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, 1997 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: (972) 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 $3.6875, at July 28,1997, the aggregate market value of
the voting stock held by nonaffiliates of the Company was $4,754,463.
The number of shares outstanding of the Company's common stock, $0.01 par value,
was 1,472,672 at July 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Form 8-K dated May 20, 1997 with amendments.
PART 1
Item 1. Business
Camelot Corporation ("Registrant" or "the Company") is a holding company
with subsidiaries in technology and telecommunications.
The Company was incorporated in Colorado on September 5, 1975, and
completed a $500,000 public offering of its common stock in March 1976. The
Company has made several acquisitions and divestment's of businesses unrelated
to its present activities (see Acquisition and Divestment History) and during
the years ended April 1994 and April 1995, undertook a restructuring which
involved the sale or closure of all subsidiaries operating in prior financial
periods.
The Company's activities are conducted through subsidiaries. Third Planet
Publishing, Inc., (`Third Planet") (established in January 1995) is a research
and development company developing leading edge technology in both hardware and
software solutions for audio and video conferencing over the Internet.
mrcdrom.com, inc. ("mrcdrom.com"), (established in March 1997) is a Internet
catalog retailer of software. Camelot Internet Access Services, Inc. ("CIAS"),
(established in June 1996) is a provider of Internet access services. Alexander
Mark Investments (USA), Inc. ("AMI") (80% acquired in May 1997) is a U.S. public
holding company whose 57% owned subsidiary, Meteor Technology plc ("Meteor") is
a U.K. public company. Meteor's two primary subsidiaries are DigiPhone
International Ltd which is the worldwide distributor of all the products of
Third Planet, and Meteor Payphones Ltd an operator of approximately 2,000
payphones.
Third Planet Publishing
Third Planet is an innovative technological research and development
company focusing on hardware and software solutions for audio and video
communications over the Internet. Third Planet is at the culmination of a 30
month development program for Internet video conferencing and telephony and will
make its new products available for licensing to major Personal Computer
("PC") manufacturers in approximately September 1997.
Third Planet released its first product, DigiPhone, in October 1995. The
product represented a telecommunications breakthrough by permitting the full-
duplexing of voice over the Internet making real time worldwide voice
communications possible for PC users at the cost of a monthly Internet
connection fee. The current version of the product, called DigiPhone Deluxe
includes modern telephone features such as speed dialing, voice messaging,
caller ID, call record and play back, conference calling, amongst others.
Conversations are encrypted and completely private unlike the commonly used IRC
connections or Internet chat rooms in competing software.
In April 1996, Third Planet commenced a development program for DigiPhone
2.0, the latest version of DigiPhone which included multi-protocol frameworks
enabling DigiPhone to communicate with any other standards based Internet
telephony software. The frameworks are based on component technology that will
allow the development of new functionality for the DigiPhone communications
engine. This new approach will allow DigiPhone to evolve more quickly in a
rapidly maturing Internet telephony market. DigiPhone 2.0 will be available in
approximately September 1997.
In May 1996, Third Planet announced a development program for an Internet
telephony handset specifically designed to enable superior voice communications
over the Internet. Proficia is an audio handset which connects to a multimedia
PC, eliminating the need for a headset, microphone or speakers. It provides
quality sound for Internet telephony, computer telephony and multi-media
applications, and will be available for licensing in approximately September
1997.
The principle focus of Third Planet's research and development department
has been on the development of VideoTalk, a video conferencing system for the
Internet. Third Planet has applied for a patent for VideoTalk, which is a
complete hardware and software system which, when connected to a multimedia PC,
enables full duplex video conferencing over the Internet and over local and wide
area networks. Uniquely, VideoTalk will operate in the background while not
detracting from the PC's ability to run other software programs simultaneously.
It uses a PCI plug-and-play card that provides high quality audio and video
while achieving extremely low processor load. VideoTalk does not require a
sound card or a video capture card, and allows communications over the Internet
with only a 28.8 kbps modem. The VideoTalk unit includes a NTSC or PAL color
video camera, a special version of the Proficia telephony handset and both the
VideoTalk and DigiPhone 2.0 software. Discussions with PC manufacturers
regarding the licensing of VideoTalk for inclusion with forthcoming platforms
have commenced.
VideoTalk is capable of video conferencing at 15 frames per second over a
28.8 modem. This is a major breakthrough, as competing technologies currently
struggle to achieve 2 or 3 frames per second over the Internet. VideoTalk
offloads almost all of the audio and video processing onto its own processors.
This frees the PC for other tasks, such as application sharing, while ensuring
the video comes through at a frame rate that software-only solutions simply
cannot match.
VideoTalk features a modular framework, simplifying upgrades and
expansions. This flexibility will allow third party developers to utilize
VideoTalk and its powerful processors as the engine for their own programs.
VideoTalk's technical features include:
. Multi-point conferencing
. High frame rate
. Low processor load
. Expandable system
. CIF, QCIF, and SQCIF formats
. Dual NTSC or PAL video input
. Echo cancellation
. Full duplex audio/video
. Outstanding speech quality
. H.323 compliant
. Open architecture
. Firmware upgradeable
. Scaleable hardware and software
. MIPS-based accelerated video processing
. Built-in frame grabber and audio amplifier
VideoTalk will be available for licensing to major PC manufacturers
commencing in approximately September 1997.
In June 1997, a successful demonstration of all the three new products was
held in Atlanta at COMDEX/Spring 97'. These products were enthusiastically
received with VideoTalk being featured on COMDEX TV as a show highlight.
Through a series of transactions in July 1996, November 1996 and May 1997
the worldwide marketing rights for all Third Planet products are exclusively
with DigiPhone International Ltd., a subsidiary of Meteor Technology plc a
public company affiliated with Registrant.
Meteor Technology plc
Subsequent to the financial year end, Registrant, through its acquisition
of 80% of AMI obtained control of Meteor a U.K. listed public company (see
Acquisition and Divestment History). Meteor's two operational subsidiaries, are
DigiPhone International Ltd. and Meteor Payphones Ltd. DigiPhone International
is the worldwide distributor for all products developed by Third Planet. Meteor
Payphones owns and/or operates approximately 2,000 payphones in the United
Kingdom, which business it is intended to expand both by internal growth and by
acquisitions.
mrcdrom.com, inc.
In April 1997, Registrant announced a new Internet shopping company
called mrcdrom.com, a subsidiary, which will sell software titles over its World
Wide Web Site. It also announced the filing of a registration statement to
raise up to $12,000,000 through an initial public offering ("IPO") over the
Internet, offering up to three million shares, at $4.00 per share. The Company
will be offering its shares exclusively over the Internet with no underwriter
and with a minimum subscription of $200 for 50 shares. Following the
offering if all shares offered are sold the Company will have 9,000,000
shares outstanding. Camelot, who will retain a 60% shareholding sub-
sequent to the IPO, transferred to mrcdrom.com approximately $511,428 of
inventory, cash, trademarks and other assets. The mrcdrom.com Internet
catalogue is currently being test marketed via its World Wide Web site at
http://www.mrcdrom.com.
This new business grew out of the experience and resources of Registrant's
previous software retail chain called Mr. CD-ROM Stores, Inc., which was closed
during the financial period. The Company will offer a wide selection of one-
stop computer software shopping through a secure site on the Internet.
Customers are offered a large selection of titles as well as competitive pricing
and can run searches in various categories, check order status, and click on a
button to add software to their virtual shopping baskets. To execute orders
customers click on a button and are prompted to supply shipping and payment
details.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This document shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
Camelot Internet Access Services, Inc.
An Internet services provider formed in January 1996 using the UUNet
backbone, this subsidiary's principle activities are the provision of support
services for Registrant and the provision of Internet access to users of
DigiPhone who would otherwise be unable to access the Internet. Due to the
intense competition experienced by the Internet access industry, Registrant has
no plans to expand the activities of this company.
PCAMS
In February 1997, Registrant acquired from Meteor the U.S.A. and Canadian
rights to PCAMS software, a payphone contract and management system originally
developed for Meteor's payphone subsidiary. This reflects the intention of
Management to broaden the scope of Registrant's involvement in the
telecommunication industry. Management believes that the passage of the
Telecommunications Act of 1996 followed by the release of new payphone
compensation rules by the Federal Communications Commission in response to the
Act has significantly improved the outlook for this industry, and that the
acquisition of PCAMS software enables Registrant to improve the capabilities of
independent payphone providers. Management will seek to utilize PCAMS software
both by offering such software to independent providers and by seeking
acquisitions of payphone businesses.
Competition
The technology and telecommunications industry is highly competitive. The
Company's competitors include other national and regional companies many which
have substantially greater financial and other resources than the Company which
may give them certain competitive advantages. There are many companies entering
the technological and telecommunications markets with new products and this
trend is expected to continue. The ability of Registrant to effectively compete
in the future depends on a number of factors including its ability to create
and/or acquire products that customers will accept and respond to and comply
with the changing nature of regulations in the manner which they are
interpreted. Registrant's businesses may be effected by a variety of factors,
including but not limited to general economic trends, additional and existing
competition, marketing programs, special or unusual events, and acquisitions
made by the Company.
Trademarks and Trade Names
"Mr. CD-ROM", "DigiPhone", "VideoTalk", "Proficia", "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 and where appropriate with foreign regulatory bodies 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, for 6,666 newly issued common shares
of the Company (post reverse split). In connection with this transaction,
Daniel Wettreich was appointed a Director, Chairman and Chief Executive Officer
and Jeanette Fitzgerald was appointed a Director. On April 11, 1994, following
a decision by the Directors of the Company to discontinue financial services,
activities STCA was sold to a company affiliated with Mr. Wettreich for book
value (See Item 13. Certain Relationships and Related Transactions).
On March 2, 1990, the Company's subsidiary, Beecher Energy, Ltd.
("Beecher") was listed on the Vancouver Stock Exchange in an initial public
offering. The Company sold its 69% shareholdings in Beecher on July 6, 1994 for
C$400,000.
In January 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. In September 1993, the Company sold to Forme two office
properties and then sold all its investment in Forme for cash to Mrs. Wettreich.
These transactions were approved by the shareholders of the Company at the
Annual Meeting held on February 15, 1994. (See also Item 13. Certain
Relationships and Related Transactions).
Other acquisitions were as follows:
Date Name Business Cost
March 1991 Vesta Land Title Company Titles $120,000
July 1991 Business Investigations Investigations 312,231
July 1992 McKee-Blanchard Appraisals 32,203
September 1992 First Appraisal Group Appraisals 15,000
June 1994 Maxmedia Distributing Software Distribution 168,500
These companies ceased doing business in July 1994, July 1994, November
1993, November 1993, and May 1995, respectively.
In July, 1993, Registrant acquired approximately 40% of the issued share
capital of Goldstar Video Corporation ("GVC"), a video marketing company for a
net price of $92,432. Registrant also made a $150,000 secured loan to GVC.
Further, Goldstar Entertainment, Inc. ("GEI") a subsidiary of Registrant
acquired certain licenses and other assets from GVC for $375,000. Thereafter
Registrant's subsidiary Camelot Entertainment, Inc. commenced business as a
video marketing company. 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. Registrant was not a controlling shareholder of GVC.
The Company's subsidiary Camelot Entertainment, Inc. filed under Chapter 7 of
the US Bankruptcy laws in January 1995.
In November 1995, Registrant appointed Firecrest Group plc a public
company, as exclusive distributor for DigiPhone in the United Kingdom and
Ireland in consideration for $1,950,575 payable by shares equal to approximately
10% of Firecrest. In March 1996 all relations with Firecrest were terminated
and Registrant sold all its shares in Firecrest in market transactions.
Subsequently, Firecrest sold its DigiPhone rights to Meteor. In July 1996,
Registrant sold the European rights to distribute DigiPhone to DigiPhone Europe
Ltd which became a subsidiary of Meteor. The consideration was 5,000,000
British pounds sterling of loan stock which was subsequently converted into
Meteor shares. In November 1996 Registrant sold the international DigiPhone
rights to Meteor for 1,000,000 British pounds Sterling of loan stock which
subsequently was converted into Meteor shares.In May 1997, DigiPhone Inter-
national a Meteor subsidiary became the exclusive marketing company for all
Third Planet products on a worldwide basis.
In May 1997, Registrant acquired approximately 80% of AMI whose principle
asset is approximately 57% of Meteor. The consideration (post reverse split)
payable to the seller, Adina, Inc. ("Adina") was 892,014 Preferred Shares,
Series J of Registrant and 453,080 Preferred Shares, Series J in deferred
consideration. Following the transaction Adina has 49% of the voting rights
attributable to the currently issued and outstanding common and preferred shares
of Registrant. Mr. Wettreich is a director of Adina and did not participate in
any directors' votes in relation to this transaction.
Discontinued Activities - See Item 7. Management Discussion and Analysis
of Financial Conditions and Results of Operations
Employees
As of July 1, 1997, the Company employs 39 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
President. Company also leases 19,950 square feet office and warehouse building
in Dallas, Texas which it occupies as a distribution center for mrcdrom.com,
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 currently leases four retail units in
Dallas, Texas which they are in the process of negotiating with landlords in
order to terminate the leases.
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 these suits, 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.
The Company has been sued for breach of lease of a retail unit previously
occupied by Mr. CD-ROM Stores, Inc. The Company intends to show failure on the
part of the landlord to relet the space.
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
A special shareholder's meeting was held on July 14, 1997 approving a one
for forty reverse stock split of all outstanding common shares and outstanding
Preferred Shares, Series J.
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 CAMLD (such symbol to change to CAML on August 15, 1997). The following
table sets forth the quarterly high and low prices of the common stock for the
period from May 1, 1995 through April 30, 1997 (post reverse split). 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>
<S> <C> <C> <C>
Real Time
High Low
1996
First July 31, 1995 $ 97.50 $60.00
Second October 31, 1995 281.25 77.50
Third January 31, 1996 196.25 92.50
Fourth April 30, 1996 127.50 68.75
1997
First July 31, 1996 102.50 37.50
Second October 31, 1996 60.00 43.75
Third January 31, 1997 35.00 23.75
Fourth April 30, 1997 15.00 3.75
</TABLE>
As of July 18, 1997, the Company had 9,664 shareholders of which there were
1,191 shareholders on record of Company's common stock and 8,473 additional
beneficial owners. On July 14, 1997 the Company's shareholders approved a one
for forty reverse stock split on all the outstanding common and preferred
shares, Series J resulting in 1,472,672 common shares and 1,345,295 preferred
shares, Series J outstanding.
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>
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
Net sales $1,887,617 $3,002,049 $1,184,469 $ - $ -
Income
(loss) (12,996,369) (4,314,788) (2,335,977) (1,567,312) (256,320)
from con-
tinuing
operations
Income
(loss) - (250,925) (1,182,927) (402,981) (435,772)
from dis-
continued
operations
Income
(loss) per (20.45) (12.54) (9.17) (8.30) (3.79)
share from
continuing
operations
Total 6,772,076 16,701,863 2,098,974 3,309,132 3,337,494
assets
Long-term - - - - 633,528
debt
</TABLE>
Company's software subsidiaries commenced operations during fiscal 1995
(See Item 1. Business).
On January 30, 1995, Company's subsidiary Camelot Entertainment filed under
Chapter 7 of the US Bankruptcy Code.
On April 11, 1994, Company disposed of its subsidiary STCA, and on July 8,
1994 discontinued Vesta Land Title Company and Business Investigations its
remaining financial service subsidiaries
(See Item 1. Business).
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. Business).
On September 11, 1993, the Company disposed of its investment in Forme
Capital, a real estate holding company (See Item 1. Business).
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; the Company's ability to create
competitive products; changes in technology and the ability to obtain patents
and trademarks.
1997
Although the Company's historical financial results for the year ended
April 30, 1997 were not good, Management believes that this is very typical for
a company primarily involved in research and development. Management believes
that Registrant's principal subsidiary Third Planet is now at the culmination of
a 30 month software and hardware development program for Internet video
conferencing and telephony which will yield positive results for the Company in
the future.
The Company's revenue for the year was $1,887,617 compared with $3,002,049
in 1996. Net loss for the period was $12,996,369 compared with $4,565,713 the
previous year. These results are due to a combination of limited revenues from
DigiPhone, the closure of the retail software stores and continuing research and
development costs which were largely expensed. Further, other expenses of
$4,675,189 relating to losses on disposition of assets, investments in affil-
iate, marketable securities and a note receivable allowance impacted the
results.
The consolidated balance sheets for the period show stockholders' equity of
$6,078,509 compared with $15,680,168 for the previous year. Total assets were
$6,772,076 compared with $16,701,863 in 1996. The decrease in stockholders'
equity and total assets was due to losses.
During the year, substantial financial and managerial resources were
expended in the continuing research and development of Internet video
conferencing and Internet telephony, and Management believes that significant
progress was made in this regard. Through its affiliated company, DigiPhone
International, Registrant will make available for licensing Third Planet's three
new products in approximately September 1997, which products are to be offered
to the major PC manufacturers.
During the financial year, Registrant's activities resulted in the following.
. Completion and shipping through retail distribution channels of DigiPhone
Deluxe
. A development program for multi-protocol framework for DigiPhone 2.0
. The filing of a worldwide patent for VideoTalk
. A thirty-day version of DigiPhone for downloading over the Internet
. The launch of Camelot Internet Access Services
. An agreement with Lucent Technologies to license Lucent's voice codec for
future versions of DigiPhone
. Completed DigiPhone for Mac
. Completed arrangements for worldwide distribution of Third Planet products
with DigiPhone International, an affiliate of the Company
. Listed Registrant's securities on the Frankfurt Stock Exchange
. Acquired PCAMS Software
. Filed an initial registration statement for mrcdrom.com, inc.
. Acquired a controlling interest in AMI
. Demonstrated its new technology at COMDEX/Spring in Atlanta
Registrant's subsidiary Mr. CD-ROM Stores, Inc. closed its six retail
locations during the period and transferred the majority of its assets to a
fellow subsidiary mrcdrom.com (See Item 1. Business).
Management believes its future profitability and revenues will result from
licensing its VideoTalk, DigiPhone 2.0, and Proficia technology to PC
manufacturers and (subject to a successful conclusion of the initial public
offering of mrcdrom.com), from the sale of software and ancillary products over
the Internet. Management also intends to expand its interests in the payphone
industry both through its affiliate Meteor Payphones and through developing
and/or acquiring payphone interests in the United States and Canada.
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 April 1996 period, 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 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 have 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.
During the April 1996 period, 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.
The purchase price was $593,000 payable $350,000 in Camelot
restricted common shares valued at $207.50 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
was incorporated by Third Planet into a Macintosh compatible version of
DigiPhone called "DigiPhone For Mac". The cost of acquisition was written off
the 1997 financial period.
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 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 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 pounds Sterling of 6% loan stock (approximately
$7,500,000). DigiPhone Europe, Ltd. is a London, England based European soft-
ware marketing company merged with Telecom Credit Europe, PLC ("TCE"), a
public company listed on the Alternative Investment Market of the
London Stock Exchange. Following the merger, Camelot owns approximately
16% of TCE. The majority stockholder of TCE, Danny Wettreich, is also
Chairman and Chief Executive Officer of Camelot. Mr. Wettreich did not part-
icipate in any Directors' vote in relation to this transaction.
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, results from the stores led Management to the conclusion that
the retail concept was not viable and the stores were closed in 1997.
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. Camelot
Internet was officially launched in June 1996 at which time its
nationwide services commenced. Camelot Internet is offered as part of
Camelot's DigiPhone Deluxe software package.
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.
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 TM, 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 will provide significant advantages
to users as VideoTalk does not require a soundcard or a video capture
card. 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. VideoTalk's features
are designed to incorporate new leading edge audio and video compression
technology to enable connections over devices such as 28.8kbps modems. Video-
Talk is designed with an expansion peripheral interface that enables
attachments to be added to the VideoTalk unit. Third Planet will provide API
specifications so that other developers can take advantage of the features
and processing power of VideoTalk in their applications.
The Company also announced the Proficia TM, an Internet telephony
handset which is specifically designed to enable superior voice communica-
tions 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.
Management expects its principal revenue and profitability will emanate
from DigiPhone derivative software products and from license fees, and
intends to concentrate the majority of its management and financial
resources on the development and successful marketing of Internet related
products produced by its subsidiary Third Planet.
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, the Company is of the
belief that the financial results for the year ended April 1995, and a compar-
ison 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.
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.
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 an additional four retail units opened by December 1995 in
the Dallas area.
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.
Subsequent to the period ended April 1995, the Company completed a
private placement of restricted common and preferred shares raising
$1,200,000 for the Company. The investors are an 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.
Discontinued Activities
During the year Company's directors determined to discontinue its remaining
non CD-ROM software activity and accordingly its subsidiary Camelot
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. Legal Proceedings). Revenues of Camelot Entertain-
ment which are not shown in the financial statements as they are discon-
tinued 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.
Liquidity and Capital Resources
1997
Net cash used by operating activities for 1997 was $5,555,018 compared with
$6,740,073 in 1996. Net cash used by investing activities in 1997 was
$4,587,734 compared with net cash used by investing activities of $1,889,146 in
1996. This was primarily due to the net loss of $12,996,369 in 1997 compared
with $4,565,713 in the previous year. Net cash provided by financing
activities was $3,302,152 compared with $18,350,289 the previous year. Sales of
common and preferred stock were $3,410,500 compared with $22,330,214 in 1996.
Registrant's requirement for additional financial resources primarily
results from the continuing research and development costs of its subsidiary
Third Planet. Registrant believes that its current development program will
shortly be concluded, but believes that continued research and development will
be required to maintain a technological lead which management believes that
Third Planet currently has. Accordingly, management is aware of the need for
additional cash resources to be obtained for the continuance of research and
development and anticipates that such financial resources will primarily come
from the private placement of Registrants' common and preferred stock.
Management believes that license fees received from Third Planet's products will
generate revenues and cash flow towards the end of the current financial period.
The activities of Registrant's subsidiary, mrcdrom.com are dependent on its
initial public offering (See Item 1. Business). Registrant has no plans for
significant capital expenditures during the next twelve months. Management
believes that cash provided by financing activities and licensing fees as well
as revenue from sale of software over the Internet together with the present
level of cash resources available to the Registrant will be sufficient for its
needs over the next twelve months. Management believes that should the Company
require additional cash resources it can incur borrowing as Registrant has no
long-term corporate debt. There are no known trends demands, commitments or
events that would result in or that is reasonably likely to result in the
Company's equity increasing or decreasing in a material way other than the
potential use of cash resources for investment in the Company's subsidiaries in
the normal course of business or additional fund raising.
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. Manage-
ment does not anticipate any liquidity problems and believes that the antici-
pated level of revenue generated by the Company together with the pre-
sent level of cash resources available to the Company will be sufficient
for its needs. Management believes that should the Company require addi-
tional cash resources, it can raise additional cash resources from
the sale of common and preferred stock and/or by incurring borrowing.
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 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.
Management does not anticipate any liquidity problems and 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
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.
Item 8. Financial Statement and Supplementary Data
Index to Consolidated Financial Statements Page
Report of Independent Auditors - 1997 F-1
Consolidated Financial Statements
Balance Sheets - April 30, 1997 and 1996 F-2 and
F-3
Statements of Operations for the years
ended April 30, 1997, 1996 and 1995 F-4
Statements of Stockholders' Equity for the
years ended April 30, 1997, 1996 and 1995 F-5 through
F-7
Statements of Cash Flows for the years ended
April 30, 1997, 1996 and 1995 F-8 and
F-9
Notes to Consolidated Financial Statements F-10 through
F-30
Consolidated Schedule F-31
The information itemized above are included in Part IV, Item 14 as Exhibit
(a) (1) and begins at F-1 following page 29.
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, 1997 and have performed the audit for every past fiscal year since
1994. There were no disagreements between the Company and the auditors
regarding a policy or disclosure.
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>
<S> <C> <C> <C> <C>
Name Age Position Period Served Term Expires
Daniel Wettreich 45 Chairman and September 16, Next Annual
Chief Executive 1988 Meeting
Officer,President,
Director
Jeanette P.
Fitzgerald 36 Vice President, September 16, Next Annual
General Counsel, 1988 Meeting
Secretary,
Director
Allan S. Wolfe 65 Director May 24, 1993 Next Annual
Meeting
Bruce Baldwin 64 Director June 28, 1997 Next Annual
Meeting
Robert B. Gregory 45 Vice President July 1, 1996 N/A
of Finance
David D. McCurley 31 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<F1>. Since 1981, he has been the President and Director
of Wettreich Financial Consultants, Inc., a financial consulting company. Since
July 1996, he has been Director and Chief Executive Officer of Meteor Technology
plc, a United Kingdom based public company. Additionally, he currently holds
directors positions in the following public companies: Forme Capital, Inc., a
real estate company, Adina, Inc. and Alexander Mark Investments (USA), Inc.
which are public holding companies, and Malex, Inc., and Tussik, Inc. which are
dormant companies seeking merger opportunities. In July 1993, he was appointed
Director of Goldstar Video Corporation<F2> following an investment by the
Company. From January 1985 to February 1988 he was a founding director of
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 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<F1>. She is a member of the State
Bar of Texas and the Business Law section. Since July 1996, she has been a
Director of Meteor Technology plc. She is also the Corporate Secretary and
Director of Wettreich Financial Consultants, Inc., and of Malex, Inc., Tussik,
Inc. and Alexander Mark Investments (USA), Inc., which are public companies. In
July 1993, she was appointed Director of Goldstar Video Corporation<F2>
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.
Bruce Baldwin
Bruce Baldwin has been a Director of the Company since May 1997. He is the
principal of the Law Office of Bruce Baldwin since 1992. Previous to that he
was a principal of Bruce Baldwin & Associates from 1988 to 1992. He graduated
from Georgia Institute of Technology, graduating with a B.S. in chemistry and
obtained a Bachelor of Law Degree from Mercer University in 1961.
Robert B. Gregory
Robert Gregory is the Vice President of Finance for the Company since July
1996. He is a director of Adina, Inc. since January 1997, and of Alexander
Mark Investments (USA), Inc. since Dember 1996 both of which are public
companies. 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.
(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.
Item 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, 1997. No bonuses were granted to any officer, nor
was any compensation deferred.
<TABLE>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Compensation Long-Term
Compensation
Payouts
Awards
Restric
Name and Pri Other Annual ted Options/ LTIP All
ncipal Year Salary B Compensation Stock SARs Payouts Other
Position o Award(s Compensa
n ) tion
u
s
Daniel 1995 - - - - 25,000 - $ <F1>
Wettreich 1996 $208,3 - - - 25,000 - $ <F1>
Chairman and 1997 33 - - - 175,000 - $ <F1>
CEO<F1> $250,0
00
Jeanette P. 1995 - - - - 43,750 - $ <F1>
Fitzgerald 1996 N/A - - - N/A - $ <F1>
Vice 1997 N/A - - - 875 - $ <F1>
President,
General
Counsel and
Secretary
<F1>
</TABLE>
[FN]
(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 $-0-, $44,000, and $286,000 for the years ended April 30, 1997, 1996 and
1995 respectively. In July 1995, Mr. Wettreich and Ms. Fitzgerald became
employees of Company and Mr. Wettreich entered into an employment contract with
Company.
[/FN]
Directors of the Company are reimbursed for reasonable expenses incurred in
attending meetings of the Board of Directors. Mr. Bruce Baldwin receives
$500.00 per month.
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 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 18, 1997 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).
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
Daniel Wettreich 1,728,621 <F1><F2><F8> 57.3%
17770 Preston Road
Dallas, Texas 75252
Jeanette P. Fitzgerald 153,210 <F3> 5.3%
17770 Preston Road
Dallas, Texas 75252
Allan Wolfe 6,625 <F4> *
390 South River Road
Suite 5
Bedford, NH 03110
Bruce Baldwin 2,000 <F5> *
8150 Central Expressway
Suite 100
Dallas, Texas 75206
David McCurley 21,500 <F6> *
17770 Preston Road
Dallas, Texas 75252
Robert Gregory 1,437,505 <F7><F8> 50.8%
17770 Preston Road
Dallas, Texas 75252
All Officers and Directors 1,822,996 <F1><F2><F3><F4> 58.6%
as a group (6 persons) <F5><F6><F7><F8>
* Under 0.1%
Adina, Inc. 1,345,295 <F8> 47.7%
17770 Preston Road
Dallas, Texas 75252
(1) 60,366 of these shares are owned by AM Investments Ltd. a U.K. company
("AM") of which Mr. Wettreich is a director and officer. 25,000 of these
shares are owned by Wettreich Financial Consultants, Inc. ("WFC"), a Texas
company of which Mr. Wettreich is a director and officer. 16,250 of
these shares are owned by Forme Capital, Inc., ("Forme"), a Delaware com-
pany of which Mr. Wettreich is a director and officer. 81,710 of these
shares are owned by Meteor Technology plc ("Meteor"), a UK company of
which Mr. Wettreich is a director and officer. 1,345,295 of these are
Preferred Stock owned by Adina, Inc.,("Adina") a Delaware corporation of
which, Mr. Wettreich is a director and officer. Mr. Wettreich has dis-
claimed any beneficial interest in the shares owned by AM, WFC, Forme,
Meteor and Adina.
(2) Includes options to purchase 200,000 shares granted to Daniel Wettreich,
which options are not exercised.
(3) Includes options to purchase 53,750 shares granted to Jeanette
Fitzgerald, which options are not exercised. 16,250 of these shares are
owned by Forme of which Ms. Fitzgerald is an officer and director. 81,710
of these shares are owned by Meteor of which Ms. Fitzgerald is an
officer and director. Ms. Fitzgerald has disclaimed any beneficial
interest in the shares owned by Meteor and Forme.
(4) Includes an option to purchase 6,625 shares granted to Allan Wolfe, which
option is not exercised.
(5) Includes an option to purchase 2,000 shares granted to Bruce Baldwin
which option is not exercised.
(6) Includes an option to purchase 21,500 shares granted to David McCurley,
which option is not exercised.
(7) Includes options to purchase 10,500 shares granted to Robert Gregory,
which options are not exercised. Includes 1,345,295 Preferred Shares
owned by Adina of which Mr.Gregory is an officer and director. Includes
81,710 shares owned by Meteor a company which is majority owned by
Alexander Mark Investments (USA), Inc. of which Mr. Gregory is a
director. Mr. Gregory has disclaimed any beneficial interest in the
shares owned by Adina and Meteor.
(8) Includes 1,345,295 Preferred Shares, Series J of the Company. These
shares are owned by Adina, Inc. of which Mr. Wettreich and Mr. Gregory are
directors and officers. They have disclaimed all beneficial ownership
in the shares. (See Item 13. Certain Relationships and Related
Transactions).
Item 13. Certain Relationships and Related Transactions
On May 20, 1997 Registrant subscribed (post reverse) 1,345,295 restricted
Preferred Shares, Series J Camelot Corporation ("Camelot") with payment by the
transfer of 6,029,921 restricted common shares of Alexander Mark Investments
(USA), Inc. to Camelot. 892,215 of the Preferred Shares were issued upon
execution of the Agreement and 453,080 are issuable as deferred consideration.
The deferred consideration will be issued as new common shares of Camelot are
issued in such a manner so that the additional Preferred Shares are issued at
the same time and in the same quantity as any new common shares. The Preferred
Shares have one vote per share and vote with the common shares, are non
convertible, non-yielding and are subordinate to outstanding preferred shares
but have a liquidation preference over common shares.
The Company paid management fees of $44,000 in 1996 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.
Stock Transfer Company of America, Inc., a company affiliated with the
President of the Company provided services during the year ended April 1997 and
1996, as a securities transfer agent. A total of $35,158 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 leases 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 1997 and 1996 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 in fiscal 1995.
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 1997 and 1996, Company received dividend payments from Forme
Capital, Inc., Preferred Shares Series C in the amount of $46,657 for 1997 and
$46,657 for 1996.
On January 17, 1996, the Company's disinterested directors approved a
secured loan to the Corporate Secretary in the amount of $75,156. This loan
bears interest at a rate 6% per annum.
On August 1, 1996, the Company's disinterested directors approved a
secured loan to the Corporate Secretary in the amount of $14,000. This loan
bears interest at a rate of 6% per annum and has been repaid as of January 31,
1997.
On September 25, 1996 the Company's disinterested directors approved a
secured loan to the President of the Company in the amount of $1,800,000. This
loan bears interest at a rate of 6% per annum.
On March 4, 1997, the Company acquired the US and Canadian rights to PCAMS
software a payphone contract and management system software from Meteor
Technology, plc payable by the cancellation of 2,000,000 British pounds sterling
of loan stock owed to the Company by Meteor and 500,000 British pounds sterling
by the issuance by the Company to Meteor of 80,960 restricted common shares.
Mr. Wettreich and Ms. Fitzgerald who are directors of both companies did
not participate in any directors votes in relation to this transaction.
On May 20, 1997, the Company's subsidiary Third Planet amended the terms of
its existing distribution agreement with DigiPhone International a subsidiary of
Meteor. Mr. Wettreich and Ms. Fitzgerald who are directors of these companies
did not participate in any directors votes in relation to this transaction.
In May, 1997, the Company accepted a Preferred Share, Series J stock
subscription by Adina, Inc., a public company of which Mr. Wettreich and Mr.
Gregory are directors and officers. Mr. Wettreich did not participate in any
directors vote in respect to this transaction. The consideration for the
issuance of the Preferred Shares was the transfer of eighty (80%) percent of AMI
a public company whose major asset is fifty-seven (57%) percent of the
outstanding ordinary shares of Meteor. The Preferred Shares, Series J have one
vote per share voting with the common shares, have a liquidation preference
over the common shares but are subordinate to the outstanding Preferred Shares,
are not convertible and pay no dividend. They also are subject to a forward or
reverse split in any instances for which the common shares are subject to a
forward or reverse split on the exact same basis.
On May 30, 1997, the Company subscribed for 500,000 British pounds
sterling 1997-2007 10% unsecured redeemable loan stock of Meteor by paying
cash. Mr. Wettreich and Ms. Fitzgerald who are directors of both companies
did not participate in any directors votes in relation to this transaction.
The 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 the Company or a change in the officer's responsibilities following a
change in control other than Mr. Wettreich. Under the 1996 Stock Option Plan or
under the Company's 1991 Outside Directors Stock Option Plan options granted
under these plans contain provisions pursuant to which the unvested portions of
outstanding options become immediately exercisable and fully vested upon a
merger of the Company in which the Company's stockholders do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Company or its successor, if the successor corporation fails
to assume the outstanding options or substitute options for the successor
corporation's stock to replace the outstanding options. The outstanding options
will terminate to the extent they are not exercised as of consummation of the
merger, or assumed or substituted for by the successor corporation.
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, 1997.
Index to Consolidated Financial Statements Page
Report of Independent Auditors - 1997 F-1
Consolidated Financial Statements
Balance Sheets - April 30, 1997 and 1996 F-2 and
F-3
Statements of Operations for the years
ended April 30, 1997, 1996 and 1995 F-4
Statements of Stockholders' Equity for the
years ended April 30, 1997, 1996 and 1995 F-5 through
F-7
Statements of Cash Flows for the years ended
April 30, 1997, 1996 and 1995 F-8 and
F-9
Notes to Consolidated Financial Statements F-10 through
F-30
(a) (2) Consolidated Schedule F-31
(a) (3) Exhibits included herein:
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(b) 1991 Outside Directors'
Stock Option Plan Incorporated by reference to the Proxy
Statement for April 13, 1992 Annual
Meeting of Shareholders and the Proxy
Statement for January 3, 1997 Annual
Meeting of Shareholders.
1996 Employee Stock Option
Plan Incorporated by reference to the Proxy
Statement for January 3,1997 Annual
Meeting of Shareholders
22(a) Subsidiaries
(7) Reports on Form 8-K:
Report filed May 20, 1997 reporting Item 2 and 7 with amendments.
<PAGE>
EXHIBIT 22(a)
SUBSIDIARIES
AS OF JULY 5, 1997
Third Planet Publishing, Inc. 100%
Mr. CD-ROM Stores, Inc. 100%
Camelot Distributing, Inc. 100%
Kids University, Inc. 100%
Maxmedia Distributing, Inc. 100%
Camelot Internet Access Services, Inc. 100%
Camelot Business Investigations, Inc. 100%
Camelot Energy, Inc. 100%
Software @ Cost + 10%, Inc. 100%
mrcdrom.com, inc. 100%
Alexander Mark Investments (USA), Inc. 80%
Atlantic Media, Inc. 100%
Camelot Creative Design, Inc. 100%
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 29, 1997
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
Director; President and CEO
(principal executive officer and
principal financial officer)
Date: July 29, 1997
By: /s/Jeanette Fitzgerald
Director; Secretary;
Vice President and General Counsel
Date: July 29, 1997
By: /s/Robert Gregory
Vice President Finance (principal accounting officer)
Date: July 29, 1997
By: /s/Allan Wolfe
Director
Date: July 29, 1997
By: /s/ Bruce Baldwin
Director
Date: July 29, 1997
<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, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended April 30, 1997. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Camelot Corporation and Subsidiaries as of April 30, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended April 30, 1997, in
conformity with generally accepted accounting principles.
We have also audited Schedule II of Camelot Corporation and
Subsidiaries for each of the three years in the period ended April 30, 1997.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
Dallas, Texas
July 7, 1997
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
April 30,
1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,029,999 $ 9,870,599
Trading securities - 1,341,508
Securities available for sale 8,268 945,777
Accounts receivables, net of allowance for
doubtful accounts of $19,947 and $11,415
at April 30, 1997 and 1996, respectively 162,592 241,837
Prepaid expenses 167,769 215,073
Inventories, net of allowance for
obsolescence of $494,744 and $198,000 at
April 30, 1997 and 1996, respectively 530,926 1,272,973
Total current assets 3,899,554 13,887,767
PROPERTY AND EQUIPMENT - AT COST
Office equipment and fixtures 1,534,173 1,363,484
Leasehold improvements 64,154 222,124
1,598,327 1,585,608
Less accumulated depreciation (669,535) (453,450)
and amortization
928,792 1,132,158
INVESTMENT IN AFFILIATE - -
OTHER ASSETS
Note receivable - officer, net of allowance 968,189 -
of $889,000
Preferred stock-related party 530,917 530,917
Licenses, trademarks and product
development, net of accumulated
amortization of $31,000 and $151,979
at April 30, 1997 and 1996, respectively 421,510 1,141,021
Other 23,114 10,000
Total other assets 1,943,730 1,681,938
$ 6,772,076 $16,701,863
See accompanying notes to consolidated financial statements
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets - Continued
April 30,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 470,577 $ 777,181
Accrued expenses 222,990 194,329
Net current liabilities of
discontinued operations - 50,185
Total current liabilities 693,567 1,021,695
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares
authorized, 881,763 and 486,305 shares
issued at April 30, 1997 and 1996, respectively 8,818 4,863
Preferred stock, $.01 par value, 100,000,000
shares authorized, 2,438,056 and 10,143,389
shares issued and outstanding at April 30,
1997 and 1996, respectively 24,381 101,434
Additional paid-in capital 34,021,361 30,600,613
Accumulated deficit (25,182,832) (12,186,463)
Less net unrealized loss on available-
for-sale securities - (50,548)
Less treasury stock, at cost, 28,745
shares at April 30, 1997 and 1996 (2,714,575) (2,714,575)
Less note receivable from officer
related to purchase of common stock (78,644) (75,156)
Total stockholders' equity 6,078,509 15,680,168
$ 6,772,076 $16,701,863
See accompanying notes to consolidated financial statements
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended April 30,
1997 1996 1995
REVENUES $ 1,887,617 $ 3,002,049 $ 1,184,469
COSTS AND EXPENSES
Cost of sales 1,559,189 645,127 905,330
General and administrative 7,164,354 6,233,501 2,511,108
Provision for inventory obso
lescence 495,942 1,000 -
Depreciation and amortization 1,462,459 354,419 116,186
Total costs and expenses 10,681,944 7,431,047 3,532,624
LOSS FROM OPERATIONS (8,794,327) (4,428,998) (2,348,155)
OTHER INCOME (EXPENSE)
Interest and miscellaneous 426,490 152,278 1,370
Dividend income-related party 46,657 46,657 46,657
Loss on disposition of assets (509,292) (126,931) -
Loss on investment in
affiliate (2,693,087) - -
Note receivable allowance (889,000) - -
Realized loss on sale of
marketable securities (583,810) - -
Unrealized gain on market-
able securities - 53,821 -
Interest expense-related party - (11,615) 35,849)
Total other income(expense) (4,202,042) 114,210 12,178
LOSS FROM CONTINUING OPERATIONS(12,996,369) (4,314,788) (2,335,977)
DISCONTINUED OPERATIONS
Loss from operations - - (622,350)
Loss on disposals - (250,925) (560,577)
Loss from discon-
tinued operations - (250,925) (1,182,927)
NET LOSS (12,996,369) (4,565,713) (3,518,904)
DIVIDENDS ON PREFERRED
STOCK ( 95,234) (575,414) (19,200)
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS $(13,091,603) $ (5,141,127) $ (3,538,104)
LOSS PER SHARE:
LOSS FROM CONTINUING OPERATIONS (20.45) (12.54) (9.17)
LOSS FROM DISCONTINUED OPERATIONS (.00) (.73) (4.64)
DIVIDENDS ON PREFERRED STOCK (.15) (1.67) (.08)
NET LOSS PER COMMON SHARE $ (20.60) $ (14.94) $ (13.89)
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK AND COMMON STOCK
EQUIVALENT SHARES OUTSTANDING 635,467 344,119 254,651
See accompanying notes to consolidated financial statements
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity - continued
For the Period from May 1, 1994 through April 30, 1997
Common Common Preferred Preferred Additional
Stock Stock Stock Stock Paid in
Shares Amount Shares Amount Capital
Balance at 215,790 $ 2,158 239,190 $ 2,392 $5,882,486
April 30,1994
Conversion of
Series C
preferred
stock to
common stock 250 3 (50,000) (500) 497
Preferred stock
cash dividends
related party - - - - (19,200)
Payment of
common stock
subscribed at
April 30, 1994 3,145 31 - - (31)
Sale of common
stock for cash 63,084 631 - - 1,623,216
Purchase of Max-
media Distribu-
ting, Inc. 5,125 51 - - 143,449
Compensation for
services 3,327 33 - - 120,480
Change in net un-
realized losses
on available for
sale securities - - - - -
Net loss - - - - -
________________________________________________________
Balance at
April 30, 1995 290,721 $2,907 189,190 $1,892 $7,750,897
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity - Continued
For the Period from May 1, 1994 through April 30, 1997
Accumulated Unrealized Treasury Stock Total
Deficit Losses on Stock Sub- Stock-
Available scription holders'
for Sale Equity
Securities (Deficit)
Balance at
April 30, 1994 $(4,101,846) $ - $(170,442) $(206,250) $1,408,498
Conversion of
Series C
preferred stock
to common stock - - - - -
Preferred stock
cash dividends
related party - - - - (19,200)
Payment of
common stock
subscribed at
April 30, 1994 - - - 206,250 $206,250
Sale of common
stock for cash - - - - 1,623,847
Purchase of
Maxmedia
Distributing,
Inc. - - - - 143,500
Compensation for
services - - - - 120,513
Change in net
unrealized losses
on available-for-
sale securities - (51,553) - - (51,553)
Net loss (3,518,904) - - - (3,518,904)
Balance at
April 30, 1995 $(7,620,750) $(51,553) $(170,442) $ - $(87,049)
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity - continued
For the Period from May 1, 1994 through April 30, 1997
Common Common Preferre Prefer Addition
Stock Stock d Stock red al Paid
Shares Amount Shares Stock in
Amount Capital
Balance at $290,721 $2,907 189,190 $1,892 $7,750,897
April 30,
1995
Conversion of
preferred
stock to
common stock:
Series BB 8,608 86 (888,000) (8,880) 8,794
Series G 56,844 569 (5,333,333) (53,333) 52,764
Series H 53,709 537 (3,525,000) (35,250) 34,713
Sale of
common stock
for cash 54,844 548 - - 3,281,001
Sale of
preferred
stock for
cash - - 19,766,666 197,666 18,850,999
Common stock
issued for
services 5,079 51 - - 737,341
Common stock
issued to
officers for
note
receivable 1,500 15 - - 75,141
Change in net
unrealized - - - - -
losses on
available-for-
sale
securities
Retirement of
Series D - - (66,134) (661) (65,473)
preferred
stock
Common stock
issued to pay
note payable
to related
party 15,000 150 - - 449,850
Purchase of - - - - -
treasury
stock
Preferred
stock
dividends to:
Related
parties - - - - (19,200)
Other
parties - - - - (556,214)
Net loss - - - - -
Balance at
April 30,
1996 486,305 $4,863 10,143,389 $101,434 $30,600,613
See accompanying notes to consolidated financial statements
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity - continued
For the Period from May 1, 1994 through April 30, 1997
Accumulat Unreali Treasury Stock Total
ed zed Stock Subscrip Stockhold
Deficit Losses tion ers'
on Receivab Equity
Availab le (Deficit)
le For
Sale
Securit
ies
Balance at
April 30, $(7,620,750) $(51,553) $(170,442) $ - $(87,049)
1995
Conversion of
preferred
stock to
common stock:
Series BB - - - - -
Series G - - - - -
Series H - - - - -
Sale of
common stock - - - - 3,281,549
for cash
Sale of
preferred - - - - 19,048,665
stock for
cash
Common stock
issued for - - - - 737,392
services
Common stock
issued to
officer for - - - (75,156) -
note
receivable
Change in net
unrealized - 1,005 - - 1,005
losses on
available-for-
sale
securities
Retirement of
Series D - - - - (66,134)
preferred
stock
Common stock
issued to pay - - - - 450,000
note payable
to related
party
Purchase of
treasury - - (2,544,133) - (2,544,133)
stock
Preferred
stock - - - - (19,200)
dividends to: - - - - (556,214)
Related
parties
Other
parties
Net loss (4,565,713) - - - (4,565,713)
Balance at
April 30, (12,186,463) $(50,548) $2,714,575) $(75,156) $15,680,168
1996
See accompanying notes to consolidated financial statements
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity - Continued
For the Period from May 1, 1994 through April 30, 1997
Common Common Prefer Prefer Additi Accumu
Stock Stock red red onal lated
Shares Amount Stock Stock Paid Deficit
Shares Amount in
Capital
Balance at 486,350 $4,863 10,143,389 $101,434 $30,600,613 (12,186,463)
April 30,
1996
Conversion of
preferred
stock to
common stock:
Series BB 1,922 19 (112,000) (1,120) 1,101 -
Series H 165,920 1,659 (9,908,333) (99,083) 97,424 -
Series I 144,688 1,447 (1,260,000) (12,600) 11,153 -
Sale of - - 3,590,000 35,900 3,374,000 -
preferred
stock for
cash
Common stock
issued for 1,968 20 - - (20) -
services
Common stock 80,960 810 - - 31,574 -
issued for
software
acquisitions
Accrued
interest on - - - - - -
stock
subscription
receivable
Change in net
unrealized - - - - - -
losses on
available-for-
sale
securities
Retirement of
Series F - - (15,000) (150) 150 -
preferred
stock
Preferred
stock
dividends to:
Related
parties - - - - (19,200) -
Other
parties - - - - (76,034) -
Net loss - - - - - (12,996,369)
Balance at
April 30, 881,763 8,818 2,438,056 24,381 34,021,361 (25,182,832)
1997
See accompanying notes to consolidated financial statements
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity - Continued
For the Period from May 1, 1994 through April 30, 1997
Cumulative Unrealized Treasury Stock Total
Foreign Losses on Stock Subscr Stock
Currency Available iption holders'
Transalation for Sale Receiv Equity
Adjustment Securities able
Balance at
April 30, 1996 $ - $(50,548) $(2,714,575) $(75,156) $15,680,168
Conversion of
preferred stock
to common stock
Series BB - - - - -
Series H - - - - -
Series I - - - - -
Sale of
preferred stock
for cash - - - - 3,410,500
Common stock
issued for
services - - - - -
Commons stock
issued for
software
acquisitions - - - - 32,384
Accrued interest
on stock
subscription
receivable - - - - (3,488)
Change in net
unrealized
losses on
available-for-
sale securities - 50,548 - - 50,548
Retirement of
Series F
preferred stock - - - - -
Preferred stock
dividends to:
Related parties - - - - (19,200)
Other parties - - - -
Net loss - - - - (76,034)
Balance at
April 30, 1997 $ - $ - - - (12,996,369)
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended April 30,
1997 1996 1995
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss $ (12,996,369) $ (4,565,713) $ (3,518,904)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Non cash transactions for services 387,391 120,513
Accrued interest addition to related
party note receivable (60,677) - -
Securities received as revenue (64,000) (1,950,575) -
Depreciation and amortization 1,462,459 354,419 116,186
Undistributed loss in minority in-
terest in subsidiaries - - (1,336)
Loss on disposal of assets 509,292 191,918 22,535
Loss on sale of trading securities 313,896 - -
Loss on sale of available for sale
securities 269,914 - -
Write up of securities to market value - (53,821) -
Provision for uncollectible accounts
receivable 8,532 10,887 41,500
Provision for inventory obsolescence 495,942 198,000 -
Note receivable allowance 889,000 - -
Loss on investment in affiliate 2,693,087 - -
Proceeds from trading securities 1,027,612 - -
Loss on disposal of discontinued
operations - - 560,577
Change in assets and liabilities,
net of effect from
purchase of subsidiaries:
Accounts receivable (68,987) (212,107) 797,005
Prepaid expenses 47,304 (183,449) (16,188)
Inventories 246,105 (864,908) (23,865)
Other assets - - (5,366)
Accounts payable and accrued
expenses (277,943) 88,151 (300,340)
Obligations-discontinued
operations (50,185) (140,266) -
Net cash used in
operating activities (5,555,018) (6,740,073) (2,207,683)
CASH FLOW FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment (636,364) (1,087,658) (195,589)
Investment in affiliate (2,457,003) - -
Collections received on
notes receivable 14,000 - 67,028
Proceeds from sale of
property and equipment - 11,500 31,500
Proceeds from available
for sales securities 718,143 93,447 -
Proceeds from return of deposits - 14,765 6,000
License, trademarks and product
development (412,510) (608,800) (40,000)
Purchase of subsidiary - - (25,000)
Proceeds from sale of subsidiary - - 184,543
Issuance of note receivable-
related party (1,814,000) - -
Issuance of note receivable -__ (312,400) -
Net cash provided by
(used in) investing
activities (4,587,734) (1,889,146) 28,482
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock - 3,281,549 1,623,847
Payments received on common
stock subscribed - - 206,250
Sale of preferred stock 3,410,500 19,048,665 -
Sale of subsidiary preferred
stock - - 264,044
Redemption of preferred stock - (66,134) -
Deferred offering costs (13,114) - -
Dividends paid (95,234) (575,414) (19,200)
Purchase of treasury stock - (2,544,133) -
Payments on debt - (294,200) (190,000)
Proceeds(payment)-notes
payable - related parties - (236,000) 406,000
Redemptions of subsidiary
preferred stock - (264,044) -
Net cash provided by
financing activities 3,302,152 18,350,289 2,290,941
NET INCREASE (DECREASE) IN CASH (6,840,600) 9,721,070 111,740
CASH AT BEGINNING OF YEAR 9,870,599 149,529 37,789
CASH AT END OF YEAR $ 3,029,999 $ 9,870,599$ 149,529
See accompanying notes to consolidated financial statements
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended April 30,
1997 1996 1995
Supplemental information:
Cash paid for interest$ - $ 11,615 $ 38,681
Cash paid for income
taxes $ - $ - $ -
NONCASH INVESTING AND FINANCING ACTIVITIES
As discussed in Note 11, in fiscal 1997, the Company's Preferred Stock was
converted to the Company's restricted common stock as follows:
112,000 Series BB Preferred for 1,922 shares of restricted common
9,908,333 Series H Preferred for 165,920 shares of restricted common
1,260,000 Series I Preferred for 144,688 shares of restricted common
In fiscal 1997, the Company received securities in the amount of $139,700 in
satisfaction of a trade account receivable.
In fiscal 1997, the Company issued 80,960 shares of restricted common stock
for software acquisition.
As discussed in Note 9, in fiscal 1996, the Company issued 15,000 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 1,687 shares of restricted common stock,
with an agreed value of $350,000, for acquisition of software.
As discussed in Note 11, 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 8,608 shares of restricted common
5,333,333 Series G Preferred for 56,844 shares of restricted common
3,525,000 Series H Preferred for 53,709 shares of restricted common
As discussed in Note 14, 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 acquisitions 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 5,125 shares of the Company's
restricted common stock valued at $143,500.
As discussed in Note 11, in fiscal 1995, the outstanding Series C Preferred
Stock was converted to 250 shares of the Company's restricted common stock.
During fiscal 1997, 1996 and 1995 there was a $50,548, $1,005, and $51,553
change in net unrealized losses on available-for-sale securities.
See accompanying notes to consolidated financial statements
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
primarily engaged in the retailing, distribution and publishing of computer
software. The Company sells software products through national
distributors and through an Internet web page catalog. During 1997, the
Company ceased selling its software products through Mr. CD-ROM and
Software @ Cost + 10% retail stores which were located in the Dallas
Metroplex. The Company is also engaged as an Internet service provider.
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.
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 betterments are capitalized while replacements and
maintenance and repairs that do not improve or extend the life of the
respective assets are expensed. Leasehold improvements are amortized over
the lesser of the term of the related lease or the estimated useful lives
of the assets. When property is retired or otherwise disposed of, the
related costs and accumulated depreciation are removed from the accounts
and any gain or loss is reflected in operations.
Depreciation and amortization of property and equipment is provided on the
straight-line method over the following estimated useful lives:
Office furniture and fixtures 7 years
Computer and office equipment 5 years
Computer software 5 years
Leasehold Improvements Length of lease
ranging to 5 years
Software Development
Certain software development costs are capitalized upon the establishment
of technological feasibility for each product or process and capitalization
ceases when the product is available for general release to customers or is
put into service. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized software development
costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future
revenues, estimated economic life and changes in software and hardware
technology. Research and development costs related to software development
that has not reached technological feasibility are expensed as incurred.
Software development costs are amortized utilizing the straight-line method
over the estimated economic lives of the related products not to exceed two
years. Amortization of capitalized software costs for April 30, 1997, 1996
and 1995 was $1,105,021, $138,979 and $0, respectively, which included a
write down of $646,408 in 1997 to reflect an impairment of net realizable
value. Capitalized software development costs were $302,510 and $1,014,021
at April 30, 1997 and 1996, respectively, net of accumulated amortization
of $0 and $138,979, respectively.
Total research and development costs charged to general and administrative
expenses were approximately $2,375,000, $1,319,000 and $163,000 for the
years ended April 30, 1997, 1996 and 1995.
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 1997, 312,530 common shares were issued upon conversion of preferred
shares. Had this conversion of preferred stock occurred on May 1, 1996,
net loss per common share would have been $16.71 for 1997.
During 1996, 119,161 common shares were issued upon conversion of preferred
shares and 15,000 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 $11.20 for 1996.
Software Revenue Recognition
Revenue from sales of software is generally recognized upon delivery of the
software provided that no significant obligations remain and collection of
the resulting receivable is deemed probable.
Advertising Costs
Advertising costs, included in general and administrative expenses, are
charged to operations when the advertising first takes place and were
$989,248, $1,648,071 and $129,436 for 1997, 1996 and 1995, respectively.
Income Taxes
Deferred income taxes are determined using the liability method under which
deferred tax assets and liabilities are determined based upon differences
between financial and tax basis of assets and liabilities.
Reclassifications
Certain reclassifications have been made to the financial statements to
conform to the 1997 presentation.
Fair Value of Financial Instruments
Fair value of financial instruments are estimated to approximate the
related book value, unless otherwise indicated, based on market information
available to the Company.
Impairment of Long-Lived Assets
Impairment losses are recorded on long-lived assets and certain
identifiable intangible assets held and used in operations whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that 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 March 31, 1997, a wholly-owned subsidiary of the Company was formed.
The Company acquired 100% of the common stock of mrcdrom.com, inc., in
exchange for $100,000 in cash, $511,428 of inventory, $30,464 of equipment
and $26,000 of other assets. mrcdrom.com, inc. is engaged in selling
software products through an Internet web page catalog. In March 1997, the
Board of Directors approved the filing of a registration statement under
the Securities Act of 1933, for a public offering of 3,000,000 shares of
mrcdrom.com, inc. common stock.
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 5,125 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.
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 were written off in fiscal year 1996.
3. ACCOUNTS RECEIVABLE AND CREDIT RISK
The Company's trade receivables at April 30, 1997 are primarily due from
major computer software distributors. The Company believes it is not
exposed to significant credit risk.
4. INVENTORIES
Included in the accompanying April 30, 1997 balance sheet is inventory of
computer software at a carrying value of $530,926, 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 will probably be less than the amount
shown in the balance sheet.
Major classes of inventories consist of the following at April 30,:
1997 1996
Software $1,025,670 $1,470,973
Less: Allowance for slow
moving and obsolescence 494,744 198,000
NET $ 530,926 $1,272,973
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 realized 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 decreased by $50,548 and $1,005 during the years
ended April 30, 1997 and 1996, respectively. The cost, unrealized gains
and losses, and fair values of the Company's available-for-sale securities
and trading securities at April 30, 1997 and 1996 are summarized as
follows:
Cost Gross Gross Estimated
Unrealized Unrealized Fair
Gains Losses Value
1997
Available-
for-sale
Securities
$ $ $ $
Common stock 8,268 - - 8,268
1996
Available-
for-sale
Securities
$ $ $ $
Common stock 996,325 - 50,548 945,777
Trading
Securities
53,820 - 1,341,508
Common stock 1,287,68
8
$ $ $ $
2,284,01 53,820 50,548 2,287,285
3
Sales proceeds and gross related gains and losses on securities are as
follows:
1997 1996 1995
Cost basis $2,329,565 $ 134,480 $
Proceeds 1,745,755 93,447 -
Realized - - -
gains
Realized 583,810 41,033 -
losses
The Company uses the specific identification method to determine the cost
of securities sold.
Results of operations for 1997, 1996 and 1995 include a charge of $ -0-
$53,821, and $-0- for unrealized gains on trading securities.
Stockholders' equity includes an unrealized loss of $0, $50,548, and
$51,553 at April 30, 1997, 1996 and 1995, respectively.
6. NOTE RECEIVABLE - OFFICER
During fiscal 1997, the Company loaned the President and Chief Executive
Officer of the Company $1,800,000. The loan is evidenced by a nonrecourse
note, which bears interest at 6%, with all principal and accrued interest
due November 14, 2006. The note is collateralized by approximately 33,500
shares of common stock of the Company which had a market value of
$1,800,000 on September 25, 1996 and is not subject to additional calls for
security regardless of any changes in the value of the stock. At April 30,
1997, these shares had a market value of approximately $209,000. The
allowance of $889,000 is primarily to provide for impairment of the
collateral as a result of the fluctuation in the value of the collateral.
The allowance, which is adjusted on a annual basis, is computed from a
formula which utilizes the average price of the Company's common stock
using a twelve month period.
7. INVESTMENT IN AFFILIATE
The Company holds a 15.2% interest in Meteor Technology PLC ("Meteor"), a
public telecommunications company traded on the Alternative Investment
Market of the London Stock Exchange. The investment is accounted for under
the equity method because the Company exercises significant influence over
Meteor's operating and financial activities. Due to certain factors, the
Company has determined that the carrying value of its investment exceeds
the estimated recovery value. Accordingly, a provision of $2,693,087 has
been charged to operations in 1997 reducing its carrying value of Meteor to
zero and suspended the equity method of accounting for its investment in
Meteor.
8. ACCRUED EXPENSES
The following is a summary of accrued expenses at April 30,:
1997 1996
Taxes $ 26,811 $ 56,550
General and administrative 2,452 35,244
Fees 34,000 36,000
Compensation 41,503 32,864
Lease obligations 115,099 -
Other 3,125 33,671
$ 222,990 $ 194,329
9. 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 15,000 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.
10. 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, 1997, 1996 and 1995.
Deferred tax assets and liabilities are determined based on the difference
between financial statement and tax basis 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, note receivable allowance, investment valuation
adjustments, inventory reserve and from net operating losses.
The components of deferred taxes at April 30, in the accompanying balance
sheets are summarized below:
1997 1996
Allowance for doubtful accounts $ 6,782 $ 1,880
Inventories 168,213 66,795
Other 3,958 3,570
Note receivable allowance 302,260 -
Investment valuation adjustment 915,650 (1,113)
Capital loss carryforward 117,817 117,817
Net operating loss carryforward 6,862,390 3,846,783
8,377,070 4,035,732
Less valuation allowance (8,377,070)
(4,035,732)
Deferred tax asset-net $ - $ -
At April 30, 1997, the Company has approximately $20,184,000 of unused
Federal net operating loss carryforwards, which expire in the years 2003
through 2012.
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 more than 50% ownership of the Company in 1988. Because
of statutory requirements in the law, that portion of the net operating
loss carryforward applicable to the period prior to the ownership change is
limited to use of approximately $35,800 per year until it expires. As the
net operating losses expire, at a minimum, approximately $425,000 of the
tax net operating loss carryforward will not be available for the Company's
future use.
11. STOCKHOLDERS' EQUITY
Common Stock
The brother of the President of the Company purchased 13,750 and 20,833
shares of the Company's restricted common stock for $470,312 and $497,375
in various transactions during fiscal 1996 and 1995, respectively.
Unrelated third parties purchased 16,094 and 42,251 shares of the Company's
restricted common stock for $795,612 and $1,126,472 in various transactions
during fiscal 1996 and 1995, respectively.
During fiscal 1996, a company affiliated with the President purchased
13,750 shares of the Company's restricted common stock for $1,108,594.
During fiscal 1996, the President purchased 11,250 shares of the Company's
restricted common shares for $907,031.
Preferred Stock
The Company has 100,000,000 authorized shares of $.01 par value preferred
stock with rights and preferences as designated by the board of directors
at the time of issuance. The Company has the following series of preferred
stock issued and outstanding at April 30, 1997:
Number of Shares
Series of Originally
Preferred Stock AuthorizedIssued Outstanding Value
A 2,000 2,000 - -
B 75,000 75,000 - -
C 50,000 50,000 - -
D 66,134 66,134 - -
E 108,056 108,056 108,056 1,081
F 15,000 15,000 - -
BB 1,000,000 1,000,000 - -
G 5,333,333 5,333,333 - -
H 17,000,000 13,433,333 - -
I 10,000,000 3,590,000 2,330,000 23,300
TOTAL 33,649,523 23,672,856 2,438,056 $ 24,381
During fiscal 1997, 112,000 shares of Series BB were converted to 1,922
shares of the Company's restricted common stock.
During fiscal 1997, 9,908,333 shares of Series H were converted to 165,920
shares of the Company's restricted common stock.
During fiscal 1997, 1,260,000 shares of Series I were converted to 144,688
shares of the Company's restricted common stock.
During fiscal 1997, 15,000 shares of Series F were retired.
During fiscal 1996, the Series G shares outstanding were converted to
56,844 shares of the Company's restricted common stock.
During fiscal 1996, 888,000 shares of Series BB were converted to 8,608
shares of the Company's restricted common stock. During fiscal 1996,
3,525,000 shares of Series H were converted to 53,709 shares of the
Company's restricted common stock.
During fiscal 1996, the outstanding shares of Series D, owned by the wife
of the President, were redeemed for $66,134.
During fiscal 1995, the outstanding Series C were converted to 250 shares
of the Company's restricted common stock.
Series E preferred shares owned by a trust affiliated with the President of
the Company are entitled to receive a cumulative dividend equivalent to
$1,600 per month. Dividends in the amount of $19,200 were declared and
paid each of the years ended April 30, 1997, 1996 and 1995.
Series BB preferred shares ("Series BB") are entitled to receive a
dividend of 12% payable quarterly. The Series BB are convertible to
common shares at thirty percent off the closing price of the common shares.
Dividends in the amount of $70,040 were paid in 1996.
Series G preferred shares ("Series G") are entitled to receive a dividend
of 9% payable quarterly. The Series G are convertible to common shares
at twenty percent off the closing price of the common shares. All shares
will automatically be converted into common shares two years after
issuance. Dividends in the amount of $139,151 were paid in 1996.
Series H preferred shares ("Series H") are entitled to receive a dividend
of 9% payable quarterly. The Series H are convertible to common shares
at twenty percent off the closing price of the common shares. Dividends
in the amount of $76,034 and $225,055 were paid in 1997 and 1996,
respectively.
Series I preferred shares ("Series I") are entitled to receive a cumula-
tive dividend of 7%, payable in common shares of the Company. The Series
I are convertible to common shares at twenty percent off the closing price
of the common shares. All shares will automatically be converted into
common shares two years after issuance.
Any split or combination of common shares requires a simultaneous split or
combination of each series of preferred shares and visa versa. Upon liquid
ation or dissolution of the Company, holders of each series of preferred
shares are entitled to receive, to the extent of their par value, pro rata
with other preferred shareholders and before holders of common shares, all
assets legally available for distribution to stockholders. Each series of
preferred shares issued as of fiscal year-end in non-voting.
12. STOCK OPTIONS
Camelot Corporation
The Company adopted the 1991 Employee Stock Option Plan (the Plan) in April
1992, reserving 3,750 shares of the Company's common stock for issuance
upon the exercise of options granted under the Plan. On April 30, 1993,
the board amended and the shareholders approved to increase the number of
common shares to 16,250 available for issuance under this plan. The
options may be purchased as Incentive Stock Options at 100% of fair market
value of the common stock or as supplemental stock options at not less than
85% of the fair market value of the common stock at the date of grant.
The terms of the options under the Plan may not exceed 10 years. No
options may be granted under the Plan after April, 2002. The Company has
determined to use the 1991 Employee Stock Option Plan for non-employee
directors and has amended the Plan to specifically cover directors. Other
than a name change to the 1991 Outside Director Stock Option Plan and as
set out above, the Plan will otherwise stay the same.
In October 1996 the Company adopted the 1996 Stock Option Plan. At that
time the Company canceled all outstanding options from the 1991 plan and
granted the equal number of options from the 1996 plan. The plan reserves
200,000 shares of the Company's common stock upon exercise of the options
granted under the plan. The exercise price for the options is equal to the
Fair Market Value of a share of Common Stock on the Grant Date. The per
share exercise price of any option granted to a person who at the time of
grant owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company must be at least 110% of the fair market value
of a share of the Company's common stock on the date of grant, and the term
of such option cannot exceed five years.
The term of the options under the 1996 plan may not exceed 10 years. No
options may be granted under the Plan after October 2006. During 1997, the
exercise price of the options granted under the 1991 and 1996 plans was
changed to $5.00 per share.
Under the 1996 plan, 175,000 options were granted to the President of the
Company, however he was not eligible for options under the 1991 plan. An
additional 3,500 options were granted to officers during fiscal 1997.
Outstanding stock options outside the Plan were 86,250 and 87,500 at April
30, 1997 and 1996, respectively.
The following schedule summarizes the changes in the Plans:
1997 1996 1995
Options outstanding at 94,600 95,825 94,375
beginning at year
Granted 185,538 7,194 6,325
Exercised - ( 4,637) -
Canceled ( 4,750) ( 3,782) ( 4,875)
Options outstanding at 94,600 95,825
end of year 275,388
Options exercisable at 275,388 94,600 95,825
end of year
Average price of
options:
Granted during year $ 49.348 $98.324 $48.928
Exercised during - 62.208 -
year
Canceled during year 52.160 80.140 47.692
Outstanding at end 12.160 31.828 29.932
of year
mrcdrom.com, inc.
mrcdrom.com, inc. has approved two stock option plans, a 1997 Incentive
Stock Option Plan (the "Incentive Stock Option Plan") and the 1997
Directors' Stock Option Plan (the "Director's Stock Option Plan") in March
1997, reserving 500,000 shares of common stock for issuance upon the
exercise of options granted under the Plans. The Incentive Stock Option
Plan is available to all employees of mrcdrom.com, inc. (including officers
and employee directors). The Director's Stock Option Plan is available for
all nonemployee directors of mrcdrom.com, inc. The option exercise price
is equal to the fair market value of a share of common stock on the grant
date unless the optionee is granted more than 10% of the maximum number of
shares available for issuance under the Plans in which case the exercise
price is equal to 110% of the fair market value of a share of common stock
on the date of grant. The term of the options under the Plans may not
exceed 10 years.
The following schedule summarized the changes in the Plans:
Incentive Stock Option Plan
1997 1996 1995
Options outstanding at
beginning of year
Granted 408,800 - -
Exercised - - -
Canceled
- - -
Options outstanding at
end of year 408,800 - -
Options exercisable at 408,800 - -
end of year
Average price of options
Granted during year $ 4.00 $ - $ -
Exercised during - - -
year
Canceled during year - - -
Outstanding at end 4.00 - -
of year
Director's Stock Option Plan
1997 1996 1995
Options outstanding at
beginning of year
Granted 15,000 - -
Exercised - - -
Canceled
- - -
Options outstanding at end 15,000 -
of year -
Options exercisable at end 15,000 -
of year -
Average price of options
Granted during year $ $ - $
4.00 -
Exercised during year - - -
Canceled during year - - -
Outstanding at end of 4.00 - -
year
The Company granted stock options to purchase 423,800 shares of
mrcdrom.com common stock to officers and directors of mrcdrom.com, inc.
The Company recognized and measures compensation costs related to stock
option plans utilizing the intrinisic value based method. Accordingly, no
compesation cost has been recorded. Had comensation expense been
determined on the fair value of awards granted, net loss and loss per share
would have been as follows:
1997
As Reported Pro forma
Net loss $ (12,996,369) $ (13,441,659)
Loss per share $ (20.45) $ (21.15)
1996
As Reported Pro forma
Net loss $ ( 4,565,713) $ ( 4,928,278)
Loss per share $ (12.54) $ (14.32)
The fair value of each option is estimated using the Black-Scholes option-
pricing model with the following assumptions used for grants in 1997 and
1996: risk free interest rate 4.5%; expected life 10 years; expected
volitity 30%; dividend yield 0%. The fair values generated by the Black-
Scholes model may not be indicative of the future benefit, if any, that may
be received by the option holder.
13. MINORITY INTEREST
During the year ended April 30, 1995, a subsidiary of the Company
authorized 15,000,000 shares of $.01 par value preferred stock. Proceeds
from the sale of issued shares, net of expenses of $39,456, were $264,044.
During fiscal 1996, the Company purchased 60,700 shares of the 10%
Convertible Preferred Shares, Series A. The 10% Convertible Preferred
Shares, Series A, have one vote per share, and no preemptive rights. The
dividend is cumulative and must be paid before any dividends can be
paid to the common shareholders. The Preferred shares have a preference
upon liquidation over the Common shares. The Preferred shares are convert-
ible at a rate of one Preferred share for each Common share. The
Company has the right to redeem the Preferred shares within twelve months
of issuance at $6.00 per share and the second twelve months for $6.60 per
share. Dividends in the amount of $121,968 were paid in 1996. All
shares were redeemed in fiscal year 1996.
14. RELATED PARTY TRANSACTIONS
During fiscal 1997, the Company made a loan to an officer in the amount of
$14,000 bearing interest at 6% which has been repaid as of April 30, 1997.
During fiscal 1997, the Company concluded agreements with Meteor Technology
plc ("Meteor"), appointing them as the exclusive international dis-
tributor for DigiPhone and DigiPhone Deluxe, excluding the United States
of America, Canada, the United Kingdom and Ireland. The considera-
tion for the DigiPhone rights was 6,000,000 British pounds sterling
(approximately $9,312,000) and an additional 1,000,000 British pounds ster-
ling in loan stock was subscribed to,(approximately $1,685,000). During
fiscal 1997, the Company acquired the U.S.A. and Canadian rights to PCAMS
software, which is a payphone contract and management system software from
Meteor.
The consideration for the PCAMS software rights was the cancellation of
2,000,000 British pounds sterling of loan stock (approximately
$3,370,000) and the issuance of 80,960 shares of the Company's
restricted common shares. The remaining loan stock was converted into
ordinary shares of Meteor, with the Company owning approximately 15.2%
of Meteor. Because of the significant influence
the Company has over Meteor, the Company has accounted for these
transactions as an equity investment in Meteor. See footnote 7
discussing the Company's investment in Meteor.
In fiscal year 1996, the Company made a loan to DigiPhone Europe, Ltd., a
subsidiary of Meteor for $30,000. The Chairman
and Chief Executive Officer of Camelot is a majority stockholder of Meteor
at April 30, 1997. Sales of software products to Meteor were $141,905
during fiscal 1997.
The Company received management fees of $72,000, $24,000 and $0 for the
years 1997, 1996, and 1995, respectively, from a securities transfer
agent company affiliated with the President of the Company.
During fiscal 1996, an officer of the Company was given the opportunity to
execute a 6% interest bearing note in principal amount of $75,156 to
exercise stock options. The note receivable, which is collaterized by the
pledge of 1,500 shares of common stock of the Company is due on January
18, 1998.
The Company received loans from Forme Capital totaling $406,000 in fiscal
year 1995. Payments of $236,000 and $190,000 were made in fiscal years
1996 and 1995, respectively. Forme converted the outstanding balance of
$450,000 to common stock during fiscal 1996.
During fiscal 1995, the Company issued 375 common shares valued at
$22,500 to a company affiliated with the President of one of the Company's
subsidiaries for a customer mailing list.
The Company owns 21,495 shares of Forme Capital's Series A, 10% Non-
cumulative Preferred Stock, 50,000 shares of Series B, 10% Non-cumulative
Preferred Stock and 466,571 shares of Series C, 10% Non-cumulative
Preferred Stock. The preferred shares have no voting rights, pay dividends
at the discretion of Forme's board of directors, and have priority for
payment upon dissolution of Forme over Forme's common stock. The Company
received dividends of $46,657 from Forme Capital each of the fiscal years
1997, 1996 and 1995.
During fiscal years 1996 and 1995, a company affiliated with the President
of the Company provided the Company with management and other services
valued at $44,000 and $286,000, respectively. During fiscal year 1996,
the President and the Corporate Secretary became employees of the Company.
Prior to this they were employees of the affiliate and received no
compensation from the Company.
15. COMMITMENTS AND CONTINGENCIES
Leases
The Company rents office space for its corporate headquarters from Forme
under a September 1993 agreement expiring in September 1998. Rent expense
incurred with Forme for fiscal 1997, 1996 and 1995 was approximately
$80,000 each year. The lease included the following terms and conditions:
1. Forme has an option to buy the Company's furniture and equipment
located on the premises at the Company's book value during the term of
the lease.
2. The Company granted a ten year option to Forme to purchase
50,000 shares of restricted common stock at an exercise price of
$25.00 which includes piggy back rights.
3. Rental payments automatically increase to 150% of prevailing
market rates at the time the President ceases to be a director of the
Company.
In addition, the Company rents office and warehouse space in the Dallas,
Texas area for its subsidiaries.
Total rent expense, all of which were minimum rentals, for fiscal 1997,
1996 and 1995 was approximately $587,478, $268,615 and
$106,700, respectively.
In addition to minimum lease payments, a retail lease agreement provides
for contingent rentals if certain sales levels are reached. The future
minimum lease payments under operating leases for office and warehouse
space that have remaining non-cancelable lease terms in excess of one year
at April 30, 1997, are as follows:
Year Ending Related Party Other Total
April 30,
1998 $ 80,000 $ 148,050 $ 228,050
1999 26,667 141,243 167,910
2000 - 139,763 139,763
2001 - 95,000 95,000
2002 - - -
Thereafter - - -
$ 106,667 $ 524,056 $ 630,723
The Company has negotiated or is in the process of negotiating early
termination of its retail lease obligations. An accrual of $115,099 for
the settlement of the leases, is included in accrued expenses at April 30,
1997. If the negotiations are not successful, the ultimate loss will
probably be greater than the accrued amount.
Litigation
During the ordinary course of business, the Company is involved in legal
proceedings and regulatory inquiries which management does not expect to
have a material effect on the financial position of the Company.
Liquidity and Capital Resources
The consolidated statement of operations presented in the financial
statements reflects net losses for the years ended April 30, 1997, 1996 and
1995. However, the Company has been able to improve it's financial
position through stock offerings and has been able to raise $3,410,500 in
1997 and $22,330,214 in 1996 through private placements. As indicated at
Note 17, the Company has discontinued all but one segment to concentrate
its efforts toward the retailing, distribution, and publishing of CD-ROM
software.
Management believes that the Company's future success will be achieved
through sales of CD-ROM software and license fees. The Company owns
DigiPhone, a software product which permits the full duplexing of voice
over the Internet.
Management is aware of the need for additional cash resources to be
obtained for the continuance of research and development and anticipates
that such financial resources will primarily come from private placement
of Camelot's common and preferred stock. Management believes that license
fees received from Third Planet's products will generate revenues and
cash flow towards the end of the current financial period. Management
believes that cash provided by financing activities and licensing fees
as well as revenue from sale of software over the Internet together
with the present level of cash resources available will be sufficient
for its need over the next twelve months. Management also believes
that should the Company require additional cash resouces it can incur
borrowing as Camelot has no long-term debt.
While management believes the Company is well positioned for future
profitability, there can be no assurance of future success.
16. SALE OF SUBSIDIARIES
On July 6, 1994, the Company sold its 69% controlling interest in Beecher
Energy, Ltd., for $184,543 resulting in a loss of $82,644.
17. DISCONTINUED OPERATIONS
On January 31, 1995, the Company's video marketing and distribution
subsidiary Camelot Entertainment filed Chapter 7 bankruptcy with the U.S.
Bankruptcy Court. Revenues for this segment for fiscal 1995 were $694,666.
Loss from operations and disposals for fiscal 1996 and 1995 were $250,925
and $406,057, respectively.
Oil and gas revenues for fiscal 1995 were $16,964. Loss from oil and gas
operations for fiscal 1995 were $3,009.
The results of operations of the above subsidiaries have been presented in
the financial statements as discontinued operations. Current assets of the
discontinued operations consisted primarily of cash and accounts
receivable. Current liabilities of the discontinued operations primarily
consist of subsidiary trade payables guaranteed by Camelot Corporation.
18. INDUSTRY SEGMENT
The Company and its subsidiaries are operating in one industry segment and
are vertically integrated in retailing, distribution, and publishing of
CD-ROM software.
19. SUBSEQUENT EVENTS
In July 1997, the Board of Directors approved a one for forty reverse stock
split of common stock and outstanding preferred shares, Series J to
stockholders of record on July 15, 1997. The consolidated financial
statements, including all references to the number of shares of common
stock and all per-share information, have been adjusted to reflect the
split on a retroactive basis.
On May 29, 1997, the Company advanced 500,000 British pounds sterling
(approximately $828,250) to Meteor Technology plc ("Meteor") for 10%
unsecured loan stock.
In May 1997, the Board of Directors authorized the creation of a series of
preferred stock, Series J with 60,000,000 shares authorized. Series J has
a par value of $.01 per share, does not pay dividends, are entitled to vote
on matters submitted to a vote of the stockholders of the Company, and rank
junior to all other series of preferred stock.
During May of 1997, Camelot Corporation completed a preferred stock
transaction with Adina, Inc. an affiliated company. As a result of this
transaction, Camelot is now a majority owner of Meteor through Camelot's
ownership of Alexander Mark Investments (USA), Inc. The specific
transfers that occurred are as follows:
On May 9, 1997, Alexander Mark Investments (USA), Inc. acquired
40,727,988 ordinary shares (57% of the outstanding shares) in Meteor
from Daniel Wettreich in exchange for 6,787,998 restricted common
shares in Alexander Mark Investments (USA), Inc.
On May 15, 1997, Adina, Inc. accepted the subscription for 42,450,000
restricted common shares of Adina, Inc. by Daniel Wettreich in exchange for
6,029,921 restricted common shares of Alexander Mark Investments (USA),
Inc.("AMI"). AMI owns 57% of the outstanding shares of Meteor. Meteor
has two active subsidiaries, Digiphone
International, Ltd. and Meteor Payphones, Ltd.
On May 20, 1997 Adina, Inc. the majority shareholder of Alexander Mark
Investments (USA), Inc. transferred 6,029,921 (80% of the outstanding
shares) to Camelot Corporation as payment for subscription.
On May 20, 1997 Adina, Inc. subscribed 1,345,295 restricted Preferred
Shares, Series J Camelot Corporation, ("Camelot") with payment by the
transfer of 6,029,921 restricted common shares of Alexander Mark
Investments (USA), Inc. to Camelot. 892,215 of the Preferred Shares
were issued upon execution of the agreement and 453,080 are to be issued
as new common shares of Camelot are issued in such a manner so that the
additional Preferred Shares are issued at the same time and in the same
quantity as any newly issued common shares. The Preferred Shares have one
vote per share and vote with the common shares, are non-convertible, non-
yielding and are subordinate to outstanding preferred shares but have a
liquidation preference over common shares.
20. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED)
All of the Company's oil and gas properties are located in the continental
United States. The following tables reflect information relating to the
Company's oil and gas producing activities.
Results of Operations for Producing Activities
1997 1996 1995
Sales of oil and $ - $ - $ 16,964
gas
Production costs - - (10,967)
Provision for - -
depletion
depreciation - - (3,250)
$ - $ - $ 2,747
No costs were incurred in oil and gas property acquisitions, exploration,
development activities and exploration in the three year period ended April 30,
1997.
Capitalized costs relating to oil and gas producing activities were zero
for the three year period ended April 30, 1997.
Oil and gas reserves were zero for three year period ended April 30, 1997.
Proved developed reserves were zero for the three year period ended April
30, 1997.
Standards measure of discounted future net cash flows
The standardized measure of discounted future net cash flows at April 30,
1997, 1996 and 1995 relating to provided oil and gas reserves were zero.
Future net cash flows were computed using year-end prices and costs, and
year-end statutory tax rates (adjusted for permanent differences) that
relate to existing proved oil and gas reserves at year-end. The following
are the principle sources of change in the standardized measure of
discounted future net cash flows for each of the years in the three-year
period ended April 30, 1997.
1997 1996 1995
Beginning of year $ - $ - $422,000
Changes resulting from
sales of oil and gas
produced, (17,000)
net of production costs
Net changes in prices and -
production costs
Revisions of previous -
quantity estimates
Accretion of discount -
Net changes in income -
taxes
Disposition of oil and - -
gas segment (405,000)
End of year $ - $ - $ -
21. FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
During the first three quarters of 1997, the Company reported its
investment in Meteor Technology plc ("Meteor") at fair value
(SFAS No. 115), therefore revenue for the license agreements with
Meteor and the loss on the market value of Meteor stock
was reflected in the statement of operations. During the fourth quarter
of 1997, the Company reviewed its accounting treatment of its
investment in Meteor. In accordance with Accounting Principles
Bulletin Number 18 the investment in Meteor is properly accounted
for using the equity method of accounting. The aggregate effect of
this adjustment was an approximate $1,263,000 loss recorded on its
investment in Meteor.
The Company also reviewed its inventory and receivable valuation
allowances which resulted in a decrease in assets of approximately
$496,000 for inventory and $889,000 for receivables.
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended April 30, 1997, 1996 and 1995
Description
Allowance deducted
from assets to which
it applies:
Additions
Accounts Balance Charged Charged Balance
Receivables at to Costs to at
Year Ended Beginnin and Other Deductions End of
g of Expenses Account Period
Period s
April 30, $ 11,415 $ 8,532 - $ - $19,947
1997
April 30, 36,419 10,887 - 35,891 11,415
1996 (a)
April 30, 365,448 41,500 - 370,529(a) 36,419
1995
Notes
Receivable
Year Ended
April 30, $ $ $ $ $ 889,000
1997 - 889,000 -
April 30, - - - -
1996 -
April 75,000 7,972 2 - 82,972 -
30,1995 (a)
Inventories
Year Ended
April 30, $198,000 $495,942 $ - $ 199,198 $494,744
1997
April 198,000 - - 198,000
30,1996 -
April - - - -
30,1995 -
(a) Uncollected receivables written off, net of recoveries
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