- - -------------------------------------------------------------------------------
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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-27102
ROM TECH, 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: 6,187,358 shares of common
stock, no par value per share, as of May 1, 1996. Transitional Small Business
Disclosure Format (check one):
Yes ( ) No ( X )
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Rom Tech, Inc.
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements:
Balance Sheet as of March 31, 1996....................... 3
Statements of Operations for three months and nine months
ended March 31, 1996 and 1995.......................... 4
Statements of Cash Flows nine months ended
March 31, 1996 and 1995................................ 5
Notes to Financial Statements............................ 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 11-14
Part II. Other Information
Exhibit Index............................................ 15
Signatures............................................... 18
Rom Tech, Inc.
Balance Sheet
(Unaudited)
March 31,
1996
----
ASSETS
Current assets:
Cash and cash equivalents $1,654,726
Short term investments 792,640
Accounts receivable, net 152,778
Inventory 157,135
Prepaid expenses 72,174
----------
Total current assets 2,829,453
Furniture and equipment, net 78,010
Other assets 300,142
----------
Total assets $3,207,605
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, 8.75% due within one year $200,000
Accounts payable 247,894
Accrued expenses 67,079
Other liabilities 16,450
---------
Total current liabilities 531,423
Notes payable, 8.75% due after one year 100,000
Total liabilities 631,423
Stockholders' equity:
Convertible preferred stock 1,000,000
Common stock, no par value 3,763,177
Additional paid in capital 649,540
Accumulated deficit (2,836,535)
----------
Total stockholders' equity 2,576,182
----------
Total liabilities and stockholders' equity $3,207,605
==========
See accompanying notes to financial statements.
Rom Tech, Inc.
Statements of Operations
(Unaudited)
Three months ended Nine months ended
March 31, March 31,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales $525,592 $282,972 $1,031,506 $744,043
Cost of sales 270,375 50,121 448,724 183,158
-------- ------- --------- --------
Gross profit 255,217 232,851 582,782 560,885
Operating expenses:
Product development 94,160 90,629 274,975 266,090
Selling, general and administrative 586,639 102,439 1,025,575 367,742
-------- ------- --------- --------
Total operating expenses 680,799 193,068 1,300,550 633,832
-------- ------- --------- --------
Operating income (loss) (425,582) 39,783 (717,768) (72,947)
Interest income (expense), net 33,110 (46,167) 11,554 (139,989)
-------- ------- --------- --------
Net loss ($392,472) ($6,384) ($706,214) ($212,936)
======== ====== ======== ========
Net loss per common share ($0.08) ($0.00) ($0.19) ($0.11)
Weighted average common
shares outstanding 4,948,803 1,929,166 3,636,657 1,929,166
See accompanying notes to financial statements.
Rom Tech, Inc.
Statements of Cash Flows
(Unaudited)
Nine months ended
March 31,
-----------------
1996 1995
---- ----
Cash flows from operating activities:
Net loss ($706,214) ($212,936)
Adjustment to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 80,130 7,289
Interest expense incurred but not paid 55,000 137,885
Changes in items affecting operations net of effect
from acquired business:
Accounts receivable 58,339 (29,624)
Prepaid expenses (61,964) 836
Inventory (103,707) -0-
Accounts payable 178,221 39,262
Accrued expenses (91,995) (24,923)
-------- --------
Net cash used in operating activities (592,190) (82,211)
-------- --------
Cash flows from investing activities:
Purchase of short term investments (1,192,404) -0-
Sales and maturities of short term investments 399,764 -0-
Purchase of furniture and equipment (92,393) (2,911)
Purchase of software rights and other assets (43,663) -0-
Loan to Virtual Reality Laboratories, Inc. (250,000) -0-
Loan to related parties (5,500) -0-
--------- --------
Net cash used in investing activities (1,184,196) (2,911)
--------- --------
Cash flows from financing activities:
Net proceeds of initial public offering of common stock 3,623,796 -0-
Proceeds from exercise of warrants 100,000 -0-
Repayment of advance to officers -0- (89,000)
(Repayment of) proceeds from note payable (375,000) 178,532
Repayment of lease obligations (3,612) -0-
Other 755 (3,538)
--------- -------
Net cash provided by financing activities 3,345,939 85,994
---------- -------
Net increase in cash and cash equivalents 1,569,553 872
Cash and cash equivalents:
Beginning of period 85,173 75,667
---------- -------
End of period $1,654,726 $76,539
========== =======
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. $1,886,451 --
==========
Deficiency in net assets acquired through reverse
acquisition by issuance of common stock. $92,219 --
=======
See accompanying notes to financial statements.
Rom Tech, Inc.
Notes To Financial Statements
March 31, 1996
1. Basis of Presentation
The unaudited balance sheet as of March 31, 1996, and statements of operations
and cash flows for the three months and nine months ended March 31, 1996
represent the merged entity ("the Company") that resulted from the merger of Rom
Tech, Inc. ("Rom Tech") with Applied Optical Media Corporation ("AOMC") on
October 18, 1995 (the "Merger"). The unaudited financial statements for periods
prior to the Merger (Note 2) represent the financial statements of AOMC. The
financial statements of AOMC for periods prior to October 18, 1995 are presented
because the Merger of AOMC with Rom Tech was accounted for as a reverse
acquisition since AOMC was the acquirer for accounting purposes (see Note 2).
The unaudited financial statements presented herein were derived from the
financial statements of the Company and AOMC, and reflect all adjustments
consisting of normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the results of operations for
the three months and nine months ended March 31, 1996 and 1995 and may not
necessarily be indicative of the results to be expected for the year ending June
30, 1996.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Registration Statement
filed on Form SB-2, which was declared effective by the Securities and Exchange
Commission on October 13, 1995.
2. Merger/Completion of Pubic Offering
On October 18, 1995, Rom Tech merged with AOMC, whereby the shareholders 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 shareholders 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 $586,451 of debt. The preferred stock has a face value of
$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 Merger, the former shareholders of AOMC have 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 Rom Tech was based on the fair
market value of Rom Tech'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 shareholders have been
reflected as a recapitalization of the previously outstanding AOMC common stock.
Prior to completion of the Merger, the Rom Tech's authorized capital was
increased to 40,000,000 shares of common stock, no par value, and 10,000,000
shares of preferred stock, no par value. Also, on October 18, 1995, the Company
consummated an initial public offering of 1,550,000 shares of common stock (the
"IPO") at a price of $3.00 per share (the "IPO Price") resulting in net proceeds
of $4,070,500 before deducting offering costs of $446,704.
Rom Tech, Inc.
Notes To Financial Statements
March 31, 1996
The following unaudited pro forma information presents the results of the
combined operations of the Company, adjusted primarily for the reduction in
interest expense, as if the Merger occurred at the beginning of the respective
periods:
Three months Nine months
ended March 31, ended March 31,
------------------------ ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales $525,592 $578,263 $1,289,215 $1,711,848
Net income (loss) ($392,472) $42,327 ($1,018,479) ($50,674)
Net loss per common share ($0.08) $0.01 ($0.23) ($0.01)
Weighted average common shares 4,948,403 3,806,569 4,345,625 3,806,569
Management believes that the results of operations for the three months and nine
months ended March 31, 1996 may not be indicative of anticipated future results
because of significant changes to be made in the combined businesses.
Additionally, on April 5, 1996, the Company acquired Virtual Reality
Laboratories, Inc., a California corporation, (see note 7). This acquisition
will be accounted for using the pooling-of-interests method, and accordingly the
Company's historical financial statements presented in future reports will be
restated to include the accounts and results of operations of Virtual Reality.
The pro forma net loss per common share is computed by dividing net loss
attributable to common shareholders by the weighted average number of common
shares outstanding during the period.
The weighted average common shares outstanding retroactively reflect the effect
of the shares issued in the Merger and the outstanding shares of Rom Tech at the
time of the Merger. For periods subsequent to the IPO, common stock equivalents
were considered anti-dilutive for the above periods presented. For periods prior
to the IPO the weighted average number of shares has been adjusted, using the
treasury stock method, to reflect as outstanding all common stock issued at a
price less than the IPO Price during the twelve-month period preceding the
initial public offering of the Company's common stock as well as all stock
issuable upon the exercise of stock options and warrants issued at a price less
than the IPO Price during such twelve-month period. Pursuant to the requirements
of the Securities and Exchange Commission, these securities are reflected in
earnings per share calculations, whether or not the securities are
anti-dilutive.
3. Summary of Significant Accounting Policies
The following summary of significant accounting policies were derived from the
financial statements of the Company for periods after October 18, 1995, and from
the financial statements of AOMC for all periods prior to October 18, 1995 (See
Note 2).
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Rom Tech, Inc.
Notes To Financial Statements
March 31, 1996
Short-term Investments
Short-term investments consist primarily of commercial paper with original
maturities at date of purchase beyond three months and less than twelve months.
Such short-term investments are carried at cost, which approximates fair value,
due to the short period of time to maturity.
Inventory
Inventory is valued at lower of cost or market. Cost is determined by first-in,
first-out method (FIFO).
Furniture and Equipment
Furniture and equipment are stated at cost. Equipment under capital leases is
stated at the present value of the minimum lease payments. Depreciation on
property and equipment is calculated on the straight line method over the
estimated useful lives of the assets. Maintenance and repair costs are expensed
as incurred.
Revenue Recognition
Revenue is recognized upon shipment of products to customers. An allowance for
returned merchandise is provided based on the Company's historical experience.
Software Development Costs
Software development costs are expensed as incurred until technological
feasibility has been established. After technological feasibility has been
established, any additional costs are capitalized in accordance with Statement
of Financial Accounting Standards (SFAS) No. 86. To date, amounts qualifying for
capitalization, net of valuation allowances, have not been material.
Computation of Net Loss Per Share
For the three months and nine months ended March 31, 1995, net loss per common
share is computed using the weighted average number of common shares outstanding
during the period for AOMC retroactively adjusted for the shares and warrants
received in connection with the reverse acquisition, reflected as a
recapitialization of the previously outstanding common stock of AOMC.
For the three months and nine months ended March 31, 1996, net loss per common
share is computed using the weighted average number of common shares outstanding
adjusted to reflect the outstanding shares of Rom Tech at the time of the Merger
and the shares issued in connection with the reverse acquisition reflected as a
recapitalization of the previously outstanding common stock of AOMC. Common
stock equivalents were considered anti-dilutive.
Rom Tech, Inc.
Notes To Financial Statements
March 31, 1996
4. Commitments
Under various licensing agreements, the Company is required to pay royalties on
the sales of certain products that incorporate licensed content. Royalty
expenses under such agreements, which is recorded in cost of sales, was
approximately $22,358 and $28,133 for the three months ended March 31, 1996 and
1995, respectively, and $40,989 and $62,903 for the nine months ended March 31,
1996 and 1995, respectively.
5. Income Taxes
No income tax expense or benefit was recorded for the periods presented.
However, any deferred tax asset created was offset by a valuation allowance of
equal amount.
As of June 30, 1995, the Company had approximately $2,069,000 of net operating
loss carryforwards ("NOL's") for tax purposes (expiring in years 2003 and 2009),
which may be available to offset future federal taxable income. The Company's
NOL's may be subject to the provisions of IRC Section 382, as established by the
Tax Reform Act of 1986, related to changes in stock ownership. Presently no
determination has been made to evaluate what effect the application of these
regulations may have on the utilization of the NOL's. Should these regulations
apply, the amount of the NOL's that can be utilized to offset taxable income in
future periods may be subject to an annual limitation and it is possible that
some portion of the NOL's may never be utilized.
6. Stockholders' Equity
At March 31, 1996 the following data related to stockholders' equity is
presented:
Shares of common stock outstanding............................ 4,949,603
---------
Shares of convertible preferred stock outstanding............. 1,000,000
---------
Options outstanding and exercisable at $2.00 per share....... 162,000
---------
Options outstanding and exercisable at $3.00 per share....... 60,000
---------
Warrants outstanding and exercisable at $.50 to $3.60 per
share....................................................... 593,800
---------
7. Subsequent Event
On April 5, 1996, the Company acquired Virtual Reality Laboratories, Inc.
("Virtual Reality"), a California corporation, in a transaction structured as a
merger of Virtual Reality with a newly formed subsidiary of the Company ("Rom
Tech subsidiary"), with the Rom Tech subsidiary as the surviving corporation.
Virtual Reality, 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 1,284,439 shares of its common stock,
in exchange for substantially all of the debt and equity interests of Virtual
Reality, which included common stock, stock options, convertible subordinated
debt and a $100,000 promissory note to an officer and shareholder of Virtual
Reality. In addition, the Company will incur acquisition-related expenses of
approximately $565,000 related to investment banking, consulting, accounting and
legal costs which will be charged to operations during the fourth quarter of
1996.
Rom Tech, Inc.
Notes To Financial Statements
March 31, 1996
This acquisition will be accounted for using the pooling-of-interests method,
and accordingly the Company's historical financial statements presented in
future reports will be restated to include the accounts and results of
operations of Virtual Reality. The following supplemental unaudited information
summarizes the combined results of operations of the Company, Rom Tech (prior to
October 18, 1995) and Virtual Reality as if the combination occurred at the
beginning of the respective periods presented.
Three months Nine months
ended March 31, ended March 31,
--------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenue $749,086 $1,162,660 $2,492,445 $3,200,816
Net loss (733,715) (42,545) (1,556,546) (424,983)
Loss per share (.12) (.01) (.28) (.08)
Weighted average common shares 6,232,842 5,091,008 5,630,064 5,091,008
Rom Tech, Inc.
March 31, 1996
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of operations for the three months and nine months ended March 31, 1996
reflect the operations of the Company whereas the results of operations for the
three months and nine months ended March 31, 1995 represent the operations of
Applied Optical Media Corporation ("AOMC") because the merger of AOMC with Rom
Tech, Inc. ("Rom Tech") on October 18, 1995 was accounted for as a reverse
acquisition in which AOMC was considered the acquirer for accounting purposes
(See Note 2).
The Company's management believes that the results of operations for the three
months and nine months ended March 31, 1996 may not be indicative of anticipated
future results because of the acquisition on April 5, 1996 of Virtual Reality
Laboratories, Inc. ("Virtual Reality") in a merger of Virtual Reality with a
newly formed subsidiary of the Company (see note 7 to the financial statements).
The acquisition of Virtual Reality will be accounted for using the
pooling-of-interests method, and accordingly the Company's historical financial
statements presented in future reports will be restated to include the accounts
and results of operations of Virtual Reality.
Results of Operations
Historical Three Months ended March 31, 1996 and 1995
Net sales for the three months ended March 31, 1996 were $525,592 compared to
$282,972 in the three months ended March 31, 1995, representing an increase of
$242,620 or 86%. This increase resulted from the sales of Rom Tech (the
"Acquired Business") of $395,437 being offset by the decrease of AOMC sales of
$152,817. The AOMC sales decline related primarily to a decrease in sales to
retail stores of $141,000. The competition for shelf space in retail stores
intensified dramatically during the 1996 fiscal year because of the
proliferation of the number of CD-ROM titles available for sale. This shelf
space competition, along with the delay in the delivery of new CD-ROM titles,
has resulted in a decline of product purchases from the Company by retail
stores. See the Pro Forma sales discussion below for additional comparative
analysis.
Cost of sales consists primarily of packaging costs (boxes and jewel cases),
CD-ROM pressing or replication activities through third party vendors and
royalty expenses. The cost of sales for the three months ended March 31, 1996
was $270,375 compared to $50,121 for the three months ended March 31, 1995,
representing an increase of $220,254. The increased cost of sales relates to the
sales of the Acquired Business ($224,010), offset by a reduction in cost of
sales ( $3,756) due to the decreased sales of AOMC's business. The Company's
gross profit margin decreased to 49% in the three months ended March 31, 1996
from 82% in the three months ended March 31, 1995 primarily because of lower
gross profit margins on the Acquired Business' sales and a decline in AOMC's
gross profit margins. The Acquired Business' sales represent reselling of budget
category jewel case CD-ROM products which has a lower gross profit margin than
boxed CD-ROM products. AOMC's gross profit margins were lower because of
reductions in selling prices of boxed CD-ROM products attributable to increased
competition among older CD-ROM titles. Additionally, many of AOMC's CD-ROM
titles are now sold in jewel cases at lower selling prices.
Product development expenses consist primarily of personnel costs, supplies and
product testing. Product development expenses for the three months ended March
31, 1996 were $94,160 compared to $90,629 for the three months ended March 31,
1995, an increase of $3,531 or 4%.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Selling, general and administrative expenses consist primarily of (a) salaries,
benefits, and travel expenses for employees of the sales, marketing and
administrative departments; (b) advertising and related marketing materials; (c)
bad debt expenses; (d) selling commissions; and (e) corporate office
administration expenses, including legal and accounting fees, outside services
and rent. The combined expenses ($586,639) of operating two businesses for the
three months ended March 31, 1996, are not comparable to the expenses for the
three months ended March 31, 1995 ($102,439) for the operation of one
independent business. In addition, the current period includes costs associated
with increased personnel, increased advertising and marketing effort,
commissions on the reselling of budget jewel case products, and corporate
overhead costs related to the transition from a privately-held company to a
public company.
Net interest income for the three months ended March 31, 1996 was $33,110
compared to interest expense of $46,167 for the three months ended March 31,
1995, a change of $79,277. This change is due to the reduction of long term debt
related to the Merger and the investment of the proceeds from the IPO.
Pro Forma Three Months ended March 31, 1996 and 1995
The following discussion addresses unaudited pro forma combined information for
the three months ended March 31, 1996 and 1995, adjusted principally for the
reduction in interest expense, as if the Merger of AOMC with Rom Tech occurred
at the beginning of the respective periods. For purposes of pro forma
information presented, the combined business of AOMC and Rom Tech are referred
to as the "Company."
The Company's pro forma net sales for the three months ended March 31, 1996 were
$525,592 compared to $578,263 for the three months ended March 31, 1995,
resulting in a decrease of $52,671. Of such decrease, $152,817 represents a
decline in AOMC's sale of boxed products, primarily to retail stores, offset by
a $101,376 increase in Rom Tech's reselling of budget category jewel case
products.
The change in the Company's pro forma net loss for the three months ended March
31, 1996 of $392,472 compared to a pro forma net income of $42,327 for the prior
period, adjusted for interest expense, resulted from a decline in the gross
profit margins related to a change in the sales mix, and increased combined
operating expenses as described above under the historical data.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Historical Nine Months ended March 31, 1996 and 1995
Net sales for the nine months ended March 31, 1996 were $1,031,506 compared to
$744,043 for the nine months ended March 31, 1995, representing an increase of
$287,463 or 39%. This increase is due to the sales of the Acquired Business of
$656,033 offset by a decrease in AOMC sales of $368,570. The AOMC sales decline
related primarily to a decrease in sales to retail stores of $199,000 and a
decrease in OEM (bundling) and license revenues of $180,000. The competition for
shelf space in retail stores has intensified dramatically during the 1996 fiscal
year because of the increase in the number of CD-ROM titles available for sale.
This shelf space competition, along with the delay in the delivery of new CD-ROM
titles, has resulted in a decline of product purchases from the Company by the
retail stores. The decrease in OEM and license revenues relates to non-renewal
of business by certain customers. See the Pro Forma net sales discussion below
for additional comparative analysis.
The cost of sales for the nine months ended March 31, 1996 was $448,724 compared
to $183,158 for the nine months ended March 31, 1995, representing an increase
of $265,566. The increased costs of sales relates primarily to the sales of the
Acquired Business ($316,894), offset by the reduction in costs of sales
($51,328) due to the decreased sales of AOMC's business. As a result, the
Company's gross profit margin decreased to 57% in the nine months ended March
31, 1996 from 75% in the nine months ended March 31, 1995 primarily because of
lower gross profit margins on the Acquired Business' sales and a decline in
AOMC's gross profit margins. The Acquired Business' sales represent reselling of
budget category jewel case CD-ROM products which has a lower gross profit margin
than boxed CD-ROM products. AOMC's gross profit margins were lower because of
reduction in selling prices of boxed CD-ROM products attributable to increased
competition among older CD-ROM titles, and a decline in the OEM and license
revenue business which had limited related cost. Additionally, many of AOMC's
CD-ROM titles are now sold in jewel cases at lower selling prices.
Product development expenses for the nine months ended March 31, 1996 were
$274,975 compared to $266,090 for the nine months ended March 31, 1995, an
increase of $8,885 or 3%.
Selling, general and administrative expenses consist primarily of (a) salaries,
benefits, and travel expenses for employees of the sales, marketing and
administrative departments; (b) advertising and related marketing materials; (c)
bad debt expenses; (d) selling commissions; and (e) corporate office
administration expenses, including legal and accounting fees, outside services
and rent. The combined expenses ($1,025,575) of operating two businesses for the
nine months ended March 31, 1996, are not comparable to the prior period
expenses ($367,742) of operating one independent business. In addition, the nine
month period includes costs associated with increased personnel, increased
advertising and marketing effort, commissions on the reselling of budget jewel
case products, and corporate overhead costs related to the transition from a
privately-held company to a public company.
Interest income for the nine months ended March 31, 1996 was $11,554, as
compared to interest expense of $139,989 for the nine months ended March 31,
1995, a change of $151,543. The change is due to the reduction of long term debt
related to the Merger and the investment of the proceeds from the IPO.
Pro Forma Nine Months ended March 31, 1996 and 1995
The following discussion addresses unaudited pro forma combined information for
the nine months ended March 31, 1996 and 1995, adjusted principally for the
reduction in interest expense, as if the Merger of AOMC with Rom Tech occurred
at the beginning of the respective periods. For purposes of pro forma
information presented, the combined business of AOMC and Rom Tech are referred
to as the "Company."
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The Company's pro forma net sales for the nine months ended March 31, 1996 were
$1,289,215 compared to $1,711,848 for the nine months ended March 31, 1995,
resulting in a decrease of $422,633. Of such decrease, $199,000 represents a
decline in AOMC's sale of boxed CD-ROM products primarily to retail stores, a
decline of $180,000 in OEM and license revenue; while the sales of the Rom Tech
business declined $43,633. Rom Tech sales declined primarily because Rom Tech's
management undertook the responsibility for the preparation and review of the
Company's financial and administrative documents related to the completion of
its initial public offering ("IPO") in October, 1995. The effort related to
completing the IPO diminished the amount of time normally devoted to marketing
and sales activities, resulting in a decrease in sales during the period. The
AOMC sales decline is discussed above under historical data.
The Company's pro forma net loss for the nine months ended March 31, 1996 of
$1,018,479 includes the final amortization of prior debt placement fees of
$268,000 from Rom Tech, compared to a pro forma net loss of $50,674 for the nine
months ended March 31, 1995. The increase in the pro forma net loss, adjusted
for interest and amortization of debt placement fees, resulted from a decline in
sales and change in the types of products sold, and increased combined operating
expenses of the Company as described above under the historical data.
Liquidity and Capital Resources
The financial information presented reflects the Company's financial position at
March 31, 1996.
On October 18, 1995, the Company significantly improved its financial condition
as a result of the Merger and the consummation of an initial public offering.
The Merger resulted in the exchange of $1,936,452 of AOMC debt for 1,000,000
shares of convertible preferred stock, a $300,000, 8.75% note payable, a $50,000
cash payment and forgiveness of $586,451 of debt. The initial public offering
resulted in net proceeds of $3,623,796 of which $300,000 was used to repay
bridge financing, $92,000 was used for capital expenditures, $592,190 was used
to fund operations, $500,000 was provided to Virtual Reality as described below
and the remainder is currently invested in cash equivalents and short term
investments.
The Company has provided Virtual Reality $500,000 of financing, ($250,000 during
the quarter ended March 31, 1996 and $250,000 on April 5, 1996), and anticipates
providing an additional $500,000 in financing during the remainder of calendar
1996. Virtual Reality will use the funds to market and expand its product line.
Management of the Company believes that based upon its current business
strategy, the remaining proceeds of the initial public offering will be
sufficient to fund operations, capital expenditures and the acquisitions of
proprietary products and software development companies for at least the twelve
month period from the quarterly period ended March 31, 1996. Currently, the
Company has no significant capital expenditure commitments.
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.
ROM TECH, INC.
(Registrant)
Date: May 15, 1996 /s/ Joseph A. Falsetti
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Joseph A. Falsetti
Chief Executive Officer
/s/ Gerald W. Klein
-----------------------
Gerald W. Klein
Vice President and
Chief Financial Officer
Rom Tech, Inc.
Exhibit Index
Exhibit No. Description of Exhibit Page Number
----------- ---------------------- -----------
* 2.1 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 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.
3.1 Amended and Restated By-Laws of the Registrant.
* 4.1 Notice and Agreement to Exchange Convertible Debt of Claire
L. Broline dated April 4, 1996.
* 4.2 Notice and Agreement to Exchange Convertible Debt of John J.
Gardiner III dated April 4, 1996.
* 4.3 Notice and Agreement to Exchange Convertible Debt of Lambert
C. Thom dated April 4, 1996.
* 4.4 Notice and Agreement to Exchange Convertible Debt of Robert Calder
Davis, Jr. dated April 4, 1996.
* 4.5 Registration Rights Agreement dated April 4, 1996 by and
among the Registrant, the former shareholders of Virtual Reality
Laboratories, Inc. and the former holders of convertible
subordinated debt of Virtual Reality Laboratories, Inc.
10.1 Employment Agreement dated April 4, 1996 between Lance H. Woeltjen
and the Registrant.
10.2 Employment Agreement dated April 4, 1996 between Susan H. Woeltjen
and the Registrant.
10.3 Non-Competition and Confidentiality Agreement dated April 4, 1996
between Susan H. Woeltjen and the Registrant.
10.4 Non-Competition and Confidentiality Agreement dated April 4, 1996
between Lance H. Woeltjen and the Registrant.
10.5 Affiliate's Agreement dated April 4, 1996 between the Registrant,
Virtual Reality Laboratories, Inc. and Lance H. Woeltjen.
10.6 Affiliate's Agreement dated April 4, 1996 between the Registrant,
Virtual Reality Laboratories, Inc. and Susan H. Woeltjen.
10.7 Lease Agreement between Knect's Plumbing and Heating and Virtual
Reality Laboratories, Inc. dated December 4, 1995.
Rom Tech, Inc.
Exhibit Index - continued
Exhibit No. Description of Exhibit Page Number
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10.8 License Agreement between Michael Smithwick and Virtual Reality
Laboratories, Inc. dated September 2, 1989.
10.9 License Agreement between Hypercube Engineering and Virtual
Reality Laboratories, Inc. dated February 24, 1990.
10.10 License Agreement between Jean Ames, Lance Woeltjen and Virtual
Reality Laboratories, Inc. dated May 6, 1993.
10.11 Promissory Note in the amount of $350,000 from Virtual Reality
Laboratories, Inc. to Heller First Capital Corporation dated March
25, 1996.
10.12 Commercial Security Agreement dated March 25, 1996 between Virtual
Reality Laboratories, Inc. and Heller First Capital Corporation.
10.13 U.S. Small Business Administration Guaranty dated March 25, 1996.
10.14 Software Development and License Agreement dated January 6, 1995
between Virtual Reality Laboratories, Inc. and A.I. Soft, Inc.
11.1 Statement regarding computation of per share earnings.
27.1 Financial Data Schedule
* 99 Escrow Agreement dated April 4, 1996 by and among the Registrant,
Virtual Reality Laboratories, Inc. ("Virtual Reality"), Lance H.
Woeltjen, as representative of the former Virtual Reality
shareholders, the former Virtual Reality shareholders and Main Line
Federal Savings Bank, as escrow agent.
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* Incorporated by reference herein from the Registrant's Current Report on
Form 8-K as filed with the Securities and Exchange Commission on April 19,
1996.