-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OZdwXc8MBPZYQsTWUd/XpUnlUNsXX4K2CNoBAD7Ac9cM38CgOnKOyXgJm3Jz7noA UUHVnigmagpYWlALmA3Tpg== 0000950116-97-001807.txt : 19971001 0000950116-97-001807.hdr.sgml : 19971001 ACCESSION NUMBER: 0000950116-97-001807 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970930 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROM TECH INC CENTRAL INDEX KEY: 0000948703 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 232694937 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 000-27102 FILM NUMBER: 97688869 BUSINESS ADDRESS: STREET 1: 2000 CABOT BLVD STREET 2: SUITE 110 CITY: LANGHORNE STATE: PA ZIP: 19047-1833 BUSINESS PHONE: 2157506606 MAIL ADDRESS: STREET 1: 2000 CABOT BLVD SUITE 110 CITY: LANGHORNE STATE: PA ZIP: 19047-1833 10QSB/A 1 FORM 10QSB/A U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996 _ |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-27102 ROMTECH, INC. (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-2694937 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 2000 Cabot Boulevard West, Suite 110 Langhorne, PA 19047-1833 (address of Principal executive offices) Issuer's Telephone Number, Including Area Code: 215-750-6606 Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Check whether the issuer (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ( X ) No ( ) APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ( ) No ( ) APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 6,285,128 shares of common stock, no par value per share, as of November 1, 1996. Transitional Small Business Disclosure Format (check one): Yes ( ) No ( X ) RomTech, Inc. The Registrant hereby amends its Form 10-QSB for the quarter ended December 31, 1996 for the purpose of amending certain financial information primarily relating to direct mail marketing costs, the beneficial conversion feature of convertible preferred stock and a development contract. INDEX
Page Part I. Financial Information ---- Item 1. Financial Statements: Consolidated Balance Sheet as of December 31, 1996.......................... 3 Consolidated Statements of Operations for the three and six months ended December 31, 1996 and 1995............................................ 4 Consolidated Statements of Cash Flows for the six months ended December 31, 1996 and 1995........................................................... 5-6 Notes to Consolidated Financial Statements.................................. 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 11-13 Part II. Other Information Exhibit Index............................................................... 14-15 Signatures.................................................................. 16
Page 2 RomTech, Inc. Consolidated Balance Sheet (Unaudited)
December 31, ASSETS 1996 ---------------- Current assets: Cash and cash equivalents $ 820,960 Restricted cash 14,788 Accounts receivable, net of allowance for doubtful accounts of $92,971 802,653 Inventory 337,307 Prepaid expenses 215,187 ----------- Total current assets 2,190,895 Furniture and equipment, net 194,006 Other assets 101,285 ----------- Total assets $2,486,186 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 338,192 Accounts payable 773,643 Accrued expenses 504,086 ----------- Total current liabilities 1,615,921 Capital lease obligations net of current portion 60,226 Notes payable-long term portion 285,992 Convertible subordinated debt 150,000 ----------- Total liabilities 2,112,139 Stockholders' equity: Convertible preferred stocks, net of beneficial conversion feature 1,900,198 Common stock, no par value (40,000,000 shares authorized; 6,285,128 issued and outstanding) 4,237,517 Additional paid in capital 1,034,738 Accumulated deficit (6,798,406) ------------ Total stockholders' equity 374,047 ----------- Total liabilities and stockholders' equity $2,486,186 ===========
See accompanying notes to the consolidated financial statements. Page 3 RomTech, Inc. Consolidated Statements of Operations (Unaudited)
Three months ended Six months ended December 31, December 31, -------------------------------- ----------------------------- 1996 1995 1996 1995 -------------- ---------------- --------------- ------------ Net revenues $1,058,466 $675,108 $2,129,483 $1,304,232 Cost of revenues 365,039 226,550 682,496 433,067 ----------- -------- ----------- ---------- Gross profit 693,427 448,558 1,446,987 871,165 Operating expenses: Product development 57,287 165,161 179,279 302,182 Selling, general and administrative 1,270,139 708,473 2,295,772 1,099,643 ---------- -------- ---------- --------- Total operating expenses 1,327,426 873,634 2,475,051 1,401,825 Operating loss (633,999) (425,076) (1,028,064) (530,660) Interest expense, net (14,967) (15,880) (28,480) (78,889) ----------- ---------- ----------- ---------- Loss before taxes (648,966) (440,956) (1,056,544) (609,549) Provision for income tax -0- 3,952 -0- 800 ------------- ------------- ----------- ---------- Net loss $(648,966) $(444,908) $(1,056,544) $(610,349) Accretion of beneficial conversion feature on preferred stock 86,858 -0- 86,858 -0- ----------- ------------ ------------ ---------- Net loss attributable to common stock $(735,824) $(444,908) $(1,143,402) $(610,349) ========== ============ ============ ========== Net loss per common share $ (0.12) $ (0.08) $ (0.18) $ (0.14) Weighted average common shares outstanding 6,285,128 5,670,609 6,285,128 4,265,024
See accompanying notes to the consolidated financial statements. Page 4 RomTech, Inc. Consolidated Statements of Cash Flows (Unaudited)
Six months ended December 31, ------------------------------------ 1996 1995 -------------------- --------------- Cash flows from operating activities: Net loss $ (1,056,544) $ (610,349) Adjustment to reconcile net loss to net cash from operating activities: Depreciation and amortization 114,845 31,760 Loss on disposal of equipment 3,921 -- Interest expense incurred but not paid -- 55,000 Changes in items affecting operations net of effect from acquired businesses: Restricted cash (14,788) (22,719) Accounts receivable (377,355) 144,531 Prepaid expenses (173,777) (5,563) Inventory (132,086) (72,357) Accounts payable 397,476 (158,690) Accrued expenses (221,332) 192,566 ---------- ---------- Net cash used in operating activities (1,459,640) (445,821) Cash flows from investing activities: Sales and maturities of short term investments 398,952 -- Purchase of short term investments -- (1,179,140) Purchase of furniture and equipment (47,238) (72,211) Purchase of software rights and other assets (89,606) (38,292) Loan to related party 1,250 -- ---------- ------------ Net cash provided by (used in) investing activities 263,358 (1,289,643) Cash flows from financing activities: Net proceeds of initial public offering of common stock 3,623,796 Net proceeds from issuance of convertible preferred stock 1,100,340 -- Proceeds from exercise of warrants -- 100,000 Proceeds from convertible subordinated debt -- 300,000 Net (repayments) advances of factored receivable -- (47,020) Net (repayments) advances to officers -- (52,919) Repayment of note payable (18,036) (381,250) Repayment of lease obligations (19,725) (12,481) ------------- ----------- Net cash provided by financing activities 1,062,579 3,530,126 Net increase (decrease) in cash and cash equivalents (133,703) 1,794,662 Cash and cash equivalents: Beginning of period 954,663 85,173 ------------ ---------- End of period $ 820,960 $1,879,835 ============ ==========
See accompanying notes to the consolidated financial statements. Page 5 RomTech, Inc. Consolidated Statements of Cash Flows (continued) (Unaudited)
Six months ended December 31, -------------------------------- 1996 1995 --------------- ----------- Supplemental cash flow information: Cash paid for interest $ 43,101 $ 29,297 =========== =========== Noncash investing and financing activities: Settlement of long term debt and officer's notes payable through issuance of preferred stock, notes payable and debt forgiveness, net of $50,000 cash payment. $ -0- $ 1,886,452 =========== =========== Net liabilities assumed in reverse acquisition by issuance of common stock $ -0- $ 92,219 =========== =========== Capital lease additions $ 73,388 $ -0- =========== =========== Conversion of debt for common stock $ 20,000 $ 68,555 =========== ===========
See accompanying notes to the consolidated financial statements. Page 6 RomTech, Inc. Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited interim consolidated financial statements were prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The Notes to Consolidated Financial Statements included in the Form 10-KSB for the fiscal year ended June 30, 1996 should be read in conjunction with the accompanying statements. These statements include all adjustments, which the Company believes are necessary for a fair presentation of the statements. The interim operating results are not necessarily indicative of the results for a full year. The accompanying consolidated financial statements as of December 31, 1996 include the accounts of RomTech, Inc., ("RomTech"), which successfully completed an initial public offering on October 18, 1995 with Applied Optical Media Corporation ("AOMC"), which merged with RomTech concurrent with the completion of RomTech's public offering, and Virtual Reality Laboratories, Inc. ("VRLI"), its wholly owned subsidiary, which was acquired on April 5, 1996 in a transaction accounted for using the pooling of interests method of accounting. As further described in Note 2, the AOMC merger was accounted for as a reverse acquisition whereby AOMC was deemed to be the acquiring entity for accounting purposes. In addition, the fiscal 1996 financial statements have been restated to reflect VRLI's operations on a pooled basis. Accordingly, the consolidated statements of operations include the activities of the following entities for the following periods: o July 1, 1995 to October 17, 1995 - AOMC and VRLI o October 18, 1995 to December 31, 1995 - RomTech, AOMC and VRLI o July 1, 1996 to December 31, 1996 - RomTech, AOMC and VRLI Description of Business RomTech, Inc. (the "Company") is a Pennsylvania Corporation, which was incorporated in July 1992. The Company develops, publishes, markets and is a reseller of a diversified line of personal computer software for consumer, educational and business applications. The Company's sales are primarily made through retail stores, by direct mail and sales of CD-ROM titles in jewel case packaging at computer trade shows. Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Virtual Reality Laboratories, Inc. All intercompany balances and transactions have been eliminated. 2. Completion of Pubic Offering/Merger Applied Optical Media Corporation ("AOMC") On October 18, 1995, the Company merged with AOMC, whereby the stockholders of AOMC exchanged all their outstanding shares for 1,575,000 common shares of the Company and 425,000 warrants to purchase common shares at $.50 per share. In addition, concurrently with the Merger certain stockholders of AOMC exchanged debt with a carrying value of $1,936,452 for 1,000,000 shares of convertible preferred stock, a $300,000, 8.75% note payable, a $50,000 cash payment and forgiveness of $586,607 of debt. The preferred stock has a face value of Page 7 RomTech, Inc. Notes to Consolidated Financial Statements $1,000,000 and is convertible into common stock of the Company beginning two years after October 18, 1995 at a price of $3.30 per share. The Company has the right to redeem the preferred stock for an aggregate redemption price of $1,000,000. As a result of the AOMC merger, the former stockholders of AOMC had a majority of the voting rights of the combined enterprise on a fully diluted, if converted basis. Therefore, for accounting purposes, AOMC was considered the acquirer (reverse acquisition). The cost of acquiring the Company was based on the fair market value of the Company's net assets, which approximated their recorded value. In connection with the reverse acquisition, the outstanding shares of the Company and the shares of the Company issued to AOMC stockholders have been reflected as a recapitalization of the previously outstanding AOMC common stock. On October 18, 1995, the Company consummated an initial public offering of 1,550,000 shares of common stock at a price of $3.00 per share resulting in net proceeds of $4,070,500 before deducting offering costs of $446,704. In connection with the Company's initial public offering the Company's Chief Executive Officer ("CEO") and a vice president each agreed to transfer 200,000 shares of the Company's common stock owned by them to PJM Trading Company ("PJM") in connection with certain services provided to the Company by PJM related to the Company's capital raising activity at the time of the initial public offering. The Company's vice president effected the share transfer in May 1996. As of December 31, 1996, the Company's CEO had not yet effected the transfer of his shares to PJM. For accounting purposes, the transfer of shares by these principal shareholders is presumed to benefit the Company and should be recognized in the financial statements of the Company. Therefore, the shares transferred would result in a contribution of stock to the Company by the principal shareholders and the issuance of shares to PJM for the same value. These transactions have not been separately recognized in the Company's financial statements since they had no net effect on the results of operations or shareholders' equity. Virtual Reality Laboratories, Inc. ("VRLI") On April 5, 1996, the Company acquired VRLI, a California corporation, in a transaction structured as a merger of VRLI with a newly formed subsidiary of the Company ("RomTech subsidiary"), with the RomTech subsidiary as the surviving corporation. VRLI, which is located in San Luis Obispo, California, publishes software for use on desktop computers. Its products include business forms and imaging processing software targeted for the small-office, home-office market, three-dimensional landscape rendering software and astronomy software for special interest users and the education market. In connection with the acquisition, the Company issued a total of 1,284,440 shares of its common stock, in exchange for all of the equity interests of Virtual Reality, which included common stock, stock options, convertible subordinated debt and a $100,000 promissory note to an officer and stockholder of VRLI. In addition, the Company incurred acquisition-related expenses of approximately $757,804, including $204,340 in the form of the Company's Common Stock, related to investment banking, consulting, accounting and legal costs which were charged to operations. This acquisition was accounted for using the pooling-of-interests method, and accordingly the Company's historical financial statements presented have been restated to include the accounts and results of operations of VRLI. Page 8 RomTech, Inc. Notes to Consolidated Financial Statements The following supplemental unaudited pro forma information summarizes the combined results of operations of the Company as if the combination with AOMC occurred July 1, 1995.
Three months ended Six months ended December 31, 1995 December 31, 1995 ----------------- ----------------- Revenues $700,794 $1,561,941 Net loss (507,097) (922,614) Loss per share (.08) (.17) Weighted average common shares 5,974,510 5,322,726
3. Liquidity As of December 31, 1996, the Company's cash and working capital balances were $821,000 and $575,000, respectively. To date the Company continues to operate at a loss. At December 31, 1996 the Company does not satisfy the minimum level of stockholders' equity required to be listed ($1,000,000) for trading on the Nasdaq Small Cap Market(TM). During the six months ended December 31, 1996, the Company has successfully completed an issuance of convertible preferred stock amounting to $1,100,340 in net proceeds. During January 1997, an additional $28,000 in net proceeds relating to this offering was received by the Company. The Company is currently seeking additional capital to, among other things, increase its stockholders' equity to at least the minimum level required. The Company's ability to achieve positive cash flow depends upon a variety of factors, including the timeliness and success of developing and selling its products, the costs of developing, producing and marketing such products and various other factors, some of which may be beyond the Company's control. In the future, the Company's capital requirements will be affected by each of these factors. Although, the Company believes cash and working capital balances will be sufficient to fund the Company's operations for the foreseeable future, the Company plans to raise additional capital and it will seek such funding through additional public or private financings. There can be no assurances that the Company will achieve a positive cash flow or that additional financing will be available if and when required or, if available, will be on terms satisfactory to the Company. Currently, the Company has no significant capital expenditure commitments. 4. Other Matters Acquisition On September 27, 1996, the Company entered into an agreement in principle to acquire FileABC(TM), a Nevada Limited Partnership, ("FileABC") in exchange for $500,000 in cash and 200,000 shares of the Company's common stock and an additional 1,000,000 shares contingent upon achieving certain revenue targets. The terms of the agreement were amended on October 18, 1996, whereby FileABC will be paid $325,000 in cash in addition to the interim payments of $50,000 on July 17, 1996 and $125,000 on October 30, 1996. Additionally, a maximum of 1,200,000 shares will be paid to FileABC for each $1,000,000 of revenues generated from the sale of FileABC's current software product and any enhancements or derivative products on or before March 31, 2000. FileABC develops, publishes and markets document imaging, management and archiving software for the Windows(TM) operating systems. The acquisition of FileABC is subject to certain conditions and, if completed, the acquisition will be accounted for using the purchase method of accounting. Page 9 RomTech, Inc. Notes to Consolidated Financial Statements 4. Other Matters (continued) Private Placement of Class Two Convertible Preferred Stock On January 30, 1997, the Company completed a private placement of 1,271,340 shares of Class Two Convertible Preferred Stock (the "Convertible Preferred Stock ") and 355,975 Common Stock Purchase Warrants (the "Warrants") to purchase 355,975 shares of the Company's Common Stock for an aggregate purchase price of $1,271,340. The number of shares of Convertible Preferred Stock which is convertible into Common Stock beginning on May 15, 1997 are 1,171,340 shares which were issued on November 15, 1996 in exchange for cash. An additional 100,000 shares of Convertible Preferred Stock, which was issued in exchange for the forgiveness of $100,000 of debt as of January 30, 1997, will be convertible into Common Stock beginning on July 30, 1997. The Convertible Preferred Stock is convertible at the option of the holder beginning six months following the date of issuance into the number of shares of Common Stock equal to the number of shares of Convertible Preferred Stock surrendered for conversion divided by the conversion price, which will be the lower of (i) $5.00 or (ii) ninety percent (90%) of the average of the closing bid price of the Company's Common Stock for the ten (10) business days immediately preceding the date on which the Securities and Exchange Commission declares effective the registration statement filed by the Company pursuant to the Registration Rights Agreement between the Company and purchasers of the Convertible Preferred Stock. Each Warrant entitles the holder to purchase one share of Common Stock at any time during the period beginning six (6) months after the date of issuance of the Warrant until five years after the date of issuance at a price equal to the lesser of (i) $6.25 or (ii) the average of the closing bid price of the Company's Common Stock plus $1.25, for the same ten (10) day period as the Convertible Preferred Stock. The Company also granted 177,988 Warrants, to purchase 177,988 shares of the Company's Common Stock, to the investment advisor ("Advisor Warrants") engaged by the Company to assist in the private placement of the Class Two Preferred. The terms and conditions of the Adviser Warrants are identical to the Warrants, except that the Adviser Warrants are exercisable at an exercise price of $6.00. The aforementioned sales of securities will result in significant dilution to the current holders of Common Stock. In addition, due to specific accounting guidance recently promulgated by the SEC, the Company's loss per share will be negatively impacted since the Class Two Preferred Stock (as hereinafter defined) contains a beneficial conversion feature that will be accounted for in a manner similar to a preferred stock dividend. The intrinsic value of the beneficial conversion feature of the Class Two Preferred is estimated to be $330,000. This amount will be amortized to accumulated deficit over approximately six months, which represents the initial conversion period. The amount amortized, which is analogous to a preferred stock dividend, increases the net loss attributable to common stockholders. For the six months ended December 31, 1996, $86,858 was amortized to the accumulated deficit. Page 10 RomTech, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations The accompanying consolidated financial statements as of December 31, 1996 include the accounts of RomTech, Inc., ("RomTech"), which successfully completed an initial public offering on October 18, 1995 with Applied Optical Media Corporation ("AOMC"), which merged with RomTech concurrent with the completion of RomTech's public offering, and Virtual Reality Laboratories, Inc. ("VRLI"), its wholly owned subsidiary, which was acquired on April 5, 1996 in a transaction accounted for using the pooling of interests method of accounting. As further described in Note 2, the AOMC merger was accounted for as a reverse acquisition whereby AOMC was deemed to be the acquiring entity for accounting purposes. In addition, the fiscal 1996 financial statements have been restated to reflect VRLI's operations on a pooled basis. Accordingly, the consolidated statements of operations include the activities of the following entities for the following periods: o July 1, 1995 to October 17, 1995 - AOMC and VRLI o October 18, 1995 to December 31, 1995 - RomTech, AOMC and VRLI o July 1, 1996 to December 31, 1996 - RomTech, AOMC and VRLI Management believes that the results of operations for the three months and six months ended December 31, 1996 may not be indicative of anticipated future results because of significant changes to be made in the combined businesses of AOMC, RomTech and VRLI (see note 2 to the financial statements). The acquisition of VRLI was accounted for using the pooling-of-interests method of accounting, and accordingly the Company's historical consolidated financial statements have been restated to include the accounts and results of operations of VRLI. Results of Operations Three Months Ended December 31, 1996 and 1995 Net revenues for three months ended December 31, 1996 were $1,058,000, compared to $675,000 for the three months ended December 31, 1995, representing an increase of $383,000 or 56.7%. This increase resulted primarily from increases in the distribution through the retail and direct mail channels of company developed titles and in the reselling of budget category jewel case products through the trade show channel. Cost of revenues consist primarily of packaging costs (boxes and jewel cases), CD-ROM pressing or replication activities through third party vendors and royalty expenses. The cost of revenues for the three months ended December 31, 1996 was $365,000 compared to $227,000 for the three months ended December 31, 1995, representing an increase of $138,000 or 60.8% due mainly from the increase in revenues. The Company's gross profit margin increased to 65.5% in the three months ended December 31, 1996 from 66.4% for the three months ended December 31, 1995. Product development expenses consist primarily of personnel costs, supplies and product testing. Product development expenses for the three months ended December 31, 1996 were $57,000 compared to $165,000 for the three months ended December 31, 1995, a decrease of $108,000 or 65.5%. The primary cause for this decrease was a $90,000 reimbursement for a development contract. Selling, general and administrative expenses for the three months ended December 31, 1996 were $1,270,000 compared to $708,000 for the three months ended December 31, 1995 representing an increase of $562,000 or 79.4%. The increase was primarily attributable to increases in: sales and marketing costs $278,000, salary and related costs $31,000, commissions $84,000, depreciation and amortization $50,000, outside services $87,000 and professional services $24,000. Net interest expense for the three months ended December 31, 1996 was $15,000 compared to $16,000 for the three months ended December 31, 1995, a decrease of $1,000 or 6.3%. Page 11 RomTech, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Six Months Ended December 31, 1996 and 1995 Net revenues for the six months ended December 31, 1996 were $2,130,000 compared to $1,304,000 for the six months ended December 31, 1995, representing an increase of $826,000 or 63.3%. This increase resulted primarily from increases in the distribution through the retail and direct mail channels of Company developed titles and in the reselling of budget category jewel case products through the trade show channel. Cost of revenues consist primarily of packaging costs (boxes and jewel cases), CD-ROM pressing or replication activities through third party vendors and royalty expenses. The cost of revenues for the six months ended December 31, 1996 was $683,000 compared to $433,000 for the six months ended December 31, 1995, representing an increase of $250,000 or 57.7% due mainly from the increase in revenues. The Company's gross profit margin increased to 68.0% in the six months ended December 31, 1996 from 66.8% for the six months ended December 31, 1995. Product development expenses consist primarily of personnel costs, supplies and product testing. Product development expenses for the six months ended December 31, 1996 were $179,000 compared to $302,000 for the six months ended December 31, 1995, a decrease of $123,000 or 40.7%. The primary cause for this decrease was a $90,000 reimbursement for a development contract. Selling, general and administrative expenses for the six months ended December 31, 1996 were $2,296,000 compared to $1,100,000 for the six months ended December 31, 1995, representing an increase of $1,196,000 or 108.7%. The increase was primarily attributable to increases in: sales and marketing costs $588,000, salary and related costs $153,000, commissions $162,000, depreciation and amortization $98,000, outside services $91,000 and professional services $36,000. Net interest expense for the six months ended December 31, 1996 was $28,000 compared to $79,000 for the six months ended December 31, 1995, a decrease of $51,000 or 64.6%. This decrease is due primarily to the reduction of long-term debt related to the Merger between RomTech, Inc. and AOMC and the investment of the proceeds from the IPO. Liquidity and Capital Resources The financial information presented reflects the Company's financial position at December 31, 1996. As of December 31, 1996, the Company's cash and working capital balances were $821,000 and $575,000, respectively. To date the Company continues to operate at a loss. At December 31, 1996 the Company did not satisfy the minimum level of stockholders' equity required to be listed ($1,000,000) for trading on the Nasdaq SmallCap Market(TM). During the six months ended December 31, 1996, the Company successfully completed the sale of convertible preferred stock resulting in $1,100,340 in net proceeds. During January 1997, an additional $28,000 in net proceeds relating to this offering was received by the Company. The Company is currently seeking additional capital to, among other things, increase its stockholders' equity to at least the minimum level required. The Company's ability to achieve positive cash flow depends upon a variety of factors, including the timeliness and success of developing and selling its products, the costs of developing, producing and marketing such products and various other factors, some of which may be beyond the Company's control. In the future, the Company's capital requirements will be affected by each of these factors. The Company plans to raise additional capital and it will seek such funding through additional public or private financings. There can be no assurances that the Company will achieve a positive cash flow or that additional financing will be available if and when required or, if available, will be on terms satisfactory to the Company. Currently, the Company has no significant capital expenditure commitments. Page 12 RomTech, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) On September 27, 1996, the Company entered into an agreement in principle to acquire FileABC(TM), a Nevada Limited Partnership, ("FileABC") in exchange for $500,000 in cash and 200,000 shares of the Company's common stock. The terms of the agreement were amended on October 18, 1996, whereby FileABC will be paid $325,000 in cash in addition to the interim financing of $50,000 and $125,000 provided on July 17 and October 30, 1996, respectively. Additionally, a maximum of 1,200,000 shares will be paid to FileABC for each $1,000,000 of revenues generated from the sale of FileABC's current software product and any enhancements or derivative products on or before March 31, 2000. FileABC develops, publishes and markets document imaging, management and archiving software for the Windows(TM) operating systems. The acquisition of FileABC is subject to certain conditions and, if completed, the acquisition will be accounted for using the purchase method of accounting. Page 13
Exhibit No. Description of Exhibit Page Number ----------- ---------------------- ----------- (1)2.1 Form of Amended and Restated Agreement and Plan of Merger between and among Applied Optical Media Corporation and the Registrant ("AOMC Merger Agreement"). (2)2.2 Agreement and Plan of Reorganization dated April 4, 1996 by and among the Registrant, the Registrant's wholly-owned subsidiary and Virtual Reality Laboratories, Inc. (2)2.3 Agreement and Plan of Merger dated April 4, 1996 by and among the Registrant, the Registrant's wholly-owned subsidiary and Virtual Reality Laboratories, Inc. (3)3.1 Amended and Restated Articles of Incorporation of the Registrant (4)3.2 Amended and Restated By-Laws of the Registrant (4)4.1 Promissory Note in the amount of $350,000 from Virtual Reality Laboratories, Inc. to Heller First Capital Corporation dated March 25, 1996; Commercial Security Agreement dated March 25, 1996 between Virtual Reality Laboratories, Inc. and Heller First Capital Corporation; and U.S. Small Business Administration Guaranty dated March 25, 1996. (3)10.1 Form of Redeemable Warrant for the Purchase of the Registrant's Common Shares (Exhibit A to AOMC Merger Agreement). (3)10.2 Form of Underwriter's Warrant Agreement. (3)10.3 Form of Certificate of Designation, Powers, Rights, Preferences and Number of Shares of Class One Preferred Stock (Exhibit B to AOMC Merger Agreement). (3)10.4 1994 Stock Option Plan. 10.5 Amended and Restated 1995 Stock Option Plan. (3)10.6 Form of Employment Agreement by and between the Registrant and John E. Bauer. (3)10.7 Form of Employment Agreement by and between the Registrant and Joseph A. Falsetti. (4)10.8 Registration Rights Agreement dated April 4, 1996 by and among the Registrant, the former stockholders of Virtual Reality Laboratories, Inc. and the former holders of convertible subordinated debt of Virtual Reality Laboratories, Inc.
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Exhibit No. Description of Exhibit Page Number ----------- ---------------------- ----------- (5)10.9 Certificate of Designation, Preferences, Powers, Rights and Number of Shares of Class Two Convertible Preferred Stock (5)10.10 Form of Purchase Agreement for the Class Two Convertible Preferred Stock (the "Class Two Preferred") dated as of November 15, 1996 (5)10.11 Form of Warrant Agreement for the Warrants (the "Warrants") issued to the holders of the Class Two Preferred dated as of November 15, 1996 (5)10.12 Form of Registration Rights Agreement for the Common Stock underlying the Class Two Preferred and the Warrants dated as of November 15, 1996 (5)10.13 Form of Agreement amending certain terms of the Class Two Preferred Certificate of Designation, Warrants and Registration Rights Agreement dated as of November 15, 1996 (6)10.14 Asset Acquisition Agreement between RomTech, Inc. and FileABC, LP (1) Incorporated by reference herein from Amendment No. 3 of the Registrant's Form SB-2 as filed with the Securities and Exchange Commission on October 4, 1995. (2) Incorporated by reference herein from the Registrant's Form 8-K as filed with the Securities and Exchange Commission on April 19, 1996. (3) Incorporated by reference herein from the Registrant's Form SB-2 as filed with the Securities and Exchange Commission on July 28, 1995. (4) Incorporated by reference herein from the Registrant's Form 10-QSB for the quarter ended March 31, 1996 as filed with the Securities and Exchange Commission on May 14, 1996. (5) Incorporated by reference herein from the Registrant's Form 8-K as filed with the Securities and Exchange Commission on November 27, 1996. (6) Incorporated by reference herein from the Registrant's Form 10-QSB as filed with the Securities and Exchange Commission on November 14, 1996.
Page 15 RomTech, Inc. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROMTECH, INC. (Registrant) Date: September 30, 1997 /s/ Joseph A. Falsetti ------------------ --------------------------- Joseph A. Falsetti Chief Executive Officer Principal Financial Officer Page 16 EX-27 2 ART. 5 FDS FOR 2ND QUARTER 10-QSB
5 1 6-MOS JUN-30-1997 DEC-31-1996 820,960 0 802,653 92,971 337,307 2,190,895 194,006 0 2,486,186 1,615,921 0 4,237,517 0 1,900,198 1,034,738 2,486,186 2,129,483 2,129,483 682,496 682,496 2,475,051 0 28,480 (1,056,544) 0 (1,056,544) 0 0 0 (1,056,544) (.18) (.18)
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