Here is part of the 10-k. I do not have access to the full report.
SEC 10-K: Annual Report
(Management's Discussion)
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.
Although the Company's historical financial results for the year ended April 30,
1997 were not good, Management believes that this is very typical for a company
primarily involved in research and development. Management believes that
Registrant's principal subsidiary Third Planet is now at the culmination of a 30
month software and hardware development program for Internet video
conferencing and telephony which will yield positive results for the Company in the
future.
The Company's revenue for the year was $1,887,617 compared with $3,002,049
in 1996. Net loss for the period was $12,996,369 compared with $4,565,713 the
previous year. These results are due to a combination of limited revenues from
DigiPhone, the closure of the retail software stores and continuing research and
development costs which were largely expensed. Further, other expenses of
$4,675,189 relating to losses on disposition of assets, investments in affil- iate,
marketable securities and a note receivable allowance impacted the results.
The consolidated balance sheets for the period show stockholders' equity of
$6,078,509 compared with $15,680,168 for the previous year. Total assets were
$6,772,076 compared with $16,701,863 in 1996. The decrease in stockholders'
equity and total assets was due to losses.
During the year, substantial financial and managerial resources were expended in
the continuing research and development of Internet video conferencing and
Internet telephony, and Management believes that significant progress was made in
this regard. Through its affiliated company, DigiPhone International, Registrant will
make available for licensing Third Planet's three new products in approximately
September 1997, which products are to be offered to the major PC manufacturers.
During the financial year, Registrant's activities resulted in the following.
. Completion and shipping through retail distribution channels of DigiPhone Deluxe .
A development program for multi-protocol framework for DigiPhone 2.0 . The
filing of a worldwide patent for VideoTalk . A thirty-day version of DigiPhone for
downloading over the Internet . The launch of Camelot Internet Access Services .
An agreement with Lucent Technologies to license Lucent's voice codec for future
versions of DigiPhone . Completed DigiPhone for Mac . Completed arrangements
for worldwide distribution of Third Planet products with DigiPhone International, an
affiliate of the Company . Listed Registrant's securities on the Frankfurt Stock
Exchange . Acquired PCAMS Software . Filed an initial registration statement for
mrcdrom.com, inc. . Acquired a controlling interest in AMI . Demonstrated its new
technology at COMDEX/Spring in Atlanta
Registrants subsidiary Mr. CD-ROM Stores, Inc. closed its five retail locations
during the period and transferred the majority of its assets to a fellow subsidiary
mrcdrom.com (See Item 1. Business).
Management believes its future profitability and revenues will result from licensing
its VideoTalk, DigiPhone 2.0, and Proficia technology to PC manufacturers and
(subject to a successful conclusion of the initial public offering of mrcdrom.com),
from the sale of software and ancillary products over the Internet. Management
also intends to expand its interests in the payphone industry both through its affiliate
Meteor Payphones and through developing and/or acquiring payphone interests in
the United States and Canada.
The Company made substantial progress during the year ending April 30, 1996.
The company's revenue for the year was $3,002,049 compared with $1,184,469
in 1995, an increase of 153%. Net loss for the period was $4,565,713 compared
with a loss for the previous year of $3,518,904. These results are due to a
combination of revenue from DigiPhone, license fees received from European
distribution rights for DigiPhone, revenue from the five newly opened Mr.
CD-ROM Stores, and increased general and administrative costs related to the
development and marketing of DigiPhone.
The consolidated balance sheets for the period show stockholders' equity of
$15,680,168 compared with ($87,049) for the financial year ended April 30,
1995. Total assets were $16,701,863 compared with $2,098,874 in April 1995.
The substantial increase in stockholders' equity and total assets was due to the
completion of private placements.
During the April 1996 period, the Company's subsidiary Third Planet completed
shipments of its preliminary orders for the Windows 3.1 version of DigiPhone. This
software achieved widespread retail distribution, and by the end of the third quarter
the first production run had sold out. Subsequent retail reorders were limited in
anticipation of the Windows 95 version of DigiPhone which commenced shipment
in May 1996 along with DigiPhone Deluxe. DigiPhone Deluxe has enhanced
telephone features including conference calling capability, voice mail, speed dialing,
voice sound effects, conversion recording and playback, and macro command
capabilities. It comes with a full suite of Internet tools including an e-mail program,
a newsreader, an FTP program, and a telnet program. In addition, a free Windows
95 upgrade for the existing DigiPhone software is available. Both DigiPhone and
DigiPhone Deluxe have two licenses in each retail box. Effectively, this provides
two Windows 95 compatible licenses for DigiPhone or DigiPhone Deluxe for the
price of one, and enables consumers to immediately start Internet telephone
conversations with a family member or a friend without any extra cost.
During the April 1996 period, the Company announced the acquisition of e-
Phone, formerly known as NetPhone, the only Macintosh compatible computer
software that enables voice communication over the Internet. The purchase price
was $593,000 payable $350,000 in Camelot restricted common shares valued at
$207.50 per share and the balance in cash. In addition, New Paradigm will also
receive for a five year period $1 per unit and 10% of OEM revenue derived from
the software. The technology of e-Phone was incorporated by Third Planet into a
Macintosh compatible version of DigiPhone called "DigiPhone For Mac". The cost
of acquisition was written off the 1997 financial period.
The appointment of Firecrest Group PLC as exclusive distributor for DigiPhone in
the United Kingdom and Ireland, occurred during the period under review. The
consideration for the granting of the UK and Ireland exclusive rights was
$1,950,575 payable by issuance by Firecrest of 1,856,453 ordinary shares equal
to approximately 10% of the increased share capital of Firecrest. Firecrest is a
media and marketing company in the United Kingdom.
The rights for Scandinavia were conditionally purchased in January 1996 by
Telepartner Holdings A/S, a Copenhagen, Denmark based company, which is the
leading telephone database services company in Scandinavia. The consideration for
the exclusive distribution rights was $1,000,000 payable by the issuance to
Camelot of shares in Telepartner equal to 2.7% of the share capital of Telepartner.
Due to the non-receipt of consideration, the Company terminated the agreement in
May 1996.
In July, 1996, after the financial year end, the Company concluded an agreement
with DigiPhone Europe, Ltd., whereby it appointed DigiPhone Europe, Ltd. as
exclusive distributor for DigiPhone and DigiPhone Deluxe in Europe, excluding the
United Kingdom and Ireland. The consideration for the rights was 5,000,000
pounds Sterling of 6% loan stock (approximately $7,500,000). DigiPhone Europe,
Ltd. is a London, England based European soft- ware marketing company merged
with Telecom Credit Europe, PLC ("TCE"), a public company listed on the
Alternative Investment Market of the London Stock Exchange. Following the
merger, Camelot owns approximately 16% of TCE. The majority stockholder of
TCE, Danny Wettreich, is also Chairman and Chief Executive Officer of Camelot.
Mr. Wettreich did not part- icipate in any Directors' vote in relation to this
transaction.
During the period the Company opened five Mr. CD-ROM Stores in the Dallas,
Texas area. The retail stores range in size from 1,000 square feet to 3,000 square
feet, and specialize in CD-ROM software with up to 2,000 titles in stock. These
Mr. CD-ROM corporate stores were intended to be the first of a previously
announced target of 100 corporate and franchise stores to be opened by Christmas
1996. However, results from the stores led Management to the conclusion that the
retail concept was not viable and the stores were closed in 1997.
On January 26, 1996, the Company announced that it has concluded an agreement
with UUNET . Technologies, Inc. whereby it will use UUNET's Internet backbone
for the Company's newly formed subsidiary, Camelot Internet Access Services,
Inc. ("Camelot Internet"). The use of UUNET's exclusive alternate Internet
backbone facilities enables Camelot Internet to instantly establish itself as a
nationwide quality Internet service provider. Camelot Internet was officially
launched in June 1996 at which time its nationwide services commenced. Camelot
Internet is offered as part of Camelot's DigiPhone Deluxe software package.
At the world's first Internet Telephony conference, held in London, England on
April 18-19 and called "Dialing The Net", Danny Wettreich, Chairman and Chief
Executive Officer of Camelot, disclosed a development program for the DigiPhone
Multi-Protocol Frameworks. These frameworks will enable DigiPhone to
communicate with any other standards-based Internet Telephony software.
A 30 day free trial of DigiPhone Version 1.03 software is available through the
Company's web site on the Internet. To access this free offer, users download the
software from the Company's web page, digiphone.com. The only
system requirement for potential users are a multimedia PC, Internet access and
web browser software. At the end of the 30 day trial, users can purchase a full
version of DigiPhone or DigiPhone Deluxe software by calling a toll-free number.
Users will also be provided with a list of retailers that carry DigiPhone Deluxe
software. To gain additional exposure for DigiPhone software, Camelot will, in the
future, offer this 30 day trial version bundled with various third party hardware
products and through Internet access provider services.
Subsequent to the period under review, the Company announced that it has applied
for a patent for VideoTalk TM, a video and audio communications system for the
Internet. VideoTalk is a complete hardware and software system which, when
connected to a multimedia PC, enables full duplex video and audio conferencing
over the Internet. It will provide significant advantages to users as VideoTalk does
not require a soundcard or a video capture card. VideoTalk will come with a new
version of DigiPhone 2.0 which will include the recently announced Multi-Protocol
Framework allowing voice communication with other Internet telephony software.
VideoTalk's features are designed to incorporate new leading edge audio and
video compression technology to enable connections over devices such as
28.8kbps modems. Video- Talk is designed with an expansion peripheral interface
that enables attachments to be added to the VideoTalk unit. Third Planet will
provide API specifications so that other developers can take advantage of the
features and processing power of VideoTalk in their applications.
The Company also announced the Proficia TM, an Internet telephony handset
which is specifically designed to enable superior voice communica- tions over the
Internet. The handset attaches to the side of a computer monitor and functions in a
similar way to a telephone handset, thus eliminating the necessity for a headset or
microphone and speakers when Internet voice communication software is used.
Management expects its principal revenue and profitability will emanate from
DigiPhone derivative software products and from license fees, and intends to
concentrate the majority of its management and financial resources on the
development and successful marketing of Internet related products produced by its
subsidiary Third Planet.
During the year ended April 1995, Company completed its restructuring which
involved the sale or closure of all previously owned subsidiaries and established
three new operating subsidiaries, namely Third Planet Publishing, Inc., (established
in January, 1995), Mr. CD-ROM Stores, Inc. (established in December, 1994)
and Camelot Distributing, Inc. (established in April 1995). Camelot Distributing
acquired the inventory and customer list of Maxmedia Distributing which was
acquired by Company in July, 1994 and has now ceased trading. Due to the fact
that trading operations for these subsidiaries commenced various times during the
financial year, and to the fact that no prior history exists for the ongoing operations
of Company, Company is of the belief that the financial results for the year ended
April 1995, and a comparison with prior period financial statements is not
indicative of the future results of Company.
The results of operations of the discontinued operations and the assets sold or to
be sold are presented in the financial statements as discontinued operations. Prior
year statements of operations have been restated for comparative purposes with
the result that no sales or related financial information is shown due to the fact that
the Company's CD-ROM software subsidiaries commenced operations during the
fiscal year and did not generate any revenues during previous fiscal years.
Company's continuing operations had sales of $1,184,469 in fiscal 1995 compared
with $-0- for 1994. Company had a loss from operations of $2,348,155
compared with a loss from operations in fiscal 1994 of $1,138,387. Net loss for
fiscal 1995 was $3,518,904 which includes loss from discontinued operations of
$1,182,927 which compares with a loss from discontinued operations for fiscal
1994 of $402,981.
The primary reasons for the loss from continuing operations was due to the start up
costs relating to the commencement of CD-ROM software operations in its newly
formed subsidiaries, and the decision to discontinue Company's other businesses.
In addition to start up costs for its new subsidiary, its subsidiary Maxmedia which
was located in Orlando was closed, and the Company incurred relocation costs of
personnel, inventory, fixtures and equipment to Dallas which is a non-recurring one
time costs. Mr. CD-ROM Stores incurred costs outside the normal course of
business due to the testing and retesting of various retail concept in its Orlando
retail unit in order to establish a permanent long term Mr. CD-ROM retail trading
format. Further, Third Planet Publishing incurred programming and data processing
costs relating to the creation of the CD-ROM interactive catalog and in relation to
DigiPhone which management has decided to expense.
The consolidated balance sheets for 1995 shows stockholders' equity of ($87,049)
compared with $1,408,498 for fiscal 1994. Total assets were $2,098,874
compared with $3,309,132. The decrease in stockholder's equity is due to a
combination of the loss from operations and the loss from discontinued operations.
Subsequent to the year end substantial increases in stockholders equity occurred
due to private placements of restricted common and preferred stock and the
conversion to common stock of debt owing to an affiliate of the President of
Company, all of which resulted in an increase in equity of $1,875,000 during the
three month period ending July 1995.
Company began its CD-ROM software operations by the acquisition of Maxmedia
Distributing, a Florida based distributor of CD-ROM software in July 1994. The
customer base of Maxmedia is now being serviced by Camelot Distributing, a CD-
ROM distributor supplying independent retailers from distribution facilities in
Dallas, Texas.
Mr. CD-ROM Stores was established in December, 1994 with the opening of a
retail concept store in Orlando, Florida. This store, which was on a six month
lease, provided an opportunity to refine Mr. CD-ROM's retail concept during
which time retail franchise documentation and approvals were obtained from the
majority of states in the USA. A company owned store was opened in Dallas in
July, 1995 and an additional four retail units opened by December 1995 in the
Dallas area.
Third Planet Publishing commenced operations in January 1995 and shortly
thereafter acquired the worldwide distribution rights to DigiPhone, the world's first
full duplex Internet phone system. Third Planet expanded the number of software
programmers developing the DigiPhone technology and arranged for quality retail
distribution as well as establishing marketing and advertising plans for launching
DigiPhone.
Subsequent to the period ended April 1995, the Company completed a private
placement of restricted common and preferred shares raising $1,200,000 for the
Company. The investors are an investment fund managed by Suisse Finance
Corporation and have agreed not to dispose of their common shares for a minimum
of twelve months. The preferred shares can convert into common shares over a
nine month period in equal monthly installments.
Discontinued Activities
During the year Company's directors determined to discontinue its remaining non
CD-ROM software activity and accordingly its subsidiary Camelot Entertainment,
Inc., a video distribution company filed Chapter 7 liquidation under the US
Bankruptcy laws in January 1995. Company's only continuing material liability in
relation to Camelot Entertainment is a corporate guarantee in the original amount of
$200,000 to a creditor of Camelot Entertainment. Such corporate guarantee has
been fully allowed for in Company's financial statements. (See Item 3). Revenues of
Camelot Entertainment which are not shown in the financial statements as they are
discontinued oper- ations were $694,666 for fiscal 1995 compared with
$2,597,366 for the pre- vious year. Loss from operations for fiscal 1995 was
$406,057 compared with $1,563,174.
As reported in the 1994 financial statements, Company's controlling 69% interest in
Beecher Energy, Ltd. was sold on May 31, 1994. The transaction was closed in
late July 1994. Also as disclosed in the 1994 financial statements, Company's
subsidiary Business Investigations which provided investigation services to financial
institutions and Vesta Land Title Company which provided title insurance services
both discontinued operations on July 8, 1994.
Liquidity and Capital Resources
Net cash used by operating activities for 1997 was $5,555,018 compared with
$6,740,073 in 1996. Net cash used by investing activities in 1997 was $4,587,734
compared with net cash used by investing activities of $1,889,146 in 1996. This
was primarily due to the net loss of $12,996,369 in 1997 compared with
$4,565,713 in the previous year. Net cash provided by financing activities was
$3,302,152 compared with $18,350,289 the previous year. Sales of common and
preferred stock were $3,410,500 compared with $22,330,214 in 1996.
Registrant's requirement for additional financial resources primarily results from the
continuing research and development costs of its subsidiary Third Planet. Registrant
believes that its current development program will shortly be concluded, but
believes that continued research and development will be required to maintain a
technological lead which management believes that Third Planet currently has.
Accordingly, management is aware of the need for additional cash resources to be
obtained for the continuance of research and development and anticipates that such
financial resources will primarily come from the private placement of Registrants'
common and preferred stock. Management believes that license fees received from
Third Planet's products will generate revenues and cash flow towards the end of
the current financial period. The activities of Registrant's subsidiary, mrcdrom.com
are dependent on its initial public offering (See Item 1. Business). Registrant has no
plans for significant capital expenditures during the next twelve months.
Management believes that cash provided by financing activities and licensing fees as
well as revenue from sale of software over the Internet together with the present
level of cash resources available to the Registrant will be sufficient for its needs
over the next twelve months. Management believes that should the Company
require additional cash resources it can incur borrowing as Registrant has no
long-term corporate debt. There are no known trends demands, commitments or
events that would result in or that is reasonably likely to result in the Company's
equity increasing or decreasing in a material way other than the potential use of
cash resources for investment in the Company's subsidiaries in the normal course of
business or additional fund raising.
Net cash used by operating activities for 1996 was $6,740,073 compared with
$2,207,683 in 1995. Net cash used by investing activities was $1,889,146
compared with net cash received of $28,482 in 1995. This was primarily due to
product development and software costs of $608,800 compared with $40,000 in
1995, to the purchase of minority interests of $264,044 ($0 in 1995), to the
issuance of a note receivable in the amount of $312,400 ($0 in 1995) and to
purchases of property and equipment of $1,087,658 ($195,589 in 1995).
Net cash provided by financing activities was $18,350,289 compared with
$2,290,941 the previous year. Sales of common stock and preferred stock were
$22,330,214 compared with $1,623,847 in 1995. These transactions substantially
improved the liquidity of the Company and helped raise stockholders' equity by
$15,767,262 in 1996.
The Company's plans for capital expenditures relate principally to capital costs
likely to be incurred in opening of additional retail units. Manage- ment does not
anticipate any liquidity problems and believes that the antici- pated level of revenue
generated by the Company together with the pre- sent level of cash resources
available to the Company will be sufficient for its needs. Management believes that
should the Company require addi- tional cash resources, it can raise additional cash
resources from the sale of common and preferred stock and/or by incurring
borrowing. Management is aware that the Company has no long term corporate
debt. Management believes that it is well positioned to make arrangements for
additional debt should |
