 (See Item 13). Camelot Entertainment
began trading activities in August 1993 and comprises the majority of the
revenues of Company during 1994. CEI's profitability was adversely affected
during the period by start up costs and the distribution of an unprofitable
children's animated video series, which series has now been discontinued.
Further, the development costs associated with the creation of the Professor
Nozall video and software range also affected profitability during the period
as did the necessity of offering placement discounts to retailers in order to
access shelf space to place newly introduced ranges and establish
relationships with such retailers. CEI entered into a lease arrangement in
October, 1993 and located its distribution and office facilities for CEI in a
27,000 square foot property in Tinton Falls, New Jersey. CEI successfully
recruited and trained distribution personnel and implemented distribution
procedures which required an investment in manpower and financial resources
which affected short term profitability, but which will enable CEI to handle
future growth.
Company established Camelot Communications in October, 1993 to acquire certain
wireless cable licenses in Manhattan, Kansas. Company believes that the
development of a wireless cable business in the Manhattan, Kansas area will
require significant capital and is exploring alternative options as to how to
utilize and develop this investment. Camelot Communications has also
established a TV production and home video studio in Chicago, Illinois which
it is anticipated will develop educational series for television and home
video use and provide low cost exclusive product for distribution for Camelot
Entertainment.
Subsequent to the financial period, Company acquired Maxmedia Distributing,
Inc., a Florida based international distributor of CD-ROM software. Maxmedia
sells CD-ROM software to over 800 dealers, chain stores, Fortune 1,000
companies, Government agencies, universities and schools in the USA and in 13
other countries, and has an expanding mail order catalog division distributed
to a mailing list of approximately 80,000 CD-ROM users. Company intends to
expand aggressively in this area and develop a CD-ROM publishing division with
a view to publishing quality software titles. Company anticipates that CD-ROM
software will become the largest single product range sold by Company.
Discontinued Activities - Financial Services, Energy, and Real Estate
During the year Company's Directors determined to discontinue all activities
unrelated to Company's entertainment and communications interests.
Accordingly, Company sold its subsidiaries Forme Capital, Stock Transfer
Company of America, and Beecher Energy and discontinued operations in its
subsidiaries Vesta Land Title and Business Investigations. Management
discussion of these former activities are detailed below.
<PAGE>
Company's former subsidiary, Stock Transfer Company of America, ("STCA")
provides comprehensive stock transfer services to publicly traded companies
in compliance with reporting requirements and turnaround time. STCA provides
transfer agent and registrar functions for the Company. During the last five
years it has made small growth in the number of companies serviced. Stock
transfer services is a highly competitive field and STCA competes with other
transfer companies and banks with significantly greater financial strength.
On April 11, 1994 the Company sold at book value all outstanding shares of
STCA to Louis Investments, Inc., a private company affiliated with Mr.
Wettreich. The effective date of the sale was February 28, 1994 (See Item
13).
Company's subsidiary Vesta Land Title Company ("Vesta") provided title
insurance services in Henderson County, Texas as an agent for title insurance
underwriters who issue title policies. A title insurance policy is an insured
statement of the condition of title, or ownership, of real property. Prior to
the issuance of a policy, a title report or commitment is prepared after a
search of records, maps and documents affecting the parcel in question. For
a one-time premium, the policy protects the named insured against title
defects, liens and encumbrances existing as of the date of the policy and not
specifically excepted from coverage. In the event of a challenge that calls
into question the terms of a title policy, the underwriter provides legal
defense for the policyholder and promptly pays all valid claims or losses up
to the amount of the policy. Vesta operated with the proper licenses granted
the Texas State Board of Insurance. On 8th July 1994, this Company
discontinued operations.
Business Investigations, Inc. provided asset and title investigations to
financial institutions, attorneys, and corporations. Its investigations often
uncover hidden assets, which is particularly useful to agencies like the
Federal Deposit Insurance Corporation ("FDIC") and the Resolution Trust
Corporation ("RTC"). Since the acquisition of Business Investigations, this
company has been significantly reduced in size due to a reduction of business
coming from the FDIC and the RTC following the improvement in the banking and
savings and loan industries. On 8th July 1994, this Company discontinued
operations.
National Appraisal Associates, Inc., McKee-Blanchard and Associates, Inc. and
First Appraisal Group, Inc. are the entities through which Company's appraisal
business was performed. Since acquisition, the appraisal business suffered
from intense competition and as a result Company discontinued its appraisal
business in November, 1993.
Beecher Energy, Ltd. received royalty income from 53 gas wells and 1 oil well
located in Pennsylvania, Oklahoma and Kansas. On May 31, 1994, the Company
sold its 69% controlling interest in Beecher Energy, Ltd., for C$400,000. The
transaction closed in late July, 1994.
Seasonal and Environmental Matters - Energy
Demand for natural gas is generally greater in winter than in summer.
Otherwise, the Company's business usually is not seasonal. Also, the
Company does not believe that its business operations presently impair
environmental quality. However, compliance with federal, state and local
regulations which have been enacted or adopted regulating the discharge of
materials into the environment could have an adverse effect upon the capital
expenditures, earnings and competitive position of the Company, the extent of
<PAGE>
which the Company is now unable to assess. Since inception Company has not
made any material capital expenditures for environmental control facilities
and has no plans to do so.
Energy Regulatory and Other Matters
Regulatory agencies in certain states have authority to issue permits for
the drilling of wells, regulate the spacing of wells, prevent the waste of oil
and gas resources through proration, require drilling bonds and reports
concerning operations, and regulate environmental and safety matters.
Certain producing states, including Oklahoma, have recently considered
adopting measures that would alter the methods used to prorate gas production
from wells located in the state. If adopted, these measures may limit the
rate at which gas can be produced from wells Company has an interest in.
The operations of Company has been, and in the future from time to time may
be, affected by federal, state and local laws and regulations, such as
restrictions on production, changes in taxes, royalties and other amounts
payable to governments or governmental agencies, price controls and
environmental protection regulations.
To date, compliance with environmental laws and regulations have not had
a material impact on Company. Company has not received any notices from any
regulatory agency regarding violations of environmental laws. Company is
unable to predict the impact of future laws and regulations on Company's
operations.
Company believes that inflation has not had a material effect on its
operations or on its financial condition, but there can be no assurance that
future increases in the inflation rate would not have an adverse effect.
Energy Markets and Purchasers
Oil and gas production generally is sold at the wellhead to various crude
oil purchasers and pipeline companies in the immediate area where
hydrocarbons are produced. There will always be a market for oil production,
but the prices obtained based upon a number of factors beyond the Company's
control. Such factors include the extent and prices of imported oil, the
availability of pipelines, and federal and state regulations. The Company's
gas wells in Colorado were producing at less than full capacity during the
time Company owned the wells during the fiscal year. Gas wells in northwest
Pennsylvania are producing near full deliverability. Some wells have not been
producing profitably and have been shut in. Prices for gas from northwest
Pennsylvania vary with the purchaser.
The current market for domestic oil and gas is very competitive with
declining prices and the sale by major energy companies of large sections of
their domestic production. To the extent that market prices would effect the
prices received by Company's subsidiary Beecher Energy, such trends will
decrease the revenues on the existing production owned by Beecher Energy.
To the extent that the major energy companies are disposing of domestic
production, Beecher Energy will be presented with buying opportunities for
investment in producing domestic properties. Beecher Energy does not now, and
has no intention of becoming in the future an operator of its properties and
will seek investment opportunities in the acquisition of existing producing
properties.
<PAGE>
Customers having purchases which accounted for more than 10% or more of the
Company's consolidated revenues were as described in Note 10 to the
Consolidated Financial Statements. The exploration, development and production
of crude oil and natural gas are also subject to such operating risks as
fires, blowouts, pollution and other hazards. In many cases insurance for
such risks is unavailable or prohibitively expensive, and the occurrence of
certain uninsured hazards could have a adverse effect on the Company.
On September 10, 1993, Company sold its investment in Forme Capital for 50% of
the bid price of the shares to Zara Wettreich, the wife of the President of
Company. This transaction was approved by shareholders of Company at an
Annual Meeting held on February 15, 1994. This removed approximately
$640,000 of debt and approximately $75,000 of annual losses from Company's
financial statement. In addition, Company sold to Forme a vacant office
property located at 17738 Preston Road, Dallas, Texas and an office property
occupied by Company located at 17770 Preston Road, Dallas, Texas. Further, if
17738 Preston Road sold within one year at a price in excess of the price
Forme paid Company, then such excess profit will be paid to Company as
additional consideration. On December 10, 1993, Company was informed by Forme
Capital that 17738 Preston Road has been sold to an unaffiliated party, and
the net price in excess of the price Forme paid Company was $30,810 which sum
has been paid to Company in compliance with the agreement between Company and
Forme. (See Item 13).
Liquidity and Capital Resources
1996
Net cash used by operating activities for 1996 was $6,740,073 compared with
$2,207,683 in 1995. Net cash used by investing activities was $1,889,146
compared with net cash received of $28,482 in 1995. This was primarily due
to product development and software costs of $608,800 compared with $40,000
in 1995, to the purchase of minority interests of $264,044 ($0 in 1995), to
the issuance of a note receivable in the amount of $312,400 ($0 in 1995) and
to purchases of property and equipment of $1,087,658 ($195,589 in 1995).
Net cash provided by financing activities was $18,350,289 compared with
$2,290,941 the previous year. Sales of common stock and preferred stock
were $22,330,214 compared with $1,623,847 in 1995. These transactions
substantially improved the liquidity of the Company and helped raise
stockholders' equity by $15,767,262 in 1996.
The Company's plans for capital expenditures relate principally to capital
costs likely to be incurred in opening of additional retail units. The
Company estimates that each additional retail unit will require
approximately $50,000 of capital expenditure. Only a limited number of
such corporate units will be opened during the next 12 months. Management
believes that sales from its DigiPhone software product and revenues
generated from licensing fees will generate substantial revenues and cash
flow for the Company during the next 12 months. Management does not
anticipate any liquidity problems over the next 12 months and believes that
the anticipated level of revenue generated by the Company together with the
present level of cash resources available to the Company will be sufficient
for its needs. Management believes that should the Company require
additional cash resources, it can raise additional cash resources from the
sale of common and preferred stock and/or by incurring borrowing.
<PAGE>
Management is aware that the Company has no long term corporate debt.
Management believes that it is well positioned to make arrangements for
additional debt should the need arise. There are no known trends, demands,
commitments, or events that would result in or that is reasonably likely to
result in the Company's liquidity increasing or decreasing in a material
way other than the potential use of cash resources for investment in the
Company's subsidiaries and the normal course of business.
Management continued to demonstrate its ability to attract private
investment during the nine months ended January 31, 1996. The Company
raised $22,330,214 in private placements of restricted common and
convertible preferred stock. The preferred stock yields range from 9% to
12% and can be converted into common shares of the Company in limited
amounts during agreed time frames subsequent to issuance and in unlimited
amounts thereafter. The conversion rate is equal to an agreed upon
discount on the prevailing market price of the Company shares at the time
of the conversion.
1995
Net cash used by operating activities was $2,207,683 in 1995 compared with
$2,145,545 in 1994. This was primarily due to the net loss of $3,518,904
compared to $1,970,293 in 1994. The most significant adjustments to
reconcile net loss to net cash from operating activities were a write off
of discontinued subsidiaries of $560,577. Net cash provided by investing
activities of $28,482 compares with with cash used of $160,239 for the
previous year.
Net cash provided by financing activities was $2,290,941 compared with net
cash provided during the previous year of $1,067,171. Sales of common stock
of $1,623,847 compares with $517,322 in fiscal 1994.
Subsequent to the period under review, Company completed $1,425,000 Private
Placements and converted $450,000 debt owing to an affiliate of the
President of Company to common stock. These transaction substantially
improve the liquidity of Company, and raised stockholder's equity by
$1,875,000 in the quarter ended July 31, 1995.
Company's plans for capital expenditures relate principally to capital costs
likely to be incurred in the opening of additional retail units. Company
estimates that each additional retail unit will require approximately
$50,000 of capital expenditure and anticipates opening four corporate units
by September 1995. Company anticipates that additional units will be
financed by franchise fees obtained from franchisees as such units are
opened. Management believes that sales from its' DigiPhone software product
and revenues generated from both corporate and franchisee owned retail
stores, will generate substantial revenues and cash flow for Company during
the next twelve months. Management does not anticipate any liquidity
problems over the next twelve months should such anticipated revenues
materialize and in those circumstances believes that the anticipated level of
revenue generated by Company together with the present level of cash
resources available to Company will be sufficient for its needs. Management
believes however that should sales of DigiPhone and or revenues generated
from retail units be less than anticipated that it will experience liquidity
problems. Management believes that should Company require additional cash
resources, it can raise such additional cash resources from the sale of
<PAGE>
common stock and/or by incurring borrowings from its directors or entities
affiliated with directors and from unrelated financial institutions.
Management is aware that other than indebtedness owing to an entity
affiliated with its President, Company has no corporate debt. Management
believes that it is well positioned to make arrangements for additional debt
should the need arise. There are no known trends, demands, commitments or
events that would result in or that are reasonably likely to result in the
Company's liquidity increasing or decreasing in any material way other than
the potential use of cash resources for investment in Company's subsidiaries
in the normal course of business.
1994
Net cash used by operating activities was $2,149,684 in 1994 compared with
$458,900 in 1993. This was primarily due to the net loss of $1,970,293
compared to $692,092 in 1993. The most significant adjustments to reconcile
net loss to net cash from operating activities were a provision for returns
and allowances of $359,690 ($0 in 1993), a provision for loss on note
receivable of $75,000 ($0 in 1993), a write down of securities to market
value of $58,215 ($15,082 in 1993), a loss from discontinued operations of
$49,030 ($0 in 1993) and non-cash transaction for services of $165,000 ($0
in 1993) and written off investment of $92,750 ($0 in 1993). Net cash used
by investing activities of $160,239 compares with $125,377 for the previous
year.
Net cash provided by financing activities was $1,067,171 compared with net
cash provided during the previous year of $1,775,185. Sales of common stock
of $517,322 compares with $1,931,150 in fiscal 1993. Proceeds from notes
payable from a related party of $470,000 occurred in 1994 ($0 in 1993).
Company has no plans for capital expenditures. Management does not anticipate
any liquidity problems over the next twelve months, and believes the present
level of revenue generated by Company together with the present level of cash
resources available to Company will be sufficient for its needs. Management
believes that should Company require additional cash resources due to
expansion of its business, or for acquisitions, that it can raise such
additional cash resources from the sale of common stock, and/or by incurring
borrowings from its directors or entities affiliated with directors and from
unrelated financial institutions. Management is aware that, other than
indebtedness owing to an entity affiliated with its President, Company has no
corporate debt, and Management believes that it is well positioned to make
arrangements for additional debt should the need arise. There are no known
trends, demands, commitments or events that would result in or that are
reasonably likely to result in the Company's liquidity increasing or
decreasing in any material way other than the potential use of cash resources
for investment in Company's subsidiaries in the normal course of business.
<PAGE>
</TABLE>
<TABLE>
Item 8. Financial Statement and Supplementary Data
Index to Consolidated Financial Statements Page
<S> <C>
Report of Independent Auditors - 1996 F-1
Consolidated Financial Statements
Balance Sheets - April 30, 1996 and 1995 F-2 and
F-3
Statements of Operations for the years
ended April 30, 1996, 1995 and 1994 F-4
Statements of Stockholders' Equity for the
years ended April 30, 1996, 1995 and 1994 F-7
Statements of Cash Flows for the years ended
April 30, 1996, 1995 and 1994 F-8 and
F-9
Notes to Consolidated Financial Statements F-10 through
F-30
Consolidated Schedule F-31
</TABLE>
The information itemized above are included in Part IV, Item 14 as Exhibit
(a) (1) and begins at F-1 following page 39.
Also included is the unaudited information regarding proven oil and gas
reserves.
Item 9. Disagreements on Accounting and Financial Disclosure
Lane Gorman Trubitt, L.L.P., were the auditors for the fiscal year ended
April 30, 1996. During the previous year, there were no disagreements
between the Company and the auditors regarding a policy or disclosure.
Coopers and Lybrand were retained by the board of directors to perform the
audit for fiscal year 1994. They were dismissed prior to signing an
engagement letter due to a fee deemed unacceptably high, and not cost
effective to the Company. The board approved the dismissal in order to hire
a local firm, Lane Gorman and Trubitt, L.L.P., to perform audit services for
fiscal year 1994.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company
The following persons serve as directors and/or officers of the Company as of
July 2, 1996:
<TABLE>
<C> <C> <C> <C> <C>
Name Age Position Period Served Term Expires
Daniel Wettreich 44 Chairman and September 16, 1988 Next Annual
Chief Executive Officer, Meeting
President,
Director
Jeanette P. Fitzgerald 35 Vice President September 16, 1988 Next Annual
General Counsel, Meeting
Secretary,
Director
Allan S. Wolfe 62 Director May 24, 1993 Next Annual
Meeting
Henry Gelender 49 Director December 1, 1995 Next Annual
Meeting
Thomas D. Watts 45 Vice President June 10, 1996 N/A
of Operations
Stuart B. Sikes 32 Vice President June 10, 1996 N/A
of Marketing
Robert B. Gregory 44 Vice President July 1, 1996 N/A
of Finance
David D. McCurley 30 Vice President June 10, 1996 N/A
& Chief Technical Officer
</TABLE>
Daniel Wettreich
Daniel Wettreich is Chairman and Chief Executive Officer, President and
Director of the Company since September 1988. He is also a Director and
Officer of all its subsidiaries. Since 1981, he has been the President and
Director of Wettreich Financial Consultants, Inc., a financial consulting
company. Since May 1996, he has been Director and Chief Executive Officer of
DigiPhone Europe, Ltd., a United Kingdom based distributor of software in
Europe. Additionally, he currently holds directors positions in the following
public companies: Forme Capital, Inc., a real estate company and Danzar
Investment Group, Inc., Malex, Inc., Adina, Inc., and Tussik, Inc. which are
dormant companies seeking merger opportunities. In July 1993, he was
appointed Director of Goldstar Video Corporation following an investment by
the Company. From January 1985 to February 1988 he was a founding director of
<PAGE>
Phoenix Network, Inc., a telecommunications company listed on the American
Stock Exchange. Mr. Wettreich was an executive with two London, England
merchant banks in the mid 1970's. Subsequently he was owner/manager of a
private distribution company, and thereafter Chief Financial Officer of a
$60 million retailer listed on the London Stock Exchange. Mr. Wettreich has
been an officer and director of Hermina, Inc., the corporate trustee of The
Wettreich Heritage Trust since June 1981. Mr. Wettreich has a Bachelor of
Arts in Business Administration from the University of Westminster, London,
England.
Jeanette P. Fitzgerald
Jeanette Fitzgerald is Vice President and General Counsel, Corporate Secretary
and a Director of the Company since September 1988. She is a director and
secretary of the Company's subsidiaries. She is a member of the State Bar of
Texas and the Business Law section. Since May 1996, she has been a Director
of DigiPhone Europe, Ltd., a United Kingdom based distributor of software in
Europe. She is also the Corporate Secretary and Director of Wettreich
Financial Consultants, Inc., and of Malex, Inc., Adina, Inc., Tussik, Inc. and
Danzar Investment Group, Inc., which are public companies. In July 1993, she
was appointed Director of Goldstar Video Corporation following an investment
by the Company. Previous to these positions, from 1987 to 1988 she worked as
a staff attorney and in the compliance department at H.D. Vest, Inc., a
holding company with subsidiaries including a securities brokerage firm. She
graduated from Texas Tech University School of Law receiving both a Doctorate
of Jurisprudence and a Masters of Business Administration in May 1986, and
from the University of Michigan with a Bachelors of Business Administration
in December 1982.
Allan S. Wolfe
Allan S. Wolfe has been a Director of the Company since May, 1993. He is
Chairman and President of Database Technologies, Inc., a public company
providing database software to the insurance industry from May 1986 to the
present. He is also, since 1984, a director and Chief Executive Officer of
Pathfinder Data Group ("PDG"), a database company. A subsidiary of PDG,
Pathfinder Data, Inc., filed for protection from creditors under Chapter 11
and has since been converted to Chapter 7.
Henry Gelender
Dr. Henry Gelender has been a Director of the Company since December, 1995.
He is President of Cornea Associates of Texas, PA, one of the leading cornea
transplant surgery centers in the country. He is Vice Chairman of the
Department of Ophthalmology at Presbyterian Hospital in Dallas, Texas since
1994, and is Clinical Associate Professor of Ophthalmology at the University
of Texas, Southwestern Medical School in Dallas since 1983. He received his
medical degree from the University of Health Sciences at the Chicago Medical
School in Chicago, Illinois in 1973, and had a BA in Zoology from the
University of California.
(1) A subsidiary, Camelot Entertainment, Inc., filed Chapter 7 liquidation
in January 1995.
(2) Goldstar Video filed for protection from creditors pursuant to Chapter 11
in October 1993, and has converted to a liquidation proceeding.
Certain Significant Employees of Principal Subsidiaries
<PAGE>
Thomas D. Watts
Tom Watts is Vice President of Operations of the Company since June 1996.
Previously, he was Vice President and General Manager of Third Planet
Publishing, Inc. He was Senior Vice President of Operations for FoxMeyer
Health Corporation since 1994, a health care pharmacy provider. From 1992 he
was Vice President of The Harvard Chase Group, a technology venture capital
company, and prior to that from 1989 he was Vice President of Operations for
Hathaway Corporation, a computer software research and development company.
From 1980 to 1989 he was the executive in charge of Data Information Services,
Inc., firstly as President until 1985 when it was acquired by MTech
Corporation, then as Vice President until MTech was acquired in 1988 by
Electronic Data Systems (EDS), and then as Division Manager when the company
was owned by EDS. He has a BS in Economics and a BS in Management from the
University of Mobile.
Stuart B. Sikes
Stuart Sikes is Vice President of Marketing of the Company since June 1996.
Previously, since 1994, he was Marketing and Sales Director of PW Solutions,
Inc., a value added reseller, marketing accounting and information software
systems. From 1992 he was Product Marketing Manager for OpenConnect Systems,
Inc., a company marketing connectivity software. From 1988 to 1992, he was
an Account Executive with AT&T Global Information Solutions. Mr. Sikes
graduated in 1988 from Southern Methodist University with an MBA, and in 1986
from Vanderbuilt University with a BA in Economics.
Robert B. Gregory
Robert Gregory is the Vice President of Finance for the Company since July
1996. He was previously Director of Finance of Jenkens & Gilchrist, one of
Texas's largest law firms, prior to which he was controller of Memorex Telex
Corporation, a manufacturer of computer equipment. Previously, from 1985 he
was controller of the communications division of Electronic Data Systems, an
international provider of information technology. In addition to being a
Certified Public Accountant, he has an MBA from Creighton University and a BS
in Accounting from the University of Nebraska.
David D. McCurley
David McCurley is Vice President and Chief Technical Officer of the Company
since June 1996. He was previously Vice President of Programming of Third
Planet Publishing, Inc., since 1994. Previously, from 1989, he was Systems
Coordinator for South Trust Bank.
11. Executive Compensation
The following table lists all cash compensation exceeding $100,000 paid to
Company's executive officers for services rendered in all capacities during
the fiscal year ended April 30, 1996. No bonuses were granted to any officer,
nor was any compensation deferred.
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards Payouts
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Name & Principal Salary Other Annual Restricted Options LTIP All
Position Year Bonus Compensation Stock SARs Payouts Other
Awards Comp.
Daniel Wettreich 1994 - - - - - - $(1)
Chairman & CEO 1995 - - - - 1,000,000 - $(1)
1996 - - - - - - $(1)
Jeanette P. 1994 - - - - - - $(1)
Fitzgerald, VP, 1995 - - - - 175,000 - $(1)
Gen. Counsel, 1996 - - - - - - $(1)
Secretary
</TABLE>
(1) Daniel Wettreich and Jeanette Fitzgerald, Directors and Officers of
Company, were employees of a company affiliated with Mr. Wettreich, which
company provided the Company with management services until July 1995 and was
paid $44,000, $286,000 and $290,500 for the years ended April 30, 1996, 1995
and 1994 respectively. In July 1995, Mr. Wettreich and Ms. Fitzgerald became
employees of Company and Mr. Wettreich entered into an employment contract
with Company.
Directors of the Company receive no salary for their services as such, but are
reimbursed for reasonable expenses incurred in attending meetings of the Board
of Directors.
Company has no compensatory plans or arrangements whereby any executive
officer would receive payments from the Company or a third party upon his
resignation, retirement or termination of employment, or from a change in
control of Company or a change in the officer's responsibilities following a
change in control other than Mr. Wettreich.
On July 1, 1995, Company entered into an employment contract with Mr.
Wettreich whereby he was employed as Chairman, Chief Executive Officer and
President of the Company for a period of ten years at an annual salary of
$250,000 and a cash bonus equal to 5% of the Company's annual profits before
taxation. In the event of Mr. Wettreich's death during the term of the
agreement, Company will pay annual death benefits of $250,000 for a period of
four years. Mr. Wettreich may terminate his employment after the date of a
change in control of the Company. A change in control is defined as any
person other than Mr. Wettreich or his family interests becomes beneficial
owner, directly or indirectly of common stock of the Company representing 30%
or more of the Company's issued and outstanding common stock or if the
Incumbent Board as defined, ceases to constitute a majority of the board of
directors. If Mr. Wettreich terminates his employment after a change of
control in the company, he shall be paid (i) the base salary and any bonuses
payable to him under the agreement or (ii) an amount equal to the product of
the annual base salary and bonus paid to Mr. Wettreich during the year
preceding the termination date multiplied by five whichever of (i) or (ii) is
<PAGE>
more. In the circumstances whereby Mr. Wettreich terminates his employment
for good reason, as defined, he will receive payments in accordance with the
payments received if termination occurs after a change of control of the
Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of July 2, 1996 information known to the
management of the Company concerning the beneficial ownership of Common Stock
by (a) each person who is known by the Company to be the beneficial owner of
more than five percent of the shares of Common Stock outstanding, (b) each
director at that time, of the Company (including principal directors of
subsidiaries) owning Common Stock, and (c) all directors and officers of the
Company (including principal directors of subsidiaries) as a group (8
persons).
<TABLE>
<C> <C> <C>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
Daniel Wettreich 7,514,665 (1)(2)(3) 28.3%
17770 Preston Road
Dallas, Texas 75252
Jeanette P. Fitzgerald 182,000 (4) *
17770 Preston Road
Dallas, Texas 75252
Allan Wolfe 40,000 (5) *
390 South River Road
Suite 5
Bedford
New Hampshire 03110
Henry Gelender 215,500 (6) *
7150 Greenville Avenue
Suite 600
Dallas, Texas 75231
Tom Watts 30,000 (7) *
17770 Preston Road
Dallas, Texas 75252
David McCurley 50,000 (8) *
17770 Preston Road
Dallas, Texas 75252
Stuart Sikes 20,000 (9) *
17770 Preston Road
Dallas, Texas 75252
Robert Gregory 10,000 (10) *
17770 Preston Road
Dallas, Texas 75252
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
All Officers and 8,062,165 (1)(2)(3)(4)(5)(6) 30.3%
Directors as a group
(8 persons)
* Under 0.1%
Zara Wettreich, 1,494,166 5.6%
Separate Property
17770 Preston Road
Dallas, Texas 75252
Forme Capital, Inc. 2,650,000 (3) 9.9%
17770 Preston Road
Dallas, Texas 75252
</TABLE>
(1) 920,499 of these shares are in the name of Zara Wettreich and Hermina,
Inc. trustees of The Wettreich Heritage Trust ("Trust"), a Texas trust whose
beneficiaries are the children of Daniel Wettreich. 1,494,166 of these shares
are owned by Zara Wettreich the wife of Mr. Wettreich, as her separate
property. 1,000,000 of these shares are owned by Wettreich Financial
Consultants, Inc. ("WFC"), a Texas company owned by the wife and children of
Mr. Wettreich. 650,000 of these shares are owned by Forme Capital, Inc.,
("Forme"), a Delaware company of which Mr. Wettreich is a director and
officer. Mr. Wettreich has disclaimed any beneficial interest in the shares
owned by his wife, Trust, WFC, and Forme.
(2) Includes an option to purchase 1,000,000 shares granted to Daniel
Wettreich, which option is not exercised.
(3) Includes an option granted to Forme Capital, Inc., a company affiliated
with Mr. Wettreich, to purchase 2,000,000 shares, which option is not
exercised.
(4) Includes an option to purchase 115,000 shares granted to Jeanette
Fitzgerald, which option is not exercised.
(5) Includes an option to purchase 30,000 shares granted to Allan Wolfe,
which option is not exercised.
(6) Includes an option to purchase 15,000 shares granted to Henry Gelender,
which option is not exercised. 500 of these shares are as custodian for
Rachel Gelender UGMA.
(7) Includes an option to purchase 30,000 shares granted to Tom Watts, which
option is not exercised.
(8) Includes an option to purchase 50,000 shares granted to David McCurley,
which option is not exercised.
(9) Includes an option to purchase 20,000 shares granted to Stuart Sikes,
which option is not exercised.
(10) Includes an option to purchase 10,000 shares granted to Robert Gregory,
which option is not exercised.
<PAGE>
Item 13. Certain Relationships and Related Transactions
Company paid management fees of $44,000 in 1996 and $286,000 in 1995 to
Wettreich Financial Consultants, Inc. ("WFC"), a company affiliated with the
President of the Company. These management services consisted of the
provision of the services of the President and Corporate Secretary of Company.
The amount was determined by the time, effort, and skill required to provide
these services. The President and the Corporate Secretary of Company were
employees of WFC and during the fiscal year ended April 1995, received no
compensation from Company.
Company, through its previously wholly-owned subsidiary, Stock Transfer
Company of America, Inc., provided services during the year ended April 1994,
as a securities transfer agent to companies affiliated with the President of
Company. For the ten months ended February 28, 1994, Company recognized sales
of approximately $1,243 to these affiliated companies. Services as a security
transfer agent to companies affiliated with Allan Wolfe, director of Company
were also provided. For the ten months ended February 28, 1994, Company
recognized sales of approximately $1,807 to these affiliated companies.
During the years ended April 1995 and 1996, Stock Transfer Company of America
continued to provide stock transfer services to Company and a total of $3,843
and $16,598 were paid by Company for these services. In the opinion of the
Board of Directors, the terms of these transactions was as fair to the company
as could have been made with an unaffiliated party.
The Company leased 10,000 square feet of offices from Forme Capital, Inc., a
company affiliated with the President of the Company. The lease is for a term
of 5 years commencing September 1993 at $8 per square foot. Total rent paid
during fiscal 1996 and 1995 was $80,000, respectively. The lease agreement
and transactions related thereto were approved by a vote of Company's
shareholders.
The Company received loans from Forme totaling $406,000 and $470,000 in fiscal
years 1995 and 1994, respectively. Payments of $236,000 and $190,000 were
made in fiscal years 1996 and 1995, respectively. Forme converted the
remaining balance of $450,000 to common stock during fiscal 1996. Total
interest paid during fiscal 1996 was $11,615 and 1995 was $35,961. During
fiscal 1996 and 1995, Company received dividend payments from Forme Capital,
Inc., Preferred Shares Series C in the amount of $46,657 for 1996 and $46,657
for 1995.
On March 9, 1995, Company issued 15,000 common shares valued at $22,500 to a
company for a mailing list. The president of that company was the wife of the
president of Camelot Distributing, Inc., one of Company's subsidiaries.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) The following financial statements are included herein for fiscal
year ended April 30, 1996.
<TABLE>
<S> <C>
Index to Consolidated Financial Statements Page
Report of Independent Auditors - 1996 F-1
Consolidated Financial Statements
Balance Sheets - April 30, 1996 and 1995 F-2 and
F-3
Statements of Operations for the years
ended April 30, 1996, 1995 and 1994 F-4
Statements of Stockholders' Equity for the
years ended April 30, 1996, 1995 and 1994 F-5 through
F-7
Statements of Cash Flows for the years ended
April 30, 1996, 1995 and 1994 F-8 and
F-9
Notes to Consolidated Financial Statements F-10 through
F-30
<C>
(a) (2) Consolidated Schedule F-31
(a) (3) Exhibits included herein: <C>
3(a) Articles of Incorporation Incorporated by reference to Form 10
Registration Statement filed on
June 23, 1976.
3(b) Bylaws Incorporated by Reference as
immediately above.
10 (a) 1982 Incentive Stock
Option Plan Incorporated by reference to Proxy
Statement for September 9, 1982
Annual Meeting of Shareholders.
(b) 1991 Incentive Stock
Option Plan Incorporated by reference to the
Proxy Statement for April 13, 1992
Annual Meeting of Shareholders.
22(a) Subsidiaries
(7) Reports on Form 8-K:
Report filed October 31, 1995 reporting Item 2.
</TABLE>
<PAGE>
EXHIBIT 22(a)
SUBSIDIARIES
AS OF JULY 5, 1996
<TABLE>
<C> <C>
Third Planet Publishing, Inc. 100%
Mr. CD-ROM Stores, Inc. 100%
Camelot Distributing, Inc. 100%
Kids University, Inc. 100%
Camelot Communications, Inc. 100%
Maxmedia Distributing, Inc. 100%
Camelot Internet Access Services, Inc. 100%
Camelot Business Investigations, Inc. 100%
Camelot Energy, Inc. 100%
McKee-Blanchard and Associates 100%
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAMELOT CORPORATION
(Company)
By: /s/Daniel Wettreich
President
Date: July 10, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
By: /s/Daniel Wettreich By: /s/Allan Wolfe
Director; President and CEO Director
(principal executive officer and
principal financial officer) Date: July 10, 1996
Date: July 10, 1996
By: /s/Jeanette Fitzgerald By: /s/ Henry Gelender
Director; Secretary; Director
Vice President and General Counsel
Date: July 10, 1996 Date: July 10, 1996
By: /s/Robert Gregory
Vice President Finance
(principal accounting officer)
Date: July 10, 1996
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Camelot Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Camelot
Corporation and Subsidiaries as of April 30, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended April 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of Beecher Energy,
Ltd., a majority-owned subsidiary, which statements reflect total revenues of
$71,897 for the year ended April 30, 1994. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion insofar
as it relates to the amounts included for Beecher Energy, Ltd. is based solely
on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Camelot
Corporation and Subsidiaries as of April 30, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended April 30, 1996, in conformity with
generally accepted accounting principles.
We have also audited Schedule II of Camelot Corporation and Subsidiaries for
each of the three years in the period ended April 30, 1996. In our opinion,
this schedule presents fairly, in all material respects, the information
required to be set forth therein.
Dallas, Texas
June 27, 1996
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
April 30,
<TABLE>
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,870,599 $ 149,529
Trading securities 1,341,508 -
Securities available for sale 945,777 103,964
Accounts receivables, net of allowance
for doubtful accounts of $11,415 and
$36,419 at April 30, 1996 and 1995,
respectively 241,837 40,617
Prepaid expenses 215,073 31,624
Inventories, net of allowance for
obsolescence of $198,000 and $0 at
April 30, 1996 and 1995, respectively 1,272,973 606,065
Total current assets 13,887,767 931,799
PROPERTY AND EQUIPMENT - AT COST
Office equipment and fixtures 1,363,484 637,908
Leasehold improvements 222,124 -
1,585,608 637,908
Less accumulated depreciation
and amortization (453,450) (306,186)
1,132,158 331,722
OTHER ASSETS
Preferred stock-related party 530,917 530,917
Licenses, trademarks and product
development, net of accumulated
amortization of $151,979 and $0
at April 30, 1996 and 1995, respectively 1,141,021 90,000
Goodwill, net of accumulated amortization
of $11,750 at April 30, 1995 - 189,671
Other 10,000 24,765
Total other assets 1,681,938 835,353
$ 16,701,863 $ 2,098,874
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets - Continued
April 30,
<TABLE>
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - related party $ - $ 686,000
Accounts payable 777,181 1,002,036
Accrued expenses 194,329 43,392
Net current liabilities of
discontinued operations 50,185 190,451
Total current liabilities 1,021,695 1,921,879
MINORITY INTEREST IN SUBSIDIARIES - 264,044
STOCKHOLDERS' EQUITY
Common stock, $0.1 par value, 50,000,000
shares authorized, 19,452,191 and 11,628,851
shares issued at April 30, 1996 and 1995,
respectively 194,522 116,289
Preferred stock, $0.1 par value, 100,000,000
shares authorized, 10,143,389 and 189,190
shares issued and outstanding at April 30,
1996 and 1995, respectively 101,434 1,892
Additional paid-in capital 30,410,954 7,637,515
Accumulated deficit (12,186,463) (7,620,750)
Less net unrealized loss on available-
for-sale securities (50,548) (51,553)
Less treasury stock, at cost, 1,149,806
and 307,706 shares at April 30, 1996
and 1995, respectively (2,714,575) (170,442)
Less note receivable from officer related
to purchase of common stock (75,156) -
Total stockholders' equity (deficit) 15,680,168 (87,094)
$ 16,701,863 $ 2,098,874
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended April 30,
<TABLE> 1996 1995 1994
<S> <C> <C> <C>
REVENUES $ 3,002,049 $ 1,184,469 $ -
COST OF SALES 843,127 905,330 -
GROSS PROFIT 2,158,922 279,139 -
OPERATING EXPENSES
General and administrative 6,233,501 2,511,108 1,092,730
Depreciation, depletion and
amortization 354,419 116,186 45,657
Total operating expenses 6,587,920 2,627,294 1,138,387
LOSS FROM OPERATIONS (4,428,998) (2,348,155) (1,138,387)
OTHER INCOME (EXPENSE)
Interest and miscellaneous 152,278 1,370 20,050
Dividend income - related party 46,657 46,657 29,901
Loss on disposition of assets (126,931) - (2,896)
Minority interest in loss of
subsidiary - - 20,602
Lawsuit settlement - - (342,604)
Loss on Goldstar Video
Corporation investment - - (92,750)
Unrealized gain (loss) on
marketable securities 53,821 - (58,215)
Interest expense - related party (11,615) (35,849) (3,013)
Total other income (expense) 114,210 12,178 (428,925)
LOSS FROM CONTINUING OPERATIONS (4,314,788) (2,335,977) (1,567,312)
DISCONTINUED OPERATIONS
Loss from operations - (622,350) (474,296)
Income (loss) on disposals (250,925) (560,577) 71,315
Loss from discontinued operations(250,925) (1,182,927) (402,981)
NET LOSS (4,565,713) (3,518,904) (1,970,293)
DIVIDENDS ON PREFERRED STOCK (575,414) (19,200) (34,113)
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ (5,141,127) $ (3,538,104) $ (2,004,406)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
LOSS PER SHARE:
LOSS FROM CONTINUING OPERATIONS (.31) (.23) (.21)
LOSS FROM DISCONTINUED OPERATIONS (.02) (.12) (.05)
DIVIDENDS ON PREFERRED STOCK (.04) (.00) (.01)
NET LOSS PER COMMON SHARE $ (.37) $ (.35) $ (.27)
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK AND COMMON STOCK
EQUIVALENT SHARES OUTSTANDING 13,764,755 10,186,021 7,555,148
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Period from May 1, 1993 through April 30, 1996
<TABLE>
<C> <C> <C> <C> <C>
Common Common Preferred Preferred Additional
Stock Stock Stock Stock Paid In
Shares Amount Shares Amount Capital
<S>
Balance at May 1, 1993 6,177,010 $61,769 239,190 $ 2,392 $ 4,749,667
Payment of common stock
subscribed at April 30, 1993 - - - - -
Sales of common stock
for cash 1,254,608 12,546 - - 504,776
Purchase of Goldstar
Video Corporation 500,000 5,000 - - 213,750
Licensing agreement with
American Education
Corporation 200,000 2,000 - - 80,500
Licensing agreement with
Americomm, Inc. 100,000 1,000 - - 36,500
Compensation for services 100,000 1,000 - - 44,000
Acquisition of 288,000
shares of common stock
for treasury - - - - -
Common stock subscribed 300,000 3,000 - - 203,250
Stock subscription receivable - - - - -
Preferred stock cash
dividends related parties - - - - (34,114)
Net loss - - - - -
Balance at April 30,
1994 8,631,618 $86,315 239,190 $ 2,392 $ 5,798,329
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
(Continued)
<TABLE>
<C> <C> <C> <C> <C> <C>
Accumulated Cumulative Unrealized Treasury Stock Total
Deficit Foreign Losses On Stock Subscription Stockholders'
Currency Avail. for Receivable Equity
Translation Sale
Adjustment Securities
$(2,131,553) $ (4,139) $ - $ (44,442) $ (113,963) $ 2,519,731
- - - - 113,963 113,963
- - - - - 517,322
- - - - - 218,750
- - - - - 82,500
- - - - - 37,500
- - - - - 45,000
- - - (126,000) - (126,000)
- - - - - 206,250
- - - - (206,250) (206,250)
- - - - - (34,114)
(1,970,293) 4,139 - - - (1,966,154)
$(4,101,846) $ - $ - $(170,442) $ (206,250) $ 1,408,498
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated States of Stockholders' Equity
For the Period from May 1, 1993 through April 30, 1996
<TABLE>
<C> <C> <C> <C> <C>
Common Common Preferred Preferred Additional
Stock Stock Stock Stock Paid In
Shares Amount Shares Amount Capital
Balance at April 30,
1994 8,631,618 $ 86,315 239,190 $ 2,392 $ 5,798,329
Conversion of Series C
preferred stock to common
stock 10,000 100 (50,000) (500) 400
Preferred stock cash
dividends related party - - - - (19,200)
Payment of common stock
subscribed at April 30,
1994 125,806 1,258 - - (1,258)
Sale of common stock
for cash 2,523,343 25,234 - - 1,598,613
Purchase of Maxmedia
Distributing, Inc. 205,000 2,050 - - 141,450
Compensation for services 133,084 1,332 - - 119,181
Change in net unrealized
losses on available-for-
sale securities - - - - -
Net loss - - - - -
Balance at April 30,
1995 11,628,851 $116,289 189,190 $ 1,892 $ 7,637,515
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
(Continued)
<TABLE>
<C> <C> <C> <C> <C> <C>
Accumulated Cumulative Unrealized Treasury Stock Total
Deficit Foreign Losses on Stock Subscription Stockholders'
Currency Available Receivable Equity
Translation For Sale
Adjustment Securities
$(4,101,846) $ - $ - $(170,442) $ (206,250) $ 1,408,498
- - - - - -
- - - - - (19,200)
- - - - 206,250 206,250
- - - - - 1,623,847
- - - - - 143,500
- - - - - 120,513
- - (51,553) - - (51,553)
(3,518,851) - - - - (3,518,904)
$(7,620,750) $ - $ (51,553) $(170,442) $ - $ (87,049)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Period From May 1, 1993 through April 30, 1996
<TABLE>
<C> <C> <C> <C> <C>
Common Common Preferred Preferred Additional
Stock Stock Stock Stock Paid In
Shares Amoutn Shares Amount Capital
<S>
Balance at April 30,
1995 11,628,851 $ 116,289 189,190 $ 1,892 $ 7,637,515
Conversion of preferred
stock to common stock:
Series BB 344,337 3,443 (888,000) (8,880) 5,437
Series G 2,273,748 22,738 (5,333,333) (53,333) 30,595
Series H 2,148,335 21,483 (3,525,000) (35,250) 13,767
Sale of common stock
for cash - - 19,766,666 197,666 18,850,999
Common stock issued for
services 203,156 2,032 - - 753,360
Common stock issued to
officer for notes
receivable 60,000 600 - - 74,556
Change in net unrealized
losses on available-
for-sale securities - - - - -
Retirement of Series D
preferred stock - - (66,134) (661) (65,473)
Common stock issued to
pay not payable to
related party 600,000 6,000 - - 444,000
Purchase of common
treasury stock - - - - -
Preferred stock dividends
to:
Related parties - - - - (19,200)
Other parties - - - - (556,214)
Net loss - - - - -
Balance at April 30,
1996 19,452,191 $ 194,522 10,143,389 $101,434 $30,410,954
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended April 30,
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,565,713) $ (3,518,904) $ (1,970,293)
Adjustments to reconcile net loss
to net cash used in operating activities:
Non cash transactions for services 387,391 120,513 165,000
Securities received as revenue (1,950,575) - -
Depreciation and amortization 354,419 116,186 50,640
Undistributed gain (loss) in minority
interest in subsidiaries - (1,336) 37,783
Loss on disposal of assets 191,918 22,535 95,646
Write down (up) of securities to
market value (53,821) - 58,215
Provision for uncollectible accounts
& notes receivable 10,887 41,500 36,399
Provision for inventory obsolescence 198,000 - -
Provision for returns and allowances - - 359,690
(Income) loss on disposal of
discontinued operations - 560,577 (49,030)
Change in assets and liabilities,
net of effect from purchase of
subsidiaries:
Accounts receivable (212,107) 797,005 (1,198,746)
Prepaid expenses (183,449) (16,188) (3,530)
Inventories (864,908) (23,865) (549,622)
Other assets - (5,366) 5,906
Accounts payable and accrued expenses 88,151 (300,340) 816,397
Obligations - discontinued operations (140,266) - -
Net cash used in operating activities (6,740,073) (2,207,683) (2,145,545)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,087,658) (195,589) (33,597)
Purchase of marketable securities - - (306,840)
Collections received on notes receivable - 67,028 -
Proceeds from sale of property and
equipment 11,500 31,500 -
Proceeds from sale of marketable
securities 93,447 - 330,198
Proceeds from return of deposits 14,765 6,000 -
Licenses, trademarks and product
development (608,800) (40,000) -
Purchase of subsidiary - (25,000) -
Proceeds from sale of subsidiary - 184,543 -
Issuance of note receivable -
related party - - (150,000)
Issuance of note receivable (312,400) - -
Net cash provided by (used in)
investing activities (1,889,146) 28,482 (160,239)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock 3,281,549 1,623,847 517,322
Payments received on common stock
subscribed - 206,250 113,963
Sale of preferred stock 19,048,665 - -
Sale of subsidiary preferred stock - 264,044 -
Redemption of preferred stock (66,134) - -
Dividends paid (575,414) (19,200) (34,114)
Purchase of treasury stock (2,544,133) - -
Payments on debt (294,200) (190,000) -
Proceeds (payment) - notes payable -
related parties (236,000) 406,000 470,000
Redemption of subsidiary preferred
stock (264,044) - -
Net cash provided by financing
activities 18,350,289 2,290,941 1,067,171
NET INCREASE (DECREASE) IN CASH 9,721,070 111,740 (1,238,613)
CASH AT BEGINNING OF YEAR 149,529 37,789 1,276,402
CASH AT END OF YEAR $ 9,870,599 $ 149,529 $ 37,789
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended April 30,
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Supplemental information:
Cash paid for interest $ 11,615 $ 38,681 $ 1,390
Cash paid for income taxes $ - $ - $ -
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES
As discussed in Note 7, in fiscal 1996, the Company issued 600,000 shares of
restricted common stock in settlement of $450,000 of promissory notes to a
related party, Forme Capital, Inc.
In fiscal 1996, the Company issued 67,470 shares of restricted common stock,
with an agreed value of $350,000, for acquisition of software.
As discussed in Note 9, in fiscal 1996, the Company's Preferred Stock was
converted to the Company's restricted common stock as follows:
888,000 Series BB Preferred for 344,337 shares of restricted common
5,333,333 Series G Preferred for 2,273,748 shares of restricted common
3,525,000 Series H Preferred for 2,148,335 shares of restricted common
As discussed in Note 12, in fiscal 1996, an officer of the Company executed a
6% interest bearing note in the principal amount of $75,156 to exercise stock
options.
In fiscal 1996, the Company exercised its option to purchase 400,000 shares of
stock in another company in satisfaction of a note receivable in the amount of
$312,400.
In fiscal 1996, the Company issued notes payable in the amount of $294,200 for
acquisition of software.
As discussed in Note 2, in fiscal 1995, the Company acquired 100% of the
common stock of Maxmedia Distributing, Inc., and Maxmedia Publishing, Inc., in
exchange for $25,000 in cash plus 205,000 shares of the Company's restricted
common stock valued at $143,500.
As discussed in Note 9, in fiscal 1995, the outstanding Series C Preferred
Stock was converted to 10,000 shares of the Company's restricted common stock.
During fiscal 1995, there was a $51,553 net increase and in fiscal 1996 a
$1,005 decrease in net unrealized losses on available-for-sale securities.
As discussed in Note 2, in fiscal 1994, the Company acquired 40% of the common
stock of Goldstar Video Corporation (GVC) in exchange for 500,000 shares (of
which 288,000 shares were returned to treasury) of the Company's restricted
common stock valued at $218,750.
As discussed in Note 12, in fiscal 1994, the Company acquired 466,571 shares
of Forme Capital, Inc. 10% Preferred Shares Series C in exchange for two
office buildings with a book value of $466,571.
See accompanying notes to consolidated financial statements
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity and Principles of Consolidation
The consolidated financial statements include Camelot Corporation and its
majority-owned subsidiaries (collectively "the Company"). The Company is
engaged in the retailing, distribution and publishing of computer software.
The Company sells software products through national distributors and through
Mr. CD ROM retail stores located in the Dallas Metroplex. Discontinued
operations of certain subsidiaries were involved in video marketing and
distribution, financial services, real estate rentals, and oil and gas
exploration and development. Significant intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. The company and its
subsidiaries maintain cash balances at several financial institutions and a
brokerage firm in Dallas, Texas. Cash equivalents were composed primarily of
investments in a money market account. The Company believes it is not exposed
to any significant credit risk on cash and cash equivalents. The carrying
value of cash and cash equivalents approximates fair value because of the
short maturites of the instruments.
Inventories
Inventories of computer software held for resale, are stated at the lower of
cost or market using the weighted average cost method. Other inventories,
were stated at the lower of cost or market using the first in, first out
(FIFO) method, until their disposition in fiscal 1995. An allowance for
inventory obsolescence is maintained to provide for an estimate of inventory
items that have declined in value.
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation.
Major additions and betterment's are capitalized while replacements and
maintenance and repairs that do not improve or extend the life of the
respective assets are expensed. Leasehold improvements are amortized over the
lesser of the term of the related lease or the estimated useful lives of the
assets. When property is retired or otherwise disposed of, the related costs
and accumulated depreciation are removed from the accounts and any gain or
loss is reflected in operations. Depreciation and amortization of property
and equipment is provided on the straight-line method over the following
estimated useful lives:
Office furniture and fixtures 7 years
Computer and office equipment 5 years
Computer software 5 years
Leasehold Improvements Length of lease ranging to 5 years
Software Development
Certain software development costs are capitalized upon the establishment of
technological feasibility for each product or process and capitalization
<PAGE>
ceases when the product is available for general release to customers or is
put into service. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized software development costs
require considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future revenues, estimated
economic life and changes in software and hardware technology. Research and
development costs related to software development that has not reached
technological feasibility are expensed as incurred. Software development
costs are amortized utilizing the straight-line method over the estimated
economic lives of the related products not to exceed five years. Amortization
of capitalized software costs for April 30, 1996, 1995 and 1994 was $138,979,
$0 and $0 respectively. No write offs were recognized due to impairment of
net realizable value. Capitalized software development costs were $1,014,021
and $-0- at April 30, 1996 and 1995, respectively, net of accumulated
amortization of $138,979 and $-0-, respectively.
Trademark and Licenses
Trademarks and licenses are stated at cost, net of accumulated amortization,
which is provided using the straight-line method over 5 to 10 years.
Store Preopening Costs
Store preopening costs are capitalized and amortized over twelve months.
Loss Per Share
Loss per common share is computed on the basis of the weighted average number
of common shares outstanding during the respective periods. Outstanding
stock warrants, options and preferred shares are excluded from the
computations as their effect would be anti-dilutive.
During 1996, 4,766,420 common shares were issued upon conversion of preferred
shares and 600,000 common shares were issued to retire debt. Had this
conversion of preferred stock and the retirement of debt occurred on May 1,
1995, net loss per common share would have been $.28 for 1996.
Software Revenue Recognition
Revenue from sales of software to distributors is generally recognized upon
delivery of the software provided that no significant vendor obligations
remain and collection of the resulting receivable is deemed probable.
Advertising Costs
Advertising costs, included in general and administrative expenses, are
charged to operations when the advertising first takes place and were
$1,648,071, $129,436 and $ 1,366 for 1996, 1995 and 1994, respectively.
Reclassifications
Certain reclassifications have been made to the financial statements to
conform to the 1996 presentation.
<PAGE>
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ACQUISITIONS
On June 17, 1994, the Company acquired 100% of the common stock, of Maxmedia
Distributing, Inc., and Maxmedia Publishing, Inc., in exchange for $25,000 in
cash plus 205,000 shares of the Company's restricted common stock valued at
$143,500. The acquired companies are engaged in the distribution and
publishing of CD-ROM software. The acquisition was accounted for by the
purchase method of accounting, and the purchase price exceeded the estimated
fair value of net assets acquired by $201,421. Amortization of the excess
purchase price was amortized over a fifteen year period until the unamortized
balance was written off in fiscal year 1996.
The proforma results of operations which follow assume that the acquisition of
Maxmedia Distributing, Inc. and Maxmedia Publishing, Inc. had occurred at the
beginning of fiscal 1994.
Year Ended
April 30, 1994
Revenues $ 1,234,104
Loss from continuing operations $(1,688,275)
Net loss $(2,091,256)
Loss per share from continuing operations $ (.22)
Loss per common share $ (.27)
On March 2, 1994, the Company entered into an agreement with Americomm
Properties, Inc. ("Americomm") to assign unencumbered, interests in certain
licenses to the wireless cable system in Manhattan, Kansas. The licenses
require Federal Communications Commission approval to provide assignability
and transferability. Licenses and the related acquisition costs of $73,465
are included in other assets at April 30, 1995 and were written off in
fiscal year 1996.
On July 16, 1993, the Company completed the acquisition of 40% of the common
stock of Goldstar Video Corporation ("GVC") in exchange for 500,000 shares of
the Company's restricted common stock valued at $218,750, and contingent
consideration equal to 10% of the next three years' after tax profit of
Goldstar in the Company's restricted common stock at the market price. On
July 1, 1993, the Company loaned Goldstar $150,000 collateralized by
all of Goldstar corporate assets. Additionally, the Company purchased certain
assets of Goldstar on July 16, 1993 for $200,000 in cash and the assumption of
$140,000 in liabilities. Due to renegotiation of the acquisition terms, the
former owner returned 288,000 shares of the Company's common stock, recorded
as treasury stock. The Company wrote off its remaining equity investment
after GVC declared bankruptcy, during the year ended April 30, 1994.
<PAGE>
3. ACCOUNTS RECEIVABLE AND CREDIT RISK
The Company's trade receivables at April 30, 1996 are primarily due from
major computer software distributors. Trade receivable at April 30, 1995 are
primarily due from independent retailers. The Company believes that no single
customer exposes the Company to significant credit risk.
4. INVENTORIES
Included in the accompany balance sheet is inventory of computer software at
a carrying value of $1,272,973, which represents management's estimate of its
net realizable value. The computer software industry is characterized by
rapid technological advancement and change. Should demand prove to be
significantly less than anticipated, the ultimate realizable value of such
products could be less than the amount shown in the balance sheet.
Major classes of inventories consist of the following at April 30,:
1996 1995
Software $1,470,973 $606,065
Less: Allowance for obsolescence 198,000 -
NET $1,272,973 $606,065
5. MARKETABLE SECURITIES
The Company adopted, effective for the year ended April 30, 1995, Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities". Under this statement, investments in available-
for-sale securities are measured at fair value with net unrealized gains and
losses reported in equity. Investments that are bought are held principally
for the purpose of selling them in the near future are classified as trading
securities. Trading securities are measured at fair value with net unrealized
gains and losses reported in the statement of operations. The fair value of
marketable securities is determined based on quoted market prices for those
securities. The net unrealized holding loss increased (decreased) by ($1,005)
and $51,553 during the years ended April 30, 1996 and 1995, respectively.
The cost, unrealized gains and losses, and fair values of the Company's
available-for-sale securities and trading securities at April 30, 1996 and
1995 are summarized as follows:
<PAGE>
<TABLE>
<C> <C> <C> <C>
Cost Gross Gross Estimated
Unrealized Unrealized Fair
<S> Gains Losses Value
1996
Available-for-sale
Securities
Common Stock $ 996,325 $ - $ 50,548 $ 945,777
Trading Securities
Common Stock 1,287,688 53,820 - 1,341,508
$2,284,013 $ 53,820 $ 50,548 $2,287,285
1995
Available-for-sale
Securities
Common Stock $ 213,732 $ - $ 109,768 $ 103,964
</TABLE>
As of April 30, 1994, investments were accounted for under SFAS No. 12
"Accounting for Certain Marketable Securities", with unrealized losses of
$58,215 charged to operations in fiscal 1994.
Sales proceeds and gross realized gains and losses on securities are as
follows:
<TABLE>
<C> <C> <C>
1996 1995 1994
Cost basis $ 134,480 $ - $ 348,176
Proceeds 93,447 - 330,198
Realized gains - - -
Realized losses 41,033 - 17,978
</TABLE>
The company uses the specific identification method to determine the cost of
securities sold. Results of operations for 1996, 1995 and 1994 include a
change of $53,820, $-0-, and $-0- for unrealized gains on trading securities.
tockholders' equity includes an unrealized loss of $50,548, $51,553 and $-0-
at April 30, 1996, 1995 and 1994, respectively.
6. ACCRUED EXPENSES
The following is a summary of accrued expenses at April 30,:
<TABLE>
<C> <C>
1996 1995
<S>
Taxes $ 56,550 $ 4,358
General and administrative 35,244 -
Fees 36,000 36,001
Compensations 32,864 2,000
Other 33,671 1,033
$ 194,329 $ 43,392
</TABLE>
<PAGE>
7. NOTES PAYABLE - RELATED PARTY
In fiscal 1996, the remaining balance of the notes payable to Forme Capital,
Inc. (Forme), a corporation majority-owned by the wife of the President of
the Company was settled by payment of $236,000 cash and issuance of 600,000
shares of the Company's restricted common stock valued at $450,000. The
weighted average interest rate on the short-term borrowings was 8% for fiscal
1996 and 1995.
8. INCOME TAXES
The Company files a consolidated Federal tax return. The Company had no
current State or Federal income tax expense for each of the years ended April
30, 1996, 1995 and 1994.
The Company adopted, effective for the year ended April 30, 1994, Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under
the asset and liability approach specified by SFAS No. 109, deferred tax
assets and liabilities are determined based on the difference between
financial statement and tax bases of assets and liabilities as measured by
the currently enacted tax rates. Deferred tax expense or benefit is the
result of the changes in deferred tax assets and liabilities.
Deferred income taxes arise principally from the temporary differences between
financial statement and income tax recognition of allowance for doubtful
accounts, securities valuation adjustments, inventory reserve and from net
operating losses.
8. INCOME TAXES - continued
The components of deferred taxes at April 30, in the accompanying balance
sheets are summarized below:
<TABLE>
<S> <C> <C>
1996 1995
Allowance for doubtful accounts $ 1,880 $ 12,382
Inventories 66,795 36,849
Other 3,570 -
Marketable securities valuation
adjustment (1,113) 37,321
Capital loss carryforward 117,817 -
Net operating loss carryforward 3,846,783 2,421,243
4,035,732 2,507,795
Less valuation allowance (4,035,732) (2,507,795)
Deferred tax asset-net $ - $ -
</TABLE>
At April 30, 1996, the Company has approximately $11,314,000 of unused Federal
net operating loss carryforwards, which expire in the years 2003 through 2010.
Approximately $640,000 of the net operating loss carryforwards for tax
purposes are limited due to statutory changes in the tax law in connection
with the change in m
