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, 1998 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, 2415 Midway Road, Suite 115, Carrollton, Texas
75006
(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 NONE
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 $0.156, at July 23,1998, the aggregate market
value of the voting stock held by nonaffiliates of the Company was
$651,319.
The number of shares outstanding of the Company's common stock, $0.01
par value, was 4,609,309 at July 23, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
<PAGE>
PART 1
Item 1. Business
Camelot Corporation ("Registrant" or "the Company") is a holding
company. All its subsidiaries are now inactive. All previous
business operations have been discontinued. The Company's primary
assets are common and preferred shares in OTC Bulletin Board
companies.
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 divestments of
businesses (see Discontinued Activities - Acquisition and Divestment
History). The Company was delisted from NASDAQ's Small Cap Market on
February 26, 1998. Subsequently it was unable to raise additional
capital required to continue the trading activities of its operating
subsidiaries. Its principle subsidiary, Third Planet Publishing, Inc.
sold all rights, title and interests to its software and hardware
products on March 31, 1998. Its remaining operating subsidiary
mrcdrom.com, inc. liquidated its inventory and ceased trading in July,
1998. In July, 1998 all employees of Camelot and its subsidiaries
were terminated. Its directors and officers provide unpaid services
on a part-time basis to the Company.
Discontinued Activities - Acquisition and Divestment History
The Company's recent activities were conducted through
subsidiaries, all of which are now discontinued. Third Planet
Publishing, Inc., (`Third Planet") (established in January 1995) was a
research and development company developing hardware and software
solutions for audio and video conferencing over the Internet.
mrcdrom.com, inc. ("mrcdrom.com"), (established in March 1997) was an
Internet catalog retailer of software. Camelot Internet Access
Services, Inc. ("CIAS"), (established in June 1996) was a provider of
Internet access services. Alexander Mark Investments (USA), Inc.
("AMI") (80% acquired in May 1997) was a U.S. public holding company
whose only investment was a shareholding in Meteor Technology plc
("Meteor") a U.K. public company.
Third Planet was a research and development company focusing on the
development of VideoTalk, a video conferencing system for the
Internet. Approximately $7,000,000 was expended by Third Planet in
developing VideoTalk and its ancilliary software product DigiPhone
since inception. VideoTalk was successfully demonstrated at COMDEX in
the later part of 1997. However, a lack of funds for marketing the
product was experienced in 1998. Following the Company's delisting
from NASDAQ Small Cap Market in February, 1998 Third Planet sold on
March 31, 1998 all rights, title and interest in VideoTalk and its
ancilliary products to Wincroft, Inc. a US public company traded on
the OTC Bulletin Board. The consideration was $7,002,056 payable by
the issuance of 5,000,000 Preferred Shares, Series A and 1,028,000
Common Shares in Wincroft together with a $2,000,000 note.
Subsequently, on June 29, 1998 the $2,000,000 note was converted into
2,000,000 Preferred Shares, Series B in Wincroft.
<PAGE>
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.
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 cash an 80% majority
interest in Forme Capital, Inc. ("Forme") a publicly traded real
estate company from the wife of Mr. Wettreich. In September 1993, the
Company sold to Forme two office properties and then sold all its
investment in Forme for cash (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.
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. ("Digiphone Rights") 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 (british pounds)5,000,000 of loan stock which was
subsequently
converted into Meteor shares. In November 1996 Registrant sold the
international DigiPhone rights to Meteor for (british pounds) 1,000,000
pounds of loan stock
which subsequently was converted into Meteor shares. In May 1997,
DigiPhone International, Ltd. 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 was 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 had 49% of the voting rights attributable to the 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.
Registrant, through its acquisition of 80% of AMI in May 1997
obtained control of Meteor, a U.K. listed public company which was
subsequently renamed Constable Group plc. Meteor's two operational
subsidiaries, were DigiPhone International Ltd. and Meteor Payphones
Ltd. DigiPhone International was the worldwide distributor for all
products developed by Third Planet and was sold to Registrant in
January, 1998 for cancellation of 500,000 loan stock owed to Camelot
by Meteor. All rights owned by DigiPhone International were
transferred to Third Planet Publishing prior to the sale of VideoTalk
to Wincroft. Registrant sold all its shareholding in AMI for $38,063
on March 20, 1998. Meteor Payphones and its sister payphone companies
were placed into liquidation on 30th March 1998. Constable Group plc
(formerly Meteor Technology plc) was placed into liquidation on 31st
July 1998.
mrcdrom.com began operations in April, 1997 as an Internet
shopping company selling software titles over the World Wide Web. 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, however such registration was withdrawn and no funds were
raised. mrcdrom.com had losses throughout its trading history and due
to the inability of Registrant to fund such continuing losses ceased
doing business in July, 1998, liquidated all its inventory, and
terminated all its employees. The Company is now inactive.
Camelot Internet Access Services, Inc. was an Internet services
provider formed in January 1996 using the UUNet backbone, this
subsidiary's principle activities were 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.
The Company became inactive during 1997.
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. The
consideration was cancellation of 2,000,000 unsecured convertible loan
stock owed by Meteor to Camelot, and the issuance by Camelot of
80,960 restricted common shares of Camelot. Management intended to
utilize PCAMS software both by offering such software to independent
providers and by seeking acquisitions of payphone businesses.
Registrant's limited resources precluded active marketing of this
product and in March 1998 the product was sold back to Meteor for
(british pounds)70,000.
<PAGE>
Employees
As of July 14, 1998, the Company has no employees.
Item 2. Properties
Real Estate
Company previously leased, approximately 25,700 square feet of
warehouse and office space in Carrollton, Texas on a lease expiring on
December 31, 2000. As of July 24, 1998 this lease was terminated by
the payment of $39,781 by the Company to the landlord and the Company
has no further liability under the terms of the lease. The Company
now will use space at this site on an informal basis as a portion of
the premises were let by Forme Capital, Inc. a company of which Mr.
Wettreich is also the president and director.
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 with the exception of the fact that the Company has
been sued as detailed below. The Company believes there is no
validity to this suit, and has denied plaintiff's allegations.
The Company has been sued by a creditor of a previous subsidiary.
The Plaintiffs alleges that the Company is the alter ego of the
previous subsidiary and is therefore liable for its debts. The
Company believes the allegations are groundless and intends to
vigorously defend itself in litigation.
There are no proceedings to which any director, officer or
affiliate of the Company, or any owner of record (or beneficiary) of
more than 5% of any class of voting securities of the Company is a
party adverse to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the security holders during the
final quarter of the fiscal year or subsequent to the end of the
fiscal year.
Item 5. Market for Company's Common Equity and Related Stockholder
Matters
The Company's common stock trades on the "Pink Sheet" of the
National Quotation Bureau. The following table sets forth the
quarterly high and low prices of the common stock for the period from
May 1, 1996 through April 30, 1998 (post reverse split). They reflect
inter-dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions.
High Low
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
1998
First July 31, 1997 3.06 3.06
Second October 31, 1997 5.44 4.78
Third January 31, 1998 3.62 2.69
Fourth April 30, 1998 0.31 0.12
As of July 14, 1998, the Company had 1,100 shareholders of
record of Company's common stock.
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:
1998 1997 1996 1995 1994
Net sales $275,435 $1,887,617 $ 3,002,049 $1,184,469 $ -
Income
(loss) (6,074,163) (12,996,369) (4,314,788) (2,335,977) (1,567,312)
from
continuing
operations
Income
(loss) - - (250,925) (1,182,927) (402,981)
from
discont-
inued
operations
Income
(loss) per (3.88) (20.45) (12.54) (9.17) (8.30)
share from
continuing
operations
Total 1,968,294 6,772,076 16,701,863 2,098,974 3,309,132
assets
Long-term - - - - -
debt
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).
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.
1998
During the year the Company's principle operating subsidiaries were
Third Planet Publishing, Inc. and mrcdrom.com, inc. Both these
companies have discontinued operations. The Registrant now has no
ongoing business operations and is inactive, other than as an investor
in public company stocks.
The Company's revenue for the year was $ 275,435 compared with
$1,887,617 for 1997. Net loss for the financial year was $
(6,074,163) compared with $12,996,369 for 1997. These results are due
to continued research and development for Third Planet Publishing,
Inc. and continuing losses from mrcdrom.com, inc. as well as the
closure and write down of all operating assets at the end of the
period. Registrants remaining investment in Meteor Technology has
been written off.
The consolidated balance sheets for the period shows Stockholders'
Equity of $1,707,668 compared with $6,078,509 in 1997. Total assets
were $ 1,968,294 compared with $6,772,076 in 1997. The decrease in
Stockholders' Equity and total assets was due to losses from
operations and as a result of the closure of those operations.
The consolidated statements of cash flows reflects, in addition to the
items noted above an increased note receivable allowance, increased
provision for inventory obsolescence, and an increase in the accounts
payable and accrued expenses. The statements also reflect the
increased expenditure for license, trademarks, and product
development. Further, the statements reflect additional funds raised
from the sale of common and preferred stock though at a decreased
level from the previous years. The items noted above along with the
expenses from the research and development efforts resulted in the
Company having a net decrease in cash of $ (2,877,234).
The Company leased 10,000 square feet of offices from Forme
Capital, Inc. ("Forme") a company affiliated with the president of the
Company. The lease was for a term of 5 years commencing September
1993 at $8 per square foot. Total rent paid during fiscal 1996 and
1995 was $80,000, respectively. The lease agreement and transactions
related thereto were approved by a vote of Company's shareholders. In
September, 1997 the lease was terminated by mutual consent and the
Company paid approximately $17,000 per month on a month to month basis
thereafter. In February, 1998 the Company vacated the premises and
consolidated its offices at 2415 Midway Road. In July 1998 the Company
surrendered the Midway lease to the landlord for $39,781.
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 (british pounds)
2,000,000 ofloan stock owed to the Company by Meteor and (british pounds)
500,000 by the issuance by the Company to Meteor of 80,960 restricted
common shares. Mr.Wettreich and Ms. Fitzgerald who were directors of both
companies at the time, did not participate in any directors votes in
relation to this transaction. On May 11, 1998 the PCAMS software was sold
back to Meteor for (british pounds)70,000 as the Company did not have the
funds to market the software.
On March 27, 1997, the Company created a new wholly owed
subsidiary, mrcdrom.com, inc., to establish a software Internet
catalogue. On April 3, 1997, mrcdrom.com filed a registration
statement with the Securities and Exchange Commission (the "SEC").
The filing offered for sale 1,500,000 common shares of mrcdrom.com at
$4.00 per share with a minimum offering of $250,000. No offers or
sales were made and the registration statement was withdrawn. Due to
the inability of the Company to fund the losses of mrcdrom.com, it
ceased doing business in July 1998, and is now inactive.
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 Technology plc, to market
exclusively all TPP products on a worldwide basis. Mr. Wettreich and
Ms. Fitzgerald who were directors of these companies at the time, 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 is a director and officer. 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 (british pounds)500,000 1997-2007
10% unsecured redeemable loan stock of Meteor by paying cash. Mr.
Wettreich and Ms. Fitzgerald who were directors of both companies at
the time, did not participate in any directors votes in relation to
this transaction.
On March 20, 1998 Registrant sold to Forsam Venture Funding, Inc.,
3,837,706 shares in AMI for its then net asset value per share of
$24,233 payable by the issuance by Forsam of 8% Preferred shares. Mr.
Wettreich is a director of Forsam and did not participate in any
director vote relating to this transaction. At the same time
Registrant sold to Abuja Consultancy, Ltd. 2,192,265 shares in AMI for
$13,830 cash. These transactions represented Registrants total
shareholding in AMI.
On March 20, 1998 Registrant sold to Abuja Consultancy, Ltd. 1,149,464
shares in Meteor Technology plc representing its total shareholding
in that company for a price calculated at the then pro rata net asset
value of Meteor amounting to $16,187 cash.
In March 23, 1998, Registrant acquired from AMI 43,000 Preferred
Shares, Series B of Forsam Venture Funding for $43,000 cash.
On March 31, 1998, the Registrant's wholly owned subsidiary,
Third Planet Publishing, Inc. entered into a conditional contract with
Wincroft, Inc. to sell all right, title and interest in the VideoTalk
product for $7,002,056 payable by the issuance of common stock,
preferred stock and a promissory note in the amount of $2,000,000.
On June 29, 1998, Registrant agreed with Wincroft, Inc., at the
request of Wincroft, to satisfy the outstanding Promissory Note
payable to Camelot by Wincroft in the amount of $2,000,000 of Wincroft
Non-Voting Preferred Stock, Series B. These Preferred Shares pay a
dividend of 10% when and as declared by the board of directors and
will pay an additional yield equivalent to 10% of any revenues derived
by Wincroft on sale of VideoTalk. The Preferred Shares also call for
redemption by Wincroft in the event VideoTalk is sold. Wincroft
requested this action in order to assist in its fund raising
capabilities. Wincroft is seeking funds to pay for working capital
and marketing expenditures.
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 in
position to offer a product, VideoTalk that will be well received.
Further due to the closing of the stores during the year any
depreciation and amortization attributable to the assets in the stores
were immediately expensed thereby increasing the depreciation and
amortization line item. Additionally, the Other Expense includes a
loss on the disposition of assets relating to the closing of the
stores, a loss on investment in affiliate which resulted from a
decrease in the market value of the investment in the subsidiary,
Meteor Technology, Ltd., and a note receivable allowance which
reflects a decrease in the value of the collateral of the loan to an
officer.
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, a loan to an officer and the sale of preferred stock to
help finance the research and development efforts. The items noted
above resulted in the Company having a net decrease in its cash.
During the year, substantial financial (approximately $2,375,000,
$1,319,000, and $163,000 for the three years ended April 30, 1997,
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 will make available for licensing
Third Planet's three new products in approximately September 1997,
which products are to be offered to the major PC manufacturers.
During the financial year, the Company'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 (british pounds)5,000,000
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 Carrollton, Texas area. The retail stores range in size from
1,000 square feet to 3,000 square feet, and specialize in CD-ROM
software with up to 2,000 titles in stock. These Mr. CD-ROM corporate
stores were intended to be the first of a previously announced target
of 100 corporate and franchise stores to be opened by Christmas 1996.
However, results from the stores led Management to the conclusion that
the retail concept was not viable, and the stores were closed in 1997.
On January 26, 1996, the Company announced that it has concluded
an agreement with UUNet. Technologies, Inc. whereby it will use
UUNet's Internet backbone for the Company's newly formed subsidiary,
Camelot Internet Access Services, Inc. ("Camelot Internet"). The use
of UUNet's exclusive alternate Internet backbone facilities enables
Camelot Internet to instantly establish itself as a nationwide quality
Internet service provider. Camelot Internet was officially launched
in June 1996 at which time its nationwide services commenced. Camelot
Internet is offered as part of Camelot's DigiPhone Deluxe software
package.
At the world's first Internet Telephony conference, held in
London, England on April 18-19 and called "Dialing The Net", Danny
Wettreich, Chairman and Chief Executive Officer of Camelot, disclosed
a development program for the DigiPhone Multi-Protocol Frameworks.
These frameworks will enable DigiPhone to communicate with any other
standards-based Internet Telephony software.
A 30 day free trial of DigiPhone Version 1.03 software is
available through the Company's web site on the Internet. To access
this free offer, users download the software from the Company's web
page, http://www.digiphone.com. The only system requirement for
potential users are a multimedia PC, Internet access and web browser
software. At the end of the 30 day trial, users can purchase a full
version of DigiPhone or DigiPhone Deluxe software by calling a toll-
free number. Users will also be provided with a list of retailers
that carry DigiPhone Deluxe software. To gain additional exposure for
DigiPhone software, Camelot will, in the future, offer this 30 day
trial version bundled with various third party hardware products and
through Internet access provider services.
Subsequent to the period under review, the Company announced that
it has applied for a patent for VideoTalkT, 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.
Liquidity and Capital Resources
1998
Net cash used by operating activities for 1998 was $3,757,870 compared
with $5,555,018 in 1997. Net cash used by investing activities was
$730,884 compared with $4,587,734 in 1997. This was primarily due to
the net loss of $6,074,163 in 1997 compared with $12,996,369 the
previous year. Net cash provided by financing activities was
$1,611,520 compared with $3,302,152 in 1997.
Registrant's continual requirement for financial resources relates to
its obligations for statutory, legal and accounting requirements.
Registrant has no available cash resources to fund its ongoing
activities and will experience severe cash flow difficulties if no
external funding source is obtained.
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.
Item 8. Financial Statement and Supplementary Data
Index to Consolidated Financial Statements Page
Report of Independent Auditors - 1997 and 1996 AF-1
Report of Independent Auditors - 1998 F-1
Consolidated Financial Statements
Balance Sheets - April 30, 1998 and 1997 F-2 and
F-3
Statements of Operations for the years
ended April 30, 1998, 1997 and 1996 F-4
Statements of Stockholders' Equity for the
years ended April 30, 1998, 1997 and 1996 F-5 through
F-7
Statements of Cash Flows for the years ended
April 30, 1998, 1997 and 1996 F-8 and
F-9
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.
Item 9. Disagreements on Accounting and Financial Disclosure
Lane Gorman Trubitt, L.L.P. has been dismissed as the Company's
independent auditors effective May 22, 1998.
During the past three years, and the interim period ending May 22,
1998, there were no disagreements between the Company and the auditors
regarding any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure. Larry O'Donnell,
CPA has been appointed effective May 22, 1998 to act as the auditor
for the Registrant. The change was made to save the Company money.
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 14, 1998:
Name Age Position Period Served Term
Expires
Daniel Wettreich 46 Chairman, September 16, 1988 Next
President, Annual
Director Meeting
Jeanette P. Fitzgerald 37 Secretary September 16, 1988 Next
Director Annual
Meeting
Allan S. Wolfe 65 Director May 24, 1993 Next
Annual
Meeting
Daniel Wettreich
Daniel Wettreich is Chairman, President and Director of the
Company since September 1988. Additionally, he currently holds
directors positions in the following public companies: Forme Capital,
Inc., a real estate company, Adina, Inc., Malex, Inc., and Tussik,
Inc. which are dormant companies seeking merger opportunities. Since
July 1996, he has been Director of Constable Group plc (formerly
Meteor Technology plc), a United Kingdom public company(3). 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 has a Bachelor of Arts in Business Administration from the
University of Westminster, London, England.
Jeanette P. Fitzgerald
Jeanette Fitzgerald is Vice President and General Counsel,
Corporate Secretary and a Director of the Company since September
1988(1). She is a member of the State Bar of Texas and the Business
Law section. From July 1996 until January 1998, she was a Director of
Meteor Technology plc(3). She is also the Corporate Secretary and
Director of Malex, Inc.,a public company. 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.
(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.
(3) A subsidiary, Meteor Payphones Ltd and subsidiaries filed for
voluntary liquidation in March 1998. Constable Group plc filed for
voluntary liquidation in July 1998.
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, 1998. No bonuses
were granted to any officer, nor was any compensation deferred.
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensa Compensation
tion
Pay-
Award outs
s
Restr
Name and Pri Other icted Options LTIP All
ncipal Year Salary Bonus Annual Stock / Pay- Other
Position Compen Award SARs outs Compen-
sation (s) sation
Daniel 1996 $208,333 - - - 25,000 - $ (1)
Wettreich 1997 $250,000 - - - 175,000 - $ (1)
Chairman 1998 $250,000 - - - 100,000 - $ (1)
and CEO (1)
Jeanette P. 1996 N/A - - - N/A - $
Fitzgerald 1997 N/A - - - 875 - (1)
Vice 1998 N/A - - - 44,875 - $
President, (1)
General $
Counsel and (1)
Secretary
(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-, and $44,000 for the years ended April 30,
1997, and 1996 respectively. In July 1995, Mr. Wettreich and Ms.
Fitzgerald became employees of Company and Mr. Wettreich entered into
an employment contract with Company. In July 1998 Mr. Wettreich
agreed to terminate his contract with no cost to the Company.
Directors of the Company are reimbursed for reasonable expenses
incurred in attending meetings of the Board of Directors.
Company has no compensatory plans or arrangements whereby any
executive officer would receive payments from the Company or a third
party upon his resignation, retirement or termination of employment,
or from a change in control of Company or a change in the officer's
responsibilities following a change in control other than Mr.
Wettreich whose contract has been terminated by mutual consent.
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. In July 1998 Mr. Wettreich was
terminated along with all the other employees of the Company and Mr.
Wettreich agreed to waive any outstanding obligations owed by
Registrant to him under his employment contract.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth as of July 18, 1998 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 (3
persons).
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
Daniel Wettreich 1,697,871(1)(2) 27.6%
2415 Midway Road, Suite 115
Carrollton, Texas 75006
Jeanette P. Fitzgerald 80,875 (3) 1.7%
2415 Midway Road, Suite 115
Carrollton, Texas 75006
Allan Wolfe 10,250 (4) *
390 South River Road
Suite 5
Bedford, NH 03110
All Officers and Directors 1,788,996(1)(2)(3)(4) 28.6%
as a group (3 persons)
* Under 0.1%
Forsam Venture Funding, Inc. 1,345,295(1) 22.6%
2415 Midway Road, Suite 115
Carrollton, Texas 75006
57,633 of these shares are owned by AM Investments Ltd. a U.K. company
("AM") of which Mr. Wettreich is a director and officer. 80,960 of
these shares are owned by Constable Group plc ("Constable"), a UK
company of which Mr. Wettreich is a director and officer. 1,345,295 of
these are Preferred Stock owned by Forsam Venture Funding, Inc.,
("Forsam") 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, Constable and Forsam. (See Item
13. Certain Relationships and Related Transactions).
Includes options to purchase 200,000 shares granted to Daniel
Wettreich, which options are not exercised.
Includes options to purchase 53,750 shares granted to Jeanette
Fitzgerald, which options are not exercised.
Includes an option to purchase 6,625 shares granted to Allan Wolfe,
which option is not exercised.
Item 13. Certain Relationships and Related Transactions
On May 20, 1997 Adina, Inc. 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 were subsequently issued as deferred consideration. 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. On April 18, 1998 Adina sold the Preferred Shares,
Series J to Forsam Venture Funding, Inc., a company of which Mr.
Wettreich is a director and officer.
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., ("STCA") a company
affiliated with the President of the Company provided services during
the year ended April 1998 and 1997, as a securities transfer agent. A
total of $18,855 and $35,158 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. Additionally, STCA received management
services from the company and paid $6,000 per month starting in
November 1997.
Until March 1998 the Company leased 10,000 square feet of offices
from Forme Capital, Inc., a company affiliated with the President of
the Company. Total rent paid during fiscal 1998 and 1997 was $135,383
and $80,000, respectively. The lease agreement and transactions
related thereto were approved by a vote of Company's shareholders. In
September 1997 the lease was terminated by mutual consent and the
Company paid approximately $17,000 on a month to month basis
thereafter. In February, 1998 the Company vacated the premises and
consolidated its offices at 2415 Midway Road. The Company to
surrendered the Midway lease to the landlord in July 1998 for $39,781.
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 1998 and 1997, Company received dividend payments
from Forme Capital, Inc., Preferred Shares Series C in the amount of
$46,657 for 1998 and $46,657 for 1997.
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 was
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.
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 (british pounds)
2,000,000 ofloan stock owed to the Company by Meteor and (british pounds)
500,000 by the issuance by the Company to Meteor of 80,960 restricted
common shares. Mr.Wettreich and Ms. Fitzgerald who were directors of both
companies at the time did not participate in any directors votes in
relation to this transaction. On May 11, 1998 the PCAMS software was sold
back to Meteor for (british pounds)70,000 as the Company did not have
sufficient funds to market the software and was restricted in its ability
to sublicense the software.
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 Technology plc, to market
exclusively all TPP products on a worldwide basis. Mr. Wettreich and
Ms. Fitzgerald who were directors of these companies at the time 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 is a director and officer. 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 (british pounds)500,000 1997-2007
10% unsecured redeemable loan stock of Meteor by paying cash. Mr.
Wettreich and Ms. Fitzgerald who were directors of both companies at
the time, did not participate in any directors votes in relation to
this transaction.
On March 20, 1998 Registrant sold to Forsam Venture Funding,
Inc.3,837,706 shares in AMI for its then net asset value per share of
$24,233 payable by the issuance by Forsam of 8% Preferred shares. Mr.
Wettreich is a director of Forsam and did not participate in any
director vote relating to this transaction. At the same time
Registrant sold to Abuja Consultancy, Ltd. 2,192,265 shares in AMI for
$13,830 cash. These transactions represented Registrants total
shareholding in AMI.
On March 20, 1998 Registrant sold to Abuja Consultancy, Ltd. 1,149,464
shares in Meteor Technology plc representing its total shareholding
in that company for a price calculated at the then pro rata net asset
value of Meteor amounting to $16,187 cash.
In March 23, 1998, Registrant acquired from AMI 43,000 Preferred
Shares, Series B of Forsam Venture Funding for $43,000 cash.
On March 31, 1998, the Registrant's wholly owned subsidiary,
Third Planet Publishing, Inc. entered into a conditional contract with
Wincroft, Inc. to sell all right, title and interest in the VideoTalk
product for $7,002,056 payable by the issuance of common stock,
preferred stock and a promissory note in the amount of $2,000,000.
On June 29, 1998, Registrant agreed with Wincroft, Inc., at the
request of Wincroft, to satisfy the outstanding Promissory Note
payable to Camelot by Wincroft in the amount of $2,000,000 of Wincroft
Non-Voting Preferred Stock, Series B. These Preferred Shares pay a
dividend of 10% when and as declared by the board of directors and
will pay an additional yield equivalent to 10% of any revenues derived
by Wincroft on sale of VideoTalk. The Preferred Shares also call for
redemption by Wincroft in the event VideoTalk is sold. Wincroft
requested this action in order to assist in its fund raising
capabilities. Wincroft is seeking funds to pay for working capital
and marketing expenditures.
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, 1998.
Index to Consolidated Financial Statements Page
Report of Independent Auditors - 1997 and 1996 AF-1
Report of Independent Auditors - 1998 F-1
Consolidated Financial Statements
Balance Sheets - April 30, 1998 and 1997 F-3 and
F-4
Statements of Operations for the years
ended April 30, 1998, 1997 and 1996 F-5
Statements of Stockholders' Equity for the
years ended April 30, 1998, 1997 and 1996 F-6 through
F-7
Statements of Cash Flows for the years ended
April 30, 1998, 1997 and 1996 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, 1998 Annual
Meeting of Shareholders.
1996 Employee Stock Option Plan Incorporated by reference to
the Proxy Statement for January
3,1998 Annual Meeting of Shareholders
22(a) Subsidiaries
(7) Reports on Form 8-K:
Report filed on April 20, 1998 reporting Items 2 and 7.
Report filed on May 8, 1998 reporting Item 1.
Report filed on May 27, 1998 reporting Item 4.
Report filed on July 9, 1998 reporting Item 5.
<PAGE>
EXHIBIT 22(a)
SUBSIDIARIES
AS OF JULY 14, 1998
Third Planet Publishing, Inc. 100%
Mr. CD-ROM Stores, Inc. 100%
Camelot Distributing, Inc. 100%
Maxmedia Distributing, Inc. 100%
Camelot Internet Access Services, Inc. 100%
mrcdrom.com, inc. 100%
Atlantic Media, Inc. 100%
Software @ Cost + 10%, Inc. 100%
SAC Distributing, Inc. 100%
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAMELOT CORPORATION
(Company)
By: /s/Daniel Wettreich
President
Date: July 31, 1998
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
(principal executive officer and
principal financial officer)
Date: July 31, 1998
By: /s/Jeanette Fitzgerald
Director; Secretary
Date: July 31, 1998
By: /s/Allan Wolfe
Director
Date: July 31, 1998
30
<PAGE>
[ARTICLE] 5
[CIK] 0000013033
[NAME]
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] APR-30-1998
[PERIOD-END] APR-30-1998
[CASH] 152765
[SECURITIES] 0
[RECEIVABLES] 48156
[ALLOWANCES] 0
[INVENTORY] 50000
[CURRENT-ASSETS] 291407
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 1968294
[CURRENT-LIABILITIES] 260626
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 14534
[COMMON] 17842
[OTHER-SE] 1754351
[TOTAL-LIABILITY-AND-EQUITY] 1968294
[SALES] 275435
[TOTAL-REVENUES] 275435
[CGS] 3871109
[TOTAL-COSTS] 3871109
[OTHER-EXPENSES] 2478489
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 100491
[INCOME-PRETAX] (6074163)
[INCOME-TAX] (6093363)
[INCOME-CONTINUING] (6093363)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (6093363)
[EPS-PRIMARY] (3.88)
[EPS-DILUTED] (3.89)
</TABLE>
Financial Statements
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 the
related consolidated statements of
operations, stockholders' equity, and cash
flows for each of the two 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
the consolidated results of their
operations and their consolidated cash
flows for each of the two 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 two years in the period ended
April 30, 1997. In our opinion, this
schedule presents fairly, in all material
respects, the information required to be
set forth therein.
Lane Gorman Trubitt, L.L.P.
Dallas, Texas
July 7, 1997
AF-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANT
Board of Directors and Stockholders
Camelot Corporation and Subsidiaries
I have audited the accompanying
consolidated balance sheets of Camelot
Corporation and Subsidiaries as of
April 30, 1998 and the related
consolidated statements of operations,
stockholders' equity, and cash flows
for the year then ended. These
financial statements are the
responsibility of the Company's
management. My responsibility is to
express an opinion on these financial
statements based on my audit The
financial statements of Camelot
Corporation and Subsidiaries as of
April 30, 1997 and the two years for
the period ended April 30, 1997, were
audited by other auditors whose report
dated July 7, 1997, expressed an
unqualified opinion on these
statements.
I conducted my audit in accordance
with generally accepted auditing
standards. Those standards require
that I plan and perform the audit to
obtain reasonable assurance about
whether the financial statements are
free of material misstatement. An
audit includes examining, on a test
basis, evidence supporting the amounts
and disclosures in the financial
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. I believe my audit
provides a reasonable basis for my
opinion.
In my opinion, the financial
statements referred to above present
fairly, in all material respects, the
consolidated financial position of
Camelot Corporation and Subsidiaries as
of April 30, 1998, and the consolidated
results of their operations and their
consolidated cash flows for the year
ended April 30, 1998, in conformity
with generally accepted accounting
principles.
The accompanying financial statements
have been prepared assuming that the
Company will continue as a going concern.
As discussed in Note 15 to the financial
statements, the Company's significant
operating losses raise substantial doubt
about its ability to continue as a going
concern. The financial statements do not
include any adjustments that might result
from the outcome of this uncertainty.
I have also audited Schedule II of
Camelot Corporation and Subsidiaries
for the year ended April 30, 1998. In
my opinion, this schedule presents
fairly, in all material respects, the
information required to be set forth
therein. The Schedule II of Camelot
Corporation and Subsidiaries for each
of the two years in the period ended
April 30, 1997, were audited by other
auditors whose report dated July 7,
1997, stated this schedule presents
fairly, in all material respects, the
information required to be set forth
therein.
Larry O'Donnell, CPA PC
Aurora, Colorado
July 17, 1998
F-1
<PAGE>
CAMELOT CORPORATION AND
SUBSIDIARIES
Consolidated Balance
Sheets
April 30,
<TABLE>
<S> <C> <C>
1998 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 152,765 $3,029,999
Securities available for sale - 8,268
Accounts receivable, net of allowance for
doubtful accounts of $19,947
at April 30, 1997 48,156 162,592
Prepaid expenses 40,486 167,769
Inventories, net of allowance for
obsolescence of $808,581 and $494,744 at
April 30,1998 and 1997,respectively 50,000 530,926
Total current assets 291,407 3,899,554
PROPERTY AND EQUIPMENT - AT COST
Office equipment and fixtures - 1,534,173
Leasehold improvements - 64,154
Less accumulated depreciation - (669,535)
and amortization
OTHER ASSETS
Investments - in equity of Wincroft, Inc.
7,002,056 -
less allowance (5,936,474)
1,065,582 -
Note receivable - officer, net of allowance
of $1,914,216 and $889,000 at April 30, 1998 and 1997
respectively - 968,189
Preferred stock-related party 611,305 530,917
Licenses, trademarks and product
development, net of accumulated
amortization of $31,000 at April 30, 1997 - 421,510
Other ________- 23,114
Total other assets 1,676,887 1,943,730
$1,968,294 $ 6,772,076
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE>
CAMELOT CORPORATION AND
SUBSIDIARIES Consolidated
Balance Sheets - Continued
April 30,
<TABLE>
<S> <C> <C>
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 179,473 $ 470,577
Accrued expenses 81,153 222,990
- -
Total current liabilities 260,626 693,567
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 50,000,000 shares
authorized, 1,784,200 and 881,763 shares
issued at April 30, 1998 and 1997, respectively 17,842 8,818
Preferred stock, $.01 par value, 100,000,000 shares
authorized, and 1,453,400 and 2,438,056 shares issued
and outstanding at April 30, 1998 and 1997,
respectively 14,534 24,381
Additional paid-in capital 35,768,983 34,021,361
Accumulated deficit (31,256,995) (25,182,832)
Less treasury stock, at cost,48,745 and 28,745
shares at April 30, 1998 and 1997,
respectively (2,755,637) (2,714,575)
Less note receivable from officer related to
purchase of common stock (81,059) (78,644)
Total stockholders' equity 1,707,668 6,078,509
$ 1,968,294 $6,772,076
</TABLE>
See accompanying notes to consolidated financial statements
F-3<PAGE>
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended April 30,
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
REVENUES $ 275,435 $ 1,887,617 $ 3,002,049
COSTS AND EXPENSES
Cost of sales 143,656 1,559,189 645,127
General and administrative 3,084,321 7,164,354 6,233,501
Provision for inventory
obsolescence 363,837 495,942 198,000
Depreciation and amortization 279,295 1,462,459 354,419
Total costs and expenses 3,871,109 10,681,944 7,431,047
LOSS FROM OPERATIONS (3,595,674) (8,794,327) (4,428,998)
OTHER INCOME (EXPENSE)
Interest and miscellaneous 100,491 426,490 152,278
Dividend income - related party 46,657 46,657 46,657
Loss on disposition of assets (796,664) (509,292) (126,931)
Loss on investment in affiliate (811,433) (2,693,087) -
Note receivable allowance (1,025,216) (889,000) -
Realized gain (loss) on sale
of marketable securities 7,676 (583,810) -
Unrealized gain on marketable
securities - - 53,821
Interest expense - related party - - (11,615)
Total other income (expense) (2,478,489) (4,202,042) 114 ,210
DISCONTINUED OPERATIONS
Loss from operations - - -
Loss on disposals - - (250,925)
Loss from discontinued operations - - (250,925)
NET LOSS (6,074,163) (12,996,369) (4,565,713)
LOSS FROM CONTINUING OPERATIONS (6,074,163) (12,996,369) (4,314,788)
DIVIDENDS ON PREFERRED STOCK (19,200) (95,234) (575,414)
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS $(6,093,363) $(13,091,603) $(5,141,127)
INCOME (LOSS) PER SHARE:
(LOSS) FROM CONTINUING OPERATIONS (3.88 ) (20.45) (12.54)
GAIN (LOSS) FROM DISCONTINUED
OPERATIONS (.00) (.00) (.73)
DIVIDENDS ON PREFERRED STOCK (.01) (.15) (1.67)
NET LOSS PER COMMON SHARE$ (3.89)$ (20.60) (14.94)
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK AND COMMON STOCK
EQUIVALENT SHARES OUTSTANDING 1,565,543 635,467 344,119
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
- continued For the Period from May 1, 1995
through April 30, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Common Preferred Stock Preferred Additional
Stock Stock Shares Stock Paid in
Shares Amount Amount Capital
Balance at 290,721 $2,907 189,190 $1,892 $7,750,897
April 30,
1995
Conversion of
preferred
stock to
Common stock:
Series BB 8,608 86 (888,000) (8,880) 8,794
Series G 56,844 569 (5,333,333) (53,333) 52,764
Series H 53,709 537 (3,525,000) (35,250) 34,713
Sale of 54,844 548 - - 3,281,001
common stock
for cash
Sale of - - 19,766,666 197,666 18,850,999
preferred
stock for
cash
Common stock
issued for 5,079 51 - - 737,341
services
Common stock
issued to 1,500 15 - - 75,141
officers for
note
receivable
Change in net
unrealized - - - - -
losses on
available-for-
sale
securities
Retirement of
Series D - - (66,134) (661) (65,473)
preferred
stock
Common stock
issued to pay 15,000 150 - - 449,850
note payable
to related
party
Purchase of - - - - -
treasury
stock
Preferred
stock - - - - (19,200)
dividends to: - - - - (556,214)
Related
parties
Other
parties
Net loss - - - - -
Balance at
April 30, 486,305 $4,863 $10,143,389 $101,434 $30,600,613
1996
See accompanying notes to consolidated financial
statements
F-5
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
- continued
For the Period from May 1, 1995 through April
30, 1998
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Accumul Unrealize Treasu Stock Total
ated d Losses ry Subscr Stockhol
Deficit on Stock iption ders'
Available Receiv Equity
For Sale able (Deficit)
Securities
Balance at $(7,620,750) $(51,553) $(170,442) $- $(87,049)
April 30,
1995
Conversion of
preferred
stock to - - - - -
common stock: - - - - -
Series BB - - - - -
Series G
Series H
Sale of
common stock - - - - 3,281,549
for cash
Sale of
preferred - - - - 19,048,665
stock for
cash
Common stock
issued for - - - - 737,392
services
Common stock
issued to
officers for - - - (75,156) -
note
receivable
Change in net
unrealized - 1,005 - - 1,005
losses on
available-for-
sale
securities
Retirement of
Series D - - - - (66,134)
preferred
stock
Common stock
issued to pay - - - - 450,000
note payable
to related
party
Purchase of
treasury - - (2,544,133) - (2,544,133)
stock
Preferred
stock - - - - (19,200)
dividends to: - - - - (556,214)
Related
parties
Other
parties
Net loss (4,565,713) - - - (4,565,713)
Balance at
April 30, (12,186,463) $(50,548) $(2,714,575) $(75,156) $15,680,168
1996
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders'
Equity - Continued For the Period from May 1,1995 through April 30, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Common Preferred Preferred Additional
Stock Stock Stock Stock Paid in
Shares Amount Shares Amount Capital
Balance at 486,305 $4,863 10,143,389 $101,434 $30,600,613
April 30,
1996
Conversion of
preferred
stock to
common stock:
Series BB 1,922 19 (112,000) (1,120) 1,101
Series H 165,920 1,659 (9,908,333) (99,083) 97,424
Series I 144,688 1,447 (1,260,000) (12,600) 11,153
Sale of - - 3,590,000 35,900 3,374,600
preferred
stock for
cash
Common stock
issued for 1,968 20 - - (20)
services
Common stock 80,960 810 - - 31,574
issued for
software
acquisitions
Accrued
interest on - - - - -
stock
subscription
receivable
Change in net
unrealized - - - - -
losses on
available-for-
sale
securities
Retirement of
Series F - - (15,000) (150) 150
preferred
stock
Preferred
stock - - - - (19,200)
dividends to: - - - - (76,034)
Related
parties
Other
parties
Net loss - - - - -
Balance at
April 30, 881,763 $8,818 2,438,056 $24,381 34,021,361
1997
</TABLE>
See accompanying notes to consolidated financial
statements
F-6
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
- Continued
For the Period from May 1, 1995 through April
30, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Accumu Unreal Treasu Stock Total
lated ized ry Subscr Stockh
Deficit Losses Stock iption olders
on Receiv
Availa able Equity
ble
For
Sale
Securi
ties
Balance at $(12,186,463) $(50,548) $ (2,714,575) $ (75,156) $15,680,168
April 30,
1996
Conversion of
preferred
stock to - - - - -
common stock: - - - - -
Series BB - - - - -
Series H
Series I
Sale of - - - - 3,410,500
preferred
stock for
cash
Common stock
issued for - - - - -
services
Common stock - - - - 32,384
issued for
software
acquisitions
Accrued
interest on - - - (3,488) (3,488)
stock
subscription
receivable
Change in net
unrealized - 50,548 - - 50,548
losses on
available-for-
sale
securities
Retirement of
Series F - - - - -
preferred
stock
Preferred
stock - - - - (19,200)
dividends to: - - - - (76,034)
Related
parties
Other
parties
Net loss (12,996,369) - - - (12,996,369)
Balance at (25,182,832) $ $(2,714,575 $(78,644) $6,078,509
April 30,
1997
</TABLE>
See accompanying notes to consolidated financial
statements
F-6
<PAGE>
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
- Continued
For the Period from May 1, 1995 through April
30, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Common Preferred Preferred Additional
Stock Stock Stock Stock paid in
Shares Amount Shares Amount Capital
Balance at 881,763 $8,818 2,438,056 $24,381 $34,021,361
April 30,
1997
Conversion of
preferred
stock to 662,437 6,624 (1,876,920) (18,769 15,270
common stock:
Series L
Sale of 50 480,000
preferred
stock for
cash
Sale of
common stock 240,000 2,400 380,750
for
cash
Series J
Preferred
stock issued 892,214 8,922 85,295
for
acquisitions
Accrued
interest on
stock
subscription
receivable
Purchase of
treasury
stock
Sale of 800,000
convertible
debentures
Preferred (19,200)
stock
dividends to: 5,507
Related
parties
Other
parties-
reverse
uncleared
payments
Net loss
Balance at 1,784,200 17,842 1,453,400 $14,534 $35,768,983
April 30,
1998
</TABLE>
See accompanying notes to consolidated financial
statements
F-7
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
- Continued
For the Period from May 1, 1995 through April
30, 1998
<TABLE>
<S> <C> <C> <C> <C>
Accumu Treasury Stock Total
lated Stock Subscrip Stockholders
Deficit tion Equity
Receivable
Balance at $(25,182,832 $ (2,714,575) $(78,644) $ 6,078,509
April 30,
1997
Conversion of
preferred
stock to 3,126
common stock:
Series L
Sale of
preferred 480,000
stock for
cash
Sale of
common stock 383,150
for
cash
Series J
Preferred
stock issued 94,217
for
acquisitions
Accrued
interest on (2,415) (2,415)
stock
subscription
receivable
Purchase of (41,063) (41,063)
treasury
stock
Sale of 800,000
convertible
debentures
Preferred (19,200)
stock
dividends to:
Related
parties
Other
parties-
reverse
uncleared
payments
Net loss (6,074,163)
Balance at ($31,256,995) $(2,755,638) $ (81,059) $1,707,667
April 30,
1998
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
CAMELOT CORPORATION AND
SUBSIDIARIES Consolidated
Statements of Cash Flows
Years Ended April 30,
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $(6,074,163) $ (12,996,369) $(4,565,713)
Adjustments to reconcile net loss
to net cash used in operating activities:
Non cash transactions for services - 387,391
Accrued interest addition to
related party note receivable (2,415) (60,677) -
Securities received as revenue (64,000) (1,950,575)
Depreciation and amortization 279,295 1,462,459 354,419
Loss on disposal of assets 509,292 191,918
Loss on sale of trading securities 313,896 -
Gain loss on sale of available for
sale securities 269,914 -
Write up of securities to market
value (7,676) - (53,821)
Provision for uncollectible
accounts receivable 8,532 10,887
Provision for inventory
obsolescence 363,837 495,942 198,000
Note receivable allowance 1,025,216 889,000
Loss on investment in affiliate 2,693,087 -
Proceeds from trading securities (738,480) 1,027,612 -
Change in assets and liabilities, net of effect from
purchase of subsidiaries:
Accounts receivable 114,436 (68,987) (212,107)
Prepaid expenses 127,283 47,304 (183,449)
Inventories 87,664 246,105 (864,908)
Other assets 23,114 - -
Accounts payable and accrued expenses (432,941) (277,943) 88,151
Obligations -
discontinued
operations _________- (50,185) (140,266)
Net cash used in operating activities(3,757,870) (5,555,018) (6,740,073)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment(84,583) (636,364) (1,087,658)
Investment in affiliate 13,829 (2,457,003) -
Collections received on notes receivable 14,000
Proceeds from sale of property and equipment - 11,500
Proceeds from available for sales
securities 391,042 718,143 93,447
Purchases available for sales
securities (375,098)
Proceeds from return of deposits - 14,765
License, trademarks and product
development (619,047) (412,510) (608,800)
Issuance of note receivable
- related party (57,027) (1,814,000) -
Issuance of note receivable ____- (312,400)
Net cash (used in) investing
activities ( 730,884) (4,587,734) (1,889,146)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock 383,150 - 3,281,549
Sale of preferred stock 1,283,125 3,410,500 19,048,665
Redemption of preferred stock - - (66,134)
Deferred offering costs (13,114) -
Dividends paid (13,692) (95,234) (575,414)
Purchase of treasury stock (41,063) - (2,544,133)
Payments on debt - (294,200)
Proceeds (payment)
- notes payable - related parties (236,000)
Redemptions of subsidiary
preferred stock_________ (264,044)
Net cash provided by financing
activities 1,611,520 3,302,152 18,350,289
NET INCREASE (DECREASE) IN CASH (2,877,234) (6,840,600) 9,721,070
CASH AT BEGINNING OF YEAR 3,029,999 9,870,599 149,529
CASH AT END OF YEAR $ 152,765 $ 3,029,999 $ 9,870,599
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows Years
Ended April 30,
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Supplemental information:
Cash paid for interest$ - $ - $ 11,615
Cash paid for income taxes$ - $ - $ -
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES
In fiscal 1998, the Company's Preferred Stock was converted to
the
Company's restricted common stock as follows;
24 Series L for 1,407,285 shares of restricted common
453,080 Series I for 9,049,629 shares of common
In fiscal 1998 as discussed in Note 7, the Company sold its
VideoTalk
business for a note receivable and preferred and common stock
with
assets valued at $1,065,582.
In fiscal 1998, the Company acquired stock of Alexander
Mark Investments (USA), Inc. (which later changed its name
to Wincroft, Inc.) for issuance of preferred stock valued
at $94,217. In March, 1998 the Company exchanged its
shares in Alexander Mark Investments (USA), Inc. for 8%
Preferred Shares of Forsam Venture Funding , Inc..
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 common
stock as follows:
888,000 Series BB Preferred for 8,608 shares of common
5,333,333 Series G Preferred for 56,844 shares of common
3,525,000 Series H Preferred for 53,709 shares of 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.
During fiscal 1997 and 1996 there was a $50,548 and
$1,005, change in net unrealized losses on available-for-
sale securities.
See accompanying notes to consolidated financial statements
F-9
<PAGE>
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 the Company and
its majority owned subsidiaries (collectively the "Company").
The Company is now inactive and all its operating
subsidiaries have discontinued operations. During the
financial period under review the Company was primarily
engaged in research and development of Internet software
and hardware and the retailing of computer software over
the Internet. Discontinued operations of subsidiaries were
involved in selling software products through retail stores
located in the Dallas metroplex, the provision of Internet
services, video marketing and distribution, financial
services, real estate rentals, and oil and gas
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 Carrollton, Texas. Cash equivalents are 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. An
allowance for inventory obsolescence is maintained to
provide for an estimate of inventory items that have declined
in value.
Property and Equipment
Property and equipment are carried at cost, less
accumulated depreciation. Major additions and betterments
are capitalized while replacements and maintenance and
repairs that do not improve or extend the life of the
respective assets are expensed. Leasehold improvements are
amortized over the lesser of the term of the related lease or
the estimated useful lives of the assets. When property is
retired or otherwise disposed of, the related costs and
accumulated depreciation are removed from the accounts and
any gain or loss is reflected in operations.
Depreciation and amortization of property and equipment is
provided on the straight-line method over the following
estimated useful lives:
Office furniture and fixtures 7 years
Computer and office equipment 5 years
Computer software 5 years
Leasehold Improvements Length of lease ranging to 5 years
Software Development
Certain software development costs are capitalized
upon the
establishment of technological feasibility for each product or
process and capitalization ceases when the product is
available for general release to customers or is put into
service. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized
software development costs require considerable judgment by
management with respect to certain external factors,
including, but not limited to, anticipated future
revenues, estimated economic life and changes in software
and hardware technology. Research and development costs
related to software development that has not reached
technological feasibility are expensed as incurred.
F-10<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
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, 1998, 1997 and 1996 was
$86,703, $1,105,021 and $138,979, respectively, which
included a write down of $0 in 1998, and $646,408 in 1997 to
reflect an impairment of net realizable value. Capitalized
software development costs were $0 and $302,510 at April 30,
1998 and 1997, respectively.
Total research and development costs charged to general and
administrative expenses were approximately $261,000,
$2,375,000 and $1,319,000 for the years ended April 30, 1998,
1997 and 1996.
Trademark and Licenses
Trademarks and licenses are stated at cost, net of
accumulated amortization, which is provided using the straight-
line method over 5 to 10 years.
Store Preopening Costs
Store preopening costs are capitalized and amortized
over twelve months.
Loss Per Share
Loss per common share is computed on the basis of the
weighted average number of common shares outstanding
during the respective periods. Outstanding stock warrants,
options and preferred shares are excluded from the
computations as their effect would be anti-dilutive.
During 1998, common shares were issued upon conversion of
preferred shares. Had this conversion of preferred stock
occurred on May 1, 1998 net loss per common shares would have
been $3.69 for 1998.
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 $27,924, $989,248, and
$1,648,071 for 1998, 1997 and 1996, 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
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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. The
registration statement was later withdrawn.
3. ACCOUNTS RECEIVABLE AND CREDIT RISK
The Company's trade receivables at April 30, 1998
and 1997 are primarily due from major computer software
distributors. The Company
believes it is not exposed to significant credit risk.
F-12
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
4. INVENTORIES
Included in the accompanying April 30, 1998 balance sheet is
inventory of computer software at a carrying value of
$50,000 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,:
<TABLE>
<S> <C> <C>
1998 1997
Software $908,581 $1,025,670
Less: Allowance for slow moving
and obsolescence 858,581 494,744
NET $50,000 $ 530,926
</TABLE>
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 and $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 are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C>
Cost Gross Gross Estimated
Unrealized
Unrealized Fair
Gains Losses
Value
1997
Available-
for- sale
Securities
$ 8,268 $ - $- $ 8,268
Common
stock
</TABLE>
F-13<PAGE>
CAMELOT CORPORATION AND
SUBSIDIARIES NOTES TO
FINANCIAL STATEMENTS
5. MARKETABLE SECURITIES - Continued
Sales proceeds and gross related gains
and losses on securities are as follows:
<TABLE>
<S> <C>
<C> <C>
1998 1997 1996
Cost basis $383,366 $2,329,565 $134,480
Proceeds 391,042 1,745,755 93,447
Realized 27,135 - -
gains
Realized 19,459 583,810 41,033
losses
</TABLE>
The Company uses the specific identification method to
determine the cost of securities sold.
Results of operations for 1998, 1997 and 1996 include a
charge of $ -0$-0- and $53,821 for unrealized gains on trading
securities.
Stockholders' equity includes an unrealized loss of $0, $0
and $50,548 at April 30, 1998 and 1997 and 1996, 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, 1998, these shares had a market value of approximately
$3,115. The allowance of $1,914,216, which includes the
interest on the note is to provide for impairment of the
collateral.
7. INVESTMENT IN AFFILIATE
In May, 1997, the Company acquired 80% of the
outstanding stock of Alexander Mark Investments, USA, Inc.
(which later changed its name to Wincroft, Inc.). In
March, 1998, the Company exchanged its shares in Alexander
Mark Investments, USA, Inc. for 8% preferred shares of Forsam
Venture Funding, Inc.
An officer of the Company is a director of Forsam.
The carrying amount of the investment is $80,388. The
investment will be carried at cost.
On March 31, 1998, the Company's wholly owned subsidiary,
Third Planet Publishing, Inc. sold all right, title and
interest in VideoTalk product for $7,002,056 which was paid
by issuance of common and preferred stock valued at
$5,002,056 and a promissory note for $2,000,000. On June 29,
1998, the Company agreed to satisfy the promissory note for
preferred stock and the Company is treating the transaction as
if it accrued at year end. This investment will be accounted
for using the equity method because the Company will own 20%
of Wincroft, Inc. The investment has been valued at the net
book value of the assets transferred, which is $1,065,582.
At April, 1997, 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 of 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 $0 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,: <TABLE>
<S> <C> <C>
1998 1997
Taxes $29,811 $26,811
General and administrative 36,077 2,452
Fees 15,265 34,000
Compensation - 41,503
Lease obligations - 115,099
Other _______- 3,125
$ 81,155 $ 222,990
</TABLE>
F-14
<PAGE>
CAMELOT CORPORATION AND
SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
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%.
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, 1998, 1997 and 1996.
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:
<TABLE>
<S> <C> <C>
1998 1997
Allowance for doubtful accounts $ - $ 6,782
Inventories 291,000 168,213
Other 4,000 3,958
Note receivable allowance 651,000 302,260
Investment valuation adjustment 1,191,000 915,650
Capital loss carryforward 115,000 117,817
Net operating loss carryforward 8,800,000 6,862,390
11,052,000 8,377,070
Less valuation allowance (11,052,000) (8,377,070)
Deferred tax asset-net $ - $ -
</TABLE>
At April 30, 1998, the Company has approximately
$26,000,000 of unused Federal net operating loss
carryforwards, which expire in the years 2003 through 2013.
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
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
11. STOCKHOLDERS' EQUITY
Common Stock
The brother of the President of the Company purchased
100,000 and 13,750 shares of the Company's restricted common
stock for $278,150 and $470,312 in various transactions
during fiscal 1998 and 1996, respectively.
Unrelated third parties purchased 140,000 and 16,094
shares of the Company's restricted common stock for $105,000
and $795,612 and in various transactions during fiscal 1998
and 1996, 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, 1998:
<TABLE>
<S> <C> <C> <C> <C> <C>
Number of Shares
Series of Originally
Preferred Stock Authorized
Issued
OutstandingValue
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 3,590,000 453,080 4,531
J 60,000,000 892,314 892,214 8,922
K 412,000 412,000 0 -
L 500,000 500,000 24 240,000
TOTAL 94,061,523 24,977,170 1,453,400 $ 14,534
During fiscal 1998, 26 shares of Series L were converted
to 1,407,285 shares of common stock.
During fiscal 1998, 453,080 shares of Series I were
converted to 9,049,629 shares of the Company's common stock.
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
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
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.
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, 1998, 1997
and 1996.
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.
Series L preferred shares ("Series L") are entitled to receive
a cumulative dividend of 7%, payable in common shares of the
Company. The Series L 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 nonvoting.
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
<PAGE>
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
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
86,250 at April 30, 1998 and 1997, respectively.
The following schedule summarizes the changes in the
Plans:
</TABLE>
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Options outstanding at 275,388 94,600 95,825
beginning at year
Granted 183,563 185,538 7,194
Exercised - - ( 4,637)
Canceled (176,576) (4,750) ( 3,782)
Options outstanding at 282,375 94,600 275,388
end of year
Options exercisable at 282,375 275,388 94,600
end of year
Average price of
options:
Granted during year $2.063 $ 49.348 $98.324
Exercised during - - 62.208
year
Canceled during year 12.160 52.160 80.140
Outstanding at end 2.063 12.160 31.828
of year
</TABLE>
F-18
<PAGE>
CAMELOT CORPORATION AND
SUBSIDIARIES NOTES
TO FINANCIAL
STATEMENTS
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:
<TABLE>
<S> <C> <C> <C>
Incentive Stock Option Plan
1998 1997 1996
Options outstanding at
beginning of year
Granted 408,800 408,800 -
Exercised - - -
Canceled - - -
Options outstanding at end (14,760) 408,800 -
of year
Options exercisable at end 394,040 408,800 -
of year
Average price of options
Granted during year - $4.00 $ -
Exercised during year - - -
Canceled during year $4.00 - -
Outstanding at end of $4.00 4.00 -
year
</TABLE>
<TABLE>
<S> <C> <C> <C>
Director's Stock Option Plan
1998 1997 1996
Options outstanding at
beginning of year
Granted 15,000 15,000 -
Exercised - - -
Canceled (5,000) - -
Options outstanding at end 10,000 15,000 -
of year
Options exercisable at end 10,000 15,000 -
of year
Average price of options
Granted during year - $4.00 $ -
Exercised during year - - -
Canceled during year $4.00 - -
Outstanding at end of $4.00 4.00 -
year
</TABLE>
F-19
CAMELOT CORPORATION AND
SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
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. during 1997.
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:
<TABLE>
<S> <C> <C>
1998
As Reported Pro forma
Net loss $(6,074,163) $(6,538,653)
Loss per share $ (3.88) $ (4.18)
1997
As Reported Pro forma
Net loss $ (12,996,369) $ (13,441,659)
Loss per share $ (20.45) $ (21.15)
1996
As Reported Pron forma
Net Loss $(4,565,713) $(4,928,278)
Loss per share (12.54) (14.32)
</TABLE>
The fair value of each option is estimated using the
Black-Scholes option-pricing model with the following
assumptions used for grants in 1998, 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
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 (british pounds) 6,000,000, (approximately
$9,312,000) and an additional (british pounds)1,000,000 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
(british pounds)2,000,000 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 $54,000, $72,000 and
$24,000 for the years 1998, 1997 and 1996, 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.
The Company owns 21,495 shares of Forme Capital's Series
A, 10% Noncumulative 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 1998, 1997 and 1996.
During fiscal year 1996 a company affiliated with the
President of the Company provided the Company with management
and other services valued at $44,000 and 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. In March, 1998, the Company
and Forme agreed to terminate the lease. Rent expense
incurred with Forme for fiscal 1998, 1997 and 1996
was approximately $135,000, $80,000 and $80,00 respectively
each year. The lease included the following terms and
conditions:
F-21
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
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 Carrollton, Texas area. This lease is being
terminated in July , 1998.
Total rent expense, all of which were minimum rentals,
for fiscal 1998, 1997 and 1996 was approximately $300,000,
587,478, and $268,615, respectively.
Litigation
During the ordinary course of business, the Company is
involved in legal proceedings and regulatory inquiries which
management does not expect to have a material effect on the
financial position of the Company.
Liquidity and Capital Resources
The consolidated statement of operations presented in
the financial statements reflects net losses for the years
ended April 30, 1998, 1997 and 1996. However, the Company
has been able to improve it's financial position through
preferred and common stock offerings and has been able to
raise $1,666,275 in 1998, $3,410,500 in 1997 and
$22,330,214 in 1996
through private placements. As indicated at Note 16, the
Company has discontinued its operating subsidiaries and sold
its Videotalk product line in exchange for shares in Wincroft,
Inc.
F-22
CAMELOT CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
15. COMMITMENTS AND CONTINGENCIES - Continued
Management believes that the Company's future success will
be achieved through the development of VideoTalk by Wincroft,
Inc. There can be no assurance of future success.
16. DISCONTINUED OPERATIONS
During the year ended April 30, 1998, management
determined that its operating subsidiaries should not
continue in business. Third Planet
Publishing, Inc. sold all rights title and interests to its
software and hardware on March 31, 1998. The other
subsidiaries ceased operating by July 1998.
The following information for the discontinued operations
is for the year ended April 30, 1998.
(Loss) on disposition of assets $(189,825)
Revenues 162,500
Cost of sales and inventory write down 507,443
General and administrative expenses 1,559,769
Net income(loss) (2,094,537)
Earnings per share $(1.34)
On January 31, 1995, the Company's video marketing and
distribution subsidiary Camelot Entertainment filed Chapter 7
bankruptcy with the U.S. Bankruptcy Court. Loss on disposals
for fiscal 1996 were $250,925.
17. INDUSTRY SEGMENT
The Company and its subsidiaries operated in one industry
segment and are vertically integrated in retailing,
distribution, and publishing of CDROM software.
18. 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 $229,000 and
$496,000 for inventory and $1,025,000 and $889,000 for
receivables for 1998 and 1997 respectively.
F-25
<PAGE>
CAMELOT CORPORATION AND
SUBSIDIARIES SCHEDULE II -
VALUATION AND QUALIFYING ACCOUNTS
Years Ended April 30, 1998, 1997
and 1996
Description
Allowance deducted
from assets to which
it applies:
Additions
Accounts Balance Charged to Charged
Balance at
Receivables at Costs and to
End of
Year Ended Beginning Expenses Other Deductions
Period of Accounts
Period
April 30, $19,947 $19,947 -
1998 (a)
April 30, $ 11,415 $ 8,532 - $ -
$ 19,947
1997
April 30, 36,419 10,887 - 35,891(a)
11,415
1996
Notes
Receivable
Year Ended
April 30, $889,000 $1,025,216 $1,914,216
1998
April 30, $ - $ 889,000 $ - $ -
$ 889,000
1997
April 30, - - - -
1996
- -
Inventories
Year Ended
April 30, $494,744 $ 363,837 808,851
50,000
1998
April 30, $198,000 $ 495,942 $ - $ 199,198
$ 494,744
1997
April 30, - 198,000 - -
198,000
1996
(a) Uncollected receivables written off, net of recoveries
F-26
