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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, 1996
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-27102
ROMTECH, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2694937
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2000 Cabot Boulevard West, Suite 110
Langhorne, PA 19047-1833
(address of Principal executive offices)
Issuer's Telephone Number, Including Area Code: 215-750-6606
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report.)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes (X) No ( )
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ( ) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 6,285,128 shares of common
stock, no par value per share, as of November 1, 1996.
Transitional Small Business Disclosure Format (check one):
Yes ( ) No (X)
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RomTech, Inc.
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheet as of September 30, 1996................ 3
Consolidated Statements of Operations for the three months
ended September 30, 1996 and 1995................................ 4
Consolidated Statements of Cash Flows for the three ended
September 30, 1996 and 1995...................................... 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
Exhibit Index...................................................... 10
Financial Data Schedule............................................ 11
Signatures......................................................... 12
Page 2
RomTech, Inc.
Consolidated Balance Sheet
(Unaudited)
September 30,
1996
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ASSETS
Current assets:
Cash and cash equivalents $758,596
Restricted cash 14,788
Accounts receivable, net of allowance for doubtful
accounts of $88,970 577,358
Inventory 280,929
Prepaid expenses 233,026
-------
Total current assets 1,864,697
Furniture and equipment, net 157,338
Intangibles and other assets 136,083
----------
Total assets $2,158,118
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $337,054
Accounts payable 598,784
Accrued expenses 643,640
-------
Total current liabilities 1,579,478
Capital lease obligations net of current portion 35,374
Notes payable-long term portion 316,519
Convertible subordinated debt 150,000
-------
Total liabilities 2,081,371
Commitments and contingencies, Note 4
Stockholders' equity:
Convertible preferred stock 1,000,000
Common stock, no par value (40,000,000 shares
authorized: 6,285,128 issued and outstanding) 4,217,517
Additional paid in capital 747,738
Accumulated deficit (5,888,508)
-----------
Total stockholders' equity 76,747
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Total liabilities and stockholders' equity $2,158,118
==========
See accompanying notes to the consolidated financial statements.
Page 3
RomTech, Inc.
Consolidated Statements of Operations
(Unaudited)
Three months ended
September 30,
-----------------------
1996 1995
---- ----
Net revenues $ 1,071,017 $ 629,124
Cost of revenues 317,457 206,517
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Gross profit 753,560 422,607
Operating expenses:
Product development 121,992 137,021
Selling, general and administrative 851,559 391,170
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Total operating expenses 973,551 528,191
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Operating loss (219,991) (105,584)
Interest expense, net 13,513 63,009
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Loss before taxes (233,504) (168,593)
Income tax refund -- 3,152
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Net loss ($ 233,504) ($ 165,441)
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Net loss per common share ($0.04) ($0.06)
Weighted average common
shares outstanding 6,285,128 2,859,440
See accompanying notes to the consolidated financial statements.
Page 4
RomTech, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
September 30,
-----------------------
1996 1995
---- ----
Cash flows from operating activities:
Net loss ($233,504) ($165,441)
Adjustment to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 31,299 14,084
Loss on disposal of equipment 4,683 --
Interest expense incurred but not paid 4,350 45,945
Changes in items affecting operations net of effect
from acquired businesses:
Restricted cash (14,788) (10,469)
Accounts receivable (152,060) (69,056)
Prepaid expenses (191,616) 22,642
Inventory (75,708) 15,071
Accounts payable 222,617 62,255
Accrued expenses (82,650) 42,924
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Net cash used in operating activities (487,377) (42,045)
--------- ---------
Cash flows from investing activities:
Sales and maturities of short term investments 398,952 --
Purchase of furniture and equipment (27,023) (11,431)
Purchase of software rights and other assets (58,654) --
Loan to related parties 500 --
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Net cash provided by (used in) investing activities 313,775 (11,431)
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Cash flows from financing activities:
Net advances of factored receivable -- 39,925
Net advances to officers -- 3,772
Repayment of note payable (7,483) (4,967)
Repayment of lease obligations (14,982) (6,467)
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Net cash (used by) provided by financing activities (22,465) 32,263
--------- ---------
Net decrease in cash and cash equivalents (196,067) (21,213)
Cash and cash equivalents:
Beginning of period 954,663 85,173
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End of period $ 758,596 $ 63,960
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Supplemental cash flow information:
Cash paid during the quarter for interest $ 22,194 $ 6,367
========= =========
Noncash investing activities:
Capital lease additions during the quarter $ 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, 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 September 30, 1996
include the accounts of RomTech, Inc., ("RomTech"), which successfully completed
an initial public offering on October 18, 1995 with Applied Optical Media
Corporation ("AOMC"), which merged with RomTech concurrent with the completion
of RomTech's public offering, and Virtual Reality Laboratories, Inc. ("VRLI"),
its wholly owned subsidiary, which was acquired on April 5, 1996 in a
transaction accounted for using the pooling of interests method of accounting.
As further described in Note 2, the AOMC merger was accounted for as a reverse
acquisition whereby AOMC was deemed to be the acquiring entity for accounting
purposes. In addition, the fiscal 1996 financial statements have been restated
to reflect VRLI's operations on a pooled basis. Accordingly, the consolidated
statements of operations include the activities of the following entities for
the following periods:
o July 1, 1995 to September 30, 1995 - AOMC and VRLI
o July 1, 1996 to September 30, 1996 - RomTech, AOMC and VRLI
Description of Business
RomTech, Inc. (the "Company") is a Pennsylvania Corporation which was
incorporated in July 1992. The Company develops, publishes, markets and is a
reseller of a diversified line of personal computer software for consumer,
educational and business applications. The Company's sales are primarily made
through retail stores, by direct mail and sales of CD-ROM titles in jewel case
packaging at computer trade shows.
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Virtual Reality Laboratories, Inc. All
intercompany balances and transactions have been eliminated.
2. Merger/Completion of Pubic Offering
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 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.
Page 6
RomTech, Inc.
Notes to Consolidated Financial Statements
As a result of the AOMC merger, the former stockholders of AOMC had a
majority of the voting rights of the combined enterprise on a fully diluted, if
converted basis. Therefore, for accounting purposes, AOMC was considered the
acquirer (reverse acquisition). The cost of acquiring the Company was based on
the fair market value of the Company's net assets which approximated their
recorded value.
In connection with the reverse acquisition, the outstanding shares of the
Company and the shares of the Company issued to AOMC stockholders have been
reflected as a recapitalization of the previously outstanding AOMC common stock.
On October 18, 1995, the Company consummated an initial public offering of
1,550,000 shares of common stock at a price of $3.00 per share resulting in net
proceeds of $4,070,500 before deducting offering costs of $446,704.
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.
The following supplemental unaudited pro forma information summarizes the
combined results of operations of the Company as if the combination with AOMC
occurred July 1, 1995.
Three months ended
September 30, 1995
------------------
Revenues $861,147
Net loss (415,517)
Loss per share (.09)
Weighted average common shares 4,462,181
3. Subsequent Event
On September 27, 1996, the Company entered into an agreement in principle to
acquire FileABC(TM), a Nevada Limited Partnership, ("FileABC") in exchange for
$500,000 in cash and 200,000 shares of the Company's common stock and an
additional 1,000,000 shares contingent upon achieving certain revenue targets.
The terms of the agreement were amended on October 18, 1996, whereby FileABC
will be paid $325,000 in cash in addition to the interim payments of $50,000 on
July 17, 1996 and $125,000 on October 30, 1996. Additionally, a maximum of
1,200,000 shares will be paid to FileABC for each $1,000,000 of revenues
generated from the sale of FileABC's current software product and any
enhancements or derivative products on or before March 31, 2000. FileABC
develops, publishes and markets document imaging, management and archiving
software for the Windows(TM) operating systems. The acquisition is subject to
certain conditions and is expected to be consummated during the second quarter
of fiscal 1997. If completed, the acquisition of FileABC will be accounted for
using the purchase method of accounting.
Page 7
RomTech, Inc.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The accompanying consolidated financial statements as of September 30, 1996
include the accounts of RomTech, Inc., ("RomTech"), which successfully completed
an initial public offering on October 18, 1995 with Applied Optical Media
Corporation ("AOMC"), which merged with RomTech concurrent with the completion
of RomTech's public offering, and Virtual Reality Laboratories, Inc. ("VRLI"),
its wholly owned subsidiary, which was acquired on April 5, 1996 in a
transaction accounted for using the pooling of interests method of accounting.
As further described in Note 2, the AOMC merger was accounted for as a reverse
acquisition whereby AOMC was deemed to be the acquiring entity for accounting
purposes. In addition, the fiscal 1996 financial statements have been restated
to reflect VRLI's operations on a pooled basis. Accordingly, the consolidated
statements of operations include the activities of the following entities for
the following periods:
o July 1, 1995 to September 30, 1995 - AOMC and VRLI
o July 1, 1996 to September 30, 1996 - RomTech, AOMC and VRLI
Management believes that the results of operations for the three months ended
September 30, 1996 may not be indicative of anticipated future results because
of the significant changes made in the combined businesses of AOMC, RomTech 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 financial statements have
been restated to include the accounts and results of operations of Virtual
Reality.
Results of Operations
Three Months Ended September 30, 1996 and 1995
Net revenues for the three months ended September 30, 1996 were $1,071,000
compared to $629,000 for the three months ended September 30, 1995, representing
an increase of $442,000 or 70.3%. This increase resulted primarily from
increases in the distribution through the retail channel of company developed
titles and in the reselling of budget category jewel case products through the
trade show channel.
Cost of revenues, 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 revenues for the three months ended September 30,
1996 was $317,000 compared to $207,000 for the three months ended September 30,
1995, representing an increase of $110,000 or 53.1% due mainly from the increase
in revenues. The Company's gross profit margin increased to 70.4% in the three
months ended September 30, 1996 from 67.2% for the three months ended September
30, 1995.
Product development expenses consist primarily of personnel costs, supplies and
product testing. Product development expenses for the three months ended
September 30, 1996 were $122,000 compared to $137,000 for the three months ended
September 30, 1995, a decrease of $15,000 or 10.9%.
Selling, general and administrative expenses for the three months ended
September 30, 1996 were $852,000 compared to $391,000 for the three months ended
September 30, 1995 representing an increase of $461,000. The increase was
primarily from increases in marketing costs ($159,000), salary and related costs
($113,000), commissions ($85,000) related to the increase in revenues.
Net interest expense for the three months ended September 30, 1996 was $14,000
compared to $63,000 for the three months ended September 30, 1995, a decrease of
$49,000 or 77.7%. This decrease is due primarily to the reduction of long term
debt as a result of the merger between RomTech, Inc. and AOMC and the proceeds
from the IPO concurrent with this merger, and the investment of the proceeds
from the IPO.
Page 8
RomTech, Inc.
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, 1996.
As of September 30, 1996, the Company's cash and working capital balances were
$758,596 and $285,219, respectively. To date the Company continues to operate at
a loss. At September 30, 1996 the Company does not satisfy the minimum level of
stockholders' equity required to be listed ($1,000,000) for trading on the
Nasdaq SmallCap Market(TM). The Company is seeking additional capital to, among
other things, increase its stockholders' equity to at least the minimum level
required. The Company's ability to achieve positive cash flow depends upon a
variety of factors, including the timeliness and success of developing and
selling its products, the costs of developing, producing and marketing such
products and various other factors, some of which may be beyond the Company's
control. In the future, the Company's capital requirements will be affected by
each of these factors. Although, the Company believes cash and working capital
balances will be sufficient to fund the Company's operations for the foreseeable
future, the Company plans to raise additional capital and it will seek such
funding through additional public or private financings. There can be no
assurances that the Company will achieve a positive cash flow or that additional
financing will be available if and when required or, if available, will be on
terms satisfactory to the Company. Currently, the Company has no significant
capital expenditure commitments.
On September 27, 1996, the Company entered into an agreement in principle to
acquire FileABC(TM), a Nevada Limited Partnership, ("FileABC") in exchange for
$500,000 in cash and 200,000 shares of the Company's common stock and an
additional 1,000,000 shares contingent upon achieving certain revenue targets.
The terms of the agreement were amended on October 18, 1996, whereby FileABC
will be paid $325,000 in cash in addition to the interim payments of $50,000 on
July 17, 1996 and $125,000 on October 30, 1996. Additionally, a maximum of
1,200,000 shares will be paid to FileABC for each $1,000,000 of revenues
generated from the sale of FileABC's current software product and any
enhancements or derivative products on or before March 31, 2000. FileABC
develops, publishes and markets document imaging, management and archiving
software for the Windows(TM) operating systems. The acquisition is subject to
certain conditions and is expected to be consummated during the second quarter
of fiscal 1997. If completed, the acquisition of FileABC will be accounted for
using the purchase method of accounting.
Management of the Company is nearing the completion of a private placement
financing which along with funds generated from operations, management
anticipates will be sufficient to fund operations, make acquisitions of
proprietary products and software development companies, and make capital
expenditures for at least the next twelve month period. The Company currently
has no significant capital expenditure commitments.
Page 9
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 14, 1996 /s/ Joseph A. Falsetti
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Joseph A. Falsetti
Chief Executive Officer
Principal Financial Officer
Date: November 14, 1996 /s/ Gerald W. Klein
------------------ --------------------
Gerald W. Klein
Vice President and
Chief Financial Officer
Page 10
RomTech, Inc.
Exhibit Index
Exhibit No. Description of Exhibit Page Number
- ------------- ---------------------- -----------
10.1 Asset Acquisition Agreement Between RomTech, Inc. and FileABC, L.P..
27.1 Financial Data Schedule
Page 11