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 has made its new products available for
licensing to major Personal Computer ("PC") manufacturers.
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 the last quarter of 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 is
available for licensing.
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 personal
computer 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 is available for licensing to major PC manufacturers.
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 subsequent
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 took a
charge in the amount of $745,521 related to the closing of the stores.
The Company believes that in the long run this action will be good for
the Company as it restructures the operations into an Internet
catalogue.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, 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 current limited 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, $13,276. (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, (US $288,293).
In January 1991, the Company acquired for $200,000 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 for $466,571 two office properties and
then sold all its investment in Forme for cash (approximately $40,000)
to Mrs. Wettreich. These transactions were approved by the
shareholders of the Company at the Annual Meeting held on February 15,
1994.
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
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 of loan stock which subsequently was
converted into Meteor shares. In May 1997, DigiPhone International 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 892,015 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, pursuant to a ten (10) year lease, a 10,000 square
feet office building in Dallas, Texas which it occupies as its corporate
headquarters from a company affiliated with the President. The annual
lease payment equates to $80,000. Company also leases pursuant to a
five (5) year lease, 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 annual lease payment
varies each year and for the last fiscal year equates to $65,431. 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.
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
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. As
the number of shares outstanding are limited, the Company's shares trade
continuously with some heavy volume trading days.
On September 30, 1997, the Company issued a news release stating
that NASDAQ had halted trading in the company's common shares on
September 26, 1997 while NASDAQ reviewed requested information about the
Company's activities. The company promptly provided all requested
information and NASDAQ permitted the resumption of the Company's shares
on October 6, 1997. There was no impact on Company operations.
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:
1997
1996199519941993
Net sales
$1,887,617 $ 3,002,049$ 1,184,469$ -$ -
Income (loss) from
continuing
operations
(12,996,369)(4,314,788)(2,335,977)(1,567,312)(256,320)
Income (loss) from
discontinued
operations
- - (250,925)(1,182,927)(402,981)(435,772)
Income (loss) per
share from
continuing
operations
(20.45)(12.54)(9.17)(8.30)(3.79)
Total assets
6,772,076 16,701,863 2,098,974 3,309,132 3,337,494
Long-term debt
- - - - - 633,528
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, investment in affiliate,
marketable securities and a note receivable allowance impacted the
results. Revenues consisted of sales of licensing rights, paid
primarily with the issuance of free trading stock by the entity
acquiring the licensing rights; minimal sales of the Digiphone product,
and sales during the time the stores were operating. The expenses
consisted of the store operating expenses, the marketing and
distribution expenses for the Digiphone and primarily the research and
development costs for the VideoTalk, Digiphone 2.0 and Proficia. These
high research and development costs allowed the Company to be on the
cutting edge of the known technology in the videoconferencing field
thereby putting it in position to offer a product, Video Talk, that will
be well received. Due to the closing of the stores during the year any
depreciation and amortization attributable to the assets in the stores
were immediately expenses thereby increasing the depreciation and
amortization line item. The Other Expense line in the Statement of
Operations includes a loss on the disposition of the assets relating to
the closing of the stores, and a note receivable allowance which
reflects a decrease in the value of the collateral of the loan to an
officer. The loss on investment in affiliate resulted from
management's decision to change the method whereby the stock of Meteor
was classified to the equity method due to the amount of control the
Company has over Meteor Technology. There are common directors and the
Chairman is the same for both companies along with Camelot owning
approximately 15% of Meteor. This resulted in an adjustment to the
value of the Meteor stock to reflect the current market value.
Specifically, depreciation and amortization increased to the
establishment and subsequent closure of the Mr. CD-ROM Stores and the
related equipment and inventory. The Loss on disposal of assets as
$191,918 in 1996 compared with $509,292 in 1997. This increased loss
was related to the closing of the stores, the Loss on sale of available
for sale securities was $269,914 in 1997 compared to $0 in 1996. In
1997 a Note receivable allowance of $889,000 was included which was $0
in 1996. This related to a loan to the CEO of the Company secured by
stock of the Company which had declined in value between the date of the
granting of the loan and the fiscal year end. Management does not
believe there is a decreased likelihood of repayment of the loan. The
overall Net Cash used in operating activities was $6,740,073 in 1996
compared with $5,555,018 this fiscal period. Net cash used in investing
activities was $4,587,734 in 1997 versus $1,889,146 in 1996. The
primary reason for the increase was a $2,457,003 investment in Meteor
and a $1,814,000 issuance of a note receivable to the CEO. Net cash
decreased in 1997 by $6,840,600 and increased in 1996 by $9,721,070.
The difference resulting primarily from the additional funds raised in
private offerings during 1996.
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.
The Consolidated Statements of Cash Flows reflects, in addition to
the items noted above, cash received from the sale of marketable
securities in the amount of $1,027,612, a loan to an officer in the
amount of $1,814,000 and 3,410,500 in proceeds from the sale of
preferred stock to help finance the research and development efforts.
The items noted above along with the expenses from the research and
development efforts resulted in the Company having a net decrease in
cash.
During the year, substantial financial (approximately $2,375,000
compared to $1,319,000, and $163,000 for the years ended April 30,
1996, and 1995 respectively) 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 has made available for licensing
Third Planet's three new products which products are to being 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
The Company'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).
The Company took a charge against revenues for $745,521 as a result of
the closing of these stores. The Company has actively worked with the
landlords of the sites of the stores to reduce its exposure pursuant to
the leases. Further, the Company has limited its losses due to its
transfer of assets to mrcdrom.com.
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 in 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 British pounds 6%
loan stock (approximately $7,500,000). DigiPhone Europe, Ltd. is a London,
England based European software marketing company which 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 participate 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.
Camelot Internet Access Services, Inc. ("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, 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 28.8 kbps modems.
VideoTalk 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, an Internet telephony
handset which is specifically designed to enable superior voice
communications over the Internet. The handset attaches to the side of
a computer monitor and functions in a similar way to a telephone
handset, thus eliminating the necessity for a headset or microphone
and speakers when Internet voice communication software is used.
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 the Company in July 1994 and has now ceased trading. Due to the fact
that trading operations for these subsidiaries commenced various times
during the financial year, and to the fact that no prior history exists
for the ongoing operations of Company, Company is of the belief that the
financial results for the year ended April 1995, and a comparison with
prior period financial statements is not indicative of the future
results of Company.
The results of operations of the discontinued operations and the
assets sold or to be sold are presented in the financial statements as
discontinued operations. Prior year statements of operations have been
restated for comparative purposes with the result that no sales or
related financial information is shown due to the fact that the
Company's CD-ROM software subsidiaries commenced operations during the
fiscal year and did not generate any revenues during previous fiscal
years.
Company's continuing operations had sales of $1,184,469 in fiscal
1995 compared with $-0- for 1994. Company had a loss from operations of
$2,348,155 compared with a loss from operations in fiscal 1994 of
$1,138,387. Net loss for fiscal 1995 was $3,518,904 which includes loss
from discontinued operations of $1,182,927 which compares with a loss
from discontinued operations for fiscal 1994 of $402,981.
The primary reasons for the loss from continuing operations was due
to the start up costs relating to the commencement of CD-ROM software
operations in its newly formed subsidiaries, and the decision to
discontinue Company's other businesses. In addition to start up costs
for its new subsidiary, its subsidiary Maxmedia which was located in
Orlando was closed, and the Company incurred relocation costs of
personnel, inventory, fixtures and equipment to Dallas which is a non-
recurring one time costs. Mr. CD-ROM Stores incurred costs outside the
normal course of business due to the testing and retesting of various
retail concept in its Orlando retail unit in order to establish a
permanent long term Mr. CD-ROM retail trading format. Further, Third
Planet Publishing incurred programming and data processing costs
relating to the creation of the CD-ROM interactive catalog and in
relation to DigiPhone which management has decided to expense.
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 Entertainment which are not shown in
the financial statements as they are discontinued operations were
$694,666 for fiscal 1995 compared with $2,597,366 for the previous year.
Loss from Operations for fiscal 1995 was $406,057 compared with
$1,563,174.
As reported in the 1994 financial statements, Company's controlling
69% interest in Beecher Energy, Ltd. was sold on May 31, 1994. The
transaction was closed in late July 1994. Also as disclosed in the 1994
financial statements, Company's subsidiary Business Investigations which
provided investigation services to financial institutions and Vesta Land
Title Company which provided title insurance services both discontinued
operations on July 8, 1994.
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 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. Management does not anticipate any liquidity problems and
believes that the anticipated level of revenue generated by the
Company together with the present level of cash resources available to
the Company will be sufficient for its needs. Management believes
that should the Company require additional cash resources, it can
raise additional cash resources from the sale of common and preferred
stock and/or by incurring borrowing. 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
F-11
Notes to Consolidated Financial Statements F-10 through
F-25
Consolidated Schedule F-26
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:
Name Age Position Period Served Term
Expires
Daniel Wettreich 45 Chairman and September 16, 1988 Next
Annual
Chief Executive Officer, Meeting
President,
Director
Jeanette P. Fitzgerald 36 Vice President and September
16, 1988 Next Annual
General Counsel, 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
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(1). 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(2) 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.
Mr. Wettreich will devote such time as is necessary to the operations of the
Company.
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(1). 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(2) 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 December 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.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and
Principal
Position
Year
Salary
Bonus
Other Annual
Compensation
Daniel
Wettreich
Chairman and
CEO (1)
1995
1996
1997
- -
$208,333
$250,000
- -
- -
- -
- -
- -
- -
Jeanette P.
Fitzgerald
Vice
President,
General
Counsel and
Secretary (1)
1995
1996
1997
- -
N/A
N/A
- -
- -
- -
- -
- -
- -
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Payouts
Name and
Principal
Position
Restricted
Stock
Award(s)
Options/
SARs
LTIP
Payouts
All Other
Compensation
Daniel
Wettreich
Chairman
and CEO (1)
- -
- -
- -
25,000
25,000
175,000
- -
- -
- -
$ (1)
$ (1)
$ (1)
Jeanette P.
Fitzgerald
Vice
President,
General
Counsel and
Secretary
(1)
- -
- -
- -
43,750
N/A
875
- -
- -
- -
$ (1)
$ (1)
$ (1)
(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.
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 (1)(2)(8) 57.3%
17770 Preston Road
Dallas, Texas 75252
Jeanette P. Fitzgerald 153,210 (3)
5.3%
17770 Preston Road
Dallas, Texas 75252
Allan Wolfe 6,625 (4) *
390 South River Road
Suite 5
Bedford, NH 03110
Bruce Baldwin 2,000 (5) *
8150 Central Expressway
Suite 100
Dallas, Texas 75206
David McCurley 21,500 (6) *
17770 Preston Road
Dallas, Texas 75252
Robert Gregory 1,437,505 (7)(8) 50.8%
17770 Preston Road
Dallas, Texas 75252
All Officers and Directors 1,822,996 (1)(2)(3)(4)(5)(6) 58.6%
as a group (6 persons) (7)(8)
* Under 0.1%
Adina, Inc. 1,345,295 (8) 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
company 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
disclaimed 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 of loan stock owed to the Company by Meteor and 500,000 British pounds
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 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-25
(a) (2) Consolidated Schedule F-26
(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.
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: November 20, 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: November 20, 1997
By: /s/Jeanette Fitzgerald
Director; Secretary;
Vice President and General Counsel
Date: November 20, 1997
By: /s/Robert Gregory
Vice President Finance (principal accounting officer)
Date: November 20, 1997
By: /s/Allan Wolfe
Director
Date: November 20, 1997
By: /s/ Bruce Baldwin
Director
Date: November 20, 1997
30
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.
Lane, Gorman and Trubitt, LLP
Dallas, Texas
July 7, 1997
F-1
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
April 30,
<TABLE>
<S> <C> <C>
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 receivable, 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
</TABLE>
See accompanying notes to consolidated financial statements
F-2
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets - Continued
April 30,
<TABLE>
<S> <C> <C>
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
</TABLE>
See accompanying notes to consolidated financial statements
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended April 30,
<TABLE>
<S> <C> <C> <C>
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
obsolescence 495,942 198,000 -
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 marketable
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 discontinued
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
</TABLE>
See accompanying notes to consolidated financial statements
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Period from May 1, 1994 through April 30, 1997
<TABLE>
<S><C><C><C><C><C><C>
Common Common Stock Preferred Preferred Additional Accumulated
Stock Shares Amount Stock Shares Stock Amount Paid in Deficit
Capital
Balance at
April 30,
1994 215,790 $ 2,158 239,190 $2,392 $ 5,882,486 $(4,101,846)
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
Maxmedia
Distributing,
Inc.
5,125 51 - - 143,449 -
Compensation
for services
3,327 33 - - 120,480 -
Change in
net
unrealized
losses on
available-
for-sale
securities
- - - - - -
Net loss
- - - - - (3,518,904)
Balance at
April 30,
1995
290,721 $ 2,907 189,190 $1,892 $ 7,750,897 $(7,620,750)
</TABLE>
See accompanying notes to consolidated financial statements
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Period from May 1, 1994 through April 30, 1997
<TABLE>
<S><C><C><C><C>
Unrealized Treasury Stock Total
Losses on Stock Subscription Stockholder's
Available Receivable Equity
For Sale (Deficit)
Securities
Balance at
April 30,
1994 $ - $ (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)
Balance at
April 30,
1995 $ (51,553) $ (170,442) $ - $ (87,049)
</TABLE>
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
<TABLE>
<S><C><C><C><C><C><C>
Common Common Preferred Stock Preferred Additional Accumulated
Stock Stock Shares Stock Paid in Deficit
Shares Amount Amount Capital
Balance at
April 30,
1995 290,721 $2,907 189,190 $1,892 $7,750,897 $(7,620,750)
Conversion of
preferred
stock to
common stock:
Series BB 8608 86 (888,000) (8880) 8794 -
Series G 56844 569 (5333333) (53333) 52764 -
Series H 53709 537 (3525000) (35250) 34713 -
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
preferred
stock - - (66,134) (661) (65,473) -
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
- - - - - (4,565,713)
Balance at
April 30,
1996 486,305 $4,863 10,143,389 $101,434 $30,600,613 (12,186,463)
</TABLE>
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
<TABLE>
<S><C><C><C><C>
Unrealized Treasury Stock Total
Losses on Stock Subscription Stockholders'
Available Receivable Equity
For Sale (Deficit)
Securities
Balance at
April 30,
1995 $(51,553) $(170,442) $ - $(87,049)
Conversion
of preferred
stock to
common
stock:
Series BB - - - -
Series G - - - -
Series H - - - -
Sale of
common stock
for cash - - - 3281549
Sale of
preferred
stock for
cash - - - 19048665
Common stock
issued for
services - - - 737,392
Common stock
issued to
officers for
note
receivable - - (75,156) -
Change in
net
unrealized
losses on
available-
for-sale
securities 1,005 - - 1,005
Retirement
of Series D
preferred
stock - - - (66,134)
Common stock
issued to
pay note
payable to
related
party - - - 450,000
Purchase of
treasury
stock - (2,544,133) - (2,544,133)
Preferred
stock
dividends
to:
Related parties- - - (19,200)
Other parties - - - (556,214)
Net loss - - - (4,565,713)
Balance at
April 30,
1996 $ (50,548) $(2,714,575) $ (75,156) $15,680,168
</TABLE>
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
<TABLE>
<S><C><C><C><C><C><C>
Common Common Preferred Preferred Additional Accumulated
Stock Stock Stock Stock Paid in Deficit
Shares Amount Shares Amount Capital
Balance at
April 30,
1996 486,305 $ 4,863 10,143,389 $ 101,434 $30,600,613 $(12,186,463)
Conversion
of
preferred
stock to
common
stock:
Series BB 1922 19 (112000) (1120) 1101 -
Series H 165920 1659 (9908333) (99083) 97424 -
Series I 144688 1447 (1260000) (12600) 11153 -
Sale of
preferred
stock for
cash - - 3,590,000 35,900 3,374,600 -
Common
stock
issued for
services 1,968 20 - - (20) -
Common
stock
issued for
software
acquis-
itions 80,960 810 - - 31,574 -
Accrued
interest
on stock
subscrip-
tion
receivable - - - - - -
Change in
net
unrealized
losses on
available-
for-sale
securities - - - - - -
Retirement
of Series
F
preferred
stock - - (15,000) (150) 150 -
Preferred
stock
dividends
to:
Related
parties - - - - (19200) -
Other
parties - - - - (76034) -
Net loss- - - - - (12,996,369)
Balance at
April 30,
1997
881,763 $ 8,818 2,438,056 $ 24,381 $ 34,021,361 (25,182,832)
</TABLE>
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
<TABLE>
<S><C><C><C><C> <C>
Cumulative Unrealized Treasury Stock Total
Foreign losses on Stock Subscription Stockholders'
Currency Available Receivable Equity
Translation for sale
Adjustment Securities
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 - - - - -
Common stock
issued for
software
acquisitions- - - - 32,384
Accrued
interest on
stock
subscription
receivable- - - (3,488) (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 - - - - (19200)
Other
parties- - - - (76034)
Net loss- - - - (12,996,369)
Balance at
April 30,
1997 $ - $ - $(2,714,575) $ (78,644) $6,078,509
</TABLE>
See accompanying notes to consolidated financial statements
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended April 30,
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (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 interest 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) (1,087,68) (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 7,789
CASH AT END OF YEAR $ 3,029,999 $ 9,870,599 $ 149,529
</TABLE>
See accompanying notes to consolidated financial statements
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended April 30,
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Supplemental information:
Cash paid for interest $ - $ 11,615 $ 38,681
Cash paid for income taxes $ - $ - $ -
</TABLE>
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
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO 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.
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
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.
F-10
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
Though the Company normally would capitalize store preopening
costs and amortize them over twelve months, none of the expenses for
the opening of the stores during theses periods were capitalized as
these amounts were immaterial to the company. They were expensed as
they occurred.
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.
F-11
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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.
F-12
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
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
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair 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
Common stock
1,287,688
53,820
- -
1,341,508
$2,284,013
$ 53,820
$ 50,548
$2,287,285
F-1
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
5. MARKETABLE SECURITIES - Continued
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
losses
583,810
41,033
- -
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
F-14
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.
F-15
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
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 Authorized Issued 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.
F-16
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
11. STOCKHOLDERS' EQUITY - Continued
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
cumulative 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 liquidation 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 is 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.
F-17
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
12. STOCK OPTIONS - Continued
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
beginning at year
94,600
95,825
94,375
Granted
185,538
7,194
6,325
Exercised
- -
( 4,637)
- -
Canceled
( 4,750)
( 3,782)
( 4,875)
Options outstanding at
end of year
275,388
94,600
95,825
Options exercisable at
end of year
275,388
94,600
95,825
Average price of
options:
Granted during year
$ 49.348
$98.324
$48.928
Exercised during year
- -
62.208
- -
Canceled during year
52.160
80.140
47.692
Outstanding at end of
year
12.160
31.828
29.932
F-18
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
12. STOCK OPTIONS - Continued
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
end of year
408,800
-
-
Average price of
options
Granted during
year
$ 4.00
$ -
$ -
Exercised during
year
- -
- -
- -
Canceled during
year
- -
- -
- -
Outstanding at end
of year
4.00
- -
- -
Director's Stock Option Plan
1997
1996
1995
Options outstanding at
beginning of year
Granted
15,000
- -
- -
Exercised
- -
- -
- -
Canceled
-
-
-
Options outstanding at
end of year
15,000
-
-
Options exercisable at
end of year
15,000
-
-
Average price of
options
Granted during
year
$ 4.00
$ -
$ -
Exercised during
year
- -
- -
- -
Canceled during
year
- -
- -
- -
Outstanding at end
of year
4.00
- -
- -
F-19
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
12. STOCK OPTIONS - Continued
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 intrinsic value based
method. Accordingly, no compensation cost has been recorded.
Had compensation 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 volatility 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, was $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
convertible 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.
F-20
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
14. RELATED PARTY TRANSACTIONS - Continued
During fiscal 1997, the Company concluded agreements with Meteor
Technology plc ("Meteor"), appointing them as the exclusive
international distributor for DigiPhone and DigiPhone Deluxe,
excluding the United States of America, Canada, the United Kingdom
and Ireland. The consideration for the DigiPhone rights was
6,000,000 British pounds, (approximately $9,312,000) and an additional
1,000,000 British pounds 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 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:
F-21
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
15. COMMITMENTS AND CONTINGENCIES - Continued
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, the results of operations or the cash flow 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.
F-22
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
15. COMMITMENTS AND CONTINGENCIES - Continued
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.
While management believes the Company is well positioned for
future profitability, there can be no assurance of future success.
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 Plant'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 resources it can
incur borrowing as Camelot has no long-term debt.
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(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.
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
19. SUBSEQUENT EVENTS - Continued
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
<TABLE>
<S> <C> <C> <C>
1997
1996
1995
Sales of oil and
gas
$ -
$ -
$ 16,964
Production costs
-
-
(10,967)
Provision for
depletion
-
-
depreciation
-
(3,250)
$ -
$ -
$ 2,747
</TABLE>
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.
F-24
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (continued)
20. SUPPLEMENTARY OIL AND GAS INFORMATION (UNAUDITED) - Continued
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,
net of production costs
(17,000)
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.
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
Receivable
s
Year Ended
Balance
at
Beginni
ng of
Period
Charged
to
Costs
and
Expense
s
Charged
to
Other
Account
s
Deducti
ons
Balance
at
End of
Period
April 30,
1997
$
11,415
$
8,532
- -
$
-
$
19,947
April 30,
1996
36,419
10,887
- -
35,891(
a)
11,415
April 30,
1995
365,448
41,500
- -
370,529
(a)
36,419
Notes
Receivable
Year Ended
April 30,
1997
$
- -
$
889,000
$
-
$
-
$
889,000
April 30,
1996
- -
- -
- -
- -
-
April 30,
1995
75,000
7,972
- -
82,972(
a)
- -
Inventorie
s
Year Ended
April 30,
1997
$
198,000
$
495,942
$
-
$
199,198
$
494,744
April 30,
1996
-
198,000
-
-
198,000
April 30,
1995
- -
- -
- -
- -
- -
(a) Uncollected receivables written off, net of recoveries
F-26
