-----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, TEL5/Qn7vORkIz5UPq+S1PJPaGt2mKpXTesHpdLr2Zw3PNicvs3WSM0uENkuRHZh aN6oIOegJQs7/vgiXtp1EA== 0000950116-97-002020.txt : 19971111 0000950116-97-002020.hdr.sgml : 19971111 ACCESSION NUMBER: 0000950116-97-002020 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19971110 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: 97711673 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 - ------------------------------------------------------------------------------ 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 March 31, 1997 |_| 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: 6,482,730 shares of common stock, no par value per share, as of May 8, 1997. Transitional Small Business Disclosure Format (check one): Yes ( ) No ( X ) - ------------------------------------------------------------------------------ The Registrant hereby amends its Form 10-QSB for the quarter ended March 31, 1997 for the purpose of amending certain financial information primarily relating to direct mail marketing costs, and a development contract. INDEX
Page Part I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheet as of March 31,1997, with Pro Forma information........................................................................................... 3 Consolidated Statements of Operations for the three and nine months ended March 31, 1997 and 1996.................................................................................................. 4 Consolidated Statements of Cash Flows for the nine months ended March 31, 1997 and 1996.................................................................................................. 5-6 Notes to Consolidated Financial Statements............................................................ 7-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 12-14 Part II. Other Information Item 2. Changes in Securities................................................................................. Signatures............................................................................................ 15 Exhibit Index......................................................................................... 16 Financial Data Schedule............................................................................... 17
Page 2 Consolidated Balance Sheet (Unaudited)
Pro Forma March 31, March 31, 1997 ASSETS 1997 (Note 4) --------------- --------------- Current assets: Cash and cash equivalents $ 111,333 $ 1,192,961 Restricted cash 14,788 14,788 Accounts receivable, net of allowance for doubtful accounts of $76,807 679,777 679,777 Inventory 441,333 441,333 Prepaid expenses 243,557 243,557 ----------- ----------- Total current assets 1,490,788 2,572,416 Furniture and equipment, net 186,284 186,284 Other assets 203,690 203,690 ----------- ----------- Total assets $1,880,762 $2,962,390 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT) Current liabilities: Notes payable $ 128,440 $ 128,440 Accounts payable 896,613 896,613 Accrued expenses 389,156 389,156 Capital lease obligations 28,210 28,210 ------------ ------------ Total current liabilities 1,442,419 1,442,419 Capital lease obligations net of current portion 53,918 53,918 Notes payable-long term portion 285,992 285,992 Convertible subordinated debt 150,000 150,000 ---------- ---------- Total liabilities 1,932,329 1,932,329 Stockholders' equity/(deficit): Convertible preferred stocks, net of beneficial conversion features 2,169,627 3,106,627 Common stock, no par value (40,000,000 shares authorized; 6,482,730 issued and outstanding) 4,336,861 4,336,861 Additional paid in capital 1,012,866 1,157,494 Accumulated deficit (7,570,921) (7,570,921) ---------- ---------- Total stockholders' equity/(deficit) (51,567) 1,030,061 ---------- ---------- Total liabilities and stockholders' equity/(deficit) $1,880,762 $2,962,390 ========== ==========
See accompanying notes to the consolidated financial statements. Page 3 Consolidated Statements of Operations (Unaudited)
Three months ended Nine months ended March 31, March 31, -------------------------- --------------------------- 1997 1996 1997 1996 --------- --------- ---------- ----------- Net revenues $ 746,235 $ 798,229 $2,875,718 $2,102,461 Cost of revenues 308,210 374,003 990,706 807,070 --------- --------- ---------- ----------- Gross profit 438,025 424,226 1,885,012 1,295,391 Operating expenses: Product development 126,162 181,858 305,441 484,040 Selling, general and administrative 924,915 1,019,942 3,220,687 2,119,585 --------- --------- ---------- ----------- Total operating expenses 1,051,077 1,201,800 3,526,128 2,603,625 Operating loss (613,052) (777,574) (1,641,116) (1,308,234) Interest (expense) income, net (16,304) 19,396 (44,784) (59,493) --------- --------- ---------- ----------- Loss before taxes (629,356) (758,178) (1,685,900) (1,367,727) Provision for income tax 1,730 - 0 - 1,730 800 --------- --------- ---------- ----------- Net loss (631,086) (758,178) (1,687,630) (1,368,527) Accretion of beneficial conversion feature on preferred stock (141,429) - 0 - (228,287) - 0 - --------- --------- ---------- ----------- Net loss attributable to common stock $(772,515) $(758,178) $(1,915,917) $(1,368,527) ========== ========== ============ ============ Net loss per common share $ (0.12) $ (0.12) $ (0.30) $ (0.28) ======== ======== ======== ======== Weighted average common shares outstanding 6,416,863 6,233,243 6,329,040 4,921,097
See accompanying notes to the consolidated financial statements. Page 4 Consolidated Statements of Cash Flows (Unaudited)
Nine months ended March 31, --------------------------------- 1997 1996 ------------ ----------- Cash flows from operating activities: Net loss $ (1,687,630) $ (1,368,527) Adjustment to reconcile net loss to net cash from operating activities: Depreciation and amortization 160,815 112,093 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) 1,683 Accounts receivable (254,479) 172,992 Prepaid expenses (202,147) (32,650) Inventory (236,112) (110,784) Accounts payable 520,446 220,215 Accrued expenses (314,933) (24,674) ------------ ----------- Net cash used in operating activities (2,024,907) (974,652) Cash flows from (used in) investing activities: Sales and maturities of short term investments 398,952 399,764 Purchase of short term investments -- (1,192,404) Purchase of furniture and equipment (53,136) (112,124) Purchase of software rights and other assets (216,857) (43,663) Loan to related party 2,000 (5,500) ------------ ----------- Net cash provided by (used in) investing activities 130,959 (953,927) 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 1,105,812 -- Proceeds from exercise of warrants -- 100,000 Proceeds from convertible subordinated debt -- 300,000 Net repayments of advances of factored receivable -- (192,776) Net repayments of advances to officers -- (26,366) Repayment of note payable (27,368) (36,672) Repayment of lease obligations (27,826) (35,388) ------------ ----------- Net cash provided by financing activities 1,050,618 3,732,594 Net increase (decrease) in cash and cash equivalents (843,330) 1,804,015 Cash and cash equivalents: Beginning of period 954,663 85,173 ------------ ----------- End of period $ 111,333 $ 1,889,188 ============= ===========
See accompanying notes to the consolidated financial statements. Page 5 Consolidated Statements of Cash Flows (continued) (Unaudited)
Nine months ended March 31, --------------------------- 1997 1996 --------- ---------- Supplemental cash flow information: Cash paid for interest $ 65,051 $ 55,291 ========= ========== 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 $ -- $1,886,452 ========= ========== Net liabilities assumed in reverse acquisition by issuance of common stock $ -- $ 92,219 ========= ========== Capital lease additions $ 81,643 $ -- ========= ========== Conversion of debt for $100,000 of convertible preferred stock and $100,000 exercise of common stock warrants $ 200,000 $ -- ========= ========== Conversion of debt for common stock $ -- $ 68,555 ========= ==========
See accompanying notes to the consolidated financial statements. Page 6 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 (consisting only of normal recurring 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 March 31, 1997 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 March 31, 1996 - RomTech, AOMC and VRLI o July 1, 1996 to March 31, 1997 - 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 to a large national distributor that sells through retail stores. The Company also sells its products by direct mail, via the internet and 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 $1,000,000 and is convertible into common Page 7 Notes to Consolidated Financial Statements 2. Completion of Pubic Offering/ Merger (continued) 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 gross proceeds of $4,650,000 before deducting offering costs of $1,026,204. 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. 3. Liquidity As of March 31, 1997, the Company's cash and working capital balances were $111,000 and $48,369, respectively. At March 31, 1997 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) and through March 31, 1997 the Company continued to operate at a loss. During the nine months ended March 31, 1997, the Company successfully completed the private placement of Class Two Convertible Preferred Stock resulting in $1,106,000 in net proceeds. As of April 22, 1997, the Company completed the private placement of Class Three Convertible Preferred Stock resulting in $1,082,000 in net proceeds. Additionally, Odyssey Capital Group L. P., a shareholder of the Company, purchased $200,000 of notes payable previously due Ballyshannon Partners L. P., another shareholder of the Company, and converted $100,000 of the debt to acquire a portion of the Class Two Convertible Preferred Stock and then converted the remaining $100,000 of the debt to exercise warrants to purchase 198,687 shares of Common Stock. The loss of $1,687,630 for the nine months ended March 31, 1997 offset the net equity proceeds from the aforementioned transactions. Total stockholders' equity was $1,030,061 at March 31, 1997 on a pro forma basis (see the pro forma balance sheet included with this report). The Company continues to seek additional capital to, among other things, maintain its stockholders' equity at least at the minimum level required by the Nasdaq SmallCap Market. At May 15, 1997 the Company is in compliance with the minimum level of stockholders' equity for listing on the Nasdaq SmallCap Market. Page 8 Notes to Consolidated Financial Statements 3. Liquidity (continued) 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. Private Placements Class Two Convertible Preferred Stock On January 30, 1997, the Company completed a private placement to accredited investors of 1,271,340 shares of Class Two Convertible Preferred Stock (the "Class Two Preferred Stock") and 355,975 Common Stock Warrants (the "Warrants") for the purchase of 355,975 shares of the Company's Common Stock. The offer and sale of the Class Two Preferred Stock and the Warrants was exempt from the registration requirements of the Securities Act of 1933, as amended (the "Act"), pursuant to Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder. There was no public offering of the Class Two Preferred Stock or the Warrants, and all sales were made in private transactions with accredited investors, as such term is defined in Rule 501 of Regulation D. Each Warrant entitles the holder to purchase one share of Common Stock at any time during the period beginning six 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 on the Nasdaq SmallCap Market, or the primary securities exchange on which the Common Stock is then quoted, plus $1.25, for the ten 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 the purchasers of the Class Two Preferred Stock. The Class Two Preferred Stock is convertible beginning six months following the date of issuance into shares of Common Stock equal to the number of shares of Class Two Preferred Stock surrendered for conversion divided by the conversion price, which will be the lower of (i) $3.97 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 registering the shares for resale. Of the 1,271,340 shares of Class Two Preferred Stock sold, 1,171,340 shares were issued as of November 15, 1996, and therefore become convertible into Common Stock on May 15, 1997. The remaining 100,000 shares of Class Two Preferred Stock become convertible on July 30, 1997. The aforementioned sales of securities may 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 and the Class Three Preferred Stock (as hereinafter defined) contain beneficial conversion features 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 Stock 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. As of March 31, 1997, $228,287 was amortized to the accumulated deficit. Page 9 Notes to Consolidated Financial Statements 4. Private Placements (continued) The Company also issued 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 Stock. The terms and conditions of the Adviser Warrants are identical to the Warrants, except that the Advisor Warrants are exercisable at an exercise price of $6.00. Class Three Convertible Preferred Stock On April 22, 1997, the Company completed a private placement to accredited investors of 1,250,000 shares of Class Three Convertible Preferred Stock (the "Class Three Preferred Stock") and 62,500 Common Stock Warrants (the "Class Three Warrants") for the purchase of 62,500 shares of the Company's Common Stock. Each Class Three Warrant entitles the holder to purchase one share of Common Stock at an exercise price of $3.94 per share subject to the condition that the Class Three Warrants will not be exercisable until the closing bid price of the Company's Common Stock exceeds $5.66 per share after October 9, 1997. The Class Three Warrants are exercisable at any time beginning six months after the date of issuance until three years and six months after the date of issuance. The offer and sale of the Class Three Preferred Stock and the Class Three Warrants was exempt from the registration requirements of the Securities Act of 1933, as amended (the "Act"), pursuant to Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder. There was no public offering of the Class Three Preferred Stock or the Class Three Warrants, and all sales were made in private transactions with accredited investors, as such term is defined in Rule 501 of Regulation D. One-half of the Class Three Preferred Stock is convertible at the option of the holders beginning five days following the date that the SEC declares effective the registration statement registering the shares of Common Stock issuable upon conversion of the Class Three Preferred Stock for resale (the "First Conversion Date"). The remaining one-half of the Class Three Preferred Stock will become convertible thirty days after the First Conversion Date. The conversion price per share (the "Conversion Price") for the Class Three Preferred Stock will range from a high of 80% of the average closing bid price of the Company's Common Stock (the "Average Quoted Price") for the five (5) trading days immediately preceding the date of conversion to a low of 70% of the Average Quoted Price for the five trading days immediately preceding the date of conversion; provided that the Conversion Price will not exceed $5.95 or be less than $.66. The Company incurred expenses of approximately $168,000 in connection with the private placement of the Class Three Preferred Stock and realized net proceeds of approximately $1,082,000 (see the Consolidated Pro Forma Balance Sheet on page 3 of this report). The issuance of the Class Three Preferred Stock has resulted in anti-dilution adjustments to the Company's Class Two Preferred Stock in accordance with the terms of the Class Two Preferred Stock. The aforementioned sales of securities may 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 certain securities issued by the Company contain beneficial conversion features that will be accounted for in a manner similar to a preferred stock dividend. The estimated intrinsic value of the beneficial conversion feature is $313,000 (see the Consolidated Pro Forma Balance Sheet on page 3 of this report). This cost will be amortized starting in April 1997. The Company paid to H.J. Meyers & Co., Inc. ("H.J. Meyers"), as placement agent of the Class Three Convertible Preferred Stock and the Warrants, commissions and expenses in an amount equal to $80,000. Additionally, the Company paid a finder's fee of $20,000 to VMH, Ltd. in connection with the sale of $250,000 of the Class Three Preferred Stock. H.J. Meyers was also granted 7,000 shares of Common Stock (the "Agent Shares") which the Company has agreed to register for resale. Page 10 Notes to Consolidated Financial Statements 4. Private Placements (continued) On May 1, 1997, the Company filed a registration statement on Form S-3 registering for resale the Common Stock issuable upon conversion of the Class Two Preferred Stock, the Class Three Preferred Stock, and the Common Stock issuable upon exercise of the Warrants, the Advisor Warrants, and the Class Three Warrants. The adjustments that were recorded to reflect the effect of the private placement of the Class Three Preferred Stock in the Pro Forma Balance Sheet at March 31, 1997 reflect the $1,250,000 of Class Three Preferred Stock issued net of offering costs of $168,000 and the estimated value of the beneficial conversion feature of $313,000. 5. Other Matters Acquisition On September 27, 1996, the Company entered into an agreement in principle to acquire FileABC(TM), a Nevada Limited Partnership, ("FileABC"). The terms of the agreement were amended on October 18, 1996 whereby the Company would acquire FileABC in exchange for $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 were to 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 completion of the acquisition of FileABC was subject to certain conditions, including the condition that FileABC continue to have a distribution relationship with Franklin Quest Company ("Franklin Quest") for the distribution of software products. On March 27, 1997 the Company was informed that Franklin Quest had provided ninety days notice to FileABC of its intent to cancel its distribution relationship with FileABC. If Franklin Quest does terminate its distribution relationship with FileABC, the Company, in all likelihood, will not complete the acquisition of FileABC. The Company will continue to evaluate the recoverability of the amounts previously provided to FileABC as the situation develops. Page 11 Management's Discussion and Analysis of Financial Condition and Results of Operations The accompanying consolidated financial statements as of March 31, 1997 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 consolidated 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: July 1, 1995 to October 17, 1995 - AOMC and VRLI October 18, 1995 to March 31, 1996 - RomTech, AOMC and VRLI July 1, 1996 to March 31, 1997 - RomTech, AOMC and VRLI Management believes that the results of operations for the three months and nine months ended March 31, 1997 may not be indicative of anticipated future results because of significant changes to be made in the combined businesses of AOMC, Rom Tech and Virtual Reality (see note 2 to the financial statements). The acquisition of Virtual Reality 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 Virtual Reality. Results of Operations Three Months Ended March 31, 1997 and 1996 Net revenues for the three months ended March 31, 1997 were $746,000 compared to $798,000 for the three months ended March 31, 1996, representing a decrease of $52,000 or 6.5%. This decrease resulted primarily from decreases in the distribution of the Company's products through the retail channel. Cost of revenues for the three months ended March 31, 1997 was $308,000 compared to $374,000 for the three months ended March 31, 1996, representing a decrease of $66,000 or 17.6% due from the decrease in revenues and the improvement in the gross profit percentage. The Company's gross profit margin increased to 58.7% for the three months ended March 31, 1997 from 53.1% for the three months ended March 31, 1996. Product development expenses for the three months ended March 31, 1997 were $126,000 compared to $182,000 for the three months ended March 31, 1996, a decrease of $56,000 or 30.8%. This decrease was caused primarily by a reduction in third party software contractor expenses of $70,000, which was partially offset by an increase in salary-related costs of $20,000. Selling, general and administrative expenses for the three months ended March 31, 1997 were $925,000 compared to $1,020,000 for the three months ended March 31, 1996 representing a decrease of $95,000 or 9.3%. The decrease was caused primarily by decreases in advertising costs of $66,000, bad debt expense of $31,000, depreciation expense of $39,000 and professional fees of $31,000, which were partially offset by increases in salary-related costs of $60,000 and occupancy costs of $12,000. Net interest expense for the three months ended March 31, 1997 was $16,000 compared to net interest income of $19,000 for the three months ended March 31, 1996, an increase of $35,000 net interest expense. This increase was caused primarily by a $33,000 reduction in interest income due to the significant reduction in cash available for investment at March 31, 1997 compared to March 31, 1996. Page 12 Management's Discussion and Analysis of Financial Condition and Results of Operations (cont.) Nine months Ended March 31, 1997 and 1996 Net revenues for the nine months ended March 31, 1997 were $2,876,000 compared to $2,102,000 for the nine months ended March 31, 1996, representing an increase of $774,000 or 36.8%. This increase resulted primarily from increases of approximately $700,000 in sales relating to the distribution of the Company's consumer products under the brand "Galaxy of Games", through the retail and direct mail channels. Cost of revenues for the nine months ended March 31, 1997 was $991,000 compared to $807,000 for the nine months ended March 31, 1996, representing an increase of $184,000 or 22.8% due mainly from the increase in revenues. The Company's gross profit margin increased to 65.6% in the nine months ended March 31, 1997 from 61.6% for the nine months ended March 31, 1996. Product development expenses for the nine months ended March 31, 1997 were $305,000 compared to $484,000 for the nine months ended March 31, 1996, a decrease of $179,000 or 37.0%. This decrease was caused primarily by a reduction in contractor expenses of $77,000 and a $90,000 reimbursement for a development contract. Selling, general and administrative expenses for the nine months ended March 31, 1997 were $3,221,000 compared to $2,120,000 for the nine months ended March 31, 1996 representing an increase of $1,101,000 or 51.9%. The increase was due primarily from increases in salary-related costs of $349,000, occupancy costs of $54,000, professional fees of $238,000, advertising costs of $376,000, amortization costs of $94,000 and promotional expenses of $20,000, which were partially offset by a decrease in bad debt expense of $39,000. Net interest expense for the nine months ended March 31, 1997 was $45,000 compared to $59,000 for the nine months ended March 31, 1996, a decrease of $14,000 or 23.7%. This decrease was due primarily from 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 March 31, 1997. As of March 31, 1997, the Company's cash and working capital balances were $111,000 and $48,369, respectively. At March 31, 1997 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) and through March 31, 1997 the Company continued to operate at a loss. During the nine months ended March 31, 1997, the Company successfully completed the private placement of Class Two Convertible Preferred Stock resulting in $1,106,000 in net proceeds. As of April 22, 1997, the Company completed the private placement of Class Three Convertible Preferred Stock resulting in $1,082,000 in net proceeds. Additionally, Odyssey Capital Group L. P., a shareholder of the Company, purchased $200,000 of notes payable previously due Ballyshannon Partners L. P., another shareholder of the Company, and converted $100,000 of the debt to acquire a portion of the Class Two Convertible Preferred Stock and then converted the remaining $100,000 of the debt to exercise warrants to purchase 198,687 shares of Common Stock. The loss of $1,687,630 for the nine months ended March 31, 1997 offset the net equity proceeds from the aforementioned transactions. Total stockholders' equity was $1,030,061 at March 31, 1997 on a pro forma basis (see the pro forma balance sheet included with this report). The Company will continue to seek additional capital to, Page 13 Management's Discussion and Analysis of Financial Condition and Results of Operations (cont.) among other things, maintain its stockholders' equity at least at the minimum level required by the Nasdaq SmallCap Market. At May 15, 1997 the Company is in compliance with the minimum level of stockholders' equity for listing on the Nasdaq SmallCap Market. 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. On September 27, 1996, the Company entered into an agreement in principle to acquire FileABC(TM), a Nevada Limited Partnership, ("FileABC"). The terms of the agreement were amended on October 18, 1996 whereby the Company would acquire FileABC in exchange for $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 were to 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 completion of the acquisition of FileABC was subject to certain conditions, including the condition that FileABC continue to have a distribution relationship with Franklin Quest Company ("Franklin Quest") for the distribution of software products. On March 27, 1997 the Company was informed that Franklin Quest had provided ninety days notice to FileABC of its intent to cancel its distribution relationship with FileABC. If Franklin Quest does terminate its distribution relationship with FileABC, the Company, in all likelihood, will not complete the acquisition of FileABC. The Company will continue to evaluate the recoverability of the amounts previously provided to FileABC as the situation develops. Part II. Other Information Item 2(c). Recent Sales of Unregistered Securities. The information contained in Note 4 to the Company's Consolidated Financial Statements, as set forth in Item 1 of Part I, regarding the private placement of unregistered securities of the Company is hereby incorporated by reference. Page 14 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: November 10, 1997 /s/ Joseph A. Falsetti ---------------- ----------------------- Joseph A. Falsetti Chief Executive Officer Principal Financial Officer Date: November 10, 1997 /s/ Gerald W. Klein ---------------- -------------------- Gerald W. Klein Vice President and Chief Financial Officer Page 15 Exhibit Index
Exhibit No. Description of Exhibit Page Number ----------- ---------------------- ----------- *4.1 Certificate of Designation, Preferences, Powers, Rights and Number of Shares of Class Two Convertible Preferred Stock *4.2 Form of Purchase Agreement for the Class Two Convertible Preferred Stock (the "Class Two Preferred") dated as of November 15, 1996 *4.3 Form of Warrant Agreement for the Warrants (the "Warrants") issued to the holders of the Class Two Preferred dated as of November 15, 1996 *4.4 Form of Registration Rights Agreement for the Common Stock underlying the Class Two Preferred and the Warrants dated as of November 15, 1996 *4.5 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 **4.6 Purchase Agreement dated January 30, 1997 between RomTech, Inc. and Odyssey Capital Group, L.P. **4.7 Agreement dated January 30, 1997 between RomTech, Inc. and Odyssey Capital Group, L.P. **4.8 Registration Rights Agreement dated January 30, 1997 between RomTech, Inc. and Odyssey Capital Group, L.P. ***4.9 Certificate of Designation, Preferences, Powers, Rights and Number of Shares of Class Three Convertible Preferred Stock ***4.10 Form of Securities Purchase Agreement for the Class Three Convertible Preferred Stock (the "Class Three Preferred") ***4.11 Form of Warrant Agreement for the Warrants (the "Class Three Warrants") issued to he holders of the Class Three Preferred ***4.12 Form of Registration Rights Agreement for the Common Stock underlying the Class Three Preferred and the Class Three Warrants ****10.1 Asset Acquisition Agreement Between RomTech, Inc. and FileABC, LP 27.1 Financial Data Schedule 16
- -------------------- * Incorporated by reference herein from the Registrant's Form 8-K as filed with the Securities and Exchange Commission on November 27,1996. ** Incorporated by reference herein from the Registrant's Form 8-K as filed with the Securities and Exchange Commission on February 4, 1997. *** Incorporated by reference herein from the Registrant's Form 8-K as filed with the Securities and Exchange Commission on April 9, 1997. **** Incorporated by reference herein from the Registrant's Form 10-Q as filed with the Securities and Exchange Commission on November 14, 1996. EX-27 2 ART. 5 FDS FOR 3RD QUARTER 10-QSB/A
5 1 9-MOS JUN-30-1997 MAR-31-1997 111,333 0 679,777 76,807 441,333 1,490,788 186,284 0 1,880,762 1,442,419 0 4,336,861 0 2,169,627 1,012,866 1,880,762 2,875,718 2,875,718 990,706 990,706 3,526,128 0 44,784 (1,685,900) 1,730 (1,687,630) 0 0 0 (1,687,630) (.30) (.30)
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