-----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, QfN/Qo+6KwhPS2YzywCsKu4bvfsqv8lNAk76vRI50nX5LAA+K6zeWhpKx9IqX7bT jSdXQubnW9VTsrPW6h5nNg== 0000950116-97-002042.txt : 19971114 0000950116-97-002042.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950116-97-002042 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 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 SEC ACT: SEC FILE NUMBER: 000-27102 FILM NUMBER: 97713871 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 1 ============================================================================== U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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: 8,960,673 shares of common stock, no par value per share, as of November 7, 1997. Transitional Small Business Disclosure Format (check one): Yes ( ) No ( X ) INDEX
Page ---- Part I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheet as of September 30, 1997................. 3 Consolidated Statements of Operations for the three months ended September 30, 1997 and 1996......................................... 4 Consolidated Statements of Cash Flows for the three months ended September 30, 1997 and 1996 ........................................ 5 Notes to Consolidated Financial Statements.......................... 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................ 8-9 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K.................................... 10 Signatures .................................................................... 11 Exhibit Index .................................................................... 12 Financial Data Schedule .................................................................... 13
Page 2 Romtech, Inc. Item 1. Financial Statements Consolidated Balance Sheet (Unaudited) September 30, 1997 ASSETS ------------ Current assets: Cash and cash equivalents $ 373,885 Restricted cash 24,788 Accounts receivable, net of allowance for doubtful accounts of $68,624 1,274,486 Inventory 426,263 Prepaid expenses 233,644 ----------- Total current assets 2,333,066 Furniture and equipment, net 211,140 Intangibles and other assets 311,420 ----------- Total assets $ 2,855,626 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 40,767 Accounts payable 720,268 Accrued expenses 383,489 Capital lease obligations 26,915 ----------- Total current liabilities 1,171,439 Capital lease obligations net of current portion 41,110 Notes payable-long term portion 258,940 Convertible subordinated debt 150,000 ----------- Total liabilities 1,621,489 Stockholders' equity: Preferred stock, no par value, 10,000,000 shares authorized: Class One Convertible Preferred Stock, 1,000,000 Issued and outstanding 1,000,000 Class Two Convertible Preferred Stock, 540,340 Issued and outstanding 387,535 Accretion of beneficial conversion feature on Preferred Stock 140,255 Common stock, no par value (40,000,000 shares authorized: 8,545,294 issued and outstanding) 6,362,286 Additional paid in capital 1,148,550 Accumulated deficit (7,804,489) ----------- Total stockholders' equity 1,234,137 ----------- Total liabilities and stockholders' equity $ 2,855,626 =========== See accompanying notes to the consolidated financial statements. Page 3 Romtech, Inc. Consolidated Statements of Operations (Unaudited) Three months ended September 30, 1997 1996 ---- ---- Net sales $ 1,535,558 $ 1,071,017 Cost of sales 613,796 317,457 ----------- ----------- Gross profit 921,762 753,560 Operating expenses: Product development 86,571 121,992 Selling, general and administrative 656,285 1,025,633 ----------- ----------- Total operating expenses 742,856 1,147,625 ----------- ----------- Operating income (loss) 178,906 (394,065) Interest expense, net 11,426 13,513 ----------- ----------- Income (loss) before taxes 167,480 (407,578) Provision for income taxes 1,165 -0- ----------- ----------- Net income (loss) 166,315 (407,578) Accretion of beneficial conversion feature on preferred stocks 105,441 - 0 - ----------- ----------- Net income (loss) attributable to common stock $ 60,874 ($ 407,578) =========== =========== Net income (loss) per common share $ 0.01 ($ 0.06) =========== =========== Weighted average common shares outstanding 7,354,887 6,285,128 See accompanying notes to the consolidated financial statements. Page 4 Romtech, Inc. Consolidated Statements of Cash Flows (Unaudited)
Three months ended September 30, 1997 1996 ---- ---- Cash flows from operating activities: Net income (loss) $ 166,315 ($407,578) Adjustment to reconcile net loss to net cash from operating activities: Depreciation and amortization 40,000 62,299 Loss on disposal of equipment - 0 - 4,683 Interest expense incurred but not paid - 0 - 4,350 Changes in items affecting operations net of effect from acquired businesses: Restricted cash - 0 - (14,788) Accounts receivable (241,014) (152,060) Prepaid expenses (8,127) (48,542) Inventory (56,681) (75,708) Accounts payable 82,826 222,617 Accrued expenses 90,434 (82,650) --------- --------- Net cash provided by (used in) operating activities 73,753 (487,377) --------- --------- Cash flows from investing activities: Sales and maturities of short term investments - 0 - 398,952 Purchase of furniture and equipment (41,633) (27,023) Purchase of software rights and other assets (87,533) (58,654) Loan to related parties 750 500 --------- --------- Net cash provided by (used in) investing activities (128,416) 313,775 --------- --------- Cash flows from financing activities: Repayment of note payable (9,427) (7,483) Repayment of lease obligations (7,499) (14,982) --------- --------- Net cash used in financing activities (16,926) (22,465) --------- --------- Net decrease in cash and cash equivalents (71,589) (196,067) Cash and cash equivalents: Beginning of period 445,474 954,663 --------- --------- End of period $ 373,885 $ 758,596 ========= ========= Supplemental cash flow information: Cash paid for interest $ 14,561 $ 22,194 ========= ========= Non cash investing activities: Capital lease additions $ - 0 - $ 38,388 ========= =========
See accompanying notes to the consolidated financial statements. Page 5 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, 1997 should be read in conjunction with the accompanying statements. These statements include all adjustments 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. Description of Business RomTech, Inc. (the "Company") develops, publishes, markets and resells a diversified line of personal computer ("PC") software primarily for consumer and business applications. The Company promotes the Galaxy of Games(TM), Galaxy of Home Office Help(TM) and Galaxy Deluxe(TM) brand names (the "Galaxy Series") in order to generate customer loyalty, encourage repeat purchases and differentiate the Galaxy Series products to retailers and consumers. The Company targets the market of home and small business personal computer users. The Company's sales are primarily made through a large national distributor that sells to large national retail chain stores. The Company also sells it products via the Internet and at computer trade shows. The Company is a Pennsylvania Corporation which was incorporated in July 1992 and completed its initial public offering in 1995, and trades on the Nasdaq SmallCap Market under the symbol ROMT. 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. New Accounting Pronouncements The Company will be required to adopt Statement of Financial Accounting Standards No. 128, "Earnings Per Share", which will become effective in the second quarter of fiscal 1998. Management believes that the adoption of this statement will not have a material financial impact on the Company. The Company will be required to adopt Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which will become effective for fiscal year 1999. The Company believes that the adoption of this statement will not have a material financial impact. The Company will be required to adopt Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information", which will become effective for fiscal year 1999. The Company believes that the adoption of this statement will not have a material financial impact. Page 6 Romtech, Inc. Notes to Consolidated Financial Statements (continued) 3. Preferred Stock On October 18, 1997 all of the 1,000,000 shares of Class One Convertible Preferred Stock was converted into 303,030 shares of Common Stock. As of November 7, 1997, 740,340 shares of the Class Two Preferred have been converted into 522,173 shares of Common Stock and all of the 1,250,000 shares of Class Three Preferred have been converted into 1,487,508 shares of Common Stock. The remaining 531,000 shares of the Class Two Preferred may be convertible into 379,286 shares of Common Stock at the conversion price of $1.40 upon notice of conversion to the Company by the remaining Class Two Preferred Stockholders. 4. Terminated Acquisition The Company has terminated an Asset Acquisition Agreement (the "Agreement") entered into with FileABC(TM) L.P. ("FileABC") in October 1996, and will not consummate the acquisition of certain assets of FileABC pursuant to the Agreement. The completion of the transaction had been subject to certain conditions, including the condition that FileABC continue to have a distribution relationship with Franklin Covey Company ("Franklin Covey") for the distribution of software products. Franklin Covey terminated its distribution relationship with FileABC, which was among the reasons for the Company's termination of the Agreement. The Company had advanced FileABC $175,000 in connection with the terms of the Agreement. This amount is recorded in prepaid assets as an advance payment. Although management currently believes this amount is recoverable and is actively pursuing recovery, there can be no assurance collection will ultimately occur, in which case the advances would be written off. Page 7 Romtech, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The accompanying consolidated financial statements as of September 30, 1997 include the accounts of RomTech, Inc., ("RomTech"), which successfully completed an initial public offering and a merger with Applied Optical Media Corporation ("AOMC"), on October 18, 1995, 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. Results of Operations Three Months Ended September 30, 1997 and 1996 Net sales for the three months ended September 30, 1997 were $1,536,000 compared to $1,071,000 for the three months ended September 30, 1996, representing an increase of $465,000 or 43.4%. This increase resulted primarily from increases in the sales of the Company's Galaxy of Games, Galaxy of Home Office Help and Galaxy Deluxe brand name products (the "Galaxy Series Products") which were partially offset by decreases in sales of certain discontinued products. Cost of sales for the three months ended September 30, 1997 were $614,000 compared to $317,000 for the three months ended September 30, 1996, representing an increase of $297,000 or 93.7%. This increase resulted primarily from the increase in sales and certain express delivery costs incurred due to greater than expected demand for the Galaxy Series Products. The discontinuance of direct mail sales in the quarter ended September 30, 1997 also increased cost of sales because direct mail sales had yielded a higher gross profit but incurred significantly higher marketing costs. The Company's gross profit margin decreased to 60.0% in the three months ended September 30, 1997 from 70.4% for the three months ended September 30, 1996. The primary causes of this decrease were the express delivery costs in delivering the Galaxy Series Products and the discontinuance of the direct mail marketing efforts. Product development expenses for the three months ended September 30, 1997 were $87,000 compared to $122,000 for the three months ended September 30, 1996, a decrease of $35,000 or 28.7%. The decrease was primarily due to a $33,000 decrease in outside contractor costs resulting from increased utilization of internal resources. Selling, general and administrative expenses for the three months ended September 30, 1997 were $656,000 compared to $1,026,000 for the three months ended September 30, 1996, representing a decrease of $370,000 or 36.1%. The decrease was primarily due to decreases in direct mail marketing costs of $175,000, advertising costs of $134,000 and commissions costs of $48,000. Net interest expense for the three months ended September 30, 1997 was $11,000 compared to $14,000 for the three months ended September 30, 1996, a decrease of $3,000 or 21.4%. This decrease was due to the reduction of long term debt related to the conversion of $200,000 of debt to equity and the $100,000 principal payment made against a note payable on May 1, 1997. Page 8 Romtech, Inc. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources The financial information presented reflects the Company's financial position at September 30, 1997. The quarter ended September 30, 1997 was the Company's first profitable quarter since its Initial Public Offering in October 1995. As of September 30, 1997, the Company's cash and working capital balances were $373,885 and $1,161,627, respectively. The Company's ability to sustain continued revenue growth, profitability and a 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; consumer's continuing demand for value priced software; competition; and various other factors, many 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 believes that its cash and working capital balances will be sufficient to fund the Company's operations for the foreseeable future. However, the Company may need to raise additional capital to satisfy the new Nasdaq Stock Market requirements for continued listing on the Nasdaq SmallCap Market, which became effective August 22, 1997. Companies failing to satisfy the new continued listing requirement have until February 23, 1998 to meet the new requirements. The Company currently does not satisfy the new net tangible assets requirement of $2,000,000. At September 30, 1997 the Company's net tangible assets were $1,234,137. Although management of the Company will seek to be in compliance with this requirement on or before February 23, 1998, there can be no assurance that this will occur. On October 1, 1997, in an effort to comply with the new requirements and provide additional working capital for the Company as its business expands, the Company adjusted the exercise price of certain warrants for the Company's Common Stock totaling 332,988 warrants to $2.00 per share, the fair market value on October 1, 1997, until December 12, 1997. Of the 332,988 warrants, 155,000 were originally granted at $3.60 per share and 177,988 were granted at $6.00 per share. The exercise of these warrants would contribute approximately $665,000 to equity, which in addition to projected earnings, should enable the Company to comply with the new net tangible assets requirement of $2,000,000 on or before February 23, 1998. However, there can be no assurance that the warrants will be exercised and that the Company will realize projected earnings sufficient to comply with the new net tangible assets requirement. The Company may then find it necessary to seek additional capital to increase its stockholders' equity to at least the new minimum level required. There can be no assurance that the Company will be able to raise such additional capital or if it is able to raise additional capital that it will be on terms satisfactory to the Company. The Company currently has no significant capital expenditure commitments. Forward-looking Statements This quarterly report on Form 10-QSB contains forward-looking statements regarding future events or the future financial performance of the company that involve certain risks and uncertainties. Actual events or the actual future results of the Company may differ materially from the results discussed in the forward-looking statements due to various factors, including, but not limited to, the timeliness and success of developing and selling products; the costs of developing, producing and marketing such products; consumers' continuing demand for value-priced software; competition; and various other factors, many of which may be beyond the Company's control. Page 9 Romtech, Inc. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description of Exhibit ----------- ---------------------- 27.1 Financial Data Schedule (b) Reports on Form 8-K On September 19, 1997, the Company filed a report on Form 8-K regarding the termination of the Asset Acquisition Agreement entered into with FileABC(TM), L.P. ("FileABC") in October 1996 and it has filed suit against FileABC in federal court, alleging fraud, deceit and misrepresentation, breach of the covenant of good faith and fair dealing, breach of contract and conspiracy on the part of FileABC and certain of its principals and agents. Page 10 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: November 12, 1997 /s/ Joseph A. Falsetti ----------------- ----------------------- Joseph A. Falsetti Chief Executive Officer Principal Financial Officer Date: November 12, 1997 /s/ Gerald W. Klein ----------------- -------------------- Gerald W. Klein Vice President and Chief Financial Officer Page 11 Romtech, Inc. Exhibit Index Exhibit No. Description of Exhibit Page Number ----------- ---------------------- ----------- 27.1 Financial Data Schedule 13 EX-27 2 ART. 5 FDS FOR 1ST QUARTER 10-QSB
5 1,000 3-MOS JUN-30-1998 SEP-30-1997 373,885 0 1,274,486 68,624 426,263 2,333,066 211,140 0 2,855,626 1,171,439 0 0 1,527,790 6,362,286 1,148,550 2,855,626 1,535,558 1,535,558 613,796 613,796 742,856 0 11,426 167,480 1,165 166,315 0 0 0 166,315 .01 .01
-----END PRIVACY-ENHANCED MESSAGE-----